SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
--------------------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-12991
LANGER, INC.
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(Exact name of Registrant as specified in its charter)
NEW YORK 11-2239561
------------------ ------------------
(State or other jurisdiction (I.R.S. employer identification
of incorporation or organization) number)
450 COMMACK ROAD, DEER PARK, NEW YORK 11729
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (631) 667-1200
--------------
* * * * * * * * * * *
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----------- ---------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, Par Value $.02 - 4,268,022 shares as of May 13, 2002.
INDEX
LANGER, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 2002 and December 31, 2001 3
Unaudited Consolidated Statements of Operations -
Three months ended March 31, 2002 and March 31, 2001 4
Unaudited Consolidated Statements of Cash Flows -
Three months ended March 31, 2002 and March 31, 2001 5
Notes to Unaudited Consolidated Financial Statements -
Three months ended March 31, 2002 and March 31, 2001 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LANGER, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2002 DECEMBER 31, 2001
-------------- -----------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 15,067,002 $ 15,796,922
Accounts receivable, net of allowance for doubtful
accounts of $49,600 and $43,300, respectively 1,674,039 1,646,696
Inventories, net 1,281,582 1,141,151
Prepaid expenses and other current receivables 473,056 185,740
------------- -------------
Total current assets 18,495,679 18,770,509
Property and equipment, net 656,786 701,996
Other assets 1,173,571 1,227,741
------------- -------------
Total assets $ 20,326,036 $ 20,700,246
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 327,404 $ 429,531
Accrued liabilities 1,219,393 1,224,444
Unearned revenue 452,754 461,355
------------- -------------
Total current liabilities 1,999,551 2,115,330
Unearned revenue 134,886 113,740
Long-term debt 14,589,000 14,589,000
Deferred income taxes 15,689 15,967
------------- -------------
Total liabilities 16,739,126 16,834,037
------------- -------------
Stockholders' Equity
Common stock, $.02 par value. Authorized
10,000,000 shares; issued 4,268,022 85,361 85,361
Additional paid-in capital 12,278,781 12,258,724
Accumulated deficit (8,344,580) (8,048,012)
Accumulated other comprehensive loss (317,195) (314,407)
------------- ------------
3,702,367 3,981,666
Less: treasury stock at cost, 67,100 shares (115,457) (115,457)
------------- ------------
Total stockholders' equity 3,586,910 3,866,209
------------- ------------
Total liabilities and stockholders' equity $ 20,326,036 $ 20,700,246
============= ============
See accompanying notes to unaudited consolidated financial statements.
3
LANGER, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
2002 2001
------------ ------------
Net sales $ 2,993,448 $ 2,789,807
Cost of sales 1,818,082 2,169,096
------------ ------------
Gross profit 1,175,366 620,711
Selling expenses 518,898 458,648
Research and development expenses 45,888 55,751
General and administrative expenses 786,116 550,490
Change in control and restructuring expenses - 795,667
------------ ------------
Operating loss (175,536) (1,239,845)
------------ ------------
Other income (expense):
Interest income 75,367 591
Interest expense (146,508) (8,715)
Other (45,891) (530)
------------ ------------
Other expense, net (117,032) (8,654)
------------ ------------
Loss before income taxes (292,568) (1,248,499)
Provision for income taxes 4,000 2,000
------------ ------------
Net loss $ (296,568) $ (1,250,499)
============ ============
Weighted average number of common shares used in
computation of net loss per share:
Basic 4,200,922 2,696,946
============ ============
Diluted 4,200,922 $ 2,696,946
============ ============
Net loss per common share:
Basic $ (0.07) $ (0.46)
============ ============
Diluted $ (0.07) $ (0.46)
============ ============
See accompanying notes to unaudited consolidated financial statements.
4
LANGER, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
2002 2001
------------- -------------
Cash Flows From Operating Activities:
Net loss $ (296,568) $ (1,250,499)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization 137,800 61,183
Compensation expense for options acceleration 20,057 -
Provision for doubtful accounts receivable 10,165 12,000
Deferred foreign tax provision 109 1,483
Issuance of stock options for consulting services - 245,000
Changes in operating assets and liabilities:
Accounts receivable (46,706) 67,805
Inventories (145,446) 201,143
Prepaid expenses and other assets (286,729) (65,278)
Accounts payable and accrued liabilities (93,685) 219,501
Unearned revenue 16,053 (3,652)
------------ ------------
Net cash used in operating activites (684,950) (511,314)
------------ ------------
Cash Flows From Investing Activities:
Capital expenditures (44,970) (3,532)
------------ ------------
Net cash used in investing activities (44,970) (3,532)
------------ ------------
Cash Flows From Financing Activities:
Common stock options exercised - 36,350
Proceeds from issuance of debt - 500,000
Payments on debt - (87,646)
Issuance of shares from option exercise - 225,000
------------ ------------
Net cash provided by financing activites - 673,704
------------ ------------
Net (decrease) increase in cash and cash equivalents (729,920) 158,858
Cash and cash equivalents at beginning of quarter 15,796,922 417,953
------------ ------------
Cash and cash equivalents at end of quarter $ 15,067,002 $ 576,811
============ ============
Supplemental Disclosures of Cash Flow Information-
Cash paid during the quarter for:
Interest $ 146,508 $ 8,715
============ ============
Income taxes $ - $ -
============ ============
See accompanying notes to unaudited consolidated financial statements.
5
LANGER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND MARCH 31, 2001
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS
(a) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. These unaudited consolidated financial statements should be
read in conjunction with the financial statements and footnotes
included in the Company's annual report on Form 10-K for the fiscal
period ended December 31, 2001.
Operating results for the three months ended March 31, 2002 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2002.
(b) 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.
(c) 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 and warrants) outstanding
during the period, except where the effect would be antidilutive,
computed in accordance with the treasury stock method.
(d) PROVISION FOR INCOME TAXES
For the three months ended March 31, 2002, there was no provision for
income taxes on domestic operations and the provision for income taxes
on foreign operations was estimated at $4,000. The provision for income
taxes for the three months ended March 31, 2001 was estimated at
$2,000.
(e) 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.
(f) RECLASSIFICATIONS
Certain amounts have been reclassified in the prior year consolidated
financial statements to present them on a basis consistent with the
current year.
6
NOTE 2 - CHANGE IN CONTROL
Effective February 13, 2001, Andrew H. Meyers, Greg Nelson and Langer Partners
LLC, and its designees ("Offerors"), acquired a controlling interest in the
Company when they purchased 1,362,509 validly tendered shares of the Company at
$1.525 per share, or approximately 51% of the then outstanding common stock of
the Company, under the terms of a December 27, 2000 Tender Offer Agreement (the
"Tender") under which the Offerors offered to purchase up to 75% of the
Company's common stock. In order to provide the Company with adequate equity to
maintain the Company's compliance with the listing requirements of the NASDAQ
small cap market and to enable the Company to finance its ongoing operations as
well as potentially take advantage of opportunities in the marketplace and in
order to induce the Offerors to enter into the Tender Offer Agreement, pursuant
to its terms, the Offerors were granted 180 day options to purchase up to
1,400,000 shares of the Company's common stock, with an initial exercise price
of $1.525 per share, rising up to $1.60 per share (the "Options"). 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, of which $795,667 was incurred in
the first quarter of 2001. These expenses 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.
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. 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 $2,135,000, 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.
NOTE 3 - 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
three months ended March 31, 2002 on these Notes was $145,890.
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 three months ended March 31, 2002
was $48,043.
7
NOTE 4 - INVENTORIES
The Company did not take a physical inventory as of March 31, 2002. Inventories
and cost of sales for the interim period were based on the Company's perpetual
inventory records. Inventories consist of:
March 31, 2002 December 31, 2001
-------------- -----------------
(Unaudited)
Raw materials $ 1,079,819 $ 994,186
Work-in-process 112,054 105,453
Finished goods 303,615 255,418
------------ ------------
1,495,488 1,355,057
Less: allowance for obsolescence 213,906 213,906
------------ ------------
$ 1,281,582 $ 1,141,151
============ ============
NOTE 5 - SEASONALITY
A substantial portion of the Company's revenue is derived from the sale of
orthotic devices. North American orthotic revenue has historically been
significantly higher in the warmer months of the year, while orthotic revenue of
the Company's United Kingdom subsidiary has historically not evidenced any
seasonality.
NOTE 6 - COMPREHENSIVE INCOME
The Company's comprehensive earnings were as follows:
Three Months Ended March 31,
2002 2001
------ ----
Net loss $(296,568) $(1,250,499)
Other comprehensive (loss) income, net of tax:
Change in equity resulting from translation
of financial statements into U.S. dollars. (2,789) 6,885
--------- -----------
Comprehensive loss $(299,357) $(1,243,614)
========= ===========
8
NOTE 7 - 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 three months ended March 31, 2002 and March
31, 2001 are summarized as follows:
THREE MONTHS ENDED MARCH 31, 2002 NORTH AMERICA UNITED KINGDOM TOTAL
-------------------------------------------------------------------------------------------------------------
Net sales from external customers $ 2,488,231 $ 505,217 $ 2,993,448
Intersegment net sales $ 102,912 $ - $ 102,912
Gross margins $ 949,037 $ 226,329 $ 1,175,366
Operating (loss) profit $ (271,350) $ 95,814 $ (175,536)
THREE MONTHS ENDED MARCH 31, 2001 NORTH AMERICA UNITED KINGDOM TOTAL
-------------------------------------------------------------------------------------------------------------
Net sales from external customers $ 2,360,578 $ 429,229 $ 2,789,807
Intersegment net sales $ 58,334 $ - $ 58,334
Gross margins $ 435,704 $ 185,007 $ 620,711
Operating (loss) profit $ (1,291,502) $ 51,657 $ (1,239,845)
NOTE 8 - INCOME (LOSS) PER SHARE
The following table provides a reconciliation between basic and diluted
earnings per share:
Three months ended March 31,
2002 2001
------------------------------------- ------------------------------
Per Per
Income Shares Share Income Shares Share
------ ------ ----- ------ ------ -----
Basic loss per common share
Loss available to common
stockholders $ (296,568) 4,200,922 $ (0.07) $ (1,250,499) 2,696,946 $ (0.46)
Stock options - - - - - -
---------- --------- ------- ------------ --------- -------
Diluted loss per common share
Loss available to common
stockholders plus assumed
exercise of stock options $ (296,568) 4,200,922 $ (0.07) $ (1,250,499) 2,696,946 $ (0.46)
========== ========= ======= ============ ========= =======
9
NOTE 9 - SUBSEQUENT EVENTS
On May 6, 2002, the Company announced the acquisition of the net assets of
Benefoot, Inc. and Benefoot Professional Products, Inc. for $6,000,000, payable
in cash, the Company's common stock and the issuance of promissory notes,
bearing interest at 4%, as well as the assumption of approximately $400,000 of
long-term liabilities. The Company also agreed to make an additional payment of
up to $1,000,000 over a two-year period based upon achievement of certain
milestones. Benefoot, Inc. designs, manufactures and distributes foot and
gait-related biomechanical products, including custom-made prescription orthotic
devices and non-custom made orthotic devices to health care professionals.
Benefoot Professional Products, Inc. markets and distributes footware products
to podiatrists' patients. Annual revenues of the combined Benefoot businesses
for 2001 were approximately $7,000,000.
In April 2002, the Company made a full-recourse secured two-year term loan to
Steven Goldstein, a Vice President and the Secretary of the Company, in the
principal sum of $21,000, which bears interest at the rate of 4% per year,
compounded quarterly. Interest and principal are payable in full on the due
date, April 3, 2004. The loan is secured by a pledge of all Company Common Stock
now owned or hereafter acquired by Mr. Goldstein. The loan may be prepaid in
whole or in part at any time by Mr. Goldstein without penalty and must be repaid
upon termination of his employment with the Company or the sale of any shares of
the Company's common stock owned by Mr. Goldstein, to the extent of the proceeds
received upon any such sale.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2002, AS COMPARED WITH THREE MONTHS ENDED MARCH 31,
2001.
REVENUES
Sales for the three months ended March 31, 2002 were $2,993,448 or 7.3% above
sales of $2,789,807 for the comparable period in 2001. Sales of custom-made
orthotic devices approximated $2,513,000 for the three months ended March 31,
2002, an increase of 2% over approximately $2,460,000 for the comparable prior
period. The increase was attributable principally to an increase in orthotic
revenue in the United States and the United Kingdom, partially offset by a
decline in Canadian revenue, which was primarily due to the impact on the
business of the devaluation of the Canadian dollar against United States
currency. Sales of PPT, the Company's soft tissue supplement material, and other
products, for the three months ended March 31, 2002, approximated $480,000, an
increase of 45% over approximately $330,000 for the comparable prior period. The
increase was due to a greater focus on the sales and distribution of these
products.
GROSS PROFIT
Gross profit as a percentage of sales for the three months ended March 31, 2002
was 39.3%, as compared to 22.3% for the three months ended March 31, 2001. Gross
profit for 2001 was impacted by the effects of recording reserves for product
obsolescence and additional material cost variances, which were not encountered
in 2002. Gross profit for 2002 improved as a result of improvements in
efficiencies in the manufacturing process, reductions in overhead costs and
increased sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling expenses for the three months ended March 31, 2002, were $518,898 or
17.3% of sales as compared to $458,648 or 16.4% of sales in the prior year. The
increase is primarily due to costs associated with the strengthening of the
sales and marketing infrastructure.
General and administrative expenses were $786,116 or 26.3% of sales for the
three months ended March 31, 2002 as compared to $550,490 or 19.7% of sales for
the comparable period of the prior year. The increase is primarily due to costs
associated with the strengthening of the management infrastructure and costs
associated with the implementation of a Company wide incentive plan.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the quarter ended March 31, 2002 were
$45,888, a decrease of $9,863 from the prior year level of $55,751. The prior
year period included expenditures associated with modifications to new
manufacturing processes.
OTHER INCOME (EXPENSE), NET
Other income (expense), net was $(117,032) for the three months ended March 31,
2002 as compared to $(8,654) for the comparable prior period. The increase in
expense is attributable in part to the interest expense of the Company's 4%
Convertible Subordinated Notes, net of related interest income on the unused
cash proceeds.
CHANGE IN CONTROL
Effective February 13, 2001, Andrew H. Meyers, Greg Nelson and Langer Partners
LLC, and its designees ("Offerors"), acquired a controlling interest in the
Company when they purchased 1,362,509 validly tendered shares of the Company at
$1.525 per share, or approximately 51% of the then outstanding common stock of
the Company, under the terms of a December 27, 2000 Tender Offer Agreement (the
"Tender") under which the Offerors offered to purchase up to 75% of the
Company's common stock. In order to provide the Company with adequate equity to
maintain the Company's compliance with the listing requirements of the NASDAQ
small cap market and to enable the Company to finance its ongoing operations as
well as potentially take advantage of opportunities in the marketplace and in
order to induce the Offerors to enter into the Tender Offer Agreement, pursuant
to its terms, the Offerors were granted 180 day options to purchase up to
1,400,000
11
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, of which $795,667 was incurred in
the first quarter of 2001. These expenses 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.
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. 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 $2,135,000, 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.
LIQUIDITY AND CAPITAL RESOURCES
Working capital as of March 31, 2002 was 16,496,128 as compared to 16,655,179 as
of December 31, 2001. Cash balances at March 31, 2002 were $15,067,002 a
decrease of $729,920 from December 31, 2001. This decrease is primarily
attributable to payments in the first quarter for annual insurance premiums,
payout of the Company incentive plan and a consulting agreement which were
included in accrued liabilities at the fiscal year ended December 31, 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 three-month period ended March 31, 2002
was $48,043. Interest is payable semi-annually on the last date in June and
December. Interest expense for the three months ended March 31, 2002 on these
Notes was $145,890.
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
$2,135,000, which was invested in the Company.
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.
12
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. As of January 1,
2002 the Company adopted the provisions of SFAS No. 141. The adoption of SFAS
No. 141 did not 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. As of January 1, 2002 the
Company adopted the provisions of SFAS No. 142. The adoption of SFAS No. 142 did
not have a significant 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. As of
January 1, 2002 the Company adopted the provisions of SFAS No. 144. The adoption
of SFAS No. 144 did not have a significant impact on the Company's financial
statements.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Information contained or incorporated by reference in this quarterly report on
Form 10-Q, 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, the Company's acquisition strategy, 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, the Company's business could
be materially adversely affected and the trading price of our common stock could
decline if any 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-Q
or to reflect the occurrence of unanticipated events.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In general, business enterprises can be exposed to market risks, including
fluctuation in commodity and raw materials prices, foreign currency exchange
rates, and interest rates that can adversely affect the cost and results of
operating, investing, and financing. In seeking to minimize the risks and/or
costs associated with such activities, 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.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K on May 13, 2002 to
report the acquisition of substantially all of the assets and
liabilities of Benefoot, Inc. and Benefoot Professional Products, Inc.
Such Form 8-K provides for the filing of financial statements and pro
forma financial information within 60 days after such filing.
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SIGNATURES
Pursuant to the requirements 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: May 15, 2002 By: /s/ Andrew H. Meyers
--------------------
Andrew H. Meyers, President and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Anthony J. Puglisi
----------------------
Anthony J. Puglisi, Vice President and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
16