<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________
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 29, 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.
------------------------------------
(Exact name of registrant as specified in its charter.)
NEW YORK 11-2239561
------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization.) Identification No.)
450 COMMACK ROAD, DEER PARK, NY 11729
----------------------------------------------------
(Address of principal executive offices) (Zip Code)
(516) 667-1200
--------------------------------------------------
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 -- 2,585,281 shares as of December 23, 1997.
<PAGE>
INDEX
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets -- November 29, 1997
and February 28, 1997 3
Consolidated Statements of Operations --
Three and Nine Months ended November 29, 1997
and November 23, 1996 4
Consolidated Statements of Cash Flows --
Nine Months ended November 29, 1997
and November 23, 1996 5
Notes to Consolidated Financial Statements 6 - 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations 8 - 9
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 10
Signatures 11
2
<PAGE>
PART I. FINANCIAL INFORMATION
THE LANGER BIOMECHANICS GROUP, INC. AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
NOV. 29, 1997 FEB. 28, 1997
------------- -------------
(UNAUDITED)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents........................ $1,294,371 $1,125,589
Accounts receivable, net of allowance for
doubtful accounts of $27,000 and $21,000....... 1,342,956 1,431,567
Inventories, net (Note 2)........................ 1,006,463 922,346
Other current assets............................. 280,429 279,558
---------- ----------
Total current assets............................... 3,924,219 3,759,060
Property and equipment, net........................ 722,366 507,195
Other assets....................................... 177,571 178,771
---------- ----------
$4,824,156 $4,445,026
---------- ----------
---------- ----------
Liabilities and Stockholders' Equity
Current Liabilities:
Current maturities of notes payable.............. $ -- $ 301
Accounts payable................................. 340,337 341,078
Account liabilities:
Accrued payroll and related payroll taxes...... 282,427 299,519
Other current liabilities...................... 878,028 677,669
Unearned revenue--current........................ 398,724 390,727
---------- ----------
Total current liabilities.......................... 1,899,516 1,709,294
Accrued pension expense............................ 245,077 287,315
Unearned revenue--long term........................ 150,713 151,732
Deferred income taxes.............................. 5,567 5,376
---------- ----------
Total liabilities.................................. 2,300,873 2,153,717
---------- ----------
Stockholders' Equity:
Common stock, $.02 par value.
Authorized 10,000,000 shares;
outstanding 2,585,281and $2,584,281 shares,
respectively..................................... 51,706 51,686
Additional paid-in capital......................... 6,277,543 6,276,782
Accumulated deficit................................ (3,513,218) (3,740,402)
Aggregate adjustment resulting from
foreign currency translation..................... (44,500) (48,509)
Minimum pension liability adjustment............... (248,248) (248,248)
---------- ----------
Total stockholders' equity......................... 2,523,283 2,291,309
---------- ----------
$4,824,156 $4,445,026
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
THE LANGER BIOMECHANICS
GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED: NINE MONTHS ENDED:
-------------------------- --------------------------
NOV. 29, NOV. 23, NOV. 29, NOV. 23,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales (Note 1)...................................... $2,586,395 $2,835,890 $7,652,193 $8,062,726
Cost of sales........................................... 1,551,096 1,614,459 4,650,279 4,642,127
------------ ------------ ------------ ------------
Gross profit............................................ 1,035,299 1,221,431 3,001,914 3,420,599
Selling expense......................................... 366,891 522,317 1,149,135 1,419,856
General and administrative expense...................... 514,349 574,768 1,665,619 1,729,160
------------ ------------ ------------ ------------
Income from operations.................................. 154,059 124,346 187,160 271,583
Other income, principally interest...................... 16,163 6,300 54,596 41,059
------------ ------------ ------------ ------------
170,222 130,646 241,756 312,642
Other expense, principally interest..................... 2,653 2,211 9,039 6,890
------------ ------------ ------------ ------------
Income before income taxes.............................. 167,569 128,435 232,717 305,752
Provision for income taxes (Note 1)..................... 9,109 17,999 5,533 44,034
------------ ------------ ------------ ------------
Net income.............................................. $ 158,460 $ 110,436 $ 227,184 $ 261,718
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average number of common and
common equivqlent shares used in computation
of net income per share:
Primary............................................... 2,662,780 2,667,726 2,666,665 2,663,814
Fully Diluted......................................... 2,660,507 2,656,468 2,659,840 2,655,192
Net income per common and comon equivalent share:
Primary............................................... $ 0.06 $ 0.04 $ 0.09 $ 0.10
Fully Diluted......................................... $ 0.06 $ 0.04 $ 0.09 $ 0.10
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED:
--------------------------
NOV. 29, NOV. 23,
1997 1996
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income....................................................... $ 227,184 $ 261,718
Adjustments to reconcile net income to
cash provided by (used in) operating activities:
Depreciation and amortization.................................. 134,360 141,161
Deferred foreign tax provision................................. 0 28,389
Changes in operating assets and liabilities:
Accounts receivable, net....................................... 88,611 (305,300)
Inventories.................................................... (84,117) (17,957)
Prepaid expenses and other assets.............................. 329 (34,850)
Net pension liability.......................................... (42,238) 4,503
Accounts payable and accrued liabilities....................... 163,902 85,052
Unearned revenue............................................... 23,022 6,639
Disposal of fixed assets....................................... 0 5,300
------------ ------------
Net cash provided by (used in) operating activities................ 511,053 174,655
------------ ------------
Cash Flows from Investing Activities:
Capital expenditures............................................... (342,751) (59,856)
------------ ------------
Net cash used in investing activities.............................. (342,751) (59,856)
------------ ------------
Cash Flows from Financing Activities:
Common stock options exercised..................................... 781 2,344
Notes payable...................................................... (301) (2,519)
------------ ------------
Net cash (used in) provided by financing activities................ 480 (175)
------------ ------------
Net increase (decrease) in cash and cash equivalents............... 168,782 114,624
------------ ------------
Cash and cash equivalents at beginning of year..................... 1,125,589 739,460
------------ ------------
Cash and cash equivalents at end of period......................... $1,294,371 $ 854,084
------------ ------------
------------ ------------
Supplemental Disclosures of Cash Flow and Non-cash Flow Information:
Cash paid for interest............................................. $ 9,039 $ 6,890
------------ ------------
------------ ------------
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
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. For further information, refer to the consolidated
financial statements and footnotes thereto for the fiscal year ended February
28, 1997 in the Company's 1997 Annual Report. 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 29, 1997 are not necessarily
indicative of the results that may be expected for the year ending February 28,
1998.
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 29, 1997 and November 23, 1996 were calculated at an effective annual
tax rate of 4.5% and 9%, 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%.
6
<PAGE>
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 INVENTORY
The Company did not take a physical inventory as of November 29, 1997.
Inventories and cost of sales for the interim period were based on the Company's
perpetual inventory records.
<TABLE>
<CAPTION>
November 29, 1997 February 28, 1997
----------------- -----------------
(unaudited)
<S> <C> <C>
Inventories consist of:
Raw materials................................ $ 754,041 $ 706,184
Work-in-process.............................. 186,858 156,421
Finished goods............................... 119,902 119,353
------------ -----------
Total Inventories....................... 1,060,801 981,958
Less: Allowance for obsolescence....... (54,338) (59,612)
------------ -----------
Net Inventories.............................. $ 1,006,463 $ 922,346
------------ -----------
------------ -----------
</TABLE>
NOTE 3 STOCK OPTIONS
The following summarizes stock option activity for the quarter ended November
29, 1997:
Granted................................... 25,000
Exercise Price........................... $ 1.875
Exercised................................. 1,000
Exercise Price........................... $ .781
Options Cancelled/Expired/Terminated...... None
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.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Three and nine months ended November 29, 1997 as compared with three and nine
months ended November 23, 1996.
Revenues
Sales of $2,586,395 for the third quarter ended November 29, 1997 were 8.8%
lower than the sales of $2,835,890 in the comparable prior-year quarter. Net
sales of $7,652,193 for the nine months ended November 29, 1997 were 5.1% lower
than prior-period's sales of $8,062,726. Decreased revenues resulted from
decreased volume offset partially by an approximately 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 $1,035,299 (40.0% of
sales) which represents a 15.2% decrease from the comparable prior-year
quarter's gross profit of $1,221,431 (43.1% of sales). Gross profit for the
recently concluded nine-month period of $3,001,914 (39.2% of sales) was 12.2%
lower than the comparable prior nine-month period's gross profit of $3,420,599
(42.4% of sales). The year-to-date decrease was mostly due to decreased unit
volume together with manufacturing problems occurring in the second quarter of
this fiscal year in the Company's facility in the UK.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the recently ended quarter were
$881,240 compared to $1,097,085 in the comparable prior-year period, a 19.7%
decrease. Expenses for the nine months ended November 29, 1997, were $2,814,754
compared with $3,149,016 in the prior comparable period, accounting for a 10.6%
decrease. Decreased expenses were due primarily to decreased selling expense in
fiscal 1998 associated with reduced sales promotion efforts and decreased
marketing staff, reflecting the Company's decision to contain costs in this
area.
Other Income - Net
Other income consists primarily of income generated from investments and service
income generated from the Company's accounts receivable offset partially by
expenses of non-operating services. Net other income of $13,510 for the
recently-concluded quarter was 230.4% more than the comparable prior-year
quarter's other income of $4,089.
Other income of $45,557 for the nine-month period was 33.3% more than the
$34,169 achieved for the comparable prior nine-month period.
8
<PAGE>
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 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 $158,460 or $0.06 per share for the recently concluded
quarter as compared to $110,436 or $0.04 per share generated in the prior-year's
quarter. Nine month's net profit of $227,184 or $0.09 per share compares with
$261,717 or $0.10 per share in the prior-year's comparable period. The effect on
profit of the unit volume decrease was nearly offset by improved control of
manufacturing costs, reduced marketing staff and sales promotion expenses, and
the sales price increase for the nine month period ended November 29, 1997,
versus prior-year's comparable period. Profits for the three month period ended
November 29, 1997 increased versus prior-year's comparable period primarily due
to improved manufacturing operations in the UK and reduced marketing expenses.
Liquidity
Working capital, as of November 29, 1997, was $2,024,703 versus $2,049,766 at
February 28, 1997, a decrease of $25,063.
Increases in cash from decreases in accounts receivable were more than offset by
increases in current liabilities.
The Company believes its capital position is adequate to meet anticipated cash
needs for the next twelve months and beyond.
As of July 31, 1997, the Company has renewed and increased a 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. The Company
has not drawn against the credit line during the nine month period ended
November 29, 1997.
9
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports Form 8-K
(a) Exhibits
11. Statement Re: Computation of Per Share Earnings
27. EDGAR financial data schedule
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter ended
November 29, 1997.
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: December 23, 1997
By: /s/ GARY L. GRAHN
------------------------
Gary L. Grahn
President and Chief Executive Officer
By: /s/ THOMAS F. BELLEAU
---------------------------
Thomas F. Belleau
Vice President - Finance and
Chief Financial Officer
(Principal Financial Officer)
11
<PAGE>
Exhibit 11
THE LANGER BIOMECHANICS GROUP, INC.
AND SUBSIDIARIES
COMPUTATION OF PER SHARE AMOUNTS
EXHIBIT 11
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
-------------------------- --------------------------
NOV. 29, NOV. 23, NOV. 29, NOV. 23,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Primary:
Net income.............................................. $ 158,460 $ 110,436 $ 227,184 $ 261,718
------------ ------------ ------------ ------------
Weighted average number of common shares................ 2,585,281 2,584,281 2,584,614 2,583,005
Assumed number of shares issued from common share
equivalents........................................... 77,499 83,445 82,051 80,809
------------ ------------ ------------ ------------
Weighted average number of common and common equivalent
shares................................................ 2,662,780 2,667,726 2,666,665 2,663,814
------------ ------------ ------------ ------------
Net income per share:
Primary................................................. $ 0.06 $ 0.04 $ 0.09 $ 0.10
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Fully Diluted:
Net income.............................................. $ 158,460 $ 110,436 $ 227,184 $ 261,718
------------ ------------ ------------ ------------
Weighted average number of common shares................ 2,585,281 2,584,281 2,584,614 2,583,005
Assumed number of shares issued from common share
equivalents........................................... 75,226 72,187 75,226 72,187
------------ ------------ ------------ ------------
Weighted average number of common and common equivalent
shares................................................ 2,660,507 2,656,468 2,659,840 2,655,192
------------ ------------ ------------ ------------
Net income per share:
Fully Diluted........................................... $ 0.06 $ 0.04 $ 0.09 $ 0.10
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> NOV-29-1997
<CASH> 1,294,371
<SECURITIES> 0
<RECEIVABLES> 1,369,956
<ALLOWANCES> 27,000
<INVENTORY> 1,006,463
<CURRENT-ASSETS> 3,924,219
<PP&E> 3,003,921
<DEPRECIATION> 2,281,555
<TOTAL-ASSETS> 4,824,156
<CURRENT-LIABILITIES> 1,899,516
<BONDS> 0
0
0
<COMMON> 51,706
<OTHER-SE> 2,471,577
<TOTAL-LIABILITY-AND-EQUITY> 4,824,156
<SALES> 7,652,193
<TOTAL-REVENUES> 7,652,193
<CGS> 4,650,279
<TOTAL-COSTS> 4,650,279
<OTHER-EXPENSES> 2,814,754
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,039
<INCOME-PRETAX> 232,717
<INCOME-TAX> 5,533
<INCOME-CONTINUING> 227,184
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 227,184
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
