<PAGE>
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 29, 2000
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.
-------------------------------------------------
(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
--------------
Securities registered under Section 12(b) of the Act:
Name of each exchange
Title of Each class on which registered
------------------- ----------------------
None None
Securities registered under Section 12(g) of the Act:
Common Stock, $.01 par value
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(Title of Class)
<PAGE>
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No ____
-----
Check here if there is no disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
State the issuer's revenues for its most recent fiscal year:
$26,390,684.
As of May 22, 2000 the issuer had 4,170,509 shares of Common Stock
outstanding. The aggregate market value of the Common Stock held by
nonaffiliates as of May 22, 2000 was approximately $24.0 million.
<PAGE>
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
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Item 1. Business
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(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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<PAGE>
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 Systems Corp., designs, develops, assembles and markets
computer-based electrodiagnostic systems for use by hospitals, clinics,
universities and physicians. The systems conduct tests that are typically used
by medical practitioners to aid in the diagnosis of certain neurological
disorders, brain disorders and tumors, and sensory disorders, including
audiological and hearing screening and diagnosis.
Bio-logic's systems are in modular form and consist of IBM* PC
compatible microcomputers purchased from third parties, interfaced with software
and peripheral devices developed and manufactured by the Company. Any
combination of available diagnostic tests can be included in a system depending
on the user's specialty and requirements. The Company has developed software,
which enables medical personnel to administer diagnostic tests, to control
various aspects of the testing and to record, and process data generated by the
tests. Operation of any of the Company's systems does not require programming
skills on the part of the customer. The Company believes that its systems allow
users to test patients on a cost efficient basis and that cost effectiveness and
ease of operation are important competitive advantages of its systems.
_________________________
* A trademark of International Business Machines Corp.
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The majority of the Company's systems perform tests by means of
computer programs that are controlled by flexible software. The monitor screen
displays a menu of instructions prompting the operator to input information,
test parameters or specify 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 "universal review
stations." Data can be collected on the main system and analyzed on universal
review 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 universal reader for Bio-logic products, and a variety of commercially
available programs, such as word processing and database management, can be
used.
Bio-logic has incorporated 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 DVD) 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.
More recently developed products take advantage of computer component
miniaturization, which allows compact devices for ambulatory testing. These
tests can then be reviewed on a reader station.
The Company's systems are sold to hospitals, universities, 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.
Products and Systems
--------------------
The following sets forth the various products and systems offered by
the Company.
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 stores the information in
digital form and displays it 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 software license which the customer adds to his own IBM-compatible computer to
create a digital EEG review system, to a portable EEG system, an ambulatory
monitor, and/or an advanced laboratory
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system with multiple capabilities for EEG, long-term epilepsy monitoring,
quantitative EEG analysis and other neurological applications. The Ceegraph line
also includes a Universal Reader(TM) that permits fast and easy review in a
graphic display. The Ceegraph line is priced from approximately $30,000 to
$80,000, depending upon the model.
A digital video option allows synchronized video recording of a
patient during EEG acquisition. Computerized control 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
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.
Otoacoustic Emissions Testing
-----------------------------
Otoacoustic Emissions (OAE) testing is a non-invasive objective
technique for evaluating the function of the cochlea, the sensory organ of the
auditory system. The system introduces calibrated sounds 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 OAE
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 fiscal 2000, the Company continued to enhance the functionality of
the AuDX(R) system, a battery-operated, hand-held OAE testing device designed to
detect hearing impairment. The Company is actively marketing AuDX to hospitals
for universal newborn hearing screening, pediatricians, family practitioners and
schools. The selling price for the Bio-logic OAE systems ranges from $3,500 to
$13,000.
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Evoked Response Testing
-----------------------
Evoked response testing is an accepted non-invasive and objective
technique for evaluating the peripheral and central nervous systems. An evoked
response test measures the reaction to a stimulus by monitoring the electrical
activity in the patient's brain. By comparing the magnitude and timing of the
response in a particular patient to normal patterns of response, a physician is
aided in his evaluation of the patient's neurological pathways.
Evoked response testing facilitates the diagnosis of a number of
disorders by providing 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 that 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 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 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 neuro-diagnostic tests
including: auditory, somatosensory and visual EP's; neurogenic and myogenic
motor EP's; EMG; EEG and quantitative EEG. Many 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 intraoperative monitoring systems ranges from $30,000 to
$70,000, depending upon the requested configuration.
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Computerized Polysomnography
----------------------------
Sleepscan(TM) II is a Windows-based 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 specialties
analyze sleep patterns to study mental disorders such as depression and sexual
dysfunction.
A routine sleep study entails whole-night recordings of brain
electrical activity, muscle movement, airflow, respiratory effort, oxygen levels
and EKG. These recordings result in over 1,000 pages of paper traces that have
to be reviewed, analyzed, scored by a specialist and summarized in a report.
This process is costly and time-consuming.
Sleepscan II stores all the information digitally on magnetic and
optical 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. The computer can rapidly perform this analysis and the
results are summarized graphically and incorporated into a detailed report that
is readily available. The user has the ability to verify the analysis, manually
override sections as needed, modify parameters and reanalyze data. Sleepscan is
interfaced with a Ceegraph EEG System and is priced from approximately $25,000
to $60,000, depending on the model.
The Airflow Pressure Transducer is an alternative to the current
airflow monitoring devices that use temperature to produce change as an
indicator. It detects airflow by pressure changes so it can detect shallow
breathing where temperature related transducers remain substantially unchanged.
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 40-
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 40 channels. Records can be analyzed on other desktop Sleepscan systems.
The Traveler is a solid-state, battery-operated ambulatory recorder
for sleep and epilepsy monitoring. It records continuous information on 8, 19 or
27 channels for sleep and 16, 18 or 24 channels for EEG applications. The data,
which is saved on a PCMCIA removable miniature hard disk for easy access, can be
immediately reviewed and analyzed by the Sleepscan II or Ceegraph analysis
program.
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Product Development
-------------------
Bio-logic focuses most of its research and development resources on
the development of new products for its core markets, along with making
modifications, additions and improvements to existing products. Most new
features and product modifications are completed based on the reviews and
suggestions of customers and users of the products. During fiscal 2000 and 1999,
Bio-logic expended $3,239,921 and $2,854,105, respectively, for research and
development.
In the digital EEG market, the Ceegraph IV family of products
continues to evolve as more capabilities and features are added to the product
line. This Windows-based product line is intended to meet all needs of the
Digital EEG and long-term EEG markets, from the smallest (Ceegraph/Sleepscan
Traveler, an ambulatory system with 24 acquisition channels) to the largest
(Ceegraph XL with up to 128 acquisition channels). A wide variety of packaging
and features are available for Ceegraph, including the Ceegraph Express portable
system, synchronized digital video and spike/seizure detection for the epilepsy
monitoring market.
The Sleepscan II system for computerized polysomnography has had
significant additions and improvements incorporated over the past year,
including a completely new Windows-based data acquisition program with
integrated patient and test database and synchronized digital video. Many new
analysis features for Sleepscan II have been added, with improved automated
signal analysis algorithms and extensive reporting functionality heading up the
list.
In the audiology markets, significant new products and features have
been introduced. In addition to the Otoacoustic Emissions (OAE) product line
(led by the AuDX portable unit ideally-suited for universal newborn hearing
screening), a new product, Scout(R) Plus, is now available for the domestic
market. This product incorporates the Transient Evoked Otoacoustic Emissions
(TEOAE) test, providing an instrument to complement and extend the capabilities
of the original Scout OAE product line. For the Evoked Potential (EP) family of
products, the ABaer(TM) device offers hand-held portability and ease-of-use for
performing automated auditory brainstem evoked response tests for newborn
hearing screening applications. A companion product to ABaer, the Navigator Pro,
extends this hand-held portability and convenience to the diagnostic EP market.
The Navigator Pro continues to use the proven technology of the traditional Bio-
logic EP systems, incorporating new hardware packaging and increased-resolution
graphical displays to significantly improve the flexibility and usability of the
system.
For the neurology markets, including EEG and Sleep, new developments
continue in both hardware and software designs. The extensive MS/Office-
compatible database system for patient and test information allows for
portability of patient data across product lines, as well as extensive data
import/export features for interface and data exchange with other hospital
systems. New software features intended specifically for the long-term epilepsy
monitoring market improve ease-of-use and incorporate many timesaving
recommendations from existing users. A completely new hardware data acquisition
system is in the final stages of design, offering many new capabilities,
enhanced performance specifications, variable (and higher) sampling rates
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while maintaining absolute data integrity and state-of-the-art packaging for
ease-of-use in all environments.
For several years, the Company has continued to evolve its major
products from the DOS operating system to Windows 95/98 operating system. This
evolution is near completion and the transition to Windows NT/2000 is now in
progress. The use of NT provides more extensive networking and security features
while offering basic similarity and compatibility with existing Windows 95/98
applications. This evolution is near completion.
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 29, 2000, the Company had received an
aggregate of approximately $1,087,000. The Company is required to pay royalties
based on sales of any product developed under such agreements, or in the event
of licensing of such products to a third party. The total payments by the
Company, including royalties and licensing fees, will not exceed 150% of the
amounts received under such agreements. As of February 29, 2000, the Company has
paid royalties of $1,245,176 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. During fiscal 2000 and 1999,
no one customer or distributor 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 sales and product brochures, advertising, direct mail programs,
and the operation of the European sales office.
Foreign Sales
-------------
During fiscal 2000, export sales increased to $2,753,628, or
approximately 10% of net sales, compared to $2,333,483, or approximately 13% of
net sales, in fiscal 1999. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The Company is
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required to obtain export licenses for some system sales to certain foreign
countries. Political and governmental conditions, import and export
restrictions, and currency fluctuations in the Far East and South America can at
times adversely affect the Company's foreign business.
Customer Training, Support and Maintenance
------------------------------------------
In connection with the installation of a system, the Company's
independent domestic dealers' sales representative or, if the sale is made
directly by the Company, the Company's customer support personnel, will train
the customer's 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 operation. The Company continues to
support its technical and customer training staff. Foreign sales are supported
by the Company's foreign distributors who are provided periodic training and
support. 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, printers and certain standard components produced 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 high
capacity hard disks and removable DVD 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 Company also 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
the most recent patent related to the SmartPack. The Company continues to expand
its intellectual property and has applied for three additional patents. These
applications are currently under review by the U.S. Patent office. There is no
assurance that such patents will afford any commercial benefits. The Company has
registered the trademarks Bio-logic, Brain Atlas, AuDX, Scout,
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Navigator and Traveler. The Company has developed a number of unpublished
computer software programs that 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, XLTek.Com, Telefactor Corporation, NCI, Inc.,
Nihon-Kohden Corporation, Oxford Instruments, Medical Graphics Corporation,
Mallinckrodt, Inc. 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 systems. Another
major competitive factor is its ability to tailor systems to a customer's
particular diagnostic and data processing requirements.
Government Regulation
---------------------
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) applications (notifications of intent 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.
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Employees
---------
As of February 29, 2000, the Company employed 135 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:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Gabriel Raviv, Ph.D. 49 Chairman, Chief
Executive Officer
Roderick G. Johnson 51 President, Chief
Operating Officer
Thomas S. Lacy 57 Vice
President-Marketing
and Sales
</TABLE>
Gabriel Raviv has been a Director of the Company since it
commenced operations in March 1979. He became President and Chief Executive
Officer of the Company in February 1981. In September 1999, Dr. Raviv
relinquished the role of President retaining the position of Chief Executive
Officer of the Company. Dr. Raviv formerly served as director of the Clinical
Research Instrumentation Laboratory at Evanston Hospital (an affiliate of
Northwestern University) and is currently Adjunct Professor at Northwestern
University. Dr. Raviv received his M.S. and Ph.D. degrees in Electrical
Engineering and Computer Sciences from Northwestern University.
Roderick Johnson joined the Company in September 1999 as
President, Chief Operating Officer and a member of the Board of Directors. He
founded the Neurocare Group in 1994 and served as Chairman, President and Chief
Executive Officer until 1999. From 1992 through 1994, Mr. Johnson served as
Chief Executive Officer in Residence at Weiss, Peck & Greer and the Continental
Illinois Venture Capital Corporation. In addition, from 1988 through 1991, Mr.
Johnson was President and Chief Executive Officer of Domino Amjet, Inc.
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 with a
remaining principal balance of approximately $294,000. As collateral for the
Bond, the Company granted the municipality a mortgage on the property.
The Company also leases two offices overseas with current
annual rents of approximately $35,917 and $24,487, which are 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
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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, markdowns or commissions
and do not necessarily represent actual transactions. The quotations are rounded
to the nearest 1/16 through the 3/rd/ quarter of fiscal 1999 and to the nearest
1/25 beginning in the 4/th/ quarter of fiscal 1999.
High Low
Sales Price Sales Price
----------- -----------
Fiscal Year Ended February 29, 2000
-----------------------------------
1st Quarter $ 3.625 $2.500
2nd Quarter 6.063 3.375
3rd Quarter 8.125 5.375
4th Quarter 12.188 5.625
Fiscal Year Ended February 28, 1999
-----------------------------------
1st Quarter $ 5.680 $4.400
2nd Quarter 5.000 2.875
3rd Quarter 3.800 2.500
4th Quarter 4.250 2.500
(b) Approximate Number of Equity Security Holders
---------------------------------------------
As of May 22, 2000, there were approximately 210 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 information 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.
<TABLE>
<CAPTION>
Fiscal Year Ended Last Day of February,
---------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $26,390,684 $17,418,286 $18,018,689 $14,856,955 $14,602,000
Operating income 2,781,222 99,370 1,551,114 811,712 1,204,459
Net income (1) 2,162,592 289,140 1,148,436 683,845 892,091
Net income per share-diluted (2)(3) 0.52 0.07 0.28 0.17 0.21
Working capital 12,430,582 10,592,510 10,236,421 7,645,040 9,428,915
Total assets 19,168,147 16,038,207 15,801,237 13,924,402 14,379,986
Long-term debt 139,670 294,618 427,174 562,879 689,877
Total liabilities 4,127,580 3,332,874 3,366,444 2,725,000 2,982,675
Shareholders' equity 15,040,567 12,705,333 12,434,793 11,199,402 11,397,311
Shares outstanding (2)(3) 4,180,094 4,095,939 4,117,334 4,140,216 4,329,445
</TABLE>
________________
(1) Includes net interest income of $219,947, $227,033, $173,505, $170,864, and
$114,412 in fiscal 2000, 1999, 1998, 1997 and 1996, respectively.
-16-
<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. Management's' 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 2000 Compared To Fiscal 1999
-----------------------------------
Net sales for fiscal 2000 were $26,390,684, a 52% increase from net
sales of $17,418,286 during fiscal 1999. Domestic sales in fiscal 2000 increased
by 57% to $23,637,056 from $15,084,803 in fiscal 1999. Foreign sales in fiscal
2000 increased by 18% to $2,753,628 compared to $2,333,483 for fiscal 1999. As a
percentage of net sales, domestic and foreign sales for fiscal 2000 were 90% and
10%, respectively, compared to 87% and 13% for fiscal 1999, respectively.
The increase in both domestic and international net sales was the
result of higher system sales across all product lines. Sales of Bio-logic's
premier product leader, the Ceegraph XL, reflected not only strong demand in the
high-end, long-term epilepsy monitoring market, but also led to increased demand
for the Company's other neurology products such as the Ceegraph IV, Ceegraph
Traveler, and Sleepscan Console. The strong sales increase also can be
attributed to a volume increase in the number of multiple system orders shipped
to the typical customer. In addition, the Company reported higher net sales in
the audiology product line, in particular, the AuDX. The increase in net sales
of the AuDX product was partially the result of an increasing number of states
mandating that hospitals and birthing centers test for newborn hearing loss.
-17-
<PAGE>
Cost of equipment sold increased to $8,547,205 during fiscal 2000
compared to $5,633,758 for fiscal 1999, and as a percentage of net sales
remained at approximately 32% for both fiscal 2000 and 1999. This increase in
cost of equipment sold was the result of significantly higher net sales.
Selling, general and administrative expenses increased by approximately
34% to $11,822,336 during fiscal 2000 compared to $8,831,053 for fiscal 1999,
and as a percentage of net sales decreased to 45% for fiscal 2000 compared to
51% for fiscal 1999. Selling, general and administrative expenses for fiscal
2000 were higher in part due to increased staffing on the sales, customer
support and executive teams. Also, sales commissions and travel expenses
increased significantly due to higher net sales.
Research and development expenses increased by approximately 14% to
$3,239,921 during fiscal 2000 in contrast to $2,854,105 for fiscal 1999, and as
a percentage of net sales, decreased to 12% for fiscal 2000 compared to 16% for
fiscal 1999. The increase in research and development costs was mainly due to
higher individual salaries, increases in outside consulting, additions to the
audiology product line and the Company's continuing efforts to complete the
conversion of all DOS-based systems to Windows-based platforms.
For fiscal 2000, the Company had operating income of $2,781,222
compared to operating income of $99,370 for fiscal 1999. The increase in
operating income in fiscal 2000 was the result of significantly higher gross
profit partially offset by increased selling, general and administrative
expenses and higher research and development costs.
The Company had net interest income of $219,947 for fiscal 2000
compared to $227,033 for fiscal 1999. The decrease of net interest income is
primarily due to lower interest income earned on the Company's money market
accounts and higher interest expense on short- and long-term debt.
The provision for income taxes during fiscal 2000 was approximately 28%
of income before taxes, compared to 10% of income before taxes in fiscal 1999.
The tax provision as a percentage of net income in fiscal 2000 was higher due to
the substantial increase in the Company's domestic revenue and income before
taxes.
The Company had net income of $2,162,592 or $.52 per diluted share for
fiscal 2000 compared to $289,140 or $.07 per diluted share for fiscal 1999. The
increase in net income was the result of significantly higher gross profit
across all product lines offset by higher operating expenses and corporate
income taxes.
Recent Developments
-------------------
The Company believes it will report lower sales and a net loss for the
quarter ending May 31, 2000 compared with the quarter ended May 31, 1999. The
Company attributes the decline in first quarter sales to a lack of urgency by
hospital purchasing managers in making capital expenditure decisions now that
the pressure of Y2K compliance has lifted, and a temporary shortage of
electronic components, now rectified, that adversely impacted shipment dates for
Bio-logic's new compact ABaer audiology unit.
-18-
<PAGE>
Liquidity and Capital Resources
-------------------------------
As of February 29, 2000, the Company had working capital of $12,430,582
including $4,959,902 of cash and cash equivalents and $6,323,513 of accounts
receivable. The principal sources of working capital are funds generated from
operations. Net cash used in operating activities during fiscal 2000 was
$315,700. 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 bear interest at the bank's prime rate.
Bio-logic's headquarters and manufacturing facility were partially
financed with an Industrial Development Bond (the "Bond") in the original
principal amount of $1,600,000. Principal and interest on the Bond are payable
in monthly installments through December 1, 2001. The Bond bears interest at 80%
of the base-lending rate in effect from time to time. As collateral for the Bond
indebtedness, the Company granted the municipality a mortgage on the property
including improvements. The Company also agreed to maintain a current ratio of
not less than 1.5:1 and a ratio of total liabilities to net worth of not greater
than 1:1, and agreed not to declare or pay cash dividends without the prior
written consent of the bank which purchased the Bond. The Company agreed to
maintain at such bank a compensating balance equal to 10% of the unpaid balance
of the loan in a non-interest bearing account. The outstanding principal amount
of the Bond was approximately $294,000 at February 29, 2000.
The Company is a party to a number of research and development
agreements under which, at February 29, 2000, the Company had received an
aggregate of approximately $1,087,000. The Company is required to pay royalties
based on sales of any product developed under such agreements, or in the event
of licensing of such products to a third party. The total payments by the
Company, including royalties and licensing fees, will not exceed 150% of the
amounts received under such agreements. As of February 29, 2000, the Company has
paid royalties of $1,245,176 under such agreements.
At February 29, 2000, the Company had no material capital commitments.
The Company purchased 47,800 shares of the its common stock at an aggregate cost
of $131,980 over the two year period of fiscal 2000 and 1999.
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 would be completed.
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
-19-
<PAGE>
PART III
--------
The information called for by Items 9, 10, 11 and 12 of Part III has
been omitted and will be included in the Registrant's proxy statement which will
be filed not later than 120 days after the close of its fiscal year.
-20-
<PAGE>
PART IV
-------
Item 13. Exhibits, List and Reports on Form 8-K
--------------------------------------
(a) Exhibits.
--------
3.1 Certificate of Incorporation, Certificate of Amendment to
Certificate of Incorporation, Agreement of Merger and
Certificate of Merger and By-Laws (1)
3.2 Certificate of Amendment to Certificate of Incorporation (7)
10.1 Lease between the Company and Harris Trust & Savings Bank dated
August 9, 1983(2)
10.2 Technology License Agreement between the Company and
Neurographic Technologies dated August 13, 1984(3)
10.3 Real Estate Sale Contract between the Company and First National
Bank of Lake Forest, as Trustee, dated December 23, 1985(4)
10.4 Loan Agreement between the Company and Village of Mundelein,
Illinois dated as of December 1, 1985(4)
10.5 Mortgage and Security Agreement between the Company and Village
of Mundelein, Illinois dated as of December 1, 1985(4)
10.6 Bond Purchase Agreement between the Company and First American
Bank of Dundee dated as of December 1, 1985(4)
10.7 Agreement among Gabriel Raviv, Gil Raviv, Charles Z. Weingarten
and the Company (5)
10.8 Employment Agreement between the Company and Gabriel Raviv (5)
10.9 Employment Agreement between the Company and Gil Raviv (5)
10.10 Form of Export Property Sale, Commission and Lease Agreement
between the Company and Bio-logic International Corporation (6)
10.11 Agreement and General Release between the Company and Gil Raviv
(9)
10.12 Letter dated May 2, 1994 from First American Bank to the Company
(10)
-21-
<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 29, 2000, 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.
(10) Incorporated by reference from the Company's Annual Report on Form 10-K
for the Fiscal Year ended February 28, 1994.
-22-
<PAGE>
(11) Incorporated by reference from the Company's Report on Form 10-Q for the
quarter ended May 31, 1994.
(12) Incorporated by reference from the Company's Report on Form 10-Q for the
quarter ended August 31, 1994.
-23-
<PAGE>
BIO-LOGIC SYSTEMS CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS............................................... F-2
FINANCIAL STATEMENTS:
Consolidated Balance Sheets, February 29, 2000 and February 28, 1999........................ F-3
Consolidated Statements of Earnings for the Years Ended
February 29, 2000 and February 28, 1999................................................. F-4
Consolidated Statement of Shareholders' Equity for the Years
Ended February 29, 2000 and February 28, 1999........................................... F-5
Consolidated Statements of Cash Flows for the Years Ended
February 29, 2000 and February 28, 1999................................................. F-6
Notes to Consolidated Financial Statements.................................................. F-7
</TABLE>
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 29, 2000 and February 28, 1999,
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 auditing standards generally accepted
in the United States. 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Bio-logic Systems
Corp. and subsidiaries as of February 29, 2000 and February 28, 1999, and the
consolidated results of their operations and their cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United
States.
GRANT THORNTON LLP
Chicago, IL
April 28, 2000
F-2
<PAGE>
BIO-LOGIC SYSTEMS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
<TABLE>
<CAPTION>
ASSETS 2000 1999
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,959,902 $ 5,957,112
Accounts receivable, less allowance for doubtful accounts
of $360,554 in 2000 and $249,322 in 1999 6,323,513 3,359,291
Inventories 4,408,557 3,533,408
Prepaid expenses 150,435 236,865
Deferred income taxes 400,286 299,195
----------- -----------
Total current assets 16,242,693 13,385,871
PROPERTY, PLANT AND EQUIPMENT - Net 2,381,425 1,906,057
OTHER ASSETS 544,029 746,279
----------- -----------
TOTAL ASSETS $19,168,147 $16,038,207
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 154,153 $ 143,467
Accounts payable 1,029,175 599,228
Accrued salaries and payroll taxes 1,366,129 876,770
Accrued interest and other expenses 438,208 619,023
Accrued income taxes 469,257 354,735
Deferred revenue 355,189 200,138
----------- -----------
Total current liabilities 3,812,111 2,793,361
LONG-TERM DEBT - Less current maturities 139,670 294,618
DEFERRED INCOME TAXES 175,799 244,895
----------- -----------
Total liabilities 4,127,580 3,332,874
----------- -----------
COMMITMENTS -- --
SHAREHOLDERS' EQUITY:
Capital stock, $.01 par value; authorized, 10,000,000 shares;
issued and outstanding; issued 4,161,309 and outstanding
4,113,509 at February 29, 2000; issued 4,034,734 and
outstanding 4,002,934 at February 28, 1999 41,613 40,347
Additional paid-in capital 4,969,417 4,754,981
Retained earnings 10,161,517 7,998,925
----------- -----------
15,172,547 12,794,253
Less treasury stock, at cost: 47,800 shares at Feb. 29, 2000
and 31,800 shares at February 28, 1999 131,980 88,920
----------- -----------
Total shareholders' equity 15,040,567 12,705,333
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $19,168,147 $16,038,207
=========== ===========
</TABLE>
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 29, 2000 AND FEBRUARY 28, 1999
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
NET SALES $ 26,390,684 $ 17,418,286
COST OF SALES 8,547,205 5,633,758
------------ ------------
Gross profit 17,843,479 11,784,528
OPERATING EXPENSES:
Selling, general, and administrative 11,822,336 8,831,053
Research and development 3,239,921 2,854,105
------------ ------------
Total operating expenses 15,062,257 11,685,158
------------ ------------
OPERATING INCOME 2,781,222 99,370
OTHER INCOME (EXPENSE):
Interest income 253,566 258,558
Interest expense (33,619) (31,525)
Miscellaneous 2,423 (3,704)
------------ ------------
TOTAL OTHER INCOME 222,370 223,329
------------ ------------
INCOME BEFORE INCOME TAXES 3,003,592 322,699
PROVISION FOR INCOME TAXES 841,000 33,559
------------ ------------
NET INCOME $ 2,162,592 $ 289,140
============ ============
NET INCOME PER SHARE:
Basic $ 0.54 $ 0.07
============ ============
Diluted $ 0.52 $ 0.07
============ ============
AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic 4,014,066 4,008,201
============ ============
Diluted 4,180,094 4,095,939
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
BIO-LOGIC SYSTEMS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
YEARS ENDED FEBRUARY 28, 1999 AND FEBRUARY 29, 2000
<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, 1998 3,983,104 $ 39,831 $ 4,685,177 $ 7,709,785 $ -- $12,434,793
Purchase of treasury stock (88,920) (88,920)
Exercise of stock options 51,630 516 69,804 70,320
Net income 289,140 289,140
----------- ----------- ----------- ----------- ------------ -----------
BALANCE, February 28, 1999 4,034,734 40,347 4,754,981 7,998,925 (88,920) 12,705,333
Purchase of treasury stock (43,060) (43,060)
Exercise of stock options 126,575 1,266 214,436 215,702
Net income 2,162,592 2,162,592
----------- ----------- ----------- ----------- ------------ -----------
BALANCE, February 29, 2000 4,161,309 $ 41,613 $ 4,969,417 $10,161,517 $ (131,980) $15,040,567
=========== =========== =========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
BIO-LOGIC SYSTEMS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
<TABLE>
<CAPTION>
2000 1999
----------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,162,592 $ 289,140
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization 436,772 421,007
Provision for bad debts 111,232 30,002
Provision for inventory valuation 58,204 2,567
Deferred income tax provision (170,187) (36,159)
(Increases) decreases in assets:
Accounts receivable (3,075,454) 634,031
Inventories (933,353) (258,164)
Prepaid expenses 86,430 (92,013)
Increases (decreases) in liabilities:
Accounts payable 429,947 105,415
Accrued liabilities and deferred revenue 463,595 280,862
Accrued income taxes 114,522 (247,100)
----------- -----------
Net cash flows (used in) provided by operating activities (315,700) 1,129,588
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (724,467) (121,430)
Other assets 14,577 (32,819)
Proceeds from maturities of investments -- 1,500,099
----------- -----------
Net cash flows (used in) provided by investing activities (709,890) 1,345,850
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 215,702 70,320
Purchase of treasury stock (43,060) (88,920)
Payments on long-term debt (144,262) (124,094)
----------- -----------
Net cash flows (used in) provided by financing activities 28,380 (142,694)
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (997,210) 2,332,744
CASH AND CASH EQUIVALENTS - Beginning of year 5,957,112 3,624,368
----------- -----------
CASH AND CASH EQUIVALENTS - End of year $ 4,959,902 $ 5,957,112
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS:
Cash paid during the period for:
Interest $ 23,928 $ 31,525
=========== ===========
Income taxes $ 801,115 $ 312,500
=========== ===========
</TABLE>
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 29, 2000 AND FEBRUARY 28, 1999
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 betterments are capitalized. Depreciation is
provided using straight-line and accelerated methods over the estimated
useful lives of the assets.
Other Assets - Other assets consist primarily of capitalized research and
development costs, patent costs and the 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 - The Company recognizes revenue at the date products
are shipped or at the date services are completed.
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
differences 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 $2,250,000 and $1,722,000 as of February 29,
2000 and February 28, 1999, 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 long-term debt. The carrying value of cash
equivalents, short-term marketable securities, accounts receivable and
accounts payable 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 - Basic earnings per share is based on the weighted
average number of shares outstanding during the year. Diluted earnings per
share is based on the combination of weighted average number of shares
outstanding and dilutive potential shares.
Comprehensive Income - 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. The Company does not have changes in stockholders' equity other
than those resulting from investments by and distributions to owners. The
functional currency for the Company's international operations is the U.S.
dollar.
Segment Information - SFAS No. 131 requires disclosures of certain segment
information based on the way 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. The Company operates in a single
reportable segment: the design, development, assembly and distribution of
computerized medical electro-diagnostic systems for use in the health care
field.
F-8
<PAGE>
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is comprised of the following at February 29,
2000 and February 28, 1999:
Estimated
Useful Lives
2000 1999 (in Years)
---- ---- ----------
Land $ 676,534 $ 676,534
Building 1,117,907 1,117,907 40
Machinery and equipment 1,516,783 1,150,117 5
Booths and exhibits 101,531 101,531 5
Office furniture and computers 1,843,430 1,613,346 7
Transportation equipment 115,057 129,824 3
Building improvements 171,880 121,651 15
---------- ----------
Total 5,543,122 4,910,910
Less accumulated depreciation 3,161,697 3,004,853
---------- ----------
Property, plant and equipment - net $2,381,425 $1,906,057
========== ==========
Depreciation expense amounted to $249,099 and $215,715 for 2000 and 1999,
respectively.
4. 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 $195,667 and $371,534
at February 29, 2000 and February 28, 1999, respectively. Amortization
expense amounted to $175,867 and $178,449 in 2000 and 1999 respectively.
F-9
<PAGE>
5. OPERATING LEASES
The Company leases office and assembly facilities under long-term operating
leases expiring from 2001 to 2009. Total rental expense amounted to $60,404
and $55,696 for 2000 and 1999, respectively.
Future minimum annual rental commitments under these leases for the years
ending after February 29, 2000 are as follows:
2001 47,208
2002 14,681
2003 14,681
2004 14,681
2005 14,681
Thereafter 58,724
6. 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 (6.6%) is 80 percent of the prime rate (8.25
percent at February 29, 2000). 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 29,
2000 or February 28, 1999.
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 10% of the unpaid balance of the Bond at the bank that 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:
2001 154,153
2002 139,670
--------
$293,823
========
F-10
<PAGE>
7. INCOME TAXES
The provision for income taxes is as follows:
2000 1999
---- ----
Current:
Federal $ 746,837 $ 37,850
State 203,100 (6,750)
Foreign 61,250 38,618
---------- --------
Total current 1,011,187 69,718
Deferred (170,187) (36,159)
---------- --------
Total $ 841,000 $ 33,559
========== ========
The provision for income taxes differs from the U.S. Federal statutory
rate as follows:
2000 1999
---- ----
U.S. Federal statutory rate 34.0% 34.0%
Difference in foreign tax rate (4.8) (24.8)
Foreign Sales Corporation (FSC) operations (0.4) (3.2)
State income taxes, net of Federal income tax benefit 3.6 (2.7)
Other (4.4) 7.0
---- ----
Effective income tax rate 28.0% 10.3%
==== ====
Deferred tax assets and liabilities as of February 29, 2000 and February 28,
1999 and consist of the following:
2000 1999
---------- ---------
Deferred tax liabilities:
Depreciation $ 98,031 $ 97,471
Research and development 77,768 147,424
---------- ---------
Total deferred tax liabilities 175,799 244,895
---------- ---------
Deferred tax assets:
Accounts receivable 143,302 99,086
Inventory 116,111 93,912
Vacation 34,527 23,368
Warranty 106,346 82,829
---------- ---------
Total deferred tax assets 400,286 299,195
---------- ---------
Net deferred tax asset $ (224,487) $ (54,300)
========== =========
F-11
<PAGE>
The net deferred tax (asset) liability is classified in the balance sheet as
follows:
2000 1999
---------- ---------
Deferred tax current asset $(400,286) $(299,195)
Deferred tax long-term liability 175,799 244,895
--------- ---------
Net deferred tax asset $(224,487) $ (54,300)
========= =========
8. 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 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 the disclosure provisions only 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 grant
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. 29, 2000 Feb. 28, 1999
----------------- ------------------
Net Income
As Reported $ 2,162,592 $ 289,140
Pro Forma $ 1,906,621 $ 131,199
Net Income Per Share
As Reported - Basic $0.54 $0.07
- Diluted $0.52 $0.07
Pro Forma - Basic $0.47 $0.03
- Diluted $0.46 $0.03
F-12
<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 were
estimated at the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions for the years ended
February 29, 2000 and February 28, 1999, respectively: no dividends;
expected volatility of 74% and 74%, risk free interest rates of 6.2% and
5.5% and expected life of 9.3 and 9.4 years. The weighted average exercise
price of options granted during the years ended February 29, 2000 and
February 28, 1999 for which the exercise price exceeds the market price on
the grant date was $3.36 and $3.37, respectively, and the weighted average
fair value prices were $2.67 and $1.93, respectively. The weighted average
exercise price of options granted during the years ended February 29, 2000
and February 28, 1999 for which the exercise price equals the market price
on the grant date was $5.94 and $3.65, respectively, and the weighted
average fair value prices were $4.88 and $2.99, respectively. There were no
options granted during the years ended February 29, 2000 and February 28,
1999 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 29, 2000:
Weighted Average
Remaining
Range of Number Contractual Life Weighted Average
Exercise Price Outstanding (Years) Exercise Price
-------------- ----------- ---------------- -----------------
$1.50-$2.50 69,226 6.91 $2.25
$2.51-$4.50 197,849 7.06 $3.03
$4.51-$6.50 72,000 7.12 $4.81
$6.51-$8.00 103,000 9.58 $7.14
-------
442,075
Range of Number Weighted Average
Exercise Price Exercisable Exercise Price
-------------- ----------- -----------------
$1.50-$2.50 38,851 $2.06
$2.51-$4.50 116,563 $2.99
$4.51-$6.50 26,938 $4.69
-------
182,352
=======
F-13
<PAGE>
Additional information with respect to the Company's Plan at February 29, 2000
and February 28, 1999, are as follows:
FISCAL 2000
-----------
Weighted Average
Shares Exercise Price
------ ----------------
Shares Under Option:
Outstanding at beginning of year 415,763 $3.09
Granted 187,000 $5.60
Exercised (147,038) $2.86
Forfeited (13,650) $2.66
-------
Outstanding at end of year 442,075 $4.20
=======
Options exercisable at year-end 182,352 $3.05
=======
Weighted average fair value for
stock options granted during 2000 $4.58
FISCAL 1999
-----------
Weighted Average
Shares Exercise Price
------ ----------------
Shares Under Option:
Outstanding at beginning of year 467,463 $2.99
Granted 35,000 $3.48
Exercised (73,050) $2.22
Forfeited (13,650) $3.12
-------
Outstanding at end of year 415,763 $3.16
=======
Options exercisable at year-end 229,095 $2.76
=======
Weighted average fair value for
stock options granted during 1999 $2.79
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
F-14
<PAGE>
exceeds $11.67 per share for 20 consecutive trading days ending within 30
days of the date of notice. The Company let the warrants expire as of May
31, 1999.
9. RESEARCH AND DEVELOPMENT ARRANGEMENTS
In 1986, 1989, 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
sale of developed products. Royalties paid under these agreements amounted
to approximately $43,000 and $141,000 in 2000 and 1999, respectively.
10. EXPORT SALES
Net foreign export sales are summarized as follows:
2000 1999
---- ----
Europe $ 937,483 $ 957,284
Far East 1,438,167 951,157
Other 377,978 425,042
---------- ----------
Total $2,753,628 $2,333,483
========== ==========
No significant sales were made by foreign subsidiaries in 2000 and 1999.
11. 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. The Company at varying
rates matches employee contributions. The Company may also make
discretionary contributions to the plan. The Company made total
contributions of $156,118 and $129,498 in 2000 and 1999, respectively.
F-15
<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 30, 2000
By: ________________________________
Gabriel Raviv, CEO
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.
<TABLE>
<S> <C> <C>
_____________________________ Chairman, Chief Executive May 30, 2000
Gabriel Raviv Officer, Director (Principal
Executive Officer)
_____________________________ President, Chief Operating May 30, 2000
Roderick G. Johnson Officer, Director
_____________________________ Director May 30, 2000
Charles Z. Weingarten, M.D.
_____________________________ Controller May 30, 2000
James M. Smearman (Principal Financial Officer)
_____________________________ Director May 30, 2000
Gil Raviv
_____________________________ Director May 30, 2000
Irving Kupferberg
_____________________________ Director May 30, 2000
Albert Milstein
_____________________________ Director May 30, 2000
Craig W. Moore
</TABLE>
<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)
<PAGE>
10.10 Form of Export Property Sale, Commission and Lease
Agreement between the Company and Bio-logic
International Corporation (6)
10.11 Agreement and General Release between the Company
and Gil Raviv (9)
10.12 Letter dated May 2, 1994 from First American Bank
to the Company (10)
10.13 Letter of Intent dated June 30, 1994 by and among the
Company, Luther Medical Products, Inc. and Neuro
Diagnostics, Inc. (11)
10.14 Asset Purchase Agreement dated as of July 1, 1994
by and among the Company, NDI Acquisition Corp.,
Luther Medical Products, Inc. and Neuro
Diagnostics, Inc.(12)
21. Subsidiaries of the Company (8)
23.1 Consent of Independent Auditors
_________________
(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.
<PAGE>
(8) Incorporated by reference from the Company's Annual Report on Form
10-K for the Fiscal Year ended February 28, 1990.
(9) Incorporated by reference from the Company's Annual Report on Form
10-K for the Fiscal Year ended February 28, 1993.
(10) Incorporated by reference from the Company's Annual Report on Form
10-K for the Fiscal Year ended February 28, 1994.
(11) Incorporated by reference from the Company's Report on Form 10-Q for
the quarter ended May 31, 1994.
(12) Incorporated by reference from the Company's Report on Form 10-Q for
the quarter ended August 31, 1994.
