These amounts were partially offset by a reduction in interest expense associated with the $800,000 principal amount of 4% promissory notes issued by us in 2002 in connection with our acquisition of Benefoot (the "Benefoot Notes"), which were outstanding for part of the 2004 period and which were repaid in May 2004.
We recorded a reduction in the estimated fair value of the Put Option obligation of $605,000 at December 31, 2004 from September 30, 2004 as a gain from the change in the estimated fair value of the Put Option in the consolidated statement of operations for the year ended December 31, 2004. We recorded the expiration of the Put Option on February 16, 2005 as an additional gain of $1,750,000 from the change in the estimated fair value of the Put Option in the three months ended June 30, 2005.
At June 30, 2005, we recorded $500,000 as the change in the fair value of the call option with respect to the $3.0 Million Note.
The provision for income taxes increased to $87,000 in the six months ended June 30, 2005, from $75,000 in the six months ended June 30, 2004. Prior to our adoption of SFAS No. 142, we would not have needed a valuation allowance for the portion of our net operating losses equal to the amount of tax-deductible goodwill and trade names amortization expected to occur during the carryforward period of the net operating losses based on the timing of the reversal of these taxable temporary differences. As a result of the adoption of SFAS No. 142, the reversal will not occur during the carryforward period of the net operating losses. Therefore, we recorded a deferred income tax expense of $75,000 during each of the six month periods ended June 30, 2005 and 2004. Additionally, our foreign tax provision was $12,000 for the six months ended June 30, 2005. There was no foreign tax provision for the six months ended June 30, 2004.
Net loss for the three months ended June 30, 2005 was approximately $(984,000), or $(.19) per share on a fully diluted basis, as compared to a net income of approximately $77,000, or $.02 per share on a fully diluted basis for the three months ended June 30, 2004, a decrease of approximately $1,060,000. The principal reason for the net loss in 2005, as compared to the income in 2004 was the interest expense incurred with respect to debt issued in connection with the Silipos acquisition of approximately $702,000 (including amortization of debt discount associated with warrants issued, amortization of debt placement costs, and the amortization of interest cost related to the increasing- rate debt and the Protection Payment in the $7.5 Million Note); an increase in professional fees of approximately $169,000; an increase in management compensation and consulting fees of approximately $100,000; an increase in amortization expense of approximately $96,000 associated with the identifiable intangible assets with definite lives acquired in the Silipos acquisition; an increase of approximately $46,000 associated with stock based compensation; and an increase of approximately $17,000 associated with fee based franchise taxes. Additionally, during the three months ended June 30, 2005, we recorded approximately $572,000 as the write-off of the unamortized debt discount in connection with the repayment of the Subordinated Notes, and approximately $58,000 as the write-off of the related debt placement fees (both of which were included in interest expense in the consolidated statements of operations).
We reported our operations in two segments, custom orthotics and distributed products through September 30, 2004. Beginning October 1, 2004, we are reporting operations in two segments, orthopedics and skincare. Both our historic custom orthotics business and the distributed products business are now included in the orthopedic segment for reporting purposes, as are orthotics and prosthetic products sold by Silipos. Silipos products are primarily sold through distributors.
Net sales for the three months ended June 30, 2005 were approximately $10,052,000, as compared to approximately $6,548,000 for the three months ended June 30, 2004, an increase of approximately
$3,504,000 or approximately 53.5%. The principal reason for the increase was the net sales of approximately $4,014,000 generated by Silipos (which was acquired on September 30, 2004), partially offset by a decline in net sales of approximately $510,000 in our historic business. The decline was attributable to several factors described below.
Net sales of orthopedics were approximately $9,347,000 in the three months ended June 30, 2005, as compared to approximately $6,548,000 in three months ended June 30, 2004, an increase of approximately $2,799,000 or approximately 42.7%. This increase was due to approximately $3,309,000 of net sales in the orthopedic segment by Silipos, partially offset by a reduction in net sales in our historic business of approximately $510,000.
Within the orthopedic segment, net sales of custom orthotics for the three months ended June 30, 2005 were approximately $4,500,000, as compared to approximately $5,025,000 for the three months ended June 30, 2004, a decrease of approximately $525,000. The decrease in our other custom foot orthotic sales of approximately $594,000, from approximately $4,638,000 in the three months ended June 30, 2004, to approximately $4,044,000 in the three months ended June 30, 2005, was partially offset by an increase in our net sales of ankle-foot orthotics which increased from approximately $387,000 in the three months ended June 30, 2004, to approximately $456,000 in the three months ended June 30, 2005.
Net sales of historic distributed products for the three months ended June 30, 2005 were approximately $1,538,000, as compared to approximately $1,523,000 for the three months ended June 30, 2004, an increase of approximately $15,000, or approximately 1.0%. This increase was partially offset by a decrease in sales of certain distributed products, including PPT which decreased approximately $6,000 (excluding related shipping revenue), or approximately 1.4% in the three months ended June 30, 2005, as compared to the three months ended June 30, 2004.
Net sales of Silipos branded orthopedic products were approximately $3,309,000 in the three months ended June 30, 2005. Related cost of sales were approximately $1,164,000, or approximately 35.2% of net sales, resulting in a gross profit of approximately 64.8%.
We, through Silipos, generated net sales of approximately $705,000 in our skincare segment in the three months ended June 30, 2005. Net sales in the skincare segment represented approximately 17.6% of Silipos' sales for the three months ended June 30, 2005, and represented approximately 7.0% of our total net sales for the three months ended June 30, 2005. The cost of sales associated with skincare was approximately $298,000, or approximately 42.3% of net sales in our skincare segment, resulting in a gross profit of approximately 57.7%.
Cost of sales, on a consolidated basis, increased approximately $1,326,000, to approximately $5,486,000 in the three months ended June 30, 2005, as compared to approximately $4,160,000 in the three months ended June 30, 2004. This increase was primarily attributable to the cost of sales incurred by Silipos of approximately $1,462,000 in the three months ended June 30, 2005, partially offset by a decrease in cost of sales in our historic business of approximately $136,000, which was attributable to a decrease in net sales partially offset by an increase in overhead and certain material costs.
Cost of sales in the orthopedic segment were approximately $5,188,000, or approximately 55.5% of orthopedic net sales in the three months ended June 30, 2005, as compared to approximately $4,160,000, or approximately 63.5% of orthopedic net sales in the three months ended June 30, 2004. The reason for the increase in the cost of sales was the cost of sales related to the Silipos' products, which generated higher gross profit.
Costs of sales for custom orthotics were approximately $3,106,000, or approximately 69.0% of net sales of custom orthotics for the three months ended June 30, 2005, as compared to approximately $3,244,000, or approximately 64.6% of net sales of custom orthotics for the three months ended June 30, 2004. Cost of sales of historic distributed products were approximately $918,000, or approximately 59.7% of net sales of distributed products in the historic business for the three months ended June 30, 2005, as compared to approximately $916,000, or approximately 60.1% of net sales of distributed products in the historic business for the three months ended June 30, 2004.
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Cost of sales for Silipos' branded orthopedic products were approximately $1,164,000, or approximately 35.2% of net sales of Silipos' branded orthopedic products of approximately $3,309,000.
Cost of sales for skincare products were approximately $298,000, or approximately 42.3% of net sales of skincare products of approximately $705,000.
Gross profit increased approximately $2,178,000, or approximately 91.2%, to approximately $4,566,000 for the three months ended June 30, 2005, as compared to approximately $2,388,000 in the three months ended June 30, 2004. Gross profit as a percentage of net sales for the three months ended June 30, 2005 was approximately 45.4%, as compared to approximately 36.5% for the three months ended June 30, 2004. The principal reason for the increase in gross profit was the approximately $2,552,000 gross profit contribution of Silipos. Silipos' gross profit as a percentage of its net sales for the three months ended June 30, 2005 was approximately 63.6%, which includes both orthopedics and skincare. Excluding Silipos, our gross profit as a percentage of net sales was approximately 33.4% for the three months ended June 30, 2005, reflecting a slight decrease from a gross profit of approximately 36.5% for the three months ended June 30, 2004.
Gross profit for the orthopedic segment was approximately $4,159,000, or approximately 44.5% of net sales of the orthopedic segment in the three months ended June 30, 2005, as compared to approximately $2,388,000, or approximately 36.5% of net sales of the orthopedic segment in the three months ended June 30, 2004.
Gross profit for custom orthotics was approximately $1,394,000, or approximately 31.0% of net sales of custom orthotics for the three months ended June 30, 2005, as compared to approximately $1,781,000, or approximately 35.4% of net sales of custom orthotics for the three months ended June 30, 2004. Gross profit for our historic distributed products was approximately $620,000, or approximately 40.3% of net sales of distributed products for the three months ended June 30, 2005, as compared to approximately $607,000, or approximately 39.9% of net sales of distributed products for the three months ended June 30, 2004. The decrease in gross profit in custom orthotics was attributable to increases in certain overhead expenses as well as a slight increase in certain material prices. The increase in gross profit in distributed products from our historical business was attributable to improved inventory control as well as a change in the mix of items sold to items with higher margins.
Gross profit generated by Silipos' branded orthopedic sales was approximately $2,145,000, or approximately 64.8% of net sales of Silipos' branded orthopedic products. The gross profit was enhanced by our decision to manufacture our own gel products used in production. Such products were previously purchased from Poly-Gel pursuant to the supply agreement between Silipos and Poly-Gel.
Gross profit generated by our skincare segment was approximately $407,000, or approximately 57.7% of net sales in the skincare segment.
General and administrative expenses for the three months ended June 30, 2005 were approximately $2,307,000, or approximately 23.0% of net sales, as compared to approximately $1,344,000, or approximately 20.5% of net sales for the three months ended June 30, 2004, representing an increase of approximately $963,000. Silipos incurred approximately $493,000 of general and administrative expenses in the three month period ended June 30, 2005. The principal reason for the remaining balance of the $470,000 increase is due to an increase in executive salaries and consulting fees (approximately $100,000), an increase in provision for bonuses (approximately $22,000), an increase in professional fees (approximately $169,000), an increase in amortization expense associated with the identifiable intangible assets with definite lives acquired in the Silipos acquisition (approximately $96,000), an increase in stock based compensation (approximately $46,000), and an increase in depreciation expense (approximately $24,000).
Selling expenses increased approximately $1,229,000, or approximately 156.4%, to approximately $2,015,000 for the three months ended June 30, 2005, as compared to approximately $786,000 for the three months ended June 30, 2004. Selling expenses as a percentage of net sales were approximately 20.0% and 12.0% for the three months ended June 30, 2005 and 2004, respectively. Silipos incurred
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approximately $1,086,000 of selling expenses in the three months ended June 30, 2005, and selling expenses in our historic business increased by approximately $143,000, from approximately $786,000 in the three months ended June 30, 2004, to approximately $929,000 in the three months ended June 30, 2005. Silipos, which sells primarily to distributors, allocates more resources, both in absolute amounts and as a percentage of net sales, into sales, marketing, and sales-related expenses, including royalties and sales commissions, than our historic business. We intend to continue to closely monitor selling expenses in our historic custom orthotics and distributed products businesses. Additionally, we expect to continue to monitor and review the selling expenses of Silipos in order to focus such expenditures on growth areas and products.
Interest expense was approximately $1,640,000 for the three months ended June 30, 2005, as compared to approximately $201,000 for the three months ended June 30, 2004, an increase of approximately $1,439,000. The principal reasons for the increase in 2005 were:
 | |
| (i) | Interest expense of approximately $276,000 associated with the various components of the acquisition indebtedness incurred in connection with the Silipos acquisition, which closed on September 30, 2004; |
| |
| (ii) | Interest recorded with respect to a capital lease assumed in the Silipos acquisition, which totaled approximately $111,000 in the three months ended June 30, 2005; |
| |
| (iii) | Interest amortization of the estimated fair value of the warrants (debt discount) issued in connection with the Subordinated Notes, which aggregated approximately $48,000, and the amortization of the related debt placement costs of approximately $5,000; |
| |
| (iv) | Amortization of interest expense of approximately $373,000 associated with the increasing-rate debt and interest costs related to the Protection Payment included in the $7.5 Million Note (see Note 5, "Long-term Debt"); and |
| |
| (v) | The write-off of approximately $572,000 of unamortized debt discount and the write-off of approximately $58,000 of the related debt placement fees in connection with the repayment of the Subordinated Notes. |
These amounts were partially offset by a reduction in interest expense associated with the Benefoot Notes, which were outstanding for part of the 2004 period and which were repaid in May 2004.
At June 30, 2005, we recorded $500,000 as the gain on the change in the fair value of the call option with respect to the $3.0 Million Note.
The provision for income taxes increased to $48,000 in the three months ended June 30, 2005, from $25,000 in the three months ended June 30, 2004. Prior to our adoption of SFAS No. 142, we would not have needed a valuation allowance for the portion of our net operating losses equal to the amount of tax-deductible goodwill and trade names amortization expected to occur during the carryforward period of the net operating losses based on the timing of the reversal of these taxable temporary differences. As a result of the adoption of SFAS No. 142, the reversal will not occur during the carryforward period of the net operating losses. Therefore, we recorded a deferred income tax expense of $38,000 and $38,000 during the three months ended June 30, 2005 and 2004, respectively. Additionally, our foreign tax provision was $10,000 in the three months ended June 30, 2005; we recorded a benefit of $13,000 in the three months ended June 30, 2004 based upon the pre-tax income from foreign operations for the six months ended June 30, 2004.
Liquidity and Capital Resources
Working capital as of June 30, 2005 was approximately $22,170,000, as compared to approximately $1,387,000 as of December 31, 2004. Cash balances at June 30, 2005 were approximately $28,744,000, an increase of approximately $24,834,000, from approximately $3,910,000 at December 31, 2004. The increase in working capital at June 30, 2005 is attributable to the receipt of the proceeds from the underwritten public offering of stock totaling $32,500,000, less expenses paid to date of approximately $3,530,000 (approximately $991,000 additional offering related costs accrued at June 30, 2005), less the
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repayment of the Subordinated Notes plus interest, and the recording of the fair value of the call option of $500,000 at June 30, 2005, partially offset by the classification of the $3.0 Million Note, which was originally due on December 31, 2009, as a current liability as of June 30, 2005, the increase in the balance of the $7.5 Million Note, due to the interest cost associated with the increasing-rate debt and term-extending option in the $7.5 Million Note, and the obligation under the Silipos stock purchase agreement of $900,000. Both the $3.0 Million Note and the $7.5 Million Note were repaid in July 2005. The increase in cash at June 30, 2005, as compared to December 31, 2004, is primarily attributable to the remaining net proceeds from the public offering.
Net cash provided by operating activities was approximately $1,878,000 for the six months ended June 30, 2005. Net cash used in operating activities was approximately $1,123,000 in the six months ended June 30, 2004. Net cash provided by operations in the six months ended June 30, 2005 resulted from decreases in accounts receivable, inventory and prepaid expenses, partially offset by a decrease in accounts payable and other current liabilities. The net cash used in operating activities in the six months ended June 30, 2004 resulted primarily to increases in inventory levels and prepaid expenses and other current assets, as well as increases in accounts receivable and a decrease in accounts payable and other current liabilities.
Net cash used in investing activities in the six months ended June 30, 2005 was approximately $504,000. Net cash used in investing activities was approximately $802,000 in the six months ended June 30, 2004. Net cash used in investing activities in the six months ended June 30, 2005 reflects the purchases of property and equipment of approximately $553,000, principally the investment in our new information technology platform, partially offset by the sale of certain property and equipment of approximately $70,000. Net cash used in investing activities in the six months ended June 30, 2004 represents the investment in property and equipment of approximately $480,000, principally our new information technology platform, and approximately $322,000 which represented the payment of certain deferred contingent consideration in respect to the Benefoot transaction.
We generated cash flows from financing activities of approximately $23,470,000, which represents the gross proceeds from the public offering of common stock of $32,500,000, less expenses paid to June 30, 2005 of approximately $3,530,000 (we accrued an additional amount of approximately $991,000 with respect to registration costs at June 30, 2005), less the repayment of the Subordinated Notes plus interest. Net cash used in financing activities was approximately $798,000 in the six months ended June 30, 2004 which reflects the repayment of the $800,000 promissory notes in May 2004, partially offset by $1,600 received from the exercise of stock options.
Our principal cash need is to reduce debt and other liabilities incurred in connection with our acquisition of Silipos, as well as to provide working capital and to fund growth.
Our ability to fund working capital requirements and make acquisitions and anticipated capital expenditures and satisfy our debt obligations will depend on our future performance, which is subject to general economic, financial and other factors, some of which are beyond our control, as well as the availability to us of other sources of liquidity. We believe that based on current levels of operations and anticipated growth, our cash flow from operations will be adequate for at least the next twelve months to fund our working capital requirements, and anticipated capital expenditures.
Pursuant to the terms of our outstanding $7.5 Million Note, on March 15, 2005 we notified SSL, the holder of the $7.5 Million Note, of our election to increase the principal amount of such note, effective as of April 1, 2005, by $1,000,000 rather than make an additional payment of $500,000 by March 31, 2005. On March 31, 2005, we entered into a Settlement Agreement and limited release with SSL, pursuant to which the purchase price of Silipos was reduced by $232,000. The reduction in the purchase price was satisfied by a reduction in the principal balance of the $7.5 Million Note. The $7.5 Million Note, which has a revised face value of $8,268,000, matures on March 31, 2006 and had a carrying value of approximately $8,168,000 at June 30, 2005 which represented the amount paid off in July 2005 (see Note 12, "Subsequent Events").
The Silipos purchase agreement provides that if we acquire Poly-Gel for less than $4,500,000 prior to March 31, 2006, and liabilities and damages relating to claims brought by Poly-Gel, Silipos'
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former supplier of mineral based gels, arising out of the supply agreement between Silipos and Poly-Gel dated August 20, 1999, the manufacture, marketing or sale of products made from gel not purchased from Poly-Gel, alleged misappropriation of trade secrets or other confidential information (including gel formulation) of Poly-Gel, as well as any other alleged violations of the supply agreement (the "Potential Poly-Gel Claims"), do not exceed $2,000,000, we are obligated, pursuant to the terms of the Silipos purchase agreement, to pay SSL an additional amount of $4,500,000 less the purchase price paid for Poly-Gel. Our aggregate liability to SSL under this provision of the Silipos purchase agreement could be as high as $4.5 million.
Under the terms of the Silipos stock purchase agreement, if we do not acquire Poly-Gel prior to March 31, 2006, and the amount of any liabilities for Potential Poly-Gel Claims does not exceed $2,500,000, we were obligated to pay SSL $1,000,000, plus an amount, not to exceed $500,000, for certain costs incurred by SSL in defense of any such Potential Poly-Gel Claims. As part of the settlement of the $7.5 Million Note and the $3.0 Million Note, we accrued, at June 30, 2005, $900,000 as full settlement of the $1.0 million obligation. SSL remains obligated under the Silipos stock purchase agreement for certain Potential Poly-Gel Claims, if any.
In June, 2005, we reached a further settlement with SSL to repay the acquisition indebtedness incurred and certain other obligations under the Silipos stock purchase agreement. Additionally, we agreed to satisfy our obligations under the Silipos stock purchase agreement to pay SSL Holdings, Inc. $1.0 million by March 31, 2006 if we did not acquire Poly-Gel by such date.
On July 15, 2005, we consummated the settlement with SSL to repay the acquisition indebtedness incurred and certain other obligations under the Silipos stock purchase agreement. We paid off the $7.5 Million Note, which had a face value of $8.268 million, plus accrued interest of approximately $248,000 ($224,000 through June 30, 2005), the $3.0 Million Note plus accrued interest of approximately $75,000 ($69,000 through June 30, 2005) less the recoupment of the Protection Payment of $0.5 million. In consideration of our earlier than scheduled repayment to SSL of the $7.5 Million Note and the $3.0 Million Note and the $1.0 million payment due under the Silipos stock purchase agreement, SSL provided us with a $100,000 discount with respect to the $7.5 Million Note and a $100,000 discount with respect to the $1.0 million payment.
In the six months ended June 30, 2005, we generated earnings after taxes of approximately $427,000, which includes the non-cash gain of $1,750,000 for the change in the estimated fair value of the Put Option. In the year ended December 31, 2004, we generated earnings after taxes of approximately $375,000 which included a non-cash gain of $605,000 for the change in the estimated fair value of the Put Option. In the year ended December 31, 2003, we did not have earnings after taxes. There can be no assurance that our business will generate cash flow from operations sufficient to enable us to fund our liquidity needs, which include the Convertible Notes that mature in August 2006. In such event, we may need to raise additional funds through public or private equity, borrowings from banks or other institutional lenders or debt financings. In addition, our growth strategy contemplates our making acquisitions, and we may need to raise additional funds for this purpose. We may finance acquisitions of other companies or product lines in the future from existing cash balances, through borrowings from banks or other institutional lenders, and/or the public or private offerings of debt or equity securities. We cannot assure you that any such funds will be available to us on favorable terms, or at all.
Changes in Significant Balance Sheet Accounts—June 30, 2005 as compared to December 31, 2004
Accounts receivable, net, decreased from approximately $7,056,000 at December 31, 2004, to approximately $5,595,000 at June 30, 2005, a decrease of approximately $1,461,000. The decrease is primarily attributable to a decrease in accounts receivable relating to Silipos from approximately $3,324,000, net at December 31, 2004 to approximately $2,130,000, net at June 30, 2005, an increase in provision for doubtful accounts of approximately $83,000, as well as increased collection efforts resulting in improvements in our overall accounts receivable aging.
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Inventories, net, decreased from approximately $4,846,000 at December 31, 2004, to approximately $4,478,000 at June 30, 2005, a decrease of approximately $368,000 which was consistent with our focus to reduce certain excess in inventory levels principally in the distributed products group.
Prepaid expenses and other current assets decreased from approximately $1,388,000 at December 31, 2004, to approximately $1,068,000 at June 30, 2005, a decrease of approximately $320,000. The decrease was primarily attributable to the recording of certain prepaid expenses incurred in connection with the registration statement of our underwritten public offering against the equity raised from the public offering upon its completion.
Property and equipment, net, increased from approximately $7,181,000 at December 31, 2004, to approximately $7,183,000 at June 30, 2005, an increase of approximately $2,000. The change was primarily attributable to the investment in property and equipment (including the new information technology platform) of approximately $553,000, offset by depreciation expense of approximately $471,000 in the six months ended June 30, 2005, and the sale of certain property and equipment that had a net book value of approximately $60,000.
Identifiable intangible assets, net, decreased from approximately $9,343,000 at December 31, 2004, to approximately $9,024,000 at June 30, 2005, a decrease of approximately $319,000, which was due to amortization expense recorded for the six months ended June 30, 2005.
Other assets decreased from approximately $762,000 at December 31, 2004, to approximately $594,000 at June 30, 2005, a decrease of approximately $168,000. The change was primarily attributable to the write-off of the unamortized portion of debt placement costs of approximately $58,000, which was included as a loss on early extinguishment of debt.
Goodwill increased from approximately $13,321,000 at December 31, 2004, to approximately $14,010,000 at June 30, 2005, an increase of approximately $689,000. The increase in goodwill was attributable primarily to the accrual of $900,000 as the full settlement of our obligation under the Silipos stock purchase agreement to pay SSL Holdings, Inc., $1 million if we did not acquire Poly-Gel by March 31, 2006 and which was accounted for under SFAS No. 141. The payment was made on July 15, 2005. Additionally, we recorded legal fees of approximately $21,000 with respect to the acquisition. These increases were partially offset by a $232,000 reduction in the purchase price paid by us to SSL because Silipos did not satisfy certain minimum working capital requirements as of the closing date of the acquisition pursuant to the Silipos purchase agreement.
Accounts payable decreased from approximately $1,140,000 at December 31, 2004, to approximately $1,076,000 at June 30, 2005, a decrease of approximately $64,000, which primarily reflects the reduced level of purchasing that corresponds to the general decrease in inventory levels.
Other current liabilities increased from approximately $4,265,000 at December 31, 2004, to approximately $4,473,000 at June 30, 2005, an increase of approximately $208,000. The change was primarily attributable to the increase in certain accruals such as our incentive plan and professional fees, offset by the reduction in certain accruals including fee based franchise taxes.
Deferred income taxes payable increased by $75,000, from approximately $1,640,000 at December 31, 2004, to approximately $1,715,000 at June 30, 2005. The deferred income taxes were provided with respect to the tax deductible goodwill and trade names amortization in accordance with SFAS No. 142.
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Contractual Obligations
Certain of our facilities and equipment are leased under noncancelable operating and capital leases. Additionally, as discussed below, we have certain long-term and short-term indebtedness. The following is a schedule, by fiscal year, of future minimum rental payments required under current operating and capital leases and debt repayment requirements as of June 30, 2005 measured from the end of our fiscal year (December 31):
| | | | | | | | | | | | | | | | | | | | | | |
| | | Payments due By Period (In thousands) |
| Contractual Obligations | | Total | | 6 Months Ended
Dec. 31, 2005 | | 1-3 Years | | 4-5 Years | | More than
5 Years |
| Operating Lease Obligations | | $ | 2,450 | | | $ | 359 | | | $ | 1,378 | | | $ | 713 | | | $ | — | |
| Capital Lease Obligations | | | 6,517 | | | | 201 | | | | 833 | | | | 876 | | | | 4,607 | |
| Secured Promissory Note due March 31, 2006(1)(3) | | | 8,168 | | | | 8,168 | | | | — | | | | — | | | | — | |
| Convertible Notes due August 31, 2006 | | | 14,439 | | | | — | | | | 14,439 | | | | — | | | | — | |
| Obligations under Silipos stock purchase agreement | | | 900 | | | | 900 | | | | — | | | | — | | | | — | |
| Promissory Note due December 31,2009(2)(3) | | | 2,500 | | | | 2,500 | | | | — | | | | — | | | | — | |
| Interest on Long-term Debt(3) | | | 997 | | | | 612 | | | | 385 | | | | — | | | | — | |
| Total | | $ | 35,971 | | | $ | 12,740 | | | $ | 17,035 | | | $ | 1,589 | | | $ | 4,607 | |
|
| |
| (1) | Reflects the carrying value of the $7.5 Million Note at June 30, 2005. |
| |
| (2) | Reflects the carrying value of the $3.0 Million Note, less the recovery of the Protection Payment of $0.5 million. See the discussion in Long-term Debt and Note 5, — "Long-term Debt." |
| |
| (3) | Reflects interest to be paid in each period based upon scheduled due date except for the $7.5 Million Note and the $3.0 Million Note which reflects the interest paid on July 15, 2005, which was the date these notes were repaid in full. |
Long-term Debt
On October 31, 2001, we sold $14,589,000 of our 4% Convertible Subordinated Notes due August 31, 2006, in a private placement (the "Convertible Notes"). The Convertible Notes are convertible at the option of the holders at any time into our common stock at a conversion price of $6.00 per share and are subordinated to all of our existing and future senior indebtedness. On June 20, 2005, $150,000 of the Convertible Notes were converted to 25,000 shares of commons stock in accordance with their terms. We received net proceeds of approximately $13,668,000 from this offering. The cost of raising these proceeds, including placement and legal fees, was approximately $921,000, which is being amortized over the life of the Convertible Notes. The amortization of these costs for each of the three and six month periods ended June 30, 2005 and 2004 were approximately $48,000 and $97,000, respectively. Interest is payable in cash semi-annually on the last date in June and December. Interest expense on these Convertible Notes for the three months ended June 30, 2005 and 2004 was $145,707 and $145,890, respectively, and interest expense for the six months ended June 30, 2005 and 2004 was $291,597 and $291,780, respectively.
In 2002, we issued the Benefoot Notes totaling $1,800,000 in connection with the acquisition of Benefoot. $1,000,000 of the Benefoot Notes were paid on May 6, 2003 and the balance was paid on May 6, 2004. Interest expense with respect to the Benefoot Notes was approximately $11,000 for the six months ended June, 2004.
On September 30, 2004, we completed the acquisition of all of the outstanding stock of Silipos (See Note 2(a) "Acquisition of Silipos"). In connection with the acquisition of Silipos, we issued:
| |
| • | the Subordinated Notes to ten accredited investors; |
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| |
| • | $7.5 Million Note to SSL; and |
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| • | $3.0 Million Note to SSL. |
The Subordinated Notes were issued to fund the cash portion of the purchase price for Silipos. Langer Partners, LLC, whose sole manager and voting member is Warren B. Kanders, our Chairman of the Board of Directors since November 12, 2004, held $750,000 principal amount of these Subordinated Notes. As part of such issuance, we also issued warrants to purchase 110,000 shares of our common stock at an exercise price of $0.02 per share, subject to adjustments under certain circumstances, which warrants are exercisable until September 30, 2009, commencing the earlier of (i) six months after the refinancing or prepayment of such notes, or (ii) September 30, 2005. The fair value of the warrants at September 30, 2004 was determined to be $735,900, using the Black-Scholes pricing model and the following assumptions: risk free interest rate of 2.89%, dividend of 0%, volatility of 83%, and an expected life of three years and was recorded as debt discount. Such amount was originally being amortized over the term of the Subordinated Notes, and recorded as an additional interest expense. Additionally, we issued 10,000 warrants, under the same terms as described above, to an unaffiliated third party for placing the debt, which have a fair value of $75,800, using the Black-Scholes pricing model and the same assumptions used to value the other warrants. We recognized amortization expense of $106,386 and $12,252 with respect to the debt discount (warrants) and debt placement fee for the six months ended June 30, 2005 and $48,296 and $5,194 for the three month period ended June 30, 2005, respectively. We repaid the Subordinated Notes plus accrued interest on June 15, 2005 which totaled $5,675,389 with a portion of the net proceeds from our public offering of common stock (see Note 4, "Public Offering"). Accordingly, we recognized $572,116 with respect to the unamortized debt discount (fair value of the warrants) and the unamortized debt placement fee of $57,973 as additional interest expense in the consolidated statements of operations for the three and six month periods ended June 30, 2005.
The $7.5 Million Note was secured by the pledge of the stock of Silipos and, if not repaid in full on or before March 31, 2005, we were obligated to make an additional payment of $500,000 or the principal amount would be increased by $1 million (either payment a "Protection Payment"). Both the $7.5 Million Note and the $3.0 Million Note provided for semi-annual payments of interest at the rate of 5.5% per annum with the first payments due and paid February 1, 2005. The interest rate on the $7.5 Million Note increased from 5.5% to 7.5% on April 1, 2005, which remains in effect until its maturity date of March 31, 2006. If not repaid on or before March 31, 2006, the $7.5 Million Note also provides for a default interest rate of 12% per annum, escalating 3% per annum for each additional 90 days thereafter up to the maximum rate permitted by law. Financial covenants under the $7.5 Million Note required that Silipos maintain a tangible net worth of at least $4.5 million and prohibited us from incurring any additional indebtedness except to borrow up to $3.5 million for working capital, any amounts that would have been required to be paid for the purchase of Poly-Gel pursuant to the Put Option, and equipment or capital leases up to a maximum of $500,000. We determined that the Protection Payment represented a term-extending option that did not meet the criteria for bifurcation under SFAS No. 133 in that there is no provision for net settlement. We followed the guidance of EITF No. 86-15 which addresses the calculation of interest cost on increasing-rate debt and requires that interest costs should be determined using the interest method based on the estimated outstanding term of the debt (12 months from issuance). Accordingly, we recorded additional interest expense of approximately $373,000 and approximately $677,000 (in excess of the initial coupon rate of 5.5%, 7.5 % after April 1, 2005) as increases to the carrying value of the $7.5 Million Note for the three and six month periods ended June 30, 2005, respectively.
The $3.0 Million Note provides for a default interest rate of 11% per annum, escalating 3% per annum every 90 days thereafter up to the maximum rate permitted by law. A default under the $7.5 Million Note constitutes a default under the $3.0 Million Note. Under its original terms, the $3.0 Million Note would be reduced by half of any Protection Payment actually made pursuant to the $7.5 Million Note if both the $7.5 Million Note and the $3.0 Million Note are repaid prior to March 31, 2006. We determined that the right to reduce the $3.0 Million Note by 50% of the Protection Payment made on the $7.5 Million Note if both the $7.5 Million Note and the $3.0 Million Note have been repaid in full by March 31, 2006, represented a call option ("Refund Provision") that is an embedded
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derivative that met the criteria under SFAS No. 133 for bifurcation and separate accounting treatment. The exercise price pursuant to the call option under the $3.0 Million Note is equal to the principal amount of the $3.0 Million Note less any refund we are entitled to under the Refund Provision, based upon whether or not the $7.5 Million Note has been repaid and the date of exercise. We concluded that the Refund Provision embedded in the $3.0 Million Note is not clearly and closely related to the $3.0 Million Note because the $3.0 Million Note could be settled in such a way that the holder of such note would not recover substantially all of its investment. After reaching this determination, we followed the guidance of DIG B-16, which concludes that call options embedded in debt that are not considered clearly and closely related to the debt itself are net settleable and thus require bifurcation. Accordingly, the Refund Provision was recorded at fair value at issuance date (September 30, 2004), and was subsequently marked to market through earnings. The fair value of the Refund Provision embedded in the $3.0 Million Note was determined to be de minimus and accordingly, no asset was recorded at September 30, 2004. Based upon a fair market value analysis to an unrelated third party market participant, the Refund Provision was valued at $500,000 at June 30, 2005 and was recorded as a gain on change in fair value of a call option and a corresponding adjustment to the carrying value of the $3.0 Million Note. In making this determination, consideration was given primarily to the fact that we had completed its underwritten public offering of commons stock on June 15, 2005 and had raised sufficient equity, after related expenses, to repay both the $7.5 Million Note and the $3.0 Million Note prior to March 31, 2006 and had reached an agreement in principal (discussed below) to repay the $7.5 Million Note and the $3.0 Million Note.
Both the $7.5 Million Note and the $3.0 Million Note are included as current liabilities in the consolidated balance sheet as of June 30, 2005. The $3.0 Million Note was carried as a long-term liability at December 31, 2004 based upon our expected ability to repay the $3.0 Million Note with a carrying value of $2,737,000. We incurred interest expense of approximately $528,000 (inclusive of approximately $373,000 of additional interest expense in excess of the initial coupon rate of 5.5%) and $41,000 with respect to the $7.5 Million Note and the $3.0 Million Note, respectively, in the three months ended June 30, 2005 and $935,000 (inclusive of approximately $677,000 of additional interest expense in excess of the initial coupon rate of 5.5% (7.5% after April 1, 2005) and $83,000 with respect to the $7.5 Million Note and the $3.0 Million Note, respectively for the six months ended June 30, 2005. We recorded the $7.5 Million Note and the $3.0 Million Note at their face value which represented the fair value of the notes on their date of issuance (September 30, 2004).
On March 31, 2005, we entered into a Settlement Agreement and limited release among the parties to the Silipos purchase agreement. Under the terms of the settlement agreement, the parties exchanged mutual releases and agreed to a $232,000 reduction in the purchase price previously paid by us to SSL because Silipos did not satisfy certain minimum working capital requirements as of the closing date of the acquisition pursuant to the Silipos purchase agreement. The reduction to the purchase price is being satisfied by amending and restating the $7.5 Million Note, which is due on March 31, 2006 to reflect the reduction in the purchase price of $232,000. In addition, the $7.5 Million Note was amended and restated to reflect our election on March 15, 2005, in accordance with the terms of the note, to increase the principal amount effective, April 1, 2005, by the $1,000,000 Protection Payment rather than to make an additional cash payment of $500,000 by March 31, 2005. As amended and restated and effective as of April 1, 2005, the face value of the $7.5 Million Note is $8,268,000. Additionally, under the terms of the Settlement Agreement, the parties also agreed to amend and restate the $3.0 Million Note, which is due on December 31, 2009. The $3.0 Million Note was amended and restated to provide that the note was to be reduced by $500,000 if the $7.5 Million Note was repaid in full on or before May 31, 2005, and would be further reduced by an additional $500,000 if both the $3.0 Million Note and the $7.5 Million Note have been repaid in full on or before March 31, 2006.
In June, 2005, we reached a further settlement with SSL to repay the acquisition indebtedness incurred and certain other obligations under the Silipos stock purchase agreement. Additionally, we agreed to satisfy our obligations under the Silipos stock purchase agreement to pay SSL Holdings, Inc. $1.0 million by March 31, 2006 if we did not acquire Poly-Gel by such date. In consideration of our earlier than scheduled repayment of such notes and the $1.0 million payment, SSL provided us with a
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$100,000 discount with respect to the $7.5 Million Note and a $100,000 discount with respect to the $1.0 Million payment. We adjusted our estimate of interest expense on our increasing–rate debt to increase the carrying value of the $7.5 Million Note to the settlement amount of $8,168,000 at June 30, 2005. The agreement was consummated and payment was made on July 15, 2005.
Recently Issued Accounting Pronouncements
In November 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 151, "Inventory Costs" ("SFAS 151"). SFAS 151 amends the guidance in Chapter 4 of Accounting Research Bulletin No. 43, "Inventory Pricing", to clarify the accounting for amounts of idle facility expense, freight, handling costs and wasted material. SFAS 151 requires that these types of items be recognized as current period charges as they occur. The provisions of SFAS 151 are effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We are currently evaluating the impact of adoption of SFAS 151 on our consolidated financial statements.
In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment" ("SFAS 123(R)"), revising SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") and superceding Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." This statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS 123(R) required that the fair value of such equity instruments be recognized as expense in the historical financial statements as services are performed. Prior to SFAS 123(R), only certain pro-forma disclosures of fair value were required. As a result of the Securities and Exchange Commission's April 2005 extension of the compliance date for SFAS 123(R), SFAS 123(R) will be effective for us as of the beginning of the 2006 fiscal year. The adoption of this new accounting pronouncement is expected to have a material impact on our consolidated financial statements commencing with the first quarter of the year ending December 31, 2006.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections," which changes the requirements for the accounting and reporting of a change in accounting principle and error corrections. SFAS No. 154 applies to all voluntary changes in accounting principle, as well as to changes required by an accounting pronouncement that does not include specific transition provisions. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. Starting in 2006, we will apply the provisions of SFAS No. 154 on a prospective basis when applicable.
Certain Factors That May Affect Future Results
Information contained or incorporated by reference in the quarterly report on Form 10-Q, in other SEC filings by us, in press releases, and in presentations by us or our management, contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 which can be identified by the us of forward-looking terminology such as "believes," "expects," "plans," "intends," "estimates," "projects," "could," "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. Such forward looking statements include, but are not limited to, those relating to our financial and operating prospects, future opportunities, our acquisition strategy and ability to integrate acquired companies and assets, outlook of customers, and reception of new products, technologies, and pricing. In addition, such forward-looking statements involve known and unknown risks, uncertainties, and other factors including those described from time to time in our Registration Statement on Form S-3, most recent Form 10-K and 10-Q's and other Company filings with the Securities and Exchange Commission which may cause the actual results, performance or achievements by us to be materially different from any future results expressed or implied by such forward-looking statements. Also, our business could be materially adversely affected and the trading price of our commons stock could decline if any such risks and uncertainties develop into actual events. We undertake no obligation to publicly update or revise forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In general, business enterprises can be exposed to market risks, including fluctuation in commodity and raw material prices, foreign currency exchange rates, and interest rates that can adversely affect the cost and results of operating, investing, and financing. In seeking to minimize the risks and/or costs associated with such activities, we manage exposure to changes in commodities and raw material prices, interest rates and foreign currency exchange rates through its regular operating and financing activities. We do not utilize financial instruments for trading or other speculative purposes, nor generally do we utilize leveraged financial instruments or other derivatives. The following discussion about our market rate risk involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements.
Our exposure to market rate risk for changes in interest rates relates primarily to the Company's short-term monetary investments. There is a market rate risk for changes in interest rates earned on short-term money market instruments. There is inherent rollover risk in the short-term money instruments as they mature and are renewed at current market rates. The extent of this risk is not quantifiable or predictable because of the variability of future interest rates and business financing requirements. However, there is no risk of loss of principal in the short-term money market instruments, only a risk related to a potential reduction in future interest income. Derivative instruments are not presently used to adjust our interest rate risk profile.
The majority of our business is denominated in United States dollars. There are costs associated with our operations in foreign countries, primarily the United Kingdom and Canada that require payments in the local currency, and payments received from customers for goods sold in these countries are typically in the local currency. We partially manage our foreign currency risk related to those payments by maintaining operating accounts in these foreign countries and by having customer pay us in those same currencies.
From time to time, we are subject to certain legal actions arising in the normal course of business. After taking into consideration legal counsel's evaluation of such actions, management is of the opinion that their final resolution will not have a material adverse effect on our consolidated financial statements.
In addition, in connection with our acquisition of Silipos, we could become subject to certain claims or actions brought by Poly-Gel, although no such claims have been brought to date. These claims may arise, for example, out of the supply agreement between Silipos and Poly-Gel dated August 20, 1999, the manufacture, marketing or sale of products made from gel not purchased from Poly-Gel, alleged misappropriation of trade secrets or other confidential information (including gel formulations) of Poly-Gel, as well as any other alleged violating of the supply agreement (the "Potential Poly-Gel Claims"). For any of these potential claims, SSL has agreed to indemnify us for losses up to $2.0 million, after which we would be liable for any such claims. Furthermore, we have assumed responsibility for the first $150,000 of such liability in connection with our acquisition of Silipos, and SSL's maximum liability for total indemnification related to our acquisition of Silipos is between $5,000,000 and $7,000,000. Thus, if the total amount of all claims arising from the acquisition exceed this maximum, whether or not related to Poly-Gel, we would be liable for amounts in excess of the maximum. For claims arising out of conduct that occurs after the closing of the Silipos transaction on September 30, 2004 we have agreed to indemnify SSL against losses. We would expect to vigorously defend against any claims brought by Poly-Gel or any other third party. We do not believe that the ultimate resolution of the claims will have a material impact on the consolidated financial statements.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company's management carried out an evaluation, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer, its principal executive officer and principal financial officer, respectively, of the design and operation of the
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Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15 (e) under the Securities Exchange Act of 1934 (the "Exchange Act")) as of June 30, 2005, pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures as of June 30, 2005 are effective.
Changes in Internal Control over Financial Reporting
There have not been any changes in the Company's internal control over financial reporting that have come to management's attention during the second quarter ended June 30, 2005 evaluation that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Except as set forth below, neither we nor any of our subsidiaries are a party to any legal action or proceeding.
On April 21, 2005, Thermo-Ply, Inc., a Florida corporation, filed an action in the United States District Court for the Middle District of Florida (Tampa Division) against Silipos and four other defendants. The action asserts a claim for alleged infringement of U.S. Patent No. 6,231,617. We believe that the claim, insofar as it relates to us, may be directed towards the Explorer Gel Liners manufactured, distributed and sold by Silipos. To date, Silipos has not been served with a complaint in this action. We are currently investigating the validity of this claim. Should the plaintiff be successful in pressing this claim, Silipos could be enjoined from making, using or selling the accused products and could also be assessed damages for the alleged infringement, which damages could be increased up to three times in the event the infringement is found to be willful, together with attorney fees and certain costs.
We could become subject to certain claims or actions brought by River Biomechanics ("River") and its principal, a former sales agent and distributor for our foot orthotic devices sold in Canada. These claims may include allegations relating to prior negotiations by us to acquire River, our hiring of certain former employees of River and use of certain confidential information. While we have received written correspondence from River and its principal threatening to institute litigation and seek damages for $5.0 million, no action has been brought to date. We would expect to vigorously defend against any claims brought by River and its principal. We also believe that we have potential causes of action against River and its principal. In the event we did not ultimately prevail in defending any such claims, we believe that such claims would not have a material adverse effect on our business, financial condition or results of operations.
From time to time, we are subject to certain legal actions arising in the normal course of business. After taking into consideration legal counsel's evaluation of such actions, management is of the opinion that their final resolution will not have a material adverse effect on our consolidated financial statements.
In addition, in connection with our acquisition of Silipos, we could become subject to certain claims or actions brought by Poly-Gel, although no such claims have been brought to date. These claims may arise, for example, out of the supply agreement between Silipos and Poly-Gel dated August 20, 1999, the manufacture, marketing or sale of products made from gel not purchased from Poly-Gel, alleged misappropriation of trade secrets or other confidential information (including gel formulations) of Poly-Gel, as well as any other alleged violations of the supply agreement (the "Potential Poly-Gel Claims"). For any of these potential claims, SSL has agreed to indemnify us for losses up to 2.0 million, after which we would be liable for any such claims. Furthermore, we have assumed responsibility for the first $150,000 of such liability in connection with our acquisition of Silipos, and SSL's maximum liability for total indemnification related to our acquisition of Silipos is between $5,000,000 and $7,000,000. Thus, if the total amount of all claims arising from the acquisition exceed this maximum, whether or not related to Poly-Gel, we would be liable for amounts in excess of the maximum. For claims arising out of conduct that occurs after the closing of the Silipos transaction on September 30, 2004 we have agreed to indemnify SSL against losses. We would expect to vigorously defend against any claims brought by Poly-Gel or any other third party. We do not believe that the ultimate resolution of the claims will have a material impact on the consolidated financial statements.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company was held on June 23, 2005. The only matters voted upon at the meeting were (i) the re-election of the incumbent Board of Directors, and (ii) the approval of the Company's 2005 Stock Incentive Plan. Voting on the matters was as follows:
For the election of the Board of Directors:
| | | | | | | | | | |
| Nominee | | Vote For | | Vote Withheld |
| Warren B. Kanders | | | 3,538,339 | | | | 46,580 | |
| Burtt R. Ehrlich | | | 3,584,539 | | | | 380 | |
| Andrew H. Meyers | | | 3,584,539 | | | | 380 | |
| Jonathan R. Foster | | | 3,584,539 | | | | 380 | |
| Arthur Goldstein | | | 3,584,539 | | | | 380 | |
| Gregory R. Nelson | | | 3,584,539 | | | | 380 | |
|
For the approval of the 2005 Stock Incentive Plan:
|
| | | | | | |
| For | | | 3,280,459 | |
| Against | | | 304,460 | |
| Abstentions | | | 0 | |
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ITEM 6. EXHIBITS
| | | | | | |
| 10.1 | | Letter agreement dated July 15, 2005, among Langer, Inc., Silipos, Inc., LRC North America, Inc., and SSL Holdings, Inc. |
| 10.2 | | 2005 Stock Incentive Plan, incorporated herein by reference to Schedule 14A, Amendment No. 1, Appendix A, filed May 26, 2005 (File No. 000-12991) with the Securities and Exchange Commission. |
| 31.1 | | Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) (17 CFR 240.13a-14(a)). |
| 31.2 | | Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) (17 CFR 240.13a-14(a)). |
| 32.1 | | Certification of Principal Executive Officer Pursuant to Rule 13a-14(b) (17 CFR 240.13a-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350). |
| 32.2 | | Certification of Principal Financial Officer Pursuant to Rule 13a-14(b) (17 CFR 240.13a-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350). |
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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.
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| | | | | LANGER, INC. | |
| | | | | | | | | |
| | | | | | | | | |
| Date: | | August 15, 2005 | | By: | | /s/ Andrew H. Meyers | |
| | | | | | | Andrew H. Meyers
President and
Chief Executive Officer
(Principal Executive Officer) | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | By: | | /s/ Joseph P. Ciavarella | |
| | | | | | | Joseph P. Ciavarella
Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer) | |
|
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