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 29, 1999
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 -- 2,573,281 shares as of July 10, 1999.
1
INDEX
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -- May 29, 1999 and February 28,1999 3
Condensed Consolidated Statements of Income --
Three Months ended May 29, 1999 and May 30, 1998 4
Condensed Consolidated Statements of Cash Flows --
Three months ended May 29, 1999 and May 30, 1998 5
Notes to Condensed Consolidated Financial Statements --
Three Months ended May 29, 1999 and May 30, 1998 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 29,1999 February 28,1999
ASSETS
Current assets:
Cash and cash equivalents $ 1,577,937 $ 1,700,156
Accounts receivable, net of allowance for
doubtful accounts of $34,492 and $36,155, respectively 1,509,830 1,396,878
Inventories, net (Note 2) 1,037,988 1,034,001
Prepaid expenses and other current assets 203,854 160,723
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Total current assets 4,329,609 4,291,758
Property and equipment, net 668,315 673,152
Other assets 159,669 159,670
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Total Assets $ 5,157,593 $ 5,124,580
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 529,789 $ 700,590
Accrued liabilities:
Accrued payroll and related payroll taxes 286,217 285,540
Other current liabilities 609,909 542,250
Unearned revenue-current 314,060 356,887
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Total current liabilities 1,739,975 1,885,267
Accrued pension expense 204,254 195,254
Unearned revenue-long-term 188,521 104,420
Deferred income taxes 5,284 5,288
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Total liabilities 2,138,034 2,190,229
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Stockholders' equity :
Common stock, $.02 par value. Authorized
10,000,000 shares; Issued 2,598,281 and
2,598,281, respectively 51,966 51,966
Additional paid-in capital 6,291,564 6,291,564
Accumulated deficit (2,988,359) (3,070,630)
Accumulated other comprehensive loss (296,262) (299,199)
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3,058,909 2,973,701
Less: treasury stock at cost, 25,000 shares (39,350) (39,350)
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Total stockholders' equity 3,019,559 2,934,351
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Total Liabilities and Stockholders' Equity $ 5,157,593 $ 5,124,580
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See notes to condensed consolidated financial statements.
3
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended
May 29,1999 May 30,1998
Net sales (Note 3) $ 2,705,860 $2,536,631
Cost of sales 1,733,041 1,615,050
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Gross profit 972,819 921,581
Selling expenses 365,996 330,002
Research and development expenses 19,061 --
General and administrative expenses 517,131 507,139
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Income from operations 70,631 84,440
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Other income (expense):
Other income, principally interest 24,392 37,059
Interest expense (1,257) (2,379)
Minority interest (4,725) --
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Other income, net 18,410 34,680
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Income before income taxes 89,041 119,120
Provision for income taxes (Note 1): 6,770 2,970
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Net income $82,271 $116,150
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Weighted average number of common
shares used in computation of net
income per
share:
Basic 2,573,281 2,586,094
Diluted 2,655,715 2,645,110
Net income per common share (Note 6):
Basic $ 0.03 $ 0.04
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Diluted $ 0.03 $ 0.04
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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 29, May 30,
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1999 1998
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Cash Flows From Operating Activities:
Net income $ 82,271 $ 116,150
Adjustments to reconcile net income to net cash
(used in) operating activities:
Deferred foreign tax benefit (83) (39)
Depreciation and amortization 56,616 59,066
Allowance for doubtful accounts (1,363) --
Changes in operating assets and liabilities:
Accounts receivable (108,609) (227,317)
Inventories (1,635) 2,867
Prepaid expenses and other assets (42,842) 1,174
Accounts payable and accrued liabilities (106,076) (80,371)
Net pension liability 9,000 27,300
Unearned revenue 41,275 (19,210)
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Net cash (used in) operating activities (71,446) (120,380)
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Cash Flows From Investing Activities:
Capital expenditures (50,773) (81,965)
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Net cash (used in) investing activities (50,773) (81,965)
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Cash Flows From Financing Activities:
Common stock options exercised -- 781
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Net cash provided by financing activities -- 781
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Net (decrease) in cash and cash equivalents .. (122,219) (201,564)
Cash and cash equivalents at beginning of period . 1,700,156 1,189,046
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Cash and cash equivalents at end of period $ 1,577,937 $ 987,482
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Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest expense $ 1,257 $ 2,379
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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 29, 1999 AND MAY 30, 1998
(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, 1999.
Operating results for the period ended May 29, 1999 are not necessarily
indicative of the results that may be expected for the year ending February 29,
2000.
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
The provisions for income taxes on domestic operations, for the periods ended
May 29, 1999 and May 30, 1998, were calculated at an effective annual tax rate
of 2.5% and 2%, respectively, reflecting the utilization of available net
operating loss carryforwards and also taking into account the "Alternative
Minimum Tax". The provisions for income taxes on foreign operations were
estimated at 21% and 25%, for the periods ended May 29, 1999 and May 30, 1998,
respectively.
D) Recent Pronoucements 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 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 29, 1999. Inventories
and cost of sales for the interim period were based on the Company's perpetual
inventory records.
May 29, 1999 February 28, 1999
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Inventories consist of:
Raw materials $1,026,306 $1,017,080
Work-in-process 79,209 84,448
Finished goods -- --
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Total Inventories 1,105,515 1,101,528
Less allowance for obsolescence 67,527 67,527
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Net inventories $1,037,988 $1,034,001
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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
The Company's comprehensive earnings were as follows:
Three Months Ended
May 29, May 30,
1999 1998
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Net income $ 82,271 $ 116,150
Other comprehensive income (loss),
net of tax:
Change in equity resulting from translation
of financial statements into U.S. dollars 2,937 (684)
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Comprehensive income $ 85,208 $ 115,466
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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 Consolidated
Three months ended May 29, 1999 America Kingdom Total
- -----------------------------------------------------------------------------------
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
Operating profit 33,014 37,617 70,631
Three months ended May 30, 1998
- -----------------------------------------------------------------------------------
Net sales from external customers $2,237,094 $ 299,537 $2,536,631
Intersegment net sales 39,234 -- 39,234
Gross margins 815,615 105,966 921,581
Operating profit 65,230 19,210 84,440
7
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 29, 1999 May 30, 1998
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Per Per
Income Shares Share Income Shares Share
------ ------ ----- ------ ------ -----
BASIC EPS
Income available to common
stockholders $82,271 2,573,281 $0.03 $116,150 2,586,094 $0.04
EFFECT OF DILUTIVE SECURITIES
Stock options -- 82,434 -- -- 59,016 --
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DILUTED EPS
Income available to common
stockholders plus assumed
exercise of stock options $82,271 2,655,715 $0.03 $116,150 2,645,110 $0.04
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Three months ended May 29, 1999, as compared with three months ended May 30,
1998.
REVENUES
Sales of $2,705,860 for the first quarter ended May 29, 1999 were $169,229 or
6.7% above the prior year's sales of $2,536,631. This increase is principally
due to an increase in unit volume in the current quarter over prior year's units
shipped.
GROSS PROFIT
Gross profit as a percentage of sales was consistent with the prior year,
decreasing from 36.3% in the prior year quarter to 36.0% in the current year
quarter.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling expenses for the three months ended May 29, 1999, increased $35,994 or
10.9% as compared to the corresponding period in the prior year due to increased
advertising and promotional expenses focused on increasing market share and
future sales and increased commissions associated with the increased sales.
General and administrative expenses increased $9,992 or less than 2% over prior
year levels due to the Company's continuing monitoring of costs.
RESEARCH AND DEVELOPMENT EXPENSES
As of March 1, 1999, the Company established a Product Development department to
explore new applications for existing products and the development of new
products to ensure that the Company remains on the cutting edge of orthotic
therapy. Costs incurred during the quarter ended May 29, 1999 of $19,061 were
principally salary and salary related expenses.
8
OTHER INCOME, NET
Other income consists primarily of income generated from investments and service
charge income generated from the Company's accounts receivable. Net other income
was $18,410 for the first quarter of the current fiscal year as compared with
$34,680 in the comparable prior year's quarter, representing a 46.9% decrease.
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.
LIQUIDITY AND CAPITAL RESOURCES
At May 29, 1999 the Company's cash and cash equivalents were $1,577,937 and
working capital was $2,589,634. Additionally, the Company has a revolving credit
facility with a bank for $1,500,000. To date, the Company has not borrowed on
this facility, which expires on July 31 1999. Management anticipates that this
facility will be renewed or replaced by a new facility with substantially
similar terms. Management believes that its existing cash balances and revolver
availability along with cash generated from operations will be adequate to meet
the anticipated cash needs for the next twelve months.
RECENT PRONOUCEMENTS 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 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.
YEAR 2000 COMPLIANCE
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a 2
digit year is commonly referred to as the "Year 2000 Compliance" issue. As the
year 2000 approaches, such systems may be unable to accurately process certain
date-based information. The Company commenced a program in fiscal 1998 to
identify, remediate, test and develop contingency plans for Year 2000
Compliance. Currently, the Company is substantially complete with its Year 2000
Compliance Program, the results of which are summarized as follows:
COMPUTER INFORMATION SYSTEMS ("CIS")
Beginning in fiscal 1998 (March 1997 - February 1998), the Company began
implementing a new enterprise-wide CIS. The CIS is customized software running
on a Windows NT Server. The server, customer software and all networked personal
computers are fully Year 2000 compliant. The Company has been operating the new
CIS since February 1998 and it is now considered fully implemented. The Company
anticipates that CIS, as it relates to the Year 2000 Compliance issue, will have
no effect on business operations.
PRODUCTS
The Year 2000 Compliance issue affects none of the Company's current products.
Due to the nature of the Company's business, custom orthotics and related
materials and services, no software or microprocessors are used in the products.
THIRD PARTIES
The Company solicited statements of compliance from its key outside vendors,
manufacturers and suppliers with respect to their CIS and overall business
operations. Approximately 70% of these parties responded and informed the
Company that they are currently compliant or plan to be compliant by December
31, 1999. To the extent that any of these parties have been unable to certify
that they will be substantially Year 2000 compliant by early 1999, the Company
is reviewing its alternatives with respect to other vendors, manufacturers or
suppliers (as applicable). Currently, the Company has received responses from
its critical suppliers and its CIS vendor certifying full Year 2000 compliance.
Throughout the remainder of 1999 the Company will continue its efforts to
monitor the progress and obtain and evaluate responses of its key vendors,
suppliers and other significant third parties.
9
COSTS
The Company's most significant Year 2000 Compliance costs related to the
implementation of the new CIS and were incurred in prior years as part of the
implementation of the new enterprise-wide CIS. Costs incurred in the current
quarter were not significant and the Company does not currently anticipate that
future costs associated with its ongoing Year 2000 Compliance program will be
material to its financial condition or results of operations.
The Year 2000 issue presents far-reaching implications, some of which cannot be
anticipated with any degree of certainty. Satisfactorily addressing the Year
2000 Compliance issue is dependent on many factors, some of which are not
completely in the Company's control, such as availability of certain resources,
third party remediation plans and other market-wide factors. Based on the
assessment that has been made under the Year 2000 Compliance program, and other
than stated above, the Company has no other contingency plans in the event of
Year 2000 noncompliance and does not currently believe that any other
contingency plans are necessary. In addition, management is not able to
determine the effect of any Year 2000 noncompliance (including with respect to a
"worst-case scenario") on the Company, and there can be no guarantee that any
such noncompliance would not have an adverse effect on the Company's CIS,
results of operations and financial condition.
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
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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 10, 1999
By: /s/ DANIEL J. GORNEY
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Daniel J. Gorney
President and Chief Executive Officer
By: /s/ THOMAS G. ARCHBOLD
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Thomas G. Archbold
Chief Financial Officer
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