<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: JUNE 30, 1995
Commission File Number: 0-12410
BI INCORPORATED
---------------
(Exact name of registrant as specified in its charter)
COLORADO
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(State or other jurisdiction
of incorporation or organization)
84-0769926
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(I.R.S. Employer Identification No.)
6400 LOOKOUT ROAD, BOULDER, COLORADO 80301
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(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (303) 530-2911
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
Indicate by check mark whether the registrant (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.
Yes X No ___
---
At September 6, 1995, there were 6,759, 671 shares of Common Stock outstanding
and the aggregate market value of Common Stock held by non-affiliates was
$44,492,000.
DOCUMENTS INCORPORATED BY REFERENCE
Part III, Items 10, 11, 12 and 13 are incorporated by reference from the
Company's Proxy Statement for the Annual Meeting of Shareholders to be held on
November 9, 1995.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in difinitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
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PART I
ITEM 1. BUSINESS.
GENERAL
BI Incorporated (the "Company") designs, manufactures, markets and
supports electronic monitoring systems for use by corrections agencies in
electronically monitored house arrest ("EMHA") programs; an integral part of
community corrections. The Company also provides 24-hour monitoring services of
its equipment to community corrections agencies who choose to outsource their
electronic home arrest programs. For the institutional sector of the corrections
industry, BI provides the PREMIER JMS software system for complete management
and maintenance of jail and prison information.
Over the last ten years, BI has developed four generations of
electronic home arrest products, and has grown significantly through an
aggressive acquisition strategy. A direct competitor, Controlled Activities
Corporation was acquired in 1988. Security Research, Inc. and Correctional
Resources Incorporated which were acquired by BI in 1990, were combined to form
BI's monitoring service centers, allowing the Company to provide additional
services to corrections agencies. Recognizing yet another need within
corrections, BI purchased the product rights to an automated caseload management
service in December 1990, upon which BI's PROFILE/TM/ is based. In February
1991, the Company acquired another direct competitor, TrakTek, Inc.
The Company completed the acquisition of Guardian Technologies,
Inc. ("GTI") from its parent company, Cincinnati Microwave, Inc. ("CMI") in
March 1992. GTI provided monitoring services and had a strong client base, as
well as hardware manufactured by CMI and software for the home arrest market.
Furthermore, an Agreement with CMI provided for a strategic alliance with the
Company whereby the Company and CMI jointly designed, and CMI manufactured,
certain products for the Company. This Agreement was terminated in December 1994
(see Note 5 of the Notes to Financial Statements). The Company also received a
number of patents as part of the acquisition of GTI, one of which relates to
remote alcohol and drug detection, which management considers valuable to future
product development.
In December 1993, the Company acquired an exclusive license for
Jail Management Systems software from SCC Communications Corp. of Boulder,
Colorado for $1,250,000, upon which BI's PREMIER JMS product is based.
INDUSTRY BACKGROUND
According to the U.S. Bureau of Justice Statistics, nearly 5
million adults are under some form of correctional supervision in the U.S.
today. The number of prisoners under the jurisdiction of federal or state
correctional authorities at June 30, 1994 reached a record high of 1,012,851. In
the first six months of 1994, this population grew by 40,000; equivalent to the
addition of 1,500 inmates per week. Moreover, 2.9 million adults were under
parole or probation sanction.
The Company believes that its comprehensive product lines provide
viable, cost-effective solutions to the problem of prison overcrowding, as well
as providing additional innovative tools for corrections agencies and jails to
more effciently manage the vast amount of information required. Monitoring
services
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provided by BI enable corrections agencies to effectively manage probation and
parole populations for less than one-half the daily rate of traditional
institutional incarceration. Revenue can be returned to jurisdictions when
electronic home arrest programs are structured in a way that allows the offender
to pay for monitoring services.
THE MARKET
The primary users of the Company's products are worldwide
corrections agencies involved in probation, parole, pretrial or work furlough
programs at the federal, state and county levels. As of June 30, 1995, 957
separate sites were using the Company's EMHA systems and services.
PRODUCTS
BI Home Escort/TM/ System. The Company's premier product, the BI
-------------------------
Home Escort System, consists of a radio frequency transmitter worn on an
offender's ankle, a receiver unit called a field monitoring device ("FMD")
installed in the offender's home and a host computer. The transmitter produces
uniquely encoded signals which are received by the FMD. Using standard telephone
lines, the FMD relays the information to a monitoring center's host computer.
The host computer can communicate with several hundred FMDs at one time. If the
offender moves beyond a certain distance from the FMD, the radio signal is
broken and an indication of the break in transmission is relayed by the FMD to
the host computer. Monitoring center personnel enter predetermined curfews into
the host computer using the Company's proprietary software. If an offender fails
to comply with these terms, or tampers with the transmitter, the host computer
signals a violation and the officer in charge is alerted according to
predetermined agency criteria.
The BI Home Escort System is equipped with proprietary security
features which include patented electronic tamper detection devices that cause a
tamper signal to be transmitted to the host computer if the individual tampers
with either the ankle bracelet or the FMD, and a call back feature to confirm at
specified intervals the location of the FMD. The Company believes that with the
inclusion of these tamper detection devices, the system's ability to cross check
breaks in the transmission with pre-programmed curfew terms and the type of
operating system on the host computer effectively differentiate the BI Home
Escort System from its competitors' products.
The Company expanded the flexibility of the BI Home Escort System
by introducing a cellular option allowing the FMD and host computer to use
cellular telephone networks. The Product enhancement enables corrections
agencies to monitor individuals who do not have home telephone service, a common
situation in certain foreign countries. Additionally, the BI Home Escort host
computer can automatically fax its reports to agencies. The Company's voice
verification technology was also adapted to work with BI Home Escort and is
available as an option.
In May 1993, the Company introduced its newest generation of field
equipment, the BI 9000 Home Escort/TM/ Series. The new units deliver significant
reductions in size and weight and establish unprecedented industry standards for
security, performance and ease of use. The field-programmable transmitter
features a field-replaceable one-year battery and more sophisticated encoding
and encryption of messages.
The BI Drive-BI/TM/ Monitor. The BI Drive-BI Monitor is a portable
---------------------------
unit used to receive transmissions from ankle bracelet transmitters worn by the
offender. The Drive-BI does not require installation of
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an FMD in the offender's home. Rather, a compliance officer randomly drives by
the individual's residence or work place and uses the portable receiving unit to
verify compliance with the terms of the program.
BI Home Escort(TM) System 600. BI Home Escort System 600 is the
-----------------------------
latest generation host computer monitoring system introduced in February 1994.
The product is designed to grow with a correction agency's needs and can be
upgraded with additional disk space, memory or workstations. It features
multiprocessing capabilities, greater security, network communications and is
easy to use. Faster computing power and numerous automatic functions increase
an agency's productivity.
BI 9200 REACT(TM). The BI 9200 REACT is a remote, in-home alcohol
-----------------
testing device which can be used in conjunction with electronic home arrest
or as a stand alone product. It combines voice verification, triple tamper
protection and fuel cell technology to provide corrections officials with actual
analyses of offenders' blood alcohol gasses, not just breath results.
BI CONTINUUM(TM) Contact Module. The BI CONTINUUM Contact Module
-------------------------------
is a software and hardware combination that reduces the paperwork involved in
managing offenders in community corrections programs. Officers in the field use
a bar code scanner to record routine data on offender contacts. The information
collected is transferred into the data management software on an office computer
which is used to generate reports as desired.
BI Monitoring Services. BI Incorporated uses several of the
----------------------
Company's electronic monitoring products to provide corrections agencies with
comprehensive electronic home arrest monitoring services. Monitoring services
include entering data, monitoring the status of individuals as displayed by the
host computer and communicating any violations and other information according
to predetermined criteria. Corrections officials use BI's equipment without
having to provide agency staff to physically monitor individuals or capital to
purchase equipment. This allows flexibility, control, security and dramatic
savings over the costs of incarceration. The Company certifies its monitoring
center personnel who monitor subjects from secured locations in Boulder,
Colorado and Anderson, Indiana, 24 hours a day, seven days a week.
BI PROFILE(SM). BI PROFILE is an exception-based, automated
--------------
reporting service that replaces agencies' labor-intensive manual systems of
caseload management. Offenders assigned to BI PROFILE call a 900 number and
answer a series of questions asked by a computer regarding change of address,
telephone number or employment, compliance with court orders, restitution
payments, etc. Information collected by the computer is recorded and archived.
Through BI's monitoring center, BI PROFILE reports the exceptions or missed
calls to officials. This enables officers to supervise offenders who need their
attention.
Because BI PROFILE calls are billed to offenders, the cost to
participating agencies is nothing more than start up and training time. An
extension of BI PROFILE is PROFILE Plus(SM) which combines the automated
caseload management of BI PROFILE with the convenience of third party collection
of supervision and other fixed fees.
BI PREMIER(TM) Jail Management System. BI's newest product, BI
-------------------------------------
PREMIER Jail Management System ("JMS") is an applications software product that
offers centralized, integrated management of jail information. It provides
jails of all sizes comprehensive inmate tracking from entry through release
while supporting a broad range of additional jail operations. JMS generates a
full range of management information reports and enables authorized users to
query the jail database and create specialized reports from industry-standard
personal computer database packages.
Dairy Automated Feed Distribution Product. The Company's dairy
-----------------------------------------
cattle automated feed distribution product uses a passive radio frequency
identification tag fastened around cows' necks. Automatic
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identification of cows allows dairymen to tailor the appropriate ration of
concentrated feeds to the needs of the individual cows. The Company sells the
electronic components of the automated feed system to value-added resellers who
sell the completed system through their own distribution channels.
PRODUCT DEVELOPMENT
The Company designs and engineers the primary hardware and
software elements of its product lines, other than the host computer systems.
The Company solicits customer input to enhance its current products and to
develop and design new products. Currently, the Company is developing an open
system architecture platform for its JMS product. For the years ended June 30,
1995, 1994, and 1993, the Company had research and development expenses of
approximately $2,100,000, $1,500,000, and $1,700,000, respectively.
MANUFACTURING
In December 1994, the Company terminated its manufacturing
agreement with CMI (see Note 5 of the Notes to Financial Statements) and a local
circuit board assembler was selected. At its facility in Boulder, Colorado, the
Company performs final assembly, testing and quality control. The Company
generally uses standard parts and components obtained from a variety of vendors.
The Company has not experienced, and does not anticipate it will experience any
difficulty in obtaining the necessary manufacturing assemblies, parts and
components.
SALES, DISTRIBUTION AND MARKETING
The Company markets and sells its products and services throughout
the United States directly through its sales personnel. Monitoring services are
provided through the Company and the Company's authorized service providers. The
acquisition of GTI brought the Company a key account in Singapore. Because of
Singapore's EMHA program plans and strategic location in the Pacific Rim, the
Company views this program as key to future sales in the international market.
In fiscal 1995 and 1994, the Company sold its EMHA products to distributors in
the in the United Kingdom and Sweden, respectively. The Company believes the
success of these programs will open up other opportunities in the European
markets. The Company also markets its products internationally through its
distributor in Canada, and is actively pursuing opportunities in several other
countries.
Customers may acquire the Company's products and services by
purchase, lease or lease-purchase. Under a typical lease arrangement, the lease
term is for a period of up to one year, payments are due monthly and the Company
retains title to the equipment. Under the typical lease-purchase agreement, the
lease is for a term of 24 to 36 months, payments are due monthly and generally
the customer has the option to acquire the equipment at a nominal cost at the
end of the lease term. Payments by governmental entities under lease and lease-
purchase arrangements are contingent upon annual appropriations. The Company
believes that the likelihood of non-payment due to lack of appropriations is
remote. See Notes 1 and 3 to the Financial Statements.
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SIGNIFICANT CUSTOMERS
In fiscal 1995, the Administrative Office of the U.S. Courts
accounted for 14% of the Company's total revenue. A loss of this customer would
have a material, adverse effect on the Company. In fiscal 1994 and 1993, no
single customer accounted for more than 10% of the Company's total revenue.
CUSTOMER SERVICE, SUPPORT AND WARRANTIES
The Company believes that extensive customer service and support
are critical to maintaining a leading position in the EMHA industry. The
Company provides extensive support services to its customers including complete
installation, training and ongoing technical assistance. The Company operates a
toll-free hotline, which customers with products under warranty or covered by
extended service contracts may use to request assistance on the operation of the
Company's monitoring systems. The Company can perform many remote diagnostic
procedures using telephones and modems, and historically, using these
procedures, has been able to correct many of the difficulties experienced by its
customers. The Company provides customers any updates of its monitoring system
software free of charge during the warranty period and the period of an
extended service contract.
The Company arranges for 24-hour hardware service on the NCR
computer equipment and peripherals, and directly provides 24-hour software
support. Products manufactured by the Company are serviced at its Boulder,
Colorado facility. The Company provides a full warranty on all its products for
one year from the date of delivery or for the term of a lease. The Company also
offers, for a fee, annual extended service contracts which provide the same
coverage. Certain of the warranties provided by the Company's suppliers are for
a period less than the period by the Company to its customers.
BACKLOG AND RECURRING REVENUE
At June 30, 1995, the Company had a $447,000 backlog for purchases
of its BI Home Escort Systems which it delivered during the first month of
fiscal 1996, and a $63,000 backlog for its agricultural products for delivery
during the first month of fiscal 1996. The same backlogs were $552,000 and
$121,000, respectively, at June 30, 1994. The Company includes only firm
purchase orders in its backlog, which can vary significantly from month to
month. The Company believes that its backlog at any particular time is
generally not indicative of the level of future sales. In addition to purchase
backlog, the Company had approximately $1,650,000 of monthly recurring
monitoring, service and rental revenue under contract at June 30, 1995,
compared to approximately $1,300,000 at June 30 1994. The Company also has two
contracts to deliver Premier Jail Management software totalling approximately
$850,000 in revenue during fiscal 1996, compared to no contracts in fiscal 1995.
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COMPETITION
The Company believes there are seven competitors in the
manufacturing of EMHA equipment and 15 competitors in the monitoring of this
equipment. It is anticipated that competition will increase as additional
companies and corrections agencies recognize the benefits of EMHA programs. The
principal methods of competition are price, quality of products and service,
experience and proven product performance. While the Company believes that its
products and services are currently superior to those of its competitors, there
can be no assurance that this competitive advantage will be maintained.
Because of the relatively immature state of the corrections
information management systems market, the current competition to BI's
PREMIER(TM) Jail Management System is extremely fragmented. It consists of
approximately ten small applications companies who provide jail management
systems with widely varying degrees of functionality. With national focus on The
Federal Crime Bill, the Company believes competition will increase.
REGULATION
Since the Company's products emit radio frequency energy, they
are subject to government regulations as to power levels and frequency. The
Company has received approvals from the Federal Communications Commission and
waivers or approvals from certain foreign countries for its current products. It
will be necessary to obtain waivers or approvals for these products in other
countries in order to export these products and to obtain waivers or approvals
in the United States and foreign countries with respect to future products.
INSURANCE
The Company maintains general and professional liability
insurance coverage at $5,000,000 and $3,000,000, respectively. Management of the
Company believes such insurance is adequate for its existing operations.
PATENTS AND PROPRIETARY TECHNOLOGY
The Company has 22 United States and 15 foreign patents issued as
well as one United States patent and eight foreign patents pending. These
patents expire between 2001 and 2011. The Company licenses proprietary voice
verification technology exclusively for its home arrest product. This license is
in effect through December 1997, and may be extended. In December 1993, the
Company acquired an exclusive license for Jail Management Systems software.
There can be no assurance that the protection afforded by these patents and
licenses will provide the Company with a competitive advantage, or that the
Company will be able to successfully assert its intellectual property rights in
infringement actions. In addition, there can be no assurance that the Company's
current products or products under development will not infringe other patents
or proprietary rights of others.
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EMPLOYEES
At June 30, 1995, the Company had 234 full-time employees and 48
part-time employees, none of whom are represented by a union. Of these 282
employees, 24 were management and administrative; 50 sales, marketing, service
and support; 44 manufacturing; 31 research and development; and 133 were
monitoring. Management believes that its relations with its employees are good.
EXECUTIVE OFFICERS OF THE COMPANY
At June 30, 1995 the executive officers of the Company were as follows:
<TABLE>
<CAPTION>
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Name Age Position
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<S> <C> <C>
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David J. Hunter 50 President and Chief Executive Officer
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Mckinley C. Edwards, Jr. 53 Executive Vice President of Operations,
Secretary and Treasurer
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Richard L. Willmarth 45 Executive Vice President of Field
Operations
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Jacqueline A. Chamberlin 40 Vice President of Finance and Chief
Financial Officer
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</TABLE>
All executive officers serve at the discretion of the Board of Directors.
David J. Hunter joined the Company in June 1981, and served as
Operations Manager and Vice President of Operations from January 1982, Vice
President and Chief Operating Officer since July 1982, and was elected to the
Board of Directors in December 1982. In April 1985, he was elected President and
Chief Executive Officer.
Mckinley C. Edwards, Jr. has been Executive Vice President of
Operations since April 1985, and a Director since April 1990. He joined the
Company in November 1983, as Manufacturing Manager, was elected Vice President
of Manufacturing in November 1984, and Treasurer and Secretary in June 1986.
Richard L. Willmarth joined the Company in March 1988, as National
Sales Manager, was promoted to Vice President of Sales in February 1989, and
elected a corporate officer of this position in December 1990. In November 1993,
he was promoted to Executive Vice President of Field Operations.
Jacqueline A Chamberlin has been Vice President of Finance and
Chief Financial Officer since November 1993. She joined the Company in January
1983, and served as Accounting Manager through November 1985, Controller until
May 1992, and Vice President of Accounting until November 1993.
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ITEM 2. PROPERTIES.
In October 1990, the Company moved to 6400 Lookout Road, Boulder,
Colorado, and has signed a seven-year lease expiring September 1997, for
approximately 33,000 square feet. In January 1994, the Company added
approximately 16,000 square feet of office space in the same location under the
lease expiring September 1997. The Company also leases approximately 7,000
square feet under leases expiring June 1995, in Anderson, Indiana for the
Company's eastern monitoring office. Currently the Company is renegotiating its
Anderson lease for approximately the same square feet. The Company is planning
to add up to 10,000 square feet of office space in Boulder during fiscal 1996.
ITEM 3. LEGAL PROCEEDINGS
On February 1, 1995, Digital Products Corporation and Monitoring
Services, Inc. files a complaint naming BI Incorporated and Michael Fox, a BI
employee, as defendants in the United States District Court for the District of
New Jersey, alleging intentional, malicious and tortious interference with
present and prospective contractual relations. They are seeking damages in
excess of $50,000. The Company intends to vigorously defend this action.
On April 21, 1995, Clara Willis, special administrator of the
Estate of Seke T. Willis, deceased, filed a complaint naming Michael Sheahan,
Sheriff of Cook County, Gerald Hodges, County of Cook minicipality, Cook County
Department of Corrections and BI Incorporated as defendants in the Circuit Court
of Cook County, Illinois, alleging malfunction of a home arrest system causing
wrongful death. This action is in early stages of discovery. However, the
Company believes its equipment worked appropriately and intends to vigorously
defend this action.
On April 28, 1995, Jorge Rivera, Surillo & Co, Inc. filed a
complaint naming BI Incorporated as defendant in the San Juan Supreme Court,
alleging wrongful termination of a distributor agreement. He is claiming damages
in excess of $2,700,000. The action is in early stages of discovery. The Company
intends to vigorously defend this action. The Company has requested that this
case be moved to Federal District Court in Puerto Rico.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS.
The Common Stock is traded on the Nasdaq Stock Market under the
symbol "BIAC."
The following table sets forth for the periods indicated the range
of high and low bid prices for the Common Stock as reported by NASDAQ. The bid
quotations represent inter-dealer quotations, without retail mark-ups,
mark-downs or commissions and may not necessarily represent transactions.
<TABLE>
<CAPTION>
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Fiscal Year Ended June 30,
1995
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High Low
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<S> <C> <C>
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First Quarter $5.38 $3.75
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Second Quarter 5.75 4.25
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Third Quarter 7.00 4.38
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Fourth Quarter 7.38 5.75
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<CAPTION>
Fiscal Year Ended June 30,
1994
<S> <C> <C>
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First Quarter $9.88 $6.50
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Second Quarter 8.88 5.50
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Third Quarter 6.25 3.75
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Fourth Quarter 6.25 4.38
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</TABLE>
As of June 30, 1995, there were approximately 6,000 holders of
record of the Common Stock.
The Company has never paid cash dividends. It is the Company's
intention to retain earnings to finance the expansion of its business, and
therefore it does not anticipate paying cash dividends in the forseeable
future. Payment of dividends, if any, will be at the discretion of the Board of
Directors after taking into account various, factors, including the Company's
financial condition, results of operations, current and anticipated cash needs,
plans for expansion and restrictions, if any, under its debt obligations. The
Company's current line of credit however, the Company does not owe any amounts
on the line of credit, and therefore is not subject to these dividend
restrictions.
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ITEM 6. SELECTED FINANCIAL DATA.
The following selected Balance Sheet data and Statement of
Operations data have been derived from the Financial Statements of the Company.
The financial data set forth below should be read in conjunction with the
Financial Statements and notes thereto and Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations.
<TABLE>
<CAPTION>
Year Ended June 30,
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1995 1994 1993 1992 1991
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(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue $29,873 $22,701 $24,634 $17,210 $14,719
Cost of operations 13,788 10,645 11,179 8,249 6,382
------- ------- ------- ------- -------
Gross profit 16,085 12,056 13,455 8,961 8,337
Selling, general and
administrative expenses 9,247 8,554 7,948 6,817 5,442
Depreciation and amortization 1,249 1,233 1,422 693 456
Research and development
expenses 2,117 1,553 1,651 1,301 1,488
------- ------- ------- ------- -------
Income before income
taxes and extraordinary item 3,472 716 2,434 150 951
Income tax provision (1,150) (277) (1) (848) (124) (421)
-------- -------- -------- -------- --------
Income before extra-
ordinary item 2,322 439 1,586 26 530
Extraordinary item - tax
benefit resulting from
utilization of operating
loss carryforward 248 92 331
------- ------- ------- ------- -------
Net income $ 2,322 $ 439 $ 1,834 $ 118 $ 861
======= ======= ======= ======= =======
Net income per share (2) $ .34 $ .06 $ .25 $ .02 $ .15
======= ======= ======= ======= =======
Weighted average common and common
equivalent shares outstanding 6,883 7,227 7,257 6,267 5,566
======= ======= ======= ======= =======
BALANCE SHEET DATA:
Working capital $12,938 $11,709 $13,825 $9,522 $14,364
Total assets 36,881 36,871 35,354 32,566 24,247
Long-term debt, net of current
maturities and deferred revenue 146 209 582 4 335
Total stockholders' equity 32,332 32,186 31,085 28,470 21,955
</TABLE>
(1) Cumulative effect on prior years of the change in the method of accounting
for income taxes for the year ended June 30, 1994 was $75,000.
(2) Income per share before extraordinary item was $.22, $.01, and $.10 for the
fiscal years ended June 30, 1993, 1992, and 1991, respectively.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS:
The following table sets forth, for the periods indicated, the percentage
of revenue of selected amounts from the Company's Consolidated Statement of
Operations:
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------------------
1995 1994 1993
---------------------------------------------
<S> <C> <C> <C>
Revenue
Net Sales 40.2% 38.6% 51.9%
Service, monitoring & rental income 58.7 59.9 47.0
Interest and other income 1.1 1.5 1.1
----- ----- -----
Total revenue 100.0 100.0 100.0
----- ----- -----
Gross profit
Net sales 50.5 46.5 55.1
Service, monitoring & rental income 55.4 56.2 53.0
----- ----- -----
Total gross profit 53.8 53.1 54.6
----- ----- -----
Expenses
Selling, general & administrative 30.9 37.7 32.2
Depreciation & amortization 4.2 5.4 5.8
Research & development 7.1 6.8 6.7
----- ----- -----
Total expenses 42.2 49.9 44.7
----- ----- -----
Income before taxes, extraordinary item and accounting change 11.6 3.2 9.9
----- ----- -----
Net income 7.8% 1.9% 7.4%
====== ====== ======
</TABLE>
REVENUE
Total revenue increased 31.6% from $22,701,000 in 1994 to $29,874,000 in
1995. Net sales, service and monitoring income increased 37.3% and 30.6%,
respectively in 1995. There continues to be a transition by government agencies
to contract monitoring services rather than purchase home arrest equipment to
run their own programs. Thirty-three percent of 1995 net sales revenue was
generated from service provider companies who buy the Company's equipment and
provide the monitoring services to government agencies instead of the Company.
Therefore, directly or indirectly, 72% of the Company's total revenue was
related to providing services through monitoring and equipment rentals to
government agencies. The number of customer sites using the Company's monitoring
services increased 33% from June 30, 1994 to June 30, 1995. At June 30, 1995,
the Company had monthly recurring revenue of approximately $1,600,000 from such
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contracts compared to approximately $1,300,000 at June 30, 1994. The increased
customer base gives the Company's annual revenue more predictability and
opportunity to increase future recurring revenue .
Total revenue decreased 7.8% from $24,634,000 in 1993 to $22,701,000 in
1994. Net sales decreased $4,026,000 or 31.5% in 1994 compared to the same
period in 1993. This decline related largely to two customers who generated
$2,931,000 of sales revenue in 1993 compared to $374,000 in 1994. In addition,
because of the transition by government agencies to contract monitoring
services, revenue was recognized on a daily basis on the number of units
monitored and rented versus one-time equipment sales. Therefore service,
monitoring and rental income increased 17.5% to $13,607,000 for 1994 compared to
$11,576,000 in 1993.
The Company continued to manufacture and sell agriculture products to its
existing customers. Net sales revenue was $364,000, $469,000, and $287,000 in
fiscal 1995, 1994 and 1993, respectively.
Gross Profit
Gross profit as a percentage of total revenue increased from 53.1% in 1994
to 53.8% in 1995. During the first half of 1995, the Company continued to
experience design and manufacturing quality problems on its home arrest
equipment manufactured by Cincinnati Microwave, Inc. (CMI) under an OEM
agreement. Rework costs were recorded in cost of goods. In December 1994, the
Company terminated this agreement (see Note 5 to the Financial Statements). An
alternative circuit board assembler was selected in Colorado. The manufacturing
rights, documentation, technology, tools and molds were received by the Company
and used to manufacture the home arrest product at a reduced cost from that
charged by CMI. These savings began to be reflected in the Company's fourth
quarter of 1995 and should continue into 1996. Cost of goods on net sales income
in 1995 was impacted negatively by the inclusion of $252,000 in amortization of
the jail management system software which did not recognize any revenue during
1995. In fiscal 1996, the Company expects net sales margins to be consistent
with those in 1995 .
Gross profit on service, monitoring and rental income decreased to 55.4% in
1995 compared to 56.2% in 1994. Cost of goods increased largely as a result of
increased monitoring labor required for specialized monitoring contracts. The
Company is currently working on additional automation of the monitoring software
to improve labor efficiencies .
Gross profit as a percentage of total revenue decreased from 54.6% in 1993
to 53.1% in 1994. During the last half of 1994, the Company offered a program to
its customers to upgrade their home arrest equipment to its premier BI 9000 Home
Escort Series. Lower margins were recognized from this upgrade program. Also,
rework costs associated with the CMI manufacturing contract reduced margins as
discussed above. Gross product on service, monitoring and rental income
increased to 56.2% in 1994 from 53.0% in 1993 largely as a result of
efficiencies gained from increased units being monitored during 1994 compared to
1993.
Selling, General and Administrative Expenses (S,G&A)
S,G&A expenses increased from $8,554,000 in 1994 to $9,247,000 in 1995, but
decreased as a percentage of total revenue to 30.9% in 1995 compared to 37.7%
one year ago. The increase of $693,000 in 1995 is largely related to increased
sales, marketing, account management and commission expenses on increased
revenue. In its fourth quarter of 1995, the Company wrote down its investment in
JurisMonitor, Inc. (Juris) by $100,000. On July 5, 1995, the Company signed a
letter of intent to acquire the assets of Juris. The valuation of the assets
should equal or exceed the remaining $117,000 investment remaining on the
balance sheet (see Note 10 to the Financial Statements). At June 30, 1995, the
Company had 234 full-time employees, compared to 208 employees at June 30, 1994.
In fiscal 1996 the Company expects
12
<PAGE>
to increase marketing expenses associated with continued efforts to identify
market expansion and diversification opportunities.
S,G&A expenses increased form $7,948,000 in 1993 to $8,554,000 in 1994. The
increase of $606,000 was largely related to expenses associated with selling and
marketing efforts to increase and expand the customer base. In the third fiscal
quarter of 1994 the Company implemented certain cost reductions which were
reflected in its fourth quarter. At June 30, 1994, the Company had 208 full-time
employees, compared to 186 employees at June 30, 1993.
Amortization and Depreciation (A&D)
Fiscal 1995 and 1994 amortization expense associated with the manufacturing
contract with CMI was included in cost of goods in the amount of $506,000 and
$353,000, respectively. In 1993, this amortization of $300,000 was recorded in
A&D expense. During 1994, amortization expense if $117,000 associated with the
acquisition of the JMS software was also recorded as an A&D expense. During
1995, the Company recorded JMS amortization expense as cost of goods in the
amount of $252,000.
Research and Development Expenses (R&D)
R&D expenses increased to $2,117,000 in 1995 from $1,553,000 in 1994 but
remained at approximately 7% of total revenue for both periods. During 1995, the
Company expensed $144,000 associated with cost over-runs on a JMS project to be
delivered and accepted by the customer in fiscal 1996. The Company also incurred
additional development expenses of $148,000 to expand the functionality of JMS.
Increased R&D expenses also resulted from the Company's development of a newly
introduced alcohol monitoring product. During 1996, the Company expects R&D
expenses to remain at approximately 7% of total revenue for new product
development and certain enhancements to the Company's monitoring center
operations .
Net Income and Income Taxes
The Company recorded income tax expense of $1,375,000 and $352,000 for 1995
and 1994, respectively, which differs form the statutory rate largely as a
result of non-deductible goodwill amortization expense. During 1995, tax expense
was reduced by the release of a deferred tax asset valuation allowance of
$225,000 as the Company now believes that it is more likely than not that such
assets will be realized. A $75,000 benefit was recorded during 1994 from the
adoption of Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes."
For fiscal 1995, the Company had net income of $2,322,000 or $.34 per share
compared to net income of $439,000 or $.06 per share in fiscal 1994. The
increase in net income relates primarily to the items discussed above.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1995, the Company generated $5,786,000 of cash from operating
activities, received $271,000 form the issuance of common stock, repurchased
$2,500,000 of its common stock, expended $1,326,000 for capital equipment and
leasehold improvements, expended $2,527,000 for equipment associated with rental
and monitoring contracts, and paid
13
<PAGE>
$235,000 for internally developed software. Together, these activities resulted
in a decrease in the balance of cash and cash equivalents of $687,000 for fiscal
1995.
The Company's working capital increased approximately $1,228,000 to
$12,938,000 at June 30, 1995. The increase in working capital was primarily the
result of increases in receivables, sales-type leases and inventories offset by
increases in deferred revenue and accrued compensation and benefits.
The Company has an available $2,000,000 line of credit with Bank One,
Boulder, Colorado which expires in September 1995. The Company intends to renew
the credit line. No amounts were drawn against this line at June 30, 1995.
Working capital may be obtained by financing certain operating and
sales-type leases under recourse and non-recourse borrowing arrangements. These
borrowings would be collateralized with a security interest in the leased
equipment. At June 30, 1995, the Company had unfunded leases in the amount of
approximately $5,711,000 against which it may attempt to borrow.
The Company believes it will have adequate cash to fund anticipated working
capital needs through fiscal 1996.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Report of Independent Accountants and Financial Statements are set
forth of pages F-1 to F-17 of this report.
Schedule VIII is provided in the Financial Statement Schedule Section. All
other financial statement schedules are omitted because they are not applicable
or the required information is shown in the Consolidated Financial Statements or
notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There were not changes in accountants and no significant disagreements with
accountants on accounting and financial disclosure.
14
<PAGE>
PART III
Items 10 (except as to executive officers, see Part I), 11, 12 and 13
are hereby incorporated by reference from the Company's Proxy Statement for the
Annual Meeting of Shareholders to be held on November 9, 1995.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements
Report of Independent Accountants
Balance Sheet at June 30, 1995 and 1994
Statement of Operations for each of the three years in
the period ended June 30, 1995
Statement of Changes in Stockholders' Equity for each of
the three years in the period ended June 30, 1995
Statement of Cash Flows for each of the three years in
the period ended June 30, 1995
Notes to Financial Statements
2. Financial Statement Schedules:
Schedule VIII - Valuation and qualifying accounts
All other financial statement schedules are omitted
because they are not applicable or the required
information is shown in the consolidated financial
statements or notes thereto.
(b) Reports on Form 8-K: Amendments No. 2 and No. 3 to Form 8-K
dated March 27, 1992. Previously filed with the Commission
as an exhibit to Form S-3 dated June 21, 1993 and as
amended July 6, 1993, and incorporated by reference.
(c) Exhibits:
3.1 Articles of Incorporation, as amended, of the Registrant (1)
3.2 Bylaws, as amended, of the Registrant (2)
4.1 Form of Common Stock Certificate (3)
4.2 Warrant dated November 3, 1993 for 4,500 shares, previously
filed with the Commission as an exhibit to 1994 Form 10-K and
incorporated by reference.
4.3 Warrant dated July 28, 1993 for 7,500 shares, previously
filed with the Commission as an exhibit to 1994 Form 10-K and
incorporated by reference.
15
<PAGE>
4.4 Warrant dated November 18, 1992 for 4,500 shares. Previously
filed with the Commission as an exhibit to 1993 Form 10-K,
and incorporated by reference.
4.5 Warrants dated April 24, 1991 for 67,967 shares. Previously
filed with the Commission as an exhibit to 1991 Form 10-K,
and incorporated by reference.
4.6 BI Incorporated Employee Non-Qualified Stock Option Plan.
Filed as an exhibit to Form S-8, March 24, 1988 (Registration
No. 33-20843), and incorporated by reference, and modified by
exhibit to Form S-8, filed with the Commission on December
28, 1990, and incorporated by reference.
4.7 BI Incorporated Director and Key Employee Non-Qualified Stock
Option Plan. Filed with the Commission on May 29, 1990, as an
exhibit to Form S-8, and incorporated by reference, and
modified by exhibit to Form S-8, filed with the Commission on
April 28, 1993, and incorporated by reference.
4.8 BI Incorporated Incentive Stock Option Plan, Filed with the
Commission on March 24, 1988 as an exhibit to Form S-8,
(Registration No. 33-20843), and incorporated by reference,
and modified by exhibit to Form S-8, filed with the
Commission on December 28, 1990, and incorporated by
reference.
4.9 1990 Director Non-Qualified Stock Option Plan. Previously
filed with the commission as an exhibit to 1990 Form 10-K,
and incorporated by reference.
4.10 BI Incorporated 1991 Employee Stock Purchase Plan. Filed with
the commission on December 28, 1990 as an exhibit to Form S-
8, Registration No 33-38428, and incorporated by reference.
4.11 BI Incorporated 1991 Stock Option Plan. Filed with the
Commission on December 20, 1991 as an exhibit to Form S-8,
and modified by exhibit to Form S-8, filed with the
Commission on April 28, 1993, and incorporated by reference,
and modified by exhibit to Form S-8, filed with the
Commission on March 2, 1995, and incorporated by reference.
10.1 Contract Agreement No. 7451 between the State of Michigan and
the Company filed with the commission as an exhibit to 1991
Form 10-K and incorporated by reference.
10.2 Form of Employment Agreement, previously filed with the
Commission as an exhibit to 1994 Form 10-K and incorporated
by reference.
*23.1 Consent of Price Waterhouse LLP
* Filed herewith
(1) Incorporated by reference from the Company's Proxy Statement
for the Annual meeting of shareholders held November 7, 1991.
(2) Incorporated by reference from the Company's Registration
Statement on Form S-18 (Registration No. 2-82311-D) effective
May 4, 1983.
(3) Incorporated by reference from the Company's Registration
Statement on Form S-1 (Registration No. 33-36683) filed
September 4, 1990.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
BI Incorporated
By:/s/ David J. Hunter
-------------------------
David J. Hunter
President
Date: September 21, 1995
------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ David J. Hunter
----------------------------
David J. Hunter President, Chief Executive
Officer and Director
(Principal Executive Officer) September 21, 1995
/s/ Jacqueline A. Chamberlin
----------------------------
Jacqueline A. Chamberlin Vice President of Finance
(Principal Financial and
Accounting Officer) September 21, 1995
/s/ Jeremy N. Kendall
----------------------------
Jeremy N. Kendall Chairman September 21, 1995
/s/ William E. Coleman
----------------------------
William E. Coleman Vice Chairman September 21, 1995
/s/ Mckinley C. Edwards, Jr.
----------------------------
Mckinley C. Edwards, Jr. Director September 21, 1995
/s/ Beverly J. Haddon
----------------------------
Beverly J. Haddon Director September 21, 1995
/s/ Perry M. Johnson
----------------------------
Perry M. Johnson Director September 21, 1995
/s/ George J. Pilmanis
----------------------------
George J. Pilmanis Director September 21, 1995
/s/ Frank L. Randall, Jr.
----------------------------
Frank L. Randall, Jr. Director September 21, 1995
/s/ Byam K. Stevens, Jr.
----------------------------
Byam K. Stevens, Jr. Director September 21, 1995
</TABLE>
17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of BI Incorporated
In our opinion, the financial statements listed in the index appearing under
Item 14(a) 1 and 2 present fairly, in all material respects, the financial
position of BI Incorporated and its subsidiaries at June 30, 1995 and 1994, and
the results of their operations and their cash flows for each of the three years
in the period ended June 30, 1995, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boulder, Colorado
August 11, 1995
F-1
<PAGE>
BI INCORPORATED
BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
JUNE 30,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $2,358 $3,045
Short-term investments 376 282
Receivables, net 6,245 5,259
Investment in sales-type leases, net 3,204 3,076
Inventories, net 3,278 2,816
Deferred income taxes 519 626
Prepaid expenses 683 433
----------- ----------
Total current assets 16,663 15,537
Investment in sales-type leases, net 2,792 2,377
Rental and monitoring equipment, net 4,197 4,031
Property and equipment, net 2,027 1,729
Software, net 2,004 2,580
Intangibles, net 8,162 9,124
Deferred income taxes 568 879
Other assets 468 614
---------- ----------
$36,881 $36,871
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $407 $551
Accrued compensation and benefits 1,060 940
Accrued acquisition liabilities 63 705
Accrued product warranty 326 353
Current income taxes payable 130 162
Deferred revenue 1,232 760
Other liabilities 507 357
---------- ----------
Total current liabilities 3,725 3,828
---------- ----------
Deferred revenue and long-term debt 824 857
---------- ----------
Commitments and contingencies (Notes 6 & 10)
Stockholders' equity
Common stock, no par value, 75,000 shares
authorized; 6,865 shares issued June 30, 1995
and 7,369 shares issued June 30, 1994 28,883 31,159
Retained earnings 3,464 1,142
Less treasury shares at cost; 154 shares at
June 30, 1995 and 183 shares at June 30, 1994 (15) (115)
---------- ----------
32,332 32,186
---------- ----------
$36,881 $36,871
========== ==========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-2
<PAGE>
BI INCORPORATED
STATEMENT OF OPERATIONS
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Year ended June 30,
-----------------------------
1995 1994 1993
-----------------------------
<S> <C> <C> <C>
Revenues
Net sales $12,022 $8,756 $12,782
Service and monitoring income 16,714 12,795 10,996
Rental income 830 812 580
Interest and other income 308 338 276
-----------------------------
29,874 22,701 24,634
Costs and expenses
Cost of net sales 5,956 4,687 5,739
Cost of service and monitoring income 7,457 5,606 5,219
Cost of rental income 375 352 221
Selling, general and administrative
expenses 9,247 8,554 7,948
Depreciation and amortization 1,250 1,233 1,422
Research and development expenses 2,117 1,553 1,651
-----------------------------
26,402 21,985 22,200
Income before income taxes,
extraordinary item and cumulative
effect of accounting change 3,472 716 2,434
Income tax provision (1,150) (352) (848)
-----------------------------
Income before extraordinary item and
cumulative effect of accounting change 2,322 364 1,586
Extraordinary item - tax benefit
resulting from utilization of operating
loss carryforwards 248
Cumulative effect on prior years of
change in method of accounting for
income taxes 75
-----------------------------
Net income $2,322 $439 $1,834
=============================
Income per common and common equivalent
shares:
Income before extraordinary item and
cumulative effect of accounting change $0.34 $0.05 $0.22
Extraordinary item and cumulative
effect of accounting change 0.01 0.03
-----------------------------
Net income $0.34 $0.06 $0.25
=============================
Weighted average number of common and
common equivalent shares outstanding 6,883 7,227 7,257
=============================
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-3
<PAGE>
BI INCORPORATED
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Common Stock Treasury Stock Retained
---------------------- ----------------------
Shares Amount Shares Amount Earnings/(Deficit) Total
---------------------- ---------------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance June 30, 1992 7,180 $29,619 (189) ($18) ($1,131) $28,470
Exercise of stock options and warrants 61 337 19 1 338
Issuance of common stock in connection
with acquisition 8 34 34
Issuance of common stock pursuant to
stock purchase plan 4 30 30
Tax benefit from exercise of stock options 379 379
Net income 1,834 1,834
---------------------- ---------------------- --------------- ----------------
Balance June 30, 1993 7,253 30,399 (170) (17) 703 31,085
Exercise of stock options and warrants 109 370 5 1 371
Stock repurchases (18) (99) (99)
Issuance of common stock pursuant to
stock purchase plan 7 33 33
Tax benefit from exercise of stock options 122 122
Tax effect of adoption of SFAS 109 235 235
Net income 439 439
---------------------- ---------------------- --------------- ----------------
Balance June 30, 1994 7,369 31,159 (183) (115) 1,142 32,186
Exercise of stock options and warrants 39 220 11 1 221
Stock repurchases (538) (2,500) (2,500)
Retirement of repurchased stock (556) (2,599) 556 2,599
Issuance of common stock pursuant to
stock purchase plan 13 51 51
Tax benefit from exercise of stock options 52 52
Net income 2,322 2,322
---------------------- ---------------------- --------------- ----------------
Balance June 30, 1995 6,865 $28,883 (154) ($15) $3,464 $32,332
====================== ====================== =============== ================
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-4
<PAGE>
BI INCORPORATED
STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year ended June 30,
--------------------------------------------
1995 1994 1993
--------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $2,322 $439 $1,834
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 4,921 3,544 3,386
Provision for losses on accounts receivable and STLs 374 277 284
Changes in assets and liabilities, net of effects from acquisitions:
Receivables (1,319) (64) (1,047)
Investment in STLs* (543) 459 (729)
Inventories, net (457) 478 (1,131)
Accounts payable (144) (230) (436)
Accrued expenses (399) 65 285
Deferred revenue 502 610 764
Current income taxes payable (32) (234) 376
Rental equipment-net, converted to STLs 236 173
Other 325 (359) (298)
--------------------------------------------
Net cash from operating activities 5,786 4,985 3,461
--------------------------------------------
Cash flows from investing activities:
Capital expenditures (1,326) (1,283) (589)
Increase in rental and monitoring equipment (2,527) (3,595) (1,120)
Increase in capitalized software (235) (427) (626)
Purchased software (1,053)
Decrease (increase) in short-term investments (94) (40) 2,336
Other (63) (194) (69)
--------------------------------------------
Net cash from investing activities (4,245) (6,592) (68)
--------------------------------------------
Cash flows from financing activities:
Reduction of obligations under non-recourse
and recourse borrowings* (4) (331)
Proceeds from issuances of common stock 271 403 367
Purchase of treasury stock, net (2,499) (99)
--------------------------------------------
Net cash from financing activities (2,228) 300 36
--------------------------------------------
Net increase (decrease) in cash and cash equivalents (687) (1,307) 3,429
Cash and cash equivalents at beginning of year 3,045 4,352 923
--------------------------------------------
Cash and cash equivalents at end of year, excluding short-term
investments of $376, $282, and $242 in 1995, 1994 and 1993,
respectively $2,358 $3,045 $4,352
============================================
</TABLE>
*Recourse and non-recourse borrowings are used by the Company to finance its
investment in sales-type leases (STLs). The reduction of the obligation is
presented as if the cash is received by the Company from the customer and then
disbursed to the lender.
The accompanying notes are an integral
part of these financial statements.
F-5
<PAGE>
BI Incorporated
Notes to Financial Statements
NOTE 1 - OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BI Incorporated (the "Company") designs, manufactures, markets
and supports electronic monitoring systems and other automatic identification
devices. The Company provides 24-hour monitoring services using equipment it
manufactures. The Company also develops application software for jails.
Cash equivalents and short-term investments
The Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less to be cash
equivalents. Investments with an original maturity greater than three months are
recorded as short-term investments at cost, which approximates market value.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out ("FIFO") method.
Depreciation and Amortization
Property and equipment are stated at cost and depreciated on a
straight-line basis over their estimated useful lives of three to seven years.
Rental and monitoring equipment are stated at cost and depreciated on a
straight-line basis over two to three years. Repair and maintenance expenses
which do not extend the useful lives of the related assets are expensed as
incurred.
Goodwill represents the excess of purchase price over fair value
of net assets acquired and is amortized on a straight-line basis over periods of
10-20 years. The recoverability of goodwill is assessed at least annually, based
on undiscounted projected related revenue less undiscounted related costs. Any
impairment loss will be recorded to the extent such profits do not exceed the
net carrying value of the goodwill. Patents are amortized on a straight-line
basis over 14 years. The manufacturing technology acquired from Cincinnati
Microwave, Inc. is amortized over the greater of the units of production method
or 5 years, on a straight-line basis. Amortization related to goodwill, patents
and the manufacturing technology was $962,000, $804,000, and $804,000 in fiscal
1995, 1994, and 1993, respectively. Accumulated amortization of goodwill,
patents and the manufacturing technology was $3,004,000 and $2,042,000 at June
30, 1995 and 1994, respectively.
F-6
<PAGE>
BI Incorporated
Notes to Financial Statements
(continued)
Capitalized Software
The Company capitalized $235,000, $427,000, and $626,000 in
1995, 1994 and 1993, respectively, for internal costs of developing software
products to be marketed to customers. Additionally, the Company purchased and
capitalized $1,250,000 of software from a third party during 1994. Amortization
is based on the greater of straight-line amortization over estimated useful
lives, generally three to five years, or the percentage of actual revenue versus
total anticipated revenue. Amortization of software costs was $811,000,
$484,000, and $184,000 in 1995, 1994 and 1993, respectively. The Company wrote
off $23,000 and $92,000 of previously capitalized software costs in 1994 and
1993, respectively.
Warranty costs
The costs of product warranties are accrued at the time sales
are recorded based upon estimates of costs to be incurred to repair or replace
items under warranty.
Statement of Cash Flows
Supplemental disclosure of non-cash financing activities:
. On March 27, 1992, the Company acquired 100% of GTI for
1,176,000 shares of common stock. The fair value of
assets acquired was $3,027,000 and liabilities assumed
were $2,922,000. As of March 31, 1993, the Company
reduced liabilities assumed by $470,000 with an
offsetting reduction to goodwill to reflect changes in
estimates not known at the time of acquisition.
. On May 5, 1993, the Company acquired 100% of the assets
of Community Corrections Systems, Inc. for 8,036 shares
of common stock and $75,000.
. On December 31, 1993, the Company acquired an exclusive
software license from SCC Communications Corp. for
$1,250,000 of which $250,000 will be paid over the
subsequent four years based on a percentage of annual
revenues received from the sale of this product.
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------------------------------------
<S> <C> <C> <C>
. Interest received $609,000 $589,000 $660,000
Interest paid 3,000 2,000 15,000
Income taxes paid 785,000 374,000 413,000
</TABLE>
Interest received and/or paid as it relates to funded
STLs is presented on a constructive receipt basis.
F-7
<PAGE>
BI Incorporated
Notes to Financial Statements
(continued)
Revenue recognition
Product sales and sales-type leases are generally recorded upon
shipment. Rental income associated with operating leases is recorded monthly
over the rental period. Service income is recorded monthly over the term of the
service contract. Monitoring income is recorded monthly for units monitored
during the period.
The Company records the portion of future minimum sales-type
lease payments related to second and third year maintenance services as deferred
revenue. This revenue is recognized monthly, beginning in month thirteen of the
lease, over the remaining term of the lease.
Revenue from development of customized software associated with
the Company's Premier Jail Management System will be recognized per the terms of
the contract.
Research and development
Research and development expenditures are charged to expense as
incurred.
Net income per common and common equivalent share
Net income per common and common equivalent share is computed
under the treasury stock method using weighted average number of shares of
common and dilutive common equivalent shares outstanding during each fiscal
year. Common stock equivalent shares for 1995, 1994 and 1993 were 92,000,
81,000, and 223,000, respectively.
Reclassifications
Certain 1994 and 1993 amounts have been reclassified to compare
with the 1995 presentation only.
NOTE 2 - RELATED PARTY TRANSACTIONS
As of June 30, 1995, the Company owns approximately 16% of the
stock of JurisMonitor ("Juris"), an entity where certain directors of the
Company are also investors. As of June 30, 1995, Juris owed the Company
approximately $60,000. During the fourth quarter of fiscal 1995, the Company
wrote down its investment to net realizable value by expensing $100,000.
Subsequent to year end the Company signed a letter of intent to acquire the
assets of Juris for $25,000 and non-guaranteed royalties on future revenues up
to $275,000.
F-8
<PAGE>
BI Incorporated
Notes to Financial Statements
(continued)
During fiscal 1995, the Company sold home arrest equipment to
JEMTEC, Inc. in the amount of $160,000. The Chairman of the Company is Chairman
of JEMTEC, Inc.
NOTE 3 - RECEIVABLES, NET INVESTMENT IN SALES-TYPE LEASES, AND OPERATING LEASES
- AS LESSOR
A significant portion of the Company's receivables and net
investment in sales-type leases is due from governmental agencies or divisions
thereof. One of these customers accounted for 14% of total revenue in 1995. No
single customer accounted for greater than 10% of total revenue in 1994 or 1993.
Receivables
Receivables consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30,
1995 1994
----------------------
<S> <C> <C>
Trade, net of allowance for doubtful accounts of
$220 in 1995 and $243 in 1994 $6,239 $5,230
Due from officers and employees 6 29
----------------------
$6,245 $5,259
======================
</TABLE>
Net investment in sales-type leases
The components of net investment in sales-type leases are as
follows (in thousands):
<TABLE>
<CAPTION>
June 30,
1995 1994
----------------------
<S> <C> <C>
Total minimum lease payments $6,542 $5,968
Less: Unearned income (537) (455)
Less: Allowance for doubtful accounts (9) (60)
----------------------
Net investment 5,996 5,453
Less: Current portion (3,204) (3,076)
----------------------
Long-term portion $2,792 $2,377
======================
</TABLE>
Future minimum lease payments to be received under sales-type
leases at June 30, 1995 are $3,658,000, $2,158,000, $697,000 and $29,000 in
fiscal 1996, 1997, 1998, and 1999, respectively.
F-9
<PAGE>
BI Incorporated
Notes to Financial Statements
(continued)
Operating leases - as lessor
The Company offers short-term leases to its customers as an
alternative to buying its products. The lease term for operating leases is
generally up to one year, with payments due monthly, and the Company retains
title to the equipment.
NOTE 4 - INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30,
1995 1994
-------------------------
<S> <C> <C>
Raw materials $1,420 $1,149
Work-in-process 1,049 961
Finished goods 896 790
-------------------------
3,365 2,900
Less: allowance for oblsolescence (87) (84)
-------------------------
$3,278 $2,816
=========================
</TABLE>
NOTE 5 - EQUIPMENT AND INTANGIBLES
Rental and Monitoring Equipment
Rental and monitoring equipment consist of the following (in
thousands):
<TABLE>
<CAPTION>
June 30,
1995 1994
--------------------------
<S> <C> <C>
Rental equipment $ 873 $ 980
Monitoring equipment 8,911 6,571
--------------------------
9,784 7,551
Less: accumulated depreciation and amortization (5,587) (3,520)
--------------------------
$4,197 $4,031
==========================
</TABLE>
F-10
<PAGE>
BI Incorporated
Notes to Financial Statements
(continued)
Property and Equipment
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30,
1995 1994
--------------------------
<S> <C> <C>
Property and equipment $ 5,992 $ 4,814
Less: accumulated depreciation (3,965) (3,085)
--------------------------
$2,027 $1,729
==========================
</TABLE>
Intangibles
Intangibles consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30,
1995 1994
---------------------------
<S> <C> <C>
Goodwill $7,063 $7,063
Patents 1,103 1,103
Manufacturing technology 3,000 3,000
---------------------------
11,166 11,166
Less: accumulated amortization (3,004) (2,042)
---------------------------
$8,162 $9,124
===========================
</TABLE>
As discussed in Note 10 to the Company's June 30, 1994 financial statements, the
Company was uncertain about the ability of Cincinnati Microwave Inc. (CMI) to
fulfill its obligations under the terms of the manufacturing contract entered
into in March 1992. In December 1994, the Company and CMI agreed to terminate
the manufacturing agreement. The Company received the manufacturing rights,
documentation, technology, tools and molds, etc., that allow the Company to
continue manufacture of those products covered under the contract. The Company
has identified an alternative circuit board assembler and the assets received
from CMI will continue to be used to manufacture the Company's principal product
with resultant manufacturing savings similar to that obtained from CMI under the
OEM contract. As a result, the Company concluded that its asset is fully
recoverable.
NOTE 6 - AVAILABLE FINANCING AND LEASE COMMITMENTS
The Company has an available bank line of credit for $2,000,000 at an
interest rate of prime, expiring in September 1995. At June 30, 1995, no
borrowings were outstanding against the line. Borrowings under the line of
credit are secured by inventory, equipment and accounts receivable. The line of
credit sets forth certain financial
F-11
<PAGE>
BI INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
and other covenants, including prior written consent to the payment of any
dividends, that must be met by the Company if indebted to the bank.
The Company leases office space and certain equipment under operating
leases. Rental expense was $502,000, $418,000, and $334,000 for fiscal 1995,
1994 and 1993, respectively. Minimum future rentals under noncancelable
operating leases are summarized as follows (in thousands):
<TABLE>
<S> <C>
1996 $429,000
1997 450,000
1998 114,000
---------------------------
$993,000
===========================
</TABLE>
Note 7 - Income Taxes
The provision for income taxes is comprised of the following (in
thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-----------------------------------------
<S> <C> <C> <C>
Current portion
Federal $872 $ 589 $1,225
State 209 94 158
Deferred portion
Federal 58 (284) (475)
State 11 (47) (60)
-----------------------------------------
$1,150 $ 352 $ 848
=========================================
</TABLE>
A reconciliation of the effective tax rate to the statutory rate is as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------------------------------------------------
<S> <C> <C> <C>
Expected statutory rate 34% 34% 34%
State taxes 4% 5% 3%
Goodwill amortization 11% 19% 6%
Acquired reserves (10)%
Tax exempt interest - STL (6)% (9)% (3)%
Release of valuation
allowance (7)%
Other (3)% 5%
----------------------------------------------------
33% 49% 35%
====================================================
</TABLE>
At June 30, 1995, the Company has minimum tax credit carryforwards of
approximately $297,000 for Federal income tax. At June 30, 1994, a valuation
allowance of $225,000 had been provided against the gross deferred tax asset.
Under SFAS 109, this valuation allowance was established as a result of the
F-12
<PAGE>
BI INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
uncertainty of the utilization of certain tax credit carryforwards prior to
their expiration. During fiscal 1995, it was determined that this allowance was
no longer required and $225,000 was offset against income tax expense.
The significant components of the Company's deferred income tax assets and
liabilities for fiscal 1995 and 1994 were as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
------------------------
<S> <C> <C>
Deferred tax assets:
Tax credit carryforwards $ 297 $ 412
Accrued liabilities 157 392
Deferred revenue 118 394
Depreciation 750 763
Bad debt 131 156
Other - miscellaneous 261 70
------------------------
Gross deferred tax asset 1,714 2,187
Less: Valuation allowance (225)
------------------------
1,714 1,962
Deferred tax liabilities:
Capitalized software (372) (457)
Other - miscellaneous (255)
------------------------
Gross deferred tax liabilities (627) (457)
------------------------
Net deferred tax asset $1,087 $1,505
========================
</TABLE>
NOTE 8 - EMPLOYEE BENEFIT PLANS, OPTIONS AND WARRANTS
Employee Stock Purchase Plan
In July 1990, the Board of Directors adopted an Employee Stock Purchase
Plan ("Purchase Plan") offering employees the right to collectively purchase a
maximum of 200,000 shares of the Company's common stock through a minimum of
six-month offering periods of 50,000 shares each commencing January 1, 1991.
Eligible employees may contribute up to 10% of their base pay towards the
purchase of the Company's common stock at 85% of the lower of the market price
on the first or the last day of the offering period. Proceeds received from the
issuance of shares under the Purchase Plan are credited to stockholder's equity
in the fiscal year shares are issued. During fiscal 1995, the Company issued
3,171 and 10,259 shares at $3.93 and $3.83 per share, respectively, under the
Purchase Plan.
F-13
<PAGE>
BI INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Stock Option Plans
The Company has five stock option plans, the Incentive Stock Option Plan
("ISO Plan"), the Director and Key Employee Non-qualified Stock Option Plan
("Director and Key Employee Plan"), the Employee Non-qualified Stock Option Plan
(the "Employee Plan"), the Director Non-qualified Stock Option Plan (the
"Director Plan") and the 1991 Stock Option Plan ("1991 Plan"). The option prices
of grants under all five plans are equal to the fair market value of the
Company's common stock on the grant date. The Company is authorized to grant
options to purchase 150,000 and 1,050,000 shares of the Company's common stock
under the Director Plan and the 1991 Plan. The ISO Plan, Director and Key
Employee Plan and Employee Plan have expired.
The following table summarizes option transactions under all five plans
during each of the three years in the period ended June 30, 1995 :
<TABLE>
<CAPTION>
Option price per
Number of Shares share
------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding, June 30, 1992 803,676 $2.75 - $8.38
Granted 243,500 7.63 - 10.00
Exercised (71,072) 2.75 - 7.50
Canceled (5,749) 6.00 - 7.75
------------------------------------------------------------------
Outstanding, June 30, 1993 970,355 2.88 - 10.00
Granted 111,150 4.50 - 5.13
Exercised (96,293) 2.75 - 7.00
Canceled (98,424) 3.88 - 10.00
------------------------------------------------------------------
Outstanding, June 30, 1994 886,788 3.25 - 5.13
Granted 137,850 4.19 - 7.38
Exercised (46,296) 3.25 - 5.13
Canceled (42,680) 4.50 - 5.13
------------------------------------------------------------------
Outstanding, June 30, 1995 935,662 $4.19 - $7.38
==================================================================
</TABLE>
Option vesting provisions range from immediate vesting to vesting over a
four-year period. At June 30, 1995, 705,046 options were vested under the five
plans and the remaining outstanding options of 230,616 vest through fiscal 1999.
All options expire five to seven years after the date of issuance. At June 30,
1995, there were approximately 541,000 shares available for grant.
F-14
<PAGE>
BI INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Employee Savings Plan
The Company has a 401(k) savings plan whereby the Company matches,
subject to certain limits, $.15 for each $1.00 employees contribute. Total
Company contributions during fiscal 1995, 1994 and 1993 were $68,300, $46,100,
and $34,600, respectively.
Warrants
The Company has outstanding 67,750 warrants to purchase common stock at prices
ranging from $5.13 to $7.00 expiring November 1995 through July 1998.
NOTE 9 - PURCHASE OF TREASURY STOCK
On August 17, 1994, the Company announced its intention to purchase up
to $2,500,000 of its common stock in the open market. At December 31, 1994, the
Company completed this program and repurchased 538,000 shares at an average
price of $4.65 per share. The stock has subsequently been retired and added to
authorized but unissued shares.
Note 10 - Legal Proceedings
The Company is involved in three legal proceedings; one alleging product
liability; another alleging wrongful termination of a distributor contract; and
the third alleging tortious interference with a competitor. One of the claimants
seeks damages up to $2,700,000. Management believes the Company has adequate
legal defenses and/or insurance coverage against all claims and intends to
vigorously defend them. There can be no assurances however, that any individual
case will result in an outcome favorable to the Company. In the event of any
adverse outcome, neither the amount nor the likelihood of any potential
liability which might result is reasonably estimable. The Company currently
believes that the amount of the ultimate potential loss would not be material to
the Company's financial position or results of operations. However, an adverse
future outcome in any individual case, including legal defense costs, could have
a material effect on the Company's reported results of operations in a
particular quarter.
F-15
<PAGE>
BI INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 11 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following interim financial information presents the 1995 and 1994 results
of operations on a quarterly basis (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Fiscal quarters ended
9/30/94 12/31/94 3/31/95 6/30/95
-----------------------------------------------
<S> <C> <C> <C>
Total revenue $6,773 $7,083 $7,563 $8,455
-----------------------------------------------
Gross profit 3,696 3,863 3,936 4,591
-----------------------------------------------
Net income $413 $550 $517 $842
===============================================
Net income per common and
common equivalent share $0.06 $0.08 $0.08 $0.12
===============================================
Fiscal quarters ended
9/30/93 12/31/93 3/31/94 6/30/94
-----------------------------------------------
Total revenue $5,324 $5,038 $5,970 $6,371
-----------------------------------------------
Gross profit 2,795 2,602 3,109 3,551
-----------------------------------------------
Income (loss) before
cumulative effect of
accounting change (18) (231) 156 457
-----------------------------------------------
Net income (loss) $57 $(231) $156 $457
===============================================
Net income (loss) per common
and common equivalent share $0.01 ($0.03) $0.02 $0.06
===============================================
</TABLE>
F-16
<PAGE>
BI INCORPORATED
FINANCIAL STATEMENT SCHEDULE
SCHEDULE VIII
Provision for losses on Sales-Type Leases:
<TABLE>
<CAPTION>
==================================================================================================
Balance Charged to Charged to
beginning of cost and other accounts Balance at end
period expenses Write offs of period
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
7-1-92 - 6-30-93 $152,000 $180,000 $(199,000) $133,000
--------------------------------------------------------------------------------------------------
7-1-93 - 6-30-94 $133,000 $150,000 $(220,000) $(3,000) $60,000
--------------------------------------------------------------------------------------------------
7-1-94 - 6-30-95 $60,000 $(51,000) $9,000
==================================================================================================
Provision for losses on Accounts Receivable:
<CAPTION>
==================================================================================================
Balance Charged to Charged to
beginning cost and other accounts Balance at end
of period expenses Write offs of period
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
7-1-92 - 6-30-93 $251,000 $105,000 $(272,000) $84,000
--------------------------------------------------------------------------------------------------
7-1-93 - 6-30-94 $84,000 $126,000 $219,000 $(186,000) $243,000
--------------------------------------------------------------------------------------------------
7-1-94 - 6-30-95 $243,000 $374,000 $(397,000) $220,000
==================================================================================================
</TABLE>
F-17
<PAGE>
Exhibit 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-8 (Nos. 2-85643, 2-
92869, 33-05974, 33-20843, 33-35018, 33-38428, 33-44711, 33-61768, and 33-89894)
and on Form S-3 No. 33-61756 of BI Incorporated of our report dated August 11,
1995 appearing on Page F-1 of this Form 10-K.
Price Waterhouse LLP
Boulder, Colorado
September 21, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM 10K
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 2,358
<SECURITIES> 376
<RECEIVABLES> 6,465
<ALLOWANCES> 220
<INVENTORY> 3,204
<CURRENT-ASSETS> 16,663
<PP&E> 2,027
<DEPRECIATION> 0
<TOTAL-ASSETS> 36,881
<CURRENT-LIABILITIES> 3,725
<BONDS> 0
<COMMON> 28,883
0
0
<OTHER-SE> (15)
<TOTAL-LIABILITY-AND-EQUITY> 36,881
<SALES> 29,566
<TOTAL-REVENUES> 29,874
<CGS> 13,788
<TOTAL-COSTS> 26,402
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,472
<INCOME-TAX> 1,150
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,322
<EPS-PRIMARY> .34
<EPS-DILUTED> .34
</TABLE>
