<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 NOVEMBER 28, 1998
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
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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 - 2,586,281 shares as of January 4, 1999.
<PAGE>
INDEX
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - November 28, 1998 and February 28, 1998 3
Condensed Consolidated Statements of Operations --
Three and Nine Months ended November 28, 1998 and November 29, 1997 4
Condensed Consolidated Statements of Cash Flows --
Nine Months ended November 28, 1998 and November 29, 1997 5
Notes to Condensed Consolidated Financial Statements --
Nine Months ended November 28, 1998 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 10
</TABLE>
2
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PART I. FINANCIAL INFORMATION
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Assets Nov. 28,1998 Feb. 28,1998
------------ -----------
(unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,707,544 $ 1,189,046
Accounts receivable, net of allowance for doubtful accounts of $15,000 and $23,000 1,567,017 1,360,420
Inventories, net (Note 2) 1,055,330 1,039,718
Other current assets 224,879 311,447
----------- -----------
Total current assets 4,554,770 3,900,631
Property and equipment, net 799,943 777,991
Other assets 169,142 169,214
----------- -----------
$ 5,523,855 $ 4,847,836
----------- -----------
----------- -----------
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 405,841 $ 478,590
Accrued payroll and related payroll taxes 251,949 281,961
Other current liabilities 915,832 658,709
Unearned revenue - current 367,157 391,081
----------- -----------
Total current liabilities 1,940,779 1,810,341
Accrued pension expense 245,368 220,609
Unearned revenue - long-term 149,403 148,733
Deferred income taxes 5,456 5,423
Minority Interest 28,772 --
----------- -----------
Total liabilities 2,369,778 2,185,106
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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 (2,885,082) (3,375,120)
Aggregate adjustment resulting from translation of financial statements
into U.S. dollars (49,043) (49,571)
Minimum pension liability adjustment (241,828) (241,828)
----------- -----------
Total stockholders' equity 3,154,077 2,662,730
----------- -----------
$ 5,523,855 $ 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)
<TABLE>
<CAPTION>
Three Months Ended: Nine Months Ended:
Nov. 28, 1998 Nov. 29, 1997 Nov. 28, 1998 Nov. 29, 1997
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Net sales (Note 3) $ 2,668,380 $ 2,586,395 $ 7,882,098 $ 7,652,193
Cost of sales 1,642,158 1,551,096 4,892,296 4,650,279
----------- ----------- ----------- -----------
Gross profit 1,026,222 1,035,299 2,989,802 3,001,914
Selling expenses 343,695 366,891 1,002,867 1,149,135
General and administrative expenses 605,160 514,349 1,648,185 1,665,619
----------- ----------- ----------- -----------
Income from operations 77,367 154,059 338,750 187,160
Other income, principally interest 14,181 16,163 65,025 54,596
Gain on legal settlement -- -- 149,498 --
Minority interest (28,772) -- (28,772) --
----------- ----------- ----------- -----------
62,776 170,222 524,501 241,756
Other expense, principally interest 0 2,653 -- 9,039
----------- ----------- ----------- -----------
Income before income taxes 62,776 167,569 524,501 232,717
Provision for income taxes (Note 1) 6,152 9,109 34,463 5,533
----------- ----------- ----------- -----------
Net income $ 56,624 $ 158,460 $ 490,038 $ 227,184
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of common shares
used in computation of net income per share:
Basic 2,586,281 2,585,281 2,586,170 2,584,614
Diluted 2,604,020 2,662,780 2,612,452 2,666,665
Net income per common share (Note 1):
Basic $ 0.02 $ 0.06 $ 0.19 $ 0.09
Diluted $ 0.02 $ 0.06 $ 0.19 $ 0.09
</TABLE>
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>
Nine Months Ended:
Nov. 28,1998 Nov. 29,1997
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<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 490,038 $ 227,184
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization 196,955 134,360
Deferred foreign tax provision 33 --
Minority Interest 28,772 --
Changes in operating assets and liabilities:
Accounts receivable (206,597) 88,611
Inventories (15,612) (84,117)
Prepaid expenses and other assets 86,640 329
Net pension liability 24,759 (42,238)
Accounts payable and accrued liabilities 154,890 163,902
Unearned revenue (23,254) 23,022
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Net cash provided by operating activities 736,624 511,053
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Cash Flows from Investing Activities-
Capital expenditures (218,907) (342,751)
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Net cash used in investing activities (218,907) (342,751)
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Cash Flows from Financing Activities:
Common stock options exercised 781 781
Principal payments of note payable -- (301)
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Net cash provided by financing activities 781 480
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Net increase in cash and cash equivalents 518,498 168,782
Cash and cash equivalents at beginning of year 1,189,046 1,125,589
----------- -----------
Cash and cash equivalents at end of period $ 1,707,544 $ 1,294,371
----------- -----------
----------- -----------
Supplemental Disclosures of Cash Flow Information- Cash paid during the period
for:
Interest $ 7,603 $ 9,039
----------- -----------
----------- -----------
Income Taxes $ 8,673 $ 6,951
----------- -----------
----------- -----------
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
November 28, 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 periods ended November 28, 1998 are not necessarily
indicative of the results that may be expected for the year ending February 27,
1999.
B) Income per Share
In 1998, The Langer Biomechanics Group, Inc. (the "Company") adopted Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share" and
restated net income per common share for all periods presented. Basic net income
per common share was calculated based upon the weighted average number of common
shares outstanding during the respective periods. Diluted net income per common
share was calculated based upon the weighted average number of common shares
outstanding and included the equivalent shares for dilutive options outstanding
during the respective periods.
The weighted average common shares outstanding for the computation of basic net
income per common share for the quarter ended November 28, 1998 and November 29,
1997 were 2,586,281 and 2,585,281, respectively, and for the nine months ended
November 28, 1998 and November 29, 1997 were 2,586,170 and 2,584,614,
respectively.
Additionally, for the diluted calculation, 17,739 and 77,499 of equivalent
common shares were included for the quarter ended November 28, 1998 and
November 29, 1997, respectively, and 26,282 and 82,051 of equivalent common
shares, representing the dilutive effect of the Company's stock options, were
included for the nine months ended November 28, 1998 and November 29, 1997,
respectively.
C) Provision for Income Taxes
The provision for income taxes, on domestic operations, for the periods ended
November 28, 1998 and November 29, 1997, were calculated at an effective annual
tax rate of 4.5%, 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 21%.
6
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THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2
The Company did not take a physical inventory as of November 28, 1998.
Inventories and cost of sales for the interim period were based on the Company's
perpetual inventory records.
<TABLE>
<CAPTION>
NOVEMBER 28, 1998 FEBRUARY 28, 1998
------------------ -----------------
(unaudited)
Inventories consist of:
<S> <C> <C>
Raw materials $ 898,981 $ 921,065
Work-in-process 64,438 60,231
Finished goods 150,922 117,433
---------- ----------
Total Inventories 1,114,341 1,098,729
Less allowance for obsolescence 59,011 59,011
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Net inventories $1,055,330 $1,039,718
---------- ----------
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</TABLE>
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 SFAS 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 consolidated financial statements. Prior periods will be
reclassified, as required. The Company's total comprehensive earnings were as
follows:
<TABLE>
<CAPTION>
Nine Months Ended
November 28, November 29,
1998 1997
<S> <C> <C>
Net income $490,038 $227,184
Other comprehensive income (loss), net of tax:
Change in equity resulting from translation
of financial statements into U.S. dollars 528 4,009
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Comprehensive income $490,566 $231,193
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</TABLE>
Note 5 - RECENT ACCOUNTING PRONOUNCEMENTS
Recent pronouncements of the Financial Accounting Standards Board, which are not
required to be adopted at this date, include SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information", and SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". These
pronouncements are not expected to have a material impact on the Company's
financial Statements.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Three and nine months ended November 28, 1998 as compared with three and nine
months ended November 29, 1997.
REVENUES
Sales of $2,668,380 for the third quarter ended November 28, 1998 were 3.2%
higher than the sales of $2,586,395 in the comparable prior-year quarter. Net
sales of $7,882,098 for the nine months ended November 28, 1998 were 3.0% higher
than the prior-period's sales of $7,652,193. When compared to the prior year,
the three and nine months ended November 28, 1998 sales were positively effected
by unit volume increases in the Company's core custom orthotic product line, as
well as increased sales in the Company's U.K. subsidiary.
GROSS PROFIT
Gross profit for the current-year's third quarter was $1,026,222 (38.5% of
sales) which represents an decrease from the comparable prior-year quarter's
gross profit of $1,035,299 (40.0% of sales). Gross profit for the recently
concluded nine-month period of $2,989,802 (37.9% of sales) was lower than the
comparable prior nine-month period's gross profit of $3,001,914 (39.2% of
sales). The gross profit decrease in the current-year's third quarter was due to
an increase of production costs at the Company's U.S. and U.K. production
facilities. The gross profit decrease for the current-year nine month period was
due, primarily, to increased shipping costs incurred to maintain turnaround time
during an automation of the order entry process and an increase in the material
cost for certain portions of the product mix, both of which occurred during the
current-year's first quarter.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the recently ended quarter were
$948,855 compared to $881,240 in the comparable prior-year period, a 7.67%
increase. Selling, general and administrative expenses for the nine months were
$2,651,052 compared with $2,814,754 in the prior comparable period, amounting to
a 6.2% decrease. The increase in selling, general and administrative expenses,
for the three months ended November 28, 1998, includes a charge of approximately
$98,000 for severance payments made to one of the Company's former executive
officers.
The overall decrease in selling, general and administrative expenses, for the
nine month period ended November 28, 1998, was primarily the result of reduced
salaries and related benefits. This reflects a reduction in personnel, decreased
promotional expenses and other direct selling expenses, reduced consulting
expenses, and cost savings attributable to the full implementation of the new
computer system installed at the beginning of the current fiscal year.
OTHER INCOME AND EXPENSES
Other income consists primarily of income generated from investments and service
charge income generated from the Company's accounts receivable and seminar fees.
Net other income was $14,181 for the third quarter of the current fiscal year as
compared with $16,163 in the comparable prior year's quarter, representing a
12.3% decrease. For the nine months, net other income was $65,025, compared to
$54,596 earned in the prior year, or a 19.10% increase. The nine months ended
November 28, 1998 includes a gain on a legal settlement of $149,498, arising
from a fire which occurred on January 6, 1993 at the Company's former Deer Park,
New York manufacturing facility.
PROVISION FOR INCOME TAXES
The Company has provided an effective tax rate of 4.5% (U.S. operations) of
pre-tax profits after utilizing available net operating loss carryforwards and
taking into account the "Alternative Minimum Tax". Taxes for the U.K. operations
were estimated at 21% of pre-tax profits.
8
<PAGE>
NET INCOME
The Company's net income was $56,624 or $0.02 per share for the recently
concluded quarter as compared to $158,460 or $.06 per share generated in the
prior-year's quarter. The nine month's net income was $490,038 or $.19 per share
compared to $227,184 or $.09 per share in the prior-year's comparable period.
The nine months ended November 28, 1998 includes a charge of approximately
$98,000, or $0.04 per share, as payment of a severance package to a former
executive of the Company and a gain on a legal settlement of $149,498 or $0.06
per share.
LIQUIDITY
Working capital, as of November 28, 1998, was $2,613,991 versus $2,090,290 at
February 28, 1998, an increase of $523,701. The increase was due to an increase
in cash, accounts receivable and inventories of $518,498, $206,597, and $15,612,
respectively, as well as decreases in accounts payable, accrued payroll
liabilities, and the current-portion of unearned revenue of $72,749, $30,012,
and $23,924, respectively. The increase was partially offset by a decrease in
other current assets of $86,568, and an increase in other current liabilities of
$257,123. Capital expenditures totaled $218,907 for the nine months ended
November 28, 1998.
Cash balances at November 28, 1998, of $1,707,544, increased $518,498 above the
February 28, 1998 balance of $1,189,046.
The Company believes its capital position is adequate to meet anticipated cash
needs for the next twelve months and beyond.
As of July 31, 1998, the Company renewed the revolving credit line of
$1,500,000, for an additional year (August 1, 1998 - July 31, 1999) at an
interest rate of prime plus 0.5%, from American National Bank and Trust Company,
but to date has not found it necessary to use this credit line.
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 is taking steps to ensure that all software used in the Company's
internal systems will manage data involving the transition of dates from 1999 to
2000 without functional or data abnormality and without inaccurate results. New
computer systems are being implemented that will substantially insure that the
Company's operating systems are not subject to Year 2000 transition problems.
However, there can be no assurance that problems will not surface that the
Company is currently unaware of.
In addition, the Company is in the process of communicating with others with
whom it does significant business to determine their Year 2000 Compliance
readiness and the extent to which the Company is vulnerable to any third party
Year 2000 issues. However, there can be no guarantee that the systems of other
companies on which the Company's systems rely will be timely converted, or that
a failure to convert by another company, or a conversion that is incompatible
with the Company's systems, would not have a material adverse effect on the
Company.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Information contained or incorporated by reference in this periodic report on
Form 10-Q and in other SEC filings by the Company 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.
9
<PAGE>
Part II OTHER INFORMATION
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(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: JANUARY 12, 1999
BY: /S/ DANIEL J. GORNEY
----------------------------
DANIEL J. GORNEY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
BY: /S/ DANIEL J. GORNEY
----------------------------
DANIEL J. GORNEY
PRINCIPAL FINANCIAL OFFICER
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-27-1999
<PERIOD-END> NOV-28-1998
<CASH> 1,707,544
<SECURITIES> 0
<RECEIVABLES> 1,582,017
<ALLOWANCES> 15,000
<INVENTORY> 1,055,330
<CURRENT-ASSETS> 4,554,770
<PP&E> 3,358,973
<DEPRECIATION> 2,559,030
<TOTAL-ASSETS> 5,523,855
<CURRENT-LIABILITIES> 1,940,779
<BONDS> 0
0
0
<COMMON> 51,726
<OTHER-SE> 3,102,351
<TOTAL-LIABILITY-AND-EQUITY> 5,523,855
<SALES> 7,882,098
<TOTAL-REVENUES> 7,882,098
<CGS> 4,892,296
<TOTAL-COSTS> 4,892,296
<OTHER-EXPENSES> 2,465,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 524,501
<INCOME-TAX> 34,463
<INCOME-CONTINUING> 490,038
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 490,038
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
</TABLE>
