<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 25, 2000
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)
(631) 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 - 2,613,181 shares as of January 5, 2001.
<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 25, 2000 and February 29, 2000 3
Condensed Consolidated Statements of Operations --
Three and Nine Months ended November 25, 2000 and November 27, 1999 4
Condensed Consolidated Statements of Cash Flows --
Nine Months ended November 25, 2000 and November 27, 1999 5
Notes to Condensed Consolidated Financial Statements --
Three and Nine Months ended November 25, 2000 6 - 10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 11 - 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
2
<PAGE>
THE LANGER BIOMECHANICS GROUP, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
NOVEMBER 25,2000 FEBRUARY 29,2000
---------------- ----------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 533,118 $ 918,115
Accounts receivable, net of allowance for
doubtful accounts of $58,000 and $63,000, respectively 1,630,521 1,316,530
Inventories, net (Note 2) 1,121,466 1,189,384
Prepaid expenses and other current assets 180,521 215,580
----------- -----------
Total current assets 3,465,626 3,639,609
Property and equipment, net 741,466 945,270
Other assets 299,798 153,312
-----------
----------- -----------
Total Assets $ 4,506,890 $ 4,738,191
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 28,750 $ 28,750
Accounts payable 588,422 580,057
Accrued liabilities:
Accrued payroll and related payroll taxes 268,994 303,452
Other current liabilities 617,346 592,473
Unearned revenue-current 425,908 420,221
----------- -----------
Total current liabilities 1,929,420 1,924,953
Accrued pension expense 18,146 82,910
Unearned revenue-long-term 105,112 104,380
Long-term debt 64,688 81,458
Deferred income taxes 7,236 8,167
----------- -----------
Total liabilities 2,124,602 2,201,868
----------- -----------
Stockholders' equity :
Common stock, $.02 par value. Authorized
10,000,000 shares; Issued 2,680,281 shares and
2,640,281, respectively 53,207 52,806
Additional paid-in capital 6,377,980 6,325,880
Accumulated deficit (3,632,551) (3,405,904)
Accumulated other comprehensive loss (300,891) (300,266)
----------- -----------
2,497,745 2,672,516
Less treasury stock at cost, 67,100 and 81,500 shares, respectively (115,457) (136,193)
----------- -----------
Total stockholders' equity 2,382,288 2,536,323
----------- -----------
Total Liabilities and Stockholders' Equity $ 4,506,890 $ 4,738,191
=========== ===========
</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:
November 25, 2000 November 27, 1999 November 25, 2000 November 27, 1999
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net sales (Notes 3 and 5) $ 3,006,195 $ 2,802,752 $ 8,691,424 $ 8,460,249
Cost of sales 1,954,993 1,767,469 5,581,141 5,325,608
----------- ----------- ----------- -----------
Gross profit 1,051,202 1,035,283 3,110,283 3,134,641
Selling expenses 487,265 445,764 1,507,595 1,210,294
Research and development expenses 83,982 29,393 203,346 83,112
General and administrative expenses 463,742 632,404 1,484,915 1,832,416
----------- ----------- ----------- -----------
Income (loss) from operations 16,213 (72,278) (85,573) 8,819
----------- ----------- ----------- -----------
Other income (expense):
Other income 9,311 14,614 10,990 51,110
Interest expense (3,797) (808) (13,951) (4,265)
Minority interest -- (1,479) 5,188 (14,343)
Proposed tender offer expenses (140,801) -- (140,801) --
----------- ----------- ----------- -----------
Other income (expense), net (135,287) 12,327 (138,574) 32,502
----------- ----------- ----------- -----------
Income (loss) before income taxes (119,074) (59,951) (224,147) 41,321
Provision for (benefit from) income taxes
(Note 1) -- (189) 2,500 15,990
----------- ----------- ----------- -----------
Net income (loss) ($ 119,074) ($ 59,762) ($ 226,647) $ 25,331
=========== =========== =========== ===========
Weighted average number of common
shares used in computation of net
income per share (Note 6):
Basic 2,615,145 2,559,738 2,578,213 2,567,706
Diluted 2,615,145 2,559,738 2,578,213 2,664,999
Net income (loss) per common share :
Basic $ (0.05) $ (0.02) $ (0.09) $ 0.01
=========== =========== =========== ===========
Diluted $ (0.05) $ (0.02) $ (0.09) $ 0.01
=========== =========== =========== ===========
</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:
November 25,2000 November 27, 1999
---------------- -----------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ (226,647) $ 25,331
Adjustments to reconcile net income to net cash
used in operating activities:
Deferred foreign taxes (464) (65)
Depreciation and amortization 235,412 216,778
Provision for doubtful accounts receivable 1,949 14,360
Changes in operating assets and liabilities:
Accounts receivable (333,122) (230,625)
Inventories 56,463 (273,668)
Prepaid expenses and other assets 32,341 (129,927)
Accounts payable and accrued liabilities 31,332 136,981
Net pension liability (64,764) (75,893)
Unearned revenue 13,198 57,840
----------- -----------
Net cash used in operating activities (254,302) (258,888)
----------- -----------
Cash Flows From Investing Activities:
Langer UK purchase (145,138)
Capital expenditures (42,024) (556,977)
----------- -----------
Net cash used in investing activities (187,162) (556,977)
----------- -----------
Cash Flows From Financing Activities:
Repayments on equipment line (16,770) --
Issuance of stock-UK purchase 65,139 --
Treasury stock acquired (80,213) (44,577)
Common stock options exercised 52,500 13,281
Issuance of shares to directors 35,811 --
----------- -----------
Net cash provided by (used in) financing activities 56,467 (31,296)
----------- -----------
Net decrease in cash and cash equivalents (384,997) (847,161)
Cash and cash equivalents at beginning of period 918,115 1,700,156
----------- -----------
Cash and cash equivalents at end of period $ 533,118 $ 852,995
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest expense $ 3,797 $ 4,266
=========== ===========
Income taxes $ --
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND NINE MONTHS ENDED NOVEMBER 25, 2000
AND NOVEMBER 27,1999
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 29, 2000.
Operating results for the periods ended November 25, 2000 are not necessarily
indicative of the results that may be expected for the year ending February 28,
2001.
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 for the three months and nine months ended
November 25, 2000 was based upon estimated minimum state income tax payments due
for the year ended February 28, 2001. The provision for income taxes for three
month and nine month periods ended November 27, 1999 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%.
D) Recent Pronouncements of the Financial Accounting Standards Board
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"), which requires that
derivative instruments be measured at fair value and recognized as assets or
liabilities in the Company's balance sheet. SFAS No. 133 (as amended by SFAS No.
137 and No. 138) is effective for all quarters of all fiscal years beginning
after June 15, 2000. The Company is currently evaluating the effect that SFAS
No. 133 will have on the Company's consolidated financial statements. In
December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 summarizes certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
The Company is required to adopt SAB 101 no later than the first quarter of
fiscal 2001. The Company is currently evaluating the impact of SAB 101 on the
Company's results of operations and financial position.
6
<PAGE>
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
E) Reclassifications
Certain amounts have been reclassified in the prior year condensed consolidated
financial statements to present them on a basis consistent with the current
year.
NOTE 2
The Company's inventories and cost of sales for the interim periods were based
upon a physical inventory.
<TABLE>
<CAPTION>
November 25, 2000 February 29, 2000
----------------- -----------------
(Unaudited)
<S> <C> <C>
Inventories consist of:
Raw materials $ 846,328 $ 762,282
Work-in-process 76,168 88,359
Finished goods 254,700 394,473
---------- ----------
Total inventories 1,177,196 1,245,114
Less: allowance for obsolescence 55,730 55,730
---------- ----------
Inventories,net $1,121,466 $1,189,384
========== ==========
</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 (LOSS)
The Company's comprehensive income (loss) is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
November 25, November 27, November 25, November 27,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income (loss) $(119,074) $ (59,762) $(226,647) $ 25,331
Other comprehensive income (loss), net of tax:
Change in equity resulting from translation of
financial statements into U.S. dollars (2,926) 6,255 (625) 443
--------- --------- --------- ---------
Comprehensive income (loss) $(122,000) $ (53,507) $(227,272) $ 25,774
========= ========= ========= =========
</TABLE>
7
<PAGE>
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 5 - SEGMENT INFORMATION
The Company operates in two geographic segments (North America and United
Kingdom) principally in the design, development, manufacture and sale of foot
and gait-related products. Intersegment net sales are recorded at cost. Segment
information was as follows:
<TABLE>
<CAPTION>
Three Months Ended November 25, 2000 North America United Kingdom Total
------------------------------------ ------------- -------------- -----
<S> <C> <C> <C>
Net sales from external customers $ 2,612,657 $ 393,538 $ 3,006,195
Intersegment net sales 68,432 -- 68,432
Gross profit 880,261 170,941 1,051,202
Income (loss) from operations (17,356) 33,569 16,213
THREE MONTHS ENDED NOVEMBER 27, 1999
Net sales from external customers $ 2,443,599 $ 359,153 $ 2,802,752
Intersegment net sales 55,228 -- 55,228
Gross profit 901,907 133,376 1,035,283
Income (loss) from operations (87,109) 14,831 (72,278)
NINE MONTHS ENDED NOVEMBER 25, 2000
Net sales from external customers $ 7,516,843 $ 1,174,581 $ 8,691,424
Intersegment net sales 185,499 -- 185,499
Gross profit 2,616,591 493,692 3,110,283
Income (loss) from operations (130,455) 44,882 (85,573)
NINE MONTHS ENDED NOVEMBER 27 ,1999
Net sales from external customers $ 7,368,526 $ 1,091,723 $ 8,460,249
Intersegment net sales 161,643 -- 161,643
Gross profit 2,699,052 435,589 3,134,641
Income (loss) from operations (99,055) 107,874 8,819
</TABLE>
8
<PAGE>
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 6 - INCOME (LOSS) PER SHARE
Basic earnings per common share ("EPS") are computed based on the weighted
average number of common shares outstanding during each period. Diluted earnings
per common share are computed based on the weighted average number of common
shares, after giving effect to dilutive common stock equivalents outstanding
during each period. The following table provides reconciliation between basic
and diluted earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
NOVEMBER 25, 2000 NOVEMBER 27, 1999 NOVEMBER 25, 2000 NOVEMBER 27, 1999
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Numerator:
Income (loss) available to common stockholders $ (119,074) $ (59,762) $ (226,647) $ 25,331
----------- ----------- ----------- ----------
Denominators:
Denominator for basic income (loss) per share-
weighted average shares outstanding 2,615,145 2,559,738 2,578,213 2,567,706
Effect of dilutive securities:
Stock options -- -- -- 97,293
=========== =========== =========== ==========
Denominator for diluted income (loss) per share 2,615,145 2,559,738 2,578,213 2,664,999
=========== =========== =========== ==========
Basic income (loss) per share $ (0.05) $ (0.02) $ (0.09) $ 0.01
=========== =========== =========== ==========
Diluted income (loss) per share $ (0.05) $ (0.02) $ (0.09) $ 0.01
=========== =========== =========== ==========
</TABLE>
NOTE 7 - ACQUISITION
Effective April 5, 2000, the Company purchased the remaining 25% interest which
it did not previously own in its Langer Biomechanics Group (UK) Limited
subsidiary for $80,000 cash and the issuance of 40,000 shares of common stock
from treasury. The transaction is being accounted for as purchase and the excess
cost over the fair value of net assets acquired is being amortized on a
straight-line basis over a ten-year period. If the acquisition were assumed to
have occurred at the beginning of fiscal 2001, the impact on the results of
operations would not have been material.
9
<PAGE>
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 8 - PROPOSED TENDER OFFER
On September 17, 2000, the Company entered into a letter of intent, dated
September 14, 2000, with OrthoStrategies, Inc. ("OSI") pursuant to which OSI was
to acquire the Company. The proposed acquisition was to be in the form of a
merger, with shareholders of the Company receiving $1.75 per share in cash. The
purchase price per share was subject to adjustment, from a minimum of $1.73 to a
cap of $1.81, depending upon the net worth and net working capital of the
Company at the time of merger.
On November 13, 2000, the Company and OSI entered into a revised letter of
intent, which amended the terms of the previously announced proposed acquisition
by OSI and on December 27, 2000, the Company executed a Tender Offer Agreement
(the "Agreement") with OSI. In lieu of a cash merger in which the Company
shareholders would receive $1.75 per share in cash, the Agreement provides,
subject to satisfaction of certain conditions, for the commencement of a cash
tender offer by OSI for up to 75% of the outstanding shares of the Company for
$1.525 per share, with a minimum tender condition of 51%. Shareholders holding
an aggregate of 1,355,606 shares of common stock of the Company, representing
51.9% of the outstanding shares, have agreed to tender their shares in the
tender offer. In addition, upon completion of the proposed tender offer, it is
contemplated that all of the current directors of the Company would resign, to
be replaced by Andrew H. Meyers and other designees of OSI. In addition, upon
successful completion of the proposed tender offer, OSI would be issued an 180
day option to purchase up to 1,400,000 shares of the common stock of the
Company, with an initial exercise price of $1.525 per share, rising up to $1.60
per share prior to expiration. The proceeds from this warrant, if exercised, are
expected to be utilized for working capital and in connection with possible
future acquisitions by the Company.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Three and nine months ended November 25, 2000 as compared with three and nine
months ended November 27, 1999.
REVENUES
Sales of $3,006,195 for the third quarter ended November 25, 2000 were $203,443
or 7.3% higher than the sales of $2,802,752 in the comparable prior-year
quarter. The increased sales were principally due to higher unit volumes of
orthotic sales both domestically and in the UK operation partially offset by a
reduction in domestic sales of PPT and other materials. Sales of $8,691,424 for
the nine months ended November 25, 2000 were $231,175 or 2.7% higher than
prior-period's sales of $8,460,249. The increased sales for the nine month
period when compared to the comparable prior year period are principally due to
increased sales in the Company's subsidiary in the United Kingdom partially
offset by a reduction in domestic sales of PPT and other materials.
GROSS PROFIT
Gross profit as a percentage of sales for both the three-month and nine-month
periods ended November 25, 2000 was lower than the comparable periods in the
prior year. For the three months ended November 25, 2000 gross profit as a
percentage of sales decreased to 35.0% of sales from 36.9% in the comparable
prior period. This reduction in margin resulted from lower productivity
principally attributable to an increase in direct labor trainees as a percentage
of the total direct labor workforce and to increased shipping expenses. For the
nine month period ended November 25, 2000, gross margin as a percentage of sales
decreased to 35.8% from 37.1% in the comparable period in the prior year due to
the lower margin in the quarter ended November 25, 2000 discussed above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling expenses for the recently ended quarter were $487,265 compared to
$445,764 in the comparable prior-year period, an increase of $41,501 or 9.3%.
This increase is due to an increase in selling expense in the Company's UK
subsidiary of $ 43,232 offset by a reduction in domestic selling expense of
$(1,731). Selling expenses for the nine months ended November 25, 2000 were
$1,507,595 compared to $1,210,294 in the comparable prior-year period, an
increase of $297,301 or 24.6%. This increase is due to an increase in domestic
selling expense of $125,285 and an additional increase of $172,016 in the
Company's UK subsidiary. The domestic and UK selling expense increases for both
periods presented are principally due to increased promotional activities
designed to increase sales and market share, including the introduction of a
catalogue in the UK, and increased salary and salary related costs in both
locations.
General and administrative expenses for the recently ended quarter were $463,742
compared to $632,404 in the comparable prior-year period, a decrease of $168,662
or 26.7%. General and administrative expenses for the nine months ended November
25, 2000 were $1,484,915 compared to $1,832,416 in the comparable prior-year
period, a decrease of $347,501 or 19.0%. The general and administrative expenses
decreases for both periods presented are principally due to reduced salary and
salary related expenses and reduced consulting and other professional costs;
such costs were higher in the prior periods due to the expenses associated with
the prior year management transition and operations clean-up.
11
<PAGE>
RESEARCH AND DEVELOPMENT EXPENSE
The Company incurred research and development expenses for the three and nine
month periods ended November 25, 2000 of $83,982 and $203,346, respectively, as
compared to $29,393 and $83,112, respectively, for the three month and
nine-month periods ended November 27, 1999. The increased expenditures for both
periods presented were primarily attributable to on-going production automation
activities and development efforts focused on the introduction of new products.
OTHER INCOME AND EXPENSES
Other income consists primarily of income generated from investments, service
charge income generated from the Company's accounts receivable and seminar fees.
Net other income (expense) was $(135,287) for the third quarter of the current
fiscal year as compared with $12,327 in the comparable prior year's quarter. For
the nine month periods, net other income (expense) was $(138,574) this year
versus $32,502 in the prior year period. The reductions in other income for both
periods is principally due to $140,801 of expenses associated with the proposed
tender offer discussed below.
LIQUIDITY
On September 17, 2000, the Company entered into a letter of intent, dated
September 14, 2000, with OrthoStrategies, Inc. ("OSI") pursuant to which OSI was
to acquire the Company. The proposed acquisition was to be in the form of a
merger, with shareholders of the Company receiving $1.75 per share in cash. The
purchase price per share was subject to adjustment, from a minimum of $1.73 to a
cap of $1.81, depending upon the net worth and net working capital of the
Company at the time of merger.
On November 13, 2000, the Company and OSI entered into a revised letter of
intent, which amended the terms of the previously announced proposed acquisition
by OSI, and on December 27, 2000, the Company executed a Tender Offer Agreement
(the "Agreement") with OSI. In lieu of a cash merger in which the Company
shareholders would receive $1.75 per share in cash, the Agreement provides,
subject to satisfaction of certain conditions, for the commencement of a cash
tender offer by OSI for up to 75% of the outstanding shares of the Company for
$1.525 per share, with a minimum tender condition of 51%. Shareholders holding
an aggregate of 1,355,606 shares of common stock of the Company, representing
51.9% of the outstanding shares, have agreed to tender their shares in the
tender offer. In addition, upon completion of the proposed tender offer, it is
contemplated that all of the current directors of the Company would resign, to
be replaced by Andrew H. Meyers and other designees of OSI. In addition, upon
successful completion of the proposed tender offer, OSI would be issued an 180
day option to purchase up to 1,400,000 shares of the common stock of the
Company, with an initial exercise price of $1.525 per share, rising up to $1.60
per share prior to expiration. The proceeds from this warrant, if exercised, are
expected to be utilized for working capital and in connection with possible
future acquisitions by the Company.
At November 25, 2000 the Company's cash and cash equivalents were $533,118, a
reduction of $384,997 from the balance at February 29, 2000. The reduction in
cash balances was primarily attributable to the Company's purchase of the
remaining 25% interest which it did not previously own in its Langer
Biomechanics Group (UK) Limited subsidiary, the purchase of treasury stock and
the loss from operations.
12
<PAGE>
LIQUIDITY (CONTINUED)
The Company has a one-year agreement for a revolving credit facility of
$1,500,000, which was scheduled to expire November 30, 2000. This facility has
been extended to the earlier of February 28, 2001 or the closing of the proposed
tender offer. The facility provides borrowings at an interest rate of prime plus
1/2 percent, from a bank, but to date the Company has not found it necessary to
use this credit line. The agreement contains, among other items, restrictions
relating to incurrence of additional indebtedness and the payment of dividends.
Additionally, the Company is required to maintain certain minimum financial
ratios. Borrowings under this agreement are collateralized by substantially all
of the assets of the Company. The Company also has a $500,000 equipment credit
line with a bank to finance the long-term capital equipment needed to grow the
Company's business. In December 1999, the Company borrowed $115,000 on this line
to finance the acquisition of certain machinery and equipment. The loan bears
interest at 9.5% per annum and requires 48 monthly payments of $2,396. At
November 25, 2000, $93,188 was outstanding under this line.
At the closing of the proposed tender offer the Company will be required to
repay any amounts outstanding under the equipment line and the remaining balance
of the equipment line will be terminated. Additionally, the Company anticipates
entering into a revolving credit arrangement with a different bank on terms
substantially similar to the credit line discussed above. There is no guarantee
that the Company will be able to obtain such a facility. The Company believes
that its existing cash balances, funds generated from operations, and proceeds
from the exercise of the option discussed above will be adequate to meet its
working capital needs.
RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"), which requires that
derivative instruments be measured at fair value and recognized as assets or
liabilities in the Company's balance sheet. SFAS No. 133 (as amended by SFAS No.
137 and 138) is effective for all quarters of all fiscal years beginning after
June 15, 2000. The Company is currently evaluating the effect that SFAS No. 133
will have on the Company's consolidated financial statements. In December 1999,
the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin
No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB 101
summarizes certain of the SEC's views in applying generally accepted accounting
principles to revenue recognition in financial statements. The Company is
required to adopt SAB 101 no later than the first quarter of fiscal 2001. The
Company is currently evaluating the impact of SAB 101 on the Company's results
of operations and financial position..
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
This Form 10-Q 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. Factors that might
cause such differences include but are not limited to, product demand, the
impact of competitive products and pricing and general business and economic
conditions.
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Part II OTHER INFORMATION
THE LANGER BIOMECHANICS GROUP, INC. AND SUBSIDIARIES
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on September 21, 2000 to report
the entering into of a letter of intent, dated September 14, 2000, with
OrthoStrategies, Inc. ("OSI") pursuant to which OSI is to acquire the
Company (the "Letter of Intent").The Company filed a report on Form
8-KA on September 22, 2000 to file as an exhibit the Letter of Intent.
The Company filed a Report on Form 8-K on November 17, 2000 to report
the entry into a non-binding Term Sheet dated November 10, 2000, with
respect to a proposed tender offer for shares of the Company by OSI.
The Term Sheet amends the previously announced proposed acquisition of
the Company by OSI.
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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 5, 2001
BY: /s/ DANIEL J. GORNEY
--------------------------
DANIEL J. GORNEY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
BY: /s/ THOMAS G. ARCHBOLD
---------------------------------
THOMAS G. ARCHBOLD
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
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