Langer Reports 1Q Operating Results

Langer Inc. (NASDAQ:GAIT), Deer Park, New York, on May 15 reported a net loss for the three months ended March 31, 2006, of approximately $(1,426,000), or $(.14) per share on a fully diluted basis, compared to net income for the three months ended March 31, 2005, of approximately $1,445,000, or $.22 per share on a fully diluted basis.

According to Langer, the principal reason for the change in net income was a reduction in net sales of approximately $2,052,000, or 19.7 percent in the three months ended March 31, 2006, compared to the three months ended March 31, 2005, which was offset by only a $184,000, or 3.3 percent, reduction in cost of sales in the three months ended March 31, 2006, compared to the three months ended March 31, 2005. This resulted in a gross profit reduction of approximately $1,868,000 in the three months ended March 31, 2006, compared to the three months ended March 31, 2005. In addition, net income decreased because net income in the three months ended March 31, 2005 included a non-recurring non-cash gain of $1,750,000 resulting from the change in the fair value expiration of a put option obligation acquired as part of the acquisition of Silipos on September 30, 2004.

Costs of sales were 63.7 percent and 52.9 percent of net sales for the three months ended March 31, 2006 and 2005, respectively, according to Langer. Gross profit as a percentage of net sales decreased to 36.3 percent for the three months ended March 31, 2006, compared to 47.1 percent for the three months ended March 31, 2005. Cost of sales did not decline as much as net sales because manufacturing overhead, which is primarily composed of fixed expenses and direct labor, and which was fairly consistent with the comparable year period, had more than offset the reduction in material costs.

President and CEO Gray Hudkins said, "Our results for the quarter ended March 31, 2006, reflect a loss of several customers at Silipos and the continued weakness in our custom foot orthotics business. We believe we are taking corrective steps to develop new business for Silipos and are working to refine the infrastructure, improve customer service and operations, and focus on the sales efforts of the Langer legacy business. We believe we are seeing positive signs in both businesses. We have largely completed the restructuring of our custom orthotics manufacturing process, and we believe that this process has improved product cycle times, product quality, and customer service."

General and administrative expenses for the three months ended March 31, 2006, were approximately $2,341,000, or 28.1 percent of net sales, compared to approximately $2,265,000, or 21.8 percent, of net sales for the three months ended March 31, 2005, representing an increase of approximately $76,000, Langer reported.

Selling expenses decreased approximately $111,000, or 5.7 percent, to approximately $1,828,000, or 21.9 percent, of net sales for the three months ended March 31, 2006, compared to approximately $1,939,000, or 18.6 percent, of net sales for the three months ended March 31, 2005, the statement continued.

Interest expense for the three months ended March 31, 2006 was approximately $304,000, compared to approximately $918,000 for the three months ended March 31, 2005, a decrease of approximately $614,000. Included in interest expense for the three months ended March 31, 2005 is approximately $609,000 associated with the Silipos acquisition-related indebtedness, which included the amortization of debt discount and related debt placement costs totaling approximately $65,000 associated with the 7 percent senior subordinated notes issued September 30, 2004.

Cash and cash equivalents at March 31, 2006 were approximately $18,499,000, compared to approximately $18,829,000 at December 31, 2005, a decrease of approximately $330,000, according to Langer. Working capital at March 31, 2006, was approximately $7,956,000, compared to approximately $9,204,000 at December 31, 2005, a decrease of approximately of $1,248,000. The decrease in working capital is primarily attributable to decreases in cash and accounts receivable, and increases in accrued liabilities and accounts payable, partially offset by increases in prepaid expenses. Additionally, the $14,439,000 principal amount of the company's 4-percent convertible subordinated notes are due in full on August 31, 2006.

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