Bio-Logic Systems Corp. (BLSC)
Interview with: Roderick G. Johnson, President and COO
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computerized electro-diagnostic systems for hearing, neurology and sleep, used in hospitals, clinics and physicians’ offices.

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A strong balance sheet, sales growth in disposable products and new technology releases brightening the future for Bio-Logic Systems

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Medical Equipment & Supplies

Bio-Logic Systems Corp.

One Bio-Logic Plaza
Mundelein, IL 60060
Phone: 847-949-5200

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Roderick G. Johnson and Gabriel Raviv, Chairman & CEO

Roderick G. Johnson
President and
Chief Operating Officer

Interview Conducted by:
Diane Reynolds, Co Publisher
April 2003


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.

Company Profile:
Bio-logic Systems Corp. is a leader in the design, development and marketing of computerized electro-diagnostic systems used in hospitals, clinics and physicians’ offices. Its core businesses are in hearing, neurology and sleep. Bio-logic has been a leader in the hearing assessment market since the Company’s inception in 1979, offering integrated solutions for hearing screening and diagnostics incorporating the latest technology. And now offers a wide range of systems and disposables for screening and diagnosis of sleep disorders, also a broad range of computerized systems used by neurologists, epileptologists, EEG technologists, neurosurgeons and other professionals to record and analyze electrical activity in the brain (EEG), which is used for the diagnosis and management of intractable seizure disorders.

Each area has its’ own market potential:

-          -         Hearing assessment: Automated hearing screening in newborns, aimed at early detection of hearing loss, is one of the fastest growing markets. Of the 4 million births in the U.S. each year, approximately 3 of every 1,000 infants are born hearing impaired. This focus on early intervention has generated a growing need for improved diagnostic equipment that can quickly and accurately identify and assess the baby’s hearing loss.

-          -         Sleep disorders: There are a wide range of sleep disorders including sleep apnea, narcolepsy, insomnia, pediatric disorders and many others. These disorders affect the quality of life, pose a threat to public safety on the road and at work, and can be fatal. It’s been estimated that the diagnostic market will grow to $100 million annually within five years.

-          -         Electrical activity in the brain (EEG): Long-term monitoring is used to diagnose disease, monitor the efficacy of medications and obtain information critical for surgical treatment with indicated. The market is in transition from analog to digital video technology. Digital video systems save both EEG and video records in digital form, replacing paper and videotapes.

Product Offerings:

-          -         ABaer™

-          -         CUB™ (ABR)

-          -         AuDX® (OAE)

-          -         Navigator® Pro

-          -         Scout® Sport

-          -         Ceegraph™

-          -         Ceegraph Traveler®

-          -         Universal Reader™

-          -         Sleepscan™

-          -         Airflow Pressure Transducer

CEOCFOinterviews: Mr. Johnson, please tell us about Bio-Logic Systems?

Mr. Johnson: “Bio-logic is a medical equipment company that has been public since 1983, we have two main business units, with over $29 million of sales in more than 56 countries. Our computerized diagnostic products are sold to neurologists and sleep specialists on the neurology/sleep side of our business. Our other division is hearing, where we sell infant hearing screener systems to hospital nurseries and NICU’s, and diagnostic systems to audiologists. Although we are a primarily a medical equipment company in terms of revenue, we have seen more and more sales from our disposable products used with our hearing screening systems as well as for a competitor’s systems.”

CEOCFOinterviews: Which area currently generates the greatest revenues and will that trend continue?

Mr. Johnson: “It’s been about even as we have disclosed previously, and it may bounce around.  Neurology used to be the lion-share of the business, but our hearing business is vying for the lead.

CEOCFOinterviews: Are there other areas that you would like to focus on to give you a more diverse edge?

Mr. Johnson: “We’re getting diversification from within the hearing division where we have been putting a lot of the growth of research and development expenditures. Two new products are being introduced in that area to expand the diagnostic product line of the hearing division. . I don’t anticipate straying from our core businesses because we have so much on our plate right now, unless it’s quite an attractive acquisition opportunity of a business or new technology.”

CEOCFOinterviews: Is long term monitoring gaining on the other areas of neurology?

Mr. Johnson: “Not really because sleep monitoring is the largest market segment and is growing faster than neurology segments such a long term monitoring and basic EEG. The epilepsy segment can fluctuate a lot because the size of the orders for multiple bed installations can be several hundred thousand dollars.

CEOCFOinterviews: Going forward in developing these two different areas, where do you see the most concentration?

Mr. Johnson: “We’re pretty much dedicating 15-18% of sales to R&D both divisions. There may be a spike in one year for instance in hearing but certainly neurology/sleep will continue take a significantly set amount of research and development as well. The accounting for R&D may fluctuate due to capitalization of significant software enhancements.”

CEOCFOinterviews: Have you done much work with miniaturization?

Mr. Johnson: “On the hearing side in particular we have the most miniaturized hand held device that is used for hearing screening for infants. In that respect, we are confident that we have not only the most compact version but also the lowest cost version. Our product development continues to work on reducing the size of patient interface “headboxes” and ambulatory devices."

CEOCFOinterviews: That is where some people may be confused when they look at the company itself.

Mr. Johnson: “Correct! On the neurology side, think of fairly high-end computer systems interfacing to our proprietary devices that are being used to monitor, both short term and long term EEG along with digital video and sophisticated software to analyze these brainwaves. On the hearing side, the portable units are produced to our design, but the bulk of the work and the spending that we have in R&D is clearly for the application software. So you should look at Bio-Logic as being primarily a diagnostic software company and secondarily a hardware company.”

CEOCFOinterviews: Are your products user friendly?

Mr. Johnson: The answer has be yes for the different customers that use our products. For hearing screening the products have to be simple enough so that with the press of a few buttons and an insertion of the probe into the baby’s ear a nurse or technician can easily complete a hearing screen within one minute. On the more complex systems like sleep monitoring and long term monitoring for epilepsy, the software is more technical so registered EEG and sleep technicians are being trained to use all the key features of the system. Also, the software has to be user friendly and powerful enough to help the physician analyze all the data being collected from the patient. An enhanced initiative this year we are sponsoring over 22 new technology workshops in the U.S. and several overseas for audiologists, technicians and physicians”

CEOCFOinterviews: I noticed that at one point, a higher inventory was a problem.

Mr. Johnson: “Yes, that was the 2002 fiscal year. What happened was that with the switch to a new device for neurology, which was very quickly adapted by customers, we built up some inventory that had become obsolete.  We wrote off a million dollars to deal with this and other obsolete inventory.

CEOCFOinterviews: So you’re trying to keep the inventory down understanding the type of market you are addressing.

Mr. Johnson: “That is correct. One thing in high-tech you don’t want a is lot of extra inventory.”

CEOCFOinterviews: Are you an international company?   

Mr. Johnson: “The Company has been international for a long time with 70 distributors selling in 55 countries. We have a subsidiary overseas where we have some of our product development taking place.  I’d say that when we launch a product it is for the global marketplace.

CEOCFOinterviews: How do revenues compare between the US and abroad?

Mr. Johnson: “If our trailing 12 months total revenues is around 29 million dollars, we have over $4 million in international sales. Some years it could be higher especially in hearing screening and diagnostics products.”

CEOCFOinterviews: Has everything that is going on in today’s situation with the international markets affected your company in any way?

Mr. Johnson: “In certain areas it has. I think in Europe in the healthcare arena there is a lot of pricing pressure. In Japan the recession is holding back spending on new equipment in the hospitals and clinics, so the speed at which some of the new technology is utilized by customers has been affected by the slower economy and lack of funding for new equipment in the healthcare systems.”

CEOCFOinterviews: What new trends can we expect internationally?

Mr. Johnson: “If we are speaking about international distributors, we should see expanded interest in hearing diagnostics to add to our broad hearing screening product line.

CEOCFOinterviews: How often do you go back and upgrade the existing products?

Mr. Johnson: “Because we are primarily software driven, it is a constant process when we get feedback on features and issues. I would say, several times a year there will be major releases and along the way, there may be minor releases for software.   Approximately, every two years or so we will redesign our proprietary hardware. Of course, we continually update the computer systems and peripherals once these are available in the marketplace”

CEOCFOinterviews: How do you handle upgrades?

Mr. Johnson: “The first year during the warranty period everything except consumables is covered. Beyond the first year we provide several warranty packages that keep the customer updated until they need to upgrade the computers and software. At that time we give trade-in or upgrade promotions..”

CEOCFOinterviews: Are you relying on any one customer for the majority of your revenues?

Mr. Johnson: “Not this year!  Last year we had a major sale of $4.5 million to the Province of Ontario for hearing screening and diagnostics but I don’t see anything like that this year.”

CEOCFOinterviews: Will your growth be internal, external or a combination of both?

Mr. Johnson: “We’ve looked at all of those because the board of directors and our shareholders are always asking how we are going to improve the valuation of the company. I’d say that the primary way of growing would continue to come internally. However we may seek out well defined acquisition opportunities, but I’d put this as more of a secondary growth strategy.”

CEOCFOinterviews: Where will your internal growth come from?

Mr. Johnson: “Our growth is going to come primarily from the hearing area for diagnostics and our two new products. The first product is M.A.S.T.E.R,( Multiple Auditory STEady – State Response Technology ) which is a product used by Audiologists and ENTs to fit hearing aids for infants. The second product is called Stacked ABR and that will be used by ENTs to screen patients for auditory nerve tumors. We are fairly confident that will be very good for us. We should also see more growth from our sleep diagnostics product line with the release of our new sleep analysis software this year. ”

CEOCFOinterviews: Where are you in the approval process?

Mr. Johnson: “Stacked ABR is in the FDA 510(k) review process. All other products are being sold now.”

CEOCFOinterviews: Do you have any exclusivity in the hearing area?

Mr. Johnson: “In the hearing area we do have some exclusivity in the licenses and technologies which I have referred to earlier. Stacked ABR, the one that is coming this year to be released is an exclusive product. We licensed it from the House Ear Institute in Los Angeles. The M.A.S.T.E.R. diagnostic is exclusively licensed from a research group in Toronto. .”

CEOCFOinterviews: Now all you have to do is pump up your sales and marketing force to get them excited about this product and start selling.

Mr. Johnson: “Because these technologies have been talked it about by the researchers and inventors for the last two years, presenting papers at the scientific meetings, there is a already a lot of interest.  So, I think we’ve got some a pent up demand in particular for the Stacked ABR product. Also, through our education initiative for the healthcare professionals we are planting the seeds for current and future sales as well as improving the standards of care utilizing these new technologies.”

CEOCFOinterviews: In closing, what would you say to a potential investor?

Mr. Johnson: “As a micro cap stock our main advantage is how we run the company for profitability and growth.  We’ve built up a very strong balance sheet for a company this size, having no debt, and $10 million dollars in the bank.  We are trying to keep the growth going with relatively high expenditures in R&D. I don’t know if we are in the category that people would say is a “ten banger” but I do believe Bio-logic is a very solid company that compares extremely well to others that are in the medical technology field.”


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