UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 6, 2002
LANGER, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-12991 11-2239561
- -----------------------------------------------------------------------------------------------------
(State or other jurisdiction of incorporation) (Commission (I.R.S. Employer
File Number) Identification No.)
450 Commack Road, Deer Park, New York 11729-4510
- -----------------------------------------------------------------------------------------------------
(Address of principal executive executive offices) (Zip Code)
Registrant's telephone number, including area code: (631) 667-1200
------------------------
(Former Name or Former Address, if Changed Since Last Report)
This amended Form 8-K relates to the transaction on May 6, 2002 pursuant
to which Langer, Inc. ("Langer") acquired substantially all of the assets and
certain of the liabilities of each of Benefoot, Inc. and Benefoot Professional
Products, Inc. As permitted, the original Form 8-K omitted certain financial
statements required by Form 8-K. This amendment is filed to provide such
financial statements.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Businesses Acquired.
AUDITED COMBINED FINANCIAL STATEMENTS OF BENEFOOT, INC. AND
AFFILIFATE
Benefoot, Inc. and Affiliate Combined Balance Sheets as of December
31, 2001 and 2000
Benefoot, Inc. and Affiliate Combined Statements of Income for the
years ended December 31, 2001 and 2000
Benefoot, Inc. and Affiliate Combined Statements of Stockholders'
Equity for the years ended December 31, 2001 and 2000
Benefoot, Inc. and Affiliate Combined Statements of Cash Flows for
the years ended December 31, 2001 and 2000
Notes to Combined Financial Statements
UNAUITED INTERIM COMBINED FINANCIAL STATEMENTS OF BENEFOOT, INC.
AND AFFILIATE
Benefoot, Inc. and Affiliate Combined Balance Sheets as of March
31, 2002 and 2001
Benefoot, Inc. and Affiliate Combined Statements of Income for the
three months ended March 31, 2002 and 2001
Benefoot, Inc. and Affiliate Combined Statements of Stockholders'
Equity for the three months ended March 31, 2002 and 2001
Benefoot, Inc. and Affiliate Combined Statement of Cash Flows for
the three months ended March 31, 2002 and 2001
Notes to Combined Financial Statements
(b) Pro Forma Financial Information.
UNAUITED PRO FORMA FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet as of March 31,
2002
Condensed Consolidated Statement of Operations for the three months
ended March 31, 2002
Condensed Consolidated Statement of Operations for the period
ended December 31, 2001
Notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements
(c) Exhibits.
23.1 Consent of Trachtenberg & Pauker LLP
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Benefoot, Inc. and Affiliate
We have audited the accompanying combined balance sheets of Benefoot, Inc. and
Affiliate as of December 31, 2001 and 2000, and the related combined statements
of income, cash flows and statement of stockholders' equity for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements 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 financial
statements are free of material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Benefoot, Inc. and
Affiliate as of December 31, 2001 and 2000 and the combined results of its
operations and cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.
/s/Trachtenberg & Pauker, LLP
Woodbury, New York
March 22, 2002
BENEFOOT, INC. AND AFFILIATE
COMBINED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
ASSETS
------
2001 2000
---- ----
Current Assets
Cash and cash equivalents (Note A-3 and A-10) $ 338,836 $ 129,492
Accounts receivable, net of allowance for doubtful
accounts of $20,000 and $29,000 for 2001 and 2000,
respectively (Note A-4) 745,169 782,336
Inventory (Note A-5 and B) 644,291 522,459
Prepaid expenses 66,144 37,955
Other receivables 6,886 18,446
---------- ----------
Total Current Assets 1,801,326 1,490,688
---------- ----------
Property and Equipment, net of accumulated
depreciation of $337,764 and $289,979 for 2001
and 2000, respectively (Notes A-6 and C) 247,303 253,331
---------- ----------
Other Assets
Security deposits 10,858 9,660
Organization costs, net of accumulated amortization
of $2,260 and $1,695 for 2001 and 2000, respectively
(Note A-7) 563 1,128
---------- ----------
Total Other Assets 11,421 10,788
---------- ----------
Total Assets $2,060,050 $1,754,807
========== ==========
The Accompanying Notes are an Integral Part of These Combined Financial Statements.
-2-
BENEFOOT, INC. AND AFFILIATE
COMBINED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
2001 2000
---- ----
Current Liabilities
Current maturities of long-term debt (Note D) $ 94,960 $ 61,981
Current maturities of capitalized lease obligations
(Note E) 23,903 16,329
Accounts payable and accrued expenses 880,485 857,909
Payroll and other taxes payable 42,134 33,308
Loans from shareholders 11,258 13,106
Customer deposits 35,549 44,492
Unearned revenue (Note A-14) 163,407 155,318
Warranty reserve (Note F) 81,000 78,000
---------- ----------
Total Current Liabilities 1,332,696 1,260,443
---------- ----------
Long-Term Liabilities
Unearned revenue (Note A-14) 53,032 48,558
Deposits payable (Note G) 83,410 89,530
Long-term debt (Note D) 248,340 331,848
Capitalized lease obligations (Note E) 16,547 14,340
---------- ----------
Total Long-Term Liabilities 401,329 484,276
---------- ----------
Total Liabilities 1,734,025 1,744,719
---------- ----------
Commitments and Contingencies (Note H)
Stockholders' Equity
Common stock - Benefoot, Inc. (no-par value; 7,500
shares authorized, 200 shares issued and outstanding) 147,287 147,287
Common stock - Benefoot Professional Products,
Inc. (no-par value; 200 shares authorized, 103.95
shares and 100.00 shares issued and outstanding
for 2001 and 2000, respectively) 1,000 1,000
Retained earnings (accumulated deficit) 177,738 (138,199)
---------- ----------
Total Stockholders' Equity 326,025 10,088
---------- ----------
Total Liabilities and Stockholders' Equity $2,060,050 $1,754,807
========== ==========
The Accompanying Notes are an Integral Part of These Combined Financial Statements.
-3-
BENEFOOT, INC. AND AFFILIATE
COMBINED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
2001 2000
---- ----
Net Revenue $7,665,769 $6,719,354
Cost of Sales 4,039,722 3,473,746
---------- ----------
Gross Profit 3,626,047 3,245,608
---------- ----------
Operating Expenses
Officers' salaries 684,730 529,288
Selling 1,001,984 1,090,251
Shipping 732,605 698,660
General and administrative 784,160 721,255
Interest 97,761 90,776
---------- ----------
Total Operating Expenses 3,301,240 3,130,230
---------- ----------
Income From Operations 324,807 115,378
---------- ----------
Other Expenses
Acquisition Costs (Note J) 2,200 97,151
Loss on disposal of fixed assets -0- 1,796
---------- ----------
Total Other Expenses 2,200 98,947
---------- ----------
Income Before Income Taxes 322,607 16,431
Income Taxes (Note A-8) 6,670 4,456
---------- ----------
Net Income $ 315,937 $ 11,975
========== ==========
The Accompanying Notes are an Integral Part of These Combined Financial Statements.
-4-
BENEFOOT, INC. AND AFFILIATE
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
RETAINED
EARNINGS
COMMON (ACCUMULATED
STOCK DEFICIT) TOTAL
--------- ----------- --------
Balance -
December 31, 1999 $ 148,287 $ (150,174) $ (1,887)
Net income -0- 11,975 11,975
--------- ----------- --------
Balance -
December 31, 2000 148,287 (138,199) 10,088
Net income -0- 315,937 315,937
--------- ----------- --------
Balance -
December 31, 2001 $ 148,287 $ 177.738 $326,025
========= =========== ========
The Accompanying Notes are an Integral Part of These Combined Financial Statements.
-5-
BENEFOOT, INC. AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
2001 2000
---- ----
Cash Flows From Operating Activities:
- -------------------------------------
Net Income $ 315,937 $ 11,975
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 62,803 58,887
Provision for doubtful accounts receivable (9,000) (6,000)
Warranty reserve 3,000 (8,000)
Unearned revenue 12,563 (2,018)
Loss on disposal of fixed assets -0- 1,796
Changes in Assets and Liabilities
Decrease (Increase) in accounts receivable 46,166 (136,804)
Increase in inventory (121,832) (31,912)
(Increase) Decrease in prepaid expenses (28,189) 7,333
Decrease (Increase) in other receivables 11,560 (11,786)
Increase in security deposits (1,198) -0-
Increase in accounts payable and accrued expenses 22,576 219,588
Increase (Decrease) in payroll and other taxes
payable 8,826 (4,839)
Decrease in deposits payable (6,120) (40,855)
(Decrease) Increase in loans from shareholders (1,848) 986
Decrease in customer deposits (8,943) (27,437)
Decrease in pension plan payable -0- (50,000)
--------- --------
Net Cash Provided by (Used In) Operating Activities 306,301 (19,086)
--------- --------
Cash Flows From Investing Activities:
- -------------------------------------
Acquisition of property and equipment (23,309) (47,431)
--------- --------
Net Cash Used In Investing Activities (23,309) (47,431)
--------- --------
The Accompanying Notes are an Integral Part of These Combined Financial Statements.
-6-
BENEFOOT, INC. AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
2001 2000
---- ----
Cash Flows From Financing Activities:
- -------------------------------------
Proceeds from bank revolving line of credit 75,000 -0-
Principal payments of long-term debt (125,529) (86,091)
Payment of capitalized lease obligations (23,119) (13,521)
--------- ---------
Net Cash Used In Financing Activities (73,648) (99,612)
--------- ---------
Net Increase (Decrease) In Cash and Cash Equivalents 209,344 (166,129)
Cash and Cash Equivalents, Beginning 129,492 295,621
--------- ---------
Cash and Cash Equivalents, Ending $ 338,836 $ 129,492
========= =========
Supplemental disclosures of noncash investing and
financing activities:
- -----------------------------------------------------------------------
Capitalized lease obligations incurred in the
purchase of equipment $ 32,900 $ 18,148
========= =========
Supplemental disclosure of cash paid during the year:
- -----------------------------------------------------
Interest paid $ 98,556 $ 91,469
========= =========
Income tax paid $ 5,263 $ 4,707
========= =========
The Accompanying Notes are an Integral Part of These Combined Financial Statements.
-7-
BENEFOOT, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies consistently applied in the preparation of the
accompanying combined financial statements are as follows:
I. The Company
-----------
Benefoot, Inc. ("Benefoot") designs, manufacturers and distributes
foot and gait-related biomechanical products. Benefoot's primary
products include custom made prescription orthotic devices, custom
made sandals and non-custom made orthotic devices. 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. Benefoot markets its
products primarily to the professional footcare market, as well as to
other markets, including podiatrists, orthopedists, chiropractors,
physical therapists, certified orthotists and prosthetists.
Benefoot Professional Products, Inc. ("BPI"; BPI and Benefoot are
collectively referred to as the "Company"), an affiliated entity of
Benefoot, markets and distributes non-custom footwear products
including standard comfort shoes manufactured by well-known shoe
manufacturers, as well as custom made insoles for diabetic patients.
BPI markets and distributes its products through a variety of sources,
including shoe sample kiosks which are placed in the waiting rooms of
podiatrists. The products of BPI are sold to professional footcare
providers and directly to the patients of professional footcare
providers.
2. Combination
-----------
The combined financial statements include the accounts of Benefoot, Inc.
and Benefoot Professional Products, Inc. Intercompany balances and
transactions have been eliminated.
3. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents consist of cash in banks and other highly
liquid investments with a maturity of three months or less.
4. Accounts Receivable
-------------------
The Company uses the allowance method of accounting for bad debts for
financial statement purposes and the direct write-off method for income
tax purposes.
-8-
BENEFOOT, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
5. Inventory
---------
Inventory is stated at the lower of first-in first out (FIFO) cost or
market.
6. Property and Equipment
----------------------
Property and equipment are stated at cost. Depreciation is calculated
using the straight-line method for financial statement purposes and
accelerated methods for income tax purposes over the estimated useful
lives of the assets. Major expenditures for property acquisitions and
those expenditures that substantially increase useful lives are
capitalized. Expenditures for maintenance, repairs, and minor
replacements are expensed as incurred. When assets are retired or
otherwise disposed of, their costs and related accumulated depreciation
or amortization are removed from the accounts and resulting gains or
losses are included in income.
The lives on which depreciation and amortization are computed are as
follows:
Displays 7 years
Furniture and fixtures 7 years
Machinery and equipment 5-7 years
Office equipment 5-7 years
Leasehold improvements 40 years
7. Organization Costs
------------------
Organization costs are amortized on a straight-line basis over five
years.
8. Income Taxes
------------
Benefoot, Inc. and Benefoot Professional Products, Inc. have elected to
be treated as small business corporations under Sub-Chapter "S" of the
Internal Revenue Code. Under Sub-Chapter "S" profits and losses are
passed directly to shareholders for inclusion in their personal tax
returns. Accordingly, no provision for federal income taxes is included
in the accompanying combined financial statements.
The Company also files income tax returns in thirty-eight states. The
"S" elections are in effect in fourteen of those states and,
accordingly, like the federal, no provision for income taxes
attributable to those states has been provided. Income taxes
attributable to the remaining states where Sub-Chapter "S" elections
are not available, or where the Company has not elected to be a
Sub-Chapter "S" corporation, have been provided for in the
accompanying combined financial statements.
-9-
BENEFOOT. INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
8. Income Taxes (Continued)
------------------------
Deferred federal income taxes are not applicable to the Company due to
its Sub-Chapter "S" status. Deferred state income taxes are not
material.
9. Research and Development Costs
------------------------------
Research and development costs related to both future and present
products are charged to operations as incurred. Research and
development costs were $18,400 and $12,900 for the years ended December
31, 2001 and 2000, respectively.
10. Concentration of Risk
---------------------
Substantially all of the Company's revenues are derived from direct
sales of its products to licensed healthcare professionals. The largest
market segment is Doctors of Podiatric Medicine (DPM).
Cash on deposit with a banking institution exceeds the $100,000 FDIC
insured limit.
Purchases from three vendors comprised approximately 61% of total
purchases for the year ended December 31, 2001. Purchases from two
vendors comprised approximately 54% of total purchases for the year
ended December 31, 2000. 28% of accounts payable were to two vendors at
December 31, 2001 and 18% were to one different vendor at December 31,
2000.
11. 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.
12. Fair Value of Financial Instruments
-----------------------------------
Cash and cash equivalents, accounts receivable, accounts payable,
accrued expenses, long-term debt and lease obligations are reflected in
the accompanying combined balance sheets at amounts considered by
management to reasonably approximate fair value.
- 10-
BENEFOOT INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
13. Compensated Absences
--------------------
Employees of the Company are entitled to compensation for unused
vacation time after one year of service. For the year ended December
31, 2001, the Company made an accrual for unused vacation time. For the
year ended December 31, 2000, the Company has not accrued unused
vacation time since the amount cannot be reasonably estimated.
With respect to sick and personal time, the Company provides a certain
number of days to each employee on an annual basis with a limited
carryover of days from year to year. Upon termination of employment,
the Company does not provide any compensation for unused personal and
sick time. For the years ended December 31, 2001 and 2000, the Company
did not accrue any amount for unused sick and personal time since such
amounts cannot be reasonably estimated.
14. Revenue Recognition
-------------------
The Company recognizes revenue when its products are shipped. Revenue
derived from extended warranty contracts is deferred and included in
income over the warranty period (twenty-four months) on a straight-line
basis. Revenues from royalties are recognized when received.
15. Foreign Currency Transactions
-----------------------------
The Company maintains a bank account in Toronto, Canada, which is
maintained in Canadian dollars. The Company's books maintain the bank
account in U.S. Dollars. Foreign currency gains and losses are
recognized when funds are transferred from the Canadian bank account to
the U.S. bank account. The book balance is adjusted each month using
the month-end exchange rate. Foreign currency losses were $6,596 and
$4,471 for the years ended December 31, 2001 and 2000, respectively.
16. Royalty Income
--------------
The Company receives royalty income from Ortolab, AB for the use of
software for the manufacture of orthotics. Although their written
agreement expired by its terms on December 31, 1999, both the Company
and Ortolab, AB are operating as if the agreement remains in effect.
Royalty income was $15,096 and $25,956 for the years ended December
31, 2001 and 2000, respectively.
17. Reclassifications
-----------------
Certain amounts in the prior year financial statements have been
reclassified for comparative purposes to conform to the presentation in
the current year financial statements.
- 11-
BENEFOOT, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
NOTE B - INVENTORY
Inventory consists of the following:
2001 2000
---- ----
Raw materials $ 239,570 $ 191,068
Work-in-progress 3,821 -0-
Finished goods 427,282 352,913
--------- ---------
Total Inventory 670,673 543,981
Less: Allowance for obsolescence 26,382 21,522
--------- ---------
Net Inventory $ 644,291 $ 522,459
========= =========
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
2001 2000
---- ----
Displays $ 146,094 $ 143,130
Furniture and fixtures 24,807 21,451
Machinery and equipment 169,884 136,984
Office equipment 157,089 157,366
Leasehold improvements 87,193 84,379
--------- ---------
585,067 543,310
Less: Accumulated depreciation 337,764 289,979
--------- ---------
$ 247,303 $ 253,331
========= =========
Depreciation expense for the years ended December 31, 2001 and 2000 was $62,238
and $58,321, respectively.
NOTE D - LONG-TERM DEBT
Long-term debt consists of the following:
2001 2000
---- ----
Note payable to a finance company, due in
96 monthly installments of $9,476, including
interest at 16.89%, beginning in February, 1997
and maturing in January, 2005. All assets of the
Company have been pledged as collateral, along
with personal guarantees of the officers. $ 271,848 $ 333,829
-12-
BENEFOOT, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
NOTE D - LONG-TERM DEBT (CONTINUED)
Revolving line of credit from a bank due in monthly
installments of the greater of 2% of the outstanding
principal balance or $250, including interest at prime
plus 2.25%. Any outstanding principal is due October
24, 2004. All assets of the Company have been
pledged as collateral, along with personal
guarantees of the officers. 63,452 -0-
Note payable to a related party with varying interest
rates. The loan was repaid in 2002. 8,000 60,000
--------- ---------
343,300 393,829
Less: Current maturities 94,960 61,981
--------- ---------
Long-term debt $ 248,340 $ 331,848
========= =========
As of December 31, 2001, Long-term debt matures as follows:
December 31, 2002 $ 94,960
2003 97,406
2004 141,589
2005 9,345
---------
$ 343,300
=========
NOTE E - CAPITALIZED LEASE OBLIGATIONS
Capitalized lease obligations consist of the following:
2001 2000
---- ----
A capitalized lease obligation for computer
equipment due in monthly installments
of $479, including interest at 15.07% per annum,
maturing in July, 2002. $ 3,622 $ 8,047
A capitalized lease obligation for computer software
and equipment due in monthly installments
of $1,058, including interest at 9.75% per annum,
maturing in March, 2004. 25,551 -0-
A capitalized lease obligation for computer
equipment due in monthly installments
of $137 including interest at 16.95% per annum,
maturing in May, 2002. 780 2,051
-13-
BENEFOOT, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
NOTE E - CAPITALIZED LEASE OBLIGATIONS (CONTINUED)
A capitalized lease obligation for computer software
and telephone equipment due in monthly
installments of $428 including interest at 12.76%
per annum, maturing in February, 2002. 842 5,537
A capitalized lease obligation for computer
equipment due in monthly installments
of $875, including interest at 40.19% per annum,
maturing in February 2003. 9,655 15,034
--------- ---------
40,450 30,669
Less: Current maturities 23,903 16,329
--------- ---------
Capitalized lease obligations $ 16,547 $ 14,340
========= =========
As of December 31, 2001 future minimum payments required under capitalized lease obligations are as follows:
December 31, 2002 $ 28,700
2003 14,443
2004 3,173
---------
46,316
---------
Less: Amount representing interest 5,866
---------
$ 40,450
=========
Office equipment and machinery under capital leases included in property and equipment are as follows:
2001 2000
---- ----
Office equipment $ 39,665 $ 39,665
Machinery 52,992 20,092
--------- ---------
92,657 59,757
Less: Accumulated depreciation 41,591 26,075
--------- ---------
$ 51,066 $ 33,682
========= =========
- 14-
BENEFOOT, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
NOTE F - WARRANTY RESERVE
The Company offers a multi-tiered warranty on its foot orthotics. Some foot
orthotics are covered by an unconditional guaranty of satisfaction for sixty
days. In addition, the Company will repair or adjust any orthotic as necessary
for six months following the sale. If the customer is not satisfied with those
products for any reason, they will be repaired or may be returned for full
credit. Certain components of the Company's foot orthotics are also guaranteed
for life against breakage. The Company has recorded a warranty reserve of
$81,000 and $78,000 at December 31, 2001 and 2000, respectively.
NOTE G - DEPOSITS PAYABLE
The Company maintains a footwear program under which footwear is sold through
medical professionals. Under the program, a refundable security deposit is
required for the display and shoe samples that are provided. The deposit is
refundable upon meeting certain minimum order volumes for twelve consecutive
months or upon termination of participation in the program. Deposits payable
were $83,410 and $89,530 at December 31, 2001 and 2000, respectively.
NOTE H - LEASE COMMITMENTS
The Company leases vehicles and office equipment under noncancelable operating
leases. The leases expire at various dates through 2003. The Company is
responsible for equipment maintenance.
As of December 31, 2001 future minimum rental payments required under the
operating leases are as follows:
December 31, 2002 $ 10,174
2003 2,481
---------
Total Future Minimum Payments Required $ 12,655
=========
Rental expense for vehicles and office equipment for the years ended December
31, 2001 and 2000 was $18,237 and $18,604, respectively.
The Company leases its facilities and additional warehouse space under operating
leases which both expire in April, 2002. (See Note M-2.) The leases require
payment of utilities, real estate taxes, insurance and repairs. As of December
31, 2001 the future minimum rental payments required under the operating leases
are $44,723.
Rental expense for the facilities and additional warehouse space for the years
ended December 31, 2001 and 2000 was $142,407 and $121,958, respectively.
-15-
BENEFOOT, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
NOTE I - 401(K) AND PROFIT SHARING PLAN
In 1993, the Company established a 401(k) and Profit Sharing Plan that covers
all qualified employees. The provisions of the Plan allow employees to defer a
portion of their annual compensation. The Company may make matching
contributions at its discretion. The Company did not contribute to the Plan for
the years ended December 31, 2001 and 2000.
NOTE J - ACQUISITION COSTS
During the year ended December 31, 2001, the Company incurred costs totaling
$2,200 related to acquiring a new product line. The Company decided against this
acquisition.
During the year ended December 31, 2000, the Company incurred costs totaling
$97,151 related to a potential acquisition that did not occur. These costs are
included in the combined statements of operations.
NOTE K - PATENT AND TECHNOLOGY LICENSE AGREEMENTS
Effective January 1, 1996, Benefoot, Inc. entered into a Patent License
Agreement with a minority shareholder. Under the terms of the Agreement,
Benefoot, Inc. was provided with a limited, exclusive, royalty-free license
relating to two United States patents owned by the minority shareholder in
connection with the use of the ScanCast 3D product. Simultaneously with the
Patent License Agreement, Benefoot, Inc. entered into a Technology License
Agreement with a company controlled by two minority shareholders, which provided
for a limited, exclusive, royalty-free license to certain proprietary technology
in connection with the use of the ScanCast 3D product. Each of these agreements
shall remain in effect for the entire useful lives of the patents unless
terminated earlier in accordance with the provisions of each agreement.
NOTE L - RELATED PARTY TRANSACTIONS
The Company has outstanding long-term debt to family members of one of the
majority shareholders. This debt is discussed more fully in Note D.
The Company entered into a Patent License Agreement with one of the minority
shareholders, and a Technology License Agreement with a company controlled by
two minority shareholders. These Agreements are discussed more fully in Note K.
- 16-
BENEFOOT, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000
NOTE M - SUBSEQUENT EVENTS
1. Asset Purchase Agreement
------------------------
On January 18, 2002, the Company entered into a non-binding Term Sheet
with Langer, Inc. ("Langer") to sell substantially all of its assets,
including, but not limited to, all inventory, furniture, fixtures,
equipment, consumer lists, patents, trademarks, trade names, including
the name Benefoot, service marks and other intellectual property rights
and intangible assets, prepaid expenses, cash, security deposits,
accounts receivable, supply and distribution agreements, and goodwill of
the Company. Pursuant to the terms of the Term Sheet, Langer will assume
certain liabilities of the Company. There can be no assurances that the
transaction will be completed.
2. Lease Commitments
-----------------
On April 11, 2002, the Company extended the lease on its facilities to
August 31, 2002. The minimum rental payments required under the operating
lease is $9,381 per month.
On April 8, 2002, the Company extended the lease on its warehouse to July
31, 2002. The minimum rental payments required under the operating lease
is $1,872 per month.
-17-
BENEFOOT, INC. AND AFFILIATE
COMBINED BALANCE SHEETS
MARCH 31, 2002 AND 2001
ASSETS
2002 2001
---- ----
Current Assets
Cash and cash equivalents (Note A-3 and A-10) $ 241,303 $ 135,214
Accounts receivable, net of allowance for doubtful
accounts of $20,000 and $35,000 for 2002 and 2001,
respectively (Note A-4) 775,418 865,492
Inventory (Note A-5 and B) 622,081 615,169
Prepaid expenses 61,121 46,146
Other receivables 6.012 14,046
---------- ----------
Total Current Assets 1,705,935 1.676,067
---------- ----------
Property and Equipment, net of accumulated
depreciation of $352,106 and $303,711 for 2002
and 2001, respectively (Notes A-6 and C) 232,961 278,278
---------- ----------
Other Assets
Security deposits 10,858 7,058
Organization costs, net of accumulated amortization
of $2,401 and $1,836 for 2002 and 2001, respectively
(Note A-7) 421 986
---------- ----------
Total Other Assets 11,279 8,044
---------- ----------
Total Assets $1,950,175 $1,962,389
========== ==========
See Accompanying Notes.
-18-
BENEFOOT, INC. AND AFFILIATE
COMBINED BALANCE SHEETS
MARCH 31, 2002 AND 2001
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
2002 2001
---- ----
Current Liabilities
Current maturities of long-term debt (Note D) $ 89,296 $ 126,184
Current maturities of capitalized lease obligations
(Note E) 20,999 26,778
Accounts payable and accrued expenses 805,122 910,411
Payroll and other taxes payable 49,275 49,594
Loans from shareholders 5,769 1,952
Customer deposits 33,391 48,990
Unearned revenue (Note A-14) 163,614 152,978
Warranty reserve (Note F) 80,000 79,000
----------- -----------
Total Current Liabilities 1,247,466 1,395,887
----------- -----------
Long-Term Liabilities
Unearned revenue (Note A-14) 51,019 49,593
Deposits payable (Note G) 81,760 88,630
Long-term debt (Note D) 225,083 293,110
Capitalized lease obligations (Note E) 12,047 33,046
----------- -----------
Total Long-Term Liabilities 369,909 464,379
----------- -----------
Total Liabilities 1,617,375 1,860,266
----------- -----------
Commitments and Contingencies (Note H)
Stockholders' Equity
Common stock - Benefoot, Inc. (no-par value; 7,500
shares authorized, 200 shares issued and outstanding) 147,287 147,287
Common stock - Benefoot Professional Products,
Inc. (no-par value; 200 shares authorized, 103.95
shares issued and outstanding) 1,000 1,000
Retained earnings (accumulated deficit) 184,513 (46,164)
----------- -----------
Total Stockholders' Equity 332,800 102,123
----------- -----------
Total Liabilities and Stockholders' Equity $1,950,175 $1,962,389
=========== ===========
See Accompanying Notes.
-19-
BENEFOOT, INC. AND AFFILIATE
COMBINED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
2002 2001
---- ----
Net Revenue $1,739,382 $1,736,606
Cost of Sales 973,024 941,882
---------- ----------
Gross Profit 766,358 794,724
---------- ----------
Operating Expenses
Officers' salaries 179,200 97,500
Selling 256,557 239,043
Shipping 139,326 159,208
General and administrative 165,538 183,993
Interest 18,921 22,859
---------- ----------
Total Operating Expenses 759,542 702,603
---------- ----------
Income Before Income Taxes 6,816 92,121
Income Taxes (Note A-8) 42 84
---------- ----------
Net Income $ 6,774 $92,037
========== ==========
See Accompanying Notes.
-20-
BENEFOOT, INC. AND AFFILIATE
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
RETAINED
EARNINGS
COMMON (ACCUMULATED
STOCK DEFICIT) TOTAL
----------- -------------- ------------
Balance -
December 31, 2000 $ 148,287 $( 138,201) $ 10,086
Net income -0- 92,037 92,037
----------- -------------- ------------
Balance -
March 31, 2001 $ 148,287 $( 46,164) $ 102,123
=========== ============== ============
Balance -
December 31, 2001 $ 148,287 $ 177,739 $ 326,026
Net income -0- 6,774 6,774
----------- -------------- ------------
Balance -
March 31, 2002 $ 148,287 $ 184,513 $ 332,800
=========== ============== ============
See Accompanying Notes.
-21-
BENEFOOT, INC. AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
2002 2001
---- ----
Cash Flows From Operating Activities:
Net Income $ 6,774 $ 92,037
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 14,484 13,875
Provision for doubtful accounts receivable -0- 6,000
Warranty reserve ( 1,000) 1,000
Unearned revenue ( 1,806) (1,305)
Changes in Assets and Liabilities
Increase in accounts receivable ( 30,248) (89,159)
Decrease (Increase) in inventory 22,210 (92,710)
Decrease (Increase) in prepaid expenses 5,023 ( 8,191)
Decrease in other receivables 874 4,400
Decrease in security deposits -0- 2,602
(Decrease) Increase in accounts payable
and accrued expenses (75,363) 52,502
Increase in payroll and other taxes
payable 7,141 16,286
Decrease in deposits payable ( 1,650) ( 900)
Decrease in loans from shareholders ( 5,489) (11,154)
(Decrease) Increase in customer deposits ( 2,158) 4,498
-------- ---------
Net Cash Used In Operating Activities (61,208) (10,219)
-------- ---------
Cash Flows From Investing Activities:
- ------------------------------------
Acquisition of property and equipment -0- ( 5,779)
-------- ---------
Net Cash Used In Investing Activities -0- ( 5,779)
-------- ---------
See Accompanying Notes.
-22-
BENEFOOT, INC. AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
2002 2001
---- ----
Cash Flows From Financing Activities:
- -------------------------------------
Proceeds from bank revolving line of credit -0- 50,000
Principal payments of long-term debt ( 28,921) ( 24,535)
Payment of capitalized lease obligations (7,404) (3,745)
----------- ----------
Net Cash (Used In) Provided by Financing Activities (36,325) 21,720
----------- ----------
Net (Decrease) Increase in Cash and Cash Equivalents ( 97,533) 5,722
Cash and Cash Equivalents, Beginning 338,836 129,492
----------- -----------
Cash and Cash Equivalents, Ending $ 241,303 $ 135,214
=========== ===========
Supplemental disclosures of noncash investing
and financing activities:
- ---------------------------------------------
Capitalized lease obligations incurred in the
purchase of equipment $ -0 $ 32,900
=========== ===========
Supplemental disclosure of cash paid during the year:
- -----------------------------------------------------
Interest paid $ 19,137 $ 23,048
=========== ===========
Income tax paid $ 4,059 $ 4,158
=========== ===========
See Accompanying Notes.
-23-
BENEFOOT, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
MARCH 31, 2002 AND 2001
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies consistently applied in the preparation of the
accompanying combined financial statements are as follows:
1. The Company
-----------
Benefoot, Inc. ("Benefoot") designs, manufacturers and distributes foot and
gait-related biomechanical products. Benefoot's primary products include
custom made prescription orthotic devices, custom made sandals and
non-custom made orthotic devices. 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.
Benefoot markets its products primarily to the professional footcare
market, as well as to other markets, including podiatrists, orthopedists,
chiropractors, physical therapists, certified orthotists and prosthetists.
Benefoot Professional Products, Inc. ("BPI"; BPI and Benefoot are
collectively referred to as the "Company"), an affiliated entity of
Benefoot, markets and distributes non-custom footwear products including
standard comfort shoes manufactured by well-known shoe manufacturers, as
well as custom made insoles for diabetic patients. BPI markets and
distributes its products through a variety of sources, including shoe
sample kiosks which are placed in the waiting rooms of podiatrists. The
products of BPI are sold to professional footcare providers and directly to
the patients of professional footcare providers.
2. Combination
-----------
The combined financial statements include the accounts of Benefoot, Inc.
and Benefoot Professional Products, Inc. Intercompany balances and
transactions have been eliminated.
3. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents consist of cash in banks and other highly liquid
investments with a maturity of three months or less.
4. Accounts Receivable
-------------------
The Company uses the allowance method of accounting for bad debts for
financial statement purposes and the direct write-off method for income tax
purposes.
-24-
BENEFOOT, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
MARCH 31, 2002 AND 2001
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
5. Inventory
---------
Inventory is stated at the lower of first-in first out (FIFO) cost or
market based on the Company's perpetual inventory system.
6. Property and Equipment
----------------------
Property and equipment are stated at cost. Depreciation is calculated using
the straight-line method for financial statement purposes and accelerated
methods for income tax purposes over the estimated useful lives of the
assets. Major expenditures for property acquisitions and those expenditures
that substantially increase useful lives are capitalized. Expenditures for
maintenance, repairs, and minor replacements are expensed as incurred. When
assets are retired or otherwise disposed of, their costs and related
accumulated depreciation or amortization are removed from the accounts and
resulting gains or losses are included in income.
The lives on which depreciation and amortization are computed are as
follows:
Displays 7 years
Furniture and fixtures 7 years
Machinery and equipment 5-7 years
Office equipment 5-7 years
Leasehold improvements 40 years
7. Organization Costs
------------------
Organization costs are amortized on a straight-line basis over five years.
8. Income Taxes
------------
Benefoot, Inc. and Benefoot Professional Products, Inc. have elected to be
treated as small business corporations under Sub-Chapter "S" of the
Internal Revenue Code. Under Sub-Chapter "S" profits and losses are passed
directly to shareholders for inclusion in their personal tax returns.
Accordingly, no provision for federal income taxes is included in the
accompanying combined financial statements.
The Company also files income tax returns in thirty-eight states. The "S"
elections are in effect in fourteen of those states and, accordingly, like
the federal, no provision for income taxes attributable to those states has
been provided. Income taxes attributable to the remaining states where
Sub-Chapter "S" elections are not available, or where the Company has not
elected to be a Sub-Chapter "S" corporation, have been provided for in the
accompanying combined financial statements.
-25-
BENEFOOT, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
MARCH 31, 2002 AND 2001
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
8. Income Taxes (Continued
-----------------------
Deferred federal income taxes are not applicable to the Company due to its
Sub-Chapter "S" status. Deferred state income taxes are not material.
9. Research and Development Costs
------------------------------
Research and development costs related to both future and present products
are charged to operations as incurred. Research and development costs were
$5,115 and $3,190 for the three months ended March 31, 2002 and 2001,
respectively.
10. Concentration of Risk
---------------------
Substantially all of the Company's revenues are derived from direct sales
of its products to licensed healthcare professionals. The largest market
segment is Doctors of Podiatric Medicine (DPM).
Cash on deposit with a banking institution exceeds the $100,000 FDIC
insured limit.
Purchases from four vendors comprised approximately 74% of total purchases
for the three months ended March 31, 2002. Purchases from three vendors
comprised approximately 59% of total purchases for the three months ended
March 31, 2001. 28% of accounts payable were to two vendors at March 31,
2002 and 18% were to one different vendor at March 31, 2001.
11. 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.
12. Fair Value of Financial Instruments
-----------------------------------
Cash and cash equivalents, accounts receivable, accounts payable, accrued
expenses, long-term debt and lease obligations are reflected in the
accompanying combined balance sheets at amounts considered by management to
reasonably approximate fair value.
-26-
BENEFOOT INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
MARCH 31, 2002 AND 2001
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
13. Compensated Absences
--------------------
Employees of the Company are entitled to compensation for unused vacation
time after one year of service. For the three months ended March 31, 2002,
the Company made an accrual for unused vacation time. For the three months
ended March 31, 2001, the Company has not accrued unused vacation time
since the amount cannot be reasonably estimated.
With respect to sick and personal time, the Company provides a certain
number of days to each employee on an annual basis with a limited carryover
of days from year to year. Upon termination of employment, the Company does
not provide any compensation for unused personal and sick time. For the
three months ended March 31, 2002 and 2001, the Company did not accrue any
amount for unused sick and personal time since such amounts cannot be
reasonably estimated.
14. Revenue Recognition
-------------------
The Company recognizes revenue when its products are shipped. Revenue
derived from extended warranty contracts is deferred and included in income
over the warranty period (twenty-four months) on a straight-line basis.
Revenues from royalties are recognized when received.
15. Foreign Currency Transactions
-----------------------------
The Company maintains a bank account in Toronto, Canada, which is
maintained in Canadian dollars. The Company's books maintain the bank
account in U.S. Dollars. Foreign currency gains and losses are recognized
when funds are transferred from the Canadian bank account to the U.S. bank
account. The book balance is adjusted each month using the month-end
exchange rate. Foreign currency losses were $1,210 and $1,404 for the three
months ended March 31, 2002 and 2001, respectively.
16. Royalty Income
--------------
The Company receives royalty income from Ortolab, AB for the use of
software for the manufacture of orthotics. Although their written agreement
expired by its terms on December 31, 1999, both the Company and Ortolab, AB
are operating as if the agreement remains in effect. Royalty income was
$-0- and $7,436 for the three months ended March 31, 2002 and 2001,
respectively.
-27-
BENEFOOT, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
MARCH 31, 2002 AND 2001
NOTE B -INVENTORY
Inventory based on the Company's perpetual inventory system consists of the
following:
2002 2001
---- ----
Total Inventory 648,463 636,691
Less: Allowance for obsolescence 26,382 21,522
---------- ---------
Net Inventory $622,081 $615,169
========== =========
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
2002 2001
---- ----
Displays $146,094 $146,094
Furniture and fixtures 24,807 21,451
Machinery and equipment 169,884 169,884
Office equipment 157,089 157,367
Leasehold improvements 87,193 87,193
---------- ---------
585,067 581,989
Less: Accumulated depreciation 352,106 303,711
---------- ---------
$232,961 $278,278
========== =========
Depreciation expense for the three months ended March 31, 2002 and 2001 was
$14,343 and $13,734, respectively.
NOTE D - LONG-TERM DEBT
Long-term debt consists of the following:
2002 2001
---- ----
Note payable to a finance company, due
in 96 monthly installments of $9,476,
including interest at 16.89%, beginning
in February, 1997 and maturing in
January, 2005. All assets of the Company
have been pledged as collateral, along
with personal guarantees of the officers.
(See Note L) $ 254,659 $ 319,294
-28-
BENEFOOT, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
MARCH 31, 2002 AND 2001
NOTE D - LONG-TERM DEBT (CONTINUED)
Revolving line of credit from a bank due
in monthly installments of the greater
of 2% of the outstanding principal
balance or $250, including interest at
prime plus 2.25%. Any outstanding
principal is due October 24, 2004. All
assets of the Company have been pledged
as collateral, along with personal
guarantees of the officers. (See Note L) 59,720 49,000
Note payable to a related party with
varying interest rates. The loan was
repaid in March, 2002. (See Note K) -0- 51,000
---------- ---------
314,379 419,294
Less: Current maturities 89,296 126,184
---------- ---------
Long-term debt $ 225,083 $ 293,110
========== =========
As of March 31, 2002, Long-term debt matures as follows:
March 31, 2003 $89,296
2004 100,487
2005 124,596
---------
$ 314,379
NOTE E - CAPITALIZED LEASE OBLIGATIONS
Capitalized lease obligations consist of
the following:
2002 2001
---- ----
A capitalized lease obligation for
computer equipment due in monthly
installments of $479, including interest
at 15.07% per annum, maturing in July, 2002.
(See Note L) $ 1,856 $ 6,900
A capitalized lease obligation for
computer software and equipment due in
monthly installments of $1,058,
including interest at 9.75% per annum,
maturing in March, 2004. 22,979 32,900
A capitalized lease obligation for
computer equipment due in monthly
installments of $137 including interest
at 16.95% per annum, maturing in May,
2002. (See Note L) 268 1,723
-29-
BENEFOOT, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
MARCH 31, 2002 AND 2001
NOTE E - CAPITALIZED LEASE OBLIGATIONS (CONTINUED)
A capitalized lease obligation for
computer software and telephone
equipment due in monthly installments of
$428 including interest at 12.76%
per annum, maturing in February, 2002. -0- 4,419
A capitalized lease obligation for
computer equipment due in monthly
installments of $875, including interest
at 40.19% per annum, maturing in
February 2003. 7,943 13,882
---------- --------
33,046 59,824
Less: Current maturities 20,999 26,778
---------- --------
Capitalized lease obligations $ 12,047 $ 33,046
========== ========
As of March 31, 2002 future minimum payments required under capitalized lease
obligations are as follows:
March 31, 2003 $ 24,508
2004 12,693
-----------
37,201
Less: Amount representing interest 4,155
$ 33,046
Office equipment and machinery under capital leases included in property and
equipment are as follows:
2002 2001
---- ----
Office equipment $ 23,648 $ 39,665
Machinery 52,992 52,992
---------- --------
76,640 92,657
Less: Accumulated depreciation 33,347 28,721
---------- --------
$ 43,293 $ 63,936
========== ========
-30-
BENEFOOT, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
MARCH 31, 2002 AND 2001
NOTE F - WARRANTY RESERVE
The Company offers a multi-tiered warranty on its foot orthotics. Some foot
orthotics are covered by an unconditional guaranty of satisfaction for sixty
days. In addition, the Company will repair or adjust any orthotic as necessary
for six months following the sale. If the customer is not satisfied with those
products for any reason, they will be repaired or may be returned for full
credit. Certain components of the Company's foot orthotics are also guaranteed
for life against breakage. The Company has recorded a warranty reserve of
$80,000 and $79,000 at March 31, 2002 and 2001, respectively.
NOTE G - DEPOSITS PAYABLE
The Company maintains a footwear program under which footwear is sold through
medical professionals. Under the program, a refundable security deposit is
required for the display and shoe samples that are provided. The deposit is
refundable upon meeting certain minimum order volumes for twelve consecutive
months or upon termination of participation in the program. Deposits payable
were $81,760 and $88,630 at March 31, 2002 and 2001, respectively.
NOTE H - LEASE COMMITMENTS
The Company leases vehicles and office equipment under noncancelable operating
leases. The leases expire at various dates through 2003. The Company is
responsible for equipment maintenance.
As of March 31, 2002 future minimum rental payments required under the operating
leases are as follows:
March 31, 2003 $ 6,607
2004 1,551
--------
$ 8,158
========
Total Future Minimum Payments Required
Rental expense for vehicles and office equipment for the three months ended
March 31, 2002 and 2001 was $4,589 and $4,564, respectively.
The Company leases its facilities and additional warehouse space under operating
leases which expire in August, 2002 and July, 2002, respectively. (See Note
L-3.) The leases require payment of utilities, real estate taxes, insurance and
repairs. As of March 31, 2002 the future minimum rental payments required under
the operating leases are $54,391.
Rental expense for the facilities and additional warehouse space for the three
months ended March 31, 2002 and 2001 was $38,675 and $29,869, respectively.
-31-
BENEFOOT, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
MARCH 31, 2002 AND 2001
NOTE I - 401(K) AND PROFIT SHARING PLAN
In 1993, the Company established a 401(k) and Profit Sharing Plan that covers
all qualified employees. The provisions of the Plan allow employees to defer a
portion of their annual compensation. The Company may make matching
contributions at its discretion. The Company did not contribute to the Plan for
the three months ended March 31, 2002 and 2001.
NOTE J - PATENT AND TECHNOLOGY LICENSE AGREEMENTS
Effective January 1, 1996, Benefoot, Inc. entered into a Patent License
Agreement with a minority shareholder. Under the terms of the Agreement,
Benefoot, Inc. was provided with a limited, exclusive, royalty-free license
relating to two United States patents owned by the minority shareholder in
connection with the use of the ScanCast 3D product. Simultaneously with the
Patent License Agreement, Benefoot, Inc. entered into a Technology License
Agreement with a company controlled by two minority shareholders, which provided
for a limited, exclusive, royalty-free license to certain proprietary technology
in connection with the use of the ScanCast 3D product. Each of these agreements
shall remain in effect for the entire useful lives of the patents unless
terminated earlier in accordance with the provisions of each agreement.
NOTE K - RELATED PARTY TRANSACTIONS
The Company has outstanding long-term debt to family members of one of the
majority shareholders. This debt is discussed more fully in Note D.
The Company entered into a Patent License Agreement with one of the minority
shareholders, and a Technology License Agreement with a company controlled by
two minority shareholders. These Agreements are discussed more fully in Note J.
NOTE L - SUBSEQUENT EVENTS
1. On May 6, 2002, Langer, Inc. acquired substantially all of the assets of
the Company for a purchase price of $6 million and assumed certain
liabilities of the Company in accordance with the terms and provisions of
that certain Asset Purchase Agreement dated as of May 6, 2002 (the
"Purchase Agreement"), by and among Langer, Inc., Goodfoot Acquisition Co.,
Benefoot, Inc., Benefoot Professional Products, Inc., Jason Kraus and Paul
Langer. Under the terms of the Asset Purchase Agreement, certain deferred
consideration up to a maximum aggregate amount of $1 million is payable to
the Company, subject to the achievement of certain financial criteria.
Transaction costs of $451,518 have not been accrued on the combined balance
sheet.
2. Certain long-term debt and capitalized lease obligations were paid in full
on May 6, 2002. See Notes D and E.
-32-
BENEFOOT, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
MARCH 31, 2002 AND 2001
NOTE L - SUBSEQUENT EVENTS (CONTINUED)
3. On April 11, 2002, the Company extended the lease on its facilities to
August 31, 2002. The minimum rental payments required under the operating
lease is $9,381 per month.
On April 8, 2002, the Company extended the lease on its warehouse to July
31, 2002. The minimum rental payments required under the operating lease is
$1,872 per month.
-33-
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On May 6, 2002, Langer, Inc. ("Langer" or "we"), through a wholly owned
subsidiary, acquired substantially all of the assets and liabilities of each of
Benefoot, Inc. and Benefoot Professional Products, Inc. (jointly, "Benefoot" or
the "Seller"), pursuant to the terms of an Asset Purchase Agreement, dated as of
May 6, 2002 (the "Asset Purchase Agreement"), by and among Langer, GoodFoot
Acquisition Co., the Seller, and Jason Kraus and Paul Langer (the "Principal
Shareholders") (the "Acquisition").
The following unaudited pro forma condensed consolidated financial statements
give pro forma effect to the Acquisition using the purchase method of accounting
and the assumptions and adjustments set forth in the accompanying notes.
The preliminary purchase price allocation has been based on the estimated fair
market value of Benefoot's assets and liabilities. See Note 1 to the Notes to
Unaudited Pro Forma Condensed Consolidated Financial Statements. The actual
allocation of purchase price and the resulting effect on income from operations
may differ from the pro forma amounts included herein.
Periods Covered
The unaudited pro forma condensed consolidated balance sheet as of March 31,
2002 is based on the individual historical balance sheets of Langer and Benefoot
and gives effect to the Acquisition as if it had occurred on March 31, 2002. The
unaudited pro forma condensed consolidated statements of operations for the
period ended December 31, 2001, and the three months ended March 31, 2002 are
based on the individual historical statements of operations of Langer and
Benefoot and combines the results of operations of Langer and Benefoot as if the
Acquisition had occurred as of January 1, 2001.
The unaudited pro forma condensed consolidated financial statements are based on
estimates and assumptions. These estimates and assumptions are preliminary and
have been made solely for purposes of developing this pro forma information.
Unaudited pro forma consolidated financial information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results that would have been achieved if the Acquisition of Benefoot had been
consummated as of the beginning of the period indicated, nor is it necessarily
indicative of future results of operations. The pro forma condensed consolidated
financial information does not give effect to any cost savings or restructuring
and integration costs that may result from the integration of Langer's and
Benefoot's businesses. Costs, if any, related to restructuring and integration
have not yet been determined.
This unaudited pro forma condensed consolidated financial information is based
upon the respective historical consolidated financial statements and related
notes of Langer and Benefoot should be read in conjunction with those financial
statements and the related notes.
-34-
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
LANGER, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2002
PRO FORMA
LANGER, INC. BENEFOOT ADJUSTMENTS TOTAL
------------ -------- ----------- -----
ASSETS
Current assets:
Cash and cash equivalents $ 15,067,002 $ 241,303 2(a) $ (4,007,211) $ 11,301,094
Accounts receivable, net 1,674,039 775,418 2,449,457
Inventories, net 1,281,582 622,081 1,903,663
Prepaid expenses and other 473,056 67,133 2(a) (89,341)
2(a) (11,003) 439,845
--------------- ------------ --------------- ---------------
Total current assets 18,495,679 1,705,935 (4,107,555) 16,094,059
Property and equipment, net 656,786 232,961 889,747
Costs in excess of assets acquired and other 2(a) 6,285,104 6,285,104
intangible assets, net
Other assets 1,173,571 11,279 2(a) (5,025) 1,179,825
--------------- ------------ --------------- ---------------
Total assets $ 20,326,036 $1,950,175 $ 2,172,524 $ 24,448,735
=============== ============ ============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ - $ 110,295 2(a) $ 1,000,000
2(a) (90,925) $ 1,019,370
Accounts payable 327,404 580,704 908,108
Accrued liabilities 1,219,393 392,853 2(a) 488,791
2(a) (5,769) 2,095,268
Unearned revenue 452,754 163,614 616,368
--------------- ------------ --------------- ---------------
Total current liabilities 1,999,551 1,247,466 1,392,097 4,639,114
Unearned revenue 134,886 51,019 185,905
Long-term debt 14,589,000 225,083 2(a) 800,000
2(a) (216,286) 15,397,797
Other 15,689 93,807 109,496
--------------- ------------ --------------- ---------------
Total liabilities 16,739,126 1,617,375 1,975,811 20,332,312
--------------- ------------ --------------- ---------------
Stockholders' Equity
Common stock 85,361 148,287 2(b) (148,287)
2(c) 1,298 86,659
Additional paid-in capital 12,278,781 - 2(c) 528,215 12,806,996
(Accumulated deficit) retained earnings (8,344,580) 184,513 2(b) (184,513) (8,344,580)
Accumulated other comprehensive loss (317,195) - (317,195)
--------------- ------------ --------------- ---------------
3,702,367 332,800 196,713 4,231,880
Less treasury stock at cost (115,457) - (115,457)
--------------- ------------ --------------- ---------------
Total stockholders' equity 3,586,910 332,800 196,713 4,116,423
--------------- ------------ --------------- ---------------
Total liabilities and stockholders' equity $ 20,326,036 $1,950,175 $ 2,172,524 $ 24,448,735
=============== ============ =============== ===============
-35-
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
LANGER, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2002
PRO FORMA
LANGER, INC. BENEFOOT ADJUSTMENTS TOTAL
------------ -------- ----------- -----
Net sales $ 2,993,448 $ 1,739,382 $ - $ 4,732,830
Cost of sales 1,818,082 973,024 2(g) 139,326 2,930,432
----------------- --------------- ----------------- -----------------
Gross profit 1,175,366 766,358 (139,326) 1,802,398
Selling expenses 518,898 395,883 2(g) (139,326) 775,455
Research and development expenses 45,888 - 45,888
General and administrative expenses 786,116 344,738 2(d) 38,961 1,169,815
----------------- --------------- ----------------- -----------------
Operating (loss) income (175,536) 25,737 (38,961) (188,760)
----------------- --------------- ----------------- -----------------
Other income (expense):
Interest income 75,367 - 75,367
Interest expense (146,508) (18,921) 2(f) (8,000) (173,429)
Other (45,891) - (45,891)
----------------- --------------- ----------------- -----------------
Other expense, net (117,032) (18,921) (8,000) (143,953)
----------------- --------------- ----------------- -----------------
(Loss) income before income taxes (292,568) 6,816 (46,961) (332,713)
Provision for income taxes 4,000 42 2(h) 4,042
----------------- --------------- ----------------- -----------------
Net (loss) income $ (296,568) $ 6,774 $ (46,961) $ (336,755)
================= =============== ================= =================
Weighted average number of common shares
used in computation of net (loss) income per share:
Basic 4,200,922 2(e) 64,895 4,265,817
Diluted 4,200,922 64,895 4,265,817
Net (loss) income per common share:
Basic $ (0.07) $ (0.08)
================= =================
Diluted $ (0.07) $ (0.08)
================= =================
-36-
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
LANGER, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 2001
PRO FORMA
LANGER, INC. (1) BENEFOOT (2) ADJUSTMENTS TOTAL
---------------- ------------ ----------- -----
Net sales $ 10,528,667 $ 7,665,769 $ - $ 18,194,436
Cost of sales 6,526,957 4,039,722 2(g) 732,605 11,299,284
----------------- --------------- --------------- ---------------
Gross profit 4,001,710 3,626,047 (732,605) 6,895,152
Selling expenses 1,294,991 1,734,589 2(g) (732,605) 2,296,975
Research and development expenses 142,192 - 142,192
General and administrative expenses 2,425,177 1,468,890 2(d) 155,843 4,049,910
----------------- --------------- --------------- ---------------
Operating income 139,350 422,568 (155,843) 406,075
----------------- --------------- --------------- ---------------
Other income (expense):
Interest income 86,635 - 86,635
Interest expense (108,148) (97,761) 2(f) (72,000) (277,909)
Other (44,440) (2,200) (46,640)
----------------- --------------- --------------- ---------------
Other expense, net (65,953) (99,961) (72,000) (237,914)
----------------- --------------- --------------- ---------------
Income before income taxes 73,397 322,607 (227,843) 168,161
Provision for income taxes 3,118 6,670 2(h) 9,788
----------------- --------------- --------------- ---------------
Net income $ 70,279 $ 315,937 $ (227,843) $ 158,373
================= =============== =============== ===============
Weighted average number of common shares
used in computation of net income per share:
Basic 3,860,167 2(e) 64,895 3,925,062
Diluted 4,306,536 64,895 4,371,431
Net income per common share:
Basic $ 0.02 $ 0.04
================= ===============
Diluted $ 0.02 $ 0.04
================= ===============
(1) For the ten months ended December 31, 2001
(2) For the twelve months ended December 31, 2001
-37-
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Allocation of purchase price.
The allocation of Benefoot's purchase price among the assets acquired and
liabilities assumed is based on Langer's preliminary evaluation of the
fair value of the assets and liabilities of Benefoot.
The following table sets forth the components of the estimated purchase
price:
Cash consideration $ 3,700,000
Benefoot long term debt paid at closing
(including current portion of $90,925) 307,211
-----------
Total cash paid at closing 4,007,211
Promissory note issued 1,800,000
Common stock issued 529,513
Prepaid transaction costs 89,341
Accrued transaction costs 488,791
----------
Total purchase price $6,914,856
==========
The following table provides the preliminary allocation of the purchase
price based upon Benefoot's March 31, 2002 balance sheet:
Assets
Cash and cash equivalents $ 241,303
Accounts receivables 775,418
Inventories 622,081
Prepaid expenses and other 56,130
Property and equipment 232,961
Goodwill 3,285,104
Identified intangible assets 3,000,000
Other assets 6,254
------------
8,219,251
Liabilities
Accounts payable 580,704
Accrued liabilities 387,084
Unearned revenue 214,633
Long term debt & other liabilities 121,974
------------
1,304,395
------------
Total purchase price $ 6,914,856
============
-38-
In June 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 141, Business Combinations, and No.
142, Goodwill and Other Intangible Assets, effective for fiscal years
beginning after December 15, 2001. Under the new rules, goodwill and
intangible assets deemed to have indefinite lives will no longer be
amortized but will be subject to annual impairment tests in accordance
with SFAS No. 142. Other intangible assets will continue to be amortized
over their useful lives.
In accordance with the provisions of SFAS No. 142, Langer will not
amortize goodwill and intangible assets with indefinite lives (trade names
with an estimated fair value of $1,400,000) recorded in this Acquisition.
Langer expects to perform an annual impairment test of goodwill and
indefinite lived intangible assets related to the merger.
2. Pro forma adjustments
a.) Total costs in excess of assets and other intangible assets acquired
by Langer in connection with the purchase of Benefoot:
Adjustments to calculate goodwill and other intangible assets and to
allocate the purchase price to the estimated fair value of Benefoot net
assets acquired:
Cash paid at closing $ 3,700,000
Benefoot long term debt paid at closing
(including current portion of $90,925) 307,211
----------
Total cash paid at closing 4,007,211
Promissory notes issued 1,800,000
Common stock issued 529,513
Prepaid transaction costs 89,341
Accrued transaction costs 488,791
----------
6,914,856
Less: Net assets acquired:
Historical stockholders' equity $ 332,800
Prepaid assets not acquired (11,003)
Other assets not acquired (5,025)
Liabilities not assumed 5,769
Long term debt paid at closing 307,211
-------
629,752
-----------
Intangible assets acquired $ 6,285,104
===========
Goodwill recognized $ 3,285,104
Identifiable intangible assets 3,000,000
-----------
Intangible assets acquired $ 6,285,104
===========
b.) Elimination of outstanding equity balances of Benefoot as of March 31,
2002.
-39-
c.) Issuance of Langer's common stock for the acquisition of Benefoot,
based on an average stock price for Langer common stock. The average
stock price was determined by taking the average of Langer's common
stock prices beginning two days before the public announcement of the
Acquisition and ending two days after. The issuance was allocated
between common stock and additional paid-in capital based on the par
value of common stock.
64,895 Shares issued, at $.02 par value $ 1,298
Additional paid-in capital 528,215
-----------
$ 529,513
===========
d.) Amortization expense applicable to the finite-lived identifiable
intangible assets acquired of $1,600,000 (primarily license agreements
and related technology) is based on a weighted average amortization
period of approximately 10 years.
e.) Additional weighted average shares of 64,895 outstanding was
determined assuming the acquisition was completed on January 1, 2001
and the shares were outstanding for all periods presented.
f.) Interest expense on the promissory note at an annual interest rate of
4%.
g.) Reclassification of shipping expenses to conform to Langer's basis of
presentation.
h.) As an S-corporation, Benefoot was not subject to U.S. Federal income
taxes or certain state income taxes. Instead, taxes were assessed to
its stockholders based on their distributive share of income. However,
due to the full valuation allowance applicable to Langer's deferred
tax assets and the availability of net operating loss carry-forwards,
no pro forma tax provision or benefit has been applied to Benefoot's
historical income before taxes or other pro forma adjustments.
-40-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: July 2, 2002
LANGER, INC.
By: /s/ Andrew H. Meyers
--------------------------
Andrew H. Meyers,
President and Chief Executive Officer
By: /s/ Anthony J. Puglisi
----------------------------
Anthony J. Puglisi,
Vice President and Chief Financial Officer
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
23.1 Consent of Trachtenberg & Pauker LLP