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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended February 28, 1998
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
----------------------------
(Title of Class)
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
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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 10-KSB or any amendment to
this Form 10-KSB. |X|
State the issuer's revenues for its most recent fiscal year:
$18,018,689.
As of May 22, 1998 the issuer had 4,011,984 shares of Common Stock
outstanding. The aggregate market value of the Common Stock held by
nonaffiliates as of May 22, 1998 was approximately $15.4 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
PART I
Item 1. Business
(a) General Development of Business
Bio-logic(R) 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, otoacoustic emissions 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.
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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, evoked response testing,
otoacoustic emissions 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.
Bio-logic's systems are in modular form and consist of IBM1* 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.
- -----------------
* A trademark of International Business Machines Corp.
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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 at 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 Ceegraph(TM) 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, 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 his own
IBM-compatible computer to create a digital EEG system, to a portable EEG system
and/or 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
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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), a patented 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.
SmartTrack(TM) is another Ceegraph software option used for
automatic analysis of epileptic spikes and seizures. This system was developed
through a collaboration between the Company and Johns Hopkins Epilepsy Center
and is used to assist in the identification of clinical EEG events indicative of
epilepsy. The detection algorithm is based on a neural-network approach and can
be used in real time or off line. The same system is used to analyze long-term
records obtained in the hospital and ambulatory recordings performed with the
Ceegraph Traveler off site.
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.
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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
than the level of the ambient acoustic noise suggests functional cochlear
structures. The Company offers a series of products for DPOAE measurements,
which 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.
In April 1997, the Company introduced its recently developed AuDX
system, which is designed to routinely test the hearing of toddlers and
school-age children who currently are not routinely screened for audiological
problems. AuDX is a battery-operated, hand-held device designed to detect
hearing impairment which is being marketed by the Company to pediatricians,
family practitioners and schools. The selling price of the DPOAE and AuDX
systems range from $5,000 to $15,000.
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 and in intraoperative monitoring. Surgical procedures of the back,
head, neck and other areas involving the central nervous system can be monitored
to reduce risks to the patient and improve outcomes. 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
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human body. The approximate selling price of the evoked response systems, which
consist of the Company's Explorer(TM), EP Navigator(R) and Traveler, range from
$15,000 to $70,000 depending upon the number and types of tests included.
Intraoperative Monitoring
The Company's Explorer(TM) is used to reduce the risk of iatrogenic
injury to the brain, spinal cord, peripheral and cranial nerves during surgery.
Intraoperative monitoring (IOM) employs many specialized neurodiagnostic tests
including: auditory, somatosensory, and visual EP's; neurogenic and myogenic
motor EP's; EMG; EEG and quantitative EEG. Many recent improvements have been
made to the product to further increase utility in the operating room
environment and to reduce the workload of personnel performing monitoring. The
approximate selling price of the Explorer(TM) intraoperative monitoring systems
range from $30,000 to $70,000 depending upon the requested configuration.
Computerized Polysomnography
Sleepscan(TM) 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. 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 a Ceegraph EEG System, and is priced from approximately $25,000
to $60,000 depending on the model.
In addition to its computerized sleep diagnostic product line, the
Company has added a new device to our supply catalog known as the Airflow
Pressure Transducer. This device is an alternative to the currently used airflow
monitoring devices, which use temperature to produce a signal. The Airflow
Pressure Transducer will allow the user to detect airflow by
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way of pressure changes. This method is documented to produce the signature
waveform used in identifying a respiratory disorder known as Upper Airway
Resistance Syndrome.
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.
Sleepscan Traveler, introduced in spring of 1997, is a solid-state,
battery operated ambulatory recorder for sleep and epilepsy monitoring. It
records continuous information on 8, 19, or 27 channels. The data, which is
saved on a PCMCIA removable miniature hard disk for easy access, can be
immediately reviewed and analyzed by the Extended Analysis Sleep Program and the
Computer-Assisted Arousal and Sleep Staging Program, software programs available
with the Sleepscan Traveler.
Computerized Electromyography
The Company's Explorer(TM) is used in the field of electromyography
(EMG). EMG systems are typically used by neurologists to aid in the assessment
of neuromuscular function. The Explorer allows digital processing, display and
storage of neuromuscular information, together with real-time display of
muscular activity, which previously had been available only through the
utilization of traditional analog displays. The Explorer complements the
Company's product line in that it is intended to meet the electro-diagnostic
needs of neurologists and other clinicians. 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 Atlas(R) 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. 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 paused, 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.
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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 1998 and 1997, Bio-logic expended
$2,416,774, and $1,873,716, respectively, for research and development.
The Company's research and product development activities include
further development of the Bio-logic Ceegraph, a computerized EEG system 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 Product Otoacoustic Emission (DPOAE) equipment for the audiology
market, 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 and a hardware improvement to the portable Scout(TM) Sport,
one of the Company's DPOAE products, which may result in new markets for
audiologic screening.
One of the Company's recent market introductions is the Ceegraph
Traveler, a battery-operated ambulatory recorder for EEG and/or Sleep
monitoring. The Ceegraph Traveler is offered in a 16-channel or a 24-channel
configuration, with disposable or rechargeable batteries. The Traveler features
full disclosure of data saved on high-capacity PCMCIA removable miniature hard
disks. The records obtained off site are analyzed by the same powerful Ceegraph
program used in evaluating patients tested in the laboratory, including an
expert system for spike and seizure analysis.
The latest development is the expansion of Ceegraph capabilities to
meet the needs of the intensive Epilepsy Monitoring market. This includes the
development of a new amplifier headbox and supporting software than can record
up to 128 channels of EEG from surface and depth electrodes. The new design
incorporates a network interface between the amplifiers and the main processor
to provide utmost flexibility in placing the monitoring system at any distance
from the patient, without compromising signal integrity.
The Company is in the midst of porting all products to the
Windows/95 and Windows/NT operating systems. This transition is concurrent with
continuous improvements of existing products. The migration to the new operating
system is designed to give existing customers an upgrade path and maximize the
use and life of their existing systems.
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Throughout fiscal 1998, the Company has been involved in a team
effort to achieve certification to ISO 9001 and EN46001. These standards are
designed to define and strengthen a company's quality system to improve quality
and increase efficiency. Additional compliance with the European Medical Device
Directive will allow Bio-logic to place the CE mark on its' products, as
required after June 14, 1998, for sale of products to the European market. TUV
Rheinland has been contracted as the Company's Notified Body and Registrar. A
certification audit is expected to take place in the beginning of July 1998.
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 is a party to a number of other research and development
agreements under which, as of February 28, 1998, 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 28, 1998, the Company has
paid royalties of $1,061,281 under such agreements.
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.
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Foreign Sales
During fiscal 1998, export sales increased to $3,924,059, or
approximately 22% of net sales, compared to $3,605,475, or approximately 24% of
net sales, in fiscal 1997. 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.
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.
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The Company performs quality control and testing procedures on all
systems prior to delivery.
Patents and Trademarks
The Company currently owns six patents covering certain aspects of
its brain mapping system and other technology developed by the Company,
including a patent issued in February 1997 relating to the SmartPack. 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, Oxford
Instruments, 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, 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") 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)
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applications (notifications of intention to market) with the FDA. 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 28, 1998, the Company employed 94 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. 47 President, Chief
Executive Officer,
Director
Thomas S. Lacy 55 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 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.
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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, both of which are
occupied pursuant to a lease providing for an annual rental of approximately
$15,300 and $35,500, respectively, subject to annual increases.
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 through the 3rd quarter 1998 and to the 1/25 beginning in the 4th
quarter 1998:
High Low
Sales Price Sales Price
----------- -----------
FISCAL YEAR ENDED FEBRUARY 28, 1998
1st Quarter $ 3 7/8 $2 7/8
2nd Quarter 6 5/8 2 7/8
3rd Quarter 9 3/4 4 5/8
4th Quarter 5 18/25 3 7/8
FISCAL YEAR ENDED FEBRUARY 28, 1997
1st Quarter $ 4 1/2 $3 1/8
2nd Quarter 3 7/8 2 1/2
3rd Quarter 3 1/8 2 3/8
4th Quarter 3 1/2 2 3/8
(b) Approximate Number of Equity Security Holders
As of May 22, 1998 there were approximately 258 record holders of
the Company's Common Stock. The Company believes that there are in excess of 400
beneficial owners of its 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. Selected Financial Data
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 10-KSB along with said financial statements.
Fiscal Year Ended Last Day of February,
----------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Net sales $18,018,689 $14,856,955 $14,602,000 $12,072,674 $10,749,332
Operating income 1,551,114 811,712 1,204,459 787,150 403,994
Net income (1) 1,148,436 683,845 892,091 740,412 539,755
Net income per
share (2)(3) 0.28 0.17 0.21 0.18 0.13
Working capital 10,236,421 7,645,040 9,428,915 6,925,542 8,204,175
Total assets 15,801,237 13,924,402 14,379,986 13,499,684 12,323,224
Long-term debt 427,174 562,879 689,877 808,726 919,950
Total liabilities 3,366,444 2,725,000 2,982,675 3,130,431 2,740,415
Shareholders'
equity $12,434,793 $11,199,402 $11,397,311 $10,369,253 $9,948,140
Shares
outstanding (2)(3) 4,117,334 4,140,216 4,329,445 4,220,040 4,295,937
- ----------
(1) Includes net interest income of $173,505, $170,864, $114,412, $137,972 and
$185,855 in fiscal 1998, 1997, 1996, 1995 and 1994, respectively.
17
<PAGE>
(2) Weighted average number of common and dilutive common equivalent shares
calculated using average market prices.
(3) On February 28, 1998, The Company adopted Statement of Financial
Accounting Standards No. 128 - "Earnings per Share" (SFAS 128.) All current
and prior years earnings per share data have been restated to conform to
the provisions of SFAS 128.
Item 7. Managements' Discussion and Analysis of Financial Condition and
Results of Operations
Prospective investors are cautioned that the statements in this
Annual Report on Form 10-KSB that are not descriptions of historical facts may
be forward-looking statements within the meaning of the Private Securities
Reform Act of 1995, including statements concerning the Company's future
products, results of operations and prospects. These forward-looking statements
are subject to risks and uncertainties. Actual results could differ materially
from those currently anticipated, including those relating to general economic
and business conditions, the results of research and development efforts,
technological changes and competition, potential changes in regulation by the
FDA, costs relating to manufacturing of products and the timing of customer
orders detailed elsewhere in this Annual Report on Form 10-KSB and from time to
time in the Company's filings with the Securities and Exchange Commission.
Results of Operations
Fiscal 1998 Compared To Fiscal 1997
Net sales for fiscal 1998 were $18,018,689, a 21% increase from net
sales of $14,856,955 during fiscal 1997. Domestic sales in fiscal 1998 increased
by 25% to $14,094,630 from $11,251,480 in fiscal 1997. Foreign sales in fiscal
1998 increased by 9% to $3,924,059 compared to $3,605,475 for fiscal 1997. As a
percentage of net sales, domestic and foreign sales for fiscal 1998 were 78% and
22%, respectively, compared to 76% and 24% for fiscal 1997, respectively. The
increase in net sales reflects higher system sales of the Ceegraph, Explorer,
Sleep and Traveler product lines, plus the sales introduction of the AuDX
systems, partially offset by lower net sales in the EP Navigator product line.
Cost of equipment sold increased to $5,703,652 during fiscal 1998
compared to $5,140,195 for fiscal 1997, and as a percentage of net sales,
decreased to 32% for fiscal 1998 compared to 35% during fiscal 1997. This
decrease in cost of equipment sold as a percentage of net sales reflects
increased sales of higher margin products.
Selling, general and administrative expenses increased by
approximately 19% to $8,347,149 during fiscal 1998 compared to $7,031,332 for
fiscal 1997, and as a percentage of net sales declined to 46% for fiscal 1998
compared to 47% for fiscal 1997. Selling, general and administrative expenses
for fiscal 1998 were higher primarily due to increased marketing costs
associated with the AuDX product line plus higher sales expenses in conjunction
with higher net sales.
18
<PAGE>
Research and development expenses increased by approximately 29% to
$2,416,774 during fiscal 1998 in contrast to $1,873,716 for fiscal 1997, and as
a percentage of net sales, remained at approximately 13% for both fiscal 1998
and 1997. The increase in research and development costs were mainly due to
higher individual salaries, increases in outside consulting, plus activities
relating to the capitalization of certain research and development costs aligned
with specific identifiable future products. The capitalization of these future
products amounted to $0 and $144,402 during fiscal 1998 and 1997, respectively.
Finally, the amortization expense of these capitalized research and development
costs increased to $182,985 in fiscal 1998 compared to $90,503 in fiscal 1997.
For fiscal 1998, the Company had operating income of $1,551,114
compared to operating income of $811,712 for fiscal 1997. The increase in
operating income for fiscal 1998 was due to both higher net sales and lower cost
of sales offset by higher selling, general and administrative costs plus higher
research and development expenses.
The Company had net interest income of $173,505 for fiscal 1998
compared to $170,864 for fiscal 1997. The increase of net interest income is
primarily due to higher interest income earned on marketable securities and
lower interest expense on short and long term debt.
The provision for income taxes during fiscal 1998 was approximately
33% of income before taxes, compared to 30% of income before taxes in fiscal
1997. The tax provision as a percentage of net income in fiscal 1998 was higher
due to differences in foreign income and its' corresponding tax rates.
The Company had net income of $1,148,436 or $.28 per diluted share
for fiscal 1998 compared to $683,845 or $.17 per diluted share for fiscal 1997.
The increase in net income was the result of higher gross profit partially
offset by higher operating expenses and provisions for income taxes.
Liquidity And Capital Resources
As of February 28, 1998, the Company had working capital of
$10,236,421; including $5,124,467 of cash, cash equivalents and short-term
investments and $4,023,324 of accounts receivable. The principal sources of
working capital are funds generated from operations. Net cash provided by
operating activities during fiscal 1998 was $1,592,906. 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
19
<PAGE>
the unpaid balance of the loan in a non-interest bearing account. The
outstanding principal amount of the Bond was approximately $562,000 at February
28, 1998.
The Company is a party to a number of research and development
agreements under which, at February 28, 1998, 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 28, 1998, the Company has
paid royalties of $1,061,281 under such agreements.
At February 28, 1998, the Company had no material capital
commitments. During fiscal 1998, the Company retired 286,310 shares of treasury
stock which were purchased at an aggregate cost of $882,706 during fiscal 1997.
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
During 1997 the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," both effective for fiscal years beginning
after December 15, 1997.
SFAS No. 130 requires disclosure of the components of and total
comprehensive income in the period in which they are recognized in the financial
statements. Comprehensive income is defined as the change in equity (net assets)
of a business enterprise arising from transactions and other events and
circumstances from non-owner sources. It includes all changes in shareholders'
equity during the reporting period except those resulting from investments by
owners and distributions to owners. In accordance with the release, the Company
plans to adopt SFAS No. 130 in the first quarter of 1999.
SFAS No. 131 requires disclosures of certain segment information
based on the way that management evaluates segments for making decisions and
assessing performance. It also requires disclosure of certain information about
products and services, the geographic areas in which the Company operates, and
major customers. In accordance with the release, the Company plans to adopt SFAS
No. 131 for the year ended February 28, 1999.
20
<PAGE>
Year 2000 Compliance
As a manufacturer of computer based electro-diagnostic medical
equipment, the Company must determine if software and hardware problems will
occur when the year 2000 arrives. During fiscal 1998 and into fiscal 1999, the
Company's engineers and product specialists have tested and will continue to
test the Company's product line under the year 2000 scenario. As of May 1998,
our testing has not revealed any potential problems with year 2000 compliance.
The Company believes that the cost associated with year 2000 compliance will be
insignificant to the overall operations of the business.
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
None
21
<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.
22
<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)
23
<PAGE>
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
(b) Reports on Form 8-K
During the three months ended February 28, 1998, no reports on
Form 8-K were filed by the Company.
- ----------
(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.
24
<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.
25
<PAGE>
BIO-LOGIC SYSTEMS CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS............... F-2
FINANCIAL STATEMENTS:
Consolidated Balance Sheets, February 28, 1998 and 1997........ F-3
Consolidated Statements of Earnings for the Years Ended
February 28, 1998 and 1997 ................................. F-4
Consolidated Statements of Shareholders' Equity for the Years
Ended February 28, 1998 and 1997............................ F-5
Consolidated Statements of Cash Flows for the Years Ended
February 28, 1998 and 1997.................................. F-6
Notes to Consolidated Financial Statements..................... F-7
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 sheets of Bio-logic
Systems Corp. and subsidiaries as of February 28, 1998 and 1997, and the related
consolidated statements of earnings, shareholders' equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the 1998 and 1997 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 28, 1998 and 1997, and
the consolidated results of their operations and their consolidated cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
GRANT THORNTON LLP
May 7, 1998
F-2
<PAGE>
BIO-LOGIC SYSTEMS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, 1998 AND 1997
ASSETS 1998 1997
---- ----
CURRENT ASSETS:
Cash and cash equivalents $ 3,624,368 $ 1,134,310
Marketable securities 1,500,099 1,291,384
Accounts receivable, less allowance for
doubtful accounts of $219,039 in 1998
and $152,068 in 1997 4,023,324 3,583,673
Inventories 3,277,811 3,055,429
Prepaid expenses 144,852 141,928
Deferred income taxes 311,689 262,039
----------- -----------
Total current assets 12,882,143 9,468,763
PROPERTY, PLANT AND EQUIPMENT - Net 2,000,342 1,827,859
MARKETABLE SECURITIES 1,501,287
OTHER ASSETS 918,752 1,126,493
----------- -----------
TOTAL ASSETS $15,801,237 $13,924,402
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 135,005 $ 126,343
Accounts payable 493,813 484,323
Accrued salaries and payroll taxes 699,671 560,676
Accrued interest and other expenses 355,163 309,861
Accrued income taxes 601,835 48,931
Deferred revenue 360,235 293,589
----------- -----------
Total current liabilities 2,645,722 1,823,723
LONG-TERM DEBT - Less current maturities 427,174 562,879
COMMITMENTS
DEFERRED INCOME TAXES 293,548 338,398
----------- -----------
Total liabilities 3,366,444 2,725,000
----------- -----------
SHAREHOLDERS' EQUITY:
Capital stock, $.01 par value; authorized,
10,000,000 shares; issued and outstanding;
3,983,104 shares in 1998 and issued
4,229,519 and outstanding 3,943,209 shares
in 1997 39,831 42,295
Additional paid-in capital 4,685,177 5,478,464
Retained earnings 7,709,785 6,561,349
----------- -----------
Total shareholders' equity 12,434,793 12,082,108
Less treasury stock, at cost: 286,310 shares
in fiscal 1997 882,706
----------- -----------
Shareholders' equity - net 12,434,793 11,199,402
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $15,801,237 $13,924,402
=========== ===========
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
BIO-LOGIC SYSTEMS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED FEBRUARY 28, 1998 AND 1997
1998 1997
---- ----
NET SALES $ 18,018,689 $14,856,955
COST OF SALES 5,703,652 5,140,195
------------- -----------
Gross profit 12,315,037 9,716,760
------------- -----------
OPERATING EXPENSES:
Selling, general, and administrative 8,347,149 7,031,332
Research and development 2,416,774 1,873,716
------------- -----------
Total operating expenses 10,763,923 8,905,048
------------- -----------
OPERATING INCOME 1,551,114 811,712
OTHER INCOME (EXPENSE):
Interest income 219,285 223,591
Interest expense (45,780) (52,727)
Miscellaneous (633) 652
------------- -----------
TOTAL OTHER INCOME 172,872 171,516
------------- -----------
INCOME BEFORE INCOME TAXES 1,723,986 983,228
PROVISION FOR INCOME TAXES 575,550 299,383
------------- -----------
NET INCOME $ 1,148,436 $ 683,845
============= ===========
NET INCOME PER SHARE:
Basic $0.29 $0.17
===== =====
Diluted $0.28 $0.17
===== =====
AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic 3,959,864 4,077,273
========= =========
Diluted 4,117,334 4,140,216
========= =========
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
BIO-LOGIC SYSTEMS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED FEBRUARY 28, 1997 AND 1998
<TABLE>
<CAPTION>
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, 1996 4,229,119 $ 42,291 $ 5,477,516 $5,877,504 $ 0 $ 11,397,311
Purchase of treasury stock (286,310) 0 0 (882,706) (882,706)
Exercise of stock options 400 4 948 952
Net income 683,845 683,845
---------- -------- ----------- ---------- --------- ------------
BALANCE, FEBRUARY 28, 1997 3,943,209 $ 42,295 $ 5,478,464 $6,561,349 $(882,706) $ 11,199,402
Retirement of treasury stock (2,863) (879,843) 882,706
Exercise of stock options 39,895 399 86,556 86,955
Net income 1,148,436 1,148,436
---------- -------- ----------- ---------- --------- ------------
BALANCE, FEBRUARY 28, 1998 3,983,104 $ 39,831 $ 4,685,177 $7,709,785 $ 0 $ 12,434,793
========== ======== =========== ========== ========= ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
BIO-LOGIC SYSTEMS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED FEBRUARY 28, 1998 AND 1997
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,148,436 $ 683,845
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization 390,590 328,872
Provision for bad debts 66,971 23,825
Provision for inventory valuation 185,079 160,007
Deferred income tax provision (94,500) 8,762
(Increases) decreases in assets:
Accounts receivable (506,622) (410,003)
Inventories (407,461) (337,208)
Prepaid expenses (2,924) (12,884)
Increases (decreases) in liabilities:
Accounts payable 9,490 (60,023)
Accrued liabilities and deferred revenue 250,943 54,851
Accrued income taxes 552,904 (164,804)
----------- -----------
Net cash flows provided by operating
activities 1,592,906 275,240
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (348,332) (170,904)
Other assets (7,000) (137,541)
Purchases of investments held to maturity -- (2,779,542)
Proceeds from maturities of investments 1,292,572 1,698,631
----------- -----------
Net cash flows (used in) provided by
investing activities 937,240 (1,389,356)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 86,955 952
Purchase of treasury stock -- (882,706)
Payments on long-term debt (127,043) (118,891)
----------- -----------
Net cash flows (used in) provided by
financing activities (40,088) (1,000,645)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,490,058 (2,114,761)
CASH AND CASH EQUIVALENTS - Beginning of year 1,134,310 3,249,071
----------- -----------
CASH AND CASH EQUIVALENTS - End of year $ 3,624,368 $ 1,134,310
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS:
Cash paid during the period for:
Interest $ 42,840 $ 56,084
=========== ===========
Income taxes $ 120,834 $ 421,790
=========== ===========
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
BIO-LOGIC SYSTEMS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28, 1998 AND 1997
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, Bio-logic 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 maturities of three months or less.
MARKETABLE SECURITIES - Marketable securities are comprised of US
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 betterment's 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 cost and the premiums paid on officers' life
insurance policies. On an ongoing basis, management reviews the valuation
of other assets to determine if there has been impairment by comparing the
related assets' carrying value to the undiscounted estimated future cash
flows and/or operating income from related operations.
REVENUE RECOGNITION FOR RESEARCH AND DEVELOPMENT CONTRACTS - Revenue from
research and development contracts is recognized as related costs are
incurred.
F-7
<PAGE>
INCOME TAXES - Deferred tax assets and liabilities are computed annually
for differences between financial statement basis and tax basis of assets
and liabilities using enacted tax rates for the years in which the
difference are expected to become recoverable. A valuation allowance is
established where 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 $1,418,000 and $1,116,000 as of February 28,
1998 and 1997, 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, 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.
EARNINGS PER SHARE - The Company has adopted Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings per Share," as of December
31, 1997. This statement established new standards for computing and
disclosing earnings per share. In accordance with SFAS No. 128, all
earnings per share amounts for prior periods have been restated to conform
with the new standard.
RECENTLY ISSUED ACCOUNTING STANDARDS - During fiscal 1998 the Financial
Accounting Standards Board (FASB) issued Statements of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income" and
SFAS No. 131, "Disclosures and Segments of an Enterprise and Related
Information," both effective for fiscal years beginning
after December 15, 1997.
SFAS No. 130 requires disclosure of the components of and total
comprehensive income in the period in which they are recognized in the
financial statements. Comprehensive income is defined as the change in
equity (net assets) of a business enterprise arising from transactions and
other events and circumstances from non-owner sources. It includes all
changes in shareholders' equity during the reporting period except those
resulting from investments by owners and distributions to owners. In
accordance with the release, the Company plans to adopt SFAS No. 130 in
the first quarter of 1999.
F-8
<PAGE>
SFAS No. 131 requires disclosures of certain segment information based on
the way that management evaluates segments for making decisions and
assessing performance. It also requires disclosure of certain information
about products and services, the geographic areas in which the Company
operates, and major customers. In accordance with the release, the Company
plans to adopt SFAS No. 131 for the year ended February 28, 1999.
3. MARKETABLE 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 1997,
marketable debt securities with remaining maturities in excess of twelve
months have been classified as non-current.
The amortized cost, unrealized gains, unrealized losses and estimated fair
values of investments securities held-to-maturity are summarized as
follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
February 28, 1998
-----------------
US Government
securities $1,500,099 $846 $ 0 $1,500,945
========== ==== ========= ==========
February 28, 1997
-----------------
US Government
securities $2,792,671 $3,462 $ 0 $2,796,133
========== ====== ========= ==========
F-9
<PAGE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment comprise the following at February 28, 1998
and February 28, 1997:
Estimated
Useful Lives
1998 1997 (in Years)
---- ---- ------------
Land $ 676,534 $ 676,534
Building 1,117,907 1,117,907 40
Test and shop equipment 1,105,103 915,070 5
Booths and exhibits 101,531 101,531 5
Office furniture and equipment 1,564,053 1,405,754 7
Transportation equipment 123,799 123,799 3
Building improvements 121,651 121,651 15
---------- ----------
Total 4,810,578 4,462,246
---------- ----------
Less accumulated depreciation 2,810,236 2,634,387
---------- ----------
Property, plant and equipment - net $2,000,342 $1,827,859
========== ==========
Depreciation expense amounted to $175,849 and $206,856 for 1998 and 1997,
respectively.
5. CAPITALIZED RESEARCH AND DEVELOPMENT COSTS
Capitalized research and development expense consists of costs incurred
from when the product is determined to be technologically 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 and related engineering prototypes
necessary in the final design of new products. 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 $547,982 and
$723,967 at February 28, 1998 and February 28, 1997, respectively.
Amortization expense amounted to $182,985 and $90,503 in 1998 and 1997
respectively.
F-10
<PAGE>
6. OPERATING LEASES
The Company leases office and assembly facilities under long-term operating
leases expiring from 2001 to 2009. Total rental expense amounted to $60,013
and $55,521 for 1998 and 1997, respectively.
Future minimum annual rental commitments under these leases for the years
ending after February 28, 1998 are as follows:
1999 $ 50,776
2000 50,776
2001 47,819
2002 15,292
2003 15,292
Thereafter 91,752
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.
The interest rate on the Bond (6.8%) is 80 percent of the prime rate (8.50
percent at February 28, 1998). The office building and land are pledged as
collateral for the Bond.
The Company has obtained a commitment, renewed annually, 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 either February
28, 1998 or February 28, 1997.
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:
1999 $135,005
2000 144,262
2001 154,153
2002 128,759
--------
$562,179
========
F-11
<PAGE>
8. INCOME TAXES
The provision for income taxes is as follows:
1998 1997
---- ----
Current:
Federal $527,650 $206,788
State 109,600 32,900
Foreign 32,800 50,933
-------- --------
Total current 670,050 290,621
Deferred (94,500) 8,762
-------- --------
Total $575,550 $299,383
======== ========
The provision for income taxes differs from the U.S. Federal statutory rate
as follows:
1998 1997
---- ----
U.S. Federal statutory rate 34.0% 34.0%
Difference in foreign tax rate (4.7) (6.2)
Foreign Sales Corporation (FSC) operations (.9) (1.5)
State income taxes, net of Federal
income tax benefit 3.5 2.2
Other 1.5 1.9
---- ----
Effective income tax rate 33.4% 30.4%
==== ====
Deferred tax assets and liabilities as of February 28, 1998 and 1997
consist of the following:
1998 1997
---- ----
Deferred tax liabilities:
Depreciation $ 81,715 $ 58,458
Research and development 211,833 279,940
-------- --------
Total deferred tax liabilities 293,548 338,398
-------- --------
Deferred tax assets:
Accounts receivable 84,835 58,770
Inventory 91,635 82,488
Vacation 18,765 21,327
Warranty 116,454 99,454
-------- --------
Total deferred tax assets 311,689 262,039
-------- --------
Net deferred tax (asset) liability $(18,141) $ 76,359
======== ========
F-12
<PAGE>
9. 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 850,000 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. Currently outstanding options
become exercisable one to five years from the grant date and expire five to
ten years after the grant date.
The Company has adopted only the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." It applies Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations in accounting for its plans and does not recognize
compensation expense for its stock-based compensation plans when options
are granted at fair value at the date of grant. If the Company had elected
to recognize compensation expense based upon the fair value at the grand
date for awards under these plans consistent with the methodology
prescribed by SFAS No. 123, the Company's net income and earnings per share
would be reduced to the pro forma amounts indicated below:
Fiscal Year Ended Fiscal Year Ended
Feb. 28, 1998 Feb. 28, 1997
----------------- -----------------
Net Income
As Reported $1,148,436 $683,845
Pro Forma $1,047,273 $627,878
Net Income per share
As Reported - Basic $0.29 $0.17
- Diluted $0.28 $0.17
Pro forma - Basic $0.26 $0.15
- Diluted $0.25 $0.15
F-13
<PAGE>
These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation expense related
to grants made before fiscal 1996. The fair values of these options was
estimated at the date of grant using the Black-Scholes option-pricing model
with the following weighted average assumptions for the years ended
February 28, 1998 and 1997, respectively: no dividends; expected volatility
of 71% and 49%, risk free interest rates of 6.2% and 6.3% and expected life
of 8.6 and 7.8 years. The weighted average exercise price of options
granted during the years ended February 28, 1998 and 1997 for which the
exercise price exceeds the market price on the grant date was $4.58 and
$3.30, respectively, and the weighted average fair value prices were $2.56
and $1.44, respectively. The weighted average exercise price of options
granted during the years ended February 28, 1998 and 1997 for which the
exercise price equals the market price on the grant date was $3.28 and
$2.89, respectively, and the weighted average fair value prices were $2.65
and $2.00, respectively. The weighted average exercise price of options
granted during the year ended February 28, 1997 for which the exercise
price is below the market price on the grant date was $2.71 and the
weighted average fair price was $2.05. There were no options granted during
the year ended February 28, 1998 for which the exercise price is below the
market price on the grant date.
The following tables summarize information concerning outstanding and
exercisable stock options as of February 28, 1998:
Weighted Average
Remaining
Range of Number Contractual Life Weighted Average
Exercise Price Outstanding (years) Exercise Price
-------------- ----------- ---------------- ----------------
$1.50-$2.50 111,613 5.34 $2.03
$2.51-$4.50 290,850 6.66 2.99
$4.51-$6.50 65,000 5.88 4.64
-------
467,463
=======
Range of Number Weighted Average
Exercise Price Exercisable Exercise Price
-------------- ----------- ----------------
$1.50-$2.50 91,863 $1.98
$2.51-$4.50 109,987 2.83
$4.51-6.50 7,000 4.89
-------
208,850
=======
F-14
<PAGE>
Additional information with respect to the Company's plan at February 28, 1998
and 1997, are as follows:
FISCAL 1998
-----------
Weighted Average
Shares Exercise Price
------ ----------------
Shares Under Option:
Outstanding at beginning of year 368,508 $2.56
Granted 156,300 $3.65
Exercised (39,595) $2.17
Forfeited (17,750) $2.55
-------
Outstanding at end of year 467,463 $2.99
=======
Options exercisable at year-end 208,850 $2.53
=======
Weighted average fair value for
stock options granted during 1998 $2.62
FISCAL 1997
-----------
Weighted Average
Shares Exercise Price
------ ----------------
Shares Under Option:
Outstanding at beginning of year 311,008 $2.49
Granted 78,000 $3.01
Exercised -- --
Forfeited (20,500) $3.20
-------
Outstanding at end of year 368,508 $2.56
=======
Options exercisable at year-end 198,508 $2.34
=======
Weighted average fair value for
stock options granted during 1997 $1.77
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, 1999.
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 exceeds $11.67 per share for 20 consecutive trading
days ending within 30 days of the date of notice.
F-15
<PAGE>
10. RESEARCH AND DEVELOPMENT ARRANGEMENTS
In 1986, 1989 and 1991 and 1992, the Company entered into research and
development agreements with a third party under which the Company received
approximately $400,000, $396,000, $126,700 and $164,300 respectively, or an
aggregate of $1,087,000. 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 $138,000 and $130,000 in 1998 and 1997, respectively.
11. EXPORT SALES
Net foreign export sales are summarized as follows:
1998 1997
---- ----
Europe $ 730,483 $1,121,114
Far East 2,252,682 1,857,117
Other 940,894 627,244
---------- ----------
Total $3,924,059 $3,605,475
========== ==========
No significant sales were made by foreign subsidiaries in 1998 and 1997.
12. EMPLOYEE BENEFIT PLAN
The Company has a retirement 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 $78,339 and
$59,506 were made by the Company in 1998 and 1997, respectively.
13. 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 1998,
the Company is obligated to pay contractually specified amounts in the
event of the key officer's termination, disability or death.
14. TREASURY STOCK RETIREMENT
During fiscal 1998, 286,310 shares of the Corporation's common stock
purchased in fiscal 1997 for a total cost of $882,706 and held as treasury
stock as of February 28, 1997, were retired.
F-16
<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 27, 1998
By: /s/
---------------------------------
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/ President, Chief Executive May 29, 1998
- --------------------------- Officer, Director (Principal
Gabriel Raviv Executive Officer)
/s/ Director May 29, 1998
- ---------------------------
Charles Z. Weingarten, M.D.
/s/ Controller May 29, 1998
- --------------------------- (Principal Financial Officer)
James M. Smearman
/s/ Director May 29, 1998
- ---------------------------
Gil Raviv
/s/ Director May 29, 1998
- ---------------------------
Irving Kupferberg
/s/ Director May 29, 1998
- ---------------------------
Albert Milstein
/s/ Director May 29, 1998
- ----------------------------
Craig W. Moore
<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)
10.9 Employment Agreement between the Company and
Gil Raviv(5)
10.10 Form of Export Property Sale, Commission and Lease
<PAGE>
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
- ---------------
(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.
<PAGE>
(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.
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 May 7, 1998,
appearing in this Annual Report on Form 10-KSB of Bio-logic Systems Corp. for
the year ended February 28, 1998.
GRANT THORNTON LLP
May 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> FEB-28-1998
<CASH> 3,624,368
<SECURITIES> 1,500,009
<RECEIVABLES> 4,023,324
<ALLOWANCES> 219,039
<INVENTORY> 3,277,811
<CURRENT-ASSETS> 12,882,143
<PP&E> 4,810,578
<DEPRECIATION> 2,810,236
<TOTAL-ASSETS> 15,801,237
<CURRENT-LIABILITIES> 2,645,722
<BONDS> 562,179
0
0
<COMMON> 39,831
<OTHER-SE> 12,394,962
<TOTAL-LIABILITY-AND-EQUITY> 15,801,237
<SALES> 18,018,689
<TOTAL-REVENUES> 18,018,689
<CGS> 5,703,652
<TOTAL-COSTS> 5,703,652
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 66,971
<INTEREST-EXPENSE> 45,780
<INCOME-PRETAX> 1,723,986
<INCOME-TAX> 575,550
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,148,436
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.28
</TABLE>
