-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AaHrSJ3v8bNTl5Xt0B35DUphzy2rjhWmsrsw3bZ6etaEkDYvMUeUSirSaZTvHS/U myyuXW2tHxMYEy6OhIH/dQ== 0000927356-97-001227.txt : 19971029 0000927356-97-001227.hdr.sgml : 19971029 ACCESSION NUMBER: 0000927356-97-001227 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971028 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BI INC CENTRAL INDEX KEY: 0000716629 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS BUSINESS SERVICES [7380] IRS NUMBER: 840769926 STATE OF INCORPORATION: CO FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-12410 FILM NUMBER: 97702142 BUSINESS ADDRESS: STREET 1: 6400 LOOKOUT RD CITY: BOULDER STATE: CO ZIP: 80301 BUSINESS PHONE: 3035302911 MAIL ADDRESS: STREET 1: 6400 LOOKOUT RD CITY: BOULDER STATE: CO ZIP: 80301 10-Q 1 FORM 10-Q BI INCORPORATED Index -----
Part I - Financial Information: Page No. Item 1 - Financial Statements Balance Sheet at September 30, 1997 and June 30, 1997 2 Statement of Operations for the three months ended September 30, 1997 and 1996 3 Statement of Cash Flows for the three months ended September 30, 1997 and 1996 4 Notes to Consolidated Financial Statements 5 & 6 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 7 through 11 Signatures 11
Part II - Other Information: Item 1 - Legal Proceedings: Incorporated by reference to Note 3 to Consolidated Financial Statements in Part I. BI INCORPORATED CONSOLIDATED BALANCE SHEET (in thousands, unaudited)
September 30, June 30, 1997 1997 ------------------- ------------------- ASSETS Current assets Cash and cash equivalents $767 $1,694 Short-term investments 0 450 Receivables, net 8,926 8,647 Investment in sales-type leases, net 4,216 3,993 Inventories 3,549 3,861 Deferred income taxes 779 779 Prepaid expenses 993 665 ------------------- ------------------- Total current assets 19,230 20,089 Investment in sales-type leases, net 4,161 2,764 Rental and monitoring equipment, net 4,214 4,366 Property and equipment, net 11,204 10,667 Software, net 2,208 1,987 Intangibles, net 12,592 12,908 Other assets 2,647 2,640 ------------------- ------------------- $56,256 $55,421 =================== =================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $1,232 $1,836 Accrued compensation and benefits 1,786 1,409 Capital lease obligation 98 82 Accrued product warranty 297 151 Deferred revenue 1,311 1,362 Income taxes payable 377 404 Other liabilities 483 304 ------------------- ------------------- Total current liabilities 5,584 5,548 ------------------- ------------------- Capital lease obligation 7,003 7,030 Deferred revenue 2,597 2,223 Stockholders' equity Common stock, no par value, 75,000 shares authorized; 7,422 shares issued Sept. 30, 1997 and 7,417 shares issued June 30, 1997 32,484 32,460 Retained earnings 8,588 8,160 ------------------- ------------------- 41,072 40,620 ------------------- ------------------- $56,256 $55,421 =================== ===================
The accompanying notes are an integral part of the financial statements. 2 BI INCORPORATED CONSOLIDATED STATEMENT OF OPERATIONS (in thousands except per share amounts, unaudited)
For the three months ended September 30, ------------------------------------- 1997 1996 --------------- ------------------ Revenues Net sales $4,519 $2,801 Service and monitoring income 10,037 5,616 Rental income 260 215 Other income 51 91 --------------- ------------------ Total revenues 14,867 8,723 --------------- ------------------ Costs and expenses Cost of net sales 2,200 1,533 Cost of service and monitoring income 5,205 2,778 Cost of rental income 57 83 Selling, general and administrative expenses 4,509 2,892 Provision for doubtful accounts 595 58 Depreciation and amortization 801 401 Research and development expenses 755 712 --------------- ------------------ Total costs and expenses 14,122 8,457 --------------- ------------------ Income before income taxes 745 266 Income tax provision (317) (109) --------------- ------------------ Net income $428 $157 =============== ================== Net Income per common and common equivalent share $0.06 $0.02 =============== ================== Weighted average number of common and common equivalent shares outstanding 7,613 7,402 =============== ==================
The accompanying notes are an integral part of the financial statements. 3 BI INCORPORATED CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands, unaudited)
For the three months ended September 30, ------------------------------------- 1997 1996 ------------------- ------------- Cash flows from operating activities: Net income $428 $157 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 1,609 1,498 Provision for losses on accounts receivable and STLs 595 58 Changes in assets and liabilities: Receivables (886) 1,217 Investment in STLs (1,620) 219 Inventories, net 312 (403) Accounts payable (604) (580) Accrued expenses 704 (430) Deferred revenue 337 (123) Current income taxes payable (27) (501) Other (340) 201 ------------------------------------- Net cash from operating activities 508 1,313 ------------------------------------- Cash flows from investing activities: Capital expenditures (1,102) (261) Increase in rental and monitoring equipment (467) (520) Increase in capitalized software (329) (277) Change in short-term investments 450 (86) ------------------------------------- Net cash used in investing activities (1,448) (1,144) ------------------------------------- Cash flows from financing activities: Payments on capital lease obligation (11) 0 Proceeds from issuance of common stock 24 304 ------------------------------------- Net cash from financing activities 13 304 ------------------------------------- Net change in cash and cash equivalents (927) 473 Cash and cash equivalents at beginning of year 1,694 4,263 ------------------------------------- Cash and cash equivalents as of September 30 $767 $4,736 =================== =============
The accompanying notes are an integral part of the financial statements. 4 BI Incorporated and Subsidiaries Notes to Consolidated Financial Statements ------------------------------------------ Note 1 - Preparation of Financial Statements - -------------------------------------------- These financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company's latest annual report. The interim financial data are unaudited; however, in the opinion of the management of the Company, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. Note 2 - Net Income per Common and Equivalent Share - --------------------------------------------------- Net income per common and common equivalent share is computed on the basis of the weighted average number of shares of common and common equivalent shares outstanding during the period. Common equivalent shares are determined using the treasury stock method, which assumes that proceeds from exercise of certain outstanding stock options and warrants are utilized to repurchase outstanding shares of the Company at the average fair market value during such period. SFAS No. 128, "Earnings per Share," was issued in February, 1997. The Company will be required to apply this statement in its consolidated financial statements for the quarter ending December 31, 1997. This pronouncement establishes new standards for computing and presenting EPS on a basis that is more comparable to international standards and provides for the presentation of basic and diluted EPS, replacing the currently required primary and fully- diluted EPS. The basic EPS will be computed by dividing net income by the weighted average number of shares outstanding during the period. Diluted EPS will be computed in a manner similar to the current method for calculating fully-diluted EPS. Prior period EPS will be restated to conform with the new statement. The pro forma effect of applying SFAS No. 128 on the Company's historical consolidated financial statements is as follows (in thousands, except per share data):
For the three months ended September 30, 1997 1996 ---- ---- EPS as reported Primary EPS $ .06 $ .02 Weighted average common shares outstanding 7,613 7,402 Proforma EPS Basic EPS Computation: Basic EPS $ .06 $ .02 Weighted average common shares outstanding 7,420 7,035 Diluted EPS Computation: Diluted EPS $ .06 $ .02 Weighted average common shares outstanding 7,613 7,402 assuming dilution
5 Note 3 - Legal Proceedings On August 27, 1997, the Company received notice of a class action complaint filed against it and certain of its officers and directors. The complaint includes various claims under securities law as well as for common law fraud. The complaint alleges, among other things, that various public filings and press releases made by the Company during 1996 contained material misstatements and omissions, including inflated Company revenues and earnings. The complaint further claims that these misstatements and omissions occurred as a result of shipping products to customers with the understanding that the customers had no obligation to pay for the products and could return them at any time. In addition, the complaint alleges that the Company failed to disclose (a) the nature of competition in its monitoring services line of business and (b) that one of the Company's products related to in-home alcohol testing did not work properly. The complaint seeks rescission, unspecified damages and attorney's fees on behalf of all persons who purchased the Company's common stock between April 24, 1996 and September 12, 1996. The Company believes the complaint is without merit but is currently unable to (a) determine the ultimate outcome of resolution of the complaint, (b) determine whether resolution of this matter will have a material adverse impact on the Company's financial position or results of operations, or (c) estimate reasonably the amount of loss, if any, which may result from resolution of this matter. The Company is involved in four additional legal proceedings; one alleging negligence in monitoring and detention; one alleging wrongful death from general negligence, one alleging malfunction in equipment, and the last alleging negligence in manufacturing. Two of the claimants seek damages up to $3,000,000, one seeks damages in the amount of $150,000 and the fourth seeks unspecified damages. The Company is also aware of certain unasserted potential claims. Management believes the Company has adequate legal defenses and/or insurance coverage against all claims and intends to defend them. There can be no assurances however, that any individual case will result in an outcome favorable to the Company. In the event of any adverse outcome, neither the amount nor the likelihood of any potential liability which might result is reasonably estimable. The Company currently believes that the amount of the ultimate potential loss would not be material to the Company's financial position or results of operations. However, an adverse future outcome in any individual case, including legal defense costs, could have a material effect on the Company's reported results of operations in a particular quarter. 6 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain information in "Management's Discussion and Analysis" and other statements periodically reported by the Company contain forward-looking statements that involve risks and uncertainties. Management believes that its expectations are based on reasonable assumptions. However, no assurances can be given that its goals will be achieved. It should be noted that the earnings history of the Company has not been consistent year to year. Factors that could cause actual results to differ materially include, but are not limited to: fluctuations due to timing of award of government contracts; pricing pressures; liability in excess of insurance coverage; changes in federal, state and local regulations; new product introductions by competitors or unexpected delays of new product introductions by the Company; raw material availability; changes in telecommunications regulations or technologies; or the loss of a material contract through lack of appropriation or otherwise. Results of Operations - --------------------- The following table provides a breakdown of selected results by Business Unit. The Company's Business Units consist of Electronic Monitoring (EM), Community Correctional Services (CCS) and Corrections Information Systems (CIS).
Three Months Ended Three Months Ended September 30, 1997 September 30, 1996 -------------------------------- ----------------------------------- EM CCS CIS Total EM CCS CIS Total -------------------------------- ----------------------------------- (unaudited) (unaudited) (in thousands) (in thousands) Revenue Recurring Revenue Service & Monitoring 6,111 3,881 45 10,037 5,194 370 52 5,616 Rental 260 260 215 215 Other Income 51 51 91 91 Net Sales 3,992 527 4,519 2,708 93 2,801 -------------------------------- ----------------------------------- Total Revenue 10,414 3,881 572 14,867 8,208 370 145 8,723 Gross Profit 5,823 1,483 99 7,405 4,233 192 (96) 4,329 Gross Profit % 55.9% 38.2% 17.3% 49.8% 51.6% 51.9% (66.2%) 49.6%
7 The three-month period ended September 30, 1997 (fiscal 1998), compared to the three-month period ended September 30, 1996 (fiscal 1997): Revenue Total revenue for the three months ended September 30, 1997, increased 70.4% to $14,867,000 compared to $8,723,000 in the corresponding period a year ago. The Company is continuing to expand recurring revenue which includes service, monitoring and rental income although there can be no assurances that the Company will be successful in continuing this expansion. These revenue sources, which are generated within all three business units increased to $10,297,000 or 69.3% of total revenue in fiscal 1998 from $5,831,000 or 66.8% of total revenue in fiscal 1997. All three business units reported revenue increases for fiscal 1998 as compared to fiscal 1997. The EM business unit revenue increased 26.9% to $10,414,000 in fiscal 1998 compared to $8,208,000 in fiscal 1997. 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 17.8% to $6,371,000 in fiscal 1998 from $5,409,000 in fiscal 1997. This increase in recurring revenue relates to the continuing trend of government agencies to contract for electronic monitoring rather than purchasing equipment. Net sales revenue increased 47.4% to $3,992,000 in fiscal 1998 from $2,708,000 in fiscal 1997. This significant improvement in net sales was due to a relatively high backlog of orders carried into the first quarter of fiscal 1998 and relatively low revenue in the first quarter of fiscal 1997. The Company has implemented a change in market strategy emphasizing recurring revenue which will slow the growth rate of net sales for fiscal year 1998. The CCS business unit recurring revenue increased approximately tenfold to $3,881,000 in fiscal 1998 compared to $370,000 in fiscal 1997. The 1998 growth was primarily due to service revenue associated with acquisitions of two companies, in October 1997 and January 1998, which provide probation services throughout Georgia, Tennessee and South Carolina as well as day reporting services in Colorado, New Mexico and Oregon. These two acquisitions accounted for $3,539,000 of revenue in the first quarter of fiscal 1998. The fiscal 1997 revenue was generated through the Company's automated reporting and collections products (PROFILE and PROFILE PLUS). The Company anticipates continued revenue growth in this business unit for fiscal year 1998. The CIS business unit increased revenue 294.5% to $572,000 in fiscal 1998 compared to $145,000 in fiscal 1997. Net sales revenue associated with the Institutional Management System (IMS) applications software product increased to $527,000 in fiscal 1998 from $93,000 in fiscal 1997. The CIS business unit has contracts lasting from one month to approximately eighteen months in duration. This substantial increase in revenue is a direct result of the $3,524,000 of backlog carried into fiscal year 1998. The Company expects continued significant increases in net sales revenue for fiscal year 1998 compared to fiscal year 1997. Recurring revenue which is comprised of software service agreements decreased slightly to $45,000 in fiscal 1998 from $52,000 in fiscal 1997. 8 Gross Profit Total gross profit as a percentage of total revenue for the three months ended September 30, 1997, increased to 49.8% or $7,405,000 compared to 49.6% or $4,329,000 in the corresponding period a year ago. The EM business unit increased its total gross profit to 55.9% or $5,823,000 in fiscal 1998 compared to 51.6% or $4,233,000 for the same period in fiscal 1997. This increase was due to substantial improvements in gross profits on recurring revenue as well as net sales revenue. EM recurring revenue gross profit increased to 55.5% in fiscal 1998 compared to 52.2% in fiscal 1997. Electronic monitoring gross profit improved in fiscal 1998 as a result of increased equipment utilization as well as labor and telephone efficiencies gained from improvements to the monitoring software. Net sales gross profit increased to 56.1% in fiscal 1998 compared to 48.7% in fiscal 1997 as a result of manufacturing efficiencies on increased units shipped during fiscal 1998. The CCS business unit decreased its gross profit to 38.2% for the three months ended September 30, 1997 compared to 51.9% in the corresponding period a year ago. This business unit has changed its product offering substantially in fiscal 1998 compared to fiscal 1997 as a result of two acquisitions in the probation and day reporting services area. These services require relatively high direct labor costs which are recognized as direct costs of sales which reduce gross profit. The Company expects cost reductions and improved operating efficiencies to increase the CCS gross profit percentage over time. The CIS business unit improved its gross profit to 17.3% in the first quarter of fiscal 1998 compared to (66.2)% for the same period in fiscal 1997. This improvement is a result of continued cost reductions and increased order volume. The Company anticipates CIS revenue to increase. This increase revenue along with the implementation of additional efficiency improvements is expected to increase the CIS gross profit percentage through fiscal year 1998. Selling, General and Administrative (S,G&A) S,G&A expenses for the three months ended September 30, 1997, increased $1,617,000 to $4,509,000 compared to $2,892,000 in the corresponding period a year ago. The Company expects S,G&A expenses for fiscal year 1998 to decrease as a percentage of total revenue as compared to fiscal year 1997. The EM business unit increased its S,G&A expenses $459,000 in fiscal 1998. This increase is related to market expansion and diversification as well as increases in account management and technical services related to increasing customer satisfaction and growth of existing customer sites. The Company expects to increase marketing expenses associated with continuing market expansion activities throughout fiscal year 1998. The CCS business unit increased its S,G&A expenses in the first quarter of fiscal 1998 as compared to the same period in fiscal 1997 as a result of the consolidation of two acquisitions in the probation and day reporting services area. The CIS business unit increased its S,G&A expenses $176,000 in fiscal 1998 but decreased to 56.8% of CIS revenue in fiscal 1998 compared to 102.7% in fiscal 1997. This increase was associated with market expansion and infrastructure costs necessary to manage deployment and implementation of existing contracts. 9 Provision for Doubtful Accounts The provision for doubtful accounts for the three months ended September 30, 1997, increased $537,000 to $595,000 compared to $58,000 in the corresponding period a year ago. In the comparable period of 1997, revenue was generated by either government agencies or qualified service providers, both of which carried an extremely low risk of payment default. Accordingly, the EM business unit recognized a small increase of $31,000 in fiscal 1998 compared to fiscal 1997. The remaining $506,000 increase in fiscal 1998 expense compared to fiscal 1997 relates to the CCS business unit. Probation service revenue is 100% paid by the offender and carries a higher risk of default. In response to this, the Company accrued approximately 17% of probation service revenue to allowance for doubtful accounts during the first quarter of fiscal 1998. The Company is implementing additional collection procedures to reduce payment defaults within the CCS business unit. Amortization and Depreciation (A&D) A&D expense for the three months ended September 30, 1997, increased $400,000 to $801,000 compared to $401,000 in the corresponding period a year ago. The EM business unit increased its A&D expense $214,000 in the first quarter of fiscal 1998 compared to the first quarter of fiscal 1997. This increase is the result of continuing investments in capital expenditures within the business unit. The CCS business unit increased its A&D expense $188,000 in the first quarter of fiscal 1998 from $6,000 in the first quarter of fiscal 1997. Approximately two thirds of the fiscal 1998 increase is associated with amortization of goodwill related to the acquisition of two companies. The remaining increase is associated with depreciation of fixed assets purchased through the acquisitions. Research and Development Expenses (R&D) R&D expense for the three months ended September 30, 1997, increased $43,000 to $755,000 in fiscal 1998 compared to $712,000 in the corresponding period a year ago. The EM business unit increased its R&D expenses to $653,000 or 6.3% of EM revenue. These expenses relate largely to enhancements of current products and evaluating future technologies. The CIS business unit increased its R&D expenses $65,000 in the first quarter of fiscal 1998 as compared to the same period in fiscal 1997. This increase is the result of the continued development of the Institutional Management System (IMS) software. Net Income and Income Taxes The Company recorded income tax expense of $317,000 and $109,000 for the three months ended September 30, 1997 and 1996, respectively, which differs from the statutory rate largely as a result of state income taxes and non-deductible goodwill amortization expense. 10 Liquidity and Capital Resources - ------------------------------- For the three months ended September 30, 1997 the Company generated $508,000 of cash from operating activities, realized $450,000 through the liquidation of short-term investments, expended $1,102,000 for capital equipment and leasehold improvements, expended $467,000 for equipment associated with rental and monitoring contracts, and expended $329,000 of cash 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 $927,000 for the three months ended September 30, 1997. Working capital decreased $895,000 to $13,646,000 at September 30, 1997. This decrease was primarily the result of a decrease in cash associated with the Company's investments in capital expenditures, monitoring equipment, and internally developed software. The Company has a $5,000,000 line of credit with BankOne, Boulder, Colorado which expires in October 1999. No amounts were drawn against this line as of September 30, 1997. Working capital may be obtained by financing certain operating and sales-type leases under recourse and non-recourse borrowing arrangements. These borrowings would be collateralized with a security interest in the leased equipment. At September 30, 1997, the Company had unfunded leases in the amount of $8,377,000 which could be used as collateral for future borrowing arrangements. The Company believes its existing sources of liquidity will provide adequate cash to fund the Company's anticipated capital needs through fiscal 1998. Recent Pronouncements - --------------------- The Company has determined that the adoption of recently issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128") will not have a material impact on its results of operations. The proforma effect of SFAS No. 128 is disclosed in Note 2 of the Consolidated Financial Statements. Pursuant to the requirements of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BI Incorporated Date October 28, 1997 By ----------------------- ----------------------------------- David J. Hunter President and Chief Executive Officer -------------------------------------- Jacqueline A. Chamberlin Chief Financial Officer 11 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS JUN-30-1998 JUL-01-1997 SEP-30-1997 767 0 13,142 0 3,549 19,230 11,204 0 56,256 5,584 0 0 0 32,484 0 56,256 14,816 14,867 7,462 14,122 0 0 0 745 317 0 0 0 0 428 .06 .06
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