Langer, Inc.
Unaudited Pro Forma Condensed Consolidated Financial Statements
These unaudited pro forma condensed consolidated financial statements of Langer, Inc. (the “Company”) have been prepared to reflect the October 24, 2008 sale of certain assets of the Langer branded custom orthotics and related products business (the “Transferred Business”) to Langer Acquisition Corp. (the “Purchaser”) as described in Item 2.01 of this Current Report.
The unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 2007 and the six months ended June 30, 2008 are based on the Company’s historical condensed consolidated statements of operations, and give effect to the disposition of the Transferred Business as well as the dispositions of Bi-Op Laboratories, Inc. and Regal Medical Supply, LLC as if they had occurred on January 1, 2007. The unaudited pro forma consolidated balance sheet as of June 30, 2008 is based on the Company’s historical balance sheet as of that date, and gives effect to the disposition of the Transferred Business as if it had occurred on June 30, 2008. The unaudited pro forma consolidated statements of operations are based on the assumptions and adjustments described in the accompanying notes and do not reflect any adjustments for non-recurring items or changes in operating strategies arising as a result of the disposition of the Transferred Business. These unaudited pro forma condensed consolidated financial statements include no assumptions regarding the use of proceeds from the sale of the Transferred Business, which are presented as additional cash on the unaudited pro forma consolidated balance sheet. Accordingly, the actual effect of the sale, due to this and other factors, could differ from the pro forma adjustments presented herein. However, management believes that the assumptions used and the adjustments made are reasonable under the circumstances and given the information available.
These unaudited pro forma condensed consolidated financial statements are presented for illustrative purposes only and are not necessarily indicative of the operating results or the financial position that would have been achieved had the sale of the Transferred Business been consummated as of the dates indicated or of the results that may be obtained in the future. These unaudited pro forma condensed consolidated financial statements and accompanying notes should be read together with the Company’s audited consolidated financial statements and accompanying notes as of and for the year ended December 31, 2007, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, as well as in conjunction with the Company’s unaudited condensed consolidated financial statements and accompanying notes as of and for the period ended June 30, 2008, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Quarterly Report on Form 10-Q for the six months ended June 30, 2008.
Langer Inc. and Subsidiaries |
Unaudited Pro Forma Consolidated Balance Sheet |
June 30, 2008 |
Langer | (a) | |||||||||||||||
Historical | Orthotics | Pro Forma | ||||||||||||||
June 30, | Business | Adjustments | Pro Forma | |||||||||||||
2008 | 6/30/08 | 6/30/08 | 6/30/08 | |||||||||||||
Assets: | ||||||||||||||||
Current Assets: | ||||||||||||||||
Cash and cash equivalents | $ | 650,366 | $ | (3,528 | ) | $ | 3,712,743 | (b) | $ | 4,366,637 | ||||||
Restricted cash - escrow | 1,000,000 | - | 1,000,000 | |||||||||||||
Accounts receivable, net of allowance for doubtful accounts | - | |||||||||||||||
and returns and allowances aggregating $831,506 | 7,172,046 | 1,424,487 | 5,747,559 | |||||||||||||
Inventories, net | 6,458,769 | 597,080 | 5,861,689 | |||||||||||||
Assets held for sale | 2,363,304 | - | (f) | 2,363,304 | ||||||||||||
Prepaid expenses and other current assets | 1,333,877 | 225,366 | 475,000 | (c) | 1,583,511 | |||||||||||
Total Current Assets | 18,978,362 | 2,243,405 | 4,187,743 | 20,922,700 | ||||||||||||
Property and equipment, net | 11,712,262 | 1,581,421 | - | 10,130,841 | ||||||||||||
Identifiable intangible assets, net | 13,419,701 | 364,298 | 13,055,403 | |||||||||||||
Goodwill | 19,870,407 | - | (1,672,344 | ) | 18,198,063 | |||||||||||
Other assets | 1,137,039 | 650 | - | 1,136,389 | ||||||||||||
Total Assets | $ | 65,117,771 | $ | 4,189,774 | $ | 2,515,399 | $ | 63,443,396 | ||||||||
Liabilities and Stockholders' Equity | ||||||||||||||||
Current Liabilities: | ||||||||||||||||
Accounts payable | $ | 2,701,304 | $ | 634,344 | $ | 75,000 | (d) | $ | 2,141,960 | |||||||
Liabilities related to assets held for sale | 90,454 | - | 90,454 | |||||||||||||
Other current liabilities, including current maturities of note payable | 2,955,174 | 462,101 | - | 2,493,073 | ||||||||||||
Unearned revenue | 303,151 | 303,151 | - | |||||||||||||
Total Current Liabilities | 6,050,083 | 1,399,596 | 75,000 | 4,725,487 | ||||||||||||
Long-term debt: | ||||||||||||||||
5% Covertible notes, net of discount of $346,082 at June 30, 2008 | 28,533,918 | - | 28,533,918 | |||||||||||||
Obligation under capital lease | 2,700,000 | - | 2,700,000 | |||||||||||||
Unearned revenue | 101,603 | 101,603 | - | |||||||||||||
Deferred income taxes payable | 1,716,001 | - | (234,951 | ) | (e) | 1,481,050 | ||||||||||
Other Liabilities | 44,488 | 44,488 | - | |||||||||||||
Total Liabilities | 39,146,093 | 1,545,687 | (159,951 | ) | 37,440,455 | |||||||||||
Stockholders' Equity: | ||||||||||||||||
Preferred stock, $1.00 par value; authorized $250,000 shares; no shares issued | - | |||||||||||||||
Common stock, $.02 par value; authorized 50,000,000 shares; issued 11,588,513 shares | 231,771 | - | 231,771 | |||||||||||||
Additional paid in capital | 53,877,248 | - | 53,877,248 | |||||||||||||
Accumulated Deficit | (27,361,849 | ) | 2,644,087 | 2,675,350 | (27,330,586 | ) | ||||||||||
Accumulated Other Comprehensive Income | 697,818 | 697,818 | ||||||||||||||
Total | 27,444,988 | 2,644,087 | 2,675,350 | 27,476,251 | ||||||||||||
Treasury stock at cost, 936,939 shares | (1,473,310 | ) | - | (1,473,310 | ) | |||||||||||
Total | 25,971,678 | 2,644,087 | 2,675,350 | 26,002,941 | ||||||||||||
Total Liabilities and Stockholders' Equity | $ | 65,117,771 | $ | 4,189,774 | $ | 2,515,399 | $ | 63,443,396 |
Langer Inc. and Subsidiaries | |||||||
Unaudited Pro Forma Consolidated Statement of Operations | |||||||
For the Six Months Ended June 30, 2008 |
Historical | Langer | |||||||||
Consolidated | Orthotics | 6/30/2008 | ||||||||
6/30/2008 | Business | Pro Forma | ||||||||
Income From Continuing Operations: | ||||||||||
Net Sales | $ | 28,951,544 | $ | 5,527,752 | $ | 23,423,792 | ||||
Cost of Sales | 20,429,955 | 4,247,418 | 16,182,537 | |||||||
Gross Profit | 8,521,589 | 1,280,334 | 7,241,255 | |||||||
General and administrative expenses | 6,126,821 | 800,612 | 5,326,209 | |||||||
Selling expenses | 3,154,344 | 379,342 | 2,775,002 | |||||||
Research and development expenses | 516,955 | - | 516,955 | |||||||
Operating (Loss) Income | (1,276,531 | ) | 100,380 | (1,376,911 | ) | |||||
Other Income (Expense): | ||||||||||
Interest income | 35,033 | 19,272 | 15,761 | |||||||
Interest expense | (1,107,284 | ) | - | (1,107,284 | ) | |||||
Other Income (Expense) | 11,500 | 239 | 11,261 | |||||||
Other (Expense) Income, net | (1,060,751 | ) | 19,511 | (1,080,262 | ) | |||||
Loss Before Income Taxes | (2,337,282 | ) | 119,891 | (2,457,173 | ) | |||||
Provision for Income Taxes | (29,067 | ) | (23,000 | ) | (6,067 | ) | ||||
Net Loss from continuing operations | $ | (2,366,349 | ) | $ | 96,891 | $ | (2,463,240 | ) | ||
Net Loss per common share: | ||||||||||
Basic and diluted: | ||||||||||
Loss from continuing operations | $ | (0.22 | ) | $ | (0.23 | ) | ||||
Weighted average number of common shares used | ||||||||||
in the computation of net (loss) per share: | ||||||||||
Basic and diluted | 10,651,573 | 10,651,573 |
Langer Inc. and Subsidiaries | |||||||||
Unaudited Pro Forma Consolidated Statement of Operations | |||||||||
For the Year Ended December 31, 2007 |
Historical Consolidated 2007 As Previously Reported | (g) Regal | (h) Bi-Op | Historical Consolidated 2007 as Restated | Langer Orthotics Business | 2007 Pro Forma | ||||||||||||||
Income From Continuing Operations: | |||||||||||||||||||
Net Sales | $ | 62,912,298 | $ | 3,752,324 | $ | 2,882,165 | $ | 56,277,809 | $ | 14,125,524 | $ | 42,152,285 | |||||||
Cost of Sales | 40,523,793 | 1,114,754 | 1,600,990 | 37,808,049 | 10,741,461 | 27,066,588 | |||||||||||||
Gross Profit | 22,388,505 | 2,637,570 | 1,281,175 | 18,469,760 | 3,384,063 | 15,085,697 | |||||||||||||
General and administrative expenses | 14,066,476 | 373,499 | 717,095 | 12,975,882 | 2,105,378 | 10,870,504 | |||||||||||||
Selling expenses | 9,418,661 | 2,672,939 | 172,452 | 6,573,270 | 1,026,017 | 5,547,253 | |||||||||||||
Research and development expenses | 837,934 | - | - | 837,934 | - | 837,934 | |||||||||||||
Operating (Loss) Income | (1,934,566 | ) | (408,868 | ) | 391,628 | (1,917,326 | ) | 252,668 | (2,169,994 | ) | |||||||||
Other Income (Expense): | |||||||||||||||||||
Interest income | 257,964 | - | 15,626 | 242,338 | 55,235 | 187,103 | |||||||||||||
Interest expense | (2,186,100 | ) | - | - | (2,186,100 | ) | (122 | ) | (2,185,978 | ) | |||||||||
Other income (expense) | 22,329 | - | (6,635 | ) | 28,964 | 32,559 | (3,595 | ) | |||||||||||
Other (Expense) Income, net | (1,905,807 | ) | - | 8,991 | (1,914,798 | ) | 87,672 | (2,002,470 | ) | ||||||||||
Loss Before Income Taxes | (3,840,373 | ) | (408,868 | ) | 400,619 | (3,832,124 | ) | 340,340 | (4,172,464 | ) | |||||||||
Provision for Income Taxes | (234,771 | ) | - | (119,537 | ) | (115,234 | ) | (46,000 | ) | (69,234 | ) | ||||||||
Net Loss from continuing operations | $ | (4,075,144 | ) | $ | (408,868 | ) | $ | 281,082 | $ | (3,947,358 | ) | $ | 294,340 | $ | (4,241,698 | ) | |||
Net Loss per common share: | |||||||||||||||||||
Basic and diluted: | |||||||||||||||||||
Loss from continuing operations | $ | (0.35 | ) | $ | (0.37 | ) | |||||||||||||
Weighted average number of common shares used | |||||||||||||||||||
in the computation of net (loss) per share: | |||||||||||||||||||
Basic and diluted | 11,484,486 | 11,484,486 |
Langer, Inc.
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
(a) | Adjustments represent the details of the sale of the Transferred Business as if it occurred on June 30, 2008 as follows: |
Cash received | $ | 4,707,743 | ||
Net assets sold | (2,644,087 | ) | ||
Goodwill written off | (1,672,344 | ) | ||
Liability for Severance contingency | (75,000 | ) | ||
Transaction costs related to sale | (520,000 | ) | ||
Deferred tax benefit | 234,951 | |||
Pro forma gain on sale of Deer Park | $ | 31,263 |
(b) | Represents cash received ($4,707) net of transaction costs ($520) and cash in escrow ($475). |
(c) | Portion of the sales proceeds will be held in escrow for up to a 12 month period, to reimburse the Purchaser for potential indemnification obligations under the Purchase Agreement. |
(d) | Represents a liability related to certain severance costs that the Company is responsible per the Purchase Agreement. |
(e) | Represents the write off of the deferred tax liability related to the $1,692 of goodwill associated with the Transferred Business. Such goodwill was being amortized for tax purposes. |
(f) | Assets held for sale on the historical balance sheet relate to Bi-Op Laboratories, Inc., which was presented as discontinued operations at June 30, 2008 and subsequently sold. |
(g) | Reflects the elimination of the results of operations of the discontinued operations of Regal Medical Supply, LLC, which was sold on June 11, 2008. |
(h) | Reflects the elimination of the results of operations of the discontinued operations of Bi-Op Laboratories, Inc., which was sold on July 31, 2008. |