<PAGE>
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 24, 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)
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 -- 2,584,281 shares as of October 7, 1996.
<PAGE>
INDEX
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -- August 24,
1996 and February 29, 1996 3
Condensed Consolidated Statements of Operations --
Three and Six Months ended August 24, 1996
and August 26, 1995 4
Condensed Consolidated Statement of Cash Flows --
Six Months ended August 24, 1996 and August 26,
1995 5
Notes to Condensed Consolidated Financial
Statements -- Six Months ended August 24, 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
2
<PAGE>
PART I. FINANCIAL INFORMATION
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS Aug. 24, 1996 Feb. 29, 1996
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(unaudited)
Current Assets:
Cash and cash equivalents $ 664,701 $ 739,460
Accounts receivable, net of allowance for
doubtful accounts of $52,093 and $48,000 1,568,129 1,278,865
Inventories, net (Note 3) 843,517 868,562
Other current assets 251,728 316,651
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Total current assets 3,328,075 3,203,538
Property and equipment, net 590,864 644,029
Other assets 188,235 187,666
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$4,107,174 $4,035,233
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---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of notes payable $ 2,051 $ 3,707
Accounts payable 254,397 270,291
Account liabilities:
Accrued payroll and related payroll taxes 301,097 366,122
Other current liabilities 571,651 599,218
Unearned revenue -- current 376,005 388,084
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Total current liabilities 1,505,201 1,627,422
Accrued pension expense 323,782 299,182
Unearned revenue -- long term 128,599 126,281
Deferred income taxes 20,634 4,629
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Total liabilities 1,978,216 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 (3,892,166) (4,043,449)
Aggregate adjustment resulting from
translation of financial statement into
U.S. Dollars (52,175) (49,788)
Minimum pension liability adjustment (255,168) (255,168)
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Total stockholders' equity 2,128,959 1,977,719
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$4,107,174 $4,035,233
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See notes to condensed consolidated financial statements.
3
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THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended: Six Months Ended:
Aug. 24, 1996 Aug. 26, 1995 Aug. 24, 1996 Aug. 26, 1995
------------- ------------- ------------- -------------
Net sales (Note 4) $2,714,268 $2,605,254 $5,226,836 $5,048,851
Cost of Sales 1,556,367 1,489,340 3,027,668 2,965,946
---------- ---------- ---------- ----------
Gross profit 1,157,901 1,115,914 2,199,168 2,082,905
Selling expenses 448,610 406,124 897,539 796,157
General and
administrative
expenses 573,679 554,050 1,154,392 1,149,933
Research and
development
expense 0 37,777 0 81,218
---------- ---------- ---------- ----------
Income from
operations 135,612 117,963 147,237 55,597
Other income,
principally
interest 16,709 7,674 34,759 30,245
---------- ---------- ---------- ----------
152,321 125,637 181,996 85,842
Other expense,
principally
interest 2,361 1,451 4,679 1,828
---------- ---------- ---------- ----------
Income before
income taxes 149,960 124,186 177,317 84,014
Provision for income
taxes (Note 1) 22,617 9,691 26,035 10,134
---------- ---------- ---------- ----------
Net income $ 127,343 $ 114,495 $ 151,282 $ 73,880
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Per share data
(Note 1):
Weighted average
number of shares of
common stock
outstanding 2,671,858 2,628,825 2,661,722 2,598,002
Net income per share
of common stock
outstanding $0.05 $0.04 $0.06 $0.03
See notes to condensed consolidated financial statements.
4
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THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
Six Months Ended:
Aug. 24, 1996 Aug. 26, 1995
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Cash Flows from Operating Activities:
Net income $ 151,282 $ 73,880
Adjustments to reconcile net income
to cash provided by (used in)
operating activities:
Depreciation and amortization 82,240 103,836
Deferred foreign tax provision 16,075 1,691
Changes in operating assets and
liabilities:
Accounts receivable, net (291,670) (208,993)
Inventories 22,799 105,340
Prepaid expenses and other assets 64,090 28,762
Net pension liability 24,600 21,000
Accounts payable and accrued
liabilities (105,594) (123,005)
Unearned revenue (9,113) (5,110)
Disposal of fixed assets 5,300 --
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Net cash used in operating activities (39,991) (2,599)
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Cash Flows from Investing Activities:
Capital expenditures (35,456) (142,490)
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Net cash used in investing activities (29,075) (142,490)
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Cash Flows from Financing Activities:
Common stock options exercised 2,344 19,532
Notes payable (1,656) (3,873)
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Net cash provided by financing activities 688 15,659
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Net decrease in cash and cash equivalents (74,759) (129,430)
Cash and cash equivalents at beginning
of year 739,460 811,657
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Cash and cash equivalents at end of
period $ 664,701 $ 682,227
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--------- ---------
Supplemental Disclosures of Cash Flow
and Non-cash Flow Information:
Cash paid for interest $4,680 $1,833
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--------- ---------
See notes to condensed consolidated financial statements.
5
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THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
August 24, 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 periods ended August 24, 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 for the fiscal year ended February 29, 1996 in the
Company's 1996 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 24, 1996 and August 26, 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 - CHANGE IN METHOD OF ACCOUNTING FOR INCOME TAXES
Effective March 1, 1993, the Company adopted FASB Statement No. 109,
"Accounting for Incomes 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.
6
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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 loss from continuing operations for the six months ended August 24,
1996, as well as the cumulative effect of the change, is not material.
The balance sheet effect to the implementation of Statement 109 is the
recognition of a net current deferred tax asset of $411,971 and a net
noncurrent deferred tax asset of $1,148,558. Valuation allowances of $411,971
and $1,148,558, 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 $ 411,971
Deferred tax liability --
-----------
Current Deferred Tax Asset, Net 411,971
Non-current:
Deferred tax asset 1,207,503
Deferred tax liability (58,945)
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Non-Current Deferred Tax Asset, Net 1,148,558
-----------
Total Deferred Tax Assets, Net 1,560,530
Valuation Allowance (1,560,530)
-----------
Net $ --
-----------
-----------
The current deferred tax asset is primarily composed of deferred revenue. 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.
7
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THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 3
The Company did not take a physical inventory as of August 24, 1996.
Inventories and cost of sales for the interim period were based on the
Company's perpetual inventory records.
August 24, 1996 February 29, 1996
--------------- -----------------
(unaudited)
Inventories consist of:
Raw materials $593,101 $645,517
Work-in-process 181,278 169,523
Finished goods 143,613 131,542
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Total Inventories 917,992 946,582
Less: Allowance for obsolescence 74,475 78,020
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Net Inventories $843,517 $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.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Six months ended August 24, 1996 as compared with six months ended August 26,
1995.
REVENUES
Sales of $2,714,268 for the second quarter ended August 24, 1996 were 4.2%
higher than the sales of $2,605,254 in the comparable prior-year quarter. Net
sales of $5,226,836 for the six months ended August 24, 1996 were 3.5% higher
than prior-period's sales of $5,048,851.
GROSS PROFIT
Gross profit for the current-year's second quarter was $1,157,901 (42.7% of
sales) which represents an increase of 3.8% from the comparable prior-year
quarter's gross profit of $1,115,914 (42.8% of sales). Gross profit for the
recently concluded six-month period of $2,199,168 (42.1% of sales) was 5.6%
higher than the comparable prior six-month period's gross profit of
$2,082,905 (41.3% of sales).
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the recently ended quarter
were $1,022,289 compared to $960,174 in the comparable prior-year period, a
6.5% increase. Expenses for the six months were $2,051,931 compared with
$1,946,090 in the prior comparable period, accounting for a 5.4% 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 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 EXPENSES
Other income consists primarily of income generated from investments and
service charge income generated from the Company's accounts receivable,
seminar fees and consulting. Net other income was $14,348 for the second
quarter of the current fiscal year as compared with $6,223 in the comparable
prior year's quarter, representing a 130% increase. The recognition of
seminar income was the primary reason for the increase. For the six months,
net other income was $30,080 this year versus $28,417 or a 5.9% increase,
with increased seminar income more than offsetting increased interest expense.
9
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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 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 $127,343 or $.05 per share for the recently concluded
quarter as compared to a gain of $114,495 or $.04 per share generated in the
prior-year's quarter. Six month's net profit of $151,282 or $.06 per share
compares with a profit of $73,880 or $.03 per share in the prior-year's
comparable period. Tighter control of costs plus increases in sales, account
for the profit improvement.
LIQUIDITY
As of August 24, 1996, the Company had $664,701 in cash and cash equivalents.
Working capital, as of August 26, 1996, was $1,904,270 versus $1,576,116 at
February 29, 1996, an increase of $328,154. While decreases in cash of
$74,759 and inventories of $25,045 reduced working capital, accounts
receivable increased $289,264 and accounts payable and other liabilities
decreased $189,882.
Cash balances at August 24, 1996, of $664,701 were $74,759 below the
February 29, 1996 balance of $739,460.
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, but to date has not found it necessary to
use this credit line.
10
<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.
_____________________________________
(REGISTRANT)
DATE: October 7, 1996
By: _________________________________
Gary L. Grahn
President and Chief Executive Officer
By: _________________________________
Thomas F. Belleau
Vice President -- Finance and
Chief Financial Officer
(Principal Financial Officer)
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> AUG-24-1997
<CASH> 664,701
<SECURITIES> 0
<RECEIVABLES> 1,620,222
<ALLOWANCES> 52,093
<INVENTORY> 843,517
<CURRENT-ASSETS> 3,328,075
<PP&E> 2,644,490
<DEPRECIATION> 2,053,626
<TOTAL-ASSETS> 4,107,174
<CURRENT-LIABILITIES> 1,505,201
<BONDS> 0
0
0
<COMMON> 51,687
<OTHER-SE> 2,077,272
<TOTAL-LIABILITY-AND-EQUITY> 4,107,174
<SALES> 5,226,836
<TOTAL-REVENUES> 5,226,836
<CGS> 3,027,668
<TOTAL-COSTS> 3,027,668
<OTHER-EXPENSES> 2,051,931
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,679
<INCOME-PRETAX> 177,317
<INCOME-TAX> 26,035
<INCOME-CONTINUING> 151,282
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 151,282
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0
</TABLE>
