Langer Reports Operating Results

Langer Inc.(Nasdaq: GAIT), Deer Park, New York, on November 14 reported a net loss for the three months ended September 30, 2006, of approximately $(553,000), or $(.06) per share on a fully diluted basis, compared to a net income for the three months ended September 30, 2005 of approximately $236,000, or $.02 per share on a fully diluted basis. The principal reason for the net loss in the three months ended September 30, 2006 was the reduction in net sales of approximately$1,466,000, or 13.9 percent, and the resulting decrease in gross profit of approximately $1,074,000, or 22.5 percent, in the three months ended September 30, 2006, compared to the three months ended September 30, 2005.

The reduction in net sales and gross profit for the three months ended September 30, 2006 was partially offset by a decrease in selling expenses of approximately $180,000, or 10.3 percent, compared to the prior year's three month period, as the company instituted certain cost containment measures. General and administrative expenses increased in the three months ended September 30, 2006 by approximately $72,000, or 3.0 percent, compared to the three months ended September 30, 2005, due primarily to non-recurring items which included severance and related expenses, the write-offof certain assets and the loss on abandonment of certain New York City office space totaling approximately $227,000, compared to severance and related expenses of approximately $125,000 in the prior year period.

For the nine months ended September 30, 2006, Langer reported a net loss of approximately $(2,461,000), or $(.25) per share on a fully diluted basis, compared to net income of approximately $423,000, or $.06 per share on a fully diluted basis, for the nine months ended September 30, 2005. The principal reason for the decrease in net income for the nine months ended September 30, 2006, compared to the nine month resulted in a decrease in gross profit of approximately $3,753,000, or26.4 percent. In addition, net income in the nine months ended September 30, 2005 included a non- recurring non-cash gain of $1,750,000. These reductions in net income were partially offset by a reduction in interest expense of approximately $1,472,000 in the nine months ended September 30, 2006,compared to the nine months ended September 30, 2005, due to the absence of interest expense in the current year period associated with debt incurred in connection with the Silipos acquisition, which was repaid in June and July 2005, and was included in interest expense in the prior year period, and a reduction of operating expenses totaling approximately $627,000 in the nine months ended September 30, 2006, compared to the comparable prior year period.

Net sales for the three months ended September 30, 2006, were approximately $9,065,000, compared to approximately $10,531,000 for the three months ended September 30, 2005, a decrease of 13.9 percent. Net sales for the nine months ended September 30, 2006 were approximately $26,604,000, compared to approximately $30,980,000 for the nine months ended September 30, 2005, a decrease of 14.1 percent.

Cost of sales were 59.2 percent and 54.7 percent of net sales for the three months ended September 30, 2006 and 2005, respectively. Gross profit as a percentage of net sales decreased to 40.8 percent for the three months ended September 30, 2006, compared to 45.3 percent for the three months ended September 30, 2005. However, the gross profit percentage of 40.8 percent in the three months ended September 30, 2006 reflected an increase over the gross profit percentage of 38.7 percent in the first six months of 2006. Cost of sales were 60.6 percent and 54.1 percent of net sales for the nine months ended September 30, 2006, and 2005, respectively. Gross profit as a percentage of net sales decreased to 39.4 percent for the nine months ended September 30, 2006, compared to 45.9 percent for the nine months ended September 30, 2005. Cost of sales did not decline as much as net sales because fixed manufacturing overhead, which was fairly consistent with the comparable prior year period, was not sufficiently offset by reductions in materials costs and direct labor.

Langer President and CEO Gray Hudkins said, "While our operating results for the nine months ended September 30, 2006, continue at levels below expectations, we believe we have sustained some of the momentum in the third quarter that we built in the second quarter, maintaining our gross profit margins at approximately the same levels. We have stabilized our operating expenses, and we expect to continue seeking ways to improve the efficiency of our operations. We are encouraged by positive trends that resulted from our efforts to develop new business for Silipos and our implementation of lean manufacturing in our custom orthotic production facilities. More recently, we have focused our sales efforts on larger institutional customers and achieved some success around that effort. Additionally, some of the new business initiatives into new markets designed to increase our revenue base are showing results."

General and administrative expenses for the three months ended September 30, 2006, were approximately $2,493,000, or 27.5 percent of net sales, compared to approximately $2,421,000, or 23.0 percent of net sales, for the three months ended September 30, 2005, representing an increase of approximately $72,000. General and administrative expenses for the nine months ended September 30, 2006, were approximately $7,188,000, or 27.0 percent of net sales, compared to approximately $7,267,000, or 23.5 percent of net sales, for the nine months ended September 30, 2005, representing a decrease of approximately $79,000. Selling expenses for the three months ended September 30, 2006 were approximately $1,567,000, or 17.3 percent of net sales, compared to approximately$1,747,000, or 16.6 percent of net sales, for the three months ended September 30, 2005. Selling expenses for the nine months ended September 30, 2006 were approximately $5,089,000, or 19.1 percent of net sales, compared to approximately $5,701,000, or 18.4 percent of net sales, for the nine months ended September 30, 2005.

Interest expense for the three months ended September 30, 2006 was approximately $218,000, compared to approximately $338,000 for the three months ended September 30, 2005, a decrease of approximately $120,000.

Interest expense for the nine months ended September 30, 2006 was approximately $800,000, compared to approximately $2,396,000 for the nine months ended September 30, 2005, a decrease of approximately $1,596,000.Included in interest expense for the three and nine months ended September30, 2005 was approximately $31,000 and approximately $1,472,000,respectively, associated with the Silipos acquisition-related indebtedness, which included the write-offof debt discount and related debt placement costs totaling approximately $630,000 associated with the June 2005 repayment of the $5,500,000 7 percent senior subordinated notes. Cash and cash equivalents at September 30, 2006, were approximately $2,772,000 compared to approximately $18,829,000 at December 31, 2005, a decrease of approximately $16,057,000. Working capital at September 30, 2006, was approximately $7,176,000, compared to approximately $9,204,000 at December 31, 2005, a decrease of approximately of $2,028,000. The decreases in cash and cash equivalents was attributable to the cash used to repay the $14,439,000 4 percent convertible subordinated notes (the "Convertible Notes"), plus accrued interest, at maturity on August 31, 2006, cash used in operations, and cash used for deposits on furniture for the company's new New York City office, and property and equipment, including leasehold improvements associated with the lean manufacturing initiative totaling approximately$851,000. The decrease in working capital is attributable to the decrease in cash and cash equivalents, described above, and the increases in accounts payable and accrued liabilities, partially offset by the reduction in the Convertible Notes.

For more information, visit www.langerbiomechanics.com/

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