SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

                                    FORM 10-K

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 ( d )

                     OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 2002     Commission file number  1-8689

                            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, 2002.

___   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 Number)

  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 4, 2002, the aggregate market value
of the voting stock held by non-affiliates of the Company was $3,715,085.

Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of December 4, 2002:  3,192,832  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, 2002.

                                       1
<PAGE>


                                     PART I
                                     ------

ITEM 1.   BUSINESS
------------------
                          RECENT EVENTS AND STRATEGIES
                          ----------------------------

     Dixon Ticonderoga Company,  (hereinafter the "Company") focused its efforts
in fiscal 2002 toward  enhancing cash flows and reducing debt,  while working to
successfully  restructure its existing  lending  arrangements and thus stabilize
its  capital  structure.  On  October  3, 2002,  the  Company  closed a complete
refinancing and  restructuring of its senior and subordinated debt through 2005,
resolving  existing defaults and providing  additional working capital liquidity
for  operations.  Moreover,  in 2002 the Company  improved  its cash  management
processes  and  accelerated  its  inventory   reduction   efforts  resulting  in
approximately  $8.4  million  in  cash  provided  by  operating  activities.  In
addition, total funded debt (net of cash balances) decreased $6.5 million or 16%
in fiscal 2002.
     The Company  also  continued  its  aggressive  manufacturing  consolidation
initiative  by  completing  its second phase and  commencing  Phase 3 which will
result in the complete shutdown of its Sandusky, Ohio manufacturing facility and
other cost reduction activities.  The Company recognized an additional charge of
approximately  $1.1 million in its fourth  quarter of fiscal 2002 in  connection
with this final phase of its overall consolidation plan.
     In  December  2002,  the  Company  entered  into a  strategic  distribution
arrangement  with a third-party  logistics  partner under which the  third-party
will distribute the Company's  products from its facility in Statesville,  North
Carolina.  Management  expects the  strategic  alliance  will  enhance  customer
service while reducing fixed costs related to its prior distribution center.
     In addition,  the Company  continued  its  expansion of  production  at its
wholly-owned  China subsidiary,  Beijing Dixon Ticonderoga  Stationery  Company,
Ltd.  This  subsidiary  also acts as a sourcing arm,  providing  certain new and
innovative products for international sale.
     In December 2002, the Company  finalized an agreement to sell its Newcastle
Refractories  division,  the last  business of its  Industrial  Group,  to local
management. The transaction is expected to close in early 2003.
     Further  information  regarding these matters is included elsewhere in this
Annual Report on Form 10-K.

<TABLE>
<CAPTION>

                              COMPANY ORGANIZATION
                              --------------------
                            Dixon Ticonderoga Company
                                    (Parent)
<S>                    <C>             <C>                   <C>              <C>

       -----------------------------------------------------------------------
       |               |                |                    |                |
       |               |                |                    |                |
       |               |                |                    |                |
     Dixon           Dixon        Dixon Industrial      Beijing Dixon     Ticonderoga
 Ticonderoga,    Europe, Ltd.   Mexico, S.A. de C.V.     Ticonderoga       Graphite,
  Inc. Canada   (Wholly-Owned) /Inactive(Wholly-Owned)   Stationery      Inc./Inactive
(Wholly-Owned)                                          Company, Ltd.    (Wholly-Owned)
                                                       (Wholly-Owned)
       |
       |
 Grupo Dixon,
 S.A. de C.V.
and subsidiaries
 (97% Owned)
</TABLE>


                                       2
<PAGE>


                                INDUSTRY SEGMENTS
                                -----------------

     The Company has one principal  continuing  business  segment:  its Consumer
Group. This segment's primary operations are the manufacture and sale of writing
and drawing  pencils,  pens,  artist  materials,  felt tip  markers,  industrial
markers,  lumber  crayons,  correction  materials and allied  products.  Certain
financial information regarding net revenues, operating profits and identifiable
assets for the years ended  September  30, 2002,  2001 and 2000, is contained in
Note 11 to Consolidated Financial Statements.

CONSUMER GROUP
--------------

     The Company  manufactures its leading brand  Ticonderoga(R) and a full line
of pencils  in  Versailles,  Missouri.  The  Company  manufactures  and  markets
advertising specialty pencils, pens and markers through its promotional products
division. The Company also manufactures and markets Wearever(R) and Dixon(R) pen
writing  products  as well as  Prang(R)  and  Ticonderoga(R)  lines of  markers,
mechanical pencils and allied products.
     Through 2002, the Company manufactured some or all of its Prang(R) brand of
soy-bean based and wax crayons, chalks, dry and liquid tempera, water colors and
art materials,  in Sandusky,  Ohio.  Commencing in 2003,  these products will be
manufactured by the Company's majority-owned (97%) subsidiary, Grupo Dixon, S.A.
de C.V. (Grupo Dixon).
     Under a licensing agreement with NASCAR(R), The Company markets pencils and
pens with the NASCAR brand and features  certain top  NASCAR(R)  drivers.  Also,
under an agreement with Warner Bros. Consumer Products, the Company also markets
in Canada and Mexico a line of pencils,  pens and related products featuring the
famous Looney Tunes(R) and Scooby Doo(R) characters.
     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 group.
     Grupo Dixon is engaged,  through its  subsidiaries,  in the manufacture and
sale in Mexico  of black  and color  writing  and  drawing  pencils,  correction
materials, lumber crayons and allied products. Grupo Dixon also manufactures and
sells  in  Mexico,  under  its  Vinci(R)  brand,  certain  products  of the type
manufactured at the Sandusky  facility,  as well as marker products and modeling
clay. Grupo Dixon also  manufactures  special markers for industrial use, all of
which are marketed and sold together with the products  discussed  above, by the
U.S. Consumer division.
     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.
     Beijing  Dixon  Ticonderoga   Stationery  Company,   Ltd.,  a  wholly-owned
subsidiary of the Company,  is  principally  engaged in the  manufacture of wood
slats for pencil  manufacturing  and the  sourcing and  distribution  of certain
consumer products for international sale by the Company.
     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.

INDUSTRIAL GROUP (DISCONTINUED OPERATIONS)
------------------------------------------

     In  September  2001,  the Company  formalized  its decision to sell its New
Castle  Refractories  division,  the last business of its Industrial  Group.  In
December 2002, the Company finalized an agreement to sell this division to local
management.  This 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 for furnace  linings and
industrial  furnace  construction;  various  grades of insulating  firebrick and
graphite stopper heads. The Company expects to conclude the sale in early 2003.

                                       3
<PAGE>

                                  DISTRIBUTION
                                  ------------

     Consumer products  manufactured and/or marketed in the U.S. 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 an effort to enhance  service levels
(especially with large retail  customers),  the Company entered into a strategic
distribution  arrangement  with a  third-party  located  in  Statesville,  North
Carolina.  The consumer  products  manufactured  and/or  marketed by the Canada,
Mexico and Europe  subsidiaries  are  distributed  nationally in these countries
from leased facilities and sold through wholesalers, distributors, school supply
houses and retailers.

                                  RAW MATERIALS
                                  -------------

     Wood slats for pencil  manufacturing  can be  considered  a  strategic  raw
material for the Company's  business and are purchased from various suppliers in
the U.S.,  Indonesia  and China  (including  the  Company's  wholly-owned  China
subsidiary). There were no significant raw material shortages of any consequence
during 2002 nor are any expected in the near future.

                       TRADEMARKS, PATENTS AND COPYRIGHTS
                       ----------------------------------

     The Company  owns a large  number of  trademarks,  patents  and  copyrights
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 or at risk with respect to
the  protection  of any patent or patent  application  or the  expiration of any
patent.

                        SEASONAL ASPECTS OF THE BUSINESS
                        --------------------------------

     Greater portions  (approximately  60% in 2002) of the Company's sales occur
in the  third  and  fourth  fiscal  quarters  of the  year due to  shipments  of
back-to-school  orders to its  distribution  network.  This  practice as well as
certain extended  customer payment terms,  which are standard for this industry,
causes the Company to incur additional bank borrowings during the period between
shipment and payment.

                                   COMPETITION
                                   -----------

     The Company is engaged in a highly  competitive  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,  customer  service 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 22 full-time  professional  employees in
the area of quality control and product  development.  For accounting  purposes,
research and  development  expenses in any year  presented  in the  accompanying
Consolidated Financial Statements represent less than 1% of revenues.

                                    EMPLOYEES
                                    ---------

     The total number of persons employed by the Company was approximately 1,499
of which 439 were employed in the United States.



                                       4
<PAGE>

ITEM 2.  PROPERTIES
-------------------

     The properties of the Company,  set forth in the following  table are owned
and  are  collateralized  under  the  Company's  senior  and  subordinated  debt
agreements.  The  Heathrow,  Florida,  property,  is also  subject to a separate
mortgage agreement.  (See Note 4 to Consolidated  Financial Statements.) Most of
the buildings are of steel frame and masonry or concrete construction.

                                                                  SQUARE FEET
                             LOCATION                           OF FLOOR SPACE
  ------------------------------------------------------------- --------------
  Heathrow, Florida (Corporate Headquarters)                        33,000

  Sandusky, Ohio (Consumer)                                        276,000

  Versailles, Missouri (Consumer)                                  120,000

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

  Beijing, China
   (Beijing Dixon Ticonderoga Stationery Company, Ltd.) (Consumer)  25,000

  New Castle, Pennsylvania
   (Refractories division/discontinued operations)                 131,000

  Newell, West Virginia
   (Refractories division/discontinued operations)                  45,000

  Massillon, Ohio
   (Refractories division/discontinued operations)                 113,000


     The Company's Mexico subsidiary leases a 300,000 square-foot  facility near
Mexico City, used for distribution and certain manufacturing operations, as well
as its corporate  headquarters.  The Company's Canada  subsidiary  leases 12,000
square feet in Newmarket, Ontario used for distribution and office space.


ITEM 3. LEGAL PROCEEDINGS
-------------------------

     In April 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. In January 1998, the Company paid $3.6 million to
satisfy  this  claim  in full,  including  all  accrued  interest.  The  Company
continued  to  pursue  other  responsible  parties  for  indemnification  and/or
contribution to the payment of this claim (including its insurance carriers) and
in fiscal 2000 the Company  reached  settlements  with its various  insurers for
reimbursement  of legal  costs in the  amount of  $653,000.  In 2001,  a pending
malpractice  suit  against  its former  attorneys  was  settled  and the Company
received $575,000. (Also see Note 13 to Consolidated Financial Statements.)
     The Company  believes  that there are no pending  actions which will have a
material  adverse  effect on the  Company's  financial  condition  or results of
operations.


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

     None.



                                       5
<PAGE>

                                     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 under the symbol "DXT". The following table sets forth the low and high
per share  prices as per the  American  Stock  Exchange  closing  prices for the
applicable quarter.

                                FISCAL 2002        FISCAL 200
           QUARTER ENDING       LOW    HIGH        LOW    HIGH
        --------------------   -----  ------      -----  ------
         December 31           $1.10  $2.50      $2.13   $5.00
         March 31               1.62   1.75       2.75    5.50
         June 30                1.45   2.00       3.35    4.50
         September 30           1.10   1.63       2.15    4.10


     The Board of Directors has indefinitely  suspended the payment of dividends
which is also restricted under the Company's new debt agreements. (See Note 4 to
Consolidated Financial Statements.)
     The number of record  holders of the Company's  common stock at December 3,
2002 was 421.


                                       6
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA
--------------------------------
<TABLE>
<CAPTION>


                   DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
                   FOR THE FIVE YEARS ENDED SEPTEMBER 30, 2002
                    (in thousands, except per share amounts)
<S>                               <C>          <C>         <C>         <C>          <C>
                                  2002         2001        2000        1999         1998
                               ----------   ----------  ----------  ----------   ----------
REVENUES 1                      $ 88,591     $ 88,319    $ 88,867    $ 95,041     $ 96,695
                               ==========   ==========  ==========  ==========   ==========

INCOME (LOSS) FROM
  CONTINUING OPERATIONS         $   (683)    $    620    $   (733)   $    399     $  2,279

INCOME (LOSS) FROM
  DISCONTINUED OPERATIONS            123       (1,100)        (65)      6,283          857
                               ----------   ----------  ----------  ----------   ----------

NET INCOME (LOSS)               $   (560)    $   (480)   $   (798)   $  6,682     $  3,136
                               ==========   ==========  ==========  ==========   ==========

EARNINGS (LOSS) PER
  COMMON SHARE (BASIC):
  CONTINUING OPERATIONS         $   (.22)    $    .20    $   (.23)   $    .12     $    .67

  DISCONTINUED OPERATIONS            .04         (.35)       (.02)       1.83          .26
                               ----------   ----------  ----------  ----------   ----------

  NET INCOME (LOSS)             $   (.18)    $   (.15)   $   (.25)   $   1.95     $    .93
                               ==========   ==========  ==========  ==========   ==========

EARNINGS (LOSS) PER
  COMMON SHARE (DILUTED):
  CONTINUING OPERATIONS         $   (.22)    $    .20    $   (.23)   $    .11     $    .62

  DISCONTINUED OPERATIONS            .04         (.35)       (.02)       1.76          .23
                               ----------   ----------  ----------  ----------   ----------

  NET INCOME (LOSS)             $   (.18)    $   (.15)   $   (.25)   $   1.87     $    .85
                               ==========   ==========  ==========  ==========   ==========

TOTAL ASSETS                    $ 79,409     $ 86,091    $ 86,718    $ 92,888     $ 92,630
                               ==========   ==========  ==========  ==========   ==========

LONG-TERM DEBT                  $ 16,383 4   $ 2, 018 3  $ 30,210    $ 39,400 2   $ 21,927
                               ==========   ==========  ==========  ==========   ==========

DIVIDENDS PER
  COMMON SHARE                  $     -      $     -     $     -     $     -      $     -
                               ==========   ==========  ==========  ==========   ==========
</TABLE>

1Certain  reclassifications  were made to classify  certain sales  incentives as
reductions of gross revenues that were previously classified as selling expenses
(See Note 1 to Consolidated Financial Statements).
2The increase in long-term debt in 1999 is  attributable  to the  refinancing of
the Company's previous revolving credit agreement under a five-year facility.
3The  reduction in long-term  debt is due to  reclassification  of the Company's
senior credit facility and subordinated notes to current maturities of long-term
debt while in default.
4The increase in long-term debt in 2002 is  attributable  to the October 3, 2002
restructuring  of the Company's  subordinated  notes,  previously  classified as
current  maturities  of  long-term  debt in 2001.  (See  Note 4 to  Consolidated
Financial Statements.)


                                       7
<PAGE>

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

SUMMARY OF RESULTS OF OPERATIONS
--------------------------------

Discontinued operations:
------------------------

     In  September  2001,  the Company  formalized  its decision to sell its New
Castle  Refractories  division,  the last business of its Industrial  group.  In
December 2002, the Company finalized an agreement to sell this division to local
management.  The  transaction is expected to close in early 2003. The Industrial
Group had revenues of $9,169,000,  $9,529,000 and  $11,188,000 in 2002, 2001 and
2000,   respectively.   Income  (loss)  from  discontinued   operations  (before
provisions  in 2001  for  loss on  disposal,  0described  below)  was  $123,000,
($56,000) and ($65,000) in 2002, 2001 and 2000, respectively, (including pre-tax
gains on sales of assets of $208,000 and $1,202,000 in 2002 and 2001, and income
tax benefit (expense) of ($77,000),  $29,000 and $23,000 in 2002, 2001 and 2000,
respectively).  Interest  expense of  $342,000,  $427,000  and $597,000 has been
allocated to discontinued operations in 2002, 2001 and 2000, respectively.
     In fiscal 2001, the Company also recorded an  anticipated  loss on disposal
of $1,570,000 (or $1,044,000 after tax benefit) including  provisions for a loss
on the sale of the New Castle Refractories division of $468,000, for the wind-up
of that  division's  pension plans of $432,000 and for operating  losses through
the expected date of disposal of $670,000. For financial reporting purposes, the
Company  is  accounting  for the  disposition  of its  Industrial  Segment  as a
discontinued  operation and,  accordingly,  its statements of operations present
the results of the discontinued  Industrial  Segment separately from the results
of continuing  operations.  Since a discussion of the results of the  Industrial
Segment  is  not  meaningful  to an  understanding  of the  continuing  Consumer
business,  all  discussions  comparing  the results of  operations  refer to the
continuing  operations of the Consumer Group. (For further information regarding
discontinued operations, see Note 12 to Consolidated Financial Statements.)

2002 vs. 2001:
--------------
     Income  before  taxes,   minority  interest  and  discontinued   operations
decreased  $2,159,000.  Restructuring  costs  increased  $705,000 as the Company
announced its final phase of plant consolidations.  (See Note 10 to Consolidated
Financial Statements.)  Administrative costs in the U.S. increased primarily due
to  higher  bank  financing  costs and the prior  year  administrative  expenses
reflecting  a  $575,000   reduction  for   settlement   of  a  lawsuit.   Higher
Administrative  expenses  were  partially  offset  by  lower  interest  costs as
interest expense decreased $300,000 in 2002.


2001 vs. 2000:
--------------
     Income  before  taxes,   minority  interest  and  discontinued   operations
increased   $2,125,000.   Charges  for  the   Company-wide   restructuring   and
consolidation  plan  decreased  $640,000.  Restructuring  costs in 2001 included
$418,000 in U.S. costs associated with a prior phase of  restructuring,  as well
as $450,000 in Mexico for the  consolidation  of operations into a new facility.
Operating  profits  increased  primarily due to lower selling,  distribution and
administrative  expenses.  General  corporate  expenses  also  decreased  due to
continued   aggressive  cost  reduction  efforts.   Interest  expense  increased
$716,000, mainly due to higher borrowings in Mexico to finance the consolidation
of manufacturing facilities. Income taxes also increased due to pretax income in
2001, as compared to losses in the prior year.

REVENUES
--------
     Overall 2002 revenues  increased  $271,000 from the prior year. The changes
are as follows:

                       Decrease             % Increase (Decrease)
                   (in thousands)        Total    Volume  Price / Mix
                   --------------        ----------------------------
      U.S.           $ (3,153)             (6)     (3)        (3)
      Foreign           3,424              10      13         (3)



                                       8
<PAGE>

     U.S. Revenue decreased in the educational and promotional  products markets
primarily due to customer  consolidations and their related inventory  reduction
efforts.  Revenue  increased in the retail  channel,  principally  in the office
supply superstores,  partially offsetting reductions in other channels.  Foreign
revenue  increased  primarily in Mexico due to higher  volume with existing mass
market customers and additional government business.
     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 at least once in each of the last three decades, the last one being
in  August  of  1998.  In the  short  term  after  such  devaluations,  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.  This currency risk in
Mexico is presently managed through  occasional  foreign currency hedges,  local
currency financing and by export sales to the U.S. denominated in U.S. dollars.
     Overall 2001 revenues  decreased  $548,000 from the prior year. The changes
are as follows:

                Increase (Decrease)        % Increase (Decrease)
                  (in thousands)         Total    Volume  Price / Mix
                -------------------      ----------------------------
      U.S.           $    407               1       1         --
      Foreign            (955)             (3)    (13)        10

     U.S. revenue increased  primarily in the traditional  educational  channel,
partially  offset by  decreases  in the mass  retail  market  where  competitive
pressures from large  suppliers and importers are the greatest.  Foreign revenue
decreased  primarily due to lower demand from large retail customers,  partially
offset by Mexico price increases.

OPERATING INCOME
----------------
     Operating income decreased  $2,459,000 from the prior year. U.S.  operating
income  decreased  $2,665,000  (excluding  restructuring  charges)  due  to  the
aforementioned   lower  revenues  and  increased   administrative   costs.  U.S.
administrative costs also increased principally due to the prior year reflecting
a reduction  for legal  settlements  of $575,000 and  significantly  higher bank
financing  costs   (approximately   $417,000).   These  factors  were  primarily
responsible for an increase in selling and administrative  costs (30.5% of sales
as  compared  to 28.7% of sales in the prior  year).  Restructuring  and related
costs  increased  $705,000  as the  Company  announced  its  final  phase of its
consolidation  plan. Foreign operating profit increased  $1,111,000  principally
due to higher revenue described above.
     Operating  income in 2001 increased  $2,841,000  over the prior year.  U.S.
operating  income  increased  $1,812,000   (excluding   restructuring   charges)
primarily due to lower selling,  distribution and administrative  costs. Foreign
operating income decreased $340,000, primarily in Canada, due to lower revenues.
General  corporate  expenses  (excluding   restructuring   costs)  decreased  an
additional $730,000 due to lower salaries,  fringes and related costs reflecting
continued  aggressive  cost  reduction  efforts.  These  decreases  in  selling,
distribution,  administrative  and general  corporate  expenses  contributed  to
significantly  lower  consolidated  selling and  administrative  costs (28.7% of
sales as compared to 30.8% in the prior year).  Restructuring  and related costs
decreased $640,000 in 2001 as the Company finalized its efforts under the second
phase of its restructuring program.

MINORITY INTEREST
-----------------

     Minority  interest  represents  3% of the net  income  of the  consolidated
subsidiary,  Grupo Dixon, S.A. de C.V., ($51,000,  $31,000 and $24,000 in fiscal
2002, 2001 and 2000,  respectively),  equivalent to the extent of the investment
of the minority shareholders.



                                       9
<PAGE>

CURRENT ECONOMIC ENVIRONMENT AND EVENTS
---------------------------------------

     Although  not  directly  impacted by recent  events in the U.S. and abroad,
management  believes that softening  economic  conditions have recently affected
and could  continue  to affect the retail  mass or other  markets  served by the
Company's  Consumer Group and thus could lead to reduced  overall  revenues.  In
addition,  certain  expenses which have risen recently (such as insurance costs)
could continue to trend  significantly  higher in the coming years due to recent
events.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

     The  Company  generated  approximately  $8.4  million  in cash  flows  from
operating  activities  in 2002.  The  Company's  strict  inventory  control  and
reduction  efforts  in the U.S.  and  Mexico  led to an  increase  in cash flows
related to inventories of approximately  $6.3 million,  continuing an initiative
begun in 2000,  which has since  resulted in  approximately  $10 million in cash
flows.  In addition,  enhanced  cash  management  processes  have led to further
improvement  in accounts  payable  management and stronger  accounts  receivable
collections  in the U.S.  and  Mexico.  Overall,  in the past three  years,  the
Company  generated  approximately  $12.5  million in cash  flows from  operating
activities.
     The Company's 2002 investing activities included approximately $1.3 million
in purchases of property and equipment (net of sales proceeds), compared to $2.0
million in the prior year.  This  reflects a higher  level of purchases in 2001,
due to the Company's  expansion of its Mexico  manufacturing  and  consolidation
into its newly leased 300,000  square-foot  facility.  These  expenditures  were
partially offset by approximately $1.3 million in net proceeds on the sale of an
idled Mexico plant and other assets.  Generally,  all major capital projects are
discretionary in nature and thus no material purchase commitments exist. Capital
expenditures  are usually funded from  operations and existing  financing or new
leasing arrangements.
     On October 3, 2002, the Company completed a financing  agreement with a new
senior lender and its existing  subordinated  lenders to restructure its present
U.S.  debt through  fiscal 2005.  Foothill  Capital  Corporation  has provided a
three-year  $28 million  senior  debt  facility  which  replaces  the  Company's
previous  senior  debt  with a  consortium  of  lenders.  The  new  senior  debt
arrangement  provides  approximately  $5 million in  increased  working  capital
liquidity for operations and to make certain subordinated debt payments.
     The senior debt facility includes a $25 million revolving loan, which bears
interest at either the prime rate (4.75% at September 30, 2002),  plus 0.75%, or
the prevailing LIBOR rate (approximately 1.8% at September 30, 2002), plus 3.5%.
Borrowings  under the  revolving  loan are based upon 85% of eligible  U.S.  and
Canada  accounts  receivable,  as defined;  50% of certain  accounts  receivable
having extended payment terms; and varying advance rates for U.S. and Canada raw
materials and finished goods inventories.  The facility also includes term loans
aggregating $3 million, which bear interest at either the prime rate, plus 1.5%,
or the  prevailing  LIBOR rate,  plus 4.25%.  These loans are payable in monthly
installments  of  $50,000,  plus  interest,  with the  balance  due in a balloon
payment in October 2005. The loan agreement also contains restrictions regarding
the  payment of  dividends  as well as  subordinated  debt  payments  (discussed
below),  a requirement to maintain a minimum level of earnings before  interest,
taxes,  depreciation  and  amortization  and net worth and a  limitation  on the
amount of annual  capital  expenditures.  To better  balance and manage  overall
interest rate exposure,  the Company  previously  executed an interest rate swap
agreement  that  effectively  fixed the rate of  interest  on $8  million of its
senior debt at 8.98% through August 2005.
     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 guarantee by and pledge of capital stock of the Company's subsidiaries. As
of the closing date of the new senior revolving loan and term arrangements,  the
Company had approximately $13 million of unused lines of credit available.
     On October 3, 2002, the Company also reached  agreement with the holders of
$16.5 million of Senior  Subordinated Notes to restructure the notes,  extending
the  maturity  date to  2005.  The  Company  is  only  required  to pay  monthly
installments  of  $50,000  through  December  2003 and  $150,000  per month from
January 2004 through the maturity date. However,  the Company paid $1 million in
principal  (and $2.1  million of accrued  interest) at closing of the new senior
debt facility and expects to make additional excess payments to its subordinated
lenders  over the next three  years.  Payments to the  subordinated  lenders are
subject to certain restrictions imposed under the senior debt facility. Interest


                                       10
<PAGE>

on the balance of subordinated debt is paid quarterly.  If the Company is unable
to make scheduled and additional excess payments totaling at least $8 million by
2005  (due to  restrictions  imposed  under  the new  senior  debt  facility  or
otherwise) the noteholders  will receive  warrants  equivalent to  approximately
1.6% of the  diluted  common  shares  outstanding  for each $1 million in unpaid
principal,  in addition to warrants  having an exercise price of $7.24 (expiring
in September  2003) now held by them.  Any  warrants  received or earned will be
relinquished if the notes are paid in full during the term of the new agreement.
The  agreement  also grants the  subordinated  lenders a lien on Company  assets
(junior in all aspects to the new senior debt  collateral  agreements  described
above).  The interest rate on the subordinated notes had been 13.5% through June
30, 2002 [12% payable in cash and 1.5% payable-in-kind (PIK)] plus an additional
2% on past due amounts.  At closing,  the interest rate on the notes was changed
to 12.5% (without PIK) through  maturity in October 2005.  The new  subordinated
note agreement includes certain other provisions,  including  restrictions as to
the  payment  of  dividends  and the  elimination  or  adjustment  of  financial
covenants  contained in the original  agreement to conform to those contained in
the new senior debt agreements.
     In addition,  the Company's Mexico subsidiary had approximately $12 million
in bank lines of credit ($4 million  unused) as of September 30, 2002,  expiring
at various dates from January 2003 through October 2004,  which bear interest at
a rate based upon either a floating U.S. bank rate or the rate of certain Mexico
government  securities.  The Company is awaiting  approval on additional  Mexico
lines of  credit  and is  presently  reviewing  other  debt  proposals  for this
subsidiary.  The Company  relies heavily upon the  availability  of the lines of
credit in the U.S. and Mexico for liquidity in its operations.
     The Company believes that amounts  available from its lines of credit under
its senior debt and under lines of credit  available  to its Mexican  subsidiary
are sufficient to fulfill all current and anticipated operating  requirements of
its business  through 2005. The Company's Mexico  subsidiary  cannot assure that
each of its lines of credit will continue to be available after their respective
expiration dates, or that replacement lines of credit will be secured.  However,
the Company  believes  there should be sufficient  amounts  available  under its
present  or  future  facilities  or  lines of  credit  to  cover  any  potential
shortfalls due to any expiring lines of credit.
     Refer to Notes 3 and 4 to  Consolidated  Financial  Statements  for further
description of the aforementioned financing arrangements.
     The  Company  has  retained  Wachovia  Securities   (formerly  First  Union
Securities)  and certain  other outside  consultants  to advise and assist it in
evaluating  certain strategic  alternatives,  including  capital  restructuring,
mergers and acquisitions, and/or other measures designed to maximize shareholder
value.
     Contractual  obligations  as of September  30, 2002 are  summarized  in the
table below.  Although  classified  as current  maturities  in the  accompanying
consolidated  financial  statements  and due in fiscal 2003 below (see Note 4 to
Consolidated Financial Statements), U.S. senior debt of $10,233 and Mexico notes
payable of $7,463 are expected to remain  outstanding as revolving  credit lines
for working capital purposes through 2005.

<TABLE>
<CAPTION>
                                      Payments Due by Period (in thousands)
                                  -----------------------------------------------
<S>                               <C>      <C>           <C>          <C>         <C>
                                             Fiscal year    Fiscal years   Fiscal years
 Contractual Obligations           Total      2003           2004-2005      2006-2007
--------------------------------  ---------  -------------  -------------  -------------
Long-Term Debt and Notes Payable  $ 36,188     $ 19,805         $3,659       $ 12,724
Operating Leases                     5,406        2,154          3,153             99
                                  ---------  -------------  -------------  -------------
                                  $ 41,594     $ 21,959         $6,812       $ 12,823
                                  =========  =============  =============  =============

</TABLE>

                                       11
<PAGE>

RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------

     In July 2001,  the  Financial  Accounting  Standards  Board  (FASB)  issued
Statement  No. 142  "Goodwill and Other  Intangible  Assets".  Statement No. 142
requires the use of a nonamortization approach to account for purchased goodwill
and indefinite lived intangibles. Under a nonamortization approach, goodwill and
indefinite  lived  intangibles will not be amortized into results of operations,
but instead  would be reviewed  for  impairment  and written down and charged to
results  of  operations  only in the  periods  in which  the  recorded  value of
goodwill  and  indefinite  lived  intangibles  is more than its fair value.  The
provisions  of  Statement  No. 142 will be  effective  for the Company in fiscal
2003.  Management  does not expect this standard,  when  implemented,  to have a
material effect on its future results of operations or financial position.
     In June 2001, the FASB issued Statement No. 143 "Accounting for Asset
Retirement Obligations". The statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. The statement is effective for
the Company in fiscal 2003. The Company does not expect the adoption of
Statement No. 143 to have a material impact on the Company's future results of
operations or financial position.
     In August  2001,  the FASB issued  Statement  No. 144  "Accounting  for the
Impairment  or  Disposal  of  Long-Lived  Assets".   This  statement  supersedes
Statement No. 121,  "Accounting for the Impairment of Long-Lived  Assets and for
Long-Lived  Assets  to  be  Disposed  of",  and  the  accounting  and  reporting
provisions of APB Opinion 30,  "Reporting  the Results of Operations - Reporting
the Effects of Disposal of a Segment of a Business,  and Extraordinary,  Unusual
and  Infrequently  Occurring  Events and  Transactions",  for the  disposal of a
segment of a business.  The  statement  is  effective  for the Company in fiscal
2003.  The Company does not expect the  adoption of Statement  No. 144 to have a
material  impact on the  Company's  future  results of  operations  or financial
position.
     In April  2002,  the FASB  issued  Statement  No. 145  "Rescission  of FASB
Statements  No. 4, 44 and 64,  Amendment of FASB Statement No. 13, and Technical
Corrections". The statement addresses the accounting for extinguishment of debt,
sale-leaseback  transactions and certain lease  modifications.  The statement is
effective for  transactions  occurring  after May 15, 2002. The Company does not
expect the  adoption  of  Statement  No.  145 to have a  material  impact on the
Company's future results of operations or financial position.
     In July 2002,  the FASB issued  Statement  No. 146,  "Accounting  for Costs
Associated with Exit or Disposal Activities".  The statement addresses financial
accounting and reporting for costs  associated with exit or disposal  activities
and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability  Recognition
for Certain  Employee  Termination  Benefits and Other Costs to Exit an Activity
(Including  Certain  Costs  Incurred in a  Restructuring)."  The  provisions  of
Statement  No.  146 are  effective  for  exit or  disposal  activities  that are
initiated  after  December 31, 2002. The Company does not expect the adoption of
Statement No. 146 to have a material  impact on the Company's  future results of
operations or financial position.

CRITICAL ACCOUNTING POLICIES
----------------------------

     The  preparation  of  financial   statements  and  related  disclosures  in
conformity with accounting  principles  generally  accepted in the United States
requires  management to make estimates and assumptions  that affect the reported
amounts of assets and  liabilities  at the date of the financial  statements and
revenue  and  expenses  during the period  reported.  The  following  accounting
policies require  management to make estimates and assumptions.  These estimates
and  assumptions  are reviewed  periodically  and the effects of  revisions  are
reflected  in the period that they are  determined  to be  necessary.  If actual
results  differ  significantly  from  management's   estimates,   the  financial
statements could be materially impacted.
     Accounts receivable is recorded net of allowance for doubtful accounts. The
Company  regularly  reviews the  adequacy of its accounts  receivable  allowance
after considering the size of the accounts receivable,  the age of each invoice,
each  customer's  expected  ability to pay and the collection  history with each
customer.  The  allowance for doubtful  accounts  represents  management's  best
estimate,  but changes in  circumstances  relating to  accounts  receivable  may
result in a requirement for additional allowances in the near future.
     Inventories  are  stated  at the  lower  of cost  or  market.  The  Company
regularly  reviews inventory quantities  on  hand  and records  a  provision for


                                       12
<PAGE>

excess  and  obsolete  inventory  based  primarily  on the  Company's  estimated
forecast of product demand.  The Company's estimate of forecasted product demand
may prove to be  inaccurate,  in which case the Company may have  understated or
overstated  the  provision  required for excess and obsolete  inventory.  In the
future, if the company's  inventory is determined to be overvalued,  the Company
would be required to recognize  such costs in its cost of goods sold at the time
of such  determination.  Likewise if the Company's inventory is determined to be
undervalued,  the Company may have over-reported costs of goods sold. Therefore,
although the Company  makes every effort to ensure the accuracy of its forecasts
of future product demand, any significant  unanticipated changes in demand could
have a significant  impact on the value of inventory and the Company's  reported
operating results.
     Long-lived assets, such as property,  plant and equipment, are reviewed for
impairment when events and circumstances indicate that the carrying amount of an
asset may not be recoverable.  When such events occur,  the Company compares the
carrying amount of the assets to undiscounted expected future cash flows. Should
this  comparison  indicate  that  there  is an  impairment,  the  amount  of the
impairment is calculated  using  discounted  expected  future cash flows. If the
estimate of an asset's  future cash flows is  significantly  different  from the
asset's actual cash flows, the Company may over- or under-estimate  the value of
an asset's  impairment.  A long-lived  asset's value is also  dependent upon its
estimated  useful life. A change in the useful life of a long-lived  asset could
result in higher or lower depreciation and amortization  expense. If the asset's
actual life is different than its estimated life, the asset could be over-valued
or under-valued.
     Restructuring  and related costs  reserves are recorded in connection  with
the  restructuring  initiatives  as they are announced.  These reserves  include
estimates  pertaining to employee severance costs, the settlement of contractual
obligations  and  other  matters.   Although   management  does  not  anticipate
significant changes, the actual costs may differ from these estimates, resulting
in further charges or reversals of previously recorded charges.
     The carrying  value of the Company's  net deferred tax assets  assumes that
the Company will be able to generate sufficient future taxable income in certain
jurisdictions,  based on  estimates  and  assumptions.  If these  estimates  and
related  assumptions change in the future, the Company may be required to record
additional  valuation  allowances  against its deferred tax assets  resulting in
additional  income  tax  expense  in the  Company's  Consolidated  Statement  of
Operations.  Management  evaluates the recoverability of the deferred tax assets
quarterly and assesses the need for additional valuation allowances quarterly.

FORWARD-LOOKING STATEMENTS
--------------------------

     The  statements  in this  Annual  Report on Form  10-K that are not  purely
historical are "forward-looking statements" within the meaning of section 27A of
the  Securities  Act of 1933 and section 21E of the  Securities  Exchange Act of
1934, including statements about the Company's expectations, beliefs, intentions
or  strategies   regarding  the  future.   Forward-looking   statements  include
statements regarding,  among other things, the effects of the devaluation of the
Mexican peso; the sufficiency and continued  availability of the Company's lines
of credit  and its  ability to meet its  current  and  anticipated  obligations;
management's  inventory  reduction  plan and  expectation  for savings  from the
restructuring  and  cost-reduction  program;  the Company's  ability to increase
sales in its core businesses;  management's  expectations  with regards to legal
proceedings;  and its  expectations  regarding the Company's  ability to utilize
certain  tax  benefits  in the  future.  Readers  are  cautioned  that  any such
forward-looking  statements are not guarantees of future performance and 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. Such risks include (but are not limited to) the risk
that the Company's  lenders will not continue to fund the Company in the future;
the  cancellation  of the  lines of credit  available  to the  Company's  Mexico
subsidiary;  the  inability  to maintain  and/or  secure new sources of capital;
manufacturing  inefficiencies  as a  result  of the  inventory  reduction  plan;
difficulties  encountered with the  consolidation  and  cost-reduction  program;
increased  competition;  U.S. and foreign  economic  factors;  foreign  currency
exchange risk and interest rate fluctuation risk, among others.


                                       13
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
         ----------------------------------------------------------

     As discussed  elsewhere,  the Company is exposed to the following principal
market risks (i.e.  risks of loss arising from adverse changes in market rates):
foreign exchange rates and interest rates on debt.
     The  Company's  exposure  to  foreign  currency  exchange  rate risk in its
international  operations  is  principally  limited to Mexico  and,  to a lesser
degree, Canada. Approximately 40% of the Company's fiscal 2002 net revenues were
derived in Mexico and Canada,  combined (exclusive of intercompany  activities).
Foreign  exchange  transaction  gains and losses arise from monetary  assets and
liabilities  denominated in currencies other than the business unit's functional
local  currency.  It is estimated that a 10% change in both the Mexican peso and
Canadian  dollar  exchange  rates  would  impact  reported  operating  profit by
approximately  $500,000.  This  quantitative  measure has  inherent  limitations
because  it does not take  into  account  the  changes  in  customer  purchasing
patterns or any adjustment to the Company's financing or operating strategies in
response to such a change in rates.  Moreover,  this  measure does not take into
account  the  possibility  that  these  currency  rates  can  move  in  opposite
directions, such that gains from one may offset losses from another.
     In addition,  the Company's  cash flows and earnings are subject to changes
in interest rates. As of the closing of its new debt  arrangements on October 3,
2002,  approximately  48% of total short and long-term  debt is fixed,  at rates
between 8% and 12.5%.  The balance of the Company debt is variable,  principally
based upon the  prevailing  U.S. bank prime rate or LIBOR rate. An interest rate
swap,  which  expires in 2005,  fixes the rate of interest on $8 million of this
debt at  8.98%.  A  change  in the  average  prevailing  interest  rates  of the
remaining  debt of 1%  would  have an  estimated  impact  of  $200,000  upon the
Company's  pre-tax  results of  operations  and cash  flows.  This  quantitative
measure does not take into account the  possibility  that the  prevailing  rates
(U.S. bank prime and LIBOR) can move in opposite directions and that the Company
has, in most cases, the option to elect either as the determining  interest rate
factor.



                                       14
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
---------------------------------------------------

                   DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
                   ------------------------------------------
             INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
             -------------------------------------------------------

                                                                   PAGE
                                                                   ----

Report of Independent Certified Public Accountants                  16

Consolidated Balance Sheets as of
  September 30, 2002 and 2001                                       17


Consolidated Statements of Operations For the
  Years Ended September 30, 2002, 2001 and 2000                     18

Consolidated Statements of Comprehensive Loss For the
  Years Ended September 30, 2002, 2001 and 2000                     19

Consolidated Statements of Shareholders' Equity For the
 Years Ended September 30, 2002, 2001 and 2000                      20


Consolidated Statements of Cash Flows For the
 Years Ended September 30, 2002, 2001 and 2000                    21-22

Notes to Consolidated Financial Statements                        23-40

Schedule For the Years Ended September 30, 2002, 2001 and 2000:

      II. Valuation and Qualifying Accounts                         41

      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.







                                       15
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
               --------------------------------------------------




Shareholders and Board of Directors of
Dixon Ticonderoga Company

In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects,  the financial position of Dixon
Ticonderoga Company and its subsidiaries at September 30, 2002 and 2001, and the
results of their  operations and their cash flows for each of the three years in
the period ended  September 30, 2002 in conformity  with  accounting  principles
generally accepted in the United States of America. In addition, in our opinion,
the financial  statement  schedule  listed in the  accompanying  index  presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.  These financial
statements  and  financial  statement  schedule  are the  responsibility  of the
Company's  management;  our  responsibility  is to  express  an opinion on these
financial  statements and financial  statement  schedule based on our audits. We
conducted our audits of these  statements in accordance with auditing  standards
generally  accepted in the United States of America,  which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements,  assessing the accounting  principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.


PricewaterhouseCoopers LLP
Tampa, Florida
December 9, 2002



                                       16
<PAGE>

                   DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
                   ------------------------------------------

                           CONSOLIDATED BALANCE SHEETS
                           ---------------------------

                           SEPTEMBER 30, 2002 AND 2001
                           ---------------------------
<TABLE>
<CAPTION>
<S>                                                   <C>              <C>
                                                      2002             2001
                                                  -------------   -------------
         ASSETS:
         -------
CURRENT ASSETS:
   Cash and cash equivalents                       $ 2,589,493     $   844,299
   Receivables, less allowance for doubtful
     accounts of $1,381,780 in 2002 and
     $1,482,524 in 2001                             29,179,803      30,498,042
   Inventories                                      28,761,337      35,583,082
   Other current assets                              3,914,817       2,464,043
                                                  -------------   -------------
      Total current assets                          64,445,450      69,389,466
                                                  -------------   -------------

PROPERTY, PLANT AND EQUIPMENT:
   Land and buildings                               10,881,021      10,608,980
   Machinery and equipment                          16,948,612      17,155,371
   Furniture and fixtures                            1,607,449       1,741,811
                                                  -------------   -------------
                                                    29,437,082      29,506,162
                                                  -------------   -------------
      Less accumulated depreciation                (19,641,894)    (19,022,674)
                                                  -------------   -------------
                                                     9,795,188      10,483,488
                                                  -------------   -------------
OTHER ASSETS                                         7,872,957       6,217,958
                                                  -------------   -------------
                                                   $82,113,595     $86,090,912
                                                  =============   =============

      LIABILITIES AND SHAREHOLDERS' EQUITY:
-----------------------------------------------

CURRENT LIABILITIES:
   Notes payable                                   $ 7,463,458     $ 6,294,268
   Current maturities of long-term debt             12,341,735      32,598,531
   Accounts payable                                  8,819,499       9,321,957
   Accrued liabilities                              12,485,494       9,368,315
                                                  -------------   -------------
      Total current liabilities                     41,110,186      57,583,071
                                                  -------------   -------------
LONG-TERM DEBT                                      16,383,106       2,018,125
                                                  -------------   -------------
DEFERRED INCOME TAXES AND OTHER                      1,183,467         984,492
                                                  -------------   -------------
MINORITY INTEREST                                      583,841         577,241
                                                  -------------   -------------
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 3,710,309 shares in 2002
     and 2001                                        3,710,309       3,710,309
   Capital in excess of par value                    3,593,826       3,670,135
   Retained earnings                                25,107,752      25,667,675
   Accumulated other comprehensive loss             (5,640,262)     (4,101,681)
                                                  -------------   -------------
                                                    26,771,625      28,946,438
   Less shareholder loans                             (557,721)       (557,721)
   Less treasury stock, at cost (517,477 shares
     in 2002 and 532,847 shares in 2001)            (3,360,909)     (3,460,734)
                                                  -------------   -------------
                                                    22,852,995      24,927,983
                                                  -------------   -------------
                                                   $82,113,595     $86,090,912
                                                  =============   =============
</TABLE>

               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                       17
<PAGE>
<TABLE>
<CAPTION>
                   DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
                   ------------------------------------------

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      -------------------------------------

              FOR THE YEARS ENDED SEPTEMBER 30, 2002, 2001 AND 2000
              -----------------------------------------------------


<S>                                             <C>            <C>            <C>           <C>
                                                     2002          2001           2000
                                                -------------  -------------  -------------
REVENUES                                        $ 88,590,730   $ 88,319,455   $ 88,866,684
                                                -------------  -------------  -------------
COSTS AND EXPENSES:
  Cost of goods sold                              57,132,999     56,732,494     57,462,598
  Selling and administrative expenses             26,987,835     25,363,628     27,380,388
  Provision for restructuring and related costs    1,573,235        867,666      1,508,481
                                                -------------  -------------  -------------
                                                  85,694,069     82,963,788     86,351,467
                                                -------------  -------------  -------------
OPERATING INCOME                                   2,896,661      5,355,667      2,515,217

INTEREST EXPENSE                                   4,087,731      4,387,700      3,672,365
                                                -------------  -------------  -------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
  INCOME TAXES (BENEFIT) AND MINORITY INTEREST    (1,191,070)       967,967     (1,157,148)

INCOME TAXES (BENEFIT)                              (559,064)       316,933       (448,087)
                                                -------------  -------------  -------------
                                                    (632,006)       651,034       (709,061)

MINORITY INTEREST                                     51,214         31,267         23,938
                                                -------------  -------------  -------------
INCOME (LOSS) FROM CONTINUING OPERATIONS            (683,220)       619,767       (732,999)
                                                -------------  -------------  -------------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS,
  NET OF APPLICABLE INCOME TAXES                     123,297     (1,099,639)       (65,246)
                                                -------------  -------------  -------------
NET LOSS                                        $   (559,923)  $   (479,872)  $   (798,245)
                                                =============  =============  =============
EARNINGS (LOSS) PER COMMON SHARE (BASIC):
   Continuing operations                        $       (.22)  $        .20   $       (.23)
   Discontinued operations                               .04           (.35)          (.02)
                                                -------------  -------------  -------------
   Net loss                                     $       (.18)  $       (.15)  $       (.25)
                                                =============  =============  =============
EARNING (LOSS) PER COMMON SHARE (DILUTED):
   Continuing operations                        $       (.22)  $        .20   $       (.23)
   Discontinued operations                               .04           (.35)          (.02)
                                                -------------  -------------  -------------
   Net loss                                     $       (.18)  $       (.15)  $       (.25)
                                                =============  =============  =============

</TABLE>

               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                       18
<PAGE>
<TABLE>
<CAPTION>
                   DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
                   ------------------------------------------

                  CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
                  ---------------------------------------------

              FOR THE YEARS ENDED SEPTEMBER 30, 2002, 2001 AND 2000
              -----------------------------------------------------


<S>                                             <C>            <C>            <C>           <C>
                                                     2002          2001           2000
                                                -------------  -------------  -------------

NET LOSS                                        $   (559,923)  $   (479,872)  $   (798,245)

OTHER COMPREHENSIVE LOSS:

  Cumulative effect adjustment to recognize
   fair value of cash flow hedge                          -         (54,205)            -

  Adjustment to recognize fair value
   of cash flow hedge                               (115,934)      (451,388)            -

  Foreign currency translation adjustments        (1,422,647)      (502,511)      (677,102)
                                                -------------  -------------  -------------
TOTAL COMPREHENSIVE LOSS                        $ (2,098,504)  $ (1,487,976)  $ (1,475,347)
                                                =============  =============  ==============

</TABLE>



               The accompanying notes are an integral part of the
                       consolidated financial statements.



                                       19
<PAGE>
<TABLE>
<CAPTION>
                                                     DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
                                                  CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                               FOR THE YEARS ENDED SEPTEMBER 30, 2002, 2001 AND 2000

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

                               Common     Capital in                Accumulated Other
                              Stock $1    Excess of     Retained      Comprehensive    Shareholder    Treasury
                             Par Value    Par Value     Earnings       Income (Loss)      Loans        Stock         Total
                             -----------  -----------  -----------  -----------------  ------------  ------------  ------------
BALANCE, September 30, 1999  $ 3,688,559  $ 3,586,471  $26,945,792   $ (2,416,475)     $  (393,940)  $(1,575,241)  $29,835,166
  Net loss                                                (798,245)                                                   (798,245)
  Other comprehensive loss                                               (677,102)                                    (677,102)
  Employee stock options
   exercised (21,750 shares)      21,750      147,094                                     (163,781)                      5,063
  Employee Stock Purchase
   Plan (10,757  shares)                      (33,293)                                                    69,867        36,574
  Purchase of treasury stock
   (260,230 shares)                                                                                   (2,016,510)   (2,016,510)
                             -----------  -----------  -----------  -----------------  ------------  ------------  ------------

BALANCE, September 30, 2000    3,710,309    3,700,272   26,147,547     (3,093,577)        (557,721)   (3,521,884)   26,384,946
  Net loss                                                (479,872)                                                   (479,872)
  Other comprehensive loss                                             (1,008,104)                                  (1,008,104)
  Employee Stock Purchase
   Plan (9,415 shares)                        (30,137)                                                    61,150        31,013
                             -----------  -----------  -----------  -----------------  ------------  ------------  ------------

BALANCE, September 30, 2001    3,710,309    3,670,135   25,667,675     (4,101,681)        (557,721)   (3,460,734)   24,927,983
  Net loss                                                (559,923)                                                   (559,923)
  Other comprehensive loss                                             (1,538,581)                                  (1,538,581)
  Employee Stock Purchase
   Plan (15,370 shares)                       (76,309)                                                    99,825        23,516
                             -----------  -----------  -----------  -----------------  ------------  ------------  ------------

BALANCE, September 30, 2002  $ 3,710,309  $ 3,593,826  $25,107,752   $ (5,640,262)     $  (557,721)  $(3,360,909)  $22,852,995
                             ===========  ===========  ===========  =================  ============  ============  ============

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



                                       20
<PAGE>
<TABLE>
<CAPTION>
                   DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED SEPTEMBER 30, 2002, 2001 AND 2000
<S>                                                  <C>           <C>            <C>
                                                     2002           2001         2000
                                                -------------  ------------  -------------
Cash flows from operating activities:

Net income (loss) from continuing operations     $ (683,220)    $ 619,767     $ (732,999)

Net income (loss) from discontinued operations      123,297    (1,099,639)       (65,246)


Adjustments to reconcile net income (loss) to
 net cash provided by operating activities:
   Depreciation and amortization                  2,322,692     2,219,658      2,521,400
   Deferred taxes                                (2,334,000)     (534,000)      (639,000)
   Provision for doubtful accounts receivable       193,979       151,263        218,795
   Gain on sale of assets                          (208,290)   (1,202,448)            -
   Income attributable to minority interest          51,214        31,267         23,938
   (Income) loss attributable to foreign
    currency exchange                              (215,955)       52,071        (78,888)
   Changes in assets [(increase)decrease] and
    liabilities[increase (decrease)]:
   Receivables, net                                  (7,574)     (660,434)    (1,830,724)
   Inventories                                    6,226,836       474,990      3,087,532
   Other current assets                            (457,698)     (134,308)        17,422
   Accounts payable and accrued liabilities       3,673,182     1,039,899        646,793
   Other assets                                     250,686       210,519       (228,794)
                                                -------------  ------------  -------------

Net cash provided by operating activities         8,433,777     1,168,605      2,940,229
                                                -------------  ------------  -------------

Cash flows from investing activities:

   Purchases of plant and equipment, net         (1,520,088)   (2,009,467)    (1,399,403)
   Proceeds on sale of assets                       208,290     1,276,063      3,250,000
                                                -------------  ------------  -------------

Net cash provided by (used in) investing
 activities                                      (1,311,798)     (733,404)     1,850,597
                                                -------------  ------------  -------------




                                       21
<PAGE>

                                                     2002           2001         2000
                                                -------------  ------------  -------------
Cash flows from financing activities:

Proceeds from additions to long-term debt                -        138,566         70,715
Proceeds from additions to notes payable          1,716,828     2,779,894      1,023,554
Principal reductions of long-term debt           (6,101,200)   (2,728,952)    (3,693,022)
Debt refinancing costs                             (955,628)           -        (369,842)
Purchase of treasury stock                               -             -      (2,016,510)
Other non-current liabilities                        40,736         6,759        (42,975)
Employee Stock Purchase Plan                         23,516        31,013         36,574
Exercise of stock options                                -             -           5,063
                                                -------------  ------------  -------------

Net cash provided by (used in) financing
 activities                                      (5,275,748)      227,280     (4,986,443)

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

Effect of exchange rate changes on cash            (101,037)     (266,634)      (291,344)
                                                -------------  ------------  -------------

Net increase (decrease) in cash and cash
 equivalents                                      1,745,194       395,847       (486,961)


Cash and cash equivalents, beginning of year        844,299       448,452        935,413

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

Cash and cash equivalents, end of year           $2,589,493    $  844,299     $  448,452

                                                =============  ============  =============
Supplemental disclosures:

Cash paid during the year for:
   Interest                                      $3,033,931    $4,647,079     $3,148,398
   Income taxes                                   1,677,478     2,434,487      1,518,291
</TABLE>

Non-cash investing and financing activities:

     In fiscal 2001, the Company  accepted a note receivable due May 2006 in the
amount of $1.64  million as  consideration  for the sale of an idle  building in
Deer Lake, Pennsylvania.














                   The accompanying notes are an integral part
                    of the consolidated financial statements.



                                       22
<PAGE>

                   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.  Its  largest  customers  are  school  products
     distributors and mass  merchandisers,  although none account for over 9% of
     revenues.

     Revenue recognition:
     --------------------

     Revenues  are  comprised  of gross  sales from the  shipment  of product to
     customers, net of provisions for product returns,  customer discounts (such
     as volume  rebates),  co-op  advertising and other related  discounts.  The
     Company  recognizes  sales when the following  has occurred:  evidence of a
     sales arrangement exists; shipment of product to the customer; the price is
     fixed  or  determinable;  and  collectibility  is  reasonably  assured.  An
     estimate of sales returns and allowances is recorded in the period that the
     related product is shipped.

     In August 2001,  the Emerging  Issues Task Force  ("EITF")  issued EITF No.
     01-09,  "Accounting  for  Consideration  Given by Vendor to a Customer or a
     Reseller of Vendor's  Product",  which  codified  and  reconciled  the Task
     Force's   consensuses  in  EITF  00-14,   "Accounting   for  Certain  Sales
     Incentives",  EITF 00-22,  "Accounting  for Points and  Certain  Other Time
     Based Sales Incentives or Volume Based Sales Incentive  Offers,  and Offers
     of Free  Products or  Services to Be  Delivered  in the  Future",  and EITF
     00-25, "Vendor Income Statement Characterization of Consideration Paid to a
     Reseller  of  the  Vendor's  Products".  These  EITF's  prescribe  guidance
     regarding the timing of recognition and income statement  classification of
     costs  incurred for certain sales  incentive  programs to resellers and end
     consumers.  The  adoption  of EITF No.  01-09 had no impact on  results  of
     operations.  The accompanying Consolidated Statement of Operations and Note
     14 have been reclassified to reflect certain sales incentives as reductions
     of gross revenue that were previously classified as selling expenses.

     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 (3%) of the equity of the Company's Grupo Dixon,  S.A.
     de C.V. subsidiary.

                                       23
<PAGE>

     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  other
     comprehensive loss. Gains and losses from foreign currency transactions are
     included in the accompanying  Consolidated  Statement of Operations.  Total
     foreign currency  exchange gains (losses) included in operating income were
     approximately  $216,000,  $(52,000) and $79,000 for fiscal years 2002, 2001
     and 2000, 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.  The  Company
     regularly reviews inventory  quantities on hand and records a provision for
     excess and obsolete  inventory based primarily on the estimated forecast of
     product demand. Management estimates of forecasted product demand may prove
     to be  inaccurate,  in which  case the  Company  may  have  understated  or
     overstated the provision required for excess and obsolete inventory. In the
     future,  if inventory is determined to be overvalued,  the Company would be
     required to recognize such costs in costs of goods sold at the time of such
     determination.  Likewise, if inventory is determined to be undervalued, the
     Company may have  overstated  costs of goods sold in  previous  periods and
     would be required to recognize such additional operating income at the time
     of sale.  Therefore,  although  management makes every effort to ensure the
     accuracy of forecasts of future product demand,  significant  unanticipated
     changes  in  demand  could  have a  significant  impact on the value of the
     Company's inventory and reported operating results.

     Certain  inventories  amounting to $13,034,000 and $14,126,000 at September
     30,  2002 and 2001,  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 $1,007,000  and
     $760,000  higher at September  30, 2002 and 2001,  respectively.  All other
     inventories are accounted for using the FIFO method.

      Inventories consist of (in thousands):

                                              September 30,

                                             2002       2001
                                           ---------  ---------

            Raw material                    $11,014    $13,328
            Work in process                   2,718      3,572
            Finished goods                   15,029     18,683
                                           ---------  ---------

                                            $28,761    $35,583
                                           =========  =========



                                       24
<PAGE>

     Property, plant and equipment:
     ------------------------------

     Property,  plant and equipment are stated at cost. 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.

     Impairment of long-lived assets:
     --------------------------------

     Long-lived  assets  used in the  Company's  operations,  including  cost in
     excess of net assets of businesses  acquired,  are reviewed for  impairment
     when events and circumstances indicate that the carrying amount of an asset
     may not be recoverable.  The primary  indicators of recoverability  are the
     associated current and forecasted  undiscounted operating cash flows. Asset
     impairments  in connection  with the Company's  restructuring  programs are
     identified  and  measured  using the  estimated  net  proceeds  from  their
     ultimate sale or  abandonment.  (See Note 10.) The  Company's  policy is to
     record an impairment loss when it is determined that the carrying amount of
     the asset exceeds its fair value.

     Stock-based compensation:
     -------------------------

     The Company  accounts  for  compensation  cost  related to  employee  stock
     options  and other  forms of  employee  stock-based  compensation  plans in
     accordance  with the  requirements  of  Accounting  Principles  Board (APB)
     Opinion 25 and related  interpretations.  APB 25 requires compensation cost
     for  stock-based   compensation   plans  to  be  recognized  based  on  the
     difference,  if any, between the fair market value of the stock on the date
     of grant and the option exercise  price.  The Company  provides  additional
     proforma  disclosures as required under FASB Statement No. 123, "Accounting
     For Stock-Based Compensation".

     Income taxes:
     -------------

     The Company  recognizes  deferred tax assets and  liabilities  based on the
     differences  between the financial  statement  carrying amounts and the tax
     bases of  assets  and  liabilities.  The  Company  regularly  reviews  its
     deferred  tax  assets  for   recoverability  and  establishes  a  valuation
     allowance  based on historical  taxable  income,  projected  future taxable
     income,  and the expected  timing of the  reversals  of existing  temporary
     differences.  If the Company  continues to operate at a loss in the U.S. or
     is unable to generate sufficient future U.S. taxable income, or if there is
     a material  change in the actual  effective tax rates or time period within
     which the underlying  temporary  differences  become taxable or deductible,
     the Company  could be required to establish a valuation  allowance  against
     all or a  significant  portion of its  deferred  tax assets  resulting in a
     substantial  increase in the  Company's  effective  tax rate and a material
     negative impact on its operating results and financial position.



                                       25
<PAGE>

     Derivative instruments and hedging activities:
     ----------------------------------------------

     The Company  adopted FASB  Statement  No.133,  "Accounting  for  Derivative
     Instruments and Hedging  Activities",  as amended by FASB Statement No.137,
     "Accounting for Derivative Instruments and Hedging Activities - Deferral of
     the  Effective  Date of FASB  Statement  No.  133",  an  amendment  of FASB
     Statement  No.133,  and  FASB  Statement  No.138  "Accounting  for  Certain
     Derivative  Instruments  and Certain Hedging  Activities",  an amendment of
     Statement  No. 133 (referred to hereafter as "FAS 133") on October 1, 2000.
     As a result,  the Company  records  the fair value of  interest  rate swaps
     designated as cash flow hedges in other  liabilities with the offset in the
     other comprehensive  income (loss) component of shareholders'  equity. Upon
     adoption,  the Company recorded its interest rate swap designated as a cash
     flow  hedge  with a fair  value  of  $86,314  in other  liabilities.  Other
     comprehensive loss was increased $54,205 (net of tax benefit of $32,109) as
     a cumulative effect adjustment for this accounting change. During the years
     ended  September  30,  2002  and  2001,  the  Company  also  recognized  an
     adjustment  to the fair  value of this  cash  flow  hedge of  $184,309  and
     $718,773,  respectively, in other liabilities. Other comprehensive loss was
     increased  $115,934  and  $451,388  (net  of tax  benefit  of  $68,375  and
     $267,385, respectively) during these periods.

     The Company  utilizes  interest rate swap agreements to provide an exchange
     of interest  payments  computed on  notional  amounts  that will offset any
     undesirable  change in cash flows or fair value  resulting from market rate
     changes on designated hedged bank borrowings. The Company limits the credit
     risks of the interest rate agreements by initiating the  transactions  with
     counterparties  with  significant   financial  positions,   such  as  major
     financial institutions.

     FAS 133 requires  companies to recognize all of its derivative  instruments
     as either assets or  liabilities  in the balance  sheet at fair value.  The
     accounting  for  changes  in the fair  value  (i.e.,  gains or losses) of a
     derivative  instrument  depends  on  whether  it has  been  designated  and
     qualifies as part of a hedging  relationship  and  further,  on the type of
     hedging relationship.  For those derivative instruments that are designated
     and qualify as hedging  instruments,  a Company must  designate the hedging
     instrument,  based upon the exposure  being hedged,  as either a fair value
     hedge,  cash  flow  hedge  or a  hedge  of a net  investment  in a  foreign
     operation.  For derivative instruments that are designated and qualify as a
     cash flow hedge (such as the Company's interest rate swap agreements),  the
     effective  portion  of the  gain or loss on the  derivative  instrument  is
     reported as a component of other  comprehensive  loss and reclassified into
     earnings in the same period or periods during which the hedged  transaction
     affects earnings.  The remaining gain or loss on the derivative  instrument
     in excess of the  cumulative  change in the  present  value of future  cash
     flows of the hedged item, if any, is recognized in current  earnings during
     the period of the change in fair values.  For  derivative  instruments  not
     designated  as  hedging  instruments,  the  gain or loss is  recognized  in
     current earnings during the period of the change in fair values.

     The Company has entered into an interest rate swap agreement through August
     2005 that effectively  converts $8 million of its  floating-rate  debt to a
     fixed-rate  basis,  thus  reducing the impact of  interest-rate  changes on
     future interest  expense.  The fair values of interest rate instruments are
     estimated by obtaining  quotes from brokers and are the  estimated  amounts
     that the Company would  receive or pay to terminate  the  agreements at the
     reporting  date,  taking  into  account  current  interest  rates and other
     relevant factors.




                                       26
<PAGE>

     Recent accounting pronouncements:
     ---------------------------------

     In July  2001,  the FASB  issued  Statement  No.  142  "Goodwill  and Other
     Intangible Assets". Statement No. 142 requires the use of a nonamortization
     approach  to  account  for   purchased   goodwill  and   indefinite   lived
     intangibles.  Under a  nonamortization  approach,  goodwill and  indefinite
     lived  intangibles  will not be amortized into results of  operations,  but
     instead  would be reviewed for  impairment  and written down and charged to
     results of  operations  only in the periods in which the recorded  value of
     goodwill and indefinite lived  intangibles is more than its fair value. The
     provisions of Statement No. 142 will be effective for the Company in fiscal
     2003. Management does not expect this standard, when implemented, to have a
     material effect on its future results of operations or financial position.

     In June 2001,  the FASB  issued  Statement  No. 143  "Accounting  for Asset
     Retirement  Obligations".  The statement addresses financial accounting and
     reporting  for  obligations  associated  with the  retirement  of  tangible
     long-lived  assets and the associated asset retirement costs. The statement
     is effective  for the Company in fiscal  2003.  The Company does not expect
     the  adoption  of  Statement  No.  143 to  have a  material  impact  on the
     Company's future results of operations or financial position.

     In August  2001,  the FASB issued  Statement  No. 144  "Accounting  for the
     Impairment or Disposal of Long-Lived  Assets".  This  statement  supersedes
     Statement No. 121,  "Accounting for the Impairment of Long-Lived Assets and
     for Long-Lived  Assets to be Disposed of", and the accounting and reporting
     provisions  of APB  Opinion 30,  "Reporting  the  Results of  Operations  -
     Reporting  the  Effects  of  Disposal  of  a  Segment  of a  Business,  and
     Extraordinary, Unusual and Infrequently Occurring Events and Transactions",
     for the disposal of a segment of a business. The statement is effective for
     the Company in fiscal  2003.  The Company  does not expect the  adoption of
     Statement No. 144 to have a material impact on the Company's future results
     of operations or financial position.

     In April  2002,  the FASB  issued  Statement  No. 145  "Rescission  of FASB
     Statements  No. 4, 44 and 64,  Amendment  of FASB  Statement  No.  13,  and
     Technical   Corrections".   The  statement  addresses  the  accounting  for
     extinguishment  of debt,  sale-leaseback  transactions  and  certain  lease
     modifications.  The statement is effective for transactions occurring after
     May 15, 2002. The Company does not expect the adoption of Statement No. 145
     to have a material impact on the Company's  future results of operations or
     financial position.

     In July 2002,  the FASB issued  Statement  No. 146,  "Accounting  for Costs
     Associated  with Exit or  Disposal  Activities".  The  statement  addresses
     financial  accounting  and  reporting  for  costs  associated  with exit or
     disposal  activities  and supercedes  Emerging  Issues Task Force Issue No.
     94-3, "Liability  Recognition for Certain Employee Termination Benefits and
     Other  Costs to Exit an Activity  (Including  Certain  Costs  Incurred in a
     Restructuring)." The provisions of Statement No. 146 are effective for exit
     or disposal  activities  that are initiated  after  December 31, 2002.  The
     Company  does not  expect  the  adoption  of  Statement  No.  146 to have a
     material impact on the Company's  future results of operations or financial
     position.

     Reclassifications:
     ------------------

     Certain  prior year  amounts  have been  reclassified  to conform  with the
     current year classifications.


                                       27
<PAGE>

(2)  ACCRUED LIABILITIES:
     --------------------

     The major components of accrued liabilities are as follows (in thousands):

                                              September 30,
                                             2002       2001
                                           ---------  ---------

            Interest                        $ 2,844    $ 1,447
            Salaries and wages
                                              1,110        968
            Employee benefit plans              540        720
            Income taxes                      3,174      1,428
            Other                             4,817      4,805
                                           ---------  ---------

                                            $12,485    $ 9,368
                                           =========  =========


(3)  NOTES PAYABLE:
     --------------

     The  Company's  Mexico   subsidiary  had  bank  lines  of  credit  totaling
     approximately  $12 million,  under which $7.5 and $6.3 million of unsecured
     notes  payable  were  outstanding  as  of  September  30,  2002  and  2001,
     respectively.  The notes,  which mature at varying  dates from January 2003
     through  October 2004,  bear interest  (weighted  average  interest rate of
     approximately  4.5% and 7.1% at September 30, 2002 and 2001,  respectively)
     based upon either a floating U.S. bank rate or the rate of certain  Mexican
     government securities and are renewable annually.


(4)  LONG-TERM DEBT:
     ---------------

     Long-term debt consists of the following (in thousands):

                                              September 30,
                                             2002       2001
                                           ---------  ---------

            Senior Subordinated Notes      $ 16,500   $ 16,500
            Bank notes payable                8,208     11,327
            Bank term loan                    2,025      4,625
            Building mortgage                 1,992      2,138
            Other                               -           27
                                           ---------  ---------
                                             28,725     34,617
            Less current maturities         (12,342)   (32,599)
                                           ---------  ---------

                                           $ 16,383    $ 2,018
                                           =========  =========

     On October 3, 2002, the Company completed a financing  agreement with a new
     senior  lender and its existing  subordinated  lenders to  restructure  its
     present U.S. debt through fiscal 2005.  Foothill  Capital  Corporation  has
     provided a three-year  $28 million  senior debt facility which replaces the
     Company's previous senior debt (bank notes payable and bank term loan) with
     a  consortium  of  lenders.   The  new  senior  debt  arrangement  provides
     approximately  $5  million  in  increased  working  capital  liquidity  for
     operations and to make certain subordinated debt payments.

     The senior debt facility includes a $25 million revolving loan, which bears
     interest  at either the prime rate  (4.75% at  September  30,  2002),  plus
     0.75%, or the prevailing  LIBOR rate  (approximately  1.8% at September 30,
     2002), plus 3.5%. Borrowings under the revolving loan are based upon 85% of
     eligible U.S. and Canada accounts  receivable,  as defined;  50% of certain
     accounts  receivable  having  extended  payment terms;  and varying advance
     rates for U.S. and Canada raw materials and finished goods inventories. The
     facility  also  includes  term loans  aggregating  $3  million,  which bear


                                       28
<PAGE>

     interest at either the prime rate, plus 1.5%, or the prevailing LIBOR rate,
     plus 4.25%.  These loans are  payable in monthly  installments  of $50,000,
     plus interest,  with the balance due in a balloon  payment in October 2005.
     The loan  agreement  also  contains  restrictions  regarding the payment of
     dividends  as well as  subordinated  debt  payments  (discussed  below),  a
     requirement to maintain a minimum level of earnings before interest, taxes,
     depreciation  and amortization and net worth and a limitation on the amount
     of annual  capital  expenditures.  To better  balance  and  manage  overall
     interest rate exposure,  the Company  previously  executed an interest note
     swap agreement that effectively fixed the rate of interest on $8 million of
     its senior debt at 8.98% through August 2005.

     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 guarantee by and pledge of capital stock of the Company's
     subsidiaries.  As of the closing date of the new senior  revolving loan and
     term  arrangements,  the  Company had  approximately  $13 million of unused
     lines of credit available.

     On October 3, 2002, the Company also reached  agreement with the holders of
     $16.5  million  of Senior  Subordinated  Notes to  restructure  the  notes,
     extending  the maturity  date to 2005.  The Company is only required to pay
     monthly  installments  of $50,000  through  December  2003 and $150,000 per
     month from January 2004 through the  maturity  date.  However,  the Company
     paid $1 million in  principal  (and $2.1  million of accrued  interest)  at
     closing of the new senior  debt  facility  and  expects to make  additional
     excess  payments to its  subordinated  lenders  over the next three  years.
     Payments to the  subordinated  lenders are subject to certain  restrictions
     imposed  under  the  senior  debt  facility.  Interest  on the  balance  of
     subordinated  debt is paid  quarterly.  If the  Company  is  unable to make
     scheduled and additional  excess  payments  totaling at least $8 million by
     2005 (due to  restrictions  imposed  under the new senior debt  facility or
     otherwise)   the   noteholders   will  receive   warrants   equivalent   to
     approximately  1.6% of the diluted  common shares  outstanding  for each $1
     million in unpaid  principal,  in addition  to warrants  having an exercise
     price of $7.24  (expiring in September 2003) now held by them. Any warrants
     received  or  earned  will be  relinquished  if the  notes are paid in full
     during  the  term of the new  agreement.  The  agreement  also  grants  the
     subordinated lenders a lien on Company assets (junior in all aspects to the
     new senior debt collateral  agreements  described above). The interest rate
     on the subordinated notes had been 13.5% through June 30, 2002 [12% payable
     in cash and 1.5%  payable-in-kind  (PIK)] plus an additional 2% on past due
     amounts.  At closing,  the interest  rate on the notes was changed to 12.5%
     (without PIK) through maturity in October 2005. The new  subordinated  note
     agreement includes certain other provisions,  including  restrictions as to
     the payment of dividends  and the  elimination  or  adjustment of financial
     covenants contained in the original agreement to conform to those contained
     in the new senior debt agreements.

     All  amounts  outstanding  as of  September  30,  2002 under the senior and
     subordinated  lending arrangements have been classified in the accompanying
     consolidated   financial  statements  based  upon  the  terms  of  the  new
     underlying  agreements entered into on October 3, 2002. The new senior debt
     agreements  include  provisions which suggest the debt could become payable
     upon  demand  under  certain  circumstances  and  thus,  this debt has been
     classified as current  maturities of long-term debt. All prior defaults and
     covenant  violations  under the Company's  previous senior and subordinated
     lending arrangements were waived, amended or satisfied through repayment of
     the underlying debt.

     The Company also has 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%.


                                       29
<PAGE>

     Carrying values of the Senior  Subordinated  Notes,  the bank notes payable
     and term loan are reasonable  estimates of fair value as interest rates are
     based on prevailing market rates.

     Aggregate  maturities  of  long-term  debt  based upon the terms of the new
     underlying  agreements  entered  into on October 3, 2002 are as follows (in
     thousands):


                                 2003            $12,342
                                 2004              1,672
                                 2005              1,987
                                 2006             11,452
                                 Thereafter        1,272
                                               ----------
                                                 $28,725
                                               ==========


(5)  INCOME TAXES:
     -------------

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

                                                        2002          2001
                                                    ------------  ------------
      U.S. current deferred tax assets (included
         in other current assets)                   %   1,514      $    578
      Foreign current deferred tax liability
         (included in accrued liabilities)               (818)       (1,326)
      U.S. and foreign, noncurrent deferred tax
         asset (liability) (included in other
         assets and deferred income taxes and other)    2,829         1,559
                                                    ------------  ------------
         Net deferred tax asset                     $   3,525      $    811
                                                    ============  ============
      Deferred tax assets:
         U.S. tax credit carryforwards              $   2,610      $    534
         Provisions for losses from discontinued
          operations                                      174           534
         Depreciation                                     214           192
         Vacation pay                                     105            66
         Accrued pension                                  657           622
         Accrued restructuring and related costs          385           115
         Accrued environmental costs                       38            65
         Installment sale and related expenses             95           216
         Other                                             88           478
         Foreign net operating loss carryforward          512           520
         Valuation allowance                             (512)         (520)
                                                    ------------  ------------
         Total deferred tax asset                       4,366         2,288
                                                    ------------  ------------
      Deferred tax liabilities:
         Inventories                                     (748)       (1,384)
         Property, plant and equipment                    (93)          (93)
                                                    ------------  ------------
         Total deferred tax liability                    (841)       (1,477)
                                                    ------------  ------------
      Net deferred tax asset                        $   3,525        $  811
                                                    ============  ============

     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.  Management believes that it will obtain
     the full benefit of U.S.  deferred tax assets and credit  carryforwards  on
     the basis of its evaluation of the Company's anticipated profitability over
     the period of years that the temporary  differences  are expected to become
     tax  deductions.  Management also believes that sufficient book and taxable

                                       30
<PAGE>

     income will be generated  to realize the benefit of these tax assets.  This
     assessment of  profitability  takes into account the Company's  present and
     anticipated split of domestic and international earnings.

     At  September  30,  2002 and 2001,  the Company  had  valuation  allowances
     against  certain  deferred  tax  assets  totaling  $512,000  and  $520,000,
     respectively.   These  valuation   allowances   relate  to  tax  assets  in
     jurisdictions  where it is  management's  best estimate that there is not a
     greater  than  50%  probability  that the  benefit  of the  assets  will be
     realized in the associated tax returns.

     The  provision  (benefit)  for income taxes from  continuing  operations is
     comprised of the following (in thousands):

                                              2002       2001       2000
                                             --------   --------  ---------
              Current:
                 U.S. Federal                $  640     $ (352)   $ (530)
                 State                          (40)       (12)     (124)
                 Foreign                      1,175      1,215       845
                                             --------   --------  ---------
                                              1,775        851       191
                                             --------   --------  ---------
              Deferred:
                 U.S. Federal                (2,081)      (199)     (900)
                 State                         (206)       (71)        -
                 Foreign                        (47)       264       261
                                             --------   --------  ---------
                                             (2,334)      (534)     (639)
                                             --------   --------  ---------
                                             $ (559)    $  317    $ (448)
                                             ========   ========  =========

     Foreign  deferred  tax  provision  (benefit) is  comprised  principally  of
     temporary differences related to Mexico asset purchases.  The U.S. deferred
     (benefit) in 2002, 2001 and 2000 result primarily from expenses accrued but
     not yet deductible for taxes and tax credit carryforwards.

     The  differences  between the  provision  (benefit)  for income  taxes from
     continuing  operations  computed at the U.S.  statutory  federal income tax
     rate  and  the  provision  (benefit)  from  continuing  operations  in  the
     accompanying   consolidated   financial   statements  are  as  follows  (in
     thousands):

                                                 2002       2001       2000
                                               --------   --------  ---------

        Amount computed using statutory rate    $ (533)    $  329    $ (393)

        Foreign income                            (178)       (28)     (169)

        State  taxes,  net of  federal benefit    (162)       (54)      (82)

        Permanent differences                      149        168       254

        Other                                      165        (98)      (58)
                                               --------   --------  ---------

        Provision (benefit) for income taxes    $ (559)    $  317    $ (448)
                                               ========   ========  =========



                                       31
<PAGE>


(6)   EMPLOYEE  BENEFIT  PLANS:
      -------------------------

     Prior to 2002, the Company maintained several defined benefit pension plans
     covering  substantially  all union  employees.  During 2002,  several plans
     related to the Company's  Industrial Group  (discontinued  operations) were
     wound up, leaving one defined benefit plan covering the remaining Company's
     U.S. Consumer  division 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
     is  to  fund  the  minimum  annual  contributions  required  by  applicable
     regulations.

     The  following  tables  set  forth  the  plans'  funded  status  and  other
     information  for the fiscal  years  ended  September  30, 2002 and 2001 (in
     thousands):

                                                     September 30,
                                                  2002            2001
                                              ------------   -------------
      Change in benefit obligation:

      Obligation at beginning of year            $ 3,831         $ 3,887

      Service cost                                    90             178

      Interest cost                                  123             245

      Actuarial gain                                 154              25

      Benefit payments                            (2,436)           (504)
                                              ------------   -------------

      Obligation at end of year                  $ 1,762         $ 3,831
                                              ============   =============

      Change in market value of plan assets:

      Market value at beginning of year          $ 3,489         $ 3,338

      Actual return on plan assets                   445             298

      Employer contributions                         610             357

      Benefit payments                            (2,436)           (504)
                                              ------------   -------------
      Market value at end of year                $ 2,108         $ 3,489
                                              ============   =============
      Prepaid pension asset:

      Projected benefit obligation               $(1,762)        $(3,831)

      Plan assets at market value                  2,108           3,489
                                              ------------   -------------
      Projected benefit obligation less than
       (in excess of) plan assets                    346            (342)

      Unrecognized net gain from past
       experience differentfrom assumptions          (69)            278


      Unrecognized net obligation being recognized
       over periods from 10 to 16 years              164             196
                                              ------------   -------------

      Prepaid pension asset                      $   441         $   132
                                              ============   =============

                                       32
<PAGE>

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

                                                    2002       2001       2000
                                                   --------   --------  --------
     Service costs - benefits earned during period  $  90     $ 178      $ 180
     Interest cost on projected benefit obligation    123       245        237
     Expected return on plan assets                  (153)     (248)      (214)
     Net amortization and deferral                     12        76        141
                                                   --------   --------  --------
     Net periodic pension cost                      $  72     $ 251      $ 344
                                                   ========   ========  ========

     In  determining  the projected  benefit  obligation,  the weighted  average
     discount  rates  utilized  were 6.4%,  6.4% and 6.7% for the periods  ended
     September 30, 2002,  2001 and 2000,  respectively.  The expected  long-term
     rates of return on assets used in  determining  net  periodic  pension cost
     ranged  from 7.5 % to 8.5 % in all  years  presented  above.  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 two  defined-contribution  plans (401k) for all
     non-union  domestic  employees and certain union 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 amount of up to 1.5% 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, 2002,  2001 and 2000 were $487,000,  $588,000 and
     $610,000, respectively.

     In  addition,  the Company has a defined  benefit  retirement  plan,  which
     provides  supplemental  benefits for certain key executive  officers,  upon
     retirement, disability or death. The benefits are similar to those provided
     under the 401(k) plans, but are funded through the purchase of certain life
     insurance  products.  As of September 30, 2002 and 2001,  the net liability
     under  the  plan  (included  in  accrued  liabilities),  was  $504,000  and
     $392,000,  respectively.  Amounts charged to expense under the plan totaled
     $118,000  and  $134,000  in 2002 and 2000,  respectively.  There was no net
     expense under this plan in 2001.


(7)  SHAREHOLDERS'  EQUITY:
     ----------------------

     The Company  provides an Employee Stock Purchase Plan under which shares of
     its common  stock can be issued to eligible  employees.  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,  2002,  2001 and
     2000 15,370, 9,415 and 10,757 shares, respectively,  were issued under this
     plan. At September 30, 2002,  there are 56,936 shares  available for future
     purchases under the plan.

     The Company has also granted non-qualified options to key employees,  under
     the 1988 Dixon Ticonderoga Company Executive Stock Plan, to purchase shares
     of its  common  stock at the market  price on the 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
     five years from the date of vesting.  All options expire three months after
     termination  of  employment.  At  September  30,  2002,  there were 243,500
     options  outstanding  and no shares  available  for future grants under the
     1988 Plan.

     In  addition,  the Dixon  Ticonderoga  Company  1999 Stock Option Plan (the
     "1999  Plan") was  adopted  in fiscal  1999,  covering a maximum  aggregate
     300,000 shares.  Under the 1999 Plan,  qualified incentive stock options or
     non-qualified stock options can be granted to employees at the market price
     on the date of grant and which will vest on the same basis as the 1988 Plan


                                       33
<PAGE>

     described  above.  Non-qualified  options  under  the 1999 Plan may also be
     issued to Company  outside  directors  at the  market  price on the date of
     grant and which may vest over varying  periods.  In 2001 and 2000,  159,800
     and  10,000  options  were  granted  to  employees  under  the  1999  Plan,
     respectively.  In  addition,  in 1999,  30,000  non-qualified  options were
     granted to outside directors that vest over a two-year period. At September
     30,  2002  there  were  187,300  options  outstanding  and  112,700  shares
     available  for future  grants  under the 1999  Plan.  The  following  table
     summarizes the combined stock options activity for 2002, 2001 and 2000.

<TABLE>
<CAPTION>
                             2002                  2001                 2000
                      --------------------  -------------------  --------------------
                       Number    Option      Number    Option     Number    Option
                      of Shares   Price     of Shares  Price     of Shares   Price
                      --------------------  -------------------  --------------------

<S>                       <C>       <C>        <C>        <C>        <C>       <C>
   Options outstanding
    at beginning of year
                                               27,000    $8.63      41,750    $8.63
                         21,250      6.75      34,125     6.75      48,625     6.75
                          2,500      7.13      10,750     7.13      10,750     7.13
                        231,000      8.88     258,000     8.88     273,000     8.88
                          2,500     12.88       2,500    12.88       5,500    12.88
                         10,000     11.38      10,000    11.38      10,000    11.38
                         25,000     11.00      30,000    11.00      40,000    11.00
                          5,000      4.25       7,500     4.25
                          2,500      3.81
                        147,300      3.70
                         10,000      4.75
   Options exercised                                               (10,000)    6.75
                                                                   (11,750)    8.63
   Options granted
                                                                    10,000     4.25
                                               10,000     4.75
                                                2,500     3.81
                                              147,300     3.70
   Options expired
      or canceled                              (2,500)    4.25      (2,500)    4.25
                                              (27,000)    8.63      (3,000)    8.63
                        (21,250)      6.75    (12,875)    6.75      (4,500)    6.75
                                              (27,000)    8.88     (15,000)    8.88
                                               (8,250)    7.13
                                               (5,000)   11.00     (10,000)   11.00
                         (2,500)     12.88                          (3,000)   12.88
                         (2,500)      3.81
                      -----------           -----------          -----------
                        430,800               457,050              379,875
                      ===========           ===========          ===========
</TABLE>




                                       34
<PAGE>

     The Company has adopted the  disclosure-only  provisions of FASB  Statement
     No. 123 and,  accordingly,  there is no compensation expense recognized for
     its stock  option  plans.  Pro forma net loss and loss per share would have
     been  as  follows  if  the  fair  value   estimates  were  used  to  record
     compensation expense:

                                        2002           2001          2000
                                     ------------   ------------  ------------
      Pro forma net loss             $ (662,354)    $ (505,281)   $ (1,048,842)
                                     ============   ============  ============
       Loss per share:
          Basic                      $    (.21)     $    (.16)    $      (.33)
                                     ============   ============  ============
          Diluted                    $    (.21)     $    (.16)    $      (.33)
                                     ============   ============  ============

     These pro forma amounts were estimated  using the  Black-Scholes  valuation
     model assuming no dividends,  expected volatility of 36% in 2001 and 33% in
     2000, an average  risk-free  interest rate of 4.7% in 2001 and 6.7% in 2000
     and expected lives of approximately  six years for all grants prior to 2001
     and eight years  thereafter.  No options were granted in 2002. The weighted
     average fair value estimates of options granted for 2002, 2001 and 2000 was
     $2.49, $2.47 and $2.92, respectively.  The weighted average remaining lives
     of  options  granted  are 2.4,  5.5 and 5.6 years for 2002,  2001 and 2000,
     respectively.

     In the past, the Company made loans under the  aforementioned  stock option
     plans to certain shareholders who are executive officers,  for the purchase
     of Company  common  stock  pursuant to the exercise of stock  options.  The
     loans must be repaid at the time the underlying  shares of common stock are
     sold.  Interest  on a portion of the loans  accrues at a rate of 8%.  Total
     shareholder loans approximated  $558,000 at September 30, 2002 and 2001. No
     such loans have been granted since late 1999.

     In 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
     ten years from the date of distribution.


(8)  STOCK  REPURCHASE  PROGRAM:
     ---------------------------

     In 1999, the Company announced a Stock Repurchase  Program  authorizing the
     acquisition of up to $3 million in Dixon Ticonderoga  Company stock.  Under
     this program,  the Company  repurchased  approximately  337,000 shares at a
     total cost of $2.8 million  (including  approximately  $2 million in fiscal
     2000, when the program was terminated.).


                                       35
<PAGE>

(9)  EARNINGS  PER  COMMON  SHARE:
     -----------------------------

     Basic earnings (loss) per common share is calculated by dividing net income
     (loss)  by the  weighted  average  number of  shares  outstanding.  Diluted
     earnings  per common  share is based upon the  weighted  average  number of
     shares outstanding,  plus the effects of potentially dilutive common shares
     [consisting of stock options (Note 7) and stock warrants (Note 4)]. For the
     years ended  September 30, 2002 and 2000,  options and warrants to purchase
     730,800 and 679,875  shares of common  stock,  respectively,  were excluded
     from the  computation of diluted  earnings (loss) per share as such options
     and warrants were anti-dilutive.

     Weighted  average common shares used in the  calculation of earnings (loss)
     per share are as follows:

              Year                 Basic      Diluted
              ----               ----------  ----------
              2002               3,183,866   3,183,866
              2001               3,171,190   3,176,609
              2000               3,202,582   3,202,582


(10) RESTRUCTURING AND RELATED COSTS:
     --------------------------------

     The Company began fiscal 2000 with reserves of approximately  $1.7 million,
     previously  provided in connection  with Phase 1 of its  Restructuring  and
     Cost Reduction  Program,  which was intended to improve  overall  financial
     performance in the future. The program included manufacturing plant closure
     and consolidation,  as well as personnel reduction in manufacturing,  sales
     and  marketing  and  corporate  activities.   Approximately  125  employees
     (principally plant workers) were affected by this phase of the program. The
     carrying  amount of property  and  equipment  held for  disposal in Phase 1
     approximated  $2 million with the estimated  fair value  principally  based
     upon assessments of value made by local realtors or appraisals.  Management
     disposed of the remaining assets from Phase 1 in May 2001.

     In  fiscal  2000,   approximately   $1,302,000  was  charged   against  the
     restructuring cost and impairment  reserves for finalization of the Phase 1
     program (net of $234,000 in credits  representing  higher than  anticipated
     proceeds from the sale and abandonment of property and equipment identified
     in the  Phase  1  program).  As  set  forth  below,  the  Company  incurred
     approximately   $206,000  in  net  additional   charges,   principally  for
     unanticipated  employee  costs  and other  costs  directly  related  to the
     restructuring  program which were not eligible for  recognition in 1999 and
     thus expensed as incurred in 2000.

     Also in fiscal  2000,  the Company  provided  approximately  $1,302,000  of
     impairment and  restructuring  related costs in connection  with Phase 2 of
     its  Restructuring  and Cost  Reduction  Program,  which  included  further
     consolidation of certain U.S. manufacturing processes, the consolidation of
     its  Mexico  operations  into  a  new  facility  and  additional  personnel
     reductions in manufacturing,  sales, marketing and corporate activities. An
     additional 170 employees  (principally  plant workers) were affected by the
     second phase of the program.  The carrying  amount of  additional  property
     held for  disposal  under Phase 2 of the program was $1.1  million and this
     additional property was disposed of in 2001 for approximately that amount.

     In fiscal  2001,  the  Company  incurred  approximately  $868,000  in costs
     (principally in Mexico) directly related to the restructuring program which
     were not eligible for  recognition in 2000 and thus expensed as incurred in
     2001.

     In fiscal  2002,  the  Company  provided  $418,000 in  additional  charges,
     principally  for  lease  termination  and  employee  costs  related  to the
     completion of Phase 2 of the restructuring program.

     Also in fiscal 2002,  the Company  provided  approximately  $1,155,000  for
     restructuring and improvement related costs in connection with Phase 3 (the
     final  phase)  of its  Restructuring  and  Cost  Reduction  Program,  which


                                       36
<PAGE>

     includes a plant  closure and further  consolidation  of its  manufacturing
     operations  into the Company's  Mexico  facility and  additional  personnel
     reductions,   primarily  in  manufacturing  and  corporate  activities.  An
     additional 120 employees  (principally  plant workers) were affected by the
     final phase of the program.  The carrying amount of additional  property to
     be held for disposal at completion of Phase 3 is approximately $200,000.

     The restructuring and impairment related charges and subsequent utilization
     for the three fiscal years ended  September 30, 2002 are  summarized  below
     (in thousands):

<TABLE>
<CAPTION>

                                                        Losses from
                                         Employee      impairment, sale
                                        severance      and abandonment
                                        and related      of property
                                          costs         and equipment      Total
                                      --------------  -----------------  ----------
<S>                                 <C>               <C>                <C>        <C>
Reserve balances at September 30, 1999    $ 338         $  1,316          $ 1,704
Utilized in fiscal 2000 (Phase 1)          (594)          (1,316)          (1,910)
                                      --------------  -----------------  ----------
                                           (206)              -              (206)
                                      --------------  -----------------  ----------
Additional fiscal 2000 provisions
 (Phase 1)                                  206               -               206

2000 restructuring and impairment
  related charges (Phase 2)                 834              468            1,302
                                      --------------  -----------------  ----------
Total 2000 restructuring and
  impairment related charges (Phase 2)    1,040              468            1,508
                                      --------------  -----------------  ----------
                                            834              468            1,302
Utilized in fiscal 2000 (Phase 2)          (161)            (156)            (317)
                                      --------------  -----------------  ----------
Reserve balances at September 30, 2000      673              312              985
2001 restructuring and impairment
 related charges (Phase 2)                   -               868              868
Utilized in fiscal 2001 (Phase 2)          (334)          (1,180)          (1,514)
                                      --------------  -----------------  ----------
Reserve balances at September 30, 2001      339               -               339
                                      --------------  -----------------  ----------
Additional fiscal 2002 provisions
 (Phase 2)                                  135              283              418

2002 restructuring and impairment
  related charges (Phase 3)               1,110               45            1,155
                                      --------------  -----------------  ----------
Total 2002 restructuring and
  impairment related charges              1,245              328            1,573
                                      --------------  -----------------  ----------
Utilized in fiscal 2002 (Phase 2)          (474)            (283)            (757)
                                      --------------  -----------------  ----------
Reserve balances at September 30, 2002   $1,110           $   45           $1,155
                                      ==============  =================  ==========

</TABLE>




                                       37
<PAGE>

(11)  LINE   OF   BUSINESS  REPORTING:
      --------------------------------

     Due to the  Company's  plan to exit the  Industrial  Group  (Note 12),  the
     Company's  continuing  operations  only consist of one  principal  business
     segment - its Consumer Group. The following  information sets forth certain
     additional data pertaining to its operations as of September 30, 2002, 2001
     and 2000 for the years then ended (in thousands).

                                            Operating          Identifiable
                              Revenues     Profit (Loss)          Assets
                            ------------  --------------     ----------------
        2002:
          United States       $ 51,685        $(1,494)           $ 41,127
          Canada                 8,694            792               5,879
          Mexico                27,098          3,445              26,120
          United Kingdom         1,094             29                 642
          China                     20            125               1,435

       2001:
          United States       $ 54,837        $ 2,076            $ 44,598
          Canada                 8,435            527               5,673
          Mexico                23,813          2,849              29,012
          United Kingdom         1,046            (26)                674
          China                    188            (70)              1,363

       2000:
          United States       $ 54,430        $  (658)           $ 45,317
          Canada                 9,303            620               6,741
          Mexico                23,943          2,664              27,910
          United Kingdom         1,124            (16)                616
          China                     67            (95)              1,153



(12)  DISCONTINUED OPERATIONS:
      ------------------------

     In September  2001,  the Company  formalized its decision to offer for sale
     its New Castle Refractories  division,  the last business of its Industrial
     Group. In December 2002, the Company entered into an agreement to sell this
     division to local management. The transaction is expected to close in early
     2003.  Accordingly,  related operating results of the Industrial Group have
     been reported as discontinued  operations in the accompanying  consolidated
     financial statements.

     Net revenues and income (loss) from discontinued  operations are as follows
     (in thousands):

                                             2002       2001        2000
                                           ---------  ----------  ---------
      Net revenues                         $ 9,169     $ 9,529    $11,188
                                           =========  ==========  =========
      Income   (loss)  from   discontinued
        operations before income taxes     $   200     $   (85)   $   (88)
      Income tax benefit (expense)             (77)         29         23
                                           ---------  ----------  ---------
                                               123         (56)       (65)
                                           ---------  ----------  ---------
      Loss on disposal of Industrial Group      -       (1,570)        -
      Income tax benefit (expense)              -          526         -
                                           ---------  ----------  ---------
                                                -        1,044         -
                                           ---------  ----------  ---------
      Income   (loss)  from   discontinued
      operations                            $  123    $ (1,100)   $  (65)
                                           =========  ==========  =========
      Earnings (loss) per share (basic)     $  .04     $ (0.35)   $(0.02)
                                           =========  ==========  =========
      Earnings (loss) per share (diluted)   $  .04     $ (0.35)   $(0.02)
                                           =========  ==========  =========



                                       38
<PAGE>

     Income (loss) from discontinued  operations includes pre-tax gains on sales
     of assets of $208 and $1,202 in 2002 and 2001,  respectively,  attributable
     to the sale of the Company's Graphite and Lubricants division. In addition,
     interest expense of $342, $427 and $597 has been allocated to income (loss)
     from discontinued  operations in 2002, 2001 and 2000,  respectively,  based
     upon the identifiable  assets of such  operations.  The loss on disposal in
     2001  includes  the  anticipated  loss  on  the  sale  of  the  New  Castle
     Refractories  division  of  $468,  a  provision  for  the  wind-up  of that
     division's pension plans of $432, and a provision for anticipated operating
     losses through the date of disposal (expected to be by early 2003) of $670.

     Assets and liabilities relating to discontinued  operations and included in
     the accompanying consolidated balance sheets are as follows (in thousands):

                                                September 30,
                                               2002       2001
                                             ---------  ----------
      Current assets                          $ 3,905    $ 4,619
      Property, plant and equipment, net          386        473
      Current liabilities                      (1,254)    (1,448)
      Long-term liabilities and other, net       (813)      (743)
                                             ---------  ----------
      Net assets of discontinued operations   $ 2,224    $ 2,901
                                             =========  ==========


(13) COMMITMENTS  AND  CONTINGENCIES:
     --------------------------------

     The Company has entered into  employment  agreements  with four  executives
     which provide for the continuation of salary (currently aggregating $68,700
     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 has also  entered  into
     various  agreements  with  six  additional   employees  which  provide  for
     continuation of salaries  (averaging  $6,800 each per month) for periods up
     to 16 months under certain circumstances.

     On December  9, 2002,  the Company  entered  into a strategic  distribution
     arrangement  with a third-party  logistics  partner  through June 2005. The
     minimum payments under the related contract are  approximately  $811,000 in
     2003, $945,000 in 2004 and $709,000 in 2005.

     Since 2001,  the Company  leases certain  manufacturing  equipment  under a
     five-year  noncancelable  operating lease  arrangement.  The rental expense
     under this lease was $410,000 and $372,000 in 2002 and 2001,  respectively.
     Annual future minimum rental payments are  approximately  $372,000 per year
     through 2004 and $93,000 in 2005.

     The  Company,  in the  normal  course  of  business,  is party  in  certain
     litigation.  In 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 a claim  under New
     Jersey's  Environmental  Clean-Up  Responsibility  Act  (ECRA)  by  a  1984
     purchaser of industrial  property from the Company.  All subsequent appeals
     were denied and as a result of the judgment,  the Company paid $3.6 million
     in 1998 to satisfy this claim in full, including all accrued interest.  The
     Company continued to pursue other responsible  parties for  indemnification
     and/or  contribution to the payment of this claim  (including its insurance
     carriers)  and in fiscal  2000 the  Company  reached  settlements  with its
     various insurers for reimbursement of legal costs in the amount of $653,000
     (reflected as a reduction in selling and administrative expenses). In 2001,
     a pending  malpractice  suit against its previous legal counsel was settled
     and the Company received $575,000 (also reflected as a reduction in selling
     and administrative expenses).

     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.

                                       39
<PAGE>

     The  Company  assesses  the extent of  environmental  matters on an ongoing
     basis. In the opinion of management  (after taking into account accruals of
     approximately  $322,000 as of September 30, 2002),  the resolution of these
     matters  will  not  materially  affect  the  Company's  future  results  of
     operations or financial position.


(14) SUMMARY  OF  QUARTERLY  FINANCIAL  INFORMATION  ( UNAUDITED )
     --------------------------------------------------------------
      ( In Thousands, Except  Per  Share  Data ):
     --------------------------------------------

              2002:                 First      Second       Third      Fourth
                                  ----------  ----------  ----------  ----------
Revenues (a)                       $17,496     $17,928     $28,148     $25,019
Income  (loss)  from   continuing
  operations                          (775)       (656)      1,358        (610)
Income  (loss) from  discontinued
  operations                            --         131          --          (8)
Net income (loss)                     (775)       (525)      1,358        (618)

Earnings (loss) per share: (b)
  Continuing operations:
   Basic                              (.24)       (.21)        .43        (.19)
   Diluted                            (.24)       (.21)        .43        (.19)
  Discontinued operations:
   Basic                                --         .04          --          --
   Diluted                              --         .04          --          --

  Net income (loss):
   Basic                              (.24)       (.17)        .43        (.19)
   Diluted                            (.24)       (.17)        .43        (.19)

              2001:                 First      Second       Third      Fourth
                                  ----------  ----------  ----------  ----------

Revenues (a)                       $16,822     $18,213     $28,202     $25,082
Income  (loss)  from   continuing
  operations                        (1,144)       (326)      1,514         576
Income  (loss) from  discontinued
  operations                          (166)        646         (98)     (1,482)
Net income (loss)                   (1,310)        320       1,416        (906)

Earnings (loss) per share: (b)
  Continuing operations:
   Basic                              (.36)       (.10)        .48         .18
   Diluted                            (.36)       (.10)        .48         .18
  Discontinued operations:
   Basic                              (.05)        .20        (.03)       (.47)
   Diluted                            (.05)        .20        (.03)       (.47)
  Net income (loss):
   Basic                              (.41)        .10         .45        (.29)
   Diluted                            (.41)        .10         .45        (.29)

(a) Certain  reclassifications were made to classify certain sales incentives as
    reductions  of gross revenues  that were  previously  classified  as selling
    expenses (See Note 1 to Consolidated Financial Statements).

(b) Calculated  independently for each period,  and consequently, the sum of the
    quarters may differ from the annual amount.



                                       40
<PAGE>

                   DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
           FOR THE THREE YEARS ENDED SEPTEMBER 30, 2001, 2000 and 1999

                      Balance at    Additions    Additions to       Balance
                      Beginning      Charged      (Deductions       at Close
   Description        Of Period     to Income    From) Reserves    of Period
-------------------  ------------  ----------   ---------------  -------------

Allowance for Doubtful Accounts:
--------------------------------

Year Ended
  September 30, 2002 $ 1,482,524   $ 193,979    $ (294,723) (1)   $ 1,381,780
                     ============  ==========   ===============  =============

Year Ended
  September 30, 2001 $ 1,418,908   $ 151,263    $  (87,647) (1)   $ 1,482,524
                     ============  ==========   ===============  =============

Year Ended
  September 30, 2000 $ 1,428,541   $ 218,795    $ (228,428) (1)   $ 1,418,908
                     ============  ==========   ===============  =============

(1) Write-off of accounts considered to be uncollectible (net of recoveries).




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

        None.




                                       41
<PAGE>

                                   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  2002 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                        74  Chairman  of the  Board  since  February
(Father-in-law of Richard F. Joyce)     1989;   President  and  Chief  Executive
                                        Officer or  Co-Chief  Executive  Officer
                                        since 1978.

Richard F. Joyce                    47  Vice   Chairman   of  the  Board   since
(Son-in-law of Gino N. Pala)            January  1990;  President  and  Co-Chief
                                        Executive   Officer  since  March  1999;
                                        prior   thereto   President   and  Chief
                                        Operating   Officer,   Consumer   Group,
                                        since    March,1996;    Executive   Vice
                                        President  and  Chief  Legal   Executive
                                        since February 1991;  Corporate  Counsel
                                        since July 1990.

Richard A. Asta                     46  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;  and Director
                                        since May 1999.

Leonard D. Dahlberg, Jr.            51  Executive  Vice  President of Operations
                                        since   August  2000;   Executive   Vice
                                        President  of  Procurement  since  April
                                        1999;   prior  thereto   Executive  Vice
                                        President,   Industrial   Group,   since
                                        March 1996;  Executive Vice President of
                                        Manufacturing/Consumer          Products
                                        division since August 1995;  Senior Vice
                                        President   of    Manufacturing    since
                                        February   1993;   Vice   President   of
                                        Manufacturing since March 1990.

John Adornetto                      61  Vice President and Corporate  Controller
                                        since   January   1991;   prior  thereto
                                        Corporate   Controller  since  September
                                        1978.

Diego Cespedes Creixell             44  President,  Grupo  Dixon  S.A.  de C.V.,
                                        since  August  1996 and  Director  since
                                        May 2000.





                                       42
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION
         ----------------------

     Information  required  under this Item will be contained  in the  Company's
2002 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
2002 Proxy Statement which is incorporated herein by reference.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
         ----------------------------------------------

     Information  required  under this Item will be contained  in the  Company's
2002 Proxy Statement which is incorporated herein by reference.


ITEM 14. CONTROLS AND PROCEDURES
         -----------------------

     Within the 90-day  period prior to the date of this report,  the  Company's
Co-Chief  Executive  Officers,  Chief  Financial  Officer  and Chief  Accounting
Officer evaluated the effectiveness of the design and operation of the Company's
disclosure  controls and procedures and concluded that such disclosure  controls
and procedures are effective. There have been no significant changes in internal
controls or in other factors, which could significantly affect internal controls
subsequent to the date that the officers carried out their evaluations.











                                       43
<PAGE>

                                     PART IV
                                     -------

ITEM 15. 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:

            (2)  a.  Share Purchase  Agreement by and among Dixon Ticonderoga
                     de Mexico,  S.A. de C.V., and by Grupo Ifam,  S.A. de C.V.,
                     and  Guillermo  Almazan  Cueto with  respect to the capital
                     stock  of  Vinci  de  Mexico,   S.A.   de  C.V.,   (English
                     translation). 4

            (2)  b.  Asset Purchase  Agreement dated February 9, 1999, by and
                     between  Dixon  Ticonderoga  Company,  as Seller and Asbury
                     Carbons, Inc., as Buyer. 6

            (3)  (i) Restated Certificate of Incorporation. 2

            (3) (ii) Amended and Restated Bylaws. 1

            (4)  a.  Specimen Certificate of Company Common Stock. 2

            (4)  b.  Amended and Restated Stock Option Plan. 3

            (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. 1

            (10) b.  12.00% Senior  Subordinated  Notes,  Due 2003,  Note and
                     Warrant Purchase Agreement. 1

            (10) c.  12.00% Senior Subordinated Notes, Due 2003, Common Stock
                     Purchase Warrant Agreement. 1

            (10) d.  License and Technological  Agreement between Carborundum
                     Corporation and New Castle Refractories Company, a division
                     of Dixon Ticonderoga Company. 1

            (10) e.  Equipment   Option  and  Purchase   Agreement   between
                     Carborundum   Corporation   and  New  Castle   Refractories
                     Company, a division of Dixon Ticonderoga Company. 1

            (10) f.  Product   Purchase   Agreement   between   Carborundum
                     Corporation and New Castle Refractories Company, a division
                     of Dixon Ticonderoga Company. 1



                                       44
<PAGE>

            (10) g.  Second  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. 5

            (10) h.  Third  Modification  of Amended and  Restated  Revolving
                     Credit  Loan  and  Security  Agreement,  Amendment  to Loan
                     Documents  and  Assignment  by and among Dixon  Ticonderoga
                     Company,  Dixon  Ticonderoga,  Inc., First Union Commercial
                     Corporation,  BankBoston, N.A., National Bank of Canada and
                     LaSalle Bank. 7

            (10) i.  First  Modification  of Amended and  Restated  Term Loan
                     Agreement  and  Assignment  by and among Dixon  Ticonderoga
                     Company,  Dixon  Ticonderoga,  Inc., First Union Commercial
                     Corporation,  BankBoston, N.A., National Bank of Canada and
                     LaSalle Bank. 7

            (10) j.  Amendment No. 1 to 12.00% Senior Subordinated Notes, Due
                     2003, Note and Warrant Purchase Agreement. 7

            (10) k.  Fourth  Modification  of Amended and Restated  Revolving
                     Credit Loan and Security Agreement. 8

            (10) l.  Second  Modification  of Amended and Restated  Term Loan
                     Agreement. 8

            (10) m.  Amendment No. 2 to Note and Warrant Purchase Agreement. 8

            (21)     Subsidiaries of the Company

            (23)     Consent of Independent Certified Public Accountants.

            (99.1)   Certification by Officers

1 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.

2 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.

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

4  Incorporated  by reference to the Company's  current report on Form 8-K dated
December 12, 1997, filed in Washington D.C.

5 Incorporated by reference to the Company's  Annual Report on Form 10-K for the
year ended September 30, 1998, file number 0-2615, filed in Washington, D.C.

6  Incorporated  by reference to the Company's  current report on Form 8-K dated
March 2, 1999, filed in Washington D.C.

7 Incorporated by reference to the Company's  Annual Report on Form 10-K for the
year ended September 30, 1999, file number 0-2615 filed in Washington, D.C.

8 Incorporated by reference to the Company's  Annual Report on Form 10-K for the
year ended September 30, 2000, file number 0-2655 filed in Washington, D.C.

(b)     Reports on Form 8-K:
        --------------------
        None.



                                       45
<PAGE>

                                  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, Chairman of Board and
                                      Co-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
        ----------------------------
        Gino N. Pala                Chairman of Board, Co-Chief
                                    Executive Officer and Director
                                    Date:  January 14, 2003
        /s/  Richard F. Joyce
        ----------------------------
        Richard F. Joyce            Vice Chairman of Board,
                                    Co-Chief Executive Officer,
                                    President and Director
                                    Date:  January 14, 2003
        /s/  Richard A. Asta
        ----------------------------
        Richard A. Asta             Executive Vice President of Finance,
                                    Chief Financial Officer and Director
                                    Date:  January 14, 2003
        /s/  Diego Cespedes Creixell
        ----------------------------
        Diego Cespedes Creixell     President, Grupo Dixon S.A. de C.V.,
                                    and Director
                                    Date: January 14, 2003
        /s/  Philip M. Shasteen
        ----------------------------
        Philip M. Shasteen          Director
                                    Date: January 14, 2003
        /s/  Ben Berzin, Jr.
        ----------------------------
        Ben Berzin, Jr.             Director
                                    Date: January 14, 2003
        /s/  Kent Kramer
        ----------------------------
        Kent Kramer                 Director
                                    Date: January 14, 2003
        /s/  John Ritenour
        ----------------------------
        John Ritenour               Director
                                    Date: January 14, 2003
        /s/  Wesley D. Scovanner
        ----------------------------
        Wesley D. Scovanner         Director
                                    Date: January 14, 2003



                                       46
<PAGE>

                                 CERTIFICATIONS

  I, Gino N. Pala, certify that:

  1. I have  reviewed  this  annual  report  on Form  10-K of Dixon  Ticonderoga
     Company;

  2. Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;

  3. Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

  4. The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a)designed such disclosure  controls and procedures to ensure that material
       information  relating  to  the  registrant,  including  its  consolidated
       subsidiaries,  is made  known  to us by  others  within  those  entities,
       particularly  during  the  period in which  this  annual  report is being
       prepared;

     b)evaluated the effectiveness of the registrant's  disclosure  controls and
       procedures  as of a date  within 90 days prior to the filing date of this
       annual report (the "Evaluation Date"); and

     c)presented in this annual report our conclusions  about the  effectiveness
       of the disclosure  controls and procedures  based on our evaluation as of
       the Evaluation Date;

  5. The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent functions):

     a)all  significant  deficiencies  in the design or  operation  of  internal
       controls which could adversely affect the registrant's ability to record,
       process,  summarize and report financial data and have identified for the
       registrant's auditors any material weaknesses in internal controls; and

     b)any fraud,  whether or not material,  that  involves  management or other
       employees  who  have a  significant  role  in the  registrant's  internal
       controls; and

  6. The  registrant's  other  certifying  officers and I have indicated in this
     annual report whether there were significant  changes in internal  controls
     or in other  factors  that could  significantly  affect  internal  controls
     subsequent  to the  date  of our  most  recent  evaluation,  including  any
     corrective  actions with regard to  significant  deficiencies  and material
     weaknesses.

Date:  January 14, 2003

/s/  Gino N. Pala
--------------------------------
Gino N. Pala
Chairman of Board, Co-Chief Executive
Officer and Director



                                       47
<PAGE>

                                 CERTIFICATIONS

  I, Richard F. Joyce, certify that:

  1. I have  reviewed  this  annual  report  on Form  10-K of Dixon  Ticonderoga
     Company;

  2. Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;

  3. Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

  4. The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a)designed such disclosure  controls and procedures to ensure that material
       information  relating  to  the  registrant,  including  its  consolidated
       subsidiaries,  is made  known  to us by  others  within  those  entities,
       particularly  during  the  period in which  this  annual  report is being
       prepared;

     b)evaluated the effectiveness of the registrant's  disclosure  controls and
       procedures  as of a date  within 90 days prior to the filing date of this
       annual report (the "Evaluation Date"); and

     c)presented in this annual report our conclusions  about the  effectiveness
       of the disclosure  controls and procedures  based on our evaluation as of
       the Evaluation Date;

  5. The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent functions):

     a)all  significant  deficiencies  in the design or  operation  of  internal
       controls which could adversely affect the registrant's ability to record,
       process,  summarize and report financial data and have identified for the
       registrant's auditors any material weaknesses in internal controls; and

     b)any fraud,  whether or not material,  that  involves  management or other
       employees  who  have a  significant  role  in the  registrant's  internal
       controls; and

  6. The  registrant's  other  certifying  officers and I have indicated in this
     annual report whether there were significant  changes in internal  controls
     or in other  factors  that could  significantly  affect  internal  controls
     subsequent  to the  date  of our  most  recent  evaluation,  including  any
     corrective  actions with regard to  significant  deficiencies  and material
     weaknesses.

Date:  January 14, 2003

/s/  Richard F. Joyce
--------------------------------
Richard F. Joyce
Vice Chairman of Board, Co-Chief
Executive Officer, President and Director




                                       48
<PAGE>

                                 CERTIFICATIONS

  I, Richard A. Asta, certify that:

  1. I have  reviewed  this  annual  report  on Form  10-K of Dixon  Ticonderoga
     Company;

  2. Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;

  3. Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

  4. The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a)designed such disclosure  controls and procedures to ensure that material
       information  relating  to  the  registrant,  including  its  consolidated
       subsidiaries,  is made  known  to us by  others  within  those  entities,
       particularly  during  the  period in which  this  annual  report is being
       prepared;

     b)evaluated the effectiveness of the registrant's  disclosure  controls and
       procedures  as of a date  within 90 days prior to the filing date of this
       annual report (the "Evaluation Date"); and

     c)presented in this annual report our conclusions  about the  effectiveness
       of the disclosure  controls and procedures  based on our evaluation as of
       the Evaluation Date;

  5. The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent functions):

     a)all  significant  deficiencies  in the design or  operation  of  internal
       controls which could adversely affect the registrant's ability to record,
       process,  summarize and report financial data and have identified for the
       registrant's auditors any material weaknesses in internal controls; and

     b)any fraud,  whether or not material,  that  involves  management or other
       employees  who  have a  significant  role  in the  registrant's  internal
       controls; and

  6. The  registrant's  other  certifying  officers and I have indicated in this
     annual report whether there were significant  changes in internal  controls
     or in other  factors  that could  significantly  affect  internal  controls
     subsequent  to the  date  of our  most  recent  evaluation,  including  any
     corrective  actions with regard to  significant  deficiencies  and material
     weaknesses.

Date:  January 14, 2003

/s/  Richard A. Asta
--------------------------------
Richard A. Asta
Executive Vice President of Finance,
Chief Financial Officer and Director




                                       49
<PAGE>

                                CERTIFICATIONS

  I, John Adornetto, certify that:

  1. I have  reviewed  this  annual  report  on Form  10-K of Dixon  Ticonderoga
     Company;

  2. Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;

  3. Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

  4. The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a)designed such disclosure  controls and procedures to ensure that material
       information  relating  to  the  registrant,  including  its  consolidated
       subsidiaries,  is made  known  to us by  others  within  those  entities,
       particularly  during  the  period in which  this  annual  report is being
       prepared;

     b)evaluated the effectiveness of the registrant's  disclosure  controls and
       procedures  as of a date  within 90 days prior to the filing date of this
       annual report (the "Evaluation Date"); and

     c)presented in this annual report our conclusions  about the  effectiveness
       of the disclosure  controls and procedures  based on our evaluation as of
       the Evaluation Date;

  5. The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent functions):

     a)all  significant  deficiencies  in the design or  operation  of  internal
       controls which could adversely affect the registrant's ability to record,
       process,  summarize and report financial data and have identified for the
       registrant's auditors any material weaknesses in internal controls; and

     b)any fraud,  whether or not material,  that  involves  management or other
       employees  who  have a  significant  role  in the  registrant's  internal
       controls; and

  6. The  registrant's  other  certifying  officers and I have indicated in this
     annual report whether there were significant  changes in internal  controls
     or in other  factors  that could  significantly  affect  internal  controls
     subsequent  to the  date  of our  most  recent  evaluation,  including  any
     corrective  actions with regard to  significant  deficiencies  and material
     weaknesses.

Date:  January 14, 2003

/s/  John Adornetto
--------------------------------
John Adornetto
Vice President and Corporate Controller
and Chief Accounting Officer







                                       50
<PAGE>

                                                                    Exhibit (21)
                                                                    ------------


                         2002 ANNUAL REPORT ON FORM 10-K
                         -------------------------------

                           SUBSIDIARIES OF THE COMPANY
                           ---------------------------

All of the Registrant's subsidiaries as of September 30, 2002, are listed below.
Subsidiaries of a subsidiary are indented.  All subsidiaries are included in the
consolidated financial statements of the Registrant.

                                                                   Percentage of
                                                   State Or           Voting
                                               Jurisdiction of      Securities
                                                Organization          Owned
                                              -----------------  ---------------

Dixon Ticonderoga, Inc.                              Canada            100%

  Grupo Dixon, S.A. de C.V. (50.1% Subsidiary of
   Dixon Ticonderoga, Inc.)                          Mexico             97%

    Dixon Ticonderoga de Mexico, S.A. de C.V.
     (Subsidiary of Grupo Dixon, S.A. de C.V.)       Mexico            100%

    Dixon Comercializadora Dixon, S.A. de  C.V.
     (Subsidiary of Grupo Dixon, S.A. de C.V.)       Mexico            100%

    Servidix, S.A. de C.V.  (Subsidiary of
     Grupo Dixon, S.A. de C.V.)                      Mexico            100%

Dixon Industrial Mexico, S.A. de C.V. (a)            Mexico            100%

Beijing Dixon Ticonderoga Stationery Company, Ltd.   China             100%

Ticonderoga Graphite, Inc. (a)                     New York            100%

Dixon Europe, Limited                           United Kingdom         100%

(a)  Inactive





                                       51
<PAGE>

                                                                    Exhibit (23)
                                                                    ------------
               CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
               ---------------------------------------------------


     We hereby  consent to the  incorporation  by reference in the  Registration
Statements  on Form S-8 (File Nos.  33-20054,  33-23380 and  333-22205) of Dixon
Ticonderoga  Company of our report  dated  December  9,  2002,  relating  to the
financial  statements and financial  statement  schedule,  which appears in this
Form 10-K.





PricewaterhouseCoopers LLP
Tampa, Florida
January 10, 2003




                                       52
<PAGE>

                                                                  Exhibit 99.1
                                                                  ------------
                            CERTIFICATION BY OFFICERS
                            -------------------------


     In connection with the Annual Report of Dixon  Ticonderoga  Company on Form
10-K for the period ended  September 30, 2002 as filed with the  Securities  and
Exchange Commission on the date hereof the undersigned  certify,  pursuant to 18
U.S.C.  ss. 1350, as adopted  pursuant to ss. 906 of the  Sarbanes-Oxley  Act of
2002, that:

(1)   The Annual Report fully complies with the  requirements of section 13(a)
      or 15(d) of the Securities Exchange Act of 1934; and

(2)   The information  contained in this Annual Report fairly present,  in all
      material respects,  the financial condition and results of operations of
      the Company.

                          DIXON TICONDEROGA COMPANY


                             Dated:     January 14, 2003
                                        -------------------------------

                             By:        /s/  Gino N. Pala
                                        -------------------------------
                                        Gino N. Pala
                                        Chairman of Board, Co-Chief
                                        Executive Officer and Director


                             Dated:     January 14, 2003
                                        -------------------------------

                             By:        /s/  Richard F. Joyce
                                        -------------------------------
                                        Richard F. Joyce
                                        Vice-Chairman of Board and
                                        Co-Chief Executive Officer


                             Dated:     January 14, 2003
                                        -------------------------------

                             By:        /s/  Richard A. Asta
                                        -------------------------------
                                        Richard A. Asta
                                        Executive Vice President of Finance,
                                        Chief Financial Officer and Director


                             Dated:     January 14, 2003
                                        ---------------------------------

                             By:        /s/  John Adornetto
                                        ---------------------------------
                                        John Adornetto
                                        Vice   President/Corporate
                                        Controller and
                                        Chief Accounting Officer


                                       53
<PAGE>