SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MAY 27, 2000
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-12991
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THE LANGER BIOMECHANICS GROUP, INC.
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(Exact name of registrant as specified in its charter.)
NEW YORK 11-2239561
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization.) Identification No.)
450 COMMACK ROAD, DEER PARK, NY 11729
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(631) 667-1200
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date.
Common Stock, $.02 Par Value -- 2,573,281 shares as of July 5, 2000.
INDEX
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -- May 27, 2000 and February 29, 2000 3
Condensed Consolidated Statements of Operations -Three
Months ended May 27, 2000 and May 29, 1999 4
Condensed Consolidated Statements of Cash Flows -Three
months ended May 27, 2000 and May 29, 1999 5
Notes to Condensed Consolidated Financial Statements--
Three Months ended May 27, 2000 and May 29, 1999 6 - 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 8 - 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
2
THE LANGER BIOMECHANICS GROUP, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MAY 27,2000 FEBRUARY 29,2000
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(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 699,301 $ 918,115
Accounts receivable, net of allowance for
doubtful accounts of $64,000 and $63,000, respectively 1,476,620 1,316,530
Inventories, net (Note 2) 1,100,926 1,189,384
Prepaid expenses and other current assets 212,702 215,580
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Total current assets 3,489,549 3,639,609
Property and equipment, net 857,475 945,270
Other assets 299,798 153,312
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Total Assets $ 4,646,822 $ 4,738,191
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 528,761 $ 580,057
Accrued liabilities:
Accrued payroll and related payroll taxes 266,667 303,452
Other current liabilities 653,472 592,473
Current portion of long-term debt 28,750 28,750
Unearned revenue-current 414,341 420,221
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Total current liabilities 1,891,991 1,924,953
Accrued pension expense 91,910 82,910
Unearned revenue-long-term 98,720 104,380
Long-term debt 76,667 81,458
Deferred income taxes 7,709 8,167
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Total liabilities 2,166,997 2,201,868
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Stockholders' equity :
Common stock, $.02 par value. Authorized
10,000,000 shares; Issued 2,640,281 52,806 52,806
Additional paid-in capital 6,325,880 6,325,880
Accumulated deficit (3,449,827) (3,405,904)
Accumulated other comprehensive loss (297,767) (300,266)
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2,631,092 2,672,516
Less: treasury stock at cost, 88,100 and
81,500 shares,respectively (151,267) (136,193)
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Total stockholders' equity 2,479,825 2,536,323
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Total Liabilities and Stockholders' Equity $ 4,646,822 $ 4,738,191
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See notes to condensed consolidated financial statements.
3
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED
MAY 27,2000 MAY 29,1999
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Net sales (Note 3) $2,769,695 $2,705,860
Cost of sales 1,750,583 1,733,041
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Gross profit 1,019,112 972,819
Selling expenses 507,280 365,996
Research and development expenses 55,726 19,061
General and administrative expenses 489,704 517,131
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Income (loss) from operations (33,598) 70,631
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Other income (expense):
Other income (9,638) 24,392
Interest expense (5,875) (1,257)
Minority interest 5,188 (4,725)
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Other income, net (10,325) 18,410
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Income (loss) before income taxes (43,923) 89,041
Provision for income taxes (Note 1): - 6,770
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Net income (loss) $(43,923) $82,271
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Weighted average number of common
shares used in computation of net
income (loss) per share
Basic 2,551,205 2,573,281
Diluted 2,551,205 2,655,715
Net income (loss) per common share (Note 6):
Basic $ (0.02) $ 0.03
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Diluted $ (0.02) $ 0.03
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See notes to condensed consolidated financial statements.
4
THE LANGER BIOMECHANICS GROUP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED
MAY 27,2000 MAY 29,1999
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Cash Flows From Operating Activities:
Net income (loss) $ (43,923) $82,271
Adjustments to reconcile net income to net cash
(used in) operating activities:
Deferred foreign tax benefit (739) (83)
Depreciation and amortization 104,591 56,616
Allowance for doubtful accounts 2,440 (1,363)
Changes in operating assets and liabilities:
Accounts receivable (153,008) (108,609)
Inventories 95,510 (1,635)
Prepaid expenses and other assets 2,324 (42,842)
Accounts payable and accrued liabilities (45,574) (106,076)
Net pension liability 9,000 9,000
Unearned revenue (15,135) 41,275
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Net cash (used in) operating activities (44,514) (71,446)
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Cash Flows From Investing Activities:
Purchase of remaining interest
in Langer UK (145,138) -
Capital expenditures (9,296) (50,773)
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Net cash (used in) investing activities (154,434) (50,773)
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Cash Flows From Financing Activities:
Payments on long-term debt (4,791) -
Issuance of common stock 65,139 -
Treasury stock acquired (80,214) -
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Net cash (used in) financing activities (19,866) -
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Net (decrease) in cash and cash equivalents (218,814) (122,219)
Cash and cash equivalents at beginning of period 918,115 1,700,156
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Cash and cash equivalents at end of period $699,301 $1,577,937
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Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest expense $ 5,875 $ 1,257
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See notes to condensed consolidated financial statements.
5
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MAY 27, 2000 AND MAY 29, 1999
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS
A) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. For further information, refer to the consolidated financial
statements and footnotes thereto for the fiscal year ended February 29, 2000
included in the Company's Annual Report on Form 10-K.
Operating results for the period ended May 27, 2000 are not necessarily
indicative of the results that may be expected for the year ending February 28,
2001.
B) Income per Share
Basic earnings per share are based on the weighted average number of shares of
common stock outstanding during the period. Diluted earnings per share are based
on the weighted average number of shares of common stock and common stock
equivalents (options) outstanding during the period, except where the effect
would be antidilutive, computed in accordance with the treasury stock method.
C) Provision for Income Taxes
There was no provision for income taxes for the period ended May 27, 2000. The
provision for income taxes on domestic operations, for the period ended May 29,
1999, was calculated at an effective annual tax rate of 2.5%, reflecting the
utilization of available net operating loss carryforwards and also taking into
account the "Alternative Minimum Tax". The provision for income taxes on foreign
operations was estimated at 21% for the period ended May 29, 1999.
D) Recent Pronouncements of the Financial Accounting Standards Board
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"), which requires that
derivative instruments be measured at fair value and recognized as assets or
liabilities in the Company's balance sheet. SFAS No. 133 (as amended by SFAS
No. 137 and No. 138) is effective for all quarters of all fiscal years
beginning after June 15, 2000. The Company is currently evaluating the
effect that SFAS No. 133 will have on the Company's consolidated financial
statements.
E) Reclassifications
Certain amounts have been reclassified in the prior year condensed consolidated
financial statements to present them on a basis consistent with the current
year.
6
NOTE 2 - INVENTORIES
The Company did not take a physical inventory as of May 27, 2000. Inventories
and cost of sales for the interim period were based on the Company's perpetual
inventory records.
MAY 27, 2000 FEBRUARY 29, 2000
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(Unaudited)
Inventories consist of:
Raw materials $ 758,885 $ 762,282
Work-in-process 78,936 88,359
Finished goods 324,835 394,473
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Total Inventories 1,162,656 1,245,114
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Less allowance for obsolescence 61,730 55,730
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Net inventories $1,100,926 $1,189,384
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NOTE 3 - SEASONALITY
Revenues derived from the Company's sale of orthotic devices, a substantial
portion of the Company's operations, have historically been significantly higher
in the warmer months of the year.
NOTE 4 - COMPREHENSIVE INCOME (LOSS)
The Company's comprehensive earnings were as follows:
THREE MONTHS ENDED
MAY 27, 2000 MAY 29, 1999
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Net income (loss) $(43,923) $ 82,271
Other comprehensive income (loss),
net of tax:
Change in equity resulting from
translation of financial
statements into U.S. dollars. 2,499 2,937
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Comprehensive income (loss) $(41,424) $ 85,208
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NOTE 5 - SEGMENT INFORMATION
The Company operates in two geographic segments (North America and United
Kingdom) principally in the design, development, manufacture and sale of foot
and gait-related products. Intersegment net sales are recorded at cost.
Segment information was as follows:
NORTH UNITED
THREE MONTHS ENDED MAY 27, 2000 AMERICA KINGDOM CONSOLIDATED
- --------------------------------------------------------------------------------------------
Net sales from external customers $2,387,471 $382,224 $2,769,695
Intersegment net sales 59,518 - 59,518
Gross profit 860,711 158,401 1,019,112
Income (loss) from operations (39,282) 5,684 (33,598)
7
NORTH UNITED
THREE MONTHS ENDED MAY 29, 1999 AMERICA KINGDOM CONSOLIDATED
- --------------------------------------------------------------------------------------------
Net sales from external customers $2,348,639 $357,221 $2,705,860
Intersegment net sales 50,021 - 50,021
Gross margins 829,253 143,566 972,819
Income from operations 33,014 37,617 70,631
NOTE 6 - EARNINGS PER SHARE
Basic earnings per common share ("EPS") are computed based on the weighted
average number of common shares outstanding during each period. Diluted earnings
per common share are computed based on the weighted average number of common
shares, after giving effect to dilutive common stock equivalents outstanding
during each period. The following table provides a reconciliation between basic
and diluted earnings per share:
THREE MONTHS ENDED THREE MONTHS ENDED
MAY 27, 2000 MAY 29, 1999
PER PER
INCOME SHARES SHARE INCOME SHARES SHARE
------ ------ ----- ------ ------ -----
BASIC EPS
Income (loss) available to common
stockholders $(43,923) 2,551,205 $(0.02) $82,271 2,573,281 $0.03
EFFECT OF DILUTIVE SECURITIES
Stock options - - - 82,434 -
-------- --------- ------ ------- --------- -----
DILUTED EPS
Income (loss) available to common
stockholders plus assumed
exercise of stock options $(43,923) 2,551,205 $(0.02) $82,271 2,655,715 $0.03
======== ========= ====== ======= ========= =====
NOTE 7 - ACQUISITION
Effective April 5, 2000, the Company purchased the remaining 25% interest which
it did not previously own in its Langer Biomechanics Group (UK) Limited
subsidiary for $80,000 cash and the issuance of 40,000 shares of common stock
from treasury. The transaction is being accounted for as purchase and the excess
cost over the fair value of net assets acquired will be amortized on a
straight-line basis over a ten-year period. If the acquisition were assumed to
have occurred at the beginning of fiscal 2000, the impact on the results of
operations would not have been material
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Three months ended May 27, 2000, as compared with three months ended May 29,
1999.
REVENUES
Sales of $2,769,695 for the first quarter ended May 27, 2000 were $63,835 or
2.4% above the prior year's comparable quarter sales of $2,705,860. This
increase is due to both an increase in orthotic unit volume and average price
per orthotic in the current quarter over the prior year, partially offset by a
reduction in PPT sales from the prior year level.
GROSS PROFIT
Gross profit as a percentage of sales was consistent with the prior year,
increasing from 36% in the prior year quarter to 36.8 % in the current year
quarter. The increase in gross profit is principally due to increased production
efficiencies and lower manufacturing overhead spending.
8
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling expenses for the three months ended May 27, 2000 increased $141,284 or
38.6% as compared to the corresponding period in the prior year due to an
increase in domestic selling expenses of $81,000 and an additional increase of
$61,000 in the Company's UK subsidiary The domestic and UK selling expense
increases are principally due to increased promotional activities designed to
increase sales and market share, including the introduction of a catalogue in
the UK, and increased salary and salary related costs in both locations. General
and administrative expenses decreased $27,427 or 5.3 % from prior year levels
due to reduced consulting and other professional costs associated with the prior
year management transition and operations clean-up.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the quarter ended May 27, 2000 were
$55,726, an increase of $36,665 from the comparable prior year level . The
increased expenditures were primarily attributable to on-going production
automation activities and development efforts focused on the introduction of new
products targeted for the current year.
OTHER INCOME, NET
Net other income was ($10,325) for the first quarter of the current fiscal
year as compared with $18,410 in the comparable prior year's quarter. This
decrease was principally attributable to the prior year period including
miscellaneous income from a Company sponsored seminar and there was no such
seminar in the current year period and a reduction in interest income associated
with the reduction in cash balances.
LIQUIDITY AND CAPITAL RESOURCES
At May 27, 2000 the Company's cash and cash equivalents were $699,301, a
reduction of $218,114 from February 29, 2000. The reduction in cash balances was
primarily attributable to the Company's purchase of the remaining 25% interest
which it did not previously own in its Langer Biomechanics Group (UK) Limited
subsidiary, the purchase of treasury stock and the loss from operations.
The Company has a one year agreement for a revolving credit facility of
$1,500,000, which expires November 30, 2000. The facility provides borrowings at
an interest rate of prime plus 1/2 percent, from a bank, but to date the Company
has not found it necessary to use this credit line. The agreement contains,
among other items, restrictions relating to incurrence of additional
indebtedness and the payment of dividends. Additionally, the Company is required
to maintain certain minimum financial ratios. Borrowings under this agreement
are collateralized by substantially all of the assets of the Company. The
Company also has a $500,000 equipment credit line with a bank to finance the
long-term capital equipment needed to grow the Company's business. In December
1999, the Company borrowed $115,000 on this line to finance the acquisition of
certain machinery and equipment. The loan bears interest at 9.5% per annum and
requires 48 monthly payments of $2,396. At May 27, 2000, $105,000 was
outstanding under this line.
Repurchases of the Company's common stock are contemplated to be made from
time to time in the open market at prevailing prices and may be made in
privately negotiated transactions, subject to available resources. The Company
may also finance acquisitions of other companies or product lines in the future
from existing cash balances and its revolving credit facility, from borrowings
from institutional lenders, and/or the public or private offerings of debt or
equity securities. The Company has never borrowed on the revolving credit
facility and management believes that its existing cash balances, funds
generated from operations and the revolver will be adequate to meet cash needs
RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"), which requires that
derivative instruments be measured at fair value and recognized as assets or
liabilities in the Company's balance sheet. SFAS No. 133 (as amended by SFAS
No. 137 and No. 138) is effective
9
for all quarters of all fiscal years beginning after June 15, 2000. The Company
is currently evaluating the effect that SFAS No. 133 will have on the Company's
consolidated financial statements. .
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
This Form 10-Q contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 which can be identified by the
use of forward-looking terminology such as "believes," "expects," "may," "will,"
"should," or "anticipates" or the negative thereof, other variations thereon or
comparable terminology, or by discussions of strategy. No assurance can be given
that future results covered by the forward-looking statements will be achieved,
and other factors could also cause actual results to vary materially from the
future results covered in such forward-looking statements. Factors which might
cause such a difference include, but are not limited to, product demand, the
impact of competitive products and pricing and general business and economic
conditions.
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
None
10
SIGNATURES
PURSUANT TO THE REQUIREMENTS 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.
THE LANGER BIOMECHANICS GROUP, INC.
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(REGISTRANT)
DATE: JULY 5, 2000
BY: /S/ DANIEL J. GORNEY
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DANIEL J. GORNEY
PRESIDENT AND CHIEF EXECUTIVE
OFFICER (PRINCIPAL EXECUTIVE
OFFICER)
BY: /S/ THOMAS G. ARCHBOLD
---------------------------------
THOMAS G. ARCHBOLD
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
11