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 25, 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 _____
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 July, 1, 1996.
<PAGE>
INDEX
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -- May 25, 1996 and
February 29, 1996 3
Condensed Consolidated Statements of Operations --
Three Months ended May 25, 1996 and May 27, 1995 4
Condensed Consolidated Statements of Cash Flows --
Three Months ended May 25, 1996 and May 27, 1995 5
Notes to Condensed Consolidated Financial Statements --
Three Months ended May 25, 1996 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-10
PART II. OTHER INFORMATION
None
Signatures 11
<PAGE>
PART I. FINANCIAL INFORMATION
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE><CAPTION>
Assets May 25, 1996 February 29, 1996
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(unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 700,237 $ 739,460
Accounts receivable, net of allowance for doubtful accounts
of $15,000 and $21,000 1,563,576 1,278,865
Inventories, net (Note 3) 804,207 868,562
Other current assets 289,248 316,651
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Total current assets 3,357,268 3,203,538
Property and equipment, net 600,881 644,029
Other assets 187,985 187,666
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Total Assets $ 4,146,134 $ 4,035,233
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Liabilities and Stockholders' Equity
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Current Liabilities:
Notes payable 2,890 3,707
Accounts payable 307,829 270,291
Accrued liabilities:
Accrued payroll and related payroll taxes 360,057 366,122
Other current liabilities
657,964 599,218
Unearned revenue 378,238 388,084
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Total current liabilities 1,706,978 1,627,422
Accrued pension expense 311,482 299,182
Unearned revenue 122,013 126,281
Deferred income taxes 6,054 4,629
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Total Liabilities 2,146,527 2,057,514
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Stockholders' Equity:
Common stock, $.02 par value. Authorized 10,000,000 shares;
outstanding 2,581,281 shares. 51,627 51,627
Additional paid-in capital 6,274,497 6,274,497
Accumulated deficit (4,019,511) (4,043,449)
Aggregate adjustment resulting from translation of financial statement
into U.S. Dollars (51,838) (49,788)
Minimum pension liability adjustment (255,168) (255,168)
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Total stockholders' equity 1,999,607 1,977,719
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Total Liabilities and Stockholders' Equity $ 4,146,134 $ 4,035,233
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</TABLE>
See notes to condensed consolidated financial statements.
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THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE><CAPTION>
Three Months Ended:
May 26, 1996 May 27, 1995
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<S> <C> <C>
Net sales (Note 4) $ 2,512,567 $ 2,443,597
Cost of sales 1,471,300 1,476,606
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Gross profit 1,041,267 966,991
Selling expenses 448,928 390,033
General and administrative expenses 580,713 595,883
Research and development expenses - 43,441
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Income (loss) from operations 11,626 (62,366)
Other income, principally interest 18,050 22,571
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Other expense, principally interest 29,676 (39,795)
2,319 377
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Income (loss) before income taxes 27,357 ( 40,172)
Provision for income taxes (Note 1) 3,419 443
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Net income (loss) $ 23,938 $ ( 40,615)
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Per share data (Note 1):
Weighted average number of shares of common stock outstanding 2,651,519 2,547,281
Net income (loss) per share of common stock outstanding $ 0.01 $ (0.02)
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE><CAPTION>
Three Months Ended:
May 25, 1996 May 27, 1995
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ 23,938 $ (40,615)
Adjustments to reconcile net income (loss) to cash provided by
(used in)
operating activities: 42,314 54,726
Depreciation and amortization 1,495 -
Deferred foreign tax provision 5,300 _
Loss on disposal of fixed assets
Changes in operating assets and liabilities: (287,117) (89,036)
Accounts receivable 62,109 165,339
Inventories 26,820 (43,391)
Prepaid expenses and other assets 12,300 22,500
Net pension liability 93,111 (124,614)
Accounts payable and accrued liabilities (13,466) (8,453)
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Unearned revenue
Net cash used in operating activities (33,196) (63,544)
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Cash Flows from Investing Activities:
Capital expenditures (5,210) (101,744)
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Net cash used in investing activities (5,210) (101,744)
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Cash Flows from Financing Activities:
Notes payable
(817) (1,927)
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Net cash used in financing activities
(817) (1,927)
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Net decrease in cash and cash equivalents
(39,223) (167,215)
Cash and cash equivalents at beginning of year
739,460 811,657
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Cash and cash equivalents at end of period
$ 700,237 $ 644,442
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Supplemental Disclosures of Cash Flow and Non-cash Flow
Information:
Cash paid for interest $ 2,319 $ 384
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</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 25, 1996
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.
Operating results for the period ended May 25, 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 statements and
footnotes thereto in the Company's Annual Report on Form 10-K for the fiscal
year ended February 29, 1996.
B) Income (Loss) 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. Net loss per share excludes the effect of
common stock equivalents.
C) Provision for Income Taxes
The provision for income taxes, on domestic operations, for periods ended May
25, 1996 and May 27, 1995 were calculated at an effective annual tax rate of 9%
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%.
NOTE 2 - ACCOUNTING FOR INCOME TAXES
Effective March 1, 1993, the Company adopted FASB Statement No. 109, "Accounting
for Income Taxes". Under Statement 109, the asset and liability method is used
in accounting for income taxes. Under this method, 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.
<PAGE>
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
As permitted by Statement 109, the Company has elected not to restate the
financial statements of any prior years. The effect of the change on the pretax
income from continuing operations for the three months ended May 25, 1996, as
well as the cumulative effect of the change, is not material.
The balance sheet effect of the implementation of Statement 109 is the
recognition of a net current deferred tax asset of $403,921 and a net
non-current deferred tax asset of $1,170,674. Valuation allowances of $403,921
and $1,170,674, respectively, reduce the deferred tax assets to amounts that
represent management's best estimate of the amount of such deferred tax assets
which more likely than not will be realized.
The following is a summary of deferred tax assets and liabilities:
Amount
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Current:
Deferred tax asset $ 403,921
Deferred tax liability 0
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Current Deferred Tax Asset, Net 403,921
Non-current:
Deferred tax asset 1,203,968
Deferred tax liability 33,294
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Non-Current Deferred Tax Asset, Net 1,170,674
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Total Deferred Tax Assets, Net 1,574,595
Valuation Allowance (1,574,595)
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Net $ 0
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The current deferred tax asset is primarily composed of deferred revenue,
accrued vacation pay, reserves for customer volume rebates and foreign exchange
allowances. The non-current deferred tax asset is primarily composed of Federal
net operating loss carryforwards. The non-current deferred tax liability is
primarily composed of depreciation.
<PAGE>
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT (continued)
NOTE 3 - INVENTORIES
The Company did not take a physical inventory as of May 25, 1996. Inventories
and cost of sales for the interim period were based on the Company's perpetual
inventory records.
May 25, 1996 February 29, 1996
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(unaudited)
Inventories consist of:
Raw materials $ 590,746 $ 645,517
Work-in-process 175,535 169,523
Finished goods 135,303 131,542
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Total Inventories 901,584 946,582
Less: Allowance for obsolescence 75,714 78,020
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Net Inventories $ 825,870 $ 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 significantly higher
in the warmer months of the year.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS
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Three months ended May 25, 1996 as compared with three months ended May 27,
1995.
REVENUES
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Sales of $2,512,567 for the first quarter ended May 25, 1996 were $68,970 or
2.8% ahead of prior-year's sales of $2,443,597. Sales of the Company's orthotic
products increased, however partially offsetting the increase were lower PPT
sales due primarily to increased pressure from a competitive product.
GROSS PROFIT
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Gross profit for the current-year's first quarter was $1,041,267 (41.4% of
sales), as compared to the prior-year's first quarter gross profit of $966,991
(39.6% of sales). The increase was mainly due to the cost savings achieved by
closing the Company's manufacturing facility in New Jersey and moving the
Illinois branch office to smaller facilities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
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For the three months ended May 25, 1996, selling, general and administrative
expenses increased $43,725 or 4.4% to $1,029,641, from the prior-year's
comparable quarter of $985,916. Increased expenses were due to increases in
salaries, commissions and other direct selling expenses associated with the
launch of a new product and higher unit sales in fiscal 1996.
RESEARCH AND DEVELOPMENT EXPENSE
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The Company incurred no research and development costs for the three months
ended May 25, 1996 as a result of the Company's decision to discontinue the
in-house CAD-CAM project since the project was not able to produce a
satisfactory and economic product. As such, all related costs associated with
the project were written off during fiscal 1996. In-house research and
development costs are included under "Selling Expenses".
OTHER INCOME AND EXPENSE
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Other income consists primarily of income generated from investments, service
charge income generated from the Company's accounts receivable, seminar fees
obtained from classes given by the Company's U.K. subsidary and consulting fees.
Net other income was $15,731 for the first quarter of the current fiscal year as
compared with $22,194 in the comparable prior-year's quarter, representing a
29.1% decrease. Most of the decrease was due to lack of seminar income and
increased interest expense.
PROVISION FOR INCOME TAXES
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Tax expenses for both periods reflect the use of the "Minimum Alternative"
method.
NET INCOME
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The Company earned $23,938 or $.01 per share for the recently-concluded quarter
as compared to a net loss of $40,615 or $.02 per share generated in the
prior-year's first quarter. The favorable results were primarily due to
increased sales, the closing of the Company's manufacturing facility in New
Jersey and moving the Illinois branch office to smaller facilities.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
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Working capital, as of May 25, 1996, was $1,650,290 versus $1,576,116 at
February 29, 1996, an increase of $74,174. While cash, inventory and other
assets decreased $39,223, $64,355 and $27,403, respectively, receivables and
current liabilities increased $284,711 and $79,556, respectively.
Cash balances at May 25, 1996 of $700,237 were $39,223 below the February 29,
1996 balance of $739,460. The Company's accounts receivable increased $287,117.
Offsetting this cash outflow were net income of $23,938, decreases in inventory
and other assets of $62,109 and $26,820, respectively, an increase in
liabilities of $91,945 and depreciation and amortization of $42,314.
The Company believes its capital position is adequate to meet anticipated cash
needs for the next twelve months and beyond.
<PAGE>
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 1,1996
By: /s/ GARY L. GRAHN
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Gary L. Grahn
President and
Chief Executive Officer
By: /s/ DONALD M. CARBONE
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Donald M. Carbone
Vice President - Finance and
Chief Financial Officer
(Principal Financial Officer)
