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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10Q-SB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended November 30, 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 X NO__
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 January 11, 1999
Common Stock $.01 par value 4,029,284 shares
Transitional Small Business Disclosure Format
Yes__ No X
<PAGE>
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets at
November 30, 1998 and February 28, 1998. 3
Condensed Consolidated Statements of Operations and
Retained Earnings for the three and nine months ended
November 30, 1998 and 1997. 4
Condensed Consolidated Statements of Cash Flows for
the nine months ended November 30, 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 6. EXHIBITS AND REPORTS ON FORM 8-K 10
SIGNATURES
<PAGE>
BIO-LOGIC SYSTEMS CORP.
FORM 10Q-SB
PART 1. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
November 30, 1998 February 28, 1998
----------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 6,049,430 $ 3,624,368
Marketable securities - held to maturity -- 1,500,099
Accounts receivable, less allowance for doubtful
accounts of $309,318 at November 30, 1998
and $219,320 at February 28, 1998 3,092,006 4,023,324
Inventories 3,298,683 3,277,811
Prepaid expenses 106,324 144,852
Deferred income taxes 311,689 311,689
----------- -----------
Total current assets 12,858,132 12,882,143
PROPERTY, PLANT AND EQUIPMENT - Net 1,961,546 2,000,342
OTHER ASSETS 771,294 918,752
----------- -----------
TOTAL ASSETS $15,590,972 $15,801,237
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 141,108 $ 135,005
Accounts payable 380,783 493,813
Accrued salaries & payroll taxes 785,433 699,671
Accrued interest & other expenses 721,328 355,163
Accrued income taxes 248,026 601,835
Deferred revenue 347,153 360,235
----------- -----------
Total current liabilities 2,623,831 2,645,722
LONG-TERM DEBT - Less current maturities 331,005 427,174
DEFERRED INCOME TAXES 293,548 293,548
COMMITMENTS -- --
----------- -----------
Total liabilities 3,248,384 3,366,444
----------- -----------
SHAREHOLDERS' EQUITY:
Capital stock, $.01 par value. authorized 10,000,000
shares, issued and outstanding 4,029,084 shares at,
November 30, 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 7,609,053 7,709,785
----------- -----------
Total shareholders' equity 12,391,756 12,434,793
Less treasury stock, at cost:17,300 shares (49,168) --
----------- -----------
Shareholders equity - net 12,342,588 12,434,793
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $15,590,972 $15,801,237
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
BIO-LOGIC SYSTEMS CORP.
FORM 10Q-SB
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(UNAUDITED)
Three Months Ended Nine Months Ended
November 30, November 30,
------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 4,380,800 $ 4,549,481 $12,449,281 $13,304,511
COST OF SALES 1,357,619 1,390,959 3,949,753 4,258,481
----------- ----------- ----------- -----------
Gross Profit 3,023,181 3,158,522 8,499,528 9,046,030
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Selling, general & administrative 2,259,874 2,066,456 6,582,739 6,193,026
Research & development 785,339 608,875 2,241,061 1,809,960
----------- ----------- ----------- -----------
Total operating expenses 3,045,213 2,675,331 8,823,800 8,002,986
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) (22,032) 483,191 (324,272) 1,043,044
OTHER INCOME (EXPENSE):
Interest income 69,959 56,084 198,316 156,371
Interest expense (5,468) (10,694) (23,657) (32,299)
Miscellaneous (1,240) 1,758 (1,644) 2,544
----------- ----------- ----------- -----------
TOTAL OTHER INCOME 63,251 47,148 173,015 126,616
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 41,219 530,339 (151,257) 1,169,660
PROVISION (BENEFIT) FOR INCOME TAXES 13,675 169,700 (50,525) 375,563
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 27,544 $ 360,639 $ (100,732) $ 794,097
=========== =========== =========== ===========
RETAINED EARNINGS,
BEGINNING OF PERIOD 7,581,509 6,994,807 7,709,785 6,561,349
----------- ----------- ----------- -----------
RETAINED EARNINGS,
END OF PERIOD $ 7,609,053 $ 7,355,446 $ 7,609,053 $ 7,355,446
=========== =========== =========== ===========
EARNINGS (LOSS) PER SHARE:
Primary and Fully Diluted $0.01 $0.09 $(0.03) $0.19
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
BIO-LOGIC SYSTEMS CORP.
FORM 10Q-SB
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
November 30,
----------------------------------
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (100,732) $ 794,097
Adjustments to reconcile net income to net cash flows
from (used in) operating activities:
Depreciation and amortization 343,361 275,347
Provision for bad debts 86,400 72,000
Provision for inventory valuation 231,695 231,975
Deferred income taxes
(Increases) decreases in assets:
Accounts receivable 844,918 (872,598)
Inventories (252,567) (525,833)
Prepaid expenses 38,528 67,367
Increases (decreases) in liabilities:
Accounts payable and overdrafts (113,030) 39,882
Accrued liabilities and deferred revenue 438,845 441,358
Accrued income taxes (353,809) 291,444
----------- -----------
Net cash flows from (used in) operating activities 1,163,609 815,039
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (122,739) (129,695)
Other assets (34,368) 26,912
Proceeds from maturities of investments 1,500,099 1,292,275
----------- -----------
Net cash flows from (used in) investing activities 1,342,992 1,189,492
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options 57,695 85,831
Purchase of treasury stock (49,168) --
Payments of long-term debt (90,066) (94,488)
----------- -----------
Net cash flows from (used in) financing activities (81,539) (8,657)
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 2,425,062 1,995,874
CASH AND CASH EQUIVALENTS - Beginning of period 3,624,368 1,134,310
----------- -----------
CASH AND CASH EQUIVALENTS - End of period $ 6,049,430 $ 3,130,184
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS:
Cash paid during the period for:
Interest $ 23,657 $ 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 10Q-SB
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 nine
months ended November 30, 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 4,015,536 and 3,969,040 for the quarters ended
November 30, 1998 and 1997, respectively, and 4,009,103 and 3,952,326 for
the nine months ended November 30, 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 4,050,893 and 4,192,019 for the quarters ended November 30, 1998 and
1997, respectively, and 4,087,188 and 4,106,013 for the nine months ended
November 30, 1998 and 1997, respectively.
Because of the net loss for the nine months ended November 30, 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 10Q-SB
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>
November 30, 1998
U.S. Government securities $0 $0 $0 $0
November 30, 1997
U.S. Government securities $1,500,396 $2,424 $0 $1,502,820
</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
Subsequent to November 30, 1998 and as of January 11, 1999, the Company
purchased an additional 10,000 shares of its common stock at a total cost of
$26,585.
7
<PAGE>
BIO-LOGIC SYSTEMS CORP.
FORM 10Q-SB
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 10Q-SB 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 10Q-SB and from time
to time in the Company's filings with the Securities and Exchange Commission.
LIQUIDITY AND CAPITAL RESOURCES
As of November 30, 1998 the Company had working capital of $10,234,301
including $6,049,430 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 nine months ended November 30, 1998, cash flow increased by
$2,425,062 and net cash flow from operations increased by $1,163,609. The net
loss for the nine months ended November 30, 1998 decreased net cash flow from
operating activities by $100,732 compared to net income of $794,097 for the nine
months ended November 30,1997 that increased net cash flow from operating
activities. In the nine months ended November 30, 1998, marketable securities of
$1,500,099 matured and provided net cash flow from investing activities.
RESULTS OF OPERATIONS
Net sales for the three month period ended November 30, 1998 (the "1998
three months") decreased by 4% to $4,380,800 from $4,549,481 in the three month
period ended November 30, 1997 (the "1997 three months."), while net sales for
the nine month period ended November 30, 1998 (the "1998 nine months") decreased
by 6% to $12,449,281 compared to $13,304,511 in the nine month period ended
November 30, 1997 (the "1997 nine months.") Domestic sales decreased slightly by
less than 1% to $3,674,202 and $10,509,498 for the 1998 three and nine months,
respectively, compared to $3,678,529 and $10,590,092 for the 1997 three and nine
months, respectively. Foreign sales of $706,598 and $1,939,783 contributed 16%
of net sales for both the 1998 three and nine months, respectively, a decrease
of 19% and 29% from $870,952 and $2,714,419 for 1997 three and nine months,
respectively while a decrease of 33% from $1,843,467 for the 1997 six months.
Foreign sales in the 1998 nine months were negatively impacted by the continued
Far Eastern and South American monetary crisis. The Company's overall decrease
in net sales for the 1999 nine 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.
8
<PAGE>
BIO-LOGIC SYSTEMS CORP.
FORM 10Q-SB
Cost of sales decreased to $1,357,619 and $3,949,753 for the 1998 three and
nine months, respectively, compared to $1,390,959 and $4,258,481 for the 1997
three and nine months, respectively. Cost of sales as a percentage of net sales
remained at 31% and 32% for both the 1998 and 1997 three and nine months,
respectively. The Company attributes the stability in its 1998 and 1997 profit
margins to similar product mixes and increased efficiencies in its'
manufacturing processes.
Selling, general and administrative expenses increased by 9% and 6% to
$2,259,874 and $6,582,739 during the 1998 three and nine months, respectively,
compared to $2,066,456 and $6,193,026 for the 1997 three and nine months,
respectively. Selling, general and administrative expenses as a percentage of
net sales, increased to 52% and 53% during the 1999 three and nine months,
respectively, compared to 45% and 47% for the 1997 three and nine months. The
increases in the 1998 periods reflect additional employee and travel costs,
higher sales commissions, and approximately $203,000 in expenses to achieve and
maintain ISO 9001 and EN46001 certification.
Research and development costs increased by 29% and 24% to $785,339 and
$2,241,061 for the 1998 three and nine months, respectively, from $608,875 and
$1,809,960 for the 1997 three and nine months, respectively. As a percentage of
net sales, total research and development costs increased to approximately 18%
for both the 1998 three and nine months compared to 13% and 14% for the 1997
three and nine months, respectively. The increase in costs for the 1998 periods
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 an operating loss of $22,032 and $324,272 for the 1998 three
and nine months, respectively, compared to operating income of $483,191 and
$1,043,044 for 1997 three and nine months, respectively. The decrease in
operating income and the resulting loss for the 1998 three and nine months was
the result of lower than expected foreign net sales coupled with both higher
selling, general and administrative costs and research and development expenses.
Net interest income increased to $174,659 for the 1998 nine months compared
to $124,072 for the 1997 nine 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 $13,675 and a income tax benefit of
$50,525 for the 1998 three and nine months compared to income tax expense of
$169,700 and $375,563 for the 1997 three and nine 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 $27,544 and a net loss of $100,732, or $.01
and $(0.03) per share, for the 1998 three and nine months, respectively,
compared to net income of $360,639 and $794,097, or $0.09 and $0.19, per share
for the 1997 three and nine months, respectively. The Company attributes the
lower earnings in the 1998 periods to continued lower foreign net sales and
higher selling, general and administrative and research and development costs.
9
<PAGE>
BIO-LOGIC SYSTEMS CORP.
FORM 10Q-SB
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 determine 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 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 November 30, 1998
10
<PAGE>
BIO-LOGIC SYSTEMS CORP.
FORM 10Q-SB
Signatures
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: January 13, 1999 By: /S/ GABRIEL RAVIV
--------------------------
Gabriel Raviv, President
Date: January 13, 1999 By: /S/ JAMES M. SMEARMAN
--------------------------
James M. Smearman,
Controller
11
<PAGE>
BIO-LOGIC SYSTEMS CORP.
FORM 10Q-SB
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: January 13, 1999 By:
--------------------------
Gabriel Raviv, President
Date: January 13, 1999 By:
--------------------------
James M. Smearman,
Controller
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> NOV-30-1998
<CASH> 6,049,430
<SECURITIES> 0
<RECEIVABLES> 3,092,006
<ALLOWANCES> 309,318
<INVENTORY> 3,298,683
<CURRENT-ASSETS> 12,858,132
<PP&E> 4,934,168
<DEPRECIATION> 2,972,622
<TOTAL-ASSETS> 15,590,972
<CURRENT-LIABILITIES> 2,623,831
<BONDS> 472,113
0
0
<COMMON> 40,291
<OTHER-SE> 12,351,465
<TOTAL-LIABILITY-AND-EQUITY> 15,590,972
<SALES> 12,449,281
<TOTAL-REVENUES> 12,449,281
<CGS> 3,949,753
<TOTAL-COSTS> 3,949,753
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 86,400
<INTEREST-EXPENSE> 23,657
<INCOME-PRETAX> (151,257)
<INCOME-TAX> (50,525)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (100,732)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
