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 December 31, 1997
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 January 31, 1998
- ----------------- -------------------------------
Common Stock, par value $.01 per share 8,088,320
<PAGE>
NBI, INC.
INDEX TO FORM 10-QSB
For Quarter Ended December 31, 1997
<TABLE>
<CAPTION>
PAGE
----
PART I - FINANCIAL INFORMATION
<S> <C>
Consolidated Financial Statements (Unaudited) 3 - 6
Supplementary Notes to Consolidated Financial
Statements (Unaudited) 7 - 11
Management's Discussion and Analysis of Financial Condition
and Results of Operations 12 - 14
PART II - OTHER INFORMATION 15
</TABLE>
<PAGE>
NBI, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands Except Share Data)
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
---------- ----------
(Unaudited)
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 124 $ 333
Accounts receivable, less allowance for doubtful
accounts of $79 and $97, respectively 1,238 1,231
Inventories 2,397 2,470
Other current assets 240 189
-------- --------
Total current assets 3,999 4,223
Property, plant and equipment, net 6,903 6,869
Other assets 463 404
-------- --------
$ 11,365 $ 11,496
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
--------------------------------------------------------------------
Current liabilities:
Short-term borrowings and current portion
of notes payable $ 999 $ 921
Obligation for short-sale transactions -- 111
Current portion of IRS debt and other income taxes
payable 5,271 5,274
Accounts payable 1,095 960
Accrued liabilities 1,178 1,154
-------- --------
Total current liabilities 8,543 8,420
Long-term liabilities:
Notes payable 1,476 1,604
Deferred income taxes 225 251
Postemployment disability benefits 190 196
-------- --------
Total liabilities 10,434 10,471
-------- --------
Commitments and contingencies
Stockholders' equity:
Common stock - $.01 par value; 20,000,000 shares
authorized; 10,115,520 and 10,005,020 shares issued,
respectively 101 100
Capital in excess of par value 6,241 6,178
Accumulated deficit (4,543) (4,385)
-------- --------
1,799 1,893
Less treasury stock at cost (2,027,200 shares) (868) (868)
-------- --------
Total stockholders' equity 931 1,025
-------- --------
$ 11,365 $ 11,496
========= =========
<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,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Sales $ 3,181 $ 3,205 $ 6,266 $ 6,353
Service and rental 519 397 1,155 991
------- ------- ------- -------
3,700 3,602 7,421 7,344
Costs and expenses:
Cost of sales 2,414 2,205 4,605 4,297
Cost of service and rental 402 342 816 717
Marketing, general and
administrative 880 917 1,720 1,656
------- ------- ------- ------
3,696 3,464 7,141 6,670
------ ------- ------- ------
Income from operations 4 138 280 674
Other income (expense):
Net gain on investments -- 278 (39) 171
Other income and expenses, net (3) 250 (11) 201
Interest expense (183) (171) (365) (334)
------- ------- ------- ------
(186) 357 (415) 38
------ ------- ------- -------
Income (loss) from operations before
income tax benefit (provision) (182) 495 (135) 712
Income tax benefit (provision) 5 9 (23) (101)
------- ------- ------- -------
Net income (loss) $ (177) $ 504 $ (158) $ 611
======= ======= ======= =======
Income (loss) per common share:
Net income (loss) - basic $ (.02) $ .06 $ (.02) $ .08
======= ======= ======= =======
Net income (loss) - diluted $ (.02) $ .06 $ (.02) $ .07
======= ======= ======= =======
Weighted average number of common
shares outstanding 8,088 8,001 8,066 7,999
======= ======= ======= =======
<FN>
See accompanying notes.
</TABLE>
<PAGE>
NBI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (158) $ 611
Adjustments to reconcile net income (loss) to net cash
flow provided by (used in) operating activities:
Utilization of net operating loss carryforwards -- 25
Depreciation and amortization 358 273
Provision for bad debts and returns 47 54
Provision for writedown of inventory 15 85
Loss (gain) on sales of property and equipment 51 (2)
Net unrealized gain on trading securities (53) (110)
Compensation expense related to stock option extensions 37 --
Other 1 (61)
Changes in assets -- decrease (increase):
Accounts receivable (54) (201)
Inventory 58 (138)
Trading securities -- 84
Net assets of discontinued operations -- (52)
Other current assets (50) 58
Other assets (82) --
Changes in liabilities -- (decrease) increase:
Obligations for short-sale transactions (58) (493)
Accounts payable and accrued liabilities 122 (146)
Income tax related accounts (29) (55)
------ --------
Net cash flow provided by (used in) by operating activities 205 (68)
Cash flows from investing activities:
Proceeds from sales of property and equipment 2 11
Purchases of property and equipment (395) (1,008)
------ --------
Net cash flow used in investing activities (393) (997)
Cash flows from financing activities:
Collections on note receivable 3 --
Proceeds from borrowings 100 838
Proceeds from stock option exercises 29 1
Payments on notes payable (141) (141)
Net borrowings (payments) on line of credit (12) 385
------ --------
Net cash flow provided by (used in) financing activities (21) 1,083
Net increase (decrease) in cash and cash equivalents (209) 18
Increase in cash and cash equivalents included in
net current assets of discontinued operations -- 20
Cash and cash equivalents at beginning of period 333 782
------ --------
Cash and cash equivalents at end of period $ 124 $ 820
====== ========
<FN>
See accompanying notes.
</TABLE>
<PAGE>
NBI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
1997 1996
---- ----
<S> <C> <C>
Supplemental disclosures of cash flow information:
Interest paid $ 228 $ 288
==== ====
Income taxes paid $ 60 $ 92
==== ====
<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
- ------------
During the six months ended December 31, 1997, all of the Company's securities
were classified as trading securities; no securities were classified as
held-to-maturity or available-for-sale. The Company held no investments and
had no realized or unrealized gains or losses for the quarter ended December
31, 1997. Net realized and unrealized gains of $132,000 and $146,000,
respectively, were recorded in the same quarter of the prior fiscal year. For
the six months ended December 31, 1997, the Company recorded a net unrealized
gain of $53,000 and a realized loss of $92,000, compared to net realized and
unrealized gains of $61,000 and $110,000, respectively, in the same period of
fiscal 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 December 31, 1997, the Company
had no short investment positions.
Note 4 - Inventories
- -----------------------
Inventories are comprised of the following:
<TABLE>
<CAPTION>
December 31,
1997
----
(Amounts in thousands)
<S> <C>
Raw materials $ 815
Work in process 234
Finished goods 1,333
Food and beverage inventory 15
------
$ 2,397
======
</TABLE>
<PAGE>
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5 - 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 revised 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. Under the IRS agreement, the Company granted the IRS a security
interest in all of the capital stock of (i) American Glass, Inc. and (ii) NBI
Properties, Inc. 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 were 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 agreement provides that the interest rate for April 1,
1996 through October 1, 1997 will be 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 paid interest on the
scheduled payment dates through July 1, 1997 based upon the rate of 7.5%.
The remaining principal balance of $5.3 million was due in full on October 1,
1997 and is included in the current portion of IRS debt and other income taxes
payable at December 31, 1997. The final scheduled quarterly interest payment
due October 1, 1997 is also unpaid and is included in accrued liabilities at
December 31, 1997. Prior to October 1, 1997, the Company began negotiations
with the IRS regarding the payment terms of the debt. Effective September 30,
1997, the Company executed a Forbearance Agreement with the IRS which was
subsequently extended. This agreement provides that the IRS will forbear from
exercising its rights and remedies related to the Company's debt until the
earlier of i) fifteen days after receipt of written notice from the IRS that
it desires to terminate the Forbearance Agreement, ii) a bankruptcy or
insolvency proceeding has been initiated by or against NBI, Inc. or iii) March
31, 1998. To date, no notice of termination has been received by NBI from the
IRS.
In order to pay the IRS debt, management intends to obtain additional debt or
equity financing. The Company is currently pursuing various financing
options; however there can be no assurances the Company will be able to obtain
such financing. The Company's ability to continue as a going-concern is
dependent upon satisfaction of the IRS debt.
Income tax provision:
- -----------------------
For the three months ended December 31, 1997 and 1996, the Company recorded
income tax benefits of $5,000 and $9,000, respectively. Income tax provisions
of $23,000 and $101,000 were recorded for the six months ended December 31,
1997 and 1996, respectively. These benefits and provisions include state and
other income tax provisions 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 are not credited to the income tax
provision, but rather, reported as an addition to capital in excess of par
value. No pre-reorganization net operating losses were utilized for the
quarter or six months ended December 31, 1997. However, included in the three
and six months ended December 31, 1996, are a non-cash credit of $30,000 and a
non-cash charge of $25,000, respectively, related to the utilization of the
Company's pre-reorganization net operating loss carryforwards.
<PAGE>
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6 - Net Income (Loss) Per Common Share
- ---------------------------------------------------
During the quarter ended December 31, 1997, the Company adopted the 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 an entity, similar to fully
diluted earnings per share.
The following reconciles the numerators and denominators of the basic and
diluted net income per common share computation:
<TABLE>
<CAPTION>
For the quarter ended
December 31,
1997 1996
---- ----
Basic Diluted Basic Diluted
----- ------- ----- -------
(Amounts in thousands
except per share data)
<S> <C> <C> <C> <C>
Net income (loss) $ (177) $ (177) $ 504 $ 504
======= ======= ====== ======
Weighted average number of common
shares outstanding 8,088 8,088 8,001 8,001
======= ======
Assumed conversions of stock
options -- 179
------- ------
8,088 8,180
====== =====
Net income per common share $ (.02) $ (.02) $ .06 $ .06
======= ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
For the six months ended
December 31,
1997 1996
---- ----
Basic Diluted Basic Diluted
----- ------- ----- ------
(Amounts in thousands
except per share data)
<S> <C> <C> <C> <C>
Net income (loss) $ (158) $ (158) $ 611 $ 611
======= ======= ====== ======
Weighted average number of common
shares outstanding 8,066 8,066 7,999 7,999
======= ======
Assumed conversions of stock options -- 192
------- ------
8,066 8,191
====== =====
Net income per common share $ (.02) $ (.02) $ .08 $ .07
======= ======= ====== ======
</TABLE>
<PAGE>
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Because the Company incurred net losses for the three and six months ended
December 31, 1997, none of its outstanding options or warrants were included
in the computation of diluted earnings per share as their effect would be
anti-dilutive. The options and warrants outstanding at December 31, 1997 were
as follows:
<TABLE>
<CAPTION>
Number
Exercise Outstanding at
Price December 31, 1997
----- -------------------
<S> <C> <C>
Stock options:
$ .25 25,000
$ .38 216,000
$ .59 100,500
$ .77 400,000
$ .88 344,000
Warrants:
$ .89 1,700,000
---------
2,785,500
=========
</TABLE>
For the three and six months ended December 31, 1996, only the Company's $.25
and $.38 stock options were included in the computation of diluted earnings
per share because their exercise price was less than the average market price
of the common stock outstanding during those periods.
Note 7 - Stockholders' Equity
- ---------------------------------
The Company has authorized 20,000,000 shares of $.01 par value common stock.
At December 31, 1997, 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 December 31, 1997. During the first quarter of fiscal 1998,
110,500 shares were issued pursuant to stock option exercises.
During the second quarter of fiscal 1998, stock options to purchase 100,500
shares of common stock at an exercise price of $.59 were granted. The options
vest over four years at 25% per year and expire in five years.
On August 26, 1997, NBI's Board of Directors approved an amendment to its
Certificate of Incorporation to grant the Corporation authority to issue up to
five million shares of preferred stock with a par value of $.01 per share. In
addition, the amendment allows the Company to effect a reverse stock split of
either 4:1 or 5:1 at the discretion of the Board of Directors. The Company
obtained written consents, in lieu of a meeting, of a majority of its
stockholders approving these amendments. Written consents were received from
shareholders holding 4,295,798 shares or 53.1%, of the shares outstanding. The
Company has not yet filed the amendment to its Certificate of Incorporation
with the Delaware Secretary of State.
Note 8 - Seasonal Variations of Operations
- ------------------------------------------------
Due to seasonal variations in these businesses, all of the Company's ongoing
operations typically have their strongest revenue performance during the first
fiscal quarter. Generally, the second and fourth fiscal quarters' revenues
from these operations are moderately lower than in the first quarter, while
the third fiscal quarter's revenue is usually significantly lower than the
other quarters.
<PAGE>
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 9 - Related Party Transactions
- ----------------------------------------
During the six months ended December 31, 1997, the Company borrowed a total of
$100,000 from its Chief Executive Officer for working capital needs. This
amount was included in short-term borrowings at December 31, 1997. The
borrowings are subject to the terms of a revolving promissory note which
provides for interest to be paid at the rate of ten percent per annum. In
addition, the note will be secured by a mortgage on a portion of the land held
by the Company for development. The entire principal amount outstanding is
due and payable in full on March 5, 1998.
<PAGE>
NBI, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER, FISCAL YEAR 1998
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, ability to obtain financing, competitive factors and pricing
pressures, loss of significant customers, availability of raw materials, labor
disputes, investment results, adequacy of insurance coverage, inflation and
general economic conditions.
RESULTS OF OPERATIONS
Revenues for the second quarter of fiscal year 1998 increased $98,000, or
2.7%, to $3.7 million from $3.6 million in the second quarter of the prior
fiscal year. Year-to-date, revenues increased slightly to $7.4 million for
the six months ended December 31, 1997, compared to $7.3 million for the same
period of fiscal 1997.
Sales revenue was steady at $3.2 million for the quarters ended December 31,
1997 and 1996. For the six months ended December 31, 1997, sales revenue
decreased slightly to $6.3 million from $6.4 million for the same period in
fiscal 1997. The decline in revenue was primarily related to a significant
decline in revenues from Krazy Colors, Inc., the Company's children's paint
manufacturing operation, due to the implementation of a change in sales focus,
partially offset by a slight increase in revenue from L.E. Smith Glass
Company.
Service and rental revenue totaled $519,000 and $1,155,000 for the three and
six months ended December 31, 1997, respectively, as compared to $397,000 and
$991,000 for the same periods in fiscal 1997. The increased revenue was
primarily related to an increase in occupancy and in average daily room rates
from the Belle Vernon Holiday Inn, resulting from the absence of renovation
construction activity which limited the number of available rooms during the
second quarter of fiscal 1997. The Company also experienced a significant
increase in restaurant and bar business due to increased occupancy and
increased sales and marketing efforts.
Total revenues are expected to decrease moderately for the three months ended
March 31, 1998, as compared to the same period in the prior fiscal year,
primarily due a significant decline in expected revenues from Krazy Colors
resulting from the absence of a large order from a catalog distributor as was
included in the third quarter of fiscal 1997, as well as a general decline in
projected sales activity at Krazy Colors. Total revenues for the third quarter
of fiscal 1998 are expected to decrease significantly compared to the second
quarter of fiscal 1998, as seasonal variations cause the third fiscal quarter
to be the lowest revenue quarter for all operations.
Cost of sales, service and rental was $2.8 million, or 76.1% of total revenues
and $5.4 million, or 73.0% of total revenue, for the three and six months
ended December 31, 1997, respectively. Comparable figures for the same
periods in fiscal 1997 were $2.5 million and $5.0 million, or 70.7% and 68.3%
of total revenues, respectively.
Cost of sales as a percentage of sales revenue for the three and six months
ended December 31, 1997 was 75.9% and 73.5%, respectively, compared to 68.8%
and 67.6% for the same periods in fiscal 1997. The resulting decline in gross
margin was related to lower margins from L.E. Smith Glass Company primarily
due to the sales mix, production costs associated with the development of new
products and unusually high fuel costs.
Cost of service and rental as a percentage of service and rental revenue was
77.5% and 70.7% for the three and six months ended December 31, 1997,
respectively, compared to 86.1% and 72.4% for the same periods in the prior
fiscal year, respectively. The related improvement in gross margin was due to
the increased revenue without a corresponding increase in related costs, as
the costs include a significant amount of fixed expenses. In addition, the
Company experienced an improvement in gross margin due to a more favorable
revenue mix. However, these improvements were partially offset by increased
depreciation resulting from the renovations of the Belle Vernon Holiday Inn
completed during fiscal 1997.
<PAGE>
NBI, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER, FISCAL YEAR 1998 - CONTINUED
Cost of sales, service and rental as a percentage of total revenue for the
third quarter of fiscal 1998 is expected to increase modestly, compared to the
third quarter of fiscal 1997, primarily due to low revenue expected from Krazy
Colors, production costs associated with the continued development of new
products at L.E. Smith Glass Company, sales mix and general cost increases.
Cost of sales, service and rental as a percentage of total revenue for the
third quarter of fiscal 1998 is expected to increase moderately compared to
the second quarter of fiscal 1998 due to an expected decline in revenue volume
from all operations available to cover fixed costs.
Marketing, general and administrative expenses totaled $880,000 and $917,000
for the three months ended December 31, 1997 and 1996, respectively. The
decline in expenses was primarily related to lower sales commissions at L.E.
Smith Glass Company, due to the sales mix, as well as a $38,000 credit related
to a reduction of a reserve for incurred but not reported health claims, as
the Company converted to a fully-insured health plan for its corporate and
Krazy Colors employees effective January 1, 1998. These savings were
partially offset by executive severance for L.E. Smith Glass Company accrued
during the second quarter of fiscal 1998. Despite the decline of marketing,
general and administrative expenses in the second quarter of fiscal 1998,
year-to-date expenses increased $64,000 to $1,720,000 for the six months ended
December 31, 1997, compared to expenses of $1,656,000 for the same period of
fiscal 1997. This increase included a non-cash compensation expense for
extensions of certain executive stock options and increased sales and
marketing activities reflected during the first quarter of fiscal 1998.
Marketing, general and administrative expenses are expected to decrease
slightly for the three months ended March 31, 1998, as compared to the same
period in the prior fiscal year, primarily due to lower payroll costs
resulting from fewer executives and the anticipated absence of a Chief
Executive Officer bonus accrual as was included in the third quarter of fiscal
1997, partially offset by increased sales and marketing activities.
Marketing, general and administrative expenses are expected to decrease
moderately in the third quarter of fiscal 1998 compared to the second quarter
of fiscal 1998, primarily due to lower payroll costs resulting from fewer
executives and the absence of executive severance as included in the second
quarter of fiscal 1998, partially offset by increased sales and marketing
activities.
The Company recorded no gain or loss on investments during the second quarter
of fiscal 1998, compared to a net gain of $278,000 for the three months ended
December 31, 1996. For the six months ended December 31, 1997, the Company
recorded a net loss on investments of $39,000 compared to a net gain of
$171,000 for the same period in fiscal 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 December 31, 1997, the Company had no investment
positions.
The Company recorded other expense of $3,000 and $11,000 for the three and six
months ended December 31, 1997, respectively, compared to other income of
$250,000 and $201,000 for the same periods in the prior fiscal year. The
decrease resulted primarily from the absence of a recovery of a note
receivable as recorded in the second quarter of fiscal 1997, partially offset
by the absence of architectural expenses recorded during fiscal 1997 for hotel
improvement projects that the Company decided not to pursue.
The Company recorded an income tax benefit of $5,000 for the second quarter of
fiscal 1998 and an income tax provision of $23,000 for the six months ended
December 31, 1997, compared to an income tax benefit of $9,000 for the second
quarter of fiscal 1997 and an income tax provision of $101,000 for the six
months ended December 31, 1996. Included in these amounts are state
provisions of $12,000 and $57,000 for the three and six months
<PAGE>
NBI, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER, FISCAL YEAR 1998 - CONTINUED
ended December 31, 1997, respectively, compared to $32,000 and $98,000 for the
same periods in fiscal 1996,
respectively. The state income tax provisions are related to the Company's
Pennsylvania operations and 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. 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. There were no non-cash components
included in the income tax provisions for the three and six months ended
December 31, 1997, compared to 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,
respectively.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company experienced no significant change in total assets during the first
six months of fiscal 1998. The Company had total assets of $11.4 million at
December 31, 1997, compared to $11.5 million at June 30, 1997. The Company had
negative working capital of $4.5 million at December 31, 1997, compared to
negative working capital of $4.2 million at June 30, 1997. The decline in
working capital resulted primarily from cash used to fund capital
improvements.
The entire outstanding principal balance on the IRS debt of $5,278,000 was due
in full on October 1, 1997. Prior to September 30, 1997, the Company began
negotiations with the IRS regarding the payment terms of the debt. Effective
September 30, 1997, the Company executed a Forbearance Agreement with the IRS
which was subsequently amended. The amended agreement provides that the IRS
will forbear from exercising its rights and remedies related to the Company's
debt until the earlier of i) fifteen days after receipt of written notice from
the IRS that it desires to terminate the Forbearance Agreement, ii) a
bankruptcy or insolvency proceeding has been initiated by or against NBI, Inc.
or iii) March 31, 1998. To date, no notice of termination has been received
by NBI from the IRS.
In order to pay the IRS debt, management intends to obtain additional debt or
equity financing. The Company is currently pursuing various financing
options, not only for the IRS debt, but also for its real estate development
activities; however, there can be no assurance 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 satisfaction of the IRS debt.
The Company expects its other working capital requirements in the next fiscal
year to be met by existing working capital at December 31, 1997, internally
generated funds and, for L.E. Smith Glass Company's requirements, short-term
borrowings under an existing line of credit.
<PAGE>
NBI, INC.
PART II - OTHER INFORMATION
Item 4 Results of Votes of Security Holders
- ----------------------------------------------------
The Company's annual meeting was held on December 5, 1997. At this meeting,
Jay H. Lustig and Martin J. Noonan were elected to serve as directors. The
voting results were as follows:
<TABLE>
<CAPTION>
Votes
Affirmative Withheld
Votes or Against Abstentions
--------- ----------- -----------
<S> <C> <C> <C>
1. To elect the nominee for the
Board of Directors:
Jay H. Lustig 5,375,709 32,467 --
Martin J. Noonan 5,373,629 34,547 --
</TABLE>
Item 6 Exhibits and Reports on Form 8-K
- ------- -------------------------------------
(a) Exhibits
27. Financial Data Schedule
(b) The following Form 8-K was filed during the quarter ended December
31, 1997:
1. Form 8-K dated December 30, 1997, Item 5 - Other Events:
The Company executed a First Amended Forbearance Agreement with the IRS which
extends the deadline under the original Forbearance Agreement related to NBI,
Inc.'s IRS debt of $5,278,000 that was due in full on October 1, 1997.
<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.
February 17, 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> 6-mos
<FISCAL-YEAR-END> Jun-30-1998
<PERIOD-START> Jul-01-1997
<PERIOD-END> Dec-31-1997
<CASH> 124
<SECURITIES> 0
<RECEIVABLES> 1,317
<ALLOWANCES> 79
<INVENTORY> 2,397
<CURRENT-ASSETS> 3,999
<PP&E> 8,723
<DEPRECIATION> 1,820
<TOTAL-ASSETS> 11,365
<CURRENT-LIABILITIES> 8,543
<BONDS> 1,666
<COMMON> 101
0
0
<OTHER-SE> 830
<TOTAL-LIABILITY-AND-EQUITY> 11,365
<SALES> 6,266
<TOTAL-REVENUES> 7,421
<CGS> 4,605
<TOTAL-COSTS> 5,421
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 47
<INTEREST-EXPENSE> 365
<INCOME-PRETAX> (135)
<INCOME-TAX> 23
<INCOME-CONTINUING> (158)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (158)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
<FN>
This schedule contains summary financial information extracted from the
consolidated financial statements of NBI, Inc. for the six months ended
December 31, 1997 and is qualified in its entirety by reference to such
financial statements.
</TABLE>
