-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UQxm7/N2B6F0asPp5d6gBwb/wWVybWJgQYAD0zi8aYvKI2c9ZG12O37qLw7qKAAS cTbbwME5rYVKxaEJolxicw== 0000313518-01-500006.txt : 20010516 0000313518-01-500006.hdr.sgml : 20010516 ACCESSION NUMBER: 0000313518-01-500006 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NBI INC CENTRAL INDEX KEY: 0000313518 STANDARD INDUSTRIAL CLASSIFICATION: GLASS, GLASSWARE, PRESSED OR BLOWN [3220] IRS NUMBER: 840645110 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 001-08232 FILM NUMBER: 1640570 BUSINESS ADDRESS: STREET 1: 850 23RD AVENUE SUITE D STREET 2: SUITE F CITY: LONGMONT STATE: CO ZIP: 80501 BUSINESS PHONE: 3036842700 MAIL ADDRESS: STREET 1: 850 23RD AVENUE SUITE D CITY: LONGMONT STATE: CO ZIP: 80516 10QSB 1 mar01qsb.txt 10QSB FOR THE PERIOD ENDED MARCH 31, 2001 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 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 850 23rd Avenue, Suite D 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 May 8, 2001 Common Stock, par value $.01 per share 8,103,320 NBI, INC. INDEX TO FORM 10-QSB For Quarter Ended March 31, 2001
PAGE PART I - FINANCIAL INFORMATION Consolidated Financial Statements (Unaudited) 3 - 6 Supplementary Notes to Consolidated Financial Statements (Unaudited) 7 - 14 Management's Discussion and Analysis of Financial Condition and Results of Operations 15 - 17 PART II - OTHER INFORMATION 18
NBI, INC. CONSOLIDATED BALANCE SHEETS (Amounts in Thousands Except Share Data)
March 31, June 30, 2001 2000 ASSETS ------ Current assets: Cash and cash equivalents $ 56 $ 33 Accounts receivable, less allowance for doubtful accounts of $249 and $232, respectively 1,686 1,693 Inventories 2,906 3,000 Other current assets 403 234 Short-term deferred income taxes 57 56 Net current assets of discontinued operations 149 143 -------- -------- Total current assets 5,257 5,159 Property, plant and equipment, net 6,151 4,189 Note receivable from related party 2,700 2,700 Other assets 32 5 Net long-term assets of discontinued operations 1,410 1,480 -------- -------- $15,550 $13,533 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Short-term borrowings and current portion of notes payable $ 3,121 $ 1,948 Current portion of IRS debt and other income taxes payable -- 918 Accounts payable 1,758 1,222 Accrued liabilities and other 853 1,277 -------- -------- Total current liabilities 5,732 5,365 Long-term liabilities: Notes payable 2,166 130 Deferred income taxes 190 190 Postemployment disability benefits 142 153 Deferred gain from sale of discontinued operation, net of taxes 881 881 -------- -------- Total liabilities 9,111 6,719 -------- -------- Commitments and contingencies Stockholders' equity: Preferred stock - $.01 par value; 5,000,000 shares authorized; 507,421 shares of Series A Cumulative Preferred Stock issued and outstanding (liquidation preference value of $5,074) 5 5 Capital in excess of par value - preferred stock 4,380 4,380 Common stock - $.01 par value; 20,000,000 shares authorized; 10,130,520 shares issued 101 101 Capital in excess of par value - common stock 6,566 6,566 Accumulated deficit (3,745) (3,370) -------- -------- 7,307 7,682 Less treasury stock, at cost (2,027,200 shares) (868) (868) -------- -------- Total stockholders' equity 6,439 6,814 -------- -------- $15,550 $13,533 ======== ======== See accompanying notes.
NBI, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in Thousands Except Per Share Data) (Unaudited)
Three Months Ended Nine Months Ended March 31, March 31, 2001 2000 2001 2000 Revenues: Sales $3,223 $4,047 $11,055 $11,008 ------- ------- -------- -------- Costs and expenses: Cost of sales 2,910 3,003 8,999 8,170 Marketing, general and administrative 714 768 2,277 2,247 ------- ------- -------- -------- 3,624 3,771 11,276 10,417 ------- ------- -------- -------- Income (loss) from operations (401) 276 (221) 591 Other income (expense): Interest income 52 55 173 65 Net gain on investments -- -- -- 57 Other income and expenses, net -- 2 (16) 2 Interest expense (113) (268) (306) (365) ------- ------- -------- -------- (61) (211) (149) (241) ------- ------- -------- -------- Income (loss) from continuing operations before income taxes (462) 65 (370) 350 Income tax benefit (provision) 30 (36) 32 (57) ------- ------- -------- -------- Income (loss) before discontinued operations (432) 29 (338) 293 Income (loss) from discontinued operations, net of income tax benefit (provision) of $17, $15, $(4) and $(9), respectively (65) (17) (37) 16 ------- ------- -------- -------- Net income (loss) (497) 12 (375) 309 Dividend requirement on preferred stock (128) (126) (384) (378) ------- ------- -------- -------- Loss attributable to common stock $ (625) $ (114) $ (759) $ (69) ======= ======= ======== ======== Loss per common share - basic and diluted: Loss before discontinued operations $ (.07) $ (.01) $ (.09) $ (.01) Loss from discontinued operations (.01) -- -- -- ------- ------- -------- -------- Net loss $ (.08) $ (.01) $ (.09) $ (.01) ======= ======= ======== ======== Weighted average number of common shares outstanding 8,103 8,103 8,103 8,102 ======= ======= ======== ======== See accompanying notes.
NBI, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in Thousands) (Unaudited)
Nine Months Ended March 31, 2001 2000 Cash flows from operating activities: Net income (loss) $ (375) $ 309 Adjustments to reconcile net income (loss) to net cash flow provided by operating activities: Depreciation and amortization 813 737 Provision for bad debts and returns 63 34 Reversal of excess inventory provisions (34) (1) Gain on sales of property and equipment 18 -- Net unrealized gain on trading securities -- (2) Other (12) (11) Changes in assets -- decrease (increase): Trading securities -- 38 Accounts receivable (34) (912) Inventory 126 83 Other current assets (186) 142 Other assets (28) (2) Changes in liabilities -- (decrease) increase: Accounts payable and accrued liabilities (38) 639 Income taxes payable (42) (22) -------- -------- Net cash flow provided by operating activities 271 1,032 -------- -------- Cash flows from investing activities: Proceeds from sale of land and construction-in-progress, net of selling expenses -- 552 Proceeds from sales of property and equipment 2 -- Refund of a portion of deposit on sale of hotel (118) -- Purchases of property and equipment (2,412) (1,085) -------- -------- Net cash flow used in investing activities (2,528) (533) -------- -------- Cash flows from financing activities: Collections on note receivable 4 22 Dividends paid on preferred stock -- (182) Proceeds from stock option exercises -- 5 Proceeds from new line of credit, term loan and interim loan 5,650 -- Pay off of existing line of credit, term loan and interim loan (2,406) -- Payments on notes payable and line of credit from CEO (258) (216) Net borrowings on lines of credit 202 492 Payments on IRS debt (878) (900) -------- -------- Net cash flow provided by (used in) financing activities 2,314 (779) -------- -------- Net increase (decrease) in cash and cash equivalents 57 (280) Less change in cash and cash equivalents included in net current assets or liabilities of discontinued operations (34) 93 Cash and cash equivalents at beginning of period 33 311 -------- -------- Cash and cash equivalents at end of period $ 56 $ 124 ======== ======== See accompanying notes.
NBI, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in Thousands) (Unaudited)
Nine Months Ended March 31, 2001 2000 Supplemental disclosures of cash flow information: Interest paid $ 634 $ 227 ====== ====== Income taxes paid $ 89 $ 89 ====== ====== Noncash purchases of property, plant and equipment included in accounts payable at end of period $ 380 $ 107 ====== ====== Noncash issuance of note receivable for sale of land and construction-in-progress $ -- $2,700 ====== ====== Deferred gain recorded from sale of discontinued operation, net of taxes $ -- $ 881 ====== ====== Preferred stock dividends paid in-kind $ -- $ 70 ====== ====== Application of a portion of deposit on sale of hotel towards accrued interest on note receivable from a related party and other miscellaneous receivable $ 124 $ -- ====== ====== See accompanying notes.
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 (consisting of all normal recurring 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. Certain items in the fiscal 2000 financial statements have been reclassified to conform to the fiscal 2001 manner of presentation. 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 - Discontinued Operations On December 31, 1998, the Company established a plan to dispose of its Krazy Colors, Inc. ("Krazy Colors") operation due to continuing losses incurred by the operation, as well as the business' inability to sustain significant long-term customers. On August 19, 1999, the Board of Directors voted to sell the assets or stock of its wholly-owned subsidiaries, NBI Properties, Inc. ("NBI Properties") and Willowbrook Properties, Inc. ("Willowbrook Properties"), in order to pay the remaining balance of the IRS debt due on December 31, 1999 (see Note 8). Therefore, the Company has discontinued its children's paint manufacturing, hotel and real estate development operations, and it has separately reported the income or loss from these segments as discontinued operations for the quarters and nine months ended March 31, 2001 and 2000 as follows:
Children's Real Paint Hotel Estate Manufacturing Operations Development Total (Amounts in thousands) For the Quarter Ended March 31, 2001: - -------------------------------------- Revenues from discontinued operations $ -- $441 $ -- $441 ===== ===== ===== ===== Loss from discontinued operations before income taxes $ -- $(82) $ -- $(82) Income tax benefit -- 17 -- 17 ----- ----- ----- ----- Loss from operations -- (65) -- (65) Loss on disposal -- -- -- -- ----- ----- ----- ----- Net loss from discontinued operations $ -- $(65) $ -- $(65) ===== ===== ===== =====
NBI, INC. SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 3 - Discontinued Operations (continued)
Children's Real Paint Hotel Estate Manufacturing Operations Development Total (Amounts in thousands) For the Quarter Ended March 31, 2000: - ------------------------------------- Revenues from discontinued operations $ -- $ 476 $ -- $ 476 ====== ====== ====== ====== Loss from discontinued operations before income taxes $ -- $ (54) $ -- $ (54) Income tax benefit -- 22 -- 22 ------ ------ ------ ------ Loss from operations -- (32) -- (32) Gain on disposal, net of income tax provision of $7 15 -- -- 15 ------ ------ ------ ------ Net income (loss) from discontinued operations $ 15 $ (32) $ -- $ (17) ====== ====== ====== ====== For the Nine Months Ended March 31, 2001: - ----------------------------------------- Revenues from discontinued operations $ -- $1,656 $ -- $1,656 ====== ====== ====== ====== Loss from discontinued operations before income taxes $ -- $ (33) $ -- $ (33) Income tax provision -- (4) -- (4) ------ ------ ------ ------ Loss from operations -- (37) -- (37) Loss on disposal -- -- -- -- ------ ------ ------ ------ Net loss from discontinued operations $ -- $ (37) $ -- $ (37) ====== ====== ====== ====== For the Nine Months Ended March 31, 2000: - ----------------------------------------- Revenues from discontinued operations $ 21 $1,767 $ -- $1,788 ====== ====== ====== ====== Income (loss) from discontinued operations before income taxes $ -- $ 4 $ (1) $ 3 Income tax provision -- (2) -- (2) ------ ------ ------ ------ Income (loss) from operations -- 2 (1) 1 Gain on disposal, net of income tax provision of $7 15 -- -- 15 ------ ------ ------ ------ Net income (loss) from discontinued operations $ 15 $ 2 $ (1) $ 16 ====== ====== ====== ======
The disposal of the children's paint manufacturing operation was substantially complete as of September 30, 1999. On December 17, 1999, the Company sold a majority of the assets of its real estate development, consisting of land and construction-in-progress, to an entity which is 100% owned and controlled by NBI's CEO, Jay Lustig. The Company intends to sell all of the capital stock of NBI Properties to an entity which is also 100% owned and controlled by its CEO. The Company recorded a deferred gain on the sale of the real estate development during the second quarter of fiscal 2000 and expects a significant gain overall from the discontinued operations of the hotel, and therefore, no amount has been recorded related to this disposal; these gains will be recognized when realized. (See Notes 10 and 14). NBI, INC. SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 3 - Discontinued Operations (continued) The net long-term assets of discontinued operations at March 31, 2001 consisted primarily of the hotel's land, buildings, furniture, fixtures and equipment, net of a long-term mortgage note payable by the hotel. The net current assets of discontinued operations at March 31, 2001 consisted primarily of cash, net of accounts payable and accrued liabilities. Note 4 - Investments in Securities The Company held no investments and had no realized or unrealized gains or losses for the quarter or nine months ended March 31, 2001 and for the quarter ended March 31, 2000. During the nine months ended March 31, 2000, all of the Company's securities were classified as trading securities; no securities were classified as held-to-maturity or available-for-sale. The Company recorded realized and unrealized gains on investments of $55,000 and $2,000, respectively, for the nine months ended March 31, 2000. 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 March 31, 2001, the Company had no investment positions. Note 5 - Inventories Inventories are comprised of the following amounts which are presented net of reserves totaling $230,000:
March 31, 2001 (Amounts in thousands) Raw materials $ 660 Work in process 592 Finished goods 1,654 ------ $2,906 ======
Note 6 - Note Receivable from Related Party In conjunction with the sale of Willowbrook Properties' land and construction-in-progress (see Notes 3 and 14), on December 17, 1999, the Company received a note receivable in the amount of $2.7 million from an entity which is 100% owned and controlled by NBI's CEO. The note bears interest at the rate of two-year Treasury Notes plus 200 basis points with a rate of 8.14% determined at closing for the remainder of calendar 1999 and all of calendar 2000, a rate of 7.125% determined on December 31, 2000 for all of calendar 2001, and the rate to be redetermined each succeeding December 31 for the following calendar year's rate. The note is payable in quarterly installments of interest only with the entire outstanding principal balance plus any accrued but unpaid interest to be paid in full on December 31, 2006. NBI, INC. SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 7 - Property, Plant and Equipment On March 31, 2001, the L.E. Smith Glass Company ("L.E. Smith") placed in service a new crystal tank for its manufacturing facility. The crystal tank cost $2,159,000 and has an estimated useful life of 20 years with major refurbishments costing approximately $500,000 required every seven years. The tank was financed through a portion of the proceeds from a five-year bank note payable and working capital. In addition, on April 18, 2001, the Company closed on a low interest machinery and equipment loan from the Pennsylvania Department of Community and Economic Development ("PADCED") which was used to pay the final costs on the tank. (See Notes 9 and 15). Note 8 - Income Taxes At June 30, 2000, the Company was in default on its outstanding debt of $878,000 to the Internal Revenue Service ("IRS"). On November 1, 2000, the Company paid the IRS in full and cured its default with funds received from a bank refinancing at L.E. Smith (see Note 9). The payment totaled $1,157,000 and consisted of the remaining principal balance of $878,000 and cumulative accrued interest of $279,000. Income tax provision: For the three and nine months ended March 31, 2001, the Company recorded income tax benefits from continuing operations of $30,000 and $32,000, respectively. The Company recorded income tax provisions from continuing operations of $36,000 and $57,000 for the three and nine months ended March 31, 2000, respectively. These benefits and 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 or nine months ended March 31, 2001 or 2000. Willowbrook Properties' Sale: During the three months ended December 31, 1999, the Company recorded a taxable gain of approximately $920,000 from the sale of a majority of the assets of Willowbrook Properties, whereas, the gain was deferred for financial statement purposes (see Note 10). NBI did not incur any federal income taxes payable from this gain, due to the availability of post-reorganization capital loss carryforwards. However, it did incur approximately $40,000 of Pennsylvania state income taxes on this gain because Willowbrook Properties' did not have sufficient Pennsylvania net operating loss carryforwards available to offset the entire gain. The income tax expense has been netted against the deferred gain on the sale. Note 9 - Notes Payable and Short-term Borrowings On October 3, 2000, the Company closed on an interim loan of $300,000 with a new bank. The proceeds were used to fund a progress payment on the new crystal tank until the long-term bank financing could be completed. On October 31, 2000, the Company closed on new long-term bank financing for L.E. Smith consisting of a $3.0 million revolving line of credit and a five-year term note payable of $2,950,000. The proceeds were used to (i) payoff L.E. Smith's existing line of credit, term note and interim loan; (ii) payoff all of the outstanding principal and accrued interest on the Company's IRS debt; (iii) fund a majority of the purchase price of a new crystal tank for L.E. Smith (see also Notes 7 and 15); and (iv) provide additional working capital for L.E. Smith. NBI, INC. SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 9 - Notes Payable and Short-term Borrowings (continued) The following summarizes the Company's notes payable and short-term borrowings from continuing operations outstanding at:
March 31, 2001 (Amounts in thousands) Revolving bank credit note $2,531 Bank term note 2,756 ------ Total notes payable and short-term borrowings 5,287 Less current portion 3,121 ------ Long-term portion of notes payable $2,166 ======
The revolving bank credit note has a maximum of $3,000,000, is due November 30, 2002, and has interest ranging from the bank's prime rate (8.0% at March 31, 2001) less 1/2%, to the bank's prime rate plus 1%, depending upon attainment of certain financial ratios as defined in the agreement. The note is collateralized by a first security interest in all accounts receivable, inventories, personal property and all of the capital stock of L.E. Smith. In addition, the note is collateralized by a mortgage on the real property of L.E. Smith. The bank term note is payable in monthly installments of $62,143 including interest ranging from the bank's prime rate (8.0% at March 31, 2001) less 1/2% to the bank's prime rate plus 1%, depending upon the attainment of certain financial ratios, with the outstanding principal balance plus accrued interest due in full on November 30, 2005. The note is cross-collateralized with L.E. Smith's revolving bank credit note. The glass manufacturing company's revolving bank credit and term notes are subject to a credit agreement which contains covenants requiring maintenance of a minimum debt service coverage ratio and minimum tangible net worth. In addition, it prohibits certain activities of the glass manufacturing company without the bank's approval, including creation of debt or liens, payment of dividends, granting loans or making certain investments and participation in any mergers, acquisitions or ownership changes. Also, the agreement limits the amount of L.E. Smith's capital expenditures and dispositions of assets not in the ordinary course of business. As of May 11, 2001, the borrowings under the revolving line of credit exceeded the allowed borrowing base by approximately $300,000. Also, the Company expects that it may not meet the minimum financial ratios at its fiscal year-end as required under the credit agreement. The Company has been in discussions with the bank regarding this situation and is focusing on decreasing its cash requirements through reductions in factory headcount, cost controls and sales of excess inventory. Note 10 - Deferred Gain from Sale of Operation On December 17, 1999, the Company closed on the sale of a majority of the assets of a wholly-owned subsidiary, Willowbrook Properties, to an entity which is 100% owned and controlled by NBI's CEO. The terms and conditions of the sale were previously approved at NBI's Annual Meeting of Stockholders held on December 16, 1999. The Company has accounted for the sale in accordance with SFAS No. 66, "Accounting for Sales of Real Estate." The terms of the sale do not meet the requirements of SFAS No. 66 for recognition of gain until the purchase price is paid in full in cash. Consequently, the Company recorded a deferred gain on the sale of $881,000 during fiscal 2000, which is net of selling expenses of $48,000 and net of approximately $40,000 of related income taxes. (See Notes 3, 6, 8 and 14.) NBI, INC. SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 11 - Stockholders' Equity The Company has authorized 20,000,000 shares of $.01 par value common stock. At March 31, 2001, 10,130,520 shares were issued including 2,027,200 held in treasury. Therefore, the Company had 8,103,320 shares issued and outstanding at March 31, 2001. The Company has authorized 5,000,000 shares of preferred stock with a par value of $.01 per share, and has designated 2,000,000 preferred shares as Series A Cumulative Preferred Stock. At March 31, 2001, 507,421 registered shares of Series A Cumulative Preferred Stock were issued and outstanding. On August 19, 1999, the Board of Directors declared the first semi-annual dividend on its outstanding Series A Cumulative Preferred Stock to holders of record as of August 19, 1999. On September 3, 1999, $252,000 in dividends were paid, consisting of $182,000 in cash and 7,421 in additional shares of preferred stock, valued at $70,000, per the elections of the holders. No dividends have been declared or paid subsequently. Cumulative unpaid dividends totaled approximately $897,000 as of March 31, 2001. Note 12 - Loss Per Common Share The Company reports earnings per common share in accordance with Statement of Financial Accounting Standards ("SFAS") No. 128 issued by the Financial Accounting Standards Board. The following reconciles the numerators and denominators of the basic and diluted earnings per common share computation for income (loss) before discontinued operations:
For the quarters ended March 31, 2001 2000 Basic Diluted Basic Diluted (Amounts in thousands except per share data) Income (loss) before discontinued operations $ (432) $ (432) $ 29 $ 29 Dividend requirement on preferred stock (128) (128) (126) (126) ------- ------- ------- ------- Loss before discontinued operations attributable to common stock $ (560) $ (560) $ (97) $ (97) ======= ======= ======= ======= Weighted average number of common shares outstanding 8,103 8,103 8,103 8,103 ======= ======= Assumed conversions of stock options -- -- ------- ------- 8,103 8,103 ======= ======= Loss per common share before discontinued operations $ (.07) $ (.07) $ (.01) $ (.01) ======= ======= ======= ======= Because the Company had losses before discontinued operations attributable to its common stock for the quarters ended March 31, 2001 and 2000, none of its outstanding options or warrants were included in the computation of diluted earnings per share, as their effect would be anti-dilutive.
NBI, INC. SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 12 - Loss Per Common Share (continued)
For the nine months ended March 31, 2001 2000 Basic Diluted Basic Diluted (Amounts in thousands except per share data) Income (loss) before discontinued operations $ (338) $ (338) $ 293 $ 293 Dividend requirement on preferred stock (384) (384) (378) (378) ------- ------- ------- ------- Loss before discontinued operations attributable to common stock $ (722) $ (722) $ (85) $ (85) ======= ======= ======= ======= Weighted average number of common shares outstanding 8,103 8,103 8,102 8,102 ======= ======= Assumed conversions of stock options -- -- ------- ------- 8,103 8,102 ======= ======= Loss per common share before discontinued operations $ (.09) $ (.09) $ (.01) $ (.01) ======= ======= ======= ======= Because the Company had losses before discontinued operations attributable to its common stock for the nine months ended March 31, 2001 and 2000, none of its outstanding options and warrants were included in the computation of diluted earnings per share, as their effect would be anti-dilutive.
The options and warrants outstanding at March 31, 2001 were as follows:
Number Exercise Outstanding at Price March 31, 2001 Stock options: .38 201,000 .77 400,000 Warrants: .89 1,700,000 1.20 1,000,000 --------- 3,301,000 =========
Note 13 - Seasonal Variations of Operations Excluding the effect of its significant customer, L.E. Smith typically has its strongest revenue performance during the first and second fiscal quarters due to seasonal variations. Generally, the fourth fiscal quarter's revenue is moderately lower than in the first and second quarters, while the third fiscal quarter's revenue is usually significantly lower than the other quarters. However, historically these trends have been materially affected by fluctuations in the timing of orders from its significant customer, which does not have consistent trends. In addition, sales to L.E. Smith's other customers during the third quarter of fiscal 2000 were higher than in the first and second quarters of fiscal 2000 because the Company had a large increase in new customers during the third quarter. NBI, INC. SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 14 - Related Party Transactions Prior to NBI's 1999 Annual Meeting of Stockholders, the Company received a fairness opinion regarding its proposed sale of the majority of the assets of Willowbrook Properties and all of the capital stock of NBI Properties to entities which are 100% owned and controlled by its CEO. The fairness opinion concluded that the transaction was fair from a financial point of view. The terms and conditions of the proposed transaction were approved at NBI's Annual Meeting of Stockholders on December 16, 1999. On December 17, 1999, the Company closed on the sale of a majority of the assets of a wholly-owned subsidiary, Willowbrook Properties, to an entity which is 100% owned and controlled by NBI's CEO. The Company has accounted for the sale in accordance with SFAS No. 66, "Accounting for Sales of Real Estate." The terms of the sale do not meet the requirements of SFAS No. 66 for recognition of gain until the purchase price is paid in full in cash. Consequently, the Company recorded a deferred gain on the sale of $881,000 during fiscal 2000, which is net of selling expenses of $48,000 and net of approximately $40,000 of related income taxes. The sale consisted of land and construction-in-progress and was for a net purchase price of $3.3 million. The purchase price was net of construction costs which were previously funded by advances from Mr. Lustig. Concurrently with the closing of the Willowbrook Properties sale transaction, such amounts were deemed to be expenses of the buyer. The purchase price was paid by $600,000 in cash and a note payable in the amount of $2.7 million. (See Notes 3, 6, 8 and 10.) Mr. Lustig has proposed to purchase all of the capital stock of NBI Properties for $1.4 million in cash and a note payable of $1.1 million. On February 18, 2000, Mr. Lustig paid the Company a deposit of $500,000 related to this proposed purchase. During the second quarter of fiscal 2001, the Company refunded Mr. Lustig $118,000 of this deposit, applied $111,000 of the deposit towards interest receivable for July 1 through December 31, 2000 on the note receivable from a related party and applied $13,000 of the deposit towards a miscellaneous receivable from a related party. The remaining balance of the deposit of $258,000 was included in accrued liabilities and other at March 31, 2001. Mr. Lustig is still working on obtaining the funds to enable him to close on this transaction. The Company is also having discussions with other potential buyers. Note 15 - Subsequent Events On April 18, 2001, L.E. Smith closed on a $400,000 low interest machinery and equipment loan from PADCED. The proceeds were used to fund a portion of the cost of a new crystal tank (see Note 7) and an oxygen fuel system to be used in conjunction with the new crystal tank. The note provides for interest at the rate of 5.25%; however, PADCED may increase the interest rate to prime plus 2% should L.E. Smith fail to create and maintain a specified number of manufacturing jobs within three years from the loan closing. The note requires monthly principal and interest payments of approximately $8,000 beginning June 1, 2001 and is due in full on May 1, 2006. The note is collateralized by a second security interest in all of L.E. Smith's accounts receivable, inventories, intangibles, personal and real property and is guaranteed by NBI, Inc. NBI, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THIRD QUARTER, FISCAL YEAR 2001 The statements in this discussion contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, that are not historical facts. The forward-looking statements are based upon the Company's current expectations and are subject to known and unknown risks, uncertainties, assumptions and other factors. Should one or more of such risks or uncertainties materialize, or should underlying assumptions prove incorrect, the actual results could differ materially from those contemplated by the forward-looking statements. Factors that may affect such forward-looking statements include, among others, loss of significant customers, reliance on key personnel, competitive factors and pricing pressures, availability of raw materials, labor disputes, investment results, limitations on the utilization of net operating loss carryforwards, adequacy of insurance coverage, inflation and general economic conditions. RESULTS OF OPERATIONS Revenues from continuing operations totaled $3,223,000 for the three months ended March 31, 2001, compared to $4,047,000 for the same period in the prior fiscal year, reflecting a decrease of $824,000, or 20.4%. L.E. Smith experienced declines in sales to a majority of its customers, including a decrease of $215,000 in revenues from its largest customer; however, these declines were partially offset by $214,000 in revenues from one new customer. The decreased revenues resulted primarily from the down-turn in the economy. Many of L.E. Smith's existing customers have restricted their purchasing and the Company is continuing to experience delays in some large orders from new customers due to their apprehension regarding the weakening economy. Revenues of $11,055,000 for the nine months ended March 31, 2001 were flat compared to $11,008,000 for the same period in the prior fiscal year. Although L.E. Smith had increased revenues year-to-date from some of its larger customers, including an increase of $440,000 in sales to its largest customer and a large order in the third quarter from one new customer, the Company experienced declines in revenues from a majority of its other customers and a significant slow-down in new business. Revenues from continuing operations are expected to decrease substantially for the three months ended June 30, 2001, compared to the same period in the prior fiscal year because L.E. Smith expects a substantial decline in revenues from its largest customer, as well as a significant decline in revenues from its other customers due to the weakening economy. Revenues from continuing operations are expected to decrease significantly for the three months ended June 30, 2001, compared to the third quarter of fiscal 2001 due to a significant decline in revenues from its largest customer as well as continued declines in revenues from a majority of its other customers due to the slow-down in the economy. Cost of sales from continuing operations as a percentage of related revenue was 90.3% for the quarter ended March 31, 2001, compared to 74.2% for the same period in fiscal 2000. For the nine months ended March 31, 2001 and 2000, cost of sales from continuing operations as a percentage of related revenue was 81.4% and 74.2%, respectively. The related decline in gross margin resulted primarily from a substantial increase in natural gas costs, production inefficiencies related to installation of the new crystal tank, unfavorable absorption of fixed costs due to the lower revenue volume during the third quarter of fiscal 2001 and increased sales discounting. Cost of sales from continuing operations as a percentage of related revenue for the fourth quarter of fiscal 2001 is expected to be substantially higher compared to the fourth quarter of fiscal 2000 primarily due to continued high natural gas costs and substantially lower projected revenues available to cover fixed costs. Cost of sales from continuing operations as a percentage of related revenue for the fourth quarter of fiscal 2001 is expected to be moderately higher compared to the third quarter of fiscal 2001 primarily due to the expected decline in revenues and production inefficiencies resulting from reductions in manufacturing head count, partially offset by the absence of inefficiencies related to installation of the new tank. Marketing, general and administrative expenses from continuing operations totaled $714,000 for the three months ended March 31, 2001, compared to $768,000 for the same period in the prior fiscal year, reflecting a decrease of $54,000, or 7.0%. The decrease was primarily related to lower sales commissions resulting from the decline in revenues and lower commission rates associated with discounted sales. These savings were partially offset NBI, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THIRD QUARTER, FISCAL YEAR 2001 - CONTINUED by increased expenses for trade shows. For the nine months ended March 31, 2001, marketing general and administrative expenses increased $30,000, or 1.3% to $2,277,000 as compared to the same period in the prior fiscal year. Marketing, general and administrative expenses for the nine months ended March 31, 2001 included additional bad debt provisions required for receivables from insolvent companies compared to lower than usual provisions included in the same period of fiscal 2000, as well as increased general costs and trade show expenses. However, these increases were significantly offset by decreased expenses at the parent company level from cost saving measures, and lower sales commissions resulting from lower commission rates associated with discounted sales and from the commissionable sales mix including a significant increase in revenues from its largest customer which is a house account and is not subject to outside sales commissions. Marketing, general and administrative expenses are expected to decrease significantly for the three months ended June 30, 2001 compared to the same period in the prior fiscal year, and slightly compared to the third quarter of fiscal 2001, primarily due to lower sales commissions resulting from the projected declines in revenue. Interest income totaled $173,000 for the nine months ended March 31, 2001 compared to $65,000 for the same period in the prior fiscal year. The increase was primarily due to interest earned on a note receivable from a related party received in conjunction with the sale of Willowbrook Properties' land and construction-in-progress on December 17, 1999. Interest income for the three months ended March 31, 2001 totaled $52,000 compared to $55,000 for the same period in the prior fiscal year. The Company held no investments and had no realized or unrealized gains or losses for the quarter and nine months ended March 31, 2001 and the quarter ended March 31, 2000. For the nine months ended March 31, 2000, the Company recorded realized and unrealized gains on investments of $55,000 and $2,000, respectively. 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 March 31, 2001, the Company had no investment positions. Interest expense totaled $113,000 and $306,000 for the three and nine months ended March 31, 2001, respectively compared to $268,000 and $365,000, for the same periods in the prior fiscal year. The decrease was primarily due to $219,000 of interest expense recorded on NBI's IRS debt during the third quarter of fiscal 2000 resulting from the Company's default on this debt, whereas only $27,000 was incurred in fiscal 2001 during the first quarter, offset by higher interest from significantly increased outstanding debt resulting from L.E. Smith's new financing (see Note 9 to the accompanying consolidated financial statements). For the three and nine months ended March 31, 2001, the Company recorded income tax benefits from continuing operations of $30,000 and $32,000, respectively. The Company recorded income tax provisions from continuing operations of $36,000 and $57,000 for the three and nine months ended March 31, 2000, respectively. These benefits and provisions include state and other income taxes and are based upon book income. The state income tax provisions are related to the Company's Pennsylvania operations and are based upon book income, because the continuing operations do 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 such non-cash components included in the income tax provisions for the three or nine months ended March 31, 2001 or 2000. DISCONTINUED OPERATIONS On December 31, 1998, the Company established a plan to dispose of its Krazy Colors operation due to continuing losses incurred by the operation, as well as the business' inability to sustain significant long-term customers. On NBI, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THIRD QUARTER, FISCAL YEAR 2001 - CONTINUED August 19, 1999, the Board of Directors voted to sell the assets or stock of its wholly-owned subsidiaries, NBI Properties and Willowbrook Properties in order to pay the remaining balance of the IRS debt due on December 31, 1999 (see Notes 3, 8 and 14 to accompanying consolidated financial statements). Therefore, the Company has discontinued its children's paint manufacturing, hotel, and real estate development operations, and it has separately reported the income or loss from these segments as discontinued operations for the three and nine months ended March 31, 2001 and 2000. Revenues from discontinued operations totaled $441,000 and $1,656,000 for the three and nine months ended March 31, 2001, compared to $476,000 and $1,767,000 for the same periods in the prior fiscal year. The decline in revenues was primarily related to lower occupancy at the Belle Vernon Holiday Inn, resulting partly from the expiration of a long-term contract with a construction company, and increased competition for the restaurant and bar business. The Company recorded a net loss from discontinued operations of $65,000 for the three months ended March 31, 2001 compared to a net loss from discontinued operations of $17,000 for the same period of the prior fiscal year. Year-to-date, the Company recorded a net loss from discontinued operations of $37,000 in fiscal 2001 compared to net income from discontinued operations of $16,000 in fiscal 2000. The net long-term assets of discontinued operations at March 31, 2001 consisted primarily of the hotel's building and furniture, fixtures and equipment, net of a long-term mortgage note payable by the hotel. The net current assets of discontinued operations at March 31, 2001 consisted primarily of cash, net of accounts payable and accrued liabilities. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES The Company's total assets increased $2,017,000 to $15.6 million at March 31, 2001 from $13.5 million at June 30, 2000. The increase was primarily due to the completion of construction-in-progress on a new crystal tank for the glass manufacturing facility. The Company had negative working capital of $475,000 at March 31, 2001, compared to negative working capital of $206,000 at June 30, 2000. The decrease in working capital resulted primarily from significant increases in (i) short-term borrowings, used primarily to fund a portion of the capital expenditures during this period; (ii) current portion of long-term debt, related to L.E. Smith's new bank financing; and (iii) accounts payable, which included $293,000 at March 31, 2001 for the final costs on the new crystal tank. These items were partially offset by an increase in working capital of $1,157,000 resulting from the payoff of the IRS debt and related accrued interest on November 1, 2000 with long-term debt from L.E. Smith's new bank financing. (See Notes 7 and 9 to consolidated financial statements.) On March 31, 2001, L.E. Smith placed in service a new crystal tank for its manufacturing facility. The crystal tank cost $2,159,000 and has an estimated useful life of 20 years with major refurbishments costing approximately $500,000 required every seven years. The tank was financed through a portion of the proceeds from a five-year bank note payable and working capital. In addition, on April 18, 2001, the Company closed on a low interest machinery and equipment loan from PADCED which was used to pay the final costs on the tank. (See Notes 9 and 15 to consolidated financial statements). The Company expects its other working capital requirements in the next fiscal year, including any cash dividends on its preferred stock, to be met by internally generated funds including interest income from the note receivable from a related party, remaining cash proceeds due in conjunction with the pending sale of the stock of NBI Properties to the Company's CEO, and for L.E. Smith's requirements, short-term borrowings under an existing line of credit. However, as of May 11, 2001, the borrowings under the revolving line of credit exceeded the allowed borrowing base by approximately $300,000. Also, the Company expects that it may not meet the minimum financial ratios at its fiscal year-end as required under the credit agreement. The Company has been in discussions with the bank regarding this situation and is focusing on decreasing its cash requirements through reductions in factory headcount, cost controls and sales of excess inventory. NBI, INC. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) None (b) No reports on Form 8-K were filed during the quarter ended March 31, 2001 or subsequently. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NBI, INC. May 15, 2001 By: /s/ Marjorie A. Cogan ------------ ---------------------------------- (Date) Marjorie A. Cogan As a duly authorized officer Chief Financial Officer, Secretary -----END PRIVACY-ENHANCED MESSAGE-----