<PAGE> 1
                           SECURITIES AND EXCHANGE COMMISSION
                                 Washington, D.C.  20549

                                        FORM 10-K

                      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

                         OF THE SECURITIES EXCHANGE ACT OF 1934

                                  September 30,
For the fiscal year ended 1997                 Commission file number  0-2655 
                              DIXON TICONDEROGA COMPANY             
       
                   (Exact name of Company as specified in its charter)
Form 10-K

 X    Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange 
      Act of 1934 (Fee Required) For the fiscal year ended September 30, 1997.

      Transition Report Pursuant to Section 13 or 15(d) of the Securities 
      Exchange Act of 1934 (No Fee Required) For the transaction period from 
           to     .

                  Delaware                           23-0973760       
     (State or other jurisdiction of               (I.R.S. Employer
     incorporation or organization)               Identification No.)

         195 International Parkway, Heathrow, FL           32746     
        (Address of principal executive offices)         (Zip Code)

Registrant's telephone number, including area code   (407) 829-9000  

    Title of each class            Name of each exchange on which registered   
       
Common Stock, $1.00 par value            American Stock Exchange

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 Company was 
required to file such reports), and (2) has been subject to such filing 
requirements for the past 90 days.  Yes [X] No [ ]

Based on the closing sales price on December 3, 1997, the aggregate market value
of the voting stock held by non-affiliates of the Company was $31,074,863.

Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of December 3, 1997:  3,357,587 shares of common stock, $1.00
Par Value.

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 Form 10-K or any amendment to this Form
10-K. [  ]
Documents Incorporated by Reference:
Proxy statement to security holders incorporated into Part III for the fiscal 
year ended September 30, 1997.
<PAGE>
<PAGE> 2
PART I

ITEM 1. BUSINESS
                     NEW DEVELOPMENTS AND BUSINESS STRATEGIES

      Dixon Ticonderoga Company (hereinafter the "Company") achieved record
revenues and earnings in its fiscal year ended September 30, 1997.  Revenues
exceeded $115 million, an increase of approximately 8% over 1996, and net income
grew to $3.6 million compared to $2.6 million in 1996 (excluding after tax
provisions of $1.44 million for litigation costs and $282,000 for extraordinary
refinancing costs).  Operating income in the Company's two core business groups
grew 34% to $13.2 million compared with $9.8 million in 1996 (excluding
litigation costs).  In 1997, cash flow from operating activities increased $5.7
million.  These cash flows were utilized to reduce the Company's total debt (net
of cash balances) by approximately $2.5 million and to finance the repurchase of
subsidiary stock (an additional $2.5 million) discussed below.
      This improvement is attributable to the success of many of the Company's
strategic objectives over the past several years.  The Company aggressively
introduced new products and repositioned many others, most notably its Consumer
Group's new soybean-based crayon and the entire new design of its Prang product
line.  With the participation of the U.S. Soybean Board and several state 
Soybean Councils, the Company supported this introduction with a focused, 
full-scale promotional program utilizing outside public relations and 
advertising agencies and purchased media.  The Industrial Group also began to 
offer new products such as petroleum coke and silicon-carbide brick (under its 
New Castle Refractories division's new technology agreement).
      The U.S. Consumer division also improved its gross profit margins by over
3% largely through ambitious manufacturing efficiency efforts.  Such efforts
included balancing production, efficiency studies by outside consultants, 
sharing of manufacturing processes between the U.S. and Mexico Consumer plants 
and the addition of certain strategic manufacturing equipment.  For example, 
in 1997 the division began manufacturing its marker products on its modernized 
production line in place at its Deer Lake, Pennsylvania facility. The U.S. 
Consumer division also continued its emphasis on improving its distribution and
customer service systems and processes through further training and technology
enhancements.  
      Significant operating improvement was also realized in the Mexico Consumer
subsidiary where new management was put in place in late 1996.  In addition, the
Company repurchased approximately 30% of the minority interest in this 
subsidiary in February 1997, increasing its ownership to approximately 80%.  
Moreover, in December 1997, the Mexico subsidiary completed its acquisition of 
Vinci de Mexico, S.A. de C.V.  This acquisition brings with it one of the most
highly-regarded and recognized brand names in the school products industry in 
Mexico. Management expects continuing strong growth in its Mexico subsidiary.
      The Industrial Group's management ranks were reorganized and strengthened
in such key areas as sales, technical research and development and in
manufacturing.  Also in 1997, graphite manufacturing activities were 
consolidated into the division's Burnet, Texas facility to gain efficiencies.
      Significant recent corporate activities include the 1996 recapitalization
of the Company's U.S. debt, including nearly $70 million of new financing,
primarily to provide working capital to support the growth of its Consumer and
Industrial Groups.  In 1996, the Company completed its relocation of corporate
headquarters and has recently centralized additional management activities
<PAGE>
<PAGE> 3
at this new facility in Heathrow, Florida.  In 1997, the Company began many 
new human resource initiatives intended to enhance training, personnel 
development, benefits and incentive compensation for its employees. 
      Further information regarding these matters is included elsewhere in the
Annual Report on Form 10-K.

COMPANY ORGANIZATION

                             Dixon Ticonderoga Company
                                     (Parent)
                                        |
                                        |
       --------------------------------------------------------
       |                                |                     |
       |                                |                     |
Dixon Ticonderoga, Inc./        Dixon Europe, Ltd.    Bryn Mawr Ocean
Canada (Wholly-Owned)             (Wholly-Owned)      Resorts/Inactive
       |                                              (Wholly-Owned)
       |                                                    and
Dixon Ticonderoga de                               Ticonderoga Graphite,
Mexico, S.A. de C.V.                                   Inc./Inactive
(79.8% Owned)                                         (Wholly-Owned)

INDUSTRY SEGMENTS

The Company has two principal continuing business segments:  its Consumer Group
and Industrial Group.  These segments, and the primary operations of each, are
as follows:

      BUSINESS SEGMENTS               OPERATIONS

Consumer Group                   Manufacture and sale of writing and drawing
                                 pencils, pens, artist materials, felt tip 
                                 markers, industrial markers, lumber
                                 crayons, typewriter correction materials
                                 and allied products.
Industrial Group                 Manufacture and sale to industry of
                                 processed natural and synthetic bulk
                                 graphite, graphite oil, solvent and water-
                                 based lubricants, as well as colloidal
                                 graphitic suspensions (Graphite and
                                 Lubricants division); clay and graphite
                                 stopper heads, firebrick, non-graphitic
                                 refractory kiln furniture and furnace
                                 linings (Refractories division).
      Financial information regarding net revenues, operating profits and
identifiable assets related to the Company's industry segments for the years
ended September 30, 1997, 1996, and 1995, is contained in Note 11 to 
Consolidated Financial Statements.
      The Company's international operations are subject to certain risks
inherent in carrying on business abroad, including the risk of currency
fluctuations, currency remittance restrictions and unfavorable political
conditions.  It is the Company's opinion that there are presently no material 
political risks involved in doing business in the foreign countries (i.e. 
Mexico, Canada and Europe) in which its operations are being conducted.
<PAGE> 4

CONSUMER GROUP

      The Company manufactures its leading brand TICONDEROGA and a full line of
pencils in Versailles, Missouri. The Company also manufactures and markets
advertising specialty pencils, pens and markers through its promotional products
division.
      The Company is also the producer of WEAREVER writing products at its
facility in Deer Lake, Pennsylvania.  In addition to the WEAREVER and Dixon
lines of pens, the Company also manufactures and markets its Prang and
Ticonderoga lines of markers, mechanical pencils, and allied products at this
facility.
      The Company also manufactures in Sandusky, Ohio (mainly for wholesale
school suppliers and retailers) its PRANG brand of wax crayons, chalks, dry and
liquid tempera, water colors and art materials.  This division also manufactures
special markers for industrial use all of which are marketed and sold, together
with the products manufactured by the Versailles and Deer Lake operations, by 
the U.S. Consumer Products group.
      Under an agreement with Warner Bros. Consumer Products, the Company also
manufactures and markets in the U.S., Canada, and Mexico a complete product line
of pencils, pens, crayons, chalks, markers, paints, art kits and related items
featuring the famous Looney Tunes characters.  (See Note 12 to Consolidated
Financial Statements.)
      Dixon Ticonderoga Inc., a wholly-owned subsidiary with a distribution
center in Newmarket, Ontario, and a manufacturing plant in Acton Vale, Quebec,
Canada, is engaged in the sale in Canada of black and color writing and drawing
pencils, pens, lumber crayons, correction materials, erasers, rubber bands and
allied products.  It also distributes certain of the school product lines.  The
Acton Vale plant also produces eraser products and correction materials for
distribution by the U.S. Consumer Products group.
      Dixon Ticonderoga de Mexico, Inc., S.A. de C.V., a majority-owned
subsidiary (79.8%) is engaged in the manufacture and sale in Mexico of black and
color writing and drawing pencils, typewriter correction materials, lumber
crayons and allied products.  This subsidiary also manufactures and sells in
Mexico certain products of the type manufactured at the Sandusky facility, as 
well as marker products manufactured at the Deer Lake facility.
      Dixon Europe, Limited, a wholly-owned subsidiary of the Company is engaged
in the distribution of many Dixon Consumer Products in the United Kingdom and 
other European countries.

INDUSTRIAL GROUP

      Through its Graphite and Lubricants division, Dixon manufactures and sells
processed natural and synthetic graphite, graphite oil, petroleum coke, solvent
and water-based lubricants as well as colloidal graphitic suspensions.  The
American Graphite location in Manchester Township, New Jersey, and the
Southwestern Graphite location in Burnet, Texas, process and sell graphite to 
industrial customers, and are engaged in the processing and blending of various
grades of foreign and domestic graphites for use in the manufacture and sale of
related products.
      The New Castle Refractories division, with plants located in Ohio,
Pennsylvania and West Virginia, manufactures various types of non-graphitic
refractory kiln furniture used by the ceramic and glass industries; firebrick,
silicon-carbide brick, various types and designs of non-graphitic refractory
special shapes for ferrous and nonferrous metal industries; refractory shapes
<PAGE>
<PAGE> 5

for furnace linings and industrial furnace construction; various grades 
of insulating firebrick and graphite stopper heads.  

REAL ESTATE OPERATIONS (Discontinued Operations)

      The Company previously developed Bryn Mawr Ocean Towers (three nine-story
towers) on North Hutchinson Island, Florida, which were sold as condominiums. 
Pursuant to a formal plan and agreement dated September 29, 1995, the Company 
disposed of the remaining property dedicated to this project and has ceased any
further real estate activities.  This segment is therefore treated as
"Discontinued Operations." (See Note 10 to Consolidated Financial Statements.)

DISTRIBUTION
      Consumer products manufactured at the Sandusky, Ohio; Deer Lake,
Pennsylvania; and Versailles, Missouri plants are distributed nationally through
wholesale, commercial and retail stationers, school supply houses, industrial 
supply houses, blueprint and reproduction supply firms, art material 
distributors and retailers.  In 1996, the Company opened a central distribution
center in Shelbyville, Tennessee, to enhance service levels, especially with 
respect to large retail customers.  The consumer products manufactured at the 
Canadian and Mexican plants are distributed nationally in these countries 
through wholesalers, distributors, school supply houses and retailers.
      The industrial products manufactured at the various plants are sold by
direct sales, manufacturers' representatives and industrial distributors in
North America.  In addition, these products are sold worldwide, principally in 
Central and South America, Europe, the Philippines and Japan.

RAW MATERIALS
      Graphite, which can be considered a strategic raw material for the
Company's business, is sold by the Company in bulk and as a component, and is 
used in the manufacture of refractory products, lubricants and leads for
wood-cased pencils.  Graphite is purchased from Brazil, Madagascar, India,
Mexico, People's Republic of China, Sri Lanka, West Germany and Zimbabwe.  There
were no significant raw material shortages of any consequence during 1997 nor 
any anticipated for future periods.

TRADEMARKS, PATENTS AND COPYRIGHTS
      The Company owns a large number of trademarks, patents and copyrights in
each industry segment related to products manufactured and marketed by it, which
have been secured over many years.  These have been of value in the growth of 
the business and should continue to be of value in the future.  However, in the
opinion of the Company, its business generally is not dependent upon the
protection of any patent or patent application or the expiration of any patent.

SEASONAL ASPECTS OF THE BUSINESS
      The Consumer Group reflects greater portions (approximately 64% in 1997)
of its sales in the third and fourth fiscal quarters of the year due to 
shipments of school orders to its distribution network. This practice, which 
is standard for this industry, usually causes the Company to incur additional 
bank borrowings during the period between shipment and payment.
      The Industrial Group has no material seasonal aspects.

<PAGE>
<PAGE> 6

COMPETITION
      Both of the Company's industry segments are engaged in a highly competi-
tive business with a number of competitors, some of whom are larger and have 
greater resources than the Company.  Important to the Company's market position
are the quality and performance of its products, its marketing and distribution
systems, and the reputation developed over the many years that the Company has
been in business.

RESEARCH AND DEVELOPMENT
      The Company employs approximately 18 full-time professional employees in
the area of quality control and product development.  The Company has establish-
ed a centralized research and development laboratory in its Sandusky, Ohio 
facility. For accounting purposes, research and development expenses in any year
presented in the accompanying Consolidated Financial Statements do not represent
more than 1% of revenues.

EMPLOYEES
      The total number of persons employed by the Company was approximately 
1,170 of which 760 were employed in the United States.
<PAGE>
<PAGE> 7

ITEM 2. PROPERTIES

      The following properties of the Company are owned and are collateralized
or pledged under the Company's loan agreement with a consortium of lenders 
(First Union Capital Corporation as agent), except for the Heathrow, Florida, 
property, which is subject to a separate mortgage agreement.  See Notes 3 and 
4 to Consolidated Financial Statements. Most of the buildings are of steel 
frame and masonry or concrete construction.
<TABLE>
<CAPTION>                                                SQUARE FEET
<S>        LOCATION                                     OF FLOOR SPACE
                                                                      <C>
Heathrow, Florida (Corporate Headquarters)                 33,000

Sandusky, Ohio (Consumer)                                 276,000

Manchester Township, New Jersey (American
   Graphite) (Graphite and Lubricants division)            76,000

Near Burnet, Texas (Southwestern Graphite)
   (Graphite and Lubricants division)                      97,000

New Castle, Pennsylvania (Refractories division)          131,000

Newell, West Virginia (Refractories division)              45,000

Massillon, Ohio (Refractories division)                   113,000

Zoar, Ohio (Refractories division)                         65,000

Acton Vale, Quebec, Canada (Dixon
   Ticonderoga Inc.) (Consumer)                            32,000

Tlalnepantla, D.F., Mexico (Dixon Ticonderoga de Mexico,
   S.A. de C.V.)  (Consumer)                               55,000

Versailles, Missouri (Consumer)                           120,000

Shelbyville, Tennessee (Consumer)                          94,000

Deer Lake, Pennsylvania (Consumer)                        150,000


      The Company also owns a non-operating graphite mine near Burnet, Texas,
included with land at historical cost in the consolidated balance sheets.
<PAGE>
<PAGE> 8

ITEM 3.  LEGAL PROCEEDINGS

      In March 1986, The Dixon Venture ("Venture") (an unrelated company) filed
a civil action in the New Jersey Superior Court seeking recovery of damages and
costs allegedly incurred by Venture in connection with the clean-up ofindustrial
property acquired from the Company in Jersey City, New Jersey in February, 1984.
Venture's claims were brought pursuant to the New Jersey Environmental Clean-up
Responsibility Act ("ECRA"), an environmental remedial statute dealing with the
transfer of industrial property.
      On April 24, 1996, a decision was rendered by the Superior Court of New
Jersey in Hudson County finding the Company responsible for $1.94 million in
certain environmental clean-up costs relating to this matter.  Including pre-
judgment interest on the damage award, the Company estimates its exposure 
to be approximately $3.3 million.  The Company continues to pursue other 
responsible parties for indemnification and/or contribution to the payment 
of this claim (including its insurance carriers and a legal malpractice 
action against its former attorneys).  A subsequent appeal and filing 
with the New Jersey Supreme Court for relief from the original judgment have 
been denied.  As a result of the judgment, the Company increased its
liability accrued for this matter to $3.3 million during 1996.
      Also see Notes 12 and 14 to Consolidated Financial Statements.

ITEM 4.  SUBMISSION ON MATTERS TO VOTE OF SECURITY HOLDERS

      None.
<PAGE>
<PAGE> 9
      
PART II


ITEM 5.  MARKET FOR THE COMPANY'S COMMON STOCK
          AND RELATED SECURITY HOLDER MATTERS

      Dixon Ticonderoga Company common stock is traded on the American Stock
Exchange.  The following table sets forth the low and high per share prices as
per the American Stock Exchange closing prices for the applicable quarter.


</TABLE>
<TABLE>
<CAPTION>
<S>                             FISCAL                     FISCAL
QUARTER ENDING                   1997                       1996     

                              <C>        <C>              <C>        <C>
                            LOW        HIGH            LOW        HIGH     

December 31                 6.38       8.38            5.50       9.88         
March 31                    6.25       7.38            6.38       7.75      
June 30                     6.38      12.00            6.00       7.50         
September 30               11.56      14.00            6.50       8.13          
</TABLE>

      Since fiscal 1990, the Board of Directors has suspended payment of
dividends.  The Board will continue to review the Company's future performance
and determine the dividend policy on a quarter-to-quarter basis. The Company's
debt agreements  restrict the amount of dividends which can be paid in the
future. (See Notes 3 and 4 to Consolidated Financial Statements).
      The number of record holders of the Company's common stock at December 3,
1997, was 425.
<PAGE>
<PAGE> 10
ITEM 6.  SELECTED FINANCIAL DATA
<TABLE>
                    DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
                    FOR THE FIVE YEARS ENDED SEPTEMBER 30, 1997
                      (in thousands, except per share amounts)
                             1997     1996     1995     1994     1993  
<S>                      <C>       <C>      <C>      <C>     <C> 
REVENUES                  $115,055  $106,696  $95,565  $91,932   $82,138    

INCOME FROM 
 CONTINUING OPERATIONS    $  3,601  $  1,168  $ 1,658  $ 3,417   $   476    

LOSS FROM  
 DISCONTINUED OPERATIONS       -         -       (595)    (116)     (146)   

EXTRAORDINARY ITEM             -        (282)     -       -          -  

CUMULATIVE EFFECT OF CHANGE
 IN ACCOUNTING PRINCIPLE       -         -        -       -          235    

NET INCOME                $  3,601  $    886  $ 1,063  $ 3,301    $  565   

EARNINGS (LOSS) PER
 COMMON SHARE (PRIMARY):
 CONTINUING OPERATIONS    $   1.05  $    .36  $   .52  $  1.10    $  .15

 DISCONTINUED OPERATIONS       -         -       (.19)    (.04)     (.04)

 EXTRAORDINARY ITEM            -        (.09)      -        -         - 

 CUMULATIVE EFFECT OF CHANGE
  IN ACCOUNTING PRINCIPLE      -          -        -        -        .07 
    
NET INCOME                $   1.05  $    .27  $   .33  $  1.06    $  .18

EARNINGS (LOSS) PER
 COMMON SHARE (  FULLY DILUTED):
 CONTINUING OPERATIONS    $   1.00  $    .36  $   .52  $  1.10    $  .15

 DISCONTINUED OPERATIONS\      -          -      (.19)    (.04)     (.04)

 EXTRAORDINARY ITEM            -         (.09)     -        -         -

 CUMULATIVE EFFECT OF CHANGE
  IN ACCOUNTING PRINCIPLE      -          -        -        -        .07
 

NET INCOME                $   1.00  $    .27  $   .33  $  1.06   $   .18

TOTAL ASSETS              $ 84,161  $ 77,848  $70,158  $68,852   $63,946

LONG-TERM DEBT            $ 23,556  $ 25,119  $14,541  $19,141   $18,279

DIVIDENDS PER 
  COMMON SHARE            $    -    $    -    $    -   $    -    $   -  
</TABLE>
<PAGE>
<PAGE> 11

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


RESULTS OF OPERATIONS

1997 vs. 1996:

      Income from continuing operations before income taxes and minority 
interest increased $4,153,000 in 1997.  In 1996, there were provisions for 
litigation settlements and legal costs of $2,039,000 (see Item 3 and Note 12 to 
Consolidated Financial Statements).  Revenue increases of $5,715,000 in the for-
eign operations contributed to an increase in operating profits of $2,815,000.
Manufacturing efficiencies and higher volume increased U.S. Consumer operating 
profits by $1,011,000.  Higher employee benefit and insurance costs, consulting
and professional expenses, and amortization of loan fees increased corporate
administrative expenses by $870,000.  Operating profits in the Industrial 
segment decreased $464,000 with gains in the Refractories division being more 
than offset by a decrease in the Graphite and Lubricants division operating 
profit, which suffered from competitive pricing pressures.  Interest expense 
increased $380,000 on higher average borrowing rates during the year.  The 1997 
effective tax rates increased to more normal U.S. statutory and state tax rates 
overall, compared with 1996 which was favorably affected by lower foreign tax 
rates.

1996 vs. 1995:

      Income from continuing operations before income taxes, minority interest
and extraordinary items decreased $1,014,000 in 1996.  In 1996 and 1995 there 
were provisions of $2,039,000 and $1,530,000, respectively, for litigation 
settlements and legal costs related to several lawsuits (see Item 3 and Note 12
to Consolidated Financial Statements).  Foreign Consumer operating profits 
decreased $962,000 primarily due to provisions for doubtful accounts receivable 
(of approximately $500,000) in Mexico, as well as 1995 foreign currency gains of
over $500,000.  The referenced $500,000 provision for doubtful accounts was
principally due to one large and unusual bad debt regarding a large Mexican
retailer.  The Company does not expect such losses to reoccur, nor does this
represent any trend or deterioration of the Company's Mexico accounts receiv-
able. Also in 1997, there were additional distribution and promotional costs 
incurred by U.S. Consumer to service the mass retail and mega-store markets.  
Interest expense decreased $229,000 due to lower average borrowings.  Income tax
expense decreased in the same proportions as before tax income.  The difference
between the effective tax rate and the U.S. statutory rate primarily is due to
the effect of lower foreign rates and certain permanent items.

1995 vs. 1994:

     Income from continuing operations before income taxes and minority interest
decreased $1,000,000 in 1995.  Included in 1995 are provisions of $1,530,000 for
litigation settlements and legal costs related to several lawsuits (see Item 3
and Note 12 to Consolidated Financial Statements).  In 1994 there was a gain on
sale of subsidiary stock and other assets of $2,313,000 relating primarily to 
the sale of stock in our Mexico subsidiary (see Note 8 to Consolidated Financial
Statements).  Net corporate expenses decreased $690,000 in 1995, while interest
<PAGE>
<PAGE> 12

expense decreased $678,000.  The interest expense reduction was principally due
to the Mexican subsidiary's low borrowing position subsequent to the
aforementioned sale of stock.  Income taxes decreased $380,000 on lower before
tax income and the 1995 effective rate decreased due to the impact of lower
foreign rates and certain permanent items.

Discontinued Operations:

      The 1995 loss from discontinued operations of the real estate segment
represents a net operating loss of $175,000 (net of a tax benefit of $104,000) 
and a loss on disposal of $420,000 (net of a tax benefit of $250,000).

Extraordinary Item:

      The 1996 extraordinary charge of $282,303 represents costs associated with
the early retirement of the Company's 10.59% Senior Subordinated Notes, due 
1999.  See Note 4 to Consolidated Financial Statements.

REVENUES

      Overall 1997 revenues increased $8,359,000 over the prior year.  The
changes by segment are as follows:

                           Increase         % Increase (Decrease)     
                          (Decrease)        Total  Volume  Price/Mix

      Consumer U.S.          $1,945,000        3      2        1
      Consumer Foreign        5,715,000       30     22        8
      Industrial                699,000        3      4       (1)

      U.S. Consumer revenue increased primarily in the educational, mass retail
and commercial office supply mega-store markets.  Revenue in Mexico and Canada
increased $4,168,000 and $1,326,000, respectively.  In both geographic areas 
there were aggressive efforts in the mass retail market.  In Mexico, there was a
decrease of $425,000 in revenue due to the decline in value of the peso compared
to the U.S. dollar.  The Industrial increase was primarily due to higher volume
in the Refractories division.

      While the Company has operations in Canada, Mexico and the U.K.,
historically only the operating results in Mexico have been materially impacted
by currency fluctuations.  There has been a significant devaluation of the
Mexican peso once in each of the last three decades, the last one being in
December 1994.  In the short term after such devaluation, consumer confidence 
has been shaken, leading to an immediate reduction in revenues in the months
following the devaluation.  Then, after the immediate shock, and as the peso
stabilizes, revenues tend to grow.  Selling prices tend to rise over the long 
term to offset any inflationary increases in costs.  The peso, as well as any 
currency value, depends on many factors including international trade, investor
confidence and government policy, to name a few.  These factors are impossible
for the Company to predict, and thus, an estimate of potential effect on results
of operations for the future cannot be made.  The Company's Mexico subsidiary 
purchased a peso currency option to protect against devaluation in excess of
approximately 10%.  This currency 
<PAGE>
<PAGE> 13

risk in Mexico is further managed through local currency financing and by export
sales to the U.S. denominated in U.S. dollars. Subsequent to September 30, 1997,
the Mexican peso devalued approximately 6% as compared with the U.S. dollar.
      Overall 1996 revenues increased $11,131,000 over the prior year.  The
changes by segment are as follows:

                                   Increase         % Increase (Decrease) 
                                  (Decrease)      Total  Volume  Price/Mix

           Consumer U.S.          $8,223,000       15     14        1
           Consumer Foreign        3,082,000       19     19        -
           Industrial               (174,000)      (1)     -       (1)

      Consumer revenues in the United States increased primarily in the
commercial office supply mega-stores and mass retail markets.  The increase 
in Foreign Consumer revenue included increases of $1,100,000 in Canada and
$1,960,000 in Mexico. In the prior year, Mexico revenue was depressed because of
the devaluation of the Mexican peso that occurred in early fiscal 1995.  This 
year's revenue decreased $1,700,000 in Mexico due to the decline of the peso
value compared to the U.S. dollar.  This decline was offset by increased peso 
selling prices.
      
      Revenues in 1995 increased $3,632,000 over the prior year.  The changes by
segment are as follows:

                                     Increase       % Increase (Decrease) 
                                    (Decrease)   Total  Volume  Price/Mix

           Consumer U.S.          $4,624,000        9      8        1
           Consumer Foreign       (2,198,000)     (13)    (9)      (4)
           Industrial              1,206,000        5      4        1

      U.S. Consumer revenue volume increases were primarily in the office supply
mega-store market.  The decrease in Foreign Consumer revenue was primarily due
to the majority-owned subsidiary in Mexico.  Revenue in Mexico decreased
$5,200,000 due to the decline of the peso value compared to the U.S. dollar. 
This decrease was partially offset by increased peso selling prices. Industrial
revenue increased primarily due to higher volume in the Refractories division.<PAGE>
<PAGE>
<PAGE> 14

OPERATING PROFITS

     There was an increase of $3,362,000 in operating profits by segment in 1997
(exclusive of provisions for litigation settlements and related costs). Foreign
operations increased $2,815,000.  Mexico operating profits increased $2,393,000
and Canada increased $368,000 on revenue increases of 45% and 15%, respectively.
U.S. Consumer operating profits increased $1,011,000 (exclusive of provisions 
for litigation settlements and related costs in 1996), primarily due to 
increased manufacturing efficiencies and higher volume.  Industrial operating 
profits decreased $464,000 primarily due to competitive pricing pressures in 
the Graphite and Lubricants division. Total cost of goods sold in 1997 decreased
(63.4% of sales as compared with 65.9% in 1996) due primarily to the 
aforementioned manufacturing efficiencies.

      There was a decrease of $582,000 in operating profits by segment in 1996
(exclusive of provisions for litigation settlements and related costs).  Foreign
Consumer operating profits decreased $962,000 primarily due to the aforemen-
tioned provisions for doubtful accounts receivable (of approximately $500,000) 
in Mexico, as well as 1995 foreign currency gains of over $500,000. U.S. 
Consumer operating profits increased $367,000.  This increase was due to the 
U.S. Consumer revenue growth.  However, additional distribution and promotional
costs incurred to service the U.S. Consumer retail and mega-store markets part-
ially offset revenue growth.  In addition, provisions for litigation settlements
and related costs increased over provisions made in 1995, and accordingly, 
decreased U.S. Consumer and Industrial operating profits by $411,000 and 
$98,000, respectively.

     Operating profits increased $1,476,000 in 1995 (exclusive of provisions for
litigation settlements and related costs).  Foreign operations increased 
$984,000. Our Canadian subsidiary increase of $396,000 reflected higher 
revenues and a stable year with respect to that country's currency.  The 
increase in Mexico was primarily due to increased shipments to the U.S. and 
related plant efficiencies and currency gains. Industrial Group revenues 
increased $350,000 on higher Refractories division volume. U.S. Consumer 
operating profits were relatively flat.  U.S. Consumer revenue and gross profit
increases were offset by increased selling and distribution costs, primarily 
incurred to service the office supply mega-store markets.  Total cost of 
goods sold in 1995 decreased (65.1% of sales as compared with 67.7% in 1994) 
due primarily to increased manufacturing efficiencies from higher production 
volume at the U.S. and Mexico Consumer plants.  Litigation settlements and 
related costs decreased U.S. Consumer and Industrial operating profits by 
$1,049,000 and $481,000, respectively.
      
MINORITY INTEREST

      Minority interest represents 20.2% of the net income of the consolidated
subsidiary, Dixon Ticonderoga de Mexico, S.A. de C.V. from February 1997 and
49.9% prior thereto ($808,536 and $920,522 in fiscal 1997 and 1996,
respectively), equivalent to the extent of the investment of the minority
shareholders.  As described in Note 8 to Consolidated Financial Statements, this
minority interest was created by an initial public offering in 1994.  The 
Company repurchased approximately 30% of its subsidiaries shares in February 
1997.
<PAGE> 15

EFFECT OF CERTAIN NEW ACCOUNTING PRONOUNCEMENTS

      In 1997, the Financial Accounting Standards Board (FASB) issued Statement
No. 128 "Earnings Per Share."  This statement, which is effective for the
Company's first quarter of fiscal 1998, establishes new requirements for the
calculation, presentation and disclosure of earnings per share.  There will be
a requirement to present two earnings per share calculations. Basic earnings per
share will be calculated on the weighted average of shares outstanding.  The
second calculation, diluted earnings per share, will be based on the weighted 
average of shares outstanding plus the effects of potentially dilutive common 
shares.  The effect on fiscal years 1997, 1996, and 1995 is disclosed in Note 9
to Consolidated Financial Statements.

      Also in 1997, the FASB issued Statement No. 130 "Reporting Comprehensive
Income" which is effective for the Company in fiscal 1999.  This statement
requires the reporting of net income and all other charges to equity during the
period, except those resulting from investments by owners and distributions to
owners, in a separate statement that begins with net income or in the
consolidated statement of operations below net income.  The Company estimates 
that currently the only component of comprehensive income that bypasses the
statement of operations is foreign currency translation adjustments presently 
being reported in the Consolidated Statement of Shareholders' Equity.
<PAGE>
<PAGE> 16
LIQUIDITY AND CAPITAL RESOURCES

      The Company's financial condition has benefited significantly from its
recent operating success and the completion of major financing initiatives.  
Cash flows from operating activities in 1997 improved by approximately $5.7 
million over the prior year, due principally to higher operating profits, 
increased receivable collections and more strict inventory control and accounts 
payable management practices.   Income from operations increased $2.4 million 
and inventory levels remained relatively flat, despite an increase in consol-
idated revenues of 8%.  Despite strong collection efforts, total accounts 
receivable increased approximately $2.5 million on the higher revenues 
(although this increase was significantly less than in 1996).  Account payable 
management procedures also contributed to improved operating cash flows.  As is 
the case historically, cyclical short-term borrowings (see below) financed peak 
mid-year increases in accounts receivable and inventories.
      The Company's investing activities included approximately $2 million in 
purchases of property and equipment in 1997.  This lower level of purchases as
compared with prior years is attributable to the 1996 construction of the
Company's new corporate headquarters facility in Heathrow, Florida.  
Expenditures to complete this building project approximated $2.2 million in 1996
(with a total project cost of approximately $3.6 million).  The construction 
costs were ultimately financed through a permanent $2.73 million mortgage 
arrangement.  (See Note 4 to Consolidated Financial Statements).  The Company 
also financed certain strategic manufacturing equipment (in the amount of $2.7 
million) under a long-term operating lease arrangement.  (See Note 12 to 
Consolidated Financial Statements).  Generally, all major capital projects are 
discretionary in nature and thus no material purchase commitments exist. Capital
expenditures will continue to be funded from operations and existing financing 
or new leasing arrangements.
      In July 1996, the Company entered into new financing arrangements with a
consortium of lenders to provide additional working capital.  The new loan and
security agreement provides for a total of $48 million in financing.  This
includes a revolving line of credit facility in the amount of $40 million which
bears interest at either the prime rate, plus 0.5%, or the prevailing LIBOR rate
plus 2.5%.  Borrowings under the revolving credit facility are based upon
eligible accounts receivable and inventories of the Company's U.S. and Canada 
operations, as defined.  The financing agreement also includes a term loan in 
the original amount of $7.75 million.  The term loan bears interest at the same 
rate, and is payable in varying monthly installments through 2001.  The Company
previously executed certain interest rate "swap" agreements which effectively 
fix the rate of interest on approximately $13 million of this debt at 8.75% to
8.87%.
      These new financing arrangements are collateralized by the tangible and 
intangible assets of the U.S. and Canada operations (including accounts
receivable, inventories, property, plant and equipment, patents and trademarks)
and a pledge of the capital stock of the Company's subsidiaries. The loan and 
security agreement contains provisions pertaining to the maintenance of certain
financial ratios and annual capital expenditure levels, as well as restrictions
as to payment of cash dividends.  The Company is presently in compliance with 
all such provisions.  These new arrangements provide up to $10 million in 
additional financing as compared with the Company's previous primary lender 
agreement.  At September 30, 1997, the Company had approximately $24 million of 
unused lines of credit available under this new financing arrangement.
<PAGE>
<PAGE> 17

      In September 1996, the Company also completed the private placement of
$16.5 million of new 12% Senior Subordinated Notes, due 2003.  The net proceeds
were used to retire early the remaining $7 million of the Company's prior issue
of Senior Subordinated Notes due 1999, and to reduce short-term borrowings, thus
providing additional working capital.  This transaction also reduced the
Company's annual debt service obligations by approximately $3.3 million through
1998.  The Company executed a reverse interest rate "swap" agreement which
converts $10 million of the notes to a floating rate of interest (approximately
10.8% at September 30, 1997).  In connection with the private placement, the
Company issued to noteholders warrants to purchase 300,000 shares of Company
stock at $7.24 per share.  The note agreement contains provisions which limit 
the payment of dividends and require the maintenance of certain financial 
covenants and ratios, with which the Company is presently in compliance.
      The Company entered into the aforementioned interest rate "swap" 
agreements to balance and manage overall interest rate exposure and minimize 
overall cost of borrowings.  The "swaps" are not presently expected to have a 
material effect on total interest expense over the term of the underlying 
agreements.
      The Company's repurchase of its Mexico subsidiary's stock in February 1997
(see Note 8 to Consolidated Financial Statements) was financed through the
aforementioned revolving line of credit facility.  The Company's subsidiary's 
acquisition of Vinci de Mexico, S.A. de C.V., completed in December 1997, was 
financed entirely through its on-hand cash and cash equivalents.
      Refer to Notes 3 and 4 to Consolidated Financial Statements for further 
description of the aforementioned financing arrangements.
      The new and existing sources of financing and cash expected to be generat-
ed from future operations will, in management's opinion, be sufficient to ful-
fill all current and anticipated requirements of the Company's ongoing business 
and to meet all of its obligations.

YEAR 2000 COMPUTER ISSUES

      The Company is in process of assessing and addressing the impact of the 
year 2000 on its computer hardware and software. The Company's principal
operating and application software is believed to be year 2000 compliant,
although peripheral applications and/or personal computer systems may not be. 
Management and its outside management information consultants are in the process
of developing a plan to assure full compliance by 1999.  Accordingly, the 
Company does not expect this matter to materially impact how it conducts 
business nor its future results of operations or financial position.

FORWARD-LOOKING STATEMENTS

      Any "forward-looking statements" contained in this Annual Report on Form
10-K involve known and unknown risks, uncertainties and other factors that could
cause the actual results to differ materially from those expressed or implied by
such forward-looking statements.
<PAGE>
<PAGE> 18

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
                    DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
              INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
<CAPTION>
<S>                                                   <C>PAGE

Report of Independent Accountants                        19

Consolidated Balance Sheets as of
 September 30, 1997 and 1996                             20

Consolidated Statements of Operations For the Years
 Ended September 30, 1997, 1996 and 1995               22-23 

Consolidated Statements of Shareholders' Equity
 For the Years Ended September 30, 1997, 1996 and 1995   24

Consolidated Statements of Cash Flows For the Years
 Ended September 30, 1997, 1996 and 1995               25-26

Notes to Consolidated Financial Statements             27-43

Schedule For the Years Ended
 September 30, 1997, 1996, and 1995:

        II. Valuation and Qualifying Accounts           44

Consent of Independent Accountants                      45

</TABLE>
      Information required by other schedules called for under Regulation S-X is
either not applicable or is included in the Consolidated Financial Statements or
Notes thereto.
<PAGE>
<PAGE> 19

                         REPORT OF INDEPENDENT ACCOUNTANTS


Shareholders and Board of Directors of
Dixon Ticonderoga Company


      We have audited the accompanying consolidated financial statements and the
financial statement schedule of Dixon Ticonderoga Company and subsidiaries as 
listed in the index on page 17 of this Form 10-K.  These financial statements 
and the financial statement schedule are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these financial
statements and the financial statement schedule 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 audit provides a reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Dixon
Ticonderoga Company and subsidiaries at September 30, 1997 and 1996, and the
consolidated results of their operations and cash flows for each of the three 
years in the period ended September 30, 1997, in conformity with generally
accepted accounting principles.  In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material 
respects, the information required to be included therein.




                                                  COOPERS & LYBRAND L.L.P.




Orlando, Florida
November 26, 1997,
 except as to Note 14 for which
 the date is December 19, 1997
<PAGE>
<PAGE> 20
<TABLE>                                  
                    DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
                            CONSOLIDATED BALANCE SHEETS
                            SEPTEMBER 30, 1997 AND 1996
<CAPTION>
<S>                                           <C>              <C>
         ASSETS                                   1997             1996    

CURRENT ASSETS:

 Cash and cash equivalents                     $ 5,607,587    $  2,597,032

 Receivables, less allowance for
  doubtful accounts of $1,004,537
  in 1997 and $1,352,411 in 1996                25,969,659      23,442,889

 Inventories                                    31,580,175      31,460,934

 Other current assets                            3,225,881       3,044,796
         Total current assets                   66,383,302      60,545,651

PROPERTY, PLANT AND EQUIPMENT:
 Land and buildings                             16,955,803      15,711,724
 Machinery and equipment                        17,130,035      16,537,994
 Furniture and fixtures                            944,267         917,222

                                                35,030,105      33,166,940

 Less accumulated depreciation                 (19,542,880)    (17,730,505)

                                                15,487,225      15,436,435 

OTHER ASSETS                                     2,290,712       1,866,054

                                              $ 84,161,239    $ 77,848,140
</TABLE>
<PAGE>
<PAGE> 21
         
         LIABILITIES AND
         SHAREHOLDERS' EQUITY                     1997            1996   


CURRENT LIABILITIES:

 Notes payable                                 $16,058,080     $14,159,143
 Current maturities of long-term debt            1,745,080       1,613,773
 Accounts payable                                7,077,955       5,461,348
 Accrued liabilities                            12,712,385      10,934,838

         Total current liabilities              37,593,500      32,169,102

LONG-TERM DEBT                                  23,555,618      25,119,305

DEFERRED INCOME TAXES AND OTHER                  1,142,631       1,051,171

MINORITY INTEREST                                2,006,865       3,517,006

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
 Preferred stock, par $1, authorized
  100,000 shares, none issued                         --             --
 Common stock, par $1, authorized
  8,000,000 shares, issued 3,591,681
  shares in 1997 and 3,537,211
  shares in 1996                                  3,591,681       3,537,211
 Capital in excess of par value                   2,770,668       2,489,674
 Retained earnings                               17,127,698      13,526,520
 Cumulative translation adjustment               (2,768,856)     (2,669,031)
                                                 20,721,191      16,884,374
 Less treasury stock, at cost
  (234,094 shares in 1997; 243,433
  shares in 1996)                                  (858,566)       (892,818)

                                                 19,862,625      15,991,556

                                                $84,161,239     $77,848,140


                   The accompanying notes are an integral part 
                    of the consolidated financial statements.
<PAGE>
<PAGE> 22
<TABLE>
                    DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF OPERATIONS
               FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
<CAPTION>
<S>                                 <C>             <C>           <C>
                                    1997            1996          1995     

REVENUES                        $115,054,806     $106,695,874   $95,565,000

COSTS AND EXPENSES:
 Cost of goods sold               72,916,837       70,343,837    62,193,918
 Selling and 
  administrative expenses         31,252,037       27,955,760    24,241,328
 Provisions for litigation
  settlements and related costs       --            2,039,000     1,530,377 

                                 104,168,874      100,338,597    87,965,623

OPERATING INCOME                  10,885,932        6,357,277     7,599,377
                                      
INTEREST EXPENSE                  (3,799,760)      (3,423,650)   (3,652,824)

INCOME FROM CONTINUING 
 OPERATIONS BEFORE INCOME TAXES 
 AND MINORITY INTEREST             7,086,172        2,933,627     3,946,553

INCOME TAXES                       2,676,458          845,044     1,137,897
                                   4,409,714        2,088,583     2,808,656

MINORITY INTEREST                    808,536          920,522     1,150,690

INCOME FROM CONTINUING OPERATIONS  3,601,178        1,168,061     1,657,966

DISCONTINUED OPERATIONS:                             
 Loss from operations                  --             --           (174,923)
 Loss on disposal                      --             --           (420,000) 

                                       --             --           (594,923)

EXTRAORDINARY ITEM                     --           (282,303)       -- 
   
                                                                        
       

NET INCOME                      $  3,601,178     $    885,758   $1,063,043
</TABLE>
<PAGE>
<PAGE> 23

EARNINGS (LOSS) PER
COMMON SHARE (PRIMARY):
 Continuing operations                $   1.05       $    .36       $   .52
 Discontinued operations                   --             --           (.19)
 Extraordinary item                        --            (.09)          --  
       
     Net income                       $   1.05       $    .27       $  .33    

EARNINGS (LOSS) PER
COMMON SHARE (FULLY DILUTED):
 Continuing operations                $   1.00       $    .36       $  .52
 Discontinued operations                   --             --          (.19)
 Extraordinary item                        --            (.09)         --
                                                                        
       
     Net income                       $   1.00       $    .27       $  .33    












                   The accompanying notes are an integral part 
                    of the consolidated financial statements.
<PAGE>
<PAGE> 24
<TABLE>
                                 DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
                              CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                         FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
<CAPTION>
                                         Common      Capital in                   Cumulative
                                       Stock $1      Excess of     Retained     Translation
Treasury
                                           Par Value     Par Value     Earnings      Adjustment   Stock 
 

<S>                                       <C>           <C>           <C>           <C>            <C>

BALANCE, September 30, 1994               $ 3,424,873     $ 2,042,639   $11,577,719   $  (531,455)$ 
(972,912)
 Net income                                                             1,063,043
 Cumulative translation adjustment                                                   (1,555,899)
 Employee stock options exercised              23,593        91,985
 Employee Stock Purchase Plan
  (10,123 shares)                                            31,705                               
37,132


BALANCE, September 30, 1995               $ 3,448,466   $ 2,166,329   $12,640,762   $(2,087,354)$ 
(935,780)
 Net income                                                               885,758
 Cumulative translation adjustment                                                     (581,677)
 Employee stock options exercised              88,745       295,368
 Employee Stock Purchase Plan
  (11,714 shares)                                            27,977                               
42,962 


BALANCE, September 30, 1996               $ 3,537,211   $ 2,489,674   $13,526,520   $(2,669,031)$ 
(892,818)                                 
 Net income                                                             3,601,178
 Cumulative translation adjustment                                                      (99,825)
 Employee stock options exercised              54,470         260,669
 Employee Stock Purchase Plan
  (9,339 shares)                                             20,325                               
34,252 

BALANCE, September 30, 1997               $ 3,591,681   $ 2,770,668   $17,127,698   $(2,768,856)$ 
(858,566)
                                          
The accompanying notes are an integral part 
of the consolidated financial statements.
</TABLE>
<PAGE>
<PAGE> 25
<TABLE>
                       DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
                          CONSOLIDATED STATEMENTS OF CASH FLOWS
                  FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
<CAPTION>
                                          1997         1996         1995    
<S>                                    <C>           <C>         <C> 
Cash flows from operating activities:

Income from continuing operations       $3,601,178    $1,168,061  $1,657,966
Loss from discontinued  operations           --            --       (594,923)
Loss from extraordinary item                 --         (282,303)      --
Adjustments to reconcile net income
 to net cash provided by (used in)
 operating activities:

  Depreciation and amortization          2,571,660    2,361,081   2,379,728
  Deferred taxes                          (228,039)    (900,298)     83,802
  Provision for doubtful accounts
   receivable                              248,576      977,965     421,850
  Income attributable to
   minority interest                       808,536      920,522   1,150,690
  (Income) loss attributable 
   to currency transactions                 80,829         (201)   (511,424)
  Changes in assets [(increase) 
   decrease] and liabilities
   [increase(decrease)]:

   Receivables, net                     (2,862,231)  (6,627,147)   (227,805)
   Inventories                            (207,379)     632,502    (929,306)
   Other current assets                   (374,881)     122,595     147,739 
   Accounts payable and accrued
    liabilities                          3,703,760    3,176,740     (21,632)
   Other assets                           (655,730)    (530,503)    114,006

Net cash provided by (used in)         
  operating activities                   6,686,279    1,019,014    (329,309)

Cash flows from investing activities:

  Purchases of plant and equipment      (1,938,543)  (4,090,295) (3,007,547)
</TABLE>                                 

<PAGE>
<PAGE> 26
<TABLE>
<CAPTION>
                                         1997         1996         1995    
<S>                                 <C>         <C>           <C> 
Cash flows from financing activities:

Principal additions to Senior
  Subordinated Notes                     --       16,500,000       --       
Principal reductions of Senior
  Subordinated Notes                     --      (10,350,000)  (3,325,000)
Proceeds from additions to 
  long-term debt                         --        2,725,000       --   
Proceeds from additions to 
  notes payable                      1,918,202         --       8,040,299  
Principal reductions of 
  long-term debt                    (1,433,695)   (1,222,847)  (1,131,276)
Purchase of subsidiary stock        (2,519,324)        --          --
Principal reductions of 
  notes payable                          --       (3,718,522)      --       
Other non-current liabilities          197,435        (1,949)    (109,626)   
Employee Stock Purchase Plan            54,577        70,939       68,837  
Exercise of stock options              162,512       384,113      115,578 

Net cash provided by (used in)
  financing activities              (1,620,293)    4,386,734    3,658,812  

Effect of exchange rate changes
 on cash                              (116,888)     (232,043)    (631,098)                                 

Net increase (decrease) in cash
  and cash equivalents               3,010,555     1,083,410     (309,142)                                 

Cash and cash equivalents, 
  beginning of year                  2,597,032     1,513,622    1,822,764                                 

Cash and cash equivalents, 
  end of year                       $5,607,587   $ 2,597,032   $ 1,513,622  

 


Supplemental Disclosures:
 Cash paid during the year for:

 Interest (net of amount capitalized      
  in 1996 and 1995)                 $4,127,005   $ 3,545,106   $ 3,697,023
 Income taxes                        1,570,774       972,403     1,616,427                                 

The accompanying notes are an integral part 
of the consolidated financial statements.
</TABLE>
<PAGE>
<PAGE> 27

                       DIXON TICONDEROGA COMPANY AND SUBSIDIARIES

                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

      Business:
      
      Dixon Ticonderoga Company is a diversified manufacturer and marketer of 
      writing and art products as well as a producer of graphite, lubricant and
      refractory products.  Its largest principal customers are school products
      distributors, mass merchandisers and industrial manufacturers, although 
      none account for over 6% of revenues.
      
      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 dates of the
      financial statements, and the reported amounts of revenues and expenses 
      during the reporting periods.  Actual results could differ from those
      estimates.
      
      Loss contingencies:
      
      The Company recognizes loss contingencies, including environmental
      liabilities, when they become probable and the related amounts can be
      reasonably estimated.
      
      Principles of consolidation:
      
      The consolidated financial statements include the accounts of Dixon
      Ticonderoga Company and all of its subsidiaries (the "Company").  All
      significant intercompany transactions and balances have been eliminated in
      consolidation.  Minority interest represents the minority shareholders' 
      proportionate share of the equity of the Company's Mexico subsidiary
      (49.9% at the beginning of the year).  In February the company repurchased
      shares of this subsidiary on the open market reducing the minority
      interest to 20.2%
      
      Translation of foreign currencies:
      
      In accordance with Financial Accounting Standards Board (FASB) Statement
      No. 52, the Company has determined that each foreign subsidiary's
      functional currency is their local currency.  All assets and liabilities
      are translated at period-end exchange rates.  All revenues and expenses
      are translated using average exchange rates during that period.
      Translation gains and losses are reflected as a separate component of
      shareholders' equity, except for Mexico.  As of January 1, 1997 Mexico is
      considered a highly inflationary economy for purposes of applying this
      statement.  Mexico translation gains and losses, therefore, affect results
      of operations after January 1, 1997.  Gains and losses from foreign
      currency transactions are 
<PAGE>
<PAGE> 28
      included in the Consolidated Statement of Operations.  Foreign currency 
      transaction gains (losses) included in net income were approximately
      ($81,000) and $511,000, for fiscal years 1997 and 1995, respectively.
      
      Cash and cash equivalents:
      
      Cash and cash equivalents include investment instruments with a maturity
      of three months or less at time of purchase.
      
      Inventories:
      
      Inventories are stated at the lower of cost or market.  Certain
      inventories amounting to $16,601,000 and $16,253,000, at September 30,
      1997 and 1996, respectively, are stated on the last-in, first-out (LIFO)
      method of determining inventory costs.  Under the first-in, first-out
      (FIFO) method of accounting, these inventories would be $803,000 and
      $958,000 higher at September 30, 1997 and 1996, respectively. All other
      inventories are accounted for using the FIFO method.
      
      The financial accounting basis for the LIFO inventories exceeds the LIFO
      tax basis by approximately $1,280,000 and $1,276,000 at September 30, 1997
      and 1996, respectively.
      
              Inventories consist of (in thousands):
      
                                              September 30,
                                            1997           1996   
      
              Raw material               $ 11,760       $ 12,538
              Work in process               4,400          4,268
              Finished goods               15,420         14,655
      
                                         $ 31,580       $ 31,461
       
      Property, plant and equipment:
      
      Property, plant and equipment are stated at cost. During 1997, there was
      no capitalized interest.  Depreciation is provided principally on a
      straight-line basis over the estimated useful lives of the respective
      assets.  The range of estimated useful lives by class of property, plant
      and equipment are as follows:
      
              Buildings and improvements 10-25 years
              Machinery and equipment     5-15 years
              Furniture and fixtures      3- 5 years
      
      When assets are sold or retired, their cost and related accumulated
      depreciation are removed from the accounts.  Any gain or loss is included
      in income.
<PAGE> 29
      
      Income taxes:
      
      The Company recognizes deferred tax assets and liabilities for future tax
      consequences of events that have been included in the financial statements
      or tax returns.  Under this method, amounts for deferred tax assets and 
      liabilities are determined based on the differences between the financial
      statement and tax bases of assets and liabilities using enacted tax 
      rates.  Valuation allowances are established when necessary to reduce 
      deferred tax assets to the amount expected to be realized.  Income tax 
      expense is the tax payable for the period and the change during the period
      in deferred tax assets and liabilities.
      
      Reporting comprehensive income:
      
      In 1997, the FASB issued Statement No. 130 "Reporting Comprehensive
      Income" which is effective for the Company in fiscal 1999.  This statement
      requires the reporting of net income and all other changes to equity
      during the period, except those resulting from investments by owners and
      distributions to owners, in a separate statement that begins with net
      income or in the consolidated statement of operations below net income. 
      The Company estimates that currently the only component of comprehensive
      income that bypasses the statement of operations is foreign currency
      translation adjustments presently being reported in the Consolidated
      Statement of Shareholders' Equity.
      
      Reclassifications:
      
      Certain prior year amounts have been reclassified to conform with the
      current year classifications.
      
(2)   ACCRUED LIABILITIES:
      
      The major components of accrued liabilities are as follows (in thousands):
      
                                                    September 30,
                                                1997              1996  
      
              Salaries and wages              $ 2,775          $  2,012
              Employee benefit plans              680               769
              Income taxes                      2,615             1,572
              Other                             6,642             6,582
      
                                              $12,712          $ 10,935
      
(3)   NOTES PAYABLE:
      
      In July 1996, the Company entered into new financing arrangements with a
      consortium of lenders to provide additional working capital.  The new loan
      and security agreement provides for a total of $48 million in financing 
      through July 1999.  This includes a revolving line of credit facility in
      the amount of $40 million which bears interest at either the prime rate 
      (8.5% at September 30, 1997), plus 0.5%, or the prevailing LIBOR rate
      (approximately 5.7% at September 30, 1997) plus 2.5%.  Borrowings under
       
<PAGE>
<PAGE> 30
      the revolving credit facility ($15,960,000 as of September 30, 1997) 
      are based upon eligible accounts receivable and inventories of the 
      Company's U.S. and Canada operations, as defined.  In addition, the 
      financing agreement also includes a term loan in the original amount 
      of $7.75 million (see Note 4).  In 1995, the Company executed an 
      interest rate "swap" agreement which effectively fixes the rate of 
      interest on approximately $5 million of the revolver debt at 8.87% for
      five years.  The carrying value of borrowings under the revolving 
      credit facility is a reasonable estimate of fair value as interest 
      rates are based on prevailing market rates.
      
      These financing arrangements are collateralized by the tangible and
      intangible assets of the U.S. and Canada operations (including accounts 
      receivable, inventories, property, plant and equipment, patents and
      trademarks) and a pledge of the capital stock of the Company's
      subsidiaries. The loan and security agreement contains provisions
      pertaining to the maintenance of certain financial ratios and annual
      capital expenditure levels, as well as restrictions as to payment of cash
      dividends.  As of September 30, 1997, the Company is in compliance with
      all such provisions.  These arrangements provide up to $10 million in
      additional financing as compared with the Company's previous primary
      lender agreement. At September 30, 1997, the Company had approximately $24
      million of unused lines of credit available under the revolving credit
      facility.  A fee of 0.25% is paid on the unused portion of this facility.
       
      The weighted average interest rate of the Company's outstanding notes
      payable (including foreign borrowings) was 9.0%, 8.6%, and 9.4% as of
      September 30, 1997, 1996 and 1995, respectively.
      
(4)   LONG-TERM DEBT:
      
      Long-term debt consists of the following (in thousands):
      
                                                       September 30,     
                                                      1997       1996   
      
              12% Senior Subordinated Notes       $ 16,500    $ 16,500
              Bank term loan                         6,000       7,500
              Building mortgage                      2,619       2,717
              Other                                    181          16
      
                                                    25,300      26,733
             Less-current maturities                (1,745)     (1,614)
      
                                                  $ 23,555    $ 25,119
      
      
      In September 1996, the Company completed the private placement of $16.5 
      million of new 12% Senior Subordinated Notes valued at their face amount,
      due 2003.  The net proceeds were used to retire early the remaining $7
      million of the Company's prior issue of 10.59% Senior Subordinated Notes
      due 1999, to reduce short-term borrowings and to provide additional
      working capital.  This transaction also reduced the Company's annual debt
      service obligations by approximately $3.3 million through 1998. The
      Company executed 
<PAGE>
<PAGE> 31
      
      a reverse interest rate "swap" agreement which converts $10 million of the
      notes to a floating rate of interest (approximately 10.8% at September 30,
      1997).  In connection with the private placement, the Company issued to 
      noteholders warrants to purchase 300,000 shares of Company stock at $7.24
      per share. No value was assigned to the warrants, which expire in 2003, 
      based on a fair market value determination at the date of issuance. The 
      note agreement contains provisions which limit the payment of dividends
      and require the maintenance of certain financial covenants and ratios.  As
      of September 30, 1997, the Company is in compliance with all such
      provisions.
      
      In connection with the early retirement of the 10.59% Senior Subordinated
      Notes in 1996, the Company incurred a loss on early extinguishment of debt
      of $448,303 ($282,303, after tax), presented as an extraordinary item in
      the accompanying consolidated financial statements.
      
      The loan and security agreement with the Company's primary lender (see
      Note 3) also includes a term loan in the original amount of $7.75 
      million. Interest on the term loan is payable monthly at either the 
      bank's prime rate (8.5% at September 30, 1997) plus 0.5% or the prevailing
      LIBOR rate (approximately 5.7% at September 30, 1997) plus 2.5%.  In 1995,
      the Company executed an interest rate "swap" agreement which effectively 
      fixes the term loan rate at 8.75% through its maturity.  The term loan is
      payable in varying monthly installments through May 2001.
      
      In addition, in 1996 the Company entered into a mortgage agreement with 
      respect to its corporate headquarters building in Heathrow, Florida.  The
      mortgage (in the original amount of $2.73 million) is for a period of 15
      years and bears interest at 8.1%.
      
      Carrying values of the Senior Subordinated Notes, the bank term loan and
      the building mortgage are reasonable estimates of fair value as interest
      rates are based on prevailing market rates.  The aggregate fair value of
      the Company's three interest rate "swap" agreements (discussed in Note 3
      and above) is an unrecognized gain of approximately $58,000, representing
      the net value of the underlying agreements, if settled as of September 30,
      1997.
      
      Aggregate maturities of long-term debt are as follows (in thousands):
      
                              1998             1,745
                              1999             1,872
                              2000             1,799
                              2001             6,746
                              2002             5,647     
                              Thereafter       7,491
                                             $25,300
<PAGE>
<PAGE> 32

(5)   INCOME TAXES:
      
      The components of net deferred tax asset recognized in the accompanying 
      consolidated balance sheet are as follows (in thousands):

                                                      1997        1996   

      U.S. current deferred tax assets
        (included in other current assets)          $ 1,818    $ 1,884
      Foreign current deferred tax liability         
        (included in accrued liabilities)              (535)      (758)
      U.S. and foreign, noncurrent deferred
         tax liability (included in deferred
         income taxes and other)                       (913)    (1,017)

        Net deferred tax asset                      $   370    $   109

      Deferred tax assets:
       Vacation pay                                 $   238    $   193
       Accrued pension                                  269        175
       Accrued legal                                    979        983
       Accrued environmental costs                      137        135
       Accounts receivable                                8        224
       Other                                            115        111
       Foreign net operating loss carryforward          501        504
       Valuation allowance                             (501)      (504)

        Total deferred tax asset                      1,746      1,821  

      Deferred tax liabilities:
       Inventories                                     (423)      (549)
       Depreciation                                    (327)      (461)
       Property, plant and equipment                   (626)      (502)
       Foreign dividend income                          --        (200)

        Total deferred tax liability                 (1,376)    (1,712)

        Net deferred tax asset                      $   370    $   109


      It is the policy of the Company to accrue deferred income taxes on
      temporary differences related to the financial statement carrying amounts
      and tax bases of investments in foreign subsidiaries which are expected to
      reverse in the foreseeable future.  Certain undistributed earnings of
      foreign subsidiaries that are essentially permanent in duration and not 
      expected to reverse in the foreseeable future approximate $13,406,000 as
      of September 30, 1997.  The determination of the unrecognized deferred tax
      liability for such temporary differences is not practicable.
      <PAGE>
<PAGE> 33
      
      The provision for income taxes (benefit) from continuing operations is
      comprised of the following (in thousands):

                                     1997          1996      1995  
              Current:
                   U.S. Federal    $  773        $  910     $  795
                   State               85            13         44
                   Foreign          2,046           822        215
                                    2,904         1,745      1,054
              Deferred:
                   U.S. Federal       (51)         (740)      (612)
                   Foreign           (177)         (160)       696

                                     (228)         (900)        84
                                   $2,676        $  845     $1,138

      Foreign deferred tax provision (benefit) is comprised principally of
      temporary differences related to Mexico asset purchases. U.S. deferred
      benefit in 1996 and 1995 results primarily from expenses accrued but not
      deductible for taxes.
      
      The Company has net operating loss carryforwards for its United Kingdom 
      subsidiary of approximately $2,000,000 without an expiration date.  
      
      The differences between the provision for income taxes on continuing
      operations computed at the U.S. statutory federal income tax rate and the
      provision in the consolidated financial statements are as follows (in
      thousands):
                                                  1997      1996     1995 


        Amount computed using statutory rate     $2,409    $  997   $1,342

        Foreign income                               38      (327)    (329)

        State taxes, net of federal benefit          56         9       29

        Permanent differences                       138       126      104

        Others                                       35        40       (8)

        Provision for income taxes               $2,676    $  845   $1,138

      Permanent differences result primarily from intercompany net income that
      is eliminated from the consolidated statements of operations but are taxed
      in various jurisdictions.
      
      The Company has paid the total obligation assessed under a Revenue Canada
      examination for its tax years 1991 through 1993.  A Revenue Canada
      examination is in process with respect to its 1994 and 1995 tax years. 
      The Company and its outside tax advisors have assessed the potential
      outcome of the current examination and believe that the above income tax
      provisions are 
<PAGE>
<PAGE> 34
      adequate to resolve these examinations without materially affecting the 
      Company's future results of operations or financial position.

(6)   EMPLOYEE BENEFIT PLANS:

      The Company maintains several defined benefit pension plans covering
      substantially all union employees.  The benefits are based upon fixed
      dollar amounts per years of service.  The assets of the various plans
      (principally corporate stocks and bonds, insurance contracts and cash
      equivalents) are managed by independent trustees.  The policy of the
      Company and its subsidiaries is to fund the minimum annual contributions
      required by applicable regulations.  

      The following table sets forth the plans' funded status (accumulated
      benefits exceed assets in all plans) at September 30, 1997 and 1996 (in 
      thousands):
                                                        September 30,        
                                                      1997       1996 


         Actuarial present value of:
  
         Accumulated benefit obligation             $(3,428)   $(3,530)

         Projected benefit obligation               $(3,428)   $(3,530)

         Plan assets at market value                  2,243      2,277

         Projected benefit obligation in excess
           of plan assets                            (1,185)    (1,253)

         Unrecognized net gain from past
           experience different from assumptions        571        474

         Unrecognized net obligation being 
           recognized over periods from 
           10 to 16 years                               683        762

         Prepaid pension (liability)                $    69    $   (17)

      Net periodic pension costs include the following components (in
      thousands):

                                                      1997   1996    1995 

      Service costs - benefits earned during period  $ 126  $ 124   $ 100
      Interest cost on projected benefit obligation    220    222     184
      Actual (return) loss on plan assets              (58)  (167)   (150)
      Net amortization and deferral                     30    155     155

      Net periodic pension cost                      $ 318  $ 334   $ 289

     In determining the projected benefit obligation, the assumed discount
     rates ranged from 4.5% to 7.5% for 1997 and 1996, and 6.0% to 7.5% for
     1995. The expected long-term rates of return on assets used in determining
     net periodic pension cost ranged from 7.5% to 8.5% for 1997, 7.5% to 8.5%
     
<PAGE>
<PAGE> 35
     for 1996, and 7.5% to 8.5% for 1995.  There are no assumed rates of 
     increase in compensation expense in any year, as benefits are fixed and 
     do not vary with compensation levels.
      
     The Company also maintains a defined-contribution plan (401K) for all
     non-union domestic employees who meet minimum service requirements, as well
     as a supplemental deferred contribution plan for certain executives. 
     Company contributions under the plans consist of a basic 3% of the
     compensation of participants for the plan year, and for those participants
     who elected to make voluntary contributions to the plan, matching
     contributions up to an additional 4%, as specified in the plan.  Charges
     to operations for these plans for the years ended September 30, 1997, 1996,
     and 1995 were $617,000, $586,000, and $552,000, respectively.
 
 (7) SHAREHOLDERS' EQUITY:
  
     The Company provides an employee stock purchase plan under which 100,000
     shares of its common stock can be issued.  Among the terms of this plan,
     eligible employees may purchase through payroll deductions shares of the
     Company's common stock up to 10% of their compensation  at the lower of 85%
     of the fair market value of the stock on the first or last day of the plan
     year (May 1 and April 30).  On May 1, 1997, 1996, and 1995, 9,339, 11,714,
     and 10,123 shares, respectively, were issued under this plan.  At September
     30, 1997, there are 110,350 shares available for future purchases under the
     plan.
 
     In addition, the Company has granted options to key employees, under the
     1988 Dixon Ticonderoga Company Executive Stock Plans to purchase shares of
     its common stock at the market price on the date of grant.  Options under
     the 1979 Plan (as amended) become exercisable one year after date of grant
     and were exercisable during a period not to exceed ten years from date of
     grant.  Under the 1988 Plan (as amended) options vest 25% after one year;
     25% after two years; and 50% after three years, and remain exercisable for
     a period of three years from the date of vesting.  All options expire three
     months after termination of employment.  At September 30, 1997, there were
     533,185 options outstanding and 100,927 shares available for future grants
     under the Plans.  The following table summarizes the combined stock options
     activity for 1997, 1996 and 1995:
<PAGE>
<PAGE> 36
 <TABLE>
 <CAPTION>              1997                1996                 1995      
 <S>                    <C>        <C>        <C>       <C>         
<C>     <C>     
                     Number of Option     Number of Option     Number of Option
                      Shares   Price       Shares   Price       Shares   Price
 
Options outstanding                        74,026   $4.20       74,026   $4.20
 beginning of year    36,817   $4.75       52,333    4.75       75,302    4.75
                                            1,500    5.13        2,000    5.13
                      42,375    7.75       42,375    7.75       43,000    7.75
                       2,000    6.13        2,000    6.13        2,000    6.13
                      97,000    8.63       99,000    8.63
                      92,000    6.75      
                      17,000    7.13
                        
                        
Options exercised                         (74,026)   4.20
                     (36,720)   4.75      (14,069)   4.75     (22,969)    4.75 
                                                                 (500)    5.13
                     ( 2,625)   6.75
                     ( 1,250)   7.13                      
                     ( 6,375)   7.75                             (125)    7.75
                     ( 7,500)   8.63
                                                         
Options granted                                                 2,000     8.13
                                                              100,000     8.63
                                           94,000    6.75
                                           17,000    7.13
                                                                     
                     351,000    8.88                 

Options expired      (    97)   4.75      (1,447)     4.75
 or canceled                              (1,500)     5.13
                     (17,065)   7.75                           ( 500)     7.75
                                                              (2,000)     8.13
                     (16,750)   8.63      (2,000)     8.63    (1,000)     8.63
                     (16,625)   6.75      (2,000)     6.75          
                                                         
                     533,185             287,192             271,234                            
</TABLE>
      The Company has adopted the disclosure-only provisions of FASB 123 and
      applies Accounting Principles Board Opinion (APB) No. 25 and related
      interpretations in accounting for its stock option plans.  Accordingly, 
      there is no compensation expense recognized for its stock option plans.
      
      Pro forma net income and earnings per share would have been as follows if
      the fair market estimates were used to record compensation expense:
      
                                                   1997       1996  
      
        Net income                             $3,503,790  $ 866,587
        Earnings per share: 
              Primary                          $     1.02  $     .27
              Fully diluted                    $      .97  $     .27
<PAGE>
<PAGE> 37

      These pro forma amounts were estimated using the Black-Scholes valuation
      model assuming no dividends, expected volatility of 33%, risk-free
      interest rate of 6.5%, and expected lives of approximately six years.  The
      weighted average fair value estimates of options granted during 1997 and
      1996 was $2.98 and $1.86, respectively.  The weighted average remaining
      lives are 6.75 and 3.5 for options granted in 1997 and 1996, respectively.
      
      In March 1995, the Company declared a dividend distribution of one
      Preferred Stock Purchase Right on each share of Company common stock. 
      Each Right will entitle the holder to buy one-thousandth of a share of a
      new series of preferred stock at a price of $30.00 per share.  The Rights
      will be exercisable only if a person or group (other than the Company's 
      chairman, Gino N. Pala, and his family members) acquires 20% or more of
      the outstanding shares of common stock of the Company or announces a
      tender offer following which it would hold 30% or more of such outstanding
      common stock.  The Rights entitle the holders other than the acquiring
      person to purchase Company common stock having a market value of two times
      the exercise prices of the Right.  If, following the acquisition by a
      person or group of 20% or more of the Company's outstanding shares of
      common stock, the Company were acquired in a merger or other business
      combination, each Right would be exercisable for that number of the
      acquiring company's shares of common stock having a market value of two
      times the exercise prices of the Right.

      The Company may redeem the Rights at one cent per Right at any time until
      ten days following the occurrence of an event that causes the Rights to 
      become exercisable for common stock.  The Rights expire in ten years.

(8)   SUBSIDIARY STOCK REPURCHASE:

      In February 1997, the Company repurchased 9,900,000 shares (or
      approximately 30%) of its subsidiary, Dixon Ticonderoga de Mexico, S.A. de
      C.V., from a consortium of Mexican financial institutions.  The shares, 
      which were repurchased for approximately $2.5 million (or 25 cents per
      share), were originally issued in 1994, when the Company sold 16,627,760
      shares of Dixon Ticonderoga de Mexico, S.A. de C.V., in an initial public
      offering on the Mexico Intermediate Market at a price of approximately 40
      cents per share (US equivalency).  The Company applied the purchase method
      of accounting to record this repurchase of subsidiary stock.

(9)   EARNINGS PER COMMON SHARE:

      Earnings per common share for 1997 are based on the weighted average of 
      shares outstanding and the dilutive effect of common stock equivalents
      outstanding for the period.  Common stock equivalents consist of stock
      options (Note 7) and stock warrants (Note 4).  In 1996 and 1995 common
      stock equivalents were not included in the calculation of primary earnings
      per share as they were not dilutive.
      
      Fully diluted earnings per common share for 1997 reflect the maximum
      dilution that would have resulted from the exercise of all common stock 
      equivalents.  In 1996 and 1995 fully diluted earnings per share were not 
<PAGE>
<PAGE> 38
      reported because the effects of the common stock equivalents were not
      dilutive.
      
      Average common shares (and equivalents in 1997) used in the calculation of
      earnings per share are as follows:
      
              Year            Primary               Fully Diluted
              1997            3,433,801             3,602,120
              1996            3,233,684             3,233,684
              1995            3,180,626             3,180,626
      
      In 1997, the FASB issued Statement No. 128 "Earnings Per Share."  This
      statement, which is effective for the Company's first quarter of fiscal 
      1998, establishes new requirements for the calculation, presentation and
      disclosure of earnings per share.  There will be a requirement to present
      two earnings per share calculations.  Basic earnings per share will be
      calculated on the weighted average of shares outstanding.  The second
      calculation, diluted earnings per share, will be based on the weighted
      average of shares outstanding plus the effects of potentially dilutive
      common shares.  The following would be the earnings per share if this
      statement were in effect for each of the three years presented in the
      accompanying consolidated financial statements:
                                         Basic         Diluted
      1997
      Continuing operations           $      1.08    $     1.05
      Discontinued operations                  --           --
      Extraordinary item                       --           --
                                                                
           Net income                 $      1.08    $     1.05
      
      1996
      Continuing operations           $       .36    $      .36
      Discontinued operations                  --            -- 
      Extraordinary item                     (.09)         (.09)
                                                                 
           Net income                 $       .27    $      .27  
      
      1995
      Continuing operations           $       .52    $     .51  
      Discontinued operations                (.19)        (.18) 
      Extraordinary item                       --           --          
         
                                                                
           Net income                 $       .33    $     .33 

(10)  DISCONTINUED OPERATIONS:

      Pursuant to a 1995 formal plan and agreement, the Company transferred the
      remaining property and its developmental rights dedicated to the Bryn Mawr
      Ocean Towers Condominium project to its Association.  Discontinued
      operations in 1995 reflect a loss on disposal of $420,000 (net of a tax 
      benefit of $250,000).

      The Real Estate segment has been accounted for as a discontinued operation
      as of September 30, 1995, and, accordingly, its operating results are 
<PAGE>
<PAGE> 39
      reported in this manner in all years presented in the accompanying
      Consolidated Financial Statements and related data.  There were no
      revenues in 1995.  Net real estate operating losses were $279,000 and
      related income tax benefits were $104,000 in 1995.

(11)  LINE OF BUSINESS REPORTING:

      The Company has two principal business segments -- its Consumer Group and
      Industrial Group. The following information sets forth certain data
      pertaining to each line of business as of September 30, 1997, 1996 and
      1995, and for the years then ended (in thousands).

                             Consumer   Industrial        Total
                              Group       Group          Company
           Net 
           revenues:

            1997             $89,416       $25,639       $115,055
            1996             $81,756       $24,940       $106,696
            1995             $70,451       $25,114       $ 95,565

           Operating 
           profits:

            1997             $ 9,908       $ 3,243       $ 13,151
            1996             $ 4,622       $ 3,128       $  7,750
            1995             $ 5,628       $ 3,213       $  8,841

      Certain corporate expenses have been allocated based upon respective
      segment sales, including provisions for litigation settlements and related
      costs of $2,039 and $1,530 in 1996 and 1995, respectively. Interest
      expense was $3,800, $3,424 and $3,653; general corporate expenses were
      $2,265, $1,393, and $1,241 in 1997, 1996 and 1995, respectively, resulting
      in income from continuing operations before income taxes of $7,086, $2,934
      and $3,947, in 1997, 1996 and 1995, respectively.

                             Consumer   Industrial        Total
                              Group       Group          Company
           Identifiable
            assets:

            1997             $64,224       $14,164       $ 78,388
            1996             $59,115       $13,417       $ 72,532
            1995             $51,373       $13,801       $ 65,174

<PAGE>
<PAGE> 40
      Corporate assets were $5,773, $5,316, and $4,984, at September 30, 1997, 
      1996, and 1995, respectively.

                             Consumer   Industrial        Total
                              Group       Group          Company
           Depreciation and
            amortization:

            1997             $ 1,306       $   500       $ 1,806 
            1996             $ 1,296       $   441       $ 1,737
            1995             $ 1,347       $   456       $ 1,803

           Expenditures for
            plant and equipment:

            1997             $   773       $   914       $ 1,687
            1996             $ 1,250       $   585       $ 1,835
            1995             $ 1,029       $   461       $ 1,490


      Corporate depreciation and amortization were $766, $624, and $577, for the
      years ended September 30, 1997, 1996 and 1995, respectively.  Corporate
      expenditures for equipment were $371, $2,418, and $1,601, in 1997, 1996
      and 1995, respectively.
   
   
        Foreign operations (Consumer Group):
   
                                                    Operating     Identifiable
                                      Revenues       Profits       Assets   
              1997:
                Canada               $10,041        $ 1,038        $ 7,305
                Mexico                13,714          4,339         13,140
                United Kingdom         1,092              9            667
   
   
              1996:
                Canada               $ 8,715       $   670         $ 6,277
                Mexico                 9,544         1,946           8,906
                United Kingdom           873           (45)            635
   
              1995:
                Canada               $ 7,623       $   576         $ 6,839
                Mexico                 7,588         2,997           8,085
                United Kingdom           839           (40)            648
   
      In 1997, the FASB issued Statement No. 131 "Disclosures About Segments of
      an Enterprise and Related Information" which is effective for the Company
      in fiscal 1999.  This statement revises current guidelines and requires 
      financial information to be reported on the basis that it is used
      internally for evaluating segment performance and resource allocation.  
      Total assets, segment profit (loss) and other key items are required to be
      reported as this data would be reported in
<PAGE>
<PAGE> 41
      internal financial statements.  The Company does not expect this new 
      statement to significantly affect how it presently defines or reports
      its business segment data.


(12)  COMMITMENTS AND CONTINGENCIES:
   
      Under an agreement with Warner Bros. Consumer Products, the Company
      manufactures and markets in the U.S. and Canada a complete line of
      products featuring the famous Looney Tunes characters.  Under the terms
      of the agreement, the Company is obligated to pay a total of $1 million
      through 1999, for the right to market and sell all types of pencils, 
      pens, crayons, chalks, markers, paints, art kits and related items.  
      Through fiscal 1997, the Company has paid $202,000 of $278,000 earned
      by Warner Bros.
      
      The Company has entered into employment agreements with two executives
      which provide for the continuation of salary (currently aggregating
      $32,300 per month) and related employee benefits for a period of 24
      months following their termination of employment under certain changes
      in control of the Company.  In addition, all options held by the
      executives would become immediately exercisable upon the date of
      termination and remain exercisable for 90 days thereafter.
      
      The Company leases certain manufacturing equipment under a five-year 
      noncancelable operating lease arrangement.  The rental expense under 
      this lease was $322,000 in 1997.  Annual future minimum rental payments
      are approximately $417,000 per year through 2001 and $104,000 in 2002.
      
      In November 1996, the Company's New Castle Refractories Division entered
      into an agreement to perpetually license certain silicon carbide
      refractory brick technology from Carborundum Corporation.  Under the 
      terms of the perpetual license agreement, the Company is obligated to
      pay a fixed sum of $450,000 with payments made through 2001 or earlier,
      if certain stipulated sales levels are reached.  The Company also
      executed related agreements to, at its option, purchase manufactured 
      product or specific equipment from Carborundum Corporation.  The Company
      had no sales utilizing this technology in 1997.
      
      The Company, in the normal course of business, is party in certain
      litigation.  Ongoing litigation includes a claim under New Jersey's
      Environmental Clean-Up Responsibility Act (ECRA) by a 1984 purchaser of
      industrial property from the Company.  On April 24, 1996, a decision was
      rendered by the Superior Court of New Jersey in Hudson County finding
      the Company responsible for $1.94 million in certain environmental
      clean-up costs relating to this matter.  Including pre-judgment interest
      on the damage award, the Company estimates its exposure to be 
      approximately $3.3 million.  The Company continues to pursue
      other responsible parties for indemnification and/or contribution to the
      payment of this claim (including its insurance carriers and a legal
      malpractice action against its former attorney).  A subsequent appeal has
      been denied and the Company filed with the New Jersey Supreme
      Court for relief from the original judgment (see Note 14).  As a 
      result of the judgment, a provision of approximately $2 million 
      ($1.44 million, net of tax or 45 cents per share) was
<PAGE>
<PAGE> 42
      recorded in 1996.  In 1995, the Company provided approximately $1.5
      million in total ($960,000 net of tax or 30 cents per share) for
      settlement and related legal costs associated with three separate
      lawsuits, including $1.3 million for the aforementioned ECRA claim.  No
      anticipated recoveries from insurance carriers or other third parties
      have been considered in these recorded loss provisions.
      
      The Company has evaluated the merits of other litigation and believes
      their outcome will not have a further material effect on the Company's
      future results of operations or financial position.
      
      The Company assesses the extent of environmental matters on an ongoing
      basis.  In the opinion of management (after taking into account accruals
      of approximately $400,000 as of September 30, 1997), the resolution of
      these matters will not materially affect the Company's future results
      of operations or financial position.
<PAGE>
<PAGE> 43
(13)  SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (In Thousands,
      Except Per Share Data):
   
   
   1997:                          First     Second      Third     Fourth
        
        Revenues                 $22,308    $21,907    $36,364   $34,476
        Operating income           1,293      1,115      4,401     4,077
        Income before taxes
          and minority interest      493        220      3,364     3,009
        Minority interest           (153)      (146)      (206)     (304)
        Net income                   214         50      1,896     1,441 
        Earnings per share           .07        .02        .57       .39
   
   
   1996:                          First     Second      Third     Fourth
        
        Revenues                 $20,946    $20,622    $33,170   $31,958
        Operating income (loss)      980     (1,023)*    3,680     2,720
        Income (loss) before taxes
          and minority interest      365     (1,814)*    2,759     1,624
        Minority interest           (114)      (127)      (348)     (332)
        Extraordinary item            --         --         --      (282)
        Net income (loss)            151     (1,254)*    1,417       572
        Earnings (loss) per share    .05       (.39)*      .44       .17
   
   
        
   *    Reflects provision for litigation settlements and related costs as 
        described in Note 12.
   
   
(14)  SUBSEQUENT EVENTS:
   
   On December 12, 1997, the Company's subsidiary, Dixon Ticonderoga de Mexico, 
   S.A. de C.V., acquired all of the capital stock of Vinci de Mexico, S.A. de
   C.V. ("Vinci"), and certain assets of a related entity for a total 
   purchase price of approximately 27.2 million pesos ($3.3 million) in cash.
   Vinci is a well-known manufacturer of tempera and oil paints, chalk and 
   modeling clay in Mexico.  The company also manufactures plastic products 
   (such as rulers and geometric sets), water colors and crayons.

   On December 19, 1997, the Company learned that its request to the New 
   Jersey Supreme Court for a hearing of its ECRA litigation has been
   denied (see Note 12).
<PAGE>
<PAGE> 44
   <TABLE>
   <CAPTION>
                       DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
                    SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
                 FOR THE THREE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
   
                                                           Deductions
                             Balance at    Additions        From     Balance
                             Beginning      Charged       Reserves   at Close
      Description            of Period     to Income        (1)      of Period
   <S>                      <C>           <C>            <C>        <C>
   ALLOWANCE FOR DOUBTFUL
     ACCOUNTS:
   
     Year Ended
      September 30, 1997    $1,352,411    $ 248,576     $ 596,450   $1,004,537
   
     Year Ended
      September 30, 1996    $  796,715    $ 977,965     $ 422,269   $1,352,411
   
     Year ended
      September 30, 1995    $  564,905    $ 421,850     $ 190,040   $ 796,715
   
   
   
   
   (1)  Write-off of accounts considered to be uncollectible (net of
        recoveries).
   
   
   
   
   
   
   <PAGE>
<PAGE> 45
   
                           CONSENT OF INDEPENDENT ACCOUNTANTS
   
   
   
   Shareholders and Board of Directors of
   Dixon Ticonderoga Company
   
   
        We consent to the incorporation by reference in the registration 
   statements of Dixon Ticonderoga Company on Form S-8 (File Nos.
   33-20054, 33-23380 and 333-22205) and on Form S-2 (File No. 333-22119) of 
   our report, dated November 26, 1997, except as to Note 14, for which the 
   date is December 19, 1997, on our audits of the consolidated financial 
   statements and financial statement schedule of Dixon Ticonderoga Company 
   and subsidiaries as of September 30, 1997 and 1996, and for each of the 
   three years in the period ended September 30, 1997, which report is 
   included in this Annual Report on Form 10-K.
   
   
   
   
   
                                         COOPERS & LYBRAND L.L.P.
   
   
   
   Orlando, Florida
   December 19, 1997
<PAGE>
<PAGE> 46
 
 ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
           AND FINANCIAL DISCLOSURES
 
      None.
                                     PART III
 
 
 ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
 
      Certain information required under this Item with respect to Directors and
Executive Officers will be contained in the Company's 1997 Proxy Statement,
pursuant to Regulation 14A, which is incorporated herein by reference.
      The following table sets forth the names and ages of the Company's
Executive Officers, together with all positions and offices held with the 
Company by such Executive Officers.  All Executive Officers are subject to
re-election or re-appointment by the Board of Directors at the first Directors'
Meeting succeeding the next Annual Meeting of shareholders.

Name                    Age        Title

Gino N. Pala             69   Chairman of the Board since February  
(Father-in-law of             1989; President and Chief Executive     
Richard F. Joyce)             Officer since July 1985; prior thereto 
                              President and Co-chief Executive 
                              Officer since 1978.

Richard A. Asta          41   Executive Vice President of Finance 
                              and Chief Financial Officer since 
                              February 1991; prior thereto Senior 
                              Vice President - Finance and Chief 
                              Financial Officer since March 1990.

Richard F. Joyce         42   Vice Chairman of the Board since
 (Son-in-law of               January 1990; President and Chief 
  Gino N. Pala)               Operating Officer, Consumer Group, 
                              since March, 1996; Executive Vice
                              President and Chief Legal Executive 
                              since February 1991; prior thereto 
                              Corporate Counsel since July 1990.
<PAGE>
<PAGE> 47

Leonard D. Dahlberg, Jr. 46   Executive Vice President, Industrial 
                              Group, since March 1996; prior thereto 
                              Executive Vice President of 
                              Manufacturing/Consumer Products 
                              Division since August 1995; prior 
                              thereto Senior Vice President of 
                              Manufacturing since February 1993; 
                              prior thereto Vice President of 
                              Manufacturing since March 1990.

Kenneth A. Baer          51   Vice President and Treasurer since 
                              January 1991; prior thereto Treasurer 
                              since November 1985. 

Laura Hemmings           46   Corporate Secretary since January 
                              1986; prior thereto secretary to 
                              President and Chief Executive Officer 
                              since February 1982.

John Adornetto           56   Vice President and Corporate 
                              Controller since January 1991; prior 
                              thereto Corporate Controller since 
                              September 1978.

Richard H. D'Antonio     49   Senior Vice President and Chief 
                              Information Officer since March 1996; 
                              prior thereto Vice President of 
                              Information Services since October 
                              1993; prior thereto Principal of RHD 
                              Management Consulting since May 1990.

ITEM 11.  EXECUTIVE COMPENSATION

      Information required under this Item will be contained in the Company's 
1997 Proxy Statement which is incorporated herein by reference.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
            OWNERS AND MANAGEMENT

      Information required under this Item will be contained in the Company's 
1997 Proxy Statement which is incorporated herein by reference.
<PAGE>
<PAGE> 48

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      Information required under this Item will be contained in the Company's 
1997 Proxy Statement which is incorporated herein by reference.

                                      PART IV
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K 

(a)    Documents filed as part of this report:

       1.  Financial statements

       See index under Item 8. Financial Statements and Supplementary Data.

       2.  Exhibits

       The following exhibits are required to be filed as part of this Annual
       Report on Form 10-K:

       (3)(i)     Restated Certificate of Incorporation**

       (3)(ii)    Amended and Restated Bylaws*
       
       (4) a.     Specimen Certificate of Company Common Stock**

       (4) b.     Amended and Restated Stock Option Plan***

       (10)a.     First Modification of Amended and Restated Revolving Credit 
                  Loan and Security Agreement by and among Dixon Ticonderoga 
                  Company, Dixon Ticonderoga, Inc., First Union Commercial 
                  Corporation, First National Bank of Boston and National Bank 
                  of Canada*

       (10)b.     12.00% Senior Subordinated Notes, Due 2003, Note and Warrant 
                  Purchase Agreement*

       (10)c.     12.00% Senior Subordinated Notes, Due 2003, Common Stock 
                  Purchase Warrant Agreement*

       (10)d.     License and Technological Agreement between Carborundum 
                  Corporation and New Castle Refractories Company, a division 
                  of Dixon Ticonderoga Company*

       (10)e.     Equipment Option and Purchase Agreement between Carborundum 
                  Corporation and New Castle Refractories Company, a division 
                  of Dixon Ticonderoga Company*

       (10)f.     Product Purchase Agreement between Carborundum Corporation 
                  and New Castle Refractories Company, a division of Dixon 
                  Ticonderoga Company*

       (21)       Subsidiaries of the Company*

       (27)       Financial Data Schedule****
<PAGE>
<PAGE> 49

*Incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended September 30, 1996, file number 0-2655, filed in Washington, D.C.

**Incorporated by reference to the Company's quarterly report on Form 10-Q for
the period ended March 31, 1997, file number 0-2655, filed in Washington, D.C.

***Incorporated by reference to Appendix 3 to the Company's Proxy Statement
dated January 27, 1997, filed in Washington, D.C.

****Filed electronically via EDGAR.

(b)    Reports on Form 8-K:

       None.
<PAGE>
<PAGE> 50

                                    SIGNATURES

       Pursuant to the requirements of Section 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this Annual Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized.

                                       DIXON TICONDEROGA COMPANY


                                       /s/  Gino N. Pala          
                                       Gino N. Pala, President and
                                       Chief Executive Officer

       Pursuant to the Securities Exchange Act of 1934, this Annual Report on 
Form 10-K has been signed below by the following persons on behalf of the 
Company in the capacities indicated.


/s/  Gino N. Pala                 Chairman of Board, President, Chief
     Gino N. Pala                 Executive Officer and Director
                                  Date:  December 19, 1997

/s/  Richard F. Joyce             Vice Chairman, Executive Vice President/
     Richard F. Joyce             Corporate Counsel and Director
                                  Date:  December 19, 1997

/s/  Richard A. Asta              Executive Vice President of Finance and
     Richard A. Asta              Chief Financial Officer
                                  Date:  December 19, 1997

                                  Director
     Joseph R. Sadowski           Date:  December 19, 1997


/s/  Philip M. Shasteen           Director
     Philip M. Shasteen           Date:  December 19, 1997


/s/  Ben Berzin, Jr.              Director
     Ben Berzin, Jr.              Date:  December 19, 1997


/s/  Bobby Brantley               Director
     Bobby Brantley               Date:  December 19, 1997


/s/  John E. Ramondo              Director
     John E. Ramondo              Date:  December 19, 1997


/s/  Kent Kramer                  Director
     Kent Kramer                  Date:  December 19, 1997


<PAGE>
<PAGE> 51

                                    SIGNATURES

       Pursuant to the requirements of Section 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this Annual Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized.

                                       DIXON TICONDEROGA COMPANY


                                                                   
                                       Gino N. Pala, President and
                                       Chief Executive Officer

       Pursuant to the Securities Exchange Act of 1934 this Annual Report on 
Form 10-K has been signed below by the following persons on behalf of the 
Company in the capacities indicated.


                               Chairman of Board, President, Chief
     Gino N. Pala              Executive Officer and Director
                               Date:  December 19, 1997

                               Vice Chairman, Executive Vice President/
     Richard F. Joyce          Corporate Counsel and Director
                               Date: December 19, 1997

                               Executive Vice President of Finance and
     Richard A. Asta           Chief Financial Officer
                               Date: December 19, 1997

                               Director
     Joseph R. Sadowski        Date: December 19, 1997


                               Director
     Philip M. Shasteen        Date: December 19, 1997


                               Director
     Ben Berzin, Jr.           Date: December 19, 1997


                               Director
     Bobby Brantley             Date: December 19, 1997


                               Director
     John E. Ramondo           Date: December 19, 1997


                               Director
     Kent Kramer               Date: December 19, 1997





</TABLE>