UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
--------------------------------
[ ] ANNUAL 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 March 1, 2001 to December 31, 2001
Commission File No. 0-12991
LANGER, INC.
------------
(Exact name of Registrant as specified in its charter)
NEW YORK 11-2239561
-------- ----------
(State or other jurisdiction (I.R.S. employer iden-
of incorporation or tification number)
organization)
450 COMMACK ROAD, DEER PARK, NEW YORK 11729
-------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (631) 667-1200
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.02 PER SHARE
--------------------------------------
Title of Class
* * * * * * * * * * *
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
-----------
1
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
As of March 26, 2002, the aggregate market value of voting stock held by
non-affiliates of the registrant was $13,010,259, as computed by reference to
the average bid and ask prices of such common stock ($8.175) multiplied by the
number of shares of voting stock outstanding on March 26, 2002 held by
non-affiliates (1,591,469 shares). Exclusion of shares from the calculation of
aggregate market value does not signify that a holder of any such shares is an
"affiliate" of the Company.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of March 26, 2002.
CLASS OF COMMON STOCK OUTSTANDING AT MARCH 26, 2002
Common Stock, par value 4,200,922 shares
$.02 per share
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this report is incorporated herein by
reference to the Company's proxy statement for the 2002 annual meeting of the
registrant's stockholders or amendment hereto which will be filed not later than
120 days after the end of the fiscal year covered by this report.
2
LANGER, INC.
FORM 10-K
TABLE OF CONTENTS
PAGE
PART I
ITEM 1. BUSINESS.................................................... 4
ITEM 2. PROPERTIES.................................................. 9
ITEM 3. LEGAL PROCEEDINGS........................................... 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..... 9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS......................................... 10
ITEM 6. SELECTED FINANCIAL DATA..................................... 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANICAL
CONDITION AND RESULTS OF OPERATIONS......................... 13
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK................................................. 19
ITEM 8. FINANICAL STATEMENTS AND SUPPLEMENTARY DATA................ 19
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND DISCLOSURE................................... 41
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY............. 41
ITEM 11. EXECUTIVE COMPENSATION...................................... 41
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.............................................. 41
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 41
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT
SCHEDULES, AND REPORTS ON FORM 8-K.......................... 42
SIGNATURES.............................................................. 45
3
PART I
ITEM 1. BUSINESS
GENERAL
Langer, Inc. (formerly known as The Langer Biomechanics Group, Inc.) (the
"Company") is engaged in the design, manufacture and marketing of foot and
gait-related biomechanical products. The Company's largest product line,
custom-made, prescription orthotic devices, accounted for approximately 86% of
the Company's sales for the ten months ended December 31, 2001. Foot orthoses
are contoured molds made from plastic, graphite, leather or composite materials,
which are placed in patients' shoes to (i) correct or mitigate abnormalities in
their gait and (ii) relieve symptoms associated with foot or postural
malalignment. These devices function by maintaining the proper relationships
between a patient's forefoot, rearfoot, leg and horizontal walking surface. The
Company believes it has the highest overall unit volume and revenue in the
custom foot orthoses industry. The Company's customers are primarily
podiatrists, and also include orthopedists, physical therapists and Orthotic and
Prosthetic ("O&P") centers.
In addition to its line of orthotics products, the Company has developed and
markets a number of other products that help treat biomechanical medical
problems related to feet and gait, including PPT(R) Medical Grade Soft Tissue
Supplement.
In 2001, the Company changed its fiscal year end to December 31 of each
year. Accordingly, this report covers the ten-month fiscal period beginning on
March 1, 2001 and ending on December 31, 2001.
For financial reporting purposes, the Company's businesses are separated
into two segments, North America and the United Kingdom (See Note 12 to the
Company's financial statements for the ten months ended December 31, 2001).
Except as disclosed below with respect to distribution channels, suppliers,
seasonality, and governmental regulation, the information contained herein is
generally applicable to both segments.
In addition to the information included below in this Item 1, see Item 8
below and Note 1 to the Company's financial statements for the ten months ended
December 31, 2001 for financial and other information concerning the Company's
operations.
BACKGROUND AND RECENT DEVELOPMENTS
Since its incorporation under the laws of the State of New York in 1971, the
Company has engaged in activities relating to the application of scientific and
quantitative methods for the diagnosis and treatment of foot and gait-related
problems. To date, the majority of the Company's revenues have been derived from
the sale of prescription biomechanical custom foot orthotic devices to health
care practitioners in the field of podiatric biomechanics. Podiatric
biomechanics deals essentially with the structure and function of segments of
the feet as they relate to each other and to the function of the legs, hips and
spine.
The Company has also endeavored to manufacture and market complementary
products relating to locomotor dysfunctions. Building on its experience in
treating disorders associated with the biomechanics of the foot and leg, the
Company has directed efforts towards producing therapeutic products which can
treat and improve patients' motor capabilities, biomechanical alignment and
function.
Export and foreign sales constituted approximately 35% and 36% of revenues
for the ten-month periods ended December 31, 2001 and December 31, 2000,
respectively, and 36% and 34% of revenues for the fiscal years ended February
28, 2001 and February 29, 2000, respectively.
4
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, 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"). These Options have been
recorded as a non-cash dividend of $3,206,000, the fair market value of the
Options on the date of grant. Upon the closing of the Tender, the Board of
Directors of the Company resigned in favor of Andrew H. Meyers (President and
Chief Executive Officer), Burtt Ehrlich (Chairman of the Board), Jonathan R.
Foster, Greg Nelson and Arthur Goldstein, and the Company issued a total of
120,000 options to the four new outside members of the Board of Directors in
connection with their services as members of the Board.
In connection with the Tender and the resultant change in control, the
Company recorded costs and expenses of approximately $1,008,000 for the year
ended February 28, 2001. Please refer to Management's Discussion and Analysis in
Item 7 below for a further discussion of these charges.
As part of the change in control, new management determined that the Company
required additional cash to potentially take advantage of opportunities in the
marketplace. On February 13, 2001, three Directors of the Company purchased
147,541 restricted shares at $1.525 for total proceeds of $225,000. On May 11,
2001, the Offerors fully exercised the Options at $1.525 per share, resulting in
proceeds to the Company of $2,135,0000. The Company's Chief Executive Officer,
Andrew H. Meyers, converted an existing $500,000 loan plus accrued interest as
partial proceeds toward the exercise of this Option. Prior to the exercise of
this Option, the Company's net worth dropped below the minimum required levels
for listing on NASDAQ. This shortfall has been fully remedied through the
exercise of this Option and management anticipates that the Company will
continue to meet the NASDAQ listing requirements.
On October 31, 2001, the Company completed the sale of $14,589,000 principal
amount of its 4% convertible subordinated notes due August 31, 2006 (the
"Notes"), in a private placement. The Notes are convertible into shares of the
Company's common stock at a conversion price of $6.00 per share, subject to
anti-dilution protections and are subordinated to existing or future senior
indebtedness of the Company. Among other provisions, the Company may, at its
option, call, prepay, redeem, repurchase, convert or otherwise acquire
(collectively "Call") the Notes, in whole or in part, (1) after August 31, 2003
or (2) at any time if the closing price of the Company's common stock equals or
exceeds $9.00 per share for at least ten consecutive trading days. If the
Company elects to Call any of the Notes, the holders of the Notes may elect to
convert the Notes into the Company's common stock. Interest is payable
semi-annually on the last day of June and December.
Management will seek to expand the Company's business through internal
growth and acquisitions of companies in the medical device area in the United
States and Europe. Depending upon the opportunities available, the Company may
seek additional debt or equity financing. No assurances can be made that the
Company will find or consummate such additional financing on terms acceptable to
the Company.
CUSTOM ORTHOTIC DEVICES
During the ten-month period ended December 31, 2001, the Company's sales of
custom biomechanical orthotic devices totaled $9,038,000, compared to $8,507,000
for the comparable ten-month period ended December 31, 2000. Custom-made
prescription orthotic devices are the Company's largest product line, accounting
for approximately 86% of the Company's sales. Domestic custom orthotic sales for
the ten-month period increased 9%, while custom orthotic sales at the Company's
United Kingdom subsidiary increased 27%. For the same period, Canadian sales
decreased 12%, in part, due to the devaluation of the Canadian dollar against
United States currency.
5
Biomechanical orthotic devices help provide near normal function by
maintaining the angular anatomical relationships between the patient's forefoot,
rearfoot, leg and horizontal walking surface. This is achieved by the inherent
contours of the neutral position shell of the device and by the angled posts on
the front and/or rear ends that cause the orthotic device to move into specific
positions at specific times during the gait cycle. Accordingly, muscle action is
enhanced and the efficiency and smoothness of weight stress transmission through
the feet and legs is improved. The result is a reduction of abnormal motion
without total restriction of normal motion and an increase in foot and leg
stability. Foot problems may be alleviated or eliminated, as may leg and back
fatigue caused by improper muscle use. The formation and further growth of
excrescences (e.g., corns, calluses, bunions) may be prevented, decreased in
size or eliminated. Biomechanical orthotic devices can be fabricated with
different functional capabilities and from various materials, depending upon the
requirements of the patient.
While sales of custom orthotics were primarily made to practitioners within
the United States, the Company also sells its custom orthotic products in
approximately thirty-two foreign countries. Except for one orthotic product
customer which accounts for 3.1% of sales, no single domestic custom orthotic
customer presently accounts for more than 1.5% of the Company's annual
consolidated revenues. The primary market for custom orthotic devices is
podiatrists who prescribe such devices for their patients. There are
approximately 14,000 practitioners of podiatry licensed in the United States.
Custom orthotic devices are also sold to other health care professionals, such
as orthopedists, physical therapists and orthotists/prosthetists engaged in the
treatment of the foot and lower extremity. The Company does not sell the devices
directly to the user-patient. In the United Kingdom, the National Health Service
("NHS") accounts for approximately 40% of the custom orthotic devices sold in
the United Kingdom by the Company's subsidiary. No binding agreement exists
between the Company's subsidiary and the NHS. Approximately 35% of the
subsidiary's custom orthotic devices are sold outside of the United Kingdom.
The Company makes orthotic devices in three facilities; Deer Park, New York;
Brea, California; and Stoke-on-Trent, England. In order to produce a custom
orthotic device, the prescribing practitioner furnishes plaster impression casts
of the patient's feet and necessary clinical information on an appropriate
prescription order form. The cost of the device to the patient is typically
included by the practitioner as part of his fee for treatment. In addition to
its six-month warranty, an individual may purchase an optional "Protect Program"
extended warranty. Under the program, the Company will repair or replace the
orthotics at no charge, or at a reduced charge, during the first 24 months
following the sale.
Another custom-made product line called "FirstChoice" was introduced in
fiscal 1995 in order to address price-sensitive market areas, including managed
care organizations. The product offering is limited to several basic products
and has flat rate pricing. The manufacturing and service areas are also limited
in order to reduce costs.
In 2000, the Company launched its prefabricated foot orthoses, called
Contours(TM). This off-the-shelf product line has been expanded to include,
dress (low profile), sport and standard models and provides a lower cost option
when pricing is an issue for the patient. These prefabricated foot orthoses
require no special casting by the practitioner and are sold to practitioners
through the Company and its distributors.
The Company continues to design orthotic devices to address the needs of
particular areas of the market. For example, the general interest in physical
fitness has resulted in demand for orthotic devices and it has heightened the
awareness of the importance of proper foot function and foot care. To address
this segment of the market, the Company manufactures an extensive line of
orthotics called Sporthotics(R), designed for the specific needs of runners and
other sport-specific athletes, including football, basketball and tennis
players. The Company offers many specialized products including: Healthflex(R)
(designed for the needs of aerobic dance, walking and exercise enthusiasts),
DesignLine(R) (a functional orthotic designed to fit into dress shoes, such as
high fashion shoes and loafers which cannot accommodate a full-size orthotic),
and DressFlex(R) (a unique patented proprietary device for use in women's
high-heeled shoes.)
The Company believes that a relatively small percentage of custom orthotic
devices continue to be made by practitioners in their own offices or
laboratories. The vast majority of the market is serviced by professional
laboratories based on casts and prescriptions furnished by practitioners. The
custom orthotic industry in both the domestic and United Kingdom areas is
fragmented with several national and regional orthotic manufacturers making up
40 to 45% of this market and the remainder of the market is divided among
smaller regional and local facilities.
6
PPT(R) PRODUCTS
PPT is a medical grade soft tissue cushioning material with a high density,
open-celled urethane foam structure. PPT, a registered trademark of the Company,
is manufactured, pursuant to an agreement, for the Company by a large industrial
manufacturing company. This company manufactures urethane foam materials of
which PPT is a derivative. Pursuant to the agreement, the Company has the
exclusive worldwide rights to serve footcare, orthopedic and related medical
markets with such materials.
Sales of products fabricated from PPT for the ten-month period ended
December 31, 2001 were $1,007,000 versus $1,075,000 for the ten-month period
ended December 31, 2000. This decrease is primarily attributable to lower sales
to domestic distributors.
The essential function of PPT, which independent tests show to have improved
properties over competitive materials, is to provide protection against forces
of pressure, shock and shear. The Company believes that PPT's characteristics
make it a superior product in its field. PPT has a superior "memory" that
enables it to return to its original shape faster and more accurately than other
materials used for similar purposes. PPT is also odorless and non-sensitizing to
the skin and has a porosity that helps the skin to remain dry, cool and
comfortable. These factors are especially important in sports medicine
applications.
The Company has developed and sells a variety of products fabricated from
PPT including molded insoles, components for orthotic devices, laminated sheets,
and diabetic products. Some manufacturing operations associated with these
products are performed by outside vendors.
Besides podiatric use, the Company believes PPT is suitable for other
orthopedic and medical-related uses such as liners for braces and prosthetics,
as shock absorbers and generally in devices used in sports and physical
therapy. The Company continues to revitalize its PPT line by expanding its
products to include shock absorbing PPTGel(TM) products to be used as shoe
inserts and brace liners.
The market for soft tissue supplements is highly competitive. Brand products
as well as commodity-type foam rubber are all widely used. Brand name
competitive products include Spenco, Sorbothane, medical-grade Poron, and DCS.
The remainder of the market is fragmented. The Company competes directly with
one other manufacturer of cellular urethane foam.
RAW MATERIALS
While the Company obtains a number of its fabrication materials from a
variety of sources, it has not experienced any significant shortages other than
occasional backorders. In most cases, any needed materials, other than PPT, can
usually be obtained from an alternate distributor at a competitive price. To
date, the Company has found that the components, supplies and raw materials that
are necessary for the manufacture, production and delivery of its products have
been available in the quantities that are required; however, the failure of the
Company's suppliers to deliver components, supplies, and raw materials in
sufficient quantities and in a timely manner could adversely affect the
Company's business and results of operations.
Currently, North Seas Plastics supplies approximately 20% of the plastics
used by the Company's manufacturing facility in the United Kingdom. Should North
Seas Plastic not have the available materials as needed, the Company believes
that comparable material could be obtained from other sources at comparable
prices.
7
MARKETING
The Company utilizes an expanded network of regional sales representatives
and an expanded telesales department to target multi-practitioner and individual
facilities. In addition, the Company continues to use trade shows, advertising,
direct mail, educational sponsorships, public relations and maintenance
marketing to market and distribute its products. The Company emphasizes customer
service by maintaining a staff of customer service representatives at each of
its facilities.
The Company focuses on providing education and training for healthcare
practitioners through seminars and in-service programs who treat biomechanical
problems of the lower extremity. A comprehensive program is offered in
biomechanics, gait analysis and the cost-effectiveness of orthotic therapy.
Management promotes awareness of orthotics through marketing and
operational initiatives. A Volume Incentive Program ("VIP"), along with
practice building assistance, is oriented toward helping practitioners expand
the orthotic components portion of their practices and relationship building
with the Company's customer base.
RESEARCH AND DEVELOPMENT
Research and development costs incurred during the ten-month periods ended
December 31, 2001 and December 31, 2000 were $142,000 and $212,000,
respectively. This decrease is principally due to lower consulting expenses and
testing supply expenses, which were associated with this department in its
initial years.
PATENTS AND TRADEMARKS
The Company holds 13 patents, 95 trademarks and 9 copyrights. These patents
and trademarks are held in 12 countries, including the United States. The
Company has exclusive licenses to three types of orthotic devices which are
patented in the United States and several foreign countries. The Company
believes that none of its active patents, trademarks, or licenses is essential
to the successful operation of its business as a whole. However, one or more of
the patents, trademarks, or licenses may be material in relation to individual
products or product lines. Loss of patent protection could have an adverse
effect on the Company's business by permitting competitors to utilize techniques
developed by the Company.
GOVERNMENTAL REGULATION
Rules of the Food and Drug Administration ("FDA") may from time to time
require the submission of a 510(k) notification of intent to market certain
products. Upon submission of a 510(k), the FDA may determine the product to be
substantially equivalent to products previously marketed in interstate commerce.
The Company is not aware of any requirements to file any 510(k) notifications.
The marketing, manufacturing and sales of stock products sold by the Company's
United Kingdom subsidiary are subject, where applicable, to regulations of the
European Economic Community ("EEC").
EMPLOYEES
At January 2, 2002, the Company had 162 employees, of which 94 were located
in Deer Park, New York, 39 in Brea, California, and 29 in Stoke-on-Trent,
England. None of the Company's employees is subject to a collective bargaining
agreement. The Company believes it has satisfactory relationships with its
employees.
8
MEDICAL CONSULTANTS
The Company has relationships with three medical specialists who provide
professional consultative services to the Company in their areas of
specialization. All of these consultants are on the faculties of podiatric
medical colleges in the United States.
The consultants test and evaluate the Company's products, act as speakers
for the Company at symposiums and professional meetings, generally participate
in the development of the Company's products and services and disseminate
information about them. The Company also relies on practitioners in various
parts of the country to act as field evaluators of the Company's products.
SEASONALITY
Revenue derived from the Company's sale of orthotic devices, a substantial
portion of the Company's operations, has in North America historically been
significantly higher in the warmer months of the year, while sales of orthotic
devices by the Company's United Kingdom subsidiary has historically not
evidenced any seasonality.
ITEM 2. PROPERTIES
The Company's executive offices and its primary manufacturing facilities
(approximately 44,500 square feet) are located in Deer Park, New York. The Deer
Park facility is leased through July 31, 2005, with a four-year extension
option, and with monthly lease payments averaging $25,181. The Company also
leases space (approximately 9,300 square feet) in Brea, California
(manufacturing facility) which expires on December 31, 2004, and with aggregate
monthly lease payments of $8,275. The Company's United Kingdom subsidiary has a
manufacturing facility (approximately 15,000 square feet) in Stoke-on-Trent,
England, which is leased through August 2004, with a five-year extension option
and with quarterly lease payments of $9,525 (based upon an exchange rate of
1.4515). The Company believes that its manufacturing facilities are suitable and
adequate and provide the productive capacity necessary for its current and
reasonably foreseeable future manufacturing needs. The Company believes that
while these manufacturing facilities are being adequately utilized, they could
be more fully utilized (e.g. with extended night shift operations) should this
become necessary.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The registrant's common stock, par value $.02 per share ("Common Stock"), is
traded on the over-the-counter market with quotations reported on the National
Association of Securities Dealers Automated Quotation System (NASDAQ) under the
symbol GAIT. The following table sets forth the high and low closing bid prices
for the Common Stock for the ten months ended December 31, 2001 and the fiscal
year ended February 28, 2001. The NASDAQ quotations represent prices between
dealers, do not include retail markups, markdowns or commissions, and may not
represent actual transactions.
TEN MONTHS ENDED DECEMBER 31, 2001 HIGH LOW
- ------------------------------------------ ---- -----
One month ended March 31, 2001 5.22 4.00
Three months ended June 30, 2001 5.25 3.10
Three months ended September 30, 2001 5.80 3.66
Three months ended December 31, 2001 11.85 4.80
TWELVE MONTHS ENDED FEBRUARY 28, 2001 HIGH LOW
- ------------------------------------------ ------- -----
Three months ended May 31, 2000 1.75 1.69
Three months ended August 31, 2000 1.63 1.50
Three months ended November 30, 2000 1.69 1.25
Three months ended February 28, 2001 5.13 1.00
The closing bid and ask prices on March 26, 2002 were $8.15 and $8.20,
respectively. On March 26, 2002, there were approximately 300 holders of record
of the Common Stock. However, this figure is exclusive of all owners whose stock
is held beneficially or in "street" name. Based on information supplied by
various securities dealers, the Company believes that there are in excess of 650
shareholders in total, including holders of record as well as those whose shares
are beneficially held.
DIVIDEND HISTORY AND POLICY
The registrant did not pay cash dividends on its Common Stock in 2000 or
2001 and anticipates that, for the foreseeable future, it will follow a policy
of retaining earnings to finance the expansion and development of its business.
In any event, future dividend policy will depend upon the Company's earnings,
financial condition, working capital requirements and other factors.
10
RECENT SALES OF UNREGISTERED SECURITIES
Described below is information regarding securities the Company issued in
the ten months ended December 31, 2001 which were not registered under the
Securities Act of 1933.
On October 31, 2001, the Company completed the sale of $14,589,000 principal
amount of its 4% convertible subordinated notes due August 31, 2006 (the
"Notes"), in a private placement. The Notes are convertible into shares of the
Company's common stock at a conversion price of $6.00 per share, subject to
anti-dilution protections.
The above sale was a private transaction not involving a public offering
and was exempt from the registration provisions of the Securities Act pursuant
to Section 4(2) thereof. No underwriter was engaged in connection with the
foregoing sales of securities. The Company has reason to believe that: (i) all
of the foregoing purchasers were familiar with or had access to information
concerning the Company's operations and financial condition, (ii) all of those
individuals purchasing securities represented that they acquired the shares
for investment and not with a view to the distribution thereof, and (iii) the
foregoing purchasers are accredited investors within the meaning of Regulation
D promulgated under the Securities Act.
11
ITEM 6. SELECTED FINANCIAL DATA
Ten Months Ended: Fiscal Year Ended:
---------------------------- ------------------------------------------------------
(In thousands, except for per share data)
Dec. 31, Dec. 31, Feb. 28, Feb. 29, Feb. 28, Feb. 28,
2001 2000 2001 2000 1999 1998
------------ -------------- ------------- ------------- ------------- ----------
(unaudited)
Consolidated Statement of Operations:
Net sales $10,529 $ 9,857 $ 11,642 $ 11,145 $ 10,307 $ 10,156
Change in control and restructuring expenses - (212) (1,008) - - -
Operating profit (loss) 139 (274) (1,504) (356) 105 316
Income (loss) before income taxes 73 (270) (1,502) (337) 329 370
Provision for (benefit from) income taxes 3 2 4 (2) 25 5
Net income (loss) 70 (272) (1,506) (335) 304 365
Net income (loss) per common share:
Basic 0.02 (0.11) (0.58) (0.13) 0.12 0.14
Diluted 0.02 (0.11) (0.58) (0.13) 0.12 0.14
Weighted average number of common shares:
Basic 3,860 2,570 2,583 2,571 2,584 2,585
Diluted 4,307 2,570 2,583 2,571 2,607 2,658
Cash dividends per share - - - - - -
Consolidated Balance Sheets: Dec. 31, Dec. 31, Feb. 28, Feb. 29, Feb. 28, Feb. 28,
2001 2000 2001 2000 1999 1998
------------ -------------- ------------- ------------- ------------- ----------
(unaudited)
Working Capital 16,655 1,514 757 1,715 2,423 2,090
Total Assets 20,700 4,473 4,554 4,738 5,125 4,848
Long-term Liabilities
(excluding current maturities) 14,719 200 126 277 305 375
Stockholders' Equity 3,866 2,339 1,599 2,536 2,934 2,663
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto of the Company which are included in
Item 8.
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"). Pursuant to the terms of the Tender Offer Agreement, the
Offerors were granted an 180 day option 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"). This Option has been recorded as a
non-cash dividend of $3,206,000, the fair market value of the Option on the date
of grant. Upon the closing of the Tender, the Board of Directors of the Company
resigned in favor of Andrew H. Meyers (President and Chief Executive Officer),
Burtt Ehrlich (Chairman of the Board), Jonathan R. Foster, Greg Nelson and
Arthur Goldstein. In conjunction with the Tender, the Company issued a total of
120,000 options to the four new outside members of the Board of Directors.
In connection with the Tender and the resultant change in control, the
Company, in the year ended February 28, 2001, recorded expenses of
approximately $1,008,000, which included legal fees of $263,000, valuation and
consultant fees of $95,000, severance and related expenses for terminated
employees and executives of approximately $236,000, and other costs directly
attributable to the change in control of approximately $169,000. Additionally,
as part of the change in control, a consulting firm, which is owned by the
sole manager and voting member of Langer Partners LLC, a principal shareholder
of the Company, was granted 100,000 fully vested stock options with an
exercise price of $1.525 per share. Accordingly, the Company immediately
recognized the fair value of the option of $245,000 as consulting fees
associated with these options.
In connection with the Tender, the Company's then existing revolving credit
facility with a bank was terminated. In order to provide for the Company's
short-term cash needs, in February 2001, the Company's Chief Executive Officer
loaned the Company $500,000. As part of the change in control, new management
determined that the Company required additional cash to potentially take
advantage of opportunities in the marketplace. On February 13, 2001, three
Directors of the Company purchased 147,541 restricted shares at $1.525 for total
proceeds of $225,000. 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. The
Company's Chief Executive Officer, Andrew H. Meyers, converted the $500,000 loan
plus accrued interest as partial proceeds toward the exercise of this Option.
Prior to the exercise of this Option, the Company's net worth dropped below the
minimum required levels for listing on NASDAQ. This shortfall has been fully
remedied through the exercise of this Option and management anticipates that the
Company will continue to meet the NASDAQ listing requirements.
STATEMENTS OF OPERATIONS:
The Company's net sales of $10,529,000 for the ten-month period ended
December 31, 2001 were 6.8 percent above net sales of $9,857,000 for the
ten-month period ended December 31, 2000. Net sales for the twelve months ended
February 28, 2001 were $11,642,000, 4.5 percent above net sales of $11,145,000
for the twelve months ended February 29, 2000.
Sales of orthotic products, which accounted for 86 percent of the Company's
sales for the ten-month period ended December 31, 2001, increased by
approximately $531,000, or 6.2 percent, to approximately $9,038,000 from
$8,507,000 for the comparable period last year. Domestic custom orthotic sales
for the ten-month period increased 9%, while custom orthotic sales at the
Company's United Kingdom subsidiary increased 27%. For the same period, Canadian
sales decreased 12%, in part, due to the devaluation of the Canadian dollar
against United States currency. The overall increased sales of orthotic products
is principally due to increased unit volume
13
resulting from increased turnaround time and increased results from sales
representatives in both the Company's domestic operations as well as its United
Kingdom operations. Sales of orthotic products for the twelve months ended
February 28, 2001 increased by $601,000, or 6.5 percent, to $9,906,000 from the
twelve-month period ended February 29, 2000. The increased revenue that resulted
from increased unit volume can be attributed to increased marketing activities
including higher advertising and promotions in both the Company's domestic
operations as well as its United Kingdom operations.
Sales of PPT (the Company's soft tissue supplement material) for the
ten-month period ended December 31, 2001 were $1,007,000, a decrease of $68,000,
or 6.3 percent, from sales for the ten-month period ended December 31, 2000. For
the twelve months ended February 28, 2001, sales of PPT were $1,240,000, a 4.8
percent decrease from the twelve months ended February 29, 2000. In each case
this decrease was principally due to lower sales to United States distributors.
Gross profit as a percentage of sales increased to 38.01 percent for the
ten-month period ended December 31, 2001 from 35.52 percent for the ten-month
period ended December 31, 2000. The increase in gross profit percentage was
primarily due to lower material costs, including a lower obsolescence
provision, lower overhead costs including lower payroll costs (salaries and
indirect labor), travel, outside temporary services, communication and
depreciation costs as well as reduced overtime of 14.6 percent and improved
product turnaround from 10 days to 6.5 days due to operational improvements.
Gross profit as a percentage of sales decreased from 35.52 percent for the
twelve-month period ended February 29, 2000 to 32.46 percent for the
twelve-month period ended February 28, 2001. This decrease in gross profit
percentage was primarily the result of higher shipping expenses, a higher
provision for obsolete and slow moving inventory and lower productivity due to
an increase in direct labor trainees.
For the ten-month period ended December 31, 2001, selling expenses decreased
by approximately $388,000 (or 23.06 percent) and general and administrative
expenses increased by approximately $757,000 (or 45.40 percent) compared to the
ten-month period ended December 31, 2000. The decrease in selling expenses is
mainly due to decreased promotional and advertising activities and decreased
salary and travel expenses. The increase in general and administrative expenses
is principally due to higher expenses for the Company's employee incentive
program, increased consulting fees and higher bank fees due to increased credit
card sales. These expenses were necessary to expand the Company's infrastructure
in anticipation of executing the Company's internal growth and acquisition
strategy. For the twelve-month period ended February 28, 2001, selling expenses
increased by $305,000 and general and administrative costs decreased by $448,000
compared to the twelve-month period February 29, 2000. The increase in selling
expenses was mainly due to increased salary, travel and promotional expenses and
the decrease in general and administrative expenses was primarily due to
decreased professional fees and travel.
Research and development costs incurred during the ten-month period ended
December 31, 2001 were approximately $142,000 compared to approximately $212,000
for the ten-month period ended December 31, 2000. This decrease is principally
due to lower consulting expenses and testing supply expenses which were
associated with this department in its initial years. For the twelve months
ended February 28, 2001, the Company incurred approximately $252,000 in research
and development costs as compared to $149,000 in the twelve-month period ended
February 29, 2000. This increase was principally due to consulting expenses and
costs associated with potential new product introductions.
The Company incurred approximately $212,000 of change in control and
restructuring costs for the ten-month period ended December 31, 2000 which were
included in the total of $1,008,000 for the fiscal year ended February 28, 2001.
Other income (expense) for the ten-month period ended December 31, 2001
decreased to approximately ($66,000) from approximately $4,000 for the ten-month
period ended December 31, 2000. This decrease was mainly due to interest expense
($97,260) on the Company's 4% convertible notes, described below, and the loan
from the Company's Chief Executive Officer ($8,863) on a $500,000 promissory
note that was exchanged for shares of the Company's common stock in May 2001.
This was partially offset by interest income earned on cash and cash
equivalents. In addition, during the ten-month period ended December 31, 2001
the Company incurred $30,698 of amortization expense of deferred financing costs
associated with the 4% convertible notes. Other income for the twelve months
ended February 28, 2001 was approximately $2,000 as compared to approximately
$19,000 for the
14
twelve-month period ended February 29, 2000. This decrease mainly resulted from
reduced cash balances for investment and increased interest expense on an
installment note used to finance equipment purchases.
LIQUIDITY AND CAPITAL RESOURCES
Working capital as of December 31, 2001 increased $15,898,000 to $16,655,000
from $757,000 at February 28, 2001. Cash balances at December 31, 2001 were
$15,797,000, an increase of $14,928,000 from February 28, 2001. During the year
the working capital increased as a result of the gain from operations, the
exercise of the Options by the Offerors totaling $2,135,000 (see below), the
completion of the sale of the Company's 4% convertible notes discussed
hereafter, as well as the exercise of an additional 19,000 options at prices
ranging from $1.50 to $2.19.
In connection with the Tender, the Company's then existing revolving credit
facility with a bank was terminated. In order to provide for the Company's
short-term cash needs, in February 2001, the Company's Chief Executive Officer
loaned the Company $500,000 evidenced by a promissory note, bearing interest at
prime plus 1%. 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 as partial consideration for the payment of the shares of stock. 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.
At February 28, 2001, $81,458 was outstanding on an $115,000 installment
note to finance the acquisition of certain machinery and equipment in the prior
year. This note was repaid in March 2001.
On October 31, 2001, the Company sold $14,589,000 of its 4% convertible
subordinated notes, due August 31, 2006, in a private placement (the "Notes").
The Notes are convertible into the Company's common stock at a conversion
price of $6.00 per share and are subordinated to all existing or future senior
indebtedness of the Company. The Company received net proceeds of $13,668,067
from this offering. The costs of raising these proceeds, including placement
and legal fees, was $920,933, which is being amortized over the life of the
Notes. The amortization of these costs for the ten-month period ended December
31, 2001 was $30,698. Interest is payable semi-annually on the last date in
June and December. Interest expense for the ten months ended December 31, 2001
on these Notes was $97,260.
Certain of the Company's facilities and equipment are leased under
noncancellable operating leases. The following is a schedule, by fiscal year, of
future minimum rental payments required under current operating leases as of
December 31, 2001:
FISCAL YEAR ENDING DECEMBER 31: AMOUNT
------------------------------- ------
2002 $ 455,518
2003 448,250
2004 445,184
2005 192,522
-----------
Total $ 1,541,474
===========
Repurchases of the Company's common stock may be made from time to time in
the open market at prevailing prices or 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, from
borrowings from institutional lenders, and/or the public or private offerings of
debt or equity securities. Management believes that its existing cash balances
will be adequate to meet the Company's cash needs during the fiscal year ending
December 31, 2002.
The Company's United Kingdom subsidiary maintains a line of credit with a
local bank in the amount of 50,000 British pounds, which is guaranteed by the
Company pursuant to a standby Letter of Credit. If this credit facility, which
has been renewed through February 2003, would not be available, the Company
believes it can readily find a suitable replacement or the Company would supply
the necessary capital.
15
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's accounting policies are more fully described in Note 1 of
Notes to Consolidated Financial Statements. As disclosed in Note 1 of Notes to
Consolidated Financial Statements, the preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Future events and their effects cannot be
determined with absolute certainty. Therefore, the determination of estimates
requires the exercise of judgment. Actual results may differ from these
estimates under different assumptions or conditions.
Management believes the most significant accounting estimates inherent in
the preparation of the Company's consolidated financial statements include
estimates associated with its determination of liabilities related to warranty
activity and estimates associated with the Company's reserves with respect to
collectibility of accounts receivable, allowances for sales returns, and
inventory valuations. Various assumptions and other factors underlie the
determination of these significant estimates. The process of determining
significant estimates is fact specific and takes into account factors such as
historical experience, current and expected economic conditions, and product
mix. The Company constantly re-evaluates these significant factors and makes
adjustments where facts and circumstances dictate. Historically, actual results
have not significantly deviated from those determined using the estimates
described above.
SEASONALITY
Revenue derived from the Company's sale of orthotic devices, a substantial
portion of the Company's operations, has in North America historically been
significantly higher in the warmer months of the year, while the sales of
orthotic devices by the Company's United Kingdom subsidiary has historically not
evidenced any seasonality.
INFLATION
The Company has in the past been able to increase the prices of its products
or reduce overhead costs sufficiently to offset the effects of inflation on
wages, materials and other expenses, and anticipates that it will be able to
continue to do so in the future.
16
RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD
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 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 existed accounting rules, business combinations were accounted for
using one of two methods, 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.
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 the 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 recorded 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
No. 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 No. 144 is not expected to have a material impact on
the Company's financial statements.
17
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Information contained or incorporated by reference in the annual report on
Form 10-K, in other SEC filings by the Company, in press releases, and in
presentations by the Company or its management, 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," "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, and other factors could also cause actual results
to vary materially from the future results covered in such forward-looking
statements. Such forward-looking statements include, but are not limited to,
those relating to the Company's financial and operating prospects, future
opportunities, 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 which may
cause the actual results, performance or achievements of the Company 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 common stock could decline if any of
such risks and uncertainties develop into actual events. The Company
undertakes no obligation to publicly update or revise forward-looking
statements to reflect events or circumstances after the date of this Form 10-K
or to reflect the occurrence of unanticipated events.
18
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In general, business enterprises can be exposed to market risks, including
fluctuation in commodity and raw materials prices, foreign currency exchange
rates, and interest rates that can adversely affect the cost and results of
operating, investing, and financing. The Company believes that its exposure to
these risks is low. In seeking to minimize the risks and/or costs associated
with such activities, the Company manages exposure to changes in commodities and
raw material prices, interest rates and foreign currency exchange rates through
its regular operating and financing activities. The Company does not utilize
financial instruments for trading or other speculative purposes, nor does the
Company 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.
The Company's 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 roll-over risk in the short-term money market
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 the Company's interest rate risk
profile.
The majority of the Company's business is denominated in United States
dollars. There are costs associated with the Company's 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. The Company partially manages its
foreign currency risk related to those payments by maintaining operating
accounts in these foreign countries, and by having customers pay the Company in
those same currencies.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Begins on the next page.
19
LANGER, INC.
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE II
DECEMBER 31, 2001, DECEMBER 31, 2000, FEBRUARY 28, 2001 AND FEBRUARY 29, 2000
PAGE
----
Independent Auditors' Report 21
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2001 and February 28, 2001 22
Consolidated Statements of Operations for the ten months ended December 31, 2001 23
and December 31, 2000 and for the fiscal years ended February 28, 2001 and
February 29, 2000
Consolidated Statements of Stockholders' Equity for the ten months ended 24
December 31, 2001 and for the fiscal years ended February 28, 2001 and
February 29, 2000
Consolidated Statements of Cash Flows for the ten months ended December 31, 2001 25
and December 30, 2000 and for the fiscal years ended February 28, 2001 and
February 29, 2000
Notes to Consolidated Financial Statements 26
Consolidated Financial Statement Schedule II -
Valuation and Qualifying Accounts for the ten months ended December 31, 2001 40
and for the fiscal years ended February 28, 2001 and February 29, 2000
All other schedules have been omitted because they are not applicable, not
required or the information is disclosed in the consolidated financial
statements, including the notes thereto.
20
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of
Langer, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Langer, Inc. and
subsidiaries (the "Company") as of December 31, 2001 and February 28, 2001, and
the related consolidated statements of operations, stockholders' equity and cash
flows for the ten months ended December 31, 2001 and for the years ended
February 28, 2001 and February 29, 2000. Our audits also included the
consolidated financial statement schedule listed in the foregoing index for the
ten months ended December 31, 2001 and for the years ended February 28, 2001 and
February 29, 2000. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on the consolidated financial statements
and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 2001
and February 28, 2001, and the results of its operations and its cash flows for
the ten months ended December 31, 2001 and for the years ended February 28, 2001
and February 29, 2000, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, such
consolidated financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
DELOITTE & TOUCHE LLP
Jericho, New York
March 14, 2002
21
LANGER, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND FEBRUARY 28, 2001
Dec. 31, 2001 Feb. 28, 2001
------------- -------------
Assets
Current assets:
Cash and cash equivalents $ 15,796,922 $ 868,846
Accounts receivable, net of allowance for
doubtful accounts of approximately $43,300 and
$58,000, respectively 1,646,696 1,542,464
Inventories, net (Note 4) 1,141,151 973,863
Prepaid expenses and other current receivables 185,740 200,839
----------------- ----------------
Total current assets 18,770,509 3,586,012
Property and equipment, net (Note 5) 701,996 683,501
Other assets (Notes 9 and 14) 1,227,741 284,706
----------------- ----------------
Total Assets $ 20,700,246 $ 4,554,219
================= ================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 429,531 $ 652,974
Accrued liabilities (Note 6) 1,224,444 1,166,162
Current portion of long-term debt (Note 13) - 581,458
Unearned revenue (Note 1) 461,355 428,133
----------------- ----------------
Total Current Liabilities 2,115,330 2,828,727
Accrued pension expense (Note 9) - 13,118
Unearned revenue (Note 1) 113,740 104,381
Long-term debt (Note 14) 14,589,000 -
Deferred income taxes (Note 7) 15,967 8,662
----------------- ----------------
Total Liabilities 16,834,037 2,954,888
----------------- ----------------
Commitments and Contingencies (Note 8)
Stockholders' Equity (Note 10):
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 12,258,724 10,086,555
Accumulated deficit (8,048,012) (8,118,291)
Accumulated other comprehensive loss (Note 9) (314,407) (310,457)
----------------- ----------------
3,981,666 1,714,788
Less treasury stock at cost, 67,100 shares at
December 31, 2001 and February 28, 2001 (115,457) (115,457)
----------------- ----------------
Total stockholders' equity 3,866,209 1,599,331
----------------- ----------------
Total Liabilities and Stockholders' Equity $ 20,700,246 $ 4,554,219
================= ================
See accompanying notes to consolidated financial statements.
22
LANGER, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE TEN MONTHS ENDED DECEMBER 31, 2001 AND DECEMBER 31, 2000 AND
THE FISCAL YEARS ENDED FEBRUARY 28, 2001 AND FEBRUARY 29, 2000
DEC. 31, DEC. 31, FEB. 28, FEB. 29,
2001 2000 2001 2000
---------------- ------------ ---------------- --------------
(unaudited)
Net sales (Note 11) $ 10,528,667 $ 9,857,068 $ 11,642,152 $ 11,145,054
Cost of sales 6,526,957 6,355,551 7,862,998 7,186,446
--------------- ------------ --------------- ---------------
Gross profit 4,001,710 3,501,517 3,779,154 3,958,608
Selling expenses 1,294,991 1,683,122 2,011,390 1,706,879
Research and development expenses 142,192 212,040 252,345 148,710
General and administrative expenses 2,425,177 1,667,948 2,010,905 2,459,079
Change in control and restructuring expenses (Note 2) 212,414 1,008,081
---------------- ------------ --------------- --------------
Operating income (loss) 139,350 (274,007) (1,503,567) (356,060)
---------------- ------------ ---------------- --------------
Other income (expense):
Interest income 86,635 3,440 3,440 31,032
Interest expense (108,148) (13,951) (20,062) (6,711)
Minority interest - 5,188 5,188 5,240
Other (44,440) 9,501 13,141 (10,499)
--------------- --------------- --------------- --------------
Other (expense) income, net (65,953) 4,178 1,707 19,062
--------------- -------------- --------------- --------------
Income (loss) before income taxes 73,397 (269,829) (1,501,860) (336,998)
Provision for (benefit from) income taxes (Note 7) 3,118 2,500 4,527 (1,724)
--------------- ----------------- --------------- --------------
Net income (loss) $ 70,279 $ (272,329) $(1,506,387) $ (335,274)
=============== ================= =============== =============
Weighted average number of common shares used
in computation of net income (loss) per share:
Basic 3,860,167 2,569,730 2,582,615 2,571,004
Diluted 4,306,536 2,569,730 2,582,615 2,571,004
Net income (loss) per common share:
Basic $ .02 $ (0.11) $ (0.58) $ (0.13)
=============== ================= =============== =============
Diluted $ .02 $ (0.11) $ (0.58) $ (0.13)
=============== ================= =============== =============
See accompanying notes to consolidated financial statements.
23
LANGER, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE TEN MONTHS ENDED DECEMBER 31, 2001 AND FOR THE FISCAL YEARS ENDED FEBRUARY 28, 2001
AND FEBRUARY 29, 2000
Accumulated Other
Comprehensive Income
Common Stock (Loss)
-------------------- -----------------------
Additional Foreign Minimum
Treasury Paid-in Accumulated Currency Pension
Shares Amount Stock Capital Deficit Translation Liability
- --------------------------------------------------------------------------------------------------------------------
Balance at March 1, 1999 2,598,281 51,966 (39,350) $6,291,564 ($3,070,630) ($46,895) ($252,304)
Comprehensive income:
Net loss for 2000 (335,274)
Foreign currency
Adjustment (612)
Minimum pension liability
Adjustment (455)
Total comprehensive income
Treasury stock acquired (96,843)
Exercise of stock options 42,000 840 34,316
- --------------------------------------------------------------------------------------------------------------------
Balance at February 29, 2000 2,640,281 52,806 (136,193) 6,325,880 (3,405,904) (47,507) (252,759)
Comprehensive income:
Net loss for 2001 (1,506,387)
Foreign currency
Adjustment (5,227)
Minimum pension liability
Adjustment (4,964)
Total comprehensive income
Issuance of stock 147,541 2,951 222,049
Issuance of shares from
treasury 100,949
Non-cash dividend 3,206,000 (3,206,000)
Treasury stock acquired (80,213)
Issuance of stock options for
consulting services 245,000
Exercise of stock options 61,200 1,224 87,626
- --------------------------------------------------------------------------------------------------------------------
Balance at February 28, 2001 2,849,022 56,981 (115,457) 10,086,555 (8,118,291) (52,734) (257,723)
Comprehensive income:
Net income for ten months
ended December 31, 2001 70,279
Foreign currency
Adjustment (53)
Minimum pension liability
adjustment (3,897)
Total comprehensive income
Issuance of stock 1,400,000 28,000 2,107,000
Exercise of stock options 19,000 380 30,183
Issuance of stock options for
consulting services 8,243
Compensation expense to
accelerate stock options 26,743
- --------------------------------------------------------------------------------------------------------------------
Balance at December 31,2001 4,268,022 $ 85,361 ($115,457) $12,258,724 ($8,048,012) ($52,787) ($261,620)
====================================================================================================================
See accompanying notes to consolidated financial statements.
Total
Comprehensive Stockholders'
Income Equity
- ---------------------------------------------------------
Balance at March 1, 1999 $2,934,351
Comprehensive income:
Net loss for 2000 $(335,274)
Foreign currency
Adjustment (612)
Minimum pension liability
Adjustment (455)
--------------
Total comprehensive income $(336,341) (336,341)
==========
Treasury stock acquired (96,843)
Exercise of stock options 35,156
- ------------------------------ ------------
Balance at February 29, 2000 2,536,323
Comprehensive income:
Net loss for 2001 $(1,506,387)
Foreign currency
Adjustment (5,227)
Minimum pension liability
Adjustment (4,964)
=======
Total comprehensive income $(1,516,578) (1,516,578)
============
Issuance of stock 225,000
Issuance of shares from
treasury 100,949
Non-cash dividend -
Treasury stock acquired (80,213)
Issuance of stock options for
consulting services 245,000
Exercise of stock options 88,850
- ----------------------------- ------------
Balance at February 28, 2001 1,599,331
Comprehensive income:
Net income for ten months
ended December 31, 2001 70,279
Foreign currency
Adjustment (53)
Minimum pension liability
adjustment (3,897)
-------
Total comprehensive income $ 66,329 66,329
========
Issuance of stock 2,135,000
Exercise of stock options 30,563
Issuance of stock options for
consulting services 8,243
Compensation expense to
accelerate stock options 26,743
- ----------------------------- ------------
Balance at December 31,2001 $3,866,209
=========================================================
24
LANGER, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TEN MONTHS ENDED DECEMBER 31, 2001 AND DECEMBER 31, 2000
AND THE FISCAL YEARS ENDED FEBRUARY 28, 2001 AND FEBRUARY 29, 2000
DEC. 31, 2001 DEC. 31, 2000 FEB. 28, 2001 FEB. 29, 2000
------------- ------------- ------------- -------------
Cash Flows From Operating Activities: (unaudited)
Net income (loss) $ 70,279 $ (272,329) $ (1,506,387) $ (335,274)
Adjustments to reconcile net income (loss) to net
cash (used in) provided by
operating activities:
Deferred foreign tax provision (benefit) 7,181 (820) 976 3,028
Depreciation and amortization 254,921 271,887 301,902 301,469
Provision for doubtful accounts receivable 15,015 1,949 19,000 31,167
Issuance of stock options for consulting services 8,243 - 245,000 -
Compensation expense for options acceleration 26,743 - - -
Changes in operating assets and liabilities:
Accounts receivable (116,976) (385,820) (262,412) 44,089
Inventories (166,021) 83,788 206,813 (158,572)
Prepaid expenses and other assets (932,588) 14,850 26,106 (48,806)
Accounts payable and accrued liabilities (168,549) (28,718) 367,861 (43,490)
Net pension liability (13,118) (61,764) (73,844) (112,344)
Unearned revenue 41,534 14,472 14,399 65,195
--------------- ------------- ------------- -------------
Net cash (used in) operating activites (973,336) (362,505) (660,586) (253,538)
--------------- ------------- ------------- -------------
Cash Flows From Investing Activities -
Langer UK purchase - (145,138) (145,138) -
Capital expenditures (271,693) (43,193) (49,381) (577,024)
--------------- ------------- ------------- -------------
Net cash used in investing activities (271,693) (188,331) (194,519) (577,024)
--------------- ------------- ------------- -------------
Cash Flows From Financing Activities:
Common stock options exercised 30,563 52,500 88,850 35,156
Issuance of common stock - 35,811 260,810 -
Treasury stock acquired - (80,213) (80,213) (96,843)
Proceeds from issuance of debt 14,589,000 - 500,000 115,000
Payments on debt (581,458) (22,564) (28,750) (4,792)
Issuance of shares from option exercise 2,135,000 - - -
Issuance of common stock-UK purchase - 65,139 65,139 -
--------------- ------------- ------------- -------------
Net cash provided by financing activites 16,173,105 50,673 805,836 48,521
--------------- ------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents 14,928,076 (500,163) (49,269) (782,041)
Cash and cash equivalents at beginning of year 868,846 918,115 918,115 1,700,156
--------------- ------------- ------------- -------------
Cash and cash equivalents at end of year $ 15,796,922 $ 417,952 $ 868,846 $ 918,115
=============== ============= ============= =============
Supplemental Disclosures of Cash Flow Information-
Cash paid during the year for:
Interest $ 110,548 $ 15,514 $ 17,663 $ 6,711
=============== ============= ============= ================
Income taxes $ - $ - $ 2,348 $ 8,500
=============== ============= ============= ================
Non-cash Financing Activities-
Issuance of stock options due
to change in control $ - $ - $ 3,206,000 $ -
=============== ============= =============== ================
See accompanying notes to consolidated financial statements.
25
LANGER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE TEN MONTHS ENDED DECEMBER 31, 2001 AND DECEMBER 31, 2000 AND THE
FISCAL YEARS ENDED FEBRUARY 28, 2001 AND FEBRUARY 29, 2000
(l) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) CHANGE IN NAME AND FISCAL YEAR END
At the Company's July 17, 2001 annual meeting, the stockholders
approved changing the name of the Company from The Langer Biomechanics
Group, Inc. to Langer, Inc. Additionally, the stockholders approved
changing the fiscal year end from February 28 to December 31 of each
year.
(b) DESCRIPTION OF THE BUSINESS
Langer, Inc. is engaged in the design, manufacture and marketing of
foot and gait-related biomechanical products. The Company's customers
are primarily podiatrists, and also include orthopedists, physical
therapists and Orthotic & Prosthetic ("O&P") centers.
(c) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of Langer, Inc. and its subsidiaries (the "Company"). All significant
intercompany transactions and balances have been eliminated in
consolidation.
(d) REVENUE RECOGNITION
Revenue from the sale of the Company's products is recognized at
shipment. Revenues derived from extended warranty contracts relating to
sales of orthotics are recorded as deferred revenue and recognized over
the lives of the contracts (24 months) on a straight-line basis.
(e) CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
short-term, highly liquid investments purchased with a maturity of
three months or less to be cash equivalents (money market funds and
short-term commercial paper).
(f) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method.
(g) PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation
and amortization. Depreciation and amortization are calculated using
the straight-line method. The lives on which depreciation and
amortization are computed are as follows:
Leasehold improvements Lesser of 5 years or life of lease
Machinery and equipment 5 - 10 years
Office equipment 3 - 10 years
Automobiles 3 - 5 years
26
The Company reviews long-lived assets and certain identifiable
intangibles whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. If the sum of
expected future cash flows (undiscounted and without interest charges)
is less than the carrying value of the asset, an impairment loss is
recognized. Otherwise, an impairment loss is not recognized. If an
impairment loss is required, the amount of such loss is equal to the
excess of the carrying value of the impaired asset over its fair value.
(h) INCOME TAXES
The Company accounts for income taxes using an asset and liability
method. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax
bases of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected
to reverse. Income tax expense (benefit) is the tax payable or
refundable for the period plus or minus the change during the period in
deferred tax assets and liabilities.
(i) NET INCOME (LOSS) 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, warrants and convertible
subordinated notes) outstanding during the period, except where the
effect would be antidilutive, computed in accordance with the treasury
stock method.
(j) FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the foreign subsidiary have been translated
at year-end exchange rates, while revenues and expenses have been
translated at average exchange rates in effect during the year.
Resulting cumulative translation adjustments have been recorded as a
separate component of accumulated other comprehensive loss.
(k) RECLASSIFICATIONS
Certain amounts in the prior years' financial statements have been
reclassified to conform to the current year's presentation.
(l) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(m) FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 2001 and February 28, 2001, the carrying amount of the
Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and accrued liabilities,
approximated fair value because of their short-term maturity. The
carrying value of long-term debt at December 31, 2001 also approximated
fair value based on borrowing rates currently available to the Company
for debt with similar terms.
27
(n) INTERNAL USE SOFTWARE
In accordance with Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use", the
Company capitalizes internal-use software costs upon the completion of
the preliminary project stage and ceases capitalization when the
software project is substantially complete and ready for its intended
use. Capitalized costs are amortized on a straight-line basis over the
estimated useful life of the software, but in no event more than four
years.
(o) DERIVATIVE FINANCIAL INSTRUMENTS
As of March 1, 2001, 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 or, if
so, whether it qualifies as a fair value or cash flow hedge. Generally,
the 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 value of the hedged item 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. The adoption of SFAS No. 133 did not have a material
impact on the results reported in the consolidated financial
statements.
(2) CHANGE IN CONTROL AND RESTRUCTURING EXPENSES
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"). These Options have been recorded as a
non-cash dividend of $3,206,000, the fair market value of the Options on the
date of grant. Upon the closing of the Tender, the Board of Directors of the
Company resigned in favor of Andrew H. Meyers (President and Chief Executive
Officer), Burtt Ehrlich (Chairman of the Board), Jonathan R. Foster, Greg
Nelson and Arthur Goldstein. The Company issued 30,000 non-qualified options
at $1.525 to each of the four new outside members of the Board of Directors in
connection with their services as members of the Board.
In connection with the Tender and the resultant change in control, the
Company recorded expenses of approximately $1,008,000 for the year ended
February 28, 2001, which included legal fees of $263,000, valuation and
consultant fees of $95,000, severance and related expenses for terminated
employees and executives of approximately $236,000, and other costs directly
attributable to the change in control of approximately $169,000. As part of the
change in control, a consulting firm, which is owned by the sole manager and
voting member of Langer Partners LLC, a principal shareholder of the Company,
was granted 100,000 fully vested stock options with an exercise price of $1.525
per share. Accordingly, the Company immediately recognized the fair value of the
options of $245,000 as consulting fees associated with these options.
Additionally, the Company entered into a consulting agreement with this
consulting firm, whereby the consulting firm would receive an annual fee of
$100,000 for three years for services provided.
28
Upon closing of the Tender and the resultant change in control, the
Company's existing revolving credit facility with a bank was terminated. In
order to provide for the Company's short-term cash needs, in February 2001, the
Company's Chief Executive Officer loaned the Company $500,000 (see Note 13). As
part of the change in control, new management determined that the Company
required additional cash to potentially take advantage of opportunities in the
marketplace. On February 13, 2001, three Directors of the Company purchased
147,541 restricted shares at $1.525 for total proceeds of $225,000.
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. The Company's Chief
Executive Officer, Andrew H. Meyers, converted the $500,000 loan plus accrued
interest as partial proceeds toward the exercise of these Options.
(3) ACQUISITION
Effective April 5, 2000, the Company purchased the remaining 25% interest,
which it did not previously own, in its Langer Biomechanics Group (UK) Limited
subsidiary for $80,000 cash and the issuance of 40,000 shares of common stock
from treasury. Such shares were valued at $65,139, representing the market value
of the Company's common stock at the date of the transaction. The transaction
was accounted for as a purchase and the excess cost over the fair value of net
assets acquired (including legal and accounting fees) is being amortized on a
straight-line basis over a ten-year period. Amortization expense for the ten
months ended December 31, 2001 was $23,438 and for the fiscal year ended
February 28, 2001 was $7,300.
(4) INVENTORIES
Inventories consisted of the following at December 31, 2001 and February
28, 2001:
DEC. 31, FEB. 28,
2001 2001
------------- ----------
Raw materials $ 994,186 $ 795,111
Work-in-process 105,453 107,006
Finished goods 255,418 265,069
------------- -----------
Total inventories 1,355,057 1,167,186
Less allowance for obsolescence 213,906 193,323
------------- -----------
Net inventories $ 1,141,151 $ 973,863
============= ===========
(5) PROPERTY AND EQUIPMENT
Property and equipment, at cost, is comprised of the following at December
31, 2001 and February 28, 2001:
DEC . 31, FEB. 28,
2001 2001
------------- ----------
Leasehold improvements $ 587,411 $ 584,708
Machinery and equipment 1,082,297 953,395
Office equipment 2,324,355 2,182,760
Automobiles 39,966 39,750
------------- -------------
4,034,029 3,760,613
Less accumulated depreciation
and amortization 3,332,033 3,077,112
------------- -------------
Property and equipment, net $ 701,996 $ 683,501
============= =============
29
Depreciation and amortization expense, relating to property and
equipment, was $254,921 and $271,887 for the ten months ended December
31, 2001 and 2000, respectively, and was $301,902 and $301,469 for the
fiscal years ended February 28, 2001 and February 29, 2000, respectively.
(6) OTHER CURRENT LIABILITIES
Other current liabilities consisted of the following at December 31, 2001
and February 28, 2001:
DEC. 31, FEB. 28,
2001 2001
------------- ----------
Accrued payroll and related payroll taxes $ 292,430 $ 339,168
Sales credits payable 110,683 105,405
Accrued directors fees and incentive plan 286,119 17,658
Other 535,212 703,931
------------- -----------
Total other accrued liabilities $ 1,224,444 $1,166,162
============= ===========
(7) INCOME TAXES
The provision for (benefit from) income taxes is comprised of the
following for the ten months ended December 31, 2001 and December 31, 2000
and the fiscal years ended February 28, 2001 and February 29, 2000:
DEC. 31, DEC.31, FEB. 28, FEB. 29,
2001 2000 2001 2000
---------- ----------- --------- ----------
Current: (unaudited)
Federal $ - $ - $ - $ 1,500
State (7,565) 2,500 5,000 (7,200)
Foreign 3,456 (1,774) 948
---------- ----------- --------- ----------
(4,109) 2,500 3,226 (4,752)
Deferred - Foreign 7,227 - 1,301 3,028
---------- ----------- --------- ----------
$ 3,118 $ 2,500 $ 4,527 $(1,724)
========== =========== ========= ==========
As of December 31, 2001, the Company has net Federal tax operating loss
carryforwards of approximately $3,060,000, which may be applied against
future taxable income and expire from 2002 through 2013. The Company also
has available tax credit carryforwards of approximately $141,000.
The following is a summary of deferred tax assets and liabilities as of
December 31, 2001 and February 28, 2001:
DEC. 31, FEB. 28,
2001 2001
------------- ----------
Current deferred tax assets $ 196,481 $ 202,389
------------- ----------
Non-current:
Deferred tax assets 1,374,280 1,436,591
Deferred tax liability (15,967) (8,662)
------------- ----------
Non-current deferred tax assets, net 1,358,313 1,427,929
------------- ----------
Net deferred tax assets 1,554,794 1,630,318
Valuation allowance (1,570,761) (1,638,980)
------------- ----------
Net deferred tax liability $ (15,967) $ (8,662)
============= ==========
30
The current deferred tax assets primarily relate to inventory and accounts
receivable reserves, accrued pension, accrued incentive, and accrued
vacation. The non-current deferred tax assets is primarily composed of
Federal net operating loss carryforwards. The non-current deferred tax
liability is primarily composed of excess tax depreciation over book
depreciation and is entirely related to foreign operations. Future
utilization of these net operating loss carryforwards will be limited
under existing tax law due to the change in control of the Company
(Note 2).
The following is a summary of the domestic and foreign components of
income (loss) before taxes for the ten months ended December 31, 2001 and
December 31, 2000 and the fiscal years ended February 28, 2001 and
February 29, 2000:
DEC. 31, DEC. 31, FEB. 28, FEB. 29,
2001 2000 2001 2000
-------- ------------ ------------ -------------
(unaudited)
Domestic $ 48,615 $ (226,850) $ (1,466,510) $ (325,254)
Foreign 24,782 (42,979) (35,350) (11,744)
-------- ------------ ------------ -------------
$ 73,397 $ (269,829) $ (1,501,860) $ (336,998)
======== ============ ============ =============
The Company's effective provision for income taxes differs from the
Federal statutory rate. The reasons for such differences are as follows:
DEC. 31, DEC. 31, FEB. 28, FEB. 29,
2001 2000 2001 2000
-------------------- ----------------- --------------- --------------
(unaudited)
AMOUNT % AMOUNT % AMOUNT % AMOUNT %
------------ --- ------ ----- ------ ----- ------ ---
Provision at Federal
statutory rate $ 24,789 33.8 $ (91,742) (34.0) $ (510,633) (34.0) $ (114,579) (34.0)
Increase (decrease) in taxes
resulting from:
State income taxes, net of
Federal benefit (4,993) (6.8) 1,650 0.6 3,300 0.2 (4,752) (1.4)
Foreign taxes 2,891 3.9 14,613 5.4 11,546 0.8 7,969 2.3
(Use) creation of net operating
loss carryforwards (19,569) (26.7) 77,979 28.9 500,314 33.3 109,638 32.6
------------ ------ -------- ----- -------- ----- ------- -----
Effective tax rate $ 3,118 4.2% $ 2,500 0.9% $ 4,527 0.3% $ (1,724) (0.5)%
============ ====== ======== ===== ======== ===== ======= =====
31
(8) COMMITMENTS AND CONTINGENCIES
(a) LEASES
Certain of the Company's facilities and equipment are leased under
noncancellable operating leases. Rental expense amounted to $405,117
and $396,225 for the ten months ended December 31, 2001 and December
31, 2000, respectively, and $496,401 and $449,754 for the fiscal years
ended February 28, 2001 and February 29, 2000, respectively.
The following is a schedule, by fiscal year, of future minimum rental
payments required under current operating leases as of December 31,
2001:
FISCAL YEAR ENDING DECEMBER 31: AMOUNT
------------------------------- ------
2002 $ 455,518
2003 448,250
2004 445,184
2005 192,522
-----------
Total $1,541,474
===========
(b) ROYALTIES
The Company has entered into several agreements with licensors,
consultants and suppliers, which require the Company to pay royalty
fees relating to the sale of certain products. Royalties in the
aggregate, under these agreements totaled $51,532 and $63,585 for the
ten months ended December 31, 2001 and December 31, 2000,
respectively, and $79,138 and $34,285 for the fiscal years ended
February 28, 2001 and February 29, 2000, respectively.
32
(9) PENSION PLAN AND 401(K) PLAN
The Company maintains a non-contributory defined benefit pension plan
covering substantially all employees. In 1986, the Company adopted an
amendment to the plan under which future benefit accruals to the plan
ceased (freezing of the maximum benefits available to employees as of July
30, 1986), other than those required by law. Previously accrued benefits
remain in effect and continue to vest under the original terms of the
plan.
The following table sets forth the Company's defined benefit plan status
at December 31, 2001 and February 28, 2001, determined by the plan's
actuary in accordance with Statement of Financial Accounting Standards
("SFAS") No. 87, "Employers' Accounting for Pensions", as amended by SFAS
No. 132:
DEC. 31, FEB. 28,
2001 2001
------------- -----------
Projected benefit obligation $ (482,554) $ (455,334)
Plan assets at fair market value 510,728 442,216
------------- -------------
Projected plan assets in excess of benefit obligation 28,174 (13,118)
Unrecognized transition liability 127,902 135,693
Unrecognized net loss 261,620 257,723
Minimum additional liability -- (393,416)
------------- -------------
Accrued pension cost $ 417,696 $ (13,118)
============= =============
Change in projected benefit obligation:
Projected benefit obligation, beginning of year $ (455,334) $ (438,900)
Interest cost (28,458) (32,918)
Benefits paid 1,774 19,053
Actuarial loss (536) (2,569)
------------- -------------
Projected benefit obligation, end of year $ (482,554) $ (455,334)
============= =============
Change in plan assets:
Fair value of plan assets, beginning of year $ 442,216 $ 355,990
Actual return on plan assets 17,555 13,515
Employer contribution 52,731 91,764
Benefits paid (1,774) (19,053)
------------- -------------
Fair value of plan assets, end of year $ 510,728 $ 442,216
============= =============
Net periodic pension expense is comprised of the following components
for the ten months ended December 31, 2001 and for the fiscal years
ended February 28, 2001 and February 29, 2000:
DEC. 31, FEB. 28, FEB. 29,
2001 2001 2000
-------------- ------------- -----------
Interest cost on projected benefit obligations $ 28,458 $ 32,918 $ 31,028
Expected return on plan assets (35,077) (29,426) (22,866)
Amortization of unrecognized transition liability 7,791 7,791 7,791
Recognized actuarial loss 14,161 13,517 12,680
-------------- ------------- ------------
Net periodic pension expense $ 15,333 $ 24,800 $ 28,633
============== ============= ============
33
The discount rate used in determining the actuarial present value of the
projected benefit obligation was 7.50% at December 31, 2001 and February
28, 2001. The rate of return on plan assets was assumed to be 7.50% at
December 31, 2001 and February 28, 2001. No assumed increase in
compensation levels was used since future benefit accruals have ceased (as
discussed above). The unrecognized transition liability and unrecognized
net loss are being amortized over 30.4 and 18.2 years, respectively.
As required by Statement of Financial Accounting Standards No. 87, the
Company recorded a pension asset of $28,174 at December 31, 2001 (included
in Deferred Pension Assets) to reflect the excess of the fair value of
pension plan assets over the accumulated benefits, and a pension liability
of $13,118 at February 28, 2001 (included in Accrued Pension Expense) to
reflect the excess of accumulated benefits over the fair value of pension
plan assets. Since the required additional pension liability is in excess
of the unrecognized prior service cost (unrecognized transition
liability), an amount equal to the unrecognized prior service cost has
been recognized as an intangible asset ($156,076 and $135,683 included in
"Other assets" as of December 31, 2001 and February 28, 2001,
respectively). The remaining liability required to be recognized is
reported as a separate component of stockholders' equity.
The Company has a defined contribution retirement and savings plan (the
"401(k) Plan") designed to qualify under Section 401(k) of the Internal
Revenue Code (the "Code"). Eligible employees include those who are at
least twenty-one years old and who have worked at least 1,000 hours during
any one year. The Company may make matching contributions in amounts that
the Company determines at its discretion at the beginning of each year. In
addition, the Company may make further discretionary contributions.
Participating employees are immediately vested in amounts attributable to
their own salary or wage reduction elections, and are vested in Company
matching and discretionary contributions under a vesting schedule that
provides for ratable vesting over the second through sixth years of
service. The assets of the 40l(k) Plan are invested in stock, bond and
money market mutual funds. For the ten months ended December 31, 2001 and
2000, the Company made contributions totaling $26,530 and $29,558,
respectively, to the 401(k) Plan. For the fiscal years ended February 28,
2001 and February 29, 2000, the Company made contributions totaling
$34,638 and $32,447, respectively, to the 401(k) Plan.
(10) STOCK OPTIONS
The Company maintained a stock option plan for employees, officers,
directors, consultants and advisors of the Company covering 550,000
shares of common stock (the "1992 Plan"). Options granted under the 1992
Plan are exercisable for a period of either five or ten years at an
exercise price at least equal to 100 percent of the fair market value of
the Company's common stock at the date of grant. Options become
exercisable under various cumulative increments over the next nine
years. The Board of Directors has the discretion as to the persons to be
granted options as well as the number of shares and terms of the option
agreements. The expiration date of the plan is July 26, 2002. At the
Company's July 17, 2001 annual meeting, the shareholders approved and
adopted a new stock incentive plan for a maximum of 1,500,000 shares of
common stock (the "2001 Plan"). In December 2000, 175,000 incentive
stock options were granted to Andrew H. Meyers under the 1992 Plan and
80,000 incentive options were granted to Steven Goldstein under the 1992
Plan.
The Company has also granted non-incentive stock options. These options
are generally exercisable for a period of five or ten years and are issued
at a price equal to or lower than the fair market value of the Company's
common stock at the date of grant. On February 13, 2001, the Company
granted 30,000 non-qualified stock options, at an exercise price of 1.525
per share, to each of the Company's four outside directors under the 2001
Plan and 100,000 options to a consulting firm, which is owned by the sole
manager and voting member of Langer Partners LLC, a principal shareholder
of the Company (see Note 2).
Options granted under both the 1992 Plan and the 2001 Plan exclude the
1,400,000 Options granted pursuant to the Tender Offer Agreement in
connection with the change in control (see Note 2).
34
During the ten-month period ended December 31, 2001, the Company granted
10,000 stock options pursuant to a consulting agreement, with an outside
consultant. These options are exercisable for a period of ten years from
the date of grant, at an exercise price of $5.34. 2,000 of these options
vested immediately and the remaining 8,000 options vest proportionately on
each October 1 through October 1, 2005. In connection with these options,
the Company recognized consulting expense of $8,243 in the ten-month
period ended December 31, 2001.
In addition, in connection with a separation agreement with a former
employee, the Company agreed to accelerate the vesting of 12,000 options
at the date of separation in exchange for transitional consulting
assistance. As a result, the Company recognized an expense of $26,743 for
these options for the ten-month period ended December 31, 2001.
The following is a summary of activity related to the Company's incentive
and non-incentive stock options:
EXERCISE WEIGHTED AVERAGE
NUMBER OF PRICE RANGE EXERCISE PRICE
SHARES PER SHARE PER SHARE
------ --------- ---------
Outstanding at March 1, 1999 375,250 $ .56 - 2.19 $1.36
Granted 105,000 1.50 - 2.00 1.66
Exercised (42,000) .78 - .88 .84
Cancelled (67,250) .56 - 2.19 1.64
--------- ----------- -------
Outstanding at February 29, 2000 371,000 1.13 - 2.19 1.36
Granted 480,000 1.525- 1.69 1.53
Exercised (86,200) 1.13 - 2.00 1.36
Cancelled (247,800) 1.13 - 2.00 1.35
---------- ----------- -------
Outstanding at February 28, 2001 517,000 1.50 - 2.19 1.54
Granted 85,000 5.34 - 6.50 6.36
Exercised (19,000) 1.50 - 2.19 1.61
Cancelled - - -
-----------------------------------------------
Outstanding at December 31, 2001 583,000 $1.53 - 6.50 $2.24
===============================================
At December 31, 2001, 329,999 options were exercisable, 253,001 options
were unexercisable and no options were available for issuance under the
1992 Plan. At December 31, 2001, 1,415,000 options were available for
future grants under the 2001 Plan. The options outstanding at December 31,
2001 under both the 1999 Plan and the 2001 Plan had remaining lives of
between less than one year and more than nine years, with a
weighted-average life of 8.88 years.
At December 31, 2001, there were 367,300 shares of common stock reserved
for issuance under the 1992 Plan.
35
ADDITIONAL STOCK PLAN INFORMATION
The Company continues to account for its stock-based awards using the
intrinsic value method in accordance with APB 25, "Accounting for Stock
Issued to Employees", and its related interpretations. Accordingly, no
compensation expense has been recognized in the financial statements for
employee stock arrangements.
SFAS No. 123, "Accounting for Stock-Based Compensation", requires the
disclosure of pro forma net income and net income per share had the
Company adopted the fair value method as of the beginning of fiscal 1997.
Under SFAS No. 123, the fair value of stock-based awards to employees is
calculated through the use of option pricing models, even though such
models were developed to estimate the fair value of freely tradeable,
fully transferable options without vesting restrictions, which
significantly differ from the Company's stock option awards. These models
also require subjective assumptions, including future stock price
volatility and expected time to exercise, which greatly affect the
calculated values. The Company's calculations were made using the
Black-Scholes option pricing model with the following weighted average
assumptions: expected life, 60 months following vesting; stock volatility
of 67.9%, 64.1%, and 38.1%, and risk free interest rates of 5.00%, 6.73%,
and 5.9% for the ten-month period ended December 31, 2001 and the fiscal
years ended February 28, 2001 and February 29, 2000, respectively, and no
dividends during the expected term. The Company's calculations are on a
multiple option valuation approach and forfeitures are recognized as they
occur. If the computed fair values of the award had been amortized to
expense over the vesting period of the awards, the pro forma net income
and net income per share for the ten-month period ended December 31, 2001
would have been $3,016, or $.00 per share, and for the fiscal years ended
February 28, 2001 and February 29, 2000 the net (loss) income would have
been $(1,833,932), or $(.71) per share and $(346,973) or $(.13) per share,
respectively, on both a primary and fully diluted basis.
(11) EXPORT SALES AND OTHER INCOME
Export sales from the Company's United States operations accounted for
approximately 22 and 25 percent of net sales for the ten-month periods
ended December 31, 2001 and December 31, 2000, respectively, and 25 and 22
percent of net sales for each of the fiscal years ended February 28, 2001
and February 29, 2000, respectively.
36
(12) SEGMENT INFORMATION
The Company operates in two 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 for the ten months ended December 31, 2001 and
December 31, 2000 and for the fiscal years ended February 28, 2001, and
February 29, 2000 are summarized as follows:
NORTH AMERICA UNITED CONSOLIDATED
TEN MONTHS ENDED DECEMBER 31, 2001 KINGDOM TOTAL
-------------------------------------------------------------------------------------------------------------
Net sales from external customers $ 8,952,448 $ 1,576,219 $ 10,528,667
Intersegment net sales 203,933 203,933
Gross margins 3,309,404 692,306 4,001,710
Operating (loss) profit (150,262) 289,612 139,350
Depreciation and amortization 218,861 36,060 254,921
Total assets 19,965,627 734,619 20,700,246
Capital expenditures 180,506 91,187 271,693
-------------------------------------------------------------------------------------------------------------
TEN MONTHS ENDED DECEMBER 31, 2000 (unaudited)
-------------------------------------------------------------------------------------------------------------
Net sales from external customers $ 8,544,468 $ 1,312,600 $ 9,857,068
Intersegment net sales 216,897 216,897
Gross margins 2,937,334 564,183 3,501,517
Operating (loss) profit (334,108) 60,101 (274,007)
Depreciation and amortization 230,733 41,154 271,887
Total assets 3,766,866 705,904 4,472,770
Capital expenditures 32,277 10,916 43,193
-------------------------------------------------------------------------------------------------------------
YEAR ENDED FEBRUARY 28, 2001
-------------------------------------------------------------------------------------------------------------
Net sales from external customers $ 10,036,238 $ 1,605,914 $ 11,642,152
Intersegment net sales 248,390 - 248,390
Gross margins 3,121,133 658,021 3,779,154
Operating (loss) profit (1,587,547) 83,980 (1,503,567)
Depreciation and amortization 252,520 49,382 301,902
Total assets 3,855,618 698,601 4,554,219
Capital expenditures 38,465 10,916 49,381
-------------------------------------------------------------------------------------------------------------
YEAR ENDED FEBRUARY 29, 2000
-------------------------------------------------------------------------------------------------------------
Net sales from external customers $ 9,598,346 $ 1,546,708 $ 11,145,054
Intersegment net sales 237,439 - 237,439
Gross margins 3,353,581 605,027 3,958,608
Operating (loss) profit (451,267) 95,207 (356,060)
Depreciation and amortization 267,994 33,475 301,469
Total assets 4,027,369 710,822 4,738,191
Capital expenditures 395,075 181,949 577,024
-------------------------------------------------------------------------------------------------------------
(13) CREDIT FACILITIES
Upon closing of the Tender and the resultant change in control of the
Company, the Company's then existing revolving credit facility with a bank was
terminated. In order to provide the Company with additional liquidity, the
Company's President and Chief Executive Officer loaned $500,000 to the Company,
evidenced by a promissory note bearing interest at prime plus 1% (9.5% at
February 28, 2001), which was 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 such
officer as partial consideration for the payment for the shares of stock issued
upon exercise of his portion of the Options.
37
At February 28, 2001, $81,458 was outstanding on an $115,000 installment
note to finance the acquisition of certain machinery and equipment in the prior
year. As a result of the Tender, the note became due and payable and,
accordingly, was classified as a current liability at February 28, 2001. This
note was repaid in March 2001.
(14) 4% CONVERTIBLE SUBORDINATED NOTES
On October 31, 2001, the Company completed the sale of $14,589,000
principal amount of its 4% convertible subordinated notes due August 31, 2006
(the "Notes"), in a private placement. The Notes are convertible into shares of
the Company's common stock at a conversion price of $6.00 per share, (equal to
the market value of the Company's stock on October 31, 2001), subject to
anti-dilution protections and are subordinated to existing or future senior
indebtedness of the Company. Among other provisions, the Company may, at its
option, call, prepay, redeem, repurchase, convert or otherwise acquire
(collectively, "Call") the Notes, in whole or in part, (1) after August 31, 2003
or (2) at any time if the closing price of the Company's common stock equals or
exceeds $9.00 per share for at least ten consecutive trading days. If the
Company elects to Call any of the Notes, the holders of the Notes may elect to
convert the Notes for the Company's common stock. Interest is payable
semi-annually on the last day of June and December. Interest expense for the ten
months ended December 31, 2001 on these Notes was $97,260.
The Company received net proceeds of $13,668,067 from the offering of the
Notes. The cost of raising these proceeds including placement and legal fees was
$920,933, which is being amortized on a straight-line basis over the life of the
Notes. The amortization of these costs for the ten months ended December 31,
2001 was $30,698.
(15) RECONCILIATION OF BASIC AND DILUTED 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 impact of the Notes on the
calculation of the fully-diluted earnings per share was anti-dilutive and
is therefore not included in the computation for the ten-months ended
December 31, 2001. There are no potential dilutive shares included for the
ten months ended December 31, 2000 and for the fiscal years ended February
28, 2001 and February 29, 2000, as their effect would have been
anti-dilutive. The following table provides a reconciliation between basic
and diluted earnings per share:
FOR THE TEN MONTHS ENDED FOR THE FISCAL YEARS ENDED
--------------------------------------------------------------------------------------
DECEMBER 31, 2001 DECEMBER 31, 2000 FEBRUARY 28, 2001
----------------- ----------------- -----------------
(unaudited)
PER PER PER
INCOME SHARES SHARE INCOME SHARES SHARE INCOME SHARES SHARE
------ ------ ----- ------ ------ ----- ------ ------ -----
Basic EPS
---------
Income (loss)available
to common
stockholders $ 70,279 3,860,167 $.02 $(272,329) 2,569,730 $(.11) $(1,506,387) 2,582,615 $(.58)
Effect of Dilutive Securities
-----------------------------
Stock options 446,369
-------
Diluted EPS
-----------
Income (loss) available to
common stockholders plus
exercise of stock options $ 70,279 4,306,536 $ .02 $(272,329) 2,569,730 $(.11) $(1,506,387) 2,582,615 $(.58)
======== ========= ===== ========= ========= ===== =========== ========= =====
FEBRUARY 29, 2000
-----------------
PER
INCOME SHARE SHARE
------ ----- -----
Basic EPS
Income (loss)available
to common
stockholders $(335,274) 2,571,004 $(.13)
Effect of Dilutive Securities
Stock options
Diluted EPS
-----------
Income (loss) available to
common stockholders plus
exercise of stock options $(335,274) 2,571,004 $(.13)
========= ========= =====
38
(16) RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD
In June 2001, the Financial Accounting Standards Boards (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
methods or the purchase method. The adoption of SFAS No. 141 is not
expected to have a significant impact on the Company's financial
statements.
In June 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible
Assets". SFAS No. 142 addresses accounting and reporting for acquired
goodwill and other tangible 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 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 No. 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 No. 144 is not expected to have a
material impact on the Company's financial statements.
39
LANGER, INC.
AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II
FOR THE TEN MONTHS ENDED DECEMBER 31, 2001 AND THE FISCAL YEARS ENDED FEBRUARY 28, 2001
AND FEBRUARY 29, 2000
ALLOWANCE
SALES FOR DOUBTFUL
RETURNS AND ACCOUNTS WARRANTY INVENTORY
ALLOWANCES RECEIVABLE RESERVE RESERVE
---------- ---------- ------- -------
At March 1, 1999 $ 46,058 $ 36,155 $ 46,797 $ 67,527
Additions 31,167 - -
Deletions - 4,669 - 11,797
------------- ------------ ------------ ----------
At February 29, 2000 46,058 62,653 46,797 55,730
Additions - 19,000 21 137,593
Deletions 17,259 23,833 - -
------------- ------------ ------------ ----------
At February 28, 2001 28,799 57,820 46,818 193,323
Additions 245 15,015 - 80,408
Deletions 8,100 29,566 6,476 59,825
------------ ------------- ------------ ----------
At December 31, 2001 $ 20,944 $ 43,269 $ 40,342 $ 213,906
============= ============== ============= ==========
40
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information required by Item 10, appearing under the caption
"Directors and Executive Officers of the Company," of the Company's Proxy
Statement for the 2002 Annual Meeting of Stockholders, is incorporated herein
by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11, appearing under the caption
"Executive Compensation," of the Company's proxy statement for the 2002 Annual
Meeting of Stockholders is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12, appearing under the caption
"Security Ownership of Certain Beneficial Owners and Management," of the
Company's proxy statement for the 2002 Annual Meeting of Stockholders is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13, appearing under the caption "Certain
Relationships and Related Transactions," of the Company's proxy statement for
the 2002 Annual Meeting of the Stockholders is incorporated herein by
reference.
41
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
See the Index to Financial Statements in Item 8 hereto.
2. FINANCIAL STATEMENT SCHEDULES
The following Financial Statement Schedule is filed as part of this Form
10-K:
Schedule II - Valuation and Qualifying Accounts for the ten months ended
December 31, 2001 and for the fiscal years ended February
28, 2001 and February 29, 2000
All other schedules have been omitted because they are not applicable, not
required or the information is disclosed in the consolidated financial
statements, including the notes thereto.
3. EXHIBITS
NUMBER DOCUMENT
------ --------
2.1 Tender Offer Agreement, dated as of December 28,
2000, between OrthoStrategies, OrthoStrategies
Acquisition Corp., and Langer, Inc. (filed as Exhibit
(d)(1)(A) to Schedule TO, Tender Offer Statement,
filed with the Securities and Exchange Commission on
January 10, 2001 ("Schedule TO") and incorporated
herein by reference).
3.1 Certificate of Incorporation of the Company
incorporated by reference to the Company's
Registration Statement of Form S-1 (No. 2-87183),
which became effective with the Securities and
Exchange Commission on January 17, 1984 ("S-1").
3.2 Certificate of Amendment of the Certificate of
Incorporation of the Company incorporated by
reference to the Company's Current Report of Form 8-K
filed on July 31, 2001.
3.3 Bylaws of the Company, as amended through July 2,
1987 incorporated by reference to Post-effective
Amendment No. 1 to the Company's Registration
Statement on Form S-8.
4.1 Specimen of Common Stock Certificate incorporated by
reference to the Company's Registration Statement of
Form S-1 (No. 2-87183), which became effective with
the Securities and Exchange Commission on January 17,
1984.
10.1* Option Agreement with Andrew H. Meyers, dated
February 13, 2001 incorporated by reference to the
Company's Annual Report on Form 10-K filed on May 29,
2001.
10.2 Option Agreement with Langer Partners, LLC, dated
February 13, 2001 incorporated by reference to the
Company's Annual Report on Form 10-K filed on May 29,
2001.
10.3* Option Agreement with Jonathan Foster, dated February
13, 2001 incorporated by reference to the Company's
Annual Report on Form 10-K filed on May 29, 2001.
10.4* Option Agreement with Greg Nelson, dated February 13,
2001 incorporated by reference to the Company's
Annual Report on Form 10-K filed on May 29, 2001.
10.5 Form of Registration Rights Agreement between the
Company and Andrew H. Meyers, Langer Partners, LLC,
Jonathan Foster, and Greg Nelson, dated February 13,
2001
42
incorporated by reference to the Company's Annual
Report on Form 10-K filed on May 29, 2001.
10.6* Employment Agreement between the Company and Andrew
H. Meyers, dated as of February 13, 2001 incorporated
by reference to the Company's Annual Report on Form
10-K filed on May 29, 2001.
10.7* Employment Agreement between the Company and Steven
Goldstein, dated as of February 13, 2001 incorporated
by reference to the Company's Annual Report on Form
10-K filed on May 29, 2001.
10.8* Option Agreement between the Company and Andrew H.
Meyers, dated as of December 28, 2000 incorporated by
reference to the Company's Annual Report on Form 10-K
filed on May 29, 2001.
10.9* Option Agreement between the Company and Steven
Goldstein, dated as of December 28, 2000 incorporated
by reference to the Company's Annual Report on Form
10-K filed on May 29, 2001.
10.10* Consulting Agreement between the Company and Kanders
& Company, Inc., dated February 13, 2001 (the form of
which was filed as Exhibit (d)(1)(H) to the Schedule
TO and is incorporated herein by reference).
10.11* Option Agreement between the Company and Kanders &
Company, Inc., dated February 13, 2001 (the form of
which was filed as Exhibit (d)(1)(G) to the Schedule
TO and is incorporated herein by reference).
10.12 Registration Rights Agreement between the Company and
Kanders & Company, Inc., dated February 13, 2001 (the
form of which was filed as Exhibit (d)(1)(I) to the
Schedule TO and is incorporated herein by reference).
10.13 Indemnification Agreement between the Company and
Kanders & Company, Inc., dated February 13, 2001 (the
form of which was filed as Exhibit (d)(1)(J) to the
Schedule TO and is incorporated herein by reference).
10.14 Letter Agreement among the Company, OrthoStrategies,
OrthoStrategies Acquisition Corp, Steven V. Ardia,
Thomas I. Altholz, Justin Wernick, and Kenneth
Granat, dated December 28, 2000 (filed as Exhibit
(d)(1)(K) to the Schedule TO and incorporated herein
by reference).
10.15* Letter Agreement between the Company and Daniel
Gorney, dated as of December 28, 2000 (filed as
Exhibit (d)(1)(O) to the Schedule TO and incorporated
herein by reference).
10.16* Letter Agreement between the Company and Thomas
Archbold, dated as of December 28, 2000 (filed as
Exhibit (d)(1)(P) to the Schedule TO and incorporated
herein by reference).
10.17* Letter Agreement between the Company and Ronald J.
Spinilli, dated as of December 28, 2000 (filed as
Exhibit (d)(1)(Q) to the Schedule TO and incorporated
herein by reference).
10.18* The Company's 2001 Stock Incentive Plan.
10.19 Langer Biomechanics Group Retirement Plan, restated
as of July 20, 1979 and incorporated by reference to
the S-1.
43
10.20 Agreement, dated March 26, 1992, and effective as of
March 1, 1992, relating to the Company's 401(k) Tax
Deferred Savings Plan and incorporated by reference
to the Company's Form 10-K for the fiscal year ended
February 29, 1992.
10.21* Consulting Agreement between the Company and Stephen
V. Ardia, dated November 29, 2000 incorporated by
reference to the Company's Annual Report on Form 10-K
filed on May 29, 2001.
10.22* Promissory Note of the Company in favor of Andrew H.
Meyers, dated February 13, 2001 (filed as Exhibit
99.1 to the Company's Form 8-K Current Report, dated
February 13, 2001, and incorporated herein by
reference).
10.23 Form of Indemnification Agreement for non-management
directors of the Company incorporated by reference to
the Company's Annual Report on Form 10-K filed on May
29, 2001.
10.24 Copy of Lease related to the Company's Deer Park
facilities incorporated by reference to the Company's
Annual Report on Form 10-K filed on May 19, 2000.
21.1 List of subsidiaries incorporated by reference to the
Company's Annual Report on Form 10-K filed on May 29,
2001.
23.1 Consent of accountants
* This exhibit represents a management contract or a compensatory plan
(b) REPORTS ON FORM 8-K:
The Company filed a report on Form 8-K on November 13, 2001 to
report the sale of $14,589,000 principal amount of its 4% convertible
subordinated notes, due August 31, 2006.
44
SIGNATURES
Pursuant to the requirements of Section l3 or l5(d) of the Securities
Exchange Act of l934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
LANGER, INC.
Date: March 29, 2002 By: /s/ Andrew H. Meyers
--------------------------------
Andrew H. Meyers, President and
Chief Executive Officer
(Principal Executive Officer)
By: /s/Terence Fitzmaurice
--------------------------------
Terence Fitzmaurice,
Assistant Controller
(Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of l934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 29, 2002 By: /s/ Burtt Ehrlich
--------------------------------
Burtt Ehrlich, Director
Date: March 29, 2002 By: /s/ Arthur Goldstein
--------------------------------
Arthur Goldstein, Director
Date: March 29, 2002 By: /s/ Greg Nelson
--------------------------------
Greg Nelson, Director
Date: March 29, 2002 By: /s/ Jonathan Foster
--------------------------------
Jonathan Foster, Director
45
Exhibit Index
Number Document
------ --------
2.1 Tender Offer Agreement, dated as of December 28,
2000, between OrthoStrategies, OrthoStrategies
Acquisition Corp., and Langer, Inc. (filed as Exhibit
(d)(1)(A) to Schedule TO, Tender Offer Statement,
filed with the Securities and Exchange Commission on
January 10, 2001 ("Schedule TO") and incorporated
herein by reference).
3.1 Certificate of Incorporation of the Company
incorporated by reference to the Company's
Registration Statement of Form S-1 (No. 2-87183),
which became effective with the Securities and
Exchange Commission on January 17, 1984 ("S-1").
3.2 Certificate of Amendment of the Certificate of
Incorporation of the Company incorporated by
reference to the Company's Current Report of Form 8-K
filed on July 31, 2001.
3.3 Bylaws of the Company, as amended through July 2,
1987 incorporated by reference to Post-effective
Amendment No. 1 to the Company's Registration
Statement on Form S-8.
4.1 Specimen of Common Stock Certificate incorporated by
reference to the Company's Registration Statement of
Form S-1 (No. 2-87183), which became effective with
the Securities and Exchange Commission on January 17,
1984.
10.1* Option Agreement with Andrew H. Meyers, dated
February 13, 2001 incorporated by reference to the
Company's Annual Report on Form 10-K filed on May 29,
2001.
10.2 Option Agreement with Langer Partners, LLC, dated
February 13, 2001 incorporated by reference to the
Company's Annual Report on Form 10-K filed on May 29,
2001.
10.3* Option Agreement with Jonathan Foster, dated February
13, 2001 incorporated by reference to the Company's
Annual Report on Form 10-K filed on May 29, 2001.
10.4* Option Agreement with Greg Nelson, dated February 13,
2001 incorporated by reference to the Company's
Annual Report on Form 10-K filed on May 29, 2001.
10.5 Form of Registration Rights Agreement between the
Company and Andrew H. Meyers, Langer Partners, LLC,
Jonathan Foster, and Greg Nelson, dated February 13,
2001 incorporated by reference to the Company's
Annual Report on Form 10-K filed on May 29, 2001.
10.6* Employment Agreement between the Company and Andrew
H. Meyers, dated as of February 13, 2001 incorporated
by reference to the Company's Annual Report on Form
10-K filed on May 29, 2001.
10.7* Employment Agreement between the Company and Steven
Goldstein, dated as of February 13, 2001 incorporated
by reference to the Company's Annual Report on Form
10-K filed on May 29, 2001.
10.8* Option Agreement between the Company and Andrew H.
Meyers, dated as of December 28, 2000 incorporated by
reference to the Company's Annual Report on Form 10-K
filed on May 29, 2001.
46
10.9* Option Agreement between the Company and Steven
Goldstein, dated as of December 28, 2000 incorporated
by reference to the Company's Annual Report on Form
10-K filed on May 29, 2001.
10.10* Consulting Agreement between the Company and Kanders
& Company, Inc., dated February 13, 2001 (the form of
which was filed as Exhibit (d)(1)(H) to the Schedule
TO and is incorporated herein by reference).
10.11* Option Agreement between the Company and Kanders &
Company, Inc., dated February 13, 2001 (the form of
which was filed as Exhibit (d)(1)(G) to the Schedule
TO and is incorporated herein by reference).
10.12 Registration Rights Agreement between the Company and
Kanders & Company, Inc., dated February 13, 2001 (the
form of which was filed as Exhibit (d)(1)(I) to the
Schedule TO and is incorporated herein by reference).
10.13 Indemnification Agreement between the Company and
Kanders & Company, Inc., dated February 13, 2001 (the
form of which was filed as Exhibit (d)(1)(J) to the
Schedule TO and is incorporated herein by reference).
10.14 Letter Agreement among the Company, OrthoStrategies,
OrthoStrategies Acquisition Corp, Steven V. Ardia,
Thomas I. Altholz, Justin Wernick, and Kenneth
Granat, dated December 28, 2000 (filed as Exhibit
(d)(1)(K) to the Schedule TO and incorporated herein
by reference).
10.15* Letter Agreement between the Company and Daniel
Gorney, dated as of December 28, 2000 (filed as
Exhibit (d)(1)(O) to the Schedule TO and incorporated
herein by reference).
10.16* Letter Agreement between the Company and Thomas
Archbold, dated as of December 28, 2000 (filed as
Exhibit (d)(1)(P) to the Schedule TO and incorporated
herein by reference).
10.17* Letter Agreement between the Company and Ronald J.
Spinilli, dated as of December 28, 2000 (filed as
Exhibit (d)(1)(Q) to the Schedule TO and incorporated
herein by reference).
10.18* The Company's 2001 Stock Incentive Plan.
10.19 Langer Biomechanics Group Retirement Plan, restated
as of July 20, 1979 and incorporated by reference to
the S-1.
10.20 Agreement, dated March 26, 1992, and effective as of
March 1, 1992, relating to the Company's 401(k) Tax
Deferred Savings Plan and incorporated by reference
to the Company's Form 10-K for the fiscal year ended
February 29, 1992.
10.21* Consulting Agreement between the Company and Stephen
V. Ardia, dated November 29, 2000 incorporated by
reference to the Company's Annual Report on Form 10-K
filed on May 29, 2001.
10.22* Promissory Note of the Company in favor of Andrew H.
Meyers, dated February 13, 2001 (filed as Exhibit
99.1 to the Company's Form 8-K Current Report, dated
February 13, 2001, and incorporated herein by
reference).
10.23 Form of Indemnification Agreement for non-management
directors of the Company incorporated by reference to
the Company's Annual Report on Form 10-K filed on May
29, 2001.
47
10.24 Copy of Lease related to the Company's Deer Park
facilities incorporated by reference to the Company's
Annual Report on Form 10-K filed on May 19, 2000.
21.1 List of subsidiaries incorporated by reference to the
Company's Annual Report on Form 10-K filed on May 29,
2001.
23.1 Consent of accountants
* This exhibit represents a management contract or a compensatory plan
48