<PAGE>

                        SECURITIES AND EXCHANGE COMMISSION  
                               WASHINGTON, D.C. 20549

                                     FORM 10-K

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

                     For the fiscal year ended January 30, 1998
                           Commission File Number 0-13076

                                LOT$OFF CORPORATION
               (Exact name of registrant as specified in its charter)
                                          
                       Delaware                            74-2640559
            (State or other jurisdiction       (IRS Employer Identification No.)
          of incorporation or organization)

                             1201 Austin Highway, #116
                           San Antonio, Texas 78209-4859
            (Address of principal executive offices, including ZIP Code)
                                          
                Registrant's telephone number, including area code:
                                  (210) 805-9300    
                                          
            SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

     TITLE OF EACH CLASS           NAME OF EXCHANGE ON WHICH REGISTERED
     -------------------           ------------------------------------
              NONE                                  NONE

            SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                                          
                                TITLE OF EACH CLASS
                                -------------------
                           COMMON STOCK, $0.01 PAR VALUE

     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 ]

     As of May 4, 1998, the aggregate market value of the voting stock held 
by non-affiliates of the Registrant, based on the closing sale price of the 
Common Stock of the Registrant as quoted on the National Association of 
Securities Dealers Bulletin Board was $28,064,000 (for purposes of 
calculating this amount only, directors, officers, and beneficial owners of 
5% or more of the common stock of Registrant have been deemed affiliates).

     The number of shares of the Common Stock of the Registrant outstanding 
as of May 4, 1998 was 4,157,810, which includes 1,596,420 shares held in 
escrow and awaiting distribution to holders of allowed general unsecured 
claims.  See Part II. Item 5. Market for Registrant's Common Stock and 
Related Stockholder Matters - Conversion of Series B Preferred Stock.  

<PAGE>

FORM 10-K INDEX
<TABLE>
                                                                     PAGE
                                                                     ----
                                       PART I    
<S>                                                                  <C>
ITEM 1    BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . .  3 
ITEM 2    PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . 12 
ITEM 3    LEGAL PROCEEDINGS  . . . . . . . . . . . . . . . . . . . . . 13 
ITEM 4    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS  . . . . 15 

                                       PART II

ITEM 5    MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED 
          STOCKHOLDER MATTERS  . . . . . . . . . . . . . . . . . . . . 15 
ITEM 6    SELECTED FINANCIAL DATA  . . . . . . . . . . . . . . . . . . 17 
ITEM 7    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 
          CONDITION AND RESULTS OF OPERATIONS  . . . . . . . . . . . . 18 
ITEM 8    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA  . . . . . . . . 22 
ITEM 9    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON 
          ACCOUNTING AND FINANCIAL DISCLOSURE  . . . . . . . . . . . . 22 
          
                                       PART III

ITEM 10   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT . . . . . 22 
ITEM 11   EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . 22 
ITEM 12   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS  
          AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . 22 
ITEM 13   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . 22 

                                       PART IV
           
ITEM 14   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON 
          FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . 22 
</TABLE>

                                       2

<PAGE>

                                       PART I

PRELIMINARY STATEMENT

     On October 9, 1996 (the "Petition Date"), 50-OFF Stores, Inc., a 
Delaware corporation ( "50-OFF"), and its significant subsidiaries (together, 
the "Debtors") filed voluntary petitions for relief under chapter 11 of the 
United States Bankruptcy Code (the "Bankruptcy Code") in the United States 
Bankruptcy Court for the Western District of Texas, San Antonio Division (the 
"Court").  At a confirmation hearing held on June 3, 1997, United States 
Bankruptcy Judge Leif M. Clark entered an order confirming the Debtors' Joint 
Plan of Reorganization, as Amended and Modified (the "Plan").  The Plan 
became effective June 16, 1997 (the "Effective Date").

     ON THE EFFECTIVE DATE, THE NAME OF THE COMPANY CHANGED TO LOT$OFF 
CORPORATION ("LOT$OFF OR THE "COMPANY").

ITEM 1.   BUSINESS 

     The Company, a regional, extreme value retailer specializing in 
close-out merchandise, operates 44 LOT$OFF stores  (Texas - 31, Louisiana - 
5, Oklahoma -4, New Mexico - 3 and Tennessee - 1) stocked with a broad mix of 
products which fluctuates by category, by season and by store based on 
customer needs and buying trends, demographics and the availability of 
products at close-out prices.  This merchandising concept is designed to 
appeal to value-conscious shoppers and other bargain hunters.  

OVERVIEW OF HISTORICAL OPERATIONS

     50-OFF's operating results in recent years were disappointing, 
reflecting weaknesses in retailing generally and in apparel retailing 
specifically.  The casualization of apparel hurt many apparel retailers; and 
regional, off-price retailers faced increased competition for the 
value-conscious consumers' purchases.  In addition, 50-OFF was especially 
hard hit by the last devaluation and continued deterioration of the Mexican 
peso and the economic turmoil along the Texas-Mexico border where 50-OFF 
operated thirteen 50-OFF stores, historically its best performing locations, 
and experienced a severe liquidity crisis due, in part, to the breach of 
certain foreign purchasers in an international offering by 50-OFF in late 
fiscal 1995 of their contractual obligations to purchase in aggregate 
1,500,000 shares of Old Common Stock at $3.65 per share ($5,475,000 in 
aggregate).  See Item 3.  Legal Proceedings below.

     While 50-OFF achieved strong growth in stores, sales and earnings from 
its development of the 50-OFF store concept in fiscal 1987, 50-OFF 
experienced net losses for its last four fiscal years.  When 50-OFF began to 
experience declines in comparable store sales and operating results, 
management made significant changes to its operations, including closing 
under performing stores, limiting new store openings to existing markets, 
recruiting new merchandising management and increasing sales of non-apparel 
merchandise as a percentage of total sales. 50-OFF's financial performance 
continued to be disappointing, and significant operating losses continued. 

     Faced with continuing, deteriorating results and the apparent consumer 
rejection of the 50-OFF retailing concept in almost all its markets, the 
Board of Directors supported a change of leadership in mid-May.  On May 7, 
1996, 50-OFF's Board of Directors accepted the resignation of Charles Siegel 
from his positions as President and Chief Executive Officer, as well as his 
position on the Board.  Mr. Siegel, who resigned to pursue other endeavors, 
was a co-founder of 50-OFF.  Upon accepting Mr. Siegel's resignation, the 
Board acted to appoint Charles J. Fuhrmann II to the positions of President, 
Chief Executive Officer and Chief Financial Officer.  Mr. Fuhrmann, a 
Director of 50-OFF since October 1994, had served in various consulting 
capacities for 50-OFF, including Acting Chief Administrative and Financial 
Officer until his new appointment.  Mr. Fuhrmann, a private investor and 
strategic and financial consultant, was formerly Managing Director-Investment 
Banking with Merrill Lynch & Co. in New York. 

                                       3

<PAGE>

     On May 13, 1996, 50-OFF entered into a revolving credit facility with 
Foothill Capital Corporation and GBFC, Inc. providing it with a line of 
credit through May 1998 of up to $22,500,000 and replacing a prior facility.  
The agreement contained various restrictive covenants, including financial 
covenants.  On August 8, 1996, 50-OFF was notified by the lenders that it was 
in violation of the minimum gross margin and the minimum working capital 
financial covenants of its credit agreement and that such breaches 
constituted events of default under the loan documents. The lenders 
subsequently established additional availability reserves which reduced 
availability, imposed certain increased fees and other charges and 
accelerated fees deemed earned at the initial closing, which, individually 
and together, substantially impacted 50-OFF's financial liquidity and, 
therefore, its ability to acquire and maintain much needed inventory for its 
stores.  50-OFF was unable to secure the resources required to cure the 
defaults under the loan documents and to implement its business plan and 
effect the changes believed necessary to improve operations and reverse its 
disappointing operating results without the protections afforded under the 
Bankruptcy Code.  As stated in the Preliminary Statement above, 50-OFF and 
its significant subsidiaries filed petitions for relief under chapter 11 of 
such Code in the Court on October 9, 1996.  As of November 1, 1996, 50-OFF 
had approximately $7,335,000 outstanding under the credit facility and, with 
the support and by order of the Court, was using cash collateral for working 
capital needs.  This facility was paid off in November 1996 with proceeds 
from a debtor in possession, senior secured revolving credit facility entered 
into with General Electric Capital Corporation ("GECC").

     In September 1996, the Board of Directors approved a plan which provided 
for the continued conversion of existing 50-OFF stores to LOT$OFF stores, a 
geographic consolidation of the chain (exiting Alabama, Arkansas, Florida, 
Georgia, North Carolina, South Carolina and most of Tennessee) and the 
liquidation or closing of at least 37 under-performing stores or stores 
located outside of the reduced market area (since mid-May 1996, the Company 
has closed 60 stores) with appropriate reductions in field and corporate 
overhead and staffing.  

     On October 8, 1996, the Board of Directors approved the Company's and 
its significant subsidiaries' filings of petitions for relief under the 
Bankruptcy Code, and, as stated above, on October 9, 1996, such petitions 
were filed in the Court.  The Company had been pursuing an infusion of 
capital, an external affiliation with a supplier of product and credit and 
additional concessions from lenders and landlords to secure the resources 
necessary to implement its business plan and to effect the changes believed 
necessary by management to achieve profitability.  Although management 
believed it had developed an appropriate plan for the Company, the Company 
was unable to secure the necessary concessions and resources to improve 
operations and to reverse operating trends and its disappointing operating 
results and was forced to seek the protections afforded under the Bankruptcy 
Code.

REORGANIZATION PLAN

     From the Petition Date to the Effective Date, 50-OFF operated its 
business as a debtor in possession pursuant to sections 1107 and 1108 of the 
Bankruptcy Code while management formulated and promoted a plan of 
reorganization.  A copy of the Plan was filed with the Securities and 
Exchange Commission (the "SEC"). On March 20, 1997, the Court approved the 
Disclosure Statement with respect to the Plan as containing adequate 
information in accordance with section 1125 of the Bankruptcy Code.  Such 
Statement was mailed to all creditors of the bankruptcy estates and all 
holders of Public Equity Interests as of March 21, 1997 and was also filed 
with the SEC.  "Public Equity Interests" refer to the common stock of 50-OFF 
Stores, Inc., sometimes referred to herein as "Old Common Stock," which was 
canceled upon the Effective Date, along with all then existing options and 
warrants to buy such stock.  

     The Plan required that the Company's existing senior secured revolving 
credit facility lender, GECC, provide a post-confirmation revolving credit 
facility or be replaced by a new senior secured lender so that the Company 
would have a source of revolving funds to continue to operate.  GECC provided 
such financing.  The Plan also provided for the restructure of the Company's 
secured obligation to MetLife Capital Corporation ("MetLife") at a face 
amount of $850,000; and the Plan provided for the payment of such amount over 
approximately seven years.  MetLife agreed to such treatment with the balance 
of its claim (approximately $3.3 million) becoming an allowed general 
unsecured claim.  The Plan provided for the cancellation of all non-priority 

                                       4

<PAGE>

unsecured indebtedness of 50-OFF.  See Note 4 of Notes to Consolidated 
Financial Statements. 

     Under the Plan, as further modified by Court order on March 19, 1998, 
each holder of an allowed general unsecured claim will, in partial 
cancellation of its allowed claim ($3,991,050 in the aggregate), receive a 
pro rata share of 1,596,420 shares of LOT$OFF's common stock (the "Common 
Stock").  Certain further obligations of the Company to such holders of 
allowed general unsecured claims are secured by a lien up to the full face 
amount of the balance of their allowed claims against potential net lawsuit 
proceeds over $3,991,050 from significant litigation being prosecuted by the 
Company.  As net proceeds over $3,991,050 (net of certain items set forth in 
the Plan) from such litigation are received by the Company, holders of 
allowed general unsecured claims will receive Common Stock and/or cash 
(provided that at least the "excess" net proceeds, up to $1.5 million as 
defined in the Plan, will be paid in cash).  The receipt of such Common Stock 
and/or cash by holders of allowed general unsecured claims will result in a 
proportionate release of the lien.  By issuing such Common Stock and/or 
paying such cash to allowed general unsecured creditors, such creditors will 
be essentially receiving the net value of the Company's significant 
litigation which was pending pre-Petition Date up to the full face amount of 
their allowed claims.  See Item 3.  Legal Proceedings below.

     Finally, the Plan provided for the recapitalization of the Company 
through cash raised from 50-OFF's existing common stockholders (the "Rights 
Offering") and potentially, as discussed above, from the litigation.  
Specifically, the Plan provided for the issuance to such stockholders of 
rights to subscribe for units, each consisting of 20 shares of  Series A 
Preferred Stock and 20 shares of Common Stock (a "Unit").  Up to 122,009 
Units and a minimum of 30,500 Units could be sold in the Rights Offering.  
The record date for determining which 50-OFF stockholders were entitled to 
vote on the Plan and receive such rights was March 21, 1997.  Persons who 
acquired Public Equity Interests after such record date were not entitled to 
vote on the Plan or subscribe for Units pursuant to the Rights Offering. The 
Rights Offering expired on May 22, 1997.  Subscriptions received in the 
Rights Offering were held in escrow with Bank One, Texas N. A. pending the 
Effective Date of the Plan.  The gross proceeds from the Rights Offering were 
$4,280,400.  Such proceeds were used to provide working capital for increased 
inventories for the Company's stores, to support the Company's operations and 
to pay for the Company's exit from bankruptcy.

OPERATIONS IN BANKRUPTCY

     For the fifty-two week period ended January 31, 1997, 50-OFF had net 
sales of $106.2 million, down 39.3% from the comparable prior year period's 
$175.0 million, and 50-OFF's loss before income taxes rose to $43.5 million 
(including write-downs of inventories of approximately $5.4 million and 
write-offs of leasehold improvements in stores closed or scheduled for 
liquidation and closing and reorganization expenses, including landlord lease 
rejection claims, totaling approximately $23.9 million) from $6.8 million for 
the prior fiscal year.  50-OFF operated a weighted average of 82.8 stores in 
the period ended January 31, 1997 as compared to 104.0 stores in the 
comparable prior year period.  

     While in chapter 11, 50-OFF operated its business as a debtor in 
possession while formulating and promoting its Plan originally filed February 
6, 1997 with the Court:

     -    liquidating and closing 60 stores;
     -    reducing its geographic presence (exiting Alabama, Arkansas, Florida,
          Georgia, North Carolina, South Carolina and most of Tennessee);
     -    closing one of two freight consolidation and distribution centers and
          moving the remaining center to San Antonio;
     -    downsizing its corporate staff and field personnel (corporate and
          distribution: 177 to 31; field and stores: 967 full time, 1,482 part
          time to 382 and 425, respectively);
     -    selling its headquarters building and leasing appropriate, reduced
          space;
     -    refinancing its principal credit facility through GECC's providing a
          line of credit of up to $15,000,000;

                                       5

<PAGE>

     -    restoring credit facilities with vendors (from 100% prepaid to
          approximately 35% terms at fiscal 1997 year end);
     -    redirecting its retail activities from an off-price ("50-OFF") to an
          extreme value, close-out ("LOT$OFF") retailing concept;
     -    restructuring its merchandising department, including a new Vice
          President-Merchandise and a new Vice President-Marketing;
     -    changing its inventory mix from 25.9% (May 1996) to 45.8% (May 1997)
          non-apparel through category additions;
     -    developing marketing and advertising strategies and programs to revive
          and increase store traffic; and 
     -    generally positioning itself for improved operating results (higher
          initial mark-ups, less promotional pricing, fewer markdowns and less
          inventory shrinkage).  

     For the first six months of fiscal 1998, the Company's sales remained 
disappointing, due principally to inventory imbalances among the 41 
continuing stores and the lack of resources to effectively promote customer 
traffic to the stores.   Results for the twenty-six weeks ended August 1, 
1997 were net sales of $22.3 million and a net loss, including reorganization 
items, of $4.8 million from a weighted average 41.3 stores.  Comparable 
results for the prior year's comparable period were net sales of $64.1 
million and a net loss of $22.5 million from a weighted average 100.4 stores.

OPERATIONS POST-CONFIRMATION

     Management has been redirecting the Company's retail activities from 
50-OFF's off-price retailing concept to LOT$OFF's extreme value, close-out 
retailing concept.  Coincident and consistent with this change has been a 
change in the mix of products, historically a majority in family apparel, to 
a majority in non-apparel merchandise, principally through the addition of 
new product categories and the elimination of apparel categories subject to 
substantial markdowns and inventory shrink.  The Company continues to 
maintain a healthy showing of basic family apparel products in its stores.  
The actual merchandise mix fluctuates by category, by season and by store 
based on customer needs and buying trends, demographics and the availability 
of products at close-out prices.  This merchandising concept is designed to 
appeal to value-conscious shoppers and other bargain hunters, and management 
is hopeful its continued implementation will lead to higher initial mark-ups, 
less promotional pricing, fewer markdowns, low inventory shrinkage, increased 
store traffic and improved operating results.  The Company's business plan is 
focused on achieving higher gross margins, higher store contribution and 
controlled corporate overhead, all promoting overall profitability, and on 
being a major factor in extreme value retailing in Texas.  The key elements 
of this strategy included the geographic consolidation of the chain, the 
liquidation and closing of under-performing stores or stores located outside 
of the reduced market area with appropriate reductions in field and corporate 
overhead and staffing, the conversion of the continuing 50-OFF stores to 
LOT$OFF stores (only 14 of the 41 continuing stores had been converted as of 
the filing of the voluntary bankruptcy petitions on October 9, 1996) and a 
reduced overhead structure.   

     Post-confirmation:

     -    all 41 continuing stores have been converted to LOT$OFF stores;
     -    three new stores have been opened in San Antonio (2) and Fort Worth
          (1), Texas;
     -    a separate Chief Financial Officer has been  added to the corporate
          staff;
     -    a mutually-acceptable settlement was reached with defendant Banque
          Paribas (Suisse) S.A. in an important lawsuit (see Item 3.  Legal
          Proceedings below);
     -    a substantial jury verdict was achieved and a judgment entered in the
          Company's favor against The Chase Manhattan Bank in a stock conversion
          lawsuit (see Item 3.  Legal Proceedings below);
     -    comparable store merchandise sales increases of 44.3%, 29.7% and 32.8%
          were experienced in November and December 1997 and January 1998,
          respectively;
     -    credit facilities with vendors have been restored (from 65% prepaid at
          fiscal 1997 year end to 100% terms at fiscal 1998 year end);

                                       6

<PAGE>

     -    an agreed settlement was reached with Jefferies & Company, Inc. and
          Jefferies International Limited in an important lawsuit (see Item 3. 
          Legal Proceedings below);
     -    the corporate headquarters/store support center has been moved to a
          new, more practical and convenient location at a substantial on-going
          cost saving;
     -    the inventory mix objective has been achieved with a change from 74.1%
          apparel and 25.9% non-apparel (May 1996) to 69.7% non-apparel and
          30.3% basic apparel (March 1998);
     -    a Director of Merchandising has been added to the field executive
          staff;  
     -    on April 17, 1998, a contingent claim on a $10,000,000 portion of the
          potential net proceeds from the $148,575,000 judgment against The
          Chase Manhattan Bank was acquired by General Electric Capital
          Corporation for $5,800,000, or 58 cents on the dollar, substantially
          enhancing the Company's financial position (see Part II. Item 7. 
          Management's Discussion and Analysis of Financial Condition and
          Results of Operations - Liquidity and Capital Resources and Note 13 of
          Notes to Consolidated Financial Statements); and
     -    comparable store and total merchandise sales increased 4.1% and 6.5%,
          respectively, for the thirteen weeks ended May 1, 1998.

     The management team is now concentrating on optimizing the contribution 
from store operations while maintaining only the absolute minimum amount of 
corporate overhead necessary to support store operations, on collecting on 
significant judgments with respect to important litigation and on maximizing 
shareholder value.

GENERAL BUSINESS PHILOSOPHY

     LOT$OFF's mission is to create a shopping experience that surpasses 
customers' expectations as it seeks to be a leading extreme value retailer of 
close-out merchandise to low-to-moderate income customers and other bargain 
hunters in the markets it serves.  The major elements of the Company's 
strategy include:

     -    Value Leadership:  LOT$OFF intends to offer its customers a broad
          selection of quality merchandise that maintains the credibility and
          integrity of the Company's value pricing structure while providing a
          pleasant and convenient shopping experience.

     -    Distinctive Marketing:  The Company plans to differentiate itself from
          other retail stores through its close-out purchasing and extreme value
          pricing.

     -    Purchasing at Close-out Prices:  The Company will purchase its
          merchandise at close-out (substantially lower than regular wholesale)
          prices relying upon its buyers' knowledge of, and reputation among,
          manufacturers and other vendors and its willingness to purchase in
          large quantities, in special situations, in odd lots and for immediate
          delivery.

     -    Merchandise:  The Company will offer a mix of products that may
          fluctuate by category, by season and by store based on consumer needs
          and buying trends and availability of products at close-out prices.

     -    Merchandising:  The Company will present its inventory to maximize
          sell-through.

     -    Emphasis on Low Operating Costs:  The Company will focus on
          maintaining low operating costs through a cost-effective, 
          cross-the-dock distribution system, its approach to store leases 
          (traditionally in strip centers), its potentially low store operating 
          expenses, disciplined corporate overhead and a corporation-wide effort
          to minimize inventory shrinkage.

     -    Store Maturity:  The Company will concentrate on developing existing
          stores to full maturity and profitability.  Over time, the Company
          believes a store builds recognition and customer loyalty as management
          adjusts the store's merchandise mix in response to local consumer
          preferences.

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     -    Expansion:  The Company's long-term development plan is to expand its
          regional presence in existing and new markets, especially in Texas. 
          For the foreseeable future, however, the Company will limit any store
          openings to existing and new markets in Texas, and any such opening
          will be based on an evaluation of the sales and income performance of
          existing stores and the ability to obtain leases for desirable
          locations.

MERCHANDISING

     LOT$OFF stores primarily offer moderately priced, regionally and 
nationally advertised merchandise, including basic family apparel as well as 
non-apparel goods.  To respond to a sluggish economy for apparel sales, as 
consumers concentrated more on home decor and improvement purchases, the 
Company increasingly emphasized the merchandising of non-apparel products, 
which generally have higher maintained gross margins.  As discussed above, 
with the implementation of the LOT$OFF concept, management has redirected the 
Company's retail activities from off-price to extreme value, close-out 
retailing. Coincident and consistent with this change is a change in the mix 
of products, historically a majority in family apparel, to a majority in 
non-apparel offerings.  The Company continues to maintain a healthy showing 
of basic family apparel products in LOT$OFF stores.  The actual merchandise 
fluctuates by category, by season and by store based on consumer needs and 
buying trends, demographics and the availability of products at close-out 
prices.  This merchandising concept is designed to appeal to value-conscious 
shoppers and other bargain hunters, and management is hopeful its 
implementation will lead to higher initial markups, less promotional pricing, 
fewer markdowns, low inventory shrinkage, increased store traffic and 
improved operating results.

     Merchandise, previously ticketed at twice the sales price at 50-OFF 
stores, is now ticketed "Priced Right at" the price to be paid by customers 
for their convenience, to avoid confusion at the cash registers and to 
minimize shrinkage in the LOT$OFF stores.  These prices are based upon a 
combination of factors which include:  the prices paid for such merchandise; 
the wholesale prices paid by others and traditional markups; manufacturers' 
suggested retail prices; locally and nationally advertised prices; and 
comparison shopping by the Company's buyers, distributors, new Director of 
Merchandising and district and store managers.

     In each store, apparel is neatly displayed on modern fixtures.  Other 
merchandise, including certain prepackaged apparel items, is conveniently 
displayed on gondolas or tables within easy reach of customers.  New store 
layouts include a central core for seasonal product presentations, featured 
items and special promotions.  While principally a self-service store 
operation, the Company strives to make personnel promptly available to 
customers desiring assistance.  Purchases are made at cash registers located 
at the front of each store, near the entrance and exit doors.

     As stated above, store merchandising techniques include a center core of 
merchandise as one enters a store, which, when appropriate, will feature a 
seasonal theme:  

          Valentine's Day          Easter
          Mothers' Day             Summer
          Back-to-school           Halloween
          Thanksgiving             Christmas

or a quarterly "Clean Sweep" or other themed concept.  This area features 
products from any category which relate to that season or concept and, when 
not themed, features the latest buyout(s).  The rest of the offerings are 
presented by category, with hardlines and domestics product presented 
primarily on gondolas or in case-cut floor stacks and apparel featured on 
four ways and round and straight racks.  The floor layout varies, based on 
the size and shape of a store, but a consistent flow from one category to the 
next is present in each store.  Each store is stocked based on the specific 
demographics of each location with input from store management and other 
store personnel.  Each store is encouraged to communicate directly with 
buyers, the new Director of Merchandising and distributors, as well as to one 
of three district managers, as to their needs and customers' requests.

                                       8


<PAGE>

ADVERTISING AND MARKETING

     The Company is implementing its own advertising and marketing program, 
focusing on direct mail and other print advertising.  Electronic media is 
used for special events/seasons only.  

     The Company has developed pricing statements which accentuate the low 
price image implied by the Company's name and logo, "LOT$OFF - THE ULTIMATE 
CLOSE-OUT STORE."  The pricing statements, "Priced Right.  In Your 
Neighborhood" and "Quality Merchandise.  Close-out Prices," capitalize on the 
low price image, while highlighting the quality merchandise benefit and 
convenience. These pricing statements are communicated to customers through 
in-store signs and print media.

     LOT$OFF's customers are 60 percent female and 40 percent male, 25 to 50 
years old and have an average annual income of $15,000 to $45,000 per 
household. Their ethnic make-up is 30 percent Anglo, 30 percent Afro-American 
and 40 percent Hispanic.  Special efforts are made to reach military families 
in markets with a large military presence, and sales to senior citizens are 
also promoted with a special discount on certain days.  The effective means 
of communication is direct mail to residences with electronic media used for 
special events.  These customers shop seeking the best value, not necessarily 
the lowest price, and are influenced by nationally advertised brands. 

PURCHASING

     The Company's three buyers purchase goods at substantially lower than 
regular wholesale prices from manufacturers and other vendors.  The following 
factors contribute to the Company's ability to obtain quality merchandise at 
reduced wholesale prices:

     -    manufacturers' overproduction;
     -    cancellations of orders by other retailers;
     -    merchandise which does not meet other retailers' delivery deadlines
          for various reasons, including import delays;
     -    merchandise not shipped to other retailers that have credit problems;
     -    ability of the Company to buy goods at a time closer to a target
          season, or, in some cases, out of season, which is generally not the
          normal buying pattern of most other retail stores;
     -    excess merchandise accumulated by vendors;
     -    packaging changes by manufacturers;
     -    increased availability of imports from the Far East in the form of
          close-outs and in-stock overruns; 
     -    utilization of left-over piece goods available after production for
          traditional department stores;
     -    discontinued goods;
     -    ability to commit for categories of merchandise produced specifically
          for the Company; and
     -    ability of the Company to prepay or accept abbreviated credit terms.

     The Company has historically purchased merchandise from more than 1,300 
manufacturers and other vendors.  No single manufacturer or other vendor 
supplied a significant percentage of the Company's merchandise during the 
last fiscal year, or, in the opinion of the Company, was material to its 
operations. In the future, however, the Company may seek strategic 
alliance(s) with certain manufacturers and/or other vendors.  Financial 
credibility and good relationships with manufacturers and other vendors, 
generally, are critical to the Company's operations.

     As stated above, LOT$OFF's inventory is purchased by a team of three 
buyers from a large number of suppliers who provide product and credit for 
these categories:

     basic family apparel          domestics                accessories 
     hosiery                       lingerie                 houseware
     health and beauty items       household chemicals      home decor     

                                       9

<PAGE>

     toys                          consumer electronics     giftware       
     seasonal goods                small appliances         automotive     
     shelf-stable food             sporting goods           books          
     hardware                      party supplies           pet supplies   
     lawn and garden supplies      infants                  trim-a-tree

     Approximately 30 percent of purchases are of "in-line" promotional 
product such as greeting cards (sold at a 40 percent discount from everyday 
pricing), imports, certain seasonal items and basic commodities, including 
hosiery and socks.  The remaining 70 percent of purchases are principally 
from manufacturers' overruns, cancellations by other retailers, refurbished 
electronics, buy-backs, late in the season product and packaging changes.  
All purchases are opportunistic buys, bought with customer price points in 
mind.

INVENTORY MONITORING

     The Company's computerized management information system, featuring 
double-bar-code-scanning, point-of-sale cash registers in all of its stores 
and a computerized perpetual inventory system, permits corporate management 
to review each store's inventory on a daily basis.  This system enables the 
Company to closely monitor its inventory needs and coordinate its purchase 
orders.

DISTRIBUTION SYSTEM

     Substantially all of the Company's merchandise is shipped directly from 
manufacturers or vendors to store locations through a Company operated 
freight consolidation point in San Antonio, Texas.  This cross-the-dock 
distribution system generally allows merchandise delivery to the Company's 
stores as quickly as ten days after placing an order and, in addition, gives 
the Company the flexibility to purchase merchandise for all or a small number 
of its stores.

STORE OPERATIONS

     Substantially all merchandise decisions with respect to product mix, 
prices, markdowns, marketing and advertising are made by management at the 
Company's store support center in San Antonio, Texas.  The Company has three 
district managers and a new Director of Merchandising who visit each of the 
Company's stores on a regular basis to review the implementation of Company 
policy, monitor operations and review inventories and the presentation of 
merchandise.  Accounting and general financial functions for the Company's 
stores are also conducted at the store support center.  Each store has a 
manager and one or more assistant managers responsible for store sales and 
profitability, supervision and overall operations.  

EMPLOYEES

     The Company has completed a major downsizing and by the end of fiscal 
1997 was staffed to fit its then 41 store core business group.  At May 5, 
1996, the Company had 1,134 full time employees (101 corporate management, 
administrative and clerical personnel, 10 buyers, 56 logistics personnel and 
967 store management and store personnel) and 1,482 part-time store 
employees.  After the substantial cutbacks in personnel and the restructuring 
of responsibilities to reflect both the reduction in stores and the increased 
emphasis on cost and expense containment, the Company currently has 
approximately 402 full time employees (28 corporate management, 
administrative and clerical personnel, 3 buyers, 11 logistics personnel and 
360 store management and other field personnel) and 446 part-time employees.  
Additional part-time employees are usually hired during the busier 
Easter/spring, "Back-to-School" and Christmas/holiday selling seasons.  None 
of the Company's employees is represented by a union, and employee relations 
are considered satisfactory.

                                       10

<PAGE>

COMPETITION  

     The Company faces intense competition for customers, for access to 
quality merchandise and for suitable store locations from regional and 
national extreme value, close-out, off-price and discount retail chains, 
traditional department stores and specialty retailers.  Most of the Company's 
competitors have greater financial and marketing resources than the Company, 
including companies with similar concepts (Consolidated Stores Corporation:  
Odd Lots, Big Lots and MacFrugal's stores; 99-Cents Only Stores; Dollar Tree 
Stores; and Mazel Stores, Inc.:  Odd Job stores; among others).  In addition, 
in the recent past the Company has experienced more direct price competition 
from certain department store chains for limited time periods as a result of 
promotional pricing activity.  The Company may face similar periods of 
intense competition in the future, which could have an adverse effect on its 
financial results.

GEOGRAPHIC CONCENTRATION OF OPERATIONS  

     The Company's stores are located in the South and Southwest, and a 
majority are located in Texas.  Consequently, the Company's results of 
operations and financial condition are dependent upon general trends in the 
economy of these markets.  In the event of adverse economic conditions in 
these markets, retail spending may decline, resulting in a decrease in the 
Company's  retail sales.

MEXICAN ECONOMIC CONDITIONS  

     Although the Company has in recent years significantly reduced its 
dependence upon border store operations by the reduction of its border 
presence (from 13 to eight stores), 50-OFF's activities were historically 
dependent to a significant degree upon its stores located in Texas cities 
along the Mexican border, and such stores continue to represent an important 
portion of the Company's business.  During fiscal 1998, approximately 20.9% 
of the Company's net sales were attributable to the Company's eight border 
stores. 

     Mexican peso devaluations and duty-free import restrictions, and the 
enforcement thereof, have from time to time significantly reduced purchases 
by Mexican nationals, who constitute a significant portion of the Company's 
customers in certain of its border locations, and have resulted in decreases 
in sales during such periods.  The Mexican Government devalued the peso and 
subsequently released it for free exchange just prior to Christmas 1994 (late 
fiscal 1995), and the Company has experienced a significant drop in sales 
from border markets from historical levels ever since.  The economic weakness 
along the border and further erosion of the peso negatively affected sales 
and operating results in 50-OFF's 13 border stores throughout fiscal 1996; 
50-OFF's border stores experienced an approximately $10.2 million (32.0%) 
drop in sales to $21.8 million for fiscal 1996 compared to $32.0 million for 
fiscal 1995. With the continued erosion of the value of the peso well into 
fiscal 1997, sales in 50-OFF's continuing border stores continued to suffer.  
The eight continuing border stores experienced a 34.2% drop in sales in 
fiscal 1997 (to approximately $10.1 million) as compared to their fiscal 1996 
results (approximately $15.4 million); some of the drop, of course, is 
attributable to 50-OFF's inability to maintain inventories at appropriate 
levels due to its liquidity problems which continued for the Company well 
into fiscal 1998.  In fiscal 1998, the eight border stores experienced a 2.9% 
drop in sales (to approximately $9.8 million) as compared to their fiscal 
1997 results, but fourth quarter sales showed an increase of 47.1% over the 
sales for the prior fiscal year's comparable period. For the thirteen weeks 
ended May 1, 1998, merchandise sales in the eight border stores increased 
4.8% over such sales for the comparable fiscal 1998 period. While the Company 
cannot predict the ultimate effect on future results, any weakness in the 
border economy and negative comparable peso values would have a negative 
effect on sales and other operating results.  

                                       11

<PAGE>

SEASONALITY AND QUARTERLY FLUCTUATIONS

     As with most retailers, highest net sales and operating income are 
experienced during the fourth quarter, which includes the Christmas/holiday 
selling season.  Otherwise, LOT$OFF's business is heaviest on weekends 
(Friday through Sunday) and at the beginning of each month.  Any adverse 
trend in net sales for the fourth quarter could have a material adverse 
effect upon the Company's overall profitability and adversely affect its 
results of operations for an entire fiscal year.  See Note 12 of Notes to 
Consolidated Financial Statements.

     In additional to seasonality, the Company's results of operations may 
fluctuate from quarter to quarter as a result of the timing of store 
openings, including the level of advertising and pre-opening expenses 
associated with such openings, as well as other factors.

FORWARD-LOOKING INFORMATION

     This Form 10-K contains various forward-looking statements and 
information that are based on management's beliefs as well as assumptions 
made by and information currently available to management.  When used in this 
document, the words "believe," "expect," "anticipate" and similar expressions 
are intended to identify forward-looking statements.  Such statements are 
subject to certain risks, uncertainties and assumptions including those 
identified herein.  Should one or more of these risks or uncertainties 
materialize, or should underlying assumptions prove incorrect, actual results 
may vary materially from those anticipated, estimated or projected.  In 
addition to the other risk factors set forth above, among the key factors 
that may have a direct bearing on the Company's results are competitive 
practices in the close-out merchandising industry generally and particularly 
in the Company's targeted market and the ability of the Company to fund its 
continuing operations in the event of adverse industry or economic conditions.

ITEM 2.   PROPERTIES

     The Company's 44 stores (including one annex) are all leased and range 
in size from 6,064 to 50,000 square feet, with most containing at least 
17,000 square feet of selling space.  Stores average approximately 25,900 
square feet (22,120 square feet of selling space) and are located in both 
urban and suburban markets and in strip centers, enclosed malls and stand 
alone units.  The Company's policy is to locate stores in areas where 
demographics indicate that its targeted customers have easy access to the 
location and where the targeted customer base is large enough to support a 
store.  

     The Company opened a total of five stores in fiscal 1996, one store in 
fiscal 1997 and three stores in late fiscal 1998.  The Company currently 
expects to open or move as many as 10 stores in fiscal 1999.  The Company 
closed 14 stores during fiscal 1996.  In fiscal 1997, the Company closed one 
store prior to the filing under chapter 11 of the Bankruptcy Code and 57 
stores after the filing.  The Company closed three stores in fiscal 1998 
(February 1997).  The Company currently expects to close as many as four 
stores, including its store in Lawton, Oklahoma by May 5, 1998, in fiscal 
1999 as a result of negotiated lease cancellations, lease expirations and/or 
the Company's not exercising its renewal options.

     During fiscal 1998, the Company incurred and expensed an aggregate of
approximately $4,372,000 in fixed rent and a nominal amount of additional
percentage rent.  Minimum rental commitments (excluding renewal options) under
leases having a term of more than one year at January 30, 1998 are approximately
$4,140,000 for the fiscal year ending January 29, 1999.  The Company plans to
downsize some continuing stores and to attempt to renegotiate rental rates on
certain remaining leases.

                                       12

<PAGE>

     The following is a list of the 44 stores the Company is currently 
operating by state and city (total: 1,131,957 square feet;  893,267 square 
feet selling space).

-------------------------------------------------------------------------------
LOUISIANA (5)       OKLAHOMA (4)        TEXAS (31)            TEXAS (CONTINUED)
-------------------------------------------------------------------------------
Baton Rouge (2)     Lawton              Amarillo              Laredo 
-------------------------------------------------------------------------------
Bossier City        Oklahoma City (3)   Austin                Lubbock  
-------------------------------------------------------------------------------
New Orleans                             Brownsville           McAllen 
-------------------------------------------------------------------------------
Shreveport          TENNESSEE (1)       Corpus Christi        Midland  
-------------------------------------------------------------------------------
                    Memphis             Dallas-Fort Worth (5) Pharr 
-------------------------------------------------------------------------------
NEW MEXICO (3)                          El Paso (2)           Roma (and annex) 
-------------------------------------------------------------------------------
Albuquerque (3)                         Harlingen             San Antonio (8)  
-------------------------------------------------------------------------------
                                        Houston (4)           Waco  
-------------------------------------------------------------------------------

     In most of the Company's stores, a small portion of selling space is 
subleased to an unaffiliated party operating shoe departments.  Such 
subleases provide for a percentage rent payable to the Company equal to 12% 
of the net sales of such departments.  In certain of the San Antonio, Texas 
stores, a small portion of selling space is subleased to an unaffiliated 
party operating jewelry departments at 10% percentage rent.  The rental 
income from the subleases is included in the Company's reported net sales 
figures.

     Typical store leases have primary terms of five to ten years with at 
least one five-year renewal option.  Some leases have provisions that allow 
the Company, and in a few cases the landlord, to terminate the lease during 
the primary term based on the Company's store not reaching predetermined 
sales levels.  Most of the Company's leases provide that the landlord will 
pay for the major portion of leasehold improvements or allow the Company to 
recover its expenditures for such improvements in the form of reduced rent.

     The Company operates an approximately 40,000 square foot freight 
consolidation, ticketing and cross-the-dock distribution facility in San 
Antonio, Texas under a month-to-month lease at $12,400 per month.

     The Company owns its equipment, furniture and fixtures which are 
well-maintained and suitable for its present store requirements.  The Company 
sold its store support center in San Antonio, Texas for gross proceeds of 
$1,440,000 on January 14, 1997 and leased back the reduced portion of the 
building occupied by the downsized corporate staff for $18,001 per month to 
February 1, 1998.  On February 1, 1998, the Company leased a new facility to 
house its store support center (corporate) staff for $10,288 per month 
through January 2003.       

     The Company has registered its principal logos, "LOTSOFF" and "LOT$OFF" 
as service marks in the principal register with the U.S. Patent and Trademark 
Office. 

ITEM 3.   LEGAL PROCEEDINGS

     As was discussed above, among the principal reasons for 50-OFF's having 
to file for bankruptcy protection was a severe liquidity crisis caused in 
part by the breach of certain foreign purchasers of their contractual 
obligations to purchase in aggregate 1,500,000 shares of Old Common Stock at 
$3.65 per share ($5,475,000 in aggregate) in an international (Regulation S) 
offering by 50-OFF in late fiscal 1995.  50-OFF filed two lawsuits relating 
to this matter. 

     On February 21, 1995, 50-OFF filed a lawsuit [50-OFF STORES, INC. V. 
                                                  -----------------------
BANQUE PARIBAS (SUISSE), S.A., BETAFID, S.A., YANNI KOUTSOUBOS, ANDALUCIAN 
--------------------------------------------------------------------------
VILLAS (FORTY EIGHT) LIMITED, ARNASS LIMITED, BROCIMAST ENTERPRISES LTD., 
-------------------------------------------------------------------------
DENNIS MORRIS, HOWARD WHITE, CHASE MANHATTAN BANK, N.A. AND ARIES PEAK, INC., 
-----------------------------------------------------------------------------
Case No. 

                                       13

<PAGE>

SA-95-CA-0159] in the United States District Court in San Antonio, Texas 
against Banque Paribas (Suisse) S.A. ("Paribas"), Betafid S.A., Chase 
Manhattan Bank, N.A. ("Chase") and certain affiliated individuals and 
companies in connection with the theft of 1,500,000 shares of  Old Common 
Stock which certain of the defendants had agreed to purchase at $3.65 per 
share.  Among other counts, the lawsuit alleged breach of contracts, 
securities fraud, conspiracy and conversion.  The conversion claim related to 
actions of the defendants in transferring, selling and trading the shares 
despite the fact that the defendants had never paid for such shares.  50-OFF 
sought recovery of actual and punitive damages and pre- and post-judgment 
interest. 

     On October 14, 1997, the trial of this case began before the Honorable 
H.F. Garcia.  Defendants, Paribas, Chase and Dennis Morris, appeared and 
announced ready for trial.  On November 14, 1997, after four weeks of 
evidence, the Company entered into a Settlement Agreement and Full and Final 
General Release with Paribas.  As part of the settlement, Paribas agreed to 
pay the Company $2,400,000 (of which the Company received $1,800,000 after 
attorneys' contingent fees but before other related expenses) in exchange for 
which the Company agreed to dismiss all claims against Paribas with 
prejudice.  The Company also dismissed all claims against Dennis Morris; 
however, such dismissal was not the result of a settlement agreement between 
the parties.  

     On November 20, 1997, at the close of evidence, the Company obtained a 
jury verdict against Chase on its claim of conversion in the amount of 
$150,975,000, representing $12,975,000 in actual damages and $138,000,000 in 
punitive damages. On November 21, 1997, the Company moved the court to enter 
a final judgment against Chase in the amount of $148,575,000, which reflects 
the jury's verdict, minus a credit for Paribas' settlement amount.  In 
addition to the verdict against Chase, the Company obtained a $30,000,000 
default judgment against Yanni Koutsoubos on its claims for violation of 
Section 10b-5 of the Securities Exchange Act and common law fraud.  Such 
judgment represents $10,000,000 in actual damages and $20,000,000 in punitive 
damages.  On December 4, 1997, the court entered a judgment against Chase in 
the Company's favor for $148,575,000 plus costs of court, pre-judgment 
interest on $12,975,000 at 10% per annum from November 18, 1994 until 
December 4, 1997 and post-judgment interest on the entire judgment amount at 
5.42% from December 4, 1997.  Subsequently, Chase filed five post-judgment 
motions with the court:  motion for new trial; motion to alter or amend the 
judgment; renewed motion for judgment as a matter of law; motion to apply a 
settlement credit and motion for leave to conduct oral deposition; and motion 
for hearing.  On February 23, 1998, the court, having considered such 
motions, the supplements to such motions, the response of the Company to such 
motions and the entire record in the cause, denied all of Chase's 
post-judgment motions. Chase has given notice that it will appeal the 
judgment entered by the court to the Fifth Circuit Court of Appeals in New 
Orleans.  The Fifth Circuit Court of Appeals has requested and arranged a 
pre-hearing conference among the parties in New Orleans beginning on May 14, 
1998.

     On April 6, 1998, the court entered default judgments against 
Betafid S. A., Andalucian Villas (Forty-Eight) Limited, Arnass Limited, 
Brocimast Enterprises Limited, Howard White and Aries Peak, Inc. on the 
Company's claims for violations of  Section 10b-5 of the Securities Exchange 
Act and common law fraud.  Such judgments total $166,275,000, plus pre-judgment
interest on $12,975,000 at 10% per annum from November 18, 1994 until April 6, 
1998 and post-judgment interest on the entire amount at 5.31% from April 6, 
1998.

     The Company intends to vigorously pursue the favorable judgments 
obtained against defendants in the above matter.  The Company, based upon 
advice from counsel, believes that it will obtain a favorable result in the 
appeal of the judgment against defendant Chase referenced in the above 
proceeding.  The Company intends to vigorously pursue all remedies to collect 
the sums owing to the Company as per the judgments that have been obtained 
against the other defendants, although the collectibility of these judgments 
is uncertain.  Akin, Gump, Strauss, Hauer & Feld, L.L.P. represents the 
Company in these matters on a contingency fee basis.

     On January 9, 1996, 50-OFF filed a lawsuit [50-OFF STORES, INC. V. 
                                                -----------------------
JEFFERIES & COMPANY, INC. AND JEFFERIES INTERNATIONAL LIMITED, Cause No. 
-------------------------------------------------------------
96-CI-00349] in Bexar County District Court, San Antonio, Texas against its 
placement agents in the securities offering referenced in the lawsuit 
discussed above. The suit alleged that the defendants breached their 
contracts with 50-OFF and breached their fiduciary duties to 50-OFF by 
failing to investigate properly the qualifications of the purchasers that 
they introduced to 50-OFF.  The Company also 

                                       14

<PAGE>

asserted securities fraud claims against the defendants in connection with 
the transaction.  50-OFF sought to recover actual and exemplary damages in 
excess of $10,000,000, pre- and post-judgment interest, costs and attorney's 
fees.  On January 16, 1998, the Company reached an agreed settlement for 
$4,300,000 with Jefferies & Company, Inc. and Jefferies International Limited 
and received $3,000,000 after attorneys' contingent fees but before other 
related expenses.

     The Company is party to certain other legal proceedings, none of which 
are believed to be material.

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

     There were no matters submitted to a vote of the Company's stockholders, 
through solicitation of proxies or otherwise, during the fourth quarter of 
fiscal 1998.  

                                      PART II

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

     As indicated above, all Old Common Stock, along with existing options 
and warrants to purchase such stock, were canceled effective June 16, 1997, 
the effective date of the plan.

     50-OFF's Old Common Stock began trading publicly on the National 
Association of Securities Dealers Automated Quotation System ("NASDAQ") in 
July of 1984 and was subsequently added to the NASDAQ National Market in 
September of 1989.  The NASDAQ-NM symbol was "FOFF" until October 15, 1996, 
when a fifth character "Q" was appended to denote a company operating under 
bankruptcy proceedings.  Furthermore, the NASDAQ Listing Qualifications Panel 
determined to delete 50-OFF's Old Common Stock from The NASDAQ National 
Market effective December 31, 1996 due to such stock's failure to meet the 
bid price and bankruptcy requirements as set forth in NASD Marketplace Rules 
4450(a)(5) and 4450(e).

     LOT$OFF'S Common Stock began trading over-the-counter on the National 
Association of Securities Dealers Bulletin Board (the "Bulletin Board") on 
August 22, 1997 under the symbol "LOTS."

RANGE OF SALE PRICES

     The following table sets forth for the periods indicated the range of 
high and low closing sale prices for the Old Common Stock as reported on the 
NASDAQ National Market.

                    RANGE OF SALE PRICES FOR FOFFQ               
<TABLE>
     For Fiscal Year Ended January 31, 1997:                 
     --------------------------------------
      <S>                                    <C>       <C>
      Quarter ended May 3, 1996..........    1.69      0.94  
      Quarter ended August 2, 1996.......    1.50      0.75  
      Quarter ended November 1, 1996.....    0.94      0.06  
      Period ended December 30, 1996.....    0.44      0.16  
</TABLE>

     The high and low closing sales prices for FOFFQ for the period from 
December 31, 1996 through June 16, 1997 were $0.19 and $0.01, respectively; 
and the closing prices in the over-the-counter market on March 21, 1997 and 
June 16, 1997 were $0.08 and $0.01 per share, respectively.

                                       15
<PAGE>

     The following table sets forth for the periods indicated the range of 
high and low closing sale prices for the Common Stock as reported on the 
Bulletin Board through May 1, 1998.
                                       
                         RANGE OF SALE PRICES FOR LOTS
<TABLE>
                                                      HIGH      LOW   
                                                      ----      ---
<S>                                                  <C>       <C>
     FOR FISCAL YEAR ENDED JANUARY 30, 1998:
     ---------------------------------------
      Quarter ended October 30, 1997 . . . . . . . . $1.75     $1.00  
      Quarter ended January 30, 1998 . . . . . . . .  5.88      1.50  
                     
     FOR FISCAL YEAR ENDED JANUARY 27, 1999:
     ---------------------------------------
      Quarter ended May 1, 1998. . . . . . . . . . .  8.38      4.63  
</TABLE>

The high, low and closing sales price for the Common Stock on the Bulletin 
Board on May 4, 1998 was $6.75

DIVIDENDS

     50-OFF never paid cash dividends on shares of Old Common Stock.  LOT$OFF 
has not paid cash dividends on shares of Common Stock, and management 
presently intends to retain cash for the operation and expansion of LOT$OFF's 
business and does not anticipate paying any cash dividends on the Common 
Stock in the foreseeable future.  In addition, the Company is prohibited from 
paying dividends on its Common Stock by the terms of its credit facility.  
See Note 4 of the Notes to Consolidated Financial Statements included 
elsewhere herein.
 
REDEMPTION OF SERIES A PREFERRED STOCK

     On December 8, 1997, the Company notified holders of Series A Preferred 
Stock that it would redeem all 856,080 shares outstanding on December 30, 
1997 at a price of $5.00 per share.  From and after December 30, 1997, the 
Series A Preferred Stock was deemed to be no longer outstanding, further 
dividends ceased on such Series A Preferred Stock, and the holders thereof 
were entitled to no rights as such holders except to receive the redemption 
price of $5.00 per share.  Shares of Series A converted into Common Stock 
prior to December 30, 1997 were not subject to redemption.  The Company 
redeemed 17,900 shares of Series A Preferred Stock for $89,500.  The 
remaining 838,180 shares of Series A Preferred Stock were converted into 
1,676,360 shares of Common Stock.

CONVERSION OF SERIES B PREFERRED STOCK

     On March 19, 1998, in response to the Company's motion to modify the 
Plan by consolidating certain steps to be taken pursuant to the Plan and with 
the support of the Class 7 agent and its counsel, representing Class 7 
creditors (the allowed general unsecured creditors) under the Plan, the Court 
entered an order to consolidate the treatment of Class 7 creditors by 
allowing the issuance of two shares of Common Stock in lieu of any single 
share of Series B Preferred Stock, Series A Conversion Rights or Series A 
Preferred Stock, as the case may be, which would otherwise have been issued 
pursuant to the Plan.  The immediate effect of the order was to cause the 
conversion of the previously issued, but undistributed, 798,210 shares of 
Series B Preferred Stock into 1,596,420 shares of Common Stock and the 
eliminations of the Series B Preferred Stock and of any obligation of the 
Company to issue Series A Conversion Rights or Series A Preferred Stock to 
allowed general unsecured creditors under the Plan.  Such shares of Common 
Stock are in an escrow account at Continental Stock Transfer & Trust Company 
for the benefit of holders of allowed general unsecured claims pending 
distribution upon the filing and/or resolution of claims objections. Future 
obligations, if any,  to the allowed general unsecured creditors (up to the 
full face amount of their allowed claims, depending on Net Lawsuits' Proceeds 
as defined in the Plan) may be 

                                       16
<PAGE>

satisfied by the issuance of Common Stock and/or cash [Excess Net Lawsuits' 
Proceeds (up to $1.5 million as defined in the Plan) must be paid in cash].
RECORD HOLDERS

     As of April 24, 1998,  the number of record holders of LOT$OFF's 
4,157,810 shares of Common Stock, including the 1,596,420 shares in escrow 
and awaiting distribution to holders of allowed general unsecured claims (see 
Conversion of Series B Stock, above), was 47, including CEDE (nominee for the 
Depository Trust Company) which holds 2,498,740 shares for the accounts of 
others.

ITEM 6.   SELECTED FINANCIAL DATA    

     The following selected financial data (dollars in thousands, except per 
share data) should be read in conjunction with and are qualified in their 
entirety by the Consolidated Financial Statements and the Notes thereto 
included elsewhere in this Annual Report on Form 10K.

<TABLE>
                                                              FISCAL YEARS ENDED

                                           JAN. 28,     FEB. 3,     FEB. 2,     JAN. 31,    JAN. 30,
                                            1994         1995        1996         1997        1998
                                            ----         ----        ----         ----        ----
                                                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                        <C>         <C>         <C>          <C>         <C>
STATEMENT OF OPERATIONS DATA:
Net sales  . . . . . . . . . . . . . . .   $199,589    $201,543    $175,023     $106,194    $48,462
Cost of sales (1). . . . . . . . . . . .    137,784     135,560     118,629       78,560     33,638
                                           --------    --------    --------     --------    -------
Gross profit . . . . . . . . . . . . . .     61,805      65,983      56,394       27,634     14,824
Selling, advertising, general and 
  administrative expenses (2)  . . . . .     65,477      63,827      57,377       42,295     23,589
Depreciation and amortization  . . . . .      3,523       3,779       3,951        3,223        742
Reorganization items (3) . . . . . . . .          -           -           -       23,975        600
Total operating expense  (1 & 2) . . . .     69,722      72,624      60,918       69,493     24,931
Interest expense, net  . . . . . . . . .        528       1,382       2,255        1,597        787
Net lawsuit proceeds . . . . . . . . . .          -           -           -            -      3,978
Income (loss) before cumulative effect 
  of a change in accounting
  principle and income taxes (1 & 2) . .     (8,445)     (8,024)     (6,778)     (43,457)    (6,915)
Benefit from (provision for)  
  income tax (4) . . . . . . . . . . . .      2,933           -           -         (153)         -
Cumulative effect of a change  
  in accounting principle, net of
  income tax benefit(2). . . . . . . . .     (3,404)          -           -            -          -
                                           --------    --------    --------     --------    -------
Net income (loss) (1, 2 & 4) . . . . . .   $ (8,916)   $ (8,024)   $ (6,778)    $(43,610)   $(6,915)
                                           --------    --------    --------     --------    -------
                                           --------    --------    --------     --------    -------
Dividends on Series A  Preferred Stock .          -           -           -            -    $    59
Net income (loss) applicable to 
  Common Stock (1, 2 & 4). . . . . . . .   $ (8,916)   $ (8,024)   $ (6,778)    $(43,610)   $(6,974)
Income (loss) per common share - 
  basic (5). . . . . . . . . . . . . . .   $  (0.86)   $  (0.76)   $  (0.56)    $  (3.57)   $ (1.34)

OTHER DATA: 
Stores open at beginning of period . . .         98         111         109          100         44
New stores . . . . . . . . . . . . . . .         22           5           5            1          3
Stores closed  . . . . . . . . . . . . .          9           7          14           57          3
Stores open at end of period   . . . . .        111         109         100           44         44
Softlines sales as a percentage of 
  merchandise sales (6)  . . . . . . . .       80.3%       77.4%       75.8%        69.1%      50.5%
Hardline sales  as a percentage of 
  merchandise sales (6)  . . . . . . . .       19.7%       22.6%       24.2%        30.9%      49.5%
Comparable store sales increase 
  (decrease) from prior period (7) . . .       (9.5)%       2.6%       (8.7)%      (30.9)%    (11.4)%
 
BALANCE SHEET DATA:  
Working capital  . . . . . . . . . . . .   $ 12,909    $  8,503    $ 11,094     $  4,073    $   588
Total assets . . . . . . . . . . . . . .     67,601      62,676      55,449       19,255     20,344
Long-term obligations, excluding 
  current maturities . . . . . . . . . .      6,403      14,012      15,102            -      1,263
Liabilities subject to compromise  . . .          -           -           -       30,251          -
Stockholders' equity (deficit) . . . . .   $ 35,683    $ 28,557    $ 21,779     $(21,831)   $ 3,506
</TABLE>

--------------
(1)  Total operating expense amounts indicated for January 28, 1994, February 3,
     1995, February 2, 1996, January 31, 1997 and January 30, 1998 include
     closed store costs (excluding inventory liquidation write-downs of
     approximately $0, $1,129,000, $0, 

                                       17
<PAGE>

     $5,415,000 and $87,000, respectively, charged to cost of sales) of 
     approximately $722,000, $5,018,000, $(410,000), $0 and $87,000, 
     respectively.  See Note 3.

(2)  Effective with the beginning of fiscal 1994, the Company changed its method
     of accounting for pre-opening store costs to expense such costs as incurred
     rather than capitalizing such costs and amortizing them over a period of 12
     months from the store opening date.  Selling, advertising, general and
     administrative expense amounts indicated for January 28, 1994, February 3,
     1995, February 2, 1996, January 31, 1997 and January 30, 1998 include 
     pre-opening expenses of $3,932,554, $250,864, $309,035, $66,997 and 
     $32,940, respectively.

(3)  Reorganization items in fiscal 1997 include severance payroll ($191,000),
     professional fees ($997,000), loss on closings of stores ($23,143,000) and
     gain on sale of building ($356,000).  The fiscal 1998 reorganization items
     are for professional fees of $600,000.

(4)  In fiscal 1995, 1996, 1997 and 1998, no income tax benefit was recorded in
     accordance with Statement of Financial Accounting Standards No. 109.  In
     fiscal 1997, an income tax provision was recorded to book additional
     valuation allowance due to uncertain realizability of the Company's loss
     carryforward.  See Note 7 of Notes to Consolidated Financial Statements.

(5)  Loss per share amounts prior to January 30, 1998 have been restated where
     appropriate to conform with the requirements of Statement of Financial
     Accounting Standard No. 128.  See Note 1 of Notes to Consolidated Financial
     Statements.

(6)  Merchandise sales are net sales less other revenue, principally layaway
     fees (no longer applicable, discontinued in fiscal 1997) and rental income
     from leased shoe and jewelry departments.

(7)  Comparable store date are calculated based on stores which have been open
     over 24 months.

     No cash dividends with respect to Old Common Stock or Common Stock were
paid during any of the fiscal periods referred to in the foregoing table. 
Dividends of $58,855 were paid on Series A Preferred Stock in fiscal 1998.

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

RESULTS OF OPERATIONS

     The following tables set forth (i) certain items in the consolidated
statements of operations expressed as a percentage of net sales for the periods
indicated and (ii) the percentage change in certain items in the consolidated
statements of operations and in the weighted average number of stores from the
prior period.

<TABLE>
                                                           PERCENTAGE OF NET SALES
                                               --------------------------------------------
                                                             FISCAL YEAR ENDED
                                               --------------------------------------------
                                               JAN. 30, 1998   JAN. 31, 1997   FEB. 2, 1996
                                               -------------   -------------   ------------
<S>                                            <C>             <C>             <C>
Costs and Expenses: 
  Cost of sales  . . . . . . . . . . . . . .       69.2%           74.0%          67.8%
  Selling, advertising, general and
    administrative . . . . . . . . . . . . .       48.7            39.8           32.6
  Pre-opening store costs. . . . . . . . . .          -               -             .2
  Depreciation and amortization  . . . . . .        1.5             3.0            2.2
  Closed store costs . . . . . . . . . . . .          -               -            (.2)
  Reorganization items . . . . . . . . . . .        1.2            22.6              -
  Interest expense, net  . . . . . . . . . .        1.6             1.5            1.3
                                                  -----           -----          -----
Total expenses . . . . . . . . . . . . . . .      122.3           140.9          103.9
                                                  -----           -----          -----
Loss before income taxes and net                                             
  lawsuit proceeds . . . . . . . . . . . . .      (22.3)          (40.9)          (3.9)
Net lawsuit proceeds . . . . . . . . . . . .        8.2               -              -
Loss before income taxes . . . . . . . . . .      (14.1)          (40.9)          (3.9)
Provision for income taxes . . . . . . . . .          -             (.1)             -
                                                  -----           -----          -----
Net loss   . . . . . . . . . . . . . . . . .      (14.1)%         (41.0)%         (3.9)%
                                                  -----           -----          -----
                                                  -----           -----          -----
</TABLE>
                                       18
<PAGE>

<TABLE>
                                                                 PERCENTAGE CHANGE
                                                      --------------------------------------
                                                      FISCAL YEAR ENDED    FISCAL YEAR ENDED 
                                                      JANUARY 30, 1998     JANUARY 31, 1997  
                                                         COMPARED TO          COMPARED TO    
                                                      FISCAL YEAR ENDED    FISCAL YEAR ENDED 
                                                      JANUARY 31, 1997     FEBRUARY 2, 1996 
                                                      -----------------    -----------------
<S>                                                   <C>                  <C>
Net sales  . . . . . . . . . . . . . . . . . . . . . .      (54.4)%              (39.3)%
Cost of sales  . . . . . . . . . . . . . . . . . . . .      (57.3)               (33.8)
Operating expenses
    Selling, advertising, general and administrative .      (44.2)               (26.3)
    Depreciation and amortization  . . . . . . . . . .      (77.0)               (18.4)
    Closed store costs . . . . . . . . . . . . . . . .     (100.0)                 N/A
    Reorganization items . . . . . . . . . . . . . . .      (97.5)                 N/A
    Interest expense . . . . . . . . . . . . . . . . .      (50.7)               (29.2)
Total operating expenses . . . . . . . . . . . . . . .      (64.1)                14.1
Loss before income taxes . . . . . . . . . . . . . . .      (84.1)               541.1
Net loss . . . . . . . . . . . . . . . . . . . . . . .      (84.1)               543.4
Weighted average number of stores  . . . . . . . . . .      (49.2)               (20.4)
</TABLE>

FISCAL YEAR ENDED JANUARY 30, 1998 COMPARED TO FISCAL YEAR ENDED 
JANUARY 31, 1997

     The net sales decrease of 54.4% for fiscal 1998 compared to fiscal 1997 
resulted primarily from the decrease of 49.2% in the weighted average number 
of stores (from 82.8 to 42.1) in operation during fiscal 1998 as compared to 
fiscal 1997 and from a decrease in comparable store sales (due primarily to 
inventory imbalances in the 41 continuing stores and decreased traffic in the 
stores). Also contributing to this decrease were the increased net sales 
resulting from liquidations of inventory at 50-OFF stores in the process of 
closing or converting to LOT$OFF stores during fiscal 1997.

     Cost of sales as a percentage of net sales decreased to 69.2% for fiscal 
1998 compared to 74.0% for fiscal 1997, primarily due to lower markdowns as a 
percentage of net sales (i.e., higher maintained margins) than in fiscal 1997 
when substantial write-downs of inventories in stores being liquidated for 
closing or conversion were taken.

     Selling, advertising, general and administrative expenses increased from 
39.8% of net sales for fiscal 1997 to 48.7% of net sales for fiscal 1998, due 
primarily to lower sales.  The 44.2% decrease in the amount of selling, 
advertising, general and administrative expenses compared to fiscal 1997 was 
the result of the 49.2% decrease in the weighted average number of stores in 
operation.

     Depreciation and amortization decreased by 77.0% in fiscal 1998 compared 
to fiscal 1997, due to the substantial decrease in the number of stores in 
operation and to substantial prior write-downs of fixed assets, including the 
remaining equipment, fixtures and leasehold improvements.

     Other expense, net, decreased to approximately $787,000 for fiscal 1998 
compared to approximately $1,597,000 for fiscal 1997, due primarily to 
decreased interest expense attributable to a lower effective interest rate 
and decreased borrowings under the Company's revolving credit line.

     The decrease in loss (before income taxes and net lawsuit proceeds) for 
fiscal 1998 as compared to fiscal 1997 is due primarily to higher maintained 
margins and lower reorganization, depreciation, amortization and interest 
expenses.

                                       19
<PAGE>

     Income tax benefits related to the losses for fiscal 1998 and 1997 were 
not recognized because the utilization of such benefits is not assured.  Such 
benefits are available for recognition in future years.   As of January 30, 
1998, the Company had federal tax net operating loss carryforwards of 
approximately $58,549,000 ($46,906,000 at January 31,1997) expiring through 
2014, alternative minimum tax credit carryforwards of approximately $337,000 
($337,000 at January 31,1997), which are available to offset regular federal 
income taxes in the future until fully utilized, and targeted jobs credit 
carryforwards of approximately $178,000 ($178,000 at January 31,1997) 
expiring in 2006 through 2009.  As a result of the bankruptcy proceedings and 
the related Plan, the net operating loss ("NOL") carryforwards, tax credit 
carryforwards and other tax attributes of the Company will be reduced 
(perhaps significantly) as a result of debt forgiveness income in accordance 
with section 108(b) of the Internal Revenue Code ("IRC") or the receipt of 
substantial net lawsuit proceeds in excess of such debt.  In addition, IRC 
section 382 limits NOL and tax credit carryforwards when an ownership change 
of more than fifty percent of the value of stock in a loss corporation occurs 
within a three year period.  Under the Plan, the ownership of the Company may 
be deemed to have changed by more than fifty percent.  Accordingly, to the 
extent NOL and tax credit carryforwards remain after reduction under IRC 
section 108(b) and/or the receipt of any net lawsuit proceeds, the ability to 
utilize remaining NOL and tax credit carryforwards may be significantly 
restricted.

FISCAL YEAR ENDED JANUARY 31, 1997 COMPARED TO FISCAL YEAR ENDED FEBRUARY 2, 
1996

     The net sales decrease of 39.3% for fiscal 1997 compared to fiscal 1996 
was attributable to a 20.4% decrease in the weighted average number of stores 
in operation (from 104.0 stores to 82.8) and a 30.9% decrease in comparable 
store sales.  These decreases were partially offset by increased net sales 
pertaining to liquidations of inventories at the 50-OFF stores converted to 
LOT$OFF stores during the fiscal 1997 period, the sale to a third party of 
inventories at 37 stores closed during the period and the beginning of store 
liquidations at other stores closed.

     Cost of sales as a percentage of net sales increased from 67.8% for 
fiscal 1996 to 74.0% for fiscal 1997, due primarily to approximately 
$5,415,000 in write-downs of inventories at stores liquidated (including the 
inventories sold to a third party at 37 stores closed during the period) and 
to the store liquidations which began in September. 

     Selling, advertising, general and administrative expenses increased from 
32.6% of net sales for fiscal 1996 to 39.8% of net sales for fiscal 1997.  
The percentage increase was due to lower sales, offset in part by the cost 
reductions implemented by management late in the period.

     Depreciation and amortization decreased by 18.4% in fiscal 1997 compared 
to the prior fiscal year, due to the decreased number of stores in operation.

     Other expense, net, decreased to approximately $1,597,000 in fiscal 1997 
compared to approximately $2,255,000 in the prior fiscal year, due primarily 
to decreased interest expense attributable to decreased borrowings under 
50-OFF's line of credit and 50-OFF's discontinuing to accrue interest on 
certain of its obligations.

     The increase in 50-OFF's loss before income taxes for fiscal 1997 
compared to fiscal 1996 was primarily due to 50-OFF's reorganization expenses 
associated with the bankruptcy filings, lower sales and the write-downs, 
sales and liquidations of inventories discussed above.

     Income tax benefits related to the losses for fiscal 1997 and 1996 were 
not recognized because the utilization of such benefits is not assured.  

                                       20
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

     The Company began fiscal 1998 with cash of $491,297.  During the fiscal 
year ended January 30, 1998, the Company increased borrowings by a net of 
$934,018, used $4,889,408 for operating activities, used $518,491 for capital 
expenditures in refurbishing existing stores, opening three stores and 
converting 50-OFF stores to LOT$OFF stores, received net proceeds of 
$4,059,994 from the sale of new equity, redeemed 17,900 shares of Series A 
Preferred Stock for $89,500, distributed $58,855 for dividends on Series A 
Preferred Stock and ended the fiscal year with cash on hand of $473,553.

     On June 16, 1997, the Company, with the approval of the Court, entered 
into a credit agreement (as amended on August 28, 1997, December 22, 1997, 
February 15, 1998 and April 17, 1998) with GECC providing the Company with a 
line of credit through June 16, 2000 of up to $15,000,000, including letters 
of credit. Borrowings under the line are limited to a borrowing base equal to 
a percentage of eligible inventory at cost:  August 15 through December 15, 
65%; and December 16 through August 14, 60%.  Interest under the line is 
charged on funds borrowed at the annualized yield of 30-day commercial paper 
(currently 5.55%) plus 3%. The line of credit is collateralized by inventory, 
accounts receivable and other assets.  The credit agreement contains various 
restrictive covenants.  The agreement also contains minimum availability, 
minimum gross margin, minimum EBITDA, minimum inventory, minimum sales, 
minimum trade support and maximum capital expenditure financial covenants.  
In late 1997, the Company notified GECC that it was in violation of certain 
covenants under the credit agreement, including minimum availability.  On 
December 22, 1997, the Company entered into an amendment to the credit 
agreement allowing for additional availability of $1.0 million from December 
22 through December 31, 1997 and $2.0 million from January 1 through February 
15, 1998.  As of January 30, 1998, the Company had approximately $6,330,598 
outstanding under the credit facility and had net availability of 
approximately $1,853,000, including the additional availability. On February 
15, 1998, the Company entered into another amendment to the credit agreement 
allowing for additional availability of $1,250,000 from February 15 through 
March 1, 1998.  On April 17, 1998, the Company entered into a further 
amendment to the credit agreement in conjunction with the acquisition by GECC 
of a contingent claim on a $10,000,000 portion of the potential net proceeds 
from the $148,575,000 judgment against The Chase Manhattan Bank for 
$5,800,000, or 58 cents on the dollar.  See Note 13 of Notes to Consolidated 
Financial Statements. The effect of this amendment was the waiver of all 
existing covenant violations and related defaults under the credit agreement 
through May 31, 1998.  At April 17, 1998 and after giving effect to the 
transaction with GECC and the related amendment to the credit agreement, the 
Company had approximately $4,079,000 outstanding under the credit facility, 
had approximately $3,893,000 available for use and was not in default under 
the credit agreement.  The Company and GECC have agreed to renegotiate the 
continuing covenants in the credit agreement in May 1998. The Company 
believes that it will negotiate covenants with which it will be able to 
comply.

     The Company believes borrowings available under its revolving credit 
facility, available trade credit, its restructuring of certain obligations 
under the Plan,  its operating cash flow and its cash on hand will be 
adequate to finance its operations, including the opening of six (net) new 
stores in Texas, through fiscal 1999.  No assurance can be given, however, 
that such sources of capital will be sufficient or that the Company will be 
successful in its continuing efforts to attain and sustain profitability.  
For this reason, any investment in Common Stock should be considered 
speculative.  The receipt of additional proceeds from the significant 
litigation brought by the Company could add significantly to the Company's 
capital resources and liquidity.  See Part I. Item 3. Legal Proceedings.

     The Company's ability to successfully reorganize and continue as a going 
concern will be affected by a number of factors, including, but not limited 
to, the need to remain in compliance with the terms, covenants and conditions 
of it revolving credit facility, the degree of success in continuing to 
increase sales and in achieving an operating profit and the ability to 
maintain trade credit and merchandise flows to its stores.  While management 
believes that the downsizing of the total stores in operation and the 
reduction in the geographic area it serves has facilitated its efforts to 
improve the Company's operating performance and that the recapitalization 
implemented upon the consummation of its Plan, coupled with the receipt of 
net lawsuit proceeds and the receipt of contingent claim proceeds from GECC, 
have strengthened its financial position and alleviated concerns of credit 
and merchandise suppliers, no assurance can be given that the Company will be 
successful in its continuing efforts to 

                                       21
<PAGE>

return to profitability.  The anticipated receipt of additional proceeds from 
the Company's lawsuit related to certain parties' breaches of contractual 
obligations, as well as certain other violations, especially conversion, 
related to the Company's November 1994 Regulation S offering would further 
strengthen the Company's financial position.  If the Company's plans to 
improve operations are not successful, management will consider, among other 
alternatives, strategic and/or financial alliances with third parties 
(including wholesalers or manufacturers) and the merger or sale of all or a 
part of the Company.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The information called for by this item is contained in a separate 
section of this report.  See "Index to Consolidated Financial Statements."

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

     None.
                                       
                                   PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

ITEM 11.  EXECUTIVE COMPENSATION

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND 
          MANAGEMENT

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by Part III of this Annual Report on Form 10-K 
is incorporated by reference from the Registrant's Definitive Proxy Statement 
to be filed pursuant to Regulation 14A not later than 120 days after the 
Registrant's fiscal year end.

                                   PART IV

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

  (A) The following documents are being filed as part of this annual report
      on Form 10-K:

      1.  Consolidated financial statements and independent auditors' report for
          LOT$OFF Corporation (formerly known as 50-OFF Stores, Inc.) and
          subsidiaries:

          Independent auditors' report.

          Consolidated balance sheets - January 30, 1998 and January 31, 1997.

          Consolidated statements of operations - years ended January 30, 1998,
          January 31, 1997 and February 2, 1996.

          Consolidated statements of changes in stockholders' equity - years
          ended January 30, 1998, January 31, 1997 and February 2, 1996.

                                       22
<PAGE>

          Consolidated statements of cash flows - years ended January 30, 1998,
          January 31, 1997 and February 2, 1996.

          Notes to consolidated financial statements.

     2.   Consolidated financial statement schedules:

          Schedules are omitted because they are not applicable or not required,
          or because the required information is included in the Consolidated
          Financial Statements and/or the Notes thereto.

     3.   Exhibits:

          2.1       Disclosure Statement, including Joint Plan of
                    Reorganization, as amended. (F)

          3.1       Restated Certificate of Incorporation. (F)

          3.2       Amended and Restated Bylaws. (F)

          4.1       Certificate of Designation for Series A Preferred Stock. (F)

          4.2       Certificate of Designation for Series B Preferred Stock. (F)

          10.1      Stock Option Plan. (F)

          10.2      Loan with General Electric Capital Corporation (F)

          10.3      Note and Security Documents with General Electric Capital
                    Corporation. (F)

          10.4      Certificate of Corporate Resolution Adopting the Company
                    401K Profit Sharing Plan and Trust. (B)

          10.5      Partnership Agreement dated April 17, 1998 (H)

          10.6      Guaranty Agreement dated April 17, 1998 (H)

          10.7      Assignment and Transfer of Judgment and Cause of Action
                    dated April 17, 1998 (H)

          10.8      Second Amendment to the Revolving Credit Agreement dated
                    December 22, 1997 (H)

          10.9      Third Amendment to the Revolving Credit Agreement dated
                    February 15, 1998 (H)

          10.10     Fourth Amendment to the Revolving Credit Agreement dated
                    April 17, 1998 (H)

          99.1      The Order entered by the Court on March 19, 1998 and related
                    motion.  See Part II. Item 5. Conversion of Series B 
                    Preferred Stock. Part II. Market for Registrant's Common
                    Stock and Related Stockholder Matters. (H)

          99.2      The Judgment entered by the court on April 6, 1998 against
                    certain defendants.  See Part I. Item 3. Legal Proceedings.
                    (H) 

          18.       Change in Accounting Principles. (D)

          21.       Subsidiaries of the Registrant. (H)

                                       23
<PAGE>

          23.       Consent of Deloitte & Touche LLP (H)

          25.       Power of attorney appears after signature page in this
                    report on Form 10-K.

          27.       Financial Data Schedule (H)

     (A)  Contained in exhibits to the Registrant's Registration Statement No.
          33-48216 on Form S-4 filed with the Securities and Exchange Commission
          on July 28, 1992.

     (B)  Contained in exhibits to the quarterly report on Form 10-Q for the
          quarter ended August 3, 1990.

     (C)  Contained  in exhibits to the  Annual  Report on  Form  10-K for  the
          fiscal year ended January 29, 1993. 

     (D)  Contained in exhibits to the Annual Report on Form 10-K for the fiscal
          year ended January 28, 1994.

     (E)  Contained in exhibits to the current report on Form 8-K filed April
          12, 1995.

     (F)  Contained in exhibits to Registration Statement No. 333-25061 on Form
          S-1 filed with the Securities and Exchange Commission on April 11,
          1997.

     (G)  Contained in exhibits to Amendment No. 1 to Registration Statement No.
          333-25061 on Form S-1 filed with the Securities and Exchange
          Commission on June 11, 1997.

     (H)  Filed herewith.


  (B)  Reports on Form 8-K

     A report on Form 8-K was filed on December 9, 1997 reporting certain 
other events as follows:

     1.   The adoption of certain bylaw amendments by the Board of Directors.

     2.   The jury verdict against Chase and the Judgment entered by the court
          against Chase.  
          See Part I. Item 3.  Legal Proceedings.

                                       24
<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:

                                   LOT$OFF CORPORATION

                              BY:  /s/ CHARLES J. FUHRMANN II
                                   ---------------------------------------------
                                   CHARLES J. FUHRMANN II, CHAIRMAN, PRESIDENT,
                                   AND CHIEF EXECUTIVE OFFICER (PRINCIPAL 
                                   EXECUTIVE OFFICER)

                              BY:  /s/ JEFF SEIDEL
                                   ---------------------------------------------
                                   JEFF SEIDEL, VICE PRESIDENT, CHIEF FINANCIAL
                                   OFFICER (PRINCIPAL FINANCIAL AND ACCOUNTING 
                                   OFFICER)

                                   DATE:   MAY 15, 1998

                                       
                              POWER OF ATTORNEY

     THE UNDERSIGNED DIRECTORS AND OFFICERS OF LOT$OFF CORPORATION HEREBY 
CONSTITUTE AND APPOINT CHARLES J. FUHRMANN II AND JEFF SEIDEL OUR TRUE AND 
LAWFUL ATTORNEYS-IN-FACT AND AGENTS, TO EXECUTE IN OUR NAME AND BEHALF IN THE 
CAPACITIES INDICATED BELOW ANY AMENDMENTS TO THIS ANNUAL REPORT ON FORM 10-K 
FOR LOT$OFF CORPORATION FOR FILING WITH THE SECURITIES AND EXCHANGE 
COMMISSION AND HEREBY RATIFY AND CONFIRM ALL SUCH ATTORNEYS-IN-FACT AND 
AGENTS SHALL LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.

     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:

         SIGNATURE                         TITLE                        DATE
         ---------                         -----                        ----

/s/ CHARLES J. FUHRMANN II      CHAIRMAN, PRESIDENT, CHIEF          MAY 15, 1998
---------------------------     EXECUTIVE OFFICER AND DIRECTOR
    CHARLES J. FUHRMANN II      (PRINCIPAL EXECUTIVE OFFICER)  

   /s/  JEFF SEIDEL             VICE PRESIDENT, CHIEF FINANCIAL     MAY 15, 1998
---------------------------     OFFICER AND SECRETARY            
        JEFF SEIDEL             (PRINCIPAL FINANCIAL AND         
                                ACCOUNTING OFFICER)              

   /s/ CECIL SCHENKER           DIRECTOR                            MAY 11, 1998
---------------------------
       CECIL SCHENKER                                              
                                                                   
  /s/ SHERYLE J. BOLTON         DIRECTOR                            MAY 11, 1998
---------------------------
      SHERYLE J. BOLTON                                          
                                                                 
   /s/ WILLIAM B. SNOW          DIRECTOR                            MAY 12, 1998
---------------------------
       WILLIAM B. SNOW                                           
                                                                 
   /s/ M. DAVID WHITE           DIRECTOR                            MAY 11, 1998
---------------------------
       M. DAVID WHITE

                                       25

<PAGE>

                                LOT$OFF CORPORATION
                                     INDEX TO 
                         CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
                                                                            PAGE 
                                                                            ----
<S>                                                                      <C>
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . .       F-2 
Consolidated Balance Sheets - January 30, 1998 and January 31, 1997  . .       F-3 
Consolidated Statements of Operations - Years ended January 30, 
  1998, January 31, 1997 and February 2, 1996  . . . . . . . . . . . . .       F-4 
Consolidated Statements of Changes in Stockholders' Equity - 
  Years ended January 30, 1998, January 31, 1997 and 
  February 2, 1996   . . . . . . . . . . . . . . . . . . . . . . . . . .       F-5 
Consolidated Statements of Cash Flows - Years ended 
  January 30, 1998, January 31, 1997 and February 2, 1996  . . . . . . . F-6 -  F-7
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . F-8 - F-21

</TABLE>

Schedules are omitted because they are not applicable or not required, or
because the required information is included in the consolidated financial
statements and/or the notes thereto.


<PAGE>

INDEPENDENT AUDITORS' REPORT



Board of Directors and Stockholders
LOT$OFF Corporation
San Antonio, Texas

We have audited the accompanying consolidated balance sheets of LOT$OFF 
Corporation and subsidiaries as of January 30, 1998 and January 31, 1997, and 
the related consolidated statements of operations, changes in stockholders' 
equity and cash flows for each of the three years in the period ended January 
30, 1998.  These financial statements are the responsibility of the Company's 
management.  Our responsibility is to express an opinion on the 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, such consolidated financial statements present fairly, in all 
material respects, the financial position of LOT$OFF Corporation and 
subsidiaries as of January 30, 1998 and January 31, 1997, and the results of 
their operations and their cash flows for each of the three years in the 
period ended January 30, 1998 in conformity with generally accepted 
accounting principles.

As discussed in Note 1 to the consolidated financial statements, on June 3, 
1997, the Bankruptcy Court entered an order confirming the plan of 
reorganization which became effective on June 16, 1997.  Under the plan of 
reorganization, the Company is required to comply with certain terms and 
conditions as more fully described in Note 2 to the consolidated financial 
statements.

The accompanying financial statements have been prepared assuming that the 
Company will continue as a going concern.  As discussed in Note 2 to the 
consolidated financial statements, the Company's need to attain and sustain 
profitable operations and its ability to ultimately comply with all of the 
covenants (as they exist today and in the future) of its line of credit raise 
substantial doubt about its ability to continue as a going concern.  
Management's plans concerning these matters are also described in Note 2.  
The financial statements do not include any adjustments that might result 
from the outcome of this uncertainty.

/s/ DELOITTE & TOUCHE LLP

DELOITTE & TOUCHE LLP
San Antonio, Texas
May 5, 1998


                                      F-2
<PAGE>

                             LOT$OFF CORPORATION
                         CONSOLIDATED BALANCE SHEETS

                                    ASSETS
<TABLE>
                                                  JANUARY 30, 1998    JANUARY 31, 1997
                                                  ----------------    ----------------
<S>                                               <C>                 <C>
CURRENT ASSETS: 
Cash and cash equivalents  . . . . . . . . . . . . $    473,533        $    491,297
Cash in escrow . . . . . . . . . . . . . . . . . .            -             330,000
Accounts receivable  . . . . . . . . . . . . . . .      113,463             717,852
Merchandise inventories  . . . . . . . . . . . . .   15,309,715          12,974,958
Prepaid and other current assets . . . . . . . . .      265,814             393,526
                                                   ------------        ------------
   Total current assets. . . . . . . . . . . . . .   16,162,525          14,907,633
                                                   ------------        ------------

PROPERTY AND EQUIPMENT-NET . . . . . . . . . . . .    3,632,965           3,988,760
                                                                
OTHER ASSETS . . . . . . . . . . . . . . . . . . .      548,464             358,343
                                                   ------------        ------------
    TOTAL ASSETS . . . . . . . . . . . . . . . . . $ 20,343,954        $ 19,254,736
                                                   ------------        ------------
                                                   ------------        ------------

              LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) 
 
CURRENT LIABILITIES: 
Credit facility  . . . . . . . . . . . . . . . . . $  6,330,598        $  5,396,580
Accounts payable-trade . . . . . . . . . . . . . .    3,132,965           1,158,969
Accounts payable-other . . . . . . . . . . . . . .    3,333,093           1,821,499
Accrued expenses and other current                               
  liabilities  . . . . . . . . . . . . . . . . . .    1,597,859           1,623,510
Bank checks outstanding  . . . . . . . . . . . . .    1,048,855             567,710
Current portion of long-term debt  . . . . . . . .      131,553             266,667
                                                   ------------        ------------
    Total current liabilities. . . . . . . . . . .   15,574,923          10,834,935
                                                   ------------        ------------
                                                                 
LONG-TERM DEBT, less current portion . . . . . . .    1,263,263                   -
                                                                 
LIABILITIES SUBJECT TO COMPROMISE  . . . . . . . .            -          30,250,544
 
COMMITMENTS AND CONTINGENCIES (Notes 
  2, 4, 5, 8 and 10) 
 
STOCKHOLDERS' EQUITY (DEFICIENCY): 
Series A Preferred Stock, $0.01 par value, 
  10,000,000 shares authorized, no shares 
  outstanding at January 30, 1998. . . . . . . . .            -                   -
Series B Preferred Stock, $0.01 par value, 
  1,000,000 shares authorized, 798,210 
  shares outstanding at January 30, 1998 
  (Note 4) . . . . . . . . . . . . . . . . . . . .    3,991,050                   -
Common Stock, $0.01 par value, 25,000,000 
  shares authorized June 16, 1997, 2,532,440 
  outstanding at January 30, 1998 (Note 4) . . . .       25,325                   -
Old Common Stock, $.01 par value, 20,000,000 
  shares authorized, 12,200,915 shares 
  outstanding at January 31, 1997 
  cancelled June 16, 1997. . . . . . . . . . . . .            -             122,009
Additional paid-in-capital . . . . . . . . . . . .   60,447,467          36,022,264
Subscription receivable  . . . . . . . . . . . . .            -          (3,991,050)
Accumulated deficit  . . . . . . . . . . . . . . .  (60,958,074)        (53,983,966)
                                                   ------------        ------------
    Total stockholders' equity (deficit) . . . . .    3,505,768         (21,830,743)
                                                   ------------        ------------
TOTAL LIABILITIES AND STOCKHOLDERS'                             
  EQUITY (DEFICIENCY)  . . . . . . . . . . . . . . $ 20,343,954        $ 19,254,736
                                                   ------------        ------------
                                                   ------------        ------------
</TABLE>
                                       
        See accompanying notes to consolidated financial statements.

                                      F-3
<PAGE>

                     LOT$OFF CORPORATION AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF OPERATIONS
                                       
<TABLE>
                                                           YEAR ENDED        YEAR ENDED        YEAR ENDED
                                                        JANUARY 30, 1998  JANUARY 31, 1997  FEBRUARY 2, 1996
                                                        ----------------  ----------------  ----------------
<S>                                                     <C>               <C>               <C>
NET SALES  . . . . . . . . . . . . . . . . . . . . . .    $ 48,461,964      $106,193,561      $175,022,949
COST OF SALES  . . . . . . . . . . . . . . . . . . . .      33,637,680        78,560,029       118,628,507
                                                          ------------      ------------      ------------
GROSS PROFIT . . . . . . . . . . . . . . . . . . . . .      14,824,284        27,633,532        56,394,442
                                                          ------------      ------------      ------------
OPERATING EXPENSES: 
   SELLING, ADVERTISING, GENERAL AND ADMINISTRATIVE. .      23,588,581        42,295,234        57,376,682
   DEPRECIATION AND AMORTIZATION . . . . . . . . . . .         742,075         3,223,122         3,950,680
   CLOSED STORE COSTS. . . . . . . . . . . . . . . . .               -                 -          (409,145)
                                                          ------------      ------------      ------------
REORGANIZATION ITEMS: 
   SEVERANCE PAYROLL . . . . . . . . . . . . . . . . .               -           191,385                 -
   PROFESSIONAL FEES . . . . . . . . . . . . . . . . .         600,000           996,841                 -
   LOSS ON CLOSINGS OF STORES. . . . . . . . . . . . .               -        23,142,473                 -
   GAIN ON SALE OF BUILDING. . . . . . . . . . . . . .               -          (356,144)                -
                                                          ------------      ------------      ------------
                                                               600,000        23,974,555                 -
                                                          ------------      ------------      ------------

TOTAL OPERATING EXPENSES . . . . . . . . . . . . . . .      24,930,656        69,492,911        60,918,217
                                                          ------------      ------------      ------------
OPERATING INCOME (LOSS)  . . . . . . . . . . . . . . .     (10,106,372)      (41,859,379)       (4,523,775)

OTHER EXPENSE (INCOME): 
   INTEREST (INCOME) . . . . . . . . . . . . . . . . .         (60,530)          (74,270)         (111,616)
   INTEREST EXPENSE. . . . . . . . . . . . . . . . . .         847,786         1,671,624         2,366,269
   NET LAWSUIT PROCEEDS. . . . . . . . . . . . . . . .      (3,978,375)                -                 -
                                                          ------------      ------------      ------------
TOTAL OTHER EXPENSE (INCOME) . . . . . . . . . . . . .      (3,191,119)        1,597,354         2,254,653
                                                          ------------      ------------      ------------

INCOME (LOSS) BEFORE INCOME TAXES  . . . . . . . . . .      (6,915,253)      (43,456,733)       (6,778,428)
                                                          ------------      ------------      ------------
PROVISION FOR INCOME TAXES . . . . . . . . . . . . . .               -           152,874                 -
                                                          ------------      ------------      ------------

NET INCOME (LOSS)  . . . . . . . . . . . . . . . . . .    $ (6,915,253)     $(43,609,607)     $ (6,778,428)

SERIES A PREFERRED STOCK DIVIDENDS . . . . . . . . . .          58,855                 -                 -

NET INCOME (LOSS) APPLICABLE TO COMMON STOCK . . . . .    $ (6,974,108)     $(43,609,607)     $ (6,778,428)
                                                          ------------      ------------      ------------
                                                          ------------      ------------      ------------

NET INCOME (LOSS) PER COMMON SHARE-BASIC . . . . . . .    $      (1.34)     $     (3.57)      $       (.56)
                                                          ------------      ------------      ------------
                                                          ------------      ------------      ------------

WEIGHTED AVERAGE SHARES OUTSTANDING. . . . . . . . . .       5,211,015        12,200,915        12,200,915
                                                          ------------      ------------      ------------
</TABLE>
See accompanying notes to consolidated financial statements.

                                       F-4
<PAGE>
                       LOT$OFF CORPORATION AND SUBSIDIARIES
            CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                                      PREFERRED STOCK -       PREFERRED STOCK -   
                                                  COMMON STOCK             SERIES A             SERIES B          
                                            ------------------------ --------------------    ---------------------
                                             NUMBER                     NUMBER                  NUMBER            
                                            OF SHARES       AMOUNT   OF SHARES     AMOUNT    OF SHARES      AMOUNT 
                                            ---------       ------   ---------     ------    ---------      ------ 
<S>                                         <C>           <C>        <C>          <C>        <C>            <C>    
BALANCE:
February 3, 1995 . . . . . . . . . . . .    12,188,415    $ 121,884
Other  . . . . . . . . . . . . . . . . .        12,500          125
Net loss . . . . . . . . . . . . . . . .
                                            ----------    ---------   ---------   ----------   -------      ---------- 
BALANCE:
February 2, 1996 . . . . . . . . . . . .    12,200,915      122,009
Net loss . . . . . . . . . . . . . . . .
                                            ----------    ---------   ---------   ----------   -------      ---------- 
BALANCE:
January 31, 1997 . . . . . . . . . . . .    12,200,915      122,009
                                             ---------    ---------   ---------   ----------   -------      ---------- 
Cancellation of Old Common Stock . . . .   (12,200,915)    (122,009)
Offering . . . . . . . . . . . . . . . .       856,080        8,561     856,080   $4,280,400 
Implementation of the Plan . . . . . . .
  Cancel subscription receivable . . . .
  Conversion of
   general unsecured
   claims to
   additional paid
   in capital and
   Series B
   Preferred Stock . . . . . . . . . . .                                                       798,210      $3,991,050 
Conversion of Series A Preferred
  Stock to Common Stock  . . . . . . . .     1,676,360       16,764    (838,180)  (4,190,900)
Call Series A Preferred Stock  . . . . .                                (17,900)     (89,500)                             
Dividends paid on Series A
  Preferred Stock  . . . . . . . . . . .                                                                                          
Net loss . . . . . . . . . . . . . . . .                                                                                          
                                             ---------    ---------   ---------   ----------   -------      ---------- 
BALANCE:
January 30, 1998 . . . . . . . . . . . .     2,532,440    $  25,325       -       $    -       798,210      $3,991,050 
                                             ---------    ---------   ---------   ----------   -------      ---------- 
                                             ---------    ---------   ---------   ----------   -------      ---------- 

<CAPTION>
                                                                                               
                                                                          RETAINED             
                                             ADDITIONAL                   EARNINGS             
                                              PAID-IN    SUBSCRIPTION   (ACCUMULATED           
                                              CAPITAL     RECEIVABLE      DEFICIT)        TOTAL
                                              -------     ----------      --------        -----
<S>                                          <C>          <C>             <C>            <C>
BALANCE:  
February 3, 1995 . . . . . . . . . . . .    $36,022,389   $(3,991,050)  $ (3,595,931)  $ 28,557,292
Other  . . . . . . . . . . . . . . . . .           (125) 
Net loss . . . . . . . . . . . . . . . .                                  (6,778,428)    (6,778,428)
                                            -----------   -----------   ------------   ------------ 
BALANCE:                                
February 2, 1996 . . . . . . . . . . . .     36,022,264    (3,991,050)   (10,374,359)    21,778,864
Net loss . . . . . . . . . . . . . . . .                                 (43,609,607)   (43,609,607)
                                            -----------   -----------   ------------   ------------ 
BALANCE:                                
January 31, 1997 . . . . . . . . . . . .     36,022,264    (3,991,050)   (53,983,966)   (21,830,743)
                                            -----------   -----------   ------------   ------------ 
Cancellation of Old Common  Stock. . . .        122,009                                        -
Offering . . . . . . . . . . . . . . . .       (228,967)                                  4,059,994
Implementation of the Plan . . . . . . .
  Cancel subscription receivable . . . .     (3,991,050)    3,991,050                          -
  Conversion of
   general unsecured
   claims to
   additional paid
   in capital and
   Series B
   Preferred Stock . . . . . . . . . . .     24,349,075                                  28,340,125
  Conversion of Series A Preferred
  Stock to Common Stock. . . . . . . . .      4,174,136                                        -    
Call Series A Preferred Stock  . . . . .                                                    (89,500)
Dividends paid on Series A              
Preferred Stock. . . . . . . . . . . . .                                     (58,855)       (58,855)
Net loss . . . . . . . . . . . . . . . .                                  (6,915,253)    (6,915,253)
                                            -----------   -----------   ------------   ------------ 
BALANCE:
January 30, 1998 . . . . . . . . . . . .    $60,447,467   $      -      $(60,958,074)  $  3,505,768
                                            -----------   -----------   ------------   ------------ 
                                            -----------   -----------   ------------   ------------ 
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-5
<PAGE>
                       LOT$OFF CORPORATION AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                         YEAR ENDED              YEAR ENDED              YEAR ENDED
                                                      JANUARY 30, 1998        JANUARY 31, 1997        FEBRUARY 2, 1996
                                                      ----------------        ----------------        ----------------
<S>                                                   <C>                     <C>                     <C>             
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) loss . . . . . . . . . . . . . .      $(6,915,253)            $(43,609,607)           $(6,778,428)   
   Adjustments to reconcile net loss to net                                                                            
     cash provided by (used in)                                                                                        
     operating activities:                                                                                             
   Depreciation and amortization . . . . . . . . .          742,075                3,223,122              3,950,680    
   Loss on disposition of fixed assets . . . . . .                -                        -                187,032    
   Reorganization items  . . . . . . . . . . . . .          600,000               23,063,554                      -    
   Non-cash interest expense on long-term debt . .                -                  117,981                      -    
Changes in assets and liabilities:                                                                                     
   Accounts receivables. . . . . . . . . . . . . .          644,389                  411,752                515,699    
   Merchandise inventories . . . . . . . . . . . .       (2,334,757)              14,779,007              3,925,773    
   Prepaid and other current assets. . . . . . . .          127,712                   43,700                280,335    
   Other assets. . . . . . . . . . . . . . . . . .         (190,121)                 221,559                337,150    
   Accounts payable-trade. . . . . . . . . . . . .        1,973,996                8,777,565               (213,138)   
   Accounts payable-other. . . . . . . . . . . . .        1,088,202                2,780,188               (412,072)   
   Deferred federal income taxes . . . . . . . . .                -                  152,874                      -    
   Closed store costs. . . . . . . . . . . . . . .                -               (1,168,213)            (1,566,981)   
   Accrued expenses and other current liabilities.         (625,651)              (1,344,885)               188,694    
                                                        -----------             ------------            -----------
Net cash provided by (used in) operating 
   activities  . . . . . . . . . . . . . . . . . .       (4,889,408)               7,448,597               (402,744) 
                                                        -----------             ------------            -----------
CASH FLOWS FROM INVESTING ACTIVITIES:                                                                                
Net proceeds from sale of building . . . . . . . .                -                1,342,648                      -  
Capital expenditures . . . . . . . . . . . . . . .         (518,491)                (694,541)            (3,691,561) 
                                                        -----------             ------------            -----------
Net cash provided by (used in) investing                                                                             
   activities  . . . . . . . . . . . . . . . . . .         (518,491)                 648,107             (3,691,561) 
                                                        -----------             ------------            -----------
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-6

<PAGE>
                       LOT$OFF CORPORATION AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED)
<TABLE>
<CAPTION>

                                                         YEAR ENDED              YEAR ENDED              YEAR ENDED
                                                      JANUARY 30, 1998        JANUARY 31, 1997        FEBRUARY 2, 1996
                                                      ----------------        ----------------        ----------------
<S>                                                   <C>                     <C>                     <C>             
CASH FLOWS FROM FINANCING ACTIVITIES: 
  Net proceeds from (payments on) credit facility  .        934,018              (5,821,471)               4,263,026  
  Bank checks outstanding  . . . . . . . . . . . . .        481,145              (1,049,242)              (1,493,546) 
  Payments on long-term debt . . . . . . . . . . . .       (266,667)               (746,028)              (1,202,005) 
  Redemption of Series A Preferred Stock . . . . . .        (89,500)                      -                        -  
  Dividends on Series A Preferred Stock  . . . . . .        (58,855)                      -                        -  
  Cash in escrow . . . . . . . . . . . . . . . . . .        330,000                (330,000)                       -  
  Net proceeds from the issuance of Common Stock . .      4,059,994                       -                        -  
                                                        -----------             -----------              -----------
Net cash provided by (used in) financing                                                                              
  activities . . . . . . . . . . . . . . . . . . . .      5,390,135              (7,946,741)               1,567,475  
                                                        -----------             -----------              -----------
  (Increase) decrease in cash and cash equivalents .        (17,764)                149,963               (1,721,342) 
  Cash and cash equivalents at beginning of year . .        491,297                 341,334                2,062,676  
                                                        -----------             -----------              -----------
  Cash and cash equivalents at end of year . . . . .    $   473,553             $   491,297              $   341,334  
                                                        -----------             -----------              -----------
                                                        -----------             -----------              -----------
SUPPLEMENTAL DISCLOSURES OF  CASH FLOW INFORMATION:                                                                   
Cash paid during the period for:                                                                                      
  Interest . . . . . . . . . . . . . . . . . . . .      $   628,118             $ 1,553,643              $ 2,034,339  

SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCIAL ACTIVITIES:                                                               

Conversion of liabilities subject to compromise to:                                                                   
  Long-term debt . . . . . . . . . . . . . . . . . .    $ 1,394,816                       -                        -  
  Accounts payable other . . . . . . . . . . . . . .    $   515,603                       -                        -  
  Series B Preferred Stock (Note 4)  . . . . . . . .    $ 3,991,050                       -                        -  
  Additional paid in capital . . . . . . . . . . . .    $24,349,075                       -                        -  

Conversion of Series A Preferred Stock to:                                                                            
  Common Stock . . . . . . . . . . . . . . . . . . .    $    16,764                       -                        -  
  Additional paid in capital . . . . . . . . . . . .    $ 4,174,136                       -                        -  
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       F-7

<PAGE>

                          LOT$OFF CORPORATION AND SUBSIDIARIES
                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      PRINCIPLES OF CONSOLIDATION

     The financial statements include the accounts of LOT$OFF Corporation
(formerly known as 50-OFF Stores, Inc., "50-OFF") and its wholly-owned
subsidiaries ("LOT$OFF" or the "Company").  All significant intercompany
balances and transactions have been eliminated.

     FISCAL YEAR

     The Company's fiscal year is a fifty-two or fifty-three week period
ending on the Friday nearest to January 31.  Fiscal years 1998, 1997 and 1996
were each comprised of fifty-two weeks.

     OPERATIONS

     The Company operates a chain of extreme value, close-out retail stores
located in 5 states in the southern and southwestern United States that carry
a broad mix of merchandise targeted at value-conscious, lower to moderate
income customers and other bargain hunters.

     REORGANIZATION

     On October 9, 1996 (the "Petition Date"), 50-OFF and its significant
subsidiaries (together, the "Debtors") filed voluntary petitions for relief
under chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code")
in the United States Bankruptcy Court for the Western District of Texas, San
Antonio Division (the "Court").  The filing was precipitated by the
notification from 50-OFF's asset based lender that it was in violation of the
minimum gross margin and the minimum working capital financial covenants of
its credit agreement and that such breaches constituted events of default
under the loan documents. The lender subsequently established additional
availability reserves which reduced availability, imposed certain increased
fees and other charges and accelerated fees deemed earned at the initial
closing, which, individually and together, substantially impacted 50-OFF's
financial liquidity and, therefore, its ability to acquire and maintain much
needed inventory for its stores.  50-OFF was unable to secure the resources
required to cure the defaults under the loan documents and to implement its
business plan and effect the changes believed necessary to improve operations
and reverse its disappointing operating results without the protections
afforded under the Bankruptcy Code.  50-OFF continued to manage its business
as a debtor in possession pursuant to sections 1107 and 1108 of the
Bankruptcy Code while management formulated and promoted a plan of
reorganization.

     Consistent with the bankruptcy proceedings, the 1997 financial
statements were prepared on a going concern basis assuming the realization of
assets and liquidation of liabilities in the ordinary course of business.
However, under the Bankruptcy Code, actions to enforce certain claims against
the Company are stayed if such claims arose, or are based on events that
occurred, before the Petition Date.  The terms of the ultimate settlement of
these liabilities is determined based on a plan of reorganization approved by
the Court.  Such liabilities in existence at October 9, 1996 are reflected as
liabilities subject to compromise in the January 31, 1997 consolidated
balance sheet.

     At a confirmation hearing held on June 3, 1997, United States Bankruptcy
Judge Leif M. Clark entered an order confirming the Debtors' Joint Plan of
Reorganization, as Amended and Modified (the "Plan").  The Plan became
effective June 16, 1997 (the "Effective Date").  Accordingly, the 1998
financial statements have been prepared on a going concern basis and are
based on the application of known elements of the Plan approved by the Court.
 The procedures used to determine the amount of any additional liabilities or
of any elimination of liabilities have not been completed.  Additional
liabilities subject to settlement may arise from the Court's fixing of
allowed claims for disputed amounts.

                                    F-8
<PAGE>

                          LOT$OFF CORPORATION AND SUBSIDIARIES
                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     CASH AND CASH EQUIVALENTS

     The Company considers all highly liquid investments purchased with a
remaining maturity of three months or less  to be cash equivalents.  In
January 1997, the Company sold its corporate headquarters.  An order issued
by the Bankruptcy Court escrowed $330,000 to pay the related outstanding
principal, accrued interest and attorneys' fees.  In February 1997,
approximately $301,000 was paid to satisfy the debt.  See Note 5.

     PRE-OPENING STORE COSTS

     Pre-opening store costs, which are included in selling, advertising,
general and administrative, are charged to income within the fiscal year in
which they are incurred.

     INVENTORY VALUATION

     Merchandise inventories are valued at the lower of cost (first-in,
first-out) or market, using the retail inventory method.  Merchandise
inventories consist entirely of finished goods.

     PROPERTY AND EQUIPMENT

     Property and equipment are recorded at cost.  Depreciation is computed
on the straight-line method at rates based upon the estimated useful lives of
the respective assets.  Leasehold improvements are amortized on the
straight-line method over the shorter of the economic life of the
improvements or the respective terms of the lease.  Gains and losses upon
retirement or disposal of fixed assets are recognized currently.  In
connection with the bankruptcy filing, 50-OFF recorded as a reorganization
expense the write-down to fair value, as determined by its lender based on
the value of certain assets liquidated by the lender and on 50-OFF's, the
lender's and an independent party's strategic review of certain equipment and
leasehold improvements.  See Note 6.

     INCOME TAXES

     Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.  Deferred tax assets are
reported net of a valuation allowance that reduces deferred tax assets to an
amount that management believes is more likely than not realizable.

     The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.

     LOSS PER COMMON SHARE

     Earnings per share have been determined in accordance with Statement of
Financial Accounting Standard ("SFAS") No. 128 which establishes standards
for computing and presenting basic and diluted earnings per share
calculations. Basic earnings per share are determined by dividing net
earnings by the weighted average number of common shares outstanding during
the period.  Dilutive earnings per share are not presented as the calculation
is anti-dilutive for all periods.  Prior period amounts have been restated to
conform with the requirements of SFAS No. 128.

     FAIR VALUE OF FINANCIAL INSTRUMENTS

     The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable and debt instruments.  The
book value of cash and cash equivalents, accounts receivable and accounts

                                  F-9
<PAGE>

                      LOT$OFF CORPORATION AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

payable are representative of their respective fair values due to the
short-term maturity of these instruments.  The book value of the Company's
debt instruments is considered to approximate their fair value, based on
current market rates and conditions.

     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.

     STOCK BASED COMPENSATION

     The Company accounts for stock-based compensation using the intrinsic
value method described in Accounting Principles Board No. 25, "Accounting for
Stock Issued to Employees" ("APB No. 25") and related interpretations.
Accordingly, compensation cost for stock options is measured as the excess,
if any, of the quoted market price of the Company's Common Stock at the date
of grant over the amount an employee must pay to acquire the stock.  The
Company has adopted the disclosure requirements of SFAS No. 123, "Accounting
for Stock Based Compensation."  See Note 11.

     RECLASSIFICATIONS

     Certain reclassifications have been made to the fiscal 1996 and 1997
consolidated financial statements to conform to the fiscal 1998  consolidated
financial statement presentation.

NOTE 2 - PLAN OF REORGANIZATION AND MANAGEMENT PLANS

     PLAN OF REORGANIZATION

     On the Effective Date, certain key elements of the Plan were
implemented, including the changing of the Company's corporate name from
50-OFF Stores, Inc. to LOT$OFF Corporation.

     On March 20, 1997, the Court approved a disclosure statement with
respect to the Plan as containing adequate information in accordance with
section 1125 of the Bankruptcy Code.  Such statement was mailed to all
creditors of the bankruptcy estates and all holders of Public Equity
Interests as of March 21, 1997 and was also filed with the SEC.  "Public
Equity Interests" refer to the common stock of 50-OFF Stores, Inc. ("Old
Common Stock"), which was canceled upon the Effective Date, along with all
then existing options and warrants to buy such stock.

     The Plan required that the Company's existing senior secured revolving
credit facility lender, GECC, provide a post-confirmation revolving credit
facility or be replaced by a new senior secured lender so that the Company
would have a source of revolving funds to continue to operate.  GECC provided
such financing.  See Note 5.  The Plan also provided for the restructure of
the Company's secured obligation to MetLife Capital Corporation ("MetLife")
at a face amount of $850,000; and the Plan provided for the payment of such
amount over approximately seven years.  MetLife agreed to such treatment with
the balance of its claim (approximately $3.3 million) becoming an allowed
general unsecured claim.  The Plan provided for the cancellation of all
non-priority unsecured indebtedness of 50-OFF.  See Note 4.

     Under the Plan, as further modified by Court order on March 19, 1998
(see Note 4), each holder of an allowed general unsecured claim will, in
partial cancellation of its allowed claim ($3,991,050 in the aggregate),
receive a pro rata share of 1,596,420 shares of LOT$OFF's common stock (the
"Common Stock"). Certain further obligations of the Company to such holders
of allowed general unsecured claims are secured by a lien up to the full

                                  F-10
<PAGE>

                      LOT$OFF CORPORATION AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

face amount of the balance of their allowed claims against potential net
lawsuit proceeds over $3,991,050 from significant litigation being prosecuted
by the Company.  As net proceeds over $3,991,050 (net of certain items set
forth in the Plan) from such litigation are received by the Company, holders
of allowed general unsecured claims will receive Common Stock and/or cash
(provided that at least the "excess" net proceeds, up to $1.5 million as
defined in the Plan, will be paid in cash) as determined under the Plan.  The
receipt of such Common Stock and/or cash by holders of allowed general
unsecured claims will result in a proportionate release of the lien.  By
issuing such Common Stock and/or paying such cash to allowed general
unsecured creditors, such creditors will be essentially receiving the net
value of the Company's significant litigation which was pending pre-Petition
Date up to the full face amount of their allowed claims.  See Note 10.

     Finally, the Plan provided for the recapitalization of the Company
through cash raised from 50-OFF's existing common stockholders (the "Rights
Offering") and, potentially, as discussed above, from the litigation.
Specifically, the Plan provided for the issuance to such stockholders of
rights to subscribe for units, each consisting of 20 shares of  Series A
Preferred Stock and 20 shares of Common Stock (a "Unit").  Up to 122,009
Units and a minimum of 30,500 Units could be sold in the Rights Offering.
The record date for determining which 50-OFF stockholders were entitled to
vote on the Plan and receive such rights was March 21, 1997.  Persons who
acquired Public Equity Interests after such record date were not entitled to
vote on the Plan or subscribe for Units pursuant to the Rights Offering. The
Rights Offering expired on May 22, 1997.  Subscriptions received in the
Rights Offering were held in escrow with Bank One, Texas N. A. pending the
Effective Date of the Plan.  The gross proceeds from the Rights Offering were
$4,280,400.  Such proceeds were used to provide working capital for increased
inventories for the Company's stores, to support the Company's operations and
to pay for the Company's exit from bankruptcy.

     MANAGEMENT PLANS

     Management has been redirecting the Company's retail activities from
50-OFF's off-price retailing concept to LOT$OFF's extreme value, close-out
retailing concept.  Coincident and consistent with this change has been a
change in the mix of products, historically a majority in family apparel, to
a majority in non-apparel merchandise, principally through the addition of
new product categories and the elimination of apparel categories subject to
substantial markdowns and inventory shrink.  The Company continues to
maintain a healthy showing of basic family apparel products in its stores.
The actual merchandise mix fluctuates by category, by season and by store
based on customer needs and buying trends, demographics and the availability
of products at close-out prices.  This merchandising concept is designed to
appeal to value-conscious shoppers and other bargain hunters, and management
is hopeful its continued implementation will lead to higher initial mark-ups,
less promotional pricing, fewer markdowns, low inventory shrinkage, increased
store traffic and improved operating results.  The Company's business plan is
focused on achieving higher gross margins, higher store contribution and
controlled corporate overhead, all promoting overall profitability, and on
being a major factor in extreme value retailing in Texas.  The key elements
of this strategy included the geographic consolidation of the chain, the
liquidation and closing of under-performing stores or stores located outside
of the reduced market area with appropriate reductions in field and corporate
overhead and staffing, the conversion of the continuing 50-OFF stores to
LOT$OFF stores (only 14 of the 41 continuing stores had been converted as of
the filing of the voluntary bankruptcy petitions on October 9, 1996; all
stores had been converted by January 30, 1998) and a reduced overhead
structure.  The management team is now concentrating on optimizing the
contribution from store operations while maintaining only the absolute
minimum amount of corporate overhead necessary to support store operations,
on collecting on significant judgments with respect to certain litigation
(see Note 10) and on maximizing shareholder value.

     If the Company's plans to improve operations are not successful in
producing results which comply with the covenants of its line of credit (see
Note 5), which the Company and GECC have agreed to renegotiate in May 1998,
and in achieving sustained profitability, management will consider, among
other alternatives, strategic and/or financial alliances with third parties
and the merger or sale of all or a part of the Company. Management, based on 
communications with GECC, believes that they will negotiate covenants with 
which the Company will be able to comply. Management further believes this 
credit facility, coupled with the capital obtained from the purchase by GECC 
of a contingent claim on a $10,000,000 portion of the potential net proceeds 
from the judgment obtained against The Chase Manhattan Bank for $5.8 million 
subsequent to fiscal 1998 year end and anticipated proceeds from outstanding 
litigation, provides sufficient liquidity to support fiscal 1999 operations, 
including planned store opening.

                                   F-11
<PAGE>
                      LOT$OFF CORPORATION AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - PROPERTY AND EQUIPMENT

     Property and equipment consists of the following:
<TABLE>
                                                     JANUARY 30, 1998         JANUARY 31, 1997
                                                     ----------------         ---------------
<S>                                                    <C>                      <C>
     Store equipment, furniture and fixtures . . . .   $ 1,494,702              $ 1,184,242
     Leasehold improvements. . . . . . . . . . . . .     6,098,774                5,930,742
     Other . . . . . . . . . . . . . . . . . . . . .        53,601                  160,657
                                                       -----------              -----------
                                                         7,647,077                7,275,641
     Less:  accumulated depreciation . . . . . . . .    (4,014,112)              (3,286,881)
                                                       -----------              -----------
                                                       $ 3,632,965              $ 3,988,760
                                                       -----------              -----------
                                                       -----------              -----------
</TABLE>
NOTE 4 - LIABILITIES SUBJECT TO COMPROMISE

     Liabilities in existence at October 9, 1996 were reflected as liabilities
subject to compromise in the January 31, 1997 consolidated balance sheet.  The
principal categories of claims included in liabilities subject to compromise of
January 31, 1997 were as follows:
<TABLE>
<S>                                                                 <C>
      Secured debt, 8.5%, collateralized by furniture,
        fixtures and equipment. . . . . . . . . . . . . . . . . .   $ 4,190,881
      Secured debt, capital leases, collateralized by signs . . .        80,763
      Trade and other miscellaneous claims,
        including costs of lease rejections of
        approximately $5.869,000 (see Note 8) . . . . . . . . . .    25,978,900
                                                                    -----------
                                                                    $30,250,544
                                                                    -----------
                                                                    -----------
</TABLE>
     At a confirmation hearing held on June 3, 1997, United States Bankruptcy
Judge Leif M. Clark entered an order confirming the Debtors' Joint Plan of
Reorganization, as Amended and Modified (the "Plan").  The Plan became
effective June 16, 1997 (the "Effective Date").  Accordingly, the 1998
financial statements have been prepared on a going concern basis and are
based on the application of known elements of the Plan approved by the Court.
Under the Plan, the $30,250,544 of liabilities subject to compromise as
included in the consolidated balance sheet as of January 31, 1997 were
converted to: long-term debt -  $1,394,816 (see Note 5);  accounts payable
other - $515,603;  Series B Preferred Stock - $3,991,050; and additional paid
in capital - $24,349,075.

     The procedures used to determine the amount of any additional
liabilities or of any elimination of liabilities have not been completed.
Additional liabilities subject to settlement may arise from the Court's
fixing of allowed claims for disputed amounts.  These amounts may be subject
to further adjustments as a result of actions of the Court and/or
developments with respect to disputed claims.  The Company's best estimate of
unsecured claims which will ultimately be allowed by the Court is $28.3
million, $3,991,050 of which was satisfied by the issuance of Series B
Preferred Stock under the Plan.  The amount of allowed claims may differ
materially from the Company's estimate.

     CONVERSION OF SERIES B PREFERRED STOCK

     On March 19, 1998, in response to the Company's motion to modify the Plan
by consolidating certain steps to be taken pursuant to the Plan and with the
support of the Class 7 agent and its counsel, representing the allowed general
unsecured creditors, the Court entered an order to consolidate the treatment of
Class 7 creditors by allowing the issuance of two shares of Common Stock in lieu
of any single share of Series B Preferred Stock, and other intermediate steps
which would otherwise have been required under the Plan.  The immediate effect
of the order was to cause the conversion of the previously issued, but
undistributed, 798,210 shares of Series B Preferred Stock into 1,596,420 shares
of Common Stock  and the elimination of the Series B Preferred Stock and any
obligation of the Company to issue Series A Conversion Rights (as defined in the
Plan) or Series A Preferred Stock to allowed general

                                     F-12
<PAGE>
                      LOT$OFF CORPORATION AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

unsecured creditors under the Plan effective March 19, 1998.  Such shares of
Common Stock are in an escrow account at Continental Stock Transfer & Trust
Company for the benefit of holders of allowed general unsecured claims
pending distribution upon the filing and/or resolution of claims objections.
Future obligations, if any, to the allowed general unsecured creditors (up to
the full face amount of their allowed claims, depending on Net Lawsuits'
Proceeds as defined in the Plan) may be satisfied by the issuance of Common
Stock and/or cash [Excess Net Lawsuits' Proceeds (up to $1.5 million as defined
in the Plan) must be paid in cash].

NOTE 5 - CREDIT FACILITY AND LONG-TERM DEBT

     CREDIT FACILITY

     On June 16, 1997, the Company, with the approval of the Court, entered
into a credit agreement (as amended on August 28, 1997, December 22, 1997,
February 15, 1998 and April 17, 1998) with GECC providing the Company with a
line of credit through June 16, 2000 of up to $15,000,000, including letters
of credit. Borrowings under the line are limited to a borrowing base equal to
a percentage of eligible inventory at cost:  August 15 through December 15,
65%; and December 16 through August 14, 60%.  Interest under the line is
charged on funds borrowed at the annualized yield of 30-day commercial paper
(currently 5.55%) plus 3%. The line of credit is collateralized by inventory,
accounts receivable and other assets.  The credit agreement contains various
restrictive covenants.  The agreement also contains minimum availability,
minimum gross margin, minimum EBITDA, minimum inventory, minimum sales,
minimum trade support and maximum capital expenditure financial covenants.
In late 1997, the Company notified GECC that it was in violation of certain
covenants under the credit agreement, including minimum availability.  On
December 22, 1997, the Company entered into an amendment to the credit
agreement allowing for additional availability of $1.0 million from December
22 through December 31, 1997 and $2.0 million from January 1 through February
15, 1998.  As of January 30, 1998, the Company had approximately $6,330,598
outstanding under the credit facility and had net availability of
approximately $1,853,000, including the additional availability. On February
15, 1998, the Company entered into another amendment to the credit agreement
allowing for additional availability of $1,250,000 from February 15 through
March 1, 1998.  On April 17, 1998, the Company entered into a further
amendment to the credit agreement in conjunction with the acquisition by GECC
of a contingent claim on a $10,000,000 portion of the potential net proceeds
from the $148,575,000 judgment against The Chase Manhattan Bank for
$5,800,000, or 58 cents on the dollar.  See Note 13.  The effect of this
amendment was the waiver of all existing covenant violations and related
defaults under the credit agreement through May 31, 1998.  At April 17, 1998
and after giving effect to the transaction with GECC and the related
amendment to the credit agreement, the Company had approximately $4,079,000
outstanding under the credit facility, had approximately $3,893,000 available
for use and was not in default under the credit agreement.  The Company and
GECC have agreed to renegotiate the continuing covenants in the credit
agreement in May 1998. See Note 2.

     Prior to June 16, 1997, with the approval of the Court, 50-OFF had a
debtor in possession credit agreement with GECC providing the Company with a
line of credit up to $15,000,000, including letters of credit.  Borrowings
under the line were limited to a borrowing base equal to a percentage of
eligible inventory at cost:  August 15 through December 15, 65%; and December
16 through August 14, 60%.  Interest under the line was charged on funds
borrowed at the annualized yield on 30-day commercial paper plus 3%.  The
line of credit was collateralized by inventory, accounts receivable and other
assets.  The credit agreement contained various restrictive covenants,
including financial covenants.

     The Company had total borrowings of $66,471,790, $80,196,626 and
$51,713,410 and repayments of $65,537,771, $86,018,097 and $47,450,384  for
fiscal years 1998, 1997 and 1996, respectively, under its lines of credit.

                                     F-13
<PAGE>
                      LOT$OFF CORPORATION AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     LONG-TERM DEBT

     Long-term debt for the year ending January 30, 1998 consists of three
general types of obligations, the furniture and fixture note, ad valorem tax
notes and non-ad valorem tax notes.  All three are long-term debts settled as
part of the Plan and were classified as liabilities subject to compromise
(see Note 4) for the year ending January 31, 1997.

     Long-term debt consists of the following:
<TABLE>
                                                      JANUARY 30, 1998         JANUARY 31, 1997
                                                      ----------------         ----------------
<S>                                                      <C>                     <C>
         Promissory notes collateralized by
           furniture, fixtures and equipment . . . . .    $  849,559               $       -
         Notes to ad valorem taxing
           authorities . . . . . . . . . . . . . . . .      414,698                       -
         Notes to taxing authorities, other
           than ad valorem taxing authorities. . . . .      130,559                       -
         Promissory note collateralized by
           land and building . . . . . . . . . . . . .            -                 266,667
         Less:  current portion. . . . . . . . . . . .     (131,553)               (266,667)
                                                         ----------               ---------
                                                         $1,263,263               $       -
                                                         ----------               ---------
                                                         ----------               ---------
</TABLE>
     In April 1996, 50-OFF restructured its $4,000,000 and $2,775,000 long-term
borrowings with an affiliate of an insurance company into one promissory note
for approximately $4,645,000.  The promissory note provided for monthly
installments (including principal and interest) of $94,638 until March 2001.
Interest was charged at a rate of 8.50%.  The note was secured by 50-OFF's
furniture and fixtures.  Approximately $4,191,000 of such note remained
outstanding at January 31, 1997 and was included in liabilities subject to
compromise.  See Note 4.  After negotiations with the lender and a Court
approved agreement, at January 30, 1998, the holder of the claim has a $849,559
promissory note collateralized by, effectively, all furniture, fixtures and
equipment of the Company, including any hereafter acquired, and an allowed
general unsecured claim for the remainder of their claim.  See Note 4.  The note
requires monthly payments of interest through June 1, 1998, then monthly
payments of principal and interest of $15,374 until February 1, 2004.  Interest
is fixed at 7.50%.

     The 65 notes to ad valorem taxing authorities require quarterly payments of
principal and interest totaling $21,078 beginning March 1, 1998 through maturity
on December 1, 2003 and are collateralized by a statutory tax lien.

     The 16 non-ad valorem tax notes require annual payments of principal and
interest (6.62%) over a five or six year period beginning March 9, 1999 and are
collateralized by a statutory tax lien.

     As of January 30, 1998, maturities of long-term debt during each of the
next five fiscal years were:  1999 - $131,553; 2000 - $218,680; 2001 - $241,468;
2002 - $259,164; and 2003 - $271,717.

     In fiscal 1993, 50-OFF borrowed $1,000,000 from a financial institution.
The note was collateralized by a deed of trust on the land and building used for
the corporate offices.  The promissory note provided for outstanding principal
to be paid in monthly installments of $16,666 until January 29, 1998.  Interest
was charged at a rate of 7.02%.   At January 31, 1997, $266,667 of such note
remained outstanding.  In February 1997, with the approval of the Court,
$301,000 was paid to satisfy the outstanding principal, accrued interest and
attorneys' fees.

NOTE 6 - CLOSED STORE COSTS

     During fiscal 1998, the Company recorded inventory liquidation markdowns to
cost of sales of $87,000 for the Lawton, Oklahoma store to be closed by May 5,
1998.
                                     F-14
<PAGE>
                      LOT$OFF CORPORATION AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     During the third quarter of fiscal 1997, in connection with its
bankruptcy filing, 50-OFF liquidated inventory at 37 stores in non-strategic
markets through an arrangement with an affiliate of its then lender.  50-OFF
received approximately $5,162,000 representing approximately 45% of the
retail value of the inventory on hand at the 37 stores.  During the second
quarter of fiscal 1997, 50-OFF recorded to cost of sales inventory
liquidation markdowns of $2,218,000.  Additionally, 50-OFF recorded
reorganization items expense related to fixed asset write-offs of
$12,570,000.  During the third quarter of fiscal 1997, 50-OFF recorded
reorganization items expense of approximately $3,956,000 for liabilities
associated with estimated monthly lease payments and $467,000 of other store
closing costs associated with the 37 stores.  After a further review, 50-OFF
closed an additional 18 stores during the fourth quarter of fiscal 1997.
Additionally, 50-OFF recorded reorganization items expense for liabilities
associated with estimated monthly lease payments of approximately $1,592,000,
other store closing costs of approximately $266,000 and related goodwill of
approximately $155,000 associated with the 18 stores.  50-OFF also recorded
to reorganization items expense fixed asset write-downs of approximately
$4,776,000 for the 18 closed stores, as well as an impairment of the fixed
assets at the remaining stores and at its corporate offices.

     Subsequent to fiscal 1997 year end, 50-OFF closed three stores plus a
clearance center.  In connection with these closings, 50-OFF recorded
inventory liquidation markdowns of $302,000 during the fourth quarter of
fiscal 1997. Additionally, 50-OFF recorded to reorganization items expenses
associated with estimated monthly lease payments of approximately $321,000
and other store closing costs of approximately $334,000 associated with the
three stores and the clearance center.  The 60 stores and the clearance
center closed in fiscal 1997 and fiscal 1998 contributed approximately
$45,455,000 and $86,632,000 of net sales and $11,534,000 and $273,000 of
operating losses during fiscal 1997 and 1996, respectively, to 50-OFF's
operations.

     50-OFF's store consolidation program closed 14 stores during fiscal
1996. The store closings involved exiting certain smaller markets which
proved unable to support a store and certain other markets in which it would
have been cost prohibitive to open the number of stores required to
effectively develop such markets' potential.  The amount of the closing costs
associated with the stores closed in fiscal 1996 was approximately $4,942,000
of which approximately $835,000 pertained to inventory liquidation
write-downs charged to cost of sales and approximately $1,372,000 associated
with fixed asset write-downs and was expensed in fiscal 1995 as part of a
formal plan to complete the store consolidation program.  50-OFF recorded
approximately $1,168,000 of liabilities associated with estimated monthly
lease payments and other store closing costs at February 2, 1996.  During
fiscal 1996, 50-OFF undertook negotiations with the lessors of 12 of the
stores closed in fiscal 1996 and successfully completed early buyouts of the
remaining lease obligations for 11 stores, resulting in a credit to closed
store costs of $409,000 during the fourth quarter of fiscal 1996.  During
fiscal 1997, 50-OFF completed its negotiations and executed terminations on
the remaining obligations from the store consolidation program plus
negotiated other buyouts and recorded income to reorganization items of
approximately $1,295,000.

NOTE 7 - INCOME TAXES

     The benefit from (provision for) income taxes consists of the following:
<TABLE>
                         YEAR ENDED          YEAR ENDED             YEAR ENDED
                     JANUARY 30, 1998     JANUARY 31, 1997       FEBRUARY 2, 1996
                     ----------------     ----------------       ----------------
<S>                       <C>                <C>                    <C>
     Federal:
       Current. . . .        -                     -                      -
       Deferred . . .        -                     -                      -
     State: 
       Current. . . .        -                     -                $(100,000)
       Deferred . . .        -               $(153,000)               100,000
                          ----               ---------              ---------
                             -               $(153,000)             $     -
                          ----               ---------              ---------
                          ----               ---------              ---------
</TABLE>
                                     F-15
<PAGE>

                      LOT$OFF CORPORATION AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Temporary differences which gave rise to deferred tax assets and
liabilities are as follows:
<TABLE>
                                                        YEAR ENDED         YEAR ENDED
                                                     JANUARY 30, 1998   JANUARY 31, 1997
                                                     ----------------   ----------------
<S>                                                    <C>               <C>
Deferred tax assets:
  Net operating loss carryforwards. . . . . . . . .    $ 23,537,000      $ 19,269,000
  AMT and other credit carryforwards. . . . . . . .         515,000           515,000
  Merchandise inventories . . . . . . . . . . . . .               -           150,000
  Lease obligations . . . . . . . . . . . . . . . .       2,227,000         2,149,000
  Property and equipment. . . . . . . . . . . . . .               -      $    974,000
  Other . . . . . . . . . . . . . . . . . . . . . .         115,000           152,000
                                                       ------------      ------------
                                                         26,394,000        23,209,000
Deferred tax liabilities:
  Property and equipment. . . . . . . . . . . . . .         324,000                 -
  Merchandise inventories . . . . . . . . . . . . .          50,000                 -
                                                       ------------      ------------
                                                            374,000                 -

Net deferred tax assets before                                                      -
 valuation allowance. . . . . . . . . . . . . . . .      26,020,000        23,209,000
Valuation allowance . . . . . . . . . . . . . . . .     (26,020,000)      (23,209,000)
                                                       ------------      ------------
Net deferred tax assets . . . . . . . . . . . . . .    $          -      $          -
                                                       ------------      ------------
                                                       ------------      ------------
</TABLE>
      As of January 30, 1998, the Company had federal tax net operating loss
carryforwards of approximately $58,549,000 ($46,906,000 at January 31,1997)
expiring through 2014, alternative minimum tax credit carryforwards of
approximately $337,000 ($337,000 at January 31,1997), which are available to
offset regular federal income taxes in the future until fully utilized, and
targeted jobs credit carryforwards of approximately $178,000 ($178,000 at
January 31,1997) expiring in 2006 through 2009.  As a result of the bankruptcy
proceedings and the related Plan, the net operating loss ("NOL") carryforwards,
tax credit carryforwards and other tax attributes of the Company will be reduced
(perhaps significantly) as a result of debt forgiveness income in accordance
with section 108(b) of the Internal Revenue Code ("IRC") or the receipt of
substantial net lawsuit proceeds in excess of such debt.  In addition, IRC
section 382 limits NOL and tax credit carryforwards when an ownership change of
more than fifty percent of the value of stock in a loss corporation occurs
within a three year period.  Under the Plan, the ownership of the Company may be
deemed to have changed by more than fifty percent.  Accordingly, to the extent
NOL and tax credit carryforwards remain after reduction under IRC section 108(b)
and/or the receipt of any net lawsuit proceeds, the ability to utilize remaining
NOL and tax credit carryforwards may be significantly restricted.

NOTE 8 - COMMITMENTS AND CONTINGENCIES

     The Company leases the store facilities, its store support center
(corporate headquarters) and the distribution warehouse used in its operations
under operating leases.  Most leases contain escalation clauses for real estate
taxes, renewal options ranging from five to ten years and required additional
payments based on percentages of sales (contingent rentals).  Approximate future
minimum lease payments (excluding renewal options) under leases having a
remaining non-cancelable term in excess of 12 months as of January 30, 1998 are
as follows:

                                   F-16
<PAGE>

                       LOT$OFF CORPORATION AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
       YEAR ENDING         
       -----------
<S>                                     <C>
          1999. . . . . . . . . . . . . $4,140,000 
          2000. . . . . . . . . . . . . $3,869,000 
          2001. . . . . . . . . . . . . $3,579,000 
          2002. . . . . . . . . . . . . $2,993,000 
          2003. . . . . . . . . . . . . $1,914,000 
          2004 and subsequent . . . . . $6,820,000 
</TABLE>

     Actual rental expense, including contingent rentals, was as follows:  

<TABLE>
<S>                                      <C>
        Year Ended January 30, 1998. . . $4,372,000 
        Year Ended January 31, 1997. . . $7,353,000 
        Year Ended February 2, 1996. . . $9,743,000 
</TABLE>

     Under the relevant provisions of the Bankruptcy Code, 50-OFF rejected 
executory contracts, including leases.  In conjunction with the Company's 
restructuring process, a review was performed of all lease obligations. 
Rejection of a lease gave the right to assert a claim against the Company.  
50-OFF rejected a total of 59 leases.  The amounts of the related claims are 
included in the loss on closings of stores of approximately $5,869,000 in the 
consolidated statements of operations for the year ended January 31, 1997.  

     Contingent rentals represented approximately 2% in the year ended 
February 2, 1996,  0% in the year ended January 31, 1997 and  0% in the year 
ended January 30, 1998 of actual rent expense.

     Effective April 17, 1998, the Company entered into a guaranty agreement 
with GECC under which the Company guaranteed the payment of a portion of 
GECC's $5.8 million payment to a limited partnership, controlled by a wholly 
owned subsidiary of the Company, that holds the judgment and cause of action 
against The Chase Manhattan Bank.  See Note 10.  The liability under the 
guaranty agreement is limited to $3.0 million and is cross-collateralized to 
the Company's other indebtedness to GECC.  See Note 5.  The maximum amount 
payable to GECC under the partnership agreement is $10 million.  See Note 13 
for a description of the contingent claim on certain net lawsuit proceeds 
acquired by GECC subsequent to fiscal 1998 year end.

     The Company is also party to certain legal proceedings arising in the 
ordinary course of business, none of which are believed to be material.  See 
Note 10.   

NOTE 9 - RELATED PARTY TRANSACTIONS

     The Company had three store leases in force during fiscal 1996 with 
Spigel Properties, the owner of which was a director of 50-OFF through 
September 1995. 50-OFF paid an aggregate of approximately $124,000 in minimum 
rental and approximately $14,000 in percentage rental for these locations 
during fiscal 1996.

     The law firm of Akin, Gump, Strauss, Hauer & Feld, L.L.P. has regularly 
performed legal services as counsel to the Company.  Cecil Schenker, a 
director of the Company, is a partner with Akin, Gump, Strauss, Hauer & Feld, 
L.L.P., which has been paid $1,093,000, $129,000 and $111,000 in fiscal years 
1998, 1997 and 1996 respectively for professional fees and reimbursement of 
expenses.

                                     F-17
<PAGE>

                       LOT$OFF CORPORATION AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Charles J. Fuhrmann II, a director of the Company, has performed certain 
financial and strategic advisory services for 50-OFF and was compensated 
$31,250 and $127,500 during fiscal 1997 and 1996, respectively.  In May 1996, 
Mr. Fuhrmann was appointed President, Chief Executive and Financial Officer 
of the Company and is currently its Chairman, President and Chief Executive 
Officer.

NOTE 10 - LITIGATION

     In November 1994, 50-OFF received subscriptions for approximately 1,810,000
shares of Old Common Stock in a Regulation S offering to qualified investors. 
50-OFF received net proceeds of approximately $861,000 from the sale of 310,000
shares and recorded a subscription receivable for the purchase agreements for
1,500,000 shares for which proceeds have not been received.  

     On February 21, 1995, 50-OFF filed a lawsuit [50-OFF STORES, INC. V. BANQUE
                                                  ------------------------------
PARIBAS (SUISSE), S.A., BETAFID, S.A., YANNI KOUTSOUBOS, ANDALUCIAN VILLAS
--------------------------------------------------------------------------
(FORTY EIGHT) LIMITED, ARNASS LIMITED, BROCIMAST ENTERPRISES LTD., DENNIS
-------------------------------------------------------------------------
MORRIS, HOWARD WHITE, CHASE MANHATTAN BANK, N.A. AND ARIES PEAK, INC., Case No.
---------------------------------------------------------------------
SA-95-CA-0159] in the United States District Court in San Antonio, Texas against
Banque Paribas (Suisse) S.A. ("Paribas"), Betafid S.A., Chase Manhattan Bank,
N.A. ("Chase") and certain affiliated individuals and companies in connection
with the theft of 1,500,000 shares of  Old Common Stock which certain of the
defendants had agreed to purchase at $3.65 per share.  Among other counts, the
lawsuit alleged breach of contracts, securities fraud, conspiracy and
conversion.  The conversion claim related to actions of the defendants in
transferring, selling and trading the shares despite the fact that the
defendants had never paid for such shares.  50-OFF sought recovery of actual and
punitive damages and pre- and post-judgment interest. 

     On October 14, 1997, the trial of this case began before the Honorable 
H.F. Garcia.  Defendants, Paribas, Chase and Dennis Morris, appeared and 
announced ready for trial.  On November 14, 1997, after four weeks of evidence, 
the Company entered into a Settlement Agreement and Full and Final General 
Release with Paribas.  As part of the settlement, Paribas agreed to pay the 
Company $2,400,000 (of which the Company received $1,800,000 after attorneys' 
contingent fees but before other related expenses) in exchange for which the 
Company agreed to dismiss all claims against Paribas with prejudice.  The 
Company also dismissed all claims against Dennis Morris; however, such dismissal
was not the result of a settlement agreement between the parties.  

     On November 20, 1997, at the close of evidence, the Company obtained a 
jury verdict against Chase on its claim of conversion in the amount of 
$150,975,000, representing $12,975,000 in actual damages and $138,000,000 in 
punitive damages. On November 21, 1997, the Company moved the court to enter 
a final judgment against Chase in the amount of $148,575,000, which reflects 
the jury's verdict, minus a credit for Paribas' settlement amount.  In 
addition to the verdict against Chase, the Company obtained a $30,000,000 
default judgment against Yanni Koutsoubos on its claims for violation of 
Section 10b-5 of the Securities Exchange Act and common law fraud.  Such 
judgment represents $10,000,000 in actual damages and $20,000,000 in punitive 
damages.  On December 4, 1997, the court entered a judgment against Chase in 
the Company's favor for $148,575,000 plus costs of court, pre-judgment 
interest on $12,975,000 at 10% per annum from November 18, 1994 until 
December 4, 1997 and post-judgment interest on the entire judgment amount at 
5.42% from December 4, 1997.  Subsequently, Chase filed five post-judgment 
motions with the court:  motion for new trial; motion to alter or amend the 
judgment; renewed motion for judgment as a matter of law; motion to apply a 
settlement credit and motion for leave to conduct oral deposition; and motion 
for hearing.  On February 23, 1998, the court, having considered such 
motions, the supplements to such motions, the response of the Company to such 
motions and the entire record in the cause, denied all of Chase's 
post-judgment motions. Chase has given notice that it will appeal the 
judgment entered by the court to the Fifth Circuit Court of Appeals in New 
Orleans.  The Fifth Circuit Court of Appeals has requested and arranged a 
pre-hearing conference among the parties in New Orleans beginning on May 14, 
1998.

     On April 6, 1998, the court entered default judgments against Betafid S.A.,
Andalucian Villas (Forty-Eight) Limited, Arnass Limited, Brocimast
Enterprises Limited, Howard White and Aries Peak, Inc. on the Company's 

                                    F-18
<PAGE>

                       LOT$OFF CORPORATION AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

claims for violations of  Section 10b-5 of the Securities Exchange Act and 
common law fraud.  Such judgments total $166,275,000, plus pre-judgment 
interest on $12,975,000 at 10% per annum from November 18, 1994 until April 6,
1998 and post-judgment interest on the entire amount at 5.31% from April 6, 
1998.

     The Company intends to vigorously pursue the favorable judgments 
obtained against defendants in the above matter.  The Company, based upon 
advice from counsel, believes that it will obtain a favorable result in the 
appeal of the judgment against defendant Chase referenced in the above 
proceeding.  The Company intends to vigorously pursue all remedies to collect 
the sums owing to the Company as per the judgments that have been obtained 
against the other defendants although the collectibility of these judgments 
is uncertain.  Akin, Gump, Strauss, Hauer & Feld, L.L.P. represents the 
Company in these matters on a contingency fee basis.

     On January 9, 1996, 50-OFF filed a lawsuit [50-OFF STORES, INC. V. 
                                                -----------------------
JEFFERIES & COMPANY, INC. AND JEFFERIES INTERNATIONAL LIMITED, Cause No. 
-------------------------------------------------------------
96-CI-00349] in Bexar County District Court, San Antonio, Texas against its 
placement agents in the securities offering referenced in the lawsuit discussed
above. The suit alleged that the defendants breached their contracts with 50-OFF
and breached their fiduciary duties to 50-OFF by failing to investigate properly
the qualifications of the purchasers that they introduced to 50-OFF.  The 
Company also asserted securities fraud claims against the defendants in 
connection with the transaction.  50-OFF sought to recover actual and 
exemplary damages in excess of $10,000,000, pre- and post-judgment interest, 
costs and attorney's fees.  On January 16, 1998, the Company reached an 
agreed settlement for $4,300,000 with Jefferies & Company, Inc. and Jefferies 
International Limited and received $3,000,000 after attorneys' contingent 
fees but before other related expenses.

     The Company is party to certain other legal proceedings, none of which 
are believed to be material.

NOTE 11 -  STOCK OPTION PLAN

     Upon the Effective Date, the 50-OFF option plan and all outstanding 
options under such plan were terminated.

     Under the Company's Stock Option Plan effective June 16, 1997 (the 
"Option Plan"), stock options may be granted to full-time employees and 
directors of the Company for the purchase of up to a maximum of 800,000 
shares of common stock. Options (either incentive or nonqualified options) 
may be granted for a term not to exceed ten years (primarily five years) and 
generally become exercisable after six months.  The exercise price of all 
incentive stock options must be at least equal to the fair market value of 
the Common Stock on the date of grant, or 110% of such fair market value with 
respect to any optionee who is more than a 10% stockholder of the Company's 
shares.  Any nonqualified stock option issued pursuant to the Option Plan 
must be at an exercise price equal to at least 85% of the fair market value 
of the Common Stock on the date of grant.  Shares of unissued Common Stock 
reserved for the Option Plan total 800,000 at January 30, 1998.

Through January 30, 1998, the Company incurred expenses (exclusive of attorney
contingent fees) of approximately $821,600 in connection with the two lawsuits
discussed above.

     The following table summarizes certain information regarding stock options
granted under the Option Plan:

<TABLE>
                                                                WEIGHTED AVERAGE 
                                       OPTIONS OUTSTANDING       EXERCISE PRICE 
                                       -------------------      ----------------
          <S>                          <C>                      <C>
          Balance at June 16, 1997.....      425,000                 $1.67      
            Granted....................      271,700                  1.69      
            Canceled...................       28,600                  1.67      
                                             -------                  -----     
          Balance at January 30, 1998..      668,100                  1.68      
                                             -------                  -----     
                                             -------                  -----     
</TABLE>

                                      F-19
<PAGE>

                       LOT$OFF CORPORATION AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Options outstanding at January 30, 1998 have a weighted-average remaining
contractual life of 4.5 years and exercise prices ranging from $1.67 to $3.35.
The 425,000 options exercisable at January 30, 1998 have a weighted-average
remaining contractual life of 4.4 years and an exercise price of $1.67.  The
weighted average exercise price for options outstanding at January 30, 1998 was
$1.68.

     The Company applies APB No. 25 and related interpretations in accounting
for its Option Plan.  Accordingly no compensation expense has been recognized
for stock option transactions.  Compensation cost for option awards (granted
after January 29, 1994) in accordance with SFAS No. 123, is not material to the
results of proforma operations for fiscal 1998 and 1997, as the estimated fair
value of the options granted was not significant.

NOTE 12 - QUARTERLY FINANCIAL DATA (UNAUDITED)

PRIOR YEAR
<TABLE>
                                                                           QUARTER ENDED 
                                                      -----------------------------------------------------
                                                      JANUARY 31,    NOVEMBER 1,     AUGUST 2,       MAY 3,
                                                         1997           1996           1996           1996 
                                                      -----------    -----------     ---------       ------
<S>                                                   <C>           <C>            <C>             <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . $14,959,100   $ 27,111,033   $ 31,708,019    $32,415,409
Gross profit. . . . . . . . . . . . . . . . . . . . .   2,808,199      6,184,961      9,358,359      9,182,013
Net income (loss) applicable to Common Stock. . . . .  (6,566,044)   (14,540,980)   (17,568,457)    (4,901,274) 
Net income (loss) per share of Common Stock . . . . . $     (0.54)  $      (1.19)  $      (1.44)   $     (0.40) 
Average common and common equivalent 
  shares outstanding. . . . . . . . . . . . . . . . .  12,200,915     12,200,915     12,200,915     12,200,915
Net income (loss) per proforma weighted 
  average shares. . . . . . . . . . . . . . . . . . . $     (1.59)  $      (3.52)  $      (4.26)   $     (1.19) 
Pro forma weighted average shares . . . . . . . . . .   4,128,860      4,128,860      4,128,860      4,128,860
</TABLE>


                                      F-20
<PAGE>

                       LOT$OFF CORPORATION AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CURRENT YEAR AS RESTATED

<TABLE>
                                                                                QUARTER ENDED
                                                         --------------------------------------------------------  
                                                         JANUARY 30,   OCTOBER 31,     AUGUST 1,         MAY 2,     
                                                             1998          1997          1997            1997
                                                         -----------   -----------    -----------     -----------  
<S>                                                      <C>           <C>            <C>             <C>
Net sales. . . . . . . . . . . . . . . . . . . . . . . . $16,795,973   $ 9,365,822    $10,381,017     $11,919,152
Gross profit (1) . . . . . . . . . . . . . . . . . . . .   4,742,027     2,989,618      3,030,907       4,061,732
Net income (loss) applicable to Common Stock . . . . . .   1,037,256    (3,163,870)    (2,484,298)     (2,363,196) 
Net income (loss) per share of Common Stock - Basic. . . $      0.72   $     (3.70)   $     (0.39)    $     (0.19) 
Net income (loss) per share of Common Stock - Diluted. . $      0.23   $     (3.70)   $     (0.39)    $     (0.19) 
Average common and common equivalent shares
  outstanding. . . . . . . . . . . . . . . . . . . . . .   1,445,569       856,080      6,341,495      12,200,915
Net income (loss) per proforma weighted 
  average shares . . . . . . . . . . . . . . . . . . . . $      0.25   $     (0.77)   $     (0.60)    $     (0.57) 
Pro forma weighted average shares. . . . . . . . . . . .   4,128,860     4,128,860      4,128,860       4,128,860
</TABLE>


(1)  Gross profit has been restated to reflect markdowns attributable to prior
     quarters.

NOTE 13 - SUBSEQUENT EVENT

     On April 17, 1998, as part of a corporate reorganization, involving the 
formation of a Delaware limited partnership, the Company assigned 
its judgment and cause of action against Chase to such newly formed limited 
partnership.  The limited partnership was formed on April 17, 1998 by two 
wholly-owned subsidiaries of the Company, as the general partner and common 
limited partner, and GECC, as the preferred limited partner.  GECC acquired 
its preferred limited partnership interest for $5.8 million or 58 cents on 
the dollar.  Such interest represents a contingent claim on a $10 million 
portion of the potential net proceeds from the $148,575,000 judgment against 
Chase.  See Note 10.  While the Company has no material present financial 
obligation to GECC or the partnership, upon receipt of net proceeds from 
Chase, or otherwise, attributable to the judgment, GECC could receive as much 
as $9-10,000,000 (but in no event less than a guaranteed $3,000,000), 
according to a scheduled payout with respect to its contingent claim. The 
$3,000,000 minimum is cross-collateralized to the Company's indebtedness to 
GECC (see Note 5) and is payable upon the sooner of the resolution of the 
Chase litigation, April 17, 2003 or certain other events.  The Company will 
recognize a gain of $3.9 million (before transaction related expenses) in the 
first quarter of fiscal 1999 and will reflect a $1.9 million (discounted at 
10%) liability in the consolidated balance sheet for the minimum guarantee to 
GECC.

NOTE 14 - PRO FORMA EARNINGS PER SHARE

     The following table shows pro forma earnings per share calculated 
assuming that the Company's emergence from bankruptcy and contemporaneous 
recapitalization discussed in Notes 2 and 4 occurred at the beginning of each 
period.

     Pro forma weighted average shares include the Company's common stock 
issued as of June 16, 1997 (856,080 common shares) and the dilutive effects 
of the Series A Preferred stock (1,676,360 common shares) and the Series B 
Preferred stock (1,596,420 common shares).

<TABLE>
                                                                   YEAR ENDED
                                                 ------------------------------------------  
                                                  JANUARY 30,    JANUARY 31,    FEBRUARY 2,  
                                                      1998           1997          1996
                                                 ------------   -------------  ------------  
     <S>                                         <C>            <C>            <C>
     Net income (loss) . . . . . . . . . . . . . $(6,915,253)   $(43,609,607)  $(6,778,428)  
     Pro forma weighted average shares . . . . .   4,128,860       4,128,860     4,128,860   
     Net income (loss) per pro forma weighted 
       average shares. . . . . . . . . . . . . . $     (1.67)   $     (10.56)  $     (1.64)  
</TABLE>


                                      F-21
<PAGE>

<TABLE>

                                          EXHIBIT INDEX


                                                                                            PAGE
                                                                                            ----
<S>                 <C>                                                                     <C>
          2.1       Disclosure Statement, including Joint Plan of
                    Reorganization, as amended. (F)

          3.1       Restated Certificate of Incorporation. (F)

          3.2       Amended and Restated Bylaws. (F)

          4.1       Certificate of Designation for Series A Preferred Stock. (F)

          4.2       Certificate of Designation for Series B Preferred Stock. (F)

          10.1      Stock Option Plan. (F)

          10.2      Loan with General Electric Capital Corporation (F)

          10.3      Note and Security Documents with General Electric Capital
                    Corporation. (F)

          10.4      Certificate of Corporate Resolution Adopting the Company
                    401K Profit Sharing Plan and Trust. (B)

          10.5      Partnership Agreement dated April 17, 1998 (H)

          10.6      Guaranty Agreement dated April 17, 1998 (H)

          10.7      Assignment and Transfer of Judgment and Cause of Action
                    dated April 17, 1998 (H)

          10.8      Second Amendment to the Revolving Credit Agreement dated
                    December 22, 1997 (H)

          10.9      Third Amendment to the Revolving Credit Agreement dated
                    February 15, 1998 (H)

          10.10     Fourth Amendment to the Revolving Credit Agreement dated
                    April 17, 1998 (H)

          99.1      The Order entered by the Court on March 19, 1998 and related
                    motion.  See Item 5. Conversion of Series B Preferred Stock.
                    (H)

          99.2      The Judgment entered by the court on April 6, 1998 against
                    certain defendants.  See Item 3. Legal Proceedings. (H)

          18.       Change in Accounting Principles. (D)

          21.       Subsidiaries of the Registrant. (H)

<PAGE>

          23.       Consent of Deloitte & Touche LLP (H)

          25.       Power of attorney appears after signature page in this
                    report on Form 10-K.

          27.       Financial Data Schedule (H)

------------------
     (A)  Contained in exhibits to the Registrant's Registration Statement No.
          33-48216 on Form S-4 filed with the Securities and Exchange Commission
          on July 28, 1992.

     (B)  Contained in exhibits to the quarterly report on Form 10-Q for the
          quarter ended August 3, 1990.

     (C)  Contained  in exhibits to the  Annual  Report on  Form  10-K for  the
          fiscal year ended January 29, 1993. 

     (D)  Contained in exhibits to the Annual Report on Form 10-K for the fiscal
          year ended January 28, 1994.

     (E)  Contained in exhibits to the current report on Form 8-K filed April
          12, 1995.

     (F)  Contained in exhibits to Registration Statement No. 333-25061 on Form
          S-1 filed with the Securities and Exchange Commission on April 11,
          1997.

     (G)  Contained in exhibits to Amendment No. 1 to Registration Statement No.
          333-25061 on Form S-1 filed with the Securities and Exchange
          Commission on June 11, 1997.

     (H)  Filed herewith.
</TABLE>