SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-K/A
         Annual Report Pursuant to Section 13 or 15(d) of the Securities
                              Exchange Act of 1934

   For the fiscal year ended January 2, 1998   Commission file number: 000-05083

                         Hyde Athletic Industries, Inc.
             (Exact name of registrant as specified in its charter)

          Massachusetts                              04-1465840
    (State or other jurisdiction of       (I.R.S. Employer Identification No.)
     incorporation or organization)

                        13 Centennial Drive, Peabody, MA
                      01960 (Address of principal executive
                                    offices)

       Registrant's telephone number, including area code: (978) 532-9000

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

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

                    Class A Common Stock, $.33-1/3 par value
                                (Title of class)

                    Class B Common Stock, $.33-1/3 par value
                                (Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes [ X ] No [ ]

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/A or any  amendment to
this Form 10-K/A. [ ]

The aggregate market value of voting and non-voting stock held by non-affiliates
of the registrant,  as of March 31, 1998 was approximately $20,355,000 (based on
the last sale  prices of the  Class A Common  Stock and Class B Common  Stock on
such date as reported on the Nasdaq National Market).

The number of shares of the  registrant's  Class A Common  Stock,  $.33-1/3  par
value,  and Class B Common Stock,  $.33-1/3 par value,  outstanding on March 31,
1998 was 2,703,227 and 3,548,087, respectively.

Portions of the  following  documents  are  incorporated  by  reference  in this
Report.

                       Documents Incorporated by Reference

  Document                                            Form 10-K/A Part

Proxy Statement for Annual Meeting                         Part III
of Stockholders of the Registrant to
be  held  on May  21,  1998,  to be  
filed  with  the  Securities and Exchange
Commission.


<PAGE>


PART I


ITEM 1 - BUSINESS

Hyde Athletic  Industries,  Inc. and its subsidiaries  (together,  "Hyde" or the
"Company")  design,  develop,  manufacture  and  market  (i)  a  broad  line  of
performance-oriented  athletic shoes for adults under the Saucony(R) brand name,
(ii)  high-quality  bicycles and bicycle  frames  under the Quintana  Roo(R) and
Merlin(R)  names,  (iii) athletic  apparel under the Hind(R) brand name and (iv)
shoes for coaches and  officials  under the  Spot-Bilt(R)  name.  The  Company's
Saucony  athletic  footwear  products include  running,  women's walking,  cross
training and outdoor trail shoes. The following table sets forth the approximate
contribution  to net  sales  (in  dollars  and  as a  percentage  of net  sales)
attributable  to the Company's  Saucony product line and other product lines for
the  periods and  geographic  areas  indicated.  "Other"  consists of  Spot-Bilt
coaches and officials shoes,  Quintana Roo bicycles and wetsuits,  Hind apparel,
sales of the Company's and other products at retail factory outlets  operated by
the Company and sales of other branded  products at the Company's  subsidiary in
Australia.
<TABLE>
<CAPTION>

                                                             Net Sales (1)

                                                        (dollars in thousands)

                                  Fiscal 1997                    Fiscal 1996                      Fiscal 1995      
                            Sales    Sales    Co.         Sales     Sales    Co.           Sales     Sales     Co.
                              $        %       %            $         %       %              $         %        %
   <S>                  <C>          <C>      <C>     <C>           <C>       <C>      <C>           <C>       <C> 
   Saucony
      Domestic           $ 56,050      71%             $  54,445      69%               $  47,040      67%
      International        22,580      29%                24,366      31%                  23,628      33%
                         --------    -----             ---------   ------               ---------   ------
    
      Total              $ 78,630     100%     84%     $  78,811     100%      86%      $  70,668     100%      90%
                         --------    -----             ---------   ------               ---------   ------

   Other
      Domestic           $  9,552      64%             $   5,791      46%               $   4,021      51%
      International         5,429      36%                 6,739      54%                   3,860      49%
                         --------    -----             ---------   ------               ---------   ------
      Total              $ 14,981     100%     16%     $  12,530     100%      14%      $   7,881     100%      10%
                         --------    -----  ------     ---------   ------   ------      ---------   ------   ------

   Grand Total           $ 93,611             100%     $  91,341              100%      $  78,549              100%
                         ========           ======     =========            ======      =========            ======

(1) Excludes  the  results of  operations  of  Brookfield  Athletic  Co.,  Inc.,
    substantially  all of the assets of which  were sold by the  Company in July
    1997.
</TABLE>


RECENT DEVELOPMENTS

There were a number of  developments  affecting the Company  during 1997 and the
first quarter of 1998.  During the second quarter of 1997, the Company commenced
delivery of its Hind apparel to customers.  In July 1997,  the Company  received
proceeds of $6,841,000 in connection with the sale of  substantially  all of the
assets of its  Brookfield  Athletic  subsidiary.  In February  1998, the Company
purchased  substantially  all  of  the  assets  of  Merlin  Materials,  Inc.,  a
high-quality   manufacturer  of  titanium  bicycle  frames.  Together  with  the
Company's  Quintana  Roo  subsidiary,  Merlin  is  expected  to  provide  growth
opportunities  as the  Company  expands  its line of  high-performance  athletic
products.

During  the  fourth  quarter  of fiscal  1997,  the  financial  position  of the
Company's Australian subsidiary  deteriorated  significantly.  Principal factors
affecting  the  operating  results and  financial  position  of this  subsidiary
included:  lower sales of Saucony brand products,  excess inventories which were
liquidated  in the fourth  quarter of 1997,  a  significant  devaluation  of the
Australian currency, a reduction in net sales of non-Saucony products due to the
discontinuance of distribution  rights in Australia of another brand of athletic
footwear and too high a level of  administrative  overhead in light of the lower
levels of net sales.


<PAGE>

As a consequence of the deterioration in the Australian  subsidiary's  financial
position,  the Company  recorded a non-recurring  charge of $2,766,000 (or $0.45
per diluted share) in the fourth quarter of fiscal 1997, of which  $1,340,000 is
included in cost of sales.  In March 1998, the Company entered into an agreement
with its joint venture partners in its Australian  subsidiary  pursuant to which
the Company will acquire all of the  proprietary  interests of such  partners in
the  subsidiary  for nominal  consideration  and the  employment of the managing
director of such subsidiary will be terminated.  The Company expects the closing
to occur pursuant to such agreement by no later than May 1, 1998. The Company is
in the  process of  reassessing  its  operations  in  Australia  and  intends to
identify  a  qualified  distributor(s)  to  assume  responsibility  for  Saucony
products and/or liquidate the assets of Saucony S.P. Pty.
Ltd. during 1998.

Saucony Brand. The Company sells performance running,  walking,  cross training,
and outdoor  trail shoes for athletes  under the Saucony  brand name,  which has
been marketed in the United States for over 30 years. The Company assembles most
of its Saucony footwear sold in the United States at its manufacturing  facility
in Bangor, Maine, largely with components sourced from independent manufacturers
located  overseas.  The Company  believes that  assembly at its Bangor  facility
assists  in  timely  and  flexible  product  delivery  in the  domestic  market.
According  to  ASD/Target   Research,   Inc.,  an  independent  market  research
organization  ("ASD/Target  Research"),  the  Company  ranked  sixth in sales of
running  shoes in the United  States  during  1997.  In  addition,  according to
ASD/Target  Research,  the  Company's  market share of running shoes sold in the
United States was 4.0% in 1997. The Company  believes that a high  percentage of
purchasers  of Saucony  brand  footwear buy such  products for athletic uses and
that such consumers have greater brand loyalty than athletic shoe purchasers who
buy for casual wear purposes.  The Company has several product  offerings within
each of the Saucony brand categories. These offerings have different designs and
features, resulting in different cushioning,  stability, support characteristics
and prices.

The  Company  builds  its  Saucony  shoes  with a high  level  of  technological
performance  characteristics  to appeal to  athletic  users.  As a result of the
Company's  application of  biomechanical  technology in the design process,  the
Company  believes that its Saucony shoes have a distinctive  "fit and feel" that
is attractive to athletic users. A key element in the design of Saucony shoes is
an anatomically  correct toe and heel  configuration  that provides  support and
comfort  throughout the human gait cycle for the  particular  activity for which
the shoe is designed.

Most  of  the  Company's   top-of-the-line  running  and  other  athletic  shoes
incorporate the Company's GRID System, an innovative midsole system that employs
molded  strings  engineered  to create a feeling  similar  to that of the "sweet
spot" of a tennis racquet. In contrast with conventional athletic shoe midsoles,
the GRID System is designed to react to various  stress forces  differently  and
thereby  simultaneously  to maximize  shock  absorption  and minimize  rear foot
motion.

The Company  designs and markets  separate  lines for men and women  within most
Saucony product  categories.  The Company currently sells approximately the same
percentage of Saucony  shoes to men and women.  The  suggested  domestic  retail
prices for most  Saucony  footwear  products  are in the range of $50 to $85 per
pair, with the Company's top-of-the-line running shoes having suggested domestic
retail prices of up to $110 per pair.

The Company  designs its Saucony  cross  training,  women's  walking and outdoor
trail  shoes  with  many of the same  performance  features  and "fit and  feel"
characteristics as are found in Saucony running shoes. Currently,  the Company's
most popular non-running athletic shoe is a women's performance walking shoe.

The Company believes that a line of athletic apparel bearing the Saucony name is
supportive of its athletic  footwear products and enhances the visibility of the
Saucony  brand.  Saucony  markets  apparel under both the Dave Scott and Saucony
labels.  These products carry the same  commitment to quality and performance as
the Company's  footwear line. The Dave Scott line is an upscale  multi-sport and
triathlon  collection,  while  the  Saucony  apparel  line  is  targeted  at the
mainstream running consumer.


<PAGE>



OTHER PRODUCTS

Hind.  In the fourth  quarter of 1996,  the  Company  purchased  trademarks  and
related  intellectual  property from Hind, Inc. ("Hind"), a performance athletic
apparel company.  The Company began delivery of its Hind apparel products to the
retail trade in the second quarter of 1997.

Quintana Roo. The Company  manufactures and distributes the Quintana Roo line of
triathlon  bicycles,  road  bicycles,  mountain  bicycles and wet suits  through
high-end bicycle stores and sporting goods stores geared to triathletes.

Merlin.  In February 1998, the Company acquired the assets of Merlin  Materials,
Inc., a high performance manufacturer of titanium bicycle frames. The Company is
marketing titanium bicycle frames under the Merlin trademark.

Spot-Bilt  Brand.  The Company offers  Spot-Bilt shoes for coaches and officials
through the distribution channels for its Saucony brand shoes. In addition,  the
Company has licensed the Spot-Bilt name to a third party that distributes  youth
team field sport shoes under this name.

Factory Outlet Stores.  The Company  operates five retail factory outlet stores.
To avoid competing against its customers' retail outlets,  the Company generally
limits the products  offered at these stores to products with cosmetic  defects,
products which have been  discontinued  and certain  slow-moving  products.  The
Company  sells  Saucony,  Hind,  Spot-Bilt  and  Quintana  Roo products at these
outlets, as well as athletic accessory goods of third parties.


PRODUCT DEVELOPMENT

The Company believes that the technical performance (i.e., comfort,  support and
stability  experienced  by the athlete) of its Saucony  footwear is important to
purchasers  of its  products.  The  Company  uses  consulting  services  of such
professionals as podiatrists,  orthopedists,  athletes,  trainers and coaches as
part of its Saucony product development  program.  The Company maintains a staff
of 20 persons located in Peabody,  Massachusetts to undertake continuing product
development  and design.  Product  development  work also is  performed  for the
Company by its suppliers at their  overseas  facilities.  During the years ended
January 2, 1998,  January 3, 1997 and  January  5, 1996,  the  Company  expended
$1,513,000,  $1,417,000 and  $1,438,000,  respectively,  in connection  with its
product development programs, most of which related to Saucony products.


SALES AND MARKETING

Saucony Brand. The Company's Saucony athletic footwear products are sold at more
than  5,000  retail  outlets  in  the  United  States,   primarily   higher-end,
full-margin sporting goods chains,  independent sporting goods stores,  athletic
footwear  specialty  stores and department  stores.  Retail outlets include Foot
Locker/Lady  Foot Locker,  Athlete's Foot, The Sports  Authority,  Road Runner's
Sport,  Sport Mart and Just For Feet.  The Company  maintains a corporate  sales
team that is  directly  responsible  for the sales  activity  in its  largest 50
accounts.  The Company also sells its footwear and apparel in the United  States
through  13  independent   manufacturer   agents  whose   organizations   employ
approximately 44 sales representatives.

The Company also maintains a field sales  management  team to supervise,  direct
and   evaluate   the  44  sales   representatives.   The  Company  uses  certain
state-of-the-art  multi-media presentations for sales and marketing initiatives.
The  Company's  Website  (saucony.com)  receives  thousands  of hits weekly from
consumers  looking for new  product  profiles,  race and event data,  as well as
general Saucony information.


<PAGE>


The Company sells its Saucony products outside the United States in 34 countries
through 19 distributors  located  throughout the world,  including joint venture
subsidiaries  in which  the  Company  holds  controlling  interests  located  in
Australia  and  Canada  and  through  the  Company's  subsidiary  located in the
Netherlands  (which  holds  the  distribution  rights to the  Company's  Saucony
products in the Benelux countries) and a branch office in the United Kingdom. In
1994,  the Company formed a German  subsidiary,  Saucony  Deutschland  Vertriebs
GmbH,  to  provide  additional  sales and  marketing  support  in Europe  and to
undertake  sales and  marketing  of Saucony  products  in  Germany.  The primary
overseas markets for the Company's Saucony products are in Western Europe.

To accommodate its customers'  requirements  and plan for its own product needs,
the Company  employs a futures  orders  program for its Saucony  products  under
which the  Company  takes  orders  well in advance of the  selling  season for a
particular  product and commits to ship the product to the  customer in time for
the selling season.  The Company affords  customers price discounts and extended
payment terms in respect of such advance orders.  The Company generally requires
payment at the time that the selling season ends,  which increases the Company's
working capital requirements.

Saucony engages in various advertising and promotional programs.  The main media
vehicles  used are  magazines and  television.  The Company  employs many sports
marketing initiatives to drive brand awareness and imagery to athletes. Examples
include  Saucony running and racing seen monthly on ESPN, as well as sponsorship
of the L.A.  Marathon  and  Chase  Corporate  Challenge  race  series.  To build
in-store presence,  the Company uses  account-specific  and in-store promotions,
such as athlete  appearances,  special events,  gift with purchase  programs and
employee cost programs.

Although  most of the Company's  advertising  and  promotional  programs for its
Saucony brand are directed  towards  ultimate  consumers,  the Company  promotes
these  products  to the trade  through  attendance  at trade  shows and  similar
events.  The Company  employs an  advertising  program under which it reimburses
participating retailers for a portion of the costs incurred by such retailers in
advertising the Company's Saucony products.

The Company's  advertising of non-Saucony  products  includes  advertisements in
magazines and product  promotion  through  attendance at trade shows and similar
events.

Backlog; Seasonality; Distribution. The Company's backlog of unfilled orders was
approximately  $42.0  million at January 2, 1998 and $39.7 million at January 3,
1997.  The  Company  expects  that all of its backlog at January 2, 1998 will be
shipped in fiscal 1998. While the Company has not generally experienced material
cancellations of orders,  orders may be cancelled by customers without financial
penalty, and backlog does not necessarily represent actual future shipments.

The  Company is subject  to  seasonality  in its  product  sales  because of the
different selling seasons for various products. The Company's first three fiscal
quarters are often stronger than the last fiscal quarter due to Saucony  product
introductions  in  January  and July and spring  sales  associated  with  warmer
weather in the Company's principal markets.  The Company distributes its Saucony
and Hind products  through its warehouses in Peabody,  Massachusetts  as well as
through  independent  warehouse  facilities  located  throughout the world.  The
Company  distributes its Quintana Roo products  through its leased  warehouse in
San Marcos, California.

For information  about the Company's  foreign  operations and export sales,  see
Note 15 of Notes to Consolidated Financial Statements.


MANUFACTURING

The Company  assembles  most of its  domestically  sold Saucony  footwear at the
Company's  manufacturing  facility in Bangor,  Maine,  largely  with  components
sourced from independent  manufacturers  located overseas.  Independent overseas
manufacturers  produce the balance of the Company's  Saucony products and all of
the  Company's  Spot-Bilt  products.   Quintana  Roo  and  Merlin  products  are
manufactured   by  the  Company  in  San  Marcos,   California   and  Cambridge,
Massachusetts,  respectively.  Hind  outsources  the  manufacturing  of all  its
products.

The overseas  manufacturers  that supply products and product  components to the
Company are located in the Far East,  primarily in China, but also in Taiwan and
Thailand. The Company seeks to develop additional overseas manufacturing sources
from  time to  time,  both to  increase  its  sourcing  capacity  and to  obtain
alternative  sources of supply. All products and components  produced by foreign
suppliers are manufactured in accordance with product  specifications  furnished
by the Company. The Company carefully monitors foreign manufacturing  operations
and imported  products and  components to assure  compliance  with the Company's
design, production and quality requirements.

The  number of foreign  suppliers  and the  percentage  of the  Company's  total
foreign production requirements produced by each such supplier vary from time to
time.  During  fiscal  1997,  the Company  purchased  products  from 20 overseas
suppliers. One of such suppliers,  located in China, accounted for approximately
41% of the Company's total overseas purchases by dollar volume.

The  Company  is  subject to the usual  risks of a  business  involving  foreign
suppliers,  such as government  regulation of fund transfers,  export and import
duties and political and labor instability.  The Company has not been materially
affected  by any of these  factors to date.  Substantially  all  purchases  from
foreign  suppliers to date have been  denominated  in United  States  dollars in
order to reduce the Company's risk from currency fluctuations.

Although the Company has no long-term manufacturing agreements with its overseas
suppliers  and  competes  with  other  athletic  shoe and  recreational  product
companies (including companies that are much larger than the Company) for access
to production facilities,  management believes that the Company's  relationships
with its footwear and other  suppliers are strong and that it has the ability to
develop,  over time,  alternative  sources in various  countries  for  footwear,
footwear  components  and other  products  obtained from its current  suppliers.
However, in the event of a supply  interruption,  the Company's operations could
be materially and adversely affected if a substantial delay occurred in locating
and obtaining alternative sources of supply.

Raw materials required for the manufacture of the Company's products,  including
leather,  rubber,  nylon,  titanium,  aluminum and other fabrics,  are generally
available in the country in which the products are manufactured. The Company and
its suppliers  have not  experienced  any  difficulty  in  satisfying  their raw
material needs to date.


TRADE POLICY

The  Company's  practice of sourcing  products  and  components  overseas,  with
subsequent  importation  into the United States,  exposes it to possible product
supply  disruptions and increased costs in the event of actions by United States
or foreign  government  agencies  adverse to continued trade or the enactment of
legislation that restricts  trade. For example,  on February 2, 1997, the United
States and China reached an agreement on a four-year textile pact that generally
extends current quota arrangements in Chinese textile and apparel exports to the
United  States,  but  reduces  quotas on three  occasions  -- most  recently  in
September,  1996 when the United  States  imposed  triple  charges for illegally
transshipped  merchandise  (excluding  footwear).  China's  compliance  with the
current textiles agreement is under review by U.S. trade officials.

In addition,  Company  imports a significant  amount of its products and product
components from China. The United States provides China with most-favored-nation
("MFN")  status,  allowing  China to receive the same tariff  treatment that the
United States extends to its "most favored"  trading  partners.  Notwithstanding
this current  policy,  Congress  could seek to revoke MFN for China or condition
its renewal on factors such as China's human rights record.  Recently, there has
been  heightened  scrutiny  of  extending  MFN for  China in  light  of  certain
allegations  that Chinese  nationals  may have sought to improperly or illegally
influence   members  of  the   Administration   or  Congress  through  political
contributions.  In addition,  there has been increasing concern in Congress with
regard to the growing U.S. trade deficit with China.

The  administration  of  existing  U.S.  trade  laws  can  also  create  adverse
consequences  for trade  with the  Company's  suppliers.  In  particular,  under
Section 301 of the Trade Act of 1974,  as well as "Special 301" and "Super 301,"
the Office of the United  States Trade  Representative  ("USTR")  can  retaliate
against certain unfair foreign  trading  practices.  For example,  in early 1995
such retaliation almost occurred against China in a Special 301 investigation of
China's intellectual property regime.  However, on February 26, 1995, the United
States  and China  reached  an  agreement  in this  Special  301  investigation,
avoiding the scheduled  imposition of increased  tariffs by the United States on
certain products imported from China, including certain footwear products.  This
bilateral agreement has extensive  compliance  features,  and China's compliance
with this agreement is currently  under review by U.S. trade  officials.  On May
15, 1996, based on monitoring  carried out under Section 306(a) of the Trade Act
of  1974,  as  amended,   the  United  States  considered  that  China  was  not
satisfactorily  implementing  the February 26, 1995  agreement,  and proposed to
impose  prohibitive  tariffs on certain products from China,  including  certain
textile and apparel,  but excluding  footwear.  Additionally,  to prevent import
surges,  USTR directed  Customs to limit exports of certain textile  products by
their date of entry. On June 17, 1996,  USTR announced  that,  based on measures
that China has taken and will take in the future to  implement  key  elements of
the 1995 agreement,  the proposed  sanctions would not be imposed.  On April 30,
1997, the USTR reported that significant  progress had occurred in China in late
1996 and early 1997. The Company is unable to predict whether USTR may decide in
the future to impose  sanctions or take other  actions  against China under this
agreement. Also, U.S./ China trade relations, especially with respect to China's
efforts to accede to the World Trade Organization,  have been contentious in the
recent past, and the Company cannot predict  whether this tension will interfere
with the ability of the Company to import products from China in the future.

In addition,  USTR has  identified  certain of the Asian  countries in which the
Company's  suppliers are located as having various foreign trade barriers.  As a
result of these or other unfair  trade  practices as  identified  by USTR,  such
countries  could be subject to possible  retaliation  by the United States under
Super or regular Section 301 authority.

The Company is unable to predict whether additional U.S. customs duties,  quotas
or other  restrictions  may be imposed in the future upon the importation of its
products and/or components as a result of any of the matters discussed above, or
because  of similar  U.S.  or  foreign  government  actions.  In  addition,  the
Company's imports into the United States,  the European Union or elsewhere could
be  subjected to  antidumping  duties if an  antidumping  order that covered the
Company's  products were issued in such countries or regions.  Such action could
result in increases in the costs of imported  footwear,  footwear  components or
other Company  products  generally,  or limitations on the Company's  ability to
import  footwear,  footwear  components  or such other  products into the United
States.  Such  occurrences  might adversely affect the sales or profitability of
the Company, possibly materially.


COMPETITION

Competition  is intense in the markets in which the Company  sells its products.
The Company competes with a large number of other  companies,  both domestic and
foreign.  Several  competitors are large  organizations with diversified product
lines,  well-known  brands and financial  resources  substantially  greater than
those of the  Company.  The  principal  competitors  for the  Company's  Saucony
products are Nike,  New Balance and ASICS.  The  principal  competitors  for the
Company's  Hind  products  are Nike,  Pearl  Izumi  and  Speedo.  The  principal
competitors  for the Company's  Quintana Roo and Merlin  products are Cannondale
and Trek.  The  Company  believes  that the key  competitive  factors  as to its
products are styling, durability,  technical performance, product identification
through  promotion,  brand awareness and price.  Customer  support  services and
E.D.I. (Electronic Data Interchange) are also important competitive factors. The
Company believes that it is competitive in all of these areas.



<PAGE>



TRADEMARKS

The Company utilizes  trademarks on nearly all of its products and believes that
having  distinctive  marks is an important  factor in marketing  its goods.  The
Company  has  federally  registered  its  Saucony(R),   Spot-Bilt(R),   Hyde(R),
G.R.I.D.(R),  Quintana Roo(R),  Merlin(R) and Hind(R) marks,  among others.  The
Company  has  also  registered  some of  these  marks  in a  number  of  foreign
countries,  including countries in Europe, the Far East, and North,  Central and
South America. Although the Company has a foreign trademark registration program
for selected  marks,  no assurance can be given that it will be able to register
or use such marks in each foreign country in which registration is sought.


EMPLOYEES

At January 2, 1998, the Company employed approximately 442 people worldwide,  of
whom  approximately 142 worked at the Company's  manufacturing  plant in Bangor,
Maine,   approximately  28  worked  in  the  Company's  Peabody,   Massachusetts
warehouse, approximately 29 were sales and marketing personnel, approximately 33
were executive and finance personnel,  approximately 20 were product development
and design personnel and the remainder were involved in various other aspects of
the Company's  business.  Eighty-five of the Company's employees work at foreign
locations.  The Company believes that its employee relations are excellent.  The
Company has never experienced a strike or other work stoppage.  Approximately 20
employees in the Company's  Peabody  warehouse  were  represented  by a union at
January 2, 1998. None of the Company's other employees is represented by a union
or subject to a collective bargaining agreement.


ITEM 2 - PROPERTIES

The Company's general and executive  offices and its main distribution  facility
are  located  in  Peabody,  Massachusetts,  and are owned by the  Company.  This
facility consists of approximately  175,000 square feet, of which 145,000 square
feet is warehouse space.

The Company owns a factory in Bangor,  Maine,  containing  approximately  82,000
square feet of space,  substantially all of which is used for the manufacture of
the  Company's  Saucony  running  shoes,  mostly with imported  components.  The
Company  also owns a retail  store in  Bangor,  containing  approximately  3,000
square  feet  of  space,  and a  warehouse  in East  Brookfield,  Massachusetts,
containing approximately 100,000 square feet.

The Company's Quintana Roo subsidiary leases approximately 15,000 square feet of
manufacturing  office  space in San Marcos,  California.  The  Company's  Merlin
division  leases  13,600  square  feet of  manufacturing  and  office  space  in
Cambridge, Massachusetts.


ITEM 3 - LEGAL PROCEEDINGS

The Company is  involved in routine  litigation  incident  to its  business.  In
management's  opinion,  none of these  proceedings  will have a material adverse
effect on the Company's financial position, operations or cash flows.



<PAGE>



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

Not applicable.


Executive Officers Of The Registrant


The executive officers of the Company are as follows:

    Name                 Age                              Position            

John H. Fisher           50                  President, Chief  Executive Officer
                                             and Director


Charles A. Gottesman     47                  Executive Vice President,
                                             Chief Operating Officer, Treasurer
                                             and Director


Wolfgang Schweim         45                  President, Saucony International


Arthur E. Rogers, Jr.    35                  President, Saucony North America


Roger P. Deschenes       39                  Vice President, Controller and
                                             Chief Accounting Officer


Kenneth W. Graham        44                  Senior Vice President,
                                             Research & Development/Textiles


Daniel J. Horgan         42                  Vice President, Operations


Andrew M. James          41                  Vice President, MIS



John H. Fisher has served as Chief Executive  Officer of the Company since 1991.
He was elected President and Chief Operating Officer in 1985 after having served
as Executive Vice President from 1981 to 1985 and as Vice President,  Sales from
1979 and 1981. Mr. Fisher is a member of the World  Federation of Sporting Goods
Industries,  is the former  Chairman  of the  Athletic  Footwear  Council of the
Sporting  Goods  Manufacturers  Association,  and is a member of  various  civic
associations. Mr. Fisher became a director in 1980.

Charles A. Gottesman has served as Executive Vice President and Chief  Operating
Officer of the  Company  since 1992,  and served as  Executive  Vice  President,
Finance  from  1989 to 1992,  Senior  Vice  President  from  1987 to 1989,  Vice
President from 1985 to 1987, and Treasurer  since 1983. Mr.  Gottesman  became a
director in 1983 and is the brother-in-law of John H. Fisher.


<PAGE>


Wolfgang  Schweim became the President of Saucony  International in January 1998
after serving as President of the Company's athletic footwear division from June
1994 to January 1998. From 1993 to 1994, Mr. Schweim served as Managing Director
for Saucony  Europe.  From 1989 to 1993,  Mr.  Schweim  was the German  Managing
Director  and  Marketing  Sales  Manager for Europe at Asics,  an athletic  shoe
manufacturer. Prior to 1989, Mr. Schweim worked in sales and marketing positions
with Nike International, Le Coq Sportif and Adidas AG.

Arthur E. Rogers,  Jr.  became the President of Saucony North America in January
1998. Mr. Rogers re-joined the Company as Senior Director of Global Marketing in
1994, having previously served as Brand Manager from 1990 - 1992. Most recently,
Mr.  Rogers has been the Vice  President of North  American  Sales and Worldwide
Marketing.  Prior to joining the  Company,  Mr.  Rogers held  various  sales and
marketing  positions  at Proctor & Gamble as well as  Converse  Shoe,  Inc.,  an
athletic shoe company.

Roger P. Deschenes has served as Vice President,  Controller  since August 1997,
after having served as Controller and Chief Accounting Officer from October 1995
to August 1997. Mr. Deschenes joined the Company in 1990 as Corporate Accounting
Manager.  He  was  employed  at  Allen-Bradley,   a  manufacturing  company  and
subsidiary of Rockwell International,  Corp., from 1987 to 1990 as Financial and
Cost Reporting Supervisor. Mr. Deschenes is a Certified Management Accountant.

Kenneth   W.   Graham   became   Senior   Vice   President   of   Research   and
Development/Textiles  in January 1998 after serving as Senior Vice  President of
Research  and  Development/Manufacturing  since 1996.  Prior to that Mr.  Graham
served as Vice President of Research and  Development/Manufacturing.  Mr. Graham
joined  the  Company in 1984 and has served as  Manager  and Vice  President  of
Research and  Development.  Prior to joining the Company,  Mr. Graham worked for
seven years with New Balance Athletic Shoe, Inc.

Daniel J. Horgan became Vice  President of  Operations  in September  1995 after
serving as Senior  Director of Operations from September 1994 to September 1995.
Mr.  Horgan  joined  the  Company  in 1982  as  Manager  of  Import  and  Export
Operations,  served as Product Procurement and Distribution Manager from 1985 to
1988,  Manager of Production  from 1988 to 1992,  and Director of  International
Trade for the Company from 1992 to 1994.

Andrew M. James joined the Company in February  1984.  He has served the Company
as Accounting Manager (1984 - 1988),  Assistant Controller (1989 - 1993), Senior
Director  of  Information  Systems  (1994  - 1997)  and  most  recently  as Vice
President,  MIS. Mr. James holds  advanced  degrees from  Washington  University
(MBA) and Bentley College (MS).




<PAGE>




PART II


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

The Company's  Class A Common Stock and Class B Common Stock trade on the Nasdaq
National  Market  under the  symbols  "HYDEA"  and  "HYDEB,"  respectively.  The
following table sets forth, for the periods  indicated,  the actual high and low
sales  prices per share of the Class A Common Stock and the Class B Common Stock
as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>


                                                                       Class A                         Class B
                                                                    Common Stock                 Common Stock

                                                                 High            Low            High             Low
     <S>                                                       <C>           <C>            <C>             <C>   
     Fiscal Year ended January 2, 1998

     First Quarter                                             $  5-1/4      $  4-3/8       $   5-3/8       $   4-3/8
     Second Quarter                                               5-3/8         4-1/2           5-1/4           4-1/2
     Third Quarter                                                    5         3-7/8           5-1/8               4
     Fourth Quarter                                               5-1/8         3-5/8           5-1/8           3-3/8


     Fiscal Year ended January 3, 1997

     First Quarter                                             $  4-3/8      $  3-5/8       $   4-1/4       $  3-3/16
     Second Quarter                                               6-3/4         3-5/8         5-13/16           3-1/4
     Third Quarter                                                6-1/2         4-1/2         5-15/16           4-3/4
     Fourth Quarter                                               5-1/2         4-3/8           5-1/2           4-1/2

</TABLE>

There were 375 and 354  stockholders  of record of the Class A Common  Stock and
Class B Common Stock, respectively, on March 17, 1998.

The Company does not  anticipate  paying any cash  dividends in the  foreseeable
future  on the  shares  of Class A Common  Stock  or Class B Common  Stock.  The
Company  currently intends to retain future earnings to fund the development and
growth of its business.  The Company's note agreement with an insurance  company
contains certain  covenants  restricting the cash dividends which may be paid by
the Company. As of January 2, 1998, approximately  $11,055,000 was available for
payment of cash dividends under the terms of these covenants.  Additionally, the
Company's credit facility agreement with two banks further restricts the payment
or declaration of any dividend or other distributions to stockholders,  in money
or  property,  except in shares of its own Common  Stock.  Each share of Class B
Common Stock is entitled to a regular cash dividend equal to 110% of the regular
cash dividend, if any, payable on a share of Class A Common Stock.


<PAGE>

<TABLE>

ITEM 6 - SELECTED FINANCIAL DATA
Selected Income Statement Data                                    (in thousands; per share amounts in dollars)
<CAPTION>

                                                           Year         Year         Year         Year          Year
                                                           Ended        Ended        Ended        Ended         Ended
                                                          Jan. 2,      Jan. 3,      Jan. 5,     Dec. 30,      Dec. 31,
                                                           1998         1997         1996         1994          1993

<S>                                                     <C>           <C>          <C>          <C>          <C>     
Net sales                                               $ 93,611      $91,341      $78,549      $ 83,055     $ 84,482

Income (loss) from operations                             (1,935)       2,345          228         3,244        8,831

Minority interest in income (loss) of
   consolidated subsidiaries                                (123)         308         (286)            9          (47)

Income (loss) from continuing operations                  (4,032)       1,349          522         2,086        4,727

Income (loss) from discontinued operations (1)
   Income (loss) from discontinued operations               (394)        (243)         863           851         (119)
   Gain on disposal of Brookfield business                    96            0            0             0            0

Net income (loss)                                         (4,330)       1,106        1,385         2,937        4,608

Earnings per common share  - basic (2)
   Income (loss) from continuing operations             $   (0.65)    $   0.22     $  0.08      $  0.32      $    0.78
   Income (loss) from discontinued operations               (0.05)       (0.04)       0.14         0.14          (0.02)
                                                        ----------    ---------    -------      -------      ----------
Net income (loss) per common share - basic              $   (0.70)    $   0.18     $  0.22      $  0.46      $    0.76
                                                        ==========    ========     =======      =======      =========

Earnings per common share - diluted (2)
   Income (loss) from continuing operations             $   (0.65)    $   0.22     $  0.08      $  0.32      $    0.78
   Income (loss) from discontinued operations               (0.05)       (0.04)       0.14         0.14          (0.02)
                                                        ----------    ---------    -------      -------      ----------
Net income (loss) per common share - diluted            $   (0.70)    $   0.18     $  0.22      $  0.46      $    0.76
                                                        ==========    ========     =======      =======      =========

Weighted average common shares and
   equivalents outstanding (2)                             6,240        6,268        6,244         6,446        6,057

Cash dividends per share of common stock                      --           --           --            --           --


Selected Balance Sheet Data
                                                          Jan. 2,      Jan. 3,      Jan. 5,     Dec. 30,      Dec. 31,
                                                           1998         1997         1996         1994          1993

Current assets                                          $ 50,239      $58,132      $58,984      $ 61,621     $ 58,121

Current liabilities                                       13,315       13,963       14,728        15,657       13,372

Working capital                                           36,924       44,169       44,256        45,964       44,749

Total assets                                              61,316       70,752       69,265        77,082       73,693

Long-term debt                                               771        4,893        4,205        11,922       12,942

Stockholders' equity                                      45,072       49,484       48,160        46,754       44,709

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

(1)    See Note 13 of the Notes to Consolidated Financial Statements  regarding
       discontinued operations.

(2)    See  Notes 1 and 11 of the  Notes to  Consolidated  Financial  Statements
       regarding the adoption of Statement of Financial Accounting Standards 128
       (SFAS 128). SFAS 128 requires the restatement of all previously  reported
       per share amounts.

(3)    See  Note  21  of  the  Notes  to  Consolidated  Financial  Statements
       discussing the accounting restatements.


</TABLE>


<PAGE>


This Annual Report on Form 10-K contains  forward-looking  statements.  For this
purpose,  any statements  contained herein that are not statements of historical
fact may be  deemed  to be  forward-looking  statements.  Without  limiting  the
foregoing,  the words "believes,"  "anticipates," "plans," "expects" and similar
expressions  are intended to identify  forward-looking  statements.  There are a
number of important  factors that could cause the  Company's  actual  results to
differ  materially from those indicated by such  forwarding-looking  statements.
These  factors  include,  without  limitation,  those set forth  below under the
caption "Certain Factors That May Affect Future Results."


FISCAL 1997 COMPARED TO FISCAL 1996

The Company had a net loss of $4,330,000,  or $0.70 per diluted share, in fiscal
1997 as compared to net income of  $1,106,000,  or $0.18 per diluted  share,  in
fiscal 1996. The Company had a loss from continuing operations of $4,032,000, or
$0.65 per diluted  share,  in fiscal 1997 as compared to income from  continuing
operations  of  $1,349,000,  or $0.22 per diluted  share,  in fiscal  1996.  The
Company  had a loss  from  discontinued  operations  of  $298,000,  or $0.05 per
diluted share, in fiscal 1997 as compared to loss from  discontinued  operations
of $243,000, or $0.04 per diluted share, in fiscal 1996.

The loss from continuing operations realized in fiscal 1997 was due primarily to
the Company's  Australian  subsidiary  (Saucony S.P. Pty. Ltd.) and management's
decision to pursue  alternatives to Company-owned  marketing and distribution in
that country.  Net losses from ongoing Australian  business totaled  $1,419,000,
with additional  reserves of $2,766,000 recorded in the fourth quarter of fiscal
1997  covering  inventory,  accounts  receivable,  prepaid  expenses,  plant and
equipment and deferred  charges.  Additionally,  the Company recorded a deferred
tax valuation  allowance of $999,000 related to loss  carryforwards that are not
expected to be realized.

The following sets forth fiscal 1997 quarterly statement of earnings for Saucony
S.P. Pty. Ltd. (in thousands):
<TABLE>
<CAPTION>

                                                 Quarter 1    Quarter 2     Quarter 3    Quarter 4      Year       
                                                 ---------- -----------     ---------    ---------   -----------
    <S>                                          <C>          <C>          <C>          <C>          <C>      
     Net sales
       Saucony brand                             $   1,488    $   1,404    $   1,962    $   1,716    $   6,570
       Other brands                                  2,080        1,303          666          451        4,500
                                                 ---------    ---------    ---------    ---------    ---------
         Total net sales                             3,568        2,707        2,628        2,167       11,070
                                                 =========    =========    =========    =========    =========

     Cost of sales
       Cost of sales                                 2,503        2,262        2,047        2,082        8,894
       Inventory writedown                              --           --           --        1,340        1,340
                                                 ---------    ---------    ---------    ---------    ---------
         Total cost of sales                         2,503        2,262        2,047        3,422       10,234
                                                 ---------    ---------    ---------    ---------    ---------

     Gross profit                                    1,065          445          581       (1,255)         836
     Selling, general and
       administrative expenses                         901          917          790          876        3,484
     Writedown of assets                                --           --           --        1,426        1,426
                                                 ---------    ---------    ---------    ---------    ---------
     Operating income (loss)                           164         (472)        (209)      (3,557)      (4,074)

     Non-operating income (expense)
       Interest, net                                   (94)        (143)        (101)         (72)        (410)
       Foreign currency                                (88)         (19)        (117)        (660)        (884)
       Other                                            17           15           59           55          146
                                                 ---------    ---------    ---------    ---------    ---------
     Loss before tax and minority interest              (1)        (619)        (368)      (4,234)      (5,222)

     Income tax benefit                                 --         (223)        (157)        (504)        (884)
     Tax valuation allowance                            --           --           --          999          999
     Minority interest                                  --         (198)          42            3         (153)
                                                 ---------    ----------   ---------    ---------    ----------
     Net loss                                    $      (1)   $    (198)   $    (253)   $  (4,732)   $  (5,184)
                                                 ==========   ==========   ==========   ==========   ==========

</TABLE>


During 1997,  operating losses at Saucony S.P. Pty. Ltd. worsened as a result of
factors  impacting both the overall footwear industry and Saucony S.P. Pty. Ltd.
specifically.  In Australia and throughout the Pacific Rim, industry  conditions
were  characterized  by an over-supply of product with weak consumer  demand and
intense market competition. At the end of June 1997, Saucony S.P. Pty. Ltd. also
lost  distribution  rights to a major line of athletic  apparel which added to a
higher level of  administrative  overhead in light of lower levels of net sales.
Full year 1997,  net sales of Saucony brand and other brands  declined 13.7% and
26.1%, respectively, compared to 1996.

Despite  efforts during the third and fourth quarter of 1997 and working capital
containment,   losses   continued  to  mount.   Additional   efforts  to  secure
distribution rights for other key brands were unsuccessful over this period, and
in the fourth quarter of 1997, the 12.1%  depreciation of the Australian  dollar
resulted in $660,000 of exchange  losses at Saucony S.P.  Pty.  Ltd.  Faced with
mounting losses and an uncertain  business  environment,  management  decided in
early 1998 to withdraw  from  Company-owned  operations  in Australia as soon as
practical.  The Company intends to identify a qualified distributor(s) to assume
responsibility  for Saucony products and/or liquidate the assets of Saucony S.P.
Pty. Ltd. during 1998.

The  Company's  net  sales  increased  3% to  $93,611,000  in  fiscal  1997 from
$91,341,000  in  fiscal  1996.  Net  sales  of the  Company's  Saucony  products
decreased .2% to $78,630,000 in fiscal 1997 from $78,811,000 in fiscal 1996, due
primarily to decreased  footwear unit volume and unfavorable  currency exchange.
Saucony  domestic  net sales  increased  3% to  $56,050,000  in fiscal 1997 from
$54,445,000  in  fiscal  1996,  primarily  due to higher  selling  prices of the
Company's recently introduced products, and, to a lesser extent,  increased unit
volume.  Saucony  foreign net sales  decreased 7% to  $22,580,000 in fiscal 1997
from $24,366,000 in fiscal 1996, due primarily to decreased footwear unit volume
and,  to a lesser  extent,  unfavorable  currency  exchange,  offset  in part by
increased apparel sales.

Net sales of other  products  increased 20% to  $14,981,000  in fiscal 1997 from
$12,530,000 in fiscal 1996, due to increased sales by the Company's wholly-owned
subsidiary,  Quintana Roo, Inc. (Quintana Roo), and sales of Hind apparel, which
were offset to some extent by decreased sales of non-corporate brand products by
the Company's Australian subsidiary. The Company acquired trademarks and related
intellectual  property  from Hind,  Inc. in December 1996 and began to ship Hind
products in the second quarter of 1997.

Other  revenue  decreased 35% to $351,000 in fiscal 1997 from $538,000 in fiscal
1996 due primarily to decreased  royalty income and decreased  shipment  freight
and handling revenue.

The  Company's  gross  profit  increased 2% to  $30,100,000  in fiscal 1997 from
$29,649,000  in fiscal 1996.  The Company's  gross margin  decreased to 32.2% in
fiscal 1997 from 32.5% in fiscal 1996, due primarily to a significant decline in
gross margin realized by the Company's  Australian  subsidiary during the fourth
fiscal  quarter of 1997 which was  unfavorably  impacted by  increased  sales of
non-current  models and the inventory  writedown,  of  $1,340,000,  to estimated
realizable  value.  The margin  decrease in Australia  was  partially  offset by
increased margin for Saucony products,  exclusive of Australia. The gross margin
for Saucony products in fiscal 1996 reflected a significant level of unit volume
of slow-moving,  non-current  models and lower-margin  special make-up footwear.
These  factors,  and, to a lesser  extent,  decreased  freight costs and reduced
manufacturing  costs in  fiscal  1997,  primarily  accounted  for  gross  margin
increase for Saucony products, exclusive of Australia, in fiscal 1997.

Selling, general and administrative expenses increased to $30,110,000,  or 32.2%
of net sales, in fiscal 1997 from $27,842,000,  or 30.5% of net sales, in fiscal
1996.  Advertising and promotion  expenses decreased $200,000 in fiscal 1997 due
primarily to decreased  Saucony  domestic  television and media  advertising and
reduced  spending  by the  Company's  foreign  subsidiaries,  offset  in part by
increased account specific  promotions.  Selling expenses  increased $833,000 in
fiscal 1997 due to increased  payroll costs and selling and  marketing  expenses
related to the  introduction  of Hind  apparel and to  increases in domestic and
foreign sales staffs.  General and administrative  expenses increased $1,635,000
in  fiscal  1997  due to  increased  costs  related  to the  Company's  upgraded
information system,  increased professional fees, higher domestic payroll costs,
increased  provisions  for doubtful  debts and  increased  administrative  costs
attributable  to the  introduction  of Hind apparel and  continued  expansion of
Quintana Roo's infrastructure.

The Company recorded a non-recurring  charge of $850,000  ($508,000 after tax or
$0.08 per  diluted  share ) in fiscal 1997 to reduce the  carrying  value of the
Company's inactive  distribution  facility in East Brookfield,  Massachusetts to
market.

Interest  expense  increased  12% to $817,000  in fiscal  1997 from  $730,000 in
fiscal 1996 due to increased  borrowings on the Company's demand credit facility
and increased  asset-based  borrowing.  Increased  working capital  requirements
caused the Company's borrowing in the first half of fiscal 1997 to substantially
exceed its borrowings in the second half of the year. The Company used a portion
of the  $6,841,000  received  in the second half of fiscal 1997 from the July 4,
1997  sale  of  substantially  all of the  assets  of the  Company's  Brookfield
subsidiary to pay down the borrowings.

Foreign  currency  transaction  losses  amounted to $1,127,000 in fiscal 1997 as
compared to net gains of $171,000 in fiscal 1996, reflecting increased losses on
U.S. dollar  denominated  obligations  held by certain of the Company's  foreign
subsidiaries in fiscal 1997.

The  provision  for income  taxes  increased  to  $355,000  in fiscal  1997 from
$325,000 in fiscal 1996, due to the deferred tax valuation allowance recorded in
fiscal 1997 relating to foreign net operating  loss  carryforwards  that are not
expected to be realized.  The  effective  tax rate  decreased by 7.1% to 9.3% in
fiscal 1997 from 16.4% in fiscal 1996 due  primarily to  recording  the deferred
tax valuation  allowance in fiscal 1997 and from a shift in the  composition  of
foreign and domestic pre-tax profits and losses.

FISCAL 1996 COMPARED TO FISCAL 1995

The Company's net income  decreased by 20% to  $1,106,000,  or $0.18 per diluted
share, in fiscal 1996 as compared to $1,385,000,  or $0.22 per diluted share, in
fiscal 1995. Income from continuing  operations increased 58% to $1,349,000,  or
$0.22 per  diluted  share,  in fiscal 1996 from  $522,000,  or $0.08 per diluted
share, in fiscal 1995. Income from discontinued  operations  decreased to a loss
of $243,000,  or $0.04 per diluted share, in fiscal 1996 from $863,000, or $0.14
per diluted share, in fiscal 1995.

The  Company's  net sales  increased  16% to  $91,341,000  in  fiscal  1996 from
$78,549,000  in  fiscal  1995.  Net  sales  of the  Company's  Saucony  products
increased 12% to $78,811,000 in fiscal 1996 from  $70,668,000 in fiscal 1995 due
primarily  to higher  selling  prices and, to a lesser  extent,  increased  unit
shipment volume.  The Company believes that the increase resulted from technical
and cosmetic  improvements to its Saucony products in 1996. Saucony domestic net
sales  increased 16% to  $54,445,000  in fiscal 1996 from  $47,040,000 in fiscal
1995, due to higher selling prices of the Company's recently introduced products
in comparison with the Company's  existing  products and increased unit shipment
volume.  Saucony  foreign net sales  increased 3% to  $24,366,000 in fiscal 1996
from  $23,628,000 in fiscal 1995, due primarily to higher selling prices and, to
a lesser extent, favorable currency exchange.

Net sales of other  products  increased 59% to  $12,530,000  in fiscal 1996 from
$7,881,000 in fiscal 1995, due primarily to additional  sales from the Company's
wholly-owned  subsidiary  Quintana Roo,  acquired in August 1995,  and increased
sales of non-corporate brands by the Company's Australian subsidiary.

Other  revenue  increased 85% to $538,000 in fiscal 1996 from $291,000 in fiscal
1995, due to increased royalty income and proceeds from a litigation settlement.

The  Company's  gross profit  increased 15% to  $29,649,000  in fiscal 1996 from
$25,854,000  in fiscal 1995.  The Company's  gross margin  decreased to 32.5% in
fiscal 1996 from 32.9% in fiscal 1995 reflecting  decreased  margins for Saucony
products.  The gross margin  decrease  for Saucony  products  resulted  from the
shipment  of  a  single  slow-moving,  non-current  model,  increased  sales  of
lower-margin footwear and, to a lesser extent, increased freight costs.

Selling, general and administrative expenses increased to $27,842,000,  or 30.5%
of net sales, in fiscal 1996 from $25,654,000,  or 32.7% of net sales, in fiscal
1995. Advertising and promotion expenses increased $1,233,000 in fiscal 1996 due
primarily to increased  Saucony domestic  television and print media advertising
and, to a lesser extent,  increased  sponsorship of athletes.  Selling  expenses
increased by $321,000 in fiscal 1996 due to increased selling payroll and travel
costs, offset to some extent by management's initiative to reduce commissions on
sales  of  Saucony  products.  General  and  administrative  expenses  increased
$634,000  in fiscal  1996,  due to  increased  administrative  costs  related to
Quintana Roo and increased  foreign costs for payroll due to increased  staffing
at several of the Company's  foreign  subsidiaries  and  increased  professional
fees.

Interest  expense  decreased  26% to $730,000  in fiscal  1996 from  $982,000 in
fiscal  1995,  reflecting  the paydown of the  Company's  senior  notes and debt
reduction  realized  as a  result  of the  sale by the  Company  of its  limited
partnership investment.

Other  non-operating  income  decreased  69% to  $196,000  in  fiscal  1996 from
$642,000  in fiscal 1995 due to the gain  realized on the sale of the  Company's
investment in a limited partnership which was recognized in fiscal 1995.

The effective tax rate increased  19.9%,  to 16.4% in fiscal 1996 from (3.5%) in
fiscal 1995, due to a shift in the  international  mix of pre-tax earnings among
taxing jurisdictions.  During 1996, the Company recovered low income housing tax
credits,  which had  previously  been  recaptured  and  reversed  a foreign  tax
valuation   allowance.   The  low-income   housing  tax  credit  recovery  is  a
non-recurring event.


LIQUIDITY AND CAPITAL RESOURCES

As of  January  2,  1998,  the  Company's  cash  and  cash  equivalents  totaled
$4,432,000, an increase of $1,629,000 from January 3, 1997. The increase was the
result of the receipt of $6,841,000  from the sale of  substantially  all of the
net assets of the Company's  wholly-owned  subsidiary,  Brookfield Athletic Co.,
Inc. The increase  was offset in part by an increase in accounts  receivable  of
$1,824,000,  net of the provision for bad debts and discounts of $4,887,000, and
an increase in inventories of  $1,301,000.  The increase in accounts  receivable
was due to  increased  net  sales of the  Company's  Saucony  products  and Hind
products  in the  fourth  quarter  of fiscal  1997.  The  Company's  days  sales
outstanding  for its  accounts  receivable  of 73 days in fiscal  1997  remained
consistent  with fiscal  1996.  Inventories  increased in fiscal 1997 due to the
buildup of Hind apparel inventory.  The Company's inventory turn ratio decreased
to 2.5 turns in fiscal 1997 from 2.6 turns in fiscal 1996.

During  fiscal  1997,  the  Company  used  $1,422,000  of net cash in  operating
activities,  expended  $1,331,000  to acquire  capital  assets  and  information
technology,  decreased short-term borrowings by $1,063,000,  expended $2,711,000
to reduce  long-term  debt,  received  $511,000 from the sale of capital assets,
principally  the sale of the  Company's  facility  in  Australia,  and  expended
$140,000 to acquire the remaining shares held by the minority shareholder in the
Company's  Dutch  subsidiary.  Current  maturities of long-term  debt  increased
$1,190,000  in  fiscal  1997 due  primarily  to the  reclassification  of a note
payable due on January 30, 1998 from long-term debt.

Principal factors (other than net income, accounts receivable, provision for bad
debts and discounts and inventory)  affecting the operating cash flows in fiscal
1997 included the non-recurring charge of $2,766,000 to write-down assets of the
Company's Australian subsidiary to estimated realizable value, net cash provided
by  discontinued  operations of $2,227,000,  an increase in prepaid  expenses of
$539,000 (due to advance payments for advertising and inventory) , a decrease in
accrued  expenses  of  $296,000  (due to a change in sales  commissions  payment
terms) and an  increase in  accounts  payable  and accrued  letters of credit of
$307,000 (due to the timing of inventory  purchases).  The  strengthening of the
U.S.  dollar in fiscal 1997 increased the value of cash and cash  equivalents by
$905,000.

As of  January  3,  1997,  the  Company's  cash  and  cash  equivalents  totaled
$2,803,000,  a decrease of $8,865,000 from January 5, 1996. The decrease was the
result of an increase in accounts receivable of $4,669,000, net of the provision
for bad  debts and  discounts  of  $5,269,000,  an  increase  of  $1,158,000  in
inventory  during fiscal 1996 and the  acquisition of trademarks and trade names
of an athletic  apparel  manufacturer  for $1,250,000.  The increase in accounts
receivable was due to increased net sales of the Company's  Saucony  products in
the fourth quarter of fiscal 1996 and extended payment terms given to certain of
the Company's  customers.  The Company's days sales outstanding for its accounts
receivable  increased  to 73 days at the end of fiscal  1996 from 61 days at the
end of fiscal 1995.  Inventories  increased in fiscal 1996 due to an increase in
production at the Company's Bangor manufacturing  facility and a higher level of
finished goods inventory at the Company's overseas  subsidiaries.  The Company's
inventory  turn ratio remained  consistent  with fiscal 1995's  inventory  turns
ratio of 2.6 turns.

During fiscal 1996, the Company used $5,224,000 of net cash to finance operating
activities,  expended  $1,857,000  to acquire  capital  assets  and  information
technology,  expended $1,250,000 to acquire the trade names and trademarks of an
athletic apparel manufacturer, received $78,000 from the sale of capital assets,
increased  short-term  borrowings by $1,313,000,  expended  $2,364,000 to reduce
long-term debt, received $69,000 from the issuance of the Company's common stock
and borrowed $420,000 on a long-term basis, secured by the Company's facility in
St. Peters, Australia. The Company sold this facility in November 1997.

Principal factors (other than net income, accounts receivable, provision for bad
debts and discounts and inventory)  affecting the operating cash flows in fiscal
1996  included a decrease in accrued  letters of credit and accounts  payable of
$1,138,000  (due to the timing of inventory  shipments),  an increase in accrued
expenses of $733,000 (due to increased advertising and promotional  spending), a
decrease in prepaid  expenses of $281,000 (due to a decrease in advance payments
for  insurance  and  other  administrative   expenses)  and  net  cash  used  by
discontinued  operations of $2,379,000.  The declining  value of the U.S. dollar
decreased the value of cash and cash equivalents by $50,000.

The Company has a credit  facility with two principal  banks pursuant to which a
$30,000,000 credit line is available to the Company. This credit facility, which
was amended in January  1997,  extends  through July 31, 1998 and provides for a
short-term  demand line of credit in the principal  amount of up to  $15,000,000
and a revolving  line of credit in the  principal  amount of  $15,000,000,  each
subject to formula adjustment.  Borrowings under this facility generally will be
made at the primary bank's prime rate of interest or a euro  dollar-based  rate.
As of January 2, 1998,  there was  $2,001,000  outstanding  under the  revolving
credit  facility.  The  Company  had open  commitments  at such date  related to
letters of credit in the amount of $3,284,000.  As of March 13, 1998, $6,736,000
was available for borrowing under the short-term demand line and $12,694,000 was
available for borrowing under the revolving term line.

The credit  facility  contains  various  covenants,  including  restrictions  on
additional   indebtedness;   restrictions  on  the  payment  or  declaration  of
dividends;  a minimum tangible net worth, as defined; a minimum ratio of current
assets to current  liabilities,  as defined; a minimum annual cash flow coverage
ratio; that there be no demand loans outstanding under the demand line of credit
for a period of at least 30 consecutive  days in each calendar year; and, fiscal
quarter and annual net income  requirements.  Due to the non-recurring charge to
reduce  the  carrying  value  of the  Company's  distribution  facility  in East
Brookfield,  Massachusetts,  to market,  the operating results applicable to the
discontinued  operation,  the net  loss  realized  as a  result  of the  sale of
substantially  all of the  assets  of  Brookfield  Athletic  Co.,  Inc.  and the
significant net loss attributable to the Company's Australian  subsidiary in the
fiscal  quarter and fiscal year ended January 2, 1998, the Company was unable to
comply  with the  minimum  tangible  net worth,  the  minimum  annual  cash flow
coverage  ratio and the net income  requirements  for both the fourth quarter of
fiscal 1997 and fiscal 1997. In addition, borrowings by certain of the Company's
foreign   subsidiaries  in  fiscal  1997  caused  the  Company  to  violate  the
requirement that there be no demand  borrowings under the demand credit line for
a period of at least 30  consecutive  days.  The banks have waived the foregoing
covenant violations as of January 2, 1998 and have waived prospective violations
of such covenants,  as well as violation of an additional  covenant  relating to
the ratio of the Company's current assets to current liabilities, as of April 3,
1998. The Company currently plans to renegotiate its credit agreement during the
second quarter of fiscal 1998.

Certain of the Company's foreign subsidiaries have credit facilities, consisting
of demand and/or revolving lines of credit, in the aggregate principal amount of
approximately $4,607,000. As of February 28, 1998, an aggregate of approximately
$1,842,000  was  available  for  borrowing  under the  facilities of the foreign
subsidiaries. See Note 9 of Notes to Consolidated Financial Statements.

On April 29, 1988, Hyde issued to a life insurance company  $12,000,000 of 9.70%
senior notes due April 29, 1998. The notes provide for  semi-annual  payments of
interest,  payable in April and October of each year,  continuing to April 1998,
and annual  payments  of  principal  of  $2,000,000  each from April 1993 to and
including April 1998. The note purchase agreement relating to the notes contains
restrictive covenants commonly found in such agreements.  See Note 6 of Notes to
Consolidated Financial Statements.

During 1996, the Company acquired an information technology hardware system at a
cost of $991,000 pursuant to a long-term capital lease. The lease provides for a
bargain purchase option at the conclusion of the lease term. At January 2, 1998,
the  Company  had  various  commitments  for  capital  expenditures,   including
information  technology systems. The Company believes that these commitments are
not significant.

The liquidity of the Company is contingent upon a number of factors, principally
the Company's future operating results.  Management  believes that the Company's
current cash and cash equivalents,  credit  facilities and internally  generated
funds are  adequate to meet its  working  capital  requirements  and to fund its
capital investment needs and debt service payments.


INFLATION AND CURRENCY RISK

The effect of inflation on the  Company's  results of  operations  over the past
three years has been minimal. The impact of currency fluctuation on the purchase
of  inventory  by the Company  from  foreign  suppliers  has been minimal as the
transactions were denominated in U.S. dollars. The Company,  however, is subject
to  currency  fluctuation  risk with  respect  to the  operating  results of the
Company's  foreign   subsidiaries  and  certain  foreign  currency   denominated
payables.  The  Company  has  entered  into  certain  forward  foreign  exchange
contracts to minimize the transaction currency risk.


YEAR 2000

The Company has evaluated and documented  the effect of the  turn-of-the-century
on its computer hardware, operating systems and software applications. A plan is
in place to correct year 2000  problems in the  Company's  long-term,  technical
assets. This plan is substantially funded by existing maintenance  contracts and
by normal,  recurring  upgrades to the computer  systems.  Correcting  year 2000
problems in the Company's  long-term  technical  assets will not have a material
impact on the Company's consolidated financial position.

The  Company  has also  considered  the  impact  of the year  2000  issue on its
customers and suppliers.  The footwear and apparel industry is less advanced, in
terms of  automation,  than many other  industries.  Customers have shared their
awareness  of the year  2000  issue  with  the  Company,  but have not  provided
management with formal year 2000 compliance reports.  The Company's suppliers of
raw  materials  and  components  are  less  technically  sophisticated  than the
Company's customers,  often relying on personal computers and manual systems for
their own  business  needs.  However,  the  apparel  and  footwear  industry  is
characterized  by numerous  companies  competing in an open market.  No customer
makes up 10% of sales  volume.  Purchase  contracts and sources of supply can be
negotiated  and  geographically  moved  within a  six-month  period.  For  these
reasons, management does not expect a major disruption in supply of inventory or
a major decline in customer purchases as the year 2000 approaches.


SFAS 123

The Financial  Accounting  Standards Board issued Financial Accounting Standards
No. 123 "Accounting for  Stock-Based  Compensation"  (SFAS 123) in October 1995.
SFAS 123  establishes the financial  accounting and reporting  standards for all
stock-based compensation.  SFAS 123 prescribes a fair value method of accounting
for stock options and other similar equity instruments and encourages  companies
to adopt this  accounting  treatment  for all  stock-based  compensation  plans.
However,  under  SFAS 123,  companies  are  permitted  to  continue  to  measure
compensation  expense  using the  intrinsic  value based method of accounting as
prescribed by APB Opinion No. 25,  "Accounting  for Stock Issued to  Employees,"
provided  that pro forma  disclosures  are made of net income and  earnings  per
share had the fair value method been adopted.

SFAS 123 is effective for fiscal years  commencing  after  December 15, 1995. As
permitted by SFAS 123, the Company has  continued to account for employee  stock
compensation  expense  under the  precepts of APB Opinion No. 25. See Note 11 of
Notes to the Consolidated  Financial Statements for pro forma disclosures of net
income  and  earnings  per share,  calculated  utilizing  the fair value  method
prescribed under SFAS 123.

SFAS 128

During the first  quarter of 1997,  the  Financial  Accounting  Standards  Board
issued Financial  Accounting  Standards No. 128 "Earnings Per Share" (SFAS 128).
SFAS 128 is intended  to improve  the  Earnings  Per Share  ("EPS")  information
contained in the financial statements by simplifying the calculation of earnings
per share,  revising the disclosure  requirements,  and achieving  comparability
with international accounting standards.  SFAS 128 is effective for both interim
and annual financial  statements for periods after December 15, 1997. The impact
of adopting SFAS 128 on basic and diluted EPS was not material.

SFAS 130

The Financial  Accounting  Standards Board issued Financial Accounting Standards
No. 130 "Reporting  Comprehensive  Income" (SFAS No. 130) in June 1997. SFAS 130
defines and  establishes  the financial  accounting and reporting  standards for
comprehensive income. As used in SFAS 130,  comprehensive income encompasses net
income and other components of  comprehensive  income that are excluded from net
income under Generally Accepted Accounting Principles. These previously excluded
components  of  comprehensive  income  are  limited  to the  following:  foreign
currency  translation  adjustments,  minimum pension  liability  adjustments and
unrealized gains and losses on certain investments in debt and equity securities
classified as available-for-sales securities.

SFAS 130 is effective for fiscal years  commencing after December 15, 1997, with
earlier adoption permitted.  The Company will incorporate SFAS 130 into its Form
10-Q filing for the quarter ending April 3, 1998. The Company has not determined
the impact of adopting SFAS 130 on the consolidated financial statements.

SFAS 131

The Financial  Accounting  Standards Board issued Financial Accounting Standards
No. 131  "Disclosures  about Segments of an Enterprise and Related  Information"
(SFAS No. 131) in June 1997. SFAS 131  establishes  the reporting  standards for
operating  segments  in  annual  financial   statements  and  requires  selected
information  on operating  segments in interim  financial  statements.  SFAS 131
revises the  disclosure  requirements  for  segment  reporting  by defining  the
characteristics  and  quantitative  thresholds for which segment  information is
required to be  disclosed.  SFAS 131 is effective  for fiscal  years  commencing
after December 15, 1997, application of which is not required to interim periods
during the initial  year of adoption.  The Company  expects to  incorporate  the
added  disclosure  requirements  of SFAS 131 into its Form 10-K  filing  for the
fiscal year ending January 1, 1999.

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

The following  important  factors,  among others,  could cause actual results to
differ  materially  from those indicated by  forward-looking  statements made in
this Annual Report and presented elsewhere by management from time to time.

Competition.  Competition  is intense in the markets in which the Company  sells
its products. The Company competes with a large number of other companies,  both
domestic  and  foreign,  several  of  which  have  diversified  products  lines,
well-known   brands  and  financial,   distribution   and  marketing   resources
substantially  greater than those of the Company. The principal  competitors for
the Company's  Saucony  products are Nike, New Balance and ASICS.  The principal
competitors  for the Company's  Hind products are Nike,  Pearl Izumi and Speedo.
The principal competitors for the Company's Quintana Roo and Merlin products are
Cannondale and Trek.

Dependence On Foreign  Suppliers.  A number of manufacturers  located in the Far
East,  primarily  in China,  Taiwan and  Thailand,  supply  products and product
components to the Company. During fiscal 1997, one of such suppliers, located in
China,  accounted  for  approximately  41% of the Company's  total  purchases by
dollar volume. The Company is subject to the usual risks of a business involving
foreign suppliers, such as currency fluctuations,  government regulation of fund
transfers,  export and import duties,  trade  limitations  imposed by the United
States  or  foreign   governments  and  political  and  labor  instability.   In
particular,  there  are a number of  trade-related  and  other  issues  creating
significant friction between the governments of the United States and China, and
the  imposition  of  punitive  import  duties on certain  categories  of Chinese
products has been  threatened in the past and may be  implemented in the future.
In addition,  the Company has no  long-term  manufacturing  agreements  with its
foreign suppliers and competes with other athletic shoe and recreational product
companies, including companies that are much larger than the Company, for access
to production facilities.

Foreign Currency  Exchange.  From time to time, the Company's  financial results
have been adversely  affected by the  fluctuations  in currency  exchange rates.
There can be no assurance that the Company's efforts to reduce currency exchange
losses  will be  successful  or that  currency  exchange  rates will not have an
adverse  impact  on  the  Company's  future  operating   results  and  financial
condition.

Potential  Fluctuations In Quarterly Results.  The Company's quarterly operating
results may vary significantly  depending on a number of factors,  including the
timing and shipment of  individual  orders,  market  acceptance  of new athletic
footwear and other  products  offered by the Company,  changes in the  Company's
operating expenses,  personnel changes, mix of products sold, changes in product
pricing and general economic  conditions.  In addition, a substantial portion of
the  Company's  revenue is realized  during the last few weeks of each  quarter;
therefore,  any  delays  in  orders or  shipments  are more  likely to result in
revenue not being recognized until the following quarter,  which could adversely
impact the results of operations for that quarter. The Company's current expense
levels are based in part on its expectations of future revenue and, as a result,
net  income  for a given  period  could be  disproportionately  affected  by any
reduction in revenue.  It is possible that in some future  quarter the Company's
revenue or  operating  results  will be below the  expectations  of stock market
securities  analysts and investors;  if that were to occur,  the market price of
the Common Stock could be materially adversely affected.

Management Of Growth.  One element of the Company's business strategy is to seek
acquisitions of businesses and products that are  complementary  to those of the
Company.  There can be no assurance  that the Company will be able to effect any
acquisitions,  operate any such  acquired  businesses  profitably  or  otherwise
implement  its  growth  strategy  successfully.  In  addition,  identifying  and
effecting   acquisitions  and  integrating  the  acquired  businesses  with  the
operations  of the  Company  may  place  significant  demands  upon the  current
management  team and  operational  systems  of the  Company.  In order to effect
acquisitions  of a certain  size,  the Company may require  additional  capital,
which the  Company may obtain  through  additional  borrowings  under its credit
facility or otherwise.

Dependence On Consumer  Preferences.  The Company is susceptible to fluctuations
in its business based upon fashion trends and frequently changing consumer style
preferences  and product  demands,  including  levels of enthusiasm for athletic
activities. The Company believes that its success depends in substantial part on
its ability to anticipate,  gauge and respond to changing  consumer  demands and
fashion  trends in a timely  manner.  Moreover,  the Company could be materially
adversely  affected by conditions in the retail  industry in general,  including
consolidation  and the  resulting  decline in the number of retailers  and other
cyclical economic factors.

Discretionary   Consumer   Spending.   Purchases   of   bicycles,   particularly
high-performance  models such as those offered by the Company, and the Company's
other products are  discretionary  for consumers.  The success of the Company is
influenced by a number of economic factors affecting disposable consumer income,
such as employment  levels,  business  conditions,  interest  rates and taxation
rates. Adverse changes in these economic factors may restrict consumer spending,
thereby negatively affecting the Company's growth and profitability.

Advertising  And Marketing  Programs.  The  Company's  success in the markets in
which it competes  depends in part upon the  effectiveness  of  advertising  and
marketing programs of the Company. In particular,  the Company must periodically
design and  successfully  execute new and  effective  advertising  and marketing
programs.

Dependence  On Major  Customers.  Although  the  Company  had no  customer  that
accounted for ten percent or more of the Company's  consolidated  revenue during
1997, the Company's business is susceptible to the loss of certain key customers
of the Company's  product lines,  such as Foot Locker for the Company's  Saucony
products.


ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.


ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See the Index to the Company's  Consolidated Financial Statements in Item 14 and
the accompanying  consolidated  financial statements,  notes and schedules which
are  filed  as part of this  Form  10-K  following  the  signature  page and are
incorporated herein by this reference.


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

The  information  required by this item is  contained  in part under the caption
"Executive  Officers of the  Registrant" in PART I hereof,  and the remainder is
contained in the Company's Proxy  Statement for the Company's  Annual Meeting of
Stockholders to be held on May 14, 1998 (the "1998 Proxy  Statement")  under the
captions  "ELECTION  OF  DIRECTORS"  and  "SECTION  16(A)  BENEFICIAL  OWNERSHIP
REPORTING COMPLIANCE" and is incorporated herein by this reference.  The Company
expects to file the 1998 Proxy Statement  within 120 days after the close of the
fiscal year ended  January 2, 1998.  Officers are elected on an annual basis and
serve at the discretion of the Board of Directors.


<PAGE>


ITEM 11 - EXECUTIVE COMPENSATION

The  information   required  by  this  item  is  contained  under  the  captions
"Compensation of Directors,"  "Compensation of Executive Officers,"  "Employment
and Consulting  Agreements and Other  Arrangements" and "Compensation  Committee
Interlocks  and  Insider  Participation"  in the  1998  Proxy  Statement  and is
incorporated herein by this reference.


ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The  information  required by this item is contained in the 1998 Proxy Statement
under the caption "Stock Ownership of Certain  Beneficial Owners and Management"
and is incorporated herein by this reference.


ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is contained under the caption "Employment
and Consulting  Agreements and Other  Arrangements"  appearing in the 1998 Proxy
Statement and is incorporated herein by this reference.



<PAGE>



PART IV

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

(a)      1.   Index to Consolidated Financial Statements

              The following consolidated financial statements of Hyde  Athletic
              Industries, Inc. and its subsidiaries are included in
              this report:

              Reports of Independent Accountants
              Consolidated  balance  sheets at  January  2, 1998 and  January 3,
              1997.

              Consolidated  statements  of income for the years ended January 2,
              1998, January 3, 1997 and January 5, 1996

              Consolidated  statements  of  stockholders'  equity  for the years
              ended January 2, 1998, January 3, 1997 and January 5, 1996

              Consolidated  statements of cash flows for the years ended January
              2,  1998,  January  3,  1997  and  January  5,  1996  Notes to the
              consolidated financial statements
         2.   Index to Consolidated Financial Statement Schedules

              Schedule II  -- Valuation and Qualifying Accounts

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

              Separate  financial  statements  of the Company  have been omitted
              since it is primarily an  operating  Company and its  subsidiaries
              included in the  consolidated  financial  statements do not have a
              minority  equity interest or indebtedness to any person other than
              the Company in an amount  which  exceeds 5% of the total assets as
              shown by the consolidated financial statements as filed herein.

         3.   Index to Exhibits

              The  exhibits  filed as part of this Form 10-K/A are listed on the
              Exhibit Index immediately  preceding such exhibits,  which Exhibit
              Index is incorporated herein by reference.


(b)      1.   Reports on Form 8-K

              No Current Reports on Form 8-K were filed in the fourth quarter of
              fiscal 1997.



<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.


                             HYDE ATHLETIC INDUSTRIES, INC.
                             (registrant)


                             By: /s/ John H. Fisher                           
                                 John H. Fisher
                                 President and Chief Executive Officer

Date:  April 9, 1999

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.
<TABLE>
<CAPTION>

              NAME                                          CAPACITY                            DATE


<S>                                                    <C>                                     <C>
/s/ John H. Fisher                                     President                               April 9, 1999
John H. Fisher                                         Chief Executive Officer
                                                       Director

/ s/ Charles A. Gottesman                              Executive Vice President                April 9, 1999
Charles A. Gottesman                                   Chief Operating Officer
                                                       Director

/s/ Terence P. Chin                                    Senior Vice President                   April 9, 1999
Terence P. Chin                                        Chief Financial Officer

/s/ Roger P. Deschenes                                 Vice President, Controller              April 9, 1999
Roger P. Deschenes                                     Chief Accounting Officer

/s/ John J. Neuhauser                                  Director                                April 9, 1999
John J. Neuhauser

/s/ John M. Connors, Jr.                               Director                                April 9, 1999
John M. Connors, Jr.

/s/ Robert J. LeFort, Jr.                              Director                                April 9, 1999
Robert J. LeFort, Jr.

/s/ Phyllis H. Fisher                                  Director                                April 9, 1999
Phyllis H. Fisher

</TABLE>


<PAGE>




REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of
Hyde Athletic Industries, Inc.

We have audited the  consolidated  balance  sheets of Hyde Athletic  Industries,
Inc. and  Subsidiaries as of January 2, 1998 and January 3, 1997 and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended January 2, 1998. We have also audited the
financial  statement  schedule  listed in Item  14(a) of this Form  10-K.  These
consolidated  financial  statements  and  financial  statement  schedule are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these  consolidated  financial  statements  and  financial  statement
schedule  based on our  audits.  We did not audit the  financial  statements  of
Saucony SP Pty. Ltd., a fifty percent owned  consolidated  joint venture,  as of
January 2, 1998 and  January  3, 1997 and for the two years in the period  ended
January 2, 1998,  which  statements  reflect  total  assets of six  percent  and
thirteen percent of consolidated  assets at January 2, 1998 and January 3, 1997,
respectively,  and total  revenues  of eleven  percent  and  twelve  percent  of
consolidated  revenues for the years ended  January 2, 1998 and January 3, 1997,
respectively.  Those  statements were audited by other auditors whose report has
been furnished to us, and in our opinion expressed herein, insofar as it relates
to the amounts  included for Saucony SP Pty. Ltd.  (before  adjustments  to U.S.
GAAP) is based solely on the report of the auditors.

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

In our  opinion,  based on our audit and the report of the other  auditors,  the
consolidated  financial  statements  referred to above  present  fairly,  in all
material  respects,   the  consolidated  financial  position  of  Hyde  Athletic
Industries,  Inc. and  Subsidiaries  at January 2, 1998 and January 3, 1997, and
the  consolidated  results of their  operations and their cash flows for each of
the three  years in the  period  ended  January  2,  1998,  in  conformity  with
generally  accepted  accounting  principles.  In addition,  in our opinion,  the
financial  statement  schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, present fairly, in all material
respects,  the information  required to be included therein. We also audited the
translation  of the financial  statements of Saucony SP Pty. Ltd., in Australian
dollars to U.S. dollars as well as other adjustments required to ensure that the
financial  statements are in accordance with U.S. GAAP as of January 2, 1998 and
January 3, 1997 and for the two years in the period ended January 2, 1998.

As discussed in Note 21, the financial  statements for 1995,  1996 and 1997 have
been restated.


Boston, Massachusetts
April 2, 1998


<PAGE>




INDEPENDENT AUDIT REPORT TO THE MEMBERS OF SAUCONY SP PTY., LIMITED

Scope

We have audited the financial  statements of Saucony SP Pty.,  Ltd.,  comprising
the Australian  statutory accounts (which are not separately  presented herein),
for the year ended 2 January 1998. The Company's  directors are  responsible for
the  financial  statements.  We have  conducted  an  independent  audit of these
financial  statements  in order to express an opinion on them to the  members of
the Company.

Our audit has been conducted in accordance with Australian  auditing  standards,
which are substantially the same as auditing standards generally accepted in the
United  States,  to provide  reasonable  assurance  as to whether the  financial
statements  are  free  of  material   misstatement.   Our  procedures   included
examination,  on a test  basis,  of  evidence  supporting  the amounts and other
disclosures  in the  financial  statements,  and the  evaluation  of  accounting
policies  and  significant  accounting  estimates.  These  procedures  have been
undertaken  to form an opinion as to  whether,  in all  material  respects,  the
financial  statements are presented fairly in conformity with generally accepted
accounting  principles and so as to present a view which is consistent  with our
understanding of the Company's financial position, the results of its operations
and its cash flows.

The audit opinion expressed in this report has been formed on the above basis.

Audit Opinion

In our opinion,  the financial statements of Saucony SP Pty Limited are properly
drawn up so as to  present  fairly,  in all  material  respects,  the  Company's
financial  position as at 2 January 1998 and 3 January 1997,  and the results of
their  operations and their cash flows for each of the three years in the period
ended 2 January 1998 in accordance with accounting principles generally accepted
in Australia  which differ in certain  aspects from those followed in the United
States.

Going Concern Basis of Accounting

Without qualification to the opinion expressed above, attention is drawn to Note
1 of the financial statements. Notwithstanding the deficiency of working capital
and net  assets,  the  financial  statements  have been  prepared  to on a going
concern  basis as the  directors  have  received  an  undertaking  of  continued
financial support from the directors of Hyde Athletic  Industries,  Inc. and the
directors  believe  that such  financial  support  will be  continued to be made
available.


                                                           GRANT THORNTON
                              Chartered Accountants
/s/ Grant Thornton


/s/  B.R. Gordon
Partner




Sydney, NSW Australia
April 2, 1998




<PAGE>

<TABLE>


                                     HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
<CAPTION>
                                               CONSOLIDATED BALANCE SHEETS

                                                         ASSETS
                                                     (in thousands)
                                                                                        January 2,     January 3,
                                                                                           1998           1997
<S>                                                                                    <C>             <C>      
Current assets:

     Cash and cash equivalents                                                         $    4,432      $   2,803

     Marketable securities (Note 2)                                                           148            236

     Accounts receivable, net of allowance for doubtful accounts
       and discounts (1997, $2,032; 1996, $1,234) (Note 3)                                 18,636         18,403

     Inventories (Note 4)                                                                  23,471         24,537

     Deferred income taxes (Note 12)                                                        2,034          1,687

     Prepaid expenses and other current assets                                              1,518          1,527

     Net assets of discontinued operations (Note 13)                                           --          8,939
                                                                                       ----------      ---------

     Total current assets                                                                  50,239         58,132
                                                                                       ----------      ---------

Property, plant and equipment, net of accumulated
   depreciation and amortization (Note 5)                                                   8,135          9,027
                                                                                       ----------      ---------

Other assets:

     Deferred charges, net of accumulated amortization
       (1997, $1,843; 1996, $1,558)                                                           491          1,380

     Long-term accounts and notes receivable (Note 3)                                         114            138

     Goodwill, net of accumulated amortization
       (1997, $42; 1996, $0) (Note 17)                                                      1,238          1,250

     Investment in limited partnership (Note 6)                                               653            753

     Deferred income taxes (Note 12)                                                          353             --

     Other                                                                                     93             72
                                                                                       ----------      ---------

     Total other assets                                                                     2,942          3,593
                                                                                       ----------      ---------

Total assets                                                                           $   61,316      $  70,752
                                                                                       ==========      =========


                                            See notes to consolidated financial statements


</TABLE>

<PAGE>

<TABLE>


                                     HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
                                               CONSOLIDATED BALANCE SHEETS
<CAPTION>


                                          LIABILITIES AND STOCKHOLDERS' EQUITY
                                                     (in thousands)

                                                                                        January 2,      January 3,
                                                                                           1998            1997
<S>                                                                                   <C>              <C>       
Current liabilities:

   Accrued letters of credit (Note 9)                                                  $    1,201       $    1,849
   Notes payable (Note 9)                                                                   2,885            4,237
   Current portion of long-term debt and capital lease obligations (Notes 6 & 7)            3,639            2,449
   Accounts payable                                                                         2,680            2,091
   Accrued expenses (Note 9)                                                                2,910            3,337
                                                                                       ----------       ----------

Total current liabilities:                                                                 13,315           13,963
                                                                                       ----------       ----------
Long-term obligations:

   Long-term debt, net of current portion (Note 6)                                             25            3,885
   Capital lease obligations, net of current portion (Note 7)                                 746            1,008
   Deferred income taxes (Note 12)                                                          1,819            1,924
   Other obligations                                                                          144               --
                                                                                       ----------       ----------

Total long-term obligations                                                                 2,734            6,817
                                                                                       ----------       ----------
Commitments and contingencies (Note 9)

Minority interest in consolidated subsidiaries                                                195              488
                                                                                       ----------       ----------

Stockholders' Equity (Notes 10 & 11)

Preferred stock, $1.00 par; authorized 500,000 shares; none issued and outstanding             --               --

Common stock:
      Class A, $.333 par; authorized 20,000,000 shares
     (issued 1997, 2,706,227; 1996, 2,706,227)                                                902              902
      Class B, $.333 par; authorized 20,000,000 shares
     (issued 1997, 3,743,487; 1996, 3,729,059)                                              1,248            1,243

Additional paid-in capital                                                                 15,652           15,581
Retained earnings                                                                          28,781           33,111
Accumulated translation                                                                      (417)            (234)
                                                                                       -----------      -----------
                                                                                           46,166           50,603
                                                                                       ----------       ----------
  Less:
   Common stock held in treasury, at cost (1997, 198,400; 1996, 198,400)                   (1,054)          (1,054)
     Unearned compensation                                                                    (40)             (65)
                                                                                       -----------      -----------

                                                                                           45,072           49,484
                                                                                       ----------       ----------

Total liabilities and stockholders' equity                                             $   61,316       $   70,752
                                                                                       ==========       ==========


                                            See notes to consolidated financial statements

</TABLE>

<PAGE>
<TABLE>


                                       HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
                                              CONSOLIDATED STATEMENTS OF INCOME
                          FOR THE YEARS ENDED JANUARY 2, 1998, JANUARY 3, 1997 AND JANUARY 5, 1996
<CAPTION>

                                        (in thousands; per-share amounts in dollars)

                                                                            1997           1996          1995
                                                                            ----           ----          ----

<S>                                                                      <C>           <C>           <C>       
Net sales                                                                $   93,611    $   91,341    $   78,549
Other revenue (Note 15)                                                         351           538           291
                                                                         ----------    ----------    ----------
Total revenue                                                                93,962        91,879        78,840
                                                                         ----------    ----------    ----------

Costs and expenses:
   Cost of sales                                                             63,511        61,692        52,695
   Selling expenses                                                          16,698        16,065        14,511
   General and administrative expenses (Note 9)                              13,412        11,777        11,143
   Writedown of impaired real estate (Note 14)                                  850            --            --
   Writedown of Australian assets (Note 14)                                   1,426            --            --
                                                                         ----------    ----------    ----------
     Total costs and expenses                                                95,897        89,534        78,349
                                                                         ----------    ----------    ----------

Operating income (loss)                                                      (1,935)        2,345           491

Non-operating income (expense)
   Interest expense, net                                                       (817)         (730)         (982)
   Foreign currency                                                          (1,127)          171            77
   Other                                                                         79           196           642
                                                                         ----------    ----------    ----------

Income (loss) before income taxes and minority interest                      (3,800)        1,982           228

Provision (benefit) for income taxes (Note 12)                                  355           325            (8)

Minority interest in income (loss) of consolidated subsidiaries                (123)          308          (286)
                                                                         -----------   ----------    -----------

Income (loss) from continuing operations                                     (4,032)        1,349           522

Discontinued operations (Notes 13 and 21):
   Income (loss) from discontinued operations (net
     of tax expense (benefit) expense ($262), ($159)
     and $584, respectively)                                                   (394)         (243)          863
   Gain on disposal of Brookfield business,
     net of operating loss of $243 during the
     phase-out period (net of tax expense of $78)                                96            --            --
                                                                         ----------    ----------    ----------

Net income (loss) (Note 11)                                              $   (4,330)   $    1,106    $    1,385
                                                                         ===========   ==========    ==========
Earnings per common share - basic (Note 11):
   Income (loss) from continuing operations                              $    (0.65)   $     0.22    $     0.08
   Income (loss) from discontinued operations                                 (0.05)        (0.04)         0.14
                                                                         -----------   -----------   ----------
Net income (loss) per common share - basic                               $    (0.70)   $     0.18    $     0.22
                                                                         ===========   ==========    ==========

Earnings per common share - diluted (Note 11)
   Income (loss) from continuing operations                              $    (0.65)   $     0.22    $     0.08
   Income (loss) from discontinued operations                                 (0.05)        (0.04)         0.14
                                                                         -----------   -----------   ----------
Net income (loss) per common share - diluted                             $    (0.70)   $     0.18    $     0.22
                                                                         ===========   ==========    ==========

                                            See notes to consolidated financial statements

</TABLE>

<PAGE>


<TABLE>

                                         HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
                                         CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                            FOR THE YEARS ENDED JANUARY 2, 1998, JANUARY 3, 1997 AND JANUARY 5, 1996

<CAPTION>

                                                                 Common Stock             Paid-In      Retained
                                                             Class A      Class B         Capital      Earnings

<S>                                                          <C>          <C>           <C>            <C>    
Balance,  December 30, 1994                                  $  901       $ 1,237       $ 15,593       $30,620

Issuance of 1,400 shares of common
   stock, stock option exercise (Note 10)                         1            --              3            --

Cancellation of below market options (Note 11)                   --            --            (75)           --

Amortization of unearned compensation (Note 11)                  --            --             --            --

Acquisition of 17,700 shares of common stock,
   at cost (Note 10)                                             --            --             --            --

Net income                                                       --            --             --         1,385

Foreign currency translation adjustments                         --            --             --            --
                                                             ------       -------       --------       -------

Balance, January 5, 1996                                     $  902       $ 1,237       $ 15,521       $32,005

Issuance of 19,744 shares of common
   stock, stock option exercise (Note 10)                        --             6             63            --

Cancellation of below market options (Note 11)                   --            --             (3)           --

Amortization of unearned compensation (Note 11)                  --            --             --            --

Net income                                                       --            --             --         1,106

Foreign currency translation adjustments                         --            --             --            --
                                                             ------       -------       --------       -------

Balance, January 3, 1997                                     $  902       $ 1,243       $ 15,581       $33,111

Issuance of 14,428 shares of common stock, stock
   option exercise (Note 10)                                     --             5             34            --

Cancellation of below market options (Note 11)                   --            --            (15)           --

Issuance of below market options and restricted stock            --            --             52            --

Amortization of unearned compensation (Note 11)                  --            --             --            --

Net loss                                                         --            --             --        (4,330)

Foreign currency translation adjustments                         --            --             --            --
                                                             ------       -------       --------       -------

Balance, January 2, 1998                                     $  902         1,248         15,652        28,781
                                                             ======       =======       ========       =======

</TABLE>


<PAGE>


<TABLE>


                                         HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
                                   CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, CONTINUED
                            FOR THE YEARS ENDED JANUARY 2, 1998, JANUARY 3, 1997 AND JANUARY 5, 1996

<CAPTION>


                                                          Treasury Stock       Unearned    Accumulated Stockholders'
                                                         Shares      Amount   Compensation  Translation   Equity

<S>                                                    <C>        <C>           <C>         <C>         <C>      
Balance, December 30, 1994                              180,700    $   (977)     $(447)      $ (171)     $  46,756

Issuance of 1,400 shares of common
   stock, stock option exercise (Note 10)                    --          --         --           --              4

Cancellation of below market options (Note 11)               --          --         75           --             --

Amortization of unearned compensation (Note 11)              --          --        178           --            178

Acquisition of 17,700 shares of common stock,
   at cost (Note 10)                                     17,700         (77)        --           --            (77)

Net income                                                   --          --         --           --          1,385

Foreign currency translation adjustments                     --          --         --          (86)           (86)
                                                       --------    --------      -----       -------     ----------

Balance, January 5, 1996                                198,400    $ (1,054)     $(194)      $ (257)     $  48,160

Issuance of 19,744 shares of common stock,
   stock option exercise (Note 10)                           --          --         --           --             69

Cancellation of below market options (Note 11)               --          --          3           --             --

Amortization of unearned compensation (Note 11)              --          --        126           --            126

Net income                                                   --          --         --           --          1,106

Foreign currency translation adjustments                     --          --         --           23             23
                                                       --------    --------      -----       ------      ---------

Balance, January 3, 1997                                198,400    $ (1,054)     $ (65)      $ (234)     $  49,484

Issuance of 14,428 shares of common stock, stock
   option exercise (Note 10)                                 --          --         --           --             39

Cancellation of below market options (Note 11)               --          --         15           --             --

Issuance of below market options and restricted stock        --          --        (52)          --             --

Amortization of unearned compensation (Note 11)              --          --         62           --             62

Net loss                                                     --          --         --           --         (4,330)

Foreign currency translation adjustments                     --          --         --         (183)          (183)
                                                       --------    --------      -----       -------     ----------

Balance, January 2, 1998                                198,400    $ (1,054)     $ (40)      $ (417)     $  45,072
                                                       ========    =========     ======      =======     =========



                                            See notes to consolidated financial statements


</TABLE>








<PAGE>



<TABLE>


                                      HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>

                         FOR THE YEARS ENDED JANUARY 2, 1998,JANUARY 3, 1997 AND JANUARY  5, 1996 
                                                  (in thousands)

                                                                              1997           1996           1995
                                                                              ----           ----           ----
<S>                                                                        <C>            <C>             <C>     
Cash flows from operating activities:

   Net income (loss)                                                       $  (4,330)     $   1,106       $  1,385

   Adjustments to reconcile net income (loss) to net cash provided (used) by
    operating activities:
     Writedown of Australian assets                                            2,766             --             --
     Discontinued operations                                                     298            243           (863)
     Depreciation and amortization                                             1,594          1,452          1,113
     Provision for bad debt and discounts                                      4,887          5,269          4,807
     (Gain) loss on sale of equipment                                            (91)            22              2
     Deferred income tax benefit                                              (1,269)          (217)          (369)
     Minority interest in (income) loss of consolidated subsidiaries            (123)           308           (286)
     Compensation from stock grants and stock options                             62            126            178
     Gain on sale of investment in limited partnership                            --             --           (426)
     Writedown of impaired real estate                                           850             --             --

Changes in operating  assets and  liabilities,  net of effects of  acquisitions,
   dispositions and foreign currency adjustments:
Decrease (increase) in assets:
   Marketable securities                                                          88             71           (308)
   Accounts and notes receivable                                              (6,711)        (9,938)          (157)
   Inventories                                                                (1,301)        (1,158)         4,104
   Prepaid expenses and other current assets                                    (539)           281            (45)
Increase (decrease) in liabilities:
   Accrued letters of credit                                                    (612)          (613)         1,189
   Accounts payable                                                              919           (525)          (655)
   Accrued expenses                                                             (296)           733         (1,415)
   Accrued income taxes                                                          159             (5)          (749)
                                                                           ---------      ----------      ---------

Total adjustments                                                                681         (3,951)         6,120
                                                                           ---------      ----------      --------

Net cash provided (used) by continuing operations                             (3,649)        (2,845)         7,505
                                                                           ----------     ----------      --------

Net cash provided (used) by discontinued operations                            2,227         (2,379)         3,621
                                                                           ---------      ----------      --------

Net cash provided (used) by operating activities                              (1,422)        (5,224)        11,126
                                                                           ----------     ----------      --------

Cash flows from investing activities:
   Proceeds from the sale of Brookfield business                               6,841             --             --
   Purchases of property, plant and equipment                                 (1,305)          (791)          (569)
   Proceeds from the sale of equipment                                           511             78             32
   Increase in deferred charges and other                                        (26)        (1,066)          (469)
   Investment distribution from limited partnership                               --             --             29
   Payments for trademarks and trade names                                        --         (1,250)            --
   Payments for business acquisitions                                           (140)            --           (112)
   Proceeds from sale of investment in limited partnership                        --             --          1,335
                                                                           ---------      ---------       --------

Net cash provided (used) by investing activities                               5,881         (3,029)           246
                                                                           ---------      ----------      --------

</TABLE>

<TABLE>


                                       HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
                                       CONSOLIDATED STATEMENT OF CASH FLOWS, Continued
<CAPTION>

                                                       (in thousands)

                                                                              1997           1996           1995
                                                                              ----           ----           ----
<S>                                                                        <C>             <C>           <C> 
Cash flows from financing activities:

   Net short-term borrowings                                                  (1,063)         1,313             (30)
   Repayment of long-term debt and capital lease obligations                  (2,711)        (2,364)         (2,887)
   Proceeds from long-term borrowings                                             --            420              --
   Common stock repurchased                                                       --             --             (77)
   Payment of termination benefit payable                                         --             --             (27)
   Issuances of common stock, including options                                   39             69               4
                                                                           ---------      ---------       ---------

Net cash used by financing activities                                         (3,735)          (562)         (3,017)
                                                                           ----------     ----------      ----------

Effect of exchange rate changes on cash and cash equivalents                     905            (50)            (37)
                                                                           ---------      ----------      ----------

Net increase (decrease) in cash and cash equivalents                           1,629         (8,865)          8,318

Cash and cash equivalents at beginning of period                               2,803         11,668           3,350
                                                                           ---------      ---------       ---------

Cash and cash equivalents at end of period                                 $   4,432      $   2,803       $  11,668
                                                                           =========      =========       =========

Supplemental disclosure of cash flow information:

   Cash paid during the period for:
     Income taxes, net of refunds                                          $     663      $     736       $   1,936
                                                                           =========      =========       =========

     Interest                                                              $     887      $     959       $   1,534
                                                                           =========      =========       =========

Non-cash Investing and Financing Activities:

Property purchased under capital leases                                    $      86      $   1,234       $     138

Reconciliation of assets acquired and liabilities
   assumed, business acquisitions
     Assets acquired                                                              --             --       $     232
     Liabilities assumed                                                          --             --             120
                                                                           ---------      ---------       ---------
       Cash paid for business acquisitions                                 $      --      $      --       $     112
                                                                           =========      =========       =========

Sale of investment in limited partnership
   Cash received, net of broker fees                                              --             --       $   1,335
   Reduction in short-term debt, long-term
     debt and accrued liabilities                                                 --             --           4,056
                                                                           ---------      ---------       ---------

     Net proceeds                                                                 --             --           5,391

   Investment in limited partnership, net of distributions                        --             --           4,965
                                                                           ---------      ---------       ---------

     Gain realized on sale                                                        --             --       $     426
                                                                           =========      =========       =========

                                            See notes to consolidated financial statements



</TABLE>

<PAGE>


                HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

             For the Years Ended  January 2, 1998,  January 3,
                       1997 and January 5, 1996


1.     Summary of Significant Accounting Policies:

       Business Activity

       The  Company  is  an  importer  and  manufacturer  of  a  broad  line  of
       high-performance  athletic  footwear,  athletic  apparel and high-quality
       bicycles and bicycle frames. The Company markets its products principally
       to domestic and international retailers and distributors.

       Reporting Period

       The Company  adopted a 52-53 week fiscal year  reporting  period in 1991.
       The consolidated  financial  statements and notes for 1997, 1996 and 1995
       represent  the fiscal  years ended  January 2, 1998,  January 3, 1997 and
       January 5, 1996, respectively.  In management's opinion, the consolidated
       financial statements for 1997, 1996 and 1995 are comparable.

       Principles of Consolidation

       The  consolidated  financial  statements  include  the  accounts  of Hyde
       Athletic Industries,  Inc. and its wholly-owned subsidiaries,  Spot-Bilt,
       Inc., Hyde Transition  Corp.  (formerly  Brookfield  Athletic Co., Inc.),
       Saucony,  Inc., Saucony  Deutschland  Vertriebs GmbH (Germany),  Quintana
       Roo, Inc. and Hyde  International  Services  Limited (Hong Kong), and its
       majority-owned  foreign  subsidiary,  Saucony  Canada,  Inc.,  all herein
       referred to as the "Company".  Hyde International Services Limited owns a
       controlling  interest  in a  subsidiary  called  Saucony  SP Pty  Limited
       (Australia). (See Note 14 of Notes to Consolidated Financial Statements.)
       Saucony,  Inc. owns a  wholly-owned  subsidiary  called Saucony Sports BV
       (Netherlands).  The Company also operates a branch in the United  Kingdom
       called  Saucony UK and  maintains  a marketing  representative  office in
       Germany  called Saucony  Europe.  Saucony GmbH and Quintana Roo, Inc. are
       included in the consolidated  financial  statements beginning in December
       1994 and August 1995, respectively. Saucony Shoe Manufacturing Co., Inc.,
       an inactive wholly-owned domestic subsidiary, was dissolved in 1992. Hyde
       Security  Corp., a  wholly-owned  domestic  subsidiary,  was dissolved in
       1996.  During 1997, the Company sold  substantially  all of the assets of
       Brookfield  Athletic Co., Inc. The effects of transactions  among related
       companies are eliminated in the consolidated financial statements.

       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 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.

       Revenue Recognition

       Sales,  net of discounts,  and related costs of sales are recognized upon
       shipment of products.

       Inventories

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


<PAGE>


       Property, Plant and Equipment

       Land,  buildings and equipment,  including  significant  improvements  to
       existing facilities,  are stated at cost. The assets are depreciated over
       their estimated  useful lives or capital lease terms,  if shorter,  using
       the straight-line method for financial reporting purposes and accelerated
       methods for income tax purposes. The estimated useful lives of the assets
       are: 33 years for buildings and improvements and 3 to 15 years for office
       equipment and machinery and equipment. Major renewals and betterments are
       capitalized.   Maintenance,  repairs  and  minor  property  renewals  are
       expensed as incurred.  The cost and related  accumulated  depreciation of
       all property,  plant and equipment retired or otherwise  disposed of, are
       removed  from  the  accounts.  Any  gain  or  loss,  resulting  from  the
       retirement or disposition of property,  plant and equipment,  is included
       in consolidated net income.

       Investments

       The Company's  investment in a real estate limited  partnership is valued
       at its net realizable value. It is management's  intention to retain this
       investment for its long-term tax benefit.

       Investments in Marketable Securities

       Investment in debt  securities and marketable  securities are categorized
       as trading,  held-to-maturity or  available-for-sale.  Trading securities
       are  reported  at fair  value,  with  changes in fair value  recorded  in
       consolidated   net   income.    Investment    securities   include   both
       available-for-sale  and held-to-maturity  securities.  Available-for-sale
       securities  are  reported at fair value,  with net  unrealized  gains and
       losses  included  as  a  separate  component  of  stockholders'   equity.
       Held-to-maturity  debt securities are reported at amortized cost. For all
       investments,   unrealized  losses,   other  than  temporary  losses,  are
       recognized in consolidated net income.

       Deferred Charges and Goodwill 

       Deferred  charges  consist   primarily  of  bond  issuance,   trademarks,
       financing and  organization  costs. The deferred charges are amortized on
       the straight-line basis over the term of the debt; organization costs and
       trademarks  are amortized  over five years;  goodwill,  representing  the
       excess of the  purchase  price over the  estimated  fair value of the net
       assets of the acquired  business,  is being  amortized over the period of
       expected benefit of fifteen years.

       Income Taxes

       The provision for income taxes is calculated according to the precepts of
       Statement  of  Financial  Accounting  Standards  No. 109 (SFAS No.  109),
       "Accounting  for Income  Taxes".  Under SFAS No.  109,  income  taxes are
       provided  for the amount of taxes  payable or  refundable  in the current
       year and for the  expected  future tax  consequences  of events that have
       been recognized in the financial  statements or tax returns.  As a result
       of recognition and measurement differences between tax laws and financial
       accounting  standards,  temporary differences arise between the amount of
       taxable income and pretax  financial  income for a year and the tax bases
       of  assets or  liabilities  and their  reported  amount in the  financial
       statements.  The  deferred  tax assets  and  liabilities  reported  as of
       January 2, 1998 and  January 3, 1997  reflect  the  estimated  future tax
       effects attributable to temporary  differences and carryforwards based on
       the provisions of enacted tax law.

       Earnings per Share

       Earnings per common share is calculated  in accordance  with the precepts
       of Financial  Accounting  Standards  No. 128  "Earnings  Per Share" (SFAS
       128),  which was  issued in 1997 by the  Financial  Accounting  Standards
       Board.  SFAS 128 replaced the  calculation  of primary and fully  diluted
       earnings  per share with basic and  diluted  earnings  per share.  Unlike
       primary  earnings  per  share,  basic  earnings  per share  excludes  the
       dilutive effect of options, warrants and convertible securities.  Diluted
       earnings per share is very similar to fully  diluted  earnings per share.
       As required  under SFAS 128, all  previously  reported per share  amounts
       have been restated.

       Statements of Cash Flows

       For purposes of these statements, cash equivalents include all short-term
       deposits with an original  maturity of three months or less  purchased in
       connection with the Company's cash management program.

       Foreign Currency Translation

       The  financial  statements  of the  Company's  foreign  subsidiaries  are
       measured using the local currency as the functional currency.  Assets and
       liabilities of these  subsidiaries are translated at exchange rates as of
       the balance sheet date.  Revenues and expenses are  translated at average
       rates of exchange in effect  during the year.  The  resulting  cumulative
       translation  adjustments  have been  recorded as a separate  component of
       stockholders'  equity.  Foreign currency transaction gains and losses are
       included in consolidated net income.

       Forward Foreign Currency Exchange Contracts

       From time to time,  the Company  enters  into  forward  foreign  currency
       exchange   contracts  to  hedge  certain  foreign  currency   denominated
       payables. Gains and losses on forward exchange contracts are deferred and
       offset  against  foreign  currency   exchange  gains  or  losses  on  the
       underlying hedged item.

       Reclassifications

       Certain items in prior years' consolidated financial statements have been
       reclassified  to  conform  to  the  1997  presentation.  The  results  of
       operations for  Brookfield  Athletic Co., Inc. for the fiscal years ended
       January 2, 1998, January 3, 1997 and January 5, 1996 have been segregated
       from  continuing  operations and are reported  separately as discontinued
       operations.

       Advertising and Promotion

       Advertising and promotion cost,  including print media  production  cost,
       are expensed as incurred, with the exception of co-operative advertising,
       which is accrued  and the  advertising  costs  expensed  in the period of
       revenue  recognition.  Advertising  and  promotion  expense  amounted  to
       $8,543,000,   $8,743,000  and   $7,508,000  for  1997,   1996  and  1995,
       respectively.

       Research and Development Expenses

       Expenditures  for  research and  development  of products are expensed as
       incurred.  Research and development  expenses  amounted to  approximately
       $1,513,000,   $1,417,000  and   $1,438,000  for  1997,   1996  and  1995,
       respectively.

       Related Party Transactions

       Saucony Sports BV, a wholly-owned foreign subsidiary, leased office space
       and office  equipment  from an entity  controlled by the former  minority
       stockholder  of Saucony  Sports BV. Rent expense  amounted to $12,442 and
       $70,980 for 1996 and 1995, respectively.

       The Company issued a note payable to the minority  stockholder of Saucony
       Canada,  Inc.,  a  majority-owned  foreign  subsidiary,  as  part  of the
       consideration  paid to acquire  an 85%  interest  in the former  Canadian
       distributor.  Interest expense incurred  amounted to $7,038 for 1995. See
       Note 6 of the Notes to  Consolidated  Financial  Statements  for  further
       discussion of the note  agreement.  During 1995, the Company  prepaid the
       note and  realized  a  discount  of  $13,759  which is  included  in 1995
       consolidated net income.

       The  Company  entered  into  a  consulting  agreement  with  a  principal
       stockholder of the Company's Class A Common Stock,  beginning  January 4,
       1993. The agreement,  as amended, was effective for a term of five years,
       provided for an annual fee of $40,000  during each of the first two years
       of the  agreement  and  $90,000  for each of the final three years of the
       agreement. Included in general and administrative expenses for 1997, 1996
       and  1995  are   consulting   fees  of  $90,000,   $90,000  and  $90,000,
       respectively. As of January 2, 1998, the agreement had not been renewed.

       The Company  presently  holds a note receivable of $100,000 from a former
       officer  of  the  Company.   The  promissory  note,   originated  from  a
       transaction  in 1993,  is  collateralized  by a mortgage  from the former
       officer  on two  parcels  of real  estate.  See  Note 3 of the  Notes  to
       Consolidated Financial Statements for further discussion of the terms and
       conditions of the promissory note.

       New Accounting Pronouncements

       During the first  quarter of 1997,  the  Financial  Accounting  Standards
       Board issued Financial  Accounting Standards No. 128 "Earnings Per Share"
       (SFAS  128).  SFAS 128 is  intended  to improve  the  Earnings  Per Share
       ("EPS") information  contained in the financial statements by simplifying
       the   calculation   of  earnings  per  share,   revising  the  disclosure
       requirements,  and achieving comparability with international  accounting
       standards.  SFAS 128 is  effective in  financial  statements  for periods
       ending after  December  15, 1997,  and has been adopted by the Company in
       fiscal 1997.

       The Financial  Accounting  Standards  Board issued  Financial  Accounting
       Standards No. 130 "Reporting Comprehensive Income" (SFAS No. 130) in June
       1997.  SFAS 130 defines and  establishes  the  financial  accounting  and
       reporting  standards  for  comprehensive  income.  As used  in SFAS  130,
       comprehensive  income  encompasses  net  income and other  components  of
       comprehensive  income that are excluded  from net income under  generally
       accepted accounting  principles.  These previously excluded components of
       comprehensive  income are  limited  to the  following:  foreign  currency
       translation  adjustments,   minimum  pension  liability  adjustments  and
       unrealized  gains and  losses on certain  investments  in debt and equity
       securities classified as available-for-sales securities.

       SFAS 130 is effective  for fiscal  years  commencing  after  December 15,
       1997, with earlier adoption permitted.  The Company will incorporate SFAS
       130 into the Form 10-Q filing for the quarter  ending April 3, 1998.  The
       Company  has not  determined  the  impact  of  adopting  SFAS  130 on the
       consolidated financial statements.

       The Financial  Accounting  Standards  Board issued  Financial  Accounting
       Standards  No. 131  "Disclosures  about  Segments  of an  Enterprise  and
       Related  Information"  (SFAS No. 131) in June, 1997. SFAS 131 establishes
       the  reporting  standards  for  operating  segments  in annual  financial
       statements and requires  selected  information  on operating  segments in
       interim   financial   statements.   SFAS  131  revises   the   disclosure
       requirements for segment  reporting by defining the  characteristics  and
       quantitative  thresholds for which segment  information is required to be
       disclosed.  SFAS 131 is  effective  for  fiscal  years  commencing  after
       December  15,  1997,  application  of which is not  required  to  interim
       periods  during the initial  year of  adoption.  The  Company  expects to
       incorporate the added  disclosure  requirements of SFAS 131 into its Form
       10-K filing for the fiscal year ending January 1, 1999.

2.     Marketable Securities:

       As of January 2, 1998,  the Company's  holdings in marketable  securities
       consisted primarily of equity securities which were classified as trading
       securities.

       The cost of the  securities  held at January 2, 1998 and  January 3, 1997
       was  $138,000  and  $171,000,  respectively.  As of  January  2, 1998 and
       January 3, 1997,  the market  value of such  securities  was $148,000 and
       $236,000,  respectively.  Gross  unrealized  gains of $2,000 and $65,000,
       based on quoted market prices,  are included in  consolidated  net income
       for the years ended January 2, 1998 and January 3, 1997.

       Included in the  determination  of net income for the years ended January
       2, 1998 and January 3, 1997 and January 5, 1996 were:  1997, net realized
       gains of $22,000 and net unrealized  gains of $2,000;  1996, net realized
       gains of $10,000  and net  unrealized  gains of  $65,000;  and 1995,  net
       unrealized gains of $20,000.


3.     Accounts and Notes Receivable:

       During  1995,  the  Company  exchanged  inventory  having a fair value of
       $1,055,000 for $100,000 in cash, receipt of which occurred in March 1996,
       and media and trade  receivable  barter  credits  amounting  to $955,000,
       realizing gross profit of $345,000. The media and trade receivable barter
       credits  expire on November 14, 1998. As of January 3, 1997,  $300,000 of
       barter  credits  were  outstanding  and are  included  in net  assets  of
       discontinued operations.  The carrying value of the credits at January 3,
       1997 reflects restatements of prior reported carrying values and includes
       the reversal of $345,000 ($206,000 after tax, or $0.04 per diluted share)
       of gross profit  reported in fiscal 1995 as well as an impairment  charge
       of $650,000  ($388,000 after tax, or $0.06 per diluted share) recorded in
       fiscal 1996, to adjust the barter credits to estimated realizable values.
       Both   adjustments  are  reflected  in  the  results  from   discontinued
       operations.  The media and trade receivable  barter credits were included
       in the assets sold to Brookfield  International,  Inc.  during 1997.  See
       Note 21 of the Notes to  Consolidated  Financial  Statements  for further
       discussion  relative  to the  restatement  of the  carrying  value of the
       barter credits.

       During  1993,  the Company  loaned  $100,000  to a former  officer of the
       Company.  The promissory note issued to the Company by the former officer
       is  collateralized  by a mortgage from the officer on two parcels of real
       estate (land and building).  The note calls for  semi-annual  payments of
       interest through maturity on the unpaid principal  amount,  commencing on
       July 1, 1994 and five annual  principal  payments  of $15,000  commencing
       July 1, 1998 and one  principal  payment of $25,000  due on July 1, 2003.
       The note bears interest at a rate equal to the  prevailing  prime rate of
       interest.  At January 2, 1998,  $100,000 was outstanding of which $15,000
       was included in current accounts  receivable and $85,000 was including in
       long-term accounts receivable.


4.     Inventories:

       Inventories  at January  2, 1998 and  January  3, 1997  consisted  of the
       following (in thousands):

<TABLE>
<CAPTION>

                                                                        1997                  1996
                                                                        ----                  ----

                 <S>                                                <C>                  <C>       
                  Finished goods                                     $  17,534            $   18,215
                  Work-in-process                                          514                   110
                  Raw materials and supplies                             5,423                 6,212
                                                                     ---------            ----------

                  Total                                              $  23,471            $   24,537
                                                                     =========            ==========

</TABLE>


5.   Property, Plant and Equipment:

     Major classes of property, plant and equipment, at cost, at January 2, 1998
     and January 3, 1997 were as follows (in thousands): 
<TABLE>
<CAPTION>
                                                                      1997                  1996
<S>                                                                  <C>                  <C>       
                  Land                                               $     484            $      761
                  Buildings and improvements                             5,997                 7,043
                  Machinery and equipment                                8,328                 6,744
                  Capitalized leases                                     1,708                 1,751
                  Leasehold improvements                                   236                   206
                                                                     ---------            ----------
                                                                        16,753                16,505
                  Less accumulated depreciation
                  and amortization                                       8,618                 7,478
                                                                     ---------            ----------

                  Total                                              $   8,135            $    9,027
                                                                     =========            ==========

</TABLE>


       Accumulated  amortization of the leased  property was $678  and  $344  at
       January 2, 1998 and January 3, 1997, respectively.

       During  1997,  the Company  recorded a  non-recurring  charge of $850,000
       ($508,000  after tax or $0.08 per diluted  share) to reduce the  carrying
       value  of  the  Company's   distribution  facility  in  East  Brookfield,
       Massachusetts to market.

<TABLE>

6.     Long-Term Debt:
<CAPTION>
                                                                                              (in thousands)

                                                                                            1997            1996
       <S>                                                                             <C>               <C>                
       Senior notes  payable due in semiannual  installments  of interest on the
        unpaid  principal  amount  through  maturity  and six  annual  principal
        payments  of  $2,000,000  commencing  April 29,  1993.  The  notes  bear
        interest  at 9.70% and are  subject  to  certain  restrictive  covenants
        pertaining to  consolidation  or merger with another  entity,  levels of
        working capital, net worth, the payment of cash dividends

        and various other restrictions.                                                 $   2,000         $   4,000

       Note payable to a bank under a revolving line of credit agreement, due on
        January 30, 1998, with
        interest of 8.15%.                                                                  1,302             1,581

       Note  payable  due in  ten  semi-annual  principal  payments  of  $43,477
        commencing  July 1, 1996 and  interest  on the unpaid  principal  amount
        through maturity. The note bears interest at 9.25% and is secured by a
        mortgage.                                                                              --               391

       Note payable to bank due in sixty monthly installments
        of $744 commencing May 1997 with interest of 10.0%.                                    31                --
                                                                                        ---------         ---------
                                                                                            3,333             5,972

        Less current portion                                                                3,308             2,087
                                                                                        ---------         ---------
                                                                                        $      25         $   3,885
                                                                                        =========         =========
</TABLE>

       Long-term  debt  maturities  payable  for the five  years and  thereafter
       subsequent to January 2, 1998 are as follows (in thousands):

                          1998                           $   3,308
                          1999                                   7
                          2000                                   7
                          2001                                   8
                          2002                                   3
                                                         ---------

                          Total                          $   3,333
                                                         =========

       On June 1, 1995, the Company sold its entire limited partnership interest
       in  the  Columbia  Housing  Partners  Corporate  Tax  Credit  II  Limited
       Partnership for $5,501,000. Net proceeds totaled $1,335,000, resulting in
       a pre-tax gain of $426,000, after transaction expenses, or $.02 per share
       after tax. The  after-tax  gain is based upon  projected  tax credits and
       passive losses provided by the general partner.  As a result of the sale,
       the Company realized reductions in current and long-term debt and accrued
       interest of $4,056,000.

       During  1995,  the  Company  prepaid  its note  payable  to the  minority
       stockholder  of  the  Company's   majority-owned   Canadian   subsidiary,
       resulting  in a gain of $13,759,  which is included in  consolidated  net
       income.

       Under the terms of the senior notes payable,  the Company may not declare
       any cash  dividends or make any cash  distributions  unless,  immediately
       thereafter, the aggregate amount of cash dividends and cash distributions
       since December 31, 1987 would not exceed the sum of (i) $2,000,000,  (ii)
       75% of  cumulative  consolidated  net income as defined (or minus 100% of
       consolidated  net income in the case of a loss) for such period and (iii)
       the proceeds of sales of Common  Stock of the  Company.  As of January 2,
       1998,  approximately  $11,055,000  was  available  for  payment  of  cash
       dividends under the terms of these covenants.


7.     Capital Lease Obligations:

       The  following is a schedule by years of future  minimum  lease  payments
       under capital  leases  together with the present value of the net minimum
       lease payments as of January 2, 1998 (in thousands):

          1998...................................                    $     392
          1999...................................                          336
          2000...................................                          295
          2001...................................                          157
          2002...................................                            8
                                                                     ---------
          Total minimum lease payments                               $   1,188
          Less amounts representing interest                               111
                                                                     ---------
          Present value of minimum lease payments                        1,077
          Less current portion                                             331
                                                                     ---------
          Long-term portion                                          $     746
                                                                     =========

8.     Employee Benefit Plans:

       The Company maintains a qualified  retirement plan for the benefit of all
       United  States  employees  who  have  attained  the  age of 21  and  have
       completed six months of consecutive service. As amended in 1996, the plan
       permits  employees  to defer on a pre-tax  basis up to 15% of gross wages
       subject to the federal maximum limit. The Company will match a portion of
       the  employee  contributions,  subject  to  profitability  goals,  at the
       discretion of the Board of Directors. The Company matched 25% of employee
       elective  deferrals  subject to a limitation  of 1.25% of total  employee
       compensation.  Both employee and employer  contributions are funded, on a
       monthly basis, to a group defined  contribution  plan  administered by an
       independent  investment company.  The defined contribution for 1997, 1996
       and 1995  were  $83,000,  $71,000  and  $51,000,  respectively.  Expenses
       related to the administration of the plan are paid by the Company.

       During 1995, the Company  established a supplementary  retirement program
       to  provide   retirement   benefits  to  certain  management  and  highly
       compensated employees, as determined by the Company's Board of Directors.
       Employees  are  eligible  to defer up to 15% of gross  wages on a pre-tax
       basis.  The  Company  will  match a portion  of  employee  contributions,
       subject  to  profitability  goals,  at the  discretion  of the  Board  of
       Directors. The Company match of employee elective deferrals is limited to
       1.25%  of  total  employee  compensation.   Both  employee  and  employer
       contributions  and deemed  investment  income accrued,  net of the amount
       allowable  under the qualified  plan are funded,  on a monthly basis to a
       group defined contribution plan administered by an independent investment
       company.  The defined  contribution for 1997 and 1996 amounted to $10,000
       and $5,000, respectively.  Expenses  related  to the  administration  of 
       the  plan  are paid by the Company.

9.     Commitments and Contingencies:

       Lease Commitments

       The Company is obligated  under  various  leases for equipment and retail
       space through 2002.  Total rental  expenses for 1997,  1996 and 1995 were
       $910,000,  $831,000 and $674,000,  respectively.  Future  minimum  rental
       payments are as follows: 1998, $534,000;  1999, $436,000; 2000, $166,000;
       2000, $197,000; 2001, $94,000; and 2002 and thereafter, $1,000.

       Other Commitments

       The  Company is  obligated  under  various  agreements,  including  event
       sponsorships and athlete  sponsorship  through 2012.  Future  sponsorship
       payments are as follows: 1998, $185,000;  1999, $192,000; 2001, $180,000;
       and 2002 and thereafter, $610,000.

       Commitments

       On August 31, 1993, the Company  entered into a credit  facility with two
       banks pursuant to which up to a $30,000,000  credit line was available to
       the  Company  as of  January 2, 1998.  This  arrangement  provides  for a
       short-term  demand  line of  credit,  in the  principal  amount  of up to
       $15,000,000,  subject to formula, for domestic borrowings,  international
       borrowings,  and letters of credit; and a revolving line of credit in the
       principal  amount of up to $15,000,000.  Borrowings under the demand line
       of credit are made at the bank's prime rate of interest while borrowing's
       under the  revolving  line of credit are made at the bank's prime rate of
       interest,  or at the Company's  option,  the Eurodollar  rate (Fixed Rate
       Option).

       At January 2, 1998, there was $2,001,000 outstanding under this facility.
       This credit facility,  which was amended in January 1997, terminates July
       31, 1998. This credit facility is subject to the bank's periodic  reviews
       of  the  Company's  operations.  The  credit  facility  contains  various
       covenants,   including:    restrictions   on   additional   indebtedness;
       restrictions  on the  payment  or  declaration  of  dividends;  a minimum
       tangible  net worth,  as defined;  a minimum  ratio of current  assets to
       current  liabilities,  as defined;  a minimum  annual cash flow  coverage
       ratio; that there be no demand loans outstanding under the demand line of
       credit  for a period  of at least 30  consecutive  days in each  calendar
       year; and, fiscal quarter and annual net income requirements.  Due to the
       non-recurring  charge  to  reduce  the  carrying  value of the  Company's
       distribution  facility in East Brookfield,  Massachusetts,  the operating
       results applicable to the discontinued  operation,  the net loss realized
       as a result of the sale of substantially  all of the assets of Brookfield
       Athletic  Co.,  Inc. and the  significant  net loss  attributable  to the
       Company's  Australian  subsidiary  in the fiscal  quarter and fiscal year
       ended January 2, 1998,  the Company was unable to comply with the minimum
       tangible net worth,  the minimum  annual cash flow coverage ratio and the
       net income  requirements  for both the fourth  quarter of fiscal 1997 and
       fiscal 1997. In addition,  borrowings by certain of the Company's foreign
       subsidiaries in fiscal 1997 caused the Company to violate the requirement
       that there be no demand  borrowings  under the demand  credit  line for a
       period of at least 30 consecutive  days. As of January 2, 1998, the banks
       granted  waivers  as of that  date only for  these  covenant  violations.
       Additionally, the facility limits the Company's ability to pay or declare
       a dividend or make other distributions to stockholders.

       Saucony Canada Inc.  maintains a credit facility with a Canadian  lender.
       The  agreement  provides  Saucony  Canada  with  a  line  of  credit  for
       $1,000,000 Canadian dollars,  subject to formula (approximately  $702,000
       in U.S. dollars at January 2, 1998). The agreement  provides for a demand
       line in the principal amount of $300,000 (Canadian dollars),  for letters
       of credit,  and a revolving  line of credit,  in the principal  amount of
       $700,000 (Canadian  dollars).  Borrowings under this facility are made at
       the lender's prime lending rate plus .25%. At January 2, 1998, there were
       no  borrowings  outstanding  under this  credit  facility.  The  facility
       contains  requirements  for  maintaining  defined  levels  of net  worth,
       working capital and various financial ratios.

       Saucony SP Pty Limited  maintains a credit  facility  with an  Australian
       lender.  The  credit  facility  provides  Saucony  SP  with a  $6,000,000
       Australian dollar (approximately $3,905,000 in U.S. dollars at January 2,
       1998) line of credit. The agreement provides for a short-term demand line
       of  credit,  in the  principal  amount  of up to  $4,000,000  (Australian
       dollars),  for letters of credit and foreign exchange  facilities;  and a
       revolving  line  of  credit,   in  the  principal  amount  of  $2,000,000
       (Australian  dollars).  Borrowings under this facility are made at market
       rates of interest as defined in the  agreement or at the lender's  quoted
       rate.  At  January  2,  1998,   there  was  $2,186,000  in  U.S.  dollars
       outstanding  under this credit  facility.  The facility is subject to the
       lender's  periodic reviews of the Company's  operations.  The Company has
       guaranteed  the  obligations  of Saucony  SP Pty  Limited  enabling  such
       obligations to be satisfied. See Notes 14 and 20 of Notes to Consolidated
       Financial Statements.

       At January 2, 1998,  the  Company  was  committed  under open  letters of
       credit to several  lenders in the aggregate  amount of  $3,307,000  under
       foreign  exchange  contracts  to purchase  U.S.  dollars in the amount of
       $1,072,000  and foreign  exchange  contracts to sell U.S.  dollars in the
       amount of $146,000.

       The Company is guarantor on credit  facility  agreements  for two foreign
       subsidiaries. At January 2, 1998, the guarantees totaled $4,607,000.

       The Company has entered into an employment contract with one key employee
       that provides for minimum  annual  compensation  of $216,000 in 1998. The
       contract   provides  for  annual  salary,   cost-of-living   adjustments,
       additional compensation in the form of bonuses based on performance, life
       insurance coverage and options to purchase shares of the Company's common
       stock.  Bonus  expense to key  executives  amounted to $0,  $148,000  and
       $276,000 for 1997, 1996 and 1995, respectively.

       Included in accrued  expenses at January 2, 1998 and January 3, 1997 were
       sales commissions payable of $209,000 and $759,000, respectively.

       Litigation

       The  Company is involved in various  routine  litigation  incident to its
       business.  Many of these  proceedings  are covered in whole or in part by
       insurance. In management's opinion, none of these proceedings will have a
       material adverse effect on the Company's financial  position,  operations
       or cash flows (irrespective of any potential insurance recovery).


10.    Stockholders' Equity:

       As of January 2, 1998 and January 3, 1997, the number of shares of Class 
       A Common Stock and Class B Common Stock outstanding were as follows:

                                       January 2, 1998        January 3, 1997
                                       ---------------        ---------------

        Class A Common Stock             2,703,227                 2,703,227
        Class B Common Stock             3,548,087                 3,533,659

       Issuances  by the  Company of shares of Class A Common  Stock and Class B
       Common Stock,  for the years ended  January 2, 1998,  January 3, 1997 and
       January 5, 1996 were: 1997, 14,428 shares of Class B Common Stock;  1996,
       1,500 shares of Class A Common Stock and 18,244  shares of Class B Common
       Stock;  and 1995,  700  shares  each of Class A Common  Stock and Class B
       Common Stock.

       During  1995,  the Company  repurchased  17,700  shares of Class B Common
       Stock at a cost of  $76,687.  At January  2, 1998,  Saucony SP Pty LTD, a
       foreign subsidiary  controlled by the Company,  held 2,000 shares of each
       of the Company's Class A Common Stock and Class B Common Stock.


11.    Stock Options and Earnings Per Share:

       At the 1993 Annual Meeting of the Stockholders  held on May 23, 1993, the
       stockholders  approved  the  Company's  1993 Equity  Incentive  Plan (the
       "Equity  Incentive  Plan") and the 1993  Director  Stock Option Plan (the
       "Director  Option Plan"),  adopted by the Company's Board of Directors on
       April 7, 1993.  The 1993 Equity  Incentive Plan provides for the grant to
       officers  and key  employees  of the Company,  incentive  stock  options,
       non-statutory  stock  options  and awards of  restricted  stock.  Outside
       consultants  and  advisors to the Company  are  eligible to receive  only
       non-statutory  options  and  restricted  stock  awards  under the  Equity
       Incentive Plan.

       The Equity Incentive Plan is administered by the  Compensation  Committee
       of the Board of Directors which, at its sole  discretion,  grants options
       to purchase  shares of Common Stock and make awards of restricted  stock.
       The plan provides that the purchase price per share of Common Stock shall
       be determined by the Board of Directors,  provided,  however, in the case
       of Incentive  Stock  Options,  the purchase  price shall not be less than
       100% of the fair  market  value of such stock at the time of grant of the
       option.  The terms of option  agreements are  established by the Board of
       Directors,  except,  in the case of Incentive Stock Options,  wherein the
       term cannot  exceed ten years.  Generally,  an option cannot be exercised
       within one year of date of grant.  The vesting schedule is subject to the
       discretion of the Board of Directors.

       Restricted  stock awards which may be granted under the Equity  Incentive
       Plan entitle  recipients to purchase shares of the Company's Common Stock
       subject  to  restrictions   concerning  the  sale,   transfer  and  other
       disposition of the shares issued until such shares are vested.  The Board
       of Directors shall  determine the purchase price,  which can be less than
       the fair market value of the Common Stock,  and the vesting  schedule for
       such award.  The Equity  Incentive Plan provides for grants of restricted
       stock awards without the payment of any cash purchase price.

       At the 1997 Annual  Meeting of  Stockholders  held on May 15,  1997,  the
       stockholders  approved an amendment  to the Equity  Incentive  Plan.  The
       amendment  increased  the  number of  shares  issuable  under the  Equity
       Incentive  Plan from 800,000 to  1,150,000  shares and limited to 150,000
       the  number of shares  for which  options or awards may be granted in any
       calendar year to any one person. As amended, a total of 1,150,000 shares,
       in the  aggregate,  of Class A Common Stock and Class B Common Stock have
       been reserved by the Company and may be issued under the plan.

       The following table  summarizes the awards  available for grant under the
       Company's 1993 Equity  Incentive  Plan and 1993 Director  Option Plan for
       the three-year reporting period ended January 2, 1998:
                                                                       Shares

           Shares available at December 30, 1994                       502,738
           Awards granted                                             (112,000)
           Options expired                                              30,502
                                                                   -----------
           Shares available at January 5, 1996                         421,240
           Awards granted                                               (8,000)
           Options expired                                              44,486
                                                                    -----------
           Shares available at January 3, 1997                         457,726
           Additional shares reserved                                  350,000
           Awards granted                                             (149,150)
           Options expired                                              25,278
                                                                    -----------
           Shares available at January 2, 1998                        683,854
                                                                    ===========



       The  Director  Stock  Option Plan  provides  for the  automatic  grant to
       non-employee  directors of  non-statutory  stock  options upon  specified
       occasions.  A total of 100,000  shares of Class B Common  Stock have been
       reserved for issuance under the plan. The option purchase price per share
       shall equal the fair market  value of Class B Common Stock on the date of
       the grant. The options are exerciseable at any time, in whole or in part,
       prior to the fifth anniversary of the date of the grant.


       The  following  table sets forth the  computation  of basic  earnings per
       common share and diluted earnings per common share (dollars in thousands,
       except per share amounts):


<TABLE>


                                                    1997                       1996                      1995         
<CAPTION>
                                            ---------------------     ----------------------    ----------------------

                                             Earnings    Earnings     Earnings     Earnings     Earnings      Earnings
                                                per         per          per          per          per           per
                                              Common      Common       Common       Common       Common        Common
                                              Share -    Share -       Share -      Share -      Share -       Share -
                                               Basic      Diluted       Basic       Diluted       Basic        Diluted
       <S>                                 <C>          <C>           <C>          <C>          <C>          <C>     
       Net income (loss)

         Income (loss) from

          continuing operations            $ (4,032)    $ (4,032)     $ 1,349      $ 1,349      $    522     $    522
         Income (loss) from
          discontinued operations              (298)        (298)        (243)        (243)          863          863
                                           ---------    ---------     --------     --------     --------     --------
         Net income (loss) available
          for common shares and
          assumed conversions              $ (4,330)    $ (4,330)     $ 1,106      $ 1,106      $  1,385     $  1,385
                                           =========    =========     =======      =======      ========     ========

       Weighted-average common
         shares and equivalents
         outstanding:

         Weighted-average shares
          outstanding                         6,240        6,240        6,224        6,224         6,225        6,225

         Effect of dilutive securities:
          Stock options                          --           --           --           44            --           19
                                           --------     --------      -------      -------      --------     --------
                                              6,240        6,240        6,224        6,268         6,225        6,244
                                           ========     ========      =======      =======      ========     ========

       Earnings per share:
         Income (loss) from
          continuing operations              ($0.65)      ($0.65)       $0.22        $0.22        $0.08         $0.08
         Income (loss) from
          discontinued operations             (0.05)       (0.05)       (0.04)       (0.04)        0.14          0.14
                                           ---------    ---------     --------     --------     -------      --------

         Net income (loss)                   ($0.70)      ($0.70)       $0.18        $0.18        $0.22         $0.22
                                           =========    =========     =======      =======      =======      ========

</TABLE>

       Statement of Financial  Accounting  Standards  No. 123,  "Accounting  for
       Stock-Based Compensation"  encourages,  but does not require companies to
       record compensation cost for stock-based  employee  compensation plans at
       fair value.  The  Company has elected to continue to measure  stock-based
       compensation  expense  using the  intrinsic  value method  prescribed  by
       Accounting  Principles Board Opinion No. 25, "Accounting for Stock Issued
       to  Employees."  Accordingly,  compensation  cost for stock  options  and
       restricted stock awards is measured as the excess,  if any, of the quoted
       market  price of the  Company's  stock at the date of the grant  over the
       exercise price an employee must pay to acquire the stock.

       Stock-based  compensation  arising from the issuance of restricted  stock
       and below market options,  is being amortized to expense over the vesting
       period  of the  stock  grant or  option  term and  amounted  to  $62,000,
       $126,000 and $178,000 for 1997, 1996 and 1995, respectively.






       The following table  summarizes the Company's stock option activity as of
       January 5, 1996, January 3, 1997 and January 2, 1998:
<TABLE>
<CAPTION>

                                                                                  Weighted
                                                                                   Average
                                                                                  Exercise             Option
                                                                Shares             Price             Price Range

          <S>                                                   <C>             <C>           <C>             
           Outstanding at December 30, 1994                      316,206         $  4.28       $  2.00   - $  12.25

                Granted                                          112,000         $  4.61       $  4.00   - $   4.88
                Exercised                                         (1,400)        $  2.61       $  2.25   - $   2.75
                Expired                                          (36,502)        $  4.42       $  2.50   - $  10.75
                                                                 --------

           Outstanding at January 5, 1996                        390,304         $  4.37       $  2.00   - $  12.25
                                                                 -------

                Granted                                            8,000         $  4.00       $  4.00   - $   4.00
                Exercised                                        (19,744)        $  3.52       $  2.25   - $   3.69
                Forfeited                                        (10,386)        $  5.00       $  2.25   - $  10.75
                Expired                                          (35,000)        $  4.68       $  4.68   - $   4.68
                                                                 --------

           Outstanding at January 3, 1997                        333,174         $  4.36       $  2.00   - $  12.25

                Granted                                          147,350         $  4.50       $  4.44   - $   5.00
                Exercised                                        (12,628)        $  3.11       $  2.50   - $   3.69
                Forfeited                                        (38,278)        $  5.87       $  2.50   - $   8.50
                Expired                                           (3,000)        $  3.35       $  2.88   - $   3.63
                                                               ----------

       Outstanding at January 2, 1998                            426,618         $  4.32       $  2.00   - $  12.25
                                                                 =======         =======       =======     ========


</TABLE>

       Options  exercisable  for  shares  of the  Company's  Class A and Class B
       Common  Stock as of January 5, 1996 and  January 3, 1997,  and January 2,
       1998, are as follows:

<TABLE>
<CAPTION>

                                                                 Options Exercisable                          

                                                                                          Weighted Average
                                                                                           Exercise Price    

                                         Class A         Class B                       Class A        Class B
                                         Common          Common                        Common         Common
                                          Stock           Stock          Total          Stock          Stock

              <S>                        <C>            <C>             <C>          <C>           <C>     
              January 5, 1996             11,400         155,470         166,870      $  4.81       $   4.92

              January 3, 1997             11,400         181,953         193,353      $  5.60       $   4.81

              January 2, 1998              4,900         228,586         233,486      $  2.27       $   4.71


</TABLE>

<PAGE>


       The  following   table   summarizes   information   about  stock  options
       outstanding at January 2, 1998:

<TABLE>
<CAPTION>

                                                   Options Outstanding                      Options Exercisable     
                                                          Weighted
                                                           Average       Weighted                          Weighted
                                                          Remaining       Average                           Average
                     Range of            Options         Contractual     Exercise           Options        Exercise
                  Exercise Prices      Outstanding          Life           Price          Exercisable        Price

<S>           <C>                       <C>               <C>          <C>               <C>              <C>    
              $  2.00   - $  3.69          147,768          1.16         $  3.15             92,586        $  3.54
              $  4.00   - $  6.00          265,600          3.82         $  4.58            127,900        $  4.71
              $ 10.75   - $ 12.50           13,250           .56         $ 12.11             13,000        $ 12.13
                                        ----------                                        ---------
                                           426,618                                          233,486
                                        ==========                                        =========
</TABLE>

       The weighted  average fair value at date of grant for options  granted in
       1997, 1996 and 1995 was $2.47, $1.93 and $2.81 per option,  respectively.
       The weighted-average fair value of these options at the date of grant was
       estimated using the Black-Scholes option-pricing model with the following
       weighted-average  assumptions  for  1997,  1996 and  1995,  respectively:
       risk-free  interest rates of 6.3%, 6.3% and 6.5%;  dividend yields of 0%,
       0% and  0%;  volatility  factors  of the  expected  market  price  of the
       Company's common stock of 41.0%,  47.0% and 48.0%; and a weighted-average
       expected life of the options of five years.

       Had the Company determined the stock-based  compensation  expense for the
       Company's  stock  options based upon the fair value at the grant date for
       stock  option  awards  in  1997,  1996  and  1995,  consistent  with  the
       provisions  of SFAS No.  123,  the  Company's  net income  (loss) and net
       income  (loss) per share would have been reduced to the pro forma amounts
       indicated below (dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>


                                                   1997                     1996                       1995          
                                          ----------------------     ---------------------     ----------------------
                                           Earnings     Earnings     Earnings     Earnings     Earnings     Earnings
                                              per          per          per          per          per          per
                                            Common       Common       Common       Common       Common       Common
                                            Share -     Share -       Share -      Share -      Share -      Share -
                                             Basic       Diluted       Basic       Diluted       Basic       Diluted
<S>                                       <C>          <C>           <C>          <C>          <C>          <C>     
       Net income (loss):

         As reported                      $ (4,330)    $ (4,330)     $ 1,106      $ 1,106      $  1,385     $  1,385
         Compensation expense for
          stock, net of tax                    (63)         (63)         (87)         (87)          (65)         (65)
                                          ---------    ---------     --------     --------     ---------    ---------

       Pro forma net income (loss)          (4,393)      (4,393)       1,019        1,019         1,320        1,320
                                          =========    =========     =======      =======      ========     ========

       Pro forma earnings per share
         As reported                      $  (0.70)    $  (0.70)     $  0.18      $  0.18      $  0.22      $  0.22
         Compensation expense for
          stock, net of tax                  (0.01)       (0.01)       (0.01)       (0.01)       (0.01)       (0.01)
                                          ---------    ---------     --------     --------     --------     --------

       Pro forma net income (loss)
         per share                        $  (0.71)    $  (0.71)     $  0.17      $  0.17      $  0.21      $  0.21
                                          =========    =========     =======      =======      =======      =======
</TABLE>


       The pro forma net income for 1997, 1996 and 1995 is not representative of
       the pro forma  effect on net income in future  years  because it does not
       take into consideration pro forma compensation  expense related to grants
       made prior to 1995.



<PAGE>



12.    Income Taxes:

       The provision for income taxes was  calculated  according to the precepts
       of Statement of Financial  Accounting  Standards No. 109, "Accounting for
       Income  Taxes." The  objective of SFAS No. 109 is to recognize the amount
       of taxes  payable or  refundable in the current year and to recognize the
       expected future tax consequences of events that have been included in the
       financial   statements  or  tax  returns.   SFAS  No.  109  requires  the
       identification of all cumulative  temporary  differences  arising between
       the tax bases of assets and liabilities and their reported amounts in the
       financial statements.  The tax effects of these temporary differences are
       measured  using  enacted tax rates and are  reported on the  consolidated
       balance sheet as deferred tax assets and liabilities. Deferred tax assets
       are then  reduced if it is more likely than not that some  portion of the
       expected future tax benefits will not be realized.

       The following is a summary of the  components of the provision for income
       taxes,  current and long- term deferred tax assets and  liabilities and a
       reconciliation  of the  U.S.  statutory  federal  income  tax rate to the
       effective income tax rate reflected in the consolidated income statement.

       The  provision  for income taxes was based on pretax  income  (loss) from
       continuing  operations  before  minority  interest  which was  subject to
       taxation by the following jurisdictions.  Domestic pretax income includes
       the pretax  income of U.S.  based  entities as well as the  international
       branches of these entities (in thousands):
<TABLE>
<CAPTION>


                                                                      1997            1996              1995
                                                                      ----            ----              ----

           Pre-Tax income (loss):

<S>                                                               <C>              <C>               <C>      
               Domestic                                           $     369        $    1,149        $   1,013
               Foreign                                               (4,169)              833             (785)
                                                                  ----------       ----------        ----------
               Total                                              $  (3,800)       $    1,982        $     228
                                                                  ==========       ==========        =========
</TABLE>


       The  provision  (credit) for income taxes  consists of the  following (in
       thousands):

   <TABLE>
<CAPTION>
                                                                      1997            1996              1995
                                                                      ----            ----              ----

           Current:
<S>                                                               <C>              <C>               <C>      
               Federal                                            $   1,058        $      265        $      71
               State                                                    309               142               51
               Foreign                                                  223               135              239
                                                                  ---------        ----------        ---------
                                                                      1,590               542              361
                                                                  ---------        ----------        ---------
           Deferred:
               Federal                                                 (971)             (102)              10
               State                                                   (298)              (34)              38
               Foreign                                               (1,365)              137             (482)
                                                                  ----------       ----------        ----------
                                                                     (2,634)                1             (434)
                                                                  ----------       ----------        ----------

           Change in valuation allowance                              1,399              (218)              65
                                                                  ---------        -----------       ---------

               Total                                              $     355        $      325        $      (8)
                                                                  =========        ==========        ==========
</TABLE>


<PAGE>


       The net  deferred  tax asset or  liability  reported on the  consolidated
       balance sheet  consist of the  following  items as of January 2, 1998 and
       January 3, 1997 (in thousands):
<TABLE>
<CAPTION>

                                                                                       1997             1996
                                                                                       ----             ----

         Net current deferred tax assets:
<S>                                                                                 <C>              <C>      
           Allowance for doubtful accounts and discounts                            $    1,111       $     662
           Inventory allowances and tax costing adjustments                                236             246
           Deferred compensation                                                           279             229
           Accrued expenses, not currently deductible                                      283             125
           Untaxed installment receivables                                                  --            (174)
           Loss carryforwards                                                              125             599
           Valuation allowance                                                              --              --
                                                                                    ----------       ---------
           Total                                                                    $    2,034       $   1,687
                                                                                    ----------       ---------
         Net long-term deferred tax assets:
           Loss carryforwards                                                       $    1,752              --
           Valuation allowance                                                          (1,399)             --
                                                                                    -----------      ---------
           Total                                                                    $      353              --
                                                                                    ----------       ---------
         Net long-term deferred tax liabilities:
           Property, plant and equipment                                            $      621       $     769
           Investments in limited partnerships                                           1,198           1,155
                                                                                    ----------       ---------

           Total                                                                    $    1,819       $   1,924
                                                                                    ----------       ---------
         Net deferred tax asset (liability)                                         $      568       $    (237)
                                                                                    ==========       ==========
</TABLE>

       The loss  carryforward  amounts  shown above relate to foreign  operating
       losses  of   approximately   $6,289,000  which  may  be  carried  forward
       indefinitely.  At January 2, 1998, the Company has determined  that it is
       more likely than not that $1,399,000 of the deferred tax assets resulting
       from foreign operating losses will not be realized.

       The differences  between the U.S.  statutory  federal income tax rate and
       the effective income tax rate on pretax income from continuing operations
       before minority interest are summarized as follows:

  <TABLE>
<CAPTION>
                                                                                   1997         1996        1995
                                                                                    ----         ----        ----

<S>                                                                                <C>          <C>         <C>  
         U.S. federal income tax rate                                              (34.0%)      34.0%       34.0%
         State income tax, net of federal benefit                                    0.2%        3.6%       25.8%
         Detriment (benefit) of valuation allowance
           relating to foreign losses                                               36.8%      (11.0%)      28.5%
         Non-deductible expenses and tax-exempt income                               0.7%        1.5%       13.4%
         International tax rate differences                                          7.0%       (0.6%)      10.3%
         Low-income housing tax credits                                             (1.4%)      (9.0%)     (71.6%)
         Adjustment of prior years' estimated
           tax liabilities                                                           0.0%       (2.1%)     (43.9%)
                                                                                    -----       ------     -------
         Effective income tax rate                                                   9.3%       16.4%       (3.5%)
                                                                                    =====       =====      =======
</TABLE>

       The Company has not  recorded  deferred  income taxes  applicable  to the
       undistributed  earnings  of foreign  subsidiaries  that are  indefinitely
       reinvested   in  foreign   operations.   These   earnings   amounted   to
       approximately $3,046,000 at January 2, 1998.


<PAGE>



13.    Discontinued Operations:

       On July  4,  1997,  Brookfield  Athletic  Co.,  Inc.  ("Brookfield"),   a
       wholly-owned  subsidiary of the Company,  sold substantially  all  of the
       assets used in the  Brookfield  business  to  Brookfield  International,
       Inc. for $6,841,000.

       The  summarized  balance  sheet  for the  discontinued  operations  as of
       January 3, 1997 is as follows (in thousands):

               Assets

                 Current assets
                    Accounts receivable                               $   4,339
                    Inventories                                           4,095
                    Prepaid expenses                                        491
                                                                       ---------
                      Total current assets                                8,925

                 Property, plant and equipment, net                         190
                 Other assets                                                69
                                                                       ---------

                      Total assets                                    $   9,184
                                                                       ---------

                 Liabilities

                 Current liabilities
                    Current portion of long-term debt and
                      capital lease obligations                       $      36
                    Accounts payable                                         30
                    Accrued expenses                                        179
                                                                       ---------

                      Total liabilities                               $     245
                                                                       ---------

                 Net assets of discontinued operations                $   8,939
                                                                       =========


       As of January 3, 1997, the net assets of the discontinued  operation have
       been reclassified and are reflected in current assets in the consolidated
       balance sheet as of that date.

       As a result of the Brookfield  sale, the Company  recorded a pre-tax gain
       of $174,000,  ($96,000 after tax or $0.02 per diluted share). The pre-tax
       gain is net of $278,000 of costs incurred in connection with the disposal
       of Brookfield, agreed reduction to the selling price of $300,000, as well
       as operating losses of $243,000, incurred by Brookfield subsequent to the
       transaction measurement date.

       The  results of  operations  for  Brookfield  for the fiscal  years ended
       January 2, 1998, January 3, 1997 and January 5, 1996 have been segregated
       from  continuing  operations and are reported  separately as discontinued
       operations.  Prior year  consolidated  statements  of earnings  have been
       restated to present Brookfield as a discontinued operation.

       See Note 21 of the Notes to Consolidated Financial Statements for further
       discussion  relative to the  restatement of the carrying value of certain
       of the assets of the discontinued operations.


<PAGE>



       The following table summarizes Brookfield's results of operations for the
       years  ended  January  2, 1998,  January 3, 1997 and  January 5, 1996 (in
       thousands):
<TABLE>
<CAPTION>

                                                                                1997          1996          1995
                                                                                ----          ----          ----

<S>                                                                         <C>           <C>            <C>       
          Net revenues                                                      $    2,381    $   19,567     $   24,094

          Costs and expenses                                                     3,037        19,969         22,647
                                                                            ----------    ----------     ----------

          Income (loss) before tax                                                (656)         (402)         1,447

          Income tax expense (benefit)                                            (262)         (159)           584
                                                                            -----------   -----------    ----------

          Income (loss) from discontinued operations                              (394)         (243)           863

          Gain on disposal of Brookfield business
             including operating losses of  $243 during
             the phase-out period (net of tax expense of $78)                       96            --             --
                                                                            ----------    ----------     ----------

          Income (loss) from discontinued operations                        $     (298)   $     (243)    $      863
                                                                            ===========   ===========    ==========

</TABLE>

14.    Asset Writedowns:

       During 1997, the Company's  Australian  subsidiary  recorded a $1,426,000
       non-recurring  charge to writedown accounts  receivable (by $858,000) and
       other assets (by $568,000) to their net realizable values. In addition, a
       writedown of inventory of $1,340,000  was taken as is included in cost of
       sales in 1997. The Company recorded a deferred tax valuation allowance of
       $999,000  relating to net operating loss  carryforwards of the Australian
       subsidiary which are not expected to be realized.

       During  the  second  quarter  of fiscal  1997,  the  Company  recorded  a
       non-recurring  charge of $850,000  ($508,000 after tax, $0.08 per diluted
       share)  to  reduce  the  carrying   value  of  the   Company's   inactive
       distribution facility in East Brookfield, Massachusetts to estimated fair
       value.  The fair  value of the  facility  was  based on a  present  value
       calculation  of assumed  market  rental  income using a discount  rate of
       12.0%.

       This facility consisted of approximately 109,000 square feet of warehouse
       and  distribution  space,  as well as a retail factory outlet situated on
       approximately  5.4 acres of land. The facility  encompassed nine separate
       buildings adjoined together.  The dates of construction for the buildings
       range from 1925 to 1972.

       The facility had  functioned  as an overflow for the Company.  On July 4,
       1997, the Company's  wholly-owned  subsidiary,  Brookfield  Athletic Co.,
       Inc.  ("Brookfield"),  sold  substantially  all of  the  assets  used  in
       Brookfield's business. At that time,  approximately 15% of the facilities
       aggregate  square footage was either  utilized by the Company or let out.
       The  Company  had  no  current  or   anticipated   future  need  for  the
       under-utilized  space, nor were there any definitive or prospective plans
       to  lease  additional   space.   Attempts  to  lease  the  facility  were
       unsuccessful  due  to the  inefficient  configuration  of  the  facility.
       Accordingly, the Company determined that the East Brookfield distribution
       facility  was  impaired.  The  non-recurring  charge  affected the United
       States business segment.


15.    Foreign Operations, Geographic Areas, and Other Income:

       During 1997, 1996 and 1995,  foreign  operations of the Company  included
       the  international  activities  of  Hyde  International  Services,  Ltd.,
       Saucony Sports BV, and Saucony Deutschland  Vertriebs GmbH,  wholly-owned
       foreign  subsidiaries;  Saucony Canada,  Ltd., a  majority-owned  foreign
       joint venture Saucony SP Pty Ltd., a 50%-owned foreign joint venture; and
       Saucony UK, a branch operation of Saucony, Inc.

       The condensed  balance  sheet of the  Company's foreign operations as of
       January 2, 1998 and January 3, 1997, are as follows (in thousands):
<TABLE>
<CAPTION>

                                                                                     1997              1996
                                                                                     ----              ----
       Assets:
<S>                                                                               <C>             <C>       
                Cash                                                              $  1,390        $    1,830
                Accounts receivable                                                  4,116             4,768
                Inventories                                                          5,888             8,909
                Other current assets                                                 1,178             1,127
                Noncurrent assets                                                      325             1,092
                                                                                 ---------        ----------
                                                                                 $  12,897        $   17,726
                                                                                 =========        ==========
       Liabilities and Stockholders' Equity:
                Notes payable                                                    $   2,885        $    1,935
                Current portion of long-term debt                                    1,308                94
                Accounts payable and accrued expenses                                1,465             1,614
                Due to related parties                                               8,344             7,161
                Long-term debt                                                          --             1,885
                Capitalized lease obligations                                           19                31
                Minority interest                                                      195               488
                Stockholders' equity                                                (1,319)            4,518
                                                                                 ----------       ----------
                                                                                 $  12,897        $   17,726
                                                                                 =========        ==========
</TABLE>


       The results of foreign operations included in the consolidated statements
       of income are as follows (in thousands):
<TABLE>
<CAPTION>

                                                                         1997              1996             1995
                                                                         ----              ----             ----

<S>                                                                  <C>              <C>               <C>        
       Net sales to unaffiliated parties                             $    22,412      $    23,723       $    21,214
       Net sales to affiliated parties
          (eliminated in consolidation)                                      604              741               738
                                                                     -----------      -----------       -----------

       Net sales                                                     $    23,016      $    24,464       $    21,952
                                                                     ===========      ===========       ===========

       Income (loss) before income taxes
          and minority interest                                      $    (6,109)     $       677       $       632
       Income tax provision (benefit)                                        225               54              (179)
       Minority interest in income (loss)                                   (123)             308              (286)
                                                                     ------------     -----------       ------------

       Net income (loss)                                             $    (6,211)     $       315       $     1,097
                                                                     ============     ===========       ===========

</TABLE>

       The foreign operations changes in stockholders' equity from 1997 to 1996,
       1996 to 1995 and 1995 to 1994 were due to the recognition of common stock
       and paid-in  capital  amounts offset by income or losses and  accumulated
       translation adjustments.


<PAGE>



       The following  table  summarizes the Company's  continuing  operations by
       geographic area for the years ended January 2, 1998,  January 3, 1997 and
       January 5, 1996 and identifiable assets as of January 2, 1998, January 3,
       1997 and January 5, 1996 (in thousands):
<TABLE>
<CAPTION>

                                                                              1997           1996          1995
                                                                              ----           ----          ----
       Net sales to unaffiliated parties:

<S>                                                                      <C>            <C>             <C>        
         United States                                                   $    65,602    $    60,236     $    51,061
         International                                                        28,009         31,105          27,488
                                                                         -----------    -----------     -----------
                                                                         $    93,611    $    91,341     $    78,549
                                                                         ===========    ===========     ===========

       International net sales to unaffiliated parties:

         International divisions of United States
           parent company                                                $     5,597    $     7,382     $     6,274
         Foreign subsidiaries                                                 22,412         23,723          21,214
                                                                         -----------    -----------     -----------
                                                                         $    28,009    $    31,105     $    27,488
                                                                         ===========    ===========     ===========

       Net sales between geographic areas:

         United States                                                   $       180    $        44     $       138
         International                                                         7,430          8,148           8,241
                                                                         -----------    -----------     -----------
                                                                         $     7,610    $     8,192     $     8,379
                                                                         ===========    ===========     ===========

       Total net sales:

         United States                                                   $    65,782    $    60,280     $    51,199
         International                                                        35,439         39,253          35,729
         Less:  Inter-area eliminations                                       (7,610)        (8,192)         (8,379)
                                                                         ------------   ------------    ------------
                                                                         $    93,611    $    91,341     $    78,549
                                                                         ===========    ===========     ===========

       Operating profit (loss):

         United States                                                   $     2,934    $     1,595     $     1,478
         International                                                        (4,572)           978            (937)
         Less:  Inter-area eliminations                                         (297)          (228)            (50)
                                                                         ------------   ------------    ------------
                                                                         $    (1,935)   $     2,345     $       491
                                                                         ============   ===========     ===========

       Identifiable assets:

         United States                                                   $    59,521    $    65,854     $    64,189
         International                                                        13,142         17,741          14,754
         Less:  Inter-area eliminations                                      (11,347)       (12,843)         (9,678)
                                                                         ------------   ------------    ------------
                                                                         $    61,316    $    70,752     $    69,265
                                                                         ===========    ===========     ===========
</TABLE>

       Net  sales to  unaffiliated  customers  is based on the  location  of the
       customers. International inter-area sales represent shipment of inventory
       to   international   subsidiaries   and   purchases  of  inventory   from
       international  subsidiaries.  These inter-area sales are generally priced
       to recover cost plus an appropriate mark-up for profit and are eliminated
       in the determination of consolidated net sales. Operating profit consists
       of revenue less related cost of sales,  selling  expenses and general and
       administrative  expenses,  and does not include interest expense,  income
       taxes or minority shareholders' interest.

       Other  revenue  consists  primarily  of royalty  income and  freight  and
       handling revenue on product shipments.


16.    Major Customer:

       For  1997,  1996 and  1995,  the  Company  did not have a major  customer
       account for more than 10% of gross sales.


17.    Acquisitions:

       Saucony Sports B.V.

       On December 11,  1991,  the Company  entered into a joint  venture with a
       Dutch company to market and distribute Saucony footwear.  On December 31,
       1991, the Company  purchased 51% of the issued and  outstanding  stock of
       Saucony Sports BV for $414,000.  On June 9, 1993,  the Company  increased
       its majority  ownership from 51% to 76% by acquiring an additional 25% of
       the issued and  outstanding  common stock from the minority  shareholder,
       for $210,000,  which equaled the book value of the stock. On December 22,
       1997, the Company  acquired the remaining  issued and  outstanding  stock
       owned by the minority  stockholder for $140,000 of which $30,000 has been
       recorded as goodwill.

       At January 2, 1998,  January 3, 1997 and January 5, 1996,  Saucony Sports
       BV had assets of $1,889,000,  $1,571,000 and  $1,595,000;  liabilities of
       $930,000,   $1,236,000  and  $1,455,000;   and  revenues  of  $3,170,000,
       $3,084,000 and $3,216,000, respectively.

       Saucony Canada, Inc.

       On March 1, 1993, the Company  acquired 85% of the issued and outstanding
       stock of a Canadian distributor,  Saucony Canada, Inc. The purchase price
       of $351,000 was financed with available cash of $161,000 and the issuance
       of a note  payable of $189,843.  At January 2, 1998,  January 3, 1997 and
       January  5,  1996,  Saucony  Canada,   Inc.  had  assets  of  $2,841,000,
       $2,102,000  and  $1,867,000;   liabilities  of  $359,000,   $851,000  and
       $741,000;   and  revenues  of  $4,199,000,   $4,002,000  and  $3,777,000,
       respectively.

       Saucony SP Pty. Ltd.

       Effective  July 1,  1993,  the  Company  acquired  50% of the  issued and
       outstanding  common stock of an Australian  distributor,  Saucony SP Pty.
       Ltd.,  for $214,000 in cash.  The agreement was completed on November 13,
       1993.  During 1995,  the Company  increased its  investment in Saucony SP
       Pty. Ltd. by acquiring 28 shares of Cumulative Redeemable Preferred Stock
       ($1 par) for  $2,082,000 in exchange for an equivalent  reduction in debt
       owed to the Company by Saucony SP. The shares, which are redeemable on or
       after January 1, 1998, provide for cumulative  preferential dividends and
       confer priority to the preferred shareholders,  with respect to dividends
       and  return of share  capital  and share  premium.  As the fair  value of
       assets acquired  equaled the carrying value of the debt reduction,  there
       was no  impact  on  consolidated  net  income.  See  Note 14 of  Notes to
       Consolidated  Financial  Statement  regarding  the  non-recurring  charge
       recorded in the fourth quarter of 1997.

       At January 2, 1998,  January 3, 1997 and January 5, 1996, Saucony SP Pty.
       Ltd. had assets  of  $3,515,000, $9,420,000 and $7,401,000;  liabilities
       of $2,692,000,  $6,895,000 and $5,528,000; and revenues of  $10,333,000,
       $14,024,000 and $11,661,000, respectively.

       Quintana Roo, Inc.

       On August 31, 1995,  Quintana Roo, Inc., a newly formed subsidiary of the
       Company,  acquired the assets of a bicycle and wetsuit  manufacturer  for
       $112,000 in cash.

       Hind Apparel

       On December 20, 1996,  the Company  acquired the trade name,  trademarks,
       patents  and  service  marks  of an  athletic  apparel  manufacturer  for
       $1,250,000  in cash.  The entire  purchase  amount has been  recorded  as
       goodwill.

       These acquisitions are accounted for as purchases.


18.    Concentration of Credit Risk:

       Financial  instruments  which  potentially  subject the Company to credit
       risk consist primarily of cash, cash equivalents and trade receivables.

       The  Company  maintains  cash and cash  equivalents  with  various  major
       financial   institutions.   Cash  equivalents   include   investments  in
       commercial  paper of companies with high credit  ratings,  investments in
       money market securities and securities backed by the U.S. Government.  At
       times such amounts may exceed the F.D.I.C. limits. The Company limits the
       amount of credit exposure with any one financial institution and believes
       that no significant  concentration  of credit risk exists with respect to
       cash investments.

       Trade  receivables  subject the Company to the  potential for credit risk
       with customers in the retail and  distributor  sectors.  To reduce credit
       risk, the Company performs ongoing evaluations of its customers financial
       condition but does not generally require collateral. Approximately 31% of
       the  Company's  gross  trade  receivables  balance was  represented  by 8
       customers   at  January  2,  1998,   which   exposes  the  Company  to  a
       concentration of credit risk.


19.    Fair Value of Financial Instruments:

       The carrying value of cash, cash equivalents, receivables, long-term debt
       and other notes payable  approximates  fair value.  The Company  believes
       similar terms for current long-term debt and other notes payable would be
       attainable.  The fair value of marketable  securities is estimated  based
       upon quoted market prices for these  securities.  The Company enters into
       forward currency  exchange  contracts to hedge  intercompany  liabilities
       denominated in other than the functional currency.  The fair value of the
       Company's  foreign  currency  exchange  contracts is  estimated  based on
       current  foreign  exchange  rates.  At January 2, 1998,  the value of the
       Company's  foreign currency  exchange  contracts to purchase U.S. dollars
       was $1,072,000 and to sell U.S. dollars was $146,000. Gains and losses on
       forward  exchange  contracts  are  deferred  and offset  against  foreign
       currency  exchange  gains and losses on the  underlying  hedged item upon
       consummation of the transaction. At January 2, 1998, estimated fair value
       of the Company's financial instruments approximated the carrying value.


<PAGE>


20.    Quarterly Information:
<TABLE>
<CAPTION>


                                                                   (in thousands, per share amounts in dollars)

              1997 (1)                                            Quarter 1    Quarter 2    Quarter 3    Quarter 4
              ----                                                ---------    ---------    ---------    ---------

<S>                                                             <C>          <C>          <C>           <C>       
              Net sales                                         $   25,217   $   24,398   $   24,635    $   19,361
              Gross profit                                           8,585        8,550        8,422         4,543
              Income (loss) from continuing operations                 570         (120)         375        (4,857)
              Income (loss) from discontinued operations              (287)         246         (172)          (85)
              Net income (loss)                                        283          126          203        (4,942)
              Earnings per share:
                Basic                                                 0.05         0.02         0.03        (0.79)
                Diluted                                               0.05         0.02         0.03        (0.79)

              1996 (2)                                            Quarter 1    Quarter 2    Quarter 3    Quarter 4
              ----                                                ---------    ---------    ---------    ---------

              Net sales                                         $   28,638   $   24,396   $   20,609    $   17,698
              Gross profit                                           8,788        7,542        7,207         6,112
              Income (loss) from continuing operations                 883          227          220            19
              Income (loss) from discontinued operations              (143)        (114)         383          (369)
              Net income (loss)                                        740          113          603          (350)
              Earnings per share:
                Basic                                                 0.12         0.02         0.10        (0.06)
                Diluted                                               0.12         0.02         0.10        (0.06)

       -----------------
<FN>

     (1) Net  income  for  Quarter  2 and  Quarter  3 of  fiscal  1997 have been
        restated. See Note 21 of the Notes to Consolidated Financial Statements.

     (2) Net income for Quarter 4 of fiscal 1996 has been restated.  See Note 21
        of the Notes to Consolidated Financial Statements.
</FN>

</TABLE>

       During the second quarter of 1997, the Company  recorded a  non-recurring
       impairment  charge  of  $850,000  ($508,000  after  tax,  $0.08 per share
       diluted)  to  reduce  the  carrying  value  of  the  Company's   inactive
       distribution facility in East Brookfield, Massachusetts to market.

       During  the  fourth  quarter  of 1997,  the  Company's  gross  margin was
       adversely  impacted  by the  decline  in  gross  margin  realized  by the
       Company's  Australian  subsidiary,  which was due to  increased  sales of
       non-current footwear

       Also  during  the  fourth  quarter  of  1997,  the  Company's  Australian
       subsidiary  recorded  a  non-recurring  charge of  $1,426,000  ($0.23 per
       diluted share) to write-down  accounts receivable by $858,000 and prepaid
       expenses and other assets by $568,000 to their net realizable  values. In
       addition,  an inventory writedown of $1,340,000 ($0.22 per diluted share)
       was  recorded  and is  included in cost of sales.  The  Company  recorded
       deferred tax valuation  allowances  of $999,000 and $400,000  relating to
       loss carryforwards of the Company's  Australian and German  subsidiaries,
       respectively, which are not expected to be realized.

       During the fourth  quarter of 1996,  the Company  recorded an  impairment
       charge of $650,000  ($388,000  after-tax,  or $0.06 per diluted share) to
       reduce the carrying value of the barter  credits to estimated  realizable
       values.

       Earnings  per share  amounts for each quarter are required to be computed
       independently  and,  as a  result,  their  sum may not  equal  the  total
       earnings per share amounts for fiscal 1997 and fiscal 1996.


21.    Accounting Restatements:

       On  March  1,  1999,  the  Company  announced  that  it  was  engaged  in
       discussions with the Securities and Exchange Commission ("SEC") regarding
       the accounting for two specific  transactions  recorded in 1995 and 1997.
       As a result of those discussions, the Company has restated its previously
       reported financial results for 1995, 1996 and 1997.

       November  1995 - Barter  Transaction.  In  November  1995,  the  Company'
       Brookfield subsidiary  ("Brookfield")  entered into a barter of inventory
       with an  approximate  book value of  $1,055,000  in exchange  for cash of
       $100,000 and media and trade  receivables  barter credits of $950,000 and
       $350,000,  respectively.  As of  January 3,  1997,  $1,298,000  of barter
       credits were  outstanding.  In addition,  in 1995,  the Company  recorded
       $345,000 of pre-tax  gross  margin which was  reflected in  "discontinued
       operations" in the 1997 Form 10-K for the fiscal year 1995.

       In connection  with the  restatement  discussed  with the SEC, the fiscal
       1995 gross  margin was reduced by $345,000  ($206,000  after-tax of $0.04
       per diluted share), leaving a net carrying value of all barter credits of
       $955,000  at year end fiscal  1995.  In  addition,  a pre-tax  impairment
       charge of $650,000 ($388,000  after-tax,  or $0.06 per diluted share) was
       recorded for fiscal 1996 to reflect the uncertain  value of the remaining
       barter credits at that time.

       Substantially  all the  assets of  Brookfield,  including  the  remaining
       barter  credits,  were  sold to a third  party  in  1997.  As  such,  the
       adjustments  in 1995 and 1996 were  reversed in 1997 and are reflected in
       the "Gain on disposal of the  Brookfield  business" in 1997 and no impact
       on  cumulative  retained  earnings  at January 2, 1998.  Reflecting  this
       restatement  for fiscal 1997, the previously  reported  after-tax loss of
       $498,000  on the  disposal of  Brookfield  becomes an  after-tax  gain on
       disposal of $96,000.

       August 1997 - License  Agreement.  In August 1997, the Company  granted a
       three-year  license  to an  independent  third  party  for the use of the
       "Spot-Bilt" and the "single spot" logo  trademarks.  The agreement called
       for minimum  guaranteed  total  royalties of $447,000 over the three-year
       life of the license. In the third quarter of 1997, the Company,  based on
       the fact that it believed that it had no further contractual requirements
       under  the  agreement,   recorded  a  receivable  based  on  the  minimum
       guaranteed present value of future cash flows,  utilizing a discount rate
       of 8.5%,  which equates to $378,000.  This amount was recorded as revenue
       in fiscal 1997 resulting in $225,000 of net income,  or $0.04 per diluted
       share. The SEC disagreed with the Company's original accounting.

       As a result of the  restatement,  the  licensing  revenue and  associated
       profit  will  be  recognized  ratably  over  the  three-year  life of the
       agreement, rather than up front as originally reported.  Accordingly, for
       the third  quarter of fiscal  1997,  revenue has been reduced by $346,000
       ($206,000 after-tax, or $0.03 per diluted share).

       The following  table  summarizes the net income and diluted  earnings per
       share impact of the two financial restatements (in thousands):
<TABLE>
<CAPTION>


                                                                 1997              1996              1995
                                                                 ----------------------------------------

       Net income effect
<S>                                                           <C>               <C>              <C>       
           Barter transaction                                 $     594         $   (388)        $    (206)
           License agreement                                       (206)              --                --
                                                              ----------        --------         ---------
                                                              $     388         $   (388)        $    (206)
                                                              =========         =========        ==========

       Earnings per diluted share
           As previously reported
              Continuing operations                           $  (0.62)         $   0.22         $    0.08
              Discontinued operations                            (0.14)             0.02              0.18
                                                              ---------         --------         ---------
                                                              $  (0.76)         $   0.24         $    0.26
                                                              =========         ========         =========

       Restatement impact
           Continuing operations                              $  (0.03)         $   0.00         $    0.00
           Discontinued operations                                0.09             (0.06)            (0.04)
                                                              --------          ---------        ----------
                                                              $   0.06          $  (0.06)        $   (0.04)
                                                              ========          =========        ==========

       Adjusted earnings per diluted share
           Continuing operations                              $  (0.65)         $   0.22         $    0.08
           Discontinued operations                               (0.05)            (0.04)             0.14
                                                              ---------         ---------        ---------
                                                              $  (0.70)         $   0.18         $    0.22
                                                              =========         ========         =========

</TABLE>

<PAGE>


<TABLE>

                                   HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
                                   SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                      For the Years Ended  January 2, 1998,  January 3, 1997 and January 5, 1996

<CAPTION>
                                                       (dollars in thousands)



                                                                                  Additions
                                                                     Balance     charged to    Deductions      Balance
                                                                    beginning    costs and        from           end
                                                                    of year        expenses      reserve       of year

<S>                                                               <C>            <C>           <C>           <C>      
Year ended January 2, 1998:
  Allowance for doubtful accounts and discounts                   $   1,234      $  5,475      $   4,677     $   2,032

Year ended January 3, 1997:
  Allowance for doubtful accounts and discounts                   $     940      $  5,269      $   4,975     $   1,234

Year ended January 5, 1996:
  Allowance for doubtful accounts and discounts                   $   1,147      $  4,807      $   5,014     $     940

</TABLE>


<PAGE>


                                   Exhibit Index

Exhibit
Number                              Description

2.0           Asset Purchase Agreement, dated June 27, 1997, between
              Brookfield International, Inc. and Brookfield Athletic Co.,
              Inc. is incorporated herein by reference to Exhibit 2.1 to
              the Registrant's Current Report on Form 8-K dated
              July 4, 1997.                                                *

3.1           Restated Articles of Organization, as amended, of the
              Registrant are incorporated herein by  reference to
              Exhibit 4.1 to the Registrant's Registration Statement
              on Form S-8 (File No. 33-66482)                              *

3.2           By-Laws, as amended, of the Registrant are incorporated
              herein by reference to Exhibit 3.3 to the Registrant's
              Registration Statement on Form S-2, as amended
              (File No. 33-61040) (the "Form S-2")                         *

10.1          Note Purchase Agreement between the Registrant and
              the Principal Mutual Life Insurance Company is incorporated
              herein by reference to Exhibit (4b) to the Registrant's Annual
              Report on Form 10-K for the fiscal year ended December 31,
              1988 (the "1988 10-K Report")                                *

10.2          Credit Agreement among the Registrant, State Street Bank
              and Trust Company and CoreStates Bank, N.A., dated
              August 31, 1993 is incorporated herein by reference
              to Exhibit 10.2 to the Registrant's Annual Report on Form
              10-K for the fiscal year ended December 31, 1993 (the
              "1993 10-K Report")                                          *

10.3          Guarantee of the Registrant to the Bank of Nova Scotia
              is incorporated herein by reference to Exhibit 10.3 to
              the 1993 10-K Report                                         *

10.4          Letter of Guarantee of the Registrant to State Street
              Finance Limited is incorporated herein by reference
              to Exhibit 10.4 to the 1993 10-K Report                      *

10.5**        1982 Employee Stock Option Plan, as amended, is
              incorporated herein by reference to Exhibit 10.7 to the 
              Form S-2                                                     *

10.6**        Amendment  to the Credit  Agreement  among the  Registrant,  
              State Street Bank and Trust Company and  CoreStates  Bank,  
              N.A., dated August 31, 1993,  is  incorporated  herein by 
              reference to Exhibit 10.06 to the Registrant's Quarterly 
              Report on Form 10-Q for the 39 weeks ended September 30, 1994  *

10.***        Trademark License Agreement, dated as of February 1, 1994,
              between the Registrant and Leif J. Ostberg, Inc. is incorporated
              herein by reference to Exhibit 10.21 of the 1993 10-K Report   *

10.8**        1993 Equity Incentive Plan, as amended.

10.9**        1993 Director Option Plan is  incorporated  herein by reference to
              Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for
              the thirteen weeks ended April 2, 1993, as amended
              (the "1993 Form 10-Q")                                         *

10.10**       VP Bonus Plan is incorporated herein by reference to
              Exhibit 10.19 to the Form S-2                                  *

10.11**       Compensation Agreement between the Registrant and
              James H. Noyes, Jr. is incorporated herein by reference
              to Exhibit 10.3 to the 1993 Form 10-Q                          *

10.12**       Letter Agreement dated March 30, 1995,  between the Registrant and
              Principal Mutual Life Insurance Company is incorporated  herein by
              reference to Exhibit 10.01 of the Registrant's Quarterly Report
              on Form 10-Q for the thirteen weeks ended March 31, 1995       *

10.13***      Second  and Third  Amendments  to the Credit  Agreement  among the
              Registrant,  State  Street Bank and Trust  Company and  CoreStates
              Bank, N.A. is incorporated herein by reference to Exhibit 10.27 to
              the Registrant's Annual Report on Form 10-K for the fiscal year
              ended January 3, 1997.                                         *

21            Subsidiaries of the Registrant

23.1          Consent of Coopers & Lybrand L.L.P.

23.2          Consent of Grant Thornton

27.1          Financial Data Schedule restated for the fiscal year ended January
              5, 1996.

27.2          Financial Data Schedule restated for the fiscal year ended January
              3, 1997, the three months ended April 5, 1996, the six months 
              ended July 5, 1996 and the nine months ended October 4, 1996.

27.3          Financial Data Schedule restated for the fiscal year ended January
              2, 1998 and Financial Data Schedule restated for the three months
              ended April 4, 1997, the six months ended July 4, 1997 and the
              nine months ended October 3, 1997.



*             Incorporated herein by reference.

**            Management  contract or  compensatory  plan or  arrangement  filed
              herewith in response to Item 14(a)(3) of the  instructions to Form
              10-K.

***           Confidential treatment previously granted as to  certain  portions
              of such document.