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 30, 1998
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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.
- --------------------------------------------------------------------------------
(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
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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 -- 2,586,281 shares as of July 10, 1998.
<PAGE>
INDEX
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -- May 30, 1998 and
February 28, 1998 3
Condensed Consolidated Statements of Operations --
Three Months ended May 30, 1998 and May 31, 1997 4
Condensed Consolidated Statements of Cash Flows --
Three months ended May 30, 1998 and May 31, 1997 5
Notes to Condensed Consolidated Financial Statements --
Three Months ended May 30, 1998 and May 31, 1997 6 - 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 9
2
<PAGE>
PART I. FINANCIAL INFORMATION
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Assets May 30, 1998 Feb. 28, 1998
------ ------------ -------------
(unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 987,482 $ 1,189,046
Accounts receivable, net of allowance for doubtful accounts
of $23,000 for both periods 1,587,014 1,360,420
Inventories, net (Note 2) 1,036,211 1,039,718
Other current assets 310,140 311,447
----------- -----------
Total current assets 3,920,847 3,900,631
Property and equipment, net 800,545 777,991
Other assets 169,214 169,214
----------- -----------
$ 4,890,606 $ 4,847,836
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Current Liabilities:
Accounts payable $ 412,074 $ 478,590
Account liabilities:
Accrued payroll and related payroll taxes 369,029 281,961
Other current liabilities 557,024 658,709
Unearned revenue - current 378,656 391,081
----------- -----------
Total current liabilities 1,716,783 1,810,341
Accrued pension expense 247,909 220,609
Unearned revenue - long-term 141,553 148,733
Deferred income taxes 5,384 5,423
----------- -----------
Total liabilities 2,111,629 2,185,106
----------- -----------
Stockholders' Equity:
Common stock, $.02 par value. Authorized 10,000,000 shares;
outstanding 2,586,281 and 2,585,281 shares, respectively 51,726 51,706
Additional paid-in capital 6,278,304 6,277,543
Accumulated deficit (3,258,970) (3,375,120)
Aggregate adjustment resulting from translation of financial statements (50,255) (49,571)
into U.S. Dollars
Minimum pension liability adjustment (241,828) (241,828)
----------- -----------
Total stockholders' equity 2,778,977 2,662,730
----------- -----------
$ 4,890,606 $ 4,847,836
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended:
May 30, 1998 May 31, 1997
------------ ------------
Net sales (Note 3) $ 2,536,631 $ 2,515,285
Cost of sales 1,615,050 1,507,780
----------- -----------
Gross profit 921,581 1,007,505
Selling expenses 330,002 385,551
General and administrative expenses 507,139 598,969
----------- -----------
Income from operations 84,440 22,985
Other income, principally interest 48,755 24,369
Other expense, principally interest 14,075 3,445
----------- -----------
Income before income taxes 119,120 43,909
Provision for income taxes (Note 1) 2,970 1,296
----------- -----------
Net income $ 116,150 $ 42,613
=========== ===========
Weighted average number of common shares used in
computation of net income per share:
Basic 2,586,094 2,584,281
Diluted 2,645,110 2,663,329
Net income per common shares (Note 1):
Basic $ 0.04 $ 0.02
=========== ===========
Diluted $ 0.04 $ 0.02
=========== ===========
See notes to condensed consolidated financial statements.
4
<PAGE>
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended:
May 30, 1998 May 31, 1997
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 116,150 $ 42,613
Adjustments to reconcile net income to cash provided by (used in)
operating activities:
Depreciation and amortization 59,066 48,511
Deferred foreign tax benefit (39) --
Changes in operating assets and liabilities:
Accounts receivable (227,317) 30,492
Inventories 2,867 (81,352)
Prepaid expenses and other assets 1,174 (6,082)
Net pension liability 27,300 27,300
Accounts payable and accrued liabilities (80,371) 231,741
Unearned revenue (19,210) (5,856)
Net cash provided by (used in) operating activities (120,380) 287,367
----------- -----------
Cash Flows from Investing Activities:
Capital expenditures (81,965) (97,980)
----------- -----------
Net cash used in investing activities (81,965) (97,980)
----------- -----------
Cash Flows from Financing Activities:
Common stock options exercised 781 --
Principal payments of notes payable -- (301)
----------- -----------
Net cash (used in) provided by financing activities 781 (301)
----------- -----------
Net increase (decrease) in cash and cash equivalents (201,564) 189,086
Cash and cash equivalents at beginning of period 1,189,046 1,125,589
----------- -----------
Cash and cash equivalents at end of period $ 987,482 $ 1,314,675
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest $ 2,379 $ 3,445
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
May 30, 1998
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, 1998.
Operating results for the period ended May 30, 1998 are not necessarily
indicative of the results that may be expected for the year ending February 28,
1999.
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 provision for income taxes, on domestic operations, for the periods ended
May 30, 1998 and May 31, 1997, were calculated at an effective annual tax rate
of 2% and 4.5%, respectively, reflecting the utilization of available net
operating loss carryforwards and also taking into account the "Alternative
Minimum Tax". The provision for income taxes on foreign operations was estimated
at 25%.
6
<PAGE>
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 - INVENTORIES
The Company did not take a physical inventory as of May 30, 1998. Inventories
and cost of sales for the interim period were based on the Company's perpetual
inventory records.
May 30, 1998 February 28, 1998
------------ -----------------
(unaudited)
Inventories consist of:
Raw materials $ 906,995 $ 921,065
Work-in-process 63,427 60,231
Finished goods 124,799 117,433
---------- ----------
Total Inventories 1,095,222 1,098,729
Less allowance for obsolescence 59,011 59,011
---------- ----------
Net Inventories $1,036,211 $1,039,718
========== ==========
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
Effective March 1, 1998, the Company has adopted Statement Financial Accounting
Standards No. 130, "Reporting Comprehensive Income", which requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in the financial statements.
Prior periods will be reclassified, as required. The Company's total
comprehensive earnings were as follows:
Three Months Ended
May 30, May 31,
1998 1997
---- ----
Net income $ 116,150 $ 42,613
Other comprehensive income (loss),
net of tax:
Change in equity resulting from translation
Of financial statements into U.S. dollars (684) 1,365
Comprehensive income $ 115,466 $ 43,978
========= =========
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
--------------------------------------------------------------------------
OPERATIONS
----------
Three months ended May 30, 1998, as compared with three months ended May 31,
1997.
Revenues
- --------
Sales of $2,536,631 for the first quarter ended May 30, 1998 were $21,346 or
0.8% above the prior-year's sales of $2,515,285. Sales of each major product
category remained at approximately equivalent levels compared to the prior
year's first quarter.
Gross Profit
- ------------
Gross profit for the current year's first quarter was $921,581 (36.3% of sales),
as compared to the prior-year's first quarter gross profit of $1,007,505 (40.1%
of sales). The decrease was due primarily to increased shipping costs incurred
to maintain turnaround times during an automation of the order entry process,
and an increase in the material cost for certain portions of the product mix.
Selling, General and Administrative Expenses
- --------------------------------------------
For the three months ended May 30, 1998, selling, general and administrative
expenses decreased $147, 379 or 15.0% to $837,141, from the prior-year's
comparable quarter of $984,520. Decreased promotion expenses and other direct
selling expenses, reflecting the Company's ongoing cost cutting strategy, along
with reduced consulting expenses, were responsible for the decrease from the
prior comparable period.
Research and Development Expense
- --------------------------------
The Company incurred no research and development costs for the three months
ended May 30, 1998 and May 31, 1997.
Other Income and Expenses
- -------------------------
Other income consists primarily of income generated from investments and service
charge income generated from the Company's accounts receivable. Net other income
was $34,680 for the first quarter of the current fiscal year as compared with
$20,924 in the comparable prior year's quarter, representing a 65.7% increase.
Most of the increase was due to a decrease in service charge write-offs.
Net Income
- ----------
The Company earned $116,150 or $.04 per share for the recently concluded quarter
as compared to a net income of $42,613 or $.02 per share generated in the prior
year's first quarter. The favorable results were primarily due to lower
operating expenses and increased other income, more than offsetting lower gross
profit versus the comparable prior fiscal period.
Liquidity and Capital Resources
- -------------------------------
Working capital, as of May 30, 1998, was $2,204,064 versus $2,090,290 at
February 28, 1998, an increase of $113,774. The increase was due to an increase
in accounts receivable of $226,594, as well as decreases in accounts payable,
other current liabilities and unearned revenue of $66,516, $101,685 and $12,425,
respectively. The increase was offset by an increase in accrued payroll
liabilities of $87,068 and decreases in cash, inventories, and other current
assets of $201,564, $3,507 and $1,307, respectively.
Cash balances at May 30, 1998 of $987,482 were $201,564 below the February 28,
1998 balance of $1,189,046. The decrease is primarily due to the increase in
accounts receivable of $226,594.
The Company believes its capital position is adequate to meet anticipated cash
needs for the next twelve months and beyond.
8
<PAGE>
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.
-----------------------------------
(REGISTRANT)
DATE: July 10, 1998
By: /s/ GARY L GRAHN
-------------------------------------
Gary L. Grahn
President and Chief Executive Officer
By: /s/ NANCY T. BIZZARO
-------------------------------------
Nancy T. Bizzaro
Controller
Principal Financial Officer
9
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE AMOUNTS
EXHIBIT 11
For the three months ended May 30, 1998 and May 31, 1997
May 30, 1998 May 31, 1997
------------ ------------
Basic:
Net income $ 116,150 $ 42,613
---------- ----------
Number of common shares 2,585,281 2,584,281
Weighted number of shares issued during
the period 813 --
Weighted average number of common shares 2,586,094 2,584,281
---------- ----------
Net income per share:
Basic $ 0.04 $ 0.02
========== ==========
Diluted:
Net income $ 116,150 $ 42,613
---------- ----------
Weighted average number of common shares 2,586,094 2,584,281
Assumed number of shares issued
from common share equivalents 59,016 79,048
---------- ----------
Weighted average number of common and common
equivalent shares 2,645,110 2,663,329
---------- ----------
Net income per share:
Diluted $ 0.04 $ 0.02
========== ==========
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> MAY-30-1998
<CASH> 987,482
<SECURITIES> 0
<RECEIVABLES> 1,610,014
<ALLOWANCES> 23,000
<INVENTORY> 1,036,211
<CURRENT-ASSETS> 3,920,847
<PP&E> 3,220,818
<DEPRECIATION> 2,420,273
<TOTAL-ASSETS> 4,890,606
<CURRENT-LIABILITIES> 1,716,783
<BONDS> 0
0
0
<COMMON> 51,726
<OTHER-SE> 2,727,251
<TOTAL-LIABILITY-AND-EQUITY> 4,890,606
<SALES> 2,536,631
<TOTAL-REVENUES> 2,536,631
<CGS> 1,615,050
<TOTAL-COSTS> 1,615,050
<OTHER-EXPENSES> 788,386
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,075
<INCOME-PRETAX> 119,120
<INCOME-TAX> 2,970
<INCOME-CONTINUING> 116,150
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 116,150
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
