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, 2004       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, 2004.

      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 9, 2004, the aggregate market value
of the voting stock held by non-affiliates of the Company was $11,709,310.

Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of December 9, 2004:  3,207,894  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, 2004.


<PAGE>


                                     PART I
                                     ------

ITEM 1. BUSINESS
----------------

                      RECENT EVENTS AND BUSINESS STRATEGIES
                      -------------------------------------

Merger of Dixon  Ticonderoga  Company  with Fila -  Fabbrica  Italiana  Lapis ed
Affini S.p.A:

     On December 16, 2004, Dixon Ticonderoga Company (hereinafter the "Company")
and Fila -  Fabbrica  Italiana  Lapis  ed  Affini  S.p.A.  ("Fila")  executed  a
definitive   merger  agreement  under  which  Fila  would  acquire  all  of  the
outstanding  shares  of the  Company  for  $7.00  per  share in cash.  The price
represents a premium of  approximately  68% over the stock price at the time the
parties  began  negotiations  in  late  August  2004.  Under  the  terms  of the
definitive  agreement,  a  wholly-owned  subsidiary of Fila will commence a cash
tender offer on or about January 7, 2005,  after which any remaining shares will
be  acquired  in a cash  merger  at the same  price.  The  transaction  has been
approved by both companies' boards of directors. However, since the consummation
of the transaction is subject to certain conditions,  there is no assurance that
the tender offer or merger will be completed.

Recent Operating Results and Business Strategies:

     In its fiscal year ended September 30, 2004, the Company  achieved its best
operating  results since 1999,  reporting  net income of over $1.7  million,  or
$0.54 per share compared with net losses in each of the prior four fiscal years.
     The Company has  continued  its emphasis on debt  reduction  following  the
successful  restructuring  of its senior and subordinated  debt  arrangements in
late 2002.  Total  long-term  debt and notes payable (net of cash balances) have
been reduced by approximately $10 million or 24% since 2001.
     In 2004,  the Company also  concentrated  its efforts on integration of its
operations   following   the   completion   of  its   aggressive   manufacturing
consolidation and cost reduction program completed in 2003.
     In addition,  the Company's  China  subsidiary,  Beijing Dixon  Ticonderoga
Stationery Company, Ltd., continued its expansion as it is now dedicated to both
the production of wood slats used by the U.S. and Mexico in pencil manufacturing
and also the  manufacture  and  marketing  of colored and  graphite  pencils for
export sale. This entity also acts as a sourcing arm,  providing certain new and
innovative  products for  international  sale, while assisting in securing other
critical raw materials used in production in the U.S. and Mexico.
     In late 2003, the Company  completed the sale of its last Industrial  Group
business,  its New Castle  Refractories  division,  to local  management and now
operates as strictly a consumer products  company.  (See Note 13 to Consolidated
Financial Statements.)
     Additional  information  regarding  these matters is included  elsewhere in
this Annual Report on Form 10-K.


                                       2
<PAGE>
<TABLE>
<CAPTION>

                              COMPANY ORGANIZATION
                              --------------------
                            Dixon Ticonderoga Company
                                    (Parent)





      <S>                 <C>              <C>                  <C>
       -----------------------------------------------------------
       |                   |                |                    |
       |                   |                |                    |
       |                   |                |                    |
Dixon Ticonderoga, Inc.  Dixon       Beijing Dixon     Ticonderoga Graphite, Inc.
     Canada           Europe, Ltd.    Ticonderoga             Inactive
   (Wholly-Owned)   (Wholly-Owned)    Stationery            (Wholly-Owned)
                                     Company, Ltd.
       |                             (Wholly-Owned)
       |
       |
 Grupo Dixon,
 S.A. de C.V.
and subsidiaries
 (98% Owned)
</TABLE>
<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, 2004,  2003 and 2002, is
contained in Note 12 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. The Company manufactures the majority of
its Prang(R)  brand of soy-bean  based and wax crayons,  chalks,  dry and liquid
tempera,  water colors and art  materials at the facility of its  majority-owned
(98%) subsidiary, Grupo Dixon, S.A. de C.V. (Grupo Dixon).
     Through its  subsidiaries,  Grupo Dixon is engaged in the  manufacture  and
sale of black and color  writing  and  drawing  pencils,  correction  materials,
lumber crayons and allied products in Mexico. It also manufactures and sells the
types of  products  marketed  in the U.S.  under the  Prang(R)  brand  under its
Vinci(R)  brand in  Mexico.  Grupo  Dixon  also  manufactures  marker  products,
modeling clay and special  markers for industrial use, all of which are marketed
and sold together with the Prang(R) products by the U.S. Consumer division.
     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.
     Under a  licensing  agreement  with Warner  Bros.  Consumer  Products,  the
Company also markets a line of pencils,  pens and related products featuring the
famous Looney Tunes(R) and Scooby Doo(R) characters in Canada.
     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.


                                       3
<PAGE>

     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.  In  addition,  the
subsidiary manufactures colored and graphite pencils for export sale.
     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, Europe and China) in which its operations are being conducted.

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

     In  fiscal  2003,  the  Company  completed  its  sale  of  the  New  Castle
Refractories division, the last business of its Industrial Group. This division,
with plants located in Ohio,  Pennsylvania  and West Virginia,  had manufactured
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.
(See Note 13 to Consolidated Financial Statements.)

                                  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  better  control  the
distribution  of  its  products  in the  U.S.  market,  the  Company  ended  its
distribution  arrangement  with a  third-party  located  in  Statesville,  North
Carolina in fiscal 2004. It now directly  distributes  from a leased facility in
Macon,  GA. 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
based 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 2004 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  61% in 2004) 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,
requires the Company to increase its bank  borrowings  during the period between
shipment and payment.


                                       4
<PAGE>

                                   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 32 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 1,403
of which 270 were employed in the United States. The Company does not unlawfully
discriminate  on the basis of race,  color,  creed,  pregnancy,  religion,  sex,
national  origin,  age,  disability,  veteran  status,  marital  status or other
characteristics protected by law.

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
                                                                      OF FLOOR
                             LOCATION                                  SPACE
  ------------------------------------------------------------     -------------

  Heathrow, Florida (Corporate Headquarters)                           33,000
  Versailles, Missouri                                                120,000
  Sandusky, Ohio (Idle)                                               276,000
  Acton Vale, Quebec, Canada (Dixon Ticonderoga Inc.)                  32,000
  Beijing, China (Beijing Dixon Ticonderoga
    Stationery Company, Ltd.)                                          25,000


     The Company leases approximately  124,000 square feet in Macon, Georgia for
its U.S. central  distribution  center. 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 and its Europe
subsidiary  leases 3,000 square feet in  Peterborough,  England for distribution
and office space.


                                       5
<PAGE>

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

     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. (Also see Note 14 to Consolidated Financial Statements.)

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

      None.


                                     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            FISCAL
              QUARTER ENDING             2004              2003
              --------------             ----              ----
                                     LOW      HIGH     LOW       HIGH
                                     ----     ----     ----      ----
         December 31                $3.05    $4.20    $1.15     $2.50
         March 31                    3.35     4.90     1.35      1.75
         June 30                     3.16     4.04     1.62      2.00
         September 30                3.40     4.60     1.63      2.84

     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 8,
2004 was 401.


                                       6
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
                   DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
                   FOR THE FIVE YEARS ENDED SEPTEMBER 30, 2004
                    (in thousands, except per share amounts)

<S>                               <C>          <C>         <C>         <C>          <C>
                                  2004        2003        2002        2001        2000
                                ----------  ----------  ----------  ----------  ----------

REVENUES                        $  88,169   $  88,838   $  88,591   $  88,319   $  88,867
                                ==========  ==========  ==========  ==========  ==========
INCOME (LOSS) FROM
  CONTINUING OPERATIONS         $   1,732   $    (849)  $    (683)  $     620   $    (733)

INCOME (LOSS) FROM
  DISCONTINUED OPERATIONS       $     --    $    (579)  $     123   $  (1,100)  $     (65)
                                ----------  ----------  ----------  ----------  ----------

NET INCOME (LOSS)               $   1,732   $  (1,428)  $    (560)  $    (480)  $    (798)
                                ==========  ==========  ==========  ==========  ==========

EARNINGS (LOSS) PER
  COMMON SHARE (BASIC):
  CONTINUING OPERATIONS         $     .54   $    (.27)  $    (.22)  $     .20   $    (.23)

  DISCONTINUED OPERATIONS       $     --    $    (.18)  $     .04   $    (.35)  $    (.02)
                                ----------  ----------  ----------  ----------  ----------
  NET INCOME (LOSS)             $     .54   $    (.45)  $    (.18)  $    (.15)  $    (.25)
                                ==========  ==========  ==========  ==========  ==========

EARNINGS (LOSS) PER
  COMMON SHARE (DILUTED):
  CONTINUING OPERATIONS         $     .54   $    (.27)  $    (.22)  $     .20   $    (.23)

  DISCONTINUED OPERATIONS       $     --    $    (.18)  $     .04   $    (.35)  $    (.02)
                                ----------  ----------  ----------  ----------  ----------
  NET INCOME (LOSS)             $     .54   $    (.45)  $    (.18)  $    (.15)  $    (.25)
                                ==========  ==========  ==========  ==========  ==========

TOTAL ASSETS                    $  73,986   $  72,034   $  79,409   $  86,091   $  86,718
                                ==========  ==========  ==========  ==========  ==========

LONG-TERM DEBT                  $   9,974   $  12,511   $  16,383 2 $   2,018 1 $  30,210
                                ==========  ==========  ==========  ==========  ==========

DIVIDENDS PER
  COMMON SHARE                  $     --    $     --    $     --    $     --    $     --
                                ==========  ==========  ==========  ==========  ==========
</TABLE>
1The  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.
2The  increase in  long-term  debt in 2002 is  attributable  to the October 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  fiscal  2003,  the  Company  completed  its  sale  of  the  New  Castle
Refractories division, the last business of its Industrial group. The Industrial
Group had revenues of $8,021,000 and $9,169,000 in 2003 and 2002,  respectively.
Income (loss) from  discontinued  operations was ($578,000) and $123,000 in 2003
and 2002,  respectively  (including pre-tax gains on sales of assets of $208,000
and income tax expense of $77,000 in 2002).  Interest  expense of  $270,000  and
$342,000  has been  allocated  to  discontinued  operations  in 2003  and  2002,
respectively.
     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 U.S. and Foreign divisions of the Consumer Group. (For further
information  regarding  discontinued  operations,  see  Note 13 to  Consolidated
Financial Statements.)

Continuing operations:
----------------------

2004 vs 2003:
-------------
     Income  from  continuing  operations  before  taxes and  minority  interest
improved  by  $314,000  in  2004.  Special  items,   including  the  effects  of
restructuring and related costs; debt refinancing costs;  investment banking and
related  costs;  and other  income,  net are set  forth in the  table  below (in
thousands):
                                                       2004        2003
                                                   ----------   -----------
     Income (loss) from continuing operations       $ 2,251      $ 1,937
       before income taxes and minority  interest
     Restructuring and related costs                    --           487
     Debt refinancing costs                             --           625
     Investment banking and related costs               768          483
     Other (income) expense, net                         94       (1,052)
                                                   ----------   -----------
                                                    $ 3,113      $ 2,480
                                                   ==========   ===========
     The  Company   concluded   its   comprehensive   restructuring   and  plant
consolidation  program as well as its debt  restructuring  initiatives  in 2003;
accordingly,  there were no costs incurred in 2004 for these items.  The Company
continued  to pursue  merger and  acquisition  activity in 2004  resulting in an
increase in investment banking and related costs. Other (income) expense, net in
2003  represents  gains from  securities  received by the Company  following the
demutualization of certain insurance  companies amounting to $612,000 and import
duty rebates  received.  In 2004,  the Company  incurred  $94,000 in legal costs
related to claims for additional  import duty rebates.  For further  information
regarding  special  items,  see  Notes  8,  9 and 10 to  Consolidated  Financial
Statements.
     Lower  selling  and  administrative  costs  in U.S.  Consumer  (principally
commissions,  advertising,  distribution and personnel costs) contributed to the
Company's  improvement in results from operations.  Foreign  Consumer  decreased
primarily due to the effects of pricing  pressures in Mexico  following the peso
devaluation in 2003 and mix of product sold. Lower Mexico profits were partially
offset by lower costs  associated with certain  imported  products and favorable
currency effects in Canada.


                                       8
<PAGE>

2003 vs 2002:
-------------

     Income  from  continuing  operations  before  taxes and  minority  interest
improved  by  $3,128,000  in 2003.  Special  items,  including  the  effects  of
restructuring and related costs; debt refinancing costs;  investment banking and
related  costs;  and other  income,  net are set  forth in the  table  below (in
thousands):
                                                     2003          2002
                                                  ----------   -----------
     Income (loss) from continuing operations
       before income taxes and minority interest   $ 1,937      $ (1,191)
     Restructuring and related costs                   487         1,573
     Debt refinancing costs                            625            --
     Investment banking and related costs              483            --
     Other income, net                              (1,052)         (253)
                                                  ----------   -----------
                                                   $ 2,480       $   129
                                                  ==========   ===========
     Restructuring costs decreased $1,086,000 in 2003 as the Company entered the
final completion stage of its plant consolidation  initiative.  Debt refinancing
costs  consists of the write-off of costs from the former debt  arrangements  in
connection  with the  Company's  October  2002  debt  restructuring.  Investment
banking and related costs were incurred in connection with unconsummated mergers
and acquisition  activity pursued through the Company's  investment bankers. For
further  information  regarding  special  items,  see  Notes  8,  9  and  10  to
Consolidated Financial Statements.
     U.S.  Consumer  accounted for the majority of this net improvement,  as the
Company's  manufacturing  consolidation  efforts led to  significantly  improved
gross  margins.  Higher  revenues  and a decrease of  approximately  $400,000 in
interest  costs  also  contributed  to the U.S.  improvement.  Foreign  Consumer
operating income also improved in all geographic areas due principally to higher
gross margins from lower pencil raw materials  costs and improved  manufacturing
overhead efficiencies.

REVENUES
--------

     Revenues in 2004 decreased $669,000 from the prior year. The changes are as
follows:
                       Increase (Decrease)  % Increase (Decrease)
                          (in thousands)   Total    Volume  Price/Mix
                          -------------    -----    ------  ---------
      U.S.                   $ (2,754)      (5)      (3)       (2)
      Foreign                   2,085        6        6        --

     U.S. Consumer revenue decreased in the educational and retail markets.  The
prior year  educational  market  reflected  historical  end of year  promotional
activity that was not repeated in 2004.  Also in the prior year, the retail club
market included a back-to-school program that was not offered in fiscal 2004 due
to its associated high promotional cost. Increases in the commercial and special
markets  partially  offset these decreases.  Foreign Consumer revenue  decreased
$1.5 million in Mexico and  increased  $700,000 and $170,000 in Canada and Great
Britain,  respectively  due to their  change  in  their  foreign  currencies  in
relationship  to the U.S.  dollar.  Price  and  volume  increases  in  Mexico of
approximately $2.9 million more than offset the foreign currency effects.
     Overall 2003 revenues  increased  $247,000 from the prior year. The changes
are as follows:

                        Increase(Decrease)   % Increase (Decrease)
                          (in thousands)   Total    Volume  Price/Mix
                          -------------    -----    ------  ---------
      U.S.                   $  1,401        3        5        (2)
      Foreign                  (1,154)      (3)      (7)        4


                                       9
<PAGE>

     U.S. Revenue increased primarily in the educational market. Foreign revenue
decreases  were  primarily in Mexico where an  approximate  10% reduction in the
value of the peso  resulted in a decline of  approximately  $2.7  million.  This
decrease  was  partially  offset by Mexico price  increases,  an increase in the
value of the Canadian dollar and higher volume in Europe.
     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.

OPERATING  INCOME
-----------------

     In 2004  operating  income  increased  $1,337,000  as compared to the prior
year. Special items including  restructuring and related costs, debt refinancing
costs and investment banking and related costs are set forth in the table below.

                                                  2004         2003
                                               ----------   ----------
        Operating income                        $5,807       $4,470

        Restructuring and related costs            --           487

        Debt refinancing costs                     --           625

        Investment banking and related costs       768          483
                                               ----------   ----------
                                                $6,575       $6,065
                                               ==========   ==========

     Before special items  described  more fully above,  U.S.  operating  income
increased $735,000,  primarily due to lower marketing,  selling and distribution
costs and lower  administrative  personnel  costs.  Foreign  Consumer  operating
income decreased  $225,000 before special items, as revenue increases  discussed
above were more than  offset by  increased  selling and  distribution  costs and
lower  gross   margins  due  to   competitive   pricing   pressures  and  higher
manufacturing costs in certain foreign operations.
     In 2003,  operating  income  increased  $1,826,000 as compared to the prior
year. Special items, including restructuring and related costs; debt refinancing
costs;  and  investment  banking and related costs are as set forth in the table
below (in thousands):

                                                  2003         2002
                                               ----------   ----------
            Operating income                    $4,470       $2,644

            Restructuring and related costs        487        1,573

            Debt refinancing costs                 625          --

            Investment  banking and related        483          --
                                               ----------   ----------
                                                $6,065       $4,217
                                               ==========   ==========

                                       10
<PAGE>

     U.S. operating income improved  approximately $1.1 million  principally due
to the  aforementioned  manufacturing  cost  savings  from  plant  consolidation
efforts and higher revenue  resulting in gross margin increases of approximately
$800,000.  In addition,  selling and administrative  expenses decreased overall,
despite  significantly  higher  legal,  tax and  audit  professional  fees.  The
reduction was principally due to lower sales and marketing  salaries and related
expenses, reflecting recent cost reduction activities.  Foreign operating profit
increased $700,000 as savings from consolidation efforts in Mexico and lower raw
material costs and increased production resulted in higher profits in China. All
of the aforementioned  manufacturing  efficiencies and costs savings contributed
to a decrease  in  overall  consolidated  cost of sales  (61.9% of  revenues  as
compared to 64.5% in the prior year).
     For further  information  regarding the  aforementioned  special items, see
Notes 8, 9 and 10 to Consolidated Financial Statements.

INCOME TAXES
------------

     As more fully described in Note 5 to Consolidated Financial Statements,  in
fiscal 2004 and 2003 the Company provided valuation allowances for U.S. deferred
tax assets in the amount of $1,135,000 and $2,232,000, respectively. Despite the
significant  improvement in U.S.  operating results in 2004 described above, the
Company again incurred tax losses in the U.S. Accordingly,  the Company recorded
the additional valuation allowances with respect to the related tax assets as of
September 30, 2004.

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

     Minority interest represents approximately 2% in fiscal 2004 and 3% in 2003
and 2002 of the net income of the consolidated subsidiary,  Grupo Dixon, S.A. de
C.V.,   ($47,000,   $42,000  and  $51,000  in  fiscal   2004,   2003  and  2002,
respectively),  equivalent  to the  extent  of the  investment  of the  minority
shareholders.

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

     In  2004,  the  Company  achieved   significantly   improved  results  from
operations and its cash flows from operating activities improved in excess of $3
million.  This was  accomplished  despite an increase in  inventories of over $4
million  resulting  from   significantly   higher   (approximately  $2  million)
in-transit  imported products necessary to accommodate  production and marketing
lead times;  elimination of certain  year-end sales  promotions in the U.S.; and
certain safety stock levels which were increased as new manufacturing  processes
were  implemented in Mexico.  Cash flows were also favorably  impacted by better
accounts receivable collections; improved accounts payable management; and lower
payments of accrued liabilities  (principally interest,  restructuring and asset
disposal costs) as compared with the prior year.
     The Company's 2004 investing activities included approximately $1.3 million
in net  purchases of property and  equipment  compared  with only  $427,000 last
year.  The  increase is due to the  purchase of computer  software  enhancements
designed  to improve  logistics  and  inventory  management,  as well as certain
strategic   manufacturing  equipment  in  Mexico.  Major  capital  projects  are
discretionary  in  nature  with  no  material  purchase   commitments.   Capital
expenditures are usually funded from operations and existing lending and leasing
arrangements.   In  2003,  cash  flows  were  provided  from  the  sale  of  the
aforementioned Newcastle Refractories division assets and proceeds from the sale
of securities received from insurance company demutualizations.
     In fiscal 2003, the Company  completed a financing  agreement with a senior
lender and its existing  subordinated  lenders to  restructure  its present U.S.
debt through fiscal 2005. Foothill Capital Corporation provided a three-year $28
million senior debt facility which replaced the Company's  previous  senior debt
with a consortium of lenders. The senior debt arrangement provided 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, 2004),  plus 0.75%, or
the  prevailing  LIBOR rate  (approximately  1.98% at September 30, 2004),  plus


                                       11
<PAGE>

3.5%.  Borrowings  under the revolving  loan are based upon 85% of eligible U.S.
and Canada accounts receivable, as defined in the loan agreement; 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  an initial  amount of $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  $33,333,  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 September 30, 2004, the Company had approximately $11 million of unused lines
of credit  available.  The  Company  expects to renew and extend the senior debt
facility before its expiration in October 2005.
     In fiscal  2003,  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  was  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 senior debt
facility  and  made  additional   payments  to  its   subordinated   lenders  of
approximately  $4.5  million in through  September  30,  2004.  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 the maturity date in October 2005 (due
to  restrictions  imposed  under the 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.  The
Company made  sufficient  payments  through fiscal 2004 to avoid the issuance of
any such  warrants,  at least  through that date.  Under the  subordinated  note
agreement,  as  amended,  the next  date at which a  portion  of the  contingent
warrants  issued to the  subordinated  noteholders  would become  exercisable is
March 31, 2005, when  contingent  warrants to purchase up to 2.5% of the diluted
common shares  outstanding will become  exercisable if aggregate payments to the
subordinated  noteholders  are less  than $8  million  through  that  date.  Any
warrants  received or earned will be  relinquished if the notes are paid in full
during the term of the new agreement.  Management believes that if the potential
transaction  described  below  does not  close by then,  the  Company  will have
sufficient  availability  under its  existing  lines of credit  and those of its
Mexican  subsidiary to make the required  payment due on March 31, 2005 in order
to avoid the exercise of the subordinated lenders' warrants, but there can be no
assurance  that such funds will be available  and that the warrants  will not be
exercised.
     The agreement also grants the subordinated lenders a lien on Company assets
(junior in all  aspects  to the  senior  debt  collateral  agreements  described
above).  The  interest  rate on the notes is 12.5%  through  maturity in October
2005.  The  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 senior debt agreements.
     If  the  potential   transaction   discussed  below  is  consummated,   the
subordinated  notes  will be  repaid  in  full.  Notwithstanding  the  potential
transaction,  the Company has been negotiating a new long-term subordinated debt
agreement based upon several proposals from various financial institutions. Such
proposals  include  payment  levels  supported  by the present cash flows of the
Company's  operations.  There can be no assurance that  management's  efforts in
this regard will be successful.
     In addition, the Company's Mexican subsidiary had approximately $25 million
in bank lines of credit ($19 million unused) as of September 30, 2004, currently
expiring at various  dates from March 2005  through  November  2007,  which bear


                                       12
<PAGE>

interest at a rate based upon either a fixed or floating U.S.  bank rate,  LIBOR
or the rate of certain Mexican government securities. 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  (which it expects to renew and extend  before the end of fiscal
2005)  and  under  lines of  credit  available  to its  Mexican  subsidiary  are
sufficient to fulfill all current and anticipated operating  requirements of its
business through  September 30, 2005. The Company's  Mexican  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 Mexico lines of credit.
     Refer to Notes 3 and 4 to  Consolidated  Financial  Statements  for further
description of the aforementioned financing arrangements.
     The Company has recently been  assisted by  investment  bankers 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. The
Company continues to pursue strategic alternatives,  including a potential sale.
The costs associated with these initiatives (including the potential transaction
discussed  below) are reflected as  investment  banking and related costs in the
accompanying  financial  statements.  Management  expects to  continue  to incur
certain expenses in the future related to these activities.
     On December 16,  2004,  the Company and Fila - Fabbrica  Italiana  Lapis ed
Affini S.p.A.  ("Fila")  executed a definitive merger agreement under which Fila
would acquire all of the  outstanding  shares of the Company for $7.00 per share
in cash.  The price  represents  a premium of  approximately  68% over the stock
price at the time the parties began  negotiations in late August 2004. Under the
terms of the  definitive  agreement,  a  wholly-owned  subsidiary  of Fila  will
commence  a cash  tender  offer on or about  January 7,  2005,  after  which any
remaining  shares  will be  acquired  in a cash  merger at the same  price.  The
transaction has been approved by both companies'  boards of directors.  However,
since the  consummation  of the  transaction  is subject to certain  conditions,
there is no assurance  that the tender offer or merger will be  completed.  (See
Note 17 to Consolidated Financial Statements.)

RECENT ACCOUNTING PRONOUNCEMENT
-------------------------------

     In October 2004, the FASB  concluded that Statement No. 123R,  "Share-Based
Payment"  ("Statement  123R"),  which  would  require all  companies  to measure
compensation  cost  for  all  share-based  payments  (including  employee  stock
options) at fair value,  would be effective for public  companies  (except small
business issuers as defined in SEC Regulation S-B) for interim or annual periods
beginning after June 15, 2005.  Retroactive  application of the  requirements of
Statement No. 123, "Accounting for Stock-Based Compensation," ("Statement 123"),
not  Statement  123R,  to the  beginning  of the fiscal year that  includes  the
effective  date would be  permitted,  but not  required.  The  Company  would be
required to adopt this statement in its 2006 fiscal year.  Note 1 - "Stock-based
compensation"  sets forth the pro forma effect on net income (loss) and earnings
(loss) per share  assuming  the Company  had applied the fair value  recognition
provisions of Statement 123.

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.


                                       13
<PAGE>

     The Company  promotes its products with significant  marketing  activities,
including  advertising,  consumer  incentives and trade promotions.  Advertising
costs are expensed as incurred. The Company records consumer incentive and trade
promotion  costs as a reduction of revenues in the year in which these  programs
are offered,  based upon estimates of utilization and redemption  rates that are
developed from historical information.
     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
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 in future
periods.  The  Company  currently  has  no  reserves  for  future  restructuring
initiatives.
     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.
In fiscal 2003 and 2004, the Company provided  additional  valuation  allowances
for U.S.  deferred tax assets,  as more fully  described  above and in Note 5 to
Consolidated Financial Statements.


                                       14
<PAGE>

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 and
its Mexican subsidiary's lines of credit and its ability to meet its current and
anticipated  obligations and operating  requirements through September 30, 2005,
including payments due under its subordinated debt; management's  expectation as
to the  Company's  ability  to  avoid  the  exercise  of  warrants  held  by its
subordinated lenders;  management's belief that there will be sufficient amounts
available under its present or future facilities or lines of credit to cover any
potential  shortfalls due to any expiring  Mexico lines of credit;  management's
expectation  with respect to renewing and extending its senior debt facility and
negotiating a new subordinated  debt arrangement;  management's  expectation for
continuing  savings  from the  restructuring  and  cost-reduction  program;  the
Company's  ability  to  increase  revenues  in  its  core  businesses;  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 following: that the shareholders
ownership  will be  diluted by the  issuance  of common  stock to the  Company's
subordinated  lenders;  that the Company will not be  successful in renewing and
extending its senior debt facility and /or negotiating a new  subordinated  debt
agreement;  that the Company's  lenders will not continue to fund the Company in
the future; the risk of the cancellation of the lines of credit available to the
Company's Mexico subsidiary; the risk of the inability to maintain and/or secure
new sources of capital;  manufacturing  inefficiencies;  risks  associated  with
difficulties  encountered with the  consolidation  and  cost-reduction  program;
risks associated with increased competition;  risks associated with decreases in
revenues;  risks related to U.S. and foreign economic factors;  risks related to
foreign currency exchange risk; interest rate fluctuation risk; and, the risk of
the inability to generate  taxable income to utilize certain tax benefits in the
future, among others.

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 41% of the Company's fiscal 2004 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 September 30, 2004,  approximately  50% of total short
and long-term debt is fixed,  at rates between 4% 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 $100,000 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.


                                       15
<PAGE>

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

                   DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
            INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES

                                                                    PAGE

Report of Independent Registered Certified Public Accounting Firm    17


Consolidated Balance Sheets as of September 30, 2004 and  2003       18


Consolidated Statements of Operations For the Years
  Ended September 30, 2004, 2003 and 2002                            19

Consolidated  Statements of  Comprehensive  Income (Loss)
  For the Years Ended September 30, 2004, 2003 and 2002              20

Consolidated Statements of Shareholders' Equity For the Years
  Ended September 30, 2004, 2003 and 2002                            21

Consolidated Statements of Cash Flows For the Years
  Ended September 30, 2004, 2003 and 2002                          22-23

Notes to Consolidated Financial Statements                         24-41

Schedule For the Years Ended September 30, 2004, 2003 and 2002:

      II. Valuation and Qualifying Accounts                          42

     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.

                             16
<PAGE>
        Report of Independent Registered Certified Public Accounting Firm

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, 2004 and 2003, and the
results of their  operations and their cash flows for each of the three years in
the period ended  September 30, 2004 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  present
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated  financial statement.  These financial
statements and the financial  statement  schedule are the  responsibility of the
Company's  management;  our  responsibility  is to  express  an opinion on these
financial  statements and financial  statement  schedule based on our audits. We
conducted our audits of these statements in accordance with the standards of the
Public Company  Accounting  Oversight  Board (United  States).  Those  standards
require that we plan and perform the audit to obtain reasonable  assurance about
whether the financial  statements  are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the financial  statements,  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.

As more fully discussed in Note 17 to the consolidated financial statements,  on
December 16, 2004, the Company  entered into a merger  agreement for the sale of
all of the outstanding shares of the Company.

As more fully discussed in Note 4 to the consolidated financial statements,  the
Company's Senior Subordinated Notes mature on October 3, 2005.



PricewaterhouseCoopers LLP
Orlando, Florida
December 16, 2004

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

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

                           SEPTEMBER 30, 2004 AND 2003
                           ---------------------------

<TABLE>
<CAPTION>
<S>                                                      <C>              <C>
                                                          2004              2003
                                                      --------------    --------------
      ASSETS
      ------
CURRENT ASSETS:
   Cash and cash equivalents                           $ 2,246,723       $ 1,032,974
   Receivables, less allowance for doubtful accounts
     of $1,333,462 in 2004 and $1,429,222 in 2003.      26,130,131        28,326,743
   Inventories                                          31,168,466        26,439,361
   Other current assets                                  2,273,590         2,350,813
                                                      --------------    --------------
      Total current assets                              61,818,910        58,149,891
                                                      --------------    --------------

PROPERTY, PLANT AND EQUIPMENT:
   Land and buildings                                    8,121,479         8,242,881
   Machinery and equipment                              12,766,784        12,118,409
   Furniture and fixtures                                1,483,528         1,424,425
                                                      --------------    --------------
                                                        22,371,791        21,785,715
                                                      --------------    --------------
      Less accumulated depreciation                    (14,558,544)      (13,676,212)
                                                      --------------    --------------
                                                         7,813,247         8,109,503
                                                      --------------    --------------
OTHER ASSETS                                             4,353,854         5,774,649
                                                      --------------    --------------
                                                       $73,986,011       $72,034,403
                                                      ==============    ==============
      LIABILITIES AND SHAREHOLDERS' EQUITY:
      ------------------------------------
CURRENT LIABILITIES:
   Notes payable                                       $ 5,519,704       $ 6,382,065
   Current maturities of long-term debt                 16,691,140        13,227,965
   Accounts payable                                     11,731,712         9,102,711
   Accrued liabilities                                   7,005,461         8,496,182
                                                      --------------    --------------
      Total current liabilities                         40,948,017        37,208,923
                                                      --------------    --------------
LONG-TERM DEBT                                           9,974,414        12,510,860
                                                      --------------    --------------
DEFERRED INCOME TAXES AND OTHER                            418,836           894,601
                                                      --------------    --------------
MINORITY INTEREST                                          392,238           578,530
                                                      --------------    --------------
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 2004 and 2003    3,710,309         3,710,309
   Capital in excess of par value                        3,519,531         3,547,567
   Retained earnings                                    25,411,678        23,679,772
   Accumulated other comprehensive loss                 (6,568,210)       (6,238,403)
                                                      --------------    --------------
                                                        26,073,308        24,699,245
   Less shareholder loans                                 (557,721)         (557,721)
   Less treasury stock, at cost (502,415 shares in
     2004 and 508,160 shares in 2003)                   (3,263,081)       (3,300,395)
                                                      --------------    --------------
                                                        22,252,506        20,841,129
                                                      --------------    --------------
                                                       $73,986,011       $72,034,043
                                                      ==============    ==============

The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
                                       18
<PAGE>


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

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

              FOR THE YEARS ENDED SEPTEMBER 30, 2004, 2003 AND 2002
             ------------------------------------------------------
<S>                                             <C>            <C>            <C>

                                                    2004           2003           2002
                                                -------------  -------------  -------------
REVENUES
                                                $ 88,168,759   $ 88,837,615   $ 88,590,730
                                                -------------  -------------  -------------
COSTS AND EXPENSES:
  Cost of goods sold                              54,704,107     54,978,678     57,132,999
  Selling and administrative expenses             26,889,243     27,793,534     27,240,511
  Provision for restructuring and related costs         --          486,866      1,573,235
  Debt refinancing costs                                --          624,662           --
  Investment banking and related costs               768,260        483,493           --
                                                -------------  -------------  -------------
                                                  82,361,610     84,367,233     85,946,745
                                                -------------  -------------  -------------
OPERATING INCOME                                   5,807,149      4,470,382      2,643,985

OTHER INCOME (EXPENSE), NET                          (93,963)     1,052,500        252,676

INTEREST EXPENSE                                  (3,461,733)    (3,585,729)    (4,087,731)
                                                -------------  -------------  -------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
  INCOME TAXES (BENEFIT) AND MINORITY INTEREST     2,251,453      1,937,153     (1,191,070)

INCOME TAXES (BENEFIT)                               472,889      2,744,420       (559,064)
                                                -------------  -------------  -------------
                                                   1,778,564       (807,267)      (632,006)
MINORITY INTEREST                                     46,658         42,221         51,214
                                                -------------  -------------  -------------
INCOME (LOSS) FROM CONTINUING OPERATIONS           1,731,906       (849,488)      (683,220)

INCOME (LOSS) FROM DISCONTINUED OPERATIONS,
  NET OF APPLICABLE INCOME TAXES (BENEFIT)              --         (578,492)       123,297
                                                -------------  -------------  -------------
NET INCOME (LOSS)                               $  1,731,906   $ (1,427,980)  $   (559,923)
                                                =============  =============  =============

EARNINGS (LOSS) PER COMMON SHARE (BASIC):
   Continuing operations                        $        .54   $       (.27)  $       (.22)
   Discontinued operations                              --             (.18)           .04
                                                -------------  -------------  -------------
   Net income (loss)                            $        .54   $       (.45)  $       (.18)
                                                =============  =============  =============
EARNINGS (LOSS) PER COMMON SHARE (DILUTED):
   Continuing operations                        $        .54   $       (.27)  $       (.22)
   Discontinued operations                              --             (.18)           .04
                                                -------------  -------------  -------------
   Net income (loss)                            $        .54   $       (.45)  $       (.18)
                                                =============  =============  =============
</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 COMPREHENSIVE LOSS
                  ---------------------------------------------

              FOR THE YEARS ENDED SEPTEMBER 30, 2004, 2003 AND 2002
              -----------------------------------------------------
<S>                                     <C>              <C>            <C>
                                           2004            2003           2002
                                        ------------     ------------   -------------
NET INCOME (LOSS)                       $ 1,731,906      $(1,427,980)   $   (559,923)

OTHER COMPREHENSIVE INCOME (LOSS):

   Adjustment  to recognize  fair value
     of cash flow hedge                     461,824         (138,672)       (115,934)

   Foreign     currency     translation    (791,631)        (459,469)     (1,422,647)
   adjustments
                                        ------------     ------------   -------------
TOTAL COMPREHENSIVE INCOME (LOSS):      $ 1,402,099      $(2,026,121)   $ (2,098,504)
                                        ============     ============   =============
</TABLE>

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


                                       20
<PAGE>


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

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                 -----------------------------------------------

              FOR THE YEARS ENDED SEPTEMBER 30, 2004, 2003 AND 2002
             ------------------------------------------------------
<S>                          <C>         <C>           <C>           <C>            <C>
                                                                     Accumulated
                               Common     Capital in                     Other
                              Stock $1    Excess of     Retained     Comprehensive  Shareholder    Treasury
                              Par Value    Par Value    Earnings         Loss          Loans         Stock         Total
                             -----------  ----------  ----------- ---------------  ----------   -----------  ------------

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
  Net loss                    3,710,309    3,593,826   25,107,752   (5,640,262)     (557,721)    (3,360,909)  22,852,995
  Other comprehensive loss                             (1,427,980)                                            (1,427,980)
  Employee Stock Purchase
   Plan (9,317 shares)                       (46,259)                                                60,514       14,255
                             -----------  ----------  ----------- ---------------  ----------   -----------  ------------
BALANCE, September 30, 2003   3,710,309    3,547,567   23,679,772   (6,238,403)     (557,721)    (3,300,395)  20,841,129
  Net income                                            1,731,906                                              1,731,906
  Other comprehensive loss                                            (329,807)                                 (329,807)
  Employee Stock Purchase
   Plan (5,745 shares)                       (28,036)                                                              9,278
                             -----------  ----------  ----------- ---------------  ----------   -----------  ------------
BALANCE, September 30, 2004  $3,710,309   $3,519,531  $25,411,678  $(6,568,210)    $(557,721)   $(3,263,081) $22,252,506
                             ===========  ==========  =========== ===============  ==========   ===========  ============
</TABLE>






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


                                       21
<PAGE>
<TABLE>
<CAPTION>

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

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                      -------------------------------------

              FOR THE YEARS ENDED SEPTEMBER 30, 2004, 2003 AND 2002
             ------------------------------------------------------
<S>                                             <C>            <C>          <C>
                                                    2004           2003         2002
                                                ------------   ------------ ------------
Cash flows from operating activities:

Net income (loss) from continuing operations    $ 1,731,906    $  (849,488) $  (683,220)

Net income (loss) from discontinued operations         --         (578,492)     123,297

Adjustments to reconcile net income (loss) to
  net cash provided by operating activities:
   Depreciation and amortization                  2,142,617      2,414,819    2,322,692
   Deferred taxes                                  (158,000)     2,175,000   (2,334,000)
   Provision for doubtful accounts receivable       258,032        315,026      193,979
   Debt refinancing costs                              --          624,662         --
   Gain on sale of assets                              --             --       (208,290)
   Gain on sale of securities received from
     insurance companies demutualizations              --         (672,291)        --
   Income attributable to minority interest          46,658         42,221       51,214
   Income attributable to foreign
     currency exchange                             (225,035)      (433,461)    (215,955)
   Changes in assets [(increase) decrease] and
     liabilities [increase (decrease)]:
   Receivables, net                               1,766,114     (1,230,691)      (7,574)
   Inventories                                   (4,087,438)      (348,379)   6,226,836
   Other current assets                              74,870       (109,737)    (457,698)
   Accounts payable and accrued liabilities         719,586     (3,278,476)   3,673,182
   Other assets                                     456,798      1,521,103     (250,686)
                                                ------------   ------------ ------------
Net cash provided by (used in)
  operating activities                            2,726,108       (408,184)   8,433,777
                                                ------------   ------------ ------------
Cash flows from investing activities:

   Purchases of plant and equipment, net         (1,253,077)      (426,775)  (1,520,088)
   Proceeds on sale of assets                          --        2,988,616      208,290
   Proceeds on sale of securities received from
     insurance  companies  demutualizations            --          737,321         --
                                                ------------   ------------ ------------
Net cash provided by (used in)
  investing activities                           (1,253,077)     3,299,162   (1,311,798)
                                                ------------   ------------ ------------

                                       22
<PAGE>
                                                    2004           2003         2002
                                                ------------   ------------ ------------
Cash flows from financing activities:

Proceeds from long-term debt                      4,475,916     14,449,123         --
Proceeds from (principal reductions of)
  notes payable                                    (625,539)      (564,975)   1,716,828
Principal reductions of long-term debt           (3,549,187)   (17,435,139)  (6,101,200)
Deferred refinancing costs                             --         (549,193)    (955,628)
Other non-current liabilities                          (255)      (100,545)      40,736
Employee Stock Purchase Plan                          9,278         14,255       23,516
                                                ------------   ------------ ------------
Net cash provided by (used in)
  financing activities                              310,213     (4,186,474)  (5,275,748)
                                                ------------   ------------ ------------
Effect of exchange rate changes on cash            (569,495)      (261,023)    (101,037)
                                                ------------   ------------ ------------
Net increase (decrease) in cash and
cash equivalents                                  1,213,749     (1,556,519)   1,745,194

Cash and cash equivalents, beginning of year      1,032,974      2,589,493      844,299
                                                ------------   ------------ ------------
Cash and cash equivalents, end of year            2,246,723      1,032,974    2,589,493
                                                ============   ============ ============
Supplemental disclosures:

Cash paid during the year for:
   Interest                                       3,444,765      5,684,833    3,033,931
   Income taxes                                   1,034,068        882,246    1,677,478
</TABLE>

Non-cash investing and financing activities:

     In fiscal 2003, the Company  accepted a note  receivable due August 2010 in
the amount of $500,000 as partial  consideration  for the sale of its  Newcastle
Refractories division.




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


                                       23
<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 8% of
     revenues.

     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  (currently  approximately  2%) of the  equity  of the
     Company's Grupo Dixon, S.A. de C.V. subsidiary.

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

     Revenues  are  comprised  of gross  sales from the  shipment  of product to
     customers,  net of provisions  for product  returns and 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.

     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.

     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  included  in  operating  income  were
     approximately  $225,000,  $433,000 and $216,000 for fiscal years 2004, 2003
     and 2002, respectively.

     Cash and cash equivalents:
     --------------------------

     Cash and cash equivalents include investment instruments with a maturity of
     three months or less at time of purchase.


                                       24
<PAGE>

      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.

     Certain inventories amounting to $7,331,000 and $7,512,000 at September 30,
     2004 and 2003,  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 $276,000  and $266,000
     lower at September 30, 2004 and 2003,  respectively.  All other inventories
     are valued for using the FIFO method.

     Inventories consist of (in thousands):

                                              September 30,
                                              2004       2003
                                           ---------  ---------
            Raw material                   $ 13,662   $ 10,486
            Work in process                   2,854      2,198
            Finished goods                   14,652     13,755
                                           ---------  ---------
                                           $ 31,168   $ 26,439
                                           =========  =========

      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


                                       25
<PAGE>

     proforma  disclosures as required under FASB Statement No. 123, "Accounting
     For  Stock-Based  Compensation",  as amended  by FASB  Statement  No.  148,
     "Accounting for Stock-Based Compensation-Transition and Disclosure".

     Pro forma net loss and net loss per share would have been as follows if the
     fair value estimates were used to record compensation expense:

                                        2004           2003          2002
                                     ------------   ------------  ------------
      Net income (loss), as reported $ 1,731,906    $(1,427,980)  $  (559,923)

      Deduct: total stock-based
        employee compensation
        expense determined under
        the fair value based method,
        net of related tax effects       (41,320)       (73,601)     (102,431)
                                     ------------   ------------  ------------
      Pro forma net income (loss)    $ 1,690,586    $(1,501,581)  $  (662,354)
                                     ============   ============  ============
       Income (loss) per share:
          Basic, as reported                 .54           (.45)         (.18)
                                     ============   ============  ============
          Basic, pro forma                   .53           (.47)         (.21)
                                     ============   ============  ============
          Diluted, as reported               .54           (.45)         (.18)
                                     ============   ============  ============
          Diluted, pro forma                 .53           (.47)         (.21)
                                     ============   ============  ============

     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, by taxing  jurisdiction,  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  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 further valuation allowances 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.  In fiscal 2003 and 2004,  the
     Company provided additional  valuation allowances for certain U.S. deferred
     tax assets, as more fully described in Note 5.

     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.

     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


                                       26
<PAGE>

     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.

     Recent accounting pronouncement:
     --------------------------------

     In October 2004, the FASB  concluded that Statement No. 123R,  "Share-Based
     Payment"  ("Statement 123R"),  which would require all companies to measure
     compensation cost for all share-based  payments  (including  employee stock
     options) at fair value,  would be effective  for public  companies  (except
     small  business  issuers as defined in SEC  Regulation  S-B) for interim or
     annual periods  beginning after June 15, 2005.  Retroactive  application of
     the  requirements  of  Statement  No.  123,   "Accounting  for  Stock-Based
     Compensation,"  ("Statement  123"), not Statement 123R, to the beginning of
     the fiscal year that  includes the effective  date would be permitted,  but
     not required.  The Company would be required to adopt this statement in its
     2006 fiscal year.  Note 1 - "Stock-based  compensation"  sets forth the pro
     forma effect on net income  (loss) and earnings  (loss) per share  assuming
     the Company had applied the fair value recognition  provisions of Statement
     123.

     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,
                                              2004       2003
                                           ---------  ---------

            Interest (see Note 4)           $ 1,163    $ 1,180
            Salaries and wages                  582      1,014
            Employee benefit plans              420        417
            Income taxes                      2,997      2,965
            Other                             1,843      2,920
                                           ---------  ---------
                                            $ 7,005    $ 8,496
                                           =========  =========

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

     The  Company's  Mexico   subsidiary  has  bank  lines  of  credit  totaling
     approximately  $25 million,  under which $5.5 and $6.4 million of unsecured
     notes  payable  were  outstanding  as  of  September  30,  2004  and  2003,
     respectively. The notes, which currently mature at varying dates from March
     2005 through November 2007, bear interest  (weighted  average interest rate
     of   approximately   5.4%  and  7.4%  at  September   30,  2004  and  2003,
     respectively)  based upon either a fixed or floating U.S. bank rate,  LIBOR
     or the rate of certain Mexican  government  securities and are renewable at
     varying dates.

(4)  LONG-TERM DEBT:
     ---------------
      Long-term debt consists of the following (in thousands):

                                              September 30,
                                              2004       2003
                                           ---------  ---------
            Senior Subordinated Notes      $ 10,992   $ 13,342
            Bank notes payable               12,809      8,348
            Bank term loan                    1,203      2,216
            Building mortgage                 1,661      1,833
                                           ---------  ---------
                                             26,665     25,739
            Less current maturities         (16,691)   (13,228)
                                           ---------  ---------
                                            $ 9,974   $ 12,511
                                           =========  =========

     In fiscal  2003,  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
     provides a three-year $28 million senior debt facility.

     The senior debt facility includes a $25 million revolving loan, which bears
     interest  at either the prime rate  (4.75% at  September  30,  2004),  plus
     0.75%, or the prevailing LIBOR rate  (approximately  1.98% at September 30,
     2004), 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


                                       28
<PAGE>

     facility  also  includes  term loans  aggregating  an initial  amount of $3
     million,  which bear  interest  at either  prime  rate,  plus 1.5%,  or the
     prevailing  LIBOR  rate,  plus  4.25%.  These  loans are payable in monthly
     installments of $33,333,  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.  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. As of September 30, 2004 the Company had  approximately
     $11 million of unused lines of credit  available  under the revolving loan.
     The Company expects to renew and extend the senior debt facility before its
     expiration in October 2005.

     In fiscal  2003,  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 October 3, 2005. The Company was 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  aforementioned  senior debt  facility  and made  additional
     payments to its subordinated  lenders of approximately $4.5 million through
     September  30, 2004.  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 the  maturity  date in  October  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.  Under
     the  subordinated  note agreement,  as amended,  the next date at which the
     noteholders  could  receive  warrants is March 31,  2005,  when  contingent
     warrants to purchase up to 2.5% of the diluted  common  shares  outstanding
     would be issued if aggregate  payments to the subordinated  noteholders are
     less than $8 million  through that date.  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 is
     12.5% through maturity in October 2005. In addition, the Company has due in
     October 2005  previously  deferred  payable-in-kind  (PIK)  interest in the
     amount of $714,000,  included in accrued  interest at  September  30, 2004.
     (See Note 2).  The  subordinated  note  agreement  includes  certain  other
     provisions, including restrictions as to the payment of dividends.

     If the  potential  transaction  discussed  in Note 17 is  consummated,  the
     subordinated  notes will be repaid in full. Not  withstanding the potential
     transaction,  the Company has been negotiating a new long-term subordinated
     debt  agreement  based  upon  several   proposals  from  various  financial
     institutions.  Such  proposals  include  payment  levels  supported  by the
     present cash flows of the Company's  operations.  There can be no assurance
     that management's efforts in this regard will be successful.

                                       29
<PAGE>

     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%.

     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 are as follows (in thousands):

                                 2005            $16,691
                                 2006              8,703
                                 2007                219
                                 2008                238
                                 Thereafter          814
                                               ----------
                                                 $26,665
                                               ==========

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

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

                                                        2004          2003
                                                    ------------  ------------
      Foreign current deferred tax liability
         (included in accrued liabilities)           $ (1,296)     $  (1,455)
      U.S. and foreign, noncurrent deferred tax
         asset (included in other assets and
         deferred income taxes and other)                 554            602
                                                    ------------  ------------
         Net deferred tax liability                  $   (742)     $    (853)
                                                    ============  ============
      Deferred tax assets:
         U.S. tax credit carryforwards               $  1,232      $    --
         Provisions for losses from discontinued
           operations                                      33             48
         Depreciation                                     151            157
         Accrued pension                                  752            683
         Interest                                         110            266
         Other accrued expenses                           149            481
         Installment sale and related expenses           (211)          (248)
         Other items, net                                 571            289
         Foreign net operating loss carryforward          554            602
         Valuation allowance                           (2,787)        (1,676)
                                                    ------------  ------------
         Total deferred tax asset                         554            602
                                                    ------------  ------------
      Deferred tax liabilities:
         Inventories                                     (622)          (791)
         Property, plant and equipment                    (94)          (108)
         Valuation allowance                             (580)          (556)
                                                    ------------  ------------
         Total deferred tax liability                  (1,296)        (1,455)
                                                    ------------  ------------
      Net deferred tax liability                     $   (742)     $    (853)
                                                    ============  ============

     It is the  policy  of the  Company  to  accrue  deferred  income  taxes  on
     temporary  differences  related to the financial statement carrying amounts


                                       30
<PAGE>

     and tax bases of investments in foreign  subsidiaries which are expected to
     reverse in the  foreseeable  future.  There has been no provision  for U.S.
     income  taxes  for  the  remaining   undistributed   earnings  of  non-U.S.
     subsidiaries  (approximating $34 million at September 30, 2004) because the
     Company  intends to reinvest  these  earnings  indefinitely  in  operations
     outside the U.S. In fiscal 2004 and 2003, the Company  provided  additional
     valuation  allowances for certain U.S. deferred tax assets in the amount of
     $1,135,000 and $2,232,000,  respectively,  due to continuing  U.S.  taxable
     losses.  In  2004,  the  Company  again  incurred  tax  losses  in the U.S.
     partially due to certain costs (Notes 8 and 9), among other factors.

     At  September  30,  2004 and 2003,  the Company  had  valuation  allowances
     against  U.S.  deferred  tax assets  totaling  $3,367,000  and  $2,232,000,
     respectively.  These  valuation  allowances  relate to U.S.  tax  assets as
     management  believes there is significant  probability  that the benefit of
     the assets will not be realized in the associated tax returns.

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

                                              2004       2003       2002
                                             --------   --------  ---------
              Current:
                 U.S. Federal                $    -     $   -     $    640
                 State                            -         95         (40)
                 Foreign                         631       474       1,175
                                             --------   --------  ---------
                                                 631       569       1,775
                                             --------   --------  ---------
              Deferred:
                 U.S. Federal                     -      2,050      (2,081)
                 State                            -         -         (206)
                 Foreign                        (158)      125         (47)
                                             --------   --------  ---------
                                                (158)    2,175      (2,334)
                                             --------   --------  ---------
                                             $   473    $2,744    $   (559)
                                             ========   ========  =========

     Foreign  deferred  tax  provision  (benefit) is  comprised  principally  of
     temporary differences related to Mexico asset purchases.  The U.S. deferred
     expense  in  2003  principally  reflects  the  establishment  of  valuation
     allowances  against certain net deferred  assets,  as discussed  above. The
     U.S. deferred (benefit) in 2002 results primarily from expenses accrued but
     not yet deductible for taxes and tax credit carryforwards.


                                       31
<PAGE>

     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):

                                               2004       2003       2002
                                             --------   --------  ---------
       Amount computed using statutory rate  $  765     $  659    $  (533)

       Foreign income                        (1,101)      (518)      (178)

       State taxes, net of federal  benefit      -          63       (162)

       Permanent differences                    128         -         149

       Valuation allowances                   1,135      2,232         -

       Other                                   (454)       308        165
                                             --------   --------  ---------

       Provision (benefit) for income taxes  $  473     $2,744    $  (559)
                                             ========   ========  =========

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

     The Company maintains one defined benefit plan covering certain former U.S.
     Consumer division union employees. The benefits are based upon fixed dollar
     amounts  per  years  of  service.  The  assets  of this  plan  (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.


                                       32
<PAGE>

     The  following  tables  set  forth  the  plan's  funded  status  and  other
     information  for the fiscal  years  ended  September  30, 2004 and 2003 (in
     thousands):

                                                       September 30,
                                                       -------------
                                                     2004         2003
                                                   ----------   ----------
      Change in benefit obligation:

      Obligation at beginning of year               $ 1,815      $ 1,762

      Service cost                                      --            50

      Interest cost                                     107          118

      Actuarial gain                                     27          179

      Benefit payments                                 (480)        (294)
                                                   ----------   ----------
      Obligation at end of year                     $ 1,469      $ 1,815
                                                   ==========   ==========
      Change in market value of plan assets:

      Market value at beginning of year             $ 2,211      $ 2,108

      Actual return on plan assets                       59          251

      Employer contributions                             65          146

      Benefit payments                                 (454)        (294)
                                                   ----------   ----------
      Market value at end of year                   $ 1,881      $ 2,211
                                                   ==========   ==========
      Prepaid pension asset:

      Projected benefit obligation                  $(1,469)     $(1,815)

      Plan assets at market value                     1,881        2,211
                                                   ----------   ----------
      Projected benefit obligation less
         than plan  assets                              412          396

      Unrecognized net (gain) loss from past
         experience different from assumptions           65           37

      Unrecognized net obligation being recognized
         over periods from 10 to 16 years                --            2
                                                   ----------   ----------
      Prepaid pension asset                         $   477      $   435
                                                   ==========   ==========

      Net periodic pension (income) expense includes the following components
      (in thousands):
                                               2004       2003        2002
                                             ---------  ----------  ----------
        Service costs - benefits earned
           during period                       $   -      $   50      $   90
        Interest cost on projected  benefit
           obligation                             125        118         123
        Expected return on plan assets           (167)      (186)       (153)
        Curtailment loss                           -         162          -
        Net amortization and deferral              -          -           12
                                             ---------  ----------  ----------
        Net periodic pension
           (income) expense                    $  (42)    $  144      $   72
                                             =========  ==========  ==========

                                       33
<PAGE>

     In  determining  the projected  benefit  obligation,  the weighted  average
     discount  rates  utilized  were 6.25%,  6.5% and 6.4% for the periods ended
     September 30, 2004,  2003 and 2002,  respectively.  The expected  long-term
     rates of return on assets used in  determining  net  periodic  pension cost
     ranged  from 7.0 % to 8.0 % 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  a  defined-contribution  plan (401k) for all
     remaining domestic employees who meet minimum service requirements, as well
     as a  supplemental  deferred  contribution  plan  for  certain  executives.
     Company contributions under the plans consist of a basic amount of up to 3%
     of the  compensation  of  participants  for the plan  year,  and for  those
     participants  who  elected  to make  voluntary  contributions  to the plan,
     matching  contributions  up to an additional  4%, as specified in the plan.
     Charges to  operations  for these plans for the years ended  September  30,
     2004, 2003 and 2002 were $160,000, $240,000 and $243,000, 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 partially  funded  through the purchase of
     certain life insurance products. As of September 30, 2004 and 2003, the net
     liability  under the plan (included in accrued  liabilities),  was $722,000
     and  $633,000,  respectively.  Amounts  charged to  expense  under the plan
     totaled   $120,000,   $93,000  and   $118,000  in  2004,   2003  and  2002,
     respectively.

(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,  2004,  2003 and
     2002, 5,745, 9,317 and 15,370 shares, respectively,  were issued under this
     plan. At September 30, 2004,  there are 41,874 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,  2004,  there were 122,500
     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
     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 2004, 15,000 options were
     granted to employees  under the 1999 Plan. At September 30, 2004 there were
     175,500 options  outstanding and 124,500 shares available for future grants
     under the 1999 Plan.


                                       34
<PAGE>

    The following  table  summarizes  the combined  stock options  activity for
    2004, 2003 and 2002.
<TABLE>
<CAPTION>
                             2004                  2003                 2002
                      --------------------  -------------------  -------------------
                        Number    Option      Number   Option      Number    Option
                      of Shares   Price     of Shares  Price     of Shares   Price
                      --------------------  -------------------  -------------------
   Options outstanding at
      beginning of year
<S>                       <C>       <C>        <C>        <C>        <C>       <C>
                                                                    21,250      6.75
                          1,250      7.13      2,500      7.13       2,500      7.13
                        171,750      8.88    231,000      8.88     231,000      8.88
                                                                     2,500     12.88
                         10,000     11.38     10,000     11.38      10,000     11.38
                         20,000     11.00     25,000     11.00      25,000     11.00
                                               5,000      4.25       5,000      4.25
                                                                     2,500      3.81
                        141,600      3.70    147,300      3.70     147,300      3.70
                         10,000      4.75     10,000      4.75      10,000      4.75
   Options granted
                          5,000      3.41
                         10,000      3.80
   Options expired
      or canceled
                                              (5,000)     4.25
                                                                   (21,250)     6.75
                        (59,250)     8.88    (59,250)     8.88
                         (1,250)     7.13     (1,250)     7.13
                        (10,000)    11.00     (5,000)    11.00
                                                                    (2,500)    12.88
                                                                    (2,500)     3.81
                         (1,100)     3.70     (5,700)     3.70
                      ----------            ---------            ----------
                        298,000              354,600               430,800
                      ==========            =========            ==========
</TABLE>

     The Company has adopted the  disclosure-only  provisions of FASB  Statement
     No. 123, as amended by FASB Statement No. 148,  "Accounting for Stock-Based
     Compensation - Transition and  Disclosure"  and,  accordingly,  there is no
     compensation expense recognized for its stock option plans.

     Pro forma information related to the fair value of stock-based compensation
     is presented  in Note 1. The pro forma  amounts  were  estimated  using the
     Black-Scholes  valuation  model  assuming no  dividends,  average  expected
     volatility of 36% for all years presented,  an average  risk-free  interest
     rate of 4.7% for all years  presented and expected  lives of  approximately
     six years for all grants  prior to 2001 and eight years  thereafter.  There
     were 15,000 options  granted in 2004 and none in 2003 or 2002. The weighted
     average  fair  value  estimate  of options  granted in 2004 was $1.23.  The
     weighted average remaining lives of options granted was 2.7 years in 2004.

     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, 2004 and 2003. No
     such loans have been granted since late 1999.


                                       35
<PAGE>

     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)  OTHER COSTS:
     ------------

     In connection with the completion of its debt restructuring in fiscal 2003,
     the Company  expensed  approximately  $625,000 of deferred  financing costs
     associated  with its  previous  senior  debt with a  consortium  of lenders
     (which was repaid) and its previous  subordinated  debt  agreements  (which
     were substantially modified).  This expense is included in operating income
     as  debt  refinancing  costs  in the  accompanying  Consolidated  Financial
     Statements.

     The Company  also  incurred  approximately  $768,000 and $483,000 in fiscal
     2004 and 2003, respectively in professional fees and other costs related to
     mergers  and  acquisitions  activity  pursued by the  Company  through  its
     investment  bankers  and  outside  advisors.  These  costs are  included in
     operating   income  as   investment   banking  and  related  costs  in  the
     accompanying Consolidated Financial Statements.

(9)  OTHER INCOME (EXPENSE):
     -----------------------

     Other income (expense),  net in fiscal 2003 includes $672,000 of gains from
     the sale of securities received by the Company as a policyholder  following
     the demutualizations of certain insurance companies.

     Additionally,  the Company  received  $380,000  and $253,000 in import duty
     rebates  in 2003 and  2002,  respectively.  In  fiscal  2004,  the  Company
     incurred approximately $94,000 of legal costs in connection with claims for
     additional import duty rebates. (Also see Note 17.)

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

     In fiscal  2002,  the  Company  provided  $418,000  in  additional  charges
     (principally  for lease  termination  and  employee  costs)  related to the
     completion of prior phases of its comprehensive restructuring program. Also
     in  fiscal  2002,  the  Company  provided   approximately   $1,155,000  for
     restructuring  and  improvement  related costs in connection with the final
     phase of its  restructuring  and cost reduction  program,  which included 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 this final phase of


                                       36
<PAGE>

     the program.  The carrying amount of additional  property held for disposal
     from this final phase is approximately $200,000.

     In  fiscal  2003,   the  Company   incurred  an   additional   $487,000  in
     restructuring  costs  related  primarily  to  holding  costs  of  a  closed
     manufacturing  facility (not accruable in advance) and additional severance
     related to personnel reductions in 2003.

     The restructuring and impairment related charges and subsequent utilization
     for the three fiscal years ended  September 30, 2004 are  summarized  below
     (in thousands):

                                                    Losses from
                                       Employee    impairment, sale
                                      severance    and  abandonment
                                      and related  of property and
                                         costs        equipment        Total
                                      -----------  ----------------  ----------
Reserve balances at September 30, 2001  $   339       $   -           $   339
                                      -----------  ----------------  ----------
Additional fiscal 2002 provisions
  for prior phases of restructuring         135          283              418
2002 restructuring and impairment
  related charges for final phase
  of restructuring                        1,110           45            1,155
                                      -----------  ----------------  ----------
Total 2002 restructuring and
  impairment related charges              1,245          328            1,573
Utilized in fiscal 2002                    (474)        (283)            (757)
                                      -----------  ----------------  ----------
Reserve balances at September 30, 2002    1,110           45            1,155
                                      -----------  ----------------  ----------
2003 restructuring and impairment
  related charges for final phase
  of restructuring                          163          324              487
Utilized in fiscal 2003                  (1,183)        (369)          (1,552)
                                      -----------  ----------------  ----------
Reserve balances at September 30, 2003       90           -                90
                                      -----------  ----------------  ----------
Utilized in fiscal 2004                     (90)          -               (90)
                                      -----------  ----------------  ----------
Reserve balances of September 30, 2004  $    -        $   -           $    -
                                      ===========  ================  ==========

(11) 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 (loss) 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)].  For the  years  ended
     September 30, 2004, 2003 and 2002, options to purchase 293,000, 354,600 and
     730,800  shares of  common  stock,  respectively,  were  excluded  from the
     computation  of  diluted  earnings  (loss) per share as such  options  were
     anti-dilutive.

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

              Year                 Basic      Diluted
              ----              ----------  ----------
              2004               3,204,543   3,204,613
              2003               3,196,714   3,196,714
              2002               3,183,866   3,183,866


                                       37
<PAGE>

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

     Due to the Company's sale of its Industrial  Group (Note 13), 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, 2004,  2003 and 2002
     for the years then ended (in thousands).

                                         Operating    Identifiable
                            Revenues   Profit (Loss)    Assets
                           ----------- -------------- ------------
       2004:
          United States    $ 50,332      $   669        $ 36,715
          Canada              9,046        1,255           6,169
          Mexico             26,958        3,038          27,350
          United Kingdom      1,542          327           1,311
          China                 291          518           2,441

       2003:
          United States    $ 53,087      $  (910)       $ 35,844
          Canada              8,705          914           6,414
          Mexico             25,569        3,731          25,965
          United Kingdom      1,321          107           1,277
          China                 156          628           2,534

       2002:
          United States    $ 51,685     $ (1,747)       $ 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

(13) DISCONTINUED OPERATIONS:
     ------------------------

     In 2001,  the  Company  formalized  its  decision to offer for sale its New
     Castle  Refractories  division,  the last business of its Industrial Group.
     Accordingly,  related  operating  results of the Industrial Group have been
     reported  as  discontinued  operations  in  the  accompanying  Consolidated
     Financial  Statements  for all periods  presented.  In December  2002,  the
     Company   entered  into  an  agreement  to  sell  this  division  to  local
     management. The transaction closed effective July 31, 2003. At closing, the
     Company  received  consideration  of $500,000  in the form of a  seven-year
     amortizing  note  receivable  and net cash  proceeds  of  approximately  $3
     million,  utilized to reduce its senior debt. The Company  retained tax and
     certain other net liabilities of approximately $800,000.

                                       38
<PAGE>

     Net revenues and income (loss) from discontinued  operations in fiscal 2003
     and 2002 are as follows (in thousands):

                                                      2003        2002
                                                    ----------  ---------
               Net revenues                          $ 8,021     $ 9,169
                                                    ==========  =========
               Income   (loss)  from   discontinued
                 operations before income taxes      $  (578)    $   200
               Income tax benefit (expense)              --          (77)
                                                    ----------  ---------

               Income   (loss)  from   discontinued
                 operations                          $  (578)    $   123
                                                    ==========  =========
               Earnings (loss) per share (basic)     $ (0.18)    $   .04
                                                    ==========  =========
               Earnings (loss) per share (diluted)   $ (0.18)    $   .04
                                                    ==========  =========

     Income (loss) from discontinued  operations includes pre-tax gains on sales
     of  assets  of $208 in  2002,  attributable  to the  sale of the  Company's
     Graphite and Lubricants division. In addition, interest expense of $270 and
     $342 has been  allocated to income (loss) from  discontinued  operations in
     2003 and 2002,  respectively,  based upon the  identifiable  assets of such
     operations.

(14) COMMITMENTS AND CONTINGENCIES:
     ------------------------------

     The Company has entered into  employment  agreements  with four  executives
     which  provide  for the  continuation  of salary  for a period of 24 months
     (currently aggregating $68,700 per month) and related employee benefits for
     a period of 36 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 seven additional upper management
     employees  which provide for  continuation of salaries  (averaging  $10,300
     each per month) for periods of up to 24 months under certain circumstances.

     The  Company  leases  certain  manufacturing  equipment  under a  five-year
     noncancelable  operating lease  arrangement.  The rental expense under this
     lease  was  $410,000,  $433,000  and  $410,000  in  2004,  2003  and  2002,
     respectively.  Annual future minimum rental payments approximate $93,000 in
     2005.

     The  Company is  involved  in various  legal  proceedings  incident  to the
     conduct of its  business.  The Company does not expect the  proceedings  to
     have a material  effect on the  Company's  future  results of operations or
     financial position.

     The  Company  assesses  the extent of  environmental  matters on an ongoing
     basis. In the opinion of management  (after taking into account accruals of
     approximately  $218,000 as of September 30, 2004),  the resolution of these
     matters  will  not  materially  affect  the  Company's  future  results  of
     operations or financial position.

(15) RELATED PARTY TRANSACTIONS
     --------------------------

     A member of the  Company's  board of  directors  is a partner of a law firm
     which represents the Company in various legal matters. The Company incurred
     approximately  $203,000,  $241,000  and $33,000 for  professional  services
     rendered by this firm in the fiscal years ended  September  30, 2004,  2003
     and 2002, respectively.


                                       39
<PAGE>

(16) SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (In Thousands,
     ---------------------------------------------------------------------

     Except Per Share Data):
     -----------------------
<TABLE>
<CAPTION>

               2004:                   First     Second     Third     Fourth
               -----                ---------  ---------  ---------  --------
<S>                                 <C>        <C>        <C>        <C>

Revenues                             $15,479    $18,951    $27,367    $26,372
Income (loss) from continuing
  operations                            (879)        26      1,672        913
Net income (loss)                       (879)        26      1,672        913
Earnings (loss) per share: (a)
  Continuing operations:
   Basic                                (.27)       .01        .52        .28
   Diluted                              (.27)       .01        .52        .28
  Net income (loss):
   Basic                                (.27)       .01        .52        .28
   Diluted                              (.27)       .01        .52        .28

               2003:                   First     Second     Third     Fourth
               -----                ---------  ---------  ---------  -----------
Revenues                             $15,870    $18,893    $26,940    $27,135
Income (loss) from continuing
  operations                            (933)       146      1,850     (1,912) (b)
Loss from discontinued operations         -        (252)       (59)      (267) (b)
Net income (loss)                       (933)      (106)     1,791     (2,179) (b)

Earnings (loss) per share: (a)
  Continuing operations:
   Basic                                (.29)       .04        .58       (.60)
   Diluted                              (.29)       .04        .58       (.60)
  Discontinued operations:
   Basic                                  -        (.07)      (.02)      (.08)
   Diluted                                -        (.07)      (.02)      (.08)
  Net income (loss):
   Basic                                (.29)      (.03)       .56       (.68)
   Diluted                              (.29)      (.03)       .56       (.68)
</TABLE>

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

(b)  The fourth  quarter of fiscal 2003  reflects  the impact of  providing  for
     additional  valuation allowances for the Company's U.S. deferred tax assets
     in the amounts of $2,232 and $190,  included in continuing  operations  and
     discontinued operations, respectively (see Note 5).

                                       40
<PAGE>

(17) SUBSEQUENT EVENTS:
     ------------------

     Import duty rebates:

     In December 2004, the Company received  approximately $1.1 million from the
     U.S. Customs and Border Protection Service for certain import duty rebates.
     These rebates will be reported as other income in the Company's  results of
     operations for the quarter ending  December 31, 2004.  Additional  receipts
     are not  assured in the future and are subject to Federal  legislation  and
     the activities of various foreign pencil manufacturers.

     Merger of Dixon Ticonderoga  Company with Fila - Fabbrica Italiana Lapis ed
     Affini S.p.A.:

     On December 16,  2004,  the Company and Fila - Fabbrica  Italiana  Lapis ed
     Affini S.p.A.  ("Fila")  executed a definitive merger agreement under which
     Fila would acquire all of the  outstanding  shares of the Company for $7.00
     per  share  in  cash.  Under  the  terms  of the  definitive  agreement,  a
     wholly-owned  subsidiary  of Fila will  commence a cash tender  offer on or
     about January 7, 2005, after which any remaining shares will be acquired in
     a cash merger at the same price.  The transaction has been approved by both
     companies'  boards of directors.  However,  since the  consummation  of the
     transaction  is subject to certain  conditions,  there is no assurance that
     the tender offer or merger will be completed.

                                       41
<PAGE>

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

                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
                ------------------------------------------------

           FOR THE THREE YEARS ENDED SEPTEMBER 30, 2004, 2003 and 2002
           -----------------------------------------------------------

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

Allowance for Doubtful Accounts:
--------------------------------
Year Ended
  September 30, 2004  $ 1,429,222    $ 258,032     $ (353,792)(1) $ 1,333,462
                      ===========    =========    =============== ===========
Year Ended
  September 30, 2003  $ 1,381,780    $ 315,026     $ (267,584)(1) $1,429,222
                      ===========    =========     =============  ===========
Year Ended
  September 30, 2002  $ 1,482,524    $ 193,979     $ (294,723)(1) $1,381,780
                      ===========    =========     =============  ===========

(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.


ITEM 9A. 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.


                                       42
<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  2004 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                        76  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                    49  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                     48  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.            53  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                      63  Vice President and Corporate  Controller
                                        since   January   1991;   prior  thereto
                                        Corporate   Controller  since  September
                                        1978.

Diego Cespedes Creixell             46  President,  Grupo  Dixon  S.A.  de C.V.,
                                        since  August  1996 and  Director  since
                                        May 2000.

                                       43
<PAGE>

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

     Information  required  under this Item will be contained  in the  Company's
2004 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
2004 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
2004 Proxy Statement which is incorporated herein by reference.


ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
-----------------------------------------------

     Information  required  under this Item will be contained  in the  Company's
2004 Proxy Statement which is incorporated herein by reference.


                                       44
<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 1. Financial Information.

      2.    Exhibits
            --------

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

           (2)   c. Asset Purchase  Agreement  dated December 23, 2002,  between
                 Dixon   Ticonderoga   Company,   as  Seller   and  New   Castle
                 Refractories Company, Inc., Inc., as Buyer with addenda.7

           (3)   (i) Restated Certificate of Incorporation2

           (3)   (ii) Amended and Restated Bylaws1

           (4)   a. Specimen Certificate of Company Common Stock2

           (4)   b. Amended and Restated Stock Option Plan3

           (10)  b. 12.00% Senior Subordinated Notes, Due 2003, Note and Warrant
                 Purchase Agreement1

           (10)  c. 12.00% Senior  Subordinated  Notes,  Due 2003,  Common Stock
                 Purchase Warrant Agreement1

           (10)  j.  Amendment No. 1 to 12.00% Senior  Subordinated  Notes,  Due
                 2003, Note and Warrant Purchase Agreement.4

           (10)  m. Amendment No. 2 to Note and Warrant Purchase Agreement.5

           (10)  n. Loan and Security  Agreement by and among Dixon  Ticonderoga
                 Company   and   its    Subsidiaries    and   Foothill   Capital
                 Corporation.6

           (10)  o. Dixon  Ticonderoga  Company  Amended and  Restated  Note and
                 Warrant Purchase  Agreement,  12.5% Senior  Subordinated Notes,
                 due October 3, 2005.6

           (10)  p. Warrant Amendment Agreement.9

           (21)  Subsidiaries of the Company.

           (23)  Consent of Independent Certified Public Accountants.

                                       45
<PAGE>

           (31.1)Chairman   of  the  Board  and   Co-Chief   Executive   Officer
                 Certification  pursuant to Exchange  Act Rule 13a-14 as adopted
                 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

           (31.2)Vice  Chairman  of the Board  and  Co-Chief  Executive  Officer
                 Certification  pursuant to Exchange  Act Rule 13a-14 as adopted
                 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

           (31.3)Executive  Vice  President  of  Finance  and  Chief   Financial
                 Officer  Certification  pursuant to Exchange Act Rule 13a-14 as
                 adopted  pursuant to Section 302 of the  Sarbanes-Oxley  Act of
                 2002.

           (32.1)Chairman   of  the  Board  and   Co-Chief   Executive   Officer
                 Certification  pursuant to 18 U.S.C.  Section  1350, as adopted
                 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

           (32.2)Vice  Chairman  of the Board  and  Co-Chief  Executive  Officer
                 Certification  pursuant to 18 U.S.C.  Section  1350, as adopted
                 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

           (32.3)Executive  Vice  President  of  Finance  and  Chief   Financial
                 Officer  Certification  pursuant to 18 U.S.C.  Section 1350, as
                 adopted  pursuant to Section 906 of the  Sarbanes-Oxley  Act of
                 2002.

           (99)  Audit Committee Charter

           (99.A11) Code of Ethics.8


1Incorporated  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.

2Incorporated  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.

3Incorporated  by reference to Appendix 3 to the Company's Proxy Statement dated
January 27, 1997, file number 0-2655, filed in Washington, D.C.

4Incorporated  by reference to the Company's  Annual Report on Form 10-K for the
year ended September 30, 1999, file number 0-2655, filed in Washington, D.C.

5Incorporated  by reference to the Company's  Annual Report on Form 10-K for the
year ended September 30, 2002, file number 0-2655, filed in Washington, D.C.

6Incorporated  by reference to the Company's  Quarterly  Report on Form 10-Q for
the period ended December 31 2002, file number 0-2655, filed in Washington, D.C.

7Incorporated  by reference to the Company's  Annual Report on Form 10-K for the
year ended September 30, 2003, file number 0-2655 filed in Washington, D.C.

8Incorporated by reference to the Company's Report on Form 10-K/A, Amendment No.
1,  for the  year  ended  September  30,  2003,  file  number  0-2655,  filed in
Washington, D.C.

                                       46
<PAGE>

9Incorporated  by reference to the Company's  Quarterly  Report on Form 10-Q for
the period ended March 31, 2004, file number 0-2655, filed in Washington, D.C.

(b)  Reports on Form 8-K:

     On August 13,  2004,  the  Company  filed a Form 8-K which  included  as an
     exhibit its press release,  also dated August 13, 2004, regarding its third
     fiscal quarter results.


                                       47
<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:  December 22, 2004
        /s/  Richard F. Joyce
        ----------------------------
        Richard F. Joyce            Vice Chairman of Board,
                                    Co-Chief Executive Officer,
                                    President and Director
                                    Date:  December 22, 2004
        /s/  Richard A. Asta
        ----------------------------
        Richard A. Asta             Executive Vice President of
                                    Finance, Chief Financial
                                    Officer and Director
                                    Date:  December 22, 2004
        /s/  Diego Cespedes Creixell
        ----------------------------
        Diego Cespedes Creixell     President, Grupo Dixon S.A. de
                                    C.V., and Director
                                    Date:  December 22, 2004
        /s/  Philip M. Shasteen
        ----------------------------
        Philip M. Shasteen          Director
                                    Date:  December 22, 2004
        /s/  Ben Berzin, Jr.
        ----------------------------
        Ben Berzin, Jr.             Director
                                    Date:  December 22, 2004
        /s/  Kent Kramer
        ----------------------------
        Kent Kramer                 Director
                                    Date:  December 22, 2004
        /s/  John Ritenour
        ----------------------------
        John Ritenour               Director
                                    Date:  December 22, 2004
        /s/  Wesley D. Scovanner
        ----------------------------
        Wesley D. Scovanner         Director
                                    Date:  December 22, 2004