SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - KSB/A No. 2
[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For Fiscal Year Ended June 30, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_________________ to__________________
Commission File Number
1-8232
NBI, INC.
State of Incorporation IRS Employer I.D. Number
Delaware 84 - 0645110
1880 Industrial Circle, Suite F
Longmont, Colorado 80501
(303) 684-2700
Securities registered pursuant Name of each exchange
to section 12(b) of the Act: None on which registered: N/A
Securities registered pursuant to Section 12(g) of the Act: Common Stock
($.01 par value)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
Revenues for the year ended June 30, 1996, are $11,767,000.
The aggregate market value of voting stock held by non-affiliates of the
registrant is approximately $4,692,000 as of market close on September 10,
1996.
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. [ X ] YES [ ] NO
Common stock ($.01 Par Value) 7,997,234 shares outstanding as of September 13,
1996.
Documents incorporated by reference: Part III-The Registrant's definitive
Proxy Statement for its 1996 Annual Meeting of Shareholders, to be filed not
later than 120 days after the end of the fiscal year.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
STOCK PROFILE: At June 30, 1996, there were 7,997,234 common shares of $.01
par value common stock outstanding, of which 1,500,000 shares are
unregistered. In March 1996, the Company issued 1,500,000 unregistered shares
of its common stock from shares held in treasury through a private placement
stock offering. Holders of at least 50% of the shares issued have the right
to demand registration of the shares after December 1, 1996. Holders also
have the right to have their shares registered at any time the Company
registers shares for its own purpose until December 31, 1999.
To date, no dividends have been paid on the $.01 par value common stock and it
is anticipated that future earnings will be retained for operating purposes.
COMMON STOCK ACTIVITY: 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 under the symbol NBII. The following table sets forth
the high and low bid prices 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.
<TABLE>
<CAPTION>
<S> <C> <C>
Fiscal 1996 High Low
- ----------- ---- ----
First Quarter $ 1 1/4 $ 1/8
Second Quarter 1 1/8 5/8
Third Quarter 7/8 3/4
Fourth Quarter 13/16 11/16
Fiscal 1995 High Low
- -------------- ----- -----
First Quarter 3/16 1/16
Second Quarter 3/16 1/25
Third Quarter 1/8 1/25
Fourth Quarter 1/8 1/16
</TABLE>
The approximate number of stockholders of the Company was 2,830 as of
September 20, 1996. This includes shares held in nominee or "street"
accounts.
<PAGE>
ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS
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, 1996, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the years ended
June 30, 1996 and 1995. 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, 1996, and the results of their operations and
their cash flows for the years ended June 30, 1996 and 1995 in conformity with
generally accepted accounting principles.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Denver, Colorado
August 21, 1996, except for Note 3 which is
as of August 27, 1996
<PAGE>
NBI, INC.
CONSOLIDATED BALANCE SHEET
June 30, 1996
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $782
Accounts receivable, less allowance for doubtful accounts of $83 1,300
Inventories 2,317
Net current assets of discontinued operations 31
Other current assets 878
-------
Total current assets 5,308
Property, plant and equipment, net 4,558
Net long-term assets of discontinued operations 14
Other assets 315
-------
$10,195
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Short-term borrowings and current portion of notes payable $1,454
Obligation for short-sale transactions 493
Accounts payable 952
Accrued liabilities 945
-------
Total current liabilities 3,844
Long-term liabilities:
Income taxes payable 5,362
Notes payable 224
Deferred income taxes 251
Postemployment disability benefits 214
-------
Total liabilities 9,895
-------
Commitments and contingencies
Stockholders' equity:
Common stock - $.01 par value (20,000,000 shares
authorized; 10,001,270 shares issued) 100
Capital in excess of par value 6,181
Accumulated deficit (5,429)
Foreign currency translation adjustment 316
-------
1,168
Less treasury stock, at cost (2,004,036 shares) (868)
-------
Total stockholders' equity 300
-------
$10,195
========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
NBI, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended June 30, 1996 and 1995
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Revenues:
Sales $9,972 $ 115
Service and rental 1,795 --
------- -------
11,767 115
Costs and expenses:
Cost of sales 7,172 95
Cost of service and rental 1,273 --
Marketing, general and administrative 2,702 919
------- -------
11,147 1,014
------- -------
Income (loss) from operations 620 (899)
------- -------
Other income (expense):
Interest income 28 183
Net gain on investments 354 2,210
Other income 50 32
Interest expense (655) (741)
------- -------
(223) 1,684
------- -------
Income from continuing operations before provision
for income taxes and cumulative effect of change
in accounting method 397 785
Provision for income taxes (172) --
------- -------
Income from continuing operations before cumulative
effect of change in accounting method 225 785
Loss from discontinued operations, net of income tax
benefit of $68 in 1996 and $0 in 1995 (137) (997)
Cumulative effect of change in accounting method -- (271)
------- -------
Net income (loss) $ 88 $ (483)
======= =======
Income (loss) per common share:
Income from continuing operations before cumulative
effect of change in accounting method .03 .12
Loss from discontinued operations (.02) (.15)
Cumulative effect of change in accounting method -- (.04)
------- -------
Net income (loss) $ .01 $ (.07)
======= =======
Weighted average number of common and
common equivalent shares outstanding 6,923 6,743
======= =======
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
NBI, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Years Ended June 30, 1996 and 1995
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
Common Foreign
Number of Stock Capital in Currency
Common (Par Value Excess of Accumulated Translation Treasury
Shares $ .01) Par Value Deficit Adjustment Stock Total
--------- ------------ --------------------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance July 1, 1994 10,001,270 $ 100 $ 5,769 $(5,034) $ 304 $(1,400) $ (261)
Foreign currency translation
adjustment -- -- -- -- 7 -- 7
Treasury stock purchases -- -- -- -- -- (117) (117)
Net loss for the year
ended June 30, 1995 -- -- -- (483) -- -- (483)
------------ ------- --------- -------- ------ -------- ------
Balance June 30, 1995 10,001,270 100 5,769 (5,517) 311 (1,517) (854)
Foreign currency translation
adjustment -- -- -- -- 5 -- 5
Proceeds from private
placement, net of
offering costs -- -- 398 -- -- 649 1,047
Other -- -- 14 -- -- -- 14
Net income for the year
ended June 30, 1996 -- -- -- 88 -- -- 88
------------ ------- --------- -------- --------- --------- ------
Balance June 30, 1996 10,001,270 $ 100 $ 6,181 $ (5,429) $ 316 $ (868) $ 300
============ ======= ========= ========= ========= ========= ======
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
NBI, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in Thousands)
<TABLE>
<CAPTION>
Year Ended
June 30,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 88 $ (483)
Adjustments to reconcile net income (loss) to net cash
flow provided by operating activities:
Depreciation and amortization 480 131
Provisions for (reduction in) bad debt allowance 125 (27)
Provisions for writedown of inventories 123 23
Provision for impairment of property and equipment -- 14
Loss (gain) on sales of property and equipment (2) 6
Net unrealized loss (gain) on trading securities 309 (2,609)
Gain on sale of subsidiary -- (279)
Cumulative effect of accounting change -- 271
Other (49) 32
Changes in assets -- decrease (increase):
Accounts receivable (144) 482
Inventories (276) (37)
Trading securities 4,010 (1,715)
Marketable securities -- 5,086
Other current assets (85) 386
Changes in liabilities -- (decrease) increase:
Accounts payable and accrued liabilities (272) (391)
Income tax related accounts (897) (666)
-------- --------
Net cash flow provided by operating activites 3,410 224
-------- --------
Cash flows from investing activities:
Payments for business acquisitions, net of cash acquired (3,483) (288)
Proceeds from sales of property and equipment 2 55
Purchases of property and equipment (636) (20)
Collections from notes receivable -- 350
Issuance of notes receivable -- (350)
Payments for land option (108) --
Proceeds from sale of subsidiary -- 89
-------- --------
Net cash flow used in investing activities (4,225) (164)
-------- --------
<FN>
(continued on following page)
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
NBI, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in Thousands)
<TABLE>
<CAPTION>
Year Ended
June 30,
1996 1995
---- ----
<S> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of stock, net of
offering costs 1,047 --
Purchases of treasury stock -- (117)
Payments on notes payable (462) (126)
Net payments on line of credit and short-term
margin borrowings (871) (600)
--------- -------
Net cash flow used in financing activities (286) (843)
--------- -------
Effects of exchange rates on cash 5 6
-------- -------
Net decrease in cash and cash equivalents (1,096) (777)
Less cash and cash equivalents reclassified to net
current assets of discontinued operations at
June 30, 1996 (53) --
Cash and cash equivalents at beginning of year 1,931 2,708
-------- --------
Cash and cash equivalents at end of year $ 782 $ 1,931
======== ========
Supplemental disclosures of cash flow information:
Interest paid $ 676 $ 749
======== ========
Income taxes paid $ 973 $ 666
======== ========
Noncash purchases of property, plant and equipment
included in accounts payable at end of year $ 127 $ --
======== ========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
NBI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and 1995
1. Summary of Significant Accounting Policies
----------------------------------------------
BUSINESS DESCRIPTION: With the business acquisitions completed during the
first quarter of fiscal 1996 (see Note 2), the Company now 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 and novelty toy manufacturing company in Las
Vegas, Nevada. 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 and novelty toy 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, 1996, 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: The Financial Accounting Standards Board
has recently issued the Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets" and SFAS No.
123, "Accounting for Stock Based Compensation." SFAS No. 121 requires that
long-lived assets and certain identifiable intangibles be reported at the
lower of the carrying amount or their estimated recoverable amount. The
adoption of this statement by the Company is not expected to have an impact on
the financial statements. SFAS No. 123 encourages the accounting for
stock-based employee compensation programs to be reported within the financial
statements on a fair value based method. If the fair value based method is
not adopted, then the statement requires pro-forma disclosure of net income
and earnings per share as if the fair value based method had been adopted.
The Company has not yet determined how SFAS No. 123 will be adopted; however,
it does not expect any impact on the financial statements. Both statements
are effective for fiscal years beginning after December 15, 1995.
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.
<PAGE>
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.
INVENTORIES: Inventories are stated at the lower of cost (at standard which
approximates first-in, first-out method) or market and are comprised of the
following at June 30, 1996:
<TABLE>
<S> <C>
Raw Materials $ 712,000
Work in Process 303,000
Finished Goods 1,291,000
Food and Beverage Inventory 11,000
----------
$ 2,317,000
==========
</TABLE>
PROPERTY, PLANT AND EQUIPMENT: Capital assets are recorded at cost and are
depreciated on a straight-line basis over the following lives:
<TABLE>
<CAPTION>
<S> <C>
Asset Type Life
- --------- ----
Land N/A
Buildings 20-25 years
Machinery and equipment 3-10 years
Office and hotel furniture, fixtures 5-7 years
Construction-in-progress N/A
</TABLE>
TRANSLATION OF FOREIGN CURRENCIES: Accounts of foreign subsidiaries are
maintained in the currencies of the countries in which they operate and are
translated to U.S. dollars in conformity with generally accepted accounting
principles. Adjustments resulting from the translation of foreign currency
financial statements are deferred and classified as a separate component of
stockholders' equity.
The translation adjustment at June 30, 1996 is related to the Company's
foreign subsidiary, NBI Ltd. which is currently in liquidation (see Note 3).
When this liquidation is completed, the translation adjustment will be
recorded as a realized gain and included in the overall net gain (loss) from
sale or disposal of the discontinued operations.
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 it is
provided.
NET INCOME (LOSS) PER SHARE: Net income (loss) per share is computed by
dividing net income (loss) by the weighted average number of common shares
and, if dilutive, common equivalent shares outstanding during the period.
Common equivalent shares recognize the potential dilutive effects of the
future exercise of stock options, warrants, convertible debt and convertible
preferred shares. For the years ended June 30, 1996 and 1995, the Company had
no preferred stock or convertible debt. In 1996 and 1995, the common
equivalent shares were not included in the computation because their effect is
not dilutive.
<PAGE>
RECLASSIFICATIONS AND ADJUSTMENTS: Certain items in the 1995 financial
statements have been reclassified to conform to the 1996 manner of
presentation. The Company recorded a $99,000 reduction to cost of sales in
the fourth quarter of fiscal 1996 to correct a first quarter overstatement.
Note 2 - Business Acquisitions
- ------------------------------------
On August 4, 1995, NBI, Inc. acquired 100% of the outstanding capital stock of
the Belle Vernon Motel Corporation for $2,430,000 in cash pursuant to a stock
purchase agreement. The Belle Vernon Motel Corporation owns and operates an
81 room Holiday Inn in Southwestern Pennsylvania. The primary assets held by
the acquired corporation consist of cash, accounts receivable, property and
equipment. The Company received approval as an authorized Holiday Inn
franchisee prior to the purchase transaction. The property and equipment
acquired continues to be operated as a Holiday Inn Hotel. During fiscal 1996,
the Company changed the name of the Belle Vernon Motel Corporation to NBI
Properties, Inc.
On August 14, 1995, with an effective date of close of business on July 31,
1995, American Glass, Inc., a newly formed, wholly-owned subsidiary of NBI,
Inc., completed its purchase of a majority of the assets of L.E. Smith Glass
Company of Mount Pleasant, Pennsylvania, pursuant to an asset purchase and
sale agreement. L.E. Smith Glass Company is a manufacturer of handmade fine
glass giftware and lighting fixtures and has been in business since 1907. The
assets purchased consist primarily of accounts receivable, inventories, and
property, plant and equipment. The property, plant and equipment acquired
continues to be used in the manufacture of handmade fine glass giftware and
lighting fixtures. The final adjusted purchase price of $5,770,000 was paid
through the assumption of $3,449,000 of certain liabilities at July 31, 1995,
cash, and cash proceeds from the liquidation of other current assets held by
the Company.
Both acquisitions have been accounted for under the purchase method of
accounting. The results of operations of these acquired businesses have been
included in the accompanying Statements of Operations since the effective
dates of acquisition. The total purchase price, including acquisition costs,
for the Belle Vernon Motel Corporation and the L.E. Smith Glass Company was
$2,496,000 and $5,913,000, respectively. The fair market value of the net
assets acquired of the Belle Vernon Motel Corporation exceeded the purchase
price by $844,000. Accordingly, the noncurrent assets consisting of property
and equipment have been reduced by this amount under the purchase method of
accounting. Similarly, the fair market value of the net assets acquired of
the L.E. Smith Glass Company exceeded the purchase price by $916,000;
therefore, the noncurrent assets consisting of property, plant and equipment
were reduced by this amount.
Unaudited proforma consolidated results of operations of the Company are shown
in the following table as if these businesses were acquired as of the first
day of the periods presented, July 1, 1995 and 1994. This unaudited proforma
information is based on the Company's accompanying Statements of Operations
and the historical financial information of the acquired companies, and
includes adjustments to income taxes and depreciation, giving effect of the
terms of the transaction as if the acquisitions had occurred on the first day
presented.
<PAGE>
Unaudited proforma consolidated results of operations:
<TABLE>
<CAPTION>
Year Ended
June 30,
1996 1995
---- ----
(Amounts in thousands,
except per share data)
<S> <C> <C>
Revenue $ 12,591 $ 10,090
========= ========
Income from continuing operations before cumulative
effect of accounting change $ 257 $ 1,506
======== ========
Net income $ 120 $ 238
======== ========
Income per common share from continuing operations
before cumulative effect of accounting change $ .04 $ .22
======== ========
Net income per common share $ .02 $ .04
======== ========
</TABLE>
3. Discontinued Operations
------------------------
During April 1995, NBI, Ltd. completed a sale of certain assets of the
company including its customer base. NBI, Ltd. is currently in voluntary
liquidation which the Company expects to be completed within the next year.
As of June 30, 1995, NBI, Inc. discontinued all software development
activities. For the year ended June 30, 1995, the Company's expenditures for
product development and engineering were included in the loss from
discontinued operations. The Company had no expenditures for product
development and engineering for the year ended June 30, 1996.
On August 27, 1996, the Company decided to dispose of its AlphaNet division.
The Company is currently in negotiation with a third party regarding the sale
of certain assets and the assumption of certain liabilities of this operation.
With the decision to dispose of its AlphaNet division, the Company has
discontinued all of its operations in the computer industry segment.
Therefore, it has separately reported the losses from this segment as
discontinued operations for the years ended June 30, 1996 and 1995. The
Company has estimated the net realizable value of the sale or disposal of the
discontinued operations, including estimated costs and expenses directly
associated with the disposal and estimated losses from operations through the
expected disposal date, and expects a moderate overall gain from the
discontinued operations. The gain will be recognized when it is realized.
At June 30, 1996, the net current and long-term assets from discontinued
operations consist primarily of cash and accounts receivable net of accounts
payable and accrued liabilities.
Revenues from the discontinued operations totaled $776,000 and $2,735,000 for
the years ended June 30, 1996 and 1995, respectively.
4. Cash and Cash Equivalents
----------------------------
Cash and cash equivalents include investments that are readily convertible to
known amounts of cash and have original maturities of three months or less.
The Company places its cash and temporary cash investments with financial
institutions. At times, such investments may be in excess of federally
insured limits.
<PAGE>
5. Investments in Securities and Obligations from Short-Sale Transactions
----------------------------------------------------------------------
During the year ended June 30, 1996, 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 $663,000 and a net unrealized loss of $309,000 on investments for the
year ended June 30, 1996. For the year ended June 30, 1995, a net realized
loss of $399,000 and a net unrealized gain of $2,609,000 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, 1996, the Company had two short investment positions totaling
$493,000 which were included in obligations from short-sale transactions.
Both short positions were closed subsequent to year-end, resulting in an
immaterial net loss.
6. Other Current Assets
----------------------
Other current assets, totaling $878,000 at June 30, 1996, included a
receivable of $498,000 for proceeds from short sale transactions (see Note 5).
The proceeds were subsequently received on July 3, 1996. Also included in
other current assets at June 30, 1996, was restricted cash of $70,000,
representing amounts held in trust for payments under self insurance plans.
7. Property, Plant and Equipment
--------------------------------
<TABLE>
<CAPTION>
June 30,
1996
------
(Amounts in thousands)
<S> <C>
Land $ 113
Buildings 1,929
Machinery and equipment 2,730
Office and hotel furniture and fixtures 479
Construction in-progress 303
-----------
5,554
Accumulated depreciation (996)
-----------
$4,558
===========
</TABLE>
Total depreciation expense from continuing operations was $435,000 and $42,000
for the years ended June 30, 1996 and 1995, respectively.
8. Other Assets
-------------
Included in other assets of $315,000 at June 30, 1996, is $248,000 of goodwill
and other intangibles related to the acquisition of 80% of the outstanding
stock of a children's paint and novelty toy manufacturing company during
fiscal 1995. The goodwill and other intangibles are net of accumulated
amortization totaling $44,000 at June 30, 1996, and are being amortized on a
straight-line basis over ten years. The carrying value of goodwill is
periodically reviewed by the Company, and impairments, if any, are recognized
when expected future discounted cash flows derived from goodwill is less than
its carrying value. Related amortization expense was $29,000 and $15,000 for
the years ended June 30, 1996 and 1995, respectively.
<PAGE>
9. Income Taxes
-------------
IRS Debt:
- ----------
On October 13, 1995, the Company entered into an agreement in principle with
the IRS, effective October 1, 1995. This agreement revises the payment terms
provided in its settlement agreement with the IRS dated June 12, 1991 as to
NBI's federal income tax liabilities for the fiscal years ended June 30, 1980
through 1988. The new agreement provided for a principal payment of $250,000,
plus accrued interest for the period July 1, 1995 through September 30, 1995,
at the original stated rate, and accrued interest for the period October 1,
1995 through December 31, 1995, at the rate of 7.5% per annum, which was paid
upon execution of the definitive agreement on March 19, 1996. Subsequently,
quarterly interest payments are due beginning April 1, 1996 through October 1,
1997. Interest was paid and accrued on the outstanding principal balance at
the rate of 7.5% for the period October 1, 1995 through March 31, 1996. The
interest rate for April 1, 1996 through October 1, 1997 is being negotiated,
under the terms of the agreement, based upon NBI's ability to pay the
statutory rate, but in no event will the interest rate for this period exceed
the lesser of the statutory rate or 10%. The Company is paying interest on
the scheduled payment dates based upon the rate of 7.5% for this period until
the negotiations are finalized. The remaining principal balance is due in
full on October 1, 1997.
In conjunction with the new agreement, the Company granted the IRS a security
interest in all of the capital stock of American Glass, Inc., as well as all
of the capital stock of NBI Properties, Inc. The security interest will
automatically terminate upon full payment by NBI of all principal and interest
owed to the IRS under the agreement. The agreement also provides for
accelerated principal payments to be made within forty-five days after the end
of any fiscal quarter in which NBI, Inc.'s unconsolidated cash and cash
equivalents, excluding restricted cash, exceed $1.3 million. The Company is
required to pay to the IRS fifty percent of the amount by which such cash and
cash equivalents exceed $1.3 million. Any such payment shall be applied to
and shall reduce the outstanding principal balance.
There is no accelerated principal amount payable in accordance with the
revised agreement based upon the Company's cash and cash equivalents at June
30, 1996. Furthermore, any other accelerated principal payments due under the
new agreement within the next twelve months, based upon subsequent quarter-end
cash and cash equivalent positions, are not determinable at June 30, 1996.
Therefore, none of the principal balance due is classified as current.
Income Tax Provision and Deferred 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.
<PAGE>
For the years ended June 30, 1996 and 1995, the provision for income taxes is
included in the consolidated statements of operations as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
(Amounts in thousands)
<S> <C> <C>
Continuing operations $ 172 $ --
Discontinued operations (benefit) (68) --
------- --------
$ 104 $ --
======== ========
</TABLE>
The provision for income taxes from continuing operations for the years ended
June 30, 1996 and 1995 consisted of:
<TABLE>
<CAPTION>
Federal: 1996 1995
---- ----
(Amounts in thousands)
<S> <C> <C>
Current $ -- $ --
Deferred 82 --
------ -------
82 --
------ -------
State and other:
Current 90 --
Deferred -- --
------ -------
90 --
------ ------
Total $ 172 $ --
======= ========
</TABLE>
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 reconciliation of income taxes from continuing operations at the U.S.
federal statutory tax rate to the effective tax rate is as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
(Amounts in thousands)
<S> <C> <C>
Federal tax expense computed at 34% on income from
continuing operations before provision for income
taxes and cumulative effect of change in
accounting method $ 135 $ 265
State taxes, net of federal benefit 86 --
Change in the balance of the valuation
allowance for deferred tax assets and other (49) (265)
------ ------
Total tax provision for income taxes $ 172 $ --
======= =======
</TABLE>
<PAGE>
Significant components of the Company's deferred tax liabilities and assets as
of June 30, 1996 are as follows:
<TABLE>
<CAPTION>
1996
----
(Amounts in thousands)
<S> <C>
Deferred tax assets:
Current
Other - net $ 499
Noncurrent
Net operating loss carryforwards 20,668
Interest portion of IRS Settlement amount 930
Capital loss carryforwards 529
Tax basis in subsidiaries 599
Other - net 340
--------
Total deferred tax assets 23,565
Valuation allowance for deferred tax assets (23,260)
---------
Net deferred tax assets 305
---------
Deferred tax liabilities:
Noncurrent
Other - net 90
Basis difference in fixed assets acquired
with Belle Vernon Motel acquisition 466
---------
Total deferred tax liabilities: 556
---------
Net deferred tax asset (liability) $ (251)
=========
</TABLE>
The net change in the valuation allowance for the years ended June 30, 1996
and 1995 was an increase of $309,000 and $1,666,000, respectively.
The valuation allowance of $23,260,000 at June 30, 1996 was established
because, in the Company's assessment, it is more likely than not that the net
deferred tax assets will not be realized.
The tax loss carryforward at June 30, 1996 is approximately $61,000,000, of
which $18,000,000, $14,000,000, $14,000,000, $7,000,000, $4,000,000 $3,000,000
and $1,000,000 expire in fiscal years 2004, 2005, 2006, 2008, 2009, 2010 and
2011 respectively.
10. Accrued Liabilities
--------------------
<TABLE>
<CAPTION>
1996
--------
(Amounts in thousands)
<S> <C>
Accrued interest $ 196
Payroll and related benefits and taxes 378
Acquired liabilities under previously self-insured
health and other benefit plans 210
Other 161
-------
$ 945
========
</TABLE>
<PAGE>
11. Notes Payable and Short-term Borrowings
-------------------------------------------
The following summarizes the Company's notes payable and short-term borrowings
outstanding at June 30, 1996:
<TABLE>
<CAPTION>
June 30,
1996
----
(Amounts in thousands)
<S> <C>
Revolving bank credit note of $2,000,000, due October 31, 1996,
interest at bank's prime rate (8.25% at June 30, 1996) plus
1 1/4% 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 $ 1,247
8.75% bank note payable; payable in monthly installments of
$8,333 through July 1999; cross collateralized with the
revolving credit note above 292
Other 139
------
Total notes payable and short-term borrowings 1,678
Current portion (1,454)
-------
Long-term portion of notes payable $ 224
=======
</TABLE>
The principal maturities of notes payable and short-term borrowings for each
of the fiscal years following June 30, 1996 are: 1997 - $1,454,000; 1998 -
$128,000; and 1999 - $96,000.
12. Postemployment Benefits
------------------------
During fiscal 1995, the Company adopted the provisions of Statements of
Financial Accounting Standards No. 112, "Employers' Accounting For
Postemployment Benefits" ("FAS 112"). The cumulative effect as of July 1,
1994 of adopting this standard reduced net income by $271,000.
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 cost to be incurred, as determined by the
insurance company administering the claims. However, because the Company is
self-insured for health care costs for its corporate, Krazy Colors, Inc. and
AlphaNet employees, it is liable for any actual cost incurred in excess of the
expected costs. As of June 30, 1996, 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 discounted at 10%, as of July 1, 1994, of $271,000, and recorded this
as a cumulative effect of change in accounting method. 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, 1996, is $234,000, of which $214,000 is classified as long-term.
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 the lease
for an additional twenty-five 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 for the
period August 4, 1995, the hotel acquisition date, through June 30, 1996, was
$39,000.
The Company also leases various office facilities and equipment. The office
facilities and equipment leases from continuing operations have expiration
dates that extend through September 2000. Total rental expense for continuing
operations was $100,000 and $92,000 for the years ended June 30, 1996 and
1995, respectively.
The future minimum rental commitments for continuing operations for the next
five fiscal years, under non-cancellable leases, are: 1997 - $103,000; 1998 -
$41,000; 1999 - $27,000; 2000 - $23,000; and 2001 - $10,000.
The Company also has non-cancellable facility and equipment leases related to
its discontinued operations. However, it has no liability related to the
leases of its subsidiary, NBI, Ltd., that is in the process of voluntary
liquidation (see Note 3).
Other Commitments and Contingencies:
- ---------------------------------------
In conjunction with NBI's acquisition of a small children's paint and novelty
toy manufacturer in February 1995 (see Note 17), the stock purchase agreement
provided for royalty payments 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, 1996 and
1995.
In connection with its franchise agreement, the Company's hotel operation has
committed to completion of approximately $1,000,000 in renovations to the
hotel during fiscal 1997. As of June 30, 1996, $129,000 of these improvements
had been started and are included in construction in progress. The Company's
hotel franchise agreement generally requires compliance with certain terms and
conditions which are subject to review by Holiday Inn. Under this agreement,
the Company has been notified of its noncompliance with the agreed upon
timetable related to the planned renovations. The outcome of such
noncompliance presently cannot be determined and no provision for any
liability that may result has been made in the financial statements.
14. Stockholders' Equity
---------------------
The Company has authorized 20,000,000 shares of $.01 par value common stock.
At June 30, 1996, 10,001,270 shares were issued including 2,004,036 held in
treasury. Therefore, the Company had 7,997,234 shares issued and outstanding
at June 30, 1996, including 1,500,000 shares which are unregistered.
In March 1996, the Company issued 1,500,000 unregistered shares of its common
stock from shares held in treasury through a private placement stock offering.
The offering resulted in net proceeds of $1,047,000 which was used by the
Company first to pay obligations due to the IRS and then for operating capital
of the Company. Holders of at least 50% of the shares issued have the right
to demand registration of the shares after December 1, 1996. Holders also
have the right to have their shares registered at any time the Company
registers shares for its own purpose until December 31, 1999.
<PAGE>
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 17.) These warrants are exercisable through December 31, 2002. As
of June 30, 1996, no warrants had been exercised.
15. Stock Options
--------------
The Employee Stock Option Plan was established pursuant to the Company's Plan
of Reorganization. At June 30, 1996, 900,000 shares were reserved under the
Employee Stock Option Plan. The employee options are exercisable for a period
of five years from the date of the grant. 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 are outstanding at June 30, 1996,
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. These options are exercisable for
a period of five years from the date of grant.
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 vest over four years at 25% per
year with vesting continuing as long as the optionee is employed as Chief
Executive Officer.
At June 30, 1996, 550,000 shares were reserved for options issued outside of
the Stock Option Plan.
<PAGE>
The following table summarizes, by number of shares, option transactions under
all plans:
<TABLE>
<CAPTION>
Employee Other Option Price
Plan Options Total Per Share Aggregate
-------- -------- ------- --------- ---------
(Amounts in
thousands)
<C> <C> <C> <C> <C>
Outstanding July 1, 1994 431,000 550,000 981,000 $.25 - .77 $ 509
Granted 125,000 -- 125,000 .38 48
Exercised -- -- -- --
Forfeited (311,000) -- (311,000) .38 (118)
--------- ------- ---------- -----------
Outstanding June 30, 1995 245,000 550,000 795,000 .25 - .77 439
Granted 360,000 -- 360,000 .88 316
Exercised -- -- -- --
Forfeited (3,500) -- (3,500) .38 (1)
------- ------- ---------- -----------
Outstanding June 30, 1996 601,500 550,000 1,151,500 $.25 - .88 $ 754
========= ======= ========== ===========
Options exercisable
at June 30, 1996 216,375 350,000 566,375
========= ======= ==========
<PAGE>
16. Segment Information
--------------------
With the business acquisitions completed during the first quarter of fiscal
1996, the Company now 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.
<PAGE>
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, a specialty retailer whose market is
the "home-party" business. Sales to this customer totaled approximately 26%
of NBI's consolidated revenues in fiscal 1996. In addition, this customer
constituted approximately 18% of the Company's consolidated accounts
receivable at June 30, 1996, while one other customer, a national retailer,
comprised another 16% of the accounts receivable balance.
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.
The Company had no significant customers or suppliers in fiscal 1995.
As of June 30, 1996, approximately 60% of the Company's employees were covered
by collective bargaining agreements expiring in fiscal 1999.
</TABLE>
<TABLE>
<CAPTION>
Year Year
ended ended
June 30, 1996 June 30, 1995
--------------- ---------------
(Amounts in thousands)
<S> <C> <C>
Revenue from continuing operations:
Glass manufacturing $ 9,500 $ --
=========== ===========
Hotel operations $ 1,795 $ --
=========== ===========
Other operations $ 472 $ 115
============ ===========
Operating income (loss):
Glass manufacturing $ 1,285 $ --
=========== ============
Hotel operations $ 159 $ --
=========== ============
Other operations $ (135) $ (69)
=========== ============
Identifiable assets:
Glass manufacturing $ 6,240 $ --
============= ============
Hotel operations $ 2,062 $ --
============= ============
Other operations $ 592 $ 541
============= ===========
Additions to property, plant and equipment:
Glass manufacturing $ 422 $ --
============= ===========
Hotel operations $ 307 $ --
============ ============
Other operations $ 28 $ --
============ ============
Depreciation and amortization:
Glass manufacturing $ 343 $ --
============= ============
Hotel operations $ 80 $ --
============= ============
Other operations $ 36 $ 16
============= ============
</TABLE>
<PAGE>
17. Related Party Transactions
----------------------------
In February 1995, the Company entered into an agreement to acquire 80% of the
outstanding stock of a small children's paint and novelty toy manufacturing
company, effective as of January 1, 1995. Prior to this agreement the
Company's Chief Executive Officer (CEO) owned 55% of the outstanding stock of
the manufacturer. 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 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 the fiscal years ended June 30, 1996 and 1995. 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.
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, 1996. 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 is 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.
During fiscal 1996 and 1995, 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 1996 and 1995, totaled
$89,000 and $37,000 respectively, on purchase and sale transactions totaling
$26,988,000 and $6,249,000 before fees, respectively.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
July 22, 1997 By: /s/ MARJORIE A. COGAN
- --------------- ----------------------------
As a duly authorized officer
Corporate Controller, Secretary
(Principal Financial and Accounting Officer)
