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 September 30, 1998
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
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 November 6, 1998
---------------------------- -----------------------------------
Common Stock,
par value $.01 per share 8,088,320
<PAGE>
NBI, INC.
INDEX TO FORM 10-QSB
For Quarter Ended September 30, 1998
<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>
NBI, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands Except Share Data)
<TABLE>
<CAPTION>
September 30, June 30,
1998 1998
------ ------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 255 $ 209
Accounts receivable, less allowance for doubtful accounts
of $76 and $69, respectively 1,986 1,375
Inventories 2,755 2,750
Other current assets 210 156
-------- --------
Total current assets 5,206 4,490
Property, plant and equipment, net 7,420 7,436
Other assets 307 279
-------- --------
$ 12,933 $ 12,205
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------
Current liabilities:
Short-term borrowings and current portion
of notes payable $ 1,923 $ 1,846
Current portion of IRS debt and other income taxes payable 3,534 3,527
Accounts payable 1,333 1,200
Accrued liabilities 914 796
-------- --------
Total current liabilities 7,704 7,369
Long-term liabilities:
Income taxes payable 1,778 1,778
Notes payable 1,314 1,351
Deferred income taxes 223 223
Postemployment disability benefits 181 184
-------- --------
Total liabilities 11,200 10,905
-------- --------
Commitments and contingencies
Stockholders' equity:
Common stock - $.01 par value; 20,000,000 shares authorized;
10,115,520 shares issued 101 101
Capital in excess of par value 6,280 6,280
Accumulated deficit (3,780) (4,213)
-------- --------
2,601 2,168
Less treasury stock, at cost (2,027,200 shares) (868) (868)
-------- --------
Total stockholders' equity 1,733 1,300
-------- --------
$ 12,933 $ 12,205
======== ========
<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
September 30,
1998 1997
------ ----
<S> <C> <C>
Revenues:
Sales $3,929 $3,085
Service and rental 679 636
------- -------
4,608 3,721
Costs and expenses:
Cost of sales 2,748 2,191
Cost of service and rental 438 414
Marketing, general and administrative 864 840
------- -------
4,050 3,445
------ -------
Income from operations 558 276
Other income (expense):
Net loss on investments -- (39)
Other income and expenses, net 13 (8)
Interest expense (73) (182)
------- -------
(60) (229)
------ -------
Income before provision for income taxes 498 47
Provision for income taxes (65) (28)
------- -------
Net income $ 433 $ 19
======= =======
Net income per common share - basic and diluted $ .05 $ --
======= =======
Weighted average number of common shares outstanding 8,088 8,044
======= =======
<FN>
See accompanying notes.
</TABLE>
<PAGE>
NBI, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1998 1997
------ -----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 433 $ 19
Adjustments to reconcile net income to net cash
flow provided by (used in) operating activities:
Depreciation and amortization 193 176
Provision for bad debts and returns 21 34
Provision for writedown of inventories 40 17
Loss (gain) on sales of property and equipment (8) 50
Net unrealized loss (gain) on trading securities -- (53)
Compensation expense related to stock option extensions -- 37
Changes in assets -- decrease (increase):
Accounts receivable (632) (477)
Inventories (45) 58
Other current assets (56) (34)
Other assets (32) (24)
Changes in liabilities -- (decrease) increase:
Obligations for short-sale transactions -- (58)
Accounts payable and accrued liabilities 415 (30)
Income tax related accounts 7 (7)
------ ------
Net cash flow provided by (used in)
operating activities 336 (292)
------ ------
Cash flows from investing activities:
Proceeds from sales of property and equipment 9 1
Purchases of property and equipment (338) (112)
------ ------
Net cash flow used in investing activities (329) (111)
------ ------
Cash flows from financing activities:
Collections from notes receivable 2 1
Proceeds from issuance of stock, net of offering costs -- (2)
Proceeds from stock options exercised -- 29
Proceeds from borrowing -- 50
Payments on notes payable (66) (77)
Net borrowings on line of credit 103 223
------ ------
Net cash flow provided by financing
activities 39 224
------ ------
Net increase (decrease) in cash and cash equivalents 46 (179)
Cash and cash equivalents at beginning of period 209 333
------ ------
Cash and cash equivalents at end of period $ 255 $ 154
====== ======
<FN>
See accompanying notes.
</TABLE>
<PAGE>
NBI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1998 1997
------ ------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Interest paid $ 71 $ 166
====== ======
Income taxes paid $ 27 $ 26
====== ======
Noncash purchases of property, plant, and equipment
included in accounts payable at end of period $ 82 $ 30
====== ======
<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. 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
- - -----------------------------------------
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 3 - Investments in Securities and Obligations from Short-Sale
- - ----------------------------------------------------------------------------
Transactions
- - -------------
The Company held no investments and had no realized or unrealized gains or
losses for the quarter ended September 30, 1998. During the three months
ended September 30, 1997 all of the Company's securities were classified as
trading securities; no securities were classified as held-to-maturity or
available-for-sale. An unrealized gain of $53,000 and a realized loss of
$92,000 were recorded in the quarter ended September 30, 1997.
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 September 30, 1998, the Company
had no investment positions.
Note 4 - Inventories
- - ------------------------
Inventories are comprised of the following:
<TABLE>
<CAPTION>
September 30,
1998
------
(Amounts in thousands)
<S> <C>
Raw materials $ 897
Work in process 382
Finished goods 1,455
Food and beverage inventory 21
-------
$ 2,755
=======
</TABLE>
Note 5 - Income Taxes
- - --------------------------
IRS Debt:
- - ----------
On April 28, 1998, the Company and the Internal Revenue Service ("IRS")
entered into an amended payment agreement, revising the payment terms related
to NBI Inc.'s IRS debt of $5,278,000. This agreement, effective
<PAGE>
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
as of April 9, 1998, revised the terms of the agreement in principal with the
IRS effective October 1, 1995 and the original settlement agreement with the
IRS dated June 12, 1991, with respect to NBI's federal tax liabilities for the
fiscal years ended June 30, 1980 through 1988. Under the new agreement,
$3,500,000 of the IRS debt is due on or before December 31, 1998, and the
remaining balance of $1,778,000 is due on or before December 31, 1999. The
IRS debt continues to be collateralized by a security interest in all of the
capital stock of American Glass, Inc. and NBI Properties, Inc. Provided no
event of default occurs prior to payment of the IRS debt in full, NBI will not
be obligated to pay any past, current or future interest related to the debt.
In order to pay the restructured IRS debt, management intends to obtain
additional equity financing through a public offering of preferred stock
including warrants to purchase shares of the Company's common stock (see Note
6). There can be no assurance the Company will be able to sell the minimum
offering amount, which is required in order to raise funds sufficient to pay
the IRS installment due on December 31, 1998. The Company's ability to
continue as a going-concern is dependent upon satisfaction of the IRS debt
when due, including the installment due on December 31, 1999.
Income tax provision:
- - ------------------------
For the three months ended September 30, 1998 and 1997, the Company recorded
income tax provisions of $65,000 and $28,000, respectively. These provisions
include state and other income taxes and are based upon 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 is not credited to the income tax
provision, but rather, reported as an addition to capital in excess of par
value. No pre-reorganization net operating losses were utilized for the three
months ended September 30, 1998 and 1997.
Note 6 - Stockholders' Equity
- - -----------------------------------
The Company has authorized 20,000,000 shares of $.01 par value common stock.
At September 30, 1998, 10,115,520 shares were issued including 2,027,200 held
in treasury. Therefore, the Company had 8,088,320 shares issued and
outstanding at September 30, 1998.
At the Company's annual meeting held on October 14, 1998, the stockholders
approved an amendment to the Company's Certificate of Incorporation
authorizing issuance of up to 5,000,000 shares of preferred stock with a par
value of $.01 per share. The Company has designated 2,000,000 preferred
shares as Series A Cumulative Preferred Stock with cumulative dividends from
the date of original issue, accruing semi-annually, commencing June 30, 1999,
and each December 31 and June 30 thereafter, at the annual rate per share of
either (a) $1.00 in cash, or (b) .11 additional shares of Series A Preferred
Stock, at the option of the holder, until December 31, 2004. Subsequent to
December 31, 2004, the annual dividend rate per share will increase to either
(a) $1.10 in cash or (b) .12 additional shares of Series A Preferred Stock,
at the option of the holder. The Series A Cumulative Preferred Stock has a
liquidation preference of $10 per share and is entitled to receive all accrued
and unpaid dividends through the date of distribution. In addition, the
Series A Cumulative Preferred Stock is redeemable at the option of the Company
beginning January 1, 1999. The redemption price would be as follows for each
calendar year: $11.00 per share if redeemed in 1999, $10.80 in 2000, $10.60 in
2001, $10.40 in 2002, $10.20 in 2003, and $10.00 in 2004 or thereafter.
<PAGE>
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company has registered and reserved 1,000,000 shares of the Series A
Cumulative Preferred Stock through its Registration Statement on Form SB-2,
effective November 9, 1998, in connection with its public offering of units
consisting of one share of the Series A Cumulative Preferred Stock and two
warrants to purchase the Company's common stock at $1.20 per share. In
addition, 550,000 shares of the Series A Cumulative Preferred Stock and
2,000,000 shares of the Company's common stock have been registered and
reserved for payments-in-kind of the preferred stock dividends and for the
exercise of the common stock purchase warrants, respectively. The Company is
in the process of filing the related amendments to its Certificate of
Incorporation and Certificate of Designation with the Delaware Secretary of
State.
In addition, the stockholders approved an amendment that allows the Company to
effect a reverse stock split of either 1 for 2.5, 1 for 3, or 1 for 4 shares,
at the discretion of the Board of Directors. Further, the Board of Directors
has the discretion not to effect a reverse stock split.
Note 7 - Net Income (Loss) Per Common Share
- - ----------------------------------------------------
During the Company's second quarter of fiscal 1998, NBI, Inc. adopted
Statement of Financial Accounting Standards ("SFAS") No. 128 issued by the
Financial Accounting Standards Board. SFAS No. 128 provides for the
calculation of "Basic" and "Diluted" earnings per share. Basic earnings per
share includes no dilution and is computed by dividing income (loss) available
to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution of securities that could share in the earnings of the entity, similar
to fully diluted earnings per share.
The following reconciles the numerators and denominators of the basic and
diluted earnings per common share computation for net income:
<TABLE>
<CAPTION>
For the quarters ended
September 30,
1998 1997
------ ------
Basic Diluted Basic Diluted
------ ------- ------ --------
(Amounts in thousands
except per share data)
<S> <C> <C> <C> <C>
Net income $ 433 $ 433 $ 19 $ 19
======= ======= ====== ======
Weighted average number of
common shares outstanding 8,088 8,088 8,044 8,044
======= =======
Assumed conversions of stock
options 179 143
------- -------
8,267 8,187
======= =======
Net income per common share $ .05 $ .05 $ -- $ --
======= ======= ======= =======
</TABLE>
For the three months ended September 30, 1998, stock options outstanding with
an exercise price of $.38, $.59 and $.77 per share were included in the
computation of diluted earnings per share because their exercise price was
less than the average market price of the common stock during such period.
Stock options outstanding with an exercise price of $.25 and $.38 per share
were included in the computation of diluted earnings per share for the three
months ended September 30, 1997. Stock options previously outstanding with an
exercise price of $.25 per share were not outstanding during the quarter ended
September 30, 1998.
<PAGE>
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The options and warrants outstanding at September 30, 1998 were as follows:
<TABLE>
<CAPTION>
Number
Exercise Outstanding at
Price September 30, 1998
--------- ---------------------
<S> <C> <C>
Stock options:
$ .38 216,000
$ .59 100,500
$ .77 400,000
$ .88 244,000
Warrants:
$ .89 1,700,000
---------
2,660,500
=========
</TABLE>
Note 8 - Comprehensive Income
- - -----------------------------------
Effective July 1, 1998, the Company has adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." Comprehensive income includes all
changes in equity except those resulting from investments by owners and
distribution to owners. For the three months ended September 30, 1998 and
1997, the Company had no items of comprehensive income other than net income;
therefore, a separate statement of comprehensive income has not been presented
for these periods.
Note 9 - Seasonal Variations of Operations
- - --------------------------------------------------
L.E. Smith Glass Company ("L.E. Smith") and the Belle Vernon Holiday Inn
typically have their strongest revenue performance during the first fiscal
quarter due to seasonal variations in these businesses. Generally, the second
and fourth fiscal quarters' revenues from these operations are moderately
lower than in the first quarter, while the third fiscal quarter's revenue is
usually significantly lower than the other quarters. However, in fiscal 1998,
L.E. Smith received several large orders from its significant customer during
the historically slower quarters, which created a more consistent revenue
stream for the year. The Company is unsure whether this trend will continue.
<PAGE>
NBI, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FIRST QUARTER, FISCAL YEAR 1999
The statements in this discussion contain both historical and
"forward-looking" statements, as such term is defined in "The Private
Securities Litigation Reform Act of 1995". The forward-looking statements are
based upon current expectations and the actual results could differ materially
from those anticipated. Factors that may affect such forward-looking
statements include, among others, ability to obtain financing, loss of
significant customers, reliance on key personnel, competitive factors and
pricing pressures, availability of raw materials, labor disputes, investment
results, adequacy of insurance coverage, inflation and general economic
conditions.
RESULTS OF OPERATIONS
Revenues totaling $4.6 million for the first quarter of fiscal 1999 increased
$887,000, or 23.8%, from $3.7 million for the three months ended September 30,
1997.
Sales revenue increased $844,000, or 27.4% for the first quarter of fiscal
1999, compared to the same period in fiscal 1998, due to significantly
increased volume at L.E. Smith, including a significant amount of revenues from
new customers, as well as a significant increase in orders from its largest
customer. However, this increase was slightly offset by a significant decline
in revenues from Krazy Colors, Inc. ("Krazy Colors"), as expected, because the
Company has been in the process of restructuring Krazy Colors' operations,
which includes the assumption of additional management responsibilities by
parent company personnel, concentrating on direct sales and limiting other
sales and marketing activities, and temporarily laying off production
personnel until sales activity improves.
Service and rental revenue totaled $679,000 for the three months ended
September 30, 1998, compared to $636,000 for the same quarter in fiscal 1998.
The increased revenue was primarily related to a moderate increase in
occupancy rates and a small increase in average daily room rates from the
Belle Vernon Holiday Inn. In addition, for the first quarter of fiscal 1999
as compared to the same period in fiscal 1998, the Company experienced a
significant increase in restaurant business, primarily due to increased
occupancy; however, this was partially offset by a significant decrease in bar
business, due to increased local competition.
Total revenues are expected to increase significantly for the three months
ended December 31, 1998, compared to the same period in the prior fiscal year,
primarily due to a significant increase in projected revenues from L.E. Smith
resulting from sustained growth from new and existing customers. However,
this increase is expected to be slightly offset by a significant decrease in
expected revenues from Krazy Colors, as the Company continues its
restructuring efforts. Total revenues for the second quarter of fiscal 1999
are expected to decrease moderately compared to the first quarter of fiscal
1999, primarily due to a significant decrease in projected revenues from the
Belle Vernon Holiday Inn resulting from seasonal variations.
Cost of sales, service and rental as a percentage of total revenue was 69.1%
for the quarter ended September 30, 1998, compared to 70.0% for the same
period in fiscal 1998.
Cost of sales as a percentage of sales revenue was 69.9% for the quarter ended
September 30, 1998 compared to 71.0% for the first quarter of fiscal 1998.
The resulting improvement in gross margin was primarily due to increased
volume and production efficiency at L.E. Smith, causing favorable absorption
of fixed costs. However, this improvement was partially offset by a
significant decline in gross margin from Krazy Colors, due to the decreased
revenue volume.
Cost of service and rental as a percentage of service and rental revenue was
64.5% for the quarter ended September 30, 1998 compared to 65.1% for the first
quarter of fiscal 1998. The related small improvement in gross margin was
primarily due to the increased revenue volume available to cover fixed costs.
<PAGE>
NBI, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FIRST QUARTER, FISCAL YEAR 1999 - CONTINUED
Cost of sales, service and rental as a percentage of total revenue for the
second quarter of fiscal 1999 is expected to be moderately lower, compared to
the second quarter of fiscal 1998, due to greater absorption of fixed costs at
L.E. Smith resulting from the projected increase in revenues. Cost of sales,
service and rental as a percentage of total revenue for the second quarter of
fiscal 1999 is expected to be slightly higher compared to the first quarter of
fiscal 1999 due to seasonally lower revenue volume at the Belle Vernon Holiday
Inn available to cover fixed costs.
Marketing, general and administrative expenses totaled $864,000 and $840,000
for the three months ended September 30, 1998 and 1997, respectively. The
increase was primarily related to increased sales and marketing activities,
partially offset by the absence of non-cash compensation expense from
extensions of certain executive stock options included in the same period of
the prior fiscal year.
Marketing, general and administrative expenses are expected to remain fairly
constant for the three months ended December 31, 1998, compared to the same
period in the prior fiscal year. During the second quarter of fiscal 1999,
there is expected to be an increase in expenses resulting from greater sales
and marketing activities, and the absence of a credit related to a reduction of
a reserve for incurred but not reported health claims under a previously
self-funded health plan as included in the second quarter of fiscal 1998.
However, this expected increase will be mostly offset by the absence of
executive severance also included in the second quarter of fiscal 1998.
Marketing, general and administrative expenses are expected to increase
moderately in the second quarter of fiscal 1999 compared to the first quarter
of fiscal 1999, primarily due to higher expected sales and marketing activity.
The Company recorded no gain or loss on investments during the first quarter
of fiscal 1999, compared to a net loss of $39,000 for the three months ended
September 30, 1997. As part of its investment policy, the Company's
investment portfolio may include investments in option instruments and may
include a concentrated position in one or more securities. As a result of
this, the financial results may fluctuate significantly and have larger
fluctuations than with a more diversified portfolio. In addition, the Company
may invest in short-sale transactions of trading securities. Short-sales can
result in off-balance sheet risk, as losses can be incurred in excess of the
reported obligation if market prices of the securities subsequently increase.
At September 30, 1998, the Company had no investment positions.
Interest expense for the three months ended September 30, 1998 totaled $73,000
compared to $182,000 for the same period of the prior fiscal year. This
decline was primarily due to the absence of interest on the Company's IRS debt
during the first quarter of fiscal 1999, resulting from the restructured
agreement with the IRS.
The Company recorded provisions for income taxes of $65,000 and $28,000 for
the first quarter of fiscal 1999 and 1998, respectively, primarily due to the
inclusion of Pennsylvania state income tax provisions. The state income tax
provisions are related to the Company's Pennsylvania operations and are based
upon book income, because NBI does not have any net operating loss
carryforwards available in Pennsylvania. In accordance with fresh-start
accounting, the income tax provisions recorded 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.
There were no non-cash components included in the income tax provisions for
the three months ended September 30, 1998 or 1997.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's total assets increased $728,000 to $12.9 million at September
30, 1998 from $12.2 million at June 30, 1998. The increase was primarily due
to a significant increase in trade accounts receivable resulting from the
increased revenues recognized during the first quarter of fiscal 1999. The
Company had negative working capital of $2.5 million at September 30, 1998,
compared to negative working capital of $2.9 million at June 30, 1998. The
<PAGE>
NBI, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FIRST QUARTER, FISCAL YEAR 1999 - CONTINUED
favorable decline in the working capital deficit resulted primarily from the
increase in trade accounts receivable partially offset by an increase in
current liabilities due to the increased volume.
The entire outstanding principal balance on the IRS debt of $5,278,000 was
previously due in full on October 1, 1997. Effective as of April 9, 1998, the
Company and the IRS entered into an amended payment agreement revising the
payment terms related to NBI, Inc.'s IRS debt. Under the new agreement, $3.5
million of the IRS debt is due on or before December 31, 1998 and the
remaining approximately $1.8 million is due on or before December 31, 1999.
Provided no event of default occurs prior to payment of the debt in full, NBI
will not be obligated to pay any past, current or future interest related to
the debt. In order to pay the IRS debt, management intends to obtain
additional equity financing through a public offering of preferred stock
including warrants to purchase shares of the Company's common stock. During
the first quarter of fiscal 1999, the Company filed a Form SB-2 with the
Securities and Exchange Commission to register the related stock; the
registration statement was declared effective as of November 9, 1998. There
can be no assurance that the Company will be able to sell the minimum offering
amount, which is required in order to raise sufficient funds to pay off the
IRS installment due on December 31, 1998. The Company's ability to continue
as a going-concern is dependent upon satisfaction of the IRS debt when due,
including the installment due on December 31, 1999.
The Company is currently pursuing various financing options for its real
estate development activities. The Company expects its other working capital
requirements in the next fiscal year to be met by existing working capital at
September 30, 1998, internally generated funds and, for L.E. Smith Glass
Company's requirements, short-term borrowings under an existing line of
credit.
YEAR 2000 COMPLIANCE
The Company has completed a review and risk assessment of all technology items
used in its operations. The Company believes that the year 2000 issue will
pose no significant operational problems. Substantially all of the machinery
and equipment used by the Company's glass manufacturing and children's paint
manufacturing operations are manually controlled and operated. In addition,
the hotel operation is not significantly reliant on computer technology, with
the exception of its reservation system, which is maintained and upgraded
under a contract with Holiday Inns Franchising, Inc. The Company expects the
reservation system to be year 2000 compliant early in fiscal 1999. The
primary effect of the year 2000 issue is on the Company's accounting systems.
Year 2000 compliance will primarily be accomplished through purchases of new
equipment and data processing hardware and software upgrades, with an
estimated aggregate cost of approximately $140,000, a significant portion of
which has already been purchased and most of which was previously planned and
necessitated by other technological needs of the Company. The upgrading or
replacement of equipment which is non-compliant, as well as the related
testing of such equipment is expected to be substantially completed during
fiscal 1999.
L.E. Smith currently has one customer of such significance that if such
customer were to experience year 2000 problems that resulted in the
cancellation or deferral of orders, it could materially adversely affect the
results of operations of the Company. The Company has discussed the year 2000
issue with this and other material customers and vendors and currently does
not anticipate any significant problems. In addition, the Company will
continue to review the status of the year 2000 issues with these and other
customers and vendors.
<PAGE>
NBI, INC.
PART II - OTHER INFORMATION
Item 4. Results of Votes of Security Holders
- - -----------------------------------------------------------
The Company's annual meeting was held on October 14, 1998. At this meeting,
Jay H. Lustig and Martin J. Noonan were elected to serve as directors. In
addition, three other proposals authorizing amendments to the Company's
Articles of Incorporation were voted on. The results of the voting were as
follows:
<TABLE>
<CAPTION>
Votes
Affirmative Withheld Broker
Votes or Against Abstentions Non-votes
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1. PROPOSAL I:
Election of Directors
Jay H. Lustig 6,907,777 66,448 -- --
Martin J. Noonan 6,908,886 65,339 -- --
2.PROPOSAL II:
Authorization of issuance of
up to five million shares
of preferred stock. 5,149,188 99,947 17,958 1,707,132
3. PROPOSAL III:
Authorization of a reverse
stock split of either 1 for
2.5, 1 for 3, or 1 for 4
shares, at the discretion
of the Board of Directors. 6,843,557 94,278 36,390 --
4. PROPOSAL IV:
Authorization of elimination
of Article Eleventh of the
Certificate of Incorporation
regarding certain restrictions
on transfers of stock. 5,099,358 114,379 53,356 1,707,132
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
- - -----------------------------------------------
(a) Exhibits
27. Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended September
30, 1998 or subsequently.
<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.
November 16, 1998 By: /s/ Marjorie A.Cogan
- - ---------------------- --------------------------
(Date) Marjorie A. Cogan
As a duly authorized officer
Chief Financial Officer, Secretary
<TABLE> <S> <C>
<CAPTION>
<S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Jun-30-1999
<PERIOD-START> Jul-01-1998
<PERIOD-END> Sep-30-1998
<CASH> 255
<SECURITIES> 0
<RECEIVABLES> 2,062
<ALLOWANCES> 76
<INVENTORY> 2,755
<CURRENT-ASSETS> 5,206
<PP&E> 9,765
<DEPRECIATION> 2,345
<TOTAL-ASSETS> 12,933
<CURRENT-LIABILITIES> 7,704
<BONDS> 3,273
<COMMON> 101
0
0
<OTHER-SE> 1,632
<TOTAL-LIABILITY-AND-EQUITY> 12,933
<SALES> 3,929
<TOTAL-REVENUES> 4,608
<CGS> 2,748
<TOTAL-COSTS> 3,186
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 21
<INTEREST-EXPENSE> 73
<INCOME-PRETAX> 498
<INCOME-TAX> (65)
<INCOME-CONTINUING> 433
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 433
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
<FN>
This schedule contains summary financial information extracted from the
consolidated financial statements of NBI, Inc. for the three months ended
September 30, 1998 and is qualified in its entirety by reference to such
financial statements.
</TABLE>
