SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10K-SB
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended February 29, 1996
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____ to ____
Commission File No. 0-12240
BIO-LOGIC SYSTEMS, CORP.
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(Name of Small Business Issuer in its charter)
Delaware 36-3025678
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE BIO-LOGIC PLAZA, MUNDELEIN, ILLINOIS 60060-3700
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (847) 949-5200
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Securities registered under Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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None None
Securities registered under Section 12(g) of the Act:
Common Stock, $.01 par value
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(Title of Class)
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Check whether the issuer (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
Check here if there is no disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10K-SB or any
amendment to this Form 10K-SB. |_|
State the issuer's revenues for its most recent fiscal year:
$14,602,000.
As of May 21, 1996 the issuer had 4,229,319 shares of Common Stock
outstanding. The aggregate market value of the Common Stock held by
nonaffiliates as of May 21, 1996 was approximately $7.7 million.
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DOCUMENTS INCORPORATED BY REFERENCE
Part III
Item 9. Directors,
Executive Officers, To be included in the
Promoters and Control Proxy Statement to be
Persons; Compliance with filed pursuant to
Section 16(a) of the Regulation 14A not
Exchange Act later than 120 days
after the end of the
Item 10. Executive Compensation Registrant's fiscal year.
Item 11. Security Ownership
of Certain Beneficial
Owners and Management
Item 12. Certain Relationships
and Related Transactions
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PART I
Item 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
Bio-logicR Systems Corp. ("Bio-logic" or the "Company")
designs, develops, assembles and markets computer-based electro-diagnostic
systems for use by hospitals, clinics, universities and physicians. The
principal electro-diagnostic procedures performed by the Company's systems
include digital electroencephalography, for routine and long-term monitoring,
evoked response testing, computerized electromyography, polysomnography,
topographic brain mapping, and other quantitative EEG analyses. These tests are
typically used by medical practitioners specializing in fields such as
neurology, otolaryngology, audiology, anesthesiology, pulmonology, and
psychiatry to aid in diagnosis of certain neurological, sensory, and psychiatric
disorders, and to monitor brain function in the intensive care unit and
operating theater.
The Company was incorporated under the laws of the State of
Delaware in August 1981 as a successor to an Illinois corporation formed in
March 1979. All references herein to the Company include, unless otherwise
indicated, the operations of the Company and its wholly-owned subsidiaries. On
July 1, 1994, the Company acquired certain assets and assumed certain
liabilities of Neuro Diagnostics, Inc. ("NDI"), a wholly-owned subsidiary of
Luther Medical Products, Inc. NDI, now a wholly-owned subsidiary of the Company,
develops, manufactures and distributes high technology human nervous system
testing equipment for use by hospitals, clinics and physicians. The Company's
executive offices are located at One Bio-logic Plaza, Mundelein, Illinois
60060-3700.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company operates in one business segment: the design,
development, assembly and marketing of computerized medical electro-diagnostic
systems for use in the health care field.
(c) NARRATIVE DESCRIPTION OF BUSINESS
Bio-logic designs, develops, assembles and markets
computer-based electro-diagnostic systems for use by hospitals, clinics,
universities and physicians. The principal electro-diagnostic procedures
performed by the Company's systems include computerized electroencephalography,
for routine and long-term monitoring, topographic brain mapping, and evoked
response testing, sleep analysis and computerized electromyography. These tests
are typically used by medical practitioners specializing in fields such as
neurology, psychiatry, audiology, otolaryngology, anesthesiology and psychology
to aid in diagnosis of certain neurological, psychiatric and sensory disorders,
psychological and learning disorders, brain disorders and tumors.
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Bio-logic's systems are in modular form and consist of IBM* PC
compatible microcomputers purchased from third parties, interfaced with software
and peripheral devices developed and manufactured by the Company. Any
combination of available diagnostic tests can be included in a system depending
on the user's specialty and requirements. The Company has developed software
which enables medical personnel to administer diagnostic tests, to control
various aspects of the testing and to record and process data generated by the
tests. Operation of any of the Company's systems does not require programming
skills on the part of the customer. The Company believes that its systems allow
users to test patients on a cost efficient basis and that cost effectiveness and
ease of operation are important competitive advantages of its systems.
The Company's systems perform tests by means of computer
programs which are controlled by flexible software. The monitor screen displays
a menu of instructions prompting the operator to input information, test
parameters or specific hardware setting adjustments. Testing can be interrupted,
continued or aborted at any time. The Company's systems can be expanded beyond
the main system to include remote monitors or "data analysis stations." Data can
be collected on the main system and analyzed on data analysis stations placed in
convenient locations. Because the Company's system is compatible with the IBM
PC, the user's IBM compatible computer can be converted into a data analysis
station for a Bio-logic system, and a variety of commercially available
programs, such as word processing and database management, can be used.
Bio-logic is incorporating remote communications capabilities
in its product lines through both modem communications and computer networks.
These new information capabilities provide (a) the ability to view in real time
tests being conducted on a remote system, which is particularly useful for
consultation during monitoring in the operating room in connection with tests
performed in alternate sites outside the hospital; (b) electronic transfer of
test results, reports and patient information among different systems; (c)
review and analysis of records stored in a remote location; and (d) sharing of
archiving media (such as optical disks) and printing devices among several
systems. These enhancements are designed to increase the efficiency and
productivity of operations and minimize duplication of equipment by customers of
the Company's systems.
The Company's systems are sold to hospitals, universities and
private clinics and physicians to test and monitor patients as well as conduct
research. Bio-logic has a continuing program to develop new applications of
electro-diagnostic testing.
COMPUTERIZED ELECTROENCEPHALOGRAPH (EEG)
The Company's CeegraphTM line of computerized EEG systems,
records, displays, stores, and analyzes the spontaneous brain electrical
activity from various locations on a patient's scalp. Traditional EEG machines
provide only paper tracings of EEG recordings. The Ceegraph offers the user the
option of storing the information in digital form for later display on a color
monitor. This allows the user added flexibility in display and analysis
capabilities. Furthermore,
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* A trademark of International Business Machines Corp.
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digital analysis allows increased sensitivity to subtle functional abnormalities
that may not be perceived in paper tracings of the raw data. The Ceegraph
minimizes the need for hard copies of all recorded data thereby significantly
reducing paper supply and storage expenses.
The Ceegraph line includes a series of several products
ranging from a hardware and software kit, which the customer can add to its
IBM-compatible computer to create a digital EEG system, to a portable EEG system
and an advanced stationary system with multiple capabilities for EEG,
quantitative EEG analysis, and other neurological applications. The Ceegraph
line also includes a Ceegraph Reader(TM) which permits fast and easy review in a
graphic display. The Ceegraph line is priced from approximately $25,000 to
$60,000 depending upon the model.
A video option allows videotape recording of a patient during
EEG acquisition. Computerized control of the VCR provides synchronous recording
of EEG and video for long-term epilepsy monitoring and other applications.
SmartPack(TM) (patent pending), a software option available
with the Ceegraph line, is an innovative data compression process that saves
about 60% in storage and archiving space. Data compression is performed in
real-time with no loss of information.
The Ceegraph Traveler(R) is a solid-state battery-operated
ambulatory recorder for epilepsy monitoring that records continuous information
from 24 channels and saves data on a removable PCMCIA hard disk. Data can
immediately be reviewed and analyzed by the Ceegraph analysis program and
subjected to automatic spike and seizure analysis.
QUANTITATIVE EEG
The Company offers a series of products for advanced analysis
of EEG and evoked potentials, including (i) topographic brain mapping, which is
used, among other things, to evaluate the effects of drug treatments,
psychiatric and other behavioral disorders and field distribution of epileptic
spikes and seizures, (ii) dipole source localization, which is used in modeling
and characterizing the intracranial source of brain electrical activity and as
an aid in noninvasive evaluation of epilepsy, and (iii) compressed spectral
array, a quantitative analysis of EEG spectra, which is used in intensive care
and operating room monitoring. These products are priced from approximately
$25,000 to $60,000 depending upon the model.
DISTORTION PRODUCT OTOACOUSTIC EMISSIONS TESTING
Distortion Product Otoacoustic Emissions (DPOAE) testing is a
non-invasive, objective technique for evaluating the function of the cochlea,
the sensory organ of the auditory system. The system introduces two pure tones
of known intensity and frequency parameters into the patient's ear canal and
measures the small amplitude acoustic response generated by the outer hair cells
in response to the signal. The measurement of an emission greater in amplitude
that the level of the ambient acoustic noise suggests functional cochlear
structures. DPOAE measurements are used in clinical practice to diagnose
hearing/auditory impairments. They can also be used in hospital neonatal
intensive care units or well-baby nurseries as a peripheral hearing screening
tool.
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EVOKED RESPONSE TESTING
Evoked response testing is an accepted, non-invasive and
objective technique for evaluating the peripheral and central nervous systems.
An evoked response test measures the reaction to a stimulus by monitoring the
electrical activity in the patient's brain. By comparing the magnitude and
timing of the response in a particular patient to normal patterns of response, a
physician is aided in his evaluation of the patient's neurological pathways.
Evoked response testing facilitates the diagnosis of a number
of disorders. Evoked response testing provides information that can be used in
the investigation of neurological and sensory disorders, brain tumors, and
damage to the brainstem. The Company provides modular systems which can perform
auditory, visual and somatosensory evoked response tests. The auditory evoked
response testing evaluates the function and disorders of the central and
peripheral auditory system. Visual testing is used to diagnose disorders of the
visual system and somatosensory testing is used to test various segments of the
central nervous system.
The evoked response tests performed by the Company's systems
may be used to test hearing and sight of patients who are unable to communicate
effectively, such as infants and mentally impaired individuals. Evoked response
testing may also be utilized in intensive care units as a method of confirming
brain death. Sensory evoked potentials are now being utilized in an increasing
number of cases to monitor neural function during surgery. In addition,
pharmacologists are using these measurements to study the interaction of drugs
and their effects on living organisms, and researchers have used the test data
to study the effects of pollution and chemicals on the human body. The
approximate selling price of an evoked response system ranges from $15,000 to
$35,000 depending upon the number and types of tests included.
The Company's systems may be used to conduct and analyze other
diagnostic tests. Otolaryngologists (physicians specializing in the treatment of
diseases of the ear, nose and throat) can perform electronystagmography (ENG)
testing, which is a means of evaluating a patient's sense of balance by
measuring movements of the eye in response to stimulation of the inner ear
balance system.
Ophthalmologists and neurologists may use the system to
conduct electroretinogram (ERG) and electro-oculogram (EOG) testing. The ERG
measures the electrical activity of the eye in response to light. ERG results
are used in the diagnosis and monitoring of retinitis pigmentosa and other
hereditary retina diseases. The EOG is a recording and analysis of eye movement
and position. EOG results are used in the diagnosis and monitoring of inherited
disorders in vision, early diabetic retinopathy, macular degeneration, diffuse
cone degeneration, Beat's dystrophy, and congenital night blindness. Both ERG
and EOG provide insight into the nature and extent of the disease process and
thereby can aid specific diagnosis of some diseases.
COMPUTERIZED POLYSOMNOGRAPHY
SleepscanTM is a computerized system for sleep scoring and
respiratory analysis. The analysis of sleep and respiratory patterns has proven
useful in the diagnosis and treatment of sleep related diseases, some of them
life threatening, such as apnea, insomnia, and narcolepsy.
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Other specialities analyze sleep patterns to study mental disorders like
depression, sexual dysfunction, and more.
A routine sleep study entails whole-night recordings of brain
electrical activity, muscle movement, air flow, respiratory effort, oxygen
levels and EKG. These recordings result in over 1,000 pages of paper traces
which have to be reviewed, analyzed, scored by a specialist, and summarized in a
report. This process is costly and time consuming.
Sleepscan stores all the information digitally on magnetic and
optic media. A high resolution fast display offers an alternative to costly and
bulky paper. This flexible system enables the user to specify rules to be used
during analysis. This analysis can rapidly be performed by the computer, and the
results are summarized graphically and incorporated in a detailed report which
is readily available. The user has the ability to verify the analysis, manually
override sections as needed, modify parameters and reanalyze data. Sleepscan
offers savings in time and the cost of paper and paper storage. Sleepscan is
interfaced with an EEG System, and is priced from approximately $25,000 to
$60,000 depending on the model.
The Company also offers a portable Sleepscan Express system
with 32-channel recording capability and built-in oximeter. Whereas other
portable sleep analysis systems provide only summary analysis and fewer
channels, the Sleepscan Express is the first truly portable sleep system with
full data disclosure of up to 32 channels. Records can be analyzed on other
desktop Sleepscan systems.
Bio-logic is currently marketing and distributing all of its
own sleep products in the United States, having terminated an agreement in April
1995 with Puritan-Bennett Corporation ("P-B") providing for the exclusive
marketing and distribution of certain Sleepscan products and accessories by P-B
in the United States. See "Sales and Marketing."
COMPUTERIZED ELECTROMYOGRAPHY
The Company's EMG NavigatorR is used in the field of
electromyography (EMG). EMG systems are typically used by neurologists to aid in
the assessment of neuromuscular function. The EMG Navigator allows digital
processing, display and storage of neuromuscular information, together with
contemporaneous display of muscular activity, which previously had been
available only through the utilization of traditional analog displays. The EMG
Navigator complements the Company's product line in that it is intended to meet
the electro-diagnostic needs of neurologists and neuropsychologists. The Company
introduced a new EMG system called the ExplorerTM in early fiscal 1995. In
addition, NDI's products are used in electrodiagnostic studies that include
electromyography and evoked potential testing. These tests are typically
performed by neurologists, physiatrists, and electrodiagnostic technicians to
diagnose nerve and muscle disorders.
BRAIN MAPPING
The Company offers a series of Brain AtlasR systems, which
vary depending on features and capabilities. Brain Atlas detects, and presents a
series of topographical maps which actively display in color on the computer
screen, the on-going electrical activity of the brain.
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The different colors and shades indicate the magnitude of positive or negative
electroencephalograph (EEG) voltages simultaneously measured at various scalp
locations. The Brain Atlas has the capability of providing an on-line,
simultaneous display of voltage-time plots and topographic maps. The maps
displayed can be stopped, moved forward or reversed one frame at a time when the
clinician wants to pinpoint an exact time period for detailed analysis. The data
acquired can be printed out immediately on a multi-color printer for a permanent
patient record or stored on disk for future evaluation and printing.
PRODUCT DEVELOPMENT
Bio-logic's development activities consist primarily of
developing new products and adding new features to and enhancing the
capabilities of the existing products. Refinements to the Company's systems are
also developed in response to users' suggestions. During fiscal 1996 and 1995,
Bio-logic expended $1,536,671, and $1,514,276, respectively, for research and
development.
The Company's research and product development activities
include further development of the Bio-logic Ceegraph, a computerized EEG which
contains high-definition resolution graphics; Ceegraph Express, a portable EEG
system; Sleepscan, a system for computerized polysomnography; Sleepscan Express,
a portable system with full data disclosure; and the Explorer, an EMG system for
measuring muscle activity. The Company has and is continuing to develop
Distortion Otoacoustic Emission (DPOAE) equipment for the audiology market, a
channel evoked potential system, an 8-channel EMG/EP system for intraoperative
monitoring, a polysomnography system with ultra-high color resolution and
long-term monitoring for the sleep market. The Company has also developed an EEG
system with long-term video monitoring and spike/seizure detection for the
Epilepsy Monitoring market.
The latest development is a 24-channel ambulatory recorder for
EEG and sleep. The system features continuous data disclosure saved on
high-capacity PCMCIA removable minute hard disks. The Company anticipates that
it will continue to incur significant research and development expenditures in
connection with the introduction of new products and new models and upgrades of
existing products. Additionally, from time to time the Company may seek to
license or acquire complementary technologies from third parties.
The Company's brain mapping system, the Brain Atlas, was
developed by a wholly-owned subsidiary under a research and development
agreement with a limited partnership (the "Partnership"). On August 31, 1995,
the Company purchased the assets of the Partnership, consisting of the rights to
the brain mapping technology, for $60,000.
The Company is a party to a number of other research and
development agreements under which, as of February 29, 1996, the Company had
received an aggregate of approximately $1,087,000. The Company is required to
pay royalties based on sales of any product developed under such agreements, or
in the event of licensing of such products to a third party. The total payments
by the Company, including royalties and licensing fees, will not exceed 150% of
the amounts received under such agreements. As of February 29, 1996, the Company
has paid royalties of $793,158 under such agreements.
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SALES AND MARKETING
The Company's marketing efforts are directed at medical
practitioners, hospitals and clinics. Sales are presently conducted by sales
representatives and independent dealer organizations covering the United States
and Canada. Some of these distributors may also represent other companies
offering products competitive with those of the Company. The Company's marketing
efforts are directed and controlled from its corporate headquarters in the
Chicago area. The Company has an overseas office to cover European and Middle
Eastern markets and has arrangements with foreign distributors to sell the
Company's products overseas, including the Far East and Latin America. No one
customer or distributor has accounted for over 10% of the Company's revenues.
To demonstrate, promote and market its systems, Bio-logic
attends seminars and trade shows organized by others and sponsors its own
educational and sales oriented seminars throughout the United States. Selling
and marketing programs include operations of the European sales office and sales
and other product brochures and direct mail programs.
Bio-logic is currently marketing and distributing all of its
own sleep products in the United States, having terminated an agreement in April
1995 with P-B providing for the marketing and distribution of Sleepscan products
by P-B.
FOREIGN SALES
During fiscal 1996, export sales increased to $3,545,660, or
approximately 24% of net sales, compared to $3,442,238, or approximately 29% of
net sales, in fiscal 1995. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The Company is required to
obtain export licenses for sales of some of its systems to foreign countries.
Political and governmental conditions, import and export restrictions, and
currency fluctuations may adversely affect the Company's foreign business.
CUSTOMER TRAINING, SUPPORT AND MAINTENANCE
In connection with the installation of a system, the
independent dealer's sales representative or, if the sale was made directly by
the Company, the Company's customer support personnel, train medical and office
personnel in the use of the equipment, assist in the introduction of the data
into the system and provide assistance to the customer during the initial period
of operations. The Company continues to support its technical and customer
training staff. Foreign sales are supported by the foreign distributors. The
Company's practice is to offer without additional charge a one year limited
warranty on its software and equipment for parts and labor. The Company has
experienced satisfactory field operating results and warranty expense has been
insignificant to date. The manufacturers of the microcomputer included in the
Company's systems provide a one year warranty against defects and have service
capabilities throughout the United States. In addition, the Company offers its
customers service and maintenance agreements for an additional fee. Service fees
have been insignificant to date. Software enhancements developed by the Company
are typically distributed to system users for a minimal fee.
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ASSEMBLY, SYSTEM HARDWARE AND SOURCES OF SUPPLY
The Company assembles its systems by integrating
microcomputers, monitors and printers and certain standard components
manufactured by other manufacturers, with peripherals and other hardware
including circuit boards and certain electronic components manufactured by
Bio-logic and software packages which it has developed. The Company's systems
are composed of IBM PC compatible microcomputers, appropriate printers and mass
storage media such as Winchester hard disks, floppy diskettes and optical or
laser disks for the storage of both operating programs and data. The Company
purchases microcomputers from distributors of such products for varying
discounts depending upon the volume of equipment purchased. The components used
in the Company's systems are available from a number of suppliers.
The microcomputer is non-dedicated and therefore adaptable for
a wide variety of applications. Making a program change or adding a new
capability usually requires only the interchanging of floppy diskettes.
The Company performs quality control and testing procedures on
all systems prior to delivery.
PATENTS AND TRADEMARKS
The Company currently owns five patents covering certain
aspects of its brain mapping system and other technology developed by the
Company and has one additional application pending. There is no assurance that
such patents will afford any commercial benefits. The Company has registered the
trademarks Bio-logic, Brain Atlas, Navigator and Traveler. The Company has
developed a number of unpublished computer software programs which are entitled
to unpublished copyright privileges as confidential proprietary material. The
Company believes that rapidly changing technology makes its continued success
dependent primarily upon the technical competence and creative skill of its
personnel rather than on patents, copyrights or other proprietary rights.
COMPETITION
The Company competes with a number of entities, several of
which have greater resources than the Company, which offer systems performing
diagnostic tests similar to those performed by the Company's systems. The
Company's principal competitors, some of which are substantially larger and have
more marketing personnel and greater technical resources than the Company, are
Nicolet Instrument Corporation, NCI , Inc., Nihon-Koden Corporation, Teca Corp.,
and Cadwell Laboratories, Inc. Bio-logic believes that it competes for customers
on the basis of the range and quality of software and hardware offered in, and
the cost effectiveness of, its integrated system. Another major competitive
factor is its ability to tailor systems to a customer's particular diagnostic
and data processing requirements.
GOVERNMENT REGULATION
The Company's products, to the extent they are deemed medical
devices, are subject to government regulation by the United States Food and Drug
Administration ("FDA")
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and accordingly, unless determined to be exempt, are subject to the preclearance
procedures of the FDA before reaching the market.
Under FDA regulations, a medical device is classified as
either a Class I device, which is subject only to general control provisions, a
Class II device which, in addition to applicable general controls, will be made
subject to future performance standards developed by the FDA, or a Class III
device which, in addition to applicable general controls, is subject to FDA
premarket approval.
The Company's systems have been classified as Class II medical
devices as such term is defined in the regulations promulgated by the FDA. The
Company has filed 510(K) applications (notifications of intention to market)
with the FDA, and the FDA advised that the Company's evoked response system
including brain mapping capabilities was "substantially equivalent to one
marketed in interstate commerce prior to May 28, 1976", thus permitting the
Company to market these medical devices. The Company continues to advise the FDA
as modifications and additions are made to its systems.
In addition, all manufacturers of medical devices are required
to register with the FDA and to adhere to certain "good manufacturing practices"
and "good laboratory practices", which prescribe recordkeeping procedures and
provide for the unscheduled inspection of facilities.
EMPLOYEES
As of February 29, 1996, the Company employed 83 persons full
time. The Company's business is dependent in part upon its ability to recruit
and retain qualified personnel. None of its employees are represented by a labor
union and the Company believes its employee relations are satisfactory.
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
NAME AGE POSITION
Gabriel Raviv, Ph.D. 45 President, Chief
Executive Officer,
Director
Thomas S. Lacy 53 Vice
President-Marketing
and Sales
Gabriel Raviv has been a Director of the Company since the
Company commenced operations in March 1979. He was Vice President of the Company
from March 1979 until February 1981, when he became President and Chief
Executive Officer. He is a member of the Board of Trustees of the Mid-West
Bio-Laser Institute and an Adjunct Professor
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at Northwestern University. From October 1975 until January 1981, Dr. Raviv was
the director of the Clinical Research Instrumentation Laboratory at Evanston
Hospital (an affiliate of Northwestern University). Dr. Raviv received his M.S.
and Ph.D. degrees in Electrical Engineering and Computer Sciences from
Northwestern University.
Thomas Lacy has been Vice President-Marketing and Sales of the
Company since January 1994. Prior thereto he was Vice President-International of
Packard Instrument Corporation from July 1992 until July 1993 and Vice
President-General Manager of Packard Instrument Company from September 1988
until July 1992.
Item 2. PROPERTIES
The Company's headquarters and manufacturing operations are
located in an approximately 26,000 square foot facility built by the Company on
approximately 20 acres in Mundelein, Illinois. The building and property are
owned by the Company, subject to Industrial Development Bond financing in the
original principal amount of $1,600,000. As collateral for the Bond, the Company
granted the municipality a mortgage on the property.
The Company also leases two offices overseas, one of which is
occupied pursuant to a lease providing for an annual rental of approximately
$11,700, subject to annual increases. The other office is subleased on a
month-to-month basis for approximately $3,200 per month.
Item 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
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PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) PRICE RANGE OF SECURITIES
The Company's Common Stock is listed on the Nasdaq National
Market under the symbol BLSC. The Company's Warrants are listed in the "pink
sheets" but have not been priced since December 1990. The following tables set
forth the high and low sales prices of the Common Stock for the periods
indicated as reported by Nasdaq. These quotations represent prices between
dealers in securities, do not include retail mark-ups, mark-downs or commissions
and do not necessarily represent actual transactions. These quotations are
rounded to the nearest 1/16.
HIGH LOW
SALES PRICE SALES PRICE
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FISCAL YEAR ENDED FEBRUARY 29, 1996
1st Quarter $3 3/4 $2 1/8
2nd Quarter 5 5/8 3 1/4
3rd Quarter 5 1/4 4 3/8
4th Quarter 5 3 1/2
FISCAL YEAR ENDED FEBRUARY 28, 1995
1st Quarter 3 1/2 2 1/2
2nd Quarter 3 3/4 2 1/4
3rd Quarter 3 3/8 2 1/4
4th Quarter 3 1/2 1 3/4
(b) APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
As of May 21, 1996 there were approximately 314
record holders of the Company's Common Stock.
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(c) DIVIDENDS
The Company has never paid a cash dividend on its Common
Stock and intends to continue to follow a policy of retaining earnings to
finance future growth. Accordingly, the Company does not anticipate the payment
of cash dividends to holders of Common Stock in the foreseeable future. Under an
agreement with the bank which purchased the Industrial Development Bond issued
to finance construction of the Company's headquarters, the Company may not pay
cash dividends during the term of the Bond without the prior written consent of
the bank.
Item 6. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The selected financial data presented below summarizes certain
financial data and should be read in conjunction with the more detailed
financial statements of the Company and the notes thereto included elsewhere in
this Annual Report on Form 10K-SB along with said financial statements.
FISCAL YEAR ENDED LAST DAY OF FEBRUARY,
1996 1995
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Net sales $14,602,000 $12,072,674
Operating income 1,204,459 787,150
Net income (1) 892,091 740,412
Net income per share .21 .18
Working capital 9,428,915 6,925,542
Total assets 14,379,986 13,499,684
Long-term debt 689,877 808,726
Total liabilities 2,982,675 3,130,431
Shareholders' 11,397,311 10,369,253
equity
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(1) Includes net interest income of $114,412 and $137,972 in fiscal 1996 and
1995, respectively.
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RESULTS OF OPERATIONS
FISCAL 1996 COMPARED TO FISCAL 1995
Net sales for fiscal 1996 were $14,602,000, a 21% increase
from net sales of $12,072,674 during fiscal 1995. Domestic sales in fiscal 1996
increased by 28% to $11,056,340 from $8,630,436 in fiscal 1995. Foreign sales in
fiscal 1996 increased by 3% to $3,545,660 compared to $3,442,238 for fiscal
1995. As a percentage of net sales, domestic and foreign sales for fiscal 1996
were 76% and 24%, compared to 71% and 29% in fiscal 1995, respectively. The
increase in domestic sales reflects the continued increased market acceptance of
the Ceegraph and Navigator product lines. The increase in foreign sales reflects
market expansion of the Company's products in the Far East.
Cost of equipment sold increased to $5,044,415 during fiscal
1996 compared to $4,084,906 for fiscal 1995, and as a percentage of net sales,
increased to approximately 35% during fiscal 1996 from approximately 34% during
fiscal 1995. This slight increase in cost of equipment sold reflects lower gross
profit associated with product discounting.
Selling, general and administrative expenses increased by
approximately 20% to $6,816,455 during fiscal 1996 compared to $5,686,342 for
fiscal 1995, and as a percentage of net sales, remained at 47% for both fiscal
1996 and 1995. Selling, general and administrative expenses for fiscal 1996 were
higher primarily due to the expansion of the sales force, increased sales
commissions and higher travel expenses.
Research and development expenses increased by approximately
1% to $1,536,671 during fiscal 1996, and as a percentage of net sales, decreased
to approximately 11% in fiscal 1996 from 13% in fiscal 1995. During fiscal 1996
and 1995, the Company identified and capitalized certain research and
development costs relating to software development. Research and development
expenses relate to personnel costs for new products and enhancements to existing
products. Bio-logic continues to place a significant emphasis on research and
development.
For fiscal 1996, the Company had operating income of
$1,204,459 compared to operating income of $787,150 for fiscal 1995. The
increase in operating income for fiscal 1996 was due to higher net sales
resulting in higher gross profit, which were primarily offset by higher selling,
general and administrative costs.
The Company had net interest income of $114,412 for fiscal
1996 compared to $137,972 for fiscal 1995. The decline of net interest income is
primarily due to lower interest income earned on marketable securities and
higher interest expense on long term debt.
The provision for income taxes during fiscal 1996 was
approximately 32% of income before taxes, compared to 21% of income before taxes
in fiscal 1995. The tax provision in fiscal 1995 was lower due to the
utilization of general business tax credits, not available in fiscal 1996.
-16-
<PAGE>
The Company had net income of $892,091 or $.21 per share for
fiscal 1996 compared to $740,412 or $.18 per share for fiscal 1995. The increase
in net income was the result of higher net sales, which generated higher gross
profits, partially offset by increases in selling, general and administrative
cost, and higher provision for income taxes, as previously discussed.
LIQUIDITY AND CAPITAL RESOURCES
Prospective investors are cautioned that the statements in
this Annual Report on Form 10K-SB that are not descriptions of historical facts
may be forward looking statements that are subject to risks and uncertainties.
Actual results could differ materially from those currently anticipated due to a
number of factors, including those identified elsewhere in this report or
documents incorporated by reference herein.
As of February 29, 1996, the Company had working capital of
$9,428,915; including $4,906,831 of cash, cash equivalents and short-term
investments and $3,197,495 of accounts receivable. The principal sources of
working capital are funds generated from operations. Net cash provided by
operating activities during fiscal 1996 was $961,025. The Company believes its
capital and liquidity requirements for the foreseeable future will be satisfied
by available and internally generated funds. To the extent the Company's capital
and liquidity requirements are not satisfied internally, the Company may utilize
a $1,000,000 unsecured bank line of credit, all of which is currently available.
Borrowings under this line of credit will bear interest at the Bank's prime
rate.
Bio-logic's headquarters and manufacturing facility were
partially financed with an Industrial Development Bond (the "Bond") in the
original principal amount of $1,600,000. Principal and interest on the Bond are
payable in monthly installments through December 1, 2001. The Bond bears
interest at 80% of the base lending rate in effect from time to time. As
collateral for the Bond indebtedness, the Company granted the municipality a
mortgage on the property including improvements. The Company also agreed to
maintain a current ratio of not less than 1.5:1 and a ratio of total liabilities
to net worth of not greater than 1:1, and agreed not to declare or pay cash
dividends without the prior written consent of the bank which purchased the
Bond. The Company agreed to maintain at such bank a compensating balance equal
to 10% of the unpaid balance of the loan in a non-interest bearing account. The
holder of the Bond declined to exercise its right to require the company to
purchase the Bond at 100% of the unpaid principal amount hereof on January 1,
1995. The outstanding principal amount of the Bond was approximately $808,000 at
February 29, 1996.
The Company is a party to a number of research and development
agreements under which, at February 29, 1996, the Company had received an
aggregate of approximately $1,087,000. The Company is required to pay royalties
based on sales of any product developed under such agreements, or in the event
of licensing of such products to a third party. The total payments by the
Company, including royalties and licensing fees, will not exceed 150% of the
amounts received under such agreements. As of February 29, 1996, the Company has
paid royalties of $793,158 under such agreements.
-17-
<PAGE>
At February 29, 1996, the Company had no material capital
commitments. During fiscal 1995, the Company retired 127,450 shares of treasury
stock, of which 100,000 shares were purchased by the Company in fiscal 1994 for
$313,843 and the remaining 27,450 shares were purchased by the Company in fiscal
1991 for $51,488.
During fiscal 1989, the Company established a Foreign Sales
Corporation (FSC) and discontinued its Domestic International Sales Corporation
(DISC). Accordingly, at February 28, 1989, the Company recorded deferred income
taxes of approximately $373,200 (which was partially offset by general business
tax credits) attributable to the DISC's unremitted earnings, the deferred taxes
to be paid over six years. Accordingly, for the seven years ending fiscal year
1996 the Company recognized deferred DISC earnings of approximately $187,000 per
year for tax purposes.
From time to time, the Company explores various corporate
finance transactions such as business combinations or acquisitions, certain of
which may include the issuance of Company securities. However , the Company has
no agreements or commitments with respect to any particular transaction and
there can be no assurance that any such transaction will be completed.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards ("SFAS") No. 119, "Disclosure
about Derivative Financial Investments and Fair Value of Financial Instruments"
which requires disclosures about derivative financial instruments - futures,
forward, swap and option contracts, and other financial instruments with similar
characteristics. SFAS No. 119 is effective for fiscal years commencing after
December 15, 1995. The impact of adopting SFAS No. 119 upon the Company is not
expected to be material.
In March 1995, the Financial Accounting Standards Board issued
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," which requires that carrying values of
long-lived assets and certain identifiable intangible assets be evaluated based
on the future (undiscounted and without interest charges) cash flows expected to
be realized from the use of the asset and its eventual disposition. If the sum
of the expected future cash flows from an asset is less than the carrying value
an impairment loss must be recognized. SFAS No. 121 is effective for fiscal
years commencing after December 15, 1995. The impact of adopting SFAS No. 121
upon the Company is not expected to be material to the Company's financial
position or results of operations.
In October 1995, SFAS No. 123 "Accounting for Stock-Based
Compensation," was issued and is effective for financial statements for fiscal
years beginning after December 15, 1995. As permitted by the statement, the
Company intends to continue to measure compensation cost for employee stock
option plans in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees."
-18-
<PAGE>
Item 7. FINANCIAL STATEMENTS
The response to this item is submitted in a separate section
of this report. See Table of Contents to Consolidated Financial Statements on
page F-1.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Effective January 24, 1996, the Company dismissed Deloitte &
Touche LLP ("Deloitte"), its principal independent accountants. Also effective
January 24, 1996, the Company engaged Grant Thornton LLP as its new principal
independent accountants to audit its financial statements. Deloitte's report on
the financial statements of the Company for each of the two fiscal years in the
period ended February 28, 1995 contained no adverse opinion or disclaimer of
opinion, nor was it modified as to audit scope or accounting principles. The
Company's Board of Directors authorized the Company to pursue a change in
auditors at a meeting held on January 24, 1996. Since the Company's engagement
of Deloitte as its principal independent accountants, there have been no
disagreements with Deloitte on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure.
During each of the Company's two fiscal years in the period
ended February 28, 1995 and subsequent thereto, there were no consultations with
Grant Thornton LLP with regard to either the application of accounting
principles as to any specific transaction, either completed or proposed, the
type of audit opinion that would be rendered on the Company's financial
statements, or any matter of disagreement with the Company's former accountants,
Deloitte.
-19-
<PAGE>
PART III
The information called for by Items 9, 10, 11 and 12 of Part
III has been omitted and will be included in the Registrant's proxy statement
which will be filed not later than 120 days after the close of its fiscal year.
-20-
<PAGE>
PART IV
Item 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) EXHIBITS.
3.1 Certificate of Incorporation, Certificate of Amendment to Certificate of
Incorporation, Agreement of Merger and Certificate of Merger and
By-Laws(1)
3.2 Certificate of Amendment to Certificate of Incorporation(7)
10.1 Lease between the Company and Harris Trust & Savings Bank dated August
9, 1983(2)
10.2 Technology License Agreement between the Company and Neurographic
Technologies dated August 13, 1984(3)
10.3 Real Estate Sale Contract between the Company and First National Bank of
Lake Forest, as Trustee, dated December 23, 1985(4)
10.4 Loan Agreement between the Company and Village of Mundelein, Illinois
dated as of December 1, 1985(4)
10.5 Mortgage and Security Agreement between the Company and Village of
Mundelein, Illinois dated as of December 1, 1985(4)
10.6 Bond Purchase Agreement between the Company and First American Bank
of Dundee dated as of December 1, 1985(4)
10.7 Agreement Among Gabriel Raviv, Gil Raviv, Charles Z. Weingarten and the
Company(5)
10.8 Employment Agreement between the Company and Gabriel Raviv(5)
10.9 Employment Agreement between the Company and Gil Raviv.(5)
10.10 Form of Export Property Sale, Commission and Lease Agreement between
the Company and Bio-logic International Corporation(6)
10.11 Agreement and General Release between the Company and Gil Raviv(9)
10.12 Letter dated May 2, 1994 from First American Bank to the Company(10)
10.13 Letter of Intent dated June 30, 1994 by and among the Company, Luther
Medical Products, Inc. and Neuro Diagnostics, Inc.(11)
-21-
<PAGE>
10.14 Asset Purchase Agreement dated as of July 1, 1994 by and among the
Company, NDI Acquisition Corp., Luther Medical Products, Inc. and Neuro
Diagnostics, Inc.(12)
21. Subsidiaries of the Company(8)
23.1 Consent of Independent Auditors
23.2 Consent of Independent Auditors
(b) REPORTS ON FORM 8-K
On January 31, 1996, a Current Report on Form 8-K was filed by the
Company with the Commission to report that on January 24, 1996 the
Company dismissed Deloitte & Touches LLP, its principal independent
accountants and engaged Grant Thornton LLP as its new principal
accountants.
(1) Incorporated by reference from the Company's Registration Statement on
Form S-18 filed on August 7, 1981 (File No. 2-73587-C).
(2) Incorporated by reference from the Company's Report on Form 10-Q for
the quarter ended August 31, 1983.
(3) Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended February 28, 1985.
(4) Incorporated by reference from the Company's Report on Form 10-Q for
the quarter ended November 30, 1985.
(5) Incorporated by reference from the Company's Registration Statement on
Form S-1 (File No. 33-5471).
(6) Incorporated by reference from the Company's Report on Form 10-Q for
the quarter ended May 31, 1986.
(7) Incorporated by reference from the Company's Annual Report on Form 10-K
for the Fiscal Year ended February 28, 1987.
(8) Incorporated by reference from the Company's Annual Report on Form 10-K
for the Fiscal Year ended February 28, 1990.
(9) Incorporated by reference from the Company's Annual Report on Form 10-K
for the Fiscal Year ended February 28, 1993.
-22-
<PAGE>
(10) Incorporated by reference from the Company's Annual Report on Form 10-K
for the Fiscal Year ended February 28, 1994.
(11) Incorporated by reference from the Company's Report on Form 10-Q for
the quarter ended May 31, 1994.
(12) Incorporated by reference from the Company's Report on Form 10-Q for
the quarter ended August 31, 1994.
-23-
<PAGE>
BIO-LOGIC SYSTEMS CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
----
REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ...................... F-2
FINANCIAL STATEMENTS:
Consolidated Balance Sheets, February 29, 1996 and February 28, 1995..... F-4
Consolidated Statements of Earnings for the Years Ended
February 29, 1996 and February 28, 1995 ............................. F-5
Consolidated Statements of Shareholders' Equity for the Years
Ended February 29, 1996 and February 28, 1995........................ F-6
Consolidated Statements of Cash Flows for the Years Ended
February 29, 1996 and February 28, 1995.............................. F-7
Notes to Consolidated Financial Statements............................... F-8
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Bio-logic Systems Corp.:
We have audited the accompanying consolidated balance sheet of
Bio-logic Systems Corp. and subsidiaries as of February 29, 1996, and the
related consolidated statements of earnings, shareholders' equity and cash flows
for the year then ended. These financial statements are the responsibility of
the Corporation's management. Our responsibility is to express an opinion on the
financial statements based on our audit.
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 1996 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Bio-logic Systems Corp. and subsidiaries as of February 29, 1996, and the
consolidated results of their consolidated operations and their consolidated
cash flows for the year then ended, in conformity with generally accepted
accounting principles.
GRANT THORNTON LLP
May 29, 1996
Chicago, Illinois
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
Bio-logic Systems Corp.:
We have audited the accompanying consolidated balance sheet of
Bio-logic Systems Corp. and subsidiaries as of February 28, 1995, and the
related consolidated statements of earnings, shareholders' equity and cash flows
for the year then ended. These financial statements are the responsibility of
the Corporation's management. Our responsibility is to express an opinion on the
financial statements based on our audit.
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, such statements present fairly, in all material
respects, the financial position of Bio-logic Systems Corp. and subsidiaries as
of February 28, 1995, and the results of their operations and their cash flows
for the year then ended, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
May 5, 1995
Chicago, Illinois
F-3
<PAGE>
BIO-LOGIC SYSTEMS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
<TABLE>
ASSETS 1996 1995
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,249,071 $ 1,187,388
Marketable securities 1,711,760 1,627,660
Accounts receivable, less allowance for doubtful accounts
of $128,243 in 1996 and $133,098 in 1995 3,197,495 3,105,769
Inventories 2,887,528 2,895,987
Prepaid expenses 129,044 91,144
Deferred income taxes 239,609 139,251
---------- ----------
Total current assets 11,414,507 9,047,199
PROPERTY, PLANT AND EQUIPMENT - Net 1,863,811 2,012,121
MARKETABLE SECURITIES 1,727,440
OTHER ASSETS 1,101,668 712,924
----------- -----------
TOTAL ASSETS $14,379,986 $13,499,684
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 118,236 $ 110,649
Accounts payable 544,346 698,410
Accrued salaries and payroll taxes 500,412 513,558
Accrued interest and other expenses 362,031 445,065
Accrued income taxes 213,735 162,274
Deferred revenue 246,832 191,701
---------- ----------
Total current liabilities 1,985,592 2,121,657
LONG-TERM DEBT - Less current maturities 689,877 808,726
COMMITMENTS
DEFERRED INCOME TAXES 307,206 200,048
---------- ----------
Total liabilities 2,982,675 3,130,431
SHAREHOLDERS' EQUITY:
Capital stock, $.01 par value; authorized, 10,000,000 shares; issued and
outstanding; 4,229,119 shares in 1996 and 4,146,949
shares in 1995 42,291 41,469
Additional paid-in capital 5,477,516 5,342,371
Retained earnings 5,877,504 4,985,413
---------- ----------
Total shareholders' equity 11,397,311 10,369,253
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $14,379,986 $13,499,684
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
BIO-LOGIC SYSTEMS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
<TABLE>
1996 1995
---- ----
<S> <C> <C>
NET SALES $14,602,000 $12,072,674
COST OF SALES 5,044,415 4,084,906
---------- ----------
Gross profit 9,557,585 7,987,768
OPERATING EXPENSES:
Selling, general, and administrative 6,816,455 5,686,342
Research and development 1,536,671 1,514,276
---------- ----------
Total operating expenses 8,353,126 7,200,618
---------- ----------
OPERATING INCOME 1,204,459 787,150
OTHER INCOME (EXPENSE):
Interest income 188,865 208,938
Interest expense (74,453) (70,966)
Miscellaneous (1,780) 13,790
----------- -----------
TOTAL OTHER INCOME 112,632 151,762
---------- -----------
INCOME BEFORE INCOME TAXES 1,317,091 938,912
PROVISION FOR INCOME TAXES 425,000 198,500
---------- ----------
NET INCOME $ 892,091 $ 740,412
========== ==========
NET INCOME PER SHARE:
Primary and fully diluted $0.21 $0.18
==== ====
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
BIO-LOGIC SYSTEMS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
<TABLE>
CAPITAL STOCK
------------- ADDITIONAL
NUMBER OF PAID-IN RETAINED TREASURY
SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL
------ ------ ------- -------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE, MARCH 1, 1994 4,240,537 $42,405 $5,660,734 $4,245,001 $(365,331) $ 9,582,809
Retirement of treasury stock (127,450) (1,275) (364,056) 365,331 0
Exercise of stock options 33,862 339 45,693 46,032
Net income 740,412 740,412
------------ --------- ------------- ---------- ---------- ------------
BALANCE, FEBRUARY 28, 1995 4,146,949 $41,469 $5,342,371 $4,985,413 $ 0 $10,369,253
Exercise of stock options 82,170 822 135,145 135,967
Net income 892,091 892,091
------------ --------- ------------ --------- ---------- -----------
BALANCE, FEBRUARY 29, 1996 4,229,119 $42,291 $5,477,516 $5,877,504 $ 0 $11,397,311
========= ====== ========= ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
BIO-LOGIC SYSTEMS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
<TABLE>
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 892,091 $ 740,412
Adjustments to reconcile net income to net
cash flows from (used in) operating activities:
Depreciation and amortization 326,953 276,723
Provision for bad debts (4,855) 58,929
Provision for inventory valuation 160,000 126,500
Deferred income tax provision 6,800 (22,500)
(Increases) decreases in assets:
Accounts receivable (86,871) (1,286,108)
Inventories (151,541) (740,070)
Prepaid expenses (37,900) (2,286)
Increases (decreases) in liabilities:
Accounts payable (154,064) 356,036
Accrued liabilities and deferred revenue (41,049) 97,675
Accrued income taxes 51,461 92,752
---------- -----------
Net cash flows from (used in) operating activities 961,025 (301,937)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (106,883) (143,307)
Other assets (460,504) (307,506)
Purchases of marketable securities held to maturity (730,198) (1,314,035)
Proceeds from marketable securities held to maturity 2,373,538 2,301,936
--------- ----------
Net cash flows from investing activities 1,075,953 537,088
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 135,967 46,032
Payments on long-term debt (111,262) (104,124)
--------- ----------
Net cash flows from (used in) financing activities 24,705 (58,092)
--------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 2,061,683 177,059
CASH AND CASH EQUIVALENTS - Beginning of year 1,187,388 1,010,329
--------- ----------
CASH AND CASH EQUIVALENTS - End of year $3,249,071 $ 1,187,388
========= ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS:
Cash paid during the period for:
Interest $ 72,347 $ 63,626
========== ===========
Income taxes $ 366,739 $ 156,194
========= ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
BIO-LOGIC SYSTEMS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
1. BUSINESS
Bio-logic Systems Corp. (the "Company") develops and markets
computer-assisted medical diagnostic equipment. The Company sells
primarily to the Health Care Industry in North America, Europe and the
Far East.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION - The consolidated financial statements include the
Company and its wholly owned domestic subsidiaries, Neuro Diagnostics,
Inc., Bio-logic '83 Research Corp. and Bio-logic International Corp.,
and its wholly owned foreign subsidiaries, Biologic Systems Corp., Ltd.
and Bio-logic FSC International Corp. All significant intercompany
balances and transactions have been eliminated in consolidation.
CASH, AND CASH EQUIVALENTS - Cash equivalents include all highly liquid
investments purchased with original maturities of three months or less.
MARKETABLE SECURITIES - Marketable securities are comprised of U.S.
Government securities with maturities of more than three months.
INVENTORIES - Inventories, consisting principally of components, parts
and supplies, are stated at the lower of cost, determined by the
first-in, first-out method, or market.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are
stated at cost. The cost of maintenance and repairs is charged to
income as incurred; significant renewals and betterments are
capitalized. Depreciation is provided using straight-line and
accelerated methods over the estimated useful lives of the assets.
OTHER ASSETS - Other assets consist primarily of capitalized research
and development costs, patent costs and the cash value of officers'
life insurance policies.
REVENUE RECOGNITION FOR RESEARCH AND DEVELOPMENT CONTRACTS - Revenue
from research and development contracts is recognized as related costs
are incurred.
INCOME TAXES - Effective March 1, 1993, Income taxes are accounted for
under Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." This standard requires an asset and liability
approach of accounting for income taxes. Deferred tax assets and
liabilities are computed annually for differences between financial
statement basis and tax basis of assets, liabilities and available
F-8
<PAGE>
general business tax credit carry-forwards. A valuation allowance is
established when necessary to reduce deferred tax assets to the amount
expected to be realized.
Deferred federal income taxes are not provided for the undistributed
earnings of the Company's foreign subsidiary. Undistributed foreign
earnings were approximately $829,000 and $629,000 as of February 29,
1996 and February 28 1995, respectively.
USE OF ESTIMATES - In preparing financial statements in conformity with
generally accepted accounting principles, management is required to
make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The Company's financial
instruments include cash equivalents, short-term and long-term
marketable securities, accounts receivable, accounts payable and bank
overdrafts, and long-term debt. The carrying value of cash equivalents,
short-term marketable securities, accounts receivable and accounts
payable and bank overdrafts approximate their fair value because of the
short-term nature of these instruments. The carrying value of long-term
debt approximates fair value based on quoted prices of similar
issuances at the reporting date. The carrying value of marketable
securities is based on amortized cost and does not materially differ
from their fair value.
IMPACT OF ADOPTION OF RECENTLY ISSUED ACCOUNTING STANDARDS - In
February 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 119,
"Disclosure About Derivative Financial Instruments and Fair Value of
Financial Instruments." which requires disclosures about derivative
financial instruments - futures, forward, swap and option contracts,
and other financial instruments with similar characteristics. SFAS No.
119 is effective for fiscal years commencing after December 15, 1995.
The impact of adopting SFAS No. 119 upon the Company is not expected to
be material.
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," which requires that carrying
values of long-lived assets and certain identifiable intangible assets
be evaluated based on the future (undiscounted and without interest
charges) cash flows expected to be realized from the use of the asset
and its eventual disposition. If the sum of the expected future cash
flows from an asset is less than the carrying value an impairment loss
must be recognized. SFAS No. 121 is effective for fiscal years
commencing after December 15, 1995. The impact of adopting SFAS No. 121
upon the Company is not expected to be material to the Company's
financial position or results of operations.
In October 1995, SFAS No. 123 "Accounting for Stock-Based
Compensation," was issued and is effective for financial statements for
fiscal years beginning after December 15, 1995. As permitted by the
statement, the Company intends to continue
F-9
<PAGE>
to measure compensation cost for employee stock option plans in
accordance with Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees."
3. MARKETABLE SECURITIES
Effective March 1, 1994, the company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (SFAS No. 115).
As required by SFAS 115, securities are classified into three
categories: trading, held-to- maturity, and available for sale. Debt
securities that the Company has the positive intent and ability to hold
to maturity are classified as held-to-maturity debt securities. The
Company's entire portfolio of debt securities has been classified as
held-to-maturity and is stated at cost, with premiums amortized and
discounts accreted using the simple- interest method. For fiscal 1995,
marketable debt securities with remaining maturities in excess of
twelve months have been classified as non-current.
Investment Securities Held-To-Maturity
The amortized cost, unrealized gains, unrealized losses and estimated
fair values of marketable securities are summarized as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
COST GAINS LOSSES VALUE
FEBRUARY 29, 1996
U.S. Government
securities $1,711,760 $3,642 $ 0 $1,715,402
========= ===== ======== =========
FEBRUARY 28, 1995
U.S. Government
securities $3,355,100 $ 0 $46,255 $3,308,845
========= ======= ====== =========
At February 29, 1996, the maturities of marketable securities are as
follows:
ESTIMATED FAIR
TERM TO MATURITY AMORTIZED COST VALUE
---------------- -------------- -----
Due one year or less $1,711,760 $1,715,402
========= =========
F-10
<PAGE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment comprise the following at February 29,
1996 and February 28, 1995:
ESTIMATED
USEFUL LIVES
1996 1995 (IN YEARS)
---- ---- ----------
Land $ 676,534 $ 676,534
Building 1,117,907 1,117,907 40
Test and Shop equipment 821,794 785,846 5
Booths and exhibits 69,849 69,849 5
Office furniture and equipment 1,359,808 1,291,323 7
Transportation equipment 123,799 127,363 3
Building improvements 121,651 115,637 15
---------- ----------
Total 4,291,342 4,184,459
Less accumulated depreciation 2,427,531 2,172,338
--------- ---------
Property, plant and equipment - net $1,863,811 $2,021,121
========= =========
Depreciation expense amounted to $255,193 and $269,127 for 1996 and
1995, respectively.
5. CAPITALIZED RESEARCH AND DEVELOPMENT COSTS
Capitalized research and development expense consists of costs incurred
from when the product is determined to be technically feasible to the
time the product is available for general release to customers. These
costs consist primarily of internal research and development labor
costs and outside development costs for software. Capitalized research
and development costs are amortized over a 5 year period, which
approximates the expected life of the product.
Unamortized research and development costs amounted to $636,567 and
$319,072 at February 29, 1996 and February 28, 1995, respectively.
Amortization expense amounted to $55,547 and $45,477 in 1996 and 1995
respectively.
6. OPERATING LEASES
The Company leases office and assembly facilities under long-term
operating leases. Total rental expense amounted to $52,367 and $43,352
for 1996 and 1995 respectively.
F-11
<PAGE>
Future minimum annual rental commitments under these leases are as
follows:
1997 $11,709
1998 12,972
1999 14,235
2000 14,235
2001 14,235
Thereafter 113,880
7. LONG-TERM DEBT
Borrowings of $1,600,000 under the Industrial Development Bond, Series
1985 (the "Bond") are due in varying monthly installments through
December 2001. In a letter dated May 2, 1994, the holder of the Bond
did not exercise the right to require the Company to purchase the Bond
at 100 percent of the then unpaid principal balance as of January 1,
1995. The interest rate on the Bond (6.6%) is 80 percent of the prime
rate (8.25 percent at February 29, 1996). The office building and land
are pledged as collateral for the Bond.
The Company has obtained a commitment for an unsecured $1,000,000 bank
line of credit with interest at the bank's prime rate. No borrowings
have been made under the line of credit, as of February 29, 1996, and
February 28, 1995.
Under the terms of the Bond agreement and the line of credit, the
Company is to maintain average available non-interest-bearing deposits
in amounts not less than ten percent of the unpaid balance of the Bond
at the bank which purchased the Bond. The Company is also required to
maintain certain minimum working capital and net worth ratios. The Bond
agreement restricts the payment or declaration of dividends (other than
dividends payable in stock) without the prior consent of the holder of
the Bond.
Annual maturities of the Bond are as follows:
1997 $ 118,236
1998 126,343
1999 135,005
2000 144,262
2001 154,153
Thereafter 130,114
--------
$808,113
F-12
<PAGE>
8. INCOME TAXES
The provision for income taxes is as follows:
1996 1995
---- ----
Current:
Federal $348,900 $170,000
State 69,300 51,000
------ --------
Total current 418,200 138,000
Deferred 6,800 (22,500)
-------- --------
Total $425,000 $198,500
======= =======
The provision for income taxes differs from the U.S. Federal statutory
rate as follows:
1996 1995
---- ----
U.S. Federal statutory rate 35.0% 35.0%
Difference in foreign tax rate (5.3) (6.8)
Foreign Sales Corporation (FSC) operations (1.1) (1.5)
State income taxes, net of Federal income tax benefit 3.4 2.8
General business tax credits (.9) (12.3)
Other 1.2 4.0
---- -----
Effective income tax rate 32.3% 21.2%
==== =====
F-13
<PAGE>
Deferred tax assets and liabilities as of February 29, 1996 and
February 28, 1995 consists of the following:
1996 1995
---- ----
Deferred tax liabilities:
Property, plant and equipment $ 61,090 $ 76,802
Capitalized research and development 246,116 123,246
------- -------
Total deferred tax liabilities 307,206 200,048
------- -------
Deferred tax assets:
Accounts receivable 49,550 51,318
Inventory 80,585 70,813
Vacation Accrual 20,360 12,601
Warranty Accrual 86,984 60,774
Other 2,130 4,181
Tax credit carry-forwards 11,856
Less: current deferred tax liability -
DISC income deferral (72,292)
Total deferred current tax assets - net 239,609 139,251
------- -------
Net deferred tax liability $ 67,597 $ 60,797
======= =======
In 1989, the Company established a Foreign Sales Corporation (FSC) to
replace its Domestic International Sales Corporation (DISC).
Accordingly, deferred income taxes attributable to unremitted DISC
earnings were recorded during 1989. During each of fiscal years 1996
and 1995, the Company recognized deferred DISC earnings in the amount
of approximately $187,000 for tax purposes. The last of the remaining
unremitted DISC earnings was recognized in the year ending February 29,
1996.
9. NET INCOME PER SHARE
Primary earnings per share are based on the weighted average number of
common and dilutive common equivalent shares outstanding during each
year. The weighted average shares for computing primary earnings per
share were 4,329,445 and 4,220,040 for 1996 and 1995, respectively.
Fully diluted earnings per share are based on the weighted average
number of common and dilutive common equivalent shares calculated at
year-end market prices. The dilutive affect of stock options creates
the difference between primary and fully diluted
F-14
<PAGE>
shares outstanding. The weighted average shares for computing fully
diluted earnings per share were 4,344,913 and 4,227,823 for 1996 and
1995, respectively.
10. STOCK OPTIONS AND WARRANTS
The Company's 1994 Incentive Stock Option Plan (the "Plan") permits the
granting of both incentive stock options and nonqualified options for
option periods not to exceed ten years. The Plan provides for the
granting of up to 450,000 shares of incentive stock options at a per
share price not less than 100 percent of the fair market value on the
date of grant. In the case of nonqualified options, the per share price
may be at any amount determined by the Board of Directors or the Stock
Option Committee on the date of grant, but not less than par value.
A summary of option transactions under the Plan follows:
<TABLE>
NUMBER OF PER SHARE
SHARES PRICE RANGE
------ -----------
<S> <C> <C>
Outstanding at March 1, 1994 270,237 $1.50 - $5.17
Granted 112,875 2.17 - 2.75
Cancelled (13,417) 1.50 - 4.13
Exercised (33,862) 1.26 - 1.83
-------
Outstanding at February 28, 1995 335,833 1.50 - 5.17
Granted 109,500 2.13 - 5.23
Cancelled (43,879) 1.50 - 5.17
Exercised (90,446) 1.26 - 3.03
-------
Outstanding at February 29, 1996 311,008 1.26 - 5.23
=======
Exercisable at February 29, 1996 150,650 1.50 - 4.75
=======
Exercisable at February 28, 1995 232,946 1.26 - 5.17
=======
Reserved for future grants at February 29, 1996 139,277
=======
Reserved for future grants at February 28, 1995 204,898
=======
</TABLE>
In connection with the Company's 1986 stock offering, 258,750 warrants
(including 33,750 to the underwriter) were issued. Each warrant
entitles the holder to purchase one and one-half shares of common stock
at an exercise price of $8.33 per share, subject to adjustment at any
time commencing after the separation date, August 27, 1986, until May
31, 1998. The warrants are subject to redemption by the Company at $.05
per warrant on 30 days' prior written notice, provided the closing
price of the Company's common stock
F-15
<PAGE>
exceeds $11.67 per share for 20 consecutive trading days ending within
30 days of the date of notice.
11. RESEARCH AND DEVELOPMENT ARRANGEMENTS
In 1986, 1989 and 1991, the Company entered into research and
development agreements with a third party under which the Company
received approximately $400,000, $396,000 and $126,700, respectively.
The Company is required to pay royalties on the sales of products
developed under the grants, as well as a percentage of any licensing
fees for agreements entered into with other companies for the sales of
developed products. Royalties paid under these agreements amounted to
approximately $207,000 in 1996 and 1995.
In 1992, the Company entered into a research and development agreement
with a third party under which the Company will receive the lesser of
the amount of the grant, $246,428 or 50 percent of the actual
expenditures relating to a specific development project. As of February
28, 1994, approximately $164,300 has been recognized under the grant.
Other terms are similar to the earlier grants. As of February 29, 1996,
no royalties have been incurred.
12. EXPORT SALES
Net foreign export sales are summarized as follows:
1996 1995
---- ----
Europe $1,076,163 $1,093,634
Far East 1,677,486 1,393,391
Other 792,011 955,213
---------- ----------
Total $3,545,660 $3,442,238
========= =========
No significant sales were made by foreign subsidiaries in 1996 and
1995.
13. EMPLOYEE BENEFIT PLAN
The Company has a profit-sharing plan under Section 401(k) of the
Internal Revenue Code which allows employees to defer a portion of
their income on a pretax basis through contributions to the plan.
Employee contributions are matched by the Company at varying rates. The
Company may also make discretionary contributions to the plan. Total
contributions of $54,004 and $39,744 were made by the Company in 1996
and 1995 respectively.
F-16
<PAGE>
14. EMPLOYMENT AGREEMENTS
The Company has executed an employment agreement with one of its key
officers. Under the terms of the agreement, which extends through May
1996, the Company is obligated to pay contractually specified amounts
in the event of the key officer's termination, disability or death.
15. ASSET PURCHASE AGREEMENT
As of July 1, 1994, the Company, through a wholly-owned subsidiary,
acquired certain assets and assumed certain immaterial liabilities of
Neuro Diagnostics, Inc. ("NDI"), a wholly-owned subsidiary of Luther
Medical Products, Inc. ("Luther") for cash of approximately $117,000.
16. TREASURY STOCK RETIREMENT
During 1995, 127,450 shares of the Corporation's common stock purchased
in 1994 and 1991 for a total cost of $365,331, and held in treasury at
February 28, 1994, were retired.
F-17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
BIO-LOGIC SYSTEMS CORP.
Date: May 21, 1996
By: /S/ GABRIEL RAVIV
----------------------------
Gabriel Raviv, President
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 registrant and in the capacities and on the dates indicated.
/S/ GABRIEL RAVIV President, Chief Executive May 21, 1996
- --------------------------- Officer, Director (Principal
Gabriel Raviv Executive Officer)
/S/ CHARLES Z. WEINGARTEN Director May 21, 1996
- ---------------------------
Charles Z. Weingarten, M.D.
/S/ WILLIAM K. ROENITZ Controller and Treasurer May 21, 1996
- --------------------------- (Principal Financial Officer)
William K. Roenitz
/S/ GIL RAVIV Director May 21, 1996
- ---------------------------
Gil Raviv
/S/ IRVING KUPFERBERG Director May 21, 1996
- ---------------------------
Irving Kupferberg
/S/ ALBERT MILSTEIN Director May 21, 1996
- ---------------------------
Albert Milstein
/S/ CRAIG W. MOORE Director May 21, 1996
- ---------------------------
Craig W. Moore
24
<PAGE>
EXHIBIT INDEX
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
3.1 Certificate of Incorporation, Certificate of Amendment
to Certificate of Incorporation, Agreement of Merger
and Certificate of Merger and By-Laws(1)
3.2 Certificate of Amendment to Certificate of
Incorporation(7)
10.1 Lease between the Company and Harris Trust &
Savings Bank dated August 9, 1983(2)
10.2 Technology License Agreement between the Company
and Neurographic Technologies dated August 13, 1984(3)
10.3 Real Estate Sale Contract between the Company and
First National Bank of Lake Forest, as Trustee, dated
December 23, 1985(4)
10.4 Loan Agreement between the Company and Village of
Mundelein, Illinois dated as of December 1, 1985(4)
10.5 Mortgage and Security Agreement between the
Company and Village of Mundelein, Illinois dated
as of December 1, 1985(4)
10.6 Bond Purchase Agreement between the Company and
First American Bank of Dundee dated as of
December 1, 1985(4)
10.7 Agreement Among Gabriel Raviv, Gil Raviv, Charles Z.
Weingarten and the Company (5)
10.8 Employment Agreement between the Company and
Gabriel Raviv(5)
27
<PAGE>
10.9 Employment Agreement between the Company and
Gil Raviv(5)
10.10 Form of Export Property Sale, Commission and Lease
Agreement between the Company and Bio-logic
International Corporation(6)
10.11 Agreement and General Release between the Company
and Gil Raviv(9)
10.12 Letter dated May 2, 1994 from First American Bank
to the Company (10)
10.13 Letter of Intent dated June 30, 1994 by and among the
Company, Luther Medical Products, Inc. and Neuro
Diagnostics, Inc.(11)
10.14 Asset Purchase Agreement dated as of July 1, 1994
by and among the Company, NDI Acquisition Corp.,
Luther Medical Products, Inc. and Neuro
Diagnostics, Inc.(12)
21. Subsidiaries of the Company(8)
23.1 Consent of Independent Auditors
23.2 Consent of Independent Auditors
- ----------------------
(1) Incorporated by reference from the Company's Registration
Statement on Form S-18 filed on August 7, 1981 (File No.
2-73587-C).
(2) Incorporated by reference from the Company's Report on Form
10-Q for the quarter ended August 31, 1983.
(3) Incorporated by reference from the Company's Annual Report on
Form 10-K for the year ended February 28, 1985.
(4) Incorporated by reference from the Company's Report on Form
10-Q for the quarter ended November 30, 1985.
(5) Incorporated by reference from the Company's Registration
Statement on Form S-1 (File No. 33-5471).
(6) Incorporated by reference from the Company's Report on Form
10-Q for the quarter ended May 31, 1986.
28
<PAGE>
(7) Incorporated by reference from the Company's Annual Report on
Form 10-K for the Fiscal Year ended February 28, 1987.
(8) Incorporated by reference from the Company's Annual Report on
Form 10-K for the Fiscal Year ended February 28, 1990.
(9) Incorporated by reference from the Company's Annual Report on
Form 10-K for the Fiscal Year ended February 28, 1993.
(10) Incorporated by reference from the Company's Annual Report on
Form 10-K for the Fiscal Year ended February 28, 1994.
(11) Incorporated by reference from the Company's Report on Form
10-Q for the quarter ended May 31, 1994.
(12) Incorporated by reference from the Company's Report on Form
10-Q for the quarter ended August 31, 1994.
29
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration
Statement No. 33-3776 of Bio-logic Systems Corp. on Form S-8 of our report,
dated April 29, 1996, appearing in this Annual Report on Form 10K-SB of
Bio-logic Systems Corp. for the year ended February 29, 1996.
GRANT THORNTON LLP
May 28, 1996
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration
Statement No. 33-3776 of Bio-logic Systems Corp. on Form S-8 of our report,
dated May 5, 1996, appearing in this Annual Report on Form 10K-SB of Bio-logic
Systems Corp. for the year ended February 29, 1996.
DELOITTE & TOUCHE LLP
May 24, 1996
Chicago, Illinois
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-END> FEB-29-1996
<CASH> 3,249,071
<SECURITIES> 1,711,760
<RECEIVABLES> 3,197,495
<ALLOWANCES> 128,243
<INVENTORY> 2,887,528
<CURRENT-ASSETS> 11,414,507
<PP&E> 4,291,342
<DEPRECIATION> 2,427,531
<TOTAL-ASSETS> 14,379,986
<CURRENT-LIABILITIES> 1,985,592
<BONDS> 808,113
0
0
<COMMON> 42,291
<OTHER-SE> 11,355,020
<TOTAL-LIABILITY-AND-EQUITY> 14,379,986
<SALES> 14,602,000
<TOTAL-REVENUES> 14,602,000
<CGS> 5,044,415
<TOTAL-COSTS> 5,044,415
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 98,000
<INTEREST-EXPENSE> 72,347
<INCOME-PRETAX> 1,317,091
<INCOME-TAX> 425,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 892,091
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
