SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
or
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from May 27, 2001 to September 30, 2001
Commission file number 0-12991
LANGER, INC.
------------
(Exact name of registrant as specified in its charter.)
NEW YORK 11-2239561
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization.) Identification No.)
450 COMMACK ROAD, DEER PARK, NY 11729
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(Address of principal executive offices) (Zip Code)
(631) 667-1200
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(Registrant's telephone number, including area code)
THE LANGER BIOMECHANICS GROUP, INC.
February 28 of each year
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(Former name, former address and former fiscal year,
if changed since last report)
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 - 4,200,922 shares as of November 2, 2001.
1
INDEX
LANGER, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -- September 30, 2001
and February 28, 2001 3
Condensed Consolidated Statements of Operations -- Three and
Nine Months ended September 30, 2001 and September 30, 2000 4
Condensed Consolidated Statements of Cash Flows -- Three and
Nine Months ended September 30, 2001 and September 30, 2000 5
Notes to Condensed Consolidated Financial Statements -- Three
and Nine Months ended September 30, 2001 and September 30, 2000 6-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10-13
PART II. OTHER INFORMATION
Item 4. Results of annual shareholders meeting 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
2
LANGER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
Sept. 30, 2001 February 28,2001
-------------- ----------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 2,166,842 $ 868,846
Accounts receivable, net of allowance for
doubtful accounts of $55,700 and $58,000, respectively 1,738,512 1,542,464
Inventories, net 1,059,081 973,863
Prepaid expenses and other current assets 241,650 200,839
----------- -----------
Total current assets 5,206,085 3,586,012
Property and equipment, net 603,606 683,501
Other assets 275,641 284,706
----------- -----------
Total Assets $ 6,085,332 $ 4,554,219
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Current portion of long-term debt $ - $ 581,458
Accounts payable 382,179 652,974
Accrued liabilities:
Other current liabilities 1,318,320 1,166,162
Unearned revenue-current 446,316 428,133
----------- -----------
Total current liabilities 2,146,815 2,828,727
Accrued pension expense 4,118 13,118
Unearned revenue-long-term 118,547 104,381
Deferred income taxes 8,848 8,662
----------- -----------
Total liabilities 2,278,328 2,954,888
----------- -----------
Stockholders' equity:
Common stock, $.02 par value. Authorized
10,000,000 shares; Issued 4,268,022 and
2,849,022 shares, respectively 85,361 56,981
Additional paid-in capital 12,223,737 10,086,555
Accumulated deficit (8,081,994) (8,118,291)
Accumulated other comprehensive loss (304,643) (310,457)
----------- -----------
3,922,461 1,714,788
Less: treasury stock at cost, 67,100 and
67,100 shares, respectively (115,457) (115,457)
----------- -----------
Total stockholders' equity 3,807,004 1,599,331
----------- -----------
Total Liabilities and Stockholders' Equity $ 6,085,332 $ 4,554,219
=========== ===========
See notes to condensed consolidated financial statements.
3
LANGER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended: Nine Months Ended:
Sept 30, 2001 Sept 30, 2000 Sept 30, 2001 Sept 30, 2000
------------- ------------- ------------- -------------
Net sales $ 3,434,507 $ 3,123,902 $ 9,210,072 $ 8,516,435
Cost of sales 2,072,966 2,080,710 6,099,846 5,632,391
----------- ----------- ----------- -----------
Gross profit 1,361,541 1,043,192 3,110,226 2,884,044
Selling expenses 397,415 523,639 1,207,312 1,515,574
Research and development expenses 42,972 87,326 129,281 211,592
General and administrative expenses 498,315 395,793 1,011,838 1,201,569
Corporate general and administrative expenses 413,974 151,671 1,146,759 420,080
Stockholders' transaction and restructuring expenses 795,667
----------- ----------- ----------- -----------
Income (loss) from operations 8,865 (115,237) (1,180,631) (464,771)
----------- ----------- ----------- -----------
Other income (expense):
Other income (expense) 13,173 6,642 19,015 (32,669)
Interest expense (654) (14,619) (6,710)
Minority interest - - - 17,781
----------- ----------- ----------- -----------
Other income (expense), net 12,519 6,642 4,396 (21,598)
----------- ----------- ----------- -----------
Income (loss) before income taxes 21,384 (108,595) (1,176,235) (486,369)
Provision for (benefit from) income taxes 9,500 2,500 21,527 (9,542)
----------- ----------- ----------- -----------
Net income (loss) $ 11,884 $ (111,095) $(1,197,762) $ (476,827)
=========== =========== =========== ===========
Weighted average number of common
shares used in computation of net
income per share:
Basic 4,190,054 2,680,281 3,857,981 2,557,123
Diluted 4,534,492 2,680,281 3,857,981 2,557,123
Net income per common share :
Basic $ 0.00 $ (0.04) $ (0.31) $ (0.19)
=========== =========== =========== ===========
Diluted $ 0.00 $ (0.04) $ (0.31) $ (0.19)
=========== =========== =========== ===========
See notes to condensed consolidated financial statements.
4
LANGER, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended: Nine Months Ended:
Sept. 30, 2001 Sept. 30, 2000 Sept. 30, 2001 Sept. 30, 2000
-------------- -------------- -------------- --------------
Cash Flows From Operating Activities:
Net income (loss) $ 11,884 $ (111,095) $(1,197,762) $ (476,827)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Deferred foreign taxes (43) (96) 1,735 2,071
Depreciation and amortization 91,356 86,710 238,470 277,834
Provision for doubtful accounts receivable 6,000 2,183 31,051 26,756
Issuance of stock options for consulting services - - 245,000 -
Changes in operating assets and liabilities:
Accounts receivable (62,182) (164,080) (77,268) (49,260)
Inventories (73,861) 53,487 42,047 356,191
Prepaid expenses and other assets 51,455 (17,330) (28,595) 59,833
Accounts payable and accrued liabilities 116,916 (36,422) 268,800 (200,840)
Net pension liability (21,000) (45,000) (21,080) (72,451)
Unearned revenue 20,261 22,466 28,529 5,050
----------- ----------- ----------- -----------
Net cash provided by (used in) operating activities 140,786 (209,177) (469,073) (71,643)
----------- ----------- ----------- -----------
Cash Flows From Investing Activities:
Langer UK purchase - - - (145,138)
Capital expenditures (79,032) (25,423) (121,303) (6,907)
----------- ----------- ----------- -----------
Net cash used in investing activities (79,032) (25,423) (121,303) (152,045)
----------- ----------- ----------- -----------
Cash Flows From Financing Activities:
Repayments on equipment line of credit - (11,979) (87,646) (21,562)
Issuance of stock-UK purchase - - - 65,139
Treasury stock issued (acquired) - - 2 (127,150)
Exercise of common stock options 30,562 52,100 1,666,101 52,100
Issuance of common stock 260,810 -
Issuance of director's shares - 20,366 - 20,366
Proceeds from issuance of debt 500,000 -
----------- ----------- ----------- -----------
Net cash provided by (used in) financing activities 30,562 60,487 2,339,267 (11,107)
----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 92,316 (174,113) 1,748,891 (234,795)
Cash and cash equivalents at beginning of period 2,074,526 729,173 417,951 789,855
----------- ----------- ----------- -----------
Cash and cash equivalents at end of period $ 2,166,842 $ 555,060 $ 2,166,842 $ 555,060
=========== =========== =========== ===========
Supplemental Disclosures of Cash Flow Information:
Interest expense $ 654 $ - $ 14,619 $ 6,710
=========== =========== =========== ===========
Income taxes $ - $ - $ - $ 2,348
=========== =========== =========== ===========
See notes to condensed consolidated financial statements.
5
LANGER, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000
(UNAUDITED)
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 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 the fair presentation of
the Company's financial position as of September 30, 2001 and the result of its
operations and its cash flows for the three and nine months ended September 30,
2001 and September 30, 2000 are in conformity with accounting principles
generally accepted in the United States of America for interim financial
information, applied on a consistent basis. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the fiscal year ended February 28,
2001.
B) Change in Name and Fiscal Year End
At its July 17, 2001 annual meeting, the stockholders approved changing the name
of the Company to Langer, Inc. and its fiscal year to December 31 of each year.
Therefore the presentation of both the Condensed Consolidated Statements of
Operations (unaudited) and Cash Flows (unaudited) for the nine months ended
September 30, 2001 and September 30, 2000 encompass results from January 1, 2001
and 2000 respectively.
Operating results for the three and nine months ended September 30, 2001 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2001.
C) 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.
D) Provision for Income Taxes
The provision for income taxes is based on domestic and foreign operations. For
the periods ended September 30, 2001 and September 30, 2000, the domestic
operation incurred a net loss and, accordingly, no provision or benefit for
income tax has been recorded. However, the foreign operation incurred net
income for which a tax provision of 21% was recorded.
E) Reclassifications
Certain reclassifications have been made to the prior condensed consolidated
financial statements to present them on a basis consistent with the current
year.
6
NOTE 2 - CHANGE IN CONTROL
Effective February 13, 2001, Andrew H. Meyers, Greg Nelson and Langer Partners
LLC, and its designees ("Offerors"), acquired a controlling interest in the
Company when they purchased 1,362,509 validly tendered shares of the Company at
$1.525 per share, or approximately 51% of the then outstanding common stock of
the Company, under the terms of a December 27, 2000 Tender Offer Agreement (the
"Tender") under which the Offerors offered to purchase up to 75% of the
Company's common stock. In order to provide the Company with adequate equity to
maintain the Company's compliance with the listing requirements of the NASDAQ
small cap market and to enable the Company to finance its ongoing operations as
well as potentially take advantage of opportunities in the marketplace and in
order to induce the Offerors to enter into the Tender Offer Agreement, pursuant
to its terms, the Offerors were granted 180 day options to purchase up to
1,400,000 shares of the Company's common stock, with an initial exercise price
of $1.525 per share, rising up to $1.60 per share (the "Options"). On May 11,
2001, the Offerors fully exercised the Options at $1.525 per share for
$2,135,0000, which was invested in the Company. Andrew H. Meyers, CEO, converted
a $500,000 loan plus accrued interest as partial consideration for the payment
of the shares of stock issued upon the exercise of his portion of these Options
(see Note 3).
NOTE 3 - CREDIT FACILITY
In February 2001, the Company's President and Chief Executive Officer, Andrew H.
Meyers, loaned $500,000 to the Company evidenced by a promissory note, bearing
interest at prime plus 1%, due August 31,2001,subject to prepayment under
certain conditions including exercising of the Options (see Note 2). Upon
exercise of the Options on May 11, 2001, the principal amount of the loan,
together with accrued interest in the amount of $11,112 was exchanged by the CEO
as partial consideration for the payment of the shares of stock issued upon
exercise of his portion of the Options.
NOTE 4 - DERIVATIVE FINANCIAL INSTRUMENTS
The Company adopted Statement of Financial Accounting Standards No. 133
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"),
as amended. As a result of adopting SFAS No. 133, the Company recognizes all
derivative financial instruments in the consolidated financial statements at
fair value regardless of the purpose or intent for holding the instrument.
Changes in the fair value of derivative financial instruments are either
recognized periodically in income or in stockholders' equity as a component of
other comprehensive income depending on whether the derivative financial
instrument qualifies for hedge accounting, and if so, whether it qualifies as a
fair value or cash flow hedge. Generally, changes in the fair value of
derivatives accounted for as fair value hedges are recorded in income along with
the portions of the changes in the fair values of the hedged items that relate
to the hedged risks. Changes in the fair value of derivatives accounted for as
cash flow hedges, to the extent they are effective as hedges, are recorded in
other comprehensive income net of deferred taxes. Changes in fair values of
derivatives not qualifying as hedges are reported in income. To date, the
Company has not entered into any derivative financial instruments.
NOTE 5 - INVENTORIES
Inventories and cost of sales for the interim periods were based on the
Company's perpetual records.
September 30, 2001 February 28, 2001
------------------ -----------------
(Unaudited)
Inventories consist of:
Raw materials $ 662,759 $ 795,111
Work-in-process 110,018 107,006
Finished goods 486,133 265,069
----------- -----------
Total Inventories 1,258,910 1,167,186
Less: allowance for obsolescence 199,829 193,323
----------- -----------
Net inventories $ 1,059,081 $ 973,863
=========== ===========
7
NOTE 6 - 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 7 - COMPREHENSIVE INCOME
The Company's comprehensive earnings were as follows:
Three Months Ended Nine Months Ended
Sept. 30, 2001 Sept. 30, 2000 Sept. 30, 2001 Sept. 30, 2000
-------------- -------------- -------------- --------------
Net income (loss) $ 11,884 $ (111,095) $(1,197,762) $ (476,827)
Other comprehensive income (loss),
net of tax:
Change in equity resulting from
translation of financial statements
into U.S. dollars. 8,829 (1,384) (6,035) 533
--------- --------- ---------- ---------
Comprehensive income (loss) $ 20,713 $ (112,479) $(1,203,797) $ (476,294)
========= ========= ========== =========
NOTE 8 - 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:
North United
Three months ended September 30, 2001 America Kingdom Consolidated
- ------------------------------------------------------------------------------------------
Net sales from external customers $ 2,945,476 $ 489,031 $ 3,434,507
Intersegment net sales 74,701 ---- 74,701
Gross margins 1,145,336 216,205 1,361,541
Income (loss) from operations (70,594) 79,459 8,865
Three months ended September 30, 2000
- ------------------------------------------------------------------------------------------
Net sales from external customers $ 2,735,483 $ 388,419 $ 3,123,902
Intersegment net sales 50,106 ---- 50,106
Gross margins 867,822 175,370 1,043,192
(Loss) income from operations (137,054) 21,817 (115,237)
Nine months ended September 30, 2001
- ------------------------------------------------------------------------------------------
Net sales from external customers $ 7,828,371 $ 1,381,701 $ 9,210,072
Intersegment net sales 196,729 ----- 196,729
Gross margins 2,537,937 572,289 3,110,226
(Loss) income from operations (1,375,003) 194,372 (1,180,631)
Nine months ended September 30, 2000
- ------------------------------------------------------------------------------------------
Net sales from external customers $ 7,248,264 $ 1,268,171 $ 8,516,435
Intersegment net sales 222,348 ----- 222,348
Gross margins 2,361,584 522,460 2,884,044
(Loss) income from operations (489,935) 25,164 (464,771)
8
NOTE 9 - EARNINGS 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 a reconciliation between basic
and diluted earnings per share:
Three Months Ended Three Months Ended
September 30, 2001 September 30, 2000
------------------ ------------------
Per Per
Income Shares Share Income Shares Share
------ ------ ----- ------ ------ -----
Basic EPS
- ---------
Income (loss) available to common
stockholders $ 11,884 4,190,054 $0.00 $ (111,095) 2,680,281 $(0.04)
Effect of Dilutive Securities
- -----------------------------
Stock options - 344,438 - - - -
-------- --------- ----- ---------- --------- ------
Diluted EPS
- -----------
Income (loss) available to common
stockholders plus assumed
exercise of stock options $ 11,884 4,534,492 $0.00 $ (111,095) 2,680,281 $(0.04)
======== ========= ===== ========== ========= ======
Nine Months Ended Nine Months Ended
September 30, 2001 September 30, 2000
------------------ ------------------
Per Per
Income Shares Share Income Shares Share
------ ------ ----- ------ ------ -----
Basic EPS
- ---------
(Loss) income available to common
stockholders $(1,197,762) 3,857,981 $(0.31) $(476,827) 2,557,123 $(0.19)
Effect of Dilutive Securities
- -----------------------------
Stock options - - - - - -
----------- --------- ------ --------- --------- ------
Diluted EPS
- -----------
(Loss) income available to common
stockholders plus assumed
exercise of stock options $(1,197,762) 3,857,981 $(0.31) $(476,827) 2,557,123 $(0.19)
=========== ========= ====== ========= ========= ======
9
NOTE 10 - JUNE 2001 AND JUNE 2000 RESULTS
As a result of the Company changing its fiscal year from the last day of
February to December 31 of each year, the results for the month ending June 23,
2001 have not been reported in any of the Company's previous filings. Below are
the comparative results for the month ending June 23, 2001 as compared to the
month ending June 24, 2000. This summarized financial information is reported
separately as all of the previous months' results are encompassed in the
Company's Form 10-K for the year ended February 28, 2001 and Form 10-Q for the
three months ended May 26, 2001.
June 23, 2001 June 24, 2000
------------- -------------
Net sales $ 951,453 $ 890,441
Gross profit $ 338,303 $ 318,393
Income (loss) from operations $ 20,780 $ (29,499)
Net income (loss) $ 14,444 $ (29,927)
Net income (loss) per common share
Basic $ 0.00 $ (0.01)
=========== ===========
Diluted $ 0.00 $ (0.01)
=========== ===========
NOTE 11 - SUBSEQUENT EVENTS
On November 1, 2001, the Company sold $14,589,000 of its 4% convertible
subordinated notes, due August 31, 2006, in a private placement. The notes are
convertible into the Company's common stock at a conversion price of $6.00 per
share and are subordinated to all senior indebtedness, existing or in the
future. The Company received net proceeds of $13,713,660 from this offering.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
CHANGE IN CONTROL
Effective February 13, 2001, Andrew H. Meyers, Greg Nelson and Langer Partners
LLC, and its designees ("Offerors"), acquired a controlling interest in the
Company when they purchased 1,362,509 validly tendered shares of the Company at
$1.525 per share, or approximately 51% of the then outstanding common stock of
the Company, under the terms of a December 27, 2000 Tender Offer Agreement (the
"Tender") under which the Offerors offered to purchase up to 75% of the
Company's common stock. In order to provide the Company with adequate equity to
maintain the Company's compliance with the listing requirements of the NASDAQ
small cap market and to enable the Company to finance its ongoing operations as
well as potentially take advantage of opportunities in the marketplace and in
order to induce the Offerors to enter into the Tender Offer Agreement, pursuant
to its terms, the Offerors were granted 180 day options to purchase up to
1,400,000 shares of the Company's common stock, with an initial exercise price
of $1.525 per share, rising up to $1.60 per share (the "Options"). On May 11,
2001, the Offerors fully exercised the Options at $1.525 per share for an
aggregate purchase price of $2,135,0000.
In February 2001, the Company's President and Chief Executive Officer,
Andrew H. Meyers, loaned $500,000 to the Company evidenced by a promissory note,
bearing interest at prime plus 1%, which was due August 31, 2001, subject to
prepayment under certain conditions including the exercise of the Options (see
Note 2). Upon exercise of the Options on May 11, 2001, the principal amount of
the loan, together with accrued interest in the amount of $11,112 was exchanged
by the CEO as partial consideration for the payment of the shares of stock
issued upon exercise of his portion of the Options.
10
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001, AS COMPARED WITH THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 2000.
REVENUES
Sales of $3,434,507 for the three months ended September 30, 2001 were $310,605
or 9.9% above sales of $3,123,902 for the comparable period in the prior year.
Sales of $9,210,072 for the nine months ended September 30, 2001 were $693,637
or 8.1% higher than the prior year's period sales of $8,516,435. These increases
are due to increases in orthotic unit volume in both the Company's domestic as
well as its United Kingdom operations, partially resulting from an improvement
in the Company's production turnaround time.
GROSS PROFIT
Gross profit as a percentage of sales for the three months ended September 30,
2001 increased to 39.6% from 33.4% for the comparable prior year's period due to
reduced overhead expenses, particularly with respect to salaries and lower fixed
expenses allocated to greater units produced. The nine months gross profit as a
percentage of sales was consistent with the same period in the prior year,
decreasing slightly from 33.9% in the prior year to 33.8% in the current year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling expenses for the three months ended September 30, 2001, decreased by
$126,224 or 24.1% from $523,639 to $397,415 compared to the same period in the
prior year and decreased $308,262 or 20.3% from $1,515,574 to $1,207,312 for the
nine month period compared to the same period in the prior year. These
reductions were mainly due to lower salary and salary related expenses, a
reduction in promotional activities and expenses and a reduction in commissions
to outside sales representatives. General and administrative expenses increased
$102,522 or 25.9% from $395,793 to $498,315 for the three month period ended
September 30, 2001 compared to the same period in the prior year and increased
$605,936 or 50.4% from $1,201,569 to $1,807,505 for the nine month period ended
September 30, 2001 as compared to the prior year's nine month period. After
allocating $795,667 to stockholders' transaction and restructuring expenses
there was a decrease of $189,731 or 15.8%. The increase for the three month
period is due to increased consulting expenses to improve the infrastructure of
the core manufacturing operations, increased legal and professional expenses,
increased travel, higher bank fees on increased credit card sales and expenses
accrued in the period for contributions to the employee incentive plan. The
increase in expenses, including stockholders' transaction and restructuring
expenses for the nine month period ending September 30, 2001 as compared to the
same period in the prior year was due to severance expenses, salary and salary
related expenses, options expenses, insurance, consulting and professional
expenses.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the three months ended September 30, 2001
were $42,972, a decrease of $44,354 from the prior year level of $87,326 for the
comparable period and the nine months expenses were $129,281 compared to
$211,592 in the prior year, a decrease of $82,311. The prior year period for
both three and nine months, included expenditures associated with modifications
to new manufacturing processes implemented in the prior year.
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES
Corporate general and administrative overhead expenses for the three months
ended September 30, 2001 increased $262,303 or 172.9% compared to the same
period of the prior year and increased $726,679 or 173.0% for the nine months
ending September 30, 2001 as compared to the same period in the prior year. The
increases were mainly attributable to putting in place both the management team
and infrastructure necessary to implement the Company's growth initiatives. The
increased expenses included legal, accounting and consulting expenses resulting
from the change in management, increased travel and salary and salary related
expenses, including increased employee incentive plan and stockholders relations
expenses. These increased expenses were additionally incurred in implementing
the Company's acquisition strategy.
11
OTHER INCOME, NET
Other income, net, was $12,519 for the three months ended September 30, 2001 as
compared with $6,642 in the comparable prior year's period. Other income, net,
for the nine months ended September 30, 2001 totaled $4,396 against a loss of
($21,598) for the same period in the prior year. The increase in other income,
net, for the three and nine month period ended September 30, 2001 was due to
increased interest income on excess cash balances and a decrease in the expense
related to the provision for minority interest in the earnings of the Company's
UK subsidiary, which became a wholly-owned subsidiary on April 5, 2000.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2001, the Company's cash and cash equivalents were $2,166,842,
an increase of $1,297,996 from February 28, 2001. The increase in cash balances
was primarily attributable to the exercise of options during May 2001, for an
aggregate purchase price of $2,135,000, which was mainly offset by increases in
net accounts receivable and inventory and decreases in the current portion of
long term debt and accounts payable.
On November 1, 2001, the Company sold $14,589,000 of its 4% convertible
subordinated notes, due August 31, 2006, in a private placement. The notes are
convertible into the Company's common stock at a conversion price of $6.00 per
share and are subordinated to all senior indebtedness, existing or in the
future. The Company received net proceeds of $13,713,660 from this offering.
Repurchases of the Company's common stock may be made from time to time in the
open market at prevailing prices and may be made in privately negotiated
transactions, subject to available resources. The Company may also finance
acquisitions of other companies or product lines in the future from existing
cash balances and, from borrowings from institutional lenders, and/or the public
or private offerings of debt or equity securities. Management believes that its
existing cash balances, funds generated from operations and the proceeds from
the sale of 4% convertible subordinated notes on November 1, 2001 (see Note
11-Subsequent Events) will be adequate to meet the Company's cash needs during
the fiscal year ending December 31, 2001.
RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD
The Company adopted Statement of Financial Accounting Standards No. 133
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"),
as amended. As a result of adopting SFAS No. 133, the Company recognizes all
derivative financial instruments in the consolidated financial statements at
fair value regardless of the purpose or intent for holding the instrument. To
date, the Company has not entered into any derivative financial instruments.
(See Note 4)
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141, "Business Combinations". SFAS No. 141 applies prospectively to all business
combinations initiated after June 30, 2001 and to all business combinations
accounted using the purchase method for which the date of acquisition is July 1,
2001, or later. This statement requires all business combinations to be
accounted for using one method, the purchase method. Under previously existing
accounting rules, business combinations were accounted for using one of two
methods, the pooling-of-interests method or the purchase method. The adoption of
SFAS No. 141 is not expected to have a significant impact on the Company's
financial statements.
12
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 142 addresses financial accounting and reporting for acquired
goodwill and other intangible assets. Under SFAS No. 142, goodwill and some
intangible assets will no longer be amortized, but rather reviewed for
impairment on a periodic basis. The provisions of this Statement are required to
be applied starting with fiscal years beginning after December 15, 2001. This
Statement is required to be applied at the beginning of the Company's fiscal
year and to be applied to all goodwill and other intangible assets recognized in
its financial statements at that date. Impairment losses for goodwill and
certain intangible assets that arise due to the initial application of this
Statement are to be reported as resulting from a change in accounting principle.
Goodwill and intangible assets acquired after June 30, 2001, will be subject
immediately to the provisions of this Statement. The adoption of SFAS No. 142 is
not expected to have a material impact on the Company's financial statements.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". This standard requires entities to record the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred. When the liability is initially recorded, the entity capitalizes a
cost by increasing the carrying amount of the related long-lived asset. Over
time, the liability is accreted to its present value each period, and the
capitalized cost is depreciated over the useful life of the related asset. Upon
settlement of the liability, an entity either settles the obligation for its
recorded amount or incurs a gain or loss upon settlement. The standard is
effective for fiscal years beginning after June 15, 2002. The adoption of SFAS
143 is not expected to have a material impact on the Company's financial
statements.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". SFAS No. 144 replaces SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." SFAS No. 144 requires that long-lived assets be measured at the lower of
carrying amount or fair value less cost to sell, whether reported in continuing
operations or in discontinued operations. Therefore, discontinued operations
will no longer be measured at net realizable value or include amounts for
operating losses that have not yet occurred. SFAS No. 144 also broadens the
reporting of discontinued operations to include all components of an entity with
operations that can be distinguished from the rest of the entity and that will
be eliminated from the ongoing operations of the entity in a disposal
transaction. The provisions of SFAS No. 144 are effective for financial
statements issued for fiscal years beginning after December 15, 2001. The
adoption of SFAS 144 is not expected to have a material impact on the Company's
financial statements.
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 a difference include but are not limited to, product demand, the
impact of competitive products and pricing and general business and economic
conditions.
13
Part II. OTHER INFORMATION
Item 4. The Company held its annual meeting of shareholders on July 17, 2001.
Of the 4,181,922 shares of common stock entitled to vote at the
meeting, 3,969,687 shares of common stock were present in person or by
proxy and entitled to vote. Such number of shares represented
approximately 94.92% of the Company's outstanding shares of common
stock.
At the meeting the Company's shareholders approved the following
matters:
1. Burtt R. Ehrlich, Andrew H. Meyers, Jonathan R. Foster, Arthur
Goldstein and Greg Nelson were elected as Directors. The votes cast, in
person or by proxy, on the motion to elect Directors were as follows:
For Against
--- -------
Burtt R. Ehrlich 3,969,607 80
Andrew H. Meyers 3,969,607 80
Jonathan R. Foster 3,969,607 80
Arthur Goldstein 3,969,607 80
Greg Nelson 3,969,607 80
2. Restating the Company's Certificate of Incorporation to change the
name of the Company from "The Langer Biomechanics Group, Inc." to
"Langer, Inc." The votes cast, in person or by proxy, to change the
Company's Certificate of Incorporation were as follows:
For Against Abstentions
--- ------- -----------
3,969,300 287 100
3. Proposal to ratify the change of the Company's fiscal year end from
February 28th of each year to December 31st of each year. The votes
cast, in person or by proxy, were as follows:
For Against Abstentions
--- ------- -----------
3,969,349 238 100
4. Resolution proposing the approval of the Company's 2001 Stock
Incentive Plan. The votes cast, in person or by proxy, to adopt the
Company's 2001 Stock Incentive Plan were as follows:
For Against Abstentions
--- ------- -----------
3,260,594 28,616 688
5. Ratification of Deloitte & Touche as the independent public auditors
for the Company for the fiscal year ended December 31, 2001. The votes
cast, in person or by proxy, to ratify Deloitte & Touche as independent
public auditors for the Company for the fiscal year ending December 31,
2001 were as follows:
For Against Abstentions
--- ------- -----------
3,969,287 0 400
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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 Current Report on Form 8-K on July 31, 2001
under Item 5 to report the change of the Company's name and under
Item 8 to report the change of the Company's fiscal year.
The Company filed a Current Report on Form 8-K on November 13,
2001 to report the completion of the sale of $14,589,000
principal amount of its 4% convertible subordinated notes, due
August 31, 2006, in a private placement.
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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.
Langer, Inc.
-----------------------
(REGISTRANT)
DATE: November 14, 2001
By: /s/ ANDREW H. MEYERS
------------------------------
Andrew H. Meyers
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ TERENCE FITZMAURICE
------------------------------
Assistant Controller
(Principal Financial and Accounting
Officer)
16