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 August 30, 1997
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.
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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
(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 -- 2,585,281 shares as of September 22, 1997.
INDEX
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets --
August 30, 1997 and February 28, 1997 3
Condensed Consolidated Statements of Operations --
Three and Six Months ended August 30, 1997
and August 24, 1996 4
Condensed Consolidated Statements of Cash Flow --
Six Months ended August 30, 1997 and August 24, 1996 5
Notes to Condensed Consolidated Financial Statements --
Six Months ended August 30, 1997 6 - 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders 10
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 11
2
PART I. FINANCIAL INFORMATION
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Assets Aug. 30, 1997 Feb. 28, 1997
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(unaudited)
Current Assets:
Cash and cash equivalents $ 1,192,950 $ 1,125,589
Accounts receivable, net of allowance for doubtful
accounts of $20,000 and $21,000 1,328,469 1,431,567
Inventories, net (Note 2) 966,203 922,346
Other current assets 253,080 279,558
----------- -----------
Total current assets 3,740,702 3,759,060
Property and equipment, net 672,313 507,195
Other assets 177,571 178,771
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$ 4,590,586 $ 4,445,026
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Liabilities and Stockholders' Equity
Current Liabilities:
Current maturities of notes payable $ 0 $ 301
Accounts payable 288,524 341,078
Account liabilities:
Accrued payroll and related payroll taxes 306,254 299,519
Other current liabilities 741,531 677,669
Unearned revenue - current 394,147 390,727
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Total current liabilities 1,730,456 1,709,294
Accrued pension expense 341,915 287,315
Unearned revenue - long term 152,114 151,732
Deferred income taxes 5,363 5,376
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Total liabilities 2,229,848 2,153,717
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Stockholders' Equity:
Common stock, $.02 par value. Authorized 10,000,000 shares;
outstanding 2,584,281 and 2,584,281 shares, respectively 51,686 51,686
Additional paid-in capital 6,276,782 6,276,782
Accumulated deficit (3,671,678) (3,740,402)
Aggregate adjustment resulting from translation of financial statement (47,804) (48,509)
into U.S. Dollars
Minimum pension liability adjustment (248,248) (248,248)
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Total stockholders' equity 2,360,738 2,291,309
----------- -----------
$ 4,590,586 $ 4,445,026
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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: Six Months Ended:
Aug. 30, 1997 Aug. 24, 1996 Aug. 30, 1997 Aug. 24, 1996
------------- ------------- ------------- -------------
Net sales (Note 3) $ 2,550,513 $2,714,268 $ 5,065,798 $5,226,836
Cost of sales 1,591,405 1,556,367 3,099,185 3,027,668
----------- ---------- ----------- ----------
Gross profit 959,108 1,157,901 1,966,613 2,199,168
Selling expense 396,693 448,610 782,244 897,539
General and administrative expense 552,300 573,679 1,151,269 1,154,392
Research and development expense 0 0 0 0
----------- ---------- ----------- ----------
Income from operations 10,115 135,612 33,100 147,237
Other income, principally interest 14,064 16,709 38,433 34,759
----------- ---------- ----------- ----------
24,179 152,321 71,533 181,996
Other expense, principally interest 2,940 2,361 6,385 4,679
----------- ---------- ----------- ----------
Income before income taxes 21,239 149,960 65,148 177,317
Provision for income taxes (Note 1) (4,872) 22,617 (3,576) 26,035
----------- ---------- ----------- ----------
Net income $ 26,111 $ 127,343 $ 68,724 $ 151,282
=========== ========== =========== ==========
Weighted average number of common and
common equivalent shares used in computation
of net income per share:
Primary 2,671,957 2,671,856 2,667,408 2,661,772
Fully Diluted 2,676,010 2,672,244 2,676,010 2,671,235
Net income per common and common equivalent share:
Primary $ 0.01 $ 0.05 $ 0.03 $ 0.06
Fully Diluted $ 0.01 $ 0.05 $ 0.03 $ 0.06
See notes to consolidated financial statements.
4
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
Six Months Ended:
Aug. 30, 1997 Aug. 24, 1996
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Cash Flows from Operating Activities:
Net income $ 68,724 $ 151,282
Adjustments to reconcile net income to cash provided by (used in)
operating activities:
Depreciation and amortization 97,314 82,240
Deferred foreign tax provision 0 16,075
Changes in operating assets and liabilities:
Accounts receivable, net 103,098 (291,670)
Inventories (43,857) 22,799
Prepaid expenses and other assets 27,678 64,090
Net pension liability 54,600 24,600
Accounts payable and accrued liabilities 6,336 (105,594)
Unearned revenue 3,802 (9,113)
Disposal of fixed assets 0 5,300
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Net cash provided by (used in) operating activities 317,695 (39,991)
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Cash Flows from Investing Activities:
Capital expenditures (250,033) (35,456)
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Net cash used in investing activities (250,033) (29,075)
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Cash Flows from Financing Activities:
Common stock options exercised 0 2,344
Notes payable (301) (1,656)
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Net cash (used in) provided by financing activities (301) 688
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Net increase (decrease) in cash and cash equivalents 67,361 (74,759)
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Cash and cash equivalents at beginning of year 1,125,589 739,460
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Cash and cash equivalents at end of period $ 1,192,950 $ 664,701
=========== =========
Supplemental Disclosures of Cash Flow and Non-cash Flow Information:
Cash paid for interest $ 6,386 $ 4,680
=========== =========
See notes to consolidated financial statements.
5
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
August 30, 1997
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 l0-Q and Rule 10-0l 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 August 30, 1997 are not necessarily
indicative of the results that may be expected for the year ending February 28,
1998. For further information, refer to the consolidated statements and
footnotes thereto for the fiscal year ended February 28, 1997 in the Company's
1997 Annual Report.
B) 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 August
30, 1997 and August 24, 1996 were calculated at an effective annual tax rate of
4.5% 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%.
6
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT (continued)
NOTE 2
The Company did not take a physical inventory as of August 30, 1997. Inventories
and cost of sales for the interim period were based on the Company's perpetual
inventory records.
August 30, 1997 February 28, 1997
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(unaudited)
Inventories consist of:
Raw materials $ 728,560 $ 706,184
Work-in-process 168,715 156,421
Finished goods 123,266 119,353
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Total Inventories 1,020,541 981,958
Less: Allowance for obsolescence (54,338) (59,612)
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Net Inventories $ 966,203 $ 922,346
=========== =========
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.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Three and six months ended August 30, 1997 as compared with three and six months
ended August 24, 1996.
Revenues
Sales of $2,550,513 for the second quarter ended August 30, 1997 were 6.0% lower
than the sales of $2,714,268 in the comparable prior-year quarter. Net sales of
$5,065,798 for the six months ended August 30, 1997 were 3.1% lower than
prior-period's sales of $5,226,836. Unit volume in the second quarter of fiscal
1998 decreased primarily as a result of a decision not to run certain
promotions. When compared with the prior-year, second quarter sales were also
adversely affected by a new product launch in that year. The decrease in second
quarter sales this fiscal year versus prior-year more than offset gains in the
first fiscal quarter.
Gross Profit
Gross profit for the current-year's second quarter was $959,108 (37.6% of sales)
which represents a decrease from the comparable prior-year quarter's gross
profit of $1,157,901 (42.7% of sales). Gross profit for the recently concluded
six-month period of $1,966,613 (38.4% of sales) was lower than the comparable
prior six-month period's gross profit of $2,199,168 (42.1% of sales). The gross
profit reduction, primarily in the second quarter of fiscal 1998, is due to the
volume decrease and production problems in the U.K. facility associated with
staff turnover and training.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the recently ended quarter were
$948,993 compared to $1,022,289 in the comparable prior-year period, a 7.2%
decrease. Expenses for the six months were $1,993,513 compared with $2,051,931
in the prior comparable period, accounting for a 5.8% decrease. The decrease in
selling, general and administrative expense was primarily the result of reduced
salaries and related benefits, the elimination of grant monies, partially offset
by increased consulting expense in fiscal 1998 versus fiscal 1997.
Research and Development Expense
The Company incurred no research and development costs for the three months and
six months ended August 30, 1997. In-house research and development costs are
included under "Selling Expenses".
Other Income and Expenses
Other income consists primarily of income generated from investments and service
charge income generated from the Company's accounts receivable and seminar fees.
Net other income was $11,124 for the second quarter of the current fiscal year
as compared with $14,348 in the comparable prior year's quarter, representing a
22.5% decrease. For the six months, net other income was $32,048 this year
versus $30,080 or a 6.5% increase.
8
Provision for Income Taxes
The Company has provided an effective tax rate of 4.5% (US operations) of
pre-tax profits after utilizing available net operating loss carryforward 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 $26,111 or $.01 per share for the recently concluded quarter
as compared to a gain of $127,343 or $.05 per share generated in the
prior-year's quarter. Six month's net profit of $68,724 or $.03 per share
compares with a profit of $151,282 or $.06 per share in the prior-year's
comparable period.
Liquidity
Working capital, as of August 30, 1997, was $2,010,246 versus $2,049,766 at
February 28, 1997, a decrease of $39,520. Cash was provided by a decrease in
receivables (103,128) and an increase in accounts payable and liabilities
($60,936). Capital expenditures totaled $250,033 for the six months ended August
30, 1997
Cash balances at August 30, 1997, of $1,192,950 were $67,391 above the February
28, 1997 balance of $1,125,589.
As of July 31, 1997, the Company renewed and increased the revolving credit line
from $750,000 to $1,500,000, for an additional year (August 1, 1997 - July 31,
1998) at an interest rate of prime plus 0.5%, from NBD Bank, but to date has not
found it necessary to use this credit line.
9
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
23, 1997, where the following occurred:
1. Kenneth Granat, Gary L. Grahn, Justin Wernick and Thomas I. Altholz
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 2,346,982 1,280
Gary L. Grahn 2,346,982 1,280
Dr. Justin Wernick 2,347,782 1,480
Thomas I. Altholz 2,346,882 1,380
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 2,329,624
Votes against 15,100
Abstained 2,258
10
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Statement Re: Computation of Per Share Earnings
(b) Reports on Form 8-K
None
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: September 26, 1997
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)
11