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 November 23, 1996
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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)
(516) 667-1200
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Registrant's telephone number, including area code
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 -- 2,584,281 shares as of December 20, 1996.
INDEX
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets -- November 23, 1996 and February 29, 1996 3
Consolidated Statements of Operations --
Three and Nine Months ended November 23, 1996 and November 25, 1995 4
Consolidated Statements of Cash Flows --
Nine Months ended November 23, 1996 and November 25, 1995 5
Notes to Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-10
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a vote of Security-Holders 11
Item 6 Exhibits and Reports on Form 8-K 11
Signatures 12
2
PART I. FINANCIAL INFORMATION
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Assets Nov. 23, 1996 Feb. 29, 1996
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(unaudited)
Current Assets:
Cash and cash equivalents $854,084 $739,460
Accounts receivable, net of allowance for
doubtful accounts of $21,033 and $21,000 1,581,759 1,278,865
Inventories, net (Note 3) 884,273 868,562
Other current assets 350,668 316,651
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Total current assets 3,670,784 3,203,538
Property and equipment, net 562,724 644,029
Other assets 188,235 187,666
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$4,421,743 $4,035,233
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Liabilities and Stockholders' Equity
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Current Liabilities:
Current maturities of notes payable $1,188 $3,707
Accounts payable 324,388 270,291
Account liabilities:
Accrued payroll and related payroll taxes 301,410 366,122
Other current liabilities 691,795 599,218
Unearned revenue - current 380,876 388,084
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Total current liabilities 1,699,657 1,627,422
Accrued pension expense 303,685 299,182
Unearned revenue - long term 139,480 126,281
Deferred income taxes 32,948 4,629
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Total liabilities 2,175,770 2,057,514
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Stockholders' Equity:
Common stock, $.02 par value. Authorized
10,000,000 shares; outstanding 2,584,281 and
2,581,281 shares, respectively 51,687 51,627
Additional paid-in capital 6,276,781 6,274,497
Accumulated deficit (3,781,731) (4,043,449)
Aggregate adjustment resulting from foreign
currency translation (45,596) (49,788)
Minimum pension liability adjustment (255,168) (255,168)
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Total stockholders' equity 2,245,973 1,977,719
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$4,421,743 $4,035,233
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See notes to consolidated financial statements.
3
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended: Nine Months Ended:
Nov. 23, 1996 Nov. 25, 1995 Nov. 23, 1996 Nov. 25, 1995
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Net sales (Note 4) $2,835,890 $2,676,752 $8,062,726 $7,725,603
Cost of sales 1,614,459 1,520,907 4,642,127 4,486,853
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Gross profit 1,221,431 1,155,845 3,420,599 3,238,750
Selling expense 522,317 432,755 1,419,856 1,228,912
General and administrative expense 574,768 529,505 1,729,160 1,679,438
Research and development expense 0 19,726 0 100,944
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Income from operations 124,346 173,859 271,583 229,456
Other income, principally interest 6,300 5,764 41,059 36,009
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130,646 179,623 312,642 265,465
Other expense, principally interest 2,211 3,202 6,890 5,030
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Income before income taxes 128,435 176,421 305,752 260,435
Provision for income taxes (Note 1) 17,999 18,165 44,034 28,299
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Net income $110,436 $158,256 $261,718 $232,136
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Per share data (Note 1):
Weighted average number of shares of
common stock outstanding 2,667,726 2,645,791 2,663,814 2,611,246
Net income per share of common stock
outstanding $0.04 $0.06 $0.10 $0.09
See notes to consolidated financial statements.
4
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
Nine Months Ended:
Nov. 23, 1996 Nov. 25, 1995
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Cash Flows from Operating Activities:
Net income $261,718 $232,136
Adjustments to reconcile net income to net cash
provided by
operating activities:
Depreciation and amortization 141,161 159,095
Deferred foreign tax provision 28,389 9,312
Changes in operating assets and liabilities:
Accounts receivable (305,300) (170,329)
Inventories (17,957) 84,821
Prepaid expenses and other assets (34,850) (53,447)
Net pension liability 4,503 31,500
Accounts payable and accrued liabilities 85,052 (84,116)
Unearned revenue 6,639 200
Disposal of fixed assets 5,300 --
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Net cash provided by operating activities 174,655 209,172
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Cash Flows from Investing Activities:
Capital expenditures (59,856) (167,016)
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Net cash used in investing activities (59,856) (167,016)
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Cash Flows from Financing Activities:
Common stock options exercised 2,344 26,421
Notes payable (2,519) (5,836)
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Net cash provided by (used in) financing activities (175) 20,585
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Net increase in cash and cash equivalents 114,624 62,741
Cash and cash equivalents at beginning of year 739,460 811,657
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Cash and cash equivalents at end of period $854,084 $874,398
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Supplemental Disclosures of Cash Flow Information:
Cash paid for interest $6,890 $5,030
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See notes to consolidated financial statements.
5
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS
A) Basis of Presentation
The accompanying unaudited 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.
Operating results for the periods ended November 23, 1996 are not necessarily
indicative of the results that may be expected for the year ending February 28,
1997. For further information, refer to the consolidated financial statements
and footnotes thereto for the fiscal year ended February 29, 1996 in the
Company's 1996 Annual Report.
B) Net Income per Share
Net income per share includes the effect of common stock equivalents comprised
of incentive stock options granted under the Company's qualified stock option
plan and non-qualified stock options.
C) Provision for Income Taxes
The provision for income taxes, on domestic operations, for periods ended
November 23, 1996 and November 25, 1995 were calculated at an effective annual
tax rate of 9% and 8%, respectively, reflecting the utilization of available net
operating loss carryforwards and also taking into account the "Alternative
Minimum Tax". Provision for income taxes on foreign operations were estimated at
25% and 20%, respectively. Deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
6
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 INCOME TAXES
The following is a summary of deferred tax assets and liabilities as of November
23, 1996:
Amount
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Current:
Deferred tax asset $ 410,080
Deferred tax liability --
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Current Deferred Tax Asset, Net 410,080
Non-current:
Deferred tax asset 1,211,297
Deferred tax liability (72,254)
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Non-Current Deferred Tax Asset, Net 1,139,043
Total Deferred Tax Assets, Net 1,549,123
Valuation Allowance (1,549,123)
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Net $ --
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A valuation allowance of $1,549,123 reduces the deferred tax assets to an amount
that represents management's best estimate of the amount of such deferred tax
assets which more likely than not will be realized.
7
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 3 INVENTORY
The Company did not take a physical inventory as of November 23, 1996.
Inventories and cost of sales for the interim period were based on the Company's
perpetual inventory records.
November 23, 1996 February 29, 1996
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(unaudited)
Inventories consist of:
Raw materials $ 684,016 $ 645,517
Work-in-process 164,881 169,523
Finished goods 109,422 131,542
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Total Inventories 958,319 946,582
Less: Allowance for obsolescence (74,046) (78,020)
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Net Inventories $ 884,273 $ 868,562
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NOTE 4 SEASONALITY
Revenues derived from the Company's sale of orthotic devices, a substantial
portion of the Company's operations, have historically been higher in the warmer
months of the year.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Nine months ended November 23, 1996 as compared with nine months ended November
25, 1995.
REVENUES
Sales of $2,835,890 for the third quarter ended November 23, 1996 were 5.9%
higher than the sales of $2,676,752 in the comparable prior-year quarter. Net
sales of $8,062,726 for the nine months ended November 23, 1996 were 4.4% higher
than prior-period's sales of $7,725,603. Increased revenues resulted from
increased volume and an approximately a 4% sales price increase for goods and
services effective at various times in October and November of 1996.
GROSS PROFIT
Gross profit for the current-year's third quarter was $1,221,431 (43.1% of
sales) which represents a 5.7% increase from the comparable prior-year quarter's
gross profit of $1,155,845 (43.2% of sales). Gross profit for the recently
concluded nine-month period of $3,420,599 (42.4% of sales) was 5.6% higher than
the comparable prior nine-month period's gross profit of $3,238,750 (41.9% of
sales). The year-to-date increase was mostly due to increased unit volume.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the recently ended quarter were
$1,097,085 compared to $962,260 in the comparable prior-year period, a 14.0%
increase. Expenses for the nine months ended November 23, 1996, were $3,149,016
compared with $2,908,350 in the prior comparable period, accounting for an 8.3%
increase. Increased expenses were due to increased selling expense associated
with new product launches and higher unit sales in 1996.
RESEARCH AND DEVELOPMENT EXPENSE
The Company incurred no research and development costs for the three and nine
months ended November 23, 1996. Expense in prior periods was incurred as a
result of an in-house CAD-CAM project which was discontinued, as the project was
not able to produce a satisfactory and economically feasible product. As such,
all related costs associated with the project were written off during fiscal
1996.
OTHER INCOME
Other income consists primarily of income generated from investments and service
income generated from the Company's accounts receivable. Other income of $6,300
for the recently-concluded quarter was 9.3% more than the comparable prior-year
quarter's other income of $5,764.
Other income of $41,059 for the nine-month period was 14.0% more than the
$36,009 achieved for the comparable prior nine-month period.
9
PROVISION FOR INCOME TAXES
The Company has provided an effective tax rate of 9% (US operations) of pre-tax
profits after utilizing available net operating loss carryforwards and taking
into account the "Alternative Minimum Tax". Taxes for the UK operations were
estimated at 25% of pre-tax profit.
NET INCOME
The Company earned $110,436 or $0.04 per share for the recently concluded
quarter as compared to $158,256 or $0.06 per share generated in the prior-year's
quarter. Nine month's net profit of $261,718 or $0.10 per share compares with
$232,136 or $0.09 per share in the prior-year's comparable period. Tighter
control of manufacturing costs, the sales price increase, plus increased unit
volume contributed to improved profits for the nine month period ended November
23, 1996, versus prior-year's comparable period. Profits for the three month
period ended November 23, 1996, were reduced versus prior-year's comparable
period due to increased marketing and promotion costs associated with new
product introductions.
LIQUIDITY
Working capital, as of November 23, 1996, was $1,971,126 versus $1,576,117 at
February 29, 1996, an increase of $395,011. While increases in cash and
accounts receivable, and a decrease in accrued payroll and related payroll
taxes, increased working capital, increases primarily in accounts payable and
other current liabilities decreased working capital.
The Company believes its capital position is adequate to meet anticipated cash
needs for the next twelve months and beyond.
As of July 19, 1996, the Company has renewed a revolving credit of $750,000, for
an additional year (August 1, 1996 - July 31, 1997) at an interest rate of prime
plus 2%, from NBD Bank. The Company has not drawn against the credit line
during the nine month period ended November 23, 1996.
The Company plans to upgrade its enterprise software and hardware over the next
three to nine months. The Company has sufficient internal and/or external
resources to finance this upgrade. Final plans and amount are incomplete at
this time.
10
PART II. OTHER INFORMATION
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
Item 4. Submission of Matters to a Vote of Security-Holders.
Reference is made to an annual meeting of shareholders held on
September 18, 1996, where the following occurred:
1. Kenneth Granat, Gary L. Grahn, Justin Wernick, Dr. Irwin A.
Horowitz and Daniel J. Feld were re-elected as Directors.
2. Deloitte & Touche LLP was re-appointed as the Company's auditors.
3. The votes cast, in person and by proxy, on the motion to elect
directors were as follows:
For Withhold Authority
Kenneth Granat 2,390,577 200
Gary L. Grahn 2,390,577 200
Dr. Justin Wernick 2,390,577 200
Dr. Irwin A. Horowitz 2,390,577 200
Daniel J. Feld 2,390,577 200
4. The votes cast, in person and by proxy, on the motion to ratify the
appointment of Deloitte & Touche LLP as the independent auditors of
the Company were as follows:
Votes for 2,390,377
Votes against 550
Abstained 2,000
Item 6. Exhibits and Reports on Form 8-K
No Forms 8-K were filed during the quarter ended November 23, 1996.
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: December 20, 1996
By: /s/GARY L. GRAHN
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Gary L. Grahn
President and Chief Executive Officer
By: /s/THOMAS F. BELLEAU
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Thomas F. Belleau
Vice President - Finance and
Chief Financial Officer
(Principal Financial Officer)
12