<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
------------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-12410
-------
BI Incorporated
---------------------------
(Exact name of issuer as specified in charter)
Colorado 84-0769926
- ----------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification NO.)
6400 Lookout Road, Boulder, Colorado
-------------------------------------
80301
--------------------
(Address of principal executive offices)
(Zip Code)
(303) 530-2911
---------------------------------------------------
(Registrant's telephone number, including area code)
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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. The number of shares of no par
value common stock outstanding at October 21, 1996 is 7,357,737.
<PAGE>
BI INCORPORATED
Index
-----
Part I - Financial Information: Page No.
Item 1 - Financial Statements
Balance Sheet
at September 30, 1996 and June 30, 1996 2
Statement of Operations
for the three months ended September 30, 1996 and 1995 3
Statement of Cash Flows
for the three months ended September 30, 1996 and 1995 4
Notes to Consolidated Financial Statements 5
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations 6
Signatures 8
Part II - Other Information:
Item 1 - Legal Proceedings: Incorporated by reference to Notes to Financial
Statements in Part I.
Item 6 - Exhibits and Reports on Form 8-K: Filed with the Securities and
Exchange Commission on July 17, 1996, and incorporated by reference.
The Company reported the signing of a letter of intent to merge with Community
Corrections Corporation under Item 5 - Other Events. See Notes to Financial
Statements in Part I.
<PAGE>
Part I - Financial Statements
BI INCORPORATED
BALANCE SHEET
(in thousands, unaudited)
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
--------------- ----------------
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $4,736 $4,263
Short-term investments 1,185 1,099
Receivables, net 7,760 9,043
Investment in sales-type leases, net 4,400 4,345
Inventories
Raw materials 1,045 923
Work in process 1,322 1,033
Finished goods 1,054 1,064
Deferred income taxes 603 302
Prepaid expenses 671 893
--------------- ----------------
Total current assets 22,776 22,965
Investment in sales-type leases, net 3,172 3,446
Rental and monitoring equipment, net 3,905 4,088
Property and equipment, net 2,487 2,564
Software, net 1,943 1,906
Intangibles, net 7,006 7,232
Deferred income taxes 680 370
Other assets 288 249
--------------- ----------------
$42,257 $42,820
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $906 $1,486
Accrued compensation and benefits 1,231 1,581
Accrued product warranty 177 193
Deferred revenue 997 1,086
Other liabilities 383 447
--------------- ----------------
Total current liabilities 3,694 4,793
--------------- ----------------
Deferred revenue 787 821
--------------- ----------------
Stockholders' equity
Common stock, no par value, 75,000 shares
authorized; 7,048 shares issued September 30, 1996
and 7,004 shares issued June 30, 1996 31,292 30,879
Retained earnings 6,484 6,327
--------------- ----------------
37,776 37,206
--------------- ----------------
$42,257 $42,820
=============== ================
</TABLE>
The accompanying notes are an integral
part of these financial statements.
2
<PAGE>
BI INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands except per share amounts, unaudited)
<TABLE>
<CAPTION>
For the three months
ended September 30,
---------------------------
1996 1995
-------- --------
<S> <C> <C>
Revenues
Net sales $2,801 $3,034
Service and monitoring income 5,616 5,066
Rental income 215 219
Interest and other income 91 68
-------- --------
Total Revenues 8,723 8,387
-------- --------
Costs and expenses
Cost of net sales 1,533 1,494
Cost of service and monitoring income 2,778 2,328
Cost of rental income 83 71
Selling, general and administrative expenses 2,950 2,529
Amortization and depreciation 401 327
Research and development expenses 712 615
-------- --------
Total costs and expenses 8,457 7,364
-------- --------
Income before income taxes 266 1,023
Income tax provision (109) (422)
-------- --------
Net income $157 $601
======== ========
Income per common and common equivalent share:
Net income $0.02 $0.09
======== ========
Weighted average number of common and common equivalent
shares outstanding 7,402 6,999
======== ========
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
3
<PAGE>
BI INCORPORATED
STATEMENT OF CASH FLOWS
(in thousands, unaudited)
<TABLE>
<CAPTION>
For the three months
ended September 30,
------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cashflows from operating activities:
Net income $157 $601
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 1,498 1,375
Provision for losses on accounts receivable and STLs 58 55
Changes in assets and liabilities:
Receivables 1,217 (138)
Investment in STLs 219 136
Inventories (403) 569
Accounts payable (580) 123
Accrued expenses (430) (148)
Income taxes (501) 262
Deferred revenue (123) 274
Other 201 (141)
----------- -----------
Net cash from operating activities 1,313 2,968
----------- -----------
Cash flows from investing activities:
Capital expenditures (261) (278)
Increase in rental and monitoring equipment (520) (832)
Increase in capitalized software (277) (123)
Change in investments (86)
----------- -----------
Net cash from investing activities (1,144) (1,233)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock 304 276
----------- -----------
Net cash from financing activities 304 276
----------- -----------
Net change in cash and cash equivalents 473 2,011
Cash and cash equivalents at June 30 4,263 2,358
----------- -----------
Cash and cash equivalents at September 30 $4,736 $4,369
=========== ===========
</TABLE>
The accompanying notes are an integral
part of the financial statements.
4
<PAGE>
BI INCORPORATED
Notes to Financial Statements
-----------------------------
(unaudited)
Note 1 - Preparation of Financial Statements
- --------------------------------------------
These financial statements should be read in conjunction with the financial
statements and the notes thereto included in the Company's latest annual report.
The interim financial data are unaudited; however, in the opinion of the
management of the Company, the interim data includes all adjustments, consisting
only of normal recurring adjustments, necessary for a fair statement of the
results for the interim periods.
Note 2 - Net Income per Common and Equivalent Share
- ---------------------------------------------------
Net income per common and common equivalent share is computed on the basis of
the weighted average number of shares of common and common equivalent shares
outstanding during the period. Common equivalent shares are determined using
the treasury stock method, which assumes that proceeds from exercise of certain
outstanding stock options and warrants are utilized to repurchase outstanding
shares of the Company at the average fair market value during such period.
Note 3 - Legal Proceedings
- --------------------------
The Company is involved in three legal proceedings; one alleging wrongful
termination of a distributor contract; and two alleging negligence in monitoring
and detention. One of the claimants seeks damages up to $3,000,000. Management
believes the Company has adequate legal defenses and/or insurance coverage
against all claims and intends to defend them. There can be no assurance
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.
Note 4 - Subsequent Event
- -------------------------
On October 10, 1996, the Company effected a purchase of 100% of the outstanding
stock of Community Corrections Corporation, Justice Alternatives, Inc. and
Tennessee Probation Services, Inc. The purchase price was 400,000 shares of
restricted common stock of the Company and $3,000,000.
On October 10, 1996, the Company signed a letter of intent to enter into a new
leasing arrangement for the building it currently occupies. The present value of
Aggregate future minimum lease payments related to the new lease are
approximately $7,500,000 over a 15 year term, retroactive to October 1995.
Note 5 - Purchase of Treasury Stock
- -----------------------------------
On September 24, 1996, the Company announced its intention to purchase up to
$2,500,000 of its common stock in the open market. As of October 25, 1996, the
Company had repurchased 135,000 shares at a weighted average price of $7.28.
5
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain information in "Management's Discussion and Analysis" and other
statements periodically reported by the Company contain forward-looking
statements that involve risks and uncertainties. Management believes that its
expectations are based on reasonable assumptions. However, no assurances can be
given that its goals will be achieved. It should be noted that the earnings
history of the Company has not been consistent year to year. Factors that could
cause actual results to differ materially include, but are not limited to:
fluctuations due to timing of award of government contracts; pricing pressures;
liability in excess of insurance coverage; changes in federal, state and local
regulations; misrepresented political or media statements; new product
introductions by competitors or unexpected delays of new product introductions
by the Company; raw material availability; changes in telecommunications
regulations or technologies; or the loss of a material contract through lack of
appropriation or otherwise.
Results of Operations
- ---------------------
The three-month period ended September 30, 1996 (fiscal 1997), compared to the
three-month period ended September 30, 1995 (fiscal 1996):
Total revenue for the three months ended September 30, 1996, increased 4% to
$8,723,000 compared to $8,387,000 in the corresponding period a year ago. The
increase related to an increase in service, monitoring and rental income of
$546,000 or 10.3% which was partially offset by a decrease in net sales of
$233,000 or 7.7%.
The increase in service, monitoring and rental revenue was consistent with the
trend of government agencies to contract services rather than owning equipment,
while the decrease in net sales revenue resulted from lower equipment purchases.
Total gross profit was 49.6% in fiscal 1997 compared to 53.6% in fiscal 1996.
Service, monitoring and rental gross profit decreased to 50.9% in the fiscal
1997 period from 54.6% for the same period last fiscal year as a result of lower
service usage rates and increased telephone and equipment repair costs related
to monitoring. The Company expects monitoring gross margins to improve over
time as a result of improved equipment utilization and efficiencies gained from
improvements to the monitoring software currently being developed by the
Company. Net sales gross profit decreased to 45.3% in fiscal 1997 from 50.8% in
fiscal 1996 due to higher costs of software depreciation associated with the
Company's Jail Management system (JMS) software and reduced pricing of home
arrest products to certain existing customers resulting in lower overall net
sales margins.
Selling, general and administrative expenses increased $421,000 to $2,950,000 in
fiscal 1997 from $2,529,000 in fiscal 1996, and increased as a percentage of
total revenue to 33.8% for the three months ended September 30, 1996, versus
30.1% for the three months ended September 30, 1995. The increase largely
related to market expansion and sales activities.
Research and development expenses increased $97,000 to $712,000, or 8.2% of
total revenue, compared to $615,000, or 7.3% in fiscal 1996. This increase
largely related to enhancements of current products and evaluating future
technologies.
6
<PAGE>
The Company recorded income tax expense of $109,000 and $422,000 for the three
months ended September 30, 1996 and 1995, respectively, which differs from the
statutory rate largely as a result of state income taxes and non-deductible
goodwill amortization expense.
Liquidity and Capital Resources
- -------------------------------
The Company has significant net accounts receivable and net sales-type leases
available to borrow against which could be used as collateral for future
borrowing arrangements.
The Company has a $5,000,000 line of credit with BankOne, Boulder, Colorado
which expires in October 1999. No amounts were drawn against this line at
September 30, 1996.
During the three months ended September 30, 1996, the Company generated
$1,313,000 from operating activities and expended $1,144,000 for capital
equipment, rental and monitoring equipment, internally developed software and
investment changes. The Company has received $304,000 from the exercise of
stock options during the period. All cash flow activities resulted in an
increase in cash of $473,000.
Working capital increased $910,000 to $19,082,000 at September 30, 1996. This
increase was primarily the result of an increase in cash and inventories offset
by a decrease in net receivables, and a decrease in accounts payable.
The Company believes its existing sources of liquidity to be generated from
operations will provide adequate cash to fund the Company's anticipated capital
needs through fiscal 1997. Use of the Company's line of credit or term debt may
be required in connection with certain potential acquisitions during fiscal
1997.
7
<PAGE>
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.
BI Incorporated
Date 11/1/96 By /s/ David J. Hunter
---------- -----------------------------------------
David J. Hunter
President and Chief Executive Officer
/s/ Jacqueline A. Chamberlin
---------------------------------------
Jacqueline A. Chamberlin
Chief Financial Officer
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Financial Statemenet and related notes thereto and is qualified in
its entirety to such financial statements and related notes.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,736
<SECURITIES> 1,185
<RECEIVABLES> 12,160
<ALLOWANCES> 0
<INVENTORY> 3,421
<CURRENT-ASSETS> 22,776
<PP&E> 2,487
<DEPRECIATION> 0
<TOTAL-ASSETS> 42,257
<CURRENT-LIABILITIES> 3,694
<BONDS> 0
0
0
<COMMON> 31,292
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 42,257
<SALES> 8,632
<TOTAL-REVENUES> 8,723
<CGS> 4,394
<TOTAL-COSTS> 8,457
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 266
<INCOME-TAX> 109
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 157
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
