PAGE
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A No. 1
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 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
Name of Registrant
NBI, INC.
State of Incorporation IRS Employer I. D. Number
Delaware 84-0645110
Address
1880 Industrial Circle, Suite F
Longmont, Colorado 80501
(303) 684-2700
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] YES [ ] NO
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution
of securities under a plan of reorganization confirmed by a court.
[X] YES [ ] NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at January 31, 1996
- ----- -----------------------------------
Common Stock, par value $.01 per share 8,000,984
<PAGE>
PAGE
NBI, INC.
INDEX TO FORM 10-QSB/A No. 1
For Quarter Ended December 31, 1996
<TABLE>
<CAPTION>
PAGE
----
PART I - FINANCIAL INFORMATION
<S> <C>
Item 1:
Consolidated Financial Statements (Unaudited) 3 - 6
Supplementary Notes to Consolidated Financial
Statements (Unaudited) 7 - 11
Item 2:
Management's Discussion and Analysis of Financial Condition
and Results of Operations 12 - 14
</TABLE>
<PAGE>
PAGE
NBI, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands Except Share Data)
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
---------- ----------
(Unaudited)
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 820 $ 782
Trading securities 26 --
Accounts receivable, net 1,608 1,300
Inventories 2,386 2,317
Net current assets of discontinued
operations -- 31
Other current assets 817 878
-------- --------
Total current assets 5,657 5,308
Property, plant and equipment, net 5,304 4,558
Net long-term assets of discontinued
operations 14 14
Other assets 364 315
-------- --------
$ 11,339 $ 10,195
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
-----------------------------------------------------------------
Current liabilities:
Short-term borrowings and current portion
of notes payable $ 1,784 $ 1,454
Current portion of IRS debt and
other income taxes payable 5,307 --
Net obligation for short-sale
transactions -- 493
Accounts payable 942 952
Accrued liabilities 924 945
Net current liabilities of discontinued
operations 16 --
-------- --------
Total current liabilities 8,973 3,844
Long-term liabilities:
IRS debt and other income taxes payable -- 5,362
Notes payable 975 224
Deferred income taxes 251 251
Postemployment disability benefits 203 214
-------- --------
Total liabilities 10,402 9,895
-------- --------
Commitments and contingencies
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 6,205 6,181
Accumulated deficit (4,818) (5,429)
Foreign currency translation adjustment 316 316
-------- --------
1,803 1,168
Less treasury stock, at cost (2,000,286
and 2,004,036 shares at December 31
and June 30, respectively) (866) (868)
-------- --------
Total stockholders' equity 937 300
-------- --------
$ 11,339 $ 10,195
======== ========
<FN>
See accompanying notes.
</TABLE>
<PAGE>
NBI, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Sales $ 3,205 $ 2,655 $ 6,353 $ 5,079
Service and rental 397 507 991 857
------- ------- ------- -------
3,602 3,162 7,344 5,936
Costs and expenses:
Cost of sales 2,205 1,912 4,297 3,612
Cost of service and rental 342 368 717 600
Marketing, general and
administrative 917 665 1,656 1,202
------- ------- ------- -------
3,464 2,945 6,670 5,414
------- ------- ------- -------
Income from operations 138 217 674 522
Other income (expense):
Net gain on investments 278 38 171 681
Other income and expenses, net 250 35 201 57
Interest expense (171) (157) (334) (344)
------- ------- ------- -------
357 (84) 38 394
------- ------- ------- -------
Income from continuing
operations before income tax
benefit (provision) 495 133 712 916
Income tax benefit (provision) 9 (48) (101) (373)
------- ------- ------- ------
Income from continuing
operations 504 85 611 543
Loss from discontinued operations,
net of incometax benefit -- (23) -- (86)
------- ------- ------- -------
Net income $ 504 $ 62 $ 611 $ 457
======= ======= ======= =======
Income per common share:
Income from continuing
operations $ .06 $ .01 $ .08 $ .08
Loss from discontinued
operations -- -- -- (.01)
------- ------- ------- -----
Net income $ .06 $ .01 $ .08 $ .07
======= ======= ======= =======
Weighted average number of common
and common equivalent
shares outstanding 8,001 6,497 7,999 6,497
======= ======= ======= =======
<FN>
See accompanying notes.
</TABLE>
<PAGE>
NBI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 611 $ 457
Adjustments to reconcile net income to net cash
flow provided by (used in) operating activities:
Utilization of net operating loss carryforwards 25 242
Depreciation and amortization 273 220
Provision for bad debts and returns 54 18
Provision for writedown of inventory 85 25
Gain on sales of property and equipment (2) (2)
Net unrealized gain on trading securities (110) (79)
Other (61) (5)
Changes in assets -- decrease (increase):
Accounts receivable (201) 102
Inventory (138) 94
Trading securities 84 3,060
Net assets of discontinued operations (52) --
Other current assets 58 (44)
Changes in liabilities -- (decrease) increase:
Obligations for short-sale transactions (493) --
Accounts payable and accrued liabilities (146) (468)
Income tax related accounts (55) (563)
-------- --------
Net cash flow provided (used in) by
operating activities (68) 3,057
Cash flows from investing activities:
Payments for business acquisitions, net of cash
acquired -- (3,514)
Proceeds from sales of property and equipment 11 2
Purchases of property and equipment (1,008) (206)
-------- ------
Net cash flow by used in investing activities (997) (3,718)
Cash flows from financing activities:
Proceeds from borrowing 838 --
Proceeds from stock option exercises 1 --
Payments on notes payable (141) (240)
Net short-term borrowings (payments) 385 (484)
------- -------
Net cash flow provided by (used in) financing
activities 1,083 (724)
Effects of exchange rates on cash -- --
------- ------
Net increase (decrease) in cash and cash equivalents 18 (1,385)
Less decrease in cash and cash equivalents included in
net current assets of discontinued operations 20 --
Cash and cash equivalents at beginning of period 782 1,931
------ ------
Cash and cash equivalents at end of period $ 820 $ 546
========= ========
<FN>
See accompanying notes.
</TABLE>
<PAGE>
NBI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
1996 1995
---- ----
<S> <C> <C>
Supplemental disclosures of cash flow information:
Interest paid $ 288 $ 244
====== ======
Income taxes paid $ 92 $ 651
===== =====
<FN>
See accompanying notes.
</TABLE>
<PAGE>
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Preparation
----------------------------------
The accompanying financial statements have been prepared in accordance with
the requirements of Form 10-QSB and include all adjustments which in the
opinion of management are necessary in order to make the financial statements
not misleading. Certain items in the fiscal 1996 financial statements have
been reclassified to conform to the fiscal 1997 manner of presentation. 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 - 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.
Note 3 - Discontinued Operations
- ------------------------------------
As of August 27, 1996, 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 three and six
months ended December 31, 1995. At June 30, 1996, the Company 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. This gain
will be recognized when it is realized.
There were no revenues and $395,000 of revenues from discontinued operations
for the three and six months ended December 31, 1996, respectively. Revenues
from the discontinued operations totaled $249,000 and $324,000 for the three
and six months ended December 31, 1995, respectively.
<PAGE>
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 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.
Note 5 - Investments in Securities and Obligations from Short-Sale
- ---------------------------------------------------------------------------
Transactions
- ------------
During the three and six months ended December 31, 1996 and 1995, all of the
Company's securities were classified as trading securities; no securities were
classified as held-to-maturity or available-for-sale. For the quarter ended
December 31, 1996, the Company recorded net realized and unrealized gains of
$132,000 and $146,000 respectively, compared to a net realized loss of
$225,000 and a net unrealized gain of $263,000 in the same quarter of the
prior fiscal year. The Company recorded net realized and unrealized gains of
$61,000 and $110,000 respectively, for the six months ended December 31, 1996,
compared to a net realized and unrealized gains of $602,000 and $79,000 in the
same period of the prior fiscal year. The substantial realized gain on
investments included in the six months ended December 31, 1995 occurred
primarily because the Company sold a significant portion of its securities to
fund its two business acquisitions.
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.
Note 6 - Inventories
- -----------------------
Inventories are comprised of the following:
<TABLE>
<CAPTION>
December 31,
1996
----
(Amounts in thousands)
<S> <C>
Raw materials $ 693
Work in process 291
Finished goods 1,389
Food and beverage inventory 13
------
$ 2,386
======
</TABLE>
<PAGE>
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 7 - Property and Equipment
- ------------------------------------
Capital assets are depreciated on a straight-line basis over their useful
lives shown below:
<TABLE>
<CAPTION>
Asset December 31,
Lives 1996
----- ----
(Amounts in thousands)
<S> <C> <C>
Land N/A $ 113
Buildings 20-25 yrs 1,929
Machinery and equipment 3-10 yrs 2,940
Office and hotel furniture, fixtures 5-7 yrs 457
Construction-in-progress N/A 1,073
-----------
6,512
Accumulated depreciation (1,208)
-----------
$ 5,304
===========
</TABLE>
Note 8 - Income Taxes
- -------------------------
IRS Debt:
- ----------
On October 13, 1995, the Company entered into an agreement in principle with
the IRS, effective October 1, 1995, revising the payment terms provided in its
settlement agreement with the IRS dated June 12, 1991. 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 of $5.3 million is due in full on October 1,
1997 and is included in the current portion of the IRS debt.
In order to pay such amount, management intends to obtain additional debt or
equity financing. The Company is currently researching 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 attainment of financing sufficient to payoff the IRS debt when
due.
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.
<PAGE>
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
There is no accelerated principal amount payable in accordance with the
revised agreement based upon the Company's cash and cash equivalents at
December 31, 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
December 31, 1996.
Income tax provision:
- -----------------------
For the three and six months ended December 31, 1996, the Company recorded an
income tax benefit of $9,000 and an income tax provision of $101,000,
respectively, including state provisions. These amounts were based upon book
income. Due to significant temporary differences related mainly to bad debt
reserve recoveries and unrealized investment gains, the Company's estimated
taxable income as of December 31, 1996 was significantly less than book
income.
In accordance with fresh start accounting, which was adopted as of April 30,
1992, and as a result of the Company's reorganization under Chapter 11 of the
U.S. Bankruptcy Code, utilization of any income tax benefit from
pre-reorganization net operating losses are not credited to the income tax
provision, but rather, reported as an addition to capital in excess of par
value. Included in the income tax benefit and provision for the three and six
months ended December 31, 1996, respectively, is a non-cash credit of $30,000
and a non-cash charge of $25,000 related to the utilization of the Company's
pre-reorganization net operating loss carryforwards.
Provisions for income taxes from continuing operations of $39,000 and
$331,000, including state income tax provisions, were recorded for the three
and six months ended December 31, 1995. The income tax provisions were based
upon book income and included non-cash charges for the utilization of the
Company's pre-reorganization net operating losses of $54,000 and $183,000 for
the quarter and six months ended December 31, 1995, respectively.
Note 9 - Hotel Improvements and Other Commitments
- --------------------------------------------------------
The Company's hotel operation has completed $886,000 of approximately
$1,000,000 in planned renovations to the hotel as of December 31, 1996. This
amount is included in construction in progress. The remaining improvements
are expected to be finished in the third quarter of fiscal 1997. As a result
of these renovations, the Company is now in compliance with the Holiday Inn
franchise agreement provisions regarding its property improvement
requirements.
On December 3, 1996, the Company obtained a $1,000,000 bank mortgage, under a
construction and term loan agreement, to fund these improvements. As of
December 31, 1996, $838,000 had been advanced, of which $10,000 is included in
current portion of notes payable. Advances under the note bear interest at
the bank's "Basic Rate" (8.25% at December 31, 1996) plus 1% payable monthly
until July 1, 1997, at which time all improvements are to be completed.
Principal and interest at 8.85% is then payable in monthly installments of
$9,000.00. After five years, the interest rate changes to the five year US
Treasury rate plus 2.7%. The note is due in full July 1, 2007, and is
collateralized by a first security interest in the Company's hotel subsidiary
assets.
<PAGE>
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 10 - Stockholders' Equity
- ----------------------------------
The Company has authorized 20,000,000 shares of $.01 par value common stock.
At December 31, 1996, 10,001,270 shares were issued including 2,000,286 held
in treasury. Therefore, the Company had 8,000,984 shares issued and
outstanding at December 31, 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.
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 December 31,
1996, no warrants had been exercised.
Note 11 - Seasonal Variations of Operations
- -------------------------------------------------
All of the Company's ongoing operations 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 then the
other quarters.
Note 12 - Other Income and Expenses
- -----------------------------------------
Included in other income and expenses for the quarter ended December 31, 1996
is income of $348,000, net of legal fees, related to the recovery of a note
receivable that the Company had previously reserved for. The full settlement
amount of $370,000 was received subsequent to quarter-end and was included in
other current assets at December 31, 1996.
Also included in other income and expenses for the quarter and six months
ended December 31, 1996 were expenses of $86,000 and $126,000, respectively,
for architect fees related to hotel improvement projects that the Company has
decided not to pursue.
Note 13 - Subsequent Events
- -------------------------------
In January 1997, the Company exercised its purchase option for $1 million on
approximately 88 acres of undeveloped land located in southwestern
Pennsylvania. The purchase was funded by cash and cash equivalents. The
Company plans to pursue commercial development of the property.
<PAGE>
NBI, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER, FISCAL YEAR 1997
The statements in this discussion contain both historical and forward-looking
statements. 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, competitive factors and pricing pressures, loss of significant
customers, availability of raw materials, labor disputes, investment results,
ability to obtain financing, adequacy of insurance coverage, inflation and
general economic conditions.
RESULTS OF OPERATIONS
Revenues from continuing operations for the second quarter of fiscal year 1997
increased $440,000, or 13.9%, to $3.6 million from $3.2 million in the second
quarter of the prior fiscal year. Year-to-date, revenues totaled $7.3 million
for the six months ended December 31, 1996, an increase of $1.4 million, or
23.7%, as compared to the same period of fiscal 1996.
Sales revenue of $3.2 million for the quarter ended December 31, 1996
increased $550,000, or 20.7%, from the same period of the prior fiscal year.
For the six months ended December 31, 1996, sales revenue totaled $6.4
million, an increase of $1.3 million, or 25.1% compared to the same period in
fiscal 1996. The sales revenue growth was primarily related to expanded
market penetration by the glass company resulting from its increased focus on
the smaller individually-owned stores. In addition, the glass company
completed and shipped a significant order from a major customer for a new item
that was back ordered at September 30, 1996. Year-to-date, the sales revenue
also included an increase resulting from the inclusion of a full six months of
revenue from the L.E. Smith Glass Company during the fiscal period ended
December 31, 1996, compared to revenues for the period August 1, 1995, its
acquisition date, through December 31, 1995 included in the same period of
fiscal 1996.
Service and rental revenue totaled $397,000 and $991,000 for the three and six
months ended December 31, 1996, respectively, as compared to $507,000 and
$857,000 for the same periods in fiscal 1996. The decline in revenues during
the second quarter of fiscal 1997 compared to fiscal 1996, resulted from a
reduction in available rooms at the Belle Vernon Holiday Inn during the second
quarter of fiscal 1997 due to the hotel renovation activity. The increased
revenues year-to-date resulted primarily from the inclusion of six full months
of revenue from the Belle Vernon Holiday Inn during fiscal 1997, compared to
revenues for the period August 4, 1995, its acquisition date, through December
31, 1995 included in the same period of fiscal 1996.
Total revenues from continuing operations are expected to increase moderately
for the three months ended March 31, 1997, as compared to the same period in
the prior fiscal year, primarily due to increased sales efforts for the glass
manufacturing company, partially offset by an expected decline in revenues
from the hotel, as the third quarter of fiscal 1996 included increased
occupancy rates related to bookings from flood assistance organizations and
inclement weather activity. Total revenues for the third quarter of fiscal
1997 are expected to decrease significantly compared to the second quarter of
fiscal 1997, as seasonal variations cause the third fiscal quarter to be the
lowest revenue quarter for all operations and, as previously discussed, the
second quarter included a large sale of a new item from the glass company.
Cost of sales, service and rental was $2.5 million, or 70.7% of total revenue,
and $5.0 million, or 68.3% of total revenue, for the three and six months
ended December 31, 1996, respectively. Comparable figures for the same
periods in fiscal 1996 were $2.3 million and $4.2 million, or 72.1% and 71.0%
of total revenues, respectively.
Cost of sales as a percentage of sales revenue for the three and six months
ended December 31, 1996 was 68.8% and 67.6%, respectively, compared to 72.0%
and 71.1% for the same periods in fiscal 1996. The resulting improved gross
margin was primarily related to the increased revenue volume. Fiscal 1997's
year-to-date gross margin on sales also reflected an improvement due to an
overstatement of cost of goods sold of $99,000 in the first quarter of fiscal
1996, which was corrected in the fourth quarter of fiscal 1996.
<PAGE>
NBI, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER, FISCAL YEAR 1997 - CONTINUED
Cost of service as a percentage of service and rental revenue was 86.1% and
72.4% for the three and six months ended December 31, 1996, respectively,
compared to 72.6% and 70.0% for the same periods in the prior fiscal year,
respectively. The related decline in gross margin was due to the decreased
revenue volume, resulting from the hotel renovation project, without a
corresponding decrease in costs as the costs include a significant amount of
fixed expenses.
Cost of sales, service and rental as a percentage of total revenue for the
third quarter of fiscal 1997 is expected to increase modestly, compared to the
third quarter of fiscal 1996, primarily because the glass company had
favorable production rates and sales mix during the third quarter of fiscal
1996. This increase is also related to the expected decline in revenue from
the hotel operations available to cover its fixed costs. Cost of sales,
service and rental as a percentage of total revenue for the third quarter of
fiscal 1997 is also expected to increase moderately compared to the second
quarter of fiscal 1997 due to an expected decline in revenue volume from the
glass and hotel operations available to cover fixed costs.
Marketing, general and administrative expenses totaled $917,000 and $665,000
for the three months ended December 31, 1996 and 1995, respectively.
Year-to-date, marketing, general and administrative expenses totaled $1.7
million for the six months ended December 31, 1996, an increase of $454,000
compared to expenses of $1.2 million for the same period of fiscal 1996. The
increased expenses were primarily related to increased sales and marketing
activities. In addition, the second quarter of fiscal 1996 included $41,000
of credits related to certain reserve adjustments. Year-to-date, marketing,
general and administrative expenses also increased due to the inclusion of the
glass manufacturing and hotel operations for a full six months in fiscal 1997,
while these operations were only included since their acquisition dates,
August 1, 1995 and August 4, 1995, respectively, in the same period of fiscal
1996.
Marketing, general and administrative expenses are expected to increase
moderately for the three months ended March 31, 1997, as compared to the same
period in the prior fiscal year, primarily due to the increased sales and
marketing activities. However, marketing, general and administrative expenses
are expected to decrease moderately in the third quarter of fiscal 1997
compared to the second quarter of fiscal 1997 primarily due to decreased
sales commissions resulting from the lower expected revenues.
The Company recorded net gains on investments of $278,000 and $171,000 for the
three and six months ended December 31, 1996, respectively, compared to net
gains of $38,000 and $681,000 for the same periods in fiscal 1996,
respectively. The substantial net realized gain on investments included in
the six months ended December 31, 1996 occurred because the Company sold a
majority of its trading securities in order to fund the business acquisitions
competed during that period. (See Note 2 to the Consolidated Financial
Statements). 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.
The Company recorded other income of $250,000 and $201,000 for the three and
six months ended December 31, 1996, respectively, compared to other income of
$35,000 and $57,000 for the same periods in the prior fiscal year. The
increase resulted from the recovery of a note receivable in the second quarter
of fiscal 1997 partially offset by architectural expenses related to hotel
improvement projects that the Company decided not to pursue.
The Company recorded an income tax benefit from continuing operations of
$9,000 for the first quarter of fiscal 1997 and an income tax provision from
continuing operations of $101,000 for the six months ended December 31, 1996,
as compared to income tax provisions from continuing operations of $48,000 and
$373,000 for the same periods in fiscal 1996, respectively. Included in these
amounts are state provisions of $32,000 and $98,000 for the
<PAGE>
NBI, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER, FISCAL YEAR 1997 - CONTINUED
three and six months ended December 31, 1996, respectively, compared to $3,000
and $99,000 for the same periods in fiscal 1996, respectively. The state
income tax provisions related to the Company's Pennsylvania operations are
based upon book income, as NBI does not have any net operating loss
carryforwards available in Pennsylvania. The Company does have significant
federal net operating loss carryforwards, as well as significant net operating
loss carryforwards in several states, and, therefore, has no federal or other
state income taxes payable. However, in accordance with fresh start
accounting, the income tax benefit and provisions recorded do include non-cash
charges to the extent that the Company expects to use its pre-reorganization
net operating loss carryforwards. These charges are reported as an addition
to capital in excess of par value, rather than as a credit through the income
tax provision. The Company expects its taxable income to be significantly
less than its book income in fiscal 1997, due to significant temporary
differences primarily related to bad debt reserve recoveries and unrealized
investment gains, resulting in lower non-cash charges to the income tax
provision during fiscal 1997. The Company recorded a non-cash credit of
$9,000 and a non-cash charge of $25,000 for the three and six months ended
December 31, 1996, as compared to non-cash charges of $54,000 and $183,000 for
the same periods of the prior fiscal year, respectively.
As of August 27, 1996, the Company has discontinued all of its operations in
the computer industry segment. Therefore, it has separately reported the
losses from this segment of $23,000 and $86,000 for the three and six months
ended December 31, 1995, respectively, as discontinued operations. At June
30, 1996, the Company 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. This gain will be recognized when it
is realized.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's total assets increased $1.1 million to $11.3 million at December
31, 1996 from $10.2 million at June 30, 1996. The increase was primarily
related to net income of $611,000 recognized for the six months ended December
31, 1996, as well an increase in hotel property and equipment funded by a
mortgage note payable. The Company had negative working capital of $3.3
million at December 31, 1996, compared to working capital of $1.5 million at
June 30, 1996. The decline of $4.8 million in working capital was primarily
related to the reclassification of the IRS debt to current during the second
quarter of fiscal 1997.
The entire outstanding principal balance on the IRS debt of $5,278,000 at
December 31, 1996 is due in full on October 1, 1997 and was reclassified to
current liabilities during the second quarter of fiscal 1997. In order to pay
such amount, the Company will need to obtain additional debt or equity
financing. The Company is currently researching various financing options;
however, there can be no assurances that the Company will be able to obtain
such financing or that if it is able to obtain such financing, that it will be
on favorable terms. The Company's ability to continue as a going-concern is
dependent upon attainment of financing sufficient to payoff the IRS debt when
due.
The Company's hotel operation has committed to completion of approximately
$1,000,000 in renovations to the hotel during fiscal 1997. During the second
quarter of fiscal 1997, the Company completed a substantial portion of the
renovations. As a result of these renovations, the Company is now in
compliance with the Holiday Inn franchise agreement provisions regarding its
property improvement requirements. In addition, the Company was successful in
attaining a first mortgage on the hotel subsidiary's assets during the second
quarter to cover these renovations.
The Company expects its other working capital requirements in the next fiscal
year to be met by existing working capital at December 31, 1996, internally
generated funds and short-term borrowings under an existing line of credit.
<PAGE>
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.
July 22, 1997 By: /s/ Marjorie A. Cogan
---------------- --------------------------------------------
(Date) Marjorie A. Cogan
As a duly authorized officer
Corporate Controller, Secretary
(Principal Financial and Accounting Officer)
