UNITED
STATES
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 September 30, 2008
OR
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
Commission
File No. 0-12991
LANGER,
INC.
(Exact
name of registrant as specified in its charter)
|
Delaware
|
|
11-2239561
|
|
(State
or other jurisdiction
|
|
(I.R.S.
employer
|
|
of
incorporation or organization)
|
|
identification
number)
|
245
Fifth Avenue, New York, New York 10016
(Address
of principal executive offices) (Zip code)
450
Commack Road, Deer Park, New York 11729-4510
(Address
of principal executive offices)(Zip code)
(Former
name, former address and former fiscal year, if changed since last
report)
Registrant’s
telephone number, including area code: (212) 687-3260
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
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, non-accelerated filer or smaller reporting company (as
defined in Rule 12b-2 of the Exchange Act).
|
Large
accelerated filer
o
|
Accelerated filer
o
|
Non-accelerated filer
o
|
Smaller Reporting Company
x
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
YES
o
NO
x
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— 10,646,673 shares as of November 7, 2008
INDEX
LANGER,
INC. AND SUBSIDIARIES
|
|
|
|
|
Page
|
|
PART
I.
|
|
FINANCIAL
INFORMATION
|
|
|
|
|
|
|
|
|
|
Item
1.
|
|
Financial
Statements
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets
As
of September 30, 2008 (Unaudited) and December 31, 2007
|
|
3
|
|
|
|
|
|
|
|
|
|
Unaudited
Condensed Consolidated Statements of Operations
Nine
month and three month periods ended September 30, 2008 and
2007
|
|
4
|
|
|
|
|
|
|
|
|
|
Unaudited
Condensed Consolidated Statements of Stockholders’ Equity
Nine
month period ended September 30, 2008
|
|
5
|
|
|
|
|
|
|
|
|
|
Unaudited
Condensed Consolidated Statements of Cash Flows
Nine
month periods ended September 30, 2008 and 2007
|
|
6
|
|
|
|
|
|
|
|
|
|
Notes
to Unaudited Condensed Consolidated Financial Statements
|
|
8
|
|
|
|
|
|
|
|
Item
2.
|
|
Management’s
Discussion and Analysis of Financial Condition and
Results
of Operations
|
|
22
|
|
|
|
|
|
|
|
Item
3.
|
|
Quantitative
and Qualitative Disclosures about Market Risk
|
|
32
|
|
|
|
|
|
|
|
Item
4.
|
|
Controls
and Procedures
|
|
32
|
|
|
|
|
|
|
|
PART
II.
|
|
OTHER
INFORMATION
|
|
|
|
|
|
|
|
|
|
Item 1.
|
|
Legal
Proceedings
|
|
33
|
|
|
|
|
|
|
|
Item
1A.
|
|
Risk
Factors
|
|
33
|
|
|
|
|
|
|
|
Item
2.
|
|
Purchase
of Equity Securities by the Issuer and Affiliated
Purchasers
|
|
33
|
|
|
|
|
|
|
|
Item
5.
|
|
Other
Information
|
|
33
|
|
|
|
|
|
|
|
Item
6.
|
|
Exhibits
|
|
34
|
|
|
|
|
|
|
|
Signatures
|
|
35
|
|
|
|
|
|
|
|
Exhibit
Index
|
|
36
|
PART I.
FINANCIAL
INFORMATION
ITEM
1.
FINANCIAL
STATEMENTS
LANGER, INC.
AND SUBSIDIARIES
Condensed
Consolidated Balance Sheets
|
|
|
September 30,
2008
(Unaudited)
|
|
December 31,
2007
|
|
|
Assets
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
6,675,035
|
|
$
|
2,665,408
|
|
|
Restricted
cash - escrow
|
|
|
-
|
|
|
1,000,000
|
|
|
Accounts
receivable, net of allowances for doubtful accounts and returns and
allowances aggregating $557,039 and $402,902, respectively
|
|
|
6,178,486
|
|
|
5,830,587
|
|
|
Inventories,
net
|
|
|
7,551,280
|
|
|
5,649,445
|
|
|
Assets
held for sale
|
|
|
5,813,143
|
|
|
9,438,386
|
|
|
Prepaid
expenses and other current assets
|
|
|
1,392,091
|
|
|
756,327
|
|
|
Total
current assets
|
|
|
27,610,035
|
|
|
25,340,153
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
9,684,507
|
|
|
11,943,684
|
|
|
Identifiable
intangible assets, net
|
|
|
12,767,451
|
|
|
13,624,490
|
|
|
Goodwill
|
|
|
19,198,063
|
|
|
21,956,430
|
|
|
Other
assets
|
|
|
1,029,542
|
|
|
1,068,867
|
|
|
Total
assets
|
|
$
|
70,289,598
|
|
$
|
73,933,624
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Borrowings
under line of credit
|
|
$
|
4,500,000
|
|
$
|
—
|
|
|
Accounts
payable
|
|
|
3,374,542
|
|
|
2,181,204
|
|
|
Liabilities
related to assets held for sale
|
|
|
1,314,264
|
|
|
3,179,938
|
|
|
Other
current liabilities, including current installment of note
payable
|
|
|
3,336,436
|
|
|
2,591,360
|
|
|
Total
current liabilities
|
|
|
12,525,242
|
|
|
7,952,502
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt:
|
|
|
|
|
|
|
|
|
5%
Convertible Notes, net of debt discount of $323,316 at September
30, 2008
and $390,771 at December 31, 2007
|
|
|
28,556,684
|
|
|
28,489,229
|
|
|
Notes
payable
|
|
|
—
|
|
|
113,309
|
|
|
Obligation
under capital lease
|
|
|
2,700,000
|
|
|
2,700,000
|
|
|
Deferred
income taxes payable
|
|
|
1,958,300
|
|
|
1,792,209
|
|
|
Other
liabilities
|
|
|
-
|
|
|
998,800
|
|
|
Total
liabilities
|
|
|
45,740,226
|
|
|
42,046,049
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
Preferred
stock, $1.00 par value; authorized 250,000 shares; no shares
issued
|
|
|
―
|
|
|
—
|
|
|
Common
stock, $.02 par value; authorized 50,000,000 shares;
issued
11,588,512 shares
|
|
|
231,771
|
|
|
231,771
|
|
|
Additional
paid in capital
|
|
|
53,937,279
|
|
|
53,800,139
|
|
|
Accumulated
deficit
|
|
|
(28,757,343
|
)
|
|
(22,713,086
|
)
|
|
Accumulated
other comprehensive income
|
|
|
614,062
|
|
|
765,392
|
|
|
|
|
|
26,025,769
|
|
|
32,084,216
|
|
|
Treasury
stock at cost, 941,839 and 84,300 shares, respectively
|
|
|
(1,476,397
|
)
|
|
(196,641
|
)
|
|
Total
stockholders’ equity
|
|
|
24,549,372
|
|
|
31,887,575
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
70,289,598
|
|
$
|
73,933,624
|
|
See
accompanying notes to unaudited condensed consolidated financial
statements.
LANGER,
INC. AND SUBSIDIARIES
Condensed
Consolidated Statements of Operations
(Unaudited)
|
|
|
Three months ended September
30,
|
|
Nine months ended September 30,
|
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
11,187,762
|
|
$
|
11,514,816
|
|
$
|
34,628,355
|
|
$
|
32,143,874
|
|
|
Cost
of sales
|
|
|
7,843,291
|
|
|
7,423,732
|
|
|
24,159,230
|
|
|
20,601,548
|
|
|
Gross
profit
|
|
|
3,344,471
|
|
|
4,091,084
|
|
|
10,469,125
|
|
|
11,542,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
|
2,475,438
|
|
|
2,872,112
|
|
|
7,785,767
|
|
|
7,858,067
|
|
|
Selling
expenses
|
|
|
1,294,087
|
|
|
1,423,112
|
|
|
3,983,780
|
|
|
4,020,959
|
|
|
Research
and development expenses
|
|
|
242,321
|
|
|
223,162
|
|
|
759,276
|
|
|
630,296
|
|
|
Operating
loss
|
|
|
(667,375
|
)
|
|
(427,302
|
)
|
|
(2,059,698
|
)
|
|
(966,996
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expense, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
7,831
|
|
|
5,248
|
|
|
23,592
|
|
|
173,004
|
|
|
Interest
expense
|
|
|
(553,719
|
)
|
|
(556,206
|
)
|
|
(1,661,003
|
)
|
|
(1,630,085
|
)
|
|
Other
income (expense)
|
|
|
(40
|
)
|
|
(702
|
)
|
|
11,221
|
|
|
(3,835
|
)
|
|
Other
expense, net
|
|
|
(545,928
|
)
|
|
(551,660
|
)
|
|
(1,626,190
|
)
|
|
(1,460,916
|
)
|
|
Loss
from continuing operations before income taxes
|
|
|
(1,213,303
|
)
|
|
(978,962
|
)
|
|
(3,685,888
|
)
|
|
(2,427,912
|
)
|
|
Benefit
from (provision for) income taxes
|
|
|
4,152
|
|
|
(90,578
|
)
|
|
(1,915
|
)
|
|
(175,699
|
)
|
|
Loss
from continuing operations
|
|
|
(1,209,151
|
)
|
|
(1,069,540
|
)
|
|
(3,687,803
|
)
|
|
(2,603,611
|
)
|
|
Discontinued
Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operations of discontinued subsidiaries (including loss
on
sales of subsidiaries of $335,501 and $2,529,942 in the three and
nine
months ended September 30, 2008 respectively)
|
|
|
(191,817
|
)
|
|
244,005
|
|
|
(2,540,783
|
)
|
|
166,525
|
|
|
Benefit
from (provision for) income taxes
|
|
|
5,474
|
|
|
(11,500
|
)
|
|
184,329
|
|
|
(34,500
|
)
|
|
Income
(loss) from discontinued operations
|
|
|
(186,343
|
)
|
|
232,505
|
|
|
(2,356,454
|
)
|
|
132,025
|
|
|
Net
Loss
|
|
$
|
(1,395,494
|
)
|
$
|
(837,035
|
)
|
$
|
(6,044,257
|
)
|
$
|
(2,471,586
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
$
|
(0.11
|
)
|
$
|
(0.09
|
)
|
$
|
(0.35
|
)
|
$
|
(0.23
|
)
|
|
Income
(loss) from discontinued operations
|
|
|
(0.02
|
)
|
|
0.02
|
|
|
(0.22
|
)
|
|
0.01
|
|
|
Basic
and diluted loss per share
|
|
$
|
(0.13
|
)
|
$
|
(0.07
|
)
|
$
|
(0.57
|
)
|
$
|
(0.22
|
)
|
|
Weighted
average number of common shares used in computation of net loss per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
10,646,673
|
|
|
11,484,973
|
|
|
10,646,673
|
|
|
11,383,193
|
|
See
accompanying notes to unaudited condensed consolidated financial
statements.
LANGER,
INC. AND SUBSIDIARIES
Condensed
Consolidated Statements of Stockholders’ Equity
For
the nine months ended September 30, 2008
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other
Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
Foreign
|
|
|
|
Total
|
|
|
|
|
Common Stock
|
|
Treasury
|
|
Paid-in
|
|
Accumulated
|
|
Currency
|
|
Comprehensive
|
|
Stockholders’
|
|
|
|
|
Shares
|
|
Amount
|
|
Stock
|
|
Capital
|
|
Deficit
|
|
Translation
|
|
Income (Loss)
|
|
Equity
|
|
|
Balance
at January 1, 2008
|
|
|
11,588,512
|
|
$
|
231,771
|
|
$
|
(196,641
|
)
|
$
|
53,800,139
|
|
$
|
(22,713,086
|
)
|
$
|
765,392
|
|
|
|
|
$
|
31,887,575
|
|
|
Net
loss
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,044,257
|
)
|
|
—
|
|
$
|
(6,
044,257
|
)
|
|
―
|
|
|
Foreign
currency adjustment
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(151,330
|
)
|
|
(151,330
|
)
|
|
―
|
|
|
Total
comprehensive loss
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
$
|
(6,195,587
|
)
|
|
(6,195,587
|
)
|
|
Stock-based
compensation expense
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
137,140
|
|
|
—
|
|
|
—
|
|
|
|
|
|
137,140
|
|
|
Purchase
of Treasury Stock
|
|
|
—
|
|
|
—
|
|
|
(1,228,756
|
)
|
|
|
|
|
—
|
|
|
—
|
|
|
|
|
|
(1,228,756
|
)
|
|
Shares
received as settlement of receivable
|
|
|
|
|
|
|
|
|
(51,000
|
)
|
|
|
|
|
—
|
|
|
—
|
|
|
|
|
|
(51,000
|
)
|
|
Balance
at September 30, 2008
|
|
|
11,588,512
|
|
$
|
231,771
|
|
$
|
(1,476,397
|
)
|
$
|
53,937.279
|
|
$
|
(28,757,343
|
)
|
$
|
614,062
|
|
|
|
|
$
|
24,549,372
|
|
LANGER,
INC. AND SUBSIDIARIES
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
For the nine months ended September 30,
|
|
|
|
|
2008
|
|
2007
|
|
|
Cash
Flows From Operating Activities:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(6,044,257
|
)
|
$
|
(2,471,586
|
)
|
|
(Income)
loss from discontinued operations
|
|
|
2,356,454
|
|
|
(132,025
|
)
|
|
Loss
from continuing operations
|
|
|
(3,687,803
|
)
|
|
(2,603,611
|
)
|
|
Adjustments
to reconcile net loss from continuing operations to net cash provided
by
(used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
of property and equipment and amortization of identifiable intangible
assets
|
|
|
3,084,549
|
|
|
2,451,865
|
|
|
Loss
on receivable settlement
|
|
|
49,000
|
|
|
-
|
|
|
Gain
on lease surrender
|
|
|
(218,249
|
)
|
|
-
|
|
|
Amortization
of debt acquisition costs
|
|
|
268,811
|
|
|
231,389
|
|
|
Amortization
of debt discount
|
|
|
67,455
|
|
|
64,172
|
|
|
Provision
for pension
|
|
|
-
|
|
|
143,471
|
|
|
Stock-based
compensation expense
|
|
|
137,140
|
|
|
219,347
|
|
|
Provision
for doubtful accounts receivable
|
|
|
154,137
|
|
|
378,392
|
|
|
Deferred
income tax provision
|
|
|
35,120
|
|
|
114,213
|
|
|
Changes
in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(588,044
|
)
|
|
(1,654,938
|
)
|
|
Inventories
|
|
|
(1,935,758
|
)
|
|
(504,932
|
)
|
|
Prepaid
expenses and other current assets
|
|
|
(412,991
|
)
|
|
(135,281
|
)
|
|
Other
assets
|
|
|
(46,567
|
)
|
|
788,307
|
|
|
Accounts
payable and other current liabilities
|
|
|
1,741,756
|
|
|
494,020
|
|
|
Unearned
revenue and other liabilities
|
|
|
(91,804
|
)
|
|
(116,827
|
)
|
|
Net
cash (used in) operating activities of continuing
operations
|
|
|
(1,443,248
|
)
|
|
(130,413
|
)
|
|
Net
cash (used in) provided by operating activities of discontinued
operations
|
|
|
(313,969
|
)
|
|
336,385
|
|
|
Net
cash (used in) provided by operating activities
|
|
|
(1,757,217
|
)
|
|
205,972
|
|
|
Cash
Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(594,470
|
)
|
|
(761,397
|
)
|
|
Increase
in restricted cash - escrow
|
|
|
-
|
|
|
(1,000,000
|
)
|
|
Purchase
of treasury stock
|
|
|
(1,228,756
|
)
|
|
-
|
|
|
Net
proceeds from sales of subsidiaries
|
|
|
3,193,052
|
|
|
-
|
|
|
Purchase
of Twincraft, net of cash acquired
|
|
|
-
|
|
|
(25,901,387
|
)
|
|
Net
cash provided by (used in) investing activities for continuing
operations
|
|
|
1,369,826
|
|
|
(27,662,784
|
)
|
|
Net
cash used in investing activities of discontinued
operations
|
|
|
(3,711
|
)
|
|
(309,652
|
)
|
|
Net
cash provided by (used in) investing activities
|
|
|
1,366,115
|
|
|
(27,972,436
|
)
|
See
accompanying notes to unaudited condensed consolidated financial
statements.
LANGER,
INC. AND SUBSIDIARIES
Condensed
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
|
|
|
For the nine months ended September 30,
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities:
|
|
|
|
|
|
|
Net
borrowings under line of credit
|
|
|
4,500,000
|
|
|
-
|
|
|
Payment
of debt acquisition costs
|
|
|
-
|
|
|
(267,492
|
)
|
|
Proceeds
from exercise of stock options
|
|
|
-
|
|
|
45,750
|
|
|
Repayment
of note payable
|
|
|
(9,469
|
)
|
|
(26,960
|
)
|
|
Net
cash provided by (used in) financing activities of continuing
operations
|
|
|
4,490,531
|
|
|
(248,702
|
)
|
|
Net
cash used in financing activities of discontinued
operations
|
|
|
-
|
|
|
-
|
|
|
Net
cash provided by (used in) financing activities
|
|
|
4,490,531
|
|
|
(248,702
|
)
|
|
Effect
of exchange rate changes on cash
|
|
|
(89,802
|
)
|
|
69,174
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
4,009,627
|
|
|
(27,945,992
|
)
|
|
Cash
and cash equivalents at beginning of year, including $770,048 reported
under assets held for sale in 2007
|
|
|
2,665,408
|
|
|
29,766,997
|
|
|
Cash
and cash equivalents at end of period, including $444,520 reported
under
assets held for sale in 2007
|
|
$
|
6,675,035
|
|
$
|
1,821,005
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosures of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Supplemental
Disclosures of Non Cash Investing Activities:
|
|
|
|
|
|
|
|
|
Release
of funds in escrow related to the
Twincraft acquisition reclassified to goodwill
|
|
$
|
1,000,000
|
|
$
|
-
|
|
|
Issuance
of stock related to the acquisition of Regal
|
|
$
|
-
|
|
$
|
1,372,226
|
|
|
Issuance
of stock related to the acquisition of Twincraft
|
|
$
|
-
|
|
$
|
9,700,766
|
|
|
Note
receivable related to sale of subsidiary
|
|
$
|
221,230
|
|
$
|
-
|
|
|
Supplemental
Disclosures of Non Cash Financing Activities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities relating to property and
equipment
|
|
$
|
163,140
|
|
$
|
40,349
|
|
See
accompanying notes to unaudited condensed consolidated financial
statements.
LANGER,
INC. AND SUBSIDIARIES
Notes
To Unaudited Condensed Consolidated Financial Statements
(1)
Summary of Significant Accounting Policies and Other
Matters
(a)
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements of Langer,
Inc. (“Langer” or the “Company”) have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States of America
for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals, other than the purchases and sale
of
affiliates discussed herein), considered necessary for a fair presentation
have
been included. These unaudited condensed consolidated financial statements
should be read in conjunction with the related financial statements and
consolidated notes, included in the Company’s annual report on Form 10-K
for the fiscal year ended December 31, 2007.
Operating
results for the three and nine months ended September 30, 2008 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2008. During the nine months ended September 30, 2007, the
Company consummated two acquisitions which are included in the Company’s
financial statements for this period (see Note 2, “Acquisitions”) and during the
nine months ended September 30, 2008, the Company disposed of three operations.
The
Company classifies as discontinued operations for all periods presented any
component of the Company's business that the Company believes is probable of
being sold or has been sold that has operations and cash flows that are clearly
distinguishable operationally and for financial reporting purposes. For those
components, the Company has no significant continuing involvement after
disposal, and their operations and cash flows are eliminated from ongoing
operations. Sales of significant components of the Company's business not
classified as discontinued operations are reported as a component of income
from
continuing operations.
In
accordance with the provisions of Statement of Financial Accounting Standards
(“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived
Assets,” the assets and liabilities relating to Langer (UK) Limited (“Langer
UK”), Regal Medical Supply, LLC (“Regal”), Bi-Op Laboratories, Inc. (“Bi-Op”),
and the Langer branded custom orthotics and related products business have
been
reclassified as held for sale in the consolidated balance sheet at December
31,
2007. The assets and liabilities held for sale at September 30, 2008 are related
to the Langer branded custom orthotics and related products business. The
results of operations of Langer UK, Regal, Bi-Op, and the Langer branded custom
orthotics and related products business for the current and prior period have
been reported as discontinued operations. The Company sold the capital stock
of
Langer UK to a third party on January 18, 2008, sold its entire membership
interest in Regal to a group of investors, including a member of Regal’s
management on June 11, 2008, and sold all of the capital stock of Bi-Op on
July
31, 2008. In addition, the Company sold substantially all of the operating
assets and liabilities related to the Langer branded custom orthotics and
related products business on October 24, 2008.
(b)
Sale
of Langer (UK) Limited
On
January 18, 2008, the Company sold all of the outstanding capital stock of
its
wholly-owned subsidiary, Langer UK, to an affiliate of Sole Solutions, a
retailer of specialty footwear based in the United Kingdom. The sales price
was
$1,155,313, of which $934,083 was paid in cash at closing and the remaining
$221,230 is evidenced by a note receivable. In addition, transaction costs
in
the amount of $125,914 were incurred. The note receivable bears interest at
8.5%
annually with monthly payments of interest. The entire principal balance on
the
note receivable is due in full on January 18, 2010 and is included in other
long-term assets. In addition, upon closing, the Company entered into an
exclusive sales agency agreement and distribution services agreement by which
Langer UK will act as sales agent and distributor for Silipos products in the
United Kingdom, Europe, Africa, and Israel. These agreements have terms of
three
years. In December 2007, the Company recorded an impairment of $175,558 related
to Langer UK as a result of the net loss associated with this
sale.
(c)
Sale of Regal Medical Supply, LLC
On
June
11, 2008, the Company sold its entire membership interest of its wholly-owned
subsidiary, Regal, to a group of investors, including a member of Regal’s
management. The sales price was $501,000, which was paid in cash at closing.
In
addition, transaction costs in the amount of $69,921 were incurred. In June
2008, the Company recorded a loss on this sale of $1,754,450, which includes
an
impairment of $1,277,521 related to goodwill. During the three months ended
September 30, 2008, the Company recorded an additional loss on this sale of
$131,376 associated with the lease of Regal’s former offices which increased the
total loss on this sale to $1,885,826. This loss is included in loss from
operations of discontinued subsidiaries in the consolidated statements of
operations for the nine months ended September 30, 2008.
(d)
Sale
of Bi-Op Laboratories, Inc.
On
July
31, 2008, the Company sold all of the outstanding capital stock of its
wholly-owned subsidiary, Bi-Op, to a third party, which included the general
manager of Bi-Op. The sales price of $2,040,816 was paid in cash at closing,
and
was subject to adjustment following the closing to extent that working capital,
as defined by the purchase agreement, is less or greater than $488,520. In
October 2008, a working capital adjustment due to the Company in the amount
of
$325,961 was agreed to by both parties to the transaction. In June 2008, the
Company recorded $439,991 as its estimate of the loss on the sale. During the
three months ended September 30, 2008, the Company recorded an additional loss
of $204,125 resulting from additional transaction costs. This increased the
total loss on the sale before income tax benefit to $644,116. The Company also
realized an income tax benefit on this transaction of $218,829 which decreased
the total loss to $425,287. This loss is included in loss from operations of
discontinued subsidiaries in the consolidated statement of operations for the
nine months ended September 30, 2008.
(e)
Sale
of Langer Branded Custom Orthotics Assets and Liabilities
See
Note
14 for a description of the Company’s sale on October 24, 2008 of the
Langer branded custom orthotics and related products business.
(f)
Stock-Based
Compensation
The
total
stock compensation expense for the three and nine months ended September 30,
2008 was $60,031 and $137,140, respectively, and for the three and nine months
ended September 30, 2007 was $52,116 and $167,422, respectively, and is included
in general and administrative expenses in the consolidated statements of
operations.
For
the
nine months ended September 30, 2008, the Company granted 60,000 options under
the Company’s 2007 Stock Incentive Plan (the “2007 Plan”). These options were
granted to non-employee members of the Company’s Board of Directors at an
exercise price of $0.90.
For
the
nine months ended September 30, 2007, the Company granted 425,000 options under
the Company’s 2005 Stock Incentive Plan (the “2005 Plan”). These options were
granted to employees of Twincraft (and one non-employee) at an exercise price
of
$4.20. A total of 325,000 options were awarded to employees, and 100,000 options
were awarded to a non-employee.
The
Company accounts for equity issuances to non-employees in accordance with
Emerging Issues Task Force (“EITF”) Issue No. 96-18, “Accounting for Equity
Instruments that are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods and Services.” All transactions in which goods
or services are the consideration received for the issuance of equity
instruments are accounted for based on the fair value of the consideration
received or the fair value of the equity instrument issued, whichever is more
reliably measurable. The fair value of the option issued is used to measure
the
transaction, as this is more reliable than the fair market value of the services
received. The Company utilizes the Black-Scholes option pricing model to
determine the fair value at the end of each reporting period. Non-employee
stock-based compensation expense is subject to periodic adjustment and is being
recognized over the vesting periods of the related options. The fair value
of
the equity instrument is charged directly to compensation expense and additional
paid-in-capital. During the nine months ended September 30, 2007, the Company
issued 100,000 stock options in conjunction with a non-employee consulting
agreement with Fifth Element, LLC. For the three and nine months ended September
30, 2008 $1,750 and $8,906, respectively, were recorded as consulting expenses.
For the three and nine months ended September 30, 2007, $22,884 and $51,924,
respectively, were recorded as consulting expenses.
Restricted
Stock
On
January 23, 2007, the Board of Directors approved a grant of 75,000 shares
of
restricted stock to Kathy Kehoe, 275,000 shares of restricted stock to W. Gray
Hudkins, 7,500 shares of restricted stock to Stephen M. Brecher, 7,500 shares
of
restricted stock to Burtt R. Ehrlich, 7,500 shares to Stuart Greenspon and
500,000 shares of restricted stock to Warren B. Kanders, subject to vesting
upon
satisfaction of certain performance conditions. In September 2007, the Board
of
Directors approved a grant of 75,000 shares of restricted stock to Kathleen
P.
Bloch, subject to vesting upon satisfaction of certain performance conditions.
During the nine months ended September 30, 2008, the restricted shares issued
to
Kathy Kehoe were forfeited on account of her resignation as an officer and
employee effective February 5, 2008. The Company will record stock compensation
expense with respect to these grants when the vesting of such grants are
probable.
(g)
Recently
Issued Accounting Pronouncements
On
September 15, 2006, the Financial Accounting Standards Board (“FASB”) issued
SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 is effective for fiscal
years beginning after November 15, 2007, and interim periods within those fiscal
years. SFAS No. 157 provides guidance related to estimating fair value and
requires expanded disclosures. The standard applies whenever other standards
require (or permit) assets or liabilities to be measured at fair value. The
standard does not expand the use of fair value in any new circumstances. In
February 2008, the FASB provided a one year deferral for the implementation
of
SFAS No. 157 for non-financial assets and liabilities recognized or disclosed
at
fair value in the financial statements on a non-recurring basis. The Company
adopted SFAS No. 157 as of January 1, 2008. The Company has no financial assets
or liabilities that are currently measured at fair value on a recurring basis
and therefore the adoption of the standard had no impact upon the Company’s
financial position or results of operations. The Company is in the process
of
reviewing the implementation of SFAS No. 157 on non-financial assets and
liabilities which will be effective January 1, 2009.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities.” SFAS No. 159 allows companies to
choose to measure many financial instruments and certain other items at fair
value. The statement requires that unrealized gains and losses on items for
which the fair value option has been elected be reported in earnings. SFAS
No.
159 is effective for fiscal years beginning after November 15, 2007, although
earlier adoption is permitted. SFAS No. 159 was effective for the Company
beginning in the first quarter of fiscal 2008. The Company did not elect to
adopt the provisions under SFAS No. 159, therefore, the adoption of SFAS No.
159
in the first quarter of fiscal 2008 did not impact the Company’s financial
position or results of operations.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (“SFAS No. 141 (R)”), which requires an acquirer to recognize the
assets acquired, the liabilities assumed, and any noncontrolling interest of
an
acquiree at the acquisition date, measured at their fair values as of that
date,
with limited exceptions. SFAS No.141 (R) applies prospectively to business
combinations for which the acquisition date is on or after the beginning of
the
first annual reporting period beginning on or after December 15, 2008. Earlier
application is prohibited. The Company anticipates this will have a material
effect on future acquisitions upon adoption.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements,” which requires (1) ownership interests in
subsidiaries held by parties other than the parent to be clearly identified,
labeled, and presented in the consolidated statement of financial position
within equity, but separate from the parent’s equity; (2) the amount of
consolidated net income attributable to the parent and to the non-controlling
interest be clearly identified and presented on the face of the consolidated
statement of income; and (3) changes in a parent’s ownership interest while the
parent retains its controlling financial interest in its subsidiary be accounted
for consistently as equity transactions. SFAS No. 160 applies prospectively
to
business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008. Earlier application is prohibited. The adoption of SFAS No. 160 is
not
expected to have a material impact on our results of operations or our financial
position.
In
March
2008, the FASB issued SFAS No. 161, “Disclosures and Derivative Instruments and
Hedging Activities — an Amendment of FASB Statement 133” (“SFAS 161”). SFAS 161
will change the disclosure requirements for derivative instruments and hedging
activities. Entities will be required to provide enhanced disclosures about
(a)
how and why an entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under Statement 133
and
its related interpretations, and (c) how derivative instruments and related
hedged items affect an entity’s financial position, financial performance and
cash flows. SFAS 161 is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008. The Company has
not
yet evaluated the impact, if any, of adopting this pronouncement.
(h)
Stock
Repurchase
In
accordance with the previously announced stock repurchase program, the Company
purchased 832,539 shares of its common stock at prices ranging from $0.63 to
$2.03 per share during the nine months ended September 30, 2008. The total
cost
of these purchases, including brokerage commissions, amounted to
$1,228,756.
(i)
Termination of Lease
The
Company relocated its executive offices in May 2008. The Company executed a
surrender agreement with the landlord of 41 Madison Avenue, New York, NY, which
provided for the termination of the lease effective May 19, 2008. As part of
the
agreement, the landlord agreed to forgive the remaining outstanding balance
of
$139,281 on the Company’s existing note payable with the landlord. The Company
vacated the premises in May 2008 and recorded a net gain of $218,249. This
gain,
which is comprised primarily of the net deferred rent balance and the
forgiveness of the note payable, is included as a reduction of general and
administrative expenses in the consolidated statements of operations for the
nine months ended September 30, 2008. In addition, the Company has entered
into
a sublease agreement for office space at 245 Fifth Avenue, New York, NY. This
sublease requires monthly payments of $13,889 per month, commencing in May
2008,
until June 30, 2009, which is the expiration date of the sublease.
(2)
Acquisitions
(a)
Acquisition
of Regal
On
January 8, 2007, the Company acquired Regal, which is a provider of contracture
management products and services to the long-term care market of skilled nursing
and assisted living facilities in 22 states. Regal was acquired in an effort
to
gain access to the long-term care market, to gain a captive distribution channel
for certain custom orthotic products the Company manufactures into markets
the
Company has not previously penetrated, and to establish a national network
of
service professionals to enhance its customer relationships in both its core
and
new markets. The results of operations of Regal since January 8, 2007 were
included in the Company’s consolidated financial statements as part of its own
operating segment but have subsequently been presented as discontinued
operations due to the sale of the business in June 2008.
The
initial consideration for the acquisition of Regal (before post-closing
adjustments) was approximately $1,640,000, which was paid through the issuance
of 379,167 shares of the Company’s common stock valued under the asset purchase
agreement at a price of $4.329 per share. In addition, transaction costs in
the
amount of $69,721 were incurred, which increased the acquisition cost to
$1,709,721. The purchase price was subject to a post-closing downward adjustment
to the extent that the working capital as reflected on Regal’s January 8, 2007
(closing date) balance sheet was less than $675,000. On March 12, 2007, the
Company and the sellers agreed to a post-closing downward adjustment, pursuant
to terms of the purchase agreement, reducing the price from $1,709,721 to
$1,441,670, which was effected by the cancellation of 45,684 shares, which
were
valued for purposes of the adjustment at $4.114 per share, which was the average
closing price of the Company’s common stock on The NASDAQ Global Market for the
five trading days ended December 19, 2006. Subsequently, the Company
reclassified certain assets, and asserted against the seller a claim for
receivables acquired but not collected pursuant to the terms of the purchase
agreement; in March 2008, the Company accepted a return of 25,000 shares of
its
common stock from the sellers in full settlement of this claim. On the date
of
the transfer of these shares, the fair value of our common stock was $2.04
per
share, and the Company recorded a loss of $49,000 related to this settlement.
The Company entered into a three-year employment agreement with a former
employee and member of the seller and a non-competition agreement with the
seller and seller’s members.
The
following table sets forth the components of the purchase price:
|
Total
stock consideration
|
|
$
|
1,371,949
|
|
|
Transaction
costs
|
|
|
69,721
|
|
|
Total
purchase price
|
|
$
|
1,441,670
|
|
The
following table provides the final allocation of the purchase price based upon
the fair value of the assets acquired and liabilities assumed at January 8,
2007:
|
Assets:
|
|
|
|
|
|
Accounts
receivable
|
|
$
|
387,409
|
|
|
Other
assets
|
|
|
100,000
|
|
|
Property
and equipment
|
|
|
25,030
|
|
|
Goodwill
|
|
|
1,277,521
|
|
|
|
|
|
1,789,960
|
|
|
Liabilities:
|
|
|
|
|
|
Accounts
payable
|
|
|
275,206
|
|
|
Accrued
liabilities
|
|
|
73,084
|
|
|
|
|
|
348,290
|
|
|
Total
purchase price
|
|
$
|
1,441,670
|
|
In
accordance with the provisions of SFAS No. 142, “Goodwill and Other Intangible
Assets,” the Company will not amortize goodwill. The value of allocated goodwill
is not deductible for income tax purposes.
On
June
11, 2008, the Company sold its entire membership interest in Regal (see notes
3
and 4).
(b)
Acquisition
of Twincraft
On
January 23, 2007, the Company completed the acquisition of all of the
outstanding stock of Twincraft. Twincraft is a leading private label
manufacturer of specialty bar soaps supplying the health and beauty markets,
mass markets and direct marketing channels and operates out of a manufacturing
facility in Winooski, Vermont. Twincraft was acquired to enable the Company
to
expand into additional product categories in the personal care market, to
increase the Company’s customer exposure for its current line of Silipos
gel-based skincare products, and to take advantage of potential commonalities
in
research and development advances between Twincraft’s and the Company’s current
product lines. The results of operations of Twincraft since January 23, 2007
(the date of acquisition) have been included in the Company’s consolidated
financial statements as part of the personal care products operating
segment.
The
purchase price paid for Twincraft at the time of closing was approximately
$26,650,000, of which $1,500,000 was held in two separate escrows to partially
secure payment of indemnification claims, and payment for any purchase price
adjustments and/or working capital adjustments based on the final post-closing
audit. On May 30, 2007, the escrow of $500,000 was released to the sellers
of
Twincraft. The remaining escrow of $1,000,000 and accrued interest were paid
on
July 23, 2008. The payment of these escrow funds increased goodwill. The
purchase price was paid 85% in cash and the balance through the issuance of
the
Company’s common stock to the sellers of Twincraft, which was valued based on
the average closing price of the Company’s common stock on the two days before,
two days after, and on November 14, 2006, which was the date the Company and
Twincraft’s stockholders entered into the purchase agreement. The purchase price
was subject to adjustment based on Twincraft’s working capital target of
$5,100,000 at closing, and operating performance for the year ended December
31,
2006. On May 15, 2007, the working capital adjustment, which was agreed to
by
the Company and the sellers of Twincraft, in effect increased the purchase
price
of the Twincraft acquisition by approximately $1,276,000 payable in cash. In
addition, on May 15, 2007, the operating performance adjustments, pursuant
to
the purchase agreement between the Company and the sellers of Twincraft,
increased the purchase price of Twincraft by approximately $1,867,000, and
the
adjustments were made by the issuance of 68,981 shares of the Company’s common
stock (representing 15% of the adjustment to the purchase consideration) and
the
balance of approximately $1,564,000 was paid in cash. The cash adjustments
for
working capital and operating performance totaling approximately $2,840,000
were
paid to the sellers in May 2007. During the year 2007, approximately $193,000
of
additional transaction costs relating to the Twincraft acquisition were
incurred, resulting in an increase to the cost of the Twincraft acquisition,
and
is reflected in goodwill. Total transaction costs were $1,445,714.
Effective
January 23, 2007, Twincraft entered into three-year employment agreements with
Peter A. Asch, who serves as President of Twincraft, and A. Lawrence Litke,
who
serves as Chief Operating Officer of Twincraft. Twincraft also entered into
a
consulting agreement with Fifth Element, LLC, a consulting firm controlled
by
Joseph Candido, who serves as Vice President of Sales and Marketing for
Twincraft. The employment agreements of Mr. Asch and Mr. Litke, and the
consulting agreement of Fifth Element, LLC, contain non-competition and
non-solicitation provisions covering the terms of their agreements and for
any
extended severance periods and for one year after termination of the agreements
or the extended severance periods, if any. Messrs. Asch, Litke and Candido
were
stockholders of Twincraft immediately before the sale of Twincraft to the
Company. Effective October 2, 2008, Mr. Litke’s employment with Twincraft was
terminated by Twincraft.
Subject
to the terms and conditions set forth in the Twincraft purchase agreement,
the
sellers of Twincraft (including Mr. Asch) can earn additional deferred
consideration for the years ended 2007 and 2008. Deferred consideration would
have been earned for the year ending December 31, 2007 if Twincraft’s adjusted
EBITDA (as defined in the purchase agreement) exceeded its 2006 adjusted EBITDA.
For the year ended December 31, 2007, the sellers of Twincraft did not earn
any
additional consideration. The sellers of Twincraft will earn deferred
consideration for the year ending December 31, 2008, if Twincraft’s 2008
adjusted EBITDA exceeds $4,383,000, in which case the Company will be obligated
to pay to the sellers three times the difference between Twincraft’s 2008
adjusted EBITDA and $4,383,000. In the event this target is met, the payment
would be compensation expense, not purchase price, since it is contingent upon
their being employed.
On
January 23, 2007, as part of their employment agreements, the Company granted
stock options of 200,000 and 100,000 shares, respectively, to Messrs. Asch
and
Litke, all under the Company’s 2005 Stock Incentive Plan, to purchase shares of
the Company’s common stock having an exercise price equal to $4.20 per share,
which vest in three equal consecutive annual tranches beginning on January
23,
2009. The Company also granted stock options, on January 23, 2007, to Mr. Mark
Davitt, another Twincraft employee, for 25,000 shares with an exercise price
of
$4.20 per share, vesting in three equal consecutive annual tranches commencing
on the first anniversary of the grant date. The Company is recognizing stock
compensation expenses related to these options over the requisite service period
in accordance with SFAS No. 123(R). Pursuant to EITF No. 96-18, the Company
recorded consulting expenses relating to 100,000 stock options granted to Fifth
Element, LLC, a non-employee consultant, which is controlled by Mr. Joseph
Candido, a Twincraft officer and one of the former Twincraft
stockholders.
The
following table sets forth the components of the purchase price:
|
Total
cash consideration
|
|
$
|
24,492,639
|
|
|
Total
stock consideration
|
|
|
4,701,043
|
|
|
Transaction
costs
|
|
|
1,445,714
|
|
|
Total
purchase price
|
|
$
|
30,639,396
|
|
The
following table provides the final allocation of the purchase price based upon
the fair value of the assets acquired and liabilities assumed at January 23,
2007:
|
Assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
36,966
|
|
|
Accounts
receivable
|
|
|
3,984,756
|
|
|
Inventories
|
|
|
4,200,867
|
|
|
Other
current assets
|
|
|
127,911
|
|
|
Property
and equipment
|
|
|
7,722,140
|
|
|
Goodwill
|
|
|
7,022,425
|
|
|
Identifiable
intangible assets (trade names of $2,629,300 and repeat customer
base of
$7,214,500)
|
|
|
9,843,800
|
|
|
|
|
|
32,938,865
|
|
|
Liabilities:
|
|
|
|
|
|
Accounts
payable
|
|
|
517,929
|
|
|
Accrued
liabilities
|
|
|
1,781,540
|
|
|
|
|
|
2,299,469
|
|
|
Total
purchase price
|
|
$
|
30,639,396
|
|
In
accordance with the provisions of SFAS No. 142, the Company will not amortize
goodwill. The intangible assets are deemed to have definite lives and are being
amortized over an appropriate period that matches the economic benefit of the
intangible assets. The trade names are being amortized over a 23 year period
and
the repeat customer base over a 19 year period. The customer list is amortized
using an accelerated method that reflects the economic benefit of the asset.
The
value allocated to goodwill and identifiable intangible assets in the purchase
of Twincraft are not deductible for income tax purposes.
(c)
Unaudited
Pro Forma Results
Below
are
the unaudited pro forma results of operations for the three and nine months
ended September 30, 2007, as if the Company had acquired Twincraft on January
1,
2007. Such pro forma results are not necessarily indicative of the actual
consolidated results of operations that would have been achieved if the
acquisition occurred on the date assumed, nor are they necessarily indicative
of
future consolidated results of operations.
Unaudited
pro forma results for the nine months ended September 30, 2007
were:
|
|
|
Nine months ended
|
|
|
Net
sales
|
|
$
|
33,313,064
|
|
|
Net
loss from continuing operations
|
|
|
(2,367,729
|
)
|
|
Loss
per share – basic and diluted
|
|
$
|
(0.21
|
)
|
(3)
Discontinued
Operations
During
the nine months ended September 30, 2008, the Company completed the sale of
Langer UK on January 18, 2008, Regal on June 11, 2008 and Bi-Op on July 31,
2008
(as discussed in Note 1 above). In addition, the Company completed the sale
of
substantially all of the operating assets and liabilities related to the Langer
branded custom orthotics and related products business on October 24, 2008
(see Note 14). In accordance with SFAS No. 144, the results of operations of
these wholly owned subsidiaries and businesses for the current and prior periods
have been reported as discontinued operations, and the assets and liabilities
related to these wholly owned subsidiaries have been classified as held for
sale
in the Company’s consolidated balance sheets. Operating results of these wholly
owned subsidiaries and businesses, which were formerly included in our medical
products and Regal segments, are summarized as follows:
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Langer
UK
|
|
$
|
-
|
|
$
|
798,333
|
|
$
|
-
|
|
$
|
2,411,893
|
|
|
Regal
|
|
|
-
|
|
|
1,075,851
|
|
|
1,526,301
|
|
|
2,741,322
|
|
|
Bi-Op
|
|
|
265,130
|
|
|
702,033
|
|
|
1,617,356
|
|
|
2,055,834
|
|
|
Langer
branded orthotics
|
|
|
2,787,892
|
|
|
3,318,088
|
|
|
8,298,843
|
|
|
10,588,398
|
|
|
Total
revenues
|
|
$
|
3,053,022
|
|
$
|
5,894,305
|
|
$
|
11,442,500
|
|
$
|
17,797,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) from operations
|
|
$
|
154,837
|
|
$
|
355,488
|
|
$
|
70,674
|
|
$
|
521,363
|
|
|
Loss
on sale
|
|
|
(335,501
|
)
|
|
-
|
|
|
(2,529,942
|
)
|
|
-
|
|
|
Other
income (expense), net
|
|
|
(11,153
|
)
|
|
(111,483
|
)
|
|
(81,515
|
)
|
|
(354,838
|
)
|
|
Income
(loss) before income taxes
|
|
|
(191,817
|
)
|
|
244,005
|
|
|
(2,540,783
|
)
|
|
166,525
|
|
|
Benefit
from (provision for) income tax
|
|
|
5,474
|
|
|
(11,500
|
)
|
|
184,329
|
|
|
(34,500
|
)
|
|
Income
(loss) from discontinued operations
|
|
$
|
(186,343
|
)
|
$
|
232,505
|
|
$
|
(2,356,454
|
)
|
$
|
132,025
|
|
Income
(Loss) from discontinued operations is comprised of the following for the three
and nine months ended September 30, 2008 and 2007:
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
Langer
UK
|
|
$
|
—
|
|
$
|
(42,696
|
)
|
$
|
—
|
|
$
|
(142,792
|
)
|
|
Regal
|
|
|
(131,376
|
)
|
|
(27,275
|
)
|
|
(2,128,532
|
)
|
|
(11,515
|
|
|
Bi-Op
|
|
|
(147,377
|
)
|
$
|
55,373
|
|
|
(432,635
|
)
|
|
119,955
|
|
|
Langer
branded orthotics
|
|
|
92,410
|
|
|
247,103
|
|
|
204,713
|
|
|
166,377
|
|
|
Total
|
|
$
|
(186,343
|
)
|
$
|
232,505
|
|
$
|
(2,356,454
|
)
|
$
|
132,025
|
|
(4)
Net Assets Held for Sale
The
assets and liabilities of the Langer branded custom orthotics and related
products business have been reclassified as held for sale in the Company’s
consolidated balance sheets as of September 30, 2008 and at December 31, 2007.
The assets and liabilities of Langer UK, Regal and Bi-Op are shown as held
for
sale as of December 31, 2007 as they were sold in the nine months ended
September 30, 2008. The assets and liabilities related to these subsidiaries
consist of the following as of September 30, 2008 and December 31,
2007:
|
|
|
September 30,
|
|
December 31,
|
|
|
|
|
2008
|
|
2007
|
|
|
Accounts
receivable
|
|
|
1,376,120
|
|
|
3,506,684
|
|
|
Inventories
|
|
|
542,906
|
|
|
1,411,040
|
|
|
Other
current assets
|
|
|
173,014
|
|
|
454,216
|
|
|
Goodwill
|
|
|
1,672,344
|
|
|
287,171
|
|
|
Identifiable
intangible assets
|
|
|
337,727
|
|
|
833,179
|
|
|
Deferred
income taxes
|
|
|
234,951
|
|
|
—
|
|
|
Other
assets
|
|
|
—
|
|
|
89,829
|
|
|
Property
and equipment
|
|
|
1,476,081
|
|
|
2,856,267
|
|
|
Assets
held for sale
|
|
$
|
5,813,143
|
|
$
|
9,438,386
|
|
|
Accounts
payable
|
|
$
|
509,442
|
|
$
|
1,342,774
|
|
|
Other
liabilities
|
|
|
804,822
|
|
|
1,837,164
|
|
|
Liabilities
related to assets held for sale
|
|
$
|
1,314,264
|
|
$
|
3,179,938
|
|
(5)
Goodwill
Changes
in goodwill for the nine months ended September 30, 2008 are as
follows:
|
|
|
Medical
Products
|
|
Personal Care
Products
|
|
Regal
|
|
Total
|
|
|
Balance
January 1, 2008
|
|
$
|
10,830,765
|
|
$
|
9,848,144
|
|
$
|
1,277,521
|
|
$
|
21,956,430
|
|
|
Allocated
to Regal, included in discontinued operations
|
|
|
—
|
|
|
—
|
|
|
(1,277,521
|
)
|
|
(1,277,521
|
)
|
|
Allocated
to Bi-Op, impaired and included in loss on sale
|
|
|
(808,502
|
)
|
|
—
|
|
|
—
|
|
|
(808,502
|
)
|
|
Twincraft
escrow payment
|
|
|
—
|
|
|
1,000,000
|
|
|
—
|
|
|
1,000,000
|
|
|
Allocated
to the Langer branded orthotics and related products business and
included
in assets held for sale
|
|
|
(1,672,344
|
)
|
|
—
|
|
|
—
|
|
|
(1,672,344
|
)
|
|
Balance
at September 30, 2008
|
|
$
|
8,349,919
|
|
$
|
10,848,144
|
|
$
|
—
|
|
$
|
19,198,063
|
|
(6)
Identifiable Intangible Assets
Identifiable
intangible assets at September 30, 2008 consisted of:
|
Assets
|
|
Estimated
Useful Life (Years)
|
|
Adjusted
Cost
|
|
Accumulated
Amortization
|
|
Net Carrying
Value
|
|
|
Trade
names – Silipos
|
|
|
Indefinite
|
|
$
|
2,688,000
|
|
$
|
―
|
|
$
|
2,688,000
|
|
|
Repeat
customer base – Silipos
|
|
|
7
|
|
|
1,680,000
|
|
|
1,090,695
|
|
|
589,305
|
|
|
License
agreements and related technology – Silipos
|
|
|
9.5
|
|
|
1,364,000
|
|
|
574,316
|
|
|
789,684
|
|
|
Repeat
customer base – Twincraft
|
|
|
19
|
|
|
7,214,500
|
|
|
952,809
|
|
|
6,261,691
|
|
|
Trade
names – Twincraft
|
|
|
23
|
|
|
2,629,300
|
|
|
190,529
|
|
|
2,438,771
|
|
|
|
|
|
|
|
$
|
15,575,800
|
|
$
|
2,808,349
|
|
$
|
12,767,451
|
|
Identifiable
intangible assets at December 31, 2007 consisted of:
|
Assets
|
|
Estimated
Useful Life (Years)
|
|
Adjusted
Cost
|
|
Accumulated
Amortization
|
|
Net Carrying
Value
|
|
|
Trade
names – Silipos
|
|
|
Indefinite
|
|
$
|
2,688,000
|
|
$
|
—
|
|
$
|
2,688,000
|
|
|
Repeat
customer base – Silipos
|
|
|
7
|
|
|
1,680,000
|
|
|
885,807
|
|
|
794,193
|
|
|
License
agreements and related technology – Silipos
|
|
|
9.5
|
|
|
1,364,000
|
|
|
466,632
|
|
|
897,368
|
|
|
Repeat
customer base – Twincraft
|
|
|
19
|
|
|
7,214,500
|
|
|
494,080
|
|
|
6,720,420
|
|
|
Trade
names – Twincraft
|
|
|
23
|
|
|
2,629,300
|
|
|
104,791
|
|
|
2,524,509
|
|
|
|
|
|
|
|
$
|
15,575,800
|
|
$
|
1,951,310
|
|
$
|
13,624,490
|
|
Aggregate
amortization expense relating to the above identifiable intangible assets
for
the three months ended September 30, 2008 and 2007 was $287,951 and $259,223,
respectively, and for the nine months ended September 30, 2008 and 2007 was
$857,039 and $723,228, respectively. As of September 30, 2008, the estimated
future amortization expense is $287,951 for 2008, $1,102,253 for 2009,
$1,044,862 for 2010, $981,678 for 2011, $1,062,615 for 2012 and $5,600,092
thereafter.
(7)
Inventories, net
Inventories,
net, consisted of the following:
|
|
|
September 30,
2008
|
|
December 31,
2007
|
|
|
Raw
materials
|
|
$
|
4,750,989
|
|
$
|
3,548,606
|
|
|
Work-in-process
|
|
|
370,927
|
|
|
289,847
|
|
|
Finished
goods
|
|
|
3,180,980
|
|
|
2,598,958
|
|
|
|
|
|
8,302,896
|
|
|
6,437,411
|
|
|
Less:
Allowance for excess and obsolescence
|
|
|
751,616
|
|
|
787,966
|
|
|
|
|
$
|
7,551,280
|
|
$
|
5,649,445
|
|
(8)
Credit Facility
On
May 11, 2007, the Company entered into a secured revolving credit facility
agreement (the “Credit Facility”) with Wachovia Bank, N.A. (“Wachovia”),
expiring on September 30, 2011. On April 16, 2008, the Company entered into
an
amendment of the Credit Facility with Wachovia that changed certain terms
of the
agreement. In addition, on October 24, 2008, the Company entered into another
amendment of the Credit Facility that decreased the maximum amount that the
Company may borrow under such facility. The Credit Facility, as amended,
provides an aggregate maximum availability, if and when the Company has the
requisite levels of assets, in the amount of $12 million, and is subject
to a
sub-limit of $12 million for the issuance of letter of credit obligations,
another sub-limit of $3 million for term loans, and a sub-limit of $4 million
on
loans against inventory. The Credit Facility is collateralized by a first
priority security interest in inventory, accounts receivables and all other
assets and is guaranteed on a full and unconditional basis by the Company
and
each of the Company’s domestic subsidiaries (Silipos and Twincraft) and any
other company or person that hereafter becomes a borrower or owner of any
property in which Wachovia has a security interest under the Credit Facility.
As
of September 30, 2008, the Company had outstanding advances amounting to
$4.5
million under the Credit Facility and has approximately $3.5 million of
remaining availability under the Credit Facility related to eligible accounts
receivable and inventory. As a result of the sale of the Langer branded
orthotics and related products business on October 24, 2008, the Company’s
total availability decreased by approximately $1.2 million to approximately
$6.8
million. In addition, the Company has approximately $1.8 million of availability
related to property and equipment for term loans.
If
the Company’s availability under the Credit Facility drops below $3 million or
borrowings under the Credit Facility exceed $10 million, the Company is required
under the Credit Facility to deposit all cash received from customers into
a
blocked bank account that will be swept daily to directly pay down any amounts
outstanding under the Credit Facility. In such event, the Company would not
have
any control over the blocked bank account.
The
Company’s borrowings availabilities under The Credit Facility are limited to 85%
of eligible accounts receivable and 60% of eligible inventory, and are subject
to the satisfaction of certain conditions. Any term loans shall be secured
by
equipment or real estate hereafter acquired. The Company is required to submit
monthly unaudited financial statements to Wachovia.
If
the Company’s availability is less than $3,000,000, the Credit Facility requires
compliance with various covenants including but not limited to a fixed charge
coverage ratio of not less than 1.0 to 1.0. Availability under the Credit
Facility is reduced by 40% of the outstanding letters of credit related to
the
purchase of eligible inventory, as defined, and 100% of all other outstanding
letters of credit. At September 30, 2008, the Company had outstanding letters
of
credit related to the purchase of eligible inventory of approximately $645,000,
and other outstanding letters of credit of approximately
$213,000.
The
Company is required to pay monthly interest in arrears at 0.5 percent above
Wachovia’s prime rate or, at the Company’s election, at 2.5 percentage points
above an Adjusted Eurodollar Rate, as defined in the Credit Facility, which
is
based on the London Interbank Offered Rate (“LIBOR”). To the extent that amounts
under the Credit Facility remain unused, while the Credit Facility is in
effect
and for so long thereafter as any of the obligations under the Credit Facility
are outstanding, the Company will pay a monthly commitment fee of three eights
of one percent (0.375%) on the unused portion of the loan commitment. The
Company paid Wachovia a closing fee in the amount of $75,000 in August 2007.
In
April 2008, the Company paid a $20,000 fee to Wachovia related to an amendment
of the Credit Facility, which has been recorded as a deferred financing cost
and
is being amortized over the remaining term of the Credit Facility. As of
September 30, 2008, the Company had unamortized deferred financing costs
in
connection with the Credit Facility of $310,614. Amortization expense for
the
three months ended September 30, 2008 and 2007 was $23,893 and $11,417,
respectively, and for the nine months ended September 30, 2008 and 2007 was
$46,358 and $11,417, respectively.
(9)
Segment Information
As
of September 30, 2008, the Company operated in two segments (medical products
and personal care). Our medical products segment, which used to include Bi-Op
and our Langer branded orthotics and related products business, now
operates as the Silipos business. Our personal care segment includes Twincraft.
In January 2007, the Company acquired Regal, which operated as its own segment
until its sale in 2008. Assets and expenses related to the Company’s corporate
offices are reported under “other” as they do not relate to any of the operating
segments. Intersegment sales are recorded at cost.
Segment
information for the three and nine months ended September 30, 2008 and 2007
is
summarized as follows:
|
Three months ended September
30, 2008
|
|
Medical Products
|
|
Personal Care
|
|
Other
|
|
Total
|
|
|
Net
sales
|
|
$
|
2,390,389
|
|
$
|
8,797,373
|
|
$
|
-
|
|
$
|
11,187,762
|
|
|
Gross
profit
|
|
|
1,184,693
|
|
|
2,159,778
|
|
|
-
|
|
|
3,344,471
|
|
|
Operating
(loss) income
|
|
|
414,418
|
|
|
19,182
|
|
|
(1,100,975
|
)
|
|
(667,375
|
)
|
|
Total
assets as of
September
30, 2008*
|
|
|
16,880,682
|
|
|
38,529,111
|
|
|
9,066,662
|
|
|
64,476,455
|
|
|
Three months ended September
30, 2007
|
|
Medical Products
|
|
Personal Care
|
|
Other
|
|
Total
|
|
|
Net
sales
|
|
$
|
2,305,322
|
|
$
|
9,209,494
|
|
$
|
-
|
|
$
|
11,514,816
|
|
|
Gross
profit
|
|
|
1,267,979
|
|
|
2,823,105
|
|
|
-
|
|
|
4,091,084
|
|
|
Operating
(loss) income
|
|
|
716,830
|
|
|
401,328
|
|
|
(1,545,460
|
)
|
|
(427,302
|
)
|
|
Total
assets as of
September
30, 2007*
|
|
|
20,018,008
|
|
|
39,495,472
|
|
|
6,665,040
|
|
|
66,178,520
|
|
|
Nine months ended September 30, 2008
|
|
Medical Products
|
|
Personal Care
|
|
Other
|
|
Total
|
|
|
Net
sales
|
|
$
|
7,659,787
|
|
$
|
26,968,568
|
|
$
|
-
|
|
$
|
34,628,355
|
|
|
Gross
profit
|
|
|
4,005,986
|
|
|
6,463,139
|
|
|
-
|
|
|
10,469,125
|
|
|
Operating
(loss) income
|
|
|
1,480,734
|
|
|
119,624
|
|
|
(3,660,056
|
)
|
|
(2,059,698
|
)
|
|
Total
assets as of September 30, 2008*
|
|
|
16,880,682
|
|
|
38,529,111
|
|
|
9,066,662
|
|
|
64,476,455
|
|
|
Nine months ended September 30, 2007
|
|
Medical Products
|
|
Personal Care
|
|
Other
|
|
Total
|
|
|
Net
sales
|
|
$
|
6,892,098
|
|
$
|
25,251,776
|
|
$
|
-
|
|
$
|
32,143,874
|
|
|
Gross
profit
|
|
|
3,817,374
|
|
|
7,724,952
|
|
|
-
|
|
|
11,542,326
|
|
|
Operating
(loss) income
|
|
|
1,628,578
|
|
|
1,553,328
|
|
|
(4,148,902
|
)
|
|
(966,996
|
)
|
|
Total
assets as of September 30, 2007*
|
|
|
20,018,008
|
|
|
39,495,472
|
|
|
6,665,040
|
|
|
66,178,520
|
|
*
Excludes assets held for sale.
Geographical
segment information for the three and nine months ended September 30, 2008
and
2007 is summarized as follows:
|
Three months ended September
30, 2008
|
|
United
States
|
|
United
Kingdom
|
|
Consolidated
Total
|
|
|
Net
sales to external customers
|
|
$
|
10,858,911
|
|
$
|
328,851
|
|
$
|
11,187,762
|
|
|
Gross
profit
|
|
|
3,094,135
|
|
|
250,336
|
|
|
3,344,471
|
|
|
Operating
(loss) income
|
|
|
(762,193
|
)
|
|
94,818
|
|
|
(667,375
|
)
|
|
Total
assets as of September 30, 2008*
|
|
|
63,906,216
|
|
|
570,139
|
|
|
64,476,455
|
|
|
Three months ended September 30, 2007
|
|
United
States
|
|
United
Kingdom
|
|
Consolidated
Total
|
|
|
Net
sales to external customers
|
|
$
|
11,226,421
|
|
$
|
288,395
|
|
$
|
11,514,816
|
|
|
Gross
profit
|
|
|
3,882,688
|
|
|
208,396
|
|
|
4,091,084
|
|
|
Operating
(loss) income
|
|
|
(472,541
|
)
|
|
45,239
|
|
|
(427,302
|
)
|
|
Total
assets as of September 30, 2007*
|
|
|
65,567,160
|
|
|
611,360
|
|
|
66,178,520
|
|
|
Nine months ended September
30, 2008
|
|
United
States
|
|
United
Kingdom
|
|
Consolidated
Total
|
|
|
Net
sales to external customers
|
|
$
|
33,561,485
|
|
$
|
1,066,870
|
|
$
|
34,628,355
|
|
|
Gross
profit
|
|
|
9,656,971
|
|
|
812,154
|
|
|
10,469,125
|
|
|
Operating
(loss) income
|
|
|
(2,362,569
|
)
|
|
302,871
|
|
|
(2,059,698
|
)
|
|
Total
assets as of September 30, 2008*
|
|
|
63,906,316
|
|
|
570,139
|
|
|
64,476,455
|
|
|
Nine months ended September 30, 2007
|
|
United
States
|
|
United
Kingdom
|
|
Consolidated
Total
|
|
|
Net
sales to external customers
|
|
$
|
31,222,221
|
|
$
|
921,653
|
|
$
|
32,143,874
|
|
|
Gross
profit
|
|
|
10,867,667
|
|
|
674,659
|
|
|
11,542,326
|
|
|
Operating
(loss) income
|
|
|
(1,103,007
|
)
|
|
136,011
|
|
|
(966,996
|
)
|
|
Total
assets as of September 30, 2007*
|
|
|
65,567,160
|
|
|
611,360
|
|
|
66,178,520
|
|
*
Excludes assets held for sale.
(10)
Comprehensive Loss
The
Company’s comprehensive loss were as follows:
|
|
|
Nine months ended September 30,
|
|
|
|
|
2008
|
|
2007
|
|
|
Net
loss
|
|
$
|
(6,044,257
|
)
|
$
|
(2,471,586
|
)
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Recognized
loss of previously unrecognized periodic pension costs
|
|
|
―
|
|
|
143,471
|
|
|
Change
in equity resulting from translation of financial statements into
U.S.
dollars
|
|
|
(151,330
|
)
|
|
331,155
|
|
|
Comprehensive
loss
|
|
$
|
(6,195,587
|
)
|
$
|
(1,996,960
|
)
|
(11)
Loss per share
Basic
earnings per common share (“EPS”) are computed based on the weighted average
number of common shares outstanding during each period. Diluted EPS are computed
based on the weighted average number of common shares, after giving effect
to
dilutive common stock equivalents outstanding during each period. The diluted
loss per share computations for the three and nine months ended September
30,
2008 and 2007 exclude approximately 1,883,252 and approximately 1,963,000
shares, respectively, related to employee stock options because the effect
of
including them would be anti-dilutive. The impact of the 5% Convertible Notes
(as hereinafter defined) on the calculation of the fully-diluted EPS was
anti-dilutive and is therefore not included in the computation for the three
and
nine months ended September 30, 2008 and 2007, respectively.
The
following table provides the basic and diluted loss EPS:
|
|
|
Nine
months ended September 30,
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
Loss
|
|
Shares
|
|
Per
Share
|
|
Loss
|
|
Shares
|
|
Per
Share
|
|
|
Basic
and diluted EPS
|
|
$
|
(6,044,257
|
)
|
|
10,646,673
|
|
$
|
(0.57
|
)
|
$
|
(2,471,856
|
)
|
|
11,383,193
|
|
$
|
(0.22
|
)
|
|
|
|
Three
months ended September 30,
|
|
|
|
|
2008
|
|
2007
|
|
|
|
|
Loss
|
|
Shares
|
|
Per
Share
|
|
Loss
|
|
Shares
|
|
Per
Share
|
|
|
Basic
and diluted EPS
|
|
$
|
(1,395,494
|
)
|
|
10,646,673
|
|
$
|
(0.13
|
)
|
$
|
(837,035
|
)
|
|
11,484,973
|
|
$
|
(0.07
|
)
|
(12)
Related Party Transactions
5%
Convertible Subordinated Notes
.
On December 8, 2006, the Company sold $28,880,000 of the Company’s 5%
Convertible Notes due December 7, 2011 (the “5% Convertible Notes”) in a private
placement. The number of shares of common stock issuable on conversion of
the 5%
Convertible Notes, as of September 30, 2008, is 6,195,165, and the conversion
price as of such date was $4.6617. The number of shares and conversion price
are
subject to adjustment in certain circumstances as described in the 5%
Convertible Notes. During the three months ended September 30, 2008, the
Company’s Chairman of the Board of Directors, Warren B. Kanders, purchased
$3,250,000, President and CEO, W. Gray Hudkins, and CFO and COO, Kathleen
P.
Bloch, each purchased $250,000 of the Company’s 5% Convertible Notes from the
previous debt holders. A trust controlled by Mr. Warren B. Kanders, the
Company’s Chairman of the Board of Directors and largest beneficial stockholder,
owns (as a trustee for a member of his family) $5,250,000 of the 5% Convertible
Notes, and one director, Stuart P. Greenspon, owns $150,000 of the 5%
Convertible Notes.
(13)
Litigation
On
or
about February 13, 2006, Dr. Gerald P. Zook filed a demand for arbitration
with
the American Arbitration Association, naming the Company and Silipos as two
of
the 16 respondents. (Four of the other respondents are the former owners
of
Silipos and its affiliates, and the other 10 respondents are unknown entities.)
The demand for arbitration alleges that the Company and Silipos are in default
of obligations to pay royalties in accordance with the terms of a license
agreement between Dr. Zook and Silipos dated as of January 1, 1997, with
respect
to seven patents owned by Dr. Zook and licensed to Silipos. Silipos has paid
royalties to Dr. Zook, but Dr. Zook claims that greater royalties are owed.
Dr.
Zook is demanding at least $681,000 in damages, although Silipos vigorously
disputes any liability and contests his theory of damages. Dr. Zook has agreed
to drop Langer, Inc. (but not Silipos) from the arbitration, without prejudice.
Arbitration hearings have been scheduled for February 2009.
On
or
about February 13, 2006, Mr. Peter D. Bickel, who was the executive vice
president of Silipos, Inc., until January 11, 2006, alleged that he was
terminated by Silipos without cause and, therefore, was entitled, pursuant
to
his employment agreement, to a severance payment of two years’ base salary. On
or about February 23, 2006, Silipos commenced action in New York State Supreme
Court, New York County, against Mr. Bickel seeking, among other things, a
declaratory judgment that Mr. Bickel is not entitled to severance pay or
other
benefits, on account of his breach of various provisions of his employment
agreement with Silipos and his non-disclosure agreement with Silipos, and
that
he voluntarily resigned his employment with Silipos. Silipos also sought
compensatory and punitive damages for breaches of the employment agreement,
breach of the non-disclosure agreement, breach of fiduciary duties,
misappropriation of trade secrets, and tortious interference with business
relationships. On or about March 22, 2006, Mr. Bickel removed the lawsuit
to the
United States District Court for the Southern District of New York and filed
an
answer denying the material allegations of the complaints and counterclaims
seeking a declaratory judgment that his non-disclosure agreement is
unenforceable and that he is entitled to $500,000, representing two years’ base
salary, in severance compensation, on the ground that Silipos did not have
“cause” to terminate his employment. On August 8, 2006, the Court determined
that the restrictive covenant was enforceable against Mr. Bickel for the
duration of its term (which expired on January 11, 2007) to the extent of
prohibiting Mr. Bickel from soliciting certain key customers of the Company
with
whom he had worked during his employment with the company. The Company has
withdrawn, without prejudice, its claims for compensatory and punitive damages
for breaches of the employment agreement, breach of the non-disclosure
agreement, breach of fiduciary duties, misappropriation of trade secrets,
and
tortuous interference with business relations. On October 12, 2007, the court
issued an opinion and order dismissing all of Mr. Bickel’s claims against
Silipos, denying Mr. Bickel’s motion to dismiss the remaining claims of Silipos
against him, and allowing Silipos to proceed with its claims against Mr.
Bickel
for breach of fiduciary duty and disloyalty. The case was settled this year
by
an agreement that the Company would drop its remaining claims against Mr.
Bickel
in return for him foregoing any right to appeal the court decision in favor
of
the Company.
Additionally,
in the normal course of business, the Company may be subject to claims and
litigation in the areas of general liability, including claims of employees,
and
claims, litigation or other liabilities as a result of acquisitions completed.
The results of legal proceedings are difficult to predict and the Company
cannot
provide any assurance that an action or proceeding will not be commenced
against
the Company or that the Company will prevail in any such action or proceeding.
An unfavorable outcome of the arbitration proceeding commenced by Dr. Gerald
P.
Zook against Silipos may adversely affect the Company’s rights to manufacture
and/or sell certain products or raise the royalty costs of these certain
products.
An
unfavorable resolution of any legal action or proceeding could materially
adversely affect the market price of the Company’s common stock and its
business, results of operations, liquidity, or financial condition.
(14)
Subsequent Event – Sale of the Langer Branded Custom Orthotics Assets and
Liabilities
On
October 24, 2008, the Company sold substantially all of the operating assets
and
liabilities of the Langer branded custom orthotics and related products business
to a third party. The sales price was approximately $4,680,000, of which
$475,000 will be held in escrow for up to 12 months to satisfy indemnification
claims of the purchaser. The sale price is subject to adjustment within 90
days
of closing to the extent that working capital, as defined by the purchase
agreement, is less or greater than approximately $1.3 million as of the closing
date. Transaction costs related to this sale are approximately $520,000.
The
Company expects to record a gain on this sale of approximately $61,000
in the fourth quarter of 2008. In connection with this sales transaction,
the
Company has agreed to seek a change of its corporate name at its next annual
shareholder's meeting.
|
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS
OF OPERATIONS
|
Overview
Through
our wholly-owned subsidiaries, Twincraft, Inc., and Silipos, Inc., the Company
offers a diverse line of personal care products for the private label retail,
medical, and therapeutic markets. The Company sells its medical products
primarily in the United States, as well as in more than 30 other countries,
to
national, regional, and international distributors, and directly to healthcare
professionals. The Company sells its personal care products primarily in North
America to branded marketers of such products, specialty retailers, direct
marketing companies, and companies that service various amenities markets.
Our
broad
range of over 200 gel-based orthopedic and prosthetics products, are designed
to
correct, protect, heal and provide comfort for the patient. Our line of personal
care products includes bar soap, gel-based therapeutic gloves and socks, scar
management products, and other products that are designed to cleanse and
moisturize specific areas of the body, often incorporating essential oils,
vitamins and nutrients to improve the appearance and condition of the
skin.
Continuing
Operations
In
November 2007 the Company began a study of strategic alternatives available
to
us with regard to our various operating companies. Since embarking on this
evaluation, the Company has sold certain operating entities, which is more
fully
described below in “Recent Developments.”
Currently,
our continuing operations primarily consist of the following business
entities:
|
|
·
|
Twincraft
.
Twincraft, acquired January 23, 2007, reported in our personal care
segment, is a designer and manufacturer of bar soap focused on the
health
and beauty, direct marketing, amenities and mass market channels.
Twincraft’s manufacturing facilities are located in Winooski,
VT.
|
|
|
·
|
Silipos.
Located
in Niagara Falls, NY, Silipos, Inc., acquired September 30, 2004,
and
operating in both our medical products and personal care segments,
is a
designer, manufacturer and marketer of gel-based products focusing
on the
orthopedic, orthotic, prosthetic, and skincare
markets.
|
The
Company is continuing its evaluation of strategic alternatives with regard
to
its businesses which are currently classified as continuing
operations.
Recent
Developments
Since
the
beginning of 2008, the Company has completed the sale of four of its operating
businesses, as summarized below:
|
|
·
|
Langer
branded custom orthotics business.
On
October 24, 2008, the Company sold substantially all of the operating
assets and liabilities of the Langer branded custom orthotics and
related
products business to a third party. The sales price was approximately
$4,680,000, of which $475,000 will be held in escrow for up to 12
months
to satisfy indemnification claims of the purchaser. The sale price
is
subject to adjustment within 90 days of closing to the extent that
working
capital, as defined by the purchase agreement, is less or greater
than
approximately $1.3 million as of the closing date. Transaction costs
related to this sale are approximately $520,000. The Company expects
to
record a gain on this sale of approximately $61,000 in the fourth
quarter
of 2008. In connection with this sales transaction, the Company has
agreed
to seek a change of its corporate name at its next annual shareholder’s
meeting.
|
|
|
·
|
Bi-Op.
On
July 31, 2008, the Company sold all of the outstanding capital stock
of
its wholly-owned subsidiary, Bi-Op, to a third party, which included
the
general manager of Bi-Op. The sales price of $2,040,816 was paid in
cash at closing and was subject to adjustment following the closing
to
extent that working capital, as defined by the purchase agreement,
was
less or greater than $488,520. In October 2008, a working capital
adjustment due to the Company in the amount of $325,961 was agreed
to by
both parties. In June 2008, the Company recorded $439, 991 as its
estimate
of the loss on the sale. During the three months ended September
30, 2008,
the Company recorded an additional loss of $204,125 resulting from
additional transaction costs. This increased the total loss on the
sale
before income tax benefit to $644,116. The Company also realized
an income
tax benefit on this transaction of $218,829 which decreased the total
loss
to $425,287. This loss is included in loss from operations of discontinued
subsidiaries in the consolidated statement of operations for the
nine
months ended September 30, 2008.
|
|
|
·
|
Regal
Medical Supply, LLC
.
On June 11, 2008, the Company sold the membership interests of Regal
Medical Supply LLC (“Regal”) to a group of private investors, including a
member of Regal’s management. The purchase price was approximately
$501,000, which was paid in cash at closing. Upon closing, the Company
also entered into a sales representation agreement by which Regal
will act
as a sales agent for Langer manufactured products. In the quarter
ended
June 30, 2008, the Company recorded a loss on this sale of approximately
$1,754,000, which is net of transaction costs of approximately $70,000.
During the quarter ended September 30, 2008, the Company recorded
an
additional loss of $131,376, associated with the lease of Regal’s former
offices which increased the total loss on this sale to $1,885,826.
This
loss is reflected in discontinued operations for the three and nine
months
ended September 30, 2008. Regal’s assets of approximately $1,215,000 and
liabilities of $393,000 were classified as held for sale as of December
31, 2007.
|
|
|
·
|
Langer
UK
.
On January 18, 2008, the Company sold all of the outstanding capital
stock
of the Company’s wholly owned subsidiary, Langer (UK) Limited (“Langer
UK”) to an affiliate of Sole Solutions, a retailer of specialty
footwear based in the United Kingdom. The sale price was approximately
$1,155,000, of which $934,083 was paid at the closing and $221,230
is in
the form of a note with 8.5% interest due in full in two years. Upon
closing the Company entered into an exclusive sales agency agreement
and a
distribution services agreement by which Langer UK will act as sales
agent
and distributor for Silipos products in the United Kingdom, Europe,
Africa, and Israel. In December 2007, the Company recognized a net
loss of
approximately $176,000 associated with the disposal of Langer
UK.
|
The
assets and liabilities of the Langer branded custom orthotics business have
been
reclassified as held for sale in the Company’s consolidated balance sheets as of
September 30, 2008 and at December 31, 2007. The assets and liabilities of
Langer UK, Regal and Bi-Op are shown as held for sale as of December 31, 2007
as
they were sold in the nine months ended September 30, 2008.
Common
Stock Repurchase Program
- On
December 6, 2007, the Company announced that our Board had authorized the
purchase of up to $2,000,000 of our outstanding common stock, using whatever
means the Chief Executive Officer may deem appropriate. In connection with
this
matter, the Company’s senior lender, Wachovia Bank, National Association,
(“Wachovia”) has waived, until April 15, 2009, the provisions of the credit
facility that would otherwise preclude the Company from making purchases of
its
common stock. To date, the Company has acquired 857,539 shares at an average
price of $1.49 and at a cost of $1,279,756 under this program.
On
April
16, 2008, the Company amended its credit facility with Wachovia which will
allow
the Company to repurchase a maximum of $6,000,000 of its common stock and
extended the repurchase period to April 15, 2009. The amendment to our credit
facility also resulted in other changes to the terms and availability of
borrowings which are more fully discussed in Note 8 to the financial
statements.
Receipt
of NASDAQ Deficiency Letters
-
As
previously disclosed by the Company, on October 3, 2008, the Company received
two deficiency letters from the NASDAQ Stock Market (“NASDAQ”) Listing
Qualifications Department notifying the Company that for the past 30 consecutive
business days, its common stock has: (i) closed below the $1.00 per share
minimum bid price as required by NASDAQ Marketplace Rule 4450(a)(5); and (ii)
not maintained a minimum market value of publicly held shares of $5,000,000
as
required by NASDAQ Marketplace Rule 4450(a)(2).
On
October 22, 2008, the Company received notification that as of October 16,
2008,
NASDAQ, due to recent extraordinary market conditions, has suspended, for a
three month period, the enforcement of the rules requiring listed companies
to
maintain a minimum $1.00 per share closing bid price and a $5 million minimum
market value of publicly held shares.
As
a
result of NASDAQ’S suspension of these continued listing requirements, the
Company has: (i) until April 7, 2009 to regain compliance with the $5 million
minimum market value requirement; and (ii) until July 6, 2009 to regain
compliance with the minimum $1.00 price per share requirement. There can be
no
guarantee that the Company will be able to regain compliance with these NASDAQ
continued listing requirements.
Segment
Information
The
medical products also segment includes our orthopedic and prosthetic products
of
Silipos. Prior to their sale, the medical products segment included the Langer
branded custom orthotics business, Langer UK, and Bi-Op. The personal care
products segment includes the operations of Twincraft and the personal care
products of Silipos. Prior to the sale of Regal, the Company operated a third
segment, Regal Services.
For
the
nine months ended September 30, 2008 and 2007, the Company derived
approximately 22.1% and approximately 21.4% of our revenues from continuing
operations, respectively, from our medical products segment and approximately
77.9% and approximately 78.6%, respectively, from our personal care products
segment. For the nine months ended September 30, 2008 and 2007, the Company
derived approximately 96.9% and approximately 97.1% of our revenues from
continuing operations from North America, and approximately 3.1% and
approximately 2.9% of our revenues from continuing operations from outside
North
America.
For
the
three months ended September 30, 2008 and 2007, the Company derived
approximately 21.4% and approximately 20.0% of our revenues from continuing
operations, respectively, from our medical products segment and approximately
78.6% and approximately 80.0%, respectively, from our personal care segment.
For
the three months ended September 30, 2008 and 2007, the Company derived
approximately 97.1% and approximately 97.5%, respectively, of our revenues
from
North America, and approximately 2.9% and approximately 2.5%, respectively,
of
our revenues from outside North America.
Critical
Accounting Policies and Estimates
Our
accounting policies are more fully described in Note 1 of the Notes to the
consolidated financial statements included in our Annual Report on
Form 10-K for the year ended December 31, 2007. The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Future events and their effects cannot be determined with
absolute certainty. Therefore, the determination of estimates requires the
exercise of judgment. Actual results may differ from these estimates under
different assumptions or conditions. The following are the only updates or
changes to Part II, Item 7, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations - Critical Accounting Policies and
Estimates” in the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2007.
Goodwill
and Identifiable Intangible Assets
.
Goodwill represents the excess of purchase price over fair value of identifiable
net assets of acquired businesses. Identifiable intangible assets primarily
represent allocations of purchase price to identifiable intangible assets of
acquired businesses. Goodwill and other identifiable intangible assets comprise
a substantial portion (45.5% at September 30, 2008 and 48.1% at
December 31, 2007) of our total assets. Goodwill and identifiable
intangible assets, net, at September 30, 2008 and December 31, 2007 were
approximately $31,966,000 and approximately $35,581,000,
respectively.
Goodwill
is tested annually using a methodology which requires forecasts and assumptions
about the reporting unit’s growth and future results. Interim impairment tests
may be done if circumstances change or impairment indicators are present. If
factors change or if assumptions are not met, it could have a material effect
on
operating results. As a result of the recent sale of the Langer branded
orthotics and related products business, an impairment test was required to
allocate the goodwill that was related to the disposed business as well as
evaluate the fair value of the remaining reporting units. In the nine months
ended September 30, 2008 the Company reduced goodwill by approximately
$3,758,000 associated with businesses that were sold. Based on an impairment
test performed at September 30, 2008 on the remaining business, there was no
impairment.
Adoption
of FIN 48
.
Upon
the adoption of Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes” (“FIN 48”) on January 1, 2007, the Company performed a thorough
review of our tax returns not yet closed due to the statute of limitations
and
other currently pending tax positions of the Company.
Management reviewed and analyzed our tax records and documentation
supporting tax positions for purposes of determining the presence of any
uncertain tax positions and confirming other tax positions as certain under
FIN
48. The Company reviewed and analyzed our records in support of tax
positions represented by both permanent and timing differences in reporting
income and deductions for tax and accounting purposes. The Company
maintains a policy, consistent with principals under FIN 48, to continually
monitor past and present tax positions.
Nine
months ended September 30, 2008 and 2007
During
the nine months ended September 30, 2008, the Company sold all of the
outstanding stock of Langer UK, sold our entire membership interest in Regal,
and sold all of the outstanding stock of Bi-Op. In addition, on October 24,
2008 the Company sold substantially all of the operating assets and
liabilities of the Langer custom branded orthotics and related
products business (“Langer branded orthotics”). The assets and liabilities
of Langer branded orthotics are reflected as assets and liabilities held for
sale in the consolidated balance sheets as of September 30, 2008. The assets
and
liabilities of Langer UK, Regal, BiOp and Langer branded orthotics are
reflected as held for sale at December 31, 2007. The results of operations
of
Langer UK, Regal, Bi-Op, and Langer branded orthotics are reflected as
discontinued operations in the consolidated statements of operations for the
three and nine months ended September 30, 2008 and 2007.
Net
loss
from continuing operations for the nine months ended September 30, 2008 was
approximately $3,688,000 or $(.35) per share on a fully diluted basis, compared
to a net loss from continuing operations for the nine months ended September
30,
2007 of approximately $2,604,000 or $(.23) per share on a fully diluted basis.
The increase in the loss from continuing operations was primarily due to a
decrease in gross profit of approximately $1,073,000 and a decrease of
approximately $149,000 in interest income, offset by a decrease of approximately
$174,000 in the provision for income taxes, which are more fully discussed
below.
The
consolidated statement of operations includes losses arising from the sale
of
two subsidiaries, Regal and Bi-Op, which are classified as discontinued
operations. For the nine months ended September 30, 2008, the Company
recorded a net loss related to the sale of Regal of approximately $1,885,000
which includes transaction costs of approximately $70,000, and losses from
operations through the date of sale of May 31, 2008, of approximately $243,000
and a loss associated with the leased premises of approximately $131,000. For
the nine months ended September 30, 2008, the Company recorded a net loss before
income tax benefit on the sale of Bi-Op of approximately $644,000, which
includes transaction costs of approximately $319,000. In addition, the Company
realized an income tax benefit of approximately $219,000, reducing the net
loss
on the sale, net of tax benefit, to approximately $433,000. In
addition, the Company recorded losses from operations of Bi-Op of
approximately $7,000. In addition, discontinued operations for the nine-months
ended September 30, 2008 include approximately $239,000 representing the
operating income of the Langer branded orthotics business which was sold on
October 24, 2008. The gain on the sale of these assets and liabilities, which
is
currently estimated to be approximately $61,000, will be included in our fourth
quarter 2008 operating results.
Net
sales
for the nine months ended September 30, 2008 were approximately $34,628,000,
compared to approximately $32,144,000 for the nine months ended September 30,
2007, an increase of approximately $2,484,000, or 7.7%. The principal reasons
for the increase were the increase in net sales of approximately $3,320,000
generated by Twincraft, offset by a decrease in sales of approximately
$1,106,000 by Silipos. Twincraft was acquired on January 23, 2007, and its
sales
for the first 23 days of 2007 of approximately $1,645,000 were not included
in
the Company’s sales for the nine months ended September 30, 2007, a factor that
contributed to the increase in Twincraft’s net sales for the nine months ended
September 30, 2008.
Net
sales
of medical products were approximately $7,660,000 in the nine months ended
September 30, 2008, compared to approximately $6,892,000 in the nine months
ended September 30, 2007, an increase of approximately $768,000 or 11.1%. This
increase is due primarily to an increase in net sales of approximately
$1,001,000 due to an increase in shipments from one large distributor of
Silipos’ branded medical products.
The
Company generated net sales of approximately $26,969,000 in our personal care
segment in the nine months ended September 30, 2008, compared to approximately
$25,252,000 in the nine months ended September 30, 2007, an increase of
approximately $1,717,000, or 6.8%. This increase is attributable to an increase
in sales at Twincraft of approximately $3,320,000, offset by a decrease in
net
sales of Silipos’ personal care products of 6.4%. The increase in sales at
Twincraft relate to the sales for the first 23 days of 2007 as mentioned above
and an increase in amenity product sales. The decrease in Silipos’ personal care
sales relate to a softening in the market for discretionary care products due
to
an economic slowdown, as well as the discriminatory buying patterns of retail
customers, which can be volatile from quarter to quarter.
Cost
of
sales, on a consolidated basis, increased approximately $3,558,000, or 17.4%,
to
approximately $24,159,000 for the nine months ended September 30, 2008, compared
to approximately $20,602,000 for the nine months ended September 30, 2007.
Approximately $1,592,000 of this increase is a result of increases in net sales
of 7.7% when comparing the nine months ended September 30, 2008 to the nine
months ended September 30, 2007. The remaining increase is primarily
attributable to raw material price increases at Twincraft along with a shift
in
the mix of revenues to amenities which are generally associated with higher
costs of goods sold and lower gross margins. The increases in material cost
are
primarily related to the price of soap base, which represents the largest
component of Twincraft’s total material costs.
Cost
of
sales in the medical products segment were approximately $3,654,000, or 47.7%
of
medical products net sales in the nine months ended September 30, 2008, compared
to approximately $3,075,000 or 44.6% of medical products net sales in the nine
months ended September 30, 2007. The increase in the cost of sales of Silipos
branded medical products is primarily due to the increases in net sales when
comparing the same periods.
Cost
of
sales for the personal care products were approximately $20,505,000, or 76.0%
of
net sales of personal care products of approximately $26,969,000 in the nine
months ended September 30, 2008, compared to approximately $17,527,000, or
69.4%
of net sales of personal care products of approximately $25,252,000 in the
nine
months ended September 30, 2007. The primary factors for the increase are raw
material price increases, in particular soap base, at Twincraft, which was
offset by declines in cost of sales at Silipos which were consistent with
declines in net sales of Silipos’ personal care products.
Consolidated
gross profit decreased approximately $1,073,000, or 9.3%, to approximately
$10,469,000 for the nine months ended September 30, 2008, compared to
approximately $11,542,000 in the nine months ended September 30, 2007.
Consolidated gross profit as a percentage of net sales for the nine months
ended
September 30, 2008 was 30.2%, compared to 35.9% for the nine months ended
September 30, 2007. The principal reasons for the decrease in gross profit
are
primarily due to increases in raw material prices at Twincraft, as discussed
above.
General
and administrative expenses for the nine months ended September 30, 2008 were
approximately $7,786,000, or 22.5% of net sales, compared to approximately
$7,858,000, or 24.4% of net sales for the nine months ended September 30, 2007,
representing a decrease of approximately $72,000. The major factors causing
reductions to general and administrative expenses during the nine months ended
September 30, 2008 as compared to the nine months ended September 30, 2007
are
reductions in insurance expense of approximately $349,000, reductions in
professional fees paid to consultants of approximately $938,000, a decrease
of
approximately $170,000 in legal fees and a gain recognized on the surrender
of
our 41 Madison Avenue, New York, NY lease of approximately $218,000. All of
the
above reductions were offset by increases due to an acceleration of the
depreciation expense of approximately $464,000 on the leasehold improvements
related to 41 Madison Avenue, New York, NY lease which was surrendered in May
2008, increases in salaries related to the establishment of permanent corporate
finance staff of approximately $257,000, bank fees of approximately $149,000
that relate to audits and other fees which support the Company’s credit
facility, severance payments of approximately $203,000 related to employee
terminations, increases in the amortization of intangible assets of
approximately $93,000, an increase in bad debt expense at Twincraft of
approximately $256,000 due to the bankruptcy of one customer, and approximately
$114,000 in other expenses at Twincraft since 2008 was the first full year
of
reporting, and other increases of $67,000.
Selling
expenses decreased approximately $37,000, or 0.9%, to approximately $3,984,000
for the nine months ended September 30, 2008, compared to approximately
$4,021,000 for the nine months ended September 30, 2007. Selling expenses as
a
percentage of net sales were 11.5% in the nine months ended September 30, 2008,
compared to 12.5% in the nine months ended September 30, 2007. The principal
reason for the decrease of $37,000 was the elimination of certain salary,
advertising, and travel expenses at Twincraft and Silipos.
Research
and development expenses increased from approximately $630,000 in the nine
months ended September 30, 2007, to approximately $759,000 in the nine months
ended September 30, 2008, an increase of approximately $129,000, or 20.4%,
which
was primarily attributable to increases in research and development personnel
costs at Twincraft.
Interest
expense was approximately $1,161,000 for the nine months ended September 30,
2008, compared to approximately $1,630,000 for the nine months ended September
30, 2007, an increase of approximately $31,000. The principal reason for the
increase was related to the amortization of deferred financing costs related
to
the Company’s credit facility with Wachovia.
Interest
income was approximately $24,000 in the nine months ended September 30, 2008,
compared to approximately $173,000 in the nine months ended September 30, 2007.
Interest income in 2007 was related to the investment of $28,880,000 in proceeds
received from the issuance of the 5% Convertible Notes.
Income
tax expense was approximately $2,000 for the nine months ended September
30,
2008, compared to $176,000 for the nine months ended September 30, 2007,
a
decrease of approximately $174,000, which is attributable to a decrease in
the
operating income of Twincraft for the nine months ended September 30, 2008
as
compared to the same period in 2007, which resulted in a lower tax
provision.
Three
months ended September 30, 2008 and 2007
Net
loss
from continuing operations for the three months ended September 30, 2008 was
approximately $1,209,000 or $(.11) per share on a fully diluted basis, compared
to a net loss from continuing operations for the three months ended September
30, 2007 of approximately $1,070,000 or $(.09) per share on a fully diluted
basis. The principal reasons for the increase in the net loss from continuing
operations were decreases in gross profit of approximately $747,000 due
primarily to increases in raw material prices at Twincraft and the approximately
$1,105,000 decrease in the sales of Silipos, offset by decreases in operating
expenses of approximately $507,000, which are more fully discussed
below.
For
the
three months ended September 30, 2008, the Company recorded an adjustment of
approximately $204,000 to the loss on the sale of Bi-Op which is classified
as
discontinued operations. In addition, the Company realized an income tax benefit
of approximately $17,000, reducing the adjustment to the net loss on the sale,
net of tax benefit, to approximately $187,000. In addition the Company
recorded income from operations of Bi-Op of approximately $40,000. The
Company also increased the amount of the loss previously reported on the sale
of
Regal by approximately $131,000 which is associated with the premises previously
leased by Regal. Also included in discontinued operations for the three-months
ended September 30, 2008, is income of approximately $104,000, which is related
to the operations of the Langer branded orthotics business which was sold on
October 24, 2008. The gain on the sale of this business, which is currently
estimated to be approximately $61,000, will be recorded in the fourth quarter
of
2008.
Net
sales
for the three months ended September 30, 2008 were approximately $11,188,000,
compared to approximately $11,515,000 for the three months ended September
30,
2007, a decrease of approximately $327,000, or 2.8%. The principal reasons
for
the decrease were a decrease in net sales of Silipos of approximately
$1,105,000, offset by an increase in sales at Twincraft of approximately
$779,000.
Net
sales
of medical products were approximately $2,390,000 in the three months ended
September 30, 2008, compared to approximately $2,305,000 in the three months
ended September 30, 2007, an increase of approximately $85,000, or 3.6%.
The
Company generated net sales of approximately $8,797,000 in our personal
care segment in the three months ended September 30, 2008, compared to
approximately $9,209,000 in the three months ended September 30, 2007, a
decrease of approximately $412,000 or 4.5%. This decrease is due to the decrease
in Silipos personal care products of approximately $1,192,000 in the three
months ended September 30, 2008 as compared to the three months ended September
30, 2007, which is due to a softening in the market for discretionary personal
care products and the discriminatory buying patterns of retail customers, which
is offset by an increase in amenity sales at Twincraft.
Cost
of
sales, on a consolidated basis, increased approximately $420,000, or 5.7%,
to
approximately $7,843,000 for the three months ended September 30, 2008, compared
to approximately $7,424,000 for the three months ended September 30, 2007.
This
increase is attributable to an increase in raw material prices at Twincraft
along with a shift in the mix of revenues to amenities which are generally
associated with higher costs of goods sold and lower gross margins.
Cost
of
sales in the medical products segment were approximately $1,206,000, or 50.4%
of
medical products net sales in the three months ended September 30, 2008,
compared to approximately $1,037,000, or 45.0% of medical products net sales
in
the three months ended September 30, 2007. The increase in cost of goods sold
is
due to the increase in net sales of Silipos branded medical products and
increases in the cost of certain raw materials.
Cost
of
sales for the personal care products were approximately $6,638,000, or 75.4%
of
net sales of personal care products of approximately $8,797,000 in the three
months ended September 30, 2008, compared to approximately $6,386,000, or 69.3%
of net sales of personal care products of approximately $9,209,000 in the three
months ended September 30, 2007.
Consolidated
gross profit decreased approximately $747,000, or 18.2%, to approximately
$3,344,000 for the three months ended September 30, 2008, compared to
approximately $4,091,000 in the three months ended September 30, 2007.
Consolidated gross profit as a percentage of net sales for the three months
ended September 30, 2008 was 29.9%, compared to 35.5% for the three months
ended
September 30, 2007. The blended gross profit percentage decreased for the three
months ended September 30, 2008, compared to the three months ended September
30, 2007 primarily due to an increase in raw material prices at Twincraft,
and
other factors as discussed above.
General
and administrative expenses for the three months ended September 30, 2008 were
approximately $2,475,000, or 22.1% of net sales, compared to approximately
$2,872,000, or 24.9% of net sales for the three months ended September 30,
2007,
representing a decrease of approximately $397,000. The major factors
contributing to the reductions to general and administrative expenses during
the
three months ended September 30, 2008 as compared to the three months ended
September 30, 2007 are the reduction of professional expenses paid to
consultants and advisors of approximately $435,000, which is offset by the
severance payments of $203,000 related to employee terminations at our ongoing
businesses.
Selling
expenses decreased approximately $129,000, or 9.1%, to approximately $1,294,000
for the three months ended September 30, 2008, compared to approximately
$1,423,000 for the three months ended September 30, 2007. This decrease is
primarily attributable to the elimination of certain salary, advertising, and
travel expenses at Twincraft and Silipos.
Research
and development expenses were increased from approximately $242,000 in the
three
months ended September 30, 2008, as compared to approximately $223,000 in the
three months ended September 30, 2007.
Interest
expense was approximately $554,000 for the three months ended September 30,
2008, compared to approximately $556,000 for the three months ended September
30, 2007, an increase of approximately $2,000. The principal reason for the
increase was the amortization of the deferred financing costs related to the
Company’s credit facility with Wachovia.
Liquidity
and Capital Resources
Working
capital as of September 30, 2008 was approximately $15,085,000, compared to
approximately $17,388,000 as of December 31, 2007, a decrease of
approximately $2,303,000. The decrease in working capital at September 30,
2008
is primarily attributable to the decrease of working capital of assets and
liabilities held for sale of $1,760,000, net of receipt of approximately
$3,193,000 during the nine months ended September 30, 2008 as a result of the
sales of subsidiaries, the use of approximately $1,229,000 of cash to purchase
the Company’s common stock, the use of approximately $1,000,000 related to the
Twincraft purchase price held in escrow which was paid to the sellers of
Twincraft and approximately $594,000 of cash used to purchase equipment, and
because of changes in other current assets and current liabilities that reduced
working capital by $913,000.
Net
cash used in operating activities was approximately $1,757,000 in the nine
months ended September 30, 2008. Net cash provided by operating activities
was
approximately $206,000 in the nine months ended September 30, 2007. The net
cash
used in operating activities for the nine months ended September 30, 2008 is
primarily attributable to our operating loss of $6,044,000 which was offset
by
non-cash depreciation and amortization expenses of approximately $3,085,000
and
changes in the balances of certain current assets and liabilities. The net
cash
provided by operating activities in the nine months ended September 30, 2007
resulted primarily from increases in accounts payable and accrued liabilities,
which is partially offset by increases in other assets primarily due to the
acquisition of Twincraft.
Net
cash provided by investing activities was approximately $1,366,000 in the nine
months ended September 30, 2008. Cash flows from investing activities for the
nine months ended September 30, 2008 were as a result of cash provided from
the
sale of subsidiaries of approximately $3,193,000, offset by approximately
$594,000 of cash used to purchase equipment and of approximately $1,229,000
of
cash used to purchase 832,539 shares of treasury stock. Net cash used in
investing activities for the nine months ended September 30, 2007 was
approximately $27,972,000. This includes cash used for the purchase of Twincraft
of approximately $25,901,000, increases in amounts due to Twincraft and
restricted cash in escrow resulting from this acquisition of $1,000,000, and
the
purchases of property and equipment of approximately $761,000.
Net
cash provided by financing activities in the nine months ended September 30,
2008 was approximately $4,491,000 which included the approximately $4,500,000
borrowed on the Company’s line of credit on September 29, 2008. For the nine
months ended September 30, 2007, net cash used in financing activities was
approximately $249,000, which included the payment of approximately $267,000
of
debt acquisition costs.
In
the
nine months ended September 30, 2008, the Company generated a net loss of
approximately $6,044,000, compared to a net loss of approximately $2,472,000
for
the nine months ended September 30, 2007, an increase in net loss of
approximately $3,572,000. This increase was primarily due to an increase in
loss
from discontinued operations of approximately $2,155,000, which is the result
of
losses incurred on the sales of Regal and Bi-Op, net of operating income from
the Langer orthotics business. In addition, gross profit decreased by
approximately $1,073,000, which, also contributed to the increase in our net
loss. There can be no assurance that our business will generate cash flow from
operations sufficient to enable us to fund our liquidity needs, in particular,
the repayment of the $28,800,000 of 5% Convertible Notes which are due December
7, 2011.
On
May
11, 2007 the Company entered into a secured revolving credit facility agreement
with Wachovia expiring on September 30, 2011, which will enable the Company
to
borrow funds based on its levels of inventory and accounts receivable, in the
amount of 85% of the eligible accounts receivable and 60% of the eligible
inventory, and, subject to the satisfaction of certain conditions, term loans
secured by equipment or real estate hereafter acquired (the “Credit Facility”).
Effective April 16, 2008, the Company amended its Credit Facility. The changes
effected by the amendment include:
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|
(i)
|
a
decrease of the maximum amount of the Credit Facility to $15,000,000
from
$20,000,000;
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(ii)
|
an
increase in the interest rate from the prime rate to the prime rate
plus
0.5 percentage points, or, for loans based on the Adjusted Eurodollar
Rate, which is based on LIBOR, from the Adjusted Eurodollar Rate,
plus 2
percentage points to the Adjusted Eurodollar Rate plus 2.5 percentage
points;
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(iii)
|
an
increase in the unused line fee from 0.375% per year on the first
$10,000,000 of the line and 0.25% per year on the excess of the unused
line over $10,000,000 to 0.375% on the entire unused
line;
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(iv)
|
an
increase in the amount of the Company’s outstanding stock that the Company
is permitted to repurchase from $2,000,000 to $6,000,000, and the
extension of the period during which the Company may carry out such
purchases to April 15, 2009;
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(v)
|
a
reduction in the sublimit on term loans under the Credit Facility
from
$5,000,000 to $3,000,000;
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(vi)
|
a
reduction in the sublimit on availability based on inventory from
$7,500,000 to $4,000,000; and
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(vii)
|
a
reduction in the amount of availability against Company-owned real
estate
from 70% to 60%.
|
On
October 24, 2008, the Company, in connection with the sale of substantially
all
of the operating assets relating to its Langer branded orthotic business further
amended its Credit Facility. The Amendment provides for a decrease of the
maximum amount the Company may borrow under the Credit Facility to $12,000,000
from $15,000,000.
The
Credit Facility is secured by a security interest in favor of Wachovia in all
the Company's assets. If the Company's availability under the Credit Facility,
net of borrowings, is less than $3,000,000, or if the balance owed under the
Credit Facility is more than $10,000,000, then the Company's accounts receivable
proceeds must be paid into a lock-box account. On September 29, 2008, the
Company drew down $4,500,000 on its line of credit in response to growing
uncertainties regarding its lender’s continuing ability to operate and the
possibility of a lack of liquidity in the credit markets. These funds were
held
in various checking and short-term money market accounts. On October 28, 2008,
the line of credit borrowings were repaid in full.
As
of
October 31, 2008, the Company has approximately $6.8 million available under
the
Credit Facility related to eligible accounts receivable and inventory. In
addition, the Company has approximately $1.8 million of availability related
to
property and equipment for term loans.
We
believe that the Company will be able to meet its expected working capital
needs
for at least the next twelve months. However, the various sectors of the credit
markets and financial services industry have been experiencing a period of
unprecedented turmoil and upheaval characterized by disruption in the credit
markets and availability of credit and other financing, the failure, bankruptcy,
collapse or sale of various financial institutions and an unprecedented level
of
intervention from the United States federal government. While the ultimate
outcome of these events cannot be predicted, they may have a material adverse
effect on our ability to obtain financing necessary to effectively execute
our
acquisition strategy, the ability of our customer and suppliers to continue
to
operate their businesses or the demand for our products which could have a
material adverse effect on the market price of our common stock and our
business, financial condition and results of operations. If the Company has
a
need for funding, the Company believes our liquidity requirements can be
satisfied by drawing upon our contractually committed Credit Facility, but
under
extreme market conditions, there can be no assurance that this agreement would
be available or sufficient. Based on available information, the Company
believes Wachovia is able to fulfill its commitments as of our filing date;
however, there can be no assurance that Wachovia may not cease to be able to
fulfill its funding obligations.
Contractual
Obligations
Certain
of our facilities and equipment are leased under noncancelable operating and
capital leases. Additionally, as discussed below, the Company has certain
long-term indebtedness. The following is a schedule, by fiscal year, of future
minimum rental payments required under current operating and capital leases
and
debt repayment requirements as of September 30, 2008:
|
|
|
Payment
due By Period (In thousands)
|
|
|
Contractual Obligations
|
|
Total
|
|
3 Months Ended
Dec. 31, 2008
|
|
1-3 Years
|
|
4-5 Years
|
|
More than
5 Years
|
|
|
Operating
Lease Obligations
|
|
$
|
3,617
|
|
$
|
232
|
|
$
|
2,345
|
|
$
|
1,002
|
|
$
|
38
|
|
|
Capital
Lease Obligations
|
|
|
4,824
|
|
|
108
|
|
|
1,364
|
|
|
977
|
|
|
2,375
|
|
|
Borrowings
under line of credit
|
|
|
4,500
|
|
|
4,500
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Convertible
Notes due December 7, 2011
|
|
|
28,880
|
|
|
-
|
|
|
28,880
|
|
|
-
|
|
|
-
|
|
|
Interest
on Long-term Debt
|
|
|
5,054
|
|
|
722
|
|
|
4,332
|
|
|
-
|
|
|
-
|
|
|
Total
|
|
$
|
46,875
|
|
$
|
5,562
|
|
$
|
36,921
|
|
$
|
1,979
|
|
$
|
2,413
|
|
Recently
Issued Accounting Pronouncements
On
September 15, 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.”
SFAS No. 157 is effective for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. SFAS No. 157 provides guidance
related to estimating fair value and requires expanded disclosures. The standard
applies whenever other standards require (or permit) assets or liabilities
to be
measured at fair value. The standard does not expand the use of fair value
in
any new circumstances. In February 2008, the FASB provided a one year deferral
for the implementation of SFAS No. 157 for non-financial assets and liabilities
recognized or disclosed at fair value in the financial statements on a
non-recurring basis. The Company adopted SFAS No. 157 as of January 1, 2008.
The
Company had no financial assets or liabilities that are currently measured
at
fair value on a recurring basis and therefore the adoption of the standard
had
no impact upon the Company’s financial position or results of operations. The
Company is in the process of reviewing the implementation of SFAS No. 157 on
non-financial assets and liabilities which will be effective January 1, 2009.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities.” SFAS No. 159 allows companies to
choose to measure many financial instruments and certain other items at fair
value. The statement requires that unrealized gains and losses on items for
which the fair value option has been elected be reported in earnings. SFAS
No.
159 is effective for fiscal years beginning after November 15, 2007, although
earlier adoption is permitted. SFAS No. 159 was effective for the Company
beginning in the first quarter of fiscal 2008. The Company did not elect to
adopt the provisions under SFAS No. 159, therefore, the adoption of SFAS No.
159
in the first quarter of fiscal 2008 did not impact the Company’s financial
position or results of operations.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (“SFAS No. 141 (R)”), which requires an acquirer to recognize the
assets acquired, the liabilities assumed, and any noncontrolling interest of
an
acquiree at the acquisition date, measured at their fair values as of that
date,
with limited exceptions. SFAS No.141 (R) applies prospectively to business
combinations for which the acquisition date is on or after the beginning of
the
first annual reporting period beginning on or after December 15, 2008. Earlier
application is prohibited. T
he
Company anticipates this will have a material effect on future acquisitions
upon
adoption.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements,” which requires (1) ownership interests in
subsidiaries held by parties other than the parent to be clearly identified,
labeled, and presented in the consolidated statement of financial position
within equity, but separate from the parent’s equity; (2) the amount of
consolidated net income attributable to the parent and to the non-controlling
interest be clearly identified and presented on the face of the consolidated
statement of income; and (3) changes in a parent’s ownership interest while the
parent retains its controlling financial interest in its subsidiary be accounted
for consistently as equity transactions. SFAS No. 160 applies prospectively
to
business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008. Earlier application is prohibited. The adoption of SFAS No. 160 is
not
expected to have a material impact on our results of operations or our financial
position.
In
March
2008, the FASB issued SFAS No. 161, “Disclosures and Derivative Instruments and
Hedging Activities — an Amendment of FASB Statement 133” (“SFAS 161”). SFAS 161
will change the disclosure requirements for derivative instruments and hedging
activities. Entities will be required to provide enhanced disclosures about
(a)
how and why an entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under Statement 133
and
its related interpretations, and (c) how derivative instruments and related
hedged items affect an entity’s financial position, financial performance and
cash flows. SFAS 161 is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008. The Company has
not
yet evaluated the impact, if any, of adopting this pronouncement.
Forward-Looking
Statements
This
Quarterly Report on Form 10-Q contains “forward-looking statements” within
the meaning of the Private Securities Litigation Reform Act of 1995 which can
be
identified by 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. 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 and ability to integrate acquired companies and assets,
the
Company’s review of strategic alternatives, outlook of customers, reception
of new products, technologies, and pricing and the current economic downturn
and
its effect on the credit and capital markets as well as the industries and
customers that utilize our products. In addition, such forward-looking
statements involve known and unknown risks, uncertainties, and other factors
including those described from time to time in the Company’s most recent
Form 10-K and 10-Q’s and other Company filings with the Securities and
Exchange Commission which may cause the actual results, performance or
achievements by 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 the
Company’s 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.
ITEM
3.
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The
following discussion about the Company’s market rate risk involves
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements.
In
general, business enterprises can be exposed to market risks, including
fluctuation in commodity and raw material 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
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 rollover risk in the short-term money 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.
Recently,
market conditions have created an environment of volatility related to the
LIBOR rate which might adversely impact the Company’s ability to borrow in
the future at stable rates. Based on available information, we believe that
Wachovia, the lender under our Credit Facility, is able to fulfill its
commitments as of our filing date; however, there can be no assurance that
Wachovia may not cease to be able to fulfill its funding
requirements.
ITEM
4.
CONTROLS
AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
As
of
September 30, 2008, the Company’s management carried out an evaluation, under
the supervision and with the participation of the Company’s Chief Executive
Officer and Chief Financial Officer, who are, respectively, the Company’s
principal executive officer and principal financial officer, of the
effectiveness of the design and operation of the Company’s disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934 (the “Exchange Act”), pursuant to Exchange
Act Rule 13a-15. Based on such evaluation, the Company’s Chief Executive Officer
and Chief Financial Officer have concluded that the disclosure controls and
procedures were effective as of September 30, 2008.
Changes
in Internal Controls
There
have been no changes in the Company’s internal control over financial reporting
during the three months ended September 30, 2008 that have materially affected,
or are reasonably likely to materially affect, the Company’s internal control
over financial reporting.
PART II.
OTHER
INFORMATION
ITEM
1. LEGAL PROCEEDINGS
On
or
about February 13, 2006, Dr. Gerald P. Zook filed a demand for arbitration
with
the American Arbitration Association, naming the Company and Silipos as two
of
the 16 respondents. (Four of the other respondents are the former owners
of
Silipos and its affiliates, and the other 10 respondents are unknown entities.)
The demand for arbitration alleges that the Company and Silipos are in default
of obligations to pay royalties in accordance with the terms of a license
agreement between Dr. Zook and Silipos dated as of January 1, 1997, with
respect
to seven patents owned by Dr. Zook and licensed to Silipos. Silipos has paid
royalties to Dr. Zook, but Dr. Zook claims that greater royalties are owed.
Dr.
Zook is demanding at least $681,000 in damages, although Silipos vigorously
disputes any liability and contests his theory of damages. Dr. Zook has agreed
to drop Langer, Inc. (but not Silipos) from the arbitration, without prejudice.
Arbitration hearings have been scheduled for February, 2009.
ITEM
1A.
RISK
FACTORS
Recent
turmoil across various sectors of the financial markets may negatively impact
the Company’s business, financial condition and/or operating
results.
Recently,
the various sectors of the credit markets and the financial services industry
have been experiencing a period of unprecedented turmoil and upheaval
characterized by disruption in the credit markets and availability of credit
and
other financing, the failure, bankruptcy, collapse or sale of various financial
institutions and an unprecedented level of intervention from the United States
federal government. While the ultimate outcome of these events cannot be
predicted, they may have a material adverse effect on our ability to obtain
financing necessary to effectively execute our strategic reevaluation strategy,
the ability of our customer and suppliers to continue to operate their
businesses, the demand for our products or the ability to obtain future
financing which could have a material adverse effect on the market price of
our common stock and our business, financial condition and results of
operations.
Except
as
discussed above, there are no material changes to the risk factors disclosed
in
the factors discussed in “Risk Factors” in Part I, Item 1A of the Company’s
Annual Report on Form 10-K for the year ended December 31, 2007, which
could materially affect the Company’s business, financial condition or future
results. The risks described in the Company’s filings with the Securities and
Exchange Commission are not the only risks facing the Company. Additional risks
and uncertainties not currently known to the Company or that the Company
currently deems to be immaterial also may materially adversely affect the
Company’s business, financial condition and/or operating results.
ITEM
2.
PURCHASE
OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS
The
following table sets forth information regarding the Company’s purchases of
outstanding common stock during the quarter ended September 30,
2008.
ISSUER
PURCHASES OF EQUITY SECURITIES
|
Period
|
|
(a) Total number
of shares (or
units purchased)
|
|
(b) Average
price paid per
share (or unit)
|
|
(c) Total number of
shares (or units)
purchased as part of publicly announced
plans or programs
|
|
(d) Maximum number
(or approximate dollar
value) of shares (or units)
that may yet be
purchased under the
plans or programs
|
|
|
July
1 to July 31, 2008
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
$
|
4,723,331
|
(1)
|
|
August
1 to August 31, 2008
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,723,331
|
|
|
September
1 to September 30, 2008
|
|
|
4,900
|
(2)
|
|
0.63
|
|
|
4,900
|
|
|
4,720,244
|
|
|
Total
|
|
|
4,900
|
|
$
|
0.63
|
|
|
4,900
|
|
|
|
|
|
(1)
|
On
April 16, 2008, the Company announced that it had entered into an
amendment of its credit facility with its lender, Wachovia Bank,
which,
among other things, increased the amount of common stock that the
Company
is permitted to repurchase from $2,000,000 to $6,000,000 and extends
the
period during which the Company may carry out such purchases to April
15,
2009.
|
|
(2)
|
The
4,900 shares were purchased in the open
market.
|
ITEM
5. OTHER INFORMATION
Effective
October 2, 2008, Twincraft terminated the employment of A. Lawrence Litke as
Chief Operating Officer of Twincraft. Mr. Litke is being paid his base salary
as
severance for one year in accordance with the terms of his employment agreement
with Twincraft.
ITEM
6.
EXHIBITS
|
Exhibit
No.
|
|
Description
|
|
|
|
|
|
2.1
|
|
Asset
Purchase Agreement dated as October 24, 2008, by and between Langer,
Inc.
and Langer Acquisition Corp. (incorporated herein by reference to
Exhibit
2.1 of our Current Report on Form 8-K filed with the Securities and
Exchange Commission on October 30, 2008).
|
|
|
|
|
|
10.1
|
|
Amendment
No. 4 dated October 24, 2008, to Loan and Security Agreement dated
May 11,
2007, between Wachovia Bank, N.A. and Langer, Inc. (incorporated
herein by
reference to Exhibit 10.1 of our Current Report on Form 8-K filed
with the
Securities and Exchange Commission on October 30,
2008).
|
|
|
|
|
|
31.1
|
|
Certification
of Principal Executive Officer Pursuant to Rule 13a-14(a) (17
CFR 240.13a-14(a)).
|
|
|
|
|
|
31.2
|
|
Certification
of Principal Financial Officer Pursuant to Rule 13a-14(a) (17
CFR 240.13a-14(a)).
|
|
|
|
|
|
32.1
|
|
Certification
of Principal Executive Officer Pursuant to Rule 13a-14(b) (17
CFR 240.13a-14(b)) and Section 1350 of Chapter 63 of Title 18 of the
United States Code (18 U.S.C. Section 1350).
|
|
|
|
|
|
32.2
|
|
Certification
of Principal Financial Officer Pursuant to Rule 13a-14(b) (17
CFR 240.13a-14(b)) and Section 1350 of Chapter 63 of Title 18 of the
United States Code (18 U.S.C. Section
1350).
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
LANGER,
INC.
|
|
|
|
|
|
Date:
November 12, 2008
|
By:
|
/s/
W. GRAY HUDKINS
|
|
|
|
W.
Gray Hudkins
|
|
|
|
President
and Chief Executive Officer
|
|
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
Date:
November 12, 2008
|
By:
|
/s/ KATHLEEN
P. BLOCH
|
|
|
|
Kathleen
P. Bloch
|
|
|
|
Vice
President, Chief Operating Officer, and Chief Financial
Officer
|
|
|
|
(Principal
Financial Officer)
|
EXHIBIT
INDEX
|
Exhibit
No.
|
|
Description
|
|
|
|
|
|
31.1
|
|
Certification
of Principal Executive Officer Pursuant to Rule 13a-14(a) (17
CFR 240.13a-14(a)).
|
|
|
|
|
|
31.2
|
|
Certification
of Principal Financial Officer Pursuant to Rule 13a-14(a) (17
CFR 240.13a-14(a)).
|
|
|
|
|
|
32.1
|
|
Certification
of Principal Executive Officer Pursuant to Rule 13a-14(b) (17
CFR 240.13a-14(b)) and Section 1350 of Chapter 63 of Title 18 of the
United States Code (18 U.S.C. Section 1350).
|
|
|
|
|
|
32.2
|
|
Certification
of Principal Financial Officer Pursuant to Rule 13a-14(b) (17
CFR 240.13a-14(b)) and Section 1350 of Chapter 63 of Title 18 of the
United States Code (18 U.S.C. Section
1350).
|
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