SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-K /A
                                  ANNUAL REPORT

                       Pursuant to Section 13 or 15(d) of
                       the Securities Exchange Act of 1934

                   For the fiscal year ended December 30, 1997
                           Commission File No. 0-20498

                            TOPS APPLIANCE CITY, INC.
             (Exact name of registrant as specified in its charter)

New Jersey                             22-3174554
(State of Incorporation)             (I.R.S. Employer ID No.)

               45 Brunswick Avenue, Edison, NJ          08818
--------------------------------------------------------------------------------
(Address of principal executive offices)               (Zip Code)


Registrant's phone number, including area code:   (732) 248-2850
Securities registered pursuant to Section 12(b) of the Act:  None

     Securities registered pursuant to Section 12(g) of the Act:Common Stock, No
Par Value


         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  (of for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes X No

         The aggregate market value of Common Stock held by non-affiliates based
upon the average price of such stock as quoted on NASDAQ for March 27, 1998, and
reported by the National Quotation Bureau, Inc. was $5,112,006. Shares of Common
Stock held by each officer and director,  and each person who owns 5% of more of
the  outstanding  Common  Stock have been  excluded in that such  persons may be
deemed to be affiliates.

        Registrant's  Common Stock (no par value) outstanding at March 27, 1998,
was 7,294,901 shares.


Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of  Regulation  S-K is not  contained  herein  and will not,  to the best of the
Registrant's   knowledge,  be  contained  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form 10-K /A or any
amendment to this Form 10-K/A ___

                           Total Number of Pages: 103
                              Exhibit List: Page 21

     Documents  Incorporated  by Reference:  (a) Proxy Statement for 1998 Annual
Meeting







<PAGE>

                               TABLE OF CONTENTS



              ITEM                                                    PAGE

1.  Business...........................................................1

2.  Properties........................................................10

3.  Legal Proceedings.................................................10

4.  Submission of Matters to a Vote of Security Holders...............10

5.  Market for the Registrant's Common Stock
    and Related Stockholder Matters...................................11

6.  Selected Financial Data...........................................12

7.  Management's Discussion and Analysis of
    Financial Condition and Results of Operations.................... 13

8.  Financial Statements and Supplementary Data...................... 18

9.  Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure...............................18

10. Directors and Executive Officers of the Registrant................19

11. Executive Compensation............................................19

12. Security Ownership of Certain Beneficial Ownership
    and Management....................................................19

13. Certain Relationships and Related Transactions....................19

14. Exhibits, Financial Statement Schedule
    and Reports on Form 8-K...........................................20


<PAGE>


                                     PART I

                                ITEM 1. Business

                                     General

         Tops  Appliance  City,  Inc.  ("Tops"  or the  "Company")  is a leading
retailer of home appliances and consumer electronics in New Jersey and New York,
serving a customer  base  within the  Greater New York  Metropolitan  Area.  The
Company operates seven retail megastores, ranging in size from 43,000 to 120,000
square feet,  in heavily  populated  locations  in New Jersey and New York.  The
Company  also  operates a  commercial  division,  selling  to small  independent
retailers,  builders and landlords,  corporate buying groups, major corporations
and municipalities,  which accounted for approximately 9.2% and 10.9% of its net
sales and service revenues in fiscal 1997 and fiscal 1996.

         Tops'  stores  display a broad  selection of high  quality,  nationally
recognized brand names in each of its product categories.  The Company's primary
products include major appliances,  such as  refrigerators,  washers and dryers,
electronics  including  televisions,  VCRs,  camcorders,  room air conditioners,
consumer electronics,  home and car audio equipment, home office products, small
electronic  appliances,  and other  related  products  such as vacuum  cleaners,
seasonal goods, housewares,  related accessories and extended service plans. The
Company  maintains a  knowledgeable,  well-trained  sales force which builds and
reinforces customer confidence in Tops' value-driven  merchandising strategy. As
part of that strategy, the Company offers a number of customer services, such as
home delivery and removal of old appliances. Tops emphasizes competitive pricing
in its advertising and guarantees the lowest price on its products  through a 45
day, best price guarantee.

         The Company has experienced comparable store sales declines of 3.6% and
26.4%  for 1997  and  1996.  These  declines  were  mostly  attributable  to the
continuing weak retail environment in the appliance and electronic  industry and
increased  competition.  This competitive  environment has put pressure on gross
margins as retailers focus on maintaining market share. In addition,  the recent
demand for consumer  electronics  has  decreased due to the lack of new products
brought to market.  Research also  indicates that high consumer debt levels have
also reduced consumer spending on non-essential items. The fiscal periods ending
December  30,  1997 and  December  31, 1996 were also  severely  impacted by the
unseasonably  cooler  weather in the  northeast  during the summer  months which
affected sales of room air  conditioners.  Substantial  price deflation in Video
and Home Office products also contributed to the sales dollar decline.

         During 1997, the Company expanded the Kitchen Place to three stores and
introduced the Dial-A-Mattress leased department to six stores. The Company also
opened four seasonal room air conditioner outlets in Manhattan during the summer
months. The Company has been pleased with the results from these three concepts.

         The Company continues to put forward several  initiatives to offset the
impact on operating results of the declining sales.  Payroll and payroll related
expenses have been reduced as well as many other  operating  expenses  including
net advertising,  credit card processing,  occupancy and corporate overhead. The
Company  instituted a 45 day, best price guarantee  during the fourth quarter of
1995. It appears to have been widely accepted by our customers and recent trends
indicate a leveling off of same store sales declines.

Business Strategy

         Tops'  business  strategy  is to  be  the  dominant  retailer  of  home
appliances  and  consumer  electronics  in each  of its  markets  by  developing
customer loyalty through a marketing program that emphasizes price,  service and
selection.  Management  believes  that the  Company's  strong sales and customer
loyalty are a result of Tops' pricing,  customer service and relations,  product
selection,  advertising  strategy,  store  environment,  store locations and the
quality and experience of its personnel.

         Pricing. The Company's policy is to offer its products at low prices in
each of its markets.  The Company monitors prices at competing stores on a daily
basis and adjusts its prices as necessary to adhere to its "everyday best price"
strategy.  The Company  believes that a "sale"  oriented  marketing  strategy is
still necessary in this competitive category and marketplace. The Company offers
a 45 day, best price guarantee.

         Customer  Service and  Relations.  The Company is  committed  to a high
level of service for its  customers,  providing  both value and  responsiveness.
Included  among the  services  it offers are home  delivery  and  removal of old
appliances,  cartons and packaging. The Company also offers a liberal return and
exchange policy. Tops maintains a staff of customer service  representatives who
answer  telephone  inquiries  six (6)  days  per  week  regarding  product  use,
delivery,  service, warranties and other customer concerns. The Company also has
customer  service  representatives  present in each store who deal with the same
types of questions and an  "electronic  hospital"  staffed during store hours by
trained   technical   advisors  who  are  responsible  for  free   instructional
assistance, product analysis and customer service.

         Product  Selection.   Tops  offers  a  broad  range  of  high  quality,
nationally  recognized brand names within each product category and at all price
points,  with greater  inventory  depth at the middle to higher price level than
most  retailers.  The Company's  stores  display in excess of 5,000 products and
maintain over 9,000  products in inventory.  The Company offers the full line of
models  from  each  of  its  vendors  in  all of  the  Company's  major  product
categories.  The  Company's  policy is to  maintain  all  products  in stock for
immediate availability to the customer.

         Advertising. The Company utilizes an advertising strategy that stresses
the offering of nationally recognized brands at significant savings. The Company
generally  advertises  weekly  in 8 to 14  regional  and local  newspapers,  and
supplements this with television,  radio and billboard advertising. In addition,
Tops  operates a direct mail program to  approximately  310,000 Tops charge card
customers. The Company also uses a variety of promotional sales and sales events
to increase traffic in its stores.

         Store  Environment.  Tops'  in-store  environment  seeks to  create  an
atmosphere  of  excitement  through the  intensity of its visual  merchandising,
sales  promotion,  signage and  layout,  and the  quality,  value and variety of
product assortment. The stores have an open, clean, bright, exciting atmosphere,
with  disciplined  product   presentation,   attractive  in-store  displays  and
efficient  check-out  procedures,  designed  to  create a  friendly,  convenient
shopping  experience.  Tops' sales force is given extensive and ongoing training
to provide customers with knowledgeable, prompt and courteous assistance.

         Store  Locations.  The  Company's  strategy  is to locate its stores in
heavily  populated areas that are easily accessible from major highways and have
adequate parking for high sales volume.

         Personnel  Development.  The Company devotes  significant  resources to
training  its  employees,  both to  ensure  basic  selling  skills  and  product
knowledge and to enhance customer  relations.  The Company emphasizes  promoting
employees from within the organization. This policy, combined with above-average
compensation,  comprised  of salary,  commission  and  incentives  for its sales
force, has produced loyal,  motivated  employees with a low turnover record. The
Company believes that its employees are among the most qualified and experienced
in its industry.

Products

         The  Company's  stores  stock over 9,000 home  appliance  and  consumer
electronic  products.  The  Company  sells  brand-name  products,  offering  its
customers a large  selection  of styles and price  points in each of its product
categories.  The Company  sells no private  label or house  brands.  The Company
displays in excess of 5,000 products in its stores, in the following categories:



<PAGE>

<TABLE>
<CAPTION>

     CATEGORY              PRODUCTS                     PRINCIPAL BRAND NAMES
<S>                        <C>                           <C>


Major Appliances         Refrigerators,                 Amana, Admiral, Frigidaire, General Electric
                         Dishwashers,                   Hotpoint, Jenn-Air, KitchenAid, Magic Chef, Maytag
                         Washers/Dryers                 Roper, Sub Zero, Viking, Westinghouse, Whirlpool

Televisions                                             Daewoo, Hitachi, JVC, Panasonic, Proscan,
                                                        Quasar, RCA, Samsung,Sharp, Quasar, Sony,
                                                        Zenith
Video                     VCRs,DVD                      Hitachi, JVC, Panasonic,
                          Camcorders                    RCA, Samsung, Sony, Zenith

Ranges/
Microwaves                Ranges, Cooktops              General Electric, Jenn-Air, Magic Chef, Panasonic,
                          Cooktops,                     Sharp, Tappan, Thermador, Viking, Whirlpool
                          Range Hoods,
                          Microwaves

Air Conditioners                                        Carrier, Emerson, Fedders, Friedrich,
                                                        General Electric, Samsung, Whirlpool,
                                                        Quasar

Audio                     Stereo Systems,               Aiwa, Bose, Infinity, JBL, JVC, Kenwood
                          Components and                JBL, JVC, Kenwood, Onkyo, Pioneer,
                          Speakers                      RCA, Sony ES, Technics, Yamaha

Electronics               Cameras, Walkman              AT&T, Alpine, Blaupunkt, Canon,
                          Radar Detectors,              General Electric, Hitachi, JVC,
                          Portable Radios,              Kenwood, Magnavox, Minolta,
                          Audio and Car                 Olympus, Panasonic, RCA, Sony,
                          Alarms, Telephones,           Yashica,
                          Cellular Phones

Home Office               Computers,                    Brother, Canon,
Products                  Printers, Fax                 Compaq, Epson, Hewlett Packard,
                          Machines,                     IBM, Lexmark, Sharp, Packard Bell
                          Wordprocessors,
                          Typewriters,
                          Copiers

Vacuums,Seasonal          Vacuum Cleaners,              Black and Decker, Braun,
Items/Housewares          Humidifiers,                  Cuisinart, Eureka,
                          Fans,                         General Electric, Hoover,
                          Space Heaters,                Krups, Sanyo, Sharp, Sunbeam,
                          Small Electrical              Thermos, Weber, Westinghouse
                          Appliances
                          (coffee makers,
                          blenders, etc.),
                          Barbecue Grills

</TABLE>


         The Company  tailors its product mix to meet the needs of its customers
by regularly  evaluating  sales and profit  performance for each of its products
through its computerized perpetual inventory system. Product mix by category has
remained  relatively stable over the past five years.  Management  believes that
this  stability  makes the Company less  vulnerable to short term product trends
and  changing  economic   conditions.   The  following  chart  demonstrates  the
percentage of retail and commercial  sales  represented by each of the Company's
product categories during the past three years:

<TABLE>
<CAPTION>

                                                                                      Percent of Total Sales

Product Category                                                                 1995             1996           1997
<S>                                                                              <C>             <C>             <C>


Major Appliances (Refrigerators,
  Washers, Dryers)........................                                       20.5%           21.4%           20.8%
Ranges/Microwaves/Dishwashers.............                                       12.4            13.4            13.5
Air Conditioners..........................                                       12.0             7.2            10.2
Vacuums/Seasonal Items/Housewares.........                                        5.0             5.3             4.7
                                                                                 -----           -----             ---

   Subtotal...............................                                       49.9            47.3            49.2

Televisions...............................                                       14.4            14.7            14.6
Video/Projection Televisions..............                                       10.8            11.2            11.3
Audio.....................................                                        7.3             6.9             6.5
Home Office and Other
  Consumer Electronics....................                                       13.2            15.6            13.l8
                                                                                 ----            ----            -----

   Subtotal...............................                                       45.7            48.4            46.2

Extended Service Plans and
  Miscellaneous Income....................                                        4.4             4.3             4.6
                                                                                 ----            ----            ----

                                                                                100.0%         100.0%            100.0%
</TABLE>

Extended Service Plans

         The Company offers  extended  service plans for most  categories of its
retail  products.  The extended service plans cover services or time periods not
covered by the manufacturer's  warranty on such products and are non-cancelable.
These plans are  administered  for the  Company by  Warrantech  Corporation,  an
unaffiliated  third party,  which performs the repair  services  required by the
plans through factory authorized service centers.  Warrantech is required by its
agreement  with the Company to maintain  insurance to protect the Company in the
event  that  Warrantech  fails to fulfill  its  obligations  under the  extended
service plans.  The Company sells the extended  service plans to Warrantech on a
non-recourse  basis. In 1990, the Company began offering  customers who purchase
five-year  extended  service  plans  vouchers  entitling  them to certain  store
discounts, subject to certain restrictions, if the customer does not utilize the
extended service contract during the five-year term. The Company has established
a reserve on its balance  sheet to cover the  potential  cost of honoring  these
vouchers.  Gross margins from the sale of extended service plans are higher than
gross margins from the sale of the Company's other products.

Purchasing

         The Company  offers a broad range of name  brands  within each  product
category at all price points,  with a greater  inventory  depth at the middle to
higher price level than most retailers.  Because Tops purchases complete product
lines in large volumes,  with an emphasis on middle to higher priced models, the
Company  is  able  to  obtain  quality   products  at  competitive   prices  and
discretionary  advertising  subsidies  from vendors to promote the sale of their
products.  Although  certain vendors are  significant to the Company's  business
because  of their  name  recognition,  the  Company  does not  believe  that its
business is dependent  upon any one vendor or  particular  group of vendors.  In
fiscal  1997,  four vendors each  accounted  for more than 10% of the  Company's
purchases.  Tops purchases over 80% of its products from the 15 vendors shown in
the following chart.


                                 Top 15 Vendors

   Aiwa                   G.E./Hot Point                  Sharp
   Carrier                Hitachi                         Sony
   Compaq                 JVC                             Thomson/RCA
   Fedders                Maytag/Magic Chef               Whirlpool/Kitchen Aid
   Frigidaire             Panasonic                       Zenith


         The Company's merchandise  purchasing is managed through its buying and
merchandising  group,  consisting of the Senior Vice  President/Chief  Operating
Officer and a staff of eight buyers.  Each buyer is  responsible  for purchasing
products within specified product categories. Within each category, the buyer is
responsible for choosing the product mix,  insuring product  availability  based
upon the rate of sale, and  negotiating  prices,  payment terms and other vendor
support  items.  The buyers are also  responsible  for  analyzing  potential new
business.

         The Company generally orders inventory one month in advance of delivery
dates,  but  provides  key  vendors  with 120 day  rolling  forecasts  to ensure
availability of important items.


Advertising

         The  Company  uses a "price  and  item"  approach  in its  advertising,
stressing the offering of nationally  recognized brands at significant  savings.
The emphasis of the Company's  advertising is to stress the Company's low prices
as well as its customer service features, such as home delivery, disposal of old
appliances and removal of cartons and packaging.  Advertisements are placed in 8
to 14 regional  newspapers weekly and on television,  radio and billboards.  The
Company also uses a circular  program showing a broader  selection of advertised
products.  Advertisements  are  complemented  by in-store  signage  highlighting
brand-name  products and values. The Company's  advertising  strategy includes a
series of special  events,  and private  sales  throughout  the year to generate
traffic  and to  maintain a sense of shopping  excitement.  Tops also  employs a
monthly direct mailing to its credit card holders and to other selected groups.

         Tops employs a five-person  staff to  coordinate  its  advertising  and
develop promotional  strategies.  Certain manufacturers provide the Company with
various discretionary funding subsidies to promote the sale of their products.

Customer Service and Relations

         Tops places a strong emphasis on customer service and relations as part
of its business  strategy.  The Company offers a number of services such as home
delivery,  removal and  disposal of old  appliances  and  packaging of delivered
products.  The  Company  emphasizes  the  quality of its sales  force,  devoting
significant  resources to training,  and is committed to having sufficient sales
people available at all times to service all customers in a store.

         The Company maintains a staff of customer service  representatives  who
respond  to   customer   calls  six  days  per  week.   The   customer   service
representatives are trained to answer questions regarding product use, delivery,
service,  warranties and other customer  concerns.  Tops has regular contacts at
each of its  vendors who enable  Tops to respond  promptly  to specific  product
questions.

Customer Credit

         Tops' customers may pay for their  purchases with the Tops  proprietary
credit card, Visa, Master Card, American Express, Discover, cash, check or debit
card. The Company  periodically  offers extended payment term financing programs
which are often sponsored by manufacturers.

         Since 1987, when the Company initiated its own proprietary credit card,
the Company has increased the number of its credit card accounts to in excess of
310,000. As of December 30, 1997, approximately 30% of Tops' credit card holders
had outstanding balances.  The Company has made a significant  investment in its
credit card program since Tops credit card holders generally constitute its most
loyal and active customers.  As part of its growth strategy, the Company intends
to increase the number of Tops credit card holders  while  maintaining  existing
credit  standards.  No assurances  can be given that the Company will be able to
accomplish this goal. In addition,  the Company believes that its credit card is
a particularly  productive tool for targeted marketing and presents an excellent
opportunity to analyze and better  understand its customers'  shopping  patterns
and trends.

         Purchases  made with a Tops  credit  card  involve  lower  costs to the
Company  than other  credit  cards,  with no greater  risk to the  Company.  The
following  table  summarizes the  percentage of total retail sales  generated by
type of payment for the fiscal years 1995, 1996 and 1997.


                                                1995          1996       1997

Tops Credit Card...................            25.3%         25.4%       24.8%
Visa, MasterCard, American
Express, Discover................              50.3%         48.3%       47.6%
Cash, Check, Debit Card, Other.....            24.4%         26.3%       27.6%


         The Company's  credit card program is  administered  by Monogram Credit
Card Bank of Georgia, a subsidiary of General Electric Capital  Corporation ("GE
Capital").  The Account  Financing  Agreement between the Company and GE Capital
requires  GE  Capital  to  purchase  Tops'  customer  accounts  receivable  on a
non-recourse  basis. GE Capital pays Tops a monthly fee based upon total average
receivable balances of the Tops portfolio.  Tops pays GE Capital monthly for all
finance charge reversals incurred by Tops customers.

         Additionally,  GE Capital offers  insurance and other products to Tops'
credit card  customers and  distributes a portion of the income derived from the
marketing of such products to Tops.

Warehousing and Distribution

         The Company  operates a 350,000 square foot warehouse and  distribution
center at its Edison, New Jersey headquarters, from which it serves all seven of
its stores. The center has three subdivisions, devoted to receiving, storage and
home delivery, respectively. The Company believes this facility has the capacity
to service  existing stores and commercial  operations and at least 3 additional
stores. The facility is leased from the Company's former Chairman, who remains a
principal  shareholder.   See  Item  13  -  Certain  Relationships  and  Related
Transactions.

         The Company purchases in bulk and utilizes  distribution  personnel and
systems to transfer  merchandise to store locations and to manage the quantities
moved  into and out of the  warehouse.  The  distribution  system  supports  the
Company's advertising strategy by prioritizing and processing needed merchandise
through  the  distribution  center.  Store  inventory  levels are  reviewed  and
adjusted constantly toward calculated targets in most product categories.

         Tops  makes   approximately  3,500  product  deliveries  per  week,  to
customers' homes from its distribution center, using trucks owned by independent
owner-operators   and   administered   by  Merchants   Home   Delivery   Service
("Merchants") and Westbury Terminals,  Inc. of Georgia ("WTI"). The Company uses
a computerized delivery system to coordinate routing and increase  efficiencies.
In addition,  the Company  makes  deliveries  to its stores every day to support
inventories  of items that  customers can take with them.  The Company pays only
for  completed  deliveries  and,  at  a  lower  rate,  for  certain  uncompleted
deliveries.  The Company's  agreements provide that Merchants and WTI assume the
risk of loss for merchandise upon taking delivery from the Company.  The Company
has also contracted with WTI for the  transportation of merchandise  between its
distribution center and store locations.


Commercial Sales Division

         The Company  operates a commercial  sales division which  accounted for
approximately  9.2% and 10.9% of the Company's net sales and service revenues in
fiscal 1997 and 1996. The commercial  operations are made up of five categories:
(i) sales to small  independent  retailers;  (ii)  telemarketing  sales  through
several corporate benefit buying clubs in which the Company participates;  (iii)
sales to builders  and  landlords;  (iv) sales to major  corporations  for their
various gift and incentive programs, and (v) sales to exporters. These sales are
generally made at lower gross margins than the Company's  retail sales,  but are
made with less operating expense to the Company.

Management Information and Control Systems

         The  Company  has  placed   substantial   emphasis  on  its  management
information  and  control  systems.   Control  of  the  Company's  merchandising
activities is maintained by a sophisticated set of on-line systems,  including a
point-of-sale  and  sales  reporting   system.   These  systems  are  completely
integrated  and track  merchandise  from order  through  sale.  They are used to
compare actual to planned results and to highlight  areas  requiring  management
attention.

         All operational data is fully  integrated with the Company's  financial
systems. The inventory  information in the systems is verified through a program
of cycle counting and testing.

         The Company upgrades its management  information and control systems on
an on-going basis.  The Company believes that the systems it has implemented are
an important factor in enabling it to achieve its goal of superior  execution in
all aspects of the Company's  operations and that its existing  computer systems
are fully  capable of further  technical  enhancements  with minimal  conversion
effort.

Year 2000 Compliance

         The  Company  continues  to assess  the  impact of the Year 2000 on its
systems  and  operations.  The Year 2000  issue  exists  because  many  computer
applications  currently  use  two-digit  date fields to designate a year. As the
century date occurs,  date  sensitive  systems may not  properly  recognize  and
process the year 2000. During fiscal 1997, the Company has utilized its existing
management  information systems and applications personnel to evaluate Year 2000
issues, and expects to continue to utilize internal resources during fiscal 1998
and 1999.

Expansion Strategy

         The Company  continues to evaluate  expansion plans in existing markets
within the  Greater  New York  Metropolitan  Area.  The Company has plans for an
eighth  store in  Brooklyn,  New York,  which it  intends  to open in 1998.  The
Company has also  announced  its  intention  to open a ninth store in 1998.  The
availability of financial resources may limit the Company's expansion plans, and
no assurances can be given that the Company will expand.

         In  evaluating  store  locations,  the  Company  considers  a number of
criteria,  including proximity to its existing stores and the size, strength and
merchandising  philosophy  of potential  competitors.  In selecting a site,  the
Company  searches for  buildings  which are between  35,000 - 60,000 square feet
with ample  customer  parking areas to support high sales  volumes.  The Company
also considers local demographics, traffic patterns and overall retail activity.
Although the Company seeks  locations that are  conveniently  reached and highly
visible  from  major  highways,  the  stores  need  not be  located  in the most
important retail location in the particular market.

         In October 1997, the company closed its store located in Westbury,  New
York. The store's marginal  performance was severely exacerbated by the costs to
advertise for this single location. The Company is not contemplating the closing
of any additional stores.

Competitors

         The Company operates in a highly competitive  marketplace.  The Company
faces  competition for customers from traditional  department  stores,  discount
stores, warehouse clubs and other specialty retailers. Some of these competitors
are units of large national or regional  chains that may have greater  financial
and other  resources  than the Company.  Circuit  City,  a national  retailer of
consumers  electronics,  music and  appliances,  entered the New Jersey/New York
marketplace  during 1997.  Although most of the Company's  competitors have more
stores  than the  Company,  the stores are  generally  smaller  and the  Company
believes that they produce lower sales than the Company on a per store basis.

         Competition  within the  Company's  industry  is based upon  breadth of
product  selection,  product  quality,  customer  service and price. The Company
believes that it is  comparable  with or superior to all of its  competitors  in
each of these categories.

Employees

         As of December 30, 1997,  the Company had  approximately  732 full time
and 325  part-time  employees.  The Company  also employs  additional  part-time
salespersons and cashiers during peak periods.  None of the Company's  employees
are represented by a labor union. The Company believes that  relationships  with
its employees are good.

Service Marks

         The  service  mark  TOPS and a Tops logo  used in the  Company's  print
advertising,  have  been  registered  by the  Company  in the  U.S.  Patent  and
Trademark   Office.   The  Company  believes  that  these  marks  have  acquired
substantial  goodwill and reputation and broad consumer  recognition as marks of
the Company within its market area and that their  continued use is important to
the development of its business.

Reorganization

         The Company was reorganized (the  "Reorganization")  in August, 1992 as
two New Jersey  corporations  in connection  with the Company's  initial  public
offering.  Prior to  that,  the  Company  had  operated  as a  Delaware  Limited
Partnership  ("Tops  LP").  The limited  partners of Tops LP  contributed  their
partnership interest and shares, respectively,  to a newly formed corporation in
exchange for that corporation's  common stock. This corporation changed its name
to Tops  Appliance  City,  Inc.  and became the sole  shareholder  of the former
corporate general partner, which owned all of the Company's assets and traded as
Tops Appliance City, Inc. In March,  1993, these two  corporations  were merged,
and the successor is Tops Appliance  City,  Inc. In 1995, the Company formed two
subsidiaries  in  connection  with a  mortgage  loan  on its  Queens,  New  York
property.  During 1997, one subsidiary was sold in connection  with the sale and
leaseback of the property.  All references in this report to Tops or the Company
refer  to  the  prior  limited  partnership  or  the  corporate  entities  on  a
consolidated basis, where appropriate.

ITEM 2.  Properties

         The Company  operates  seven stores in heavily  populated  areas in New
Jersey  and New York,  all of which are  leased by the  Company.  The  Company's
Edison store and its office and distribution center, also located in Edison, are
leased from the Company's former Chairman.  See "Item 13. Certain  Relationships
and Related  Transactions."  The Company  purchased  land and a building for its
newest  store in Queens,  New York,  which the  Company  opened in August  1994.
During 1997,  the company  completed a sale and  leaseback  transaction  for the
Queens  location.  The store  leases,  including  all  options to renew,  expire
between 2010 and 2042.

     The  following  chart sets forth  certain  information  regarding the store
leases.  The Company also has an option to purchase  property in  Brooklyn,  New
York for an eighth store.

<TABLE>
<CAPTION>


                                        Date           Approximate            Approximate
Location                                Opened         Sq. Footage(1)         Selling Space(2)
<S>                                   <C>                <C>                     <C>

Edison, NJ                            June, 1979          45,059                 33,940
Secaucus, NJ                          December, 1986     120,360                 44,928
East Hanover,                         April, 1989         65,600                 38,407
Lakewood, NJ                          May, 1990           50,500                 31,200
Westchester County, NY                October, 1992       63,935                 48,935
Union, NJ                             November, 1993      54,920                 44,320
Queens, NY                            August, 1994        77,000                 43,826


</TABLE>



(1)  Includes mezzanine area.

(2) Selling space is total square  footage less the Company's  estimate of store
space not used for selling merchandise.


ITEM 3. Legal Proceedings

         The Company is not a party to any material legal proceedings.


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

         The Company did not submit any matters to a vote of security holders in
the fourth quarter of 1997.



                                     PART II

ITEM 5.  Market for Registrant's Common Stock and Related Stockholder Matters

         The  Company's  Common Stock is traded  under the symbol  "TOPS" on the
NASDAQ National Market System.

         The following table sets forth, for the fiscal quarters indicated,  the
high and low sale prices for the Company's  Common Stock on the NASDAQ  National
Market  System.  NASDAQ  National  Market System  quotations are based on actual
transactions and not bid prices.


                                                 Prices
                                    High                         Low

Year Ended December 30, 1997
        First Quarter               1 5/8                        13/16
        Second Quarter              1 9/32                       3/4
        Third Quarter               1 19/32                      15/16
        Fourth Quarter              1 7/16                       1


Year Ended December 31, 1996
        First Quarter              3 1/4                         2 1/4
        Second Quarter             2 7/8                         1 3/4
        Third Quarter              2 1/8                         7/8
        Fourth Quarter             2                             1

         On March 27,  1998,  the  closing  sale  price of the  Common  Stock as
reported on the NASDAQ  National  Market System was $2.00 per share. On December
30, 1997, there were approximately 582 holders of record of the Company's Common
Stock.

         The Company has never paid any cash  dividends  on its Common Stock and
does not  anticipate  paying  cash  dividends  in the  foreseeable  future.  Any
decision made by the Company to declare dividends in the future will depend upon
the Company's future earnings,  capital  requirements,  financial  condition and
other factors deemed relevant by its Board of Directors.

ITEM 6.  Selected Financial Data



         Selected  financial  data is set  forth  below as of and for the  years
ended December 28, 1993, December 27, 1994, December 26, 1995, December 31, 1996
and December 30, 1997. The selected financial data should be read in conjunction
with the  financial  statements,  related notes and other  information  included
herein and  "Management's  Discussion  and Analysis of Results of Operations and
Financial Condition."



<PAGE>


<TABLE>
<CAPTION>
<S>                                               <C>            <C>              <C>             <C>              <C>

                                                  Year Ended     Year Ended       Year Ended      Year Ended          Year Ended
Statement of Operating Data:                      12/28/93       12/27/94         12/26/95        12/31/96            12/30/97


Net sales and service revenues..                 $  411,947     $  462,494         $  422,197       $ 317,437         $  293,924
Cost of sales...............................        312,392        350,881            324,079         250,117            229,073
                                                    -------        -------            --------       ---------          --------

Gross profit....................                     99,555        111,613            98,118           67,320             64,851
Selling, general and adminis-
  trative expenses..............                     90,328        107,317            96,859           82,461             65,712
                                                   --------        -------            --------        --------           -------
Income (loss) from operations..                       9,227          4,296             1,259          (15,141)              (861)
Interest Expense................                      1,451          3,934             4,478            6,240              6,264
                                                   ---------       ---------           ---------       --------          --------
Income (loss) before
  income taxes and extraordinary
  item                                               7,776             362            (3,219)        (21,381)            (7,125)
Provision (benefit) for
  income taxes..................                     3,111             145            (1,288)         (2,000)              -----
                                                   ---------       ---------          ----------      ---------          -------
Income (loss) before
  extraordinary item ...........                 $   4,665        $    217        $   (1,931)       ($19,381)          $ (7,125)
Extraordinary item-gain
on debt extinguishment........                         --               --               --             --                  8,482
                                                   ---------       ---------           ---------      ---------           --------

Net income (loss) ..............                 $   4,665        $    217        $   (1,931)       ($19,381)          $  1,357
                                                   =======         ========       ============       ==========         =========

Income (loss) per common share
  before extraordinary item.....                 $    0.65        $   0.03        $    (0.27)        $ (2.66)          $ (0.98)
Gain per common share on
  extraordinary item............                                                                                          1.16
                                                  --------       ---------       ------------       ----------          ---------
Net income (loss) per
  common share..................                  $  0.65         $   0.03          $  (0.27)        $ (2.66)            $0.18
                                                  ========       =========       ============        ========            =========

Weighted Average Common
  Shares Outstanding............                7,200,042        7,252,990         7,277,229       7,277.229          7,294,901
                                                ==========       =========         ===========     =========          ==========



</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                               Year          Year      Year           Year             Year
                                               Ended         Ended     Ended          Ended            Ended
                                               Dec. 28,      Dec. 27,  Dec. 26,       Dec. 31,         Dec. 30,
                                               1993          1994      1995           1996             1997
                                                               (dollars in thousands)
<S>                                          <C>            <C>          <C>          <C>              <C>
Operating Data (at period end) (unaudited):
Number of stores open .....................     7              8          8             8                7
Inventory turns ...........................     5.5x           5.7x       5.4x          4.3x             4.2x
Square feet of retail selling space .......     288,206        332,032    332,032       332,032          285,556
Average retail sales per store open
 entire year ..............................   $  64,615     $   56,456   $ 47,010     $ 34,777        $  33,931
Percentage increase (decrease) in
 comparable store sales ...................      (3.6)%         (14.1%)     (20.1%)    (26.4%)          (3.6%)
Retail sales per weighted average
 square foot of selling space .............  $   1,637      $   1,377    $  1,133     $ 842           $     832


Balance Sheet Data:
Inventory .................................  $  61,934      $  61,289    $ 59,847     $56,184         $  53,895
Working Capital ...........................     35,909         25,132      32,112      14,785            16,894
Total Assets ..............................    127,422        121,076     113,552     101,020            94,850
Long-term debt, net of current
  portion .................................     41,611         40,689      49,201      48,944            47,733
Other long-term liabilities ...............      5,410          5,110       4,512       3,933             2,559
Shareholders' Equity ......................     21,517         21,952      20,099         750             2,118

</TABLE>


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

Results of Operations

Year ended December 30, 1997 Compared to the Year Ended December 31, 1996.

         Net sales and service  revenues for 1997 decreased 7.4% to $293,924,000
from  $317,437,000 for 1996. Net sales and service revenues for 1997 included 52
weeks versus 53 weeks in 1996.  1997 also  included only 10 months of sales from
the Westbury,  Long Island store which the Company closed in October 1997.  This
decrease is also  attributable  to the highly  competitive  and continuing  weak
retail environment in the appliance and consumer electronics industry.  The lack
of new products in the market, high consumer debt levels, retail price deflation
in selected categories and an unseasonably cooler summer which affected room air
conditioner sales also contributed to the decrease. Total comparable store sales
decreased  3.6% for the  period  compared  to a  decrease  of 26.4% for the same
period  last  year.  Sales  from  the  commercial  division  decreased  8.2%  or
$2,844,000.

         Gross  revenues  from the sale of  product  protection  plans  for 1997
increased 0.5% to  $13,768,000  from  $13,705,000  for 1996.  Incremental  costs
related to these sales totaled $5,912,000 and $5,830,000  respectively,  for the
comparable periods. These product protection plans are non-cancelable.

         Gross margin as a percentage of net sales and service revenues for 1997
increased  to 22.1% from 21.2% last year.  This  increase was due in part to the
company's focus on higher margin merchandise and product protection plans. Gross
margins in the  commercial  sales  division  increased to 9.7% from 9.1% for the
comparable  period.  Gross margins in the  commercial  sales division tend to be
lower than gross margins on retail sales.

         Selling,  general and administrative  expenses for 1997 decreased 20.3%
to  $65,712,000  from  $82,461,000  for 1996.  This net  decrease  was  achieved
primarily by reducing payroll and related expenses, net advertising, reduced net
variable selling expenses and other cost cutting measures.  Selling, general and
administrative  expenses  as a  percentage  of net  sales and  service  revenues
decreased to 22.4% from 26.0% for the comparable periods.  This decrease was due
to the reduced level of expenses.

         Included in selling,  general and administrative expenses is $1,500,000
of costs related to the closing of the Company's Westbury,  Long Island store in
October  1997.  The marginal  operating  performance  of this store was severely
exacerbated  by the costs to advertise for this single  location.  The Company's
income from operations  before store closing costs improved to $639,000 for 1997
compared to a loss from operations of $15,141,000 for 1996.

         Interest expense  increased  slightly to $6,264,000 from $6,240,000 for
the comparable periods. This was caused by higher average borrowings and related
interest  expense on the revolving  credit  facility offset by lower interest on
the 6-1/2%  Convertible  Subordinated  Debentures during the year. 1996 included
the  write-off of $630,000 of  capitalized  loan fees  relating to the Company's
previous revolving credit facility.

         The Company did not record an income tax provision for 1997 compared to
an income tax benefit at an effective rate of 9.4% or $2,000,000 for 1996.

     The Company's net loss before  extraordinary  items for 1997 was $7,125,000
($0.98 per share)  compared to a net loss of  $19,381,000  ($2.66 per share) for
1996.

         During  1997  the  Company   recorded   extraordinary   items  totaling
$8,482,000  relating  to the  exchange  and  repurchase  of a portion  of 6-1/2%
Convertible  Subordinated  Debentures  with a  conversion  price of  $22.25  for
$7,687,500 in New 6-1/2% Convertible  Subordinated  Debentures with a conversion
price of $1.75.  The Company also  repurchased  during the year  $1,320,000 face
value of the Original Debentures for a purchase price of $525,550.

         The  Company's  net income  after the  extraordinary  gain on the early
extinguishment  of debt was $1,357,000  ($0.18 per share) compared to a net loss
of $19,381,000 ($2.66) per share for 1996.

         In November 1997, the Company  entered into a sale and leaseback of its
Queens, New York store. The Company received $14.5 million in gross proceeds and
paid off an outstanding mortgage on the property of $9.0 million.

Year Ended December 31, 1996 Compared to the Year Ended December 26, 1995

         The Auditor's Report on the accompanying  financial  statements  states
that such financial statements have been prepared assuming that the Company will
continue as a going  concern.  The Company  incurred a significant  loss in 1996
which has significantly  decreased its working capital and stockholders' equity.
The auditors have stated in their report that this condition raises  substantial
doubt about the Company's ability to continue as a going concern.  The financial
statements do not include any adjustments to reflect the possible future effects
on the  recoverability  and  classification  of the  assets or the  amounts  and
classification  of  liabilities  that  may  result  from  the  outcome  of  this
uncertainty.  Management  believes  that  cost  reductions  already  implemented
combined with the leveling off of comparable  store sales  declines and a normal
air conditioning selling season will reduce losses in the future, and along with
the continuation of its current credit facility, will enable the Company to have
sufficient cash flow to continue its operations.

         Net sales and service revenues for 1996 decreased $104,760,000 or 24.8%
to $317,437,000 from  $422,197,000.  This decrease is attributable to the highly
competitive  and continuing slow retail  environment in the Northeast.  Room air
conditioner sales declines, due to unseasonably cooler weather during the summer
season,  also  contributed to the decrease.  Room air conditioner  sales in 1996
were  approximately  54.2% less than in 1995.  Total comparable store sales were
26.4% lower than last year. Substantial price deflation in Video and Home Office
products  also  contributed  to the decline.  Sales in the  commercial  division
decreased $10,599,000 or 23.5%.

         Gross  revenues  from the sale of  product  protection  plans  for 1996
decreased 35.9% to $13,705,000 from  $21,368,000.  Incremental  costs related to
these sales totaled $5,830,000 and $8,996,000  respectively,  for the comparable
periods. These product protection plans are non-cancelable.


         Gross profit for 1996 decreased  $30,798,000 or 31.4%.  The decrease is
attributable to the decrease in merchandise  sales and higher  margined  product
protection  plans  resulting  in a decrease  in margins to 21.0% from 23.1% last
year.  This decrease was due in part to lower sales of higher  margined room air
conditioners  due to the  unseasonably  cooler weather and gross margin pressure
caused by the generally weak retailing environment in a highly promotional metro
New York/New Jersey marketplace.  Gross margins in the commercial sales division
increased to 9.1% from 8.6% for the  comparable  periods.  Gross  margins in the
commercial sales division tend to be lower than gross margins on retail sales.

         Selling,   general  and  administrative  expenses  for  1996  decreased
$14,398,000 or 14.9% to $82,461,000 from $96,859,000 for 1995. This net decrease
was  achieved   primarily  by  reducing  payroll  and  related   expenses,   net
advertising,  other  cost-cutting  measures,  reduced costs  associated with the
Company's  private  label credit card  program and reduced net variable  selling
expenses,  partially  offset by higher net  delivery  costs and data  processing
expenses.  Selling,  general and administrative  expenses as a percentage of net
sales and  service  revenues  increased  to 26.0% from 22.9% for the  comparable
periods. This increase was due to the decreased sales levels.

         Interest  expense  increased  to  $6,240,000  from  $4,478,000  for the
comparable periods as a result of interest in 1996 on the Queens mortgage, which
was entered into in July 1995,  higher  average  borrowings and the write-off of
$630,000 of capitalized loan fees associated with the Company's revolving credit
facility which was replaced in October 1996 with a new revolving credit facility
with more favorable terms to the Company.

     The  Company  recorded  a tax  benefit  at an  effective  rate  of  9.4% or
$2,000,000  in 1996  compared  to a tax benefit at an  effective  rate of 40% or
$1,288,000 in 1995. [See Note 10 of Financial Statements.]

     The Company's net loss for 1996 was $19,381,000  ($2.66 per share) compared
to a net loss of $1,931,000 ($.27 per share) for 1995.


Seasonality

         Sales levels are generally highest in the fourth quarter as a result of
increased demand for consumer electronics during the Christmas season and higher
during either the second or third quarter, depending on weather conditions, as a
result of  demand  for room air  conditioners  during  the  summer  months.  The
unseasonably cooler weather during the summer of 1996 severely impacted room air
conditioner sales. Room air conditioner sales were  approximately  54.2% less in
1996 compared to 1995.  Additionally,  the first quarter of 1996 was impacted by
inclement weather.

         The Company  experiences a build up of inventory  and accounts  payable
during  the  first  and  second  quarters  due  to  the  purchase  of  room  air
conditioners  in  anticipation  of the May through August selling season and the
third and fourth quarters in anticipation of the holiday season.

Liquidity and Capital Resources

         In the  past,  the  Company  has  relied  primarily  upon net cash from
operations, a revolving credit facility with institutional lenders, trade credit
from  vendors and  inventory  floor plan  financing to fund its  operations  and
growth.

         During 1993, the Company issued  $40,000,000  Convertible  Subordinated
Debentures  due 2003 at an annual  interest rate of 6 1/2%.  Interest is payable
semi-annually.  The net  proceeds  were used to fund new store  openings,  repay
certain  indebtedness and for general corporate purposes.  On September 1, 1997,
the Company exchanged  $15,375,000 of the $40,000,000  original par value 6-1/2%
Convertible  Bonds due 2003 (the "Original  Debentures"  into $7,687,500  6-1/2%
Convertible  Subordinated  Debentures due 2003 (the "New  Debentures").  The New
Debentures  are  convertible  in shares of common  stock of the Company (but not
prior to February 1999) at a conversion  price of $1.75. The New Debentures rank
pari passu with the Original Debentures in respect to principal and interest.



         During the fourth quarter of 1997, the Company entered into a series of
transactions for the repurchase of Original Debentures outstanding.  The Company
purchased  $1,320,000 face value of the Original Debentures for a purchase price
of $525,550.

         In July 1995,  the Company  obtained a $9,200,000 ten year loan secured
by a mortgage on the Queens property. This mortgage had a fixed interest rate of
8.75%.  On  November  5, 1997,  the Company  entered  into a sale and  leaseback
agreement  relating  to this  property.  Part of the  proceeds  of the sale were
utilized to  eliminate  the  outstanding  mortgage.  The Company  simultaneously
entered into a lease agreement for the property with an initial term expiring on
October 31, 2022. The lease also contains two 10 year renewal options. This sale
and  leaseback  transaction  improved  working  capital  by  approximately  $6.2
million.

         At December 30, 1997, the Company had working capital of $16.9 million,
an increase of $2.3 million from December 31,  1996.  This  increase in working
capital resulted  primarily from the sale and leaseback of the Queens,  New York
property,  which  generated  cash  proceeds  in excess of the  related  mortgage
obligation  that was  repaid.  The new  capital  lease  arrangement  requires no
principal payments during the first 8 years of the lease. The changes in working
capital  components  during  the  year  were  an  increase  of $1.7  million  in
short-term  borrowings,  and  decreases in inventory of $2.3  million,  accounts
payable of $3.1 million and accrued liabilities and taxes of $3.6 million.

         The Company  increases its inventory levels during the first and second
quarters of each year in  anticipation  of room air  conditioner  sales from May
through August and during the third and fourth  quarters in  anticipation of the
Christmas  season.  Short-term trade credit  represents a significant  source of
financing  for  inventory.  Trade  credit  arises  from the  willingness  of the
Company's vendors to grant extended payment terms for inventory purchases and is
financed  either by the vendor or by  third-party  floor planning  sources.  The
Company  currently  utilizes  three  floor-  planning  companies  which  in  the
aggregate  at any  one  time  provide  financing  for  approximately  20% of the
Company's inventory purchases. Payment terms vary from 15 to 150 days, depending
upon the inventory  product.  The Company  typically  grants the floor  planning
companies  a security  interest in those  products  financed  together  with the
proceeds from the sales of such products.  Due to the significant  loss incurred
by the Company  during  1996,  certain  vendors  have  reduced the credit  terms
previously  extended  to the  Company.  In most  cases,  the Company was able to
negotiate additional cash discounts relating to the reduced credit terms. Due to
the Company's  improved  operating  performance  during 1997, many trade vendors
have begun extending more favorable credit terms to the company.

         The  Company  has a  $35  million  secured  revolving  credit  facility
expiring  October 28, 1999, which bears interest at the bank's base rate plus 1%
or, for a portion of the loan, LIBOR plus 3%. All of the Company's  unencumbered
cash, equipment, inventory and accounts receivable are pledged as collateral for
the new facility.

         The Company  continues to evaluate  expansion plans in existing markets
within the Greater New York Metropolitan Area. During 1995, the Company obtained
an option to purchase property which will be the site of the eighth store. It is
expected to open in 1998. The Company has also  announced  plans to open a ninth
store in 1998. The  availability of financial  resources may limit the Company's
expansion plans, and no assurances can be given that the Company will expand.

         The  Company  believes  that  its  borrowings  under  available  credit
facilities,  short term trade  credit  from  vendors  and  inventory  floor plan
arrangements  combined  with  the  impact  on  operating  results  of  the  cost
reductions  already  implemented,  the  leveling off of  comparable  store sales
declines and a normal room air conditioning selling season will be sufficient to
fund  the  Company's  operations  and  its  anticipated  capital   expenditures,
excluding new stores,  of $1 million.  No assurances can be given that such cost
reductions will produce the desired result.

         This Annual Report on Form 10-K may contain forward-looking information
about the Company.  The following  factors,  and others, may cause the Company's
actual results to differ from those set forth in any forward-looking  statements
made by the Company.  Accordingly,  there can be no  assurances  that any future
results will be achieved.

ITEM 8.  Financial Statements and Supplementary Data

         The  financial  statements  and  supplementary   financial  information
required in this item are  incorporated  by reference from the Company's  Annual
Report.

                            Tops Appliance City, Inc.


                        Consolidated Financial Statements
                  As of December 30, 1997 And December 31, 1996
                                  Together With
                    Reports of Independent Public Accountants

                            TOPS APPLIANCE CITY, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS






REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS                F-1


REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS                F-2


FINANCIAL STATEMENTS:

Consolidated Balance Sheets                             F-3

Consolidated Statements of Operations                   F-4

Consolidated Statements of Shareholders' Equity         F-5

Consolidated Statements of Cash Flows                   F-6


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS              F-8








<PAGE>



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Shareholders and Board of Directors of

Tops Appliance City, Inc.:

         We have audited the  accompanying  consolidated  balance  sheet of Tops
Appliance  City,  Inc.  (the  Company) as of  December  30, 1997 and the related
consolidated  statements of operations,  shareholders' equity and cash flows for
the year then ended.  These consolidated  financial  statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audit.

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

         In our opinion,  the  financial  statements  referred to above  present
fairly, in all material  respects,  the consolidated  financial position of Tops
Appliance City, Inc. as of December 30, 1997 and the consolidated results of its
operations  and its cash  flows  for the year  then  ended  in  conformity  with
generally accepted accounting principles.


                                                    Arthur Andersen LLP


Roseland, New Jersey
February 18, 1998


<PAGE>


                        REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


Shareholders and Board of Directors of

Tops Appliance City, Inc.

         We have audited the  accompanying  consolidated  balance  sheet of Tops
Appliance  City,  Inc.  (the  Company) as of  December  31, 1996 and the related
consolidated  statements of operations,  shareholders' equity and cash flows for
each of the two years in the period then ended.  Our audits  also  included  the
financial   statement  schedule  listed  in  the  Index  at  Item  14(a).  These
consolidated  financial  statements and schedule are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audit.

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

         In our opinion,  the  financial  statements  referred to above  present
fairly, in all material  respects,  the consolidated  financial position of Tops
Appliance  City, Inc. at December 31, 1996 and the  consolidated  results of its
operations and its cash flows in conformity with generally  accepted  accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered  in  relation  to the  basic  financial  statements  taken as  whole,
presents fairly in all material respects the information set forth therein.

         The accompanying  financial statements have been prepared assuming that
Tops  Appliance  City,  Inc.  will  continue as a going  concern.  As more fully
described in Note 1, the Company has incurred a significant  loss in 1996, which
has significantly  decreased its working capital and shareholders' equity. These
conditions raise  substantial doubt about the Company's ability to continue as a
going  concern.  The  financial  statements  do not include any  adjustments  to
reflect the possible future effects on the  recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.


                                Ernst & Young LLP


MetroPark, New Jersey
April 15, 1997

<PAGE>

<TABLE>
<CAPTION>


                            TOPS APPLIANCE CITY, INC.
     CONSOLIDATED BALANCE SHEETS -- DECEMBER 30, 1997 AND DECEMBER 31, 1996
                                    RESTATED
                             (dollars in thousands)

            ASSETS                             1997                       1996
<S>                                         <C>                       <C>

CURRENT ASSETS:
Cash and cash equivalents                   $  2,368                  $  2,147
Accounts receivable, net of allowance for
  doubtful accounts of $303 and $268 in
  1997 and 1996, respectively                  1,101                      1,355
Merchandise inventory                         53,895                     56,184
Prepaid expenses and other current assets      2,080                      2,492
                                              ------                     ------

        Total current assets                  59,444                     62,178

PROPERTY, EQUIPMENT AND LEASEHOLD
  IMPROVEMENTS, NET                           29,936                     31,858

DEFERRED TAXES                                 2,940                      2,758

OTHER ASSETS                                   2,530                      4,226
                                              -------                     ------

       Total assets                         $ 94,850                  $  101,020
                                              ======                     =======

         LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Short-term borrowings                       $  23,558                  $  21,904
Current portion of long-term debt                 110                        247
Accounts payable                                6,551                      9,626
Accrued liabilities and taxes payable           5,115                      8,748
Customer deposits                               4,276                      4,110
Deferred taxes                                  2,940                      2,758
                                               -------                    ------

     Total current liabilities                 42,550                     47,393

LONG-TERM DEBT, NET OF CURRENT PORTION         47,623                     48,944

DEFERRED RENT                                   1,801                      3,179

OTHER LIABILITIES                                 758                        754

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
Preferred stock, no par value, 20,000,000
  shares authorized; none issued or
  outstanding                                    ---                         ---
Common stock, no par value, 30,000,000
  shares authorized; 7,294,901 and 7,277,229
  shares issued and outstanding in 1997 and 1996,
  respectively
                                                 ---                         ---
Paid-in capital                              24,806                       24,795
Accumulated deficit                         (22,688)                     (24,045)
                                             -------                      ------

     Total shareholders' equity               2,118                          750
                                             -------                      ------

       Total liabilities and
       shareholders' equity                 $94,850                     $101,020
                                             ======                      =======

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

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                            TOPS APPLIANCE CITY, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                 FOR THE YEARS ENDED DECEMBER 30, 1997, DECEMBER
                   31, 1996 AND DECEMBER 26, 1995 (dollars in
                        thousands, except per share data)

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

NET SALES AND SERVICE REVENUES          $293,924           $317,437        $422,197

COST OF SALES                            229,073            250,117         324,079
                                         --------           -------         -------
  Gross profit                            64,851             67,320          98,118

SELLING, GENERAL AND
  ADMINISTRATIVE EXPENSES                 65,712             82,461          96,859
                                          ------            -------          ------

        Income (loss) from operations       (861)           (15,141)          1,259

INTEREST EXPENSE                           6,264              6,240           4,478
                                          ------            -------          ------

        Loss before benefit for income
        taxes and extraordinary item      (7,125)          (21,381)         (3,219)

BENEFIT FOR INCOME TAXES                    ---             (2,000)         (1,288)
                                           -----            -------          ------

Loss before extraordinary item            (7,125)          (19,381)         (1,931)

EXTRAORDINARY ITEM - Gain on debt
  extinguishment                           8,482              ---             ---
                                           -----            -------          -----

        Net income (loss)               $  1,357          ($19,381)       ($1,931)
                                           =====            =======         ======

LOSS PER COMMON SHARE BEFORE
  EXTRAORDINARY ITEM                     ($0.98)            ($2.66)        ($0.27)

INCOME PER COMMON SHARE APPLICABLE TO
  EXTRAORDINARY ITEM                       1.16               ---            ----
                                          -----              -----           ----

BASIC AND DILUTED NET INCOME (LOSS)
  PER COMMON SHARE                        $0.18            ($2.66)         ($0.27)
                                          ======           =======         =======

WEIGHTED AVERAGE SHARES OUTSTANDING   7,294,901         7,277,229       7,252,990
                                      ==========         ==========      =========
</TABLE>

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


<PAGE>
                            TOPS APPLIANCE CITY, INC.


                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                     FOR THE YEARS ENDED DECEMBER 30, 1997,
                     DECEMBER 31, 1996 AND DECEMBER 26, 1995

                             (dollars in thousands)



<TABLE>
<CAPTION>

                                                        Shares of              Paid-In            Accumulated
                                                      Common Stock             Capital              Deficit                  Total

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

BALANCE, December 27, 1994                              7,232,690              $24,685            ($2,733)                  $21,952

  Net loss                                                 -                      -                (1,931)                   (1,931)
  Shares issued -
    Employee Stock Purchase Plan                           20,300                   78                -                          78
                                                        ---------               ------            ------                    ------

BALANCE, December 26, 1995                              7,252,990               24,763             (4,664)                   20,099

  Net loss                                                 -                      -               (19,381)                  (19,381)
Shares issued - Employee Stock
  Purchase Plan                                           24,239                    32                -                          32
                                                       ---------                ------             ------                    ------

BALANCE, December 31, 1996                             7,277,229               $24,795            (24,045)                      750

Net income                                                 -                      -                 1,357                     1,357
Shares issued - Employee Stock
   Purchase Plan                                         13,622                     11                -                          11
Shares issued - Employee Awards                           4,050                   -                   -                           -

                                                      ---------                -------            -------                     -----
BALANCE, December 30, 1997                            7,294,901                $24,806           ($22,688)                   $2,118
                                                      ==========               ========          =========                   ======

</TABLE>

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



<PAGE>

                            TOPS APPLIANCE CITY, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                     FOR THE YEARS ENDED DECEMBER 30, 1997,
                     DECEMBER 31, 1996 AND DECEMBER 26, 1995

                             (dollars in thousands)

<TABLE>
<CAPTION>


                                                         1997               1996                1995
                                                         ----               ----                ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                      <C>                <C>                 <C>

Net income (loss)                                       $1,357            ($19,381)          ($1,931)
Adjustments to reconcile net income (loss)
  to net cash used in operating activities-
    Depreciation and amortization                        4,897               5,897               6,081
    Deferred rent                                       (1,378)                387                 494
    Extraordinary gain on debt extinguishment           (8,482)                 -                 -
    Write-off of fixed assets relating to
      store closing                                      1,628                  -                 -
    Gain on sale of assets relating to sale
      and leaseback                                        (72)
    Amortization of deferred income                         -                 (73)                (216)
    Changes in assets and liabilities-
        Accounts receivable                                254                 97                  201
        Inventory                                        2,289              3,663                1,442
        Prepaid expenses and other
          current assets                                   412               (228)                (314)
        Deferred taxes                                      -                (236)              (1,006)
        Accounts payable                                (1,215)            (3,204)              (5,995)
        Accrued liabilities and taxes payable           (2,851)            (1,631)                (376)
        Customer deposits                                  166                180               (1,716)
        Other assets                                       769             (1,595)              (2,008)
        Other liabilities                                    4               (111)                 (94)
                                                        -------           --------              -------
        Net cash used in operating activities           (2,222)           (16,235)              (5,438)

CASH FLOWS FROM INVESTING ACTIVITIES:

       Capital expenditures, net                          (635)            (1,148)              (2,111)
       Net proceeds from sale of assets
        relating to sale and leaseback                  13,772                -                     -
                                                        ------            --------              -------
       Net cash provided by (used in)
        investing activities                            13,137             (1,148)              (2,111)
                                                        ------            --------              -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from Employee Stock
  Purchase Plan                                             11                 32                   78
Cash overdrafts                                         (1,860)              (358)              (3,773)
Short-term borrowings                                    1,654             13,004                 (700)
Proceeds from long-term borrowings                          -                 -                  9,200
Long-term debt repayments                               (9,717)              (655)                (894)
Related party payments                                    (782)              (782)                (782)
                                                        -------           --------              -------
       Net cash (used in) provided by
        financing activities                           (10,694)            11,241                3,129
                                                       --------           --------              -------
       Increase (decrease) in cash and
        cash equivalents                                   221             (6,142)              (4,420)

CASH AND CASH EQUIVALENTS, beginning of year             2,147              8,289               12,709

CASH AND CASH EQUIVALENTS, end of year                  $2,368             $2,147               $8,289
                                                        ======             ======               ======
SUPPLEMENTAL DISCLOSURES OF
  CASH FLOW INFORMATION:
Interest paid                                           $6,087             $5,939               $4,265
Income taxes paid                                            8                 30                  196
                                                        ======            =======               ======
NON CASH TRANSACTIONS:
Capital lease obligation incurred                      $16,820            -------               ------


</TABLE>

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



<PAGE>

                            TOPS APPLIANCE CITY, INC.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




(1)     ORGANIZATION AND BASIS OF PRESENTATION:

         Tops Appliance  City,  Inc. (the "Company") is a publicly held retailer
of major  household  appliances,  audio/video  electronic  goods and home office
products with seven megastores,  five of which are located in New Jersey and two
in New York. The Company may be subject to sales  fluctuations  due to increased
competition,  consumer  spending levels and weather  conditions,  as a result of
demand  for air  conditioners  during  the  summer  months  and the  ability  of
customers to travel to stores during the winter months.

         The  Report  of  Independent  Public  Accountants  on the  consolidated
financial   statements  for  the  year  ended  December  31,  1996  included  an
explanatory  paragraph  regarding the  Company's  ability to continue as a going
concern.  This  opinion  was  based,  among  other  things,  upon the  Company's
significant operating loss during that period, which caused a decline in working
capital and stockholders' equity.

         During 1997 and  continuing  into 1998,  management  of the Company has
instituted several changes that have improved the Company's  financial condition
and its results of operations. These changes include a reduction in the level of
long-term debt and operating expenses,  the sale of certain real estate property
to provide additional  operating funds, closure of an unprofitable store as well
as re-established  and improved trade credit. In addition,  in 1998, the Company
obtained an increase in the amounts  available under its secured credit facility
(Note 4).

         Management  of the Company  believes that these  initiatives,  together
with the results of operations for 1998,  will provide  sufficient  resources to
fund the Company's operations for the coming year.

(2)     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Cash Equivalents-

         The Company  considers all  highly-liquid  securities  with an original
maturity less than three months to be cash equivalents.

Concentrations of Credit-

         Financial  instruments,   which  potentially  subject  the  Company  to
concentrations   of  credit  risk,   consist   principally   of  temporary  cash
investments.  The Company places its temporary  cash  investments in high credit
quality financial instruments in accordance with debt agreements.  At times such
investments may be in excess of the FDIC insurance limit.

Use of Estimates-

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

Fair Value of Financial Instruments-

         The carrying value of the Company's  financial  instruments,  excluding
the subordinated debentures (see Note 4), approximates fair value.

Consolidation-

         The  consolidated  financial  statements  include  the  accounts of the
Company and its wholly-owned  subsidiary.  All significant intercompany accounts
and transactions have been eliminated.

Merchandise Inventory-

         Merchandise inventory is stated at the lower of cost or market. Cost is
determined under the first-in, first-out (FIFO) method.

Property, Equipment and Leasehold Improvements-

   
         Property, equipment and leasehold improvements are stated at cost, less
accumulated depreciation. Depreciation is computed on a straight-line basis over
the  estimated  useful lives of the  respective  assets which range from 3 to 25
years.
    

Deferred Financing Costs-

         Included in other assets is $1,157,000  and  $1,463,000 at December 30,
1997 and December 31, 1996, respectively, of costs associated with obtaining the
debt discussed in Note 4. The deferred  costs  associated  with the  convertible
subordinated  debentures and the revolving  credit  facility are being amortized
over periods ranging from three to ten years.

Preopening Costs-

         Prior to January 1, 1997,  it was the  Company's  policy to  capitalize
costs  (primarily  personnel and training costs)  associated with the opening of
new stores and  amortize  them on a  straight-line  basis over the twelve  month
period following the store opening.  Effective January 1, 1997, preopening store
costs are being  expensed in the year  incurred.  During the periods  presented,
there were no preopening costs incurred or expensed.

Accounts Payable-

     Included in accounts payable is a cash overdraft  balance of $2,180,000 and
$4,040,000 at December 30, 1997 and December 31, 1996, respectively.

Revenue Recognition-

   Merchandise Sales-

         Revenue is recognized  upon receipt of the merchandise by the customer.
The Company provides appropriate  allowances for sales returns and uncollectible
accounts based upon reviews of sales and credit history.

  Product Protection Plans-

         The Company purchases product  protection plans on a non-recourse basis
from a third  party  who  performs  the  obligations  of the  Company  under its
protection plans through factory authorized service centers.  The third party is
required to maintain insurance, with the Company named as insured,  guaranteeing
performance  of the third  party's  obligation  to the Company.  The  difference
between the sales price of the Company's  protection plan and the purchase price
of the third party protection plan is recognized as revenue at the time of sale,
since the Company has substantially  completed what it must do to be entitled to
the benefits  represented  by the revenue and it is remote that any future costs
will be incurred with respect to such contracts.  The revenues and related costs
associated with the sale of product protection plans are as follows-

                          December 30,        December 31,        December 26,
                            1997                 1996                 1995
Revenues                  $13,768,000         $13,705,000            $21,368,000
Cost of sales               5,912,000           5,830,000              8,996,000

Selling, General and Administrative Expenses-

         Included  in  selling,   general  and   administrative   expenses   are
advertising  costs  which are charged to  operations  as  incurred.  Advertising
expense,  net of  reimbursements  from  vendors,  was $864,000,  $5,981,000  and
$7,294,000 for 1997, 1996 and 1995, respectively.

Net Income (Loss) Per Share-

         Effective  for the year ended  December 30, 1997,  the Company  adopted
Statement  of  Financial  Accounting  Standards  (SFAS) No. 128,  "Earnings  per
Share." The adoption of SFAS No. 128 requires the presentation of Basic Earnings
per Share and Diluted  Earnings per Share.  Basic Earnings per Share is based on
the average number of common shares  outstanding per year.  Diluted Earnings per
Share is based on the average  number of common  shares  outstanding  during the
year plus the common share  equivalents,  if any,  related to outstanding  stock
options and deferred  contingent  common stock awards.  The adoption of SFAS No.
128 had no effect on  previously  reported  earnings  per share and there was no
difference  between  basic  and  diluted  earnings  per  share  for all  periods
presented.

Stock Based Compensation-

         The  Company  grants  stock  options  for a fixed  number  of shares to
employees  with an  exercise  price equal to the fair value of the shares at the
date of  grant.  As  permitted  by  FASB  Statement  No.  123,  "Accounting  and
Disclosure of Stock Based Compensation",  the Company has elected to account for
stock option grants in accordance with APB Opinion No. 25, "Accounting for Stock
Issued to Employees" and,  accordingly,  recognizes no compensation  expense for
the stock option grants.  The Company has adopted the pro forma  disclosure-only
option under Statement No. 123.

Long-Lived Assets-

         In March 1995, the FASB issued  Statement No. 121,  "Accounting for the
Impairment of Long-Lived  Assets and for  Long-Lived  Assets to be Disposed of",
which  requires  impairment  losses to be recorded on long-lived  assets used in
operations when indicators of impairment are present and the  undiscounted  cash
flows  estimated  to be  generated  by those  assets  are less than the  assets'
carrying amount.  Statement No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company  adopted  Statement  No.
121 in the  first  quarter  of 1996.  The  Company  assesses  impairment  at the
individual store level and believes that no impairment of long-lived  assets has
occurred as of December 30, 1997 and December 31, 1996.

New Accounting Standards-

         In June 1997, the Financial Accounting Standards Board issued Statement
of Financial  Accounting  Standards No. 130,  "Reporting  Comprehensive  Income"
("SFAS  130")  and  Statement  of  Financial   Accounting   Standards  No.  131,
"Disclosures  about  Segments of an Enterprise and Related  Information"  ("SFAS
131"). SFAS 130 establishes standards for reporting and display of comprehensive
income and its components (revenues,  expenses,  gains and losses) in a full set
of  general-purpose  financial  statements  and requires that all items that are
required  to  be  recognized  under   accounting   standards  as  components  of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial  statements.  The Company will adopt SFAS
No.  130  during  the  first  quarter  of  fiscal  1998.  The  adoption  of this
pronouncement is expected to have no impact on the Company's  financial position
or results of operations. SFAS 131 establishes standards for the way that public
business  enterprises  report  information  about  operating  segments in annual
financial  statements  and  requires  that  those  enterprises  report  selected
information  about  operating  segments in interim  financial  reports issued to
stockholders.  It also  establishes  standards  for  related  disclosures  about
products  and  services,  geographic  areas,  and major  customers.  SFAS 131 is
required to be adopted for the Company's 1998 year-end financial statements. The
Company is  currently  evaluating  the impact,  if any, of the  adoption of this
pronouncement on the Company's existing disclosures.

Fiscal Year-

     The Company's fiscal year ends on the last Tuesday of December. Fiscal 1996
contains 53 weeks, and fiscal 1997 and fiscal 1995 contain 52 weeks.

Reclassification-

         Certain  December  31, 1996 and December  26, 1995  balances  have been
reclassified to conform to the December 30, 1997 presentation.

(3)     PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS:


     Property,  equipment and leasehold  improvements  and related  depreciation
periods consist of the following-

                                         December 30, 1997     December 31, 1996

   
Land and buildings (25 years)                $16,820,000(a)        $13,970,000
Computer equipment and purchased
  software (5 years)                          11,978,000            11,364,000
Transportation equipment (5 years)               746,000               869,000
Furniture, fixtures and store
  equipment (5 years)                          9,599,000             9,579,000
Warehouse equipment (5 years)                  2,324,000             2,324,000
Leasehold improvements (3 to 25 years)        18,823,000            21,047,000
                                              ----------            -----------
                                              60,290,000            59,153,000
    

Less- Accumulated depreciation                30,354,000            27,295,000
                                              ----------            ----------

                                             $29,936,000           $31,858,000
                                             ===========            ==========

     Depreciation  expense was  $4,529,000,  $4,906,000 and $5,015,000 for 1997,
1996 and 1995, respectively.

   
     (a) As more fully  described  in note 4, during 1997,  the Company  entered
into a sales  leaseback of its Queens store.  In its original  10-K filing,  the
lease was  reflected  as an  operating  lease and the asset was removed from the
Company's  balance  sheet.  This  presentation  has been  restated  to treat the
transaction as a capital lease based upon the lease terms.
    

(4)     DEBT:

   
     Short term and long term debt have been restated to reflect a change in the
accounting treatment of the lease on Tops' Queens store from an operating lease
to a capital lease. This  reclassification did not affect Tops Appliance City's
operating results for the year ended December 30, 1997.
    

Short-Term Debt-

         The Company  currently  utilizes a $35 million  secured credit facility
expiring  October 28, 1999.  The revolver bears interest at the bank's base rate
plus 1% or, for a portion of the loan,  LIBOR plus 3%.  Borrowings  are based on
65% of eligible inventory, as defined, and amounts available under the agreement
may be reduced to reflect availability reserves,  based on certain conditions as
determined  by the  lender.  In  addition,  a  material  adverse  change  in the
Company's  consolidated  financial  condition  may be deemed an event of default
under  the  agreement.  All  of  the  Company's  unencumbered  cash,  equipment,
inventory  and  accounts  receivable  are  pledged  as  collateral  for  the new
facility.  As of December  30,  1997 and  December  31,  1996,  $23,558,000  and
$21,904,000, respectively was outstanding under this credit facility.
Additional borrowings available at December 30, 1997 were $5,153,000.

Long-Term Debt-

     Long-term debt consists of the following-

                                    December 30, 1997         December 31, 1996


Convertible Subordinated
   Original Debentures (A)             $23,305,000              $40,000,000
Convertible Subordinated New
   Debentures (B)                        7,687,500                   -
Equipment Financing Loans (C)               -                      146,000
Mortgage Payable (D)                        -                    9,045,000
Capital Lease Obligation (D)            16,740,000                   -
                                        ----------            ---------------
                                        47,732,500              49,191,000
Less current portion                       110,000                 247,000
                                       ------------             ------------


Total long-term debt,
  net of current portion               $47,622,500            $48,944,000
                                       ===========            ===========     

         (A) The $23,305,000 of 6-1/2% Convertible  Subordinated  Debentures due
2003 (the "Original Debentures").  Interest is paid semi-annually on February 28
and August 31. The Original  Debentures are convertible into common stock of the
Company at a  conversion  price of $22.25 per share,  subject to  adjustment  in
certain  circumstances.  The Original Debentures are redeemable,  in whole or in
part,  for cash at any time on or after  November  30, 1996 at the option of the
Company,  at a redemption  price  beginning at 103.25% and thereafter  declining
ratably to par plus accrued interest to the date of redemption. No quoted market
price is available for the Original  Debentures,  however, the Company estimates
the  fair  value  is  approximately  40% of face  value,  based  on the  limited
transactions for these instruments, including those described below.

         On  September  1,  1997,  the  Company  exchanged  $15,375,000  of  the
$40,000,000 6-1/2% Convertible  Subordinated  Debentures due 2003 for $7,687,500
of 6-1/2% Convertible  Subordinated  Debentures due 2003 (the "New Debentures").
The New  Debentures  rank pari passu with the Original  Debentures in respect to
principal  and interest but have a  substantially  lower  conversion  price (see
(B)). This transaction  generated an extraordinary gain of $7,687,500 during the
fiscal year ended December 30, 1997, based upon the difference  between the face
value  of the  Original  Debentures  exchanged  and the  face  value  of the New
Debentures issued.


         During the fourth quarter of 1997, the Company entered into a series of
transactions for the repurchase of Original Debentures outstanding.  The Company
purchased  $1,320,000 face value of the Original Debentures for a purchase price
of $525,550.  These  transactions  generated an  extraordinary  gain of $794,450
during the fiscal year ending December 30, 1997.

         (B) The $7,687,500 of 6-1/2%  Convertible  Subordinated  Debentures due
2003.  Interest  is paid  semi-annually  on  February  28 and August 31. The New
Debentures are convertible into common stock (but not prior to February 1999) at
a conversion  price of $1.75 per share.  No quoted market price is available for
the New Debentures,  however based upon the recent issuance of these securities,
the Company  believes  their  carrying  cost  approximates  fair market value at
December 30, 1997.

         (C) The Equipment  financing  loans were paid in full during 1997.  The
loans were payable in 48 monthly  installments of principal and interest through
October 28, 1997. The interest  rates varied  between 8.5% and 8.75%.  The loans
were  secured  by  certain  fixed  assets.  The  carrying  value  of  the  loans
approximated fair value due to their short-term maturities.

         (D) On November 5, 1997, the Company  entered into a sale and leaseback
agreement  relating to the Queens,  New York store which was previously owned by
the  Company.  Part of the proceeds of the sale were  utilized to eliminate  the
outstanding mortgage on the property.  The Company simultaneously entered into a
lease  agreement  for the property  with an initial term expiring on October 31,
2022.  The lease also  contains  two 10 year  renewal  periods at the  Company's
option.  This lease has been  accounted for as a capital lease with the building
and initial capital lease  obligation  reflected at the fair market value of the
property on the date of lease inception.  The minimum future  obligations  under
the lease have been discounted based upon the implicit lease rate of 12.3%

         The  8.75%  fixed  rate  mortgage  loan  on  the  Queens  property  was
eliminated  when the Company  completed  the sale and leaseback  transaction  in
November 1997. Interest and principal were payable in equal monthly installments
of $76,000 to July 2005 at which time the remaining principal was due.

         Principal  payments required under long-term debt obligations for years
subsequent to December 30, 1997 are as follows-

       1998                                                          $   110,000
       1999                                                              124,300
       2000                                                              140,400
       2001                                                              158,800
       2002                                                              179,400
       Thereafter                                                    $47,019,600




(5)     COMMITMENTS AND CONTINGENCIES:

         The Company's retail stores,  distribution  center and office space are
leased under operating leases.  The leases have initial remaining terms of three
to twenty-five years with renewal options from five to thirty years. Most of the
leases are net, requiring additional payments for real estate taxes, maintenance
and insurance.

         During 1995, the Company obtained an option to purchase  property which
will be the site of another store which is expected to open during 1998.

         One of the  Company's  stores  and  the  distribution  center/corporate
office are leased from a  proprietorship  affiliated with the former Chairman of
the Board.  These rentals are included in the related party amounts in the table
below.

         Rental expense charged to operations  under the leases described above,
all of which are classified as operating leases, are summarized below-


<TABLE>
<CAPTION>

                                                                     Year Ended
                                                 December 30,      December 31,        December 26,
                                                     1997              1996                1995
                                                 --------------     -------------     --------------
<S>                                              <C>                <C>               <C>   

Rentals under-
  Related party leases                           $1,979,000         $1,848,000        $1,836,000
  Other leases                                    5,298,000          5,660,000         5,323,000
                                                  ---------          ---------         ----------

                                                 $7,277,000         $7,508,000        $7,159,000
                                                 ==========         ==========        ==========

</TABLE>

         Minimum annual rental payments under  operating  leases in fiscal years
subsequent to December 30, 1997 are as follows-

       1998                                                         $5,759,000
       1999                                                          5,241,000
       2000                                                          5,139,000
       2001                                                          5,043,000
       2002                                                          2,207,000
       Thereafter                                                    7,109,000


         The Company presently has employment contracts with five officers which
commit the Company to various salary and fringe benefit obligations through 2000
(as specified in the individual  agreements).  The aggregate  salary  obligation
under these  agreements is $936,000,  $700,000 and $125,000 for the years ending
1998 through 2000, respectively.

         In  connection  with the floor plan  financing  for  certain  inventory
purchases,  such  floor  planners  have a  security  interest  in the  inventory
purchased through such floor planning arrangements.

         At December 30, 1997 and  December  31,  1996,  the Company had standby
letters of credit of $785,000.

(6)     401(K) SALARY SAVINGS PLAN:

         The Company maintains a defined  contribution  40l(k) plan which allows
eligible  employees to defer a portion of their income through  contributions to
the plan.  Under the terms of the plan, the Company  contributes an amount equal
to 2-1/2% of the total annual  compensation  paid to plan  participants  and may
contribute additional amounts on a discretionary basis.  Effective January 1997,
the Plan was modified whereby the Company  contributes 25% of the  participant's
contribution  up  to  10%  of  that  participant's  annual  compensation.   Plan
forfeitures are utilized to fund the Company's contribution requirements.

     The Company's contributions to the plan were as follows-

         1997                                                         $290,000
         1996                                                          632,000
         1995                                                          856,000

(7)     LITIGATION:

         The Company is involved in litigation, both as plaintiff and defendant,
incidental  to the conduct of its  business.  It is the  opinion of  management,
after  consultation  with its counsel,  that the outcome of such litigation will
not have a material adverse effect on the Company's  financial  condition or the
results of its operations.

(8)     STOCK OPTION PLANS:

         The Company offers two incentive  stock option plans (the "Plans").  In
addition,  non-qualified  stock options have been issued that are not covered by
the Plans. A total of 1,200,000 shares of common stock are reserved for issuance
under the  incentive  stock option plans and 570,000  shares of common stock are
reserved for issuance relating to nonqualified stock options. The exercise price
of  stock  options  granted  may not be less  than  100%  (110%  in the  case of
incentive stock options granted to owners of more than 10% of the total combined
voting power of all classes of stock of the Company) of the fair market value at
the time of grant.   Options are generally exercisable over a three year period.

     Stock option transactions for the periods indicated were as follows-

<TABLE>
<CAPTION>
                                                    1997                    1996                    1995
                                                    ----                    ----                    ----
                                             Number      Wt Avg      Number      Wt Avg       Number    Wt Avg
                                             Shares      Price       Shares      Price        Shares     Price
<S>                                        <C>           <C>       <C>           <C>        <C>            <C>

Options outstanding at beginning
of year ($1.44 to $6.88)                   1,110,300     $2.97       796,700     $5.49       600,000      $6.40
Granted ($1.00 to $5.00)                     297,000     $1.15     1,041,300     $2.35       385,000      $4.44
Canceled ($2.38 to $6.25)                   (250,600)    $3.14      (727,700)    $4.84      (188,300)     $6.25
                                           ---------     ------    ---------     -----       --------     -----

Options outstanding at end of year         1,156,700     $2.46     1,110,300     $2.97        796,700     $5.49
 ($1.00 to $6.88)                          =========               =========                 =======           

Exercise price range of 12/97 options

                   1.000    1.440               333,000
                   2.375    2.625               713,700
                   6.250    6.880               110,000
                                               --------

                                              1,156,700
</TABLE>


<TABLE>
<CAPTION>

DETAIL OF 1997 OUTSTANDING OPTIONS BALANCE:
                                                          SHARES      VESTED    REMAINING
                 SHARES         EXERCISE     ISSUE        VESTED      VALUE     LIFE (YRS)
PLAN              O/S            PRICE        DATE        @ 12/97    @ 12/97     @12/97
----            --------       ---------     -----       --------    -------     --------
<S>              <C>             <C>        <C>          <C>         <C>           <C>


ISO ........      13,000         6.250      04-18-94      13,000      81,250        9.5
ISO ........     326,000         2.375      06-03-96     108,667     258,083       10.0
ISO ........     103,000         1.310      08-29-97           0           0        0.0
ISO ........      53,396         6.880      04-18-94      53,396     367,364        9.5
NQO ........      43,604         6.880      04-18-94      43,604     299,996        9.5
NQO ........      47,700         2.625      06-03-96      15,900      41,738       10.0
NQO ........     250,000         2.375      06-03-96      83,333     197,917       10.0
NQO ........     100,000         1.063      11-19-97     100,000     106,300       10.0
NQO ........      90,000         2.375      06-03-96      30,000      71,250       10.0
NQO ........      30,000         1.063      10-15-97      30,000      31,890       10.0
NQO ........      40,000         1.440      09-01-96      40,000      57,600       10.0
NQO ........      50,000         1.063      10-15-97           0           0        0
NQO ........      10,000         1.000      03-12-97           0           0        0

          1,156,700        2.463                      517,900         1,513,388
       ============        =====                      =======         =========

Weighted average exercise price at 12/97                               2.922
                                                                       =====

Weighted average remaining life (years) at 12/97                                  9.9
                                                                                  ===
</TABLE>


         The  Company  applies  "Accounting  Principles  Board  Opinion  No. 25,
Accounting  for Stock  Issued to  Employees,"  and  related  interpretations  in
accounting for its plans. Had  compensation  cost for the Company's stock option
plans been  determined  based upon the fair value at the grant date,  consistent
with  the  methodology   prescribed  under  Statement  of  Financial  Accounting
Standards No. 123,  Accounting for Stock-Based  Compensation,  the Company's net
income and earnings per share would have been as follows-

                                  1997             1996                1995
                               -----------      -----------         ----------
Net income (loss)-
 As reported                   $1,357,000      ($19,381,000)       ($1,931,000)
 Pro forma                        720,000       (19,864,000)        (2,093,000)

Pro forma net income
  (loss) per share-
  As reported                       $0.18            ($2.66)           ($0.27)
  Pro forma                          0.10             (2.72)            (0.28)

     These pro forma  amounts may not be  representative  of future  disclosures
because the estimated  fair value of stock options is amortized over the vesting
period, and additional options may be granted in future years.

     Using the  Black-Scholes  option valuation model, the estimated fair values
of options  granted  during  1997,  1996 and 1995 were  $0.85,  $1.68 and $3.14,
respectively.  The  Black-Scholes  model was developed for use in estimating the
fair value of traded  options which have no vesting  restrictions.  In addition,
such models require the use of subjective assumptions,  including expected stock
price  volatility.  In  management's  opinion,  such  valuation  models  do  not
necessarily  provide a reliable single measure of the fair value of its employee
stock options.






     Principal  assumptions  used in applying  the  Black-Scholes  model were as
follows-

                                      1997               1996            1995
                                     -------            -------         -------
Risk-free interest rate               6.0%               6.6%            6.0%
Expected life, in years               5                  5               5
Expected volatility                   91%                67%             67%
Expected dividend yield               0.0%               0.0%            0.0%


(9)     STOCK PURCHASE PLAN:

     The Company has established an Employee Stock Purchase Plan (the "Plan"). A
total of 200,000  shares of common stock are  reserved  for  issuance  under the
Plan. The Plan enables participating  employees to purchase the Company's common
stock through payroll  deductions at a value equal to 85% of the market value of
the common stock on the first or last day of the offering  period,  whichever is
lower.  During 1997 and 1996,  common stock  totaling  13,622 and 24,239 shares,
respectively, were issued under the Plan.

(10)    INCOME TAXES:

     Deferred  income  taxes at December  30, 1997 and December 31, 1996 reflect
the net tax effects of temporary  differences  between the  carrying  amounts of
assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes. Significant components of the Company's deferred tax assets
and liabilities are as follows-

                                                   1997            1996
                                                 ----------      ---------
Current deferred tax assets-
  Compensation not currently deductible          $   -           $313,000
  Inventory                                       301,000         376,000
  Accrued liabilities                             129,000         152,000
  Other                                           223,000         324,000
  Valuation allowance                            (481,000)       (885,000)
                                                 ---------        ---------

     Total current deferred tax assets            172,000         280,000

Current deferred tax liabilities-
  Vendor allowances                             2,545,000       2,899,000
  Other                                           567,000         139,000

     Total current deferred tax liabilities     3,112,000       3,038,000
                                                ---------        ---------

    Net current deferred tax liabilities       $2,940,000      $2,758,000
                                                ==========      ==========

Long-term deferred tax assets-
  Federal and state loss carryforwards         $6,941,000      $7,150,000
  Alternative minimum tax and job credit
  carryforward                                    593,000         604,000
  Compensation not currently deductible             -              37,000
  Rent                                            805,000       1,266,000
  Depreciation                                  2,502,000       1,992,000
  Warranty                                        348,000         343,000
  Valuation allowance                          (8,244,000)     (8,629,000)
                                              -----------      -----------

      Total long-term deferred tax assets       2,945,000       2,763,000

Long-term deferred tax liabilities - Other          5,000           5,000
                                             -------------     -----------

Net long-term deferred tax assets              $2,940,000      $2,758,000
                                               ==========       ==========



     At  December  30,  1997,  the  Company  has a Federal  net  operating  loss
carryforward of approximately $16,570,000 of which the majority expires in 2010.

     Components of the benefit for income taxes (before  extraordinary item) are
as follows-
<TABLE>
<CAPTION>

                                        1997                1996                 1995
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Current-
  Federal                              $ -              ($1,778,000)            ($298,000)
  State                                  -                   14,000                16,000
                                      ----------        -----------             ----------
                                                         (1,764,000)             (282,000)
Deferred-
  Federal                               -                  (236,000)             (752,000)
  State                                 -                     -                  (254,000)
                                      ----------         -----------            ----------

                                        -                  (236,000)           (1,006,000)
                                      ----------         -----------            ----------
Benefit for income taxes             $  -               ($2,000,000)          ($1,288,000)
                                      ==========         ===========            ==========
</TABLE>

     A reconciliation of the effective tax rate to the Federal statutory rate is
as follows-

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

Federal statutory rate              (34.0%)        (34.0%)        (34.0%)
State income taxes, net of
  Federal income tax benefit           -              -            (4.9)
Increase in valuation allowance
  attributable to Federal net
  operating loss carryforward not
  recognized                         34.0           26.0            -
Other                                  -            (1.4)         (1.1)
                                     -----         ------         -----
Effective tax rate                      0%          (9.4%)       (40.0%)


     In  addition,   the  tax  provision   attributable  to  the  gain  on  debt
extinguishment  has  been  offset  by a  reduction  in the  valuation  allowance
attributable to net operating losses incurred in prior periods.


<PAGE>

<TABLE>
<CAPTION>


                                   SCHEDULE II
                            TOPS APPLIANCE CITY, INC.

                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

     YEARS ENDED DECEMBER 30, 1997, DECEMBER 31, 1996 AND DECEMBER 26, 1995

                                                       Additions
                                    Balance at         Charged to                               Balance
                                    Beginning          Costs and                                at End
           Description              of Period          and Expenses       Deductions            of Period
           -----------              ------------       ------------       ----------            ---------
<S>                                 <C>                 <C>                <C>                    <C>

Year ended December 26, 1995 --
Allowance for doubtful accounts     $263,000            $240,000           $130,000               $373,000
                                    ---------           --------            --------               --------

Year ended December 31, 1996 --
Allowance for doubtful accounts     $373,000            $360,000           $465,000               $268,000
                                    --------            --------            --------               --------

Year ended December 30, 1997 --
Allowance for doubtful accounts     $268,000            $180,000           $145,000               $303,000
                                    --------             --------           --------               --------

</TABLE>



     ITEM 9. Changes in and  Disagreements  with  Accountants  on Accounting and
Financial Disclosure

     Registrant has engaged Arthur  Andersen LLP as its  independent  certifying
accountant  effective  August  28,  1997  replacing  Ernst &  Young,  its  prior
independent  certifying  accountant,   as  of  the  same  date.  The  change  in
independent  certifying  accountant  was  approved by the Board of  Directors of
Registrant.

        The reports of Ernst & Young respecting Registrant for fiscal years 1995
and 1996  contained  no adverse  opinion or  disclaimer  of opinion  and was not
qualified  or  modified  as  to  uncertainty,  audit  scope  or  application  of
accounting principles, except that Ernst & Young qualified its 1996 report as to
registrant's  ability to continue as a going  concern.  During fiscal years 1995
and 1996 and the  subsequent  period  thereto  prior to the dismissal of Ernst &
Young,  there were no disagreements  between Registrant and Ernst & Young on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure.

     During fiscal years 1995 and 1996 and the  subsequent  period thereto prior
to engaging Arthur  Andersen LLP, the Registrant had no discussions  with Arthur
Andersen LLP regarding  either the application of an accounting  principle,  the
type or opinion that would be rendered in Registrant's  financial  statements or
any matter that was the subject of disagreement with Ernst & Young.



                                  PART III


ITEM 10.  Directors and Executive Officers of the Registrant

                The   information   required   in   response  to  this  item  is
incorporated  by reference from the  Registrant's  proxy  statement for its 1998
annual  meeting of  shareholders  to be filed with the  Securities  and Exchange
Commission on or before April 29, 1998.





ITEM 11.  Executive Compensation

                The   information   required   in   response  to  this  item  is
incorporated  by reference from the  Registrant's  proxy  statement for its 1998
annual  meeting of  shareholders  to be filed with the  Securities  and Exchange
Commission on or before April 29, 1998.

ITEM 12.  Security Ownership of Certain Beneficial Ownership and Management

                The   information   required   in   response  to  this  item  is
incorporated  by reference from the  Registrant's  proxy  statement for its 1998
annual  meeting of  shareholders  to be filed with the  Securities  and Exchange
Commission on or before April 29, 1998.


ITEM 13.  Certain Relationships and  Related Transactions

     The  information  required  in  response  to this item is  incorporated  by
reference from the  Registrant's  proxy statement for its 1998 annual meeting of
shareholders  to be filed with the  Securities  and  Exchange  Commission  on or
before April 29, 1998.

                               PART IV

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

        (a)(1)  Financial Statements

        Reports of Independent Public Accountants.........................12

        Consolidated Balance Sheets as of December 30, 1997 and
        December 31, 1996..................................................4

        Consolidated Statements of Operations for years
        ended December 30, 1997, December 31, 1996, and
        December 26, 1995..................................................5

        Consolidated Statements of Shareholders' Equity................... 6

        Consolidated Statements of Cash Flows for years
        ended December 30, 1997, December 31, 1996 and
        December 26, 1995..................................................7

        Notes to Consolidated Financial Statements........................ 8

        (a)(2)  Financial Statement Schedule

        The following are included in Part II, Item 8:

        Schedule II- Valuation and Qualifying
        Accounts and Reserves............................................S-2


        (a)(3)  Exhibits

     Except where noted,  all exhibits are  incorporated  by reference  from the
Registrant's registration statement on Form S-1 as filed with the Securities and
Exchange  Commission on June 3, 1992, and amendments  thereto,  Registration No.
33-48326.





       Exhibit Number             Description of Document


 3.1      The Registrant's Certificate of Incorporation
 3.2      The Registrant's By-Laws
 4        Specimen of stock certificate for shares of common stock
 4.2      Indenture  dated  as  of  November  30,  1993  between  Tops
          Appliance  City, Inc. and Donaldson,  Lufkin & Jenrette  Securities
          Corporation (incorporated by reference from Form S-3 filed February
          10, 1994)
 4.3      Registration  Rights Agreement dated as of November 30, 1993
          between Tops Appliance City, Inc. and Donaldson,  Lufkin & Jenrette
          Securities Corporation (incorporated by reference from Form S-3 filed
          February 10, 1993)
10.1      Security Agreement dated April 27, 1992 between Maytag Financial
          Service Corp. and Tops Appliance City, L.P.
10.2      Security  Agreement  dated  January 19, 1989 between  General
          Electric Capital orporation and Tops Appliance City, L.P.
10.3      Security Agreement dated January 15, 1990 between Tops Appliance City,
          L.P. and WCI Acceptance Corporation
10.4      Floor Plan Inventory Security Agreement dated March 19, 1990 between
          Tops Appliance City, L.P. and Carrier Distribution Credit Corporation
10.5      Lease dated March 3, 1984 between Leslie S. Turchin  and Tops
          Appliance City, L.P., as amended (1745 Route 27, Edison, New Jersey)
10.6      Lease dated October 11, 1985 between Leslie S. Turchin and Tops
          Appliance City, L.P. (45 Brunswick Avenue, Edison, New Jersey)
10.7      Lease Dated May 21, 1986 between Mack Edison Co. and Tops Appliance
          City, L.P., as amended
10.8      Lease dated May 21, 1986 between Mack Industries and Tops Appliance
          City, Inc., as amended
10.9      Lease dated  April 27, 1988  between  Castle  Ridge  Shopping Plaza 
          Associates and Tops Appliance City, L.P.
10.10     Lease  dated June 2, 1989  between  Sudler  Town and Country Limited 
          Partnership and Tops Appliance City, L.P.
10.11     Management Agreement dated November 30, 1988 between Tops Appliance
          City, L.P. and Leslie S. Turchin, as amended
10.12     Management Agreement dated January 1, 1989 between Tops Appliance
          City, L.P. and Philip M. Schmidt, as amended
10.13     Form of Equipment Loan Agreement between Tops Appliance City, L.P. and
          Bell Atlantic Mobile Systems, Inc.
10.14     Form of Hardware/Software License Agreement between Tops Appliance
          City, L.P. and Bell Atlantic Mobile Systems, Inc.
10.15     Delivery Agreement dated January 30, 1992 between Tops Appliance City,
          L.P. and Merchants Home Delivery Service, Inc.
10.16     Form of Amended and Restated  Section  401(k) Plan dated July 29, 1988
10.17     Summary Plan and  Description  Amended and Restated 401(k) Plan dated 
          January 1, 1988
10.18     Form of Executive and Deferred Compensation Plan
10.19     Form of Premium Conversion Plan
10.20     Form of Stock Option Plan
10.21     Extended  Service  Agreement  dated October 19, 1987 between 
          Warrantech Corporation and Tops Appliance City, Inc.
10.22     Extended  Service  Agreement  dated April 29,  1988  between
          Warrentech Corporation and Tops Appliance City, Inc.
10.23     Account  Financing  Agreement dated December 30, 1986 between
          General Electric Capital Corporation and Tops Appliance City, L.P.
10.24     Lease  dated  July 7, 1992  between  New York  Medical
          College and Tops Appliance City, L.P.
10.25     Third  Amendment  to  Management   Agreement   between  Tops
          Appliance City, Inc. and Leslie S. Turchin dated December 16, 1992
          (incorporated by reference from 8-K filed January 11, 1993).
10.26     Lease dated February 11, 1993 between Tops Appliance City, Inc. and 
          Jerry Spiegel and Jesco Co. (incorporated by reference from 8-K filed
          April 6, 1993.)
10.27     Lease dated May 1993 between Tops  Appliance  City,  Inc. and
          Lester  Robbins,  Trustee  (incorporated  by  reference  from 8-K
          filed June 11, 1993).
10.28     Management  Agreement  dated  July  31,  1995  between  Tops
          Appliance  City,  Inc. and Rick Jones  (incorporated  by  reference
          from Annual Report on Form 10-K for year ending December 26, 1995.
10.29     Management   Agreement  dated  May  31,  1995  between  Tops
          Appliance  City,  Inc. and Robert Gross  (incorporated  by reference 
          from Annual Report on Form 10-K for year ending December 26, 1995.)
10.30     Addendum  to  Management  Agreement  dated  October 15, 1997
          between Tops Appliance City, Inc. and Thomas L. Zambelli - Page 26.
10.31     Addendum to  Management  Agreement  dated  November 20, 1997
          between Tops Appliance City, Inc. and Robert Gross - Page 28.
10.32     Addendum  to  Management  Agreement  dated  October 15, 1997
          between Tops Appliance City, Inc. and Richard Jones - Page 31.
10.33     Stock Purchase Agreement dated November 5, 1997 by and between SSP,
          L.L.C., Tops Appliance City of New York, Inc. and Tops Appliance City,
          Inc.  - Page 33.
10.34     Debenture Exchange Agreement dated August 20, 1997, effective
          September 1, 1997 between Tops  Appliance  City,  Inc. and BEA 
          Associates - Page 35.
10.35     First Amendment to Lease dated November 5, 1997 between Tops Appliance
          Realty, Inc. and Tops Appliance City, Inc.
10.36     Second Amendment to Lease dated November 5, 1997 between Tops Realty
          Inc. and Tops Appliance City, Inc.
          
22        List of Subsidiaries of the Registrant- Page 108.
24.1      Consent of Arthur Andersen L.L.P. - Page 109.
24.2      Consent of Ernst & Young LLP - Page 110.

          (b) Reports on Form 8-K

     Form 8-K  filed  February  6,  1997 with  respect  to  Leslie S.  Turchin's
resignation as the  Registrant's  Chairman of the Board of Directors.  Robert G.
Gross  was  immediately  elected  as  Chairman  of the Board of  Directors.  The
Registrant  also  announced  that  Richard  L. Jones was named  Chief  Operating
Officer  in  addition  to his  duties  as  Senior  Vice  President  and  General
Merchandise Manager.

     Form 8-K filed  August 27, 1997 with respect to the  Registrant's  entering
into a Debenture  Exchange  Agreement with BEA Associates for $15,375,000 of the
Registrant's 6 1/2% Convertible  Debentures due 2003 (the "Original Debentures")
for $7,687,500 of the  Registrant's 6 1/2%  Convertible  Debenture due 2003 (the
"New  Debentures").  The New  Debentures  are  convertible  into  shares  of the
Registrant at a conversion price of $1.75 per share.

     Form 8-K filed  September  4, 1997 with  respect to the  completion  of the
Debenture Exchange Agreement with BEA Associates effective September 1, 1997.

     Form 8-K filed September 4, 1997 with respect to the Registrant's  engaging
Arthur  Andersen LLP as it's new  independent  certifying  accountant  effective
August 28, 1997 replacing Ernst & Young.

     Form 8-K filed December 29, 1997 with respect to the  Registrant's  sale of
the stock of a wholly  owned  subsidiary  which  owned  certain  real  estate in
Queens, New York.



                                   SIGNATURES

     Pursuant to the  requirements  of Section 13 or 15(d) of the Securities Act
of 1934,  the  Registrant has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.


                                                       TOPS APPLIANCE CITY, INC.


                                                BY:        /s/ Richard L. Jones
                                                       -------------------------
                                                            RICHARD L. JONES
                                                        Chief Executive Officer


                                                 BY:      /s/ Thomas L. Zambelli
                                                       -------------------------
                                                           THOMAS L. ZAMBELLI
                                                        Chief Accounting Officer
Dated:  January 15, 1999



<PAGE>


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


<TABLE>
<CAPTION>

Signature                                    Title                              Date

<S>                                          <C>                                <C> 

/s/Richard L. Jones                          Co-Chairman of the Board,           
-------------------------                    Chief Executive Officer            January 15, 1999
Richard L. Jones         

/s/Thomas L. Zambelli                        Executive Vice                     January 15, 1999 
----------------------                       President, Chief
Thomas L. Zambelli                           Accounting Officer

/s/Robert G. Gross                           Director                           January 15, 1999 
----------------------
Robert G. Gross  

/s/Anthony L. Formica                        Director                           January 15, 1999   
----------------------
Anthony L. Formica

/s/John H. Hollands                          Director                           January 15, 1999 
----------------------
John H. Hollands

/s/Doulas P. Teitelbaum                      Co-Chairman of the                 January 15, 1999
----------------------                       Board, Director    
Douglas P. Teitelbaum

/s/ Steven A. Van Dyke                       Director                           January 15, 1999
-----------------------
Steven A. Van Dyke

/s/ Walter A. Jones                          Director                           January 15, 1999
---------------------------
Walter A. Jones

</TABLE>
<PAGE>

                                 EXHIBIT 10.35


                            FIRST AMENDMENT TO LEASE

     This is a First  Amendment ( FIRST  AMENDMENT ) dated  November 5, 1997, to
Lease (the  "Lease")  dated July 28, 1995 between Tops  Appliance  Realty,  Inc.
("Landlord") and Tops Appliance City, Inc. ("Tenant").


         1.  ARTICLE 3 of the Lease  shall be  deleted in its  entirety  and the
following paragraph shall be substituted in its place:

                                 ARTICLE 3. TERM

         3.1 The term of the Lease (the  "Initial  Term") shall  commence on the
date of this First Amendment  (hereinafter  called the "Commencement  Date") and
shall  end  at  noon  of  the  last  day of the  calendar  month  preceding  the
twenty-fifth  anniversary  of  the  Commencement  Date,  which  ending  date  is
hereinafter called the "Expiration Date", or shall end on such earlier date upon
which said term may expire or be cancelled or terminated  pursuant to any of the
terms or covenants of this Lease or pursuant to law.

         3.2 Provided Tenant shall not then be in default of this Lease,  Tenant
shall have the option,  exercisable  by giving  notice to the  Landlord not less
than six months  before the end of the Initial Term, to extend the tei~n of this
Lease for a further  period of ten years  following the end of the Initial Terrn
(herein  referred to as the "First  Option  Term") at the base rent set forth in
Schedule A below, attached hereto and made a part hereof, and otherwise upon the
same terms,  covenants and conditions set forth herein. Each rent increase shall
take effect on November 1 of each year during the Initial Term, the First Option
Term and the Second Option Term.

         3.3  Provided  Tenant  shall not then be in default of this Lease,  and
shall have  exercised  the option  provided in  Paragraph  3.2 of this  Article,
Tenant  shall  have the  further  option,  exercisable  by giving  notice to the
Landlord not less than six months  before the end of the First  Option Term,  to
extend the term of this Lease for a further  period of ten years  following  the
end of the First Option Terrn (herein  referred to as the "Second  Option Term")
at the base rent set forth in Schedule A below,  attached hereto and made a parr
hereof,  and otherwise  upon the same terms,  covenants and conditions set forth
herein.

         3.4 Unless the context otherwise requires, all references herein to the
term of this Lease shall mean the Initial Term, as extended as provided herein.

         2. Paragraph  4.1(a) shall be deleted in its entirety and the following
paragraph shall be substituted in its place:

         (a)      Fixed  annual  rental  shall be  payable  as  follows in equal
                  monthly  installments  in advance on the first day of each and
                  every month  during the term of this Lease,  in the amount set
                  forth for each year on Schedule A, attached  hereto and made a
                  part hereof.

         3. The last sentence of Paragraph 17.1 of the Lease shall be deleted in
its entirety and the following sentence shall be substituted in its place:

         Landlord  agrees to obtain for the benefit of Tenant a  non-disturbance
         agreement in form and substance reasonably  satisfactory to Tenant from
         each mortgagee of Landlord.

         4. The following Article 34 shall be added to the Lease:

                          ARTICLE 34. SECURITY DEPOSIT

                           Tenant shall  deposit  with The Witkoff  Group LLC in
                  escrow the sum of Five  Hundred  Thousand  ($50O,000)  Dollars
                  (the   "Security   Deposit")  as  security  for  the  faithful
                  performance of Tenant's obligations hereunder. If Tenant fails
                  to pay rent  payable  hereunder,  or otherwise  defaults  with
                  respect  to any  provision  of this  Lease  after  notice  and
                  expiration of any applicable  grace  periods,  Landlord may at
                  its option  use,  apply and  retain all or any  portion of the
                  Security  Deposit  (i)  to  remedy  Tenant's  defaults  in the
                  payment of rent pursuant to the terms  hereof,  (ii) to repair
                  any  damage  to the  Premises,  (iii) to clean  and  otherwise
                  maintain the Premises,  or (iv) to compensate Landlord for any
                  other loss or damage which Landlord may suffer thereby.

                           Notwithstanding   anything  to  the  contrary  above,
                  Landlord  agrees  that the  Security  Deposit  or any  portion
                  thereof which is being held by Landlord or its counsel,  shall
                  yield  interest for the beneft of Tenant  (provided  Tenant is
                  not  then in  default)  at the  rate  of  interest  earned  by
                  Landlord  with  respect  thereto,  less one  percent  (1%) per
                  annum.  Provided  Tenant  is not then in  default,  20% of the
                  Security  Deposit and all accrued  interest  thereon  shall be
                  returned to Tenant commencing on the second annual anniversary
                  date of this  Lease and  continuing  on each of the  following
                  four annual anniversary dates.

         5. The following Article 35 shall be added to the Lease:

                           Tenant shall pay  Landlord the sum of FIFTY  THOUSAND
                  DOLLARS  ($50,000.00)  per annum in quarterly  installments of
                  TWELVE  THOUSAND  FI`IE  HUNDRED  DOLLARS   ($12,500.00)  each
                  quarter, until the earlier of (a) August 1, 2005, or (ii) that
                  certain date when  Landlord's  note and  mortgage,  each dated
                  July  28,  1995,  with  Chase  Manhattan  Bank  (successor  to
                  Chemical  Bank),  is  satisfied  and/or  refinanced  (the "Fee
                  Termination  Date"). The first quarterly payment shall be made
                  on April 1,  1998,  which  payment  shall  cover the period of
                  January 1, 1998 through  March 31, 1998,  and  thereafter  the
                  quarterly  payments  shall be made on  April  1st,  July  1st,
                  October  1st  and  January  1st of  each  year  until  the Fee
                  Termination  Date.  Additionally,  on January 1, 1998,  Tenant
                  shall pay  Landlord a prorated  fee for the period  commencing
                  November 5, 1997 until  December  31,  1997,  in the amount of
                  SEVEN THOUSAND SIX HUNDRED EIGHT DOLLARS ($7,608.00).


         6.  Paragraph 4. l(b),  Lines 5 through 7 of the Lease shall be amended
so that the words "and any  Landlord  Mortgagee  (as  defined  in  Section  17.1
hereof)" shall be deleted.  Additionally,  the third sentence of Paragraph 10.1,
which  states,  "Tenant  further  agrees to  undertake  and  perform any and all
repairs if, when and as required  by, and to the  satisfaction  of, any Landlord
Mortgagee  (as  defined  in  Section  17.1  hereo0.  " shall be  deleted  in its
entirety.  The  foregoing  two Lease  modifications  in this  Paragraph 6 of the
Amendment shall only become effective upon the earlier of (i) August 1, 2005, or
(ii) the Fee Termination Date, as defined in Paragraph 5 above.

         7. Except as modified herein,  the Lease shall remain in full force and
effect.

         IN WITNESS  WHEREOF,  Landlord  and  Tenant  have  executed  this First
Amendment to Lease as of the date set forth below.

ATTEST:                                     TOPS APPLIANCE REALTY, INC.


______________________________      By:____________________________________
Lee Feld, Secretary                        Steven C. Witkoff, President



ATTEST:                                     TOPS APPLIANCE CITY, INC.


______________________________      By:____________________________________
Alexander Burlotos, Asst. Secretary    Thomas L. Zambelli, Sr. Vice President


Dated: November 5, 1997


<PAGE>


                          SCHEDULE A

Year              Annual Rent               Monthly Rent
------------------------------------------------------------
1                 2,170,000.00              180,833.33
2                 2,170,000.00              180,833.33
3                 2,170,000.00              180,833.33
4                 2,170,000.00              180,833.33
5                 2,170,000.00              180,833.33
6                 2,213,400.00              184,450.00
7                 2,257,668.00              188,139.00
8                 2,302,821.36              191,901.78
9                 2,348,877.79              195,739.82
10                2,395,855.34              199,654.61
11                2,443,772.45              203,647.70
12                2,492,647.90              207,720.66
13                2,542,500.86              211,875.07
14                2,593,350.87              216,112.57
15                2,645,217.89              220,434.82
16                2,698,122.25              224,843.52
17                2,752,084.69              229,340.39
18                2,807,126.39              233,927.20
19                2,863,268.92              238,605.74
20                2,920,534.29              243,377.86
21                2,978,944.98              248,245.42
22                3,038,523.88              253,210.32
23                3,099,294.36              258,274.53
24                3,161,280.24              263,440.02
25                3,224,505.85              268,708.82

First             Option   Term:
----------------------------------------------------------
26                3,288,995.97              274,083.00
27                3,354,775.89              279,564.66
28                3,421,871.40              285,155.95
29                3,490,308.83              290,859.07
30                3,560,115.01              296,676.25
31                3,631,317.31              302,609.78
32                3,703,943.65              308,661.97
33                3,778,022.53              314,835.21
34                3,853,582.98              321,131.91
35                3,930,654.64              327,554.55
<PAGE>

Year              Annual Rent               Monthly Rent
Second            Option   Term:
------------------------------------------------------------
36                4,009,267.73              334,105.64
37                4,089,453.08              340,787.76
38                4,171,242.15              347,603.51
39                4,254,666.99              354,555.58
40                4,339,760.33              361,646.69
41                4,426,555.54              368,879.63
42                4,515,086.65              376,257.22
43                4,605,388.38              383,782.36
44                4,697,496.15              391,458.01
45                4,791,446.07              399,287.17



                                       
<PAGE>

                                 Exhibit 10.36

                            SECOND AMENDMENT TO LEASE


         This  is a  Second  Amendment  (the  "Second  Amendment")  dated  as of
November 5, 1997 to that certain  Lease dated July 28, 1995,  as amended by that
certain  First  Amendment  dated  November 5, 1997  (collectively,  the "Lease")
between Tops Appliance Realty,  Inc.  ("Landlord") and Tops Appliance City, Inc.
("Tenant").

                              W I T N E S S E T H:

     WHEREAS,  Landlord and Tenant  entered into the Lease whereby Tenant leased
from Landlord certain property in Long Island City, Queens, New York;

     WHEREAS,  Landlord and Tenant desire to amend the Lease to reflect  certain
understandings;

         NOW,  THEREFORE,  in  consideration  of the foregoing and of the mutual
covenants set forth below, Landlord and Tenant hereby agrees as follows:

     1.  Paragraph  4.1(a) is hereby  deleted in its entirety and the  following
paragraph substituted in its place.

          (a) (i) The fixed  annual rent for each of the first five (5) years of
     the term of the Lease,  with the first lease year commencing on the date of
     the Second Amendment shall be $2,170,000  annually,  payable in twelve (12)
     equal monthly installments of $180,833.33. All such fixed annual rent shall
     be payable in advance on the first day of each and every  month  during the
     term of this Lease.

          (ii) During each lease year commencing with the sixth (6th) lease year
     through the expiration of the term of the Lease,  including any lease years
     contained  in any renewal or option  term,  the fixed  annual rent shall be
     increased but not decreased,  each year by the annual percentage  increase,
     if any, in the  Consumer  Price Index from that in effect  during the fifth
     lease year,  provided,  however,  in no event  shall the annual  percentage
     increase exceed two percent (2%).

          (iii) For  purposes of this Lease,  "Consumer  Price Index" shall mean
     the Consumer Price Index for All Urban Consumers published by the Bureau of
     Labor Statistics of the United States Department of Labor, New York, N.Y. -
     Northeastern  N.J. Area, All Items (1982-84 = 100), or any successor  index
     thereto, appropriately adjusted. In the event that the Consumer Price Index
     is converted to a different  standard  reference base or otherwise revised,
     the determination of adjustments provided for herein shall be made with the
     use of such conversion factor, formula or table for converting the Consumer
     Price Index as may be  published by the Bureau of Labor  Statistics  or, if
     said  Bureau  shall  not  publish  the  same,  then  with  the  use of such
     conversion  factor,  formula or table as may be published by Prentice-Hall,
     Inc., or any other nationally  recognized  publisher of similar statistical
     information.  If the Consumer Price Index ceases to be published, and there
     is no  successor  thereto,  such other index as Landlord  and Tenant  shall
     agree upon in writing shall be substituted for the Consumer Price Index. If
     Landlord and Tenant are unable to agree as to such substituted  index, such
     matter shall be submitted to the American  Arbitration  Association  or any
     successor organization for determination in accordance with the regulations
     and procedures thereof then obtaining for commercial arbitration.

         2. Except as modified by the Amendment,  the Lease shall remain in full
force and effect.

         3. This Second  Amendment may not be orally changed or terminated,  nor
any of its  provisions  waived,  except by an agreement in writing signed by the
party against whom enforcement of any changes, termination or waiver is sought.

         4.  This  Second  Amendment  shall be  binding  upon,  and inure to the
benefit  of  the  parties  hereto,   their  respective  legal   representations,
successors and assigns.

         5. This Second Amendment may be executed in counterparts.




<PAGE>

     IN WITNESS WHEREOF, Landlord and Tenant have executed this Second Amendment
to Lease as of the date set forth above.

                                                     TOPS APPLIANCE REALTY, INC.

Attest:                                         By:  ___________________________
                                                     Steven C. Witkoff
                                                     Managing Member

_________________________
Lee Feld, Secretary

                                                     TOPS APPLIANCE CITY, INC.

Attest:                                          By: ___________________________
                                                     Thomas L. Zambelli
                                                     Senior Vice President

_________________________
Alexandra Burlotos
Assistant Secretary