-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, kLAQaCxfy1Bd7KB/1vWD8IcsPuURCXzbl5vaHQJyYAHfVunmzVZpVPR1FT8Z+W2/ /RUdY9EKECrR/1MeQUrjQA== 0000927356-95-000132.txt : 19950516 0000927356-95-000132.hdr.sgml : 19950516 ACCESSION NUMBER: 0000927356-95-000132 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950515 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NBI INC CENTRAL INDEX KEY: 0000313518 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER & OFFICE EQUIPMENT [3570] IRS NUMBER: 840645110 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-08232 FILM NUMBER: 95539110 BUSINESS ADDRESS: STREET 1: 1900 PIKE ROAD STE A CITY: LONGMONT STATE: CO ZIP: 80501 BUSINESS PHONE: 3036842700 MAIL ADDRESS: STREET 1: 1900 PIKE ROAD STREET 2: SUITE A CITY: LONGMONT STATE: CO ZIP: 80501 10QSB 1 FORM 10QSB 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, 1995 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 0-9403 NBI, INC. State of Incorporation IRS Employer I. D. Number Delaware 84-0645110 1880 Industrial Circle, Suite F Longmont, Colorado 80501 (303) 684-2700 Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] YES [ ] NO Check whether the registrant filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of securities under a plan of reorganization confirmed by a court. [X] YES [ ] NO Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at April 30, 1995 - -------------------------------------- ----------------------------- Common Stock, par value $.01 per share 6,499,459 PAGE 2 NBI, INC. INDEX TO FORM 10-QSB For Quarter Ended March 31, 1995
PAGE ---- PART I - FINANCIAL INFORMATION 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
PAGE3 NBI, INC. CONSOLIDATED BALANCE SHEET (Amounts in Thousands Except Share Data)
ASSETS ------ March 31, June 30, 1995 1994 ------------ ---------- Current assets: (Unaudited) Cash and cash equivalents................................... $ 1,266 $ 2,708 Trading securities.......................................... 4,216 -- Marketable securities....................................... -- 5,086 Receivables, net............................................ 532 750 Inventories................................................. 221 106 Other current assets........................................ 185 887 ------- ------- Total current assets..................................... 6,420 9,537 Property and equipment, net................................... 102 230 Other assets.................................................. 303 44 ------- ------- $ 6,825 $ 9,811 ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) -----------------------------------------------
Current liabilities: Current portion of income taxes............................ $ 2,457 $ 666 Short-term borrowings and current portion of notes payable......................................... 1,080 1,530 Accounts payable........................................... 602 478 Accrued liabilities........................................ 1,001 953 ------- ------- Total current liabilities............................... 5,140 3,627 Long-term income taxes....................................... 4,425 6,268 Notes payable............................................... 66 177 Long-term postemployment disability benefits................. 238 -- Stockholders' equity: Common stock - $.01 par value; 20,000,000 shares authorized; 10,001,270 shares issued...................... 100 100 Capital in excess of par value............................. 5,769 5,769 Accumulated deficit........................................ (7,705) (5,034) Foreign currency translation adjustment.................... 308 304 ------- ------- (1,528) 1,139 Less treasury stock, at cost (3,407,026 and 2,885,136 shares)................................................... (1,516) (1,400) ------- ------- Total stockholders' equity deficit......................... (3,044) (261) ------- ------- $ 6,825 $ 9,811 ======= =======
See accompanying notes. PAGE 4 NBI, INC. CONSOLIDATED STATEMENT OF OPERATIONS (Amounts in Thousands Except Per Share Data) (Unaudited)
Three Months Ended Nine Months Ended March 31, March 31, 1995 1994 1995 1994 -------- ---------- --------- -------- Revenues: Sales............................. $ 465 $ 709 $ 1,707 $ 1,391 Service........................... 322 347 836 1,032 ------ ------- ------- ------- 787 1,056 2,543 2,423 Costs and expenses: Cost of sales..................... 367 582 1,236 1,193 Cost of service................... 214 424 630 1,159 Product development and engineering...................... 65 71 227 160 Marketing, general and administrative................... 714 1,097 2,237 3,398 ------ ------- ------- ------- 1,360 2,174 4,330 5,910 ------ ------- ------- ------- Loss from operations............... (573) (1,118) (1,787) (3,487) Other income (expense): Interest income................... 36 75 154 450 Gain (loss) on investments and other income (exp)............... 364 (1,148) (220) 1,158 Interest expense.................. (191) (176) (553) (538) ------ ------- ------- ------- 209 (1,249) (619) 1,070 Loss before income taxes, minority interest and cumulative effect of change in accounting method.......................... (364) (2,367) (2,406) (2,417) Income tax expense.................. -- -- -- -- ------ ------- ------- ------- Net loss before minority interest and cumulative effect of change in accounting method............... (364) (2,367) (2,406) (2,417) Minority interest................... 6 -- 6 -- ------ ------- ------- ------- Net loss before cumulative effect of change in accounting method............................. (358) (2,367) (2,400) (2,417) Cumulative effect of change in accounting method.................. -- -- (271) -- ------ ------- ------- ------- Net loss........................... $ (358) $(2,367) $(2,671) $(2,417) ====== ======= ======= ======= Loss per common share: Net loss before cumulative effect of change in accounting method........................... $ (.05) $ (.32) $ (.35) $ (.32) Cumulative effect of change in accounting method................ -- -- (.04) -- ------ ------- ------- ------- Net loss.......................... $ (.05) $ (.32) $ (.39) $ (.32) ====== ======= ======= ======= Weighted average number of common and common equivalent shares outstanding..................... 6,595 7,513 6,815 7,639 ====== ======= ======= =======
See accompanying notes. PAGE 5 NBI, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Amounts in Thousands) (Unaudited)
Nine Months Ended March 31, 1995 1994 ---------- -------- Cash flows from operating activities: Net loss................................................ $(2,671) $(2,417) Adjustments to reconcile net loss to net cash flow used in operating activities: Depreciation and amortization....................... 102 147 Reduction in provision for bad debts................ (14) -- Provision for writedown of inventory................ 21 -- Provision for impairment of property and equipment.. 14 -- Loss (gain) on sales of property and equipment...... 8 (46) Net realized gain on investments.................... ** (2,289) Net unrealized loss on investments.................. 4 1,355 Cumulative effect of accounting change.............. 271 -- Other............................................... 27 101 Changes in assets -- decrease (increase): Accounts receivable............................... 275 105 Inventory......................................... (60) (60) Trading securities................................ (4,220) ** Marketable securities............................. 5,086 ** Other current assets.............................. 611 20 Changes in liabilities -- (decrease) increase: Accounts payable and accrued liabilities.......... 36 407 ------- ------- Net cash flow used in operating activities..... (510) (2,677) ------- ------- Cash flows from investing activities: Proceeds from sales of property and equipment.......... 45 51 Collections from notes receivable...................... 350 247 Sales or redemption of marketable securities........... ** 6,197 Sales of long-term treasury investments................ ** 10,801 Purchases of property and equipment.................... (19) (210) Issuance of notes receivable........................... (350) -- Purchases of marketable securities..................... ** (9,156) Purchases of long-term treasury investments............ ** (5,189) Payments for business acquisition...................... (288) (147) ------- ------- Net cash flow provided by (used in) investing activities....................................... (262) 2,594 ------- -------
(continued on following page) ** With the Company's adoption of FAS 115 as of July 1, 1994, activity related to trading securities is now classified as operating rather than investing. See accompanying notes. PAGE 6 NBI, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Amounts in Thousands) (Unaudited)
Nine Months Ended March 31, 1995 1994 ------- ------ Cash flows from financing activities: Issuance of treasury stock........................... -- 14 Purchases of treasury stock.......................... (116) (620) Payments on short-term borrowings and notes payable.. (2,931) (19) Short-term borrowings................................ 2,370 -- ------- ------ Net cash flow used in financing activities........ (677) (625) ------- ------ Effects of exchange rates on cash...................... 7 (1) ------- ------ Net decrease in cash and cash equivalents.............. (1,442) (709) Cash and cash equivalents at beginning of period....... 2,708 3,932 ------- ------ Cash and cash equivalents at end of period............. $ 1,266 $3,223 ======= ====== Supplemental schedule of non-cash investing and financing activities: Net transfers of inventory from property and equipment.......................................... $ -- $ 24 ======= ====== Foreign currency translation adjustments............. $ 4 $ 4 ======= ====== Supplemental disclosures of cash flow information: Interest paid........................................ $ 549 $ 529 ======= ====== Income taxes paid.................................... $ 52 $ -- ======= ======
See accompanying notes. PAGE 7 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. In the opinion of Management, the statements reflect all adjustments necessary for a fair statement of the results of operations for the interim periods. Certain items in the fiscal 1994 financial statements have been reclassified to conform to the fiscal 1995 manner of presentation. In addition, the accompanying Statements of Cash Flows have been presented under the indirect method of reporting cash flows rather than the direct method, as previously reported. All of the adjustments included in the financial statements are of a normal recurring nature. 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 - ----------------------------------- The Company's cash and cash equivalents of $1,266,000 at March 31, 1995, included $113,000 of restricted cash. This represents the amount held in trust for payments under self insurance plans. Note 3 - Investments in Securities - ---------------------------------- In May 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("FAS 115"). The Company adopted the provisions of the new standard for investments held as of or acquired after July 1, 1994. In accordance with the Statement, prior period financial statements have not been restated to reflect the change in accounting principle. There was no effect as of July 1, 1994 from implementation of this standard, as the carrying value of all of the Company's securities held at that date approximated market value. The Company's accounting policies for investments in securities are as follows: Trading securities: Trading securities are held for resale in anticipation of - ------------------- short-term market movements. These types of securities, consisting of marketable debt and equity securities, are stated at fair market value. Gains and losses, both realized and unrealized, are included in net gain (loss) on investments and other income (expense) when incurred. All dividends, interest and discount or premium amortization is included in interest income as earned. Cash flows from purchases and sales of trading securities are classified as cash flows from operating activities rather than from investing activities. Securities held-to-maturity: Debt securities are classified as held-to-maturity - ---------------------------- when the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost. Interest earned on securities classified as held-to-maturity, including any discount or premium amortization, is included in interest income as earned. Available for Sale: Marketable equity securities and debt securities not - ------------------- classified as either trading or held-to-maturity are classified as available- for-sale. Available-for-sale securities are carried at fair market value, with the unrealized gains and losses, net of tax, reported as a separate component of shareholders' equity. Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities are included in net gain (loss) on investments and other income (expense) when incurred. The cost of securities sold is based on the specific identification method. Interest and dividends earned on securities classified as available-for-sale, including any discount or premium amortization, are included in interest income as earned. Management determines the appropriate classification of debt securities at the time of purchase and reevaluates such designation as of each balance sheet date. PAGE 8 NBI, INC. SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 3 - Investments in Securities (continued) - ---------------------------------------------- During the three months and nine months ended March 31, 1995, all of the Company's securities were classified as trading securities; no securities were classified as held-to-maturity or available-for-sale. The Company recorded a net realized gain of $56,000 and a net unrealized gain of $299,000 on investments for the three months ended March 31, 1995. For the nine months then ended, the Company recorded net realized and unrealized losses on investments of $194,000 and $4,000, respectively. The Company's investment portfolio may, at any point in time, include a concentrated position in one security. As a result of this, the financial results may fluctuate significantly and have larger fluctuations than with a more diversified portfolio. Trading securities at March 31, 1995 did include a concentrated position in one equity security from the airline industry, for which the Company recorded a significant unrealized gain during the quarter ended March 31, 1995. Alternately, for the nine months ended March 31, 1995, the Company has recorded a significant unrealized loss on this equity security. However, as of May 10, 1995, the market value of this security was significantly higher than at March 31, 1995. Note 4 - Other Current Assets - ----------------------------- Other current assets at June 30, 1994, included $626,000 of restricted cash and investments held in trust for the Company's indemnity obligations related to any potential Directors' and Officers' liabilities arising from their service to the Company. In December 1994, the trust expired and the Company transferred the cash and investments held in trust, totaling $631,000, to its cash and trading securities accounts. Note 5 - Income Taxes - --------------------- On June 12, 1991, the Company reached a settlement with the Internal Revenue Service (IRS) as to NBI's federal income tax liabilities for the fiscal years ended June 30, 1980 through 1988. The full amount of the settlement for these years was $12,795,000, which consists of approximately $6,325,000 in taxes, and $6,470,000 in interest. Included in the $12,795,000 is approximately $2,600,000 related to a computer industry-wide issue which was being litigated by another taxpayer. In 1993, the Tax Court ruled in favor of the taxpayer in this case. On June 22, 1994, the Eighth Circuit Court of Appeals confirmed the Tax Court's decision. Since the case is no longer subject to appeal, the Company reversed $2.6 million from its long-term income taxes as of June 30, 1994. The agreement with the IRS provides for payment of the liabilities over a six-year period. Principal and interest payments are due quarterly from October 1, 1994, through 1997. Beginning after June 30, 1992, accelerated principal payments are required within forty-five days after the end of any fiscal quarter in which the Company's total domestic cash, cash equivalents, and treasury investments, excluding restricted cash, exceed levels specified in the settlement agreement. Any accelerated principal payment shall reduce the succeeding scheduled principal payment(s). As of March 31, 1995, NBI had approximately $6,882,000 of tax liabilities remaining on its balance sheet, $6,757,000 of which is related to the agreement with the IRS. There is no accelerated principal amount payable in the third quarter of fiscal 1995, in accordance with the agreement, based upon the Company's cash, cash equivalents and treasury investments at March 31, 1995. Furthermore, any other accelerated principal payments due within the next twelve months based upon subsequent quarter-end calculations are not determinable at March 31, 1995. Therefore, only the scheduled principal payments due within the next twelve months, totaling $2,457,000, have been classified as current at March 31, 1995. Note 6 - Short-term Borrowings and Current Portion of Notes Payable - ------------------------------------------------------------------- Included in short-term borrowings and current portion of notes payable were short-term borrowings of $970,000. These borrowings were collateralized by the Company's marketable securities. PAGE 9 NBI, INC. SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 7 - Postemployment Benefits - -------------------------------- During the second quarter of fiscal 1995, the Company adopted the provisions of Statement of Financial Accounting Standards No. 112, "Employers' Accounting For Postemployment Benefits" ("FAS 112"). This standard was effective July 1, 1994, however, its implementation was not recorded until October 1, 1994. The cumulative effect as of July 1, 1994 of adopting this standard, which was recorded in the second quarter of fiscal 1995, reduced net income by $271,000. There was no other material effect to the first quarter of fiscal 1995. The Company provides health care, life insurance, and disability benefits for eligible active employees. Prior to adoption of FAS No. 112, the Company recognized and funded the cost of these benefits over the employees' working lives, except for self-insured long-term disability costs which were recognized monthly as the disability continued. FAS No. 112 requires the Company to accrue the expected costs over the employee service period. As required by the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), the Company allows terminated employees who wish to continue health care coverage to pay the expected costs to be incurred, as determined by the insurance company administering the claims. However, because the Company is self-insured for health care costs, it is liable for any actual costs incurred in excess of the expected costs. As of March 31, 1995, there were no such known amounts. The Company's current life insurance and disability benefits are fully insured. Accordingly, the Company has no further liability and no accrual is needed. However, the Company previously had a disability benefit plan that was self- insured, under which payments are still being made. In accordance with FAS No. 112, the Company has accrued the present value of the expected payments, as of July 1, 1994, of $271,000, and recorded this as a cumulative effect of change in accounting method during the second quarter of fiscal 1995. The expected payments were calculated based upon the expected duration of each individual's disability or the time remaining until the individual reaches the age of 65, at which time the benefits cease if the individual is expected to remain disabled. The total liability outstanding at March 31, 1995, is $256,000, of which $238,000 is classified as long-term. Note 8 - Stockholders' Equity - ----------------------------- The Company has authorized 20,000,000 shares of $.01 par value common stock. At March 31, 1995, 10,001,270 shares were issued including 3,407,026 shares held in treasury. Therefore, the Company had 6,595,244 common shares outstanding at March 31, 1995. In February 1995, the Company issued warrants to purchase 1.7 million shares of its common stock at $.89 per share in conjunction with an acquisition. (See Note 9.) These warrants are exercisable from December 31, 1995 through December 31, 2002. On December 7, 1994, the Company's common stock was delisted from the Pacific Stock Exchange due to its inability to meet certain minimum stockholders' equity requirements. The Company's common stock is now traded over-the-counter. PAGE 10 NBI, INC. SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 9 - Related Party Transactions - ----------------------------------- In February 1995, the Company entered into an agreement to acquire 80% of the outstanding stock of a small novelty toy manufacturing company, effective as of January 1, 1995. Prior to this agreement the Company's Chief Executive Officer owned 55% of the outstanding stock of the manufacturer. Under the terms of the purchase agreement, the Company paid $288,000 in cash for the stock, including $158,000 paid to NBI's CEO. In addition, the sellers are eligible for royalty payments based upon gross margin performance in excess of specified amounts. In conjunction with the purchase agreement, the sellers were issued warrants to purchase a total of 1.7 million shares of NBI's common stock at a price of $.89 per share. These warrants are exercisable from December 31, 1995 through December 31, 2002. In addition, in December 1994, the Company advanced $100,000 to the acquired Company under the terms of a revolving line of credit, which expires on December 31, 1995. The debt bears interest at 1% per month. A portion of the funds advanced in December 1994 were used by the borrower to paydown $85,000 of an outstanding loan it had with NBI's CEO. The balance due under the line of credit at March 31, 1995, was eliminated in consolidation. In November 1994, the Company loaned its CEO $350,000 under the terms of a promissory note. The note provided for interest at the rate of 10% per annum and was paid in full in March 1995. Note 10 - Subsequent Events - --------------------------- On April 28, 1995, NBI, Inc's. international subsidiary, NBI, Ltd., completed a sale of certain assets of the company effective as of April 1, 1995. The sale provided for the transfer of all customers and current employees to the purchaser. Under the terms of this agreement, NBI, Ltd. will retain all cash accounts receivable, accounts payable and certain accrued liabilities. NBI, Ltd. will manage the disposition of these accounts until such time as it can complete an orderly dissolution of the entity. A small gain on the transaction is expected to be recorded in the fourth quarter of fiscal 1995. PAGE 11 NBI, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THIRD QUARTER - FISCAL 1995 RESULTS OF OPERATIONS The Company incurred a net loss of $358,000 for the quarter ended March 31, 1995, a significant improvement as compared to the net loss of $2,367,000 for the same period in fiscal year 1994. The improvement was primarily related to a significant net unrealized gain recorded in the third quarter or fiscal 1995 compared to a substantial net unrealized loss recorded in the comparable period of the prior fiscal year. In addition, operating expenses declined significantly due to the closure of the Company's domestic systems integration operation in June 1994. However, for the nine months ended March 31, 1995, the Company incurred a net loss of $2,671,000 compared to a net loss of $2,417,000 for the comparable period in the prior fiscal year. The increased net loss resulted primarily from the absence of substantial net realized gains on sales of investments, as recorded in fiscal 1994, and the cumulative effect of an accounting change recorded in fiscal 1995. These savings were partially offset by a substantial decline in the year-to-date net unrealized loss on investments and significant savings in operating expenses from the closure of the domestic systems integration operation in fiscal 1995 as compared to fiscal 1994. Sales revenue for the third quarter ended March 31, 1995, decreased 34.4% to $465,000 from $709,000 in the same period of fiscal year 1994. This decline resulted primarily from the absence of revenues from the Company's domestic systems integration division which was closed in June 1994. However, for the nine months ended March 31, 1995, sales revenues increased $316,000, or 22.7%, to $1.7 million. The increase resulted primarily from the acquisition of the Company's AlphaNet division and a majority owned novelty toy manufacturer, effective March 1, 1994, and January 1, 1995, respectively. In addition, international sales increased moderately year-to-date, primarily due to increased sales activity with existing customers in the second quarter and early in the third quarter. Sales revenue for the fourth quarter of fiscal 1995 are expected to decrease significantly compared to the same period in fiscal 1995, due to the disposition of the international operations effective April 1, 1995 and the absence of domestic systems integration sales. Furthermore, the addition of sales from the majority owned novelty toy manufacturer will be insufficient to cover the anticipated decline in sales resulting from the AlphaNet division's refocus on services and away from product sales. Sales revenues for the fourth quarter of fiscal 1995 are also expected to decline significantly compared to the third quarter of fiscal 1995 primarily due to the absence of international sales revenue. Service revenues for the quarter and the nine months ended March 31, 1995 were $322,000 and $836,000, reflecting decreases of $25,000 and $196,000 or 7.2% and 19.0%, respectively, as compared to the same periods of the prior fiscal year. This resulted primarily from continued erosion in the international proprietary maintenance base, as expected, as these revenues declined $132,000 to $26,000, and $465,000 to $126,000, for the three and nine months ended March 31, 1995, respectively. In addition, declines of $62,000 and $139,000 were experienced for the three and nine months ended March 31, 1995, due to the absence of domestic systems integration service revenues. However, these declines were partially offset by increases in AlphaNet's service revenues totaling $72,000 and $250,000 for the three and nine months ended March 31, 1995, respectively. Additionally, international systems integration service revenues increased $97,000 and $158,000, respectively to $218,000 and $413,000, for the quarter and nine months ended March 31, 1995, as compared to the same periods in the prior fiscal year due to increased sales activity with existing customers. Service revenues are expected to decline significantly in the fourth quarter of fiscal 1995, as compared to the previous quarter of fiscal 1995 and the same period of the prior fiscal year, primarily due to the absence of service revenues from the Company's international subsidiary. PAGE 12 NBI, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THIRD QUARTER - FISCAL 1995 Cost of sales as a percentage of sales revenues for the three and nine months ended March 31, 1995 were 78.9% and 72.4%, respectively, compared to 82.1% and 85.8% for the same periods in fiscal 1994. The improved margin resulted from the closure of the Company's domestic systems integration division, which produced unfavorable margins on its product sales, and the inclusion of AlphaNet sales and Krazy Colors sales at higher margin rates than the total average sales margin rates experienced in the comparable periods of fiscal 1994. Cost of sales as a percentage of sales revenues from the AlphaNet division and from Krazy Colors were 75.7% and 79.6% year-to-date, respectively. These improvements in margin were partially offset by reduced margins on the international systems integration sales due to the increasingly competitive market and focus on disposition activities. Cost of these international sales as a percentage of sales revenues increased to 77.5% and 70.5% for the three and nine months ended March 31, 1995, respectively, from 64.3% and 65.7% for the same periods in the previous year. Cost of services as a percentage of service revenue was 66.5% and 75.4% for the three and nine months ended March 31, 1995, compared to 122.2% and 112.3%, respectively, for the same periods of fiscal 1994. The increased margin performance was primarily due to a significant reduction in fixed costs related to the domestic systems integration technical operations group, resulting from the closure of this division, partially offset by reduced margins on the international proprietary maintenance revenues, as cost reductions continued to be insufficient to cover the decline in the related revenue. Product development and engineering expenses totaled $65,000 and $227,000 for the three and nine months ended March 31, 1995, compared to $71,000 and $160,000 in the same periods of the prior fiscal year. The increase in year-to-date expenses resulted from increased software development activity during fiscal 1995. However, these expenses were reduced slightly this quarter and are expected to remain at this lower level through the last quarter of the fiscal year. The Company is actively pursuing various sales and marketing options for its software product which was released late in the third quarter of fiscal 1995. However, there are still no assurances that the Company will find an effective way to sell and market the product or that the product will gain market acceptance. Marketing, general and administrative costs totaled $714,000 and $2,237,000 for the three and nine months ended March 31, 1995, compared to $1,097,000 and $3,398,000 for the same periods in fiscal 1994. The decline is primarily related to substantial savings realized in sales, marketing and administrative expenses associated with the domestic systems integration division due to its closure. These savings were partially offset by the addition of sales and administrative expenses related to the Company's AlphaNet division, acquired in March 1994, and the novelty toy manufacturer acquired effective January 1, 1995. In addition, the Company's international subsidiary incurred increased general and administrative expenses resulting from legal, consulting, travel and other costs related to the subsidiary's disposition activities. Interest income totaling $36,000 and $154,000 for the three and nine months ended March 31, 1995, reflect decreases of $39,000 and $296,000 compared to the same periods in fiscal 1994. The decrease in interest income is primarily due to a lower level of average outstanding cash and investments in fiscal 1995, as well as variances in the mix of debt and equity securities. The Company recorded a net gain on investments and other income of $364,000 in the third quarter of fiscal 1995, compared to a net loss on investments and other income of $1,148,000 for the corresponding quarter of fiscal 1994. The improvement was primarily related to a significant net unrealized gain recorded in the third quarter or fiscal 1995 compared to a substantial net unrealized loss recorded in the comparable period of the prior fiscal year. For the nine months ended March 31, 1995, the Company recorded a net loss on investments and other income of $220,000, compared to a net gain on investments and other income of $1,158,000 for the comparable period of fiscal 1994. The decline in net gain (loss) on investments and other income (expense) was primarily related to the absence of substantial realized gains on investments, partially offset by a substantial decline in the net unrealized PAGE 13 NBI, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THIRD QUARTER - FISCAL 1995 loss on investments for the nine months ended March 31, 1995, as compared to the same period of the prior fiscal year. Included in the net gain on investments and other income for the three months ended March 31, 1995, were net realized and unrealized gains on investments of $56,000 and $299,000, respectively. This compares to a net realized gain on investments of $2,000 and net unrealized loss of $1,159,000 recorded during the third quarter of fiscal 1994. For the nine months ended March 31, 1995, the Company recorded net realized and unrealized losses on investments of $194,000 and $4,000, respectively, while a net realized gain of $2,289,000 and a net unrealized loss of $1,355,000 was included in the nine months ended March 31, 1994. The Company has a concentrated position in one equity security in the airline industry for which the Company recorded a significant unrealized gain during the quarter ended March 31, 1995. Alternately, for the nine months ended March 31, 1995, the Company recorded a significant unrealized loss on this equity security. However, as of May 10, 1995, the market value of this security was significantly higher than at March 31, 1995. During the second quarter of fiscal 1995, the Company implemented Financial Accounting Standards Board Statement No. 112, "Employers' Accounting For Postemployment Benefits" ("FAS 112") which was effective July 1, 1994. The cumulative effect, as of July 1, 1994, of adopting this standard reduced net income in the second fiscal quarter of 1995 by $271,000. This resulted from accruing the present value of the expected disability benefits, to be paid out, under the Company's prior self-insured disability benefits program, over the next 12 years. The Company previously recognized these costs monthly as the disability continued. Currently the disability payments total approximately $4,000 per month for four individuals, expiring when the individuals reach the age of 65, unless their condition changes. The effect of this accounting change on future income is a reduction of costs approximating $4,000 each quarter increasing over the next 12 years to a maximum of $12,000 per quarter. The Company's current disability plan is fully insured. FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES The Company's working capital decreased $4.6 million from $5.9 million at June 30, 1994, to $1.3 million at March 31, 1995. The reduction of working capital resulted primarily from the Company's net loss of $2.7 million for the nine month period and from an increase of $1.8 million in the current portion of income taxes, as principal payments on the IRS debt began in January 1995. Total assets of $6.8 million at March 31, 1995, reflected a decline of $3.0 million from June 30, 1994. The decline in total assets occurred primarily due to the net loss during the period of $2.7 million. Management currently anticipates that working capital needs in the next year will be met by currently available cash and investments and internally generated funds. The Company continues to work towards profitability through cost reduction measures and acquisition of or investment in domestic businesses. The Company completed an acquisition of 80% of the stock of a small novelty toy manufacturer effective the beginning of the third fiscal quarter, which is expected to be profitable in calendar year 1995. In addition, in April 1995, the Company sold certain assets of its subsidiary in the United Kingdom. The sales agreement provided for the transfer of all customers and current employees to the purchaser which will significantly reduce future net losses sustained by this subsidiary. However, there are no assurances that these actions will be sufficient enough to bring the Company to profitability. PAGE 14 NBI, INC. PART II - OTHER INFORMATION Item 6 Exhibits and Reports on Form 8-K - ---------------------------------------- (a) Exhibits 27. Financial Data Schedule (b) No reports were filed on Form 8-K during the quarter ended March 31, 1995. Page 15 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 12, 1995 By: /s/ Marjorie A. Cogan - --------------------------- ----------------------------------- (Date) Marjorie A. Cogan As a duly authorized officer Corporate Controller, Secretary (Principal Financial and Accounting Officer) EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS JUN-30-1995 MAR-31-1995 1,226 4,216 532 0 221 6,420 102 0 6,825 5,140 4,729 100 0 0 (3,144) 6,825 1,707 2,543 1,236 1,866 227 0 553 (2,406) 0 (2,400) 0 0 (271) (2,671) (.39) (.39)
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