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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended August 31, 1998
[ ] 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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(Exact name of small business issuer as specified in its charter)
Delaware 36-3025678
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
One Bio-logic Plaza, Mundelein, Illinois 60060
- ---------------------------------------- ----------
(Address of principal executive offices) (zip code)
Issuer's telephone number, including area code (847-949-5200)
(Former name, address and former fiscal year, if changed since last report):
not applicable
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 issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
YES [_] NO [X]
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 9, 1998
- --------------------------- ------------------------------
Common Stock $.01 par value 4,029,084 shares
Transitional Small Business Disclosure Format
YES [X] NO [_]
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<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Page
----
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets at August 31, 1998
and February 28, 1998 3
Condensed Consolidated Statements of Operations and
Retained Earnings for the three and six months ended
August 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows for the
six months ended August 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 10
ITEM 5. OTHER INFORMATION 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES
<PAGE>
BIO-LOGIC SYSTEMS CORP.
FORM 10-QSB
PART 1. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
August 31, 1998 February 28, 1998
--------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,777,767 $ 3,624,368
Marketable securities - held to maturity -- 1,500,099
Accounts receivable, less allowance for doubtful
accounts of $280,523 at August 31, 1998
and $219,039 at February 28, 1998 2,944,543 4,023,324
Inventories 3,272,273 3,277,811
Prepaid expenses 145,422 144,852
Deferred income taxes 311,689 311,689
----------- -----------
Total current assets 12,451,694 12,882,143
PROPERTY, PLANT AND EQUIPMENT - Net 1,980,914 2,000,342
OTHER ASSETS 832,170 918,752
----------- -----------
TOTAL ASSETS $15,264,778 $15,801,237
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 140,511 $ 135,005
Accounts payable 416,587 493,813
Accrued salaries & payroll taxes 706,416 699,671
Accrued interest & other expenses 414,282 355,163
Accrued income taxes 234,351 601,835
Deferred revenue 353,472 360,235
----------- -----------
Total current liabilities 2,265,619 2,645,722
LONG-TERM DEBT - Less current maturities 355,871 427,174
DEFERRED INCOME TAXES 293,548 293,548
COMMITMENTS -- --
----------- -----------
Total liabilities 2,915,038 3,366,444
----------- -----------
SHAREHOLDERS' EQUITY:
Capital stock, $.01 par value, authorized 10,000,000
shares, issued and outstanding 4,029,084 shares at,
August 31, 1998 and 3,983,104 at February 28, 1998 40,291 39,831
Additional paid-in capital 4,742,412 4,685,177
Retained Earnings 7,581,509 7,709,785
----------- -----------
Total shareholders' equity 12,364,212 12,434,793
Less treasury stock, at cost: 4,800 shares (14,472) --
----------- -----------
Shareholders equity - net 12,349,740 12,434,793
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $15,264,778 $15,801,237
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
BIO-LOGIC SYSTEMS CORP.
FORM 10-QSB
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
August 31, August 31,
-------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 4,361,167 $ 4,346,349 $ 8,068,481 $ 8,755,030
COST OF SALES 1,364,980 1,404,592 2,592,134 2,867,522
----------- ----------- ----------- -----------
Gross Profit 2,996,187 2,941,757 5,476,347 5,887,508
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Selling, general & administrative 2,288,705 2,047,330 4,328,366 4,126,570
Research & development 628,019 629,122 1,450,222 1,201,085
----------- ----------- ----------- -----------
Total operating expenses 2,916,724 2,676,452 5,778,588 5,327,655
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) 79,463 265,305 (302,241) 559,853
OTHER INCOME (EXPENSE):
Interest income 63,705 51,643 128,357 100,287
Interest expense (8,839) (9,440) (18,189) (21,605)
Miscellaneous 458 (15) (403) 787
----------- ----------- ----------- -----------
TOTAL OTHER INCOME 55,324 42,188 109,765 79,469
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 134,787 307,493 (192,476) 639,322
PROVISION (BENEFIT) FOR INCOME TAXES 45,100 99,013 (64,200) 205,863
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 89,687 $ 208,480 $ (128,276) $ 433,459
=========== =========== =========== ===========
RETAINED EARNINGS,
BEGINNING OF PERIOD 7,491,822 6,786,327 7,709,785 6,561,348
----------- ----------- ----------- -----------
RETAINED EARNINGS,
END OF PERIOD $ 7,581,509 $ 6,994,807 $ 7,581,509 $ 6,994,807
=========== =========== =========== ===========
EARNINGS (LOSS) PER SHARE:
Primary and Fully Diluted $0.02 $0.05 $(0.03) $0.11
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
BIO-LOGIC SYSTEMS CORP.
FORM 10-QSB
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
August 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (128,276) $ 433,459
Adjustments to reconcile net income to net cash flows
from (used in) operating activities:
Depreciation and amortization 229,276 213,523
Provision for bad debts 57,600 48,000
Provision for inventory valuation 154,650 154,650
Deferred income taxes
(Increases) decreases in assets:
Accounts receivable 1,021,181 (303,372)
Inventories (149,112) (352,391)
Prepaid expenses (570) 30,829
Increases (decreases) in liabilities:
Accounts payable and overdrafts (77,226) (2,366)
Accrued liabilities and deferred revenue 59,101 249,466
Accrued income taxes (367,484) 196,744
----------- -----------
Net cash flows from (used in) operating activities 799,140 668,542
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (88,897) (83,902)
Other assets (34,369) (7,000)
Proceeds from maturities of investments 1,500,099 1,291,978
----------- -----------
Net cash flows from (used in) investing activities 1,376,833 1,201,076
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options 57,695 14,172
Purchase of treasury stock (14,472) --
Payments of long-term debt (65,797) (55,215)
----------- -----------
Net cash flows from (used in) financing activities (22,574) (41,043)
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 2,153,399 1,828,575
CASH AND CASH EQUIVALENTS - Beginning of period 3,624,368 1,134,310
----------- -----------
CASH AND CASH EQUIVALENTS - End of period $ 5,777,767 $ 2,962,885
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS:
Cash paid during the period for:
Interest $ 18,189 $ 32,889
=========== ===========
Income Taxes $ 299,500 $ 120,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
BIO-LOGIC SYSTEMS CORP.
FORM 10-QSB
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The information furnished in this report reflects all adjustments which
are, in the opinion of management, necessary to a fair statement of the
results for the interim periods. The results of operations for the three
and six months ended August 31, 1998 are not necessarily indicative of the
results to be expected for the full year.
2. 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.
3. NET INCOME PER SHARE
Basic earnings per share are based on the weighted average number of shares
outstanding during each quarter. The weighted average shares for computing
basic earnings per share were 4,023,184 and 3,944,712 for the quarters
ended August 31, 1998 and 1997, respectively, and 4,005,888 and 3,943,968
for the six months ended August 31, 1998 and 1997, respectively.
Diluted earnings per share are based on the weighted average number of
common and dilutive common equivalent shares calculated at average market
prices. The weighted average shares for computing diluted earnings per
share were 4,115,047 and 4,110,197 for the quarters ended August 31, 1998
and 1997, respectively, and 4,005,888 and 4,063,010 for the six months
ended August 31, 1998 and 1997, respectively.
Because of the net loss for the six months ended August 31, 1998, common
equivalent shares were not included in the calculation of diluted earnings
per share as their inclusion would be anti-dilutive.
4. ACCOUNTING FOR INCOME TAXES
Deferred tax assets and liabilities are computed for differences between
financial statement basis and tax basis of assets, liabilities and
available 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.
6
<PAGE>
BIO-LOGIC SYSTEMS CORP.
FORM 10-QSB
5. MARKETABLE SECURITIES
The Company's entire portfolio of debt securities has been classified as
held-to-maturity and are stated at cost, with premiums amortized and
discounts accreted using the simple-interest method.
Investment Securities Held-To-Maturity
The amortized cost, unrealized gains, unrealized losses and estimated fair
values of investment securities are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
Amortized Cost Gain Losses Value
-------------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
August 31, 1998
- ---------------
US Government securities $ 0 $ 0 $ 0 $ 0
August 31, 1997
- ---------------
US Government securities $1,500,693 $ 4,002 $ 0 $1,504,695
</TABLE>
6. EARNINGS PER SHARE PRESENTATION
Earnings per Share - The Company has adopted Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings per Share," as of February
28, 1998. 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.
7. TREASURY STOCK REPURCHASE
As of October 9, 1998, the Company purchased an aggregate of 17,300 shares
of its common stock at a total cost of $49,168.
7
<PAGE>
BIO-LOGIC SYSTEMS CORP.
FORM 10-QSB
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Prospective investors are cautioned that the statements in this Quarterly
Report on Form 10-QSB 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 Quarterly Report on Form 10-QSB and from time
to time in the Company's filings with the Securities and Exchange Commission.
LIQUIDITY AND CAPITAL RESOURCES
As of August 31, 1998 the Company had working capital of $10,186,075
including $5,777,767 in cash, short-term investments and other cash equivalents.
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 will bear
interest at the bank's prime rate.
For the six months ended August 31, 1998, cash flow increased by $2,153,399
and net cash flow from operations increased by $799,140. The net loss for the
six months ended August 31, 1998 decreased net cash flow from operating
activities by $128,276 compared to net income of $433,459 for the six months
ended August 31, 1997 that increased net cash flow from operating activities. In
the six months ended August 31, 1998, marketable securities of approximately
$1,500,099 matured and provided net cash flow from investing activities.
RESULTS OF OPERATIONS
Net sales for the three month period ended August 31, 1998 (the "1998 three
months") increased slightly to $4,361,167 from $4,346,349 in the three month
period ended August 31, 1997 (the "1997 three months"), while net sales for the
six month period ended August 31, 1998 (the "1998 six months") decreased by 8%
to $8,068,481 compared to $8,755,030 in the six month period ended August 31,
1997 (the "1997 six months.") Domestic sales decreased by 4% and 1% to
$3,682,742 and $6,835,296 for the 1998 three and six months, respectively,
compared to $3,816,105 and $6,911,563 for the 1997 three and six months,
respectively. Foreign sales of $678,425 and $1,233,185 contributed 16% and 15%
of net sales for the 1998 three and six months, respectively, an increase of 28%
from $530,244 for 1997 three months, while a decrease of 33% from $1,843,467 for
the 1997 six months. The foreign slaes in the 1998 six months were negatively
impacted by the Far Eastern and South American monetary crisis. The Company's
overall decrease in net sales for 1998 six months was the result of lower unit
sales of the Ceegraph and Sleep product lines which were only partially offset
by increases in AuDx sales.
Cost of sales decreased to $1,364,980 and $2,592,134 for the 1998 three and
six months, respectively, compared to $1,404,592 and $2,867,522 for the 1997
three and six months, respectively. Cost of sales as a percentage of net sales
decreased however to 31% and 32% for the 1998 three and six months,
respectively, from 32% and 33% for the 1997 three and six months, respectively.
This decrease in cost of sales as a percentage of net sales in the 1998 three
and six months was primarily the result of sales of higher margin products and
fixed manufacturing costs as compared to higher sales prices.
8
<PAGE>
BIO-LOGIC SYSTEMS CORP.
FORM 10-QSB
Selling, general and administrative expenses increased by 12% and 5% to
$2,288,705 and $4,328,366 during the 1998 three and six months, respectively,
compared to $2,047,330 and $4,126,570 for the 1997 three and six months,
respectively. Selling, general and administrative expenses as a percentage of
net sales, increased to 53% and 54% for the 1998 three and six months,
respectively, compared to 47% for both the 1997 three and six months. The
increases in the 1998 three and six months reflects additional employee and
travel costs, higher sales commissions, and approximately $175,000 in cost to
achieve ISO 9001 and EN46001 certification.
Research and development costs decreased by less than 1% and increased by
21% to $628,019 and $1,450,222 for the 1998 three and six months, respectively,
from $629,122 and $1,201,085 for the 1997 three and six months, respectively. As
a percentage of net sales, total research and development costs remained at
approximately 14% for the 1998 and 1997 three months while increasing to 18%
from 14% for the 1998 and 1997 six months, respectively. The increase in cost
for the 1998 six months was the result of higher individual salaries, increased
outside development costs, and higher consulting expenses associated with the
Company's conversion of its DOS based systems to Windows 95 and Windows NT
platforms.
The Company had operating income of $79,463 and operating loss of $302,241
for the 1998 three and six months, respectively, compared to operating income of
$265,305 and $559,853 for 1997 three and six months, respectively. The decrease
in operating income and the resulting loss for the 1998 six months was the
result of lower than expected foreign net sales coupled with higher selling,
general and administrative costs.
Net interest income increased to $110,168 for the 1998 six months compared
to $78,682 for 1997 six months. This increase reflects higher investment returns
on marketable securities and lower interest expense on long term debt.
The Company had income tax expense of $45,100 and an income tax benefit of
$64,200 for the 1998 three and six months compared to income tax expense of
$99,013 and $205,863 for the 1997 three and six months, respectively. The
company's income tax rate differs from the federal statutory rate of 35% due to
the differences in foreign income and its corresponding tax rates.
The Company had net income of $89,687 and a net loss of $128,276, or $.02
and $(0.03) per share, for the 1998 three and six months, respectively, compared
to net income of $208,480 and $433,459, or $0.05 and $0.10, per share for the
1997 three and six months, respectively. The Company attributes the lower
earnings in the 1998 three and six months to lower foreign net sales and higher
selling, general and administrative and research and development costs.
9
<PAGE>
BIO-LOGIC SYSTEMS CORP.
FORM 10-QSB
YEAR 2000 ISSUE
The Year 2000 issue (i.e., the ability of computer systems to accurately
identify and process dates beginning with Year 2000 and beyond) affects
virtually all companies and organizations. The Company recognizes that
information systems are integral to its operations. As all of the Company's
software is either developed internally or acquired from third party vendors to
be included in the Company's product line for subsequent sale, the Company's
efforts to limit problems associated with Year 2000 software failures are
focused on investigating, testing and ensuring that all such software is Year
2000 compliant. As a result of these efforts, the Company believes that the Year
2000 issue will not pose significant internal problems for the Company's
business. The Company is also communicating with its suppliers, financial
institutions and third party payors to determined their plans to limit problems
associated with the Year 2000 issue problems. The Company does not anticipate
that there will be a material cost associated with addressing its potential
exposure to Year 2000 problems. Despite these efforts, the Year 2000 issue is
complex and may present unforeseen problems in the Company's systems and from
third parties with which the Company deals, such as third-party vendors and
payors. Failure of the Company's or third parties' computer systems could
materially and adversely impact the Company's operations.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company's 1998 Annual Meeting of Shareholders (the "1998 Annual
Meeting") was held on August 19, 1998
(b) The following directors were elected at the 1998 Annual Meeting:
Gabriel Raviv, Ph.D.
Craig W. Moore
The following are the other directors of the Company whose term of
office continued after the 1998 Annual Meeting:
Gil Raviv
Irving Kupferberg
Charles Z. Weingarten
Albert Milstein
The following votes were cast in connection with the election of
directors at the 1998 Annual Meeting:
FOR AGAINST
-------- -------
Gabriel Raviv, Ph.D. 3,697,618 20,917
Craig W. Moore 3,698,368 20,167
10
<PAGE>
BIO-LOGIC SYSTEMS CORP.
FORM 10-QSB
ITEM 5. OTHER INFORMATION
In May 1998, the SEC adopted a 45 day advance notice requirement for
shareholder proposals to be included in a company's proxy statement. This new
notice deadline requires that the Company's shareholders seeking inclusion of a
shareholder proposal in the Company's next proxy statement for the annual
meeting scheduled for August 20, 1999 notify the Company by July 6, 1999.
ITEM 6. EXHIBITS AND REPORTS ON 8-K
(a) Exhibits
27. Financial Data Schedule
- ------------------
(b) The Registrant did not file any reports on Form 8-K during the three months
ended August 31, 1998
11
<PAGE>
BIO-LOGIC SYSTEMS CORP.
FORM 10-QSB
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: October 14, 1998 By: /s/ GABRIEL RAVIV
------------------------------
Gabriel Raviv, President
Date: October 14, 1998 By: /s/ JAMES M. SMEARMAN
------------------------------
James M. Smearman,
Controller
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-END> AUG-31-1998
<CASH> 5,777,767
<SECURITIES> 0
<RECEIVABLES> 2,944,543
<ALLOWANCES> 280,523
<INVENTORY> 3,272,273
<CURRENT-ASSETS> 12,451,694
<PP&E> 4,899,475
<DEPRECIATION> 2,918,561
<TOTAL-ASSETS> 15,264,778
<CURRENT-LIABILITIES> 2,265,619
<BONDS> 496,382
0
0
<COMMON> 40,291
<OTHER-SE> 12,323,921
<TOTAL-LIABILITY-AND-EQUITY> 15,264,778
<SALES> 8,068,481
<TOTAL-REVENUES> 8,068,481
<CGS> 2,592,134
<TOTAL-COSTS> 2,592,134
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 57,600
<INTEREST-EXPENSE> 18,189
<INCOME-PRETAX> (192,476)
<INCOME-TAX> (64,200)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (128,276)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
