SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-K
       FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                        ---------------------------------

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934

                   For the fiscal year ended February 28, 1998
                                             -----------------

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

                           Commission File No. 0-12991
                                               -------

                       THE LANGER BIOMECHANICS GROUP, INC.
             ------------------------------------------------------
             (Exact name of Registrant as specified in its charter)

              New York                            11-2239561
     ----------------------------            ----------------------
     (State or other jurisdiction            (I.R.S. employer iden-
         of incorporation or                   tification number)
            organization)

                   450 Commack Road, Deer Park, New York 11729
               ---------------------------------------------------
               (Address of principal executive offices) (Zip code)

        Registrant's telephone number, including area code: (516) 667-1200
                                                            --------------

        Securities registered pursuant to Section 12(b) of the Act: NONE
                                                                    ----

           Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $.02 per share
                     --------------------------------------
                                 Title of Class

                              * * * * * * * * * * *

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 |_| 
<PAGE>

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|

As of May 19,1998, the aggregate market value of voting stock held by
non-affiliates of the Registrant was $2,328,938 as computed by reference to the
average bid and ask prices of the stock (1 3/8) multiplied by the number of
shares of voting stock outstanding on May 19,1998 held by non-affiliates
(1,634,261).

Indicate the number of shares outstanding of each of the Registrant's classes of
common stock as of May 19, 1998.

Class of Common Stock         Outstanding at May 19, 1998
---------------------         ---------------------------

Common Stock, par value             2,585,281 shares
$.02 per share

                       DOCUMENTS INCORPORATED BY REFERENCE

Not applicable.


                                       2
<PAGE>

                                     PART I

ITEM 1. BUSINESS

General

      The Langer Biomechanics Group, Inc. ("LBG" or the "Company") is engaged in
the design, manufacture and marketing of foot and gait-related biomechanical
products. The Company's largest product line, custom-made, prescription orthotic
devices, accounted for approximately 84.9 % of revenues for the fiscal year
ended February 28, 1998. Foot orthoses are contoured molds made from plastic,
graphite, leather or composite materials, which are placed in patients' shoes to
(i) correct or mitigate abnormalities in their gait and (ii) relieve symptoms
associated with foot or postural malalignment. These devices function by
maintaining the proper relationships between a patient's forefoot, rearfoot, leg
and horizontal walking surface. To the Company's knowledge, it has the greatest
overall unit volume and revenue in the custom foot orthoses industry. The
Company's customers are primarily podiatrists, and also include orthopedists,
physical therapists and Orthotic & Prosthetic ("O&P") centers. The Company also
makes ankle foot orthoses ("AFO"), boot-like devices which assist individuals
afflicted with neurological impairments, foot deformities and injuries to
achieve a more natural gait.

      In addition to its line of orthotics products, the Company has developed
and markets a number of other products that help treat biomechanical medical
problems related to feet and gait, including:

o     A proprietary medical grade soft tissue cushioning material named PPT(R),
      which the Company believes provides superior protection against forces of
      pressure, shock and shear. PPT conforms and bonds to a broad array of
      orthotic and prosthetic devices, braces and assemblies; and

o     The Pediatric Counter Rotation System ("CRS"(R)), a device which corrects
      in-toe/out-toe disorders of infancy, while allowing unrestricted movement
      of the feet and legs.

Background

      Since its formation under the laws of the state of New York in 1971, the
Company has engaged in activities relating to the application of scientific and
quantitative methods for the diagnosis and treatment of foot and gait-related
problems. To date, the majority of the Company's revenues have been derived from
the sale of prescription biomechanical foot orthotic devices to health care
practitioners in the field of podiatric biomechanics. Podiatric biomechanics
deals essentially with the structure and function of segments of the feet as
they relate to each other and to the function of the legs, hips and spine.

      The Company has also endeavored to manufacture and market complementary
products relating to locomotor dysfunctions. Building on its experience in
treating disorders associated with the biomechanics of the foot and leg, the
Company has directed efforts towards producing therapeutic products which can
treat and improve patients' motor capabilities, biomechanical alignment and
function.


                                       3
<PAGE>

      Sales by product category of the Company as derived from its accounting
records are set forth below (dollars in thousands):


<TABLE>
<CAPTION>
                                                      Fiscal  Years Ended:
                                            -------------------------------------
                                            Feb. 28,  Feb. 28,  Feb. 29,  Feb. 28,
Product Category                              1998      1997      1996      1995
----------------                            -------------------------------------
<S>                                         <C>       <C>       <C>       <C>   
Custom Orthoses                              $8,618    $8,994    $8,652    $8,746

PPT Products                                  1,281     1,085     1,121     1,168

Counter Rotation System ("CRS")                 111       129       165       207

Materials and Other (including Superform)       146       307       175       194

Discontinued Product Line                        --        --        --       152
                                            -------   -------   -------   -------

Total                                       $10,156   $10,515   $10,113   $10,467
                                            =======   =======   =======   =======
</TABLE>

      Export and foreign sales constituted approximately 26%, 25% and 24% of
revenues for the fiscal years ended February 28, 1998, February 28, 1997 and
February 29, 1996, respectively.

Custom Orthotic Devices

      The Company is engaged in the design, development, manufacture and sale of
custom-made foot orthoses. Biomechanical orthotic devices help provide near
normal function by maintaining the angular anatomical relationships between the
patient's forefoot, rearfoot, leg and horizontal walking surface. This is
achieved by the inherent contours of the neutral position shell of the device
and by the angled posts on the front and/or rear ends which cause the orthotic
device to move into specific positions at specific times during the gait cycle.
Accordingly, muscle action is enhanced and the efficiency and smoothness of
weight stress transmission through the feet and legs is improved. The result is
a reduction of abnormal motion without total restriction of normal motion and an
increase in foot and leg stability. Foot problems may be alleviated or
eliminated, as may leg and back fatigue caused by improper muscle use. The
formation and further growth of excrescences (e.g., corns or callouses) may be
prevented, decreased in size or eliminated. In addition, the future formation of
bunions may be prevented.

      During the twelve months ended February 28, 1998, sales of orthotic
products totaled $8,618,000, compared to $8,994,000 for the twelve months ended
February 28, 1997. Decreased revenues resulted from a decreased unit volume from
the elimination of marginal accounts and a shift in doctor preference toward
lower priced orthoses.

      While sales were primarily made to practitioners within the United States,
the Company also sold its orthotic products in approximately thirty-two foreign
countries. No single orthotic customer presently accounts for more than 1% of
the Company's annual sales. The primary market for custom orthotic devices is
podiatrists who prescribe such devices for their patients. There are
approximately l2,800 practitioners of podiatry licensed in the United States.
Orthotic devices are also sold to other health care professionals, such as
orthopedists, engaged in the treatment of the foot. The cost of the device to
the patient is typically included by the practitioner as part of his fee for
treatment. The Company does not sell the devices directly to the user-patient.
Orthotic devices are made in the Company's three facilities in Deer Park, New
York; Brea, California; and Stoke-on-Trent, England. The prescribing
practitioner furnishes plaster impression casts of the patient's feet and
necessary clinical information on an appropriate prescription order form. In
addition to its six-month warranty, the Company offers an optional "Protect
Program" at an additional cost of $55 per pair of orthoses. Under the program,
the 


                                       4
<PAGE>

Company will repair or replace the orthotics at no charge, or at a reduced
charge, during the first 24 months following sale.

      Biomechanical orthotic devices can be fabricated with different functional
capabilities and from various materials, depending upon the requirements of the
patient. The Company has designed orthotic devices to address the needs of
particular segments of the market. For example, the general interest in physical
fitness has resulted in demand for orthotic devices and it has heightened the
awareness of the importance of proper foot function and foot care. To address
this segment of the market, the Company manufactures an extensive line of
orthotics called Sporthotics(R), designed for the specific needs of runners and
other sport-specific athletes, including football, basketball and tennis
players. Other specialized products include: Healthflex(R) (designed for the
needs of aerobic dance, walking and exercise enthusiasts), DesignLine(R) (a
functional orthotic designed to fit into dress shoes, such as high fashion shoes
and loafers which cannot accommodate a full-size orthotic), DressFlex(TM) (a
unique proprietary device for use in women's high-heeled shoes), Slimthotics(R)
(designed to fit into shoes, such as high heels and ballet slippers), Lyte
Fit(R) (ultra-thin and lightweight devices made from LBG's exclusive
Superform(R) carbon graphite material), the Golden Series(TM) (designed for the
needs of active individuals who are over 50 years of age), Bioflex(R) (devices
suitable for younger, more active individuals), BlueLine(TM) (a flexible,
durable, accommodative device that provides a moderate level of control),
D.S.I.S.(R) (a patented device for the effective treatment of pediatric flat
foot), and Diab-A-Thotics(R) (designed to meet the needs of diabetic patients in
the growing diabetic population).

      An additional product line called "FirstChoice" was introduced in fiscal
1995 in order to address price-sensitive market areas, including managed care
organizations. The product offering is limited to several basic products and has
flat rate pricing. The manufacturing and service areas are also limited in order
to reduce costs.

      Superform(R) is a proprietary composite material believed to be superior
to other composite materials available for orthotic fabrication. Superform was
first introduced in fiscal 1994 in several of the Company's orthotic products
due to its strength and mouldability. During fiscal 1995, the Company began to
market Superform to other orthotic labs.

      Ankle Foot Orthoses ("AFO") are plastic devices which are composed of a
foot plate and leg support. They assist individuals afflicted with neurological
impairments, previous trauma, ankle and leg instability, and arthritic
deformities, to achieve a more natural gait. These products include the Hinged
Ankle Foot Orthosis ("HAFO") used for neurological problems, the
Supra-Malleoloar Orthosis ("SMO") for instability of the ankle joint, the Solid
Ankle Foot Orthoses ("SAFO") to restrict motion at the ankle to treat arthritis
and other joint conditions, and the Posterior Leaf Spring ("PLS"), useful in
tendon ruptures and flaccid drop foot. AFO devices are prescribed by
podiatrists, physical therapists and rehabilitation therapists.

      While the Company obtains a number of its fabrication materials from
single sources, it has not experienced any significant shortages other than
occasional backorders. In most cases, any needed materials can usually be
obtained from a distributor.

      The Company believes that a relatively small percentage of custom orthotic
devices continue to be made by practitioners in their own offices or
laboratories. The vast majority of the market is serviced by professional
laboratories based on casts and prescriptions furnished by practitioners. There
are several other custom orthotic laboratories that are national in scope which
the Company believes hold approximately a combined 40% to 45% of the overall
custom market. The remainder of the market is fragmented among smaller regional
and local facilities.

PPT(R) Products

      PPT is a medical grade soft tissue cushioning material with a high
density, open-celled urethane foam structure. PPT, a registered trademark of the
Company, is manufactured, pursuant to an agreement, for the


                                       5
<PAGE>

Company by a large industrial manufacturing company. This company manufactures
urethane foam materials of which PPT is a derivative. Pursuant to the agreement,
the Company has the exclusive worldwide rights to serve footcare, orthopedic and
related medical markets with such materials.

      The Company has developed and sells a variety of products fabricated from
PPT including moulded insoles, components for orthotic devices, laminated
sheets, and diabetic products. Some manufacturing operations associated with
these products are performed by outside vendors.

      Sales of PPT products for the twelve months ended February 28, 1998 were
$1,281,000 versus $1,085,000 in the prior fiscal year. The increase is
attributable to an increase in sales through key distributors, and the addition
of several new accounts.

      In April of 1993, the Company introduced a new generation of PPT, which
independent tests show to have improved properties over competitive materials.
The essential function of PPT and other soft tissue supplements is to provide
protection against forces of pressure, shock and shear. The Company believes
that PPT's characteristics make it a superior product in its field. PPT has a
superior "memory" that enables it to return to its original shape faster and
more accurately than other materials used for similar purposes. PPT is also
odorless and non-sensitizing to the skin, and has a porosity which helps the
skin to remain dry, cool and comfortable. These factors are especially important
in sports medicine applications.

      Besides podiatric use, PPT is suitable for other orthopedic and
medical-related uses such as liners for braces and prosthetics, as shock
absorbers and generally in devices used in sports and physical therapy.

      The Company has awarded exclusive distribution arrangements to certain
leading distributors serving selected end-use markets in the United States and
other countries. The Company sells direct to practitioners in non-exclusive and
new markets.

      The market for soft tissue supplements is highly competitive. Brand
products as well as commodity type foam rubber are all widely used. Brand name
products include Spenco, Sorbothane, medical-grade Poron, and DCS. The remainder
of the market is fragmented. The Company competes directly with one other
manufacturer of cellular urethane foam.

The Pediatric Counter-Rotation System ("CRS")

      The Company introduced the CRS(R) device in fiscal 1987 for the correction
and management of a variety of in-toe and out-toe disorders of infancy. The
disorders manifest themselves in an excessive angle, either inward or outward,
from that which is normal in the relationship of the foot to the direction of
movement.

      Sales for CRS totaled $111,000 during the twelve months ended February 28,
1998 compared to sales of $129,000 in the prior twelve-month period. The
decrease in revenues resulted from a reduced level of direct promotion with a
shift toward wholesale sales to distributors in the United States and overseas.

      The CRS is designed to replace rigid bars or splints which have
traditionally been used (since 1934) and which not only inhibit normal leg
movement and are cumbersome and inconvenient, but can also lead to permanent
knee and hip damage. Unlike rigid bars or splints, the CRS requires no specific
measurement for sizing and may be used with almost any type of children's shoes.
Also, unlike other devices, it will allow the infant unrestricted movement of
the feet and legs while maintaining the abnormal foot or feet in the corrected
position. The CRS is also designed to compensate automatically for the rapid
growth of an infant's legs and hips, thus avoiding the possibility of damage to
the hips and knees. The potential for permanent knee and hip joint damage is a
significant drawback of rigid bar therapy.

      The CRS is prescribed by pediatricians, orthopedists and podiatrists and
is sold by the Company directly to practitioners as well as through selected
distributors. The level of reimbursement from third-party insurers for the CRS
varies from one state to another.


                                       6
<PAGE>

      The CRS was developed by BioResearch Ithaca, Inc. of Ithaca, New York,
which has obtained patents on the device in the United States and certain other
countries. In accordance with a license agreement entered into in July l986
between the Company and BioResearch Ithaca, Inc., the Company has been granted
an exclusive license, with the right to grant sublicenses, to make, use and sell
the CRS. Food and Drug Administration acceptance to market the CRS has been
obtained by the Company. See "Governmental Regulation".

      The primary competitive products for the CRS are rigid bars and splints.

Marketing

      The Company seeks to be recognized as an educator, and leader in product
quality, customer service, technical knowledge and product innovation. The
marketing mix includes trade shows, trade advertising, sponsorship of
educational programs, public relations and maintenance marketing with a strong
emphasis on customer service. The Company maintains a staff of customer
representatives at each of its facilities.

      Management continues to utilize a number of marketing and operational
initiatives to promote awareness of and incentives to purchase Company orthotic
products. These include a volume incentive program ("VIP") and a practice
building program. Also, the Company's marketing program entails the sponsorship
of seminars. It includes a comprehensive program in biomechanics and gait
analysis coupled with addressing the cost effectiveness of orthotic therapy.

Research and Development

      The Company incurred no research and development costs for the twelve
months ended February 28, 1998 and February 28, 1997. The Company also incurred
no research and development costs for the twelve months ended February 29, 1996,
except in connection with an in-house CAD-CAM project that was discontinued,
which resulted in a $499,000 write-off in such fiscal year. The Company does not
expect to incur significant research and development costs in the future.

Patents and Trademarks

      The Company believes that patent and trademark protection are beneficial.
It holds 13 patents, 111 trademarks and 9 copyrights. Various patents and
trademarks are held in 12 countries. The Company has exclusive licenses to three
types of orthotic devices which are patented in the United States and several
foreign countries. In addition, patents have also been granted to a third party
in the United States and numerous foreign countries with respect to the CRS (as
to which the Company has exclusive marketing rights).

      Although a patent would have a statutory presumption of validity in the
United States, in the event that any patent awarded to the Company or a third
party is later tested in litigation, the issuance of a patent is not conclusive
as to such validity or as to the enforceable scope of the claims therein. The
validity and enforceability of a patent can be attacked after its issuance. If
the outcome of such litigation is adverse to the owner or licensor of the
patent, third parties may use the invention or technology pertaining to the
patent without restriction. Accordingly, any patents granted to the Company or
to third parties from whom the Company obtained licenses may not afford any
protection against competitors with similar products. Loss of patent protection
could have an adverse effect on the Company's business by permitting competitors
to utilize techniques developed by the Company.


                                       7
<PAGE>

Governmental Regulation

      Rules of the Food and Drug Administration ("FDA") may require the
submission of a 510(k) notification of intent to market certain products. Upon
submission of a 510(k), the FDA may determine the product to be substantially
equivalent to products previously marketed in interstate commerce. Such
submissions have been made and determined to be substantially equivalent for the
CRS.

Employees

      At March 1, l998, the Company had 145 employees, of which 92 were located
in Deer Park, New York, 27 in Brea, California, and 26 in Stoke-on-Trent,
England. The Stoke-on-Trent facility is operated by a 75% owned subsidiary of
the Company. Included among the Deer Park employees are the three executive
officers of the Company, including the Company's co-founder who is a licensed
Doctor of Podiatric Medicine and a faculty member of the New York School of
Podiatric Medicine.

      The Company considers its employee relations to be excellent. The
employees are not represented by a union.

Consultants and Field Evaluation Force

      The Company has oral or written agreements with four medical specialists
with respect to their providing professional consultative services to the
Company in their areas of specialization. Two of the consultants are on the
faculties of the colleges of podiatric medicine in the United States.

      The consultants test and evaluate the Company's products, act as speakers
for the Company at symposiums and professional meetings, generally participate
in the development of the Company's products and services and disseminate
information about them. The Company also relies on practitioners in various
parts of the country to act as field evaluators of the Company's products.

Seasonality

      Revenue derived from the Company's sale of orthotic devices, a substantial
portion of the Company's operations, have historically been significantly higher
in the warmer months of the year.

ITEM 2. PROPERTIES

      The Company's executive offices, and its primary manufacturing facilities,
are located in Deer Park, New York. The Deer Park facility is leased through
July 31, l999, with a four year extension option, and with monthly lease
payments of $23,414. The Company also leases space in Brea, California
(manufacturing facility) and Northbrook, Illinois (prior sales office), under
separate leases which expire through December 31, 1998, and with aggregate
monthly lease payments of $8,265. The Northbrook Illinois facility was closed in
October 1996 with the space sublet at $1,200 per month or approximately $150 per
month below the Company's lease cost. This sub-lease expires at the end of the
Company's lease on July 31, 1998. A 75% owned subsidiary of the Company
currently leases facilities in Stoke-on-Trent, England under a lease expiring
December 31, 1998 and for which it currently pays $1,550 (at the current
exchange rate) per month. The Company believes that its manufacturing facilities
are suitable and adequate and provide the productive capacity necessary for its
current and reasonably foreseeable future needs. The Company believes that while
these manufacturing facilities are being adequately utilized, they could be more
fully utilized (e.g. with extended night shift operations) should this become
necessary.

ITEM 3. LEGAL PROCEEDINGS

      None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      None.


                                       8
<PAGE>

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Price Range of Common Stock

      The Registrant's common stock, par value $.02 per share ("Common Stock"),
is traded on the over-the-counter market with quotations reported on the
National Association of Securities Dealers Automated Quotation System (NASDAQ)
under the symbol GAIT. The following table sets forth the high and low closing
bid prices for the Common Stock for the fiscal years ended February 28, 1997 and
February 28, 1998. The NASDAQ quotations represent prices between dealers, do
not include retail markups, markdowns or commissions, and may not represent
actual transactions.


Twelve Months Ended February 28, 1997        High        Low
-------------------------------------        ----        ---
                                             
1st quarter .......                          1 7/8       1 1/2
2nd quarter .......                          2 1/4       1 5/8
3rd quarter .......                              2       1 5/8
4th quarter .......                          2 1/8       1 9/16
                                             
                                             
Twelve Months Ended February 28, 1998        High        Low
-------------------------------------        ----        ---
                                             
1st quarter .......                          1 7/8       1 5/8
2nd quarter .......                          2 1/4       1 11/16
3rd quarter .......                              2       1 7/16
4th quarter .......                          1 3/4       1 13/32
                                        
      On February 28, 1998, there were approximately 300 holders of record of
the Common Stock. However, this figure is exclusive of all owners whose stock is
held beneficially or in "street" name. Based on information supplied by various
securities dealers, the Company believes that there are in excess of 650
shareholders in total, including holders of record as well as those whose shares
are beneficially held.

Dividend History and Policy

      The Registrant has never paid cash dividends on its Common Stock and
anticipates that, for the foreseeable future, it will follow a policy of
retaining earnings to finance the expansion and development of its business. In
any event, future dividend policy will depend upon the Company's earnings,
financial condition, working capital requirements and other factors.


                                       9
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                          (In thousands, except per share data.)

                                                                     Fiscal Year Ended:
                                                   -----------------------------------------------------
                                                   Feb. 28,   Feb. 28,    Feb 29,    Feb. 28,    Feb. 28,
                                                     1998       1997       1996       1995        1994
                                                   -------    -------    -------     -------     -------
<S>                                                <C>        <C>        <C>         <C>         <C>    
Consolidated Statement of Operations:

   Net sales                                       $10,156    $10,515    $10,113     $10,467     $11,664

   Income (loss) before non-recurring charges
      and income taxes                                 370        331        113        (266)       (950)

   Non-recurring charges:
    Discontinuance of CAD-CAM project                   --         --       (499)         --          --
    Lab closings, write down of selected assets
      and legal fees                                    --         --        (49)       (363)         --

   Income (loss) before income taxes                   370        331       (435)       (629)       (950)

   Provision for (benefit from) income taxes             5         28         (2)          8          13

   Net income (loss)                                   365        303       (433)       (637)       (963)

   Earnings per share:

   Income (loss) before non-recurring charges
      and income taxes                                 .14        .12        .04        (.11)       (.38)

   Non-recurring charges:
    Discontinuance of CAD-CAM project                   --         --       (.19)         --          --
    Lab closings, write down of selected assets
      and legal fees                                    --         --       (.02)       (.14)         --

   Net income (loss) per common share:
        Basic                                          .14        .12       (.17)       (.25)       (.38)
        Diluted                                        .14        .11       (.17)       (.25)       (.38)

Weighted average number of common shares:
        Basic                                        2,585      2,583      2,568       2,547       2,547
        Diluted                                      2,658      2,666      2,568       2,547       2,548

Cash dividends per share                                --         --         --          --          --

Consolidated Balance Sheets:

   Working Capital                                   2,090      2,050      1,576       1,456       1,871

   Total Assets                                      4,848      4,445      4,035       4,535       5,426

   Long-term Indebtedness
    (excluding current maturities)                     375        444        430         482         551

   Stockholders' Equity                              2,663      2,291      1,978       2,311       2,850
</TABLE>


                                       10
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

Statements of Operations:

      The Company's net sales of $10,156,000 for the twelve months ended
February 28, 1998 were 3.4 percent below net sales of $10,515,000 for the twelve
months ended February 28, 1997. Net sales in fiscal 1997 were 4.0 percent above
net sales of $10,113,000 for the twelve months ended February 29, 1996.

      Sales of orthotic products, which accounted for 84.9 percent of the
Company's fiscal 1998 sales, decreased by approximately $376,000 or 4.2 percent
to approximately $8,618,000 in the most recent twelve-month period. Decreased
revenues resulted from decreased unit volume from the elimination of marginal
accounts and a shift in doctor preference toward lower priced orthoses,
partially offset by an earlier unit price increase. Sales of orthotic products
in fiscal 1997 increased by $342,000 or 4.0 percent to $8,994,000 from fiscal
1996. Increased revenues resulted from increased unit volume which more than
offset a shift in doctor preferences toward lower priced orthoses. A unit price
increase equal to approximately 3.5 percent on an annual basis became effective
at the end of October, 1996.

      Sales of PPT (the Company's soft tissue supplement material) for the
recent twelve months were $1,281,000, which increased by $196,000 or 18.1
percent from sales in the prior fiscal year. The increase in PPT sales over the
prior fiscal year was due to the addition of several larger volume accounts. For
the year ended February 28, 1997, sales were $1,085,000, representing a 3.2
percent decrease of $36,000 from the prior year. The decrease was due to an
increased level of competition.

      Sales of the Counter Rotation System ("CRS"(R)) were $111,000 for the
twelve months ended February 28, 1998, representing a $18,000 or 14.0 percent
decrease from the prior twelve-month period. Sales for fiscal 1997 declined by
$36,000 or 21.8 percent from the prior fiscal year. The decreased revenue
resulted from a reduced level of direct promotion together with a shift toward
wholesale sales to distributors in the United States and overseas.

      Gross profit (net sales less cost of sales) as a percentage of sales
decreased from 41.5 percent for the twelve months ended February 28, 1997 to
40.0 percent for the recent twelve-month period. The decreased gross profit
percentage resulted from increased manufacturing overhead on reduced unit sales
in United States operations, and increased labor costs in United Kingdom
operations. Gross profit as a percentage of sales increased from 40.5 percent
for the twelve months ended February 29, 1996 to 41.5 percent for the year-end
February 28, 1997. The increased gross profit percentage resulted from increased
labor efficiencies, higher unit volumes and the sales price increase.

      For the current fiscal year, selling expenses decreased by $332,000, and
general and administrative expenses decreased by $18,000, compared to the prior
twelve-month period. These reductions were due to lower promotional expense and
tighter controls over operational expenditures and staff reductions. For the
twelve-month period ended February 28, 1997, selling, general and administrative
expenses increased by $14,000 from the prior year's expense of $4,080,000.
Expense increases were due primarily to higher promotion expense in fiscal 1997.
However, as a percent of sales, these expenses were down to 38.9% versus 40.3%
in the prior fiscal year.

      The Company incurred no research and development expenses in fiscal 1998
or fiscal 1997. All related costs ($499,000) associated with the decision to
discontinue the in-house CAD-CAM project were written off during fiscal 1996.

      Interest income for the recent twelve-month period of $53,000 increased
$3,000 from the prior twelve-month period. Interest income of $49,000 for fiscal
1997 was above fiscal 1996. This was primarily due to higher cash balances and
more effective short-term investment of excess cash.


                                       11
<PAGE>

      Other income for fiscal year 1998 was $13,000. For the twelve months ended
February 28, 1997 and February 29, 1996, other income was $20,000 and $14,000,
respectively.

      For the year ended February 28, 1998, the Company had net income of
$365,000 compared with a profit of $303,000 for the prior fiscal year. Income
increased due to increased sales of PPT, the sales price increase on orthotic
products for the full fiscal year, reduced selling expenses and a lower
effective tax rate.

      For the year ended February 28, 1997, the Company had net income of
$303,000 compared with a profit of $115,000 before non-recurring expenses for
the prior fiscal year. Income increased primarily due to higher unit volume, a
sales price increase effective in the last four months of the year, improved
manufacturing efficiencies and reduced general and administrative expenses.

      For the year ended February 29, 1996, the Company had a net loss of
$433,000 or $.17 per share, of which $548,000 were non-recurring expenses
($499,000 for discontinuance of the Company's in-house CAD-CAM project and
$49,000 for the closing of our New Jersey manufacturing facility). Fiscal 1996
income of $115,000, before non-recurring expenses, exceeded the prior year's
loss of $274,000, before non-recurring expenses, by $389,000. The increase was
mainly due to savings achieved by closing the Company's Wheeling, Illinois
manufacturing facility plus staffing cutbacks in corporate departments.

Liquidity and Capital Resources

      Working capital as of February 28, 1998 increased $40,000 to $2,090,000
from $2,050,000 at February 28, 1997. The increase is due to increases in cash,
inventories and prepaid expenses of $63,000, $117,000 and $32,000, respectively,
as well as decreases in accrued payroll liabilities and other current
liabilities of $18,000 and $19,000, respectively. The increase is offset by an
increase in accounts payable and a decrease in accounts receivable of $138,000
and $71,000, respectively.

      Cash balances at February 28, 1998 of $1,189,000 were $63,000 above the
prior year-end balance of $1,126,000.

      The Company anticipates that cash generated from operations as well as
existing funds will be adequate to finance its present and contemplated future
level of operations for a period of at least twelve months.

Revolving Credit

      The Company has a one year (August 1, 1997 - July 31, 1998) agreement for
revolving credit of $1,500,000, at an interest rate of prime plus 2 percent,
from a bank, but to date has not found it necessary to use this credit line. The
agreement contains, among other items, restrictions relating to incurrence of
additional indebtedness and the payment of dividends. Additionally, the Company
is required to maintain certain minimum financial ratios. Borrowings under this
agreement are collateralized by substantially all of the assets of the Company.

Seasonality

      Revenue derived from the Company's sale of orthotic devices, a substantial
portion of the Company's operations, has historically been significantly higher
in the warmer months of the year.

Inflation

      The Company has in the past been able to increase the prices of its
products or reduce overhead costs sufficiently to offset the effects of
inflation on wages, materials and other expenses, and anticipates that it will
be able to continue to do so in the future.


                                       12
<PAGE>

Recent Pronouncements of the Financial Accounting Standards Board

      Recent pronouncements of the Financial Accounting Standards Board
("FASB"), which are not required to be adopted at this date, include Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130") and SFAS No. 131, "Disclosures about Segments of an
Enterprise as Related Information" ("SFAS No. 131") . SFAS No. 130 establishes
standards for the reporting and display of comprehensive income and its
components (revenues, expenses, gains, and losses) in a set of financial
statements. SFAS No. 131 establishes standards for reporting financial and
descriptive information about reportable operating segments on the basis that is
used internally for evaluating segment performance and allocating segment
resources. These statements are effective for fiscal years beginning after
December 15, 1997. The Company does not expect that the adoption of SFAS No. 130
and 131 will have a material effect on the Company's consolidated financial
statements.

Year 2000 Compliance

      The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a 2
digit year is commonly referred to as the Year 2000 Compliance issue. As the
year 2000 approaches, such systems may be unable to accurately process certain
date-based information.

      The Company is taking steps to ensure that all software used in the
Company's internal systems will manage data involving the transition of dates
from 1999 to 2000 without functional or data abnormality and without inaccurate
results. New computer systems are being implemented that will substantially
insure that the Company's operating systems are not subject to Year 2000
transition problems. However, there can be no assurance that problems will not
surface that the Company is currently unaware of.

      In addition, the Company is in the process of communicating with others
with whom it does significant business to determine their Year 2000 Compliance
readiness and the extent to which the Company is vulnerable to any third party
Year 2000 issues. However, there can be no guarantee that the systems of other
companies on which the Company's systems rely will be timely converted, or that
a failure to convert by another company, or a conversion that is incompatible
with the Company's systems, would not have a material adverse effect on the
Company.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Begins on the next page.


                                       13
<PAGE>

                       THE LANGER BIOMECHANICS GROUP, INC.
                                AND SUBSIDIARIES
             Index to Consolidated Financial Statements and Schedule
           February 28, 1998, February 28, 1997 and February 29, 1996


                                                                         Page
                                                                         ----

Independent Auditors' Report                                             15

Consolidated Financial Statements:

Consolidated Balance Sheets as of February 28, 1998 and 
  February 28, 1997                                                      16

Consolidated Statements of Operations for the years ended February 
  28, 1998, February 28, 1997 and February 29, 1996                      17

Consolidated Statements of Stockholders' Equity for the years ended 
  February 28, 1998, February 28, 1997 and February 29, 1996             18

Consolidated Statements of Cash Flows for the years ended 
  February 28, 1998, February 28, 1997 and February 29, l996             19

Notes to Consolidated Financial Statements                               20 - 30

Consolidated Financial Statement Schedule II - 
  Valuation and Qualifying Accounts for the years ended 
    February 28, 1998, February 28, 1997 and February 29, 1996           31

All other schedules have been omitted because they are not applicable, not
      required or the information is disclosed in the consolidated financial
      statements, including the notes thereto.


                                       14
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Stockholders and Board of Directors of
The Langer Biomechanics Group, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of The Langer
Biomechanics Group, Inc. and subsidiaries (the "Company") as of February 28,
1998 and 1997, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended February 28, 1998. Our audits also included the consolidated financial
statement schedule listed in the foregoing index for the three years in the
period ended February 28, 1998. These consolidated financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on the consolidated financial
statements and financial statement schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at February 28, 1998
and 1997, and the results of their operations and their cash flows for each of
the three years in the period ended February 28, 1998 in conformity with
generally accepted accounting principles. Also, in our opinion, such
consolidated financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.


Jericho, New York
May 15, 1998


                                       15
<PAGE>

                       THE LANGER BIOMECHANICS GROUP, INC.
                                AND SUBSIDIARIES
                           Consolidated Balance Sheets
                     February 28, 1998 and February 28, 1997

<TABLE>
<CAPTION>
                                                                                      1998                     1997
                                                                                      ----                     ----
<S>                                                                                <C>                      <C>
Assets
Current assets:
   Cash and cash equivalents                                                       $ 1,189,046              $ 1,125,589
   Accounts receivable, net of allowance for
     doubtful accounts of approximately
     $23,000 in 1998 and $20,000 in 1997                                             1,360,420                1,431,567
   Inventories, net (Note 2)                                                         1,039,718                  922,346
   Prepaid expenses and other current receivables                                      311,447                  279,558
                                                                                   -----------              -----------
       Total current assets                                                          3,900,631                3,759,060

Property and equipment, net (Note 3 and 6)                                             777,991                  507,195
 Other assets (Note 8)                                                                 169,214                  178,771
                                                                                   -----------              -----------
                Total Assets (Note 13)                                             $ 4,847,836              $ 4,445,026
                                                                                   ===========              ===========
Liabilities and Stockholders' Equity
Current liabilities:
   Current maturities of note payable (Note 6)                                     $        --              $       301
   Accounts payable                                                                    478,590                  341,078
   Accrued liabilities:
     Accrued payroll and related payroll taxes                                         281,961                  299,519
     Other (Note 4)                                                                    658,709                  677,669
   Unearned revenue                                                                    391,081                  390,727
                                                                                   -----------              -----------
       Total current liabilities                                                     1,810,341                1,709,294

Accrued pension expense (Note 8)                                                       220,609                  287,315
Unearned revenue                                                                       148,733                  151,732
Deferred income taxes (Note 5)                                                           5,423                    5,376
                                                                                   -----------              -----------
                 Total liabilities                                                   2,185,106                2,153,717
                                                                                   -----------              -----------
Commitments and contingencies (Note 7)

Stockholders' equity (Note 9):
   Common stock, $.02 par value.  Authorized
     10,000,000 shares; outstanding 2,585,281
     shares in 1998 and 2,584,281 in 1997                                               51,706                   51,686
   Additional paid-in capital                                                        6,277,543                6,276,782
   Accumulated deficit                                                              (3,375,120)              (3,740,402)
   Aggregate adjustment resulting from foreign
     currency translation                                                              (49,571)                 (48,509)
   Minimum pension liability adjustment (Note 8)                                      (241,828)                (248,248)
                                                                                   -----------              -----------
                     Total stockholders' equity                                      2,662,730                2,291,309
                                                                                   -----------              -----------
Total Liabilities and Stockholders' Equity                                         $ 4,847,836              $ 4,445,026
                                                                                   ===========              ===========
</TABLE>

See accompanying notes to consolidated financial statements.


                                       16
<PAGE>

                       THE LANGER BIOMECHANICS GROUP, INC.
                                AND SUBSIDIARIES
            Consolidated Statements of Operations For the years ended
           February 28, l998, February 28, l997 and February 29, l996

<TABLE>
<CAPTION>
                                                         1998            1997            l996
                                                     ------------    ------------    ------------
<S>                                                  <C>             <C>             <C>         
Net sales (Note 11)                                  $ 10,156,085    $ 10,514,842    $ 10,113,486
Cost of sales                                           6,095,412       6,149,872       6,012,690
                                                     ------------    ------------    ------------
  Gross profit                                          4,060,673       4,364,970       4,100,796
Selling expenses                                        1,496,148       1,828,144       1,761,498
General and administrative expenses                     2,248,365       2,266,217       2,318,495
Discontinuance of in-house
  CAD-CAM project (Note l0)                                    --              --         498,735
                                                     ------------    ------------    ------------
   Operating profit (loss)                                316,160         270,609        (477,932)
                                                     ------------    ------------    ------------
Other income (expense):
  Interest income                                          52,592          48,978          37,412
  Interest expense                                        (11,980)         (9,298)         (8,753)
   Other                                                   13,453          20,261          14,162
                                                     ------------    ------------    ------------

Other income, net                                          54,065          59,941          42,821
                                                     ------------    ------------    ------------
Income (loss) before income taxes                         370,225         330,550        (435,111)

Provision for (benefit from) income taxes (Note 5)          4,943          27,503          (2,126)
                                                     ------------    ------------    ------------
Net income (loss)                                    $    365,282    $    303,047    $   (432,985)
                                                     ============    ============    ============


Weighted average number of common
  shares used in computation of net
  income (loss) per share:
   Basic                                                2,584,780       2,583,344       2,568,458
   Diluted                                              2,658,378       2,666,420       2,568,458

Net income (loss) per common share:

      Basic                                          $       0.14    $       0.12    $      (0.17)
                                                     ============    ============    ============
      Diluted                                        $       0.14    $       0.11    $      (0.17)
                                                     ============    ============    ============
</TABLE>


See accompanying notes to consolidated financial statements.


                                       17
<PAGE>

                       THE LANGER BIOMECHANICS GROUP, INC.
                                AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 FOR THE YEARS ENDED FEBRUARY 28, 1998, FEBRUARY 28, 1997 AND FEBRUARY 29, 1996

<TABLE>
<CAPTION>
                                                                                           AGGREGATE
                                                                                           ADJUSTMENT
                                                                                           RESULTING 
                                                                                              FROM        MINIMUM       TOTAL
                                                               ADDITIONAL                    FOREIGN      PENSION       STOCK-
                                                     COMMON      PAID-IN   ACCUMULATED      CURRENCY     LIABILITY     HOLDERS'
                                                      STOCK      CAPITAL     DEFICIT      TRANSLATION    ADJUSTMENT     EQUITY  
                                                     ---------------------------------------------------------------------------
<S>                                                  <C>       <C>         <C>            <C>            <C>          <C>       
Balance at February 28, 1995                         $50,947   $6,248,755  $(3,610,464)     $(47,274)    $(330,786)   $2,311,178

Minimum pension liability adjustment                      --           --           --            --        75,618        75,618

Aggregate adjustment resulting from translation
of financial statements into U.S. dollars                 --           --           --        (2,514)           --        (2,514)

Exercise of stock options                                680       25,742           --            --            --        26,422

Net loss for year                                         --           --     (432,985)           --            --      (432,985)
                                                     ---------------------------------------------------------------------------
Balance at February 29, 1996                          51,627    6,274,497   (4,043,449)      (49,788)     (255,168)    1,977,719

Minimum pension liability adjustment                      --           --           --            --         6,920         6,920

Aggregate adjustment resulting from translation
of financial statements into U.S. dollars                 --           --           --         1,279            --         1,279

Exercise of stock options                                 59        2,285           --            --            --         2,344

Net income for year                                       --           --      303,047            --            --       303,047
                                                     ---------------------------------------------------------------------------
Balance at February 28, 1997                          51,686    6,276,782   (3,740,402)      (48,509)     (248,248)    2,291,309

Minimum pension liability adjustment                      --           --           --            --         6,420         6,420

Aggregate adjustment resulting from translation
of financial statements into U.S. dollars                 --           --           --        (1,062)           --        (1,062)

Exercise of stock options                                 20          761           --            --            --           781

Net Income for year                                       --           --      365,282            --            --       365,282
                                                     ---------------------------------------------------------------------------
Balance at February 28, 1998                         $51,706    $6,277,54  $(3,375,120)     $(49,571)    $(241,828)   $2,662,730
                                                     =======    =========  ===========      ========     =========    ==========
</TABLE>


      See accompanying notes to consolidated financial statements.


                                       18
<PAGE>

                       THE LANGER BIOMECHANICS GROUP, INC.
                                AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
 For the years ended February 28, 1998, February 28, 1997 and February 29, 1996

<TABLE>
<CAPTION>
                                                                         1998           1997          1996
                                                                         ----           ----          ----
<S>                                                                   <C>           <C>           <C>         
Cash Flows From Operating Activities:
Net income (loss)                                                     $   365,282   $   303,047   $  (432,985)

Adjustments to reconcile net income (loss) to net cash 
   provided by operating activities:
   Deferred foreign tax provision                                              47           747            --
   Depreciation and amortization                                          207,233       190,618       223,778
   Loss on disposal of property and equipment                                  --            --       392,584
Changes in operating assets and liabilities:
   Accounts receivable                                                     70,065      (151,344)       (3,149)
   Inventories                                                           (118,199)      (52,516)      (61,402)
   Prepaid expenses and other assets                                      (30,219)       38,435           678
   Accounts payable and accrued liabilities                               101,891        81,157       (96,672)
   Net pension liability                                                  (52,495)        2,845        42,702
   Unearned revenue                                                        (2,154)       27,484       (16,173)
                                                                      -----------   -----------   -----------

Net cash provided by operating activities                                 541,451       440,473        49,361
                                                                      -----------   -----------   -----------

Cash Flows From Investing Activities-

   Capital expenditures                                                  (478,474)      (53,282)     (138,443)
                                                                      -----------   -----------   -----------

            Net cash used in investing activities                        (478,474)      (53,282)     (138,443)
                                                                      -----------   -----------   -----------

Cash Flows From Financing Activities:

   Common stock options exercised                                             781         2,344        26,422
   Principal payments of note payable                                        (301)       (3,406)       (6,631)
   Principal payments under capital lease obligations                          --            --        (2,906)
                                                                      -----------   -----------   -----------

        Net cash provided by (used in) financing activities                   480        (1,062)       16,885
                                                                      -----------   -----------   -----------
   Net increase (decrease) in cash and cash equivalents                    63,457       386,129       (72,197)
   Cash and cash equivalents at beginning of year                       1,125,589       739,460       811,657
                                                                      -----------   -----------   -----------

   Cash and cash equivalents at end of year                           $ 1,189,046   $ 1,125,589   $   739,460
                                                                      ===========   ===========   ===========

   Supplemental Disclosures of Cash Flow Information -
             Cash paid (refunded) during the year for:

                              Interest                                $    11,980   $     9,298   $     8,636
                                                                      ===========   ===========   ===========

                              Income taxes                            $     1,500   $     8,286   $      (488)
                                                                      ===========   ===========   ===========
</TABLE>

See accompanying notes to consolidated financial statements.


                                       19
<PAGE>

                       THE LANGER BIOMECHANICS GROUP, INC.
                                AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
 For the years ended February 28, l998, February 28, l997 and February 29, 1996


(l) Summary of Significant Accounting Policies

      (a)   Principles of Consolidation

            The accompanying consolidated financial statements include the
            accounts of The Langer Biomechanics Group, Inc. and its subsidiaries
            (the "Company"). All significant intercompany transactions and
            balances have been eliminated in consolidation.

      (b)   Revenue Recognition

            Revenue from the sale of the Company's products is recognized at
            shipment. Revenues derived from extended warranty contracts relating
            to sales of orthotics are recorded as deferred revenue and
            recognized over the lives of the contracts (24 months) on a
            straight-line basis.

      (c)   Cash Equivalents

            For purposes of the statement of cash flows, the Company considers
            all short-term, highly liquid investments purchased with a maturity
            of three months or less to be cash equivalents (money market funds
            and short-term commercial paper).

      (d)   Inventories

            Inventories are stated at the lower of cost or market. Cost is
            determined using the first-in, first-out (FIFO) method.

      (e)   Property and Equipment

            Property and equipment is stated at cost less accumulated
            depreciation and amortization. Depreciation and amortization are
            calculated using the straight-line method. The lives on which
            depreciation and amortization are computed are as follows:

                  Leasehold improvements      Lesser of 5 years or life of lease
                  Machinery and equipment     5 - l0 years 
                  Office equipment            5 - l0 years 
                  Diagnostic equipment        7 - l0 years 
                  Automobiles                 3 - 5 years
                                            
            In March 1995, the Financial Accounting Standards Board issued
            Statement of Financial Accounting Standards ("SFAS") No. 121,
            "Accounting for the Impairment of Long-Lived Assets and for
            Long-Lived Assets to Be Disposed Of" ("SFAS No. 121"). SFAS No. 121
            establishes accounting standards for the impairment of long-lived
            assets, certain identifiable intangibles, and goodwill related to
            those assets to be held and used for long-lived assets and certain
            identifiable intangibles to be disposed of SFAS No. 121 requires
            review of long-lived assets and certain identifiable intangibles
            whenever events or changes in circumstances indicate that the
            carrying amount of an asset may not be recoverable. The adoption of
            SFAS No. 121, during fiscal 1997, did not have a material effect on
            the consolidated financial statements of the Company.


                                       20
<PAGE>

      (f)   Income Taxes

            The Company accounts for income taxes using an asset and liability
            method. Under this method, deferred tax assets and liabilities are
            determined based on differences between financial reporting and tax
            bases of assets and liabilities and are measured using the enacted
            tax rates and laws that will be in effect when the differences are
            expected to reverse. Income tax expense (benefit) is the tax payable
            or refundable for the period plus or minus the change during the
            period in deferred tax assets and liabilities.

      (g)   Net Income (Loss) Per Share

            During the year ended February 28, 1998, the Company adopted SFAS
            No. 128, "Earnings per share" ("SFAS No. 128"), which requires dual
            presentation of basic and diluted earnings per share on the face of
            the statements of operations. In accordance with SFAS No. 128 the
            prior year earnings per share were restated.

            Basic earnings per share are based on the weighted average number of
            shares of common stock outstanding during the period. Diluted
            earnings per share are based on the weighted average number of
            shares of common stock and common stock equivalents (options and
            warrants) outstanding during the period, except where the effect
            would be antidilutive, computed in accordance with the treasury
            stock method.

      (h)   Foreign Currency Translation

            Assets and liabilities of the foreign subsidiary have been
            translated at year-end exchange rates, while revenues and expenses
            have been translated at average exchange rates in effect during the
            year. Resulting cumulative translation adjustments have been
            recorded as a separate component of stockholders' equity.

      (i)   Reclassifications

            Certain amounts in the prior years' financial statements have been
            reclassified to conform to the current year's presentation.

      (j)   Use of Estimates

            The preparation of financial statements in conformity with generally
            accepted accounting principles requires management to make estimates
            and assumptions that affect the reported amounts of assets and
            liabilities and disclosure of contingent assets and liabilities at
            the date of the financial statements and the reported amounts of
            revenues and expenses during the reporting period. Actual results
            could differ from those estimates.

      (k)   Fair Value of Financial Instruments

            At February 28, 1998 and February 28, 1997, the carrying amount of
            the Company's financial instruments, including cash and cash
            equivalents, accounts receivable, accounts payable, accrued
            liabilities, and note payable, approximated fair value because of
            their short-term maturity.

      (l)   Fourth Quarter Adjustments

            During the fourth quarter of the year ended February 28, 1998, the
            Company re-evaluated certain expense accruals which had been
            systematically accrued, based upon budgeted expenditures, during the
            previous three quarters. The Company determined that the amounts
            accrued were in excess of current 


                                       21
<PAGE>

            estimates for the year and have reversed such excess accruals.
            Fourth quarter net income has been increased by approximately
            $90,000 as a result of these entries.

      (m)   Recent Pronouncements of the Financial Accounting Standards Board

            Recent pronouncements of the Financial Accounting Standards Board
            ("FASB"), which are not required to be adopted at this date, include
            SFAS No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") and
            SFAS No. 131, "Disclosures about Segments of an Enterprise and
            Related Information" ("SFAS No. 131"). SFAS No. 130 establishes
            standards for the reporting and display of comprehensive income and
            its components (revenues, expenses, gains, and losses) in a set of
            financial statements. SFAS No. 131 establishes standards for
            reporting financial and descriptive information about reportable
            operating segments on the basis that is used internally for
            evaluating segment performance and allocating segment resources.
            These statements are effective for fiscal years beginning after
            December 15, 1997. The Company does not expect that the adoption of
            SFAS No. 130 and 131 will have a material effect on the Company's
            consolidated financial statements.

(2)   Inventories

      At February 28, l998 and February 28, l997, inventories consist of the
following: 
                                                             1998           1997
                                                       ----------     ----------
        Raw materials                                  $  921,065     $  706,184
        Work-in-process                                    62,925        156,421
        Finished goods                                    114,739        119,353
                                                       ----------     ----------
        Total inventories                               1,098,729        981,958
                                                   
        Less allowance for obsolescence                    59,011         59,612
                                                       ----------     ----------
                                                   
        Net inventories                                $1,039,718     $  922,346
                                                       ==========     ==========

(3)   Property and Equipment

      Property and equipment, at cost, at February 28, l998 and February 28,
l997, is comprised of the following:

                                                             1998           1997
                                                       ----------     ----------
        Leasehold improvements                         $  465,019     $  445,069
        Machinery and equipment                           851,807        825,689
        Office equipment                                1,787,304      1,364,386
        Automobiles                                        35,067         26,024
                                                       ----------     ----------
                                                        3,139,197      2,661,168
                                                  
        Less accumulated depreciation             
            and amortization                            2,361,206      2,153,973
                                                       ----------     ----------
                                                  
        Property and equipment, net                    $  777,991     $  507,195
                                                       ==========     ==========


                                       22
<PAGE>

(4)   Other Accrued Liabilities

      Other accrued liabilities consist of the following at February 28, l998
and February 28, l997:

                                                           1998             1997
                                                       --------         --------
       Sales credits payable                           $102,710         $ 97,057
       Accrued professional fees                         70,800           52,100
       Warranty reserve                                  33,797           33,797
       Other accrued liabilities                        451,402          494,715
                                                       --------         --------
       
       Total other accrued liabilities                 $658,709         $677,669
                                                       ========         ========

(5)   Income Taxes

      The provision for (benefit from) income taxes is comprised of the
following for the years ended February 28, l998, February 28, l997 and February
29, l996:

                                          1998            1997             l996
                                      --------        --------         --------
       Current:             
               Federal                $    502        $      -        $       -
               State                     4,439           4,639           (4,294)
               Foreign                       2          22,864            2,168
                                      --------        --------         --------
                                      $  4,943        $ 27,503         $ (2,126)
                                      ========        ========         ========
                           
      As of February 28, l998, the Company has net Federal tax operating loss
carryforwards of approximately $2.8 million, which may be applied against future
taxable income and expire from 2000 through 2011. The Company also has available
tax credit carryforwards of approximately $141,000.

      Included in the provision for foreign income taxes are deferred income
taxes of $47, $747 and $0 for the years ended February 28, 1998, February 28,
1997 and February 29, 1996.

The following is a summary of deferred tax assets and liabilities as of February
28, 1998 and February 28, 1997:

                                                       1998             1997
                                                   -----------      -----------
                                           
       Current deferred tax assets                 $   227,994      $   336,490
                                                   -----------      -----------
                                           
       Non-current:                        
       Deferred tax assets                           1,156,364        1,310,023
       Deferred tax liability                           (5,423)          (5,376)
                                                   -----------      -----------
       Non-current deferred tax assets, net          1,150,941        1,304,647
                                                   -----------      -----------
                                           
       Total deferred tax assets, net                1,378,935        1,641,137
       Valuation allowance                          (1,384,358)      (1,646,513)
                                                   -----------      -----------
       Net                                         $    (5,423)     $    (5,376)
                                                   ===========      ===========

      The current deferred tax assets are primarily composed of deferred
revenue, inventory and accounts receivable reserves, and accrued vacation. The
non-current deferred tax assets are primarily composed of deferred revenue and
Federal net operating loss carryforwards. The non-current deferred tax liability
is primarily composed of excess tax depreciation over book depreciation. The
decrease in the valuation allowance during fiscal 1998 resulted from a reduction
in the net deferred tax assets.


                                       23
<PAGE>

The Company's effective provision for (benefit from) income taxes differs from
the Federal statutory rate. The reasons for such differences are as follows:

<TABLE>
<CAPTION>

                                         February 28,               February 28,          February 29,
                                             1998                      1997                   1996
                                      ---------------------     --------------------   --------------------
                                          Amount        %         Amount        %      Amount         %
                                          ------      -----       ------      -----    ------       -----
<S>                                      <C>          <C>       <C>           <C>     <C>           <C>
Provision (benefit) at Federal                                
  statutory rate                         $ 125,877     34.0%     $ 112,387     34.0%   $(147,938)   (34.0)%
Increase (decrease) in                                                                               
  taxes resulting from:                                                                              
    State income taxes, net                                                                          
      of Federal benefit                     4,439      1.2          4,639      1.4       (4,294)    (1.0)
    Foreign taxes                                2       --         22,864      6.9        2,168      0.5
    (Use) creation of net operating                                                                  
      loss carryforwards                  (125,375)   (33.9)      (112,387)   (34.0)     147,938     34.0
                                         ---------    -----      ---------    -----    ---------    -----

  Effective tax rate                     $   4,943      1.3%     $  27,503      8.3%   $  (2,126)    (0.5)%
                                         =========    =====      =========    =====    =========    =====
                                                                                                   
</TABLE>

(6)   Long-Term Note Payable

      Long-term note payable, less current maturities, at February 28, l998 and
February 28, l997 consists of the following:

                                                      l998            l997
                                                      ----            ----
     Equipment note bearing interest at
       10.5% due March 1997.  The note is
       payable in monthly installments of
       principal and interest of $304.
       The note is collateralized by certain
       equipment with a carrying value of
       approximately $4,600 at
       February 28, l997                             $   -           $    301
                                                     ------          --------
                                                                          
     Less current maturities                         $    -          $    301
                                                     ------          --------
                                                                          
     Long-term note payable                          $    -          $      -
                                                     ======          ========


                                       24
<PAGE>

(7)   Commitments and Contingencies

      (a) Leases

      Certain of the Company's facilities and equipment are leased under
noncancellable lease agreements and certain operating leases contain minimum
annual escalations in base rent. Rental expense amounted to $445,088, $439,972,
and $500,429 for the years ended February 28, 1998, February 28, l997, and
February 29, l996, respectively.

      The following is a schedule, by fiscal year, of future minimum rental
payments required under operating leases as of February 28, l998:

       Fiscal year ending February:    Amount
       ----------------------------    ------
       1999                          $420,026
       2000                           134,048
                                     --------
       
       Total                         $554,074
                                     ========

      (b) Royalties

      The Company has entered into a number of agreements with licensors,
consultants and suppliers, including:

      1. The Company has an agreement with a licensor, which provides for the
Company to pay royalties of 15 percent, with a minimum annual royalty of
$25,000, on the net sales of a product named the Pediatric Counter Rotation
System.

      2. The Company has agreements with certain licensors, which provide for
the Company to pay royalties ranging from 2.5 percent to 4 percent on the net
sales of certain biomechanical devices.

      Royalties under the above-mentioned agreements aggregated $34,157, $37,881
and $36,016 for the years ended February 28, 1998, February 28, 1997 and
February 29, l996, respectively.

      (c) Employment Agreements

      Two officers of the Company have employment agreements. In April 1997, one
agreement was terminated and replaced by another agreement. Under these
agreements, the Company is committed to maximum severance pay of approximately
$80,000 upon termination of one of these officers. In addition, the employment
agreements commit the Company to pay these two officers annual salaries and
allowances of approximately $235,000 and additional bonus compensation depending
on performance and profits achieved by the Company.

      (d) Litigation

      The Company is involved in certain litigation in the normal course of
business. The outcome of such litigation is not expected to have a material
impact on the consolidated financial statements.


                                       25
<PAGE>

(8)   Pension Plan and 401(k) Plan

      The Company maintains a non-contributory defined benefit pension plan
covering substantially all employees. In l986, the Company adopted an amendment
to the plan under which future benefit accruals to the plan will cease (freezing
of the maximum benefits available to employees as of July 30, l986), other than
those required by law. Previously accrued benefits will remain in effect and
will continue to vest under the original terms of the plan.

The following table sets forth the Company's defined benefit plan status at
February 28, l998 and February 28, l997, determined by the plan's actuary in
accordance with Statement of Financial Accounting Standards No. 87, "Employers'
Accounting for Pensions":

<TABLE>
<CAPTION>
                                                                 1998         l997
                                                               ---------   ---------
<S>                                                            <C>         <C>
Actuarial present value of benefit obligation:
  Accumulated benefit obligation, including
    vested benefits of $404,730 and $388,431
    in l998 and l997, respectively                             $ 404,730   $ 388,431
                                                               =========   =========

  Projected benefit obligation for services rendered to date   $(404,730)  $(388,431)
Market value of plan net assets (primarily bond mutual funds)    184,121     101,116
                                                               ---------   ---------
  Projected benefit obligation in excess of plan assets         (220,609)   (287,315)
Unrecognized transition liability                                159,066     166,856
Unrecognized net loss                                            241,828     248,248
Adjustment required to recognize minimum liability              (400,894)   (415,104)
                                                               ---------   ---------

  Accrued pension expense                                      $(220,609)  $(287,315)
                                                               =========   =========

</TABLE>

Net pension expense is comprised of the following for the years ended February
28, 1998, February 28, 1997 and February 29, 1996:

                                          1998       1997      1996
                                        --------   --------  --------
                                        
Interest cost                           $ 27,409   $ 27,585  $ 24,775
Return on assets                         (14,610)     7,882    (8,921)
 Net amortization and deferral            21,556      4,775    26,848
                                        --------   --------  --------
                                        
Net pension expense                     $ 34,355   $ 40,242  $ 42,702
                                        ========   ========  ========

      The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.5 percent in 1998, l997
and l996. No assumed increase in compensation levels was used since future
benefit accruals have ceased (as discussed above). The rate of return on assets
used was 7.5 percent in 1998, l997 and l996. The unrecognized transition
liability and unrecognized net loss are being amortized over 30.4 and 20.9
years, respectively.


                                       26
<PAGE>

      In fiscal l998 and l997, as required by Statement of Financial Accounting
Standards No. 87, the Company recorded additional pension liability to reflect
the excess of accumulated benefits over the fair value of pension plan assets.
Since this liability is in excess of the related unrecognized prior service cost
(unrecognized transition liability), an amount equal to the unrecognized prior
service cost has been recognized as an intangible asset (included in "Other
assets" on the accompanying Consolidated Balance Sheets). The remaining
liability required to be recognized is reported as a separate component of
stockholders' equity.

      The Company has a defined contribution retirement and savings plan (the
"401(k) Plan") designed to qualify under Section 401(k) of the Internal Revenue
Code (the "Code"). Eligible employees include those who are at least twenty-one
years old and who have worked at least 1,000 hours during any one year. The
Company may make matching contributions in amounts that the Company determines
at its discretion at the beginning of each year. In addition, the Company may
make further discretionary contributions. Participating employees are
immediately vested in amounts attributable to their own salary or wage reduction
elections, and are vested in Company matching and discretionary contributions
under a vesting schedule that provides for ratable vesting over the second
through sixth years of service. The assets of the 40l(k) Plan are invested in
stock, bond and money market mutual funds. For the years ended February 28,
1998, February 28, 1997 and February 29, 1996, the Company made contributions
totaling $31,477, $25,734 and $33,547, respectively, to the 401(k) Plan.

(9)   Stock Options and Warrants

      On July 27, l992, the Company adopted a qualified stock option plan for
employees, officers, directors, consultants and advisors of the Company covering
125,000 shares of common stock. On January 4, 1995, the Board of Directors
increased the number of shares authorized to be issued under the plan to 350,000
shares, which amendment has been approved by shareholders at the September 13,
1995 shareholders' meeting. Options granted under the plan are exercisable
during a period of five years at an exercise price at least equal to l00 percent
of the fair market value of the Company's common stock at date of grant. Options
become exercisable under various cumulative increments over a three-year period.
The Board of Directors has the discretion as to the persons to be granted
options as well as the number of shares and terms of the option agreements. The
expiration date of the plan is July 26, 2002.

      The Company has also granted non-incentive stock options. These options
are generally exercisable for a period of five years and are issued at a price
equal to or higher than the fair market value of the Company's common stock at
the date of grant. At February 28, 1998, 110,000 non-incentive and 126,250
incentive stock options were outstanding.


                                       27
<PAGE>

      The following is a summary of activity related to the Company's incentive
and non-incentive stock options:

                                                                              
<TABLE>
<CAPTION>
                                                     Exercise       Weighted average
                                      Number of      price range     exercise price
                                       shares         per share        per share
                                      ---------      -----------    ----------------
<S>                                    <C>             <C>               <C>  
Outstanding at February 28, 1995       118,250         $.56 -$.88        $ .77
       Granted                          90,000          .75 -1.31         1.00
       Cancelled                       (34,000)          .75 -.78          .77
       Expired                         (18,000)               .78          .78
                                      --------       ------------        -----

Outstanding at February 29, 1996       156,250         .78 - 1.31          .90
       Granted                          58,000        1.56 - 2.19         2.14
       Exercised                        (3,000)               .78          .78
       Cancelled                        (2,000)               .78          .78
                                      --------       ------------        -----
                                                                        
Outstanding at February 28, 1997       209,250          .78-$2.19         1.25
       Granted                          43,000         1.63- 1.88         1.81
       Exercised                        (1,000)               .78          .78
                                      --------       ------------        -----
                                                                        
Outstanding at February 28, 1998       251,250         $.78-$2.19        $1.35
                                      ========       ============        =====

</TABLE>

      At February 28, l998, 251,250 options were exercisable and 65,250 options
were available for issuance. The 251,250 shares outstanding at February 28, 1998
had remaining lives of between less than one year and less than five years, with
a weighted average life of 3.58 years.

      At February 28, 1998, there were 313,500 shares of common stock reserved
for issuance under the Company's stock option plan.

Additional Stock Plan Information

      The Company continues to account for its stock-based awards using the
intrinsic value method in accordance with APB 25, "Accounting for Stock Issued
to Employees", and its related interpretations. Accordingly, no compensation
expense has been recognized in the financial statements for employee stock
arrangements.

      SFAS No. 123, "Accounting for Stock-Based Compensation", requires the
disclosure of pro forma net income (loss) and net income (loss) per share had
the Company adopted the fair value method as of the beginning of fiscal 1997.
Under SFAS No. 123, the fair value of stock-based awards to employees is
calculated through the use of option pricing models, even though such models
were developed to estimate the fair value of freely tradeable, fully
transferable options without vesting restrictions, which significantly differ
from the Company's stock option awards. These models also require subjective
assumptions, including future stock price volatility and expected time to
exercise, which greatly affect the calculated values. The Company's calculations
were made using the Black-Scholes option pricing model with the following
weighted average assumptions: expected life, 60 months following vesting; stock
volatility of 42.82%, 44.95% and 100.76%, and risk free interest rates of 7.5%,
7.0% and 6.5% in fiscal 1998, 1997 and 1996, respectively, and no dividends
during the expected term. The Company's calculations are on a multiple option
valuation approach and forfeitures are recognized as they occur. If the computed
fair values of the award had been amortized to expense over the vesting period
of the awards, the pro forma net income (loss) and net income (loss) per share
for the fiscal years ended February 28, 1998, 


                                       28
<PAGE>

February 28, 1997 and February 29, 1996 would have been net income of $311,532,
or $12 per share, net income of $280,553, or $.11 per share, and net loss of
$440,347, or $(.17) per share, respectively, on both a primary and fully diluted
basis.

(10)  Discontinuance of In-House CAD-CAM Project

      In fiscal 1996, the Company concluded that it was no longer appropriate to
devote capital resources to in-house development of proprietary
computer-controlled milling equipment, laser scanning devices and related
software. Therefore, the Company expensed approximately $499,000 of costs
related to this CAD-CAM project in the fourth quarter of fiscal 1996.

(11)  Export Sales

      The Company had export sales from its United States operations of
approximately 16, 16 and 15 percent of net sales for each of the years ended
February 28, 1998, February 28, l997 and February 29, 1996.

(12)  Segment Information

      The Company operates in one segment, principally in the design,
development, manufacture and sale of foot and gait-related products.

(13)  Revolving Credit Line

      The Company has a credit facility with a bank. The agreement, which
expires July 31, 1998, provides for a revolving credit line not to exceed
$1,500,000. Interest on the outstanding balance is payable at prime, 8 1/2
percent at February 28, 1998, plus 1/2 percent per annum.

      The agreement contains, among other items, restrictions relating to the
incurrence of additional indebtedness and the payment of dividends.
Additionally, the Company is required to maintain certain minimum financial
ratios. Borrowings under this agreement are collateralized by substantially all
of the assets of the Company.

      At February 28, 1998 and February 28, 1997, there were no borrowings
outstanding under this credit facility.


                                       29
<PAGE>

(14)  Reconciliation of Basic and Diluted Earnings Per Share

      In accordance with SFAS No. 128, basic earnings per common share ("EPS")
      are computed based on the weighted average number of common shares
      outstanding during each period. Diluted earnings per common share are
      computed based on the weighted average number of common shares, after
      giving effect to dilutive common stock equivalents outstanding during each
      period. The following table provides a reconciliation between basic and
      diluted earnings per share:

<TABLE>
<CAPTION>
                                                                  For The Year Ended
                                --------------------------------------------------------------------------------------------
                                    February 28, 1998          February  28, 1997               February 29, 1996
                                    -----------------          ------------------               -----------------
                                                      Per                        Per                             Per
                                 Income     Shares   Share   Income      Shares  Share     Loss       Shares    Share
                                 ------     ------   -----   ------      ------  -----     ----       ------    -----
<S>                             <C>        <C>        <C>   <C>        <C>        <C>    <C>         <C>        <C>   
Basic EPS
Income available to common
 Stockholders                   $ 365,282  2,584,780  $.14  $ 303,047  2,583,344  $.12   $(432,985)  2,568,458  $(.17)

Effect of Dilutive  Securities
 Stock options                         --     73,598    --         --     83,076  (.01)         --          --    --
                                --------------------------------------------------------------------------------------------
Diluted EPS
Income available to common
 stockholders plus assumed
 exercise of stock options      $ 365,282  2,658,378  $.14  $ 303,047  2,666,420  $.11   $(432,985)  2,568,458  $(.17)
                                =========  =========  ====  =========  =========  ====   =========   =========  ===== 
</TABLE>

                                    * * * * *


                                       30
<PAGE>

                       THE LANGER BIOMECHANICS GROUP, INC.
                                AND SUBSIDIARIES
                        VALUATION AND QUALIFYING ACCOUNTS

                                                                     SCHEDULE II

 For the years ended February 28, 1998, February 28, 1997 and February 29, 1996

                                   Sales
                                Returns and      Bad        Warranty   Inventory
                                 Allowances     Debts       Reserve     Reserve
                                 ----------     -----       -------     -------
At March 1, 1995                 $ 21,286     $ 48,216     $ 26,251     $108,442

  Additions                        10,772           --        7,741           --
  Deletions                            --       27,646        2,513       30,422
                                 --------     --------     --------     --------

At February 29, 1996               32,058       20,570       31,479       78,020

  Additions                            --        7,524        6,207           --
  Deletions                            --        8,319        3,889       18,408
                                 --------     --------     --------     --------

At February 28, 1997               32,058       19,775       33,797       59,612

  Additions                            --       17,525           --           --
  Deletions                            --       13,951           --          601
                                 --------     --------     --------     --------

At February 28, 1998             $ 32,058     $ 23,349     $ 33,797     $ 59,011
                                 ========     ========     ========     ========


                                       31
<PAGE>

ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
            FINANCIAL DISCLOSURE

Not applicable.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Officers and Directors

The executive officers and directors of the Company are as follows:

          Name                Age          Office
          ----                ---          ------
                                           
Kenneth Granat                53           Chairman of the Board
                                           
Gary L. Grahn                 54           President, Chief Executive Officer
                                           and Director
                                           
Dr. Justin Wernick            62           Chief Medical Director,
                                           Secretary and Director
                                           
Thomas I. Altholz             47           Director
                                           
Howell S. Schorr              52           Vice  President - Operations
                                           
      Mr. Granat has been Chairman of the Board of Directors of the Company
since January 4, 1995. Since 1987, he has been President of Active Screw and
Fastener Inc., an Elk Grove Village, Illinois company, engaged in full line
distribution of fasteners with plants in Chicago, Illinois and Tucson, Arizona.
Since 1991, he has also been Vice President and a Director of Trigran
Investments Inc., Deerfield, Illinois, the general partner and investment
advisor for Trigran Investments, L.P., a more than 10 percent shareholder of the
Company. Mr. Granat holds a J.D. from the University of Illinois as well as a
B.B.A. degree in Business from the University of Michigan.

      Mr. Grahn has been President and Chief Executive Officer of the Company
since January 3, 1995 and a Director since August 1995. From 1992 to 1994, he
was President of PML Inc., a management consulting firm which specializes in
marketing and business development assignments for consumer businesses. From
1989 to 1992, Mr. Grahn was Vice President General Manager of R. Stevens, Inc.,
subsidiary of Delphi Technology, Inc., a privately-held company which markets
Automated Photo Machines. Previously, he had been Executive Vice President for
the American Photo Group, a multi-plant processor of consumer products, located
in Atlanta, Georgia. He holds an M.B.A. in Marketing Management from the
University of Rochester Graduate School of Business and a B.A. in
Mathematics/Economics from Gettysburg College.

      Dr. Wernick is the co-founder and Secretary and a Director of the Company
since its formation. From the formation of the Company until June 30, 1997, Dr.
Wernick was Executive Vice President of the Company; commencing July 1, 1997, he
became Chief Medical Director of the Company. Dr. Wernick is a Diplomate of the
American Board of Podiatric Orthopedics, a Fellow of the American College of
Foot Orthopedics and of the Academy of Podiatric Sports Medicine and a member of
several other professional societies. In l975, he was the President of the
Nassau County Division, Podiatry Society of the State of New York and was
granted the Podiatrist of the Year Award from that Society in that same year.
Since l969, he has held various academic positions at the New York College of
Podiatric Medicine and since l979 has been serving as a professor with the
Department of Orthopedic Sciences at the New York College of Podiatric Medicine.
He has guest lectured and directed educational programs, both nationally and
internationally, at many other podiatric colleges and seminars 


                                       32
<PAGE>

during the past 25 years. He has co-authored a book entitled "A Practical Manual
for a Basic Approach to Biomechanics" in l972 and a report entitled "A
Radiologic Study of Motion of the Foot within a Ski Boot" which was published in
the Journal of the American Podiatry Association for which he is also a
corresponding consultant. Dr. Wernick received his podiatric medical degree from
M.J. Lewi College of Podiatry (now known as the New York College of Podiatric
Medicine).

      Mr. Altholz has been President, owner and CEO of TIA Solutions, Highland
Park, Illinois, a business consulting firm, since 1996. From 1990 to November
1995, he was President and owner of Inlander Steindler Paper Company (ISP), a
paper distribution company with regional sales and warehousing centers in the
Midwest, which Company was acquired by Alco Standard in November 1995. He has
served on several industry advisory Boards such as Minnesota Mining and
Manufacturing (MMM) and Scott Paper, and was Chairman of Affiliated Paper
Companies. He is a member of the Board of Directors of Regal Ware, Inc., a
company engaged in manufacturing and marketing of housewares products, and
Northmoor Country Club and also is a member of the Board of Trustees of Ripon
College. Mr. Altholz received his B.A. in Economics from Ripon College in Ripon,
Wisconsin. 

      Mr. Schorr has been Vice President of Operations since l99l. From l988 to
1991, prior to becoming an executive officer of the Company, he was the
Operations Manager for the Deer Park, New York, and Branch Manager for the Brea,
California, facilities of the Company. From l966 to l987, Mr. Schorr was
employed by Hazeltine Corporation/Esprit Systems, Inc. During his 21 years of
service with Hazeltine Corporation/Esprit Systems, Inc., he held the positions
of Director of Operations, National Service Manager, Customer Service/Production
Manager, as well as other various supervisory and managerial positions. He has a
B.S. in Business Administration from New York Institute of Technology.

      All directors are normally elected at the annual meeting of shareholders
to hold office until the next annual meeting and until their successors are duly
elected and qualified. The Company's By-Laws provide that the annual meeting of
shareholders be held each year at a time and place to be designated by the Board
of Directors. Directors may be removed at any time for cause by the Board of
Directors and with or without cause by a majority of the votes cast at a meeting
of shareholders entitled to vote for the election of directors.

      The Company is not aware of any late filings of, or failures to file,
during the fiscal year ended February 28, 1998, the reports required by Section
16(a) of the Securities Exchange Act of 1934.

Limitation on Liability of Directors

      As permitted by New York law, the Company's Certificate of Incorporation
contains an article providing for the elimination of the personal liability of
the directors of the Company to the fullest extent permitted by the provisions
of paragraph (b) of Section 402 of the New York Business Corporation Law.
Accordingly, a director's personal liability would be eliminated for any breach
of a director's duty, unless, among other things, the director's actions or
omissions were in bad faith, involved intentional misconduct or a knowing
violation of the law, or personal gain in fact of a financial profit to which
the director was not lawfully entitled. This article is intended to afford
directors additional protection, and limit their potential liability, from suits
alleging a breach of the duty of care by a director. The Company believes this
article enhances the Company's ability to attract and retain qualified persons
to serve as directors. As a result of the inclusion of such a provision,
shareholders may be unable to recover monetary damages against directors for
actions taken by them which constitute negligence or gross negligence or which
are in violation of their fiduciary duties, although it may be possible to
obtain injunctive or other equitable relief with respect to such actions. If
equitable remedies are found not to be available to shareholders for any
particular case, shareholders may not have any effective remedy against the
challenged conduct.


                                       33
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

      The following table shows the cash compensation received by the three
executive officers whose compensation exceeded $100,000 during the fiscal year
ended February 28, 1998: 

<TABLE>
<CAPTION>
                                                           Annual Compensation              Compensation
                                                           -------------------              ------------
    Name and                           Fiscal      Salary          Bonus         Other         Options
Principal Position                     Year           $               $            $       (No. of Shares)
------------------                     ----          ----           ----          ---      ---------------
<S>                                    <C>         <C>             <C>            <C>        <C>    
Gary L. Grahn                          1998        160,000         53,440         (2)             --
President and                          1997        160,000         28,000         (2)         30,000
Chief Executive Officer (1)            1996        159,846             --         (2)         50,000
                                                                                            
Dr. Justin Wernick                     1998         89,191             --         (2)             --
Chief Medical Director                 1997        138,996          7,000         (2)             --
and Secretary                          1996        139,000             --         (2)             --
                                                                                            
Thomas F. Belleau                      1998        102,042          5,000         (2)             --
Vice  President - Finance              1997         68,462             --         (2)             --
Chief Financial Officer (3)                                                        
</TABLE>

(1)   Mr. Grahn's employment with the Company commenced January 2, 1995. 
(2)   Less than 10% of the total annual salary and bonus. 
(3)   As of March 1998, Mr. Belleau left the employ of the Company.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                                                                ------------------------
                                                                                  Potential Realizable
                                                                                   Value at Assumed
                                                                                     Annual Rates of
                                                                                Stock Price Appreciation
                                  Individual Grants                              for Option Term  (1)
--------------------------------------------------------------------------------------------------------
                      Number of    Percent of Total    
                     Securities     Options/SARs       Exercise
                     underlying      Granted to        or Base
                     option/SARs    Employees in        Price        Expiration
   Name              Granted (#)     Fiscal Year        ($/Sh)          Date        5%($)    10%($)
--------------------------------------------------------------------------------------------------------
<S>                          <C>             <C>           <C>               <C>        <C>          <C>
Gary L.Grahn                  --              --            --                --         --           --
Dr. Justin Wernick            --              --            --                --         --           --
Thomas F. Belleau             --              --            --                --         --           --
</TABLE>

(1)   The potential realizable value portion of the foregoing table illustrates
      value that might be received upon exercise of the options immediately
      prior to the expiration of their term, assuming the specified compounded
      rates of appreciation on the Company's Common Stock over the term of the
      options. These numbers do not take into account provisions of certain
      options providing for termination of the option following termination of
      employment.

FISCAL YEAR-END OPTION VALUES

      The table below sets forth information regarding unexercised options held
by the Company's named executive officers as of February 28, 1998. No options
were exercised by the Company's executive officers during fiscal 1998.


                                       34
<PAGE>

<TABLE>
<CAPTION>
                     Number of Securities Underlying          Value of Unexercised
                         Unexercised Options At               In-The-Money Options
                             Fiscal Year End                   At Fiscal Year End
                        Exercisable/Unexercisable           Exercisable/Unexercisable  
    Name                         (#)                                $  (1)
    ----                -------------------------            ----------------------
<S>                            <C>                                  <C>     
Gary L. Grahn                  80,000/-                             37,500/-

Dr. Justin Wernick               -                                    -

Thomas F. Belleau              10,000/-                              -/-
</TABLE>

      (1)   The closing bid price of the Company's Common Stock as reported by
            NASDAQ on February 28, 1998 was $1.75. Value is calculated on the
            difference between the option exercise price of in-the-money options
            and $1.75 multiplied by the number of shares of Common Stock
            underlying the option.

LONG-TERM INCENTIVE PLAN-AWARDS IN LAST FISCAL YEAR

      None.

COMPENSATION OF DIRECTORS

      Directors, who are not executive officers of the Company, are compensated
at a rate of $1,500 per Board of Directors' meeting attended.

EMPLOYMENT AGREEMENTS

      On December 13, 1994, the Company entered into an employment agreement
(the "Employment Agreement") with Gary L. Grahn, President and Chief Executive
Officer, commencing March 1, 1995 and continuing for a one year period, with
automatic renewal for additional one year terms unless sooner terminated in
accordance with the Employment Agreement. The Employment Agreement provides for
Mr. Grahn to receive an annual base salary of $160,000, subject to adjustment as
determined by the Board of Directors of the Company. Pursuant to the Employment
Agreement, Mr. Grahn may be entitled to receive up to 50% of base salary as
additional bonus compensation depending on profits achieved by the Company. In
addition, pursuant to the Employment Agreement, Mr. Grahn was granted options to
purchase 50,000 shares of the common stock of the Company at an exercise price
of $.75 per share for a five year term. Such options may be exercised, on a
cumulative basis, as to 33 1/3% thereof per year commencing on the date of
grant. The Employment Agreement also provides for competitive restrictions on
Mr. Grahn's business activities, absent the Company's prior written approval,
for a period of two years after the termination or expiration of the Employment
Agreement.

      On June 25, 1992, the Company entered into an employment agreement (the
"Wernick Employment Agreement") with Dr. Justin Wernick, Executive Vice
President of the Company, commencing as of July 1, l992 and continuing for a two
year period, with automatic renewal for additional one year terms unless sooner
terminated in accordance with the Wernick Employment Agreement. The Wernick
Employment Agreement provides for Dr. Wernick to receive an annual base salary
of $139,000, subject to adjustment as determined by the Board of Directors of
the Company, plus a discretionary annual bonus up to $10,000 based upon
performance, as determined by the Board of Directors and President of the
Company. The Wernick Employment Agreement also provides for competitive
restrictions on Dr. Wernick's business activities, absent the Company's prior
written approval, for a period of two years after the termination or expiration
of the Wernick Employment Agreement.


                                       35
<PAGE>

      On May 2, 1997, the Company entered into a new employment agreement (the
"Revised Wernick Employment Agreement") with Dr. Justin Wernick, commencing July
1, 1997 and continuing for one year. Under the term s of the Revised Wernick
Employment Agreement, Dr. Wernick will serve as Chief Medical Director and
Corporate Secretary at an annual salary of $65,000 plus approximately $10,400 in
office allowance. Among other duties, he will represent the Company at various
educational seminars and conventions as well as provide technical advice in
medical areas with respect to product development. The Revised Wernick
Employment Agreement is also subject to the same competitive restrictions
present in the original Wernick Employment Agreement. After the first year,
automatic renewal for one additional year is specified, but may be terminated by
either party with ninety days written notice.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The following table sets forth, as of May 20, l998, the shares of Common
Stock owned beneficially and of record (unless otherwise indicated) by each
person owning more than five percent (5%) of the outstanding shares, each
director of the Company, each named executive officer of the Company and all
directors and officers of the Company as a group.

                                             Number of
Name (and address of 5% holders)            Shares Owned     Percent
--------------------------------            ------------     -------
Kenneth Granat                                683,153(1)      25.5%
155 Pfingsten, Suite 360                                      
Deerfield, Illinois 60015                                     
                                                              
Dr.  Justin Wernick                           242,867          9.4%
450 Commack Road                                              
Deer Park, New York 11729                                     
                                                              
Donald Cecil                                  244,153          9.4%
1114 Avenue of the Americas                                   
New York, New York 10036                                      
                                                              
Gary L. Grahn                                 170,000(2)       6.4%
450 Commack Road                                              
Deer Park, New York 11729                                     
                                                              
Thomas I. Altholz                              25,000          1.0%
59 Lakewood Place                                             
Highland Park, Illinois 60035                                 
                                                              
All Directors and Officers                                    
  as a Group (5 persons)                    1,136,020(3)      41.0%
                                                             
(1)   Includes 90,000 shares issuable under outstanding stock options and
      552,753 held by Trigran Investments LP. Mr. Granat is a Director and Vice
      President of the general partner of Trigran Investments, LP. An additional
      30,000 shares are owned by the Granat Family Limited Partnership of which
      Mr. Granat is a general partner and 10,400 shares are owned by a trust of
      which Mr. Granat is a beneficiary.
(2)   Includes 80,000 shares issuable under outstanding stock options.
(3)   Includes an aggregate of 185,000 shares issuable under outstanding stock
      options.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 

      None.


                                       36
<PAGE>

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K

(a) 1. Financial Statements

      The following consolidated financial statements are filed as part of this
Form l0-K:

      Independent Auditors' Report

      Consolidated Financial Statements:

            Consolidated Balance Sheets as of February 28, l998 and February 28,
            l997

            Consolidated Statements of Operations for the years ended February
            28, l998, February 28, l997 and February 29, 1996

            Consolidated Statements of Stockholders' Equity for the years ended
            February 28, l998, February 28, l997 and February 29, l996

            Consolidated Statements of Cash Flows for the years ended February
            28, l998, February 28, l997 and February 29, 1996

            Notes to Consolidated Financial Statements

2. Financial Statement Schedules

      The following Financial Statement Schedule is filed as part of this Form
      10-K :

      Schedule II - Valuation and Qualifying Accounts for the years ended
                    February 28, l998, February 28, l997 and February 29, l996

      All other schedules have been omitted because they are not applicable,
        not required or the information is disclosed in the consolidated
        financial statements, including the notes thereto.

3. Exhibits

Number            Document
------            --------

(3)   (a)   Copy of Restated Certificate of Incorporation and amendments 
            thereto.(l)(4)

      (b)   Copy of Bylaws, as amended through July 2, 1987.(3)

(4)   (a)   Specimen of Common Stock Certificate.(1)

      (b)   Copy of 1992 Stock Option Plan.(6)

(10)  (a)   Copy of  Agreements, dated  February 23, l993, relating to the 
            Company's 75% ownership interest in Langer Orthotic Laboratory 
            (U.K.) Limited.(6)

      (b)   Copy of The Langer Biomechanics Group Retirement Plan, restated as
            of July 30, l979.(1)

      (c)   Copy of Leases related to the Company's Deer Park facilities.(6)


                                       37
<PAGE>

      (d)   Copy of Agreement, dated July 8, l986, between BioResearch Ithaca,
            Inc. and the Company relating to the licensing of the Pediatric
            Counter Rotation System.(2)

      (e)   Copy of Leases relating to the Company's Brea, California
            facilities.(5)

      (f)   Copy of Agreement, dated March 26, l992 and effective as of March l,
            l992, relating to the Company's 40l(k) Tax Deferred Savings Plan.(5)

      (g)   Copy of Employment Agreement, dated December 13, 1994, between the
            Company and Gary L. Grahn.(7)

      (h)   Copy of letter agreement, dated January 27, 1995, between the
            Company and Tekscan, Incorporated.(8)

      (i)   Copy of Employment Agreement, dated as of May 2, 1997, between the
            Company and Dr. Justin Wernick.(9)

(22)  List of subsidiaries(4)

(24)  Consent of Independent Auditors

      (l)   Incorporated by reference to the Company's Registration Statement on
            Form S-l (No. 2-87l83), which became effective with the Securities
            and Exchange Commission on January l7, l984.

      (2)   Incorporated by reference to the Company's Form l0-K for the fiscal
            year ended July 3l, l986.

      (3)   Incorporated by reference to Post-Effective Amendment No. l to the
            Company's Registration Statement on Form S-8.

      (4)   Incorporated by reference to the Company's Form l0-K for the fiscal
            year ended February 28, l989.

      (5)   Incorporated by reference to the Company's Form 10-K for the fiscal
            year ended February 29, 1992.

      (6)   Incorporated by reference to the Company's Form 10-K for the fiscal
            year ended February 28, 1993.

      (7)   Incorporated by reference to the Company's Form 8-K, the Date of
            Report which was January 3, 1995.

      (8)   Incorporated by reference to the Company's Form 10-K for the fiscal
            year ended February 28, 1995.

      (9)   Incorporated by reference to the Company's Form 10-K for the fiscal
            year ended February 28, 1997.

(27)  Financial Statement Schedule

(b)   Reports on Form 8-K:

      None.


                                       38
<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of Section l3 or l5(d) of the Securities
Exchange Act of l934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                       THE LANGER BIOMECHANICS GROUP, INC.


Date:   May 28, 1998                         By: /s/  Gary L.Grahn
                                                 ------------------------------
                                                 Gary L. Grahn, President and
                                                 Chief Executive Officer
                                                 (Principal Executive Officer)


Date:   May 28, 1998                         By: /s/ Nancy T. Bizzaro
                                                 ------------------------------
                                                 Nancy T. Bizzaro
                                                 Controller
                                                 (Principal Financial Officer)


      Pursuant to the requirements of the Securities Exchange Act of l934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.


Date:   May 28, 1998                         By: /s/ Kenneth Granat
                                                 ------------------------------
                                                 Kenneth Granat, Director


Date:   May 28, 1998                         By: /s/ Gary L. Grahn
                                                 ------------------------------
                                                 Gary L. Grahn, Director


Date:   May 28, 1998                         By: /s/ Justin Wernick
                                                 ------------------------------
                                                 Dr. Justin Wernick, Director


Date:   May 28, 1998                         By: /s/ Thomas I. Altholz
                                                 ------------------------------
                                                 Thomas I. Altholz,  Director


                                       39
<PAGE>

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in Registration Statement No.
33-89880 of The Langer Biomechanics Group, Inc. on Form S-8 of our report dated
May 15, 1998 appearing in this Annual Report on Form 10-K of The Langer
Biomechanics Group, Inc. for the year ended February 28, 1998.


Jericho, New York
May 27, 1998

                                       40