SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

(Mark One)

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

For the fiscal year ended      November 1, 1997

                                       OR

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

For the transition period from _____________ to _____________

--------------------------------------------------------------------------------

Commission file number                   0-14900

                                    PSS, Inc.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

             Delaware                                            91-1335798
 ------------------------------                              -------------------
(State or other jurisdiction of                               (I.R.S. Employer
 incorporation or organization)                              Identification No.)

     P.O. Box 21186, Seattle, WA                                  98111-3186
----------------------------------------                          ----------
(Address of principal executive offices)                          (Zip Code)

(Registrant's telephone number, including area code)       (206) 901-3790
                                                           --------------

--------------------------------------------------------------------------------
              Former name, former address and former fiscal year,
                         if changed since last report.

Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
  Common stock - $1.00 par value
  7-1/8% Convertible Debentures due July 15, 2006

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 [_]

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]

Aggregate market value of the registrant's voting stock held by nonaffiliates of
the registrant as of December 1, 1997: $270,000.

The  number of shares  of common  stock  outstanding  as of  November  1,  1997:
19,473,728.

Documents incorporated by reference:  None.


<PAGE>




                                     PART I

ITEM 1 - BUSINESS
-----------------

PSS, Inc. ("PSS"),  through its wholly owned subsidiary,  PNS Inc. ("PNS"), owns
PSSC Inc. ("PSSC");  together, PSS, PNS and PSSC are referred to collectively as
the "Company".

The Company  owns  pass-through  and  participation  certificates  issued by the
Federal  Home  Loan  Mortgage  Corporation  backed  by whole  pool  real  estate
mortgages  ("Mortgage  Certificates"),  and as a result, is primarily engaged in
the  business  of owning  mortgages  and other  liens on and  interests  in real
estate.  At  November 1, 1997,  the  Company's  principal  assets  consisted  of
approximately $4.46 million of Mortgage  Certificates from which interest income
is earned.  The Mortgage  Certificates are financed with borrowings,  payable on
demand,  secured by the Mortgage  Certificates (the "Mortgage  Financing").  The
principal obligations of the Company are the Mortgage Financing borrowings,  the
PNS 12-1/8% Senior Subordinated Notes due July 15, 1996 (the "Senior Notes") and
the PSS 7-1/8% Convertible Debentures due July 15, 2006 (the "Debentures"), upon
which interest expense is incurred.


ITEM 2 - PROPERTIES
-------------------

None

ITEM 3 - LEGAL PROCEEDINGS
--------------------------

In the opinion of management, there are no material legal proceedings pending to
which the Company is a party or of which any of its assets is the subject.

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

Not applicable.





                                       2
<PAGE>



                                     PART II

ITEM 5 - MARKET  FOR THE  REGISTRANT'S  COMMON  STOCK  AND  RELATED
-------------------------------------------------------------------
         STOCKHOLDER MATTERS
         -------------------

MARKET INFORMATION

The Company's common stock is traded  over-the-counter.  The high and low prices
for the  stock by  quarter  for the two  years  ended  November  1, 1997 were as
follows:

     Quarter ended                                  High                Low
     -------------                                  ----                ---

           January 27, 1996                         .02                 .01
           April 27, 1996                           .01                 .01
           July 27, 1996                            .01                 .01
           November 2, 1996                         .01                 .01
           February 1, 1997                         .01                 .01
           May 3, 1997                              .01                 .01
           August 2, 1997                           .01                 .01
           November 1, 1997                         .01                 .01

The high and low prices for each  quarter  are the high and low bids as reported
by National  Quotation  Bureau,  Inc., which are those quoted by dealers to each
other,  exclusive of markups,  markdowns or  commissions,  and do not  represent
actual transactions.

HOLDERS

As of December 1, 1997, there were 968 holders of record of the Company's common
stock.

DIVIDENDS ON COMMON STOCK

The Company has never paid a dividend and does not anticipate  paying  dividends
for the foreseeable future. The indentures  governing the Company's Senior Notes
and Debentures  contain  covenants  which restrict the ability of the Company to
pay dividends (see Note 5 to the financial statements).




                                       3
<PAGE>



ITEM 6 - SELECTED FINANCIAL DATA

The following  selected  financial data should be read in  conjunction  with the
financial statements and related notes and "Management's Discussion and Analysis
of Financial Condition and Results of Operations"  included elsewhere herein. As
explained  in  Note 2 to  the  financial  statements,  information  relating  to
November  1, 1997,  November 2, 1996 and  October  28,  1995 is  presented  on a
liquidation   basis,  which  reports  an  excess  of  liabilities  over  assets.
Presentation of per share  information on a liquidation  basis is not considered
meaningful and has been omitted.

<TABLE>
<CAPTION>
                                                         Year ended
                                   ---------------------------------------------------------------
                                   November 1,  November 2, October 28,  October 29,   October 30,
                                      1997        1996        1995           1994       1993
                                      ----        ----        ----           ----       ----
                                        (thousands of dollars, except per share data)
                                                                       
<S>                               <C>         <C>         <C>           <C>         <C>
Income Statement Data:                                                 
Increase in net liabilities       $ (2,265)   $ (3,020)   $ (4,231)    
Loss before extraordinary items                                          $ (2,141)  $ (1,161)
Net income (1)                                                              9,568     47,454
Net income per common share                                                  0.49       2.44
                                                                       
                                                                       
Balance Sheet Data:                                                    
                                                                       
Total assets                      $  4,829    $  5,591    $  5,927       $ 11,383   $136,634
Short-term borrowings                4,073       4,922       5,278         10,192    124,062
Long-term debt                      28,178      28,178      28,178         28,159     48,144
Total liabilities                   42,020      40,517      37,833         39,058    173,877
Stockholders' deficit                                                     (27,675)   (37,243)
Net liabilities                    (37,191)    (34,926)    (31,906)    
                                                                    
</TABLE>

(1)  Includes pre-tax  extraordinary  gains on early  extinguishment  of debt of
     approximately  $13 million and $49 million  during the years ended  October
     29, 1994 and October 30, 1993, respectively.


                                       4
<PAGE>



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

Liquidity and Capital Resources
-------------------------------

At November 1, 1997, the Company's  principal  assets consisted of approximately
$4.46 million of Mortgage  Certificates from which interest income is earned and
its principal  obligations  consisted of Mortgage Financing  borrowings,  Senior
Notes and Debentures upon which interest expense is incurred.

PNS is restricted by terms of its Senior Notes  Indenture from paying  dividends
or making  other  payments to PSS,  except that PNS may pay  dividends to PSS in
amounts  sufficient to enable PSS to meet its obligation on its Debentures  when
due. PNS, like its parent company, has a stockholder's deficit.

At November 1, 1997,  the Company had assets of $4.83  million and  liabilities,
other  than  Senior  Notes  and  Debentures   including   accrued  interest  and
liquidation   costs,  of  $4.24  million,   thus  having  a  net  difference  of
approximately $590,000 available for holders of Senior Notes and Debentures.  At
November 1, 1997, approximately $5.26 million of Senior Notes and $22.92 million
of Debentures remain outstanding.

The Company  failed to pay the  interest  due January 15,  1995,  July 15, 1995,
January 15, 1996, July 15, 1996, January 15, 1997, July 15, 1997 and January 15,
1998  on its  Debentures  and  such  default  continues.  The  trustee  for  the
Debentures  has  indicated  to the  holders of the  Debentures  that it does not
intend to accelerate payment of the Debentures  "because it is unlikely that the
Debenture holders would receive any payment if the Debentures were accelerated."

Although  PNS paid the  interest  due on January  15,  1995 on its Senior  Notes
within the 30 day "grace" period,  it failed to make the interest payment due on
July  15,  1995,  January  15,  1996 and July  15,  1996 and  failed  to pay the
outstanding  principal  which  became due on July 15,  1996.  All such  defaults
continue.  In June 1997 the  Company  was  advised by the trustee for the Senior
Notes that, after concluding that the Company lacks sufficient assets to pay the
Senior  Notes,  the trustee  had  petitioned  a district  court for the State of
Minnesota  to authorize  and  instruct it to refrain  from  pursuing any default
remedy  against the Company and to discharge  it as trustee,  and that the Court
had granted the trustee's requests.

The  Company's  future  operating  results,  liquidity,  capital  resources  and
requirements  are  primarily  dependent  upon actions  which may be taken by the
trustee for the  Debentures to collect  amounts due  thereunder,  the payment of
amounts due on and  purchases  of Senior Notes and  Debentures  and, to a lesser
extent,  interest  rate  fluctuations  as they  relate  to the  market  value of
Mortgage  Certificates  and to the  spread of  interest  income  therefrom  over
interest expense on related borrowings.  The Company is exclusively  invested in
Mortgage Certificates,  and, accordingly, is presently relying solely on such as
its source of cash funds.  It has not been  determined what course of action the
Company may pursue with respect to debt service of Senior Notes and Debentures.



                                       5
<PAGE>



Results of Operations
---------------------

           Interest income
           ---------------

Interest income for each of the years ended November 1, 1997,  November 2, 1996,
and October 28, 1995  decreased  as  compared to the  immediate  preceding  year
primarily as a result of lower balances of investments in Mortgage Certificates.
Included in investment  income for the years ended November 1, 1997 and November
2, 1996 is approximately $64,000 and $25,000,  respectively, of unrealized gains
resulting from mark-to-market adjustments.  The weighted average interest income
rate earned on the  Mortgage  Certificates  approximated  7.7%,  7.9%,  and 7.3%
during the years ended November 1, 1997, November 2, 1996, and October 28, 1995,
respectively.

           Interest expense
           ----------------

Interest expense for each of the years ended November 1, 1997, November 2, 1996,
and October 28, 1995,  decreased  as compared to the  immediate  preceding  year
primarily  due  to  lower  investments  in  Mortgage  Certificates  and  related
borrowings  upon  which  interest  expense is  incurred.  The  weighted  average
interest expense rate on Mortgage  Certificate  related borrowings  approximated
6.0%, 5.6%, and 6.0% during the years ended November 1, 1997,  November 2, 1996,
and October 28, 1995,  respectively.  Interest expense also decreased during the
year ended  October 28, 1995 as  compared to the  preceding  year as a result of
having fewer Debentures and Senior Notes outstanding due to bond repurchases.

           Write off of deferred financing costs and original issue discount
           -----------------------------------------------------------------

As a result of the continued  default due to the  non-payment of interest on the
Debentures and Senior Notes,  during the year ended October 28, 1995 the Company
expensed remaining deferred financing costs and original issue discount.






                                       6
<PAGE>





ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------

INDEX TO FINANCIAL STATEMENTS
-----------------------------

           Financial statements                                             Page
           --------------------                                             ----

           Report of Independent Accountants                                  8
           Consolidated Statements of Net Liabilities                         9
           Consolidated Statement of Changes of Net Liabilities              10
           Consolidated Statements of Cash Flows                             11
           Notes to Financial Statements                                     12

           Financial statement schedules

           Financial statement schedule information is presented in 
            the financial statements.

SUPPLEMENTARY FINANCIAL INFORMATION
-----------------------------------

           Selected quarterly financial data (unaudited)                     18
           ---------------------------------------------




                                       7
<PAGE>



                        REPORT OF INDEPENDENT ACCOUNTANTS




To the Board of Directors and
Stockholders of PSS, Inc.



We have audited the  accompanying  consolidated  statements  of net  liabilities
(liquidation basis) of PSS, Inc. and its subsidiaries as of November 1, 1997 and
November 2, 1996,  and the  related  consolidated  statements  of changes in net
liabilities  (liquidation  basis) and of cash flows (liquidation  basis) for the
years ended  November 1, 1997,  November  2, 1996 and  October 28,  1995.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion,  the  consolidated  financial  statements  audited by us present
fairly, in all material  respects,  the financial  position of PSS, Inc. and its
subsidiaries  at November 1, 1997 and November 2, 1996, and the changes in their
net liabilities (liquidation basis) and their cash flows (liquidation basis) for
the years ended  November 1, 1997,  November  2, 1996 and October 28,  1995,  in
conformity with generally accepted accounting principles.



PRICE WATERHOUSE LLP





Seattle, Washington
January 15, 1998



                                       8
<PAGE>



                                    PSS, INC.
                   Consolidated Statements of Net Liabilities
                               (Liquidation Basis)
                             (thousands of dollars)

                                                       November 1,   November 2,
                                                           1997          1996
                                                         --------      --------


Assets:

  Cash and short-term investments                        $    313      $    276

  Investment in mortgage certificates                       4,459         5,250

  Accrued interest receivable                                  57            65
                                                         --------      --------

           Total assets                                     4,829         5,591
                                                         --------      --------


Liabilities:

  Borrowings under mortgage certificate
   financing agreement                                      4,073         4,922
  Accounts payable and accrued liabilities                    169           143

  Reserve for estimated costs during
   period of liquidation                                      151            90
  PNS 12-1/8% senior notes                                  5,258         5,258
  Interest payable on PNS notes                             1,788         1,152
  Reserve for interest on PNS notes
   during period of liquidation                               636           636

  PSS 7-1/8% debentures                                    22,920        22,920
  Interest payable on PSS debentures                        5,396         3,767
  Reserve for interest on PSS debentures
   during period of liquidation                             1,629         1,629
                                                         --------      --------

                     Total liabilities                     42,020        40,517
                                                         --------      --------


                     Net Liabilities                     $(37,191)     $(34,926)
                                                         ========      ========



                   The accompanying notes are an integral part
                         of these financial statements.



                                       9

<PAGE>



                                    PSS, INC.
              Consolidated Statements of Changes in Net Liabilities
                               (Liquidation Basis)
                             (thousands of dollars)

                                                         Year ended
                                             -----------------------------------
                                             November 1, November 2, October 28,
                                                 1997        1996        1995
                                               -------     -------     -------

Investment income                              $   446     $   459     $   582

Interest expense                                (2,546)     (2,601)     (2,765)

Write off of deferred financing
 costs and original issue discount                                        (226)

General and administrative expense                (104)       (197)       (148)

Decrease in reserve for estimated
 costs and interest during
 period of liquidation                           2,204       1,674
Provision for estimated costs and
 interest during period of liquidation          (2,265)     (2,355)     (1,674)
                                               -------     -------     -------

Increase in Net Liabilities                    $(2,265)    $(3,020)    $(4,231)
                                               =======     =======     =======












                   The accompanying notes are an integral part
                         of these financial statements.





                                       10
<PAGE>


           PSS, INC.
           CONSOLIDATED STATEMENTS OF CASH FLOWS
           (thousands of dollars)
<TABLE>
<CAPTION>
                                                                        Year ended
                                                           --------------------------------------
                                                           November 1,  November 2,   October 28,
                                                               1997         1996         1995
                                                             -------      -------      -------
                                                                                     
<S>                                                          <C>          <C>          <C>     
Cash flows from operating activities:                                                
  Increase in Net Liabilities                                $(2,265)     $(3,020)     $(4,231)
  Adjustments to reconcile to net cash flows                                         
   from operating activities:                                                        
    Amortization                                                                           127
    Write off of deferred financing                                                  
     costs and original issue discount                                                     226
    Increase in estimated costs and interest during                                  
     period of liquidation                                        61          681        1,674
    Decrease in accrued interest receivable                        8           11           36
    Increase (decrease) in accrued interest payable            2,265        2,308        1,945
    Other                                                        (38)          26          (49)
                                                             -------      -------      -------
                                                                                     
     Net cash provided (used) by operating activities             31            6         (272)
                                                             -------      -------      -------
                                                                                     
Cash flows from investing activities:                                                
  Proceeds from sale of mortgage certificates                                            4,426
  Principal repayments on mortgage certificates                  855          615          726
                                                             -------      -------      -------
                                                                                     
     Net cash provided by investing activities                   855          615        5,152
                                                             -------      -------      -------
                                                                                     
Cash flows from financing activities:                                                
  Repayment of borrowings under mortgage                                             
   certificates financing agreement                             (849)        (356)      (4,914)
                                                             -------      -------      -------
     Net cash used by financing activities                      (849)        (356)      (4,914)
                                                             -------      -------      -------
                                                                                     
Net increase (decrease) in cash and short-term investments        37          265          (34)
                                                                                     
Cash and short-term investments at                                                   
 beginning of year                                               276           11           45
                                                             -------      -------      -------
                                                                                     
Cash and short-term investments at                                                   
 end of year                                                 $   313      $   276      $    11
                                                             =======      =======      =======
                                                                                   
</TABLE>


                   The accompanying notes are an integral part
                         of these financial statements.


                                       11
<PAGE>


                                    PSS, INC.
                          NOTES TO FINANCIAL STATEMENTS

NOTE 1 - The Company
--------------------

The consolidated financial statements of PSS, Inc. ("PSS"),  includes its direct
subsidiary  PNS  Inc.   ("PNS")  and  its  subsidiary   PSSC,   Inc.   ("PSSC"),
collectively,  the "Company".  The Company is principally owned by Seacorp, Inc.
("Seacorp") and Zimmerman  Retailing Group Limited ("Zimco").  Seacorp and Zimco
own approximately 41% and 13%, respectively, of the Company's outstanding common
stock, with the remainder publicly owned.

The Company,  through PSSC, owns  pass-through  and  participation  certificates
issued by the Federal Home Loan Mortgage  Corporation  backed by whole pool real
estate  mortgages  ("Mortgage  Certificates"),  and as a  result,  is  primarily
engaged in the business of owning  mortgages and other liens on and interests in
real  estate.  The  principal  obligations  of the Company  are PSSC  borrowings
secured by Mortgage Certificates, PNS 12-1/8% Senior Subordinated Notes due July
15, 1996 (the "Senior Notes") and PSS 7-1/8% Convertible Debentures due July 15,
2006 (the "Debentures").

The Company  failed to pay the  interest  due January 15,  1995,  July 15, 1995,
January 15, 1996, July 15, 1996, January 15, 1997, July 15, 1997 and January 15,
1998  on its  Debentures  and  such  default  continues.  The  trustee  for  the
Debentures  has  indicated  to the  holders of the  Debentures  that it does not
intend to accelerate payment of the Debentures  "because it is unlikely that the
Debenture holders would receive any payment if the Debentures were accelerated."

Although  PNS paid the  interest  due on January  15,  1995 on its Senior  Notes
within the 30 day "grace" period,  it failed to make the interest payment due on
July  15,  1995,  January  15,  1996 and July  15,  1996 and  failed  to pay the
outstanding  principal  which  became due on July 15,  1996.  All such  defaults
continue.  In June 1997 the  Company  was  advised by the trustee for the Senior
Notes that, after concluding that the Company lacks sufficient assets to pay the
Senior  Notes,  the trustee  had  petitioned  a district  court for the State of
Minnesota  to authorize  and  instruct it to refrain  from  pursuing any default
remedy  against the Company and to discharge  it as trustee,  and that the Court
had granted the trustee's requests.

At November 1, 1997, the Company had assets of  approximately  $4.83 million and
liabilities,  other  than the  Senior  Notes and  Debentures  including  accrued
interest and liquidation  costs, of approximately  $4.24 million,  thus having a
net difference of approximately  $590,000  available for holders of Senior Notes
and Debentures. At November 1, 1997, approximately $5.26 million of Senior Notes
and  $22.92  million of  Debentures  remain  outstanding  and,  annual  interest
thereon,  in the absence of additional  repurchases,  approximates  $636,000 and
$1.63 million,  respectively. The Company's future operating results, liquidity,
capital  resources and requirements  are primarily  dependent upon actions which
may  be  taken  by the  trustee  for  the  Debentures  to  collect  amounts  due
thereunder,  the payment of amounts  due on and  purchases  of Senior  Notes and
Debentures and, to a lesser extent, interest rate fluctuations as they relate to
the market value of Mortgage  Certificates  and to the spread of interest income
therefrom over


                                       12
<PAGE>


interest expense on related borrowings.  The Company is exclusively  invested in
Mortgage Certificates,  and, accordingly, is presently relying solely on such as
its source of cash funds.  It has not been  determined what course of action the
Company  may  pursue  with  respect  to debt  service  on the  Senior  Notes and
Debentures.

NOTE 2 - Liquidation Basis of Accounting
----------------------------------------

Effective  October 28,  1995,  the  Company  adopted  the  liquidation  basis of
accounting for presenting its consolidated  financial statements.  This basis of
accounting is considered appropriate when, among other things,  liquidation of a
company  appears  imminent  and the  net  realizable  value  of its  assets  are
reasonably determinable.  Under this basis of accounting, assets and liabilities
are  stated at their  net  realizable  value and  estimated  costs  through  the
liquidation date are provided to the extent reasonably determinable.

The net effect of converting  from the going  concern  basis to the  liquidation
basis of accounting as of October 28, 1995 was an increase in net liabilities of
approximately  $1.7  million,  as a result  of  recording  estimated  costs  and
interest expense to the liquidation date. No adjustment to the reported value of
assets was required.  Under the  liquidation  basis,  the Company accrued future
liabilities  and  estimated  future net revenues  from interest and other income
associated with mortgage certificates to the liquidation date.

A summary of significant  estimates and judgments utilized in preparation of the
November 1, 1997,  November 2, 1996 and October 28, 1995 consolidated  financial
statements on a liquidation basis follows:

           o          The Company's next fiscal year end,  October 31, 1998, has
                      been utilized as the liquidation  date for the November 1,
                      1997 financial  statements and the November 1, 1997 fiscal
                      year  end was  utilized  as the  liquidation  date for the
                      November 2, 1996  financial  statements.  The Senior Notes
                      July 15,  1996 due date was  utilized  as the  liquidation
                      date for the October 28, 1995 financial statements.

           o          Mortgage  Certificates and related interest receivable are
                      stated at estimated market value.

           o          Borrowings secured by Mortgage  Certificates are stated at
                      face value, which approximates market value.

           o          The  reserve  for  estimated  costs  during  the period of
                      liquidation  represents  estimates  of future  costs to be
                      incurred through the liquidation date.



                                       13
<PAGE>


NOTE 2 - LIQUIDATION BASIS OF ACCOUNTING (continued)
----------------------------------------------------

           o          Net  estimated  interest  income to be earned on  Mortgage
                      Certificates  in excess of  interest  expense  on  related
                      borrowings has been  considered in determining the reserve
                      for estimated costs during the period of liquidation.

           o          Senior Notes and Debentures and related  interest  accrued
                      are stated at face value.

           o          The reserve for interest  during the period of liquidation
                      represents interest on Senior Notes and Debentures for the
                      period from the date of the Consolidated Statements of Net
                      Liabilities   to  the  estimated   liquidation   date,  as
                      applicable.

All of the above  estimates  and judgments may be subject to change as facts and
circumstances   change.   Similarly,   actual  costs  and  expenses  may  differ
significantly  depending on a number of factors,  particularly the length of the
liquidation period.

During the  fiscal  years  ended  November  1, 1997 and  November  2, 1996,  the
Company's  actual  net  excess  of costs  incurred  over net  investment  income
reasonably approximated the reserve for estimated costs provided in the November
2, 1996 and October 28, 1995  financial  statements,  respectively.  Inasmuch as
July 15, 1996 was utilized as the liquidation date, the October 28, 1995 reserve
for  interest  was for a period of  approximately  8.5 months  whereas  interest
expense  for the  fiscal  years  ended  November  1, 1997 and  November  2, 1996
included 12 months of interest,  which  resulted in actual  interest  expense in
excess of estimated amounts reserved.

NOTE 3 - SUMMARY OF ACCOUNTING PRINCIPLES
-----------------------------------------

Cash and Short-Term Investments
-------------------------------

Cash and short-term investments,  having maturities of three months or less when
purchased, are primarily comprised of interest-bearing short-term bank deposits.

Investment in Mortgage Certificates
-----------------------------------

The  investment in Mortgage  Certificates  is recorded at estimated  fair value,
based upon market prices  obtained from  traders.  Gains and losses  realized on
sale are determined utilizing the specific  identification method. Premiums paid
are amortized utilizing the interest method. Gains and losses realized upon sale
of  Mortgage  Certificates  and  unrealized  gains  and  losses  resulting  from
mark-to-market adjustments are included in investment income.

Income (loss) per Common Share
------------------------------

As explained in Note 2,  effective  October 28,  1995,  the Company  adopted the
liquidation  basis of accounting,  which reports an excess of  liabilities  over
assets.  Accordingly,  the  presentation  of per common share  information  on a
liquidation basis is not considered meaningful and has been omitted.



                                       14
<PAGE>



Basis of Presentation
---------------------

Effective  October 28,  1995,  the  Company  adopted  the  liquidation  basis of
accounting for presenting its consolidated financial statements.

Accounting 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 amounts.

NOTE 4 - INVESTMENT IN MORTGAGE CERTIFICATES
--------------------------------------------

Mortgage  Certificates  are financed with  borrowings  provided by an investment
bank pursuant to a letter  agreement  (the  "Financing  Agreement").  Borrowings
pursuant to the Financing  Agreement (the "Mortgage  Financing")  are secured by
the Mortgage  Certificates.  In the event of a decrease in the aggregate  market
value of the  Mortgage  Certificates  below the  requirements  of the  Financing
Agreement,  additional  collateral is required.  Principal and interest payments
received on Mortgage  Certificates are maintained in an interest earning account
and are  released to the  Company,  at its  request,  after all interest and any
"mark-to-market" indebtedness then due have been paid. The Mortgage Financing is
payable on demand and generally bears interest at rates  approximating the three
month Federal Funds Rate plus 25 basis points. Mortgage Financing borrowings and
related  interest rates  approximated  $4.1 million and 6.0% at November 1, 1997
and $4.9  million and 5.5% at November 2, 1996,  respectively.  During the years
ended  November 1, 1997,  November 2, 1996,  and October 28,  1995,  the average
balance of mortgage related borrowings outstanding approximated $4.6 million, $5
million,  and $5 million, and the weighted annual average interest expense rates
approximated 6.0%, 5.6%, and 6.0%, respectively.

At November 1, 1997, the interest rate to be earned on the Mortgage Certificates
approximated  8.0% as determined  on a basis that interest  rates do not change.
The rate of interest on the Mortgage Certificates is adjustable based on general
interest rate trends with certain  maximums,  including  limits of 2% for annual
interest  rate  changes and interest  rate  maximums of  approximately  13%. The
weighted  average  interest  income rates  earned on the  Mortgage  Certificates
approximated  7.7%,  7.9%,  and 7.3%  during the years  ended  November 1, 1997,
November 2, 1996, and October 28, 1995, respectively.

The Company sold  approximately $1 million of Mortgage  Certificates  during the
year ended October 28, 1995.



                                       15

<PAGE>



NOTE 5 - SUBORDINATED DEBT
--------------------------


Subordinated  debt and related  interest payable through the balance sheet dates
are summarized as follows (thousands of dollars):

                                         November 1,     November 2,
                                            1997            1996
                                          -------         -------

PNS 12-1/8% Senior Notes                  $ 5,258         $ 5,258
Interest payable on Senior Notes            1,788           1,152
                                          -------         -------
                                          $ 7,046         $ 6,410
                                          =======         =======

PSS 7-1/8% Debentures                     $22,920         $22,920
Interest payable on Debentures              5,396           3,767
                                          -------         -------
                                          $28,316         $26,687
                                          =======         =======

In July 1986,  the Company  completed  three public  securities  offerings  (the
"Public  Offerings").  PNS issued  $150  million of Senior  Notes (at a price of
98.6%) and PSS sold 3.25  million  shares of its common  stock and issued at par
$150 million of Debentures  convertible  to PSS common stock at $19.68 per share
(the  conversion  price is subject to adjustment  in the case of dilution).  PSS
invested  the net  proceeds  from  its two  offerings  in PNS,  in the form of a
contribution to capital and an intercompany  debenture  between PNS and PSS (the
"Intercompany  Debenture") in the amount of $150 million with  substantially the
same interest rate and redemption  provisions as the Debentures.  Debt financing
costs and the discount on the Senior Notes have been  amortized over the term of
the borrowings.  As explained in Note 1, the Company is in default on the Senior
Notes and  Debentures,  and as a result,  during the year ended October 28, 1995
the Company  expensed  remaining  deferred  financing  costs and original  issue
discount.  At November 1, 1997, the  Intercompany  Debenture  approximated  $4.0
million.

The indenture  governing  the Senior Notes  restricts the ability of PNS and its
subsidiaries  to pay  dividends or make other  payments to PSS. The Senior Notes
indenture  permits PNS to pay  dividends to PSS in amounts  sufficient to enable
PSS to meet its  obligations on the Debentures  when due (to the extent payments
are not made to PSS when due pursuant to the Intercompany  Debenture),  provided
that no event of default (as defined in the Senior Notes indenture) has occurred
and is continuing. PNS, like its parent company, has a stockholder's deficit.

The Senior Notes and Debentures provide for semiannual interest payments and are
unsecured.  Principal  repayment on the Senior Notes was due in full on July 15,
1996. The Debentures  require annual  principal  payments of  approximately  $11
million commencing July 15, 1996 until July 15, 2006 when the balance is due; by
utilizing Debentures which the Company has previously acquired, there will be no
scheduled maturity payments required before 2006.

The indentures for the Senior Notes and Debentures  contain certain  restrictive
covenants which, 



                                       16
<PAGE>


among other things,  limit dividends and similar  distributions to stockholders,
essentially  prohibit redemptions and retirements of the Company's equity, limit
the Company's  ability to incur debt, and restrict  action and agreements by the
Company that would prohibit  dividends and similar  distributions to the Company
from its subsidiaries.

Interest paid approximated $319,000 during the year ended October 28, 1995.

NOTE 6 - INCOME TAXES
---------------------

Due to losses for each of the years ended November 1, 1997, November 2, 1996 and
October 28, 1995, there was no provision for income taxes recorded.

As  of  November  1,  1997,   for  income  tax  purposes,   net  operating  loss
carryforwards,  which begin to expire in 2001,  approximate  $140  million,  and
capital loss carryforwards approximate $45 million, all of which expire in 1998.
If certain  substantial  changes in the Company's  ownership should occur, there
would be an annual limitation on the amount of the carryforwards  which could be
utilized.

NOTE 7 - STOCKHOLDERS' DEFICIT
------------------------------

The Company's  common stock  consists of 60 million  authorized  shares,  $1 par
value,  19,473,728 shares of which are issued and outstanding.  The Company also
has 10 million authorized shares of preferred stock, $1 par value, none of which
have been issued.  There have been no changes in common stock or additional paid
in capital  since  October 29, 1994.  Effective  October 28, 1995 as a result of
presenting  financial statements on the liquidation basis, changes in components
of stockholders' deficit are not presented.




                                       17

<PAGE>




NOTE 8 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

Selected quarterly financial data are as follows (thousands of dollars):

<TABLE>
<CAPTION>
                                                     Fiscal quarters ended
                                           -----------------------------------------------
                                           November 1,  August 2,   May 3,  February 1,
                                                1997       1997      1997      1997
                                              -------    -------   -------   -------
<S>                                           <C>        <C>       <C>       <C>    
Decrease in reserve for estimated costs and
 interest during period of liquidation        $   502    $   567   $   566   $   569
Provision for estimated costs and interest
 during period of liquidation                  (2,265)
Increase in net liabilities                    (2,265)         0         0         0


                                                        Fiscal quarters ended
                                           -----------------------------------------------
                                           November 2,   July 27,   April 27,  January 27,
                                                1996       1996       1996      1996
                                              -------    -------    -------   -------
Decrease in reserve for estimated costs and
 interest during period of liquidation        $    38    $   521    $   549   $   566
Provision for estimated costs and interest
 during period of liquidation                  (2,355)
Increase in net liabilities                    (2,945)       (75)         0         0
</TABLE>


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

None.





                                       18
<PAGE>


                                    PART III
                                    --------

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------------------------------

Directors of the Company

The  following  table  sets forth  certain  information  concerning  each of the
directors and executive officers of the Company.  All directors will serve until
the next Annual Meeting of  Shareholders  and until his respective  successor is
elected or appointed. Each director of the Company is also a director of PNS.


                                              Present Principal
Name and Position                             Occupation or Employment
 With the Company             Age             and Five Year Employment History
 ----------------             ---             --------------------------------

Mark Todes                     42           President   and   Director   of  the
President and Director                      Company since May 1996. President of
                                            City Realty, Inc. since May 1996 and
                                            Vice President of 200 West Holdings,
                                            Ltd. (a real estate holding  company
                                            and a subsidiary of City Realty) for
                                            more  than 5  years  prior  thereto.
                                            Vice President of Seacorp since July
                                            1996.                               
                                            
Gerald P. Nathanson           52            Director   of  the   Company   since
Director                                    October  1986.   During  1996,   Mr.
                                            Nathanson left the employ of L.Luria
                                            (a retail company).  Chief Executive
                                            Officer, US Holographics  (marketing
                                            company  for  holographic  products)
                                            from  April 1992 to  December  1995.
                                            Managing Director,  C4 Marketing (an
                                            import company) until January 1992. 
                                            
                                            

ITEM 11 - EXECUTIVE COMPENSATION
--------------------------------

Compensation of Directors and Executive Officers

The Company has no employees.  There are currently no  arrangements  under which
any officer or director of the Company will receive  compensation for serving as
such; however, other arrangements may be made in the future.



                                       19
<PAGE>



ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
------------------------------------------------------------------------

The following table sets forth, as of December 31, 1997,  information concerning
the beneficial ownership of the common stock of the Company by (i) persons known
by the Company to own beneficially more than 5% of its outstanding common stock,
(ii) each of the  directors of the Company and (iii) all directors and executive
officers of the Company as a group.  Except as set forth in the footnotes to the
table, the stockholders  have sole voting and investment power over such shares.
Unless otherwise specified,  the address for all directors is the address of the
Company's executive offices.  The address for Messrs.  Julius and Eddie Trump is
the address set forth below for Seacorp.  The address for Mr. Christopher Podoll
is the address set forth below for Zimmerman Retailing Group Limited.

                                         Amount and Nature
                                          of Beneficial      Percent
Name                                        Ownership        of Class
----                                     ----------------    --------
Christopher Podoll (a)                      2,563,962         13.17%
Zimmerman Retailing Group Limited (a)       2,563,962         13.17%
 P.O. Box 948
 Route 2, Pleasant Plain Road
 Fairfield, IA 52556
Seacorp, Inc. (b)                           8,014,705          41.1%
 P.O. Box 21186
 Seattle, WA 98111
Eddie Trump (b)                             8,014,705          41.1%
Julius Trump (b)                            8,014,705          41.1%
All Directors and Executive Officers as
 a Group (2 persons)                                0             0%


(a)  According to the Schedule 13D, as amended (the "Zimco Amended 13D"),  filed
     with the Securities and Exchange Commission (the "Commission"), Zimco is an
     Iowa limited partnership, the sole general partner of which is Soma 2 L.P.,
     a  Delaware  limited  partnership  ("Soma  2").  Soma 2 has as its  general
     partner ZRG Co., Inc., a Delaware corporation ("ZRG"), for which Mr. Podoll
     serves as the sole executive officer and director.  Mr. Podoll is a manager
     of  investments  of the William  Zimmerman  family.  Amounts  include 8,079
     shares issuable upon conversion of Debentures  beneficially owned by Zimco.
     Amounts do not  include  the  ownership  of 6,000  shares and 3,810  shares
     issuable upon  conversion of Debentures  owned by the Surya  Financial Inc.
     Retirement Plan, a retirement plan for the benefit of various  employees of
     Surya Financial Inc., an affiliate of Zimco.


(b)  According to the Schedule  13D, as amended,  filed with the  Commission  by
     Julius Trump, 



                                       20
<PAGE>

     Eddie Trump and Seacorp, Seacorp is, and Messrs. Julius and Eddie Trump may
     be deemed to be, the  beneficial  owner(s)  of  8,014,705  shares of common
     stock.  Such amount  includes  8,079 shares  issuable  upon  conversion  of
     Debentures  beneficially owned by an affiliate of Seacorp.  As set forth in
     the Schedule 13D, Seacorp is a Delaware  corporation and does not presently
     have any business other than the ownership of shares of common stock of the
     Company.  Seacorp is  indirectly  controlled  by  Messrs.  Julius and Eddie
     Trump.


ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------

None




                                       21
<PAGE>



                           PART IV. OTHER INFORMATION
                           --------------------------

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

(a)  See the section  entitled "Index to Financial  Statements"  appearing under
     Item 8 of this Annual Report on Form 10-K.

(b)  Not applicable

(c)  Exhibits:

     3.1       Restated Certificate of              Incorporated  by  referenced
               Incorporation of the Registrant      from   Exhibit  3.1  to  the
                                                    Registration   Statement  on
                                                    Form S-1 (File No.  33-5560)
                                                    of    the    Company    (the
                                                    "Registration Statement").  

     3.2       Certificate of Amendment of          Incorporated   by  reference
               Certificate of Incorporation of      from   Exhibit  3.2  to  the
               the Registrant                       Registration Statement.     

     3.3       Certificate of Amendment of          Incorporated   by  reference
               Certificate of Incorporation         from    Exhibit    3.1    to
               of the Registrant                    Quarterly   Report  on  Form
                                                    10-Q for the  quarter  ended
                                                    July 30, 1988.

     3.4       Certificate of Amendment of          Incorporated   by  reference
               Certificate of Incorporation         from   Exhibit  3.4  to  the
               of the Registrant                    Annual  Report  on Form 10-K
                                                    for the year  ended  October
                                                    31, 1992.

     3.5       By-Laws of the Registrant            Incorporated   by  reference
                                                    from   Exhibit  3.3  to  the
                                                    Registration Statement.

     4.1       Indenture between the Registrant     Incorporated  by   reference
               Inc. and United States Trust         from   Exhibit  4.1  to  the
               Company of New York,  as  Trustee,   Registration Statement.
               relating  to the 7-1/8%
               Convertible Debentures due July 15, 
               2006 (including the form of
               Convertible Debenture).

     4.2       First Supplemental Indenture be-     Incorporated   by  reference
               tween the Registrant and             from   Exhibit  4.1  to  the
               United States Trust Company of       Quarterly   Report  on  Form
               New York as Trustee, relating        10-Q for quarter ended April
               to the 7-1/8% Convertible De-        30, 1988.                   
               bentures due July 15, 2006.          

                                       22
<PAGE>


     4.3       Indenture between PNS Inc. and       Incorporated   by  reference
               Norwest Bank Minneapolis, Nat-       from   Exhibit  4.1  to  the
               ional Association as Trustee,        Registration   Statement  on
               relating to the 12-1/8% Senior       Form S-1 (File No.  33-5591)
               Subordinated Notes due July 15,      of PNS Inc.                 
               1996 (including the form of          
               Senior Subordinated Note.

     4.4       First Supplemental Indenture be-     Incorporated   by  reference
               tween PNS Inc., and Norwest Bank     from   Exhibit  4.2  to  the
               Minnesota, National Association      Quarterly   Report  on  Form
               as Trustee, relating to the          10-Q for the  quarter  ended
               12-1/8% Senior Subordinated          April 30, 1988.             
               Notes due July 15, 1996.             

    10.5       Letter Agreement dated               Incorporated   by  reference
               February 9, 1990 by and among        from    Exhibit    (i)    to
               PSSC Inc. and Bear Stearns &         Quarterly   Report  on  form
               Co., Inc. for the purchase and       10-Q for the  quarter  ended
               the financing of adjustable-rate     February 3, 1990.           
               mortgages.                           

    22.1       Subsidiaries of the Registrant.      Incorporated   by  reference
                                                    from   Exhibit   22.to   the
                                                    Annual  Report  on Form 10-K
                                                    for the year  ended  October
                                                    31, 1992.




                                       23
<PAGE>




                                   SIGNATURES
                                   ----------

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


                                             PSS, INC.
                                             (Registrant)




Date:  January29, 1998                       By: /s/ MARK TODES
                                                ---------------------
                                                Mark Todes, President





                                       24
<PAGE>


Pursuant to the requirements of the Securities Exchange Act of 1934, 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                           Title                         Signature



January 29, 1998                 Director
                                                         -----------------------
                                                              Gerald Nathanson

January 29, 1998                 Director                 /s/ MARK TODES
                                                         -----------------------
                                                              Mark Todes