<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, 1999
Commission File Number: 0-12410
BI INCORPORATED
---------------
(Exact name of registrant as specified in its charter)
Colorado
--------
(State or other jurisdiction
of incorporation or organization)
84-0769926
----------
(I.R.S. Employer Identification No.)
6400 Lookout Road, Boulder, Colorado 80301
------------------------------------------
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (303) 218-1000
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 15, 1999, there were 7,911,294 shares of Common Stock outstanding
and the aggregate market value of Common Stock held by non-affiliates was
$67,245,999.
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 16, 1999.
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 definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
<PAGE>
PART I
Item 1. Business.
General
BI Incorporated (the "Company") is the leading manufacturer and
provider of electronic monitoring equipment and services, and community
correctional services to the criminal justice market worldwide.
Since entering the market in 1984, BI's electronic monitoring business
unit ("EM") has developed four generations of home arrest products. Three
companies, acquired from 1990-1992, were combined to form BI's monitoring
service centers, allowing the Company to provide additional services to
corrections agencies. In December 1995, the Company acquired the assets of
JurisMonitor, Inc. to address the needs of programs designed to reduce risk in
domestic violence cases. Recognizing yet another need within corrections, BI
purchased the product rights to an automated case load management service in
December 1990, BI's PROFILE(TM) and PROFILE Plus(TM) products.
In December 1993, the Company acquired an exclusive license for its
Institutional Management System ("IMS") software from SCC Communications Corp.
of Boulder, Colorado, upon which BI's PREMIER IMS product and correctional
information systems business unit ("CIS") was based. The Company sold all
related assets of this product line on April 30, 1999. The sale of this
business unit has been accounted for as a discontinued operation in the
Company's financial statements.
The Company started its Community Correctional Services (CCS) business
unit through the acquisition of four companies in fiscal 1997. On October 10,
1996, the Company completed the merger with Community Corrections Corporation,
Justice Alternatives Inc. and Tennessee Probation Services, Inc., collectively
referred to as "CCC." CCC provides probation services to misdemeanant
probationers through correctional service centers in Georgia, Florida, Tennessee
and South Carolina. On January 31, 1997, the Company acquired Peregrine
Corrections, Inc. ("PCI") of Denver, Colorado. PCI is an industry leader in
day-reporting, a non-residential criminal sentencing alternative for felony
probationers. PCI provides services through correctional service centers in
Colorado, Illinois, New Mexico, Oregon and Washington.
Industry and Market Background
According to the U.S. Bureau of Justice Statistics latest report, 5.9
million adults were under some form of correctional supervision at December 31,
1998. The number of prisoners under the jurisdiction of federal or state
correctional authorities on that date reached a record high of 1.8 million.
Moreover, 4.1 million adults were under parole or probation sanction. The total
adult correctional population has nearly tripled over the last 15 years. These
are the targeted populations for the Company's products and services.
At June 30, 1999 the Company was monitoring approximately 21,500
offenders daily on home arrest; approximately 41,800 misdemeanant and felon
probationers were being managed through the Company's CCS correctional service
centers, and approximately 20,000 offenders were using BI's automated PROFILE
service.
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The Company believes that its comprehensive product lines provide
viable, cost-effective solutions to the problem of prison and jail overcrowding,
as well as providing additional innovative tools for corrections agencies to
manage the vast amount of information required more efficiently. Monitoring,
supervision and day reporting services provided by BI enable correction agencies
to manage probation and parole populations effectively for less than traditional
institutional incarceration. This alternative provides a lower cost solution to
agencies because home arrest and supervision programs are structured in a way
that allows the offender to pay for these services.
Products and Services
Electronic Monitoring Equipment and Services
- --------------------------------------------
BI HomeGuard 200: The Company's premier product line, the BI
----------------
HomeGuard 200, consists of a radio frequency transmitter, worn on an offender's
ankle or wrist, a receiver unit called a field monitoring device ("FMD"),
installed in the offender's home. The transmitter produces uniquely encoded
signals which are received by the FMD. Using standard telephone lines, the FMD
relays the information to the agency's host computer or BI monitoring service.
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 BI'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 HomeGuard 200 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. The call back characteristic of the
series confirms the location of the FMD at specified intervals. These tamper
detection devices, the system's ability to crosscheck breaks in the transmission
with pre-programmed curfew terms and the host computer's operating system
effectively differentiate the BI HomeGuard 200 from its competitors' products.
The HomeGuard 200 features small and lightweight equipment and has
established unprecedented industry standards for security, performance,
sophisticated encoding and encryption of messages. Additional features include
patented voice verification technology and the host computer's capability to
automatically fax reports to agencies.
An additional component of the HomeGuard 200 is the BI Drive-BI(TM)
---------------
Monitor. The Drive-BI is a hand-held, portable unit used to receive encoded
- -------
transmissions from the BI 9010 ankle bracelet transmitters worn by offenders.
The Drive-BI does not require installation of an FMD in the offender's home.
Rather, a compliance officer has the capability to drive by the individual's
residence or work place and uses the portable receiving unit to verify
compliance with the terms of the program.
BI Sobrietor: The BI Sobrietor(TM) is a remote, in-home alcohol
------------ -------------
testing device which can be used stand-alone or in conjunction with electronic
home arrest. It combines voice verification, triple tamper protection and fuel
cell technology to provide corrections officials with an increased level of
security and actual analyses of offenders' blood alcohol levels. The unit is
ergonomically designed, lightweight and easy to install.
BI JurisMonitor(TM): The BI JurisMonitor System is a cost effective
-------------------
approach to domestic violence intervention and compliance with court orders,
combining electronic monitoring technology with a coordinated
2
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community response. In the JurisMonitor system, the offender wears an ankle
bracelet that emits a continuous signal. The victim is provided with an FMD base
unit, which sets off an alarm when the transmitter comes within the proximity of
the base unit. In addition, the monitoring unit in the offender's home verifies
curfew compliance and detects tampering or attempts to shield the bracelet. When
the FMD detects the presence of the offender, four events are set into motion:
an audible alarm sounds within the home; the monitoring center is alerted; the
unit begins an audio recording and police are dispatched based on the protocols
established by the jurisdiction.
The BI K2 Home Escort(TM) System uses time-tested software to manage
--------------------------------
and monitor subjects from the agency's site without relying on services of a
third-party vendor. The system allows agencies to customize the database to
accommodate specific conditions for individual subjects, such as defining
records and schedules, adding comments and determining alert-handling
procedures. Based on a standard DOS/Novell operating system, K2 provides top
security and reliability, disk mirroring, redundancy and a fault-resistant
design for a variety of electronic and alcohol field monitors.
BI SkyGuard 200(TM) SkyGuard 200 provides 24 hour a day monitoring of
-------------------
an offender's location through the use of our nation's Global Positioning
Satellite (GPS) system. Combined with the HomeGuard 200 or BI 9000 electronic
monitoring system, SkyGuard provides the most comprehensive integrated
supervision available today. SkyGuard tracks compliance to pre-determined
geographic and schedule restrictions, called inclusion and exclusion zones.
With these pre-programmed time and space constraints, agencies designate where
an offender can and can't go. Using GuardLink(TM), agency personnel establish
appropriate zones for each offender. SkyGuard is expected to be available late
in fiscal year 2000.
BI GuardCenter(TM) BI Incorporated uses its electronic monitoring
------------------
products to provide corrections agencies with comprehensive remote monitoring
services. BI's GuardCenter is at the core of an integrated supervision program,
and uses the most advanced technology available, monitoring the status of
individuals and communicating any violations and other information according to
predetermined agency criteria. Corrections officials use BI's equipment without
having to provide agency staff to monitor individuals or obtain capital to
purchase host system computer equipment. This allows flexibility, control,
security and dramatic savings over the costs of incarceration. BI certifies its
monitoring center personnel, who monitor subjects from GuardCenters in Boulder,
Colorado and Anderson, Indiana, 24 hours a day, seven days a week. The two
facilities are fully redundant and feature unprecedented system uptime and
accurate data entry and reporting. GuardWare(TM) is the software that manages
offender information and supervision parameters within the GuardCenter. This
application runs on an industry standard Microsoft(R) Windows(R) NT and SQL
Server platform. Guardlink(TM) is a computing based window that gives agencies
remote access to GuardCenter data.
BI ReportGuard(TM) BI ReportGuard combines the efficiency of
------------------
automated caseload management with the collection of fixed fees. Using a 900#
telephone service, ReportGuard manages administrative and low-risk caseloads by
having the offender answer a series of questions asked by the system, such as
change of address, employment status, compliance with court orders and
restitution payments. Additionally, agencies can customize the questions asked
of the offender to gather information pertaining to that particular individual.
Information collected by the system is recorded and archived. Through BI's
GuardCenter, ReportGuard reports the exceptions or missed calls to officials.
This enables officers to supervise offenders who need more intensive
supervision. When appropriate, an agency can also collect fees from offenders by
having them charged to the offender's home telephone bill. BI collects the fees
and passes them along to the agency. Offenders have historically been reluctant
to voluntarily submit such fees; BI's technology has dramatically increased the
collection rate.
BI TelGuard 2.0(TM) TelGuard utilizes advanced voice verification
-------------------
technology to provide agencies with a flexible way to effectively perform
compliance monitoring of community based offenders. TelGuard monitors offenders
with random, scheduled, inbound or outbound verification calls over standard
telephones. During a verification call, TelGuard compares the offender's
voiceprint to a voiceprint taken during enrollment.
3
<PAGE>
TelGuard verifies the offender's identity and location, and subsequently the
offender's compliance to curfew and schedule restrictions. Alerts are
communicated to officers by e-mail, fax or pager. When an alert is e-mailed, it
contains an embedded sound file so that an officer can hear the verification
session.
Community Correctional Services
- -------------------------------
Focused on providing supervision and offender intervention treatment
services to agencies in 12 states, BI's CCS business unit partners with agencies
to help interrupt the cycle of chronic crime. BI has 83 offices providing
either daily or weekly face to face contact with offenders, collecting fees and
insuring compliance with court or agency ordered conditions. BI requires
offenders to accept responsibility and makes them accountable for their actions,
providing extensive follow up when offenders fail to meet their conditions of
release, and notification to the supervising agency or court of non-compliance.
Our offices can provide tailored levels of supervision based on an individual
offender's needs. This individualized offender program can significantly reduce
the number of new crimes from what would have been committed without
intervention, resulting in lower law enforcement and correctional costs, and
safer communities.
Revenue from Business Segments
The Company recognized revenue of $11,390,000; $13,822,000 and
$12,750,000 in 1999, 1998, and 1997 respectively, from the sale of electronic
monitoring products representing 16.7%, 23.6% and 27.1% of total revenue during
the respective years. Service, monitoring and rental income was $56,903,000 or
83.2% of total revenue in 1999, $44,278,000 or 75.5% in 1998 and $33,972,000 or
72.3% in 1997. These sources of revenue reflect the continuing expanding
acceptance of correction agencies to use the Company's products and services.
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. The Company advanced the development of its next
generation monitoring software. The Company began to utilize this software
during fiscal 1999 to enhance customer satisfaction and improve efficiencies.
For the years ended June 30, 1999, 1998, and 1997, the Company had research and
development expenses of approximately $1,900,000; $2,400,000, and $2,700,000,
respectively.
Manufacturing
The Company performs final assembly, testing, and quality control of
its products at its facility in Boulder, Colorado. The Company generally uses
standard parts and components obtained from a variety of vendors. The Company
has not experienced and does not anticipate any difficulty in obtaining the
necessary manufacturing assemblies, parts and components.
Sales, Distribution and Marketing
4
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The Company markets and sells its products and services to Federal,
state and local government agencies throughout the United States directly
through its sales personnel. The Company sold its electronic monitoring
products to distributors in The Netherlands, South Africa, Singapore,
Switzerland and five provinces in Canada. The Company believes the success of
these programs will open up other international opportunities.
Customers may acquire the Company's products and services by purchase,
rental or lease-purchase. Under a typical rental arrangement, the 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 rental and lease-purchase
arrangements are contingent upon annual appropriations. Certain government
agency contracts are paid directly by the offender using the Company's products
and services. Although there can be no assurance, the Company believes that the
likelihood of nonpayment due to lack of appropriations is remote. See Notes 1
and 3 to the Consolidated Financial Statements.
Significant Customers
In fiscal 1999, the Administrative Office of the U.S. Federal Courts
accounted for 9% of the Company's total revenue. This customer accounted for
10% of total revenue in fiscal 1998 and 12% in fiscal 1997. A loss of this
customer could have a material, adverse effect on the Company.
Customer Service, Support and Warranties
The Company believes that extensive customer service and support are
critical to maintaining a leading position in the criminal justice market. The
Company provides extensive support services to its electronic monitoring
customers including complete installation, training and ongoing technical
assistance. The Company operates a toll-free hot-line, 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
difficulties experienced by its customers. The Company provides customers any
updates of its monitoring system software during the warranty period and to
customers on extended service contracts.
The Company arranges for 24-hour hardware service on 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 hardware products for
one year from the date of delivery. 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 provided by the Company to its customers.
BI's Community Correctional Services (CCS) business unit provides a
full range of community correctional services through contracts with
correctional jurisdictions or judicial entities. CCS continues the tradition
of excellent customer service and offers the standard company warranties when
providing electronic monitoring or Sobrietor equipment as part of its service
offerings.
5
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Backlog and Recurring Revenue
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. The Company had approximately $5,222,000 of monthly recurring
monitoring, service and rental revenue during June 1999, compared to
approximately $4,139,000 during June 1998.
Competition
The Company believes there are eight competitors in the manufacturing
of EM 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 EM 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.
With the acquisition of Community Corrections Corporation and
Peregrine Corrections, Inc. in 1996 and 1997 respectively, BI created the
Community Correctional Services business unit and entered new areas within the
corrections market. BI now provides direct community correctional services
through 83 offices in 12 states. Currently there are in excess of 40 smaller
competitors providing similar services in these states. BI is the only national
company providing a full range of community correctional services to the
corrections industry today. It is expected that as the market expands, other
competitors will enter this market.
Geographic Sources of Revenue
Domestically, the Company generates revenue in all fifty states.
Internationally, the Company, through its EM business unit, records less than $1
million of direct revenue under minimal general business risks.
Regulation
Some of the hardware products produced by the Company's Electronic
Monitoring Business Unit emit radio frequency energy and/or connect to the
telephone network. These products require approval by the Federal
Communications Commission (FCC) and safety approval by a nationally recognized
test laboratory (NRTL). The Company has received approvals by the FCC and an
NRTL for its products that are sold in the United States. It will be necessary
to obtain these approvals for future radio frequency and telecommunications
products. Approvals or waivers from certain foreign governments are also
required to export these products into those countries and the Company has
received these approvals or waivers. Approvals or waivers will be necessary for
future radio frequency and telecommunications products.
Insurance
6
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The Company maintains general and professional liability insurance
coverage at $7,000,000 and $5,000,000, respectively. Management of the Company
believes such insurance is adequate for its existing operations.
Patents and Proprietary Technology
The Company has 26 United States and 15 foreign patents granted or
acquired as well as seven foreign patents pending. These patents expire between
2001 and 2011. The Company licenses proprietary voice verification technology
exclusively for its home arrest product. All required licenses associated with
fiscal year 1999 usage were purchased in advance. 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.
Employees
At June 30, 1999, the Company had 670 full-time employees and 260
part-time or temporary employees, none of whom were represented by a union. Of
these 930 employees, 432 were electronic monitoring staff, 437 community
correctional services employees and 61 corporate staff. Management believes
that its relations with its employees are good.
Executive Officers of the Company
At June 30, 1999 the executive officers of the Company were as follows:
<TABLE>
<CAPTION>
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Name Age Position
- ------------------------------------------------------------------------------
<S> <C> <C>
David J. Hunter 54 President and Chief Executive Officer
- ------------------------------------------------------------------------------
Mckinley C. Edwards, Jr. 57 Executive Vice President and Chief
Operating Officer, Secretary and
Treasurer
- ------------------------------------------------------------------------------
Jacqueline A. Chamberlin 44 Vice President of Finance and Chief
Financial Officer
- ------------------------------------------------------------------------------
Steven P. Merrefield 50 Vice President and General Manager,
Community Correctional Services
- ------------------------------------------------------------------------------
Jonathan M. Hinebauch 58 Vice President, Business Development
==============================================================================
</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.
7
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Mckinley C. Edwards, Jr. has been Executive Vice President and Chief
Operating Officer since November 1996. He joined the Company in November 1983
as Manufacturing Manager, was elected Vice President of Manufacturing in
November 1984. In April 1985 he was promoted to Executive Vice President of
Operations was elected as Treasurer and Secretary in June 1986 and was elected
to the Board of Directors in 1990.
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 up to November 1993.
Steven P. Merrefield has been with the Company since April 1990. He
has served as Vice President of Monitoring, Vice President of Major Accounts,
Vice President of Customer Services and Vice President and General Manager of
the Electronic Monitoring Division. Currently, he is the Vice President and
General Manager of the Community Correctional Services Division. In February
1999 he was appointed a Corporate Officer. He has been in the corrections
industry for over twenty-five years. Before joining the Company, he held
numerous positions in public and private corrections. He has worked for the
Florida Department of Corrections, Georgia Department of Corrections and Harris
County, TX.
Jonathan M. Hinebauch has been Vice President of Business Development
since 1996 and elected a corporate officer in February 1999. He joined the
Company in 1986 and has held numerous positions ranging from VP Sales and
Marketing from 1986 to 1988 and Major Account Management from 1988 to 1993.
Prior to BI, Mr. Hinebauch was President of Alpine Designs from 1971 to 1973, VP
of Camp 7 from 1973 to 1975 and Founder of Altra Inc. in 1975.
Item 2. Properties.
The Company currently leases approximately 75,000 square feet at its
two facilities located in Boulder, Colorado. The leases for these facilities
expire in September 2010. Under certain conditions both leases provide BI with
an option to terminate, with a one-year notice, beginning in September 2000.
The Company also leases approximately 10,400 square feet for its
eastern monitoring office in Anderson, Indiana. The lease, dated November 24,
1995, expires in September 2005 with an option to terminate after four years and
a second option to terminate after seven years.
In addition, the Company leases facilities at 70 other locations for a
total of approximately 159,000 square feet. These facilities are associated
with its day reporting and probation services and are located in Georgia,
Tennessee, Colorado, New Mexico, South Carolina, Oregon, Florida, Illinois, New
Jersey, Washington, and Texas.
Many of the Company's leases contain renewal rights and cancellation
rights. At the present time, such facilities are adequate for the Company's
purposes.
Item 3. Legal Proceedings.
On May 6, 1997, Melody Trout filed a complaint naming State Farm
Mutual Automobile Insurance Co., General Securities Services Corporation, Billy
Wyatt, and BI Incorporated as defendants in the
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Circuit Court of Stoddard County, Missouri, alleging negligence in manufacturing
by BI Incorporated, negligence in monitoring by General Securities Services
Corporation and reckless and wanton behavior by Billy Wyatt resulting in a
wrongful death. The Plaintiff seeks damages in the amount of $3,000,000.
On February 6, 1998, Bill M. Kirby filed a complaint naming BI
Incorporated as the defendant. The suit alleges negligence and
misrepresentation resulting in a wrongful death. The plaintiff seeks damages of
$11,600,000.
On March 12, 1998, Arturo Marines filed a complaint naming the State
of Texas Board of Pardons and Paroles and BI Incorporated as defendants. The
civil suit was filed for product liability, and misrepresentation, breach of
warranty, and general negligence. The plaintiff seeks $250 million in damages.
On July 20, 1998, Joseph Gill Sr. filed a complaint naming Rudolph
McGriff, City of Philadelphia and BI Incorporated as defendants in the Court of
Common Pleas in Philadelphia County, Pennsylvania. The suit brings two counts,
a survival action and a wrongful death action, and asks for damages in excess of
$100,000.
Subsequent to June 30, 1999, Sheila Kennerly filed a complaint on
August 10, 1999, naming Montgomery, Ohio, Montgomery County Sheriff Department,
and BI Incorporated as defendants. The complaint is for wrongful death,
survivorship action and civil rights violation. The plaintiff seeks $10,500,000
in damages.
Management believes the Company has adequate legal defenses and/or
insurance coverage against all of the above - described claims and intends to
defend them vigorously. 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.
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 April 28, 1999, a motion to amend the complaint was
filed with the Court, which dropped all references to the alleged
misrepresentations and non-disclosures in the initial complaint and instead
alleged the factual theories of channel stuffing (i.e., shipping of product to
distributors with knowledge that distributors are accumulating inventory) and
the making of overly optimistic projections of revenues and earnings. On August
23, 1999, the Court: (a) allowed the filing of the amended complaint; (b)
granted in part and denied in part, the Company's motion for summary judgment;
(c) held that a class action is no longer maintainable and decertified the
class; (d) dismissed the claim of channel stuffing; (e) rejected the amended
complaint's reliance on the fraud-on-the-market theory and the corresponding
presumption of reliance in an action based on securities fraud; and (f)
dismissed all factual allegations supporting the claim of overly optimistic
projections and earnings to artificially inflate the Company's stock price but
for the allegation that such statements were allegedly made on September 10 and
11, 1996, and relied upon until September 12, 1996. 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 in light of the Court's August 23, 1999 ruling. 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.
9
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Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
10
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PART II
Item 5. Market For the Company's Common Equity and Related Stockholder
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 actual transactions.
<TABLE>
<CAPTION>
==============================================================
Fiscal Year Ended June 30,
1999
- --------------------------------------------------------------
High Low
---- ---
- --------------------------------------------------------------
<S> <C> <C>
First Quarter $ 9.75 $6.25
- --------------------------------------------------------------
Second Quarter 9.13 7.00
- --------------------------------------------------------------
Third Quarter 11.69 7.00
- --------------------------------------------------------------
Fourth Quarter 10.19 8.13
- --------------------------------------------------------------
- --------------------------------------------------------------
Fiscal Year Ended June 30,
1998
First Quarter $ 9.13 $6.38
- --------------------------------------------------------------
Second Quarter 9.25 6.75
- --------------------------------------------------------------
Third Quarter 12.75 8.75
- --------------------------------------------------------------
Fourth Quarter 11.88 9.00
===============================================================
</TABLE>
As of June 30, 1999, there were approximately 3,700 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 foreseeable
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 requires the Company to obtain the lender's
prior written consent to the payment of any dividends.
11
<PAGE>
Item 6. Selected Consolidated Financial Data.
The following selected Consolidated Statement of Operations data
and Consolidated Balance Sheet data have been derived from the Consolidated
Financial Statements of the Company. The financial data set forth below should
be read in conjunction with the Consolidated Financial Statements and notes
thereto and Item 7, Management's Discussion and Analysis of Financial Condition
and Results of Operations and other financial information included elsewhere in
this Annual Report on Form 10-k. Historical results are not necessarily
indicative of results for any future period..
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------------------------------------
1999 1998 1997 1996 1995
-----------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total revenue $68,367 $58,626 $46,993 $39,212 $29,874
Cost of operations 33,782 28,665 22,046 19,200 13,788
------- ------- ------- ------- -------
Gross profit 34,585 29,961 24,947 20,012 16,086
Selling, general and
administrative expenses 19,799 17,278 14,037 10,916 8,873
Provision for doubtful accounts 1,927 1,806 1,732 228 374
Depreciation and amortization 3,738 3,080 2,067 1,395 1,250
Research and development expenses 1,943 2,417 2,698 2,661 2,117
Income from continuing operation
before income taxes 7,178 5,380 4,413 4,812 3,472
Income tax provision (3,022) (2,394) (1,957) (1,949) (1,150) (1)
------- ------- ------- ------- -------
Net income from continuing operations 4,156 2,986 2,456 2,863 2,322
Loss from results of
discontinued operations (2) (3,267) (315) (623) 0 0
Loss on disposal of discontinued operations (835) 0 0 0 0
------- ------- ------- ------- -------
Net income $ 54 $ 2,671 $ 1,833 $ 2,863 $ 2,322
======= ======= ======= ======= =======
Diluted earnings per share $ .01 $ .34 $ .25 $ .40 $ .34
======= ======= ======= ======= =======
Weighted average number of outstanding
common shares - diluted 7,977 7,841 7,451 7,160 6,883
======= ======= ======= ======= =======
Balance Sheet Data:
Working capital 10,660 14,825 14,541 18,172 12,938
Total assets 68,251 61,989 55,421 42,820 36,881
Long-term debt, net of current
maturities (excludes Capital Lease) 0 0 0 0 146
Total stockholders' equity 45,881 44,907 40,620 37,206 32,332
</TABLE>
(1) Fiscal year 1995 tax expense was reduced by $225,000 ($.03 per share) by
the release of a deferred tax asset valuation allowance.
(2) During fiscal 1999 the Company recorded an asset impairment charge and
ultimately sold all assets related to the CIS business unit. The
discontinuance of this business unit has been accounted for as a
discontinued operation see MD&A discussion and Note 5 of the consolidated
financial statements. Segment information for the discontinued business
unit for 1995 and 1996 is not available.
12
<PAGE>
Item 7. 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 tables provide a breakdown of selected results by
Business Unit. The total amounts are audited and agree with the audited
Consolidated Statement of Operations. The Company's Business Units consist of
Electronic Monitoring (EM), Community Correctional Services (CCS) and
Corrections Information Systems (CIS) which was sold in 1999.
<TABLE>
<CAPTION>
Twelve Months Ended Twelve Months Ended Twelve Months Ended
June 30, 1999 June 30, 1998 June 30, 1997
EM CCS CIS Total EM CCS CIS Total EM CCS CIS Total
Revenue (unaudited, in thousands) (unaudited, in thousands) (unaudited, in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Recurring revenue
Service & 33,380 22,669 56,049 26,848 16,688 43,536 22,551 10,413 32,964
monitoring
Rental 854 854 742 742 1,008 1,008
Total recurring 34,234 22,669 56,903 27,590 16,688 44,278 23,559 10,413 33,972
revenue
Direct sales 11,390 11,390 13,822 13,822 12,750 12,750
Other income 74 74 526 526 271 271
Total revenue 45,698 22,669 0 68,367 41,938 16,688 0 58,626 36,580 10,413 0 46,993
Gross profit
Recurring revenue
Service & 17,968 9,490 27,458 14,818 6,232 21,050 12,365 4,972 17,337
monitoring
Rental 539 539 521 521 726 726
Total recurring 18,507 9,490 27,997 15,339 6,232 21,571 13,091 4,972 18,063
revenue
Direct sales 6,514 6,514 7,864 7,864 6,613 6,613
Other income 74 74 526 526 271 271
Total gross profit 25,095 9,490 0 34,585 23,729 6,232 0 29,961 19,975 4,972 0 24,947
Gross profit % 54.9% 41.9% 50.6% 56.6% 37.3% 51.1% 54.6% 47.7% 53.1%
Selling, general & 14,338 5,461 0 19,799 12,777 4,501 0 17,278 11,233 2,804 0 14,037
administrative
Provision for doubtful 447 1,480 0 1,927 149 1,657 0 1,806 334 1,398 0 1,732
accounts
Amortization & 2,679 1,059 0 3,738 2,253 827 0 3,080 1,417 650 0 2,067
depreciation
Research & development 1,943 0 0 1,943 2,417 0 0 2,417 2,523 175 0 2,698
Income from continuing 5,688 1,490 0 7,178 6,133 (753) 0 5,380 4,468 (55) 0 4,413
operations before
income taxes
</TABLE>
13
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income taxes 2,395 627 0 3,022 2,729 (335) 0 2,394 1,981 (24) 0 1,957
Net income from 3,293 863 0 4,156 3,404 (418) 0 2,986 2,487 (31) 0 2,456
continuing ops.
Loss from results of 0 0 (3,267) (3,267) 0 0 (315) (315) 0 0 (623) (623)
discontinued
operations, net of tax
Loss on disposal of 0 0 (835) (835) 0 0 0 0 0 0 0 0
discontinued
operations, net of tax
Net income after 3,293 863 (4,102) 54 3,404 (418) (315) 2,671 2,487 (31) (623) 1,833
discontinued ops.
</TABLE>
Revenue
Total revenue for fiscal year 1999 increased 16.6% to $68,367,000
compared to $58,626,000 in fiscal year 1998. 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 28.5% in fiscal year 1999 compared to fiscal year
1998. Recurring revenue increased to $56,903,000 or 83.2% of total revenue, in
fiscal 1999 from $44,278,000, or 75.5% of total revenue, in fiscal 1998. Both
business units reported recurring revenue increases for fiscal 1999 as compared
to fiscal 1998.
The EM business unit revenue increased 9.0% to $45,698,000 in fiscal
1999 compared to $41,938,000 in fiscal 1998. 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 24.1% to $34,234,000 in
fiscal 1999 from $27,590,000 in fiscal 1998. This increase in recurring revenue
relates to the continuing trend of government agencies to contract for
electronic monitoring rather than purchasing equipment. Direct sales revenue
decreased to $11,390,000 in fiscal 1999 from $13,822,000 in fiscal 1998. This
is consistent with the Company's market strategy of emphasizing recurring
revenue over direct sales.
The CCS business unit recurring revenue increased 35.8% to $22,669,000
in fiscal 1999 compared to $16,688,000 in fiscal 1998. CCS provides community
correctional supervision and services in 13 states through its 83 correctional
service centers. The Company currently provides services for approximately
42,000 offenders. 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.
Total revenue increased 24.8% to $58,626,000 in fiscal 1998 from
$46,993,000 in fiscal 1997. Direct sales increased $1,072,000 or 8.4% to
$13,822,000 in fiscal 1998 compared to $12,750,000 in fiscal 1997. Service,
monitoring and rental income increased to $44,278,000 in fiscal 1998 or 30.3%
over the $33,972,000 in fiscal 1997. During fiscal year 1997 the Company
acquired two companies providing probation and day reporting services. These
acquisitions accounted for $15,167,000 of revenue in fiscal year 1998. Fiscal
1997 acquisition revenue was generated through nine months of revenue from
probation services and five months of revenue from day reporting services
totaling $9,082,000.
Gross Profit
Total gross profit as a percentage of total revenue remained constant
at approximately 51% for fiscal 1999 and fiscal 1998. Total gross profit for
fiscal 1999 was $34,585,000 compared to $29,961,000 for fiscal 1998.
14
<PAGE>
The EM business unit gross profit decreased to 54.9% as a percentage
of EM revenue for fiscal 1999 compared to 56.6% in fiscal 1998. Direct revenue
gross profit was comparable in both periods at approximately 57%. Recurring
revenue gross profit decreased to 54.1% in fiscal 1999 compared to 55.6% in
fiscal 1998. This decrease was due to market price erosion on mature monitoring
products as well as additional implementation costs associated with the
introduction of the next generation of monitoring software. During fiscal 2000
the Company expects to deliver several new products to our customers that should
mitigate future price erosion.
The CCS business unit gross profit increased to 41.9% as a percentage
of CCS revenue for fiscal 1999 compared to 37.3% in fiscal 1998. This increase
was due to cost reductions and efficiency improvements implemented throughout
the 83 community correction centers during fiscal 1999. The Company will
continue to make additional investments in new services and community
correctional centers throughout fiscal 2000. The new centers will initially
operate at lower gross margins. On existing centers, the Company expects
additional cost reductions and improved operating efficiencies to continue to
increase the CCS gross profit percentage over time.
Total gross profit as a percentage of total revenue decreased to 51.1%
in fiscal 1998 compared to 53.1% in fiscal 1997. The decline in overall gross
profits reflects the increased significance of the CCS business unit. Probation
and day reporting services offered through the CCS business unit require
relatively high direct labor costs which are recognized as direct costs of sales
which reduces gross profit. The EM business unit gross profit increased to 56.6%
as a percentage of revenue compared to 54.6% in fiscal 1997. This increase was
due to a substantial improvement in gross profits on direct sales revenue.
Direct sales gross profit increased to 56.9% in fiscal 1998 compared to 51.9% in
fiscal 1997 as a result of manufacturing cost improvements and favorable
production variances during fiscal 1998.
Selling, General and Administrative (S,G&A)
S,G&A expenses as a percentage of total revenue decreased to 29.0% for
fiscal 1999 compared to 29.5% in fiscal 1998. Total S,G&A expense for fiscal
1999 was $19,799,000 compared to $17,278,000 in fiscal 1998.
The EM business unit S,G&A expense increased to 31.4% as a percentage
of EM revenue for fiscal 1999 compared to 30.5% in fiscal 1998. This increase is
related to additional market expenses associated with continuing market
expansion actives as well as increases in product management and international
marketing expenditures related to growth of new and existing customer sites. The
Company expects to increase marketing and sales expenses associated with
continuing market expansion activities fiscal year 2000.
The CCS business unit S,G&A expense decreased to 24.1% as a percentage
of CCS revenue for fiscal 1999 compared to 27.0% in fiscal 1998. This decrease
was due to the favorable impact of economies of scale related to the business
units previous investments in infrastructure and staffing.
S,G&A expenses as a percentage of total revenue decreased to 29.5% for
fiscal 1998 compared to 29.9% in fiscal 1997. Total S,G&A expense for fiscal
1998 was $17,278,000 compared to $14,037,000 in fiscal 1997. The Company
increased expenses associated with selling, marketing, account management and
commission expense on increased revenue, as well as market expansion and
diversification expenses. At June 30, 1998, the Company had 613 full-time
employees, compared to 605 employees at June 30, 1997
Provision for Doubtful Accounts
The provision for doubtful accounts was $1,927,000 or 2.8% of total revenue
in fiscal 1999 compared to $1,806,000 or 3.1% of total revenue in fiscal 1998.
The provision relates largely to the Company's CCS business unit. Probation
service revenue is 100% paid by the offender and carries an increased risk of
default. Day reporting revenue for
15
<PAGE>
fiscal 1999 was 20.9% 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 accrued approximately 7% of CCS
revenue to allowance for doubtful accounts during fiscal 1999 compared to
approximately 10% in fiscal 1998. The Company is implementing additional
collection procedures to reduce payment defaults within the CCS business unit.
The Company believes the industry average payment default associated with
similar for-profit companies is approximately 20%. The EM business unit
increased doubtful account expenses by $298,000 in fiscal 1999 compared to
fiscal 1998 due to overall increased revenue.
The provision for doubtful accounts was $1,806,000 or 3.1% of total
revenue in fiscal 1998 compared to $1,732,000 or 3.7% in fiscal 1997. The
provision relates largely to the Company's CCS business unit. Probation service
revenue is 100% paid by the offender and carries an increased risk of default.
The Company initiated collection improvement activities throughout fiscal 1998
which reduced offender related bad debts. The Company accrued approximately 10%
of CCS revenue in fiscal 1998 to allowance for doubtful accounts.
Amortization and Depreciation (A&D)
A&D expenses increased to 5.5% as a percentage of total revenue for
fiscal 1999 compared to 5.3% in fiscal 1998. Total A&D expense was $3,738,000 in
fiscal 1999 compared to $3,080,000 in fiscal 1998. The EM business unit
increased A&D expenses $426,000 in fiscal 1999 as compared to fiscal 1998, due
to expenses associated with deployment of new Y2K compliant information systems
and equipment, leasehold improvements and telecommunications equipment. The CCS
business unit increased A&D expenses $232,000 due primarily to additions in
information and communications systems related to the 83 community correctional
centers.
A&D expenses increased $1,013,000 to $3,080,000 or 5.3% of revenue in
fiscal 1998 from $2,067,000 or 4.4% of revenue in fiscal 1997. Approximately
$150,000 was due to a full year of amortization of acquisition goodwill in
fiscal 1998 compared to a partial year of amortization in fiscal 1997. The
remaining increase was due primarily to additions to property, plant and
equipment during fiscal 1998.
Research and Development Expenses (R&D)
R&D expenses decreased to 2.8% as a percentage of total revenue for
fiscal 1999 compared to 4.1% in fiscal 1998. Total R&D expense was $1,943,000 in
fiscal 1999 compared to $2,417,000 in fiscal 1998. The Company's R&D
expenditures are solely related to EM business unit expenses associated with
software development efforts for improved automation to the Company's electronic
monitoring centers, as well as investments in numerous next generation products.
One of these products was introduced in the fourth quarter of fiscal 1999. The
remaining products will be introduced throughout fiscal 2000. R&D expenses
decreased to 4.3% as a percentage of EM revenue for fiscal 1999 compared to 5.8%
in fiscal 1998. The Company expects to continue expenditures for improvements to
the monitoring operations and development of future home arrest products in
fiscal 2000.
R&D expenses decreased to 5.8% as a percentage of EM revenue in fiscal
1998 as compared to 6.9% in fiscal 1997. The fiscal 1998 expenditures related to
software development for automation improvements to the Company's monitoring
center as well as development of future home arrest products.
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
16
<PAGE>
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. Revenues of the CIS
business unit were $3,574,000; $3,375,000 and $1,408,000 in fiscal 1999, 1998
and 1997, respectively. The proceeds from the sale of the discontinued business
unit were $1,000,000 cash, $1,221,000 in common stock and $852,000 long term
note receivable for a total of $3,073,000. See also Note five to the
Consolidated Financial Statements.
Net Income and Income Taxes
The Company recorded net income tax expense from continuing operations
of $3,022,000 and $2,394,000 for fiscal 1999 and 1998 respectively, which
differs from the statutory rate largely as a result of state income taxes and
non-deductible goodwill amortization expense.
For fiscal 1999, the Company had net income of $54,000 or $.01 diluted
earnings per share compared to fiscal 1998 net income of $2,671,000 or $.34
diluted earnings per share. 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.
The Company has been addressing Year 2000 issues throughout fiscal
years 1998 and 1999 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 and under the oversight of its
executive management. The Company estimates that approximately $416,750 of costs
have been incurred during fiscal years 1998 and 1999 related to addressing Year
2000 events. It is estimated that another $795,200 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
one-half of this amount will be related to fixed asset additions for new
computer related equipment and software upgrades. The remaining one-half 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 and
1999 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
17
<PAGE>
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
During fiscal 1999, the Company generated $4,788,000 of cash from
operating activities, received $816,000 from the issuance of common stock
associated with the exercise of stock options, expended $5,158,000 for capital
equipment and leasehold improvements, expended $4,535,000 for equipment
associated with rental and monitoring contracts, and expended $1,170,000 for
capitalized internally developed software. The total of all cash flow activities
resulted in a decrease in the balance of cash and cash equivalents of $1,146,000
for fiscal 1999.
The Company's working capital decreased $4,165,000 to $10,660,000 at
June 30, 1999. This decrease was primarily the result of the sale of assets
associated with the sold CIS business unit, $3,950,000 outstanding line of
credit for short term operating needs and increased inventory levels by $707,000
due to new product introductions which will be reduced in future months.
Accounts receivable increased throughout fiscal 1999 primarily as a result of
overall revenue growth. The Company is emphasizing improved accounts receivable
collections across both business units and expects to reduce its past due
receivables in fiscal 2000 as compared to fiscal 1999.
The Company has an available $5,000,000 line of credit with Bank One,
Boulder Colorado which expires in September 1999. As of June 30, 1999,
$3,950,000 had been drawn against this line. Subsequent to June 30, 1999, the
Company increased the line of credit to $6,000,000 and has drawn additional
amounts on the line. The Company is currently negotiating a new line of credit
increase that will fund anticipated fiscal 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 June 30, 1999, the Company had unfunded leases in the amount of
$7,030,000 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.
Subsequent to the 1999 fiscal year end, the Company finalized an
agreement to sell its equity interest in a building where it leases office
space. The transaction is not expected to have any adverse consequences on the
Company's cash flow or earnings.
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 $3,950,000 represents the majority of these financial instruments.
Market Risk
June 30, 1999 Expected Maturity Rate
--------------------------
2000 Fair
Value
Short-term borrowings $4,052,000 $4,052,000
Average interest rate 7.75%
Item 8. Consolidated Financial Statements and Supplementary Data.
The Report of Independent Accountants and the Consolidated Financial
Statements are set forth on pages F-1 to F-18 of this report.
Schedule II is included on page F-19. 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.
18
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
On May 10, 1999, the Company dismissed Pricewaterhouse Coopers LLP
(PWC) as its independent accountants. PWC's reports on the Company's financial
statements for the past two fiscal years contained no adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principle. In connection with its audits for the two
most recent fiscal years and through May 10, 1999, there were no disagreements
with PWC on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements if not
resolved to the satisfaction of PWC would have caused them to make reference
thereto in their report on the financial statements for those years. PWC has
furnished the Company with a copy of its letter addressed to the SEC stating
that it agrees with the foregoing statements. That letter was filed by the
Company as Exhibit 16 to its Current Report on Form 8-K reporting an event of
May 10, 1999, which the Company filed on May 17, 1999.
The Company engaged Arthur Andersen LLP as its new independent
accountants as of May 10, 1999. The Company has not had any significant
disagreements with the current accountants on accounting and financial
disclosure.
The Company's Audit Committee recommended and approved the decision to
change independent accountants.
19
<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 16, 1999.
Item 14. Exhibits, Consolidated Financial Statement Schedules and Reports on
Form 8-K.
(a) The following documents are filed as part of this report:
1. Consolidated Financial Statements
Report of Independent Accountants
Consolidated Balance Sheets at June 30, 1999 and 1998
Consolidated Statements of Operations for each of the three years
in the period ended June 30, 1999
Consolidated Statements of Changes in Stockholders' Equity for
each of the three years in the period ended June 30, 1999
Consolidated Statements of Cash Flows for each of the
three years in the period ended June 30, 1999
Consolidated Notes to Financial Statements
2. Consolidated Financial Statement Schedules:
Schedule II - 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) The Company filed a current report on Form 8-K during the last quarter
of the period covered by this report. On May 17, 1999, the Company
filed a report of an event under item four to report a change in the
Company's Certifying Accountant, which occurred as of May 10, 1999. No
financial statements were filed with the report.
(c) Exhibits:
3.1 Articles of Incorporation, as amended, of the Registrant, as filed
with and incorporated by reference from the Company's Proxy Statement
for the Annual Meeting of Shareholders held November 7, 1991.
3.2 Bylaws, as amended, of the Registrant, as filed with and incorporated
by reference from the Company's Registration Statement on Form S-18
(Registration No. 2-82311-D) effective May 4, 1983.
4.1 Form of Common Stock Certificate, as filed with and incorporated by
reference from the Company's Registration Statement on Form S-1
(Registration No. 33-36683) filed September 4, 1990.
20
<PAGE>
4.2 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.
4.3 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.
4.4 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.
4.5 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.
4.6 BI Incorporated 1996 Stock Option Plan, as filed with and incorporated
by reference from the Company's registration statement on Form S-8, as
exhibit 4.1, as filed with the Commission on May 21, 1999.
10.1 Form of Employment Agreement, previously filed with the Commission as
an exhibit to 1994 Form 10-K and incorporated by reference.
10.2 Property lease between the Company and Terrence J. O'Connor (landlord)
dated May 15, 1990 with Addendums dated February 9, 1996 and October
10, 1996 concerning building located at 6400 Lookout Road, Boulder,
Colorado, 80301, as filed with and incorporated by reference on Form
10-K for the fiscal year ended June 30, 1998.
10.3 Property leases between the Company and Point II, LLC (landlord)
concerning building located at 6325 Gunpark Drive, Boulder, Colorado,
80301 dated February 9, 1996 with Addendum's dated June 13, 1996 and
February 26, 1997 and lease dated February 21, 1997, as filed with and
incorporated by reference from exhibit 4.8 to the Company's Annual
Report on form 10-K for the fiscal year ended June 30, 1998.
*21.1 Subsidiaries of the Registrant
*23.1 Consent of Arthur Andersen LLP
*23.2 Consent of PriceWaterhouseCoopers LLP
* Filed herewith
In the event that you have received a copy of this Annual Report on Form 10-K
which does not contain exhibits, the Company will, upon written request directed
to Investor Relations at the Company's principal offices referred to on the 10-k
cover page, provide a copy of any exhibit filed as part of this report upon
payment of a reasonable fee.
21
<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 24, 1999
------------------
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.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ David J. Hunter
____________________________
David J. Hunter President, Chief Executive
Officer and Director
(Principal Executive Officer) September 24, 1999
/s/ Jacqueline A. Chamberlin
____________________________
Jacqueline A. Chamberlin Vice President of Finance
(Principal Financial and
Accounting Officer) September 24, 1999
/s/ Jeremy N. Kendall
____________________________
Jeremy N. Kendall Chairman September 24, 1999
/s/ William E. Coleman
____________________________
William E. Coleman Vice Chairman September 24, 1999
/s/ McKinley C. Edwards, Jr.
____________________________
McKinley C. Edwards, Jr. Director September 24, 1999
/s/ Beverly J. Haddon
_________________________
Beverly J. Haddon Director September 24, 1999
/s/ Perry M. Johnson
_________________________
Perry M. Johnson Director September 24, 1999
/s/ Barry J. Nidorf
_________________________
Barry J. Nidorf Director September 24, 1999
/s/ Byam K. Stevens, Jr.
_________________________
Byam K. Stevens, Jr. Director September 24, 1999
22
<PAGE>
Report of Independent Public Accountants
To the Board of Directors and Stockholders of BI Incorporated:
We have audited the accompanying consolidated balance sheet of BI Incorporated
(a Colorado corporation) and subsidiaries as of June 30, 1999, and the related
consolidated statements of operations, stockholders'equity and cash flows for
the year then ended. 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 audit. The financial statements of BI
Incorporated as of June 30, 1998 and 1997, were audited by other auditors whose
report dated August 14, 1998, expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of BI Incorporated and
subsidiaries as of June 30, 1999, and the results of their operations and their
cash flows for the year then ended in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Denver, Colorado
August 26, 1999
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of BI Incorporated:
In our opinion, the consolidated balance sheet and the related statements of
operations, stockholders' equity and cash flows present fairly, in all material
respects, the financial position of BI Incorporated and its subsidiaries at June
30, 1998, and the results of their operations and their cash flows for each of
the two years in the period ended June 30, 1998, 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. We have not
audited the consolidated financial statements of BI Incorporated and its
subsidiaries for any period subsequent to June 30, 1998.
PricewaterhouseCoopers LLP
Broomfield, Colorado
August 14, 1998
F-2
<PAGE>
BI INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, June 30,
1999 1998
------------ -----------
<S> <C> <C>
ASSETS
Current assets
Cash $ - $ 1,146
Receivables, net 14,521 10,250
Inventories, net 4,100 3,393
Investment in sales-type leases 3,662 4,337
Deferred income taxes 933 751
Prepaid expenses 825 529
Current assets of discontinued operations - 2,275
------------ -----------
Total current assets 24,041 22,681
Investment in sales-type leases 3,368 3,529
Rental and monitoring equipment, net 6,393 4,872
Property and equipment, net 15,355 12,996
Intangibles, net 11,998 12,213
Long term deferred tax asset 2,011 1,203
Investments in common stock 1,321 100
Software, net 892 290
Other assets 2,872 1,859
Long term assets of discontinued operations - 2,246
------------ -----------
$ 68,251 $ 61,989
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 2,516 $ 2,961
Outstanding liabilities in excess of cash 971 -
Accrued compensation and benefits 2,673 1,816
Deferred revenue 1,535 1,625
Income taxes payable 215 347
Borrowings 4,052 -
Other liabilities 1,419 759
Current liabilities of discontinued operations - 348
------------ -----------
Total current liabilities 13,381 7,856
------------ -----------
Capital lease obligation 6,714 6,897
Deferred revenue 2,275 2,329
Commitments (Notes 6 & 9)
Stockholders' equity
Common stock, no par value, 75,000 shares
authorized; 7,791 shares issued and outstanding
June 30, 1999, and 7,640 shares issued and
outstanding June 30, 1998 34,996 34,076
Retained earnings 10,885 10,831
------------ -----------
45,881 44,907
------------ -----------
$ 68,251 $ 61,989
============ ===========
</TABLE>
The accompanying notes are an integral
part of these consolidated balance sheets.
F-3
<PAGE>
BI INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------------------------------
1999 1998 1997
------------------------------------------------------
<S> <C> <C> <C>
Revenue
Service and monitoring income $ 56,049 $ 43,536 $ 32,964
Direct sales 11,390 13,822 12,750
Rental income 854 742 1,008
Other income 74 526 271
---------- ---------- ----------
Total revenue 68,367 58,626 46,993
---------- ---------- ----------
Costs and expenses
Cost of service and monitoring income 28,591 22,486 15,627
Cost of direct sales 4,876 5,958 6,137
Cost of rental income 315 221 282
Selling, general and administrative expenses 19,799 17,278 14,037
Amortization and depreciation 3,738 3,080 2,067
Research and development expenses 1,943 2,417 2,698
Provision for doubtful accounts 1,927 1,806 1,732
---------- ---------- ----------
Total costs and expenses 61,189 53,246 42,580
---------- ---------- ----------
Income from continuing operations before income taxes 7,178 5,380 4,413
Income tax provision (3,022) (2,394) (1,957)
---------- ---------- ----------
Net income from continuing operations 4,156 2,986 2,456
Loss from results of discontinued operations, net of tax (3,267) (315) (623)
Loss on disposal of discontinued operations, net of tax (835) - -
---------- ---------- ----------
Net income $ 54 $ 2,671 $ 1,833
========== ========== ==========
Basic earnings per share from continuing operations $ 0.54 $ 0.40 $ 0.34
========== ========== ==========
Basic loss per share from discontinued operations ($ 0.53) ($ 0.04) ($ 0.09)
========== ========== ==========
Basic earnings per share $ 0.01 $ 0.36 $ 0.25
========== ========== ==========
Weighted average number of common shares outstanding 7,709 7,506 7,252
========== ========== ==========
Diluted earnings per share from continuing operations $ 0.52 $ 0.38 $ 0.33
========== ========== ==========
Diluted loss per share from discontinued operations ($ 0.51) ($ 0.04) ($ 0.08)
========== ========== ==========
Diluted earnings per share $ 0.01 $ 0.34 $ 0.25
========== ========== ==========
Weighted average number of common and
common equivalent shares outstanding 7,977 7,841 7,451
========== ========== ==========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-4
<PAGE>
BI INCORPORATED
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Common Stock Retained
------------------
Shares Amount Earnings Total
------------------ -------- --------
<S> <C> <C> <C> <C>
Balance June 30, 1996 7,004 $30,879 $6,327 $37,206
Exercise of stock options and warrants 200 1,186 - 1,186
Stock purchases and retirement (360) (2,559) 0 (2,559)
Issuance of common stock pursuant to
stock purchase plan 15 90 - 90
Tax benefit from exercise of stock options - 183 - 183
Stock issued as part of acquisition 558 2,681 - 2,681
Net income - - 1,833 1,833
------------------ -------- --------
Balance June 30, 1997 7,417 32,460 8,160 40,620
Exercise of stock options 202 1,198 - 1,198
Issuance of common stock pursuant to
stock purchase plan 21 145 - 145
Tax benefit from exercise of stock options - 273 - 273
Net income - - 2,671 2,671
------------------ -------- --------
Balance June 30, 1998 7,640 34,076 10,831 44,907
Exercise of stock options 125 663 - 663
Issuance of common stock pursuant to
stock purchase plan 26 153 - 153
Tax benefit from exercise of stock
options - 104 - 104
Net income - - 54 54
------------------ -------- --------
Balance June 30, 1999 7,791 $34,996 $10,885 $45,881
================== ======== ========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-5
<PAGE>
BI INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the year
ended June 30,
------------------------------------------------
1999 1998 1997
------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 54 $ 2,671 $ 1,833
Adjustments to reconcile net income to net cash from
operating activities:
Amortization and depreciation 7,352 7,133 6,668
Provision for doubtful accounts 1,927 1,806 1,732
Benefit from deferred income taxes (990) (575) (414)
Changes in assets and liabilities:
Receivables (6,198) (4,080) (1,159)
Investment in sales type leases 836 (1,109) 1,034
Inventories, net (707) 468 (841)
Prepaid and other assets (457) (240) 574
Accounts payable 526 1,243 (103)
Accrued and other expenses 1,517 669 (751)
Deferred revenue (144) 501 (205)
Income taxes payable (28) 217 587
Decrease/(increase) in net assets of discontinued operations 1,100 (1,619) (379)
-----------------------------------------------
Net cash from operating activities 4,788 7,085 8,576
-----------------------------------------------
Cash flows from investing activities:
Capital expenditures (5,158) (4,983) (2,366)
Increase in rental and monitoring equipment (4,535) (3,176) (2,905)
Increase in capitalized software (1,170) (561) (517)
Expenditures for licenses (756) (623) (309)
Proceeds from sale of discontinued operations 1,000 - -
Cash paid for acquisitions net of cash acquired - - (4,234)
Change in short-term investments - 450 649
Other - - (152)
------------------------------------------------
Net cash used in investing activities (10,619) (8,893) (9,834)
-----------------------------------------------
Cash flows from financing activities:
Payments on capital lease obligation (183) (83) (28)
Proceeds from issuance of common stock 816 1,343 1,276
Purchase of common stock - - (2,559)
Proceeds from borrowings 4,052 - -
-----------------------------------------------
Net cash from (used in) financing activities 4,685 1,260 (1,311)
-----------------------------------------------
Net change in cash (1,146) (548) (2,569)
Cash at beginning of year 1,146 1,694 4,263
-----------------------------------------------
Cash at end of year $ - $ 1,146 $ 1,694
=========== ========= ========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-6
<PAGE>
BI Incorporated
Notes to Consolidated Financial Statements
Note 1 - Operations and Summary of Significant Accounting Policies
BI Incorporated, a Colorado corporation, designs, manufactures, markets
and supports electronic monitoring systems and other automatic identification
devices. The Company provides 24-hour monitoring services using equipment it
manufactures. In addition, the Company provides probation services to
misdemeanant probationers and day reporting services to felony probationers.
These products and services are for use by corrections agencies as an integral
part of their community correction programs. These consolidated financial
statements include the accounts of BI Incorporated and its majority owned
subsidiaries (together the "Company"). All intercompany transactions have been
eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Reclassification
Certain 1998 and 1997 financial statement amounts have been
reclassified to conform to the current year presentation.
Concentration of Credit Risk
Financial instruments which subject the Company to concentrations of
credit risk are accounts receivable and net investments in sales type leases.
The Company performs ongoing credit evaluations of its customers'financial
condition and generally requires no collateral. Additionally, the Company
manages a portion of its credit risk by billing certain services in advance. The
Company has no significant financial instruments with off-balance sheet risk of
accounting loss, such as foreign exchange contracts, option contracts, or other
hedging arrangements.
Fair Value of Financial Instruments
The Company's financial instruments consist of cash, accounts
receivable, net investments in sales type leases, investments in common stock,
short-term trade payables, and borrowings. There are no quoted market prices for
investments in common stock and because a reasonable estimate of fair value
could not be made, they are carried at cost.
Inventories
Inventories are stated at the lower-of-cost-or-market. Cost is
determined using the first-in, first-out ("FIFO") method.
Intangibles, Property and Equipment
F-7
<PAGE>
BI Incorporated
Notes to Consolidated Financial Statements
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 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 Company's long-lived assets are reviewed for impairment whenever
events and circumstances warrant. A long-lived asset is deemed impaired if the
future undiscounted cash flows are insufficient to recover the carrying amount
of the asset. If impaired the long-lived asset is reduced to its fair value.
Patents and licenses are amortized on a straight-line basis over 10 -17
years. The manufacturing technology is amortized over the greater of units of
production method or 10 years, on a straight-line basis. Amortization related to
goodwill, patents and licenses and the manufacturing technology was $971,000,
$1,484,000, and $1,364,000 in fiscal 1999, 1998, and 1997, respectively.
Research and Development and Capitalized Software
The Company capitalizes internally developed software costs in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed." Capitalization of development costs of software products begins once
the technological feasibility of the product is established. Based on the
Company's product development process, technological feasibility is established
upon completion of a detailed program design. Capitalization ceases when such
software is ready for general release, at which time amortization of the
capitalized costs begins. Capitalized software costs are net of accumulated
amortization of $2,463,000 and $2,647,000 as of 1999 and 1998, respectively.
Amortization of capitalized internally developed software costs is
computed as the greater of: (a) the amount determined by ratio of the product's
current revenue to its total expected future revenue or (b) the straight-line
method over the product's estimated useful life of five years. During all
periods presented herein, the Company has used the straight-line method to
amortize such capitalized costs. Amortization of software costs was $568,000,
$531,000 and $756,000 in 1999, 1998 and 1997, respectively.
Research and development costs relating principally to the design and
development of products (exclusive of software costs capitalized) are expensed
as incurred. The cost of developing routine enhancements are expensed as
research and development costs as incurred because of the short time between the
determination of technological feasibility and the date of general release of
related products.
Supplemental disclosures of cash flow information:
1999 1998 1997
-------------------------------------
Interest received $ 595,000 $ 601,000 $711,000
Interest paid 681,000 602,000 393,000
Income taxes paid 1,384,000 2,230,000 644,000
Interest received includes interest from sales-type leases, which is
recognized using the effective interest rate method, and classified with direct
sales revenue.
Supplemental schedule of noncash investing and financing activities:
F-8
<PAGE>
BI Incorporated
Notes to Consolidated Financial Statements
1999 1998 1997
------------------------------------
Financial instruments received
in exchange for assets of
discontinued business unit $2,073,000 - -
Stock Issued for acquired
Companies - - $ 2,681,000
Obligation under capital lease - - $ 7,140,000
Revenue recognition
Service and monitoring income is recorded monthly over the term of the
contract and any prepaid amounts are deferred. Product and sales-type lease
direct sales revenue is generally recorded upon shipment. Rental income
associated with operating leases is recorded monthly over the rental period.
Probation and day reporting service income is recognized monthly as the
probation services are provided. Revenue from software system sales relates
primarily to discontinued operations (Note 5), and was recognized using the
percentage of completion method.
The Company records the portion of future minimum sales-type lease
payments related to second and third year extended maintenance services as
deferred revenue. This revenue is recognized monthly, beginning in month
thirteen of the lease, over the remaining term of the lease. The costs of
product warranties are accrued at the time of product sales and are recorded
based upon estimates of costs to be incurred to repair or replace items under
warranty.
Stock Based Compensation
The Company accounts for its employee stock option plan and other
employee stock-based compensation arrangements using the intrinsic value method
but discloses the proforma effect of using the fair value method. Under the
intrinsic value method, no compensation is generally recognized for grants to
employees made at or above the fair value of the underlying common stock. Grants
to non-employees are recorded at fair value.
Income Taxes
A current provision for income taxes is recorded for actual or
estimated amounts payable or refundable on tax returns filed or to be filed for
each year. Deferred income tax assets and liabilities are recorded for the
expected future income tax consequences, based on enacted tax laws, of temporary
differences between the financial reporting and tax bases of assets and
liabilities and carryforwards. The overall change in deferred tax assets and
liabilities for the period measures the deferred tax expense for the period.
Effects of changes in tax laws on deferred tax assets and liabilities are
reflected as adjustments to tax expense in the period of enactment. Deferred tax
assets are recognized for the expected future tax effects of all deductible
temporary differences, loss carryforwards and tax credit carryforwards. Deferred
tax assets are reduced, if deemed necessary, by a valuation allowance for the
amount of any tax benefits which, more likely than not based on current
circumstances, are not expected to be realized.
Comprehensive Income
F-9
<PAGE>
BI Incorporated
Notes to Consolidated Financial Statements
The Company has adopted the provisions of SFAS No. 130, 'Reporting
Comprehensive Income'. SFAS No. 130 establishes standards for reporting
comprehensive income and its components in the financial statements.
Comprehensive income as defined, includes all changes in equity (net assets)
during a period from non-owner sources. As of June 30, 1999 there have been no
differences between the Company's comprehensive income and its net income.
Net income per share
Basic earnings per share ('EPS') excludes all dilution and is based
upon the weighted average number of common shares outstanding during the period.
Diluted EPS reflects the potential dilution that would occur if securities or
other contracts to issue common stock were exercised or converted into common
stock. Common equivalent shares are excluded in periods in which they have an
anti-dilutive effect. For 1999, 1998 and 1997, the difference between weighted
average shares outstanding 'basic and weighted average shares outstanding
'diluted is attributable to outstanding options to purchase common stock of
268,000, 335,000 and 199,000, respectively.
Recent Accounting Pronouncements
Statement of Financial Accounting Standards No. 133
In June 1998, the FASB issued SFAS No. 133, 'Accounting for Derivative
Instruments and Hedging Activities'. This statement is effective for fiscal
years beginning after June 15, 2000. SFAS No. 133 establishes methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities. To date, the Company
has not entered into any derivative financial instruments or hedging activities.
Statement of Position 98-1
In March 1998, the American Institute of Certified Public Accountants
('AICPA') issued Statement of Position 98-1, 'Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use'('SOP 98-1'). SOP 98-1
provides guidance on accounting for the costs of computer software developed or
obtained for internal use. SOP 98-1 is effective for fiscal 2000. The adoption
of SOP 98-1 will not have a material impact on the Company's financial condition
or results of operations.
Note 2 - Receivables, Net Investment in Sales-Type Leases, and Operating
Leases - as Less or
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 9% of total revenue in 1999, 10% of total
revenue in 1998, and 12% of total revenue in 1997.
Receivables
Receivables consist of the following (in thousands):
F-10
<PAGE>
BI Incorporated
Notes to Consolidated Financial Statements
June 30,
1999 1998
-----------------------
Trade, net of allowance for
doubtful accounts of
$2,510 in 1999 and $1,316 in 1998 $ 14,444 $ 10,207
Due from officers and employees 77 43
-----------------------
$ 14,521 $ 10,250
=======================
Net investment in sales-type leases
The components of the Company's net investment in sales-type leases are
as follows (in thousands):
June 30,
1999 1998
-----------------------
Total minimum lease payments $ 7,696 $ 8,530
Less: Deferred revenue (666) (664)
-----------------------
Net investment 7,030 7,866
Less: Current portion (3,662) (4,337)
-----------------------
Long-term portion $ 3,368 $ 3,529
-----------------------
Future minimum lease payments to be received under sales-type leases at
June 30, 1999 are $4,082,000, $2,368,000, $914,000, $211,000, and $121,000 in
fiscal 2000, 2001, 2002, 2003, and 2004, respectively.
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 3 - Inventories
Inventories consist of the following (in thousands):
June 30,
1999 1998
---------------------
Raw materials $ 3,055 $ 2,223
Work-in-process 550 588
Finished goods 845 902
4,450 3,713
---------------------
Less: allowance for obsolescence (350) (320)
---------------------
$ 4,100 $ 3,393
=====================
Note 4 - Equipment and Intangibles
Rental and Monitoring Equipment
F-11
<PAGE>
BI Incorporated
Notes to Consolidated Financial Statements
Rental and monitoring equipment consist of the following (in
thousands):
June 30,
1999 1998
-------------------
Rental equipment $ 1,881 $ 1,376
Monitoring equipment 20,287 16,257
-------------------
22,168 17,633
Less: accumulated depreciation
and amortization (15,775) (12,761)
-------------------
$ 6,393 $ 4,872
===================
Property and Equipment
Property and equipment consist of the following (in thousands):
Junee 30,
1999 1998
---------------------
Property and equipment $ 26,989 $ 21,831
Less: accumulated depreciation (11,634) (8,835)
---------------------
$ 15,355 $ 12,996
=====================
Intangibles
Intangibles consist of the following (in thousands):
June 30,
1999 1998
---------------------
Goodwill $ 14,258 $ 14,258
Patents and licenses 2,649 1,893
Manufacturing technology 3,000 3,000
---------------------
19,907 19,151
Less: accumulated amortization (7,909) (6,938)
$ 11,998 $ 12,213
=====================
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 as discontinued operations, net
of related income taxes. The results of discontinued operations include CIS's
operating losses for the year ($709,000, net of taxes) plus asset impairment
charge ($2,558,000, net of taxes), which was charged to income before the
Company adopted a formal plan to dispose of the business unit. Selling and other
additional costs that the Company expects to incur ($835,000, net of taxes)
which relate to the final sales contract have been included in the loss on
disposal of discontinued operations. Revenues of the CIS business unit were
$3,574,000, $3,375,000 and $1,408,000 in fiscal 1999, 1998 and 1997,
respectively.
Note 6 - Borrowings and Lease Commitments
The Company has a $5,000,000 bank line of credit bearing interest at
the bank's prime rate, (7.75% at June 30, 1999) expiring in September 1999. At
June 30, 1999, the Company had borrowings of $3,950,000
F-12
<PAGE>
BI Incorporated
Notes to Consolidated Financial Statements
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 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 was not in compliance with the covenants with respect to debt
service coverage as of June 30, 1999, however management has received a waiver
from the bank with respect to compliance with the covenant. The Company also has
outstanding vehicle loans totaling $102,000, as of June 30, 1999. The vehicle
loans bear interest at 7.50% and mature in February 2002.
The Company leases office space under a capital lease. The following is a
schedule by years of future minimum lease payments under this capital lease
together with the present value of the net minimum lease payments as of June 30,
1999:
<TABLE>
<CAPTION>
Year ending June 30 (in thousands):
<S> <C>
2000 $ 762
2001 800
2002 840
2003 882
2004 926
Thereafter 7,037
-----
Total minimum lease payments 11,247
Less amount representing interest (4,352
Present value of future minimum
lease payments 6,895
Short term obligation (181
Long term obligation $ 6,714
</TABLE>
At June 30, 1999, the net book value of the building capitalized lease
included in property and equipment is $7,140,000, which is net of accumulated
depreciation of $1,360,000. The interest rate implicit in the lease agreement is
8.5%.
The Company leases office space and certain equipment under operating
leases. Rental expense was $1,627,000, $933,000, and $683,000 for fiscal 1999,
1998 and 1997, respectively. Minimum rental payments required under operating
leases that have initial or remaining noncancelable lease terms in excess of one
year as of June 30, 1999 are as follows:
<TABLE>
<CAPTION>
Year ending June 30 (in thousands):
<S> <C>
2000 $ 1,588
2001 1,177
2002 643
2003 142
2004 -
-------
Total minimum payments required $ 3,550
=======
</TABLE>
Note 7 - Income Taxes
The provision for income taxes attributable to income from continuing
operations is comprised of the following (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
</TABLE>
F-13
<PAGE>
BI Incorporated
Notes to Consolidated Financial Statements
<TABLE>
<S> <C> <C> <C>
Current provision
Federal $ 3,434 $ 2,285 $ 2,002
State 498 466 369
Foreign 80 218 -
Deferred (benefit)
Federal (936) (522) (349)
State (54) (53) (65)
--------------------------------------------------
$ 3,022 $ 2,394 $ 1,957
--------------------------------------------------
</TABLE>
The Company has approximately $274,000 and $628,000 of foreign income
subject to foreign income tax in 1999 and 1998, respectively.
The income tax benefit attributable to income from discontinued operations
is comprised of the following (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------------------------
<S> <C> <C> <C>
Current benefit
Federal $ (2,315) $ (220) $ (431)
State (341) (32) (66)
-------------------------------------------------
$ (2,656) $ (252) $ (497)
=================================================
</TABLE>
A reconciliation of income tax provision computed by applying the federal
income tax rate of 34% to income from continuing operations before income taxes
is as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------
<S> <C> <C> <C>
Expected statutory rate $ 2,441 $ 1,829 $ 1,500
State taxes, net 331 245 207
Goodwill amortization 327 286 231
Tax exempt interest on
Sales-type leases (121) (99) (116)
Increase of valuation allowance 14 178 -
Other, net 30 (45) 135
----------------------------
$ 3,022 $ 2,394 $ 1,957
============================
</TABLE>
The provision for income taxes is attributable to continuing operations and
discontinued operations as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------
<S> <C> <C>
Provision attributable to continuing
operations $3,008 $ 2,216 $ 1,197
</TABLE>
F-14
<PAGE>
BI Incorporated
Notes to Consolidated Financial Statements
<TABLE>
<S> <C> <C> <C>
Net provision attributable to continuing
operations 3,002 2,394 1,957
Benefit attritable to discontinued operations (2,656) (252) (1,460)
---------------------------
Total income tax provision $ 366 $2,142 $ 1,460
---------------------------
</TABLE>
The significant components of the Company's deferred income tax assets and
liabilities for fiscal 1999 and 1998 were as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------------------
<S> <C> <C>
Deferred tax assets:
Tax credit carryforwards $339 $208
Accrued liabilities 390 189
Amortization and depreciation 1,756 1,513
Bad debt 866 431
Accrued Rent 346 239
Maintenance - unearned revenue 74 120
Other - miscellaneous 217 353
-------------------
Total deferred tax asset 3,988 3,053
Less: valuation allowance (192) (178)
-------------------
Net deferred tax asset 3,796 2,875
Deferred tax liabilities:
Deferred revenue (222) (224)
Capitalized software (526) (662)
Other (104) (35)
-------------------
Gross deferred tax liabilities (852) (921)
-------------------
Net deferred tax asset: 2,944 1,954
Current (933) (751)
-------------------
Long-term $2,011 $1,203
===================
</TABLE>
At June 30, 1999 and 1998 the Company had foreign tax credit carryforwards
for income tax purposes of $339,000 and $208,000, respectively. These would
expire in fiscal year 2000 through fiscal year 2004 if not utilized. Due to the
uncertainty relating to the realization of the benefit of the tax credits, a
valuation allowance has been recorded for a portion of the amounts.
Note 8 - Employee Benefit Plans, Options and Warrants
The Company has five stock option plans, the Director and Key Employee Non-
qualified Stock Option Plan (the "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"), the 1991 Stock Option
Plan (the "1991 Plan") and the 1996 Stock Option Plan (the "1996 Plan").
The Director and Key Employee Plan, Employee Plan, Director Plan and 1991 Plan
have expired, although outstanding options are still being exercised.
F-15
<PAGE>
BI Incorporated
Notes to Consolidated Financial Statements
Under the Company's 1996 Stock Option Plan, the Company may grant options
to its employees and directors for up to one million shares of common stock.
Under the Plan, options are granted at an exercise price equal to the fair
market value of the Company's common stock on the grant date. The options vest
over periods not to exceed 48 months and expire in 10 years or less.
The fair value of each option and warrant grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the following weighted-
average assumptions used for grants in fiscal 1999, 1998 and 1997, respectively:
No estimated dividends for all three years; expected volatility of 57.9% for
1999, 56.9% for 1998, and 57.5% for 1997; risk-free interest rates between 4.74%
and 6.13% for 1999, 5.44% and 5.95% for 1998, and 6.20% and 6.86% for 1997; and
expected option terms between 7 and 10 years for 1999, 1998 and 1997.
Had compensation cost for the Company's two stock base compensation plans
been determined based on the fair value at the grant dates for award under those
plans, the Company's net income and earnings per share would have been reduced
to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------
<S> <C> <C> <C>
Net income (loss):
As reported $54 $2,671 $1,833
Proforma (1,017) 1,696 1,099
Net income (loss) per share - basic:
As reported .01 .36 .25
Proforma (.13) .23 .15
Net income (loss) per share - diluted:
As reported .01 .34 .25
Proforma (.13) .22 .15
-------------------------------
</TABLE>
F-16
<PAGE>
BI Incorporated
Notes to Consolidated Financial Statements
The following table summarizes option transactions under all five plans
during each of the three years ending June 30, 1999 (in thousands):
Number of Weighted Average
Shares Exercise Price
---------------------------------------------------------------------
Outstanding, June 30, 1996 785 5.50
Granted 813 6.98
Exercised (171) 5.56
Canceled (68) 6.15
---------------------------------------------------------------------
Outstanding, June 30, 1997 1,359 6.34
Granted 278 8.29
Exercised (202) 5.94
Canceled (58) 6.70
---------------------------------------------------------------------
Outstanding, June 30, 1998 1,377 6.78
Granted 220 9.90
Exercised (125) 5.32
Canceled (9) 6.59
---------------------------------------------------------------------
Outstanding, June 30, 1999 1,463 $ 7.37
=====================================================================
The weighted average fair value of options granted during 1999, 1998, and
1997 were $7.83, $5.41, and $5.11, respectively.
The following table summarizes information about fixed stock options
outstanding at June 30, 1999 (in thousands):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------- ---------------------------------
Weighted
Number Average Weighted Number Weighted
Range of Outstanding at Remaining Average Exercisable at Average
Exercise Prices 6/30/99 Contractual Life Exercise Price 6/30/99 Exercise Price
- -------------------------------------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
$4.19 - 4.88 67 2.2 years $ 4.22 67 $ 4.22
$5.13 98 0.2 years $ 5.13 98 $ 5.13
$5.50-6.88 231 3.6 years $ 6.60 169 $ 6.57
$7.00-7.50 740 4.3 years $ 7.02 464 $ 7.00
$8.31-9.38 99 6.3 years $ 8.95 35 $ 9.19
$10.13-11.88 228 6.1 years $10.50 36 $10.45
- -------------------------------------------------------------------- ---------------------------------
$4.19-11.88 1,463 4.3 years $ 7.37 869 $ 6.73
</TABLE>
Employee Stock Purchase Plan
F-17
<PAGE>
BI Incorporated
Notes to Consolidated Financial Statements
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. The maximum amount of
shares available for purchase in any six month period is 50,000 shares. 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 average 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. Under the Purchase Plan, the Company sold
26,000, 21,000, and 15,000 shares to employees in 1999, 1998, and 1997,
respectively.
The fair value of each stock purchase grant is estimated on the date of
grant using the Black-Scholes model with the following assumptions for 1999,
1998, and 1997: no estimated dividends; expected volatility of 31.1% and 40.6 %,
28.6% and 29.2%, and 27.3% and 72.0%, respectively; risk free interest rates of
4.59% and 5.11%, 5.23% and 5.44%, and 6.20% and 6.66%, respectively; and an
expected life of six months for all three years.
Employee Savings Plan
The Company has a 401(k) savings plan whereby the Company matches, subject
to certain limits, $.20 for each $1.00 employees contribute up to 5% of
compensation. Total Company contributions during fiscal 1999, 1998, and 1997
were $105,000, $80,000, and $66,000, respectively.
Note 9 - 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 April 28, 1999, a motion to amend the complaint was
filed with the Court, which dropped all references to the alleged
misrepresentations and non-disclosures in the initial complaint and instead
alleged the factual theories of channel stuffing (i.e., shipping of product to
distributors with knowledge that distributors are accumulating inventory) and
the making of overly optimistic projections of revenues and earnings. On August
23, 1999, the Court: (a) allowed the filing of the amended complaint; (b)
granted in part and denied in part, the Company's motion for summary judgment;
(c) held that a class action is no longer maintainable and decertified the
class; (d) dismissed the claim of channel stuffing; (e) rejected the amended
complaint's reliance on the fraud-on-the-market theory and the corresponding
presumption of reliance in an action based on securities fraud; and (f)
dismissed all factual allegations supporting the claim of overly optimistic
projections and earnings to artificially inflate the Company's stock price but
for the allegation that such statements were allegedly made on September 10 and
11, 1996, and relied upon until September 12, 1996. 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 in light of the Court's August 23, 1999 ruling. 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.
F-18
<PAGE>
BI Incorporated
Notes to Consolidated Financial Statements
The Company is also involved in four additional legal proceedings; one
alleging negligence in manufacturing, one alleging general negligence and
misrepresentation, one alleges misrepresentation, breech of warranty and general
negligence, and the last suit alleges wrongful death from general negligence.
One of the claimants seeks damages of $3,000,000, another seeks damages of
$11,600,000, the third seeks $250,000,000 in damages, and the last seeks damages
in excess of $100,000.
Subsequent to June 30, 1999 the Company was named on a complaint filed
August 10, 1999. The complaint alleges wrongful death, survivorship action, and
a civil rights violation. The plaintiff 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 them vigorously.
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 10 - Segment Information
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", in 1999. The Company's two reportable
segments, Electronic Monitoring ("EM") and Community Correctional Services
("CCS"), are strategic business units that offer different products and
services. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. Intersegment sales
and transfers are insignificant. The Company evaluates performance based on
operating earnings of the respective business units. Receivables and Inventories
are reported by segment, but other balance sheet information is not reported,
since the Company does not produce such information internally.
F-19
<PAGE>
BI Incorporated
Notes to Consolidated Financial Statements
Summarized financial information concerning the Company's reportable
segments of continuing operations is shown in the following table (in
thousands):
<TABLE>
<CAPTION>
For the years ended June 30, EM CCS Total
------------------------------------
<S> <C> <C> <C>
1997
Revenues $ 36,580 $ 10,413 $ 46,993
Segment income (loss) before taxes 4,468 (55) 4,413
Segment net income (loss) 2,487 (31) 2,456
Receivables, net 6,700 1,276 7,976
Inventories, net 3,861 - 3,861
1998
Revenues $ 41,938 $ 16,688 $ 58,626
Segment income (loss) before taxes 6,133 (753) 5,380
Segment net income (loss) 3,404 (418) 2,986
Receivables, net 9,110 1,140 10,250
Inventories, net 3,393 - 3,393
1999
Revenues $ 45,698 $ 22,669 $ 68,367
Segment income before taxes 5,688 1,490 7,178
Segment net income 3,293 863 4,156
Receivables, net 10,824 3,697 14,521
Inventories, net 4,100 - 4,100
</TABLE>
The following table is a reconciliation of the Company?s Segment assets to
its total assets (in thousands):
<TABLE>
<CAPTION>
1999 1998
-----------------------
<S> <C> <C>
Segment Assets:
Receivables, net $ 14,521 $ 10,250
Inventories, net 4,100 3,393
Other unallocated current assets 5,420 9,038
-----------------------
Total current assets 24,041 22,681
Long term assets 44,210 39,308
-----------------------
Total assets $ 68,251 $ 61,989
=======================
</TABLE>
Note 11 - Related Party Transactions
The Company sold products to JEMTEC, Inc. for $219,000, $75,000, and $551,000
for 1999, 1998 and 1997, respectively. The Chairman of the Company is Chairman
of JEMTEC, Inc.
F-20
<PAGE>
BI Incorporated
Notes to Consolidated Financial Statements
Note 12 - Quarterly Financial Information (unaudited)
The following interim financial information presents the 1999 and 1998
results of continuing operations on a quarterly basis (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
Fiscal quarters ended
9/30/97 12/31/97 3/31/98 6/30/98
---------------------------------------
<S> <C> <C> <C> <C>
Total revenue $14,295 $13,922 $14,288 $16,121
---------------------------------------
Total costs and expenses 13,704 13,385 13,514 15,037
---------------------------------------
Net income from continuing
operations $ 591 $ 537 $ 774 $ 1,084
=======================================
Diluted earnings per share
from continuing operations $ 0.07 $ 0.07 $ 0.10 $ 0.14
=======================================
</TABLE>
<TABLE>
<CAPTION>
Fiscal quarters ended
9/30/98 12/31/98 3/31/99 6/30/99
---------------------------------------
<S> <C> <C> <C> <C>
Total revenue $15,721 $ 17,202 $17,542 $17,902
---------------------------------------
Total costs and expenses 14,810 16,047 16,331 17,023
---------------------------------------
Net income from continuing
operations $ 911 $ 1,155 $ 1,211 $ 879
---------------------------------------
Diluted earnings per share
from continuing operations $ 0.11 $ 0.14 $ 0.16 $ 0.11
=======================================
</TABLE>
F-21
<PAGE>
BI Incorporated
Financial Statement Schedules
SCHEDULE II
(in thousands)
Allowance for losses on Sales-Type Leases:
<TABLE>
<CAPTION>
=========================================================================================================
Balance Charged to cost
beginning of and expenses Charged to Balance at end
period other accounts Write offs of period
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
7-1-96 - 6-30-97 $ 9,000 $ - $ - $ (8,000) $ 1,000
- ---------------------------------------------------------------------------------------------------------
7-1-97 - 6-30-98 $ 1,000 $ - $ (1,000) $ - $ -
- ---------------------------------------------------------------------------------------------------------
7-1-98 - 6-30-99 $ - $ - $ - $ - $ -
=========================================================================================================
</TABLE>
Allowance for losses on Accounts Receivable:
<TABLE>
<CAPTION>
=========================================================================================================
Balance Charged to cost Beginning
beginning of and expenses Balance at Balance at end
period Acquisition Write offs of period
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
7-1-96 - 6-30-97 $ 266 $ 1,732 $ 1,418 $ (1,656) $ 1,760
- ---------------------------------------------------------------------------------------------------------
7-1-97 - 6-30-98 $ 1,760 $ 1,806 $ - $ (2,250) $ 1,316
- ---------------------------------------------------------------------------------------------------------
7-1-98 - 6-30-99 $ 1,316 $ 1,927 $ - $ (733) $ 2,510
=========================================================================================================
</TABLE>
F-22
<PAGE>
EXHIBIT 21.1
Subsidiaries of the Registrant
Community Corrections Corporation Georgia
Peregrine Corrections Incorporated Colorado
<PAGE>
Arthur Andersen LLP
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Form 10-K of our report dated August 26, 1999. It should be
noted that we have not audited any financial statements of the company
subsequent to June 30, 1999 or performed any audit procedures subsequent to the
date of our report.
/s/ Arthur Andersen LLP
Denver, Colorado,
September 24, 1999.
<PAGE>
Exhibit 23.2
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-20843, 33-38428, 333-24073 and 333-78981) of BI
Incorporated of our report dated August 14, 1998 relating to the financial
statements, which appears on page F2 of this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
Broomfield, Colorado
September 24, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 18,621
<ALLOWANCES> 0
<INVENTORY> 3,662
<CURRENT-ASSETS> 24,041
<PP&E> 15,355
<DEPRECIATION> 0
<TOTAL-ASSETS> 68,251
<CURRENT-LIABILITIES> 13,381
<BONDS> 0
0
0
<COMMON> 34,996
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 68,251
<SALES> 68,293
<TOTAL-REVENUES> 68,367
<CGS> 33,782
<TOTAL-COSTS> 61,189
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,178
<INCOME-TAX> 3,022
<INCOME-CONTINUING> 4,156
<DISCONTINUED> (4,102)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54
<EPS-BASIC> .01
<EPS-DILUTED> .01
</TABLE>
