SECURITIES AND EXCHANGE COMMISSION 
                             WASHINGTON, D.C. 20549 
                                    Form 10-K 

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

                  For the fiscal year ended  December 31, 1997

                                       OR 

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

         For the transition period from _____________ to _____________ 

                          Commission file number 1-9599 
                                                 ------

                             GALOOB TOYS, INC.
             (Exact name of registrant as specified in its charter) 

               Delaware                                        94-1716574 
  -------------------------------                          ----------------
  (State or other jurisdiction of                          (I.R.S. Employer 
   incorporation or organization)                        Identification Number) 

500 Forbes Boulevard So. San Francisco, CA                      94080 
- ------------------------------------------                 ----------------
(Address of principal executive offices)                     (Zip Code) 

        Registrant's telephone number, including area code: (650)952-1678 

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

                                                       Name of each exchange on
         Title of each class                               which registered 
         -------------------                               ----------------
Common Stock, Par Value $.01 Per Share                 New York Stock Exchange 

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












Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. 



                                  YES   X    NO 
                                      -----     -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the 
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to 
this Form 10-K.[ ]

The aggregate market value of the voting stock held by persons who are not 
officers or directors (or their affiliates) of the registrant, as of March 02, 
1998, was approximately $159,000,000.

The number of shares outstanding of each of the registrant's classes of common 
stock, as of March 02, 1998, was as follows: 

                  Class                                    Number of Shares 
                  -----                                    ----------------
Common Stock, Par Value $.01 Per Share                        18,109,864

                       DOCUMENTS INCORPORATED BY REFERENCE 

The following document has been incorporated by reference: 
The registrant's Proxy Statement (the "Proxy Statement") to be used in 
connection with its 1998 Annual Meeting of Shareholders has been incorporated 
into Part III. 


























                                     PART I 
Item 1   Business 

General 

Founded in 1957, Galoob Toys, Inc. and subsidiaries ("the Company"), is an
international toy company that designs, develops, markets and sells a
variety of high-quality toy products in an expanding number of product
categories.  The Company's current product categories include:  (i) miniature
vehicles, led by the highly successful Micro Machines (R) line, introduced in
1987, which is the most comprehensive line of miniature scale toys for boys in
the world, embracing traditional vehicle, military and male action play
patterns; (ii) entertainment-based toys, led by Star Wars (TM), the leading
boys' toy in 1997, and Anastasia (TM), the first toy line from the Company's
long-term license agreement with Twentieth Century Fox ("Fox"); (iii) newly
introduced authentic military vehicles, figures and playsets led by Battle
Squads (TM); (iv) mini-dolls, comprised of the number one mini-doll brand in
1997, Pound Puppies (R), and the Company's newly introduced product line, 
Backpack Club (TM); and (v) celebrity-based fashion dolls, with the Company's
first product offering based on the Spice Girls, a globally popular five-woman
British pop group.

In October, 1997, the Company entered into an exclusive, worldwide license with
Lucas Licensing Ltd. ("Lucas") to market small-scale figures, vehicles,
playsets and accessories for the next three Star Wars movies, as well as
maintaining the rights to market such small-scale toys based on the original
Star Wars Trilogy.

The Company's products are sold in more than 50 countries worldwide. These 
products are principally sold direct to retailers in the United States and to 
toy distributors who, in turn, sell to retailers outside the United States.

The Company believes it is well positioned for future growth.  The key elements
of the Company's growth strategy are:  (i) expand the Company's core brand, 
Micro Machines; (ii) maximize the value of the Company's major male action
entertainment offering, Star Wars; (iii) increase sales of toys based on the
Company's exclusive worldwide, long-term, first rights agreement with Fox; (iv)
continue to enter new product categories; and (v) expand profit margins on
rising sales.

Industry Overview 

According to the Toy Manufacturers of America, Inc. ("TMA"), an industry trade
group, total domestic shipments of toys, excluding video games and accessories,
were approximately $15.2 billion in 1997. According to the TMA, the United
States is the world's largest toy market, followed by Japan and Western 
Europe. The Company estimates that the two largest U.S. toy companies, Mattel,
Inc. ("Mattel") and Hasbro, Inc. ("Hasbro") collectively hold a significant
share  of the domestic non-video toy market. In addition, hundreds of smaller
companies compete in the design and development of new toys, the procurement of
licenses, the improvement and expansion of previously introduced products and
product lines, and the marketing and distribution of toy products.   

A substantial majority of the toys sold in the U.S. are manufactured, either
in whole or in part, overseas where labor rates are comparatively low.  The
largest foreign producer markets are China and, to a lesser extent, other 
countries in the Far East. 


Toy manufacturers sell their products either directly to retailers, or to 
wholesalers who carry the product lines of many manufacturers.  In the United
States, retail toy sales have become increasingly concentrated through a small
number of large chains, such as Toys "R" Us, Inc. ("Toys "R" Us"), Wal-Mart
Stores, Inc.("Wal-Mart"), Kmart Corporation, Target Stores, Inc., and 
Kay-Bee Toys, Inc.  These large chains generally feature a large selection 
of toys, some at discount prices, and seek to maintain lean inventories to 
reduce their own inventory risk.  According to the TMA, the top five 
U.S. toy retailers collectively hold more than half of the domestic retail 
market for toy sales, and their collective market share has grown in recent
years.

Products 

The Company's 1998 main product offerings consist of the following: 

Boys' Products

o   MICRO MACHINES (R) AND STAR WARS (TM)

Micro Machines is a broad array of miniature vehicles, figures, playsets and
accessories marketed in a variety of basic civilian, military, space,
exploration, action and other themes.  Since 1987, Micro Machines has generated
over $1 billion in worldwide sales for the Company.  For 1998, additions to the
military, basic, exploration and licensed segments have created a line of more
than 40 playsets, 325 vehicles and 85 collections.  The popular military
segment has been enhanced for 1998 by the introduction of the Company's
innovative Transforming Action Sets, featuring a Navy SEAL and a jet fighter
pilot that open to reveal miniature action-scene playsets.  Combat Carrier (TM)
is a giant military van with rolling wheels that opens into a complete
battlefield with firing missiles and a Micro Machines M60 tank.  Other product
additions include three Transforming Action Sets in the basic line fashioned
after a motorcycle policeman, a race car driver and a construction foreman; a
new Earth Exploration segment featuring excavation-themed playsets and
vehicles; and new dinosaur and vehicle collections and playsets based on the
National Geographic Society (TM) license.

The Company's current rights to market toys based on the original Star Wars
trilogy have been included in a new, exclusive, worldwide license with Lucas
Licensing Ltd. to make small-scale figures, vehicles, playsets, and accessories
for the next three Star Wars movies.  This continues the relationship that
began in 1992 with the introduction of Star Wars Micro Machines and broadened
in 1996 with the addition of the larger-scale Star Wars Action Fleet (R), also
marketed under the Micro Machines brand.  The Action Fleet segment features
six-inch-long vehicles and one-and-one-half-inch-tall poseable figures, which
are compatible with separate Action Fleet playsets.  For 1998, new toys enhance
the Company's collection of popular Star Wars products.  A total of 41 vehicle
and figure packs and 23 playsets are available in the traditional Micro
Machines scale.  Four new Transforming Action Sets have been added to the Micro
Machines assortment, including Jabba the Hutt, Yoda and, for the first time,
transforming vehicles, featuring the Star Destroyer and Slave I.  Each
Transforming Action Set is a collectible model of a Star Wars character or
vehicle that opens to reveal an action scene utilizing miniature Star Wars
figures and vehicles.  Within the larger-scale Action Fleet segment are 18
themed Battle packs and with the addition of 7 new vehicles, a total of 29
vehicle/creature sets with figures, including the highly requested and much
anticipated Millennium Falcon.


o    BATTLE SQUADS (TM)

Based on the popularity of its Micro Machines military segment, the Company has
launched a new line of larger scale authentic military vehicles, figures and 
playsets.  The Battle Squads line presents realistically detailed military
vehicles, combat packs and combat platoons from World War II to the present
day.  Vehicles from five-and-one-half-inches long to
eight-and-one-quarter-inches long are scaled to poseable figures
one-and-one-eighth-inches tall.  Ten detailed, real-world Combat Vehicles
include a P-51 Mustang, F-4 Phantom and Armored Personnel Carrier and feature
quick-release bombs, firing missiles, rotating gun turrets and spinning
propellers.  Combat Packs offer a Jeep, commando raft, Howitzer machine gun,
and a Kubelwagen featuring pivoting guns and rolling wheels.  Each vehicle
comes with two poseable Battle Squads troops that fit inside the vehicles.  The
C-130 Warbird (TM) deluxe vehicle/playset features firing missiles, a working
parachute to air-drop a vehicle, mechanized spinning propellers, retractable
landing gear, and an opening cockpit and cargo hatch.

Girls' Products

o    POUND PUPPIES (R)

In 1996, the Company introduced an updated and miniaturized version of Pound
Puppies, a product line marketed by another toy company in the 1980's.  The
line was expanded in 1997 to include new themes and concepts and, for the past
year, has been the leading mini-doll line in the United States.  To enhance the
brand for 1998, additional Pound Puppies Purebreds and Pound Pur-r-ries
Purebreds have been introduced, along with some all-new pound animals:  Pound
Ponies (TM), Pound Piggies (TM), Pound Bears (TM) and Pound Jungle (TM) wild
animals.  Adding to the segment of miniature plastic Pound Puppies and Pound
Pur-r-ries play environments introduced in 1997 are two new Hideaway Playsets
and a new Pet Carrier Playset.  New Pound Puppies and Pound Pur-r-ries
Wag-Alongs (TM) feature a mommy puppy or kitty that walks and wags her tail with
the help of a battery-powered remote-control leash.  She comes with a baby
puppy or kitty that can be carried in the mother's mouth or on her back.

o    ANASTASIA (TM)

The Anastasia product line, introduced in 1997, resulted from the Company's
exclusive worldwide toy license with Fox.  Anastasia was Fox's animated family
film for the 1997 holiday season.  For 1998, the Company plans to expand its
marketing of the Anastasia line, timed with Fox's worldwide distribution of the
film and video.

o    BACKPACK CLUB (TM)

The Company continues to build its girls' toy business with the introduction of
Backpack Club dolls and playsets.  The five-inch-tall dolls wear backpacks that
transform into themed play environments such as Camp-Out Fun and Beach Party.
Also featured in the line are Funtastic Packs (TM), two-packs including one
transforming doll-size backpack that opens into a game, and another backpack
that holds a craft girls can create themselves.  Larger Cool Adventure packs
include backpacks a child can actually wear and open into adventure playsets. 
There is also the wearable Secret Clubhouse (TM) deluxe backpack that opens into
a multi-level doll playhouse with elevator, fold-down bed, swing, sailboard,
and canoe.



o    SPICE GIRLS (TM)

In late 1997, the Company introduced its Spice Girls fashion dolls, based on
the five-woman British pop group.  The eleven-and-one-half-inch-tall poseable
dolls feature Posh, Baby, Scary, Sporty and Ginger Spice dressed in
trendsetting fashions that reflect each band member's unique style.  In 1998,
to coincide with the band's worldwide Spiceworld Tour, five On Tour (TM) dolls 
will be introduced. Other fashion doll gift sets, playsets, and accessories are
scheduled for release throughout 1998.

Galoob Direct

In 1996, the Company established Galoob Direct, Inc., a wholly owned subsidiary
created to sell non-promoted toys to retailers on a direct-import basis from
Hong Kong and China.  For 1998, Galoob Direct offers a wide array of products
complementing several of the Company's promoted brands, including Micro
Machines, Battle Squads, Anastasia, Pound Puppies, and Spice Girls. These
direct-import products, though not advertised on television, receive the
benefit of the advertising and marketing support that Galoob Toys, Inc., as the
parent company, puts behind its brands.

Licensing Strategy 

Historically, substantially all of the Company's products have been produced
under licenses from other parties.  During 1997, the Company took two actions
to reduce its reliance on licenses.  First, the Company acquired all rights to
its Micro Machines brand when it entered into a Settlement and Release
Agreement.  See Item 3-"Legal Procedures-Licensing Litigation."  Acquisition of
these rights by the Company eliminated all future royalty payments to the
former licensors of Micro Machines.  Second, the Company expanded its efforts
to market products conceived and developed internally.  The result of this
internal development are two new lines, Battle Squads and Motor Mouths, a Micro
Machines offering with a larger size and ability to talk, which is directed at a
younger target audience.

The Company continues to produce and market many products under licenses from
other parties.  Some of these licenses confer rights to exploit original
concepts or products developed by toy inventors and designers.  This type of
license typically extends for either a set number of years or the commercial
life of the product.

Other licenses, referred to as entertainment licenses, permit the Company to
design, develop, manufacture and market toys based on characters or properties
which have their own popular identity, often through exposure in various media
such as television programs, movies, cartoons and books.  During 1997, the
Company redirected its product strategy to reduce its reliance on unproven new
entertainment licenses.

Lucas Agreements

On October 14, 1997, the Company entered into an exclusive, worldwide license
with Lucas to market small-scale figures, vehicles, playsets and accessories for
the next three Star Wars movies.  In addition, the Company's current rights to
market such small-scale toys based on the original Star Wars trilogy was
included in the new license.  In a separate agreement, the Company also
acquired long-term preferential negotiating rights from Lucasfilm Ltd. for the
same categories of toys based on other Lucasfilm movies.


In consideration for these agreements, the Company has granted to the two Lucas
Companies warrants for slightly less than 20% of the Company's issued and
outstanding common stock, equal to approximately 3.6 million shares, at an
exercise price of $15.00 per share.  The agreements contain certain antidilution
provisions.  In addition, the Company is required to issue additional warrants 
to the Lucas Companies if the Company grants stock options or other equity 
securities to employees or directors.  The new Star Wars agreement also calls
for minimum commitments, primarily in the form of advance payments against
future royalties, of $148.1 million payable throughout the release schedule
of the three new films.

Twentieth Century Fox Agreement

In 1995, the Company signed an agreement with Fox that gives the Company the
exclusive worldwide first rights to license toys based on all new Fox
theatrical and television properties for which Fox controls the intellectual
and merchandise rights (excluding the Fox Children's Network) to the year 2004
(including renewal rights granted to the Company). The agreement assures the
Company access to a continuous flow of quality entertainment properties from
Twentieth-Century Fox Film Corporation, Fox Animation Studios,
Twentieth-Century Fox Television, Fox Broadcasting Company, Fox Family Films,
Fox 2000 Pictures, and Fox Searchlight Pictures. Pursuant to this agreement,
the Company marketed toys based on the full-length animated feature film
Anastasia, released in November 1997. 

The Company pays royalties to its licensors based upon net sales of the
licensed products. The Company also frequently guarantees payment of a minimum
royalty. As of December 31, 1997, the combination of future advance payments
against royalties and minimum future guaranteed payments aggregated 
approximately $155.1 million, including amounts related to the Company's 
exclusive, worldwide license with Lucas.  Royalties expense totaled
approximately $25,676,000, $27,458,000 and $16,326,000 for the years ended
December 31, 1997, 1996 and 1995, respectively.  As a result of increased
competition among toy companies for licenses, in certain instances the Company
has paid, and may in the future be required to pay, higher royalties and higher
minimum guaranteed payments in order to obtain attractive properties for the 
development of product lines.

Sales, Marketing and Distribution 

Domestic 

The Company markets and sells its products throughout the world, with sales
to customers in the United States accounting for 68%, 69% and 63% of worldwide 
net sales in 1997, 1996 and 1995, respectively. 

The Company sells its products in the United States directly to specialty 
toy retailers, discount and chain stores, catalog and mail order companies, 
department stores, variety stores and independent distributors that purchase the
products directly from the Company and ship them to retail outlets. In 1997 and 
1996, Toys "R" Us accounted for approximately 20% and 23% of the Company's
consolidated net sales, respectively. Wal-Mart accounted for approximately 15%
and 13% of consolidated net sales in 1997 and 1996, respectively.

The Company has a sales staff of seven people, supplemented by several 
manufacturers' representative organizations in the United States that act as 
independent contractors. The Company's sales staff and the manufacturers' 
representatives offer the Company's products through the use of samples and 
promotional materials at toy shows and by making regular customer sales calls. 
The Company presents its products directly to key retail accounts. The Company 
also directly introduces and markets to customers new products and extensions to
previously marketed product lines by participating in the major trade shows in 
New York, Dallas, Hong Kong and Europe and through the maintenance of showrooms 
in New York City and Dallas. Manufacturers' representatives utilized by the 
Company receive commissions, which were approximately 0.9%, 1.0% and 0.8% of net
sales in 1997, 1996 and 1995, respectively. 

The Company utilizes warehouse facilities primarily in Ontario, California for
storage of its products.

The Company does not sell its products on consignment.  In certain instances,
where retailers are unable to resell the quantity of products which they have
purchased from the Company, the Company may, in accordance with industry
practice, assist retailers in selling such excess inventory by offering credits
and other price concessions.

International 

The Company sells its products to approximately 60 independent toy
distributors, each domiciled in the respective countries to which sales are
made.  These distributors, in turn, sell to retailers in over 50 countries.
While the dollar volume of international sales accounted for approximately
one-third of Company worldwide sales in 1997, approximately 47% of all of the
Company's toys sold were shipped to countries outside the United States. This
is because international sale prices to distributors are significantly lower
than U.S. domestic sale prices to retail accounts, since international
distributors are responsible for all importation, warehousing, marketing,
promotional and selling costs. 

The Company believes that it has significantly reduced many of the risks
associated with international sales by selling to leading toy distributors who
bear the commercial risks associated with marketing toys in their markets, and
by requiring payment for the Company's products through letters of credit.

Sales by the Company to foreign customers are ordinarily denominated in U.S.
dollars and, accordingly, the Company's revenues are not affected by 
fluctuations in monetary exchange rates. However, the value of the U.S. dollar 
in relation to the value of other currencies of the countries into which the 
Company's products are sold may have a positive or negative impact on the 
Company's sales volume over time, depending on the change in relationship of
the respective currencies, because the Company's products compete with products
for which wholesale prices are denominated in the local currency. 

Advertising and Promotion 

The Company's advertising and promotion expenses are significant. Although 
a portion of the Company's advertising budget is expended for newspaper 
advertising, magazine advertising, catalogs and other promotional materials,
the Company allocates the bulk of its advertising budget to television. As is
common practice in the toy industry, the Company advertises on national
network, syndicated, cable and local spot television. The Company often
pre-tests advertisements to evaluate their effectiveness on the target market.
The bulk of the Company's advertising and promotions occur in the early spring
leading up to Easter, and the fall season leading up to Christmas. The Company's
retail customers also provide advertising for the Company's products and may,
from time to time, receive a credit allowance in connection with such
advertising. With respect to entertainment licenses, the Company believes it is

able to leverage its advertising and promotional activities with those of the
entertainment licensor.

Research and Development 

The Company employs its own designers and engineers and also utilizes the 
services of independent designers and engineers on an ongoing basis.  The
Company presents its designers with toy concepts licensed or originated
by it, and the designers create renderings of the proposed product.
Designs are then presented to the Company's engineers, who, using the
renderings, perform mechanical drawings and engineering services and create 
prototypes for new products.  Prototypes for proposed products are continuously 
reviewed by the Company's management, including representatives of marketing, 
sales and manufacturing, prior to final acceptance.  Licensors of entertainment 
properties usually retain the rights to approve the products being marketed by 
the Company.  The Company spent approximately $9,425,000, $10,210,000, and
$7,886,000 on research and development activities in 1997, 1996 and 1995,
respectively, in each case exclusive of amounts paid to certain inventors and 
designers who receive royalties as licensors.

Manufacturing 

The Company's products are manufactured by non-affiliated third party
manufacturers, usually located in the Far East.  Over 90% of the Company's
products were produced in China in 1997. These manufacturers are responsible
for all aspects of the production of the Company's products in accordance with
Company product specifications.  In addition, the manufacturers must comply
with the Company's Code of Business Conduct, which requires vendors and their
subcontractors to meet certain worker health, safety and quality-of-life
conditions in order to do business with the Company. 

The Company's manufacturing is currently performed by 13 manufacturers, 
some of whom derive a substantial percentage of their business from the Company.
During the last four years, the Company has reduced the number of its 
manufacturers and concentrated its sourcing of products on a limited number of 
high quality manufacturers.  In 1997, five companies manufactured approximately 
88% of the Company's products and a single group, Harbour Ring, produced 
approximately 32% of the Company's products.  The Company believes that its 
relationships with Harbour Ring and its other key manufacturers are excellent. 

The Company, through its wholly owned subsidiary, Galco International Toys,
Ltd. ("Galco") (formerly known as Galco International Toys, N.V.) located in
Hong Kong, maintains close contact with the Company's manufacturers and
subcontractors and monitors the quality of the products produced. The
Company's employees arrange with manufacturers for the production, shipment
and delivery of products, monitor the quality of the products produced, and
undertake certain elements of the design and development of new products.  The
Company holds the manufacturers responsible for conformance to safety
standards.  See "Government Regulations."  Decisions related to the choice of
manufacturer are based on price, quality of merchandise, reliability, and the
ability of a manufacturer to meet the Company's timing requirements for
delivery.  Generally, tooling is owned by the Company but may be utilized by
different manufacturers if the need arises for alternate sources of
production.  Approximately $20,931,000, $12,367,000 and $12,388,000 was 
incurred in 1997, 1996 and 1995, respectively, for tooling and package design.
The 1997 tooling and package design amount of $20,931,000 includes provisions 
for unrecovered costs associated with the Company's discontinued lines.  See
Part II, Item 7, -"Management Discussion and Analysis of Financial Condition
and Results of Operations."

Changes in tariffs could have an adverse effect on the cost of goods 
imported from China.  While China is currently accorded Most Favored Nation 
("MFN") status by the United States, this status (which was last renewed in May,
1997) is subject to annual review and could be revoked prospectively for any 
given year.  Current MFN tariffs on toys imported into the United States are 
zero, and the loss of MFN status for China would result in a substantial 
increase in tariffs applicable to toys imported from China.  This increase in 
duty would be large enough that it could have a material adverse effect on the
Company's business, financial condition and results of operations.  Products
shipped from China to other countries would not be affected by China's loss of
MFN status with the United States.  Moreover, many other toy companies also
source products from China and could be affected to similar degrees. 

The Company can also be subject to the imposition of retaliatory tariffs or
other import restrictions as a result of a trade dispute between China and the 
United States. Generally, trade negotiations over matters in dispute between the
two countries have been difficult but have been resolved without the imposition 
of trade retaliation. In the past, proposed retaliation by the United States has
not included increased tariffs or other trade restrictions applicable to toys 
imported from China.  It is possible, however, that some future trade dispute 
could result in substantial increases in tariffs or other restrictions on 
imports, such as quotas, of toys from China.  These increased tariffs or other 
restrictions could be imposed under Section 301 of the Trade Act of 1974, as 
amended, whether or not the trade dispute itself involved toys.  Such increased 
tariffs or other trade restrictions could have a material adverse effect on the 
Company's business, financial condition and results of operations. 

The impact on the Company of any political or economic unrest or disruptions
in China, the loss of China's MFN status or the imposition of retaliatory
trade restrictions on products manufactured in China would depend on several
factors, including, but not limited to, the Company's ability to (i) procure
alternative manufacturing sources satisfactory to the Company, (ii) retrieve
its tooling located in China, (iii) relocate its production in sufficient time
to meet demand, and (iv) pass on cost increases likely to be incurred as a
result of such factors to the Company's customers through product price
increases.  As a result, any political or economic unrest or disruptions in
China, the loss of China's MFN status, or the imposition of retaliatory trade 
restrictions on products manufactured in China could have a material adverse 
effect on the Company's business, financial condition and results of operations.

In 1994, certain quotas on toy products made in China were introduced in the
European Economic Community.  The quotas did not have a material impact on the
Company's business in 1997 and, although no assurance can be given, are not
expected to have a material impact on the Company's business in the foreseeable
future.

In addition, Galco is located in Hong Kong.  On July 1, 1997, ownership of Hong
Kong reverted back to China.  To date, this ownership change has not impacted
the Company's business.  At the present time, the Company is unable to predict
the effect, if any, that such changes will have on the Company's or Galco's
business, financial condition or results of operations.  In addition, changes
in the relationship between the United States dollar and the Hong Kong dollar
may have an impact on the cost of goods purchased from manufacturers.

The principal raw materials used in the production and sale of the Company's 
products are plastics and paper products.  The Company believes that an
adequate supply of raw materials used in the manufacture of its products are
readily available from existing and alternate sources. 

Intellectual Property Rights 

Most of the Company's products are copyrighted and sold under trademarks 
owned by or licensed to the Company.  In addition, certain products incorporate 
patented devices or designs.  The Company or its licensors customarily seek 
protection of major product patents, trademarks and copyrights in the United 
States and certain other countries.  These intellectual property rights can be 
significant assets of the Company.  Although the Company believes it is 
adequately protected, the loss of certain of its rights for particular product 
lines may have a material adverse effect on its business, financial condition 
and results of operations. 

Competition 

The toy industry is highly competitive.  The Company competes with several 
larger domestic and foreign toy companies, such as Hasbro and Mattel, and many 
smaller companies in all aspects of its business, including the design and 
development of new toys, the procurement of licenses, the improvement and 
expansion of previously introduced products and product lines, and the marketing
and distribution of its products, including obtaining adequate retail shelf 
space. Some of these companies have longer operating histories, broader product 
lines and greater financial resources and advertising budgets than the Company. 
In addition, it is common in the toy industry for companies to market products 
which are similar to products being successfully marketed by competitors.  The
Company believes that the strength of its management team, the quality of its
products, its relationships with inventors, designers and licensors, its
distribution channels and its overhead and operational controls allow the
Company to compete effectively in the marketplace.

Seasonality and Backlog 

Toy industry sales are highly seasonal and driven by disproportionate customer
demand for toys to be sold during the Christmas holiday season.  Approximately
two-thirds of the Company's shipments typically occur in the second half of the
year.  As a result, the Company's operating results vary significantly from
quarter to quarter within any given year.  Orders placed with the Company for
shipment are cancelable until the time of shipment.  The combination of
seasonal demand and the potential for order cancellation makes accurate
forecasting of future sales difficult and causes the Company to believe that
backlog may not be an accurate indicator of the Company's future sales. 
Similarly, comparison between fiscal periods of successive years may not be
indicative of results of operations for any given full year.  This seasonality
also creates significant peaks in working capital requirements. 

Government Regulations 

The Company is subject to the provisions of, among other laws, the Federal 
Hazardous Substances Act and the Federal Consumer Product Safety Act.  These
laws empower the Consumer Product Safety Commission ("CPSC") to protect
consumers from hazardous toys and other articles.  The CPSC has the authority
to exclude from the market articles which are found to be unsafe or hazardous
and can require a manufacturer to recall such products under certain
circumstances.  Similar laws exist in some states and cities in the United
States and in Canada and Europe.  The Company's products are designed and 
tested to meet or exceed all applicable regulatory and voluntary toy industry 
safety standards.  The Company emphasizes the safety and reliability of its 
products and has established a strong quality assurance and control program to 
meet the Company's objective of delivering high quality, safe products.  The 
Company believes that all of its products meet or exceed applicable safety 
standards in the United States and other jurisdictions.   

Year 2000 Compliance

Many currently installed computer systems and software products, including
several used by the Company, are coded to accept only two-digit entries in the
date code field.  Beginning in the year 2000, these date code fields will need
to accept four-digit entries to distinguish 21st-Century dates from 20th-
Century dates.  As a result, computer systems and/or software used by many
companies may need to be upgraded to comply with such "Year 2000" requirements.

The Company has purchased new system software and hardware and has begun a
comprehensive upgrade of its information systems to improve operating 
efficiencies and to comply with Year 2000 requirements.  The Company expects
to incur approximately $3 to $4 million in the next two years for such upgrades.
Although the Company believes that it will be Year 2000 compliant, there can
be no assurance that the Company's computer systems will be Year 2000 compliant
in a timely manner or that the Company will not incur significant expenditures
pursuing Year 2000 compliance.  Furthermore, even if the Company's systems are
Year 2000 compliant, there can be no assurance that the Company will not be 
adversely effected by the failure of others to become Year 2000 compliant.


Employees 

As of December 31, 1997, the Company had 216 employees, 126 in the United
States and 90 in the Far East.  The Company's warehouse operation is serviced
by a third-party warehouse management company.

Item 2.   Properties 

The Company's principal executive offices are located at 500 Forbes 
Boulevard, South San Francisco, California, where the Company owns a building 
with approximately 136,000 square feet.  The Company occupies approximately 
69,000 square feet of office space and leases the remaining approximately
67,000 square feet of warehouse space to third parties.  Pursuant to a lease 
which expires in 2002, with rights to renew for an additional five year option, 
the Company also has approximately 432,000 square feet of warehouse space in 
Ontario, California.  The Company has a showroom, consisting of approximately
17,200 square feet, which is located at 1107 Broadway, New York, New York,
under a lease that expires in 2006; a showroom, consisting of approximately 
1,000 square feet, which is located in Dallas, Texas, under a lease that expires
in 2000; and office and warehouse space in Hong Kong consisting of approximately
30,000 square feet under leases which expire at varying dates through 1998.
Management believes that its current facilities are suitable and adequate for
the Company's business as currently conducted.  The Company's properties 
will be expanded as necessary to support future growth levels in the Company's 
business.

Item 3.   Legal Proceedings 

Licensing Litigation 

In June 1995, the Company filed a declaratory judgment action in United 
States District Court for the Northern District of California.  The suit named 
Clemens V. Hedeen, Jr., Patti Jo Hedeen, and various affiliated entities (the
"Licensor") as defendants, and sought a determination that the Company was not
obligated to pay royalties to the defendants under their license agreement on
certain specific products sold under the Company's Micro Machines name and
trademark. The defendants filed a cross-complaint for breach of this license
agreement claiming, among other things, damages for past royalties allegedly
due but not paid under the license agreement, and claiming entitlement to
additional royalties on future sales of such product.  On June 2, 1997, the
Company entered into a Settlement & Release Agreement (the "Agreement") with
all of the defendants in this pending litigation.  Under the Agreement, the
litigation was terminated and the various claims and counterclaims were
dismissed with prejudice, and the Company acquired all of the outstanding
rights to its Micro Machines brand.  Acquisition of these rights by the
Company eliminated all future royalty payments by it to the defendants in
connection with the Micro Machines brand, effective after March 31, 1997.
See Part II, Item 7 - "Management's Discussion and Analysis of Financial 
Condition and Results of Operations."

In October 1995, the Company filed a breach of contract action in the  United
States District Court for the Northern District of California.  The suit named
Abrams Gentile Entertainment Inc. and Up, Up and Away as defendants, and 
alleged damages for the licensing, marketing and sale of products that are in 
violation of the Company's rights as licensee under its Sky Dancers and Dragon 
Flyz license agreements with Abrams Gentile Entertainment, Inc.  The defendants 
filed a number of counterclaims, including breach of contract, interference
with contractual relationships, misappropriation of copyright, unfair 
competition and trade libel.  In 1997, the Company settled all of the open
matters in this litigation, and the various claims and counterclaims were
dismissed with prejudice.  The settlement did not result in additional
liabilities to the Company, and the Company's rights under the license
agreements were preserved.  

Manufacturer Litigation

In January 1991, the Company, through its wholly owned subsidiary, Galco, 
filed a lawsuit in Hong Kong against Kader Industrial Co., Ltd. ("Kader"), 
alleging damages suffered by both Galco and the Company as a result of Kader's 
defective manufacturing of two lead doll items for the Company's Bouncin'
Babies toy line in 1990.  Kader filed counterclaims alleging breach of 17
individual contracts.  In August 1996, the trial court rendered a decision in
favor of Kader on the general issue of liability in this matter, including an
award of damages based on Kader's counterclaims which was approximately
$250,000, plus prejudgment interest.  In addition, the court awarded certain
litigation costs to Kader.  In March 1998, the Company settled all of the open
matters in this litigation.  The settlement will not result in any additional
material liabilities to the Company.


Item 4.   Submission of Matters to a Vote of Security Holders 

The Company's Annual Meeting of Shareholders was held on December 12, 1997.
At the Annual Meeting, the following matters were approved by the
shareholders: 

1.  The election of Mark D. Goldman to the Board of Directors for a term
expiring at the 2000 Annual Meeting of Shareholders and until the election and
qualification of his successor.  There were 13,608,759 votes in favor of Mr.
Goldman and 208,558 withheld.   

2.  The ratification of the appointment of Price Waterhouse LLP as the Company's
independent accountants for fiscal 1998.  There were 13,770,706 in favor, 27,914
votes against and 18,697 abstentions.

                                     PART II 


Item 5.    Market for the Registrant's Common Equity and Related Stockholder
           Matters  

      The Common Stock of the Company is listed on the NYSE under the symbol 
GAL.  The following table sets forth the high and low closing sale prices for
the Common Stock, as reported on the NYSE, Composite Tape.  The reported last
sale of Common Stock on the NYSE on March 02, 1998, was 8 7/8.

<TABLE> 
<CAPTION> 

Fiscal Year                                             High         Low 
-----------                                             ----         ---

<S>         <C>                                        <C>          <C>    
   1997     First Quarter.......................      $19 3/4      $ 12 5/8 
            Second Quarter......................       19 5/8        16 1/4
            Third Quarter.......................       23 13/16      13 9/16 
            Fourth Quarter......................       17 13/16       9 3/16


   1996     First Quarter.......................       $20 1/4      $10 1/2 
            Second Quarter......................        28 1/4       18 7/8 
            Third Quarter.......................        30 1/2       22 3/8 
            Fourth Quarter......................        33 1/4       14 

</TABLE> 

      As of March 02, 1998, there were approximately 1,258 holders of record of
the Common Stock, excluding beneficial owners of shares registered in nominee or
street name. 

      The Company has not declared or paid any cash dividends on the Common
Stock since its initial public offering in 1984.  The Board of Directors of the
Company has no current plans to pay cash dividends on the Common Stock.  The
Company's existing credit facility prevents the Company from paying cash
dividends on the Common Stock without consent of its lender.  See Item
7 - "Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity, Financial Resources and Capital Expenditures."  In
addition, future dividend policy will depend on the Company's earnings, capital
requirements, financial condition and other factors considered relevant by the
Board of Directors. 













Item 6.   Selected Financial Data 

<TABLE> 
<CAPTION> 
                                                 (in thousands, except per share data) 
                                                      Years ended December 31, 
                                          -------------------------------------------------------
                                          1997 (1)(2)  1996        1995       1994       1993
                                          ---------   ---------   ---------  ---------  ---------
<S>                                       <C>         <C>         <C>        <C>        <C>
Statements of Operations Data: 
Net revenues .......................      $239,551    $284,905    $220,044   $178,792   $134,334
                                          =========   =========   =========  =========  =========
Net earnings (loss) ................       (29,450)     18,451       9,399     18,424    (10,924)
Preferred stock dividends:
     Paid ..........................           --            6         --         --         -- 
     In arrears ....................           --           15       3,127      3,127      3,127
Charge related to exchange of ......
     preferred stock for common ....           --       24,279 (3)     --         --         -- 
                                          ---------   ---------   ---------  ---------  ---------
Net earnings (loss) applicable to
     common shares .................      ($29,450)    ($5,849)     $6,272    $15,297   ($14,051)
                                          =========   =========   =========  =========  =========
Net earnings (loss) per common share:
    Basic ........................          ($1.63)     ($0.41)      $0.62      $1.51     ($1.47)
                                          =========   =========   =========  =========  =========
    Fully diluted ..................        ($1.63)     ($0.41)      $0.60      $1.41     ($1.47)
                                          =========   =========   =========  =========  =========
Average common shares outstanding...        18,040      14,289      10,071     10,111      9,548
Common shares assuming dilution.....        18,040      14,289      10,451     13,806      9,548
</TABLE>

<TABLE>
<CAPTION>
                                                                At December 31,
                                          -------------------------------------------------------
                                            1997        1996        1995       1994       1993
                                          ---------   ---------   ---------  ---------  ---------
<S>                                       <C>         <C>         <C>        <C>        <C>
Balance Sheet Data:
Working capital ....................       $82,800    $134,394     $54,670    $53,219    $30,813
Total assets .......................       207,783     196,905     120,084    100,766     71,005
Long-term debt .....................         --          --         14,000     18,414     18,608
Shareholders' equity ...............       162,030     149,791      54,172     44,768     22,162
</TABLE> 














NOTES:
(1) During the third quarter of 1997, the Company incurred special charges of 
$17.9 million after tax or $0.98 per share.  These charges were principally 
for the revaluation of certain assets as the Company realigned its product 
line priorities in connection with the award of an exclusive license with
Lucas to make small-scale toys for the next three Star Wars movies.
The special charges include the acceleration of the amortization and 
additional reserves related to discontinued product lines and several future
product lines as well as expenses incurred for the successful award of the 
Star Wars license.

(2) During 1997, the Company acquired all rights to its line of miniature 
vehicles, playsets and accessories marketed under the Micro Machines brand.
The agreement ends all litigation between the Company and the Licensor over
past royalties claimed by the Licensor and the extent of the Licensor's 
rights in Micro Machines.  The Company has accounted for this agreement by 
taking a pre-tax charge in the amount of $22,949,000 in 1997 and $4,462,000
is being amortized.

(3) During 1996, the Company offered to exchange 1.85 shares of common stock
for each Depository Convertible Exchangeable Preferred Share outstanding.  This
offer was accepted by 98% of the shares resulting in the issuance of 3,336,433
shares of common stock.  Generally accepted accounting principles require a 
non-cash charge to reduce Net Earnings Applicable to Common Shares in the 
calculation of EPS for the fair value of the securities issued in excess of 
the existing rate of approximately 1.185 common shares.



<PAGE>





























Item 7.   Management's Discussion and Analysis of Financial Condition and
          Results of Operations 

Overview 

On October 14, 1997, the Company entered into an exclusive, worldwide license
with Lucas to market small-scale figures, vehicles, playsets and accessories for
the next three Star Wars movies.  In addition, the Company's current rights to
market such small-scale toys based on the original Star Wars trilogy was
included in the new license.  In a separate agreement, the Company also
acquired long-term preferential negotiating rights from Lucasfilm Ltd. for the
same categories of toys based on other Lucasfilm movies.

In consideration for these agreements, the Company has granted to the two Lucas
companies warrants for slightly less than 20% of the Company's issued and
outstanding common stock, equal to approximately 3.6 million shares at an
exercise price of $15.00 per share.  The agreements contain certain antidilution
provisions.  In addition, the Company is required to issue additional warrants
to the Lucas Companies if the Company grants stock options or other equity 
securities to employees or directors.  The new Star Wars agreement also calls 
for minimum commitments, primarily in the form of advance payments against
future royalties, of $148.1 million payable throughout the release schedule  
of the three new films.

In the third quarter of 1997, the Company restructured its product portfolio
and changed its production selection strategy, incurring special charges
amounting to $17.9 million, after-tax.  These special charges principally
related to the costs of discontinuing all of the Company's male action toy
lines introduced in 1996 and 1997, and all future male action properties under
development.  These charges also included provisions for unrecovered costs
associated with the Company's Sky Dancers (TM) line, miscellaneous expenses, and
expenses incurred for arranging financing the Company ultimately did not need
to use in connection with the acquisition of the Star Wars license.

Disclosure Regarding Forward-Looking Statements 

All statements other than statements of historical fact included in this
Form 10-K Report, including, without limitation the statements under 
"Management's Discussion and Analysis of Financial Condition and Results of 
Operations" are, or may be deemed to be, forward-looking statements within the 
meaning of the Private Securities Litigation Reform Act of 1995.  Such forward
looking statements involve known and unknown risks, uncertainties and other
important factors that could cause actual results, performance or achievements 
of results to differ materially from any future results, performance or 
achievements, expressed or implied by such forward-looking statements.  Such 
risks, uncertainties and other important factors include among others: the
Company's dependence on timely development, introduction and customer acceptance
of continuing and new products (including those products to be developed under
the new Star Wars license); possible weakness of the Company's markets; the 
impact of competition on revenues, margin and pricing; the effect of currency
fluctuations; other risks and uncertainties as may be disclosed from time to
time in the Company's public announcements; the gross national product in the
United States and other countries, which also influences demand for the
Company's products; customer inventory levels; and the cost and availability of
raw materials and changes in trade conditions regarding China.  All subsequent
written and oral forward looking statements attributable to the Company or
persons acting on behalf of one or both of them are expressly qualified in
their entirety by such Cautionary Statements.


Results of Operations 

        The following table sets forth certain operating data (as a percentage 
of the Company's net revenues) for the years ended December 31, 1997, 1996 and 
1995: 

<TABLE> 
<CAPTION> 
                                                      Years Ended December 31,
                                                 --------------------------------
                                                    1997       1996       1995
                                                 ---------- ---------- ----------
<S>                                                 <C>        <C>        <C>
Net revenues                                      100.0%      100.0%     100.0%
Costs of products sold                             59.8        50.6       55.3
                                                ---------- ---------- ----------
Gross margin                                       40.2        49.4       44.7
Advertising and promotion expenses                 20.5        15.3       14.2
Other selling and administrative expenses          14.1        12.6       13.6
Royalties, research and development expenses       14.7        13.2       11.0
                                                ---------- ---------- ----------
Earnings (loss) from operations                    (9.1)        8.3        5.9
Micro Machines license rights and
     litigation settlement                         (9.6)          --         -- 
Interest expense                                   (0.2)       (1.1)      (1.5)
Other income expense, net                          (0.9)        0.2        0.2
Provision (benefit) for income taxes               (7.5)        0.9        0.3
                                                 ---------- ---------- ----------
Net earnings (loss)                               (12.3)%       6.5%       4.3%
                                                 ========== ========== ==========
</TABLE> 

Years ended December 31, 1997 and 1996

Net revenues in 1997 were $239.6 million, which represented a 16% decrease from
1996 net revenues of $284.9 million.  Domestic sales decreased 17% to
$163.3 million while international sales decreased 13% to $76.3 million.

The Company's worldwide sales of boys' toys decreased 21% in 1997 as compared
to 1996.  This decrease in worldwide sales of boys' toys was partially the
result of lower sales of the Company's male action product lines introduced in
1996 (primarily Dragon Flyz and Jonny Quest (TM)), which were not offset by the
sales of male action lines introduced in 1997 (primarily Men In Black (TM) and
Starship Troopers (TM)).  In the third quarter of 1997, the Company discontinued
all of its male action lines introduced in 1996 and 1997, and all future male
action properties under development except Star Wars.  In addition, sales of the
Company's Micro Machines line of toys decreased in 1997 as compared to 1996
because of the timing of the theatrical film release of the Star Wars Trilogy
Special Edition.  During the fourth quarter of 1996, the Company shipped large
quantities of its Star Wars toys to meet retail demand for Star Wars products
fueled by the January 1997 release of the Trilogy Special Edition.

The Company's 1997 worldwide sales of girls' toys were unchanged as compared to
1996.  Sales of the Company's newly introduced Anastasia and Spice Girls lines
offset a decrease in sales of the Company's Sky Dancers line.

Gross margins decreased $44.2 million to $96.4 million in 1997 from $140.6
million in 1996.  The lower sales volume decreased gross margin by $22.4
million and a decrease in the gross margin rate accounted for $21.8 million. 
The gross margin rate decreased to 40.2% in 1997 as compared to 49.4% in 1996. 
The change in the gross margin rate was attributable to provisions for
unrecovered costs associated with the Company's discontinued lines
including tooling, packaging development, inventory valuation allowances and
price concessions and a change in the product mix.  Additionally, to a lesser 
extent, during 1997, the Company commenced shipments of product through its
wholly-owned subsidiary, Galoob Direct.  Galoob Direct products are non-promoted
and are primarily shipped direct to the customer from the Orient.  As such,
the gross margin rate on Galoob Direct product is lower than the gross margin
rate on the Company's promoted product.

Advertising and promotion expenses were $49.3 million in 1997, as compared to
$43.5 million in 1996.  The increase in the advertising and promotion expenses
reflects higher television advertising expense, trade show and product
promotion expenses and sample costs, including the impact of the Company's
discontinued lines.

Other selling and administrative expenses were $33.9 million in 1997 as compared
to $35.8 million in 1996.  This decrease was primarily related to lower
personnel costs in 1997 as compared to 1996.

Royalties, research and development expenses were $35.1 million, or 14.7% of net
revenues in 1997 as compared to $37.7 million, or 13.2% of net revenues in
1996.  The increase in royalties, research and development as a percentage of
net revenues was primarily attributable to the write-off of royalty advances
and commitments associated with discontinued products.

During 1997, the Company acquired all outstanding rights to its line of
miniature vehicles, playsets and accessories marketed under the Micro Machines
brand and settled related litigation.  In 1986, the Licensor licensed a concept
to the Company that contributed to the origination of Micro Machines. The
Company had paid royalties to the Licensor on the majority of Micro Machine
sales.  The settlement agreement eliminated all future royalty payments to the 
Licensor, effective after March 31, 1997.  The agreement also ended litigation 
between the Company and the Licensor over past royalties claimed by the
Licensor and the extent of the Licensor's rights in Micro Machines.  The
Company recorded a pre-tax charge to earnings of $22.9 million in 1997 relating
to this transaction.  Additionally, the Company capitalized $4.5 million, which
is being amortized.

Interest expense was $0.6 million in 1997, as compared to $3.2 million in 1996. 
The decrease was due to the paydown of the Company's borrowings under its loan
agreement with Congress Financial Corporation in the fourth quarter of 1996 and
the conversion of the $14 million convertible debentures to common stock in the
first quarter of 1996.  Other expense was $2.1 million in 1997, as compared to
other income of $0.5 million in 1996.  Other expenses include expenses incurred
for arranging financing the Company ultimately did not use in connection with
the acquisition of the Star Wars license.

The income tax benefit in 1997 is based upon an income tax rate of 38%.  No
deferred tax valuation allowance was required at December 31, 1997 since the
net deferred tax assets are considered realizable.  The income tax expense in
1996 is based upon an income tax rate of 11.9%.  The 1996 tax rate is lower
than the Federal statutory rate primarily due to the effects of the utilization
of net operating loss carryforwards and federal tax credits.



Years ended December 31, 1996 and 1995 

Net revenues in 1996 were $284.9 million, which represented a 29% 
increase from 1995 net revenues of $220.0 million.  The growth in net sales in 
1996 was attributable to domestic sales which increased 41%, rising to $196.7 
million. International sales increased 10% to $88.2 million, reflecting a strong
fourth quarter of 1996. 

The Company's worldwide sales of boys' toys increased 74% in 1996 as compared
to 1995.  The growth in net sales of boys' toys for 1996 was primarily 
attributable to Micro Machines growth and new male action product
introductions.  Worldwide sales of Micro Machines, led by Star Wars Action
Fleet, an extensive line of Star Wars vessels, playsets and miniature action
figures, increased by 58% versus 1995.  New male action product introductions
started in March, 1996 when the Company initiated sales of Dragon Flyz, a line
of flying articulated action figures, vehicles and accessories and continued
in June, 1996 when the Company initiated sales of Jonny Quest, a line of
vehicles and miniature figures based on characters from the TV show. This
increase was partially offset by the anticipated decrease in international
sales of Biker Mice from Mars (TM). 

The Company's worldwide sales of girls' toys decreased 20% in 1996 as compared
to 1995.  A decrease in the sales of Sky Dancers and My Pretty Dollhouse(TM) was
partially offset by an increase generated by the new Pound Puppies line.   

Gross margins were $140.6 million in 1996, an increase of $42.3 million
from 1995.  This increase was due to higher sales volume and an increase in the 
gross margin rate to 49.4% in 1996 from 44.7% in 1995. The increase in the gross
margin rate was primarily attributable to the following: (i) economies of scale
associated with the efficient utilization of tooling; (ii) reduced product 
costs; (iii) a change in the product mix; and (iv) a different mix of sales 
between domestic and international markets.  The Company's gross margin rate on 
domestic sales is significantly greater than foreign sales because the
Company's prices on foreign sales are lower than on domestic sales, as the
foreign customer is responsible for the cost of importing and promoting the
products.   

Advertising and promotion expenses were $43.5 million, or 15.3% of net 
revenues, in 1996 as compared to $31.2 million, or 14.2% of net revenues, in 
1995.  The higher expenses were primarily a result of a planned increase in 
domestic television advertising expenses and the higher percentage relates to 
the different mix of domestic and international sales. 

Other selling and administrative expenses were $35.8 million in 1996 as
compared to $29.9 million in 1995. The increase in expenses principally resulted
from higher freight and commission expenses due to the growth in sales, legal 
expenses and personnel costs as planned.  However, other selling and 
administrative expenses as a percentage of net revenues decreased to 12.6% in 
1996 from 13.6% in 1995. 

Royalties, research and development expenses were $37.7 million in
1996 as compared to $24.2 million in 1995.  The increase in 1996 was due to
higher royalty expenses associated with increased sales volume and the
write-off of royalty advances associated with discontinued products, as well
as increased research and development expenses associated with the expansion
of the Company's lines of toys. 

Interest expense was $3.2 million in 1996 as compared to $3.4 million 
in 1995. The decrease was due primarily to lower average borrowings outstanding 
during 1996. The 8% Convertible Subordinated Debentures originally due November 
30, 2000 (the "Debentures") were eliminated by being converted to common stock 
in the first quarter of 1996, eliminating the interest payments thereunder. 
Credit line borrowings were repaid in the fourth quarter from the proceeds of 
the Company's Common Stock offering. 

The provision for income taxes was $2.5 million, or 11.9% of earnings before
taxes, in 1996 as compared to $0.6 million, or 6.0% of earnings before taxes,
in 1995.  The 1996 tax rate is lower than the federal statutory rate primarily
due to the effect of the utilization of net operating loss carryforwards and
federal tax credits.  At December 31, 1995, the Company had net operating loss
carryforwards of approximately $7.3 million and unused federal tax credits of
approximately $1.8 million available to reduce taxes in future periods. 

Liquidity, Financial Resources and Capital Expenditures 

Demand for the Company's products is greatest in the third and fourth quarters
of the year.  As a result, collections of accounts typically peak in the fourth
quarter and early first quarter of the following year. Due to the seasonality
of its revenues and collections, the Company's working capital requirements
fluctuate significantly during the year.  The Company's seasonal financing
requirements are usually highest during the fourth quarter of each calendar
year.

In 1995, the Company entered into an amended and restated loan and security
agreement (the "Loan Agreement") with Congress Financial Corporation (Central)
(the "Lender").  On December 19, 1997, the loan agreement was amended,
increasing the credit limit to $75 million and extending the term of the loan
agreement until December 2000.  Borrowing availability is determined by a
formula based on both accounts receivable and inventories.  The current
interest rate is equal to prime with a LIBOR option.  The Company also agreed
to pay an unused line fee of 0.25% and certain management fees.  In
consideration of this amendment, the Company paid loan fees of $750,000.

During 1997, the Company used $24.5 million of cash in its operating
activities.  Approximately $22.5 million of the cash usage was a result of the
acquisition of the Micro Machines rights and litigation settlement.  

Working capital was $82.8 million at December 31, 1997 as compared to $134.4
million at December 31, 1996.  The ratio of current assets to current
liabilities was 3.0 to 1.0 at December 31, 1997 as compared to 3.9 to 1.0 at
December 31, 1996.

The Company had no material commitments for capital expenditures at December 31,
1997.

On October 14, 1997, the Company entered into an exclusive, worldwide license
with Lucas to make small-scale figures, vehicles, playsets and accessories
for the next three Star Wars movies as well as the Company's current
rights to market such small-scale toys based on the original Star Wars
trilogy.  The licensing agreement calls for minimum commitments, primarily in
the form of advance payments against future royalties, of $148.1 million
payable throughout the release schedule of the three new films.  The first
payment is due upon the theatrical release of the first film, which is
anticipated to be in May, 1999.

The Company expects that its cash flow from operations, cash on hand and
borrowings under the extended credit arrangement will be sufficient to meet its
working capital and capital expenditure requirements and provide the Company
with adequate liquidity to meet its anticipated operating needs for the
foreseeable future.

Recent Accounting Pronouncement 

The FASB has recently issued two new standards, SFAS No. 130, Reporting
Comprehensive Income and SFAS No. 131, Disclosures and Segments of an Enterprise
and Related Information.  SFAS No. 130, establishes standards for reporting
comprehensive income, and its components in a financial statement and display
of the accumulated balance of other comprehensive income separately from 
retained earnings and additional paid-in capital.  The Company does not expect 
the implementation of SFAS No.130 to have a significant impact on the financial 
statements.  SFAS No. 131 establishes standards for the reporting of selected
information about operating segments in annual financial statements and interim
financial reports issued to shareholders and the related disclosures about
products and services, geographic areas and major customers.  The Company is in
the process of determining the impact of SFAS No. 131 on the financial
statements.  The Company will be required to adopt SFAS No. 130 and SFAS No. 131
in the year ending December 31, 1998.  

Impact of Inflation 

The cost of the Company's operations is influenced to the extent of
any price increases in the cost of raw materials.  In management's opinion,  
general inflation did not have a material impact on the Company's business in
1997 and 1996.  The Company did not implement any substantial price increases
in 1997 or 1996 on continuing product lines. 

Item 8.  Financial Statements and Supplementary Data 

         The Consolidated Financial Statements and Financial Statement Exhibits
are listed in Item 14(a) and are included herein.

Item 9.  Changes in and Disagreements with Accountants and Accounting and
         Financial Disclosure

         Not applicable.








<PAGE>













                                      PART III


Item 10. Directors and Executive Officers of the Registrant 

         (a) Identification of Directors 

         The section entitled "Election of Directors" contained in the Proxy 
         Statement is hereby incorporated by reference. 

         (b) Identification of Executive Officers 

          The executive officers and their respective positions are as follows:



<TABLE> 
<CAPTION> 
         Name           Age                       Position
----------------------- ---- --------------------------------------------------
<S>                     <C>  <C>
 Mark D. Goldman.......  47  President, Chief Executive Officer and Director

 William G. Catron.....  52  Executive Vice President, General Counsel, Chief
                             Administrative Officer and Secretary

 Ronald D. Hirschfeld..  47  Executive Vice President, International Sales and
                             Marketing

 Roger J. Kowalsky.....  63  Executive Vice President and Director

 Gary J. Niles.........  58  Executive Vice President, Marketing and Product
                             Acquisition

 Louis R. Novak........  50  Executive Vice President and Chief Operating
                             Officer

 Craig S. Louisana...... 41  Senior Vice President, Sales

 Kathleen R. McElwee...  43  Senior Vice President and Chief Financial Officer

 Ronnie Soong..........  51  Managing Director of Galco International Toys
</TABLE> 
     Mark D. Goldman, a Director of the Company, has served as President and 
Chief Executive Officer of the Company since June, 1991. From 1987 to 1991, Mr. 
Goldman served as Executive Vice President and Chief Operating Officer. Prior to
1987, Mr. Goldman served in various executive capacities at Ages Entertainment 
Software, Inc. (formerly Sega Enterprises, Inc.) and Mattel, Inc. 

      William G. Catron has served as Executive Vice President, General Counsel 
and Chief Administrative Officer since May, 1992 and as Corporate Secretary of 
the Company since June, 1995.  From 1985 to 1992, Mr. Catron was Senior Vice 
President, Assistant General Counsel for Paramount Pictures Corporation.  Prior 
to 1985, Mr. Catron served in various executive capacities at Ages Entertainment
Software, Inc. (formerly Sega Enterprises, Inc.) and Mattel, Inc. 


      Ronald D. Hirschfeld has served as Executive Vice President, International
Sales and Marketing, of the Company since February 1994. From 1989 to 1994, Mr. 
Hirschfeld served as Senior Vice President, International Sales and Marketing.
Mr. Hirschfeld served as Senior Vice President, International Operations
from 1987 to 1989 and has held various positions with the Company since 1978.

      Roger J. Kowalsky has served as Executive Vice President of the Company
since June, 1996 and Chief Financial Officer of the Company from June, 1996 to
December, 1997, and as a Director of the Company since June, 1994.  From 1989
to 1996, Mr. Kowalsky served as Director of  the Vermont Studio Center.  From
1983 to 1986, Mr. Kowalsky served as Senior Vice President, Finance &
Administration for Yale Materials Handling Corporation.  From 1969 to 1982, Mr.
Kowalsky worked at Pullman Inc., rising to Executive Vice President, Finance
and Administration and President of Pullman Trailmobile, a subsidiary of
Pullman, Inc.   

      Gary J. Niles has served as Executive Vice President, Marketing and 
Product Acquisition of the Company since February, 1992. From 1989 to 1992, Mr. 
Niles served as Senior Vice President, Toy Boys Division.  Before joining the 
Company, Mr. Niles was an executive with U.A.C., Ltd., a division of Universal 
Matchbox; Revell Incorporated; and Ages Entertainment Software, Inc. (formerly 
Sega Enterprises, Inc.) 

      Louis R. Novak has served as Executive Vice President and Chief Operating 
Officer of the Company since February, 1992.  From 1989 to 1992, Mr. Novak
served as Senior Vice President, Operations.  From 1986 to 1989 he was Senior
Vice President, Worldwide Product Operations, for Coleco Industries, Inc.  Prior
to 1986, Mr. Novak was an executive with All American Gourmet Company, Inc., 
a manufacturer of frozen food products, and for Mattel, Inc. 

      Craig Louisana has served as Senior Vice President, Sales of the Company
since November, 1997.   From 1995 to 1997, Mr. Louisana served as Director of
Field Sales for the Company and as Senior Account Executive from 1993 to 1995.
Prior to joining the Company, Mr. Louisana held various sales positions with
Mattel, Inc. and Kenner Toys.

      Kathleen R. McElwee has served as Senior Vice President and Chief
Financial Officer of the Company since January, 1998.  From 1995 to December,
1997, Ms. McElwee was Vice President of Corporate Financial Planning, Analysis
and Reporting.  From 1993 to 1995, Ms. McElwee held various positions with
Nissan Motor Corporation.  From 1990 to 1993, Ms. McElwee was with Canteen
Corporation, a subsidiary of the Flagstar Cos., and served as Chief Financial
Officer in 1993.  

      Ronnie Soong has served as Managing Director of Galco since May, 1995.
From 1993 to 1995, Mr. Soong served as General Manager of Galco.  From 1989 to
1993,  Mr. Soong was General Manager of Zindart Industrial Co., Ltd. Prior to
1989, Mr. Soong was the General Manager of Buddy L (HK) Ltd. and an executive
with the Ertl Company in Taiwan from 1987 to 1989. 

Item 11. Executive Compensation 

         The section entitled "Executive Compensation" contained in the Proxy 
Statement is hereby incorporated by reference. 







Item 12. Security Ownership of Certain Beneficial Owners and Management 

         The section entitled "Security Ownership of Management" contained in 
the Proxy Statement is hereby incorporated by reference. 

Item 13. Certain Relationships and Related Transactions 

         The section entitled "Executive Compensation" contained in the Proxy 
Statement is hereby incorporated by reference. 


<PAGE>















































                                     PART IV 

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 

         Index to Financial Statements 

         The following consolidated financial statements and schedules of the
Company and its subsidiaries are included as Part II, Item 8 of this Report: 

      (a) 1. Financial Statements                                        Page

             Report of Independent Accountants                            F-1

             Consolidated Financial Statements: 

             Consolidated Balance Sheets - December 31, 1997 and 
             December 31, 1996                                            F-2

             Consolidated Statements of Operations for the years 
             ended December 31, 1997, 1996 and 1995                       F-3

             Consolidated Statements of Changes in Shareholders' 
             Equity for the years ended December 31, 1997, 
             1996 and 1995                                                F-4

             Consolidated Statements of Cash Flows for the years
             ended December 31, 1997, 1996 and 1995                       F-5 to
                                                                          F-6

             Notes to Consolidated Financial Statements                   F-7 to
                                                                          F-23
      (a) 2. Financial Statement Schedules 

             Schedule II - Valuation and Qualifying Accounts and 
             Reserves for the years ended December 31, 1997, 1996 
             and 1995                                                     S-1


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

      (a) 3. Exhibits 


Exhibit No.                     Description 
------------                     -----------

3.1(a)(1)      Certificate of Incorporation. 

3.1(b)(1)      Amendment to Certificate of Incorporation. 

3.2(2)         Bylaws. 

4.1(3)         Form of Certificate for Shares of Common Stock of Company. 

4.2(a)(4)      Warrant Agreement, dated as of December 11, 1991, by and between 
               the Company and Shereff, Friedman, Hoffman and Goodman, LLP. 

4.2(b)(4)      Warrant Agreement, dated as of November 17, 1993, by and between 
               the Company and Gerard Klauer Mattison & Co., Inc. 

4.3(5)         Form of Rights Agreement, dated as of January 17, 1990, 
               between the Company and Mellon Securities Trust Company. 

4.4(a)(18)     Warrant, dated as of October 14, 1997, between Lucasfilm Ltd.
               and Galoob Toys, Inc.

4.4(b)(18)     Warrant, dated as of October 14, 1997, between Lucas Licensing
               Ltd. and Galoob Toys, Inc.

4.4(c)(18)+    Agreement of Strategic Relationship, dated as of October 14,
               1997, between Lucasfilm Ltd., a California corporation, and
               Galoob Toys, Inc.

10.1(a)(6)*    Amended and Restated 1984 Employee Stock Option Plan. 

10.1(b)(7)*    1994 Senior Management Stock Option Plan. 

10.1(c)(8)*    Form of Agreement between each of Mark Goldman, William Catron, 
               Lou Novak, Gary Niles, Ronald Hirschfeld and the Company. 

10.1(d)(9)*    Form of Amendment No. 1 between each of Mark Goldman, William 
               Catron, Lou Novak, Gary Niles, Ronald Hirschfeld and the Company.

10.1(e)(10)    1995 Non-Employee Directors' Stock Option Plan. 

10.1(f)(15)*   Galoob Toys, Inc. 1996 Long Term Compensation Plan 

10.1(g)(15)*   Galoob Toys, Inc. 1996 Share Incentive Plan 

10.1(h)(16)*   Galoob Toys, Inc. Officers Deferred Compensation Plan

10.3*          Severance and Change in Control Agreement dated November 17, 1997
               between Mark D. Goldman and the Company

10.4(a)(16)*   Agreement, dated January 1, 1997, between William G. Catron and 
               the Company. 

10.4(b)(16)*   Agreement, dated January 1, 1997, between Ronald Hirschfeld and 
               the Company. 

10.4(c)(16)*   Agreement, dated January 1, 1997, between Roger J. Kowalsky and
               the Company.

10.4(d)(16)*   Agreement, dated January 1, 1997, between Gary J. Niles and the 
               Company. 

10.4(e)(16)*   Agreement, dated January 1, 1997, between Louis R. Novak and the 
               Company. 

10.5(e)(9)     Amended and Restated Loan and Security Agreement, dated as of 
               March 31, 1995, by and among the Company and Congress Financial 
               Corporation (Central). 

10.6(a)(12)    License Agreement, dated June 16, 1986, by and between Funmaker, 
               as Licensor and the Company, as Licensee. 

10.7(a)(13)    License Agreement, dated May 4, 1990, by and among the Company as
               Licensee, Codemasters Software Company, Ltd. and America 
               Corporation, Limited. 

10.7(b)(13)    Amendment No. 1 dated June 1991 to License Agreement dated May 4,
               1990. 

10.7(c)(13)    Amendment No. 2 dated December 23, 1991 to License Agreement, 
               dated May 4, 1990. 

10.7(d)(13)    European License Agreement, dated December 23, 1991, by and 
               between Codemasters Software Company, Ltd. and the Company. 

10.7(e)(13)    Third Amendment to United States License and First Amendment to 
               European License, dated November 4, 1992. 

10.7(f)(9)     Fourth Amendment to United States License Agreement, dated 
               October 14, 1994. 

10.8(12)       Agreement of Purchase and Sale, dated October 22, 1986, by and 
               between AT Building Company, as Seller, and the Company, as 
               Buyer. 

10.9(a)(2)     Lease Agreement, dated March 12, 1987, by and between Lincoln 
               Alvarado and Patrician Associates, Inc., as Lessor, and the 
               Company, as Lessee. 

10.9(b)(14)    Amendment No. 1 to Lease Agreement. 

10.9(c)(10)    Lease Agreement, dated December 1, 1995, by and between 200 Fifth
               Avenue Associates, as Lessor, and the Company, as Lessee. 

10.9(d)(15)    Lease Agreement, dated December 3, 1996, between Prudential 
               Insurance Company of America as Lessor and the Company, as 
               Lessee. 

10.10(17)      Settlement and Release Agreement, dated June 2, 1997.

10.11(18)      Toy License Agreement, dated as of October 14, 1997, between
               Lucas Licensing Ltd. and Galoob Toys, Inc. 

10.11(c)       Trademark License Agreement, dated as of October 14, 1997,
               between Lucas Licensing, Ltd. and Galoob Toys, Inc.

10.12          Amendment No. 4 to Amended and Restated Loan and Security 
               Agreement, dated December 17, 1997, by and among the Company and
               Congress Financial Corporation (Central)

21             Subsidiaries of the Company. 

23.1           Consent of Independent Public Accountants. 

27             Financial Data Schedule 
---------------------
 (1)     Incorporated by reference to the Company's Amendment No. 2 to the 
         Registration Statement on Form S-1, filed with the Commission on 
         November 8, 1996. 

 (2)     Incorporated by reference to the Company's Amendment No. 1 to 
         Registration Statement on Form 8-B, filed with the Securities and 
         Exchange Commission (the "Commission") on January 11, 1988. 

 (3)     Incorporated by reference to the Company's Registration Statement on 
         Form S-3, filed with the Commission on February 26, 1990. 

 (4)     Incorporated by reference to the Company's Form 10-K for the fiscal 
         year ended December 31, 1993, filed with the Commission on March 31, 
         1994. 

 (5)     Incorporated by reference to the Company's Registration Statement on 
         Form 8-A, filed with the Commission on January 23, 1990. 

 (6)     Incorporated by reference to the Company's Registration Statement on 
         Form S-8, Registration No. 33-56585, filed with the Commission on 
         November 23, 1994. 

 (7)     Incorporated by reference to the Company's Registration Statement on 
         Form S-8, Registration No. 33-56587, filed with the Commission on 
         November 23, 1994. 

 (8)     Incorporated by reference to the Company's Registration Statement on 
         Form S-8, Registration No. 33-56589, filed with the Commission on 
         November 23, 1994. 

 (9)     Incorporated by reference to the Company's Form 10-K for the fiscal 
         year ended December 31, 1994, filed with the Commission on March 31, 
         1995. 

(10)     Incorporated by reference to the Company's Form 10-K for the fiscal 
         year ended December 31, 1995, filed with the Commission on March 11,
         1996. 

(11)     Incorporated by reference to the Company's Registration Statement on 
         Form S-1, Registration No. 33-00743, filed with the Commission on 
         February 6, 1996. 

(12)     Incorporated by reference to the Company's Form 10-K for the fiscal 
         year ended December 31, 1986, filed with the Commission on March 31, 
         1987. 

(13)     Incorporated by reference to the Company's Form 10-K for the fiscal 
         year ended December 31, 1992, filed with the Commission on March 31, 
         1993. 

(14)     Incorporated by reference to the Company's Form 10-K for the fiscal 
         year ended December 31, 1991, filed with the Commission on March 30, 
         1992. 

(15)     Incorporated by reference to the Company's Form 10-K for the fiscal 
         year ended December 31, 1996, filed with the Commission on March 31,
         1997. 

(16)     Incorporated by reference to the Company's Form 10-K/A for the fiscal
         year ended December 1996, filed with the Commission on April 30, 1997.

(17)     Incorporated by reference to the Company's Form 10-Q for the six months
         ended June 30, 1997, filed with the Commission on August 6, 1997.

(18)     Incorporated by reference to the Company's Form 10-Q for the nine 
         months ended September 30, 1997, filed with the Commission on November
         14, 1997.  

* Indicates exhibits relating to executive compensation.

+ Portions of this agreement have been omitted pursuant to a request for 
confidential treatment under Rule 24b-2 of the Securities Exchange Act of 
1934, as amended.

<PAGE>
















































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.


                                         GALOOB TOYS, INC.
                                         (Registrant)

                                         By:  /s/ Mark D. Goldman
                                              --------------------------
                                              Mark D. Goldman
                                              President, Chief Executive
                                              Officer
Dated:
March 26, 1998

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

       Signature                          Title                       Date
------------------------ --------------------------------------- --------------
/s/ Mark D. Goldman      President, Chief Executive Officer and  March 26, 1998
-----------------------  Director
Mark D. Goldman

/s/ Scott R. Heldfond    Director                                March 26, 1998
-----------------------
Scott R. Heldfond

/s/ S. Lee Kling         Director                                March 26, 1998
-----------------------
S. Lee Kling

/s/ Andrew Cavanaugh     Director                                March 26, 1998
-----------------------
Andrew Cavanaugh

/s/ Roger J. Kowalsky    Executive Vice President and Director   March 26, 1998
----------------------- 
Roger Kowalsky

/s/ Kathleen R. McElwee  Senior Vice President and               March 26, 1998
-----------------------  Chief Financial Officer
Kathleen R. McElwee

<PAGE>









                        REPORT OF INDEPENDENT ACCOUNTANTS 

To the Board of Directors and Shareholders of Galoob Toys, Inc. 

In our opinion, the consolidated financial statements listed in the index 
appearing under Item 14(a)(1) and (2) on page 25 present fairly, in all material
respects, the financial position of Galoob Toys, Inc. and its subsidiaries at 
December 31, 1997 and 1996, and the results of their operations and their cash 
flows for each of the three years in the period ended December 31, 1997, in 
conformity with generally accepted accounting principles. These financial 
statements are the responsibility of the Company's management; our 
responsibility is to express an opinion on these financial statements based on 
our audits. We conducted our audits of these statements in accordance with 
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are 
free of material misstatement. An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements, 
assessing the accounting principles used and significant estimates made by 
management, and evaluating the overall financial statement presentation. We 
believe that our audits provide a reasonable basis for the opinion expressed 
above. 


PRICE WATERHOUSE LLP 

San Francisco, California 
January 31, 1998 

<PAGE>



























<PAGE>                             F-1


                       GALOOB TOYS, INC. AND SUBSIDIARIES 
                           CONSOLIDATED BALANCE SHEETS 
              (in thousands, except shares and per share data) 
<TABLE> 
<CAPTION> 
                                                                 December 31,
                                                            ---------------------
                                                               1997       1996
                                                            ---------- ----------
<S>                                                         <C>        <C>
ASSETS 
Current Assets: 
   Cash and cash equivalents                                   $3,359    $27,920
   Accounts receivable, net                                    73,810    102,322
   Inventories                                                 24,707     19,974
   Tooling and related costs                                   12,434     15,436
   Prepaid expenses and other assets                            9,900     12,361
   Deferred income taxes                                          --       2,404
                                                            ---------- ----------
            Total Current Assets                              124,210    180,417
Land, Building and Equipment, net                              10,451     10,013
Indebtedness from Related Party                                   950        950
Other Assets                                                   10,276      5,525
License Rights                                                 43,250        --
Deferred income taxes                                          18,646        --
                                                            ---------- ----------
            Total Assets                                     $207,783   $196,905
                                                            ========== ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
   Accounts payable                                           $19,156    $19,655
   Accrued expenses                                            21,520     24,680
   Income taxes payable                                           734      1,671
   Other current liabilities                                      --          17
                                                            ---------- ----------
            Total Current Liabilities                          41,410     46,023
Other liabilities                                               4,343         20
Deferred income taxes                                             --       1,071
                                                            ---------- ----------
            Total Liabilities                                  45,753     47,114
                                                            ---------- ----------
Shareholders' Equity:
   Preferred stock 
         Authorized 1,000,000 shares                              --         --
   Common stock, par value $.01 per share
         Authorized 50,000,000 shares
         Issued and outstanding 18,108,864 shares in
             1997 and 17,919,864 shares in 1996                   181        179
         Warrants                                              40,350        --
         Additional paid-in capital                           171,745    170,291
         Retained earnings (deficit)                          (49,682)   (20,232)
         Cumulative translation adjustment                       (564)      (447)
                                                            ---------- ----------
            Total Shareholders' Equity                        162,030    149,791
                                                            ---------- ----------
            Total Liabilities and Shareholders' Equity       $207,783   $196,905
                                                            ========== ==========
</TABLE> 
         The accompanying notes are an integral part of these
                   Consolidated Financial Statements. 


<PAGE>
                                   F-2
                       GALOOB TOYS, INC. AND SUBSIDIARIES 
                      CONSOLIDATED STATEMENTS OF OPERATIONS 
                    (in thousands, except per share amounts) 
<TABLE> 
<CAPTION> 
                                                 Years Ended December 31,
                                            --------------------------------
                                               1997       1996       1995
                                            ---------- ---------- ----------
<S>                                         <C>        <C>        <C>
Net revenues                                 $239,551   $284,905   $220,044
Costs of products sold                        143,156    144,282    121,742
                                            ---------- ---------- ----------
Gross margin                                   96,395    140,623     98,302
                                            ---------- ---------- ----------
Operating expenses:
   Advertising and promotion                   49,280     43,515     31,240
   Other selling and administrative            33,872     35,776     29,860
   Royalties, research and development         35,101     37,668     24,213
                                            ---------- ---------- ----------
Total operating expenses                      118,253    116,959     85,313
                                            ---------- ---------- ----------
Earnings (loss) from operations               (21,858)    23,664     12,989
Micro Machines license rights and
     litigation settlement                    (22,949)        --         --
Interest expense                                 (602)    (3,183)    (3,429)
Other income (expense), net                    (2,095)       455        439
                                            ---------- ---------- ----------
Earnings (loss) before income taxes           (47,504)    20,936      9,999
Provision for (benefit from) income taxes     (18,054)     2,485        600
                                            ---------- ---------- ----------
Net earnings (loss)                           (29,450)    18,451      9,399
Preferred stock dividends:
     Paid                                          --          6         --
     In arrears                                    --         15      3,127
Charge related to the exchange of
     preferred stock for common                    --     24,279         --
                                            ---------- ---------- ----------
Net earnings (loss) applicable to
  common shareholders                        ($29,450)   ($5,849)    $6,272
                                            ========== ========== ==========
Net earnings (loss) per common share:
     Basic                                     ($1.63)    ($0.41)     $0.62
     Diluted                                   ($1.63)    ($0.41)     $0.60

Common shares outstanding                      18,040     14,289     10,071
Common shares assuming dilution                18,040     14,289     10,451
</TABLE> 
         The accompanying notes are an integral part of these
                   Consolidated Financial Statements. 


<PAGE> 





                                   F-3
                       GALOOB TOYS, INC. AND SUBSIDIARIES 
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY 
                          (in thousands, except shares) 
<TABLE> 
<CAPTION> 
                              Preferred Stock          Common Stock                 Additional Retained    Cumulative
                           --------------------   --------------------               Paid-In   Earnings   Translation
                            Shares     Amounts     Shares      Amounts   Warrants    Capital   (Deficit)   Adjustment     Total
                           ---------  ---------  -----------  ---------  ---------  ---------  ---------  ------------  ---------
<S>                        <C>        <C>        <C>          <C>        <C>        <C>        <C>        <C>           <C>
Balance at 12/31/94         183,950    $36,790   10,055,089       $101     $  --     $31,506   ($23,182)        ($447)   $44,768

Net earnings                    --         --          --          --         --         --       9,399           --       9,399
Common stock issued, net        --         --        58,751        --         --         228        --            --         228
Common stock received in
  exchange for shares
  issued and canceled           --         --       (11,202)       --         --        (155)       (68)          --        (223)
Reclamation of shares           --         --       (12,677)       --         --         --         --            --         --
                           ---------  ---------  -----------  ---------  ---------  ---------  ---------  ------------  ---------
Balance at 12/31/95         183,950     36,790   10,089,961        101        --      31,579    (13,851)         (447)    54,172

Net earnings                    --         --          --          --         --         --      18,451           --      18,451
Common stock issued, net        --         --     2,492,679         24        --      62,334        --            --      62,358
Conversion of preferred
  stock to common stock    (182,290)   (36,458)   3,359,432         34        --      60,703    (24,279)          --         --
Redemption of preferred
  stock                      (1,660)      (332)        --          --         --         (11)      (118)          --        (461)
Conversion of debentures
  to common stock               --         --     1,511,872         15        --      13,479        --            --      13,494
Costs associated with
  preferred stock exchange 
  and debenture conversion      --         --          --          --         --      (1,282)       --            --      (1,282)
Warrants exercised              --         --       490,280          5        --       2,515        --            --       2,520
Common stock received in
  exchange for shares
  issued and canceled           --         --       (24,360)       --         --         (76)      (435)          --        (511)
Tax benefits from stock
  plans                         --         --          --          --         --       1,050        --            --       1,050
                           ---------  ---------  -----------  ---------  ---------  ---------  ---------  ------------  ---------
Balance at 12/31/96             --         --    17,919,864        179        --     170,291    (20,232)         (447)   149,791
Net earnings (loss)             --         --          --          --         --         --     (29,450)          --     (29,450)
Common stock issued, net        --         --       114,000          1        --         666        --            --         667
Warrants issued                 --         --          --          --      40,350        --         --            --      40,350
Warrants exercised              --         --        75,000          1        --         711        --            --         712
Cumulative translation
  adjustment and other          --         --          --          --         --          77        --           (117)       (40)
                           ---------  ---------  -----------  ---------  ---------  ---------  ---------  ------------  ---------
Balance at 12/31/97              0      $   0    18,108,864       $181    $40,350   $171,745   ($49,682)        ($564)  $162,030
                           =========  =========  ===========  =========  =========  =========  =========  ============  =========
</TABLE> 
         The accompanying notes are an integral part of these
                   Consolidated Financial Statements. 



<PAGE> 


                                   F-4
                       GALOOB TOYS, INC. AND SUBSIDIARIES 
                      CONSOLIDATED STATEMENTS OF CASH FLOWS 
                          (in thousands, except shares) 
<TABLE> 
<CAPTION> 
                                                                 Years Ended December 31,
                                                            -----------------------------
                                                              1997      1996      1995
                                                            --------- --------- ---------
<S>                                                         <C>       <C>       <C>
CASH FLOW FROM OPERATING ACTIVITIES: 
    Net earnings                                            ($29,450)  $18,451    $9,399
    Adjustments to reconcile net earnings to net
      cash used in operating activities:
       Depreciation and amortization                           1,045       751       528
       Changes in assets and liabilities:
          Accounts receivable                                 28,512   (33,920)  (10,519)
          Inventories                                         (4,733)   (2,483)     (667)
          Tooling and related costs                            3,002    (7,125)       68
          Prepaid expenses and other current assets            2,461    (2,013)   (4,856)
          Other assets                                        (7,780)   (2,260)   (3,026)
          Deferred taxes                                     (17,313)   (1,333)       --
          Accounts payable                                      (499)    2,514     2,168
          Accrued expenses and other liabilities               1,146    10,460      (392)
          Income taxes payable                                  (937)    1,990       232
                                                            --------- --------- ---------

       Net cash used in operating activities                 (24,546)  (14,968)   (7,065)
                                                            --------- --------- ---------
CASH FLOW FROM INVESTING ACTIVITIES:
    Investment in land, building and equipment, net           (1,354)   (2,310)   (1,041)
                                                            --------- --------- ---------

       Net cash used in investing activities                  (1,354)   (2,310)   (1,041)
                                                            --------- --------- ---------
CASH FLOW FROM FINANCING ACTIVITIES:
    Net borrowings (repayments) under notes payable            --      (15,071)    8,100
    Repayments under long-term debt agreements                 --       (4,385)     (194)
    Proceeds from issuance of common stock, net                1,379    64,367         5
    Redemption of preferred stock                              --         (461)       --
    Cost associated with the conversion of debenture
     and the preferred shares exchange                         --       (1,282)       --
    Other, net                                                   (40)       --        --
                                                            --------- --------- ---------

       Net cash provided by financing activities               1,339    43,168     7,911
                                                            --------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS             (24,561)   25,890      (195)

CASH AND CASH EQUIVALENTS AT  BEGINNING OF YEAR               27,920     2,030     2,225
                                                            --------- --------- ---------

CASH AND CASH EQUIVALENTS AT END OF YEAR                      $3,359   $27,920    $2,030
                                                            ========= ========= =========

Supplemental disclosure of cash flow information:
    Cash paid for interest                                     $970    $3,231    $3,050
    Cash paid for income taxes                                 $950    $1,747      $390
</TABLE> 
<PAGE> 
                                   F-5



SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY  During the year ended
December 31, 1996, $14,000 of the Company's 8% convertible subordinated
debentures were converted into 1,511,872 shares of its common stock.
Deferred loan costs and accrued interest amounting to approximately $505,
net, were charged against additional paid-in capital. (See Note E.)

During the year ended December 31, 1996, 1,822,899 depositary shares of the
Company's preferred stock were exchanged for 3,359,432 shares of its common
stock. (See Note M.)

During the year ended December 31, 1997, the Company issued 3,594,105
warrants with a value of $40,350, in connection with the license agreement
with Lucas Licensing Ltd. 

         The accompanying notes are an integral part of these
                   Consolidated Financial Statements. 









































<PAGE> 
                                   F-6
NOTE A - Summary of Significant Accounting Policies

Organization and Business

Galoob Toys, Inc. and subsidiaries ("the Company") has been engaged in
business since 1957 and was originally incorporated in California on November
6, 1968 and reincorporated in Delaware on August 28, 1987.  The Company is
engaged in the design, development, marketing and distribution of high quality
toys worldwide.  The Company's products are primarily manufactured in the
People's Republic of China ("China").

Consolidation

The consolidated financial statements include the accounts of the Company and
its subsidiaries, principally Galco International Toys, Ltd. (formerly known as
Galco International Toys, N.V.) ("Galco") and Galoob Direct, Inc.  All
significant intercompany accounts have been eliminated in consolidation. 
Certain amounts in the financial statements of prior years have been
reclassified to conform with the current year's presentation.

Revenue Recognition

The Company records a transaction as a sale when inventory is shipped to the
customer and title passes.  The Company provides for returns and allowances
using a percentage of gross sales, based on historical experience.

Foreign Currency Translation

The financial statements of Galco have been translated into U.S. dollars in
accordance with Statement of  Financial Accounting Standards ("SFAS") No. 52,
Foreign Currency Translation.  All asset and liability accounts have been
translated using rates of exchange in effect at the balance sheet date. 
Revenues and expenses are translated at the weighted average of exchange rates
in effect during the year.  Gains or losses from foreign currency translation
adjustments are charged or credited directly to a separate component of
shareholders' equity.

Use of Estimates

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

Cash and Cash Equivalents

Cash equivalents consist primarily of money market funds invested in U.S.
Government securities and other high quality U.S. money market securities.





<PAGE> 


                                   F-7
Concentration of Credit Risk

Accounts receivable primarily represent balances due from customers.  The
Company performs credit evaluations of each of its customers and maintains
allowances for potential credit losses believed by management to be adequate. 
Credit losses have generally been within management's expectations.

Inventories

Inventories are stated at lower of cost (first-in, first-out) or market.

Tooling and Related Costs

Costs incurred for tooling and package design are deferred and amortized over
the life of the products, which range from one to two years.

Prepaid Expenses

Prepaid expenses include costs such as those incurred in the creation of
television commercials which are deferred and expensed in the year first aired.
Prepaid expenses also include prepaid insurance, prepaid samples, prepaid
advertising media, and royalty advances.

Land, Building and Equipment

Land, building and equipment are stated at cost.  Depreciation is provided
using the straight-line method over the estimated useful lives of the
respective assets.  Amortization of leasehold improvements is provided using
the straight-line method over the estimated useful lives of the assets, or the
term of the applicable lease, whichever is less.  Estimated useful lives are 35
years for building and building improvements, 1 to 12 years for leasehold
improvements, 5 years for office furniture, fixtures and equipment (including
computer equipment), and 3 to 6 years for vehicles.

License Rights

License rights are deferred and amortized over the lesser of the estimated 
life of the products or contractual term, which range from 5 to 12 years.
Amortization is based upon future sales of the applicable products.

Research and Development

Research and development costs is expensed as it is incurred.  Total
expenses for the years ended December 31, 1997, 1996 and 1995 were $9,425,000,
$10,210,000 and $7,886,000, respectively.

Income Taxes

The Company accounts for income taxes in accordance with SFAS 109, "Accounting
for Income Taxes".  SFAS 109 prescribes an asset and liability approach that
requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns.  In estimating future tax
consequences, SFAS 109 generally considers all expected future events other
than enactments of changes in the tax law or rates. 
<PAGE> 


                                   F-8
Earnings Per Share

In December 1997, the Company adopted Statement of Financial Accounting
Standards No. 128 ("SFAS 128"), "Earnings per Share".  SFAS 128 redefines
earnings per share under generally accepted accounting principles.  Under the
new standard, primary net income per share is replaced by basic net income per
share and fully diluted net income per share is replaced by diluted net income
per share.  All historical earnings per share information has been restated as
required by SFAS 128.  Basic net income (loss) per share is computed using the
weighted average number of common shares outstanding during the periods
presented.  Diluted net income (loss) per share is computed using the weighted
average number of common and common equivalent shares outstanding during the
periods presented.  Stock options and warrants were dilutive in 1995.  Diluted
earnings per share for the years ended December 31, 1996 and 1997 was the same
as basic earnings per share since the effects of any potential dilution was
anti-dilutive.

The following is a reconciliation between the components of the basic and
diluted net income (loss) per share calculations (in thousands except per share
amounts):
<TABLE> 
<CAPTION> 
                                                                    Year Ended December 31,
                                        ----------------------------------------------------------------------------------
                                                   1997                       1996                       1995
                                        ---------------------------- -------------------------- --------------------------
                                                              Per                         Per                        Per
                                                             Share                       Share                      Share
                                          Loss     Shares    Amount    Loss    Shares   Amount   Income   Shares   Amount
                                        --------- --------- -------- -------- --------- ------- -------- --------- -------
<S>                                     <C>       <C>       <C>      <C>      <C>       <C>     <C>      <C>       <C>
Basic Earnings (Loss) Per Share:
Net earnings (loss) applicable to       
common shareholders                       ($29,450)   18,040   ($1.63) ($5,849)  $14,289  ($0.41)  $6,272   $10,071   $0.62

Effect of Delusive Securities:
   Options                                   --        --        --       --       --        --      --       380

Diluted Earnings (Loss) Per Share:
Net earnings (loss) applicable 
to common shareholders plus
assumed conversions and exercises        ($29,450)  $18,040   ($1.63) ($5,849)  $14,289  ($0.41)  $6,272   $10,451   $0.60
</TABLE> 

Recent Accounting Pronouncements

The FASB has recently issued two new standards, SFAS No. 130, Reporting
Comprehensive Income, and SFAS No. 131, Disclosures and Segments of an
Enterprise and Related Information.  SFAS No. 130 establishes standards for
reporting comprehensive income and its components in a financial statement and
display of the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital.  The Company does not
expect the implementation of SFAS No. 130 to have a significant impact on the



<PAGE> 
                                   F-9
financial statements.  SFAS No. 131 establishes standards for the reporting of
selected information about operating segments in annual financial statements
and interim financial reports issued to shareholders and the related
disclosures about products and services, geographic areas and major customers. 
The Company is in the process of determining the impact of SFAS No. 131 on the
financial statements.  The Company will adopt SFAS No. 130 and SFAS No. 131 in
the year ending December 31, 1998.

NOTE B - Accounts Receivable, Net (in thousands):
                                            December 31, 
                                        -------------------
                                          1997      1996
                                        --------- ---------
Trade receivables                        $85,894  $111,049
Provisions for:
   Advertising allowances                (10,096)   (7,514)
   Return of defective goods                (300)     (700)
   Markdowns and discounts                (2,323)   (1,086)
   Doubtful accounts                        (470)     (597)
                                        --------- ---------
        Net trade receivables             72,705   101,152
Other receivables                          1,105     1,170
                                        --------- ---------
                                         $73,810  $102,322
                                        ========= =========

NOTE C - Inventories (in thousands):
                                            December 31, 
                                        -------------------
                                          1997      1996
                                        --------- ---------
Finished goods                           $24,291   $19,667
Raw materials and parts                      416       307
                                        --------- ---------
                                         $24,707   $19,974
                                        ========= =========

NOTE D - Land, Building and Equipment, Net (in thousands):
                                            December 31, 
                                        -------------------
                                          1997      1996
                                        --------- ---------

Land and building                         $9,861    $9,851
Office furniture, fixtures and
    equipment                              6,123     5,081
Leasehold improvements                     1,108     1,026
Vehicles                                     103       133
                                        --------- ---------
                                          17,195    16,091
Accumulated depreciation                  (6,744)   (6,078)
                                        --------- ---------
                                         $10,451   $10,013
                                        ========= =========

<PAGE>


                                  F-10
NOTE E - Credit Facilities

In 1995, the Company entered into an amended and restated loan and security
agreement (the "Loan Agreement") with Congress Financial Corporation (Central)
(the "Lender").  On December 19, 1997, the loan agreement was amended,
increasing the credit limit to $75 million and extending the term of the loan
agreement until December 2000.  Borrowing availability is determined by a
formula based on both accounts receivable and inventories.  The current
interest rate is equal to prime with a LIBOR option.  The Company also agreed
to pay an unused line fee of 0.25% and certain management fees.  In
consideration of this amendment, the Company paid loan fees of $750,000.
The loan fee is included in other assets and is being amortized straight line
over the term of the loan.  The Company was in compliance with all debt
covenants at December 31, 1997.

No amounts were outstanding on the line of credit at December 31, 1997 and 1996.
The maximum outstanding borrowings, average outstanding balances and weighted 
average rates of interest for the line of credit were as follows (in thousands):

<TABLE> 
<CAPTION> 
                                                    1997      1996
                                                  --------- ---------
<S>                                               <C>       <C>
Maximum outstanding at month end                    $9,958   $43,202
Average outstanding amount                           1,765    23,969
Weighted average interest rate for the year            9.5%      9.6%

On November 17, 1993, the Company issued in a private placement $14 million in 
principal amount of 8% Convertible Subordinated Debentures (the "8% 
Debentures"), at par, with interest paid semi-annually.  In connection with the 
8% Debentures, the Company paid a commission to its investment bankers of 
$560,000 and issued warrants for 150,000 shares, which were valued at $525,000 
and recorded as additional paid-in capital. 

In February 1996, the Company issued a call for the redemption of its 8% 
Debentures.  This call resulted in the conversion on March 15, 1996, of all 
$14 million 8% Debentures at $9.26 per share and the issuance of 1,511,872 new 
shares of common stock. Unamortized debt issuance costs of $833,000 were charged
against additional paid-in-capital on conversion of the 8% Debentures. 















<PAGE>


                                  F-11
NOTE F - Income Taxes 

Earnings (loss) before income taxes and the provision for (benefit from)
income taxes are as follows (in thousands):


</TABLE>
<TABLE> 
<CAPTION> 
                                             Years Ended December 31,
                                        -----------------------------
                                          1997      1996      1995
                                        --------- --------- ---------
<S>                                     <C>       <C>       <C>
Earnings (loss) before income taxes:
     Domestic                           ($48,046)  $20,396    $9,288
     Foreign                                 542       540       711
                                        --------- --------- ---------
                                        ($47,504)  $20,936    $9,999
                                        ========= ========= =========



Provision for (benefit from) income taxes:

Current:
    Federal                                ($733)   $2,078      $187
    State                                    (72)    1,689       278
    Foreign                                   64        51       135
                                        --------- --------- ---------
                                            (741)    3,818       600
Deferred:
    Federal                              (15,452)   (1,159)       --
    State                                 (1,861)     (174)       --
                                        --------- --------- ---------
                                        ($18,054)   $2,485      $600
                                        ========= ========= =========
</TABLE> 



















<PAGE>


                                  F-12
Deferred tax liabilities (assets) consist of the following (in thousands): 

<TABLE> 
<CAPTION> 
                                                 December 31,
                                        -----------------------------
                                          1997      1996      1995
                                        --------- --------- ---------
<S>                                     <C>       <C>       <C>
Prepaid expenses                          $2,596    $2,321    $2,475
Other temporary differences                2,067     1,024       766
                                        --------- --------- ---------
Gross deferred tax liabilities             4,663     3,345     3,241
                                        --------- --------- ---------

Accrued expenses                          (6,185)   (1,232)     (613)
Other temporary differences               (4,156)   (3,446)   (4,516)

Net operating loss carryforwards         (12,968)      --     (2,567)
Research and development tax credit
  carryforward                             --         --        (765)
                                        --------- --------- ---------
Gross deferred tax assets                (23,309)   (4,678)   (8,461)
                                        --------- --------- ---------
Deferred tax assets valuation allowance      --        --      5,220
                                        --------- --------- ---------
                                        ($18,646)  ($1,333)  $    --
                                        ========= ========= =========

</TABLE> 

No deferred tax valuation allowance was required at December 31, 1997 since
the net deferred tax assets are considered realizable.  Valuation allowances
were provided in 1995 when realization was uncertain.  The net change in the 
valuation allowance for deferred tax assets was a decrease of $5,220,000,
and $2,459,000 in 1996 and 1995, respectively.  At December 31, 1997, the     
Company had federal and state operating loss carryforwards of $12,968,000
which expire in different years through the year 2013.

















<PAGE>


                                  F-13
The provision for (benefit from) income taxes differs from the provisions
determined by applying the applicable U.S. statutory federal income tax
rates to pretax earnings (loss) as a result of the following differences: 

<TABLE> 
<CAPTION> 
                                             Years Ended December 31,
                                        -----------------------------
                                          1997      1996      1995
                                        --------- --------- ---------
<S>                                     <C>       <C>       <C>
Federal income taxes
  at the U.S. statutory rate              (35.0%)     35.0%    35.0%

Increase (decrease) in income taxes
resulting from:
  Effects of U.S. and foreign income
  taxes on foreign operations                --        0.2     (1.1)

  State income taxes, net of loss
  carryforwards, less federal tax
  benefits                                 (2.7%)      5.1      2.8

  Benefit of reversing temporary
  differences for which benefits were
  not previously recorded                    --        --     (20.9)

  Loss carryback/carryforward utilized       --      (15.0)   (13.8)

  Tax credits/carryforward utilized          --      (16.4)      --

  Other                                    (0.3)       3.0      4.0
                                        --------- --------- ---------

                                          (38.0%)     11.9%     6.0%
                                        ========= ========= =========
</TABLE> 

No domestic deferred taxes have been provided on unremitted earnings of the 
foreign subsidiary. All such earnings are expected to be permanently reinvested 
in the subsidiary.  Undistributed earnings for which the Company has not 
provided taxes, which may be payable on distribution, were approximately 
$5,200,000 as of December 31, 1997.  No foreign taxes will be withheld on the 
distribution of the untaxed earnings.  

NOTE G - Leases 

The Company leases its domestic warehouse and showroom facilities, and its 
facilities in Hong Kong. The leases have been classified as operating leases and
are for terms expiring at various dates through 2006.  The Company has a lease 
option on its domestic warehouse for one five-year term, renewable 
in the year 2002. 



<PAGE>


                                  F-14
Future minimum lease payments for all noncancelable operating leases as of 
December 31, 1997 are as follows (in thousands): 

<TABLE> 
<CAPTION> 
         Years ending December 31, 
<S>                                     <C>
   1998                                   $2,312
   1999                                    1,836
   2000                                    1,736
   2001                                    1,786
   2002                                      880
   Thereafter                              1,433
                                        ---------
                                          $9,983
                                        =========
</TABLE> 

Rental expense for the years ended December 31, 1997, 1996 and 1995 was 
$2,442,000, $1,965,000 and $1,988,000, respectively. 

NOTE H - Royalty Contracts 

The Company has future minimum royalty guarantee payments as of December 31,
1997 as follows (in thousands): 

<TABLE> 
<CAPTION> 
         Years ending December 31, 
<S>                                     <C>
     1998                                 $5,375
     1999                                    828
     2000                                    750
                                        ---------
                                          $6,953
                                        =========
</TABLE>  
$938 of the above amount was reserved for in 1997 in connection with the
Company's discontinued product lines.  The Company has additional minimum
commitments due in connection with the renewal of a worldwide license with
Lucas Licensing Ltd. to make small-scale figures, vehicles, playsets and
accessories for the next three Star Wars movies.  These additional minimum 
commitments amount to $148.1 million and are due throughout the release
schedule of the three new films.  The first payment is due upon the
theatrical release of the first film, which is anticipated to be in May,
1999.









<PAGE>


                                  F-15
 NOTE I - Accrued Expenses (in thousands):
<TABLE> 
<CAPTION> 
                                            December 31, 
                                          1997      1996
                                        --------- ---------
<S>                                     <C>       <C>
Accrued royalties                         $5,480   $10,797
Accrued compensation and commissions       3,095     6,484
Accrued inventory purchase commitments     3,000     1,414
Accrued legal and litigation               2,477     1,053
Accrued discounts and allowances           2,085     2,127
Other accrued expenses                     5,383     2,805
                                        --------- ---------
                                         $21,520   $24,680
                                        ========= =========

</TABLE> 


NOTE J - Major Customers 

The Company had transactions with one customer, Toys "R" Us, Inc. that accounted
for approximately 20%, 23% and 20% of net revenues in 1997, 1996 and 1995, 
respectively.  Wal-Mart accounted for approximately 15%, 13% and 11% of net
revenues in 1997, 1996 and 1995, respectively. 

NOTE K - Profit Sharing Plan 

The Company has a 401(k) profit sharing plan covering all non-union full-time 
employees.  The plan is qualified under Section 401(a) of the Internal Revenue 
Code so that contributions to the plan by the Company are not taxable until 
distributed to employees. Contributions under the plan are at the discretion of 
the Board of Directors and are subject to the amounts allowable under applicable
provisions of the Internal Revenue Code. No Company contributions have been made
in 1997, 1996 or 1995. 

NOTE L - Litigation 

In June 1995, the Company filed a declaratory judgment action in the United
States District Court for the Northern District of California.  The suit named
Clemens V. Hedeen, Jr., Patti Jo Hedeen, and various affiliated entities, as
defendants, and sought a determination that the Company is not obligated to pay
royalties to the defendants under their license agreement on certain specific
products sold under the Company's Micro Machines name and trademark.  The
defendants filed a cross-complaint for breach of this license agreement
claiming, among other things, damages for past royalties allegedly due but not
paid under the license agreement, and claiming entitlement to additional
royalties on future sales of such product.  On June 2, 1997, the Company
entered into a Settlement & Release Agreement (the "Agreement") with all of
the defendants in this pending litigation.  Under the Agreement, the
litigation was terminated and the various claims and counterclaims were
dismissed with prejudice, and the Company acquired all of the outstanding


<PAGE>


                                  F-16
rights to its Micro Machines brand.  Acquisition of these rights by the Company
eliminated all future royalty payments by it to the defendants in connection
with the Micro Machines brand, effective after March 31, 1997.  Under the
agreement, the Company paid the Licensor an initial payment of $22,500,000. 
Additional amounts with a present value of $4,911,000, as of the agreement
date, are due periodically through June 1, 2012.

The Company accounted for this agreement by taking a pre-tax charge of
$22,949,000 in the year ended December 31, 1997.  The present value of the
remaining balance amounting to $4,462,000 was classified as license rights and
is being amortized.

In January 1991, the Company, through its wholly owned subsidiary, Galco, 
filed a lawsuit in Hong Kong against Kader Industrial Co., Ltd. ("Kader"), 
alleging damages suffered by both Galco and the Company as a result of Kader's 
defective manufacturing of two lead doll items for the Company's Bouncin'
Babies toy line in 1990.  Kader filed counterclaims alleging breach of 17
individual contracts.  In August 1996, the trial court rendered a decision in
favor of Kader on the general issue of liability in this matter, including an
award of damages based on Kader's counterclaims which was approximately
$250,000, plus prejudgment interest.  In addition, the court awarded certain
litigation costs to Kader.  In March 1998, the Company settled all of the open
matters in this litigation.  The settlement will not result in any additional
material liabilities to the Company.

The Company is involved in various litigation and legal matters which are being 
defended and handled in the ordinary course of business.  None of these matters
is expected to result in outcomes having a material adverse effect on the
Company's consolidated financial position or results of operation.

NOTE M - Shareholders' Equity 

In 1989, the Company issued 183,950 authorized shares of $17 Convertible 
Exchangeable Preferred Stock with a $200 liquidation value (the "Preferred 
Stock") and deposited them with a U.S. Bank (the "Depositary") and sold in a 
public offering an aggregate of 1,839,500 Depositary Convertible Exchangeable 
Preferred Shares (the "Depositary Shares") at a price of $20 per share.  Each 
Depositary Share represented 1/10th share of Preferred Stock and had a 
cumulative dividend rate of $1.70 per annum, payable quarterly, and could be 
converted into common stock at the option of the holders at an initial price of
$16.875 per share of common stock.  On July 1, 1992, the Company discontinued 
payment of dividends on the Depositary Shares. 

In February 1996, the Company offered to exchange 1.85 shares of its common 
stock for each Depositary Share outstanding.  This inducement offer was accepted
by the owners of 98% of the Depositary Shares resulting in the issuance of 
3,336,433 shares of common stock on March 29, 1996.  Generally accepted 
accounting principles require a non-cash charge to reduce Net Earnings 
Applicable to Common Shares in the calculation of Earnings Per Share for the 
fair value of the securities issued in excess of the existing conversion rate
of approximately 1.185 common shares per Depositary Share.  This non-cash charge
amounted to $24,279,000, or $1.55 per common share in the year ended December
31, 1996.


<PAGE>


                                  F-17
The balance of the Depositary Shares were converted at the specified 1.185 
exchange rate or redeemed by the Company in June 1996. 

In 1990, the Company adopted a Stockholder Rights Plan and declared a dividend 
distribution of one Right for each outstanding share of common stock. Each Right
will entitle holders of the Company's common stock to buy one-thousandth of a 
share of Series A Preferred Stock of the Company at an exercise price of $43.00,
subject to adjustment. The Rights will be exercisable only if a person or group 
acquires beneficial ownership of 20% or more of the common stock (other than 
pursuant to certain transactions involving the Company) (an "Acquiring Person") 
or announces a tender or exchange offer that would result in such person or 
group beneficially owning 20% or more of the common stock (other than a tender 
or exchange offer for all outstanding shares at a price determined by the 
non-affiliated directors to be fair). 

If any person becomes the beneficial owner of 20% or more of the common stock 
(other than pursuant to certain transactions involving the Company or a tender 
or exchange offer for all outstanding shares at a price determined by the 
non-affiliated directors to be fair), or an Acquiring Person engages in certain 
"self-dealing" transactions including a merger in which the Company is the 
surviving corporation, each Right not owned by such Acquiring Person will enable
its holder to purchase, at the Right's then-current exercise price, shares of 
the common stock (or, in certain circumstances, cash, property or other 
securities of the Company) having a value of twice the Right's exercise price. 
In addition, if the Company is acquired in a merger or other business 
combination transaction in which the Company is not the surviving corporation, 
or if the Company sells or transfers 50% or more of its assets or earning
power, each Right not owned by such Acquiring Person will entitle its holder to
purchase, at the Right's then-current exercise price, common shares of the 
acquiring company having a value of twice the Right's exercise price. 

The Rights will expire January 17, 2000 or they may be redeemed by the Company 
at $.01 per share prior to that date. The Rights do not have voting or dividend 
rights and, until they become exercisable, have no dilutive effect on the
earnings of the Company.

NOTE N - Stock Compensation Plans

The Company has four stock compensation plans: the 1984 Employee Stock Option
Plan, the 1994 Senior Management Stock Option Plan, the 1995 Non-Employee 
Directors Stock Option Plan, and the 1996 Share Incentive Plan.  The aggregate
number of common shares available under these plans are 1,589,997, 800,000, 
160,000 and 1,850,000, respectively.  There were 1,204,685 and 1,994,029 shares
available for future grants under the terms of the Company's stock option plans 
at December 31, 1997 and 1996, respectively.  Stock options outstanding have a
term of 10 years and are non-qualified options.  An option becomes exercisable
at such times and in such installments as set by the Compensation Committee of
the Board of Directors.  Certain options granted to senior management have
vesting schedules that depend on the achievement of designated prices for the
Company's common stock and the passage of specific time periods.





<PAGE>


                                  F-18
The following table summarizes information about stock option activity for the 
three years ended December 31, 1997: 

<TABLE> 
<CAPTION>
                                               Weighted
                                                Average
                                               Exercise
                                      Number     Price
                                        of        Per
                                     Options     Share
                                    ---------- ---------
<S>                                 <C>        <C>
Outstanding at December 31, 1994    1,131,899     $7.75
Granted                               336,000      6.63
Exercised                              60,575      3.68
Canceled                               77,232      7.56
----------------------------------  ----------
Outstanding at December 31, 1995    1,330,092      7.67
Granted                               380,908     22.38
Exercised                             138,750      7.00
Canceled                               82,500      6.41
----------------------------------  ----------
Outstanding at December 31, 1996    1,489,750     11.57
Granted                               936,000     15.54
Exercised                             114,000      5.84
Canceled                              145,520     18.24
----------------------------------  ----------
Outstanding at December 31, 1997    2,166,230    $13.14
                                    ==========
</TABLE> 

The following table summarizes information about stock options outstanding at 
December 31, 1997: 

<TABLE> 
<CAPTION> 
                          Options Outstanding              Options Exercisable
                  ------------------------------------ ------------------------
                                Weighted    Weighted                 Weighted
                     Number      Average     Average      Number      Average
                  Outstanding   Remaining   Exercise   Exercisable   Exercise
    Range of         as of     Contractual  Price per     as of      Price per
 Exercise Prices    12/31/97    Life (1)      Share      12/31/97      Share
----------------- ------------ ----------- ----------- ------------ -----------
<S>               <C>          <C>         <C>         <C>          <C>
 $3.00  -  $9.00      983,342      4.9         8.04       983,342      8.04
 10.25  -  18.13      888,500      9.0        15.37        41,500     12.06
 20.50  -  30.63      294,388      8.4        23.43       112,161     22.80
                  ------------                         ------------
                    2,166,230      7.0       $13.14     1,137,003      9.64
                  ============                         ============
</TABLE> 
-----------------------
(1) Weighted average remaining contractual life in years. 
<PAGE>


                                  F-19
There were 1,118,004 and 929,228 options exercisable at weighted average
exercise  prices per share of $8.69 and $8.11 at December 31, 1996 and 1995, 
respectively. 

As permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123), effective for 1996,
the Company continues to account for stock compensation costs in accordance
with the provisions of Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees."  Had compensation cost been determined based on
the fair value at the grant dates for awards under the Company's stock plans
in accordance with SFAS No. 123, net income would have been reduced by $2.2
million ($0.12 per share), $1.2 million ($0.09 per share) and $0.6 million
($0.05 per share) in 1997, 1996 and 1995, respectively.  As required by SFAS
No. 123, the fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions:

                                                     1997      1996      1995
   Historical dividend yield                           0%        0%        0%
   Expected life in years                             4.7       4.4       4.4
   Historical volatility                              66%       60%       65%
   Risk-free rate of return                           6.1%      6.3%      6.1%
The weighted average fair value of
options granted during the year                     $9.21    $12.22     $3.74

NOTE O - Warrants

On July 7, 1988, in consideration for entering into a credit agreement, the 
Company issued warrants to purchase shares of common stock; in 1996 the 
remaining outstanding warrants for 392,866 shares were exercised at $4.44 per 
share.  On December 11, 1991, the Company issued warrants to purchase 25,000 
shares of common stock at $4.375 per share; all these warrants were exercised
in 1996.  On November 17, 1993, the Company issued warrants relating to the 8% 
Debentures to purchase 150,000 shares of common stock at $9.50 per share; 
warrants for 75,000 shares were exercised in 1996 and warrants for 75,000
shares were exercised in 1997.  On October 14, 1997, in consideration for
entering into the Lucas Licensing and Lucas Film agreements, the Company issued
warrants to purchase 3,580,000 shares of common stock at $15.00 per share. 
These warrants have a term of 12 years.  The agreements contain certain 
antidilution provisions.  In addition, the Company is required to issue 
additional warrants to the Lucas Companies if the Company grants stock options 
or other equity securities to employees or directors.  This resulted in the 
issuance in 1997 of warrants to purchase 14,105 additional shares of common
stock at $12.56 to $13.88 per share.  The warrants were valued at $40,350,000
using the Black-Scholes option pricing model, at the date of issuance.  Each 
warrant provides the Lucas Companies the right to purchase one share of the 
Company's common stock.










<PAGE>

                                  F-20
NOTE P - Related Party Transactions 

On August 29, 1996, Mark D. Goldman, President, Chief Executive Officer and 
Director of the Company, borrowed $950,000 in connection with the purchase of a 
personal residence and executed a note payable to the Company, which is secured 
by a second mortgage on such residence.  The note was amended and restated on
November 17, 1997.  Commencing on the first day of September, 1996, principal
in the amount of $100 is payable on the first of each month.  The note bears
interest at a rate of zero percent per annum.  The remaining principal balance
of the note shall be due and payable on (i) August 30, 2006, or (ii) as
governed in the Amended and Restated Note and Mr. Goldman's Severance and
Change in Control Agreement, if termination of Mr. Goldman's employment with
the Company occurs.

Until May 1996, the Company had retained the legal services of Shereff, 
Friedman, Hoffman & Goodman, LLP.  A partner of Shereff, Friedman, Hoffman & 
Goodman, LLP was one of the Company's directors until June 1, 1996.  The total 
fees paid to Shereff, Friedman, Hoffman & Goodman, LLP in 1996 and 1995 were
approximately $0.2 million and $0.3 million, respectively, exclusive of the
director's fees paid to Martin Nussbaum, a partner in the firm of Shereff,
Friedman, Hoffman & Goodman, LLP, as compensation for his service as Chairman
of the Executive Committee of the Board of Directors.   

The Company has retained the insurance brokerage services of Aon Risk Services 
("Aon") in recent years.  One of the Company's directors was previously the 
President and Chief Executive Officer of Rollins Real Estate/Investment, a 
division of Aon.  The total amount of insurance premiums paid to Aon in 1997,
1996 and 1995 were approximately $1.4 million, $1.2 million and $1.3 million, 
respectively.  On December 24, 1997, the Company retained the insurance
brokerage services of Frank Crystal & Co. of California, Inc. ("Frank
Crystal").  Scott R. Heldfond, a Director of the Company is the President and
Chief Executive Officer of Frank Crystal.  No amounts were paid to Frank
Crystal during 1997.  

NOTE Q - Disclosure About Fair Value of Financial Instruments 

The following methods and assumptions were used to estimate the fair value of 
each class of financial instruments for which it is practicable to estimate
that value: 

o    Indebtedness from Related Party 
     The carrying value of indebtedness from related party is stated at the face
     value of the note.  The fair value of the note at December 31, 1997 was 
     $517,000 based on a discounted cash flow basis. 











<PAGE>


                                  F-21
NOTE R - Segment Information 

The Company's operations are in one industry segment: the sale of toys
primarily to major retail outlets. The Company operates in two primary
geographic areas, the U.S. and Europe, and there are no sales between
geographic areas.  

Information about the Company's operations in different geographic
locations are as follows (in thousands): 

<TABLE> 
<CAPTION> 
                                              Years Ended December 31,
                                           -----------------------------
                                             1997      1996      1995
                                           --------- --------- ---------
<S>                                        <C>       <C>       <C>
United States
   Non-affiliated customer revenue         $163,276  $196,735  $139,373
   Earnings (loss) from operations          (24,192)   16,930     8,229
   Identifiable assets                      183,768   177,439   111,639

Foreign
   Non-affiliated customer revenue           76,275    88,170    80,671
   Earnings from operations                   2,334     6,734     4,760
   Identifiable assets                       24,015    19,466     8,445

Consolidated
   Net revenues                             239,551   284,905   220,044
   Earnings (loss) from operations          (21,858)   23,664    12,989
   Micro Machines license rights and 
     litigation settlement                  (22,949)      --        --
   Interest expense                            (602)   (3,183)   (3,429)
   Other income (expense), net               (2,095)      455       439
                                           --------- --------- ---------
   Earnings (loss) before income taxes      (47,504)   20,936     9,999

   Identifiable assets                     $207,783  $196,905  $120,084
</TABLE> 
















<PAGE>


                                  F-22





NOTE S - Quarterly Financial Data (Unaudited) 

Quarterly financial data for 1997 and 1996 are summarized
in the following table: 

<TABLE> 
<CAPTION> 
                       (in thousands, except per share amounts) 
                --------------------------------------------------
                                                       Net earnings
                                Net                    (Loss) per
                   Net          Gross     Earnings       Common
                 Revenues      Margin      (Loss)        Share
                -----------   ---------   ---------    ------------
<S>             <C>           <C>         <C>         <C>
1997:
---------------
1st Quarter        $40,598     $17,744     ($2,326)        ($0.13)
2nd Quarter         52,356      23,484     (13,115)         (0.73)
3rd Quarter         83,248      26,514     (11,135)         (0.62)
4th Quarter         63,349      28,653      (2,874)         (0.16)

1996:
---------------
1st Quarter        $37,522     $15,931     ($4,115)        ($2.71)
2nd Quarter         49,201      22,511         387           0.02
3rd Quarter         88,547      42,957       9,269           0.57
4th Quarter        109,635      59,224      12,910           0.74

</TABLE> 




















<PAGE>


                                  F-23





                                   SCHEDULE II 

                       GALOOB TOYS, INC. AND SUBSIDIARIES 

                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES 
                                 (in thousands) 

<TABLE> 
<CAPTION> 
                                            Additions 
                               Balance at   Charged to               Balance 
                               Beginning    Costs and                at end 
   Description                 of Period    Expenses   Deductions    of Period 
   -----------                 ---------    --------   ----------    ---------
<S>                             <C>         <C>         <C>         <C>    
Year ended 12/31/97
Provisions for returns 
and allowance                   $12,024     $19,259     $15,996     $15,287

Year ended 12/31/96 
Provisions for returns 
and allowance                     9,982      15,115      13,073      12,024 

Year ended 12/31/95 
Provisions for returns 
and allowance                     8,097      12,707      10,822       9,982 

</TABLE>                                                                       

<PAGE>





















<PAGE>
                                  S-1




                                EXHIBIT INDEX 
                                -------------

Exhibit No.                     Description 
- -----------                     -----------

3.1(a)(1)      Certificate of Incorporation. 

3.1(b)(1)      Amendment to Certificate of Incorporation. 

3.2(2)         Bylaws. 

4.1(3)         Form of Certificate for Shares of Common Stock of Company. 

4.2(a)(4)      Warrant Agreement, dated as of December 11, 1991, by and between 
               the Company and Shereff, Friedman, Hoffman and Goodman, LLP. 

4.2(b)(4)      Warrant Agreement, dated as of November 17, 1993, by and between 
               the Company and Gerard Klauer Mattison & Co., Inc. 

4.3(5)         Form of Rights Agreement, dated as of January 17, 1990, 
               between the Company and Mellon Securities Trust Company. 

4.4(a)(18)     Warrant, dated as of October 14, 1997, between Lucasfilm Ltd.
               and Galoob Toys, Inc.

4.4(b)(18)     Warrant, dated as of October 14, 1997, between Lucas Licensing
               Ltd. and Galoob Toys, Inc.

4.4(c)(18)+    Agreement of Strategic Relationship, dated as of October 14,
               1997, between Lucasfilm Ltd., a California corporation, and
               Galoob Toys, Inc.

10.1(a)(6)*    Amended and Restated 1984 Employee Stock Option Plan. 

10.1(b)(7)*    1994 Senior Management Stock Option Plan. 

10.1(c)(8)*    Form of Agreement between each of Mark Goldman, William Catron, 
               Lou Novak, Gary Niles, Ronald Hirschfeld and the Company. 

10.1(d)(9)*    Form of Amendment No. 1 between each of Mark Goldman, William 
               Catron, Lou Novak, Gary Niles, Ronald Hirschfeld and the Company.

10.1(e)(10)    1995 Non-Employee Directors' Stock Option Plan. 

10.1(f)(15)*   Galoob Toys, Inc. 1996 Long Term Compensation Plan 

10.1(g)(15)*   Galoob Toys, Inc. 1996 Share Incentive Plan 

10.1(h)(16)*   Galoob Toys, Inc. Officers Deferred Compensation Plan

10.3*          Severance and Change in Control Agreement dated November 17, 1997
               between Mark D. Goldman and the Company

10.4(a)(16)*   Agreement, dated January 1, 1997, between William G. Catron and 
               the Company. 

10.4(b)(16)*   Agreement, dated January 1, 1997, between Ronald Hirschfeld and 
               the Company. 

10.4(c)(16)*   Agreement, dated January 1, 1997, between Roger J. Kowalsky and
               the Company.

10.4(d)(16)*   Agreement, dated January 1, 1997, between Gary J. Niles and the 
               Company. 

10.4(e)(16)*   Agreement, dated January 1, 1997, between Louis R. Novak and the 
               Company. 

10.5(e)(9)     Amended and Restated Loan and Security Agreement, dated as of 
               March 31, 1995, by and among the Company and Congress Financial 
               Corporation (Central). 

10.6(a)(12)    License Agreement, dated June 16, 1986, by and between Funmaker, 
               as Licensor and the Company, as Licensee. 

10.7(a)(13)    License Agreement, dated May 4, 1990, by and among the Company as
               Licensee, Codemasters Software Company, Ltd. and America 
               Corporation, Limited. 

10.7(b)(13)    Amendment No. 1 dated June 1991 to License Agreement dated May 4,
               1990. 

10.7(c)(13)    Amendment No. 2 dated December 23, 1991 to License Agreement, 
               dated May 4, 1990. 

10.7(d)(13)    European License Agreement, dated December 23, 1991, by and 
               between Codemasters Software Company, Ltd. and the Company. 

10.7(e)(13)    Third Amendment to United States License and First Amendment to 
               European License, dated November 4, 1992. 

10.7(f)(9)     Fourth Amendment to United States License Agreement, dated 
               October 14, 1994. 

10.8(12)       Agreement of Purchase and Sale, dated October 22, 1986, by and 
               between AT Building Company, as Seller, and the Company, as 
               Buyer. 

10.9(a)(2)     Lease Agreement, dated March 12, 1987, by and between Lincoln 
               Alvarado and Patrician Associates, Inc., as Lessor, and the 
               Company, as Lessee. 

10.9(b)(14)    Amendment No. 1 to Lease Agreement. 

10.9(c)(10)    Lease Agreement, dated December 1, 1995, by and between 200 Fifth
               Avenue Associates, as Lessor, and the Company, as Lessee. 

10.9(d)(15)    Lease Agreement, dated December 3, 1996, between Prudential 
               Insurance Company of America as Lessor and the Company, as 
               Lessee. 

10.10(17)      Settlement and Release Agreement, dated June 2, 1997.

10.11(18)      Toy License Agreement, dated as of October 14, 1997, between
               Lucas Licensing Ltd. and Galoob Toys, Inc. 

10.11(c)       Trademark License Agreement, dated as of October 14, 1997,
               between Lucas Licensing, Ltd. and Galoob Toys, Inc.

10.12          Amendment No. 4 to Amended and Restated Loan and Security 
               Agreement, dated December 17, 1997, by and among the Company and
               Congress Financial Corporation (Central)

21             Subsidiaries of the Company. 

23.1           Consent of Independent Public Accountants. 

27             Financial Data Schedule 

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

 (1)     Incorporated by reference to the Company's Amendment No. 2 to the 
         Registration Statement on Form S-1, filed with the Commission on 
         November 8, 1996. 

 (2)     Incorporated by reference to the Company's Amendment No. 1 to 
         Registration Statement on Form 8-B, filed with the Securities and 
         Exchange Commission (the "Commission") on January 11, 1988. 

 (3)     Incorporated by reference to the Company's Registration Statement on 
         Form S-3, filed with the Commission on February 26, 1990. 

 (4)     Incorporated by reference to the Company's Form 10-K for the fiscal 
         year ended December 31, 1993, filed with the Commission on March 31, 
         1994. 

 (5)     Incorporated by reference to the Company's Registration Statement on 
         Form 8-A, filed with the Commission on January 23, 1990. 

 (6)     Incorporated by reference to the Company's Registration Statement on 
         Form S-8, Registration No. 33-56585, filed with the Commission on 
         November 23, 1994. 

 (7)     Incorporated by reference to the Company's Registration Statement on 
         Form S-8, Registration No. 33-56587, filed with the Commission on 
         November 23, 1994. 

 (8)     Incorporated by reference to the Company's Registration Statement on 
         Form S-8, Registration No. 33-56589, filed with the Commission on 
         November 23, 1994. 

 (9)     Incorporated by reference to the Company's Form 10-K for the fiscal 
         year ended December 31, 1994, filed with the Commission on March 31, 
         1995. 

(10)     Incorporated by reference to the Company's Form 10-K for the fiscal 
         year ended December 31, 1995, filed with the Commission on March 11,
         1996. 

(11)     Incorporated by reference to the Company's Registration Statement on 
         Form S-1, Registration No. 33-00743, filed with the Commission on 
         February 6, 1996. 

(12)     Incorporated by reference to the Company's Form 10-K for the fiscal 
         year ended December 31, 1986, filed with the Commission on March 31, 
         1987. 

(13)     Incorporated by reference to the Company's Form 10-K for the fiscal 
         year ended December 31, 1992, filed with the Commission on March 31, 
         1993. 

(14)     Incorporated by reference to the Company's Form 10-K for the fiscal 
         year ended December 31, 1991, filed with the Commission on March 30, 
         1992. 

(15)     Incorporated by reference to the Company's Form 10-K for the fiscal 
         year ended December 31, 1996, filed with the Commission on March 31,
         1997. 

(16)     Incorporated by reference to the Company's Form 10-K/A for the fiscal
         year ended December 1996, filed with the Commission on April 30, 1997.

(17)     Incorporated by reference to the Company's Form 10-Q for the six months
         ended June 30, 1997, filed with the Commission on August 6, 1997.

(18)     Incorporated by reference to the Company's Form 10-Q for the nine 
         months ended September 30, 1997, filed with the Commission on November
         14, 1997.  

* Indicates exhibits relating to executive compensation.

+ Portions of this agreement have been omitted pursuant to a request for 
confidential treatment under Rule 24b-2 of the Securities Exchange Act of 
1934, as amended.
1934, as amended.