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 26, 2001
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-12991
THE LANGER BIOMECHANICS GROUP, INC.
---------------------------------------------------------------
(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
(516) 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 |_|
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 - 4,181,922 shares as of July 5, 2001.
1
INDEX
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -- May 26, 2001 and February 28, 2001 3
Condensed Consolidated Statements of Operations -- Three
Months ended May 26, 2001 and May 27, 2000 4
Condensed Consolidated Statements of Cash Flows -- Three
months ended May 26, 2001 and May 27, 2000 5
Notes to Condensed Consolidated Financial Statements --
Three Months ended May 26, 2001 and May 27, 2000 6 - 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 9 - 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
2
THE LANGER BIOMECHANICS GROUP, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
May 26, 2001 February 28,2001
------------ ----------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,227,878 $ 868,846
Accounts receivable, net of allowance for
doubtful accounts of $58,000 1,792,699 1,542,464
Inventories, net (Note 5) 958,861 973,863
Prepaid expenses and other current assets 282,250 200,839
------------ ------------
Total current assets 5,261,688 3,586,012
Property and equipment, net 613,149 683,501
Other assets 281,057 284,706
------------ ------------
Total Assets $ 6,155,894 $ 4,554,219
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 581,458
Accounts payable $ 634,195 652,974
Accrued liabilities:
Other current liabilities 1,216,990 1,166,162
Unearned revenue-current 413,852 428,133
------------ ------------
Total current liabilities 2,265,037 2,828,727
Accrued pension expense 22,118 13,118
Unearned revenue-long-term 118,638 104,381
Deferred income taxes 8,490 8,662
------------ ------------
Total liabilities 2,414,283 2,954,888
------------ ------------
Stockholders' equity :
Common stock, $.02 par value. Authorized
10,000,000 shares; Issued 4,249,022 and
2,849,022 shares, respectively 84,981 56,981
Additional paid-in capital 12,193,555 10,086,555
Accumulated deficit (8,108,322) (8,118,291)
Accumulated other comprehensive loss (313,146) (310,457)
------------ ------------
3,857,068 1,714,788
Less: treasury stock at cost, 67,100 and
81,500 shares, respectively (115,457) (115,457)
------------ ------------
Total stockholders' equity 3,741,611 1,599,331
------------ ------------
Total Liabilities and Stockholders' Equity $ 6,155,894 $ 4,554,219
============ ============
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 26, 2001 May 27, 2000
------------ ------------
Net sales (Note 6) $ 3,039,029 $ 2,769,695
Cost of sales 1,906,283 1,750,583
----------- -----------
Gross profit 1,132,746 1,019,112
Selling expenses 366,723 507,280
Research and development expenses 34,519 55,726
General and administrative expenses 406,297 361,595
Corporate overhead expenses 305,921 128,109
----------- -----------
Income (loss) from operations 19,286 (33,598)
----------- -----------
Other income (expense):
Other income 5,099 (9,638)
Interest expense (9,416) (5,875)
Minority interest -- 5,188
----------- -----------
Other (expense), net (4,317) (10,325)
----------- -----------
Income (loss) before income taxes 14,969 (43,923)
Provision for income taxes (Note 1): 5,000 --
----------- -----------
Net income (loss) $ 9,969 $ (43,923)
=========== ===========
Weighted average number of common
shares used in computation of net
income (loss) per share
Basic 3,023,301 2,551,205
Diluted 3,373,929 2,551,205
Net income (loss) per common share (Note 9):
Basic $ 0.00 $ (0.02)
=========== ===========
Diluted $ 0.00 $ (0.02)
=========== ===========
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 26, 2001 May 27, 2000
------------ ------------
Cash Flows From Operating Activities:
Net income (loss) 9,969 $ (43,923)
Adjustments to reconcile net income to net cash
(used in) operating activities:
Deferred foreign taxes 14 (739)
Depreciation and amortization 87,125 104,591
Provision for doubtful accounts receivable 6,000 2,440
Changes in operating assets and liabilities:
Accounts receivable (263,993) (153,008)
Inventories 11,477 95,510
Prepaid expenses and other assets (81,935) 2,324
Accounts payable and accrued liabilities 41,761 (45,574)
Net pension liability 9,000 9,000
Unearned revenue 2,571 (15,135)
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Net cash (used in) operating activities (178,010) (44,514)
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Cash Flows From Investing Activities:
Langer UK Purchase -- (145,138)
Capital expenditures (16,500) (9,296)
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Net cash (used in) investing activities (16,500) (154,434)
----------- -----------
Cash Flows From Financing Activities:
Repayments on equipment line (81,458) (4,791)
Issuance of stock-UK purchase -- 65,139
Treasury stock acquired -- (80,214)
Repayment of loan to Company's CEO (500,000) --
Issuance of shares from Option exercise 2,135,000 --
----------- -----------
Net cash provided by (used in) financing activities 1,553,542 (19,866)
----------- -----------
Net increase (decrease) in cash and cash equivalents 1,359,032 (218,814)
Cash and cash equivalents at beginning of period 868,846 918,115
----------- -----------
Cash and cash equivalents at end of period 2,227,878 $ 699,301
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest expense $ 11,817 $ 5,875
=========== ===========
Inc $ -- $ --
----------- -----------
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 26, 2001 AND MAY 27, 2000
(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 28, 2001.
Operating results for the period ended May 26, 2001 are not necessarily
indicative of the results that may be expected for the year ending February 28,
2002.
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 and warrants) outstanding during the period, except where
the effect would be antidilutive, computed in accordance with the treasury stock
method.
C) Provision for Income Taxes
For the period ended May 26, 2001, there was no provision for income taxes on
domestic operations and the provision for income taxes on foreign operations was
estimated at 21%. There was no provision for income taxes for the period ended
May 27, 2000.
D) 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.
NOTE 2 - CHANGE IN CONTROL
Effective February 13, 2001, Andrew H. Meyers, Greg Nelson and Langer Partners
LLC, and its designees ("Offerors"), acquired a controlling interest in the
Company when they purchased 1,362,509 validly tendered shares of the Company at
$1.525 per share, or approximately 51% of the then outstanding common stock of
the Company, under the terms of a December 27, 2000 Tender Offer Agreement (the
"Tender") under which the Offerors offered to purchase up to 75% of the
Company's common stock. In order to provide the Company with adequate equity to
maintain the Company's compliance with the listing requirements of the NASDAQ
small cap market and to enable the Company to finance its ongoing operations as
well as potentially take advantage of opportunities in the marketplace and in
order to induce the Offerors to enter into the Tender Offer Agreement, pursuant
to its terms, the Offerors were granted 180 day options to purchase up to
1,400,000 shares of the Company's common stock, with an initial exercise price
of $1.525 per share, rising up to $1.60 per share (the "Options"). On May 11,
2001, the Offerors fully exercised the Options at $1.525 per share for
$2,135,0000, which was invested in the Company. Andrew H. Meyers, CEO, converted
a $500,000 loan plus accrued interest as partial consideration for the payment
of the shares of stock issued upon the exercise of his portion of these Options
(see Note 3).
6
NOTE 3 - CREDIT FACILITIES
Upon closing of the Tender and the resultant change in control of the Company,
the Company's existing revolving credit facility with a bank was terminated. In
February 2001, the Company's President and Chief Executive Officer, Andrew H.
Meyers, loaned $500,000 to the Company evidenced by a promissory note, bearing
interest at prime plus 1%, due August 31,2001,subject to prepayment under
certain conditions including exercising of the Options (see Note 2). Upon
exercise of the Options on May 11, 2001, the principal amount of the loan,
together with accrued interest in the amount of $11,112 was exchanged by the CEO
as partial consideration for the payment of the shares of stock issued upon
exercise of his portion of the Options.
NOTE 4 - DERIVATIVE FINANCIAL INSTRUMENTS
As of March 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities"
("SFAS No. 133"), as amended. As a result of adopting SFAS No. 133, the Company
recognizes all derivative financial instruments in the consolidated financial
statements at fair value regardless of the purpose or intent for holding the
instrument. Changes in the fair value of derivative financial instruments are
either recognized periodically in income or in stockholders' equity as a
component of other comprehensive income depending on whether the derivative
financial instrument qualifies for hedge accounting, and if so, whether it
qualifies as a fair value or cash flow hedge. Generally, changes in the fair
value of derivatives accounted for as fair value hedges are recorded in income
along with the portions of the changes in the fair values of the hedged items
that relate to the hedged risks. Changes in the fair value of derivatives
accounted for as cash flow hedges, to the extent they are effective as hedges,
are recorded in other comprehensive income net of deferred taxes. Changes in
fair values of derivatives not qualifying as hedges are reported in income. To
date, the Company has not entered into any derivative financial instruments.
NOTE 5 - INVENTORIES
The Company did not take a physical inventory as of May 26, 2001. Inventories
and cost of sales for the interim period were based on the Company's perpetual
inventory records.
May 26, 2001 February 28, 2001
------------ -----------------
(Unaudited)
Inventories consist of:
Raw materials $ 774,963 $ 795,111
Work-in-process 113,165 107,006
Finished goods 274,026 265,069
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Total Inventories 1,162,154 1,167,186
Less allowance for obsolescence 203,293 193,323
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Net inventories $ 958,861 $ 973,863
========== ==========
NOTE 6 - 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 7 - COMPREHENSIVE INCOME
The Company's comprehensive earnings were as follows:
7
Three Months Ended
May 26, 2001 May 27, 2000
------------ ------------
Net income (loss) $ 9,969 $(43,923)
Other comprehensive (loss) income, net of tax:
Change in equity resulting from translation
of financial statements into U.S. dollars (2,689) 2,499
-------- --------
Comprehensive income $ 7,280 $(41,424)
======== ========
NOTE 8 - 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 Consolidated
Three Months Ended May 26, 2001 America Kingdom
- --------------------------------------------------------------------------------
Net sales from external customers $ 2,589,010 $ 450,019 $ 3,039,029
Intersegment net sales 83,583 -- 83,583
Gross margins 945,062 187,684 1,132,746
Income (loss) from operations (38,172) 57,458 19,286
Three months ended May 27, 2000
- --------------------------------------------------------------------------------
Net sales from external customers $ 2,387,471 $ 382,224 $ 2,769,695
Intersegment net sales 59,518 -- 59,518
Gross margins 860,711 158,401 1,019,112
(Loss) income from operations (39,282) 5,684 (33,598)
NOTE 9 - 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 26, 2001 May 27, 2000
--------------------------------- ----------------------------------
Per Per
Income Shares Share Income Shares Share
--------- --------- --------- --------- --------- ---------
BASIC EPS
Income (loss) available to common
stockholders $ 9,969 3,023,301 $ 0.00 $ (43,923) 2,551,205 $ (0.02)
EFFECT OF DILUTIVE SECURITIES
Stock options -- 350,628 -- -- -- --
--------- --------- --------- --------- --------- ---------
DILUTED EPS
Income (loss) available to common
stockholders plus assumed
exercise of stock options $ 9,969 3,373,929 $ 0.00 $ (43,923) 2,551,205 $ (0.02)
========= ========= ========= ========= ========= =========
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
CHANGE IN CONTROL
Effective February 13, 2001, Andrew H. Meyers, Greg Nelson and Langer Partners
LLC, and its designees ("Offerors"), acquired a controlling interest in the
Company when they purchased 1,362,509 validly tendered shares of the Company at
$1.525 per share, or approximately 51% of the then outstanding common stock of
the Company, under the terms of a December 27, 2000 Tender Offer Agreement (the
"Tender") under which the Offerors offered to purchase up to 75% of the
Company's common stock. In order to provide the Company with adequate equity to
maintain the Company's compliance with the listing requirements of the NASDAQ
small cap market and to enable the Company to finance its ongoing operations as
well as potentially take advantage of opportunities in the marketplace and in
order to induce the Offerors to enter into the Tender Offer Agreement, pursuant
to its terms, the Offerors were granted 180 day options to purchase up to
1,400,000 shares of the Company's common stock, with an initial exercise price
of $1.525 per share, rising up to $1.60 per share (the "Options"). On May 11,
2001, the Offerors fully exercised the Options at $1.525 per share for an
aggregate purchase price of $2,135,000.
Upon closing of the Tender and the resultant change in control of the Company,
the Company's existing revolving credit facility with a bank was terminated. In
February 2001, the Company's President and Chief Executive Officer loaned
$500,000 to the Company evidenced by a promissory note, bearing interest at
prime plus 1%, which is due August 31,2001,subject to prepayment under certain
conditions including exercising of the Options (see Note 2). Upon exercise of
the Options on May 11, 2001, the principal amount of the loan, together with
accrued interest in the amount of $11,112 was exchanged by the CEO as partial
consideration for the payment of the shares of stock issued upon exercise of his
portion of the Options.
THREE MONTHS ENDED MAY 26, 2001, AS COMPARED WITH THREE MONTHS ENDED MAY 27,
2000.
REVENUES
Sales of $3,039,029 for the first quarter ended May 26, 2001 were $269,334 or
9.7% above the prior year's sales of $2,769,695 for the comparable period. This
increase is due to both an increase in orthotic unit volume in both the
Company's domestic operations as well as its United Kingdom operations and an
increase in PPT sales principally to domestic distributors.
GROSS PROFIT
Gross profit as a percentage of sales was consistent with the prior year,
increasing from 36.8% in the prior year quarter to 37.27% in the current year
quarter.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling expenses for the three months ended May 26, 2001, decreased $140,557 or
(27.7%) as compared to the corresponding period in the prior year due to a
decrease in salary and salary related expenses, a reduction in promotional
activities and a reduction in commissions to outside sales representatives.
General and administrative expenses increased $44,702 or 12.3% as compared to
the comparable period of the prior year due to increased consulting expenses
resulting from required improvements in the infrastructure of the core
manufacturing operations, and increased salary related expenses for the first
quarter.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the quarter ended May 26, 2001 were
$34,519, a decrease of $21,207 from the prior year level of $55,726 for the
comparable period. The prior year period included expenditures associated with
modifications to new manufacturing processes implemented in the prior year.
9
CORPORATE OVERHEAD EXPENSES
Corporate overhead expenses for the first quarter increased $177,812 or 138.8%
compared to the comparable period of the prior year as a result of putting in
place both the management team and infrastructure necessary to implement the
Company's growth initiatives. These expenses included increased legal fees and
consulting expenses resulting from the change in management, increased travel
and salary and salary related expenses.
OTHER INCOME, NET
Net other income was $(4,317) for the first quarter of the current fiscal year
as compared with $(10,325) in the comparable prior year's quarter. The decrease
in other expense was principally attributable to the prior year including a
provision for minority interest in the earnings of the Company's Langer
Biomechanics Group(UK) Limited subsidiary, which became a wholly-owned
subsidiary on April 5, 2000.
LIQUIDITY AND CAPITAL RESOURCES
At May 26, 2001 the Company's cash and cash equivalents were $2,227,878, an
increase of $1,359,032 from February 28, 2001. In order to provide the Company
with adequate equity to maintain the Company's compliance with the listing
requirements of the NASDAQ small cap market and to enable the Company to finance
its ongoing operations as well as potentially take advantage of opportunities in
the marketplace and in order to induce the Offerors to enter into the Tender
Offer Agreement, pursuant to its terms, the Offerors were granted 180 day
options to purchase up to 1,400,000 shares of the Company's common stock, with
an initial exercise price of $1.525 per share, rising up to $1.60 per share (the
"Options"). On May 11, 2001, the Offerors fully exercised the Options at $1.525
per share for an aggregate purchase price of $2,135,0000. The increase in cash
balances was primarily attributable to the exercise of the Options. Cash flow
from operations results in a use of cash of $178,010 for the quarter ended May
26, 2001 principally due to an increase in accounts receivable. The increased
receivables principally result from the increase in net sales and a seasonal
increase in accounts receivable in the Company's first quarter.
On June 4, 2001, the Company received a letter from NASDAQ indicating that the
Company was not in compliance with Marketplace Rule 4310(c)(2)(B), which
requires the Company to have a minimum of $2,000,000 of net tangible assets or a
market capitalization of $35,000,000 or $500,000 of net income for the most
recently completed fiscal year or two of the three most recently completed
fiscal years. Additionally, the letter further stated that the Company was not
in compliance with a proposed new rule that would require $2,500,000 of
stockholder's equity. On June 15, 2001, the Company responded to the NASDAQ
letter, and as disclosed in the Company's filing on Form 10-K for the year ended
February 28, 2001, indicated that as a result of the exercise of the Options,
the Company was in compliance with both the minimum net tangible asset
requirement as well as the proposed new minimum stockholder's equity
requirement. The Company is presently in compliance with the NASDAQ Small Cap
listing requirements and believes that it will continue to do so for the
foreseeable future.
Repurchases of the Company's common stock may 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, from borrowings from institutional lenders, and/or the public
or private offerings of debt or equity securities. Management believes that its
existing cash balances, funds generated from operations and the proceeds from
the exercise of the Options discussed above will be adequate to meet the
Company's cash needs during the fiscal year ending February 28, 2002.
RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD
As of March 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities"
("SFAS No. 133"), as amended. As a result of adopting SFAS No. 133, the Company
recognizes all derivative financial instruments in the consolidated financial
statements at fair value regardless of the purpose or intent for holding the
instrument. To date, the Company has not entered into any derivative financial
instruments.
10
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 that 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
None
(b) Reports on Form 8-K
None
11
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.
-----------------------
(REGISTRANT)
DATE: JULY 5 , 2001
BY: /s/ ANDREW H. MEYERS
-------------------------------------
ANDREW H. MEYERS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
BY: /s/ THOMAS G. ARCHBOLD
-------------------------------------
THOMAS G. ARCHBOLD
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER)
12