To Our Stockholders:

It's the Annual Report season again,  and I would like to take this  opportunity
to provide you with some insights into your Company's performance.

We should  start with a  development  that is not  included  in the  statements,
namely  our  pending  management  change.  This past  November,  Warren  Reardon
resigned  from his  positions of Director and  President.  Warren and his family
have played an important  role in the history and  successes of the Daniel Green
Company.  I want to personally thank Warren for his  contributions  and wish him
all the best in the coming years.

Since November,  the Board has been engaged in an extensive  search for Warren's
replacement.  An interesting by-product of the search was the enthusiasm many in
the  industry  expressed  regarding  the  franchise  value the Daniel Green name
represents. It was a strong reinforcement of the potential for your Company.

The interview  process  resulted in a number of very  qualified  and  interested
candidates.  As I write  this  letter,  I'm  pleased  to inform  you that we are
finalizing the  arrangements  for our top "draft pick" to come on board and join
our management team. We plan on making an announcement during the mid-March time
frame.  It is my belief that our  management  change was the most critical issue
facing the Company this fall, and this event is now behind us.

Now, let's turn to the financials.  The company's balance sheets (on page 8) now
include an additional year for comparative  purposes,  which I think you'll find
beneficial.  The first item of special note is cash, totaling $901,875.  This is
just one of the by-products of the pension reversion we enacted last year. Since
these statements were prepared, this cash has been applied to our revolving line
of credit.  Had it been  applied  at year end,  our  outstanding  line of credit
balance would have been $1,324,906.  This is an  extraordinary  improvement from
the $8.3 million balance twenty-four months ago.

It wasn't just the pension reversion alone that generated this improvement.  Our
receivables  have  been  very  aggressively  managed,  resulting  in a  $860,650
reduction  this year and an almost  $1.5  million  gain from 1995.  It's  costly
enough to finance  your own  inventory,  much less  someone  else's.  We've made
progress in this area and will continue to do so in 1998.

Our   inventory   showed   similar   improvement,    although   less   apparent.
Simplistically,   it  remained   equal  to  last  year's  level  and  went  down
substantially from 1995. We are encouraged, however, that we reached last year's
$8.5 million inventory level in light of our  disappointing  year end sales. Our
expectations  were that sales  would have  finished  the year  stronger  and our
inventory  levels  would have been further  reduced.  As it was, we did not meet
those  expectations,  and we still  have  work to do.  The good  news is that we
believe that the bulk of our inventory consists of quality, salable items. We've
established  inventory  reserves against the remaining stock and recognize that,
in 1998, we need to aggressively move and sell-off these styles.

The next significant item in our balance sheet consumed a considerable amount of
time and energy in 1997,  but,  as referred to  earlier,  it also  yielded  some
dramatic benefits.  It is the pension  reversion,  as seen in the "Other assets"
section  of our  balance  sheet.  Note  5 on  page  11  provides  an  accounting
description  of this  transaction,  but I'm going to try to provide some further
insight on its impact to your Company.

As a starting point, you should really review the 1995 statement.  At that time,
Daniel  Green was a  debt-laden  Company  which was further  constrained  by the
operating  losses it was  generating.  It became  imperative that every asset be
used as effectively as possible if we were to survive. One of those assets which
wasn't  pulling its weight was the pension plan. In 1997, we put excess  pension
assets back to work, reverting,  or terminating,  and then replacing the pension
plan with a 401(k) savings plan. The governing factors behind the steps which we
took were driven by balancing tax, employee and stockholder considerations.
<PAGE>

Perhaps the best way to describe the reversion's  impact is to recognize that it
accounts  for all of the  improvements  in our  balance  sheet,  except  for the
reduction in our accounts  receivable.  As an integral part of this transaction,
we issued  186,437  shares (11% of the  Company) to our  employees.  This issue,
combined with the straight reversion, generated cash of approximately $3 million
net of costs and excise tax. Its benefits include:

         o        A reduction in our line of credit from $4.5 million in 1996 to
                  $2.2 million in 1997.
         o        A current ratio of 3.83.
         o        An improvement in our total debt-to-equity ratio from 76.8% in
                  1996 to 48.9% in 1997.
         o        An increase in our equity to over $12 million.

As a final note,  the stock  provided to employees is  recognized  in accounting
terms as compensation. What this means is that, as it is allocated over the next
three years,  we, in turn,  will take a non-cash  charge to pre-tax  earnings of
approximately  $300,000 each year. While this charge does generate a tax benefit
for us, it will have a negative impact on our book earnings.

Let's turn our  attention  to the more  critical  issue,  long-term,  namely our
statement  of  operations.  We're  pleased  to  report  an  operating  income of
$1,000,000.  It comes,  however,  with a level of sales which is not acceptable.
While our margins improved  considerably last year, you can't shrink your way to
prosperity.

We have undertaken a number of initiatives that should produce better results in
future years. First, under the leadership of Lee Bynon, our sales force has been
restructured  and is more focused to ensure that we produce  better results both
in terms of sales and gross profit.

Our product  offering  continues to evolve.  Imports  account for an  increasing
percentage of our sales. Much of the gross profit  improvement you see this year
is attributable to the growing  importance of this segment.  As different import
styles take hold, we anticipate our overall sales numbers will improve.

One of our more formidable tasks is to reduce the overhead costs associated with
our  operations in Dolgeville  and to develop a cost  structure that reduces our
break-even  point. To this end, we engaged a consultant to work with an internal
team to  identify  and  implement  significant  cost  savings.  Led by our Chief
Financial Officer, Stan Kabot, this group has made considerable progress.

While we're not  reporting the kind of results that we had hoped for in 1997, we
obviously have made some  significant  gains.  The Company  continues to be in a
"rebuilding"  mode,  reorganizing  and  repositioning  ourselves within the shoe
industry. With our improved financial footings, new management shortly in place,
and the aggressive cost reductions we are making,  we're  enthusiastic about our
long-term outlook.

Nonetheless,  we are cautious about 1998. We expect to revive our sales numbers.
However,  earnings  most  likely will be  impacted  by the  restructuring  costs
incurred with the future changes that will be necessary.

I personally  would like to thank all our  employees for their  contribution  in
1997. As we improve our overall  financial  stability,  I am confident  that the
future for your Company looks brighter than ever.

By the way,  let's not forget to  encourage  everyone we know to buy more Daniel
Green slippers.

                  James R. Riedman
                  Chairman & Chief Executive Officer

                                       2
<PAGE>
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations

Sales
Net sales  declined 15% in 1997, to $19.7  million,  from $23.1 million in 1996.
Compared to 1995,  net sales for 1997 are down by 16.5%.  A significant  part of
this  decrease  can be  related  to lower  shipments  of  footwear  to our major
customers  in 1997,  compared to 1996.  It was also  attributable  to  difficult
retail  conditions  during the third and fourth  quarters of 1997, and a greater
emphasis  placed by our customers to maintain  minimum  stocking  levels.  Seven
major customers  represented 41% of the Company's  business in 1997.  These same
customers represented 46% of sales in 1996 and 42% in 1995.

From a sales mix standpoint, slippers represented 55% of our sales, while casual
and private label footwear accounted for 29% and 16%,  respectively,  during the
year. In 1996,  59% of our sales were  slippers,  26% casual  footwear,  and 15%
private label.

Imported  footwear  continues to influence our sales numbers.  In 1997,  imports
accounted  for  approximately  $4.1 million or 20.8% of sales,  compared to $1.4
million or 6.1% in 1996.

Expenses
Cost of goods  sold in total as a  percentage  of net  sales  was 74.7% in 1997,
compared  to 79.8% in 1996 and 79.6% in 1995.  Cost of goods sold  reflects  the
direct costs of footwear sold,  manufacturing variances from pre-determined cost
standards,  adjustments  to the  value of  inventory  on hand and the  amount of
material purchased and labor spent to make the Company's products.  In 1997, the
Company  produced 11% fewer shoes,  approximately  120,000  pairs less than last
year.  Driven by lower  production  volumes,  our purchases of raw material went
down by 19% and production labor decreased by 15%, while manufacturing  overhead
expenses  were 12% lower than last year.  A lower  sales  volume and  associated
direct costs of labor, material and overhead also contributed to a lower cost of
goods sold aggregate dollar amount in 1997.

Current levels of production have fallen below available capacity.  During 1997,
the  Company  reviewed  its  approach  towards   manufacturing  and  started  to
consolidate its operations in Dolgeville.  In 1998, all domestic production will
be performed in one manufacturing  building,  while imports will be handled in a
separate facility.

As a result of selling more  higher-margined  products,  the gross profit margin
for 1997 was 25.3%, compared to 20.2% in 1996 and 20.4% in 1995.

Selling,  general  and  administrative  expenses  for  1997  decreased  6.3%  to
approximately $4.2 million from approximately $4.4 million in 1996.  Compared to
1995, selling,  general and administrative  expenses are approximately  $538,000
lower.  This  decrease  in 1997  reflects  significantly  lower  retail  selling
expenses,  due to the  closure of all but one retail  outlet in 1996 and greatly
reduced  advertising  costs,  offset  by higher  spending  levels in a number of
administrative  categories.  Several notable items that increased administrative
expenses  in 1997 over 1996  include:  Company  contributions  to the new 401(K)
plan, computer training and network services, and outside professional fees.

Despite the decrease  experienced in 1997,  selling,  general and administrative
expenses as a percentage of net sales,  increased to 21.2% in 1997 from 19.3% in
1996. In 1995, selling, general and administrative expenses represented 20.0% of
net sales. During the third quarter of 1997, management retained the services of
an independent  consultant to identify  opportunities  for cost reduction within
all administrative  areas of the Company.  The findings and recommendations from
this project will be reviewed  during the first  quarter of 1998 and the Company
will then start to implement the approved  recommendations.  The results of this
project are geared towards  significantly  reducing our administrative  costs in
1998.

                                       3
<PAGE>
In the second  quarter of 1997,  the Company began to reorganize its field sales
force. This action resulted in the separation of five salespeople and charges of
approximately  $198,000 in 1997.  Likewise,  in 1996, the Company identified and
reported items of approximately  $497,000 that were  non-recurring in nature. In
1995, the Company recorded an expense of approximately  $512,000 for a write-off
of raw material  inventory  associated  with  discontinuing  the  production  of
certain  styles of  footwear.  In 1998,  additional  payments  of  approximately
$125,000 will be recorded as they relate to the former Chief Operating Officer.

During 1997,  the Company  terminated  its defined  benefit  pension plan.  This
transaction resulted in a gain totaling approximately  $380,000, and this amount
is  reflected  as  income  in  the  1997  statement  of  operations.   Prior  to
termination,  the  Company  recorded  income  from  this  plan of  approximately
$204,000 in 1997, which will not recur in 1998.

The  termination of the defined benefit plan also provided  additional  funds to
the new  401(k)  plan,  over and above  employee  benefit  obligations  and plan
expenses.  These funds were used to purchase  186,437  shares of common stock in
the Company,  totaling  $894,896,  or $4.80 per share. The $4.80 share value was
established  by an  independent  stock  valuation  consultant,  retained  by the
Company.   The  stock  purchased  by  the  401(k)  plan  will  be  allocated  to
participating employees beginning in the 1998 plan year and will continue over a
three-year period. Once the allocation is made to plan participants, the Company
will reduce the prepaid pension asset currently carried on the Company's balance
sheet under "Other assets" and will recognize a pre-tax expense of approximately
$300,000 each year.

Operating Income
Operating income changed  significantly in 1997,  compared to 1996 and 1995, and
is directly related to the items discussed above.

Interest Expense
Interest  expense is down by  approximately  $281,000 in 1997 and is 34.2% lower
than in 1996 and 44.5% than in 1995.  This  decrease  is due to lower  borrowing
levels and lower financing  rates. On April 14, 1997, the Company entered into a
new credit  arrangement  with KeyBank National  Association,  which provides the
Company with a three-year credit facility bearing interest at LIBOR plus 2.25%.

Income Tax Provision
The Company's  income tax provision  increased  significantly,  to approximately
$225,000 in 1997, from a tax benefit of approximately $417,000 in 1996 and a tax
benefit  of  approximately  $535,000  in  1995.  The  increase  in taxes in 1997
principally relates to the reportable gain after terminating the defined pension
plan and in part from the income realized from operations.

Deferred  income  taxes  reflect  the net tax effects of  temporary  differences
between the carrying amount of assets and liabilities,  for financial  reporting
purposes, and the amounts used for income tax purposes.

In computing the tax provision for 1997, the Company has applied and used all of
its federal net operating  loss  carryforwards.  At the end of 1997, the Company
still has approximately  $454,000 left in net operating loss  carryforwards that
can be used  for New  York  state  tax  reporting  purposes.  From a  historical
perspective,  a limited  amount of the  Company's  sales are in New York  state,
thereby impacting the utilization of New York state loss carryforwards.

Net Earnings
Net earnings for 1997 were approximately  $235,000,  or $.16 per share, compared
with last year's performance of an after-tax loss of approximately  $690,000, or
$.54 per share.  The Company had a net loss of approximately  $854,000,  or $.82
per share in 1995.

                                       4
<PAGE>
Financial Condition
The Company's financial condition continues to significantly improve. Once again
in 1997 (as in 1996),  total debt has been drastically  reduced from 1995. Total
debt  consists  of  notes  payable,   the  line  of  credit  and  capital  lease
obligations.  At December 31, 1997, total debt was  approximately  $4.1 million,
compared with  approximately  $6.9 million at December 31, 1996,  for an overall
decrease  of  40.1%.  At  December  31,  1995,  the  Company's  total  debt  was
approximately $11.2 million. Total debt in 1997 has been reduced by the proceeds
from  terminating  the Company's  defined  benefit plan, by cash  generated from
operating activities, and by regular repayments of the debt.

Inventory levels are unchanged from 1996 to 1997 and, in comparison to 1995, are
approximately   $2.4  million  lower.   Finished   goods,   however,   increased
significantly   in  1997  to   approximately   $6.2  million,   as  compared  to
approximately  $5.1 million in 1996. This increase is related to a high level of
imported  footwear  received  during  the  last two  months  of 1997 and a major
reduction  in  our  work-in-process  inventory.  In  1995,  the  finished  goods
inventory amounted to approximately $7.5 million,  or approximately $1.3 million
higher than in 1997. Accounts receivable decreased by approximately  $861,000 or
13.1% from last year and decreased 21.7% in comparison to 1995.

During 1997 and 1996, the Company generated  approximately  $3.0 million in cash
flow from operating activities. In 1995, cash flow was not sufficient,  and cash
of approximately  $2.1 million was used in operating the Company.  The principal
components of cash flow from operations were net income,  a decrease in accounts
receivable and other assets, offset by decreases in accounts payable and accrued
liabilities. Working capital at the end of 1997 was approximately $11.4 million,
which  was  approximately  $2.7  million  higher  than at the end of 1996.  This
working  capital  number is impacted by the cash amount of $894,896,  related to
the sale of Company stock to the 401(k) plan.  Subsequently,  in 1998,  the cash
was  applied  against  the  Company's  revolving  line of  credit  with Key Bank
National Association. As a result, the Company's current ratio, the relationship
of current assets to current liabilities, increased to 3.83:1 from 2.34:1 at the
end of 1996.

Capital expenditures in 1997 totaled approximately $251,000 and were principally
used for the purchase of new computer  systems and  software,  and major repairs
made  to  the  Company's   buildings.   Capital  expenditures  in  1996  totaled
approximately  $201,000,  utilized  primarily for computer systems and software,
furniture and fixtures,  and lasts for new footwear styles. Capital expenditures
in 1995 amounted to approximately  $459,000 and were used to purchase a computer
system and for production equipment.

The Company's revolving and term loan credit agreements contain covenants which,
among  other  things,  require  the  Company  to  maintain  a certain  number of
financial  ratios.  As of December 31,  1997,  the Company was in violation of a
bank covenant related to the maintenance of an established debt-service coverage
ratio.  The  Company  has  obtained  a waiver  from  the bank on this  financial
covenant.

Except for the historical information contained herein, the matters discussed in
this  annual  report are  forward-looking  statements  which  involve  risks and
uncertainties,  including but not limited to economic, competitive, governmental
and technological factors affecting the Company's operations, markets, products,
services and prices,  and other factors  discussed in the Company's filings with
the Securities and Exchange Commission.

The  Company  is aware of the issues  associated  with the  programming  code in
existing computer systems as the millennium (year 2000) approaches. The issue is
whether computer systems will properly recognize date sensitive information when
the  year  changes  to  2000.  Systems  that  do  not  properly  recognize  such
information could generate erroneous data or cause a system to fail.  Management
has not yet  assessed  the year 2000  compliance  expense and related  potential
affect on the Company's earnings.

                                       5
<PAGE>
                              DANIEL GREEN COMPANY


Financial  Statements  as of December 31, 1997,  1996 and 1995,  for Each of the
Three Years in the Period  Ended  December  31, 1997 and  Independent  Auditors'
Report





                              DANIEL GREEN COMPANY

                               TABLE OF CONTENTS

                                                                          Page

INDEPENDENT AUDITORS' REPORT                                               1

FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997, 1996 AND 1995
   AND FOR EACH OF THE THREE YEARS IN THE PERIOD
ENDED DECEMBER 31, 1997:

   Balance Sheets                                                          2

   Statements of Operations                                                3

   Statements of Stockholders' Equity                                      4

   Statements of Cash Flows                                                5

   Notes to Financial Statements                                          6-13







<PAGE>





                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
   Daniel Green Company
Dolgeville, New York

We have audited the  accompanying  balance  sheets of Daniel Green Company as of
December 31, 1997,  1996 and 1995,  and the related  statements  of  operations,
stockholders'  equity,  and cash flows for each of the three years in the period
ended December 31, 1997. These financial  statements are the  responsibility  of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our  opinion,  such  financial  statements  present  fairly,  in all material
respects,  the  financial  position of Daniel  Green  Company as of December 31,
1997,  1996 and 1995,  and the results of its  operations and its cash flows for
each of the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles.  Deloitte & Touche LLP Rochester,  New
York January 30, 1998




/s/ Deloitte & Touche LLP
Rochester, New York
January 30, 1998
(February 23, 1998 as to Note 7)




<PAGE>
<TABLE>
<CAPTION>

DANIEL GREEN COMPANY

BALANCE SHEETS
DECEMBER 31, 1997, 1996 AND 1995


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

<S>                                                   <C>           <C>          <C>
CURRENT ASSETS:
  Cash                                                 $   901,875   $    13,213   $    29,762
  Accounts receivable (less allowances of $231,000
     in 1997, $200,000 in 1996 and $275,000 in 1995)     5,721,431     6,582,081     7,210,427
  Inventories                                            8,469,375     8,453,703    10,900,243
  Deferred income tax asset                                287,306          --         320,977
  Other current assets                                      65,656        69,479       149,585
  Income taxes receivable                                     --         157,704       458,887
                                                       -----------   -----------   -----------

        Total current assets                            15,445,643    15,276,180    19,069,881

PROPERTY - Net                                           1,707,647     1,798,315     2,076,396

OTHER ASSETS:
  Prepaid benefit plan contribution                        894,896          --            --
  Other assets                                             114,687       114,963       144,447
  Prepaid pension expense                                     --       2,375,369     2,281,237
                                                       -----------   -----------   -----------

        Total other assets                               1,009,583     2,490,332     2,425,684
                                                       -----------   -----------   -----------






TOTAL ASSETS                                           $18,162,873   $19,564,827   $23,571,961
                                                       ===========   ===========   ===========

</TABLE>


See notes to financial statements.




<PAGE>

<TABLE>
<CAPTION>

LIABILITIES AND STOCKHOLDERS' EQUITY                     1997          1996            1995
------------------------------------                     ----          ----            ----

<S>                                                  <C>           <C>           <C>
CURRENT LIABILITIES:
  Note payable - line of credit                       $ 2,219,802   $ 4,537,856   $ 8,301,730
  Accounts payable                                        303,492       480,130       311,982
  Accrued salaries and commissions                        240,065       209,427       211,808
  Accrued expenses                                        283,261       427,032       465,794
  Notes payable - current                                 562,030       591,979       591,129
  Income tax payable                                      421,389          --            --
  Capital lease obligation - current                         --          23,480        17,115
  Deferred income tax liability - current                    --         258,193          --
                                                      -----------   -----------   -----------

        Total current liabilities                       4,030,039     6,528,097     9,899,558

CAPITAL LEASE OBLIGATION - noncurrent                        --            --          10,916

NOTES PAYABLE - noncurrent                              1,325,104     1,708,240     2,295,177

DEFERRED INCOME TAX LIABILITY - noncurrent                611,726       262,716     1,110,351
                                                      -----------   -----------   -----------

        Total liabilities                               5,966,869     8,499,053    13,316,002

STOCKHOLDERS' EQUITY:
  Common stock - $2.50 par value; authorized
    4,000,000 shares; issued and outstanding in
    1997: 1,698,329 shares; 1996: 1,511,892 shares;
    1995: 1,036,892 shares                              4,245,823     3,779,730     2,592,230
  Additional paid-in-capital                              741,303       312,500          --
  Retained earnings                                     7,208,878     6,973,544     7,663,729
                                                      -----------   -----------   -----------

        Total stockholders' equity                     12,196,004    11,065,774    10,255,959
                                                      -----------   -----------   -----------

TOTAL LIABILITIES AND STOCKHOLDERS'
  EQUITY                                              $18,162,873   $19,564,827   $23,571,961
                                                      ===========   ===========   ===========
</TABLE>


                                     - 2 -
<PAGE>
<TABLE>
<CAPTION>

DANIEL GREEN COMPANY

STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995


                                             1997           1996             1995
                                             ----           ----             ----
<S>                                    <C>             <C>             <C>
NET SALES                               $ 19,663,142    $ 23,060,724    $ 23,560,772
                                        ------------    ------------    ------------

OPERATING EXPENSES:
  Cost of goods sold                      14,679,388      18,404,790      18,762,134
  Selling and administrative expenses      4,165,379       4,445,901       4,703,479
  Other (income) expense                    (181,732)        497,230         511,686
                                        ------------    ------------    ------------

      Total operating expenses            18,663,035      23,347,921      23,977,299
                                        ------------    ------------    ------------

OPERATING INCOME (LOSS)                    1,000,107        (287,197)       (416,527)

INTEREST EXPENSE                             539,486         820,090         972,460
                                        ------------    ------------    ------------

EARNINGS (LOSS) BEFORE INCOME TAXES          460,621      (1,107,287)     (1,388,987)

INCOME TAX PROVISION (BENEFIT)               225,287        (417,102)       (535,226)
                                        ------------    ------------    ------------

NET EARNINGS (LOSS)                     $    235,334    $   (690,185)   $   (853,761)
                                        ============    ============    ============

NET EARNINGS (LOSS) PER COMMON SHARE:
  Basic                                 $        .16    $       (.54)   $       (.82)
                                        ============    ============    ============
  Diluted                               $        .16    $       (.54)   $       (.82)
                                        ============    ============    ============


</TABLE>


See notes to financial statements.

                                     - 3 -
<PAGE>
<TABLE>
<CAPTION>

DANIEL GREEN COMPANY

STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995


                                      Common Stock          Additional
                                                             Paid-In       Retained
                                 Shares         Amount       Capital       Earnings          Total
                                 ------         ------       -------       --------          -----

<S>                           <C>          <C>            <C>            <C>             <C>
Balance, January 1, 1995        1,036,892   $  2,592,230   $       --     $  8,517,490    $ 11,109,720

Net loss, 1995                       --             --             --         (853,761)       (853,761)
                             ------------   ------------   ------------   ------------    ------------

Balance, December 31, 1995      1,036,892      2,592,230           --        7,663,729      10,255,959

Issuance of common stock          475,000      1,187,500        312,500           --         1,500,000

Net loss, 1996                       --             --             --         (690,185)       (690,185)
                             ------------   ------------   ------------   ------------    ------------

Balance, December 31, 1996      1,511,892      3,779,730        312,500      6,973,544      11,065,774

Issuance of common stock          186,437        466,093        428,803           --           894,896

Net earnings, 1997                   --             --             --          235,334         235,334
                             ------------   ------------   ------------   ------------    ------------

Balance, December 31, 1997      1,698,329   $  4,245,823   $    741,303   $  7,208,878    $ 12,196,004
                             ============   ============   ============   ============    ============

</TABLE>


See notes to financial statements.

                                      - 4 -
<PAGE>
<TABLE>
<CAPTION>

DANIEL GREEN COMPANY

STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

                                                              1997           1996           1995
                                                              ----           ----           ----
<S>                                                     <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net earnings (loss)                                    $   235,334    $  (690,185)   $  (853,761)
  Adjustments to reconcile net earnings (loss) to net
    cash provided by operating activities:
    Depreciation and amortization                            344,345        398,653        356,345
    Net pension credit                                      (204,496)       (94,132)      (101,340)
    Loss (gain) on sale of property and equipment             (2,950)        89,819           --
    Changes in assets and liabilities:
      (Increase) decrease in:
        Accounts receivable                                  860,650        628,346       (577,370)
        Inventories                                          (15,672)     2,446,540         70,437
        Other current assets                                 161,527        381,289       (519,272)
        Other noncurrent assets                                  276          4,948        (53,459)
        Prepaid pension expense                            2,579,865           --             --
        Prepaid benefit plan contribution                   (894,896)          --             --
      Increase (decrease) in:
        Accounts payable                                    (176,638)       168,148       (120,904)
        Accrued salaries and commissions                      30,638         (2,381)        25,199
        Accrued expenses                                    (143,771)       (38,762)       138,154
        Income taxes payable                                 421,389           --         (402,947)
        Net deferred tax liability                          (196,489)      (268,465)       (96,369)
                                                         -----------    -----------    -----------
      Net cash provided (used) by operating activities     2,999,112      3,023,818     (2,135,287)
                                                         -----------    -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment                       (254,077)      (201,355)      (459,406)
  Proceeds from disposal of property and equipment             3,350         15,500           --
                                                         -----------    -----------    -----------
      Net cash used by investing activities                 (250,727)      (185,855)      (459,406)
                                                         -----------    -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Net (payments) borrowings from line of credit           (2,318,054)    (3,763,874)     3,194,468
  Issuance of common stock                                   894,896      1,500,000           --
  Proceeds from notes payable                                200,000           --             --
  Repayments of notes payable                               (613,085)      (586,087)      (590,078)
  Principal payments under capital lease obligation          (23,480)        (4,551)        (3,486)
                                                         -----------    -----------    -----------
      Net cash (used) provided by financing activities    (1,859,723)    (2,854,512)     2,600,904
                                                         -----------    -----------    -----------

NET INCREASE (DECREASE) IN CASH                              888,662        (16,549)         6,211

CASH, BEGINNING OF YEAR                                       13,213         29,762         23,551
                                                         -----------    -----------    -----------

CASH, END OF YEAR                                        $   901,875    $    13,213    $    29,762
                                                         ===========    ===========    ===========

SUPPLEMENTAL CASH FLOW INFORMATION:
  Cash paid during the year for:
      Interest                                           $   502,354    $   847,649    $   954,646
                                                         ===========    ===========    ===========
      Income taxes                                       $     2,153    $      --      $    40,993
                                                         ===========    ===========    ===========

</TABLE>

See notes to financial statements.


                                      - 5 -

<PAGE>

DANIEL GREEN COMPANY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

1.    DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business - The Company is engaged  exclusively in the manufacture
and sale of leisure  footwear.  Sales are made  principally  to retailers in the
United States.

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.

Inventories  -  Inventories  are stated at the lower of cost or market.  Cost is
determined on a first-in, first-out basis.

Property  and  Accumulated  Depreciation  -  Property  is stated  at cost,  less
accumulated  depreciation.  Expenditures  for  maintenance,  repairs,  and minor
renewals and  betterments  are charged to earnings as incurred.  Replacements of
significant   items  and  major  renewals  and  betterments   are   capitalized.
Depreciation  is computed  using the  straight-line  method with useful lives as
follows: Buildings and water plant - 10-67 years; machinery and equipment - 5-15
years.  The Company  regularly  assesses  its fixed  assets for  indications  of
impairment.

Income  Taxes - Income  taxes  are  provided  on the  earnings  (losses)  in the
financial  statements.  Deferred income taxes are provided to reflect the impact
of "temporary  differences"  between the amounts of assets and  liabilities  for
financial  reporting  purposes  and such  amounts  as  measured  by tax laws and
regulations.  Tax credits are  recognized  as a reduction to income taxes in the
year  the  credits  are  earned.   Concentration  of  Credit  Risk  -  Financial
instruments  that  potentially  subject the  Company to credit  risk  consist of
accounts  receivable.  Companies in the retail  industry  comprise a significant
portion of the accounts receivable balance; collateral is not required. The risk
associated  with  the  concentration  is  limited  due to the  large  number  of
retailers and their geographic dispersion.

New  Accounting  Pronouncements  - The Company  adopted  Statement  of Financial
Accounting  Standards  (SFAS)  No.  128,  Earnings  per Share  during the fourth
quarter of 1997. This Statement  requires dual presentation of basic and diluted
earnings  per share (EPS).  1996 and 1995 amounts have been  restated to reflect
this new Statement.  The  calculations for both basic and diluted EPS were based
on income (loss)  available to common  stockholders of $235,334,  $(690,185) and
$(853,761)  and a  weighted  average  number of  common  shares  outstanding  of
1,512,570,  1,280,978  and  1,036,892  for  December  31,  1997,  1996 and 1995,
respectively.  Options to purchase  shares of common stock were  outstanding but
were not included in the  computation of diluted  earnings per share because the
options'  exercise  prices were  greater  than the average  market  price of the
common shares.

                                     - 6 -
<PAGE>

In June 1997,  the  Financial  Accounting  Standards  Board issued SFAS No. 130,
Reporting Comprehensive Income. SFAS No. 130 establishes standards for reporting
and disclosure of comprehensive income and its components in financial statement
format.  Comprehensive  income is  defined as the change in equity of a business
enterprise  during a period from transactions and other events and circumstances
from nonowner sources.  Items considered  comprehensive income including foreign
currency items,  minimum pension liability  adjustments and unrealized gains and
losses on certain  investments  in debt and equity  securities.  SFAS No. 130 is
effective for financial statements for fiscal years beginning after December 15,
1997. The Company is currently  evaluating  what impact this statement will have
on its disclosure.

Reclassifications  - Certain  1996 and 1995 amounts  have been  reclassified  to
conform with 1997 presentations.

2.    INVENTORIES

Inventories as of December 31 consisted of the following:

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

Finished goods                     $ 6,153,858      $ 5,075,618      $ 7,477,851
Work-in-process                        374,484        1,351,945          782,291
Raw materials                        1,941,033        2,026,140        2,640,101
                                   -----------      -----------      -----------
Total                              $ 8,469,375      $ 8,453,703      $10,900,243
                                   ===========      ===========      ===========

3.    PROPERTY

Property as of December 31 consisted of the following:

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

Land                                    $   18,655     $   19,055     $   19,555
Buildings and water plant                3,356,209      3,251,913      3,251,913
Machinery and equipment                  5,565,199      5,427,711      5,415,774
                                        ----------     ----------     ----------
                                         8,940,063      8,698,679      8,687,242
Less accumulated depreciation            7,232,416      6,900,364      6,610,846
                                        ----------     ----------     ----------
Property - net                          $1,707,647     $1,798,315     $2,076,396
                                        ==========     ==========     ==========

4.    LEASES

The Company leases  machinery,  equipment,  office space and retail outlet space
generally under  cancelable  lease  agreements which are classified as operating
leases for financial  reporting  purposes.  Rental expense was $115,641 in 1997,
$296,399 in 1996,  and  $219,950  in 1995.  The leases  expire at various  dates
through 2001 and provide for the following minimum rentals:

                     1998                   $ 95,000
                     1999                     70,000
                     2000                     59,000
                     2001                     14,000
                                            --------
                    Total                   $238,000
                                            ========

                                     - 7 -
<PAGE>

5.    BENEFIT PLANS

Deferred Benefit Pension Plan

During 1997, the Company  terminated  it's defined  benefit pension plan. On the
date of the termination,  the Company  received cash totalling  $3,579,585 which
exceeded  the  carrying  value of the  prepaid  pension  expense  of  $2,579,865
resulting in a gain of $999,720. This gain was reduced by certain administrative
expenses and an excise tax totalling $82,550 and $536,939,  respectively,  which
resulted in a net gain on this transaction  totalling  $380,231.  This amount is
included in other (income)  expense in the 1997  statement of  operations.  (See
Note 9).

The Company's  defined  benefit  pension plan covered all regular  employees and
benefits  were  earned  based on  years of  service  and the  employee's  annual
compensation  over the entire service time. It had been the Company's  policy to
fund the maximum  amount which can be deducted for federal  income tax purposes.
For 1997,  1996 and 1995 no  contribution  was allowed  due to the full  funding
limitation of the Internal  Revenue Code.  The net pension  credit  included the
following components:

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

Service cost                          $   187,277    $   285,204    $   201,635
Interest cost                             573,952        570,251        560,720
Actual return on plan assets             (835,865)    (1,003,253)    (1,271,440)
Net amortization and deferral            (129,860)        53,666        407,745
                                      -----------    -----------    -----------

Net pension credit                    $  (204,496)   $   (94,132)   $  (101,340)
                                      ===========    ===========    ===========

A  reconciliation  of the pension  plan's  funded  status,  determined as of the
plan's year end,  September 30,  1996 and 1995,  with amounts  recognized in the
Company's balance sheet as of December 31 follows:

<TABLE>
<CAPTION>
                                                                   1996            1995
                                                                   ----            ----
<S>                                                           <C>              <C>
Actuarial present value of accumulated benefit obligation
(including vested benefits of 1996, $7,232,953;
1995, $7,250,866)                                               $  7,388,486    $  7,348,094
                                                                ============    ============

Plan assets at fair value, primarily listed stocks and bonds,
  and guaranteed investment contract                            $ 11,123,411    $ 10,662,651
Actuarial present value of projected benefit obligation           (8,595,110)     (8,779,025)
                                                                ------------    ------------

Plan assets in excess of projected benefit obligation              2,528,301       1,883,626

Unrecognized net (gain) loss from past experience
  different from that assumed                                       (173,434)        232,219
Prior service cost not yet recognized
  in net periodic pension cost                                       650,715         921,647
Unrecognized net asset as of October 1, 1985
  being recognized over 16 years                                    (630,213)       (756,255)
                                                                ------------    ------------

Prepaid pension expense                                         $  2,375,369    $  2,281,237
                                                                ============    ============
</TABLE>

                                     - 8 -
<PAGE>


The following  assumptions were used in determining the actuarial  present value
of the projected benefit obligation:

                                                             1996       1995
                                                             ----       ----

Discount rate                                                7.0 %      7.0 %
Rate of increase in future compensation levels               3.5 %      3.5 %
The expected long-term rate of return on plan assets         8.5 %      8.5 %


Defined Contribution Plan

During 1997, the Company established a defined  contribution 401(k) savings plan
("the Plan") covering  substantially  all employees of the Company.  The Company
contributed  $894,896 to the Plan during 1997 but had not  allocated any of this
amount to the Plan  participants  during the year ended December 31, 1997.  This
amount  will be  expensed  as it is  allocated  to the  participants,  which  is
expected to occur over a three year period commencing in 1998.

6.    INCOME TAXES

The provision (benefit) for income taxes consists of:

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

Current:
  Federal               $ 415,574           $(156,500)         $(421,335)
  State                     6,202               3,112            (17,522)
                        ---------           ---------          ---------
                          421,776            (153,388)          (438,857)
                        ---------           ---------          ---------

Deferred:
  Federal                (247,762)           (211,581)           (34,603)
  State                    51,273             (52,133)           (61,766)
                        ---------           ---------          ---------
                         (196,489)           (263,714)           (96,369)
                        ---------           ---------          ---------

Total                   $ 225,287           $(417,102)         $(535,226)
                        =========           =========          =========


The  difference  between tax computed at the statutory  U.S.  federal income tax
rate and the Company's effective tax rate is as follows:

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

Provision (benefit) at statutory rate   $ 156,600   $(376,500)   $(472,300)
State and other taxes, net of federal
  tax benefit                               2,400     (29,700)     (71,600)
Reduction of NYS NOL carryforward          13,200        --           --
Deferred tax rate rollout adjustment       32,800        --           --
Other                                      20,287     (10,902)       8,674
                                        ---------   ---------    ---------

Provision (benefit) for income taxes    $ 225,287   $(417,102)   $(535,226)
                                        =========   =========    =========



At December  31, 1997 the Company has  approximately  $454,000 of net  operating
loss  carryforwards  available for New York State tax purposes,  which expire in
2011.

                                     - 9 -
<PAGE>


Components  of the  Company's  deferred  tax  asset and  liability  as of
December 31, 1997, 1996 and 1995 are as follows:

                                                      1997
                                          ---------------------------
                                             Current      Noncurrent
                                             -------      ----------
Assets

Non-deductible bad debt reserves          $    60,785    $      --
Uniform capitalization of inventory           104,660           --
Non-deductible sales allowances                29,250           --
Non-deductible inventory reserves              72,341           --
State net operating loss carryforward          20,270           --

Liabilities

Prepaid pension expense                          --         (349,010)
Depreciation                                     --         (262,716)
                                          -----------    -----------

Deferred tax asset (liability)            $   287,306    $  (611,726)
                                          ===========    ===========

                                                     1996
                                          ---------------------------
                                             Current      Noncurrent
                                             -------      ----------

Assets

Contributions carryover                   $    18,256    $      --
Non-deductible bad debt reserves               48,750           --
Uniform capitalization of inventory           159,352           --
Non-deductible sales allowances                29,250           --
State net operating loss carryforward         110,173           --
Federal net operating loss carryforward       260,916
Federal credit carryforwards                   13,100           --

Liabilities

Prepaid pension expense                      (897,990)          --
Depreciation                                     --         (262,716)
                                          -----------    -----------

Deferred tax liability                    $  (258,193)   $  (262,716)
                                          ===========    ===========

                                     - 10 -
<PAGE>


                                                     1995
                                          ---------------------------
                                             Current      Noncurrent
                                             -------      ----------

 Assets

Contributions carryover                   $     8,055    $      --
Non-deductible bad debt reserves               78,000           --
Uniform capitalization of inventory           122,283           --
Non-deductible sales allowances                29,250           --
Non-deductible inventory reserves              83,389           --
State net operating loss carryforward            --           56,677

Liabilities

Prepaid pension expense                          --         (889,682)
Depreciation                                     --         (277,346)
                                          -----------    -----------

Deferred tax asset (liability)            $   320,977    $(1,110,351)
                                          ===========    ===========

A valuation  allowance has not been provided against the Company's  deferred tax
assets as of December 31, 1997,  1996 and 1995 since the Company  believes it is
more  likely  than not that the  deferred  tax assets will be realized in future
years.

7.    NOTES PAYABLE

In 1997,  the  Company  entered  into a debt  agreement  from a new lender for a
revolving line of credit ("revolver") and a mortgage/term loan.

Under the terms of the  agreement,  the borrowing base for the revolver is based
on certain  balances of accounts  receivable  and  inventory,  as defined in the
agreement.  The maximum  credit  amount  under the revolver is  $8,000,000,  the
interest  rate is LIBOR plus  2.25% and the  revolver  will  expire on April 30,
2000. The revolver is secured by accounts receivable,  inventory,  equipment and
cash. The  mortgage/term  loan  approximated  $2,250,000,  which represented the
total amount owed by the Company under two notes payable to its previous  lender
as of December  31, 1996.  The  mortgage/term  loan is secured by the  Company's
manufacturing facilities and totalled $1,676,192 as of December 31, 1997.

The balance owed under the Company's revolving line of credit as of December 31,
1997,   1996  and  1995  totalled   $2,219,802,   $4,537,856   and   $8,301,730,
respectively.

                                     - 11 -
<PAGE>


Long-term debt as of December 31 consisted of the following:

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

Note payable to bank in monthly principal
installments of $41,905 through April 2001;
interest is due monthly at LIBOR plus 2.25%       $1,676,192   $1,819,058   $1,961,906

Other notes payable                                  210,942       52,602       67,258

Note payable to bank in monthly principal
installments of $35,714, plus interest at LIBOR
plus 2.25%                                              --        428,559      857,142
                                                  ----------   ----------   ----------
                                                   1,887,134    2,300,219    2,886,306

Less:  Current portion                               562,030      591,979      591,129
                                                  ----------   ----------   ----------
Noncurrent portion                                $1,325,104   $1,708,240   $2,295,177
                                                  ==========   ==========   ==========
</TABLE>


The aggregate principal payments of notes payable are as follows:


          1998                          $  562,030
          1999                             550,690
          2000                             543,835
          2001                             210,483
          2002                              20,096
          ----                          ----------
          Total                         $1,887,134
                                        ==========

The carrying  value of the  long-term  notes  payable to bank  approximate  fair
value.

The line of credit and the notes payable  contain  certain  financial  covenants
relative to working  capital,  tangible  net worth,  total debt to tangible  net
worth,  and debt service  coverage.  In addition,  the payment or declaration of
dividends  and  distributions  is prohibited  unless a written  consent from the
lender is  received.  The Company was not in  compliance  with the debt  service
coverage  covenant as of December  31, 1997.  On February 23, 1998,  the Company
obtained a waiver from the lender as of December 31, 1997.

Subject to the Company's  lender's  acceptance  of the  Company's  1998 business
plan,  the Company's  lender has agreed to review,  with the intent of revising,
the debt service coverage  covenant of 1998 which if achieved,  should allow for
the Company to be in compliance during 1998.

 8. STOCKHOLDERS' EQUITY

Stock Option Plan - The Company has reserved  100,000 shares of its common stock
for issuance under the Company's Stock Incentive Plan which was adopted in 1995.
The price at which options can be exercised  shall be at least $1 more than 100%
of the fair market  value of the  Company's  stock on the date of grant;  for an
optionee who at the time of grant owns more than 10% of the Company's stock, the
price at which  options can be exercised  shall be at least $1 more than 110% of
the fair market value of the Company's stock on the date of grant.


                                     - 12 -
<PAGE>

The stock option  activity for the years ended December 31, 1997,  1996 and 1995
is as follows:

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

Options outstanding, beginning of year            22,500      17,500        --

Options granted                                    2,000      10,000      17,500
Options cancelled                                 (2,500)     (5,000)       --
                                                 -------     -------     -------

Options outstanding, end of year                  22,000      22,500      17,500
                                                 =======     =======     =======

Options exercisable, end of year                  14,500      12,500      17,500
                                                 =======     =======     =======


The  Company  also  granted  25,000  stock  options in 1997,  separate  from the
Company's Stock Incentive Plan, to a majority stockholder. These options are all
outstanding and exercisable at December 31, 1997. The Company adopted  Statement
of Financial  Accounting  Standards  (SFAS) No. 123,  Accounting for Stock-Based
Compensation,  effective  January 1, 1996.  As permitted by that  standard,  the
Company has elected to continue to follow  Accounting  Principles  Board Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations in
accounting  for  employee  stock-based   compensation.   Pro  forma  information
regarding  net income  (loss) and related per share  amounts as required by SFAS
No. 123 is not material.

Issuance of Common Stock - The Company  issued 186,437 shares of common stock to
the Company's  newly formed 401(k) plan in the fourth quarter of 1997. The sales
price per common stock was $4.80,  which was based on an independent  appraisal,
resulting in cash proceeds of approximately $900,000 to the Company.

9.    OTHER (INCOME) EXPENSE

Other (income) expense in 1997 consisted of the following:

Gain on termination of pension plan (see Note 5)                      $(380,231)

Severance expense                                                       198,499
                                                                      ---------
                                                                      $(181,732)
                                                                      =========

During 1997, the Company  terminated five salespeople as a result of changes the
Company made in its sales  department and related  compensation  structure.  The
severance amount related to these individuals totalled $198,499.

During 1996, the Company  recorded other expenses of  approximately  $497,000 in
the  statement of  operations  for items  considered  by  management  to be of a
nonrecurring  nature.  These expenses  included legal fees and a settlement cost
relative to a patent infringement  lawsuit $(53,000),  costs associated with the
closing of a sales office and two outlet stores  $(191,000),  costs  incurred to
eliminate  nontraditional  footwear  styles  from  the  Company's  product  line
$(118,000),  professional fees associated with financial advisory and investment
banking services $(114,000) and various other costs $(21,000).


In the fourth quarter of 1995, the Company recorded an expense of $511,686 for a
write-off  of certain  raw  materials  inventory  associated  with a decision to
discontinue the production of certain styles of footwear.

                                     - 13 -
<PAGE>
<TABLE>
<CAPTION>

Quarterly Financial & Market Data

Summarized quarterly financial data for 1997 and 1996 (Unaudited)

1997                      March 31          June 30          September 30      December 31
----                      --------          -------          ------------      -----------

<S>                   <C>                <C>                <C>               <C>
Net sales              $ 3,819,009        $ 3,850,881        $ 5,610,869       $ 6,382,383
Gross profit
on sales                   871,760          1,300,041          1,544,624         1,267,329
Net income
(loss)                    (348,737)          (114,653)            45,135           653,589
Net income
(loss) per
common share                 (0.23)             (0.07)              0.03              0.43
NASDAQ high bid              4 1/4              3 7/8              3 7/8             4 3/4
NASDAQ low bid               3 5/8              3 7/8              3 1/2             2 3/4

<CAPTION>


1996                      March 31          June 30          September 30      December 31
----                      --------          -------          ------------      -----------

<S>                   <C>                <C>                <C>               <C>
Net sales              $ 3,763,545        $ 4,020,072        $ 7,341,607       $ 7,935,500
Gross profit
on sales                   898,738            968,951          1,974,810           813,435
Net income
(loss)                    (399,075)          (315,066)           196,508          (172,552)
Net income
(loss) per
common share                 (0.38)             (0.30)              0.13             (0.11)
NASDAQ high bid              4 1/8              3 1/2              3 3/4             3 3/4
NASDAQ low bid               3 5/8              2 1/2              3 1/8             2 7/8

Based on records maintained by the Transfer Agent, BankBoston, Boston Equiserve,
the number of shareholders of record was 584 at year end.
</TABLE>


<TABLE>
<CAPTION>


Selected Financial Data


                           1997            1996             1995            1994           1993
                           ----            ----             ----            ----           ----

<S>                   <C>             <C>             <C>             <C>            <C>
Net sales              $ 19,663,142    $ 23,060,724    $ 23,560,772    $ 23,214,609   $ 24,125,228
Income (loss)
from continuing
operations                  235,334        (690,185)       (853,761)        635,328        293,423
Total assets             18,162,873      19,564,827      23,571,961      22,205,778     20,414,652
Long-term debt            1,325,104       1,708,240       2,306,093       2,894,413      1,317,232
Income (loss)
from continuing
operations
per common share                .16            (.54)          (.82)             .61            .28
</TABLE>

Daniel Green Company's common stock is traded in the over-the-counter market and
is listed on the National  Association of Security Dealers  Automated  Quotation
system (NASDAQ) under the ticker symbol DAGR.

Copies of the Company's Annual Report on Form 10-K filed with the Securities and
Exchange  Commission  are available and will be furnished  upon written  request
directed to the Company's main office, Dolgeville, New York 13329.

<PAGE>
Officers
--------

James R. Riedman
   Chairman & Chief Executive Officer

W. Lee Bynon
   Vice President of Sales

Stanley W. Kabot
   Chief Financial Officer & Treasurer

John B. French, Esq.
   Clerk


Directors
---------

Edward Bloomberg
   Independent Investment Advisor

Steven DePerrior
   Principal
   Burke Group

William L. Fay
   President
   Faytex Corp.

John B. French, Esq.
   Partner
   Sullivan & Worcester

David T. Griffith
   President
   M. Griffith, Inc.

Gregory Harden
   President
   Harden Furniture

Gary E. Pflugfelder
   Sales Consultant

James R. Riedman
   President
   Riedman Corporation