<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 December 31, 1995
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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
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BI Incorporated
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(Exact name of issuer as specified in charter)
Colorado 84-0769926
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6400 Lookout Road, Boulder, Colorado
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80301
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(Address of principal executive offices)
(Zip Code)
(303) 530-2911
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(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
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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 January 23, 1996 is 6,732,192.
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BI INCORPORATED
INDEX
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PART I - FINANCIAL INFORMATION: Page No.
Item 1 - Financial Statements
Balance Sheet
at December 31, 1995 and June 30, 1995 2
Statement of Operations
for the three and the six months ended December 31,
1995 and 1994 3
Statement of Cash Flows
for the six months ended December 31, 1995 and 1994 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 4 - Submission of matters to a vote of security holders.
a) BI Incorporated's 1995 Annual Meeting of Stockholders was held on
November 9, 1995.
b) At the annual meeting the following persons were elected to the Board of
Directors: William E. Coleman, Mckinley C. Edwards, Jr., David J. Hunter,
Perry M. Johnson, Jeremy N. Kendall, George J. Pilmanis, Frank L. Randall,
Jr., Byam K. Stevens, Jr., and Beverly J. Haddon.
c) The following matters were authorized by a vote of the majority of the
outstanding shares of 6,759,670 at record date as follows: Ratification of
an amendment to the Company's 1991 Stock Option Plan. For = 4,402,864;
Against = 827,963; Abstained = 59,336; Broker non-votes = 0. Ratification
of Price Waterhouse, the independent auditor. For = 5,219,393; Against
46,754; Abstained = 24,016; Broker non-votes = 0.
Item 6 - Exhibits and Reports on Form 8-K: None
1
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BI INCORPORATED
BALANCE SHEET
(in thousands, unaudited)
<TABLE>
<CAPTION>
December 31, June 30,
1995 1995
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<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $3,468 $2,358
Short-term investments 540 376
Receivables, net 6,764 6,245
Investment in sales-type leases, net 3,538 3,204
Inventories
Raw materials 1,109 1,333
Work in process 1,214 1,049
Finished goods 809 896
Deferred income taxes 662 519
Prepaid expenses 613 683
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Total current assets 18,717 16,663
Investment in sales-type leases, net 2,704 2,792
Rental and monitoring equipment, net 4,466 4,197
Property and equipment, net 2,110 2,027
Software, net 1,899 2,004
Intangibles, net 7,756 8,162
Deferred income taxes 452 568
Other assets 386 468
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$38,490 $36,881
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $1,092 $407
Accrued compensation and benefits 1,145 1,060
Accrued product warranty 398 326
Current income taxes payable 160 130
Deferred revenue 1,233 1,232
Other liabilities 428 570
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Total current liabilities 4,456 3,725
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Deferred revenue and long-term debt 568 824
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Stockholders' equity
Common stock, no par value, 75,000 shares
authorized; 6,850 shares issued December 31, 1995
and 6,865 shares issued June 30, 1995 28,767 28,883
Retained earnings 4,712 3,464
Less treasury shares at cost; 130 shares at
December 31, 1995 and 154 shares at June 30, 1995 (13) (15)
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33,466 32,332
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$38,490 $36,881
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</TABLE>
The accompanying notes are an integral
part of these financial statements.
2
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BI INCORPORATED
STATEMENT OF OPERATIONS
(in thousands except per share amounts, unaudited)
<TABLE>
For the three months For the six months
ended December 31, ended December 31,
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1995 1994 1995 1994
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<S> <C> <C> <C> <C>
Revenues
Net sales $4,129 $2,801 $7,163 $5,524
Service and monitoring income 5,370 4,010 10,436 7,764
Rental income 194 198 413 420
Other income 117 74 185 148
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9,810 7,083 18,197 13,856
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Costs and expenses
Cost of net sales 2,315 1,349 3,809 2,658
Cost of service and monitoring income 2,547 1,771 4,875 3,426
Cost of rental income 71 100 142 213
Selling, general and administrative expenses 2,811 2,136 5,340 4,316
Depreciation and amortization 333 299 660 590
Research and development expenses 638 490 1,253 1,009
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8,715 6,145 16,079 12,212
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Income before income taxes 1,095 938 2,118 1,644
Income tax provision (448) (388) (870) (681)
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Net income $647 $550 $1,248 $963
========================== ======================
Net Income per common and common equivalent
share $0.09 $0.08 $0.18 $0.14
========================== ======================
Weighted average number of common and common
equivalent shares outstanding 7,052 6,752 7,025 6,911
========================== =====================
</TABLE>
The accompanying notes are an integral
part of the financial statements.
3
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BI INCORPORATED
STATEMENT OF CASH FLOWS
(in thousands, unaudited)
<TABLE>
For the six months
ended December 31,
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1995 1994
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<S> <C> <C>
Cash flows from operating activities:
Net income $1,248 $963
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 2,839 2,070
Provision for losses on accounts receivable and STL's 112 93
Changes in assets and liabilities:
Receivables (742) 569
Investment in STLs (246) (1,345)
Inventories 146 (119)
Accounts payable 685 418
Accrued expenses 68 (155)
Income taxes payable 30 78
Deferred revenue (109) 205
Rental equipment-net, converted to STL 122
Other 5 65
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Net cash from operating activities 4,036 2,964
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Cash flows from investing activities:
Capital expenditures (657) (504)
Increase in rental and monitoring equipment (1,565) (1,315)
Increase in capitalized software (311) (83)
Cash for acquisition (35)
Change in investments (164) (2)
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Net cash from investing activities (2,732) (1,904)
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Cash flows from financing activities:
Purchase of treasury stock (972) (2,501)
Proceeds from issuance of common stock 778 62
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Net cash from financing activities (194) (2,439)
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Net change in cash and cash equivalents 1,110 (1,379)
Cash and cash equivalents at June 30 2,358 3,045
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Cash and cash equivalents at December 31 $3,468 $1,666
======== ========
</TABLE>
The accompanying notes are an integral
part of the financial statements.
4
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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 four legal proceedings; two alleging product
liability; another alleging wrongful termination of a distributor contract; and
the fourth 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.
Note 4 - Acquisition of JurisMonitor Assets
- -------------------------------------------
On December 13, 1995, the Company acquired the assets of JurisMonitor, Inc.
(Juris) of Boulder, Colorado. The transaction included $35,000 in cash and
future non-guaranteed royalties of $275,000 from BI to Juris; no shares of stock
were involved.
Note 5 - Common Stock
- ---------------------
On October 6, 1995, the Company repurchased 136,373 shares of its common stock
on the open market at an average price of $7.13 per share. These shares were
subsequently retired to unissued, authorized shares.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
THE THREE-MONTH PERIOD ENDED DECEMBER 31, 1995 (FISCAL 1996), COMPARED TO THE
THREE-MONTH PERIOD ENDED DECEMBER 31, 1994 (FISCAL 1995):
Total revenue for the three months ended December 31, 1995, increased 38.5% to
$9,810,000 compared to $7,083,000 in the corresponding period a year ago. This
increase related both to an increase in net sales of $1,328,000 or 47.4% and an
increase in service, monitoring and rental income of $1,356,000 or 32.2%. Net
sales included revenue of $398,000 for the first sale of its Jail Management
Software system (JMS) product during the quarter ended December 31, 1995.
Increased sales and service revenue from the Company's home arrest products
during the fiscal 1996 period is largely a result of continued acceptance by
government agencies to use this technology as an alternative to incarceration.
Gross profit on net sales, service, monitoring and rental income decreased to
49.1% in fiscal 1996 from 54.0% in fiscal 1995. The decrease in net sales gross
profit margin was due largely to a trade-in program of home arrest equipment the
Company offered to certain customers during the fiscal 1996 quarter. Cost of
goods on the first JMS system sale were $402,000. As a result of initial
development expenses and amortization of acquisition costs, the Company does not
expect this product line to be profitable in fiscal 1996. Monitoring gross
profit decreased as a result of home arrest equipment upgrades and increased
costs related to monitoring labor and telephone expenses. The Company expects
monitoring gross margins to improve as a result of efficiencies gained over time
on increased units being monitored.
Selling, general and administrative expenses decreased as a percentage of total
revenue to 28.7% or $2,811,000 in fiscal 1996 compared to 30.2% or $2,136,000 in
fiscal 1995. The increase of $676,000 is largely related to increased sales and
marketing expenses on increased revenue.
Research and development (R&D) expenses increased $148,000 to $638,000 in fiscal
1996 compared to $490,000 in fiscal 1995, but remained at approximately 7% of
total revenue for both periods. R&D expenses largely related to software
enhancements to the Company's monitoring center for both periods. Fiscal 1996
also related to current product evaluations and enhancements.
The Company recorded income tax expense of $448,000 and $388,000 for the three
months ended December 31, 1995 and 1994, respectively, which differs from the
statutory rate largely as a result of state income taxes and non-deductible
goodwill amortization expense.
THE SIX-MONTH PERIOD ENDED DECEMBER 31, 1995 (FISCAL 1996), COMPARED TO THE
SIX-MONTH PERIOD ENDED DECEMBER 31, 1994 (FISCAL 1995):
Total revenue increased 31.3% to $18,197,000 for fiscal 1996 from $13,856,000 in
fiscal 1995. Net sales for fiscal 1996 were $7,163,000, a 29.7% increase over
$5,524,000 for fiscal 1995. This increase was primarily a result of increased
sales to certain non-government customers who use the Company's equipment to
provide monitoring services to government agencies. In addition the first
revenue from the JMS product was recognized as discussed above. Recurring
revenue which includes service, monitoring and rental income increased to
$10,849,000 in fiscal 1996 or 32.6% over $8,184,000 in fiscal 1995 due to the
continuing trend by government agencies to contract services
6
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versus purchasing equipment. The Company believes this revenue source will
continue to increase during the remainder of fiscal 1996.
Gross profit on net sales, service, monitoring and rental income decreased to
51% in fiscal 1996 from 54.1% in fiscal 1995 largely as a result of the
discussion above.
Selling, general and administrative expenses increased $1,025,000 to $5,340,000
in fiscal 1996 from $4,316,000 in fiscal 1995, but decreased as a percentage of
total revenue to 29.3% for the six months ended December 31, 1995, versus 31.1%
for the same period ended December 31, 1994. The increase was largely related to
increased sales and marketing expenses on increased revenues.
Research and development expenses increased $244,000 to $1,253,000 in fiscal
1996 from $1,009,000 in fiscal 1995, but remained approximately 7% of total
revenue in both periods. The increase was due largely to factors discussed
above.
The Company's income tax expense for fiscal 1996 was $870,000, which was higher
than the expected statutory rate as discussed above.
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.
During the six months ended December 31, 1995, the Company generated $4,036,000
from operating activities; expended $2,533,000 for capital equipment, rental and
monitoring equipment and internally developed software; and, purchased $972,000
of its common stock on the open market. All cash flow activities resulted in an
increase in cash of $1,110,000.
Working capital increased $1,323,000 to $14,261,000 at December 31, 1995. This
increase was primarily the result of an increase in cash and receivables offset
by an increase in accounts payable.
The Company believes its existing sources of liquidity expected to be generated
from operations will provide adequate cash to fund the Company's anticipated
capital needs through fiscal 1996.
7
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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 1/26/96 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 STATEMENTS AND RELATED NOTES THERETO AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND RELATED NOTES.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,468
<SECURITIES> 540
<RECEIVABLES> 10,302
<ALLOWANCES> 0
<INVENTORY> 3,132
<CURRENT-ASSETS> 18,717
<PP&E> 2,110
<DEPRECIATION> 0
<TOTAL-ASSETS> 38,490
<CURRENT-LIABILITIES> 4,456
<BONDS> 0
0
0
<COMMON> 28,767
<OTHER-SE> (13)
<TOTAL-LIABILITY-AND-EQUITY> 38,490
<SALES> 18,012
<TOTAL-REVENUES> 18,197
<CGS> 8,826
<TOTAL-COSTS> 16,079
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,118
<INCOME-TAX> 870
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,248
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
</TABLE>
