<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, 1999
------------------
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) 218-1000
-------------------------------------
(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 28, 1999 was 7,913,794.
<PAGE>
BI INCORPORATED
Index
-----
<TABLE>
<CAPTION>
<S> <C>
Part I - Financial Information: Page No.
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheets 2
at September 30, 1999 and June 30, 1999
Consolidated Statements of Operations
for the three month periods ended September 30, 1999 and 1998 3
Consolidated Statements of Cash Flows
for the three months ended September 30, 1999 and 1998 4
Consolidated Notes to Financial Statements 5-6
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations 7 through 12
Signatures 13
</TABLE>
Part II - Other Information:
Item 1 - Legal Proceedings: Incorporated by reference to Note 4 to Consolidated
Financial Statements in Part I.
<PAGE>
BI INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands, unaudited)
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
--------------- ---------------
<S> <C> <C>
ASSETS
Current assets
Cash $ - $ -
Receivables, net 13,984 14,521
Inventories, net 4,729 4,100
Investment in sales-type leases 3,609 3,662
Deferred income taxes 933 933
Prepaid expenses 945 825
--------------- ---------------
Total current assets 24,200 24,041
Investment in sales-type leases 3,458 3,368
Rental and monitoring equipment, net 7,355 6,393
Property and equipment, net 9,980 15,355
Intangibles, net 11,788 11,998
Long term deferred tax asset 1,990 2,011
Investments in common stock 1,321 1,321
Software, net 1,019 892
Other assets 1,767 2,872
=============== ===============
$ 62,878 $ 68,251
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,516 $ 2,516
Outstanding liabilities in excess of cash 1,756 971
Accrued compensation and benefits 2,723 2,673
Deferred revenue 1,538 1,535
Income taxes payable 653 215
Borrowings 5,193 4,052
Other liabilities 423 1,419
--------------- ---------------
Total current liabilities 13,802 13,381
--------------- ---------------
Capital lease obligation 0 6,714
Deferred revenue 1,891 2,275
Commitments (Notes 6 & 9)
Stockholders' equity
Common stock, no par value, 75,000 shares
authorized; 7,911 shares issued and outstanding
September 30, 1999, and 7,791 shares issued and
outstanding June 30, 1999 35,684 34,996
Retained earnings 11,501 10,885
--------------- ---------------
47,185 45,881
--------------- ---------------
$ 62,878 $ 68,251
=============== ===============
</TABLE>
The accompanying notes are an integral
part of these consolidated balance sheets.
2
<PAGE>
BI INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands except per share amounts, unaudited)
<TABLE>
<CAPTION>
For the three months
ended September 30,
-----------------------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Revenues
Service and monitoring income $ 14,696 $ 12,719
Rental income 310 108
Direct sales 2,700 2,864
Other income 9 30
-------- --------
Total revenues 17,715 15,721
-------- --------
Costs and expenses
Cost of service and monitoring income 8,093 6,491
Cost of rental income 108 80
Cost of direct sales 1,403 813
Selling, general and administrative expenses 5,208 4,739
Provision for doubtful accounts 447 409
Amortization and depreciation 923 807
Research and development expenses 476 781
-------- --------
Total costs and expenses 16,658 14,120
-------- --------
Income from continuing operations before income taxes 1,057 1,601
Income tax provision (441) (690)
-------- --------
Net income from continuing operations 616 911
Loss from discontinued operations - (382)
======== ========
Net income $ 616 $ 529
======== ========
Basic earnings per share from continuing operations $0.08 $0.12
======== ========
Basic (loss) per share from disontinuing operations - ($0.05)
======== ========
Basic earnings per share $0.08 $0.07
======== ========
Weighted average number of common shares outstanding 7,871 7,640
======== ========
Diluted earnings per share from continuing operations $0.08 $0.12
======== ========
Diluted (loss) per share from discontinued operations - ($0.05)
======== ========
Diluted earnings per share $0.08 $0.07
======== ========
Weighted average number of common and
common equivalent shares outstanding 8,053 7,909
======== ========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
3
<PAGE>
BI INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
<TABLE>
<CAPTION>
For the three months
ended September 30,
------------------------------------------
1999 1998
------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 616 $ 529
Adjustments to reconcile net income to net cash from
operating activities:
Amortization and depreciation 1,909 1,817
Provision for doubtful accounts 447 409
Changes in assets and liabilities:
Receivables 90 (698)
Investment in sales type leases (37) 383
Inventories, net (629) 361
Prepaid and other assets (472) (72)
Accounts payable (215) (1,475)
Accrued and other expenses (947) 437
Deferred revenue (380) 16
Income taxes payable 459 (270)
Decrease/(increase) in net assets of discontinued operations - (382)
------- -------
Net cash from operating activities 841 1,055
------- -------
Cash flows from investing activities:
Capital expenditures (1,094) (657)
Increase in rental and monitoring equipment (1,847) (988)
Increase in capitalized software (172) (222)
Expenditures for licenses (32) (297)
Proceeds from sale of investment 475 -
------- -------
Net cash used in investing activities (2,670) (2,164)
------- -------
Cash flows from financing activities:
Payments on capital lease obligation 0 (38)
Proceeds from issuance of common stock 688 11
Proceeds from borrowings 1,141 -
------- -------
Net cash from (used in) financing activities 1,829 (27)
------- -------
Net change in cash - (1,136)
Cash at beginning of period - 1,146
------- -------
Cash at end of period $ - $ 10
======= =======
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
4
<PAGE>
BI Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
------------------------------------------
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 presentation of the
results for the interim periods.
Note 2 - Reclassification
- -------------------------
Certain fiscal 1999 amounts have been reclassified to be comparable with
the fiscal 2000 presentation.
Note 3 - Net Income per Common and Equivalent Share
- ---------------------------------------------------
The Company follows SFAS No. 128, "Earnings per Share." This pronouncement
establishes new standards for computing and presenting EPS on a basis that is
more comparable to international standards and provides for the presentation of
basic and diluted EPS, replacing the previously reported primary and fully-
diluted EPS. Basic EPS has been computed by dividing net income by the weighted
average number of shares outstanding during each period. Diluted EPS has been
computed by dividing net income by the weighted average common and common
equivalent shares outstanding during each period using the treasury stock
method. Common equivalent shares are excluded from the EPS calculation when the
inclusion of common equivalent shares is anti-dilutive. The difference between
the Basic and Diluted weighted average shares is due to common stock equivalent
shares resulting from outstanding stock options.
Note 4 - Legal Proceedings
- --------------------------
On August 27, 1997, the Company became a party to a class action complaint
filed against it and certain of its officers and directors by CB Partners and
Michael Connor in the District Court for the County of Boulder, Colorado. The
complaint included various claims under securities laws as well as for common
law fraud. On September 13, 1999, the Plaintiffs and the Company (and other
defendants) submitted a Stipulated Motion to Dismiss. In that motion the
Plaintiffs and Defendants asked the Court to dismiss the case with prejudice
(which means the claims cannot be brought by these Plaintiffs again) because the
Plaintiffs no longer desired to proceed with the case. The Court approved the
dismissal of the case, with prejudice, as of September 21, 1999. The resolution
of this matter did not have a material adverse impact on the Company's financial
position or results of operations.
The Company reached an arbitrated settlement agreement with one of its
vendors related to termination expenses. The agreement was reached on July 31,
1999 with no material adverse effect on the Company's reported consolidated
results of operations.
The Company is also involved in five additional legal proceedings; one
alleging malfunction in equipment, the second alleging negligence and
misrepresentation resulting in a wrongful death, the third alleging negligence
under product liability, the fourth alleges a survival action and a wrongful
death action, and the last suit alleges wrongful death, survivorship action and
civil rights violation. One of the claimants seeks damages of $3,000,000, the
second seeks damages of $11,600,000, the third seeks $250 million in damages,
the fourth seeks damages in excess of $100,000, and the last seeks $10,500,000
in damages.
Management believes the Company has adequate legal defenses and/or
insurance coverage against all claims and intends to defend itself vigorously
against 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
consolidated financial position or results of operations. However, an adverse
future outcome in any individual case, including legal defense costs, could have
a material adverse effect on the Company's reported consolidated results of
operations in a particular quarter.
5
<PAGE>
Note 5 - Discontinued Operations
- ----------------------------------
In March 1999, the Company entered into a letter of intent to sell the assets of
its CIS business unit. Based on management's assessment of the net realizable
value of the CIS business unit assets, with consideration of the terms of the
proposed sale included in the letter of intent, the Company recorded an asset
impairment charge. Subsequently the Company decided to discontinue its CIS
business unit and sold the net assets on April 30, 1999. The CIS business
unit's losses from its results of operations and its disposal are presented in
the Company's financial statements of operations as discontinued operations, net
of related income taxes.
Note 6 - Sale of Investment
- ---------------------------
In the first quarter, the Company sold its equity investment interest in the
building it leases. As a result of this transaction, the Company changed the
accounting method for its building lease from a capital lease to an operating
lease. The net effect of the accounting change was a non-cash reduction in the
capitalized leased asset of $5,780,000; a non-cash reduction in the capitalized
lease obligation of $6,714,000 and a non-cash reduction in other assets of
$1,047,000.
6
<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; new product introductions by competitors or unexpected delays of
new product introductions by the Company; raw material availability; changes in
telecommunications regulations or technologies; the inability of the Company or
others upon which it depends to adequately address and correct problems
resulting from the "Year 2000" issue; or the loss of a material contract through
lack of appropriation or otherwise.
Results of Operations
- ---------------------
The following table provides a breakdown of selected results by Business Unit.
The Company's Business Units consist of Electronic Monitoring (EM) and Community
Correctional Services (CCS). The Company separates costs by Business Unit
through gross profits. Operating expenses below gross profit are not allocated
by Business Unit.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1999 September 30, 1998
------------------------------- ----------------------------
EM CCS Total EM CCS Total
------------------------------- ----------------------------
Revenue (unaudited, in thousands) (unaudited, in thousands)
<S> <C> <C> <C> <C> <C> <C>
Recurring revenue
Service & monitoring 8,278 6,418 14,696 7,653 5,066 12,719
Rental 310 310 108 108
Total recurring revenue 8,588 6,418 15,006 7,761 5,066 12,827
Direct sales 2,700 2,700 2,864 2,864
Other income 9 9 30 30
------------------------------- ---------------------------
Total revenue 11,297 6,418 17,715 10,655 5,066 15,721
Gross profit
Recurring revenue
Service & monitoring 4,103 2,500 6,603 4,152 2,076 6,228
Rental 202 202 28 28
Total recurring revenue 4,305 2,500 6,805 4,180 2,076 6,256
Direct sales 1,297 1,297 2,051 2,051
Other income 9 9 30 30
------------------------------- ---------------------------
Total gross profit 5,611 2,500 8,111 6,261 2,076 8,337
Gross profit % 49.7% 39.0% 45.8% 58.8% 41.0% 53.0%
Selling, general & administrative 5,208 4,739
Provision for doubtful accounts 447 409
Amortization & depreciation 923 807
Research & development 476 781
--------- ---------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Income from continuing 1,057 1,601
operations before taxes
Income taxes 441 690
--------- ---------
Net income from continuing operations. 616 911
Loss from discontinued operations 0 (382)
--------- ---------
Net income 616 529
</TABLE>
The three-month period ended September 30, 1999 (fiscal 2000), compared to the
three-month period ended September 30, 1998 (fiscal 1999):
Revenue
Total revenue for the three months ended September 30, 1999, increased
12.7% to $17,715,000, compared to $15,721,000 in the corresponding period a year
ago. The Company is continuing to expand recurring revenue which includes
service, monitoring and rental income, although there can be no assurances that
the Company will be successful in continuing this expansion. These revenue
sources, which are generated within both business units, increased 17.0% in
fiscal 2000 compared to fiscal 1999. Recurring revenue increased to $15,006,000,
or 84.7% of total revenue, in fiscal 2000 from $12,827,000, or 81.6% of total
revenue, in fiscal 1999. Both business units reported recurring revenue
increases for fiscal 2000 as compared to fiscal 1999.
The EM business unit revenue increased 6.0% to $11,297,000 for the three
months ended September 30, 1999, compared to $10,655,000 in the corresponding
period a year ago. Some government agencies purchase equipment and run their own
monitoring programs, others elect to utilize both monitoring equipment and
services offered by the Company, while other agencies purchase equipment from
the Company and then contract with the Company for the service portion of the
monitoring. Recurring revenue, which is comprised of electronic monitoring and
rental income, increased 10.7% to $8,588,000 in fiscal 2000 from $7,761,000 in
fiscal 1999. This increase in recurring revenue relates to the continuing trend
of government agencies to contract for electronic monitoring rather than
purchase equipment. Direct sales revenue decreased to $2,700,000 in fiscal 2000
from $2,864,000 in fiscal 1999. The timing of new direct sales awards continue
to be volatile hence impacting quarter to quarter revenue comparisons.
The CCS business unit recurring revenue increased 26.7% to $6,418,000 in
fiscal 2000, compared to $5,066,000 in fiscal 1999. CCS provides community
correctional supervision services, rehabilitation and treatment services, as
well as court ordered fee collections. CCS operates in 13 states through its 85
correctional service centers providing services to more than 45,000 offenders.
During the first quarter of fiscal 2000 the Company was awarded a significant
contract from Fulton County, GA representing approximately $8 million in revenue
over four years. The Company intends to continue to broaden the services
provided to the offender and anticipates continued revenue growth in this
business unit for fiscal year 2000.
8
<PAGE>
Gross Profit
Total Gross profit as a percentage of total revenue for the three months
ended September 30, 1999 was 45.8% compared to 53.0% in the corresponding period
a year ago. Total gross profit for fiscal 2000 was $8,111,000 compared to
$8,337,000 for fiscal 1999.
The EM business unit gross profit decreased to 49.7% as a percentage of EM
revenue for fiscal 2000 compared to 58.8% in fiscal 1999. This percentage
decrease was due to a current period decline in gross profit in both recurring
and direct sales revenue as compared to the same period a year ago. Temporary
additional start up costs associated with the deployment of the Company's next
generation monitoring software (GuardWare) along with unabsorbed fixed costs
related to fewer than anticipated offenders being assigned monitoring
supervision decreased recurring revenue gross profits to 50% in fiscal 2000 from
54% in fiscal 1999. The Company's expectations are that full deployment of
GuardWare will reduce monitoring operating costs over time. Direct sales gross
profit for fiscal 2000 was 48% compared to 72% in fiscal 1999. The fiscal 1999
margins were unusually high due to positive manufacturing variances and
relatively favorable pricing on some specific contracts.
The CCS business unit gross profit decreased to 39.0% as a percentage of
CCS revenue for fiscal 2000 compared to 41.0% in fiscal 1999. This decrease was
related to certain start-up costs associated with the Fulton County contract, in
addition to temporary revenue declines in certain existing offices related to
seasonality which impacted absorption of fixed costs. On new correctional
service centers such as the Fulton center, the Company expects to generate
profits within four to six months from start of operations. The Company will
continue to make additional investments in new services and community
correctional centers throughout fiscal 2000. On existing centers, the Company
expects additional cost reductions and improved efficiencies to increase the CCS
gross profit percentage over time.
Selling, General and Administrative (S,G&A)
S,G&A expenses as a percentage of total revenue decreased to 29.4% for
fiscal 2000 compared to 30.1% in fiscal 1999. Total S,G&A expense for the three
months ended September 30, 1999, was $5,208,000 compared to $4,739,000 in the
corresponding period a year ago. The Company has recently centralized its S,G&A
support functions and no longer provides these services based upon business
units. The increase in expenditures is related to additional business
development expenses associated with acquisition activities, as well as
increases in product management and international marketing expenditures related
to growth of new and existing customer sites.
Provision for Doubtful Accounts
The provision for doubtful accounts as a percentage of total revenue
decreased to 2.5% for fiscal 2000 compared to 2.6% in fiscal 1999. Total
doubtful accounts expense for the three months ended September 30, 1999, was
$447,000 compared to $409,000 in the corresponding period a year ago. The
provision relates largely to the Company's probation and day reporting services.
Probation service revenue is 100% paid by the offender and carries an increased
risk of default. Day reporting revenue for fiscal 2000 was 21.8% paid by the
offender and the remaining paid by government agencies. The Company has
initiated collection activities that have improved its collection results. The
Company will continue to emphasize additional collection procedures to further
reduce payment defaults.
9
<PAGE>
Amortization and Depreciation (A&D)
A&D expenses increased to 5.2% of total revenue for fiscal 2000 compared to
5.1% in fiscal 1999. Total A&D expense for the three months ended September 30,
1999, was $923,000 compared to $807,000 in the corresponding period a year ago.
The increase was due to additions to property, plant and equipment.
Research and Development Expenses (R&D)
R&D expenses decreased to $476,000 in fiscal 2000 from $781,000 in fiscal
1999. The Company's R&D expenditures were largely related to EM business unit
expenses associated with internal software development efforts for improved
automation to the Company's electronic monitoring centers, and the evaluation
and development of numerous next generation electronic monitoring products. One
of these products was introduced in the fourth quarter of fiscal 1999. A second
product is scheduled for release in the next few months. The Company expects to
continue expenditures for improvements to the monitoring operations and
development of future home arrest products throughout fiscal year 2000.
Discontinued Operations
In March 1999, the Company entered into a letter of intent to sell the
assets of its CIS business unit. Based on management's assessment of the net
realizable value of the CIS business unit assets, with consideration of the
terms of the proposed sale included in the letter of intent, the Company
recorded an asset impairment charge. Subsequently the Company decided to
discontinue its CIS business unit and sold the net assets on April 30, 1999.
The CIS business unit's losses from its results of operations and its disposal
are presented in the Company's financial statements of operations as
discontinued operations, net of related income taxes.
Net Income and Income Taxes
The Company recorded income tax expense from continuing operations of
$441,000 and $690,000 for the three months ended September 30, 1999 and 1998
respectively. In addition, the Company's income tax expense differs from the
statutory rate largely as a result of state income taxes and non-deductible
goodwill amortization expense.
For the three months ended September 30, 1999, the Company had net income
of $616,000, or $.08 diluted earnings per share, compared to net income of
$529,000, or $.07 diluted earnings per share, for the same period a year ago.
The changes in net income relate primarily to the items discussed above.
Impact of Year 2000 Issues
The Year 2000 issue is related to computer software utilizing two digits
rather than four to define the appropriate year. As a result, any of the
Company's computer programs, or any of the Company's suppliers or vendors that
have date sensitive software, may incur system failures or generate incorrect
data if "00" is recognized as 1900 rather than 2000.
10
<PAGE>
The Company has been addressing Year 2000 issues throughout fiscal years
1998, 1999 and 2000 and has modified, or is in the process of modifying, any
products or services that are affected by Year 2000 issues. Some older products
or services have "end of life" programs in place. The Company has a formal
comprehensive Year 2000 readiness plan in place under the oversight of its
executive management. The Company estimates that approximately $1,152,000 has
been incurred during fiscal years 1998, 1999 and 2000 related to addressing
Year, 2000 events. It is estimated that another $149,000 of costs will be
incurred prior to calendar year end 1999. The Company continually reviews this
estimate and will adjust its expected costs as new information is obtained.
Approximately 70% of this amount will be related to fixed asset additions for
new computer related equipment and software upgrades. The remaining amount will
be expensed as incurred. The Company does not include the costs of internal
employee time in the above cost calculations, since these costs are not
separately tracked. The above costs, however, do include costs of third party
contractors and consultants.
The Company is contacting each of its material vendors and suppliers to
determine their Year 2000 readiness. The Company's greatest risk for a material
disruption in services lies in a potential disruption of telecommunication
services due to an external telecommunication service provider's failure to be
Year 2000 capable and the resulting impact upon the Company's monitoring
services. The Company has contacted and has obtained assurances from most of
its telecommunications providers (e.g., MCI WorldCom, AT&T, Sprint, US West,
Ameritech, and other regional providers) that their networks are or will be Year
2000 capable. The Company is continuing to monitor the remaining
telecommunications providers for their stated progress on their Year 2000
capability. The Company has a redundant monitoring system that would allow the
eastern monitoring center to process alerts if for any reason the western
monitoring center was to be taken out of service, or vice versa. In addition,
the Company has backup telecommunication provider connectivity if for any reason
the primary carrier has a disruption in service.
The Company has been in the process throughout fiscal years 1998, 1999 and
2000 of evaluating and replacing, where needed, its internal business and
business unit operating computer systems. These replacements were required to
meet current and future needs of the business as well as to cost reduce various
administrative and operating functions. Some replacement and system upgrades
may be accelerated from when they might have been implemented in the absence of
the Year 2000 issues, and some other systems related projects may be deferred as
a result of such acceleration. However, the Company does not believe either
acceleration or deferral of projects, as a result of Year 2000 issues, should
have a material adverse effect on the Company. The new systems are expected to
be Year 2000 capable and are scheduled for deployment in fiscal year 2000. The
systems have been or will be externally verified and tested to be Year 2000
compliant.
The Company believes that based upon changes and modifications already
made, and those that are currently planned for implementation throughout
calendar year 1999, the impact of Year 2000 issues are not expected to be
material. However, to the extent the Company or third parties on which it
relies do not timely achieve Year 2000 readiness, the Company's results of
operations may be adversely affected.
Liquidity and Capital Resources
For the three months ended September 30, 1999, the Company generated
$841,000 of cash from operating activities, received $688,000 from the issuance
of common stock associated with the exercise of stock options, received $475,000
proceeds from the sale of an investment, received $1,141,000 through increased
borrowings, expended $1,094,000 for capital equipment and leasehold
improvements, expended $1,847,000 for equipment associated with rental and
monitoring contracts, and expended $204,000 for capitalized internally developed
software and product license expenditures. The total of all cash flow activities
resulted in the balance of cash and cash equivalents remaining constant for
three months ended September 30, 1999.
11
<PAGE>
The Company's working capital decreased $262,000 to $10,398,000 at
September 30, 1999. This decrease was primarily the result of $5,100,000
outstanding line of credit for short term operating needs and increased
inventory levels of $629,000 due to new product introductions which will be
reduced in future months. Accounts receivable decreased in fiscal 2000
primarily as a result of the Company emphasizing collection activities. The
Company will continue to emphasize improved accounts receivable collections
across both business units and expects to reduce its past due receivables
throughout fiscal year 2000 as compared to fiscal year 1999.
The Company has an available $6,500,000 line of credit with Bank One,
Boulder, Colorado which expires in November 1999. As of September 30, 1999,
$5,100,000 had been drawn against this line. Subsequent to September 30, 1999
the Company has drawn additional amounts on the line. The Company is currently
negotiating a new line of credit increase that will fund anticipated fiscal year
2000 working capital requirements. The Company expects to generate cash from
operations during the second half of fiscal year 2000 which will be used to pay
down a portion of the line of credit.
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 September 30, 1999, the Company had unfunded leases in the amount
of $7,067,000 which could be used as collateral for future borrowing
arrangements.
The Company believes it will have adequate sources of cash and available
bank line of credit to fund anticipated working capital needs for its existing
business through fiscal 2000.
The table below provides information about the Company's financial
instruments that are sensitive to changes in interest rates. The instrument's
cash flows are denominated in U.S. dollars. The Bank One line of credit balance
of $5,100,000 represents the majority of these financial instruments.
Market Risk
September 30, 1999 Expected Maturity Date
------------------------
November 1999 Fair Value
Short - term borrowings $5,193,000 $5,193,000
Average interest rate 8.25%
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BI Incorporated
Date November 2, 1999 By /s/ David J. Hunter
----------------------- -------------------------------------
David J. Hunter
President and Chief Executive Officer
/s/ Jacqueline A. Chamberlin
-------------------------------------
Jacqueline A. Chamberlin
Chief Financial Officer
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 17,593
<ALLOWANCES> 0
<INVENTORY> 4,729
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0
0
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</TABLE>
