SECURITIES AND EXCHANGE COMMISSION
                                  WASHINGTON, D.C. 20549

                                         FORM 10-K
                                       ANNUAL REPORT

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

                       For the fiscal year ended 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                            (Zip Code)
 offices)

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 or any
amendment to this Form 10-K. ___


                                                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 nonessential  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:

<TABLE>
<CAPTION>


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

Major Appliances       Refrigerators,             Amana, Admiral, Frigidaire, General
                       Dishwashers,               Electric, Hotpoint, Jenn-Air,
                       Washers/Dryers             KitchenAid, Magic Chef, Maytag, 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,                    General Electric, Jenn-Air,
                       Cooktops,                  Magic Chef, Panasonic, Sharp,
                       Range Hoods,               Tappan, Thermador, Viking,
                       Microwaves                 Whirlpool



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

Audio                  Stereo Systems,            Aiwa, Bose, Infinity,
                       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:

                                               Percent of Total Sales
Product Category                               1995    1996    1997

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     13.8
                                               ----   -----    -----
   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%

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 systems
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.

                               Date         Approximate     Approximate
Location                      Opened       Sq. Footage(1)  Selling Space(2)

Edison, NJ.............    June, 1979         45,059             33,940
Secaucus, NJ...........    December, 1986    120,360             44,928
East Hanover, NJ.......    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





(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 [$1.00] 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."

<TABLE>
<CAPTION>



                                   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        12/31/97
                                   __________     __________       _________       __________      __________

<S>                              <C>              <C>                 <C>              <C>           <C>
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        17,004
Total Assets ..............................     127,422       121,076       113,552       101,020        78,110
Long-term debt, net of current
  portion .................................      41,611        40,689        49,201        48,944        30,993
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.



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.  The sales price was $14,500,000.  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 $17.0 million,  a
increase of $2.2  million  from  December  31,  1996.  This  increase in working
capital resulted  primarily from the sale and leaseback of the Queens,  New York
property.  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>

TOPS APPLIANCE CITY, INC.

CONSOLIDATED BALANCE SHEETS -- DECEMBER 30, 1997 AND DECEMBER 31, 1996

(dollars in thousands)

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

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                                13,196          31,858

DEFERRED TAXES                                      2,940           2,758

OTHER ASSETS                                        2,530           4,226
                                                  -------        --------
       Total assets                              $ 78,110       $ 101,020
                                                  -------        --------
                                                  -------        --------
          LIABILITIES AND SHAREHOLDERS' EQUITY
          ------------------------------------
CURRENT LIABILITIES:
Short-term borrowings                            $  23,558      $  21,904
Current portion of long-term debt                     ---             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                  42,440         47,393

LONG-TERM DEBT, NET OF CURRENT PORTION              30,993         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                         $78,110      $101,020
                                                   --------      --------
                                                   --------      --------

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


<PAGE>

                              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)


<TABLE>
<CAPTION>
                                                 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
                                             ---------          ---------         ---------
                                             ---------          ---------         ---------


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

</TABLE>
<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
                                   ---------           --------           --------                  --------
                                   ---------           --------           --------                  --------



                  The accompanying notes to consolidated financial statements
                             are an integral part of these statements.
</TABLE>
<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
                                                ---------        ---------         ----------
<S>                                             <C>              <C>               <C>

CASH FLOWS FROM OPERATING ACTIVITIES:

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


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

</TABLE>
<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 30
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 (30 years) (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
                                         ----------              ----------
                                         43,470,000              59,153,000

Less- Accumulated depreciation           30,274,000              27,295,000
                                         ----------              ----------
                                        $13,196,000             $31,858,000
                                         ----------              ----------
                                         ----------              ----------

     (A) During 1997 the  Company  completed  a sale and  leaseback  transaction
involving  its  only  owned  store.  This  transaction  resulted  in a  gain  of
approximately $72,000.

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

(4)     DEBT:

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,          December 31,
                                           1997                   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
                                       -----------             ----------

                                        30,992,500             49,191,000
Less current portion                             -                247,000
                                       -----------             ----------
Total long-term debt,
  net of current portion               $30,992,500            $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.  The sales price was $14,500,000.  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.

     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                                                       $         -
     1999                                                                 -
     2000                                                                 -
     2001                                                                 -
     2002                                                                 -
     Thereafter                                                  30,992,500

(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-

                                                  Year Ended
                                  ----------------------------------------------
                                  December 30,     December 31,     December 26,
                                       1997            1996              1995
                                  ------------     ------------     ------------

Rentals under-
  Related party leases            $1,979,000       $1,848,000       $1,836,000
  Other leases                     5,635,000        5,660,000        5,323,000
                                  ----------       ----------       ----------
                                  $7,614,000       $7,508,000       $7,159,000
                                  ----------       ----------       ----------
                                  ----------       ----------       ----------

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

    1998                                                         $8,157,000
    1999                                                          7,644,000
    2000                                                          7,542,000
    2001                                                          7,446,000
    2002                                                          4,617,000
    Thereafter                                                   60,772,000

     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-l/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-


                                                Number of Shares
                                     ----------------------------------------
                                          1997          1996         1995
                                     -------------  ------------  -----------
Options outstanding at
  beginning of year
  ($1.44 to $6.88)                     1,110,300       796,700      600,000
Granted ($1.00 to $5.00)                 297,000     1,041,300      385,000
Canceled ($2.38 to $6.25)               (250,600)     (727,700)    (188,300)
                                     -------------  ------------  -----------
Options outstanding at end of year     1,156,700     1,110,300      796,700
                                     -------------  ------------  -----------
                                     -------------  ------------  -----------

     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-

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

     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>

                                       SCHEDULE II

                                TOPS APPLIANCE CITY, INC.

                     VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

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

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

                                                        Additions
                                     Balance at         Charged to                          Balance
                                     Beginning          Costs and                           at End
      Description                    of Period          and Expenses       Deductions       of Period
      -----------                    ----------         ------------       ----------       ---------

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.

<TABLE>
<CAPTION>


       Exhibit Number             Description of Document

<S>            <C>               <C>

               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 Corporation 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 (incorpo-
                                 rated 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.
             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.


</TABLE>

     (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.



<PAGE>

                                     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/ Robert G. Gross
                                                        ------------------------
                                                             ROBERT G. GROSS
                                                         Chief Executive Officer


                                                     BY:  /s/ Thomas L. Zambelli
                                                         -----------------------
                                                           THOMAS L. ZAMBELLI
                                                        Chief Accounting Officer
Dated:  March 30, 1998







<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:

Signature                              Title                   Date




/s/ Robert G. Gross             Chairman of the Board,      March 30, 1998
ROBERT G. GROSS                 Chief Executive Officer



/s/ Thomas L. Zambelli         Senior Vice President,       March 30, 1998
THOMAS L. ZAMBELLI             Chief Accounting Officer



/s/ Leslie S. Turchin         Director                      March 30, 1998
LESLIE S. TURCHIN



/s/ Anthony L. Formica         Director                     March 30, 1998
ANTHONY L. FORMICA




/s/ John H. Holland            Director                     March 30, 1998
JOHN H. HOLLAND





<PAGE>

                                  Exhibit 10.30

                        FIRST ADDENDUM TO MANAGEMENT AGREEMENT ENTERED INTO
                         AS OF THE 3RD DAY OF SEPTEMBER, 1996 ("AGREEMENT")
                              BETWEEN THOMAS ZAMBELLI ("EXECUTIVE") AND
                                TOPS APPLIANCE CITY, INC. ("COMPANY")




     WHEREAS,  Tops Appliance City,  Inc. and Thomas  Zambelli  entered into the
above-referenced Agreement, and

     WHEREAS, Company and Executive desire to amend such Agreement,

         In  consideration  of One  ($1.00)  Dollar and other good and  valuable
consideration, it is agreed as follows:

         1.  Section 4 of the  Agreement  is  amended  to extend the term of the
Agreement to December 31, 1999.

         2.  Section 5 of the  Agreement  is amended to provide  that  effective
January 1, 1998,  Executive's  Base  Salary  shall be One  Hundred  Seventy-Five
Thousand and no/00 ($175,000.00) Dollars per annum.

         3.  Section  6(b) of the  Agreement  is amended to cause the Company to
grant to the Executive options to purchase an additional fifty thousand (50,000)
shares of the  Company's  Common  Stock,  which  options  will  vest and  become
exercisable in the following  amounts on the following dates,  provided that the
Executive is then employed by the Company:

                Date                               No. of Shares

          December 31, 1998                           25,000
          December 31, 1999                           25,000

Such options  shall be granted  pursuant to a separate  agreement to be executed
and delivered  simultaneously with this Addendum, will be non-qualified and will
have an exercise  price per share equal to the  closing  price of the  Company's
Common Stock on October 15, 1997.

         4. Section 7(a) of the  Agreement is amended to provide that  effective
January 1, 1998, Executive shall receive three (3) weeks of paid vacation during
each calendar year.

         5. Except as otherwise  provided for herein, the Agreement shall remain
in effect as it was prior to the  execution of this  Addendum.  To the extent of
any  inconsistency  between the Agreement and this  Addendum,  the provisions of
this Addendum shall control.


         6. This  Addendum  is  binding  on the  successors  and  assigns of the
parties hereto.

         In WITNESS  WHEREOF,  the  parties  have set their hands and seals this
15th day of October, 1997.



                                                     TOPS APPLIANCE CITY, INC.



/s/  Thomas Zambelli                             By: /s/ Robert Gross
--------------------------------                    ----------------------------
Thomas Zambelli                                     Robert Gross,
                                                    Chief Executive Officer



<PAGE>





                                  Exhibit 10.31

                    FIRST ADDENDUM TO MANAGEMENT AGREEMENT ENTERED
                       INTO AS OF THE 19TH DAY OF MAY, 1995
                               BETWEEN ROBERT GROSS AND
                               TOPS APPLIANCE CITY, INC.


     WHEREAS,  Tops Appliance  City,  Inc. (the "Company") and Robert Gross (the
"Executive") entered into the above-referenced Agreement (the "Agreement"), and

     WHEREAS, Company and Executive desire to amend such Agreement,

         In  consideration  of One  ($1.00)  Dollar and other good and  valuable
consideration, it is agreed as follows:

         1.  Section 2 of the  Agreement is amended to add the title of Chairman
to Executive's existing title of Chief Executive Officer.

         2.  Section  6(c) of the  Agreement  is amended to cause the Company to
grant to the Executive  options to purchase an additional  one hundred  thousand
(100,000)  shares of the  Company's  Common  Stock,  which options will vest and
become  exercisable in the following amounts on the follow dates,  provided that
the Executive is then employed by the Company.

                 Date                                        No. of Shares

             June 1, 1998                                         33,333
             June 1, 1999                                         33,333
             June 1, 2000                                         33,334

Such options  shall be granted  pursuant to a separate  agreement to be executed
and delivered  simultaneously with this Addendum, will be non-qualified and will
have an exercise price of $1 1/16 per share.

         Notwithstanding  anything to the contrary above, any outstanding  stock
options granted under the Agreement shall immediately vest upon the termination,
or  nonrenewal,  of the  Agreement by Company for reasons other than those which
would constitute "cause" under the Agreement.

         3.  Section  6(d) of the  Agreement  is  deleted  in its  entirety  and
replaced with a new Section 6(d) to provide as follows:

               "Change  of  Control  prior  to  June  1,  2000.  If in a  single
          transaction  or as a result of a series of  transactions  occurring in
          concert with each other, the control of the Company shall change,  and
          subsequent  to such change in control,  the Employee  terminates  this
          Agreement for "Good Reason" (as such term is  hereinafter  defined) or
          this  Agreement  is not renewed  upon  expiration  of its term and the
          Company is without  "cause" (as such term is defined in the Agreement)
          to terminate  the  Agreement,  the Company  will pay to Executive  One
          Million  Dollars   ($1,000,000)  in  addition  to  all  other  amounts
          otherwise payable to Executive under this Agreement.

               For purposes of this provision, a "change in control" shall occur
          if more than fifty percent (50%) of the Company's  outstanding  common
          stock is transferred in a single transaction or series of transactions
          in concert  with each other or if  substantially  all of the assets of
          the Company are sold in a single transaction or series of transactions
          in concert  with each other.  In  determining  whether more than fifty
          percent  (50%) of the  Company's  outstanding  common  stock  has been
          transferred, transfers by Executive shall be disregarded.

               For purposes of this  provision,  "Good Reason" shall include any
          substantial diminution in the duties, Base Salary, responsibilities or
          authority or a change in title of the Executive.

               The amount payable under this paragraph shall be paid in a single
          payment within sixty (60) days of the date on which Executive  becomes
          entitled to the payment as a result of the  termination  or expiration
          of the Agreement.  Notwithstanding the foregoing, the amount otherwise
          payable  under this Section 6(d) shall not be paid if  $1,000,000  was
          previously paid to Executive under Section 6(f) hereof.

         4. The  Agreement  is amended to add a new  Section  6(f) to provide as
follows:

               Acquisition  prior to June 1,  2000.  If the  Company  acquires a
          wholesale or retail appliance or consumer  electronics business during
          the term of this  Agreement  and (i) the average  closing price of the
          Company's  common stock for the ten trading (10) days prior to June 1,
          2000 is not less than $1.75 per share  (which  price  represents a 40%
          increase  over the  $1.25  per share  closing  price of the  Company's
          common stock on November 10, 1997);  and (ii) on June 1, 2000, (x) the
          Company is still  operating in the same ordinary course of business as
          it was on the date of the  acquisition  and (y) is not the  subject of
          any voluntary or involuntary bankruptcy,  insolvency or reorganization
          proceeding for the benefit of its  creditors;  the Company will pay to
          Executive One Million  Dollars  ($1,000,000)  in addition to all other
          amounts, if any, otherwise payable to Executive under this Agreement.

         The  amount  payable  under  this  provision  shall be paid in a single
payment on or before  September  1, 2000.  Notwithstanding  the  foregoing,  the
amount otherwise payable under this Section 6(f) shall not be paid if $1,000,000
was previously paid to Executive under Section 6(d) hereof.

         5. Except as otherwise  provided for herein, the Agreement shall remain
in effect as it was prior to the  execution of this  Addendum.  However,  to the
extent  of any  inconsistency  between  the  Agreement  and this  Addendum,  the
provisions of this Addendum shall control.

         6. This  Addendum  is  binding  on the  successors  and  assigns of the
parties hereto.

         In WITNESS  WHEREOF,  the  parties  have set their hands and seals this
20th day of November, 1997.

                                                     TOPS APPLIANCE CITY, INC.


/s/ Robert Gross
------------------------------                    By:  /s/ Thomas Zambelli
    Robert Gross                                      -------------------------
                                                           Thomas Zambelli
<PAGE>


                                  Exhibit 10.32


                     FIRST ADDENDUM TO MANAGEMENT AGREEMENT ENTERED
                   INTO AS OF THE 31ST DAY OF JULY, 1995 ("AGREEMENT")
                          BETWEEN RICK JONES ("EXECUTIVE")
                       AND TOPS APPLIANCE CITY, INC. ("COMPANY")



         WHEREAS,  Tops  Appliance  City,  Inc.  and  Rick  Jones  entered  into
the above-referenced Agreement, and

         WHEREAS, Company and Executive desire to amend such Agreement,

         In  consideration  of One  ($1.00)  Dollar and other good and  valuable
consideration, it is agreed as follows:

         1.  Section 2 of the  Agreement  is  amended  to add the title of Chief
Operating  Officer to Executive's  existing  titles of Senior Vice President and
General Merchandising Manager.

         2.  Section 4 of the  Agreement  is  amended  to extend the term of the
Agreement to December 31, 1999.

         3.  Section  6(a) of the  Agreement  is amended to provide that for the
fiscal years commencing January 1998 and thereafter, the bonus shall in no event
exceed 50% (rather than 33%) of the Base Salary.

         4.  Section  6(b) of the  Agreement  is amended to cause the Company to
grant to the  Executive  options  to  purchase  an  additional  thirty  thousand
(30,000)  shares of the  Company's  Common  Stock,  which  options will vest and
become exercisable in the following amount on the follow date, provided that the
Executive is then employed by the Company.

                Date                                        No. of Shares

           December 31, 1999                                    30,000

Such options  shall be granted  pursuant to a separate  agreement to be executed
and delivered  simultaneously with this Addendum, will be non-qualified and will
have an exercise  price per share equal to the  closing  price of the  Company's
Common Stock on October 15, 1997.

         5. Except as otherwise  provided for herein, the Agreement shall remain
in effect as it was prior to the  execution of this  Addendum.  However,  to the
extent  of any  inconsistency  between  the  Agreement  and this  Addendum,  the
provisions of this Addendum shall control.

         6. This  Addendum  is  binding  on the  successors  and  assigns of the
parties hereto.

         In WITNESS  WHEREOF,  the  parties  have set their hands and seals this
15th day of October, 1997.



                                                     TOPS APPLIANCE CITY, INC.



/s/ Rick Jones                                   By: /s/ Robert Gross
-----------------------------                        ---------------------------
    Rick Jones                                           Robert Gross,
                                                     Chief Executive Officer



<PAGE>

                                       Exhibit 10.33


                                 STOCK PURCHASE AGREEMENT


         AGREEMENT  made this 5th day of  November,  1997,  by and between  SSP,
L.L.C.,  a New York limited  liability  company having an address at 437 Madison
Avenue, New York, New York ("Buyer"), and Tops Appliance City of New York, Inc.,
a New York  corporation  having an address at c/o Tops Appliance City,  Inc., 45
Brunswick Avenue, CN14, Edison, New Jersey 08818-1907 ("Shareholder"),  and Tops
Appliance City, Inc., 45 Brunswick Avenue,  CN14,  Edison, New Jersey 08818-1907
("TAC").

         WHEREAS,  the  Shareholder  is the  owner of ten (10)  shares of common
stock, par value $.01 per share (the "Shares") of Tops Appliance Realty, Inc., a
New York corporation  ("Corporation"),  which  constitutes all of the issued and
outstanding  shares of capital stock of the  Corporation  as of the date hereof;
and

         WHEREAS, TAC is the sole shareholder of the Shareholder; and

         WHEREAS, the Shareholder desires to sell to Buyer, and Buyer desires to
acquire  from the  Shareholder,  the  Shares  upon the terms and  subject to the
conditions set forth herein.

         NOW,  THEREFORE,  in  consideration  of the mutual  agreements  recited
herein, the parties agree as follows:

                                                     ARTICLE I
                                            PURCHASE AND SALE OF SHARES

         1.01.  Purchase and Sale.  Subject to the terms and  conditions of this
Agreement,  and in  reliance on the  representations  and  warranties  set forth
herein,  on the Closing  Date, as defined  herein,  the  Shareholder  will sell,
transfer and deliver to Buyer, and Buyer shall acquire from the Shareholder, all
of the Shares, free and clear of all liens, pledges, encumbrances,  charges, and
claims thereon.  One or more certificates  evidencing the Shares shall be either
duly endorsed in blank or accompanied by  appropriate  stock powers  endorsed in
blank. Such certificates  shall also be accompanied by evidence  satisfactory to
Buyer of the Shareholder's payment of any applicable transfer taxes.

         1.02.  Purchase  Price. In  consideration  of the sale,  transfer,  and
delivery of the Shares by the Shareholder to Buyer,  on the Closing Date,  Buyer
shall  deliver to the  Shareholder  the sum of  Fourteen  Million  Five  Hundred
Thousand Dollars  ($14,500,000.00) less the amount of the outstanding balance on
the Closing Date of the  Corporation's  mortgage to LaSalle  National  Bank,  as
Trustee  for the  Registered  Holders  of  Chase  Commercial  Securities  Corp.,
Commercial  Mortgage  Pass-Through  Certificates,  Series 1996-1, as assignee of
Chemical Bank ("Lender"), pursuant to a Promissory Note, a Mortgage and Security
Agreement,  and an  Assignment  of Leases  and Rents,  all dated  July 28,  1995
(collectively,  the  "Mortgage"),  payable by wire transfer on the Closing Date,
and subject to adjustments  as described in Paragraph  1.03 hereof.  Shareholder
estimates  that the  outstanding  balance of the Mortgage as of November 1, 1997
(and prior to receipt by Lender of Shareholder's  November  mortgage payment) is
Eight Million Nine Hundred Fifty-Six Thousand Ninety-Four ($8,956,094) Dollars.



<PAGE>



         1.03. Adjustments to Purchase Price. Shareholder shall receive a credit
effective  as of the  Closing  Date for a sum equal to the amount of all escrows
and  accumulated  interest  thereon held by Lender under the Tenant  Improvement
Leasing  Commission and Debt Service  Reserve and Security  Agreement dated July
28, 1995 (the "Tenant Improvement Escrow"). In addition to the foregoing, on the
Closing Date,  Shareholder and Buyer shall apportion effective as of the Closing
Date, rent and any other applicable items.

         1.04.  Right  to Tax  Refund;  Right  to  Proceeds  of  Other  Escrows.
Notwithstanding  anything to the contrary in this Agreement,  Shareholder or its
designee shall be entitled to receive from the Corporation  within ten (10) days
of receipt by the Corporation:

         (a) A payment  equal to the  amount of any  refund or credit  resulting
from any tax certiorari  proceeding which is received  subsequent to the Closing
and which is attributable  to any period(s),  including any portions of a fiscal
year,  prior to the Closing.  Any payment due to Shareholder  hereunder shall be
adjusted  to reflect the fees or  expenses  which may have been  incurred by the
Corporation or its designee in such proceeding.

         (b) A payment  equal to the amount of any release of funds  theretofore
held by Lender pursuant to the Replacement  Reserve and Security Agreement dated
July 29,  1995,  or under any other  escrow  held by Lender,  including  without
limitation  any escrow  held for the  payment  of real  estate  taxes  under the
Mortgage,  and all  interest  payable  by the  Lender  with  respect to any such
escrow,  but excluding the escrow and accrued  interest held by Lender under the
Tenant Improvement  Escrow. Such payment shall be made no later than the earlier
of (i) August 1, 2005, or (ii) any refinancing of the Mortgage.

                                                    ARTICLE II
                                         REPRESENTATIONS AND WARRANTIES OF
                                                  THE SHAREHOLDER

         The  Shareholder  and  TAC  make  the  following   representations  and
warranties to Buyer.

         2.01. Valid Corporate  Existence;  Qualification.  The Corporation is a
corporation duly organized, validly existing and in good standing under the laws
of the State of New York. The Corporation has all requisite  corporate power and
authority to carry on its business as now conducted  and to own its assets.  The
Corporation  does not conduct  business in any State other than New York, and is
neither  qualified  to  conduct  business  or  in  good  standing  as a  foreign
corporation in any jurisdiction  other than the State of New York, and there has
not been any claim by any other  jurisdiction to the effect that the Corporation
is required to qualify or  otherwise be  authorized  to do business as a foreign
corporation   therein.   The  copies  of  the   Corporation's   Certificate   of
Incorporation  and By-Laws (both certified by the Corporation's  secretary),  as
amended  to date,  which have been  delivered  to Buyer,  are true and  complete
copies of those documents as now in effect.  The minute books of the Corporation
contain  accurate  records of all material  meetings of its Board of  Directors,
Executive   Committee  of  the  Board,  if  any,  and  shareholders   since  its
incorporation, and accurately reflect all transactions authorized therein.


                                                      -2-


<PAGE>



         2.02.  Capitalization.  The authorized capital stock of the Corporation
consists of 200 shares of Common Stock, $.01 par value, of which ten (10) shares
of Common Stock are issued and  outstanding.  All of such issued and outstanding
shares of Common Stock are duly  authorized and validly issued and  outstanding,
fully paid and nonassessable. There are no (i) subscriptions, options, warrants,
rights or calls or other  commitments or agreements to which the  Corporation or
the  Shareholder is a party or by which either of them is bound,  which call for
or restrict in any manner the  issuance,  transfer,  sale or other  disposition,
redemption or repurchase of the Common Stock of the Corporation,  or (ii) voting
trust  agreements or other  contracts,  agreements,  arrangements,  commitments,
proxies or understandings to which the Corporation or the Shareholder is a party
or to which either of them is bound which  restrict or  otherwise  relate to the
voting or dividend rights of the Common Stock of the  Corporation.  There are no
outstanding securities of the Corporation convertible or exchangeable,  actually
or  contingently,  into shares of Common  Stock or any other  securities  of the
Corporation.  All of the shares of Common Stock issued and outstanding as of the
date of this  Agreement,  and as of the  Closing  Date,  are and will be held of
record and beneficially solely by the Shareholder.

         2.03. Subsidiaries. The Corporation does not directly or indirectly own
any  capital  stock of or  other  equity  interests  in any  other  corporation,
partnership, limited liability company, or other business entity.

         2.04. Corporate Authority; Binding Nature of Agreement. The Shareholder
is a corporation duly organized, validly existing and in good standing under the
laws of the State of New York. The  Shareholder has the corporate power to enter
into this Agreement and to carry out its  obligations  hereunder.  The execution
and  delivery  of  this  Agreement  and  the  consummation  of the  transactions
contemplated  hereby have been duly  authorized by the Board of Directors of the
Shareholder and no other corporate proceedings on the part of the Corporation or
the  Shareholder  are  necessary to authorize the execution and delivery of this
Agreement and the consummation of the  transactions  contemplated  hereby.  This
Agreement  has  been  duly  executed  and  delivered  by  the   Shareholder  and
constitutes  the  valid  and  binding  obligation  of  the  Shareholder  and  is
enforceable  in  accordance  with its terms.  The execution and delivery of this
Agreement does not, and the consummation of the transactions contemplated hereby
and  compliance  with the terms hereof will not (a) conflict  with, or result in
any violation  of, (i) any  provision of the  Certificate  of  Incorporation  or
By-Laws of the Shareholder or (ii) any judgment, injunction, order or decree, or
statute, law, ordinance, rule or regulation applicable to the Shareholder or the
Corporation or the property or assets of the Shareholder or the Corporation,  or
(b) except as set forth in Schedule 2.04,  violate or conflict with or result in
a breach under, or require any consent or approval to be obtained from any party
to, any  agreement,  instrument  or  document  to which the  Shareholder  or the
Corporation  is subject or by which any of their  respective  properties  may be
bound.  Except as set forth in Schedule  2.04,  no consent,  approval,  order or
authorization  of, or  registration,  declaration  or filing  with,  any  court,
administrative   agency  or  commission  or  other  governmental   authority  or
instrumentality,  domestic or foreign,  is required to be obtained or made by or
with  respect to the  Shareholder  or the  Corporation  in  connection  with the
execution and delivery of this Agreement or the  consummation by the Shareholder
of the transactions contemplated hereby.


                                                      -3-


<PAGE>



         2.05. Title to Shares.  The Shareholder is, and will at the Closing be,
the sole record and beneficial owner of the Shares, free and clear of all manner
of liens, charges, encumbrances, and claims. The Shareholder now has, and at the
Closing will have, good and marketable title to all of the Shares,  and has, and
at the Closing will have, the absolute and unqualified  right to sell,  transfer
and  deliver  the Shares to Buyer.  The  delivery  of the Shares to Buyer at the
Closing  pursuant to the  provisions of this Agreement will transfer valid title
thereto,  free and  clear of all  manner  of liens,  charges,  encumbrances  and
claims.

         2.06. Financial Statements,  etc. Except as set forth on Schedule 2.06:
(a) the  books  of  accounts  of the  Corporation  fairly  reflect  the  income,
expenses,  assets, liabilities and cash flows of the Corporation in all material
respects.  Schedule 2.06(b) sets forth (i) the balance sheets of the Corporation
as of December 31, 1996 (the  "Balance  Sheet Date") and December 31, 1995,  and
the  Corporation's  statements of operations and cash flows for the fiscal years
ended  December 31, 1996 and December 31, 1995,  together with the notes to such
financial statements (collectively,  the "Financial Statements").  The Financial
Statements  fairly present the financial  position of the  Corporation as of the
said dates and the results of its operations  for such fiscal years and,  except
as set forth therein or in Schedule  2.06 (a) were  prepared in conformity  with
generally accepted  accounting  principles  consistently  applied throughout the
periods  covered  thereby.  The Financial  Statements  have been prepared by the
Corporation.

         2.07.  Liabilities.  As at the Balance Sheet Date, the  Corporation and
the Shareholder had no material debts, liabilities or obligations, contingent or
absolute,  other than those  debts,  liabilities  and  obligations  reflected or
reserved against in the Corporation's balance sheet as at the Balance Sheet Date
or as set forth on Schedule 2.07.

         2.08.  Absence of Changes  or Events.  Except as set forth in  Schedule
2.08,  since the Balance Sheet Date,  the business of the  Corporation  has been
conducted in the ordinary course consistent with past practice and there has not
been  any  material  adverse  change  in the  financial  condition,  results  of
operations,  assets,  business,  operations  or  prospects  of the  Corporation.
Without limiting the generality or effect of the foregoing,  except as disclosed
in Schedule 2.08, the Corporation has not since the Balance Sheet Date:

                  (a) incurred or agreed to incur any  obligation  or liability,
absolute, accrued, contingent or otherwise, whether due or to become due, except
(i) current  liabilities  incurred in the ordinary course of business in amounts
consistent  with past  practice,  none of which  could,  individually  or in the
aggregate, have a material adverse effect on the financial condition, results of
operations,  assets,  business,  operations or prospects of the  Corporation and
(ii) the obligations contemplated by this Agreement;

                  (b)  redeemed or  otherwise  acquired,  or agreed to redeem or
otherwise  acquire,  any of its  shares of capital  stock or issued any  capital
stock or any option, warrant or right relating thereto;


                                                      -4-


<PAGE>



                  (c)  declared  or made,  or agreed  to  declare  or make,  any
payment of dividends or other  distributions to the Shareholder,  whether or not
upon or in respect of any shares of its capital stock.

                  (d) sold, leased or otherwise  disposed of, or agreed to sell,
lease or  otherwise  dispose of, any of its assets,  or  amended,  cancelled  or
compromised  or agreed to amend,  cancel or compromise  any debt or claim of the
Corporation,  or waived or  released,  or agreed to waive or release,  any other
right of material value to the Corporation;

                  (e) suffered any damage,  destruction  or loss (whether or not
covered by insurance and regardless of the cause  thereof),  any of which could,
individually  or in  the  aggregate,  have  a  material  adverse  effect  on the
financial  condition,  results of operations,  assets,  business,  operations or
prospects of the Corporation;

                  (f) agreed to acquire any capital stock or other securities of
any corporation or any equity interest in any business enterprise;

                  (g) made any change in any  accounting  methods  or  practices
other  than  such  change  as may  have  been  required  by  generally  accepted
accounting principles;

                  (h)  made  any  expenditure  or  commitment  in  excess  of an
aggregate  amount of $2,500 for  additions  to  property,  plant or equipment or
other capital expenditures;

                  (i) entered into any  agreement,  arrangement  or  transaction
with  any of the  Corporation's  officers,  directors  or  shareholders,  or any
Affiliates thereof;

                  (j) made any payment on  indebtedness  for borrowed money owed
by the  Corporation to any person,  except for scheduled  mandatory  payments of
principal  and interest  accrued  thereon in  accordance  with the terms of such
indebtedness;

                  (k) made  any  payment  to the  Shareholder  or any  Affiliate
thereof,  except that the Corporation  regularly makes cash dividend payments to
the Shareholder; or

                  (l) made any  agreement  or  understanding  to take any of the
actions specified in paragraphs (a) through (k) above.

         2.09     Taxes. (a) Except as set forth on Schedule 2.09:

                           (i) The Corporation has timely filed all tax returns
that it was required to file  (including  estimated  tax  returns),  such tax
returns  were  correct and complete in all respects,  and all taxes owed by the
Corporation (whether or not shown on any tax return) have been timely paid.

                           (ii) A claim has never been made by an authority in a
jurisdiction where the Corporation has never filed tax returns that the
Corporation is or may be subject to taxation by that jurisdiction.  Schedule
2.09(a)(ii) hereto lists all of the jurisdictions in which the

                                                      -5-


<PAGE>



Corporation  has ever done business,  been  authorized to do business,  owned or
leased property,  had employees or customers,  employed capital, or solicited or
made sales.

                           (iii) The Balance Sheet reflects an adequate  reserve
for all taxes payable
by the  Corporation  accrued  through  the  date  of  such  Balance  Sheet.  All
deficiencies  for any taxes  that  have been  proposed,  asserted,  or  assessed
against  the  Corporation  have been fully  paid,  or are fully  reflected  as a
liability in such Balance Sheet, or are being contested and an adequate  reserve
therefor has been established and is fully reflected in such Balance Sheet.

                           (iv) No deficiency  for any taxes has been  proposed,
asserted, or assessed
with  respect  to the  Corporation,  no audit or  other  examination  of the tax
returns of the  Corporation  is  currently in  progress,  and, to  Shareholder's
knowledge,  no facts exist that  constitute  grounds for the  assessment  of any
additional taxes with respect to the Corporation.

                           (v)  There are no liens  for  taxes  (other  than for
current taxes not yet due
and payable) on the assets of the Corporation or the Shares.

                           (vi)     The federal, state, local and foreign income
tax returns of the Corporation  have been examined by and settled with the
Internal Revenue Service and other  applicable  taxing  authorities,  or the
statutes of limitations with respect to such years have expired, for all years
through 1992.

                           (vii)   The   Corporation   is  not   currently   the
beneficiary of any extension of time within which to file any Tax Returns.

                           (viii) The Corporation is not a party to, and is not
bound by, any agreement providing for the allocation or sharing of taxes.

                           (ix) INTENTIONALLY OMITTED

                           (x)  There has been no  waiver  or  extension  of the
statute of limitations for
the assessment of any tax for any taxable year.

                           (xi) The Corporation has not filed a consent pursuant
to, or agreed to the
application of, Section 341(f) of the Internal  Revenue Code of 1986, as amended
(the "Code").

                           (xii) The Corporation  has not made any payments,  is
not obligated to make
any payments, and is not a party to any agreement that could obligate it to make
any payments,  the  deductibility  of which would be disallowed  (in whole or in
part) under Section 280G of the Code.

                           (xiii) The Shareholder is not a foreign person within
the meaning of, and
no tax is required to be withheld as a result of the  transfer  contemplated  by
this Agreement  pursuant to, Section 1445 or any other  provision of the Code or
of any other state, local or foreign laws.


                                                      -6-


<PAGE>



                           (xiv)  Schedule  2.09(a)(xiv)  hereto  sets forth the
Corporation's adjusted
basis in its assets for federal income tax purposes.

                           (xv) The  Corporation  has  disclosed  on its federal
income tax returns all
positions taken therein that could give rise to a substantial  understatement of
federal income tax within the meaning of Section 6662 of the Code.

                           (xvi)  All  taxes  that  are  required  by  law to be
withheld or collected by the
Corporation  have been duly withheld or collected  and, to the extent  required,
have been timely paid to the proper  governmental  entity or properly and timely
deposited as required by applicable law.

                           (xvii)  The  Corporation  has  neither  executed  nor
entered into any closing
agreement  pursuant to Section 7121 of the Code,  or any  predecessor  provision
thereof, or any similar provision of state or local law.

                           (xviii) None of the assets  owned by the  Corporation
is property that is
required  to be  treated  as owned  by any  other  person  pursuant  to  Section
168(f)(8)  of the  Internal  Revenue  Code of 1954,  as  amended,  as in  effect
immediately  prior  to the  enactment  of the  Tax  Reform  Act of  1986,  or is
"tax-exempt use property" within the meaning of Section 168(h) of the Code.

                           (xix)   The    consummation   of   the   transactions
contemplated by this
Agreement will not result in any taxes being imposed by the United  States,  any
state  or  political   subdivision  thereof,  or  any  foreign  country  on  the
stockholders  of the  Corporation as a result of the Buyer's  acquisition of any
interest in real  property,  other than realty  transfer taxes which will be due
and payable to the State of New York and the City of New York.

                  (b) For purposes of this Agreement,

                           (i) the term "tax" (including, with correlative
 meaning, the terms "taxes" and "taxable") means all federal,  state,  local,
and foreign income,  profits, franchise,   gross  receipts,   payroll,  sales,
employment,   use,  property, withholding,  excise, alternative minimum, gains,
transfer,  documentary, stamp, and other taxes, duties, or assessments of any
nature whatsoever,  together with all interest, penalties, and additions imposed
with respect to such amounts.

                           (ii)  the  term  "tax  returns"  means  all  returns,
reports, statements, forms,
or other documents or information  required to be filed with a taxing  authority
with respect to the taxes of the Corporation.

                  (c) For purposes of this Section 2.09, the term  "Corporation"
means the Corporation and each corporation with which the Corporation has filed,
or was required to file,  United States  Federal,  state,  local, or foreign tax
returns  on a  consolidated,  combined,  or  unitary  basis,  after  the date of
incorporation of Tops Appliance Realty, Inc.


                                                      -7-


<PAGE>



         2.10.  Ownership of Assets.  Except as set forth in Schedule  2.10, the
Corporation  owns  outright,  and has good and  marketable  title to its assets,
properties  and  business  (including  all  assets  reflected  in the  Financial
Statements,  except  personal  property  which may have been  disposed of in the
ordinary course of business since the Balance Sheet Date), free and clear of all
liens,  mortgages,  pledges,  conditional  sales  agreements,   restrictions  on
transfer or other encumbrances or changes. Such assets as are owned or leased by
the Corporation  are, in the reasonable  business  judgment of the  Shareholder,
sufficient to permit the  Corporation  to conduct its business as now conducted.
The Corporation owns no patents,  copyrights,  trademarks, trade names and other
similar  intangible  assets,  other than its own corporate  name.  Except as set
forth  in  Schedule  2.10,  the  Corporation  is not a party  to or bound by any
license or agreement requiring the payment to any person, firm or corporation of
any royalty. The Corporation is not infringing upon any patent, copyright, trade
name or trademark  or otherwise is violating  the rights of any third party with
respect thereto, and no proceedings have been instituted or, to the knowledge of
the Corporation,  after reasonable inquiry, are threatened and no claim has been
received by the Corporation or the Shareholder alleging any such violation.

         2.11. Litigation,  Compliance with Law. Except as set forth in Schedule
2.11,  there are no  pending  or, to the  knowledge  of the  Shareholder,  after
reasonable inquiry,  threatened, and since the Corporation's incorporation there
have not existed, any actions, suits, proceedings or governmental investigations
relating to the Corporation or to any of its properties, assets or businesses or
any orders,  injunctions,  awards or decrees outstanding against the Corporation
or against or relating to any of its properties,  assets or businesses;  and the
Shareholder,  after reasonable  inquiry,  is not aware of any basis for any such
action,  suit,  proceeding,  governmental  investigation,  order,  injunction or
decree,  except fire and building  inspections and related orders resulting from
routine property inspections by fire and building code enforcement  officers, as
to which orders  compliance  has been  accomplished  in all  material  respects.
Except  as set  forth in  Schedule  2.11,  the  Corporation  has  operated,  and
currently is operating, its business in compliance in all material respects with
all applicable statutes,  laws, regulations,  ordinances,  orders,  injunctions,
decrees,  awards and other requirements of any governmental  bodies,  courts and
arbitrators relating to its properties, assets or business.

         2.12.  Real  Property.  (a) The  Corporation  has good,  valid,  freely
assignable  (subject to the approval of Lender) and  marketable fee simple title
in and to the real property (including all improvements  thereon) commonly known
as 49-15 through 49-21 Northern Boulevard, 32-49 49th Street, and 50-01 Northern
Boulevard, Section 4, Block 735, Lots 1 and 53, and Section 4, Block 748, Lot 8,
in Long Island City, County of Queens, State of New York (the "Owned Property"),
free  and  clear  of  all  liens,  mortgages,  or  encumbrances  of  any  nature
whatsoever,  except the  Mortgage,  and with the other  exceptions  to title set
forth in Schedule B to Title Policy No. 33 0105 107 00000865, Title No. 9506 105
00165,  issued by Title Associates Inc. on or about May 9, 1995, a copy of which
is attached as Schedule 2.12.

     (b) Except as set forth in Schedule 2.12(b), the Corporation has good title
to the  leasehold  estate in the real property  commonly  known as 49-02 Newtown
Road, 49-16 Newtown Road, and 32-43 49th Street,  Section 4, Block 735, Lots 19,
22, 33 and part of 38, in Long Island City, County of Queens,  State of New York
(the  "Leased  Property"),  free and clear of all liens  and  mortgages,  of any
nature whatsoever, pursuant to an Agreement of

                                                      -8-


<PAGE>



Lease dated  October 20, 1993 and amended by (i) Addendum to Lease dated January
1994,  and (ii) letter from Herbert New to Allen Ravin dated March 19, 1995, and
amended  and  restated  in their  entirety  by a certain  Amended  and  Restated
Agreement  of Lease dated July 14, 1995,  effective as of October 20, 1993,  all
between  Local 807  Labor-Management  Pension Fund,  Local 807  Labor-Management
Health Fund, 32-43 49th Street Holding Corp. (collectively,  the "Landlord") and
TAC  as  lessee  (collectively,  the  "Lease"),  and  assigned  by  TAC  to  the
Shareholder and thereafter to the  Corporation,  by Assignment and Assumption of
Lease dated July 28, 1995 by and between TAC and the  Corporation  (as confirmed
by  Confirmatory  Agreement  dated  October  21,  1997,  by and among  TAC,  the
Shareholder and the Corporation),  and thereafter  subleased to TAC by Agreement
of Sublease  dated July 28,  1995.  The Lease and each  assignment  and sublease
relating to the Leased Property are now in full force and effect,  have not been
amended  or  modified,  and no  default  thereunder  by the  Corporation  or the
Landlord  currently  exists,  nor does there exist any condition which, with the
passing  of time  and/or  the  giving  of  notice,  would  constitute  a default
thereunder by the  Corporation or the Landlord.  Except as set forth on Schedule
2.12(b),  no consent  to the  transactions  contemplated  by this  Agreement  is
required to be obtained from the Landlord.

     (c) No  condemnation  or  expropriation  proceeding  is pending  or, to the
knowledge of the Shareholder, threatened which could affect the ownership or use
by the  Corporation  of any of the Owned  Property  or the Leased  Property.  To
Shareholder's  knowledge,  none of the buildings,  structures,  improvements  or
appurtenances (or any equipment  therein) located on any such property,  nor the
operation  or  maintenance  thereof,  violates any  restrictive  covenant or any
provision of any federal,  state,  county or municipal law,  ordinance,  rule or
regulation,  in any material  respect.  Except as set forth on Schedule 2.12(c),
without limiting the generality of the foregoing,  to  Shareholder's  knowledge:
(i) no material alteration,  repair, improvement or other work has been ordered,
directed or requested in writing to be done or performed to or in respect of the
Owned  Property  or the  Leased  Property  or to any of the  plumbing,  heating,
elevating,  water,  drainage  or  electrical  systems,  fixtures or works by any
municipal,  county,  state  or other  competent  governmental  authority,  which
alteration,  repair, improvement or other work has not been completed, and there
has been no written or, to the knowledge of the Shareholder,  oral  notification
given to the Shareholder of any such outstanding work being ordered, directed or
requested,  other than those that have been complied with; (ii) all accounts for
work and services performed and materials placed or furnished upon or in respect
of the  Owned  Property  and the  Leased  Property  have  been  fully  paid  and
satisfied, and no person is entitled to claim a lien under the New York Lien Law
or similar  legislation  against such property or any part  thereof,  other than
current  accounts  in respect of which the  payment due date has not yet passed;
(iii) there are no material  amounts owing by the  Corporation in respect of the
Owned  Property or the Leased  Property to any municipal  corporation  or to any
other  corporation or commission owning or operating a public utility for water,
gas,  electrical  power or energy,  steam or hot water,  or for the use thereof,
other than  current  accounts  in respect of which the  payment is not more than
thirty (30) days past due; and (iv) the Owned  Property and the Leased  Property
are fully  serviced and have adequate  access to public roads,  and there are no
outstanding levies, charges or fees assessed against such property by any public
authority (including development or improvement levies, charges or fees).


                                                      -9-


<PAGE>



     (d) Other than the Owned Property and the Leased Property,  the Corporation
does not own, lease,  occupy or operate,  and has not previously owned,  leased,
occupied or operated, any real property.

         The  Corporation  has heretofore  delivered to Buyer true,  correct and
complete  copies  of all  deeds,  mortgages,  deeds of  trust,  certificates  of
occupancy,   title  insurance  policies,  title  reports,  surveys  and  similar
documents   (including  all  amendments   thereof)  in  the  possession  of  the
Corporation relating to the Owned Property and the Leased Property.

         2.13.  Agreements and  Obligations;  Performance.  Except as listed and
described in Schedule 2.13 (the "Listed  Agreements"),  the Corporation is not a
party to, or bound by any: (i) written or oral contract, agreement, arrangement,
commitment,  understanding  or obligation which involves  aggregate  payments or
receipts  in  excess  of  $5,000;   (ii)   contract,   agreement,   arrangement,
commitments,  understanding  or  obligation  which cannot be cancelled on thirty
(30) days or less notice without penalty or premium or any continuing obligation
or  liability;  (iii)  written or oral  contractual  obligation  or  contractual
liability  of any  kind  to  the  Shareholder  or to any  entity  in  which  the
Shareholder  has  an  interest;  (iv)  written  or  oral  contract,   agreement,
arrangement,  commitment  or  understanding  with any  customer or any  officer,
employee,  shareholder,  director,  representative  or  agent  thereof  for  the
repurchase  of  products,  sharing  of fees,  the  rebating  of  charges to such
customer,  bribes,  kickbacks from such customer or other similar  arrangements;
(v)  contract for the  purchase or sale of any  materials,  products or supplies
which  contains,  or which  commits or will commit the  Corporation  for a fixed
term; (vi) contract of employment  with any officer or employee;  (vii) deferred
compensation,  bonus  or  incentive  plan or  agreement;  (viii)  management  or
consulting agreement;  (ix) lease for real or personal property,  other than the
Lease;  (x)  license  or  royalty  agreement;  (xi)  union or  other  collective
bargaining agreement; (xii) agreement,  arrangement,  instrument,  commitment or
understanding relating to or evidencing  indebtedness for borrowed money; (xiii)
contract which,  by its terms,  requires the consent of any party thereto to the
consummation of the  transactions  contemplated  hereby,  other than the Lender;
(xiv) contract  containing  covenants limiting the freedom of the Corporation to
engage or compete in any line or business or with any person in property, assets
or any geographical  area; (xv) lease or other contract or agreement under which
the Corporation is a lessor or sublessor of any real property owned or leased by
the  Corporation;  (xvi) lease or other  contract or  agreement  under which the
Corporation is lessee of, or holds or uses, any machinery, equipment, vehicle or
other  personal  property owned by a third party;  (xvii)  contract or agreement
under which the Corporation has directly or indirectly guaranteed liabilities or
obligations  of others  (other  than  endorsements  of checks for the purpose of
collection  in the  ordinary  course of  business);  (xviii)  mortgage,  pledge,
security agreement,  deed of trust or other document granting a lien, other than
the Mortgage and related  Uniform  Commercial  Code filings;  (xix)  contract or
agreement  relating to clean-up,  abatement or other actions in connection  with
environmental liabilities or obligations; (xx) contract or agreement granting to
any  person  a  first-refusal,  first-offer  or  similar  preferential  right to
purchase  or  acquire  any asset or assets of the  Corporation;  (xxi)  contract
relating to the  acquisition or sale of any business;  or (xxii) other contract,
agreement,  commitment  or  understanding  which  materially  affects any of its
properties,  assets or business,  whether  directly or indirectly,  or which was
entered  into  other than in the  ordinary  course of  business,  or the loss or
cancellation of which could have a

                                                      -10-


<PAGE>



material  adverse  effect  on  the  properties,  assets,  business,  operations,
financial condition or prospects of the Corporation.

         Except as disclosed on Schedule 2.13, each Listed  Agreement is a valid
and  binding  obligation  of  the  Corporation  and,  to  the  knowledge  of the
Shareholder,  the other  parties  thereto  and is in full  force  and  effect in
accordance with its terms. Except as set forth on Schedule 2.13, the Corporation
has  performed all material  obligations  required to be performed by it to date
under the Listed Agreements and is not (with or without the lapse of time or the
giving of notice, or both) in breach or default thereunder and, to the knowledge
of Seller,  no other party to any of the Listed  Agreements  is (with or without
the lapse of time or the giving of notice,  or both) in breach or default in any
material respect thereunder.

         2.14.  Permits  and  Licenses.  Schedule  2.14 sets forth all  permits,
licenses,  orders,  franchises and approvals from all federal,  state, local and
foreign governmental regulatory bodies held by the Corporation. To Shareholder's
knowledge,  the Corporation has all permits,  licenses,  orders and approvals of
all federal, state, local and foreign governmental or regulatory bodies required
of it to  carry on its  business  as  presently  conducted;  all  such  permits,
licenses,  orders, franchises and approvals are in full force and effect, and to
the knowledge of the  Shareholder,  no suspension,  modification,  revocation or
cancellation of any of such permits, licenses, etc. is threatened or will result
from the consummation of the transaction contemplated by this Agreement; and, to
Shareholder's  knowledge,  the  Corporation  is in  compliance  in all  material
respects with all requirements,  standards and procedures of the federal, state,
local and foreign governmental bodies which have issued such permits,  licenses,
orders, franchises and approvals.

         2.15. Banking  Arrangements.  Schedule 2.15 sets forth the name of each
bank in or with which the  Corporation  has an  account,  credit  line or safety
deposit  box,  and a  description  of each such  account,  credit line or safety
deposit box  including  the names of all persons  currently  authorized  to draw
thereon or having access thereto.

         2.16. Employee Matters. The Corporation has not at any time engaged any
employees or paid any salary or wages to any person.  The Corporation is not now
and  never  has been a party to,  or bound  by,  any (i)  collective  bargaining
agreement or (ii) any Employee Benefit Plan.

         For purposes of this Agreement:  (i) "Employee  Benefit Plan" means any
ERISA Plan and any other written  pension,  profit sharing,  retirement,  bonus,
deferred compensation,  stock option, stock purchase, severance pay or insurance
plan for  officers  or  employees,  which  currently  is,  or at any  time  was,
established,  maintained,  contributed to or legally obligated to be contributed
to (A) by the  Corporation or (B) solely with respect to potential  liability of
and through any  current or former  ERISA  Affiliate  arising or  continuing  in
respect of such plan under  Section  302 or Title IV of ERISA or Section  412 of
the Code while such  entity was an ERISA  Affiliate,  by such  current or former
ERISA Affiliate;  (ii) "ERISA" means the Employee Retirement Income Security Act
of 1974,  as  amended  from  time to time;  (iii)  "ERISA  Affiliate"  means any
corporation or trade or business that is a member of any group of  organizations
(A) described in Section  414(b) or (c) of the Code and the  regulations  issued
thereunder of which the  Corporation  is a member and (B) solely with respect to
potential  liability under Section 302 (c)(II) of ERISA or Section 412(c)(II) of
the Code or the lien created under Section 302(f) of

                                                      -11-


<PAGE>



ERISA or Section  412(h) of the Code,  described in Section 414(m) or (o) of the
Code and the regulations issued thereunder of which the Corporation is a member;
(iv) "ERISA  Multi-  employer  Plan" means a  multi-employer  plan as defined in
Section 3(37) of ERISA to which the Corporation or any ERISA Affiliate has or in
the past had an  obligation  to  contribute;  (v) "ERISA  Pension Plan" means an
employee  pension benefit plan as defined in Section 3(2) of ERISA;  (vi) "ERISA
Plan" means an ERISA  Pension  Plan or an ERISA  Welfare  Plan;  and (vii) ERISA
Welfare Plan" means an employee  welfare benefit plan as defined in Section 3(1)
of ERISA.

         2.17. Brokers. Neither the Shareholder nor the Corporation has employed
or dealt with any broker or other  intermediary  with respect to this  Agreement
and the  transactions  contemplated  hereby other than Bernard  Financial Group,
LLC, whose fee in the amount of One Hundred Fifty Thousand ($150,000.00) Dollars
will be paid by Shareholder  pursuant to the terms of a separate agreement.  The
Shareholder agrees to indemnify the Corporation and the Buyer and its affiliates
and representatives  against,  and to hold the Corporation and the Buyer and its
affiliates and representatives harmless from, any claim for brokerage or similar
commission  or other  compensation  which may be made  against  the Buyer or its
representatives  or the  Corporation  by any third party in connection  with the
transactions  contemplated  hereby,  which claim is based upon any action by the
Corporation or the Shareholder or any of their respective representatives.

         2.18.  Environmental.  (a) To the best of Shareholder's  knowledge, the
Corporation  is  operating  and  has at all  times  operated  the  business  and
properties which it owns or operates in compliance with all Environmental  Laws.
The  Corporation has not received (i) any written or verbal notice or claim that
it may be liable as a result of or in connection with any Constituent of Concern
on, from,  or under the Owned  Property or Leased  Property;  (ii) any letter or
request  for  information  under  the  Comprehensive   Environmental   Response,
Compensation, and Liability Act (42 U.S.C. ss.9601, et seq.) or comparable state
laws  regarding the Owned Property or Leased  Property;  or (iii) any written or
verbal notice or claim that the Owned Property or Leased Property is the subject
of investigation  of any  governmental  entity for violation of an Environmental
Law. The  Corporation  does not store,  use, treat or dispose of Constituents of
Concern on,  under or within the Owned  Property or Leased  Property in a manner
that has given, or is reasonably expected to give, rise to a liability under any
Environmental Law.

         The Corporation has not filed with any government  agency any notice or
report of a Release of a Constituent of Concern on or from the Owned Property or
Leased Property.  All aboveground and underground storage tanks on and under the
Owned  Property or Leased  Property are  registered  and in  compliance  with 40
C.F.R.  Part 280 et seq., 6 NYCRR Part 612, 613 and 614, and Title 3, Chapter 21
of the Rules of the City of New York.  To the best of  Shareholder's  knowledge,
all  aboveground  and  underground  storage  tanks that have been  abandoned  or
removed from the Owned Property or Leased  Property were abandoned or removed in
compliance  with applicable  Environmental  Laws.  There is no friable  asbestos
containing  material,  as defined in Title 15,  Section 1-02 of the Rules of the
City of New York, on the Owned Property or the Leased Property.


                                                      -12-


<PAGE>



         For  purposes of this  Agreement:  (i)  "Environmental  Laws" means all
federal and applicable  state and local  statutes,  ordinances,  orders,  rules,
regulations,  principles  of  common  law  (including  without  limitation  laws
relating to  nuisance,  trespass  and  negligence),  and  written and  published
policies or decrees,  as the same are in effect as of the Closing Date, relating
to (A) environmental matters, including,  without limitation,  those relating to
fines,   injunctions,    penalties,   damages,   contribution,   cost   recovery
compensation,  losses or  injuries  resulting  from the  Release  or  threatened
Release of Constituents of Concern, (B) the generation, use, storage, treatment,
transportation,  or disposal of  Constituents  of Concern,  or (C)  occupational
safety and health,  industrial  hygiene,  land use or the  protection  of human,
plant or animal health or welfare,  in any manner applicable to the Corporation,
including,   without  limitation,  the  Comprehensive   Environmental  Response,
Compensation,  and  Liability  Act (42 U.S.C.  ss.9601 et seq.),  the  Hazardous
Materials  Transportation  Act (49  U.S.C.  ss.1801  et seq.),  the Solid  Waste
Disposal  and Resource  Conservation  and  Recovery  Acts (42 U.S.C.  ss.6901 et
seq.), the Federal Water Pollution Control Act (33 U.S.C.  ss.1251 et seq.), the
Safe  Drinking  Water Act (42  U.S.C.  ss.300f  et seq.),  the Clean Air Act (42
U.S.C.  ss.7401 et seq.), the Toxic Substances Control Act (15 U.S.C. ss.2601 et
seq.), the Federal Insecticide,  Fungicide and Rodenticide Act (7 U.S.C. ss. 136
et seq.), the Occupational Safety and Health Act (29 U.S.C. ss.651 et seq.), the
Oil  Pollution  Control  Act (33  U.S.C.  ss.2701  et seq.),  and the  Emergency
Planning and Community  Right-to-Know Act (42 U.S.C.  ss.11001 et seq.), each as
amended or supplemented on or prior to the Closing Date, and any analogous local
or  state  statutes  and any  regulations  promulgated  pursuant  thereto;  (ii)
"Environmental  Liabilities" means any losses, damages,  out-of-pocket costs and
expenses arising under any Environmental Law (including liabilities to any third
parties arising thereunder) to the extent due to operations or conditions, prior
to the  Closing  Date,  of the Owned  Property  or the  Leased  Property;  (iii)
"Constituent of Concern" means any substance:  (A) the use, storage,  treatment,
or Release of which requires a permit or other authorization from any federal or
applicable  state or local  authority;  or (B) which is defined as a  "hazardous
waste," "hazardous  substance,"  "hazardous material," "oil," "toxic substance,"
"pollutant,"  "petroleum" or "contaminant" under any federal or applicable state
or local law; and (iv)  "Release"  has the same meaning as that provided for the
same term at 42 U.S.C. ss.9601.

         2.19 Insurance.  The Corporation's  tenant,  TAC,  maintains for itself
and/or on behalf of and for the benefit of the Corporation  policies of fire and
casualty,  liability  and other forms of  insurance in such  amounts,  with such
deductibles and against such risks and losses as are set forth on Schedule 2.20,
together with the terms thereof and all deductible amounts.  The Corporation has
not received any notice of  termination  with respect to any insurance  policies
since January 1, 1995.

         2.20  Suppliers.  Set  forth  on  Schedule  2.21  are the  names of all
suppliers from which the  Corporation  ordered,  purchased or leased  materials,
supplies, merchandise, equipment or other goods with an aggregate purchase price
of  $5,000 or more or  annual  lease  payments  of  $5,000  or more  during  the
twelve-month  period ended December 31, 1996 or with an aggregate purchase price
of $2,000 or more or  aggregate  lease  payments  of $2,000 or more  during  the
three-month  period  ended March 31, 1997 and the  approximate  amount for which
each supplier invoiced the Corporation during such period (each such supplier, a
"Significant  Supplier").  Except as set forth on Schedule 2.21, the Corporation
has not received any written  notice,  or, to the knowledge of the  Shareholder,
other notice that any such Significant Supplier will not sell

                                                      -13-


<PAGE>



or lease materials, supplies, merchandise,  equipment and any other goods to the
Buyer at any time  after the  Closing  Date on terms and  conditions  similar to
those  imposed  on current  sales to the  Corporation,  subject  to general  and
customary price increases.


                                                    ARTICLE III
                                      REPRESENTATIONS AND WARRANTIES OF BUYER

         Buyer  makes  the  following  representations  and  warranties  to  the
Shareholder,  each of which shall be deemed material,  and the  Shareholder,  in
executing  this  Agreement,  has  relied  and will rely on the  correctness  and
completeness of such representations and warranties:

         3.01.  Organization.   Buyer  is  a  limited  liability  company,  duly
organized,  validly existing and in good standing under the laws of the State of
New York. Buyer has all requisite  limited  liability  company power to carry on
its business as now conducted and to own its assets.

         3.02.  Consents.  All  requisite  consents  of  governmental  and other
regulatory  agencies,  foreign or domestic,  and of other parties required to be
received  by or on the part of Buyer to enable  Buyer to enter into and  perform
its  obligations  under this  Agreement in all material  respects  have been, or
prior to the Closing will have been, obtained.

         3.03.  Authority;  Binding  Nature of Agreement.  Buyer has the limited
liability  company  power  to enter  into  this  Agreement  and to  perform  its
obligations  hereunder.  The  execution  and delivery of this  Agreement and the
consummation of the transactions  contemplated  hereby have been duly authorized
by its members and managers and no other limited liability  company  proceedings
on the part of Buyer are  necessary to authorize  the  execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby.

         3.04. No Breach.  The execution and delivery of this Agreement by Buyer
and the  consummation of the transactions  contemplated  hereby will not violate
any provision of the Certificate of Formation or Operating Agreement of Buyer or
any judgment, order, injunction, decree or award against, or binding upon, Buyer
or upon its properties or assets.

         3.05. Authority for and Binding Nature of Agreement. This Agreement has
been duly executed and delivered by Buyer and is valid and binding upon Buyer in
accordance with its terms.

         3.06. Brokers.  Buyer has not engaged,  consented to, or authorized any
broker, finder,  investment banker or third party to act on its behalf, directly
or  indirectly,  as a broker  or  finder  in  connection  with the  transactions
contemplated by this Agreement, other than WF Realty, whose fee in the amount of
One Million  ($1,000,000.00) Dollars will be paid by Buyer pursuant to the terms
of a separate agreement. Buyer agrees to indemnify the Shareholder,  TAC, and/or
any of their respective affiliates and representatives against, and to hold them
harmless  from,  any  claim  for  brokerage  or  similar   commission  or  other
compensation which may be made against the Shareholder, TAC, and/or any of their
respective affiliates and representatives by any

                                                      -14-


<PAGE>



third party in connection with the transactions contemplated hereby, which claim
is based upon any action by Buyer or any of its representatives.

     3.07.  Financial  Capacity.  Buyer  will  have  available  at  the  Closing
financing  in an  amount  sufficient  to  close  the  transactions  contemplated
hereunder.


                                                    ARTICLE IV
                                               PRE-CLOSING COVENANTS

         The  Corporation  and the  Shareholder,  jointly and severally,  hereby
covenant and agree that,  from and after the date hereof,  and until the Closing
or earlier termination of this Agreement:

         4.01.  Access. (a) The Shareholder will, and will cause the Corporation
to,  afford  to  the  managers,  attorneys,  accountants  and  other  authorized
representatives of Buyer free and full access, during regular business hours and
upon reasonable notice, to the books,  records,  and Owned and Leased Properties
of the Corporation (including,  without limitation,  the work papers prepared by
the  Corporation's  auditors) and to the employees,  attorneys,  accountants and
other authorized  representatives of the Corporation and the Shareholder so that
Buyer  may  have  full   opportunity  to  make  such  review,   examination  and
investigation as it may desire of the Corporation's  business and affairs. Buyer
will be  permitted  to make  extracts  from or to make  copies of such books and
records as may be reasonably necessary.  Buyer shall indemnify,  defend and hold
the  Corporation  harmless  from and  against  any claim for damages or personal
injury suffered by any person entering into or upon the Owned or Leased Property
for the purpose of conducting any investigation or survey on behalf of Buyer.

     (b) Prior to the Closing  Date,  Buyer shall be  permitted  to conduct,  or
cause  to  be  conducted,   at  its  sole  cost  and  expense,   structural  and
environmental   audit/surveys  of  the  Owned  and  Leased  Property.   If  such
environmental  audit/survey  with respect to the Owned and Leased Property shall
reveal any  potential  environmental  concerns to Buyer,  Buyer may conduct,  or
cause to be  conducted,  on-site  soil and ground water  testing.  To the extent
practicable,  all such environmental  audits and surveys shall be conducted in a
manner which will not disrupt the business of the  Corporation  or any tenant on
the property.

     (c) Information obtained by Buyer or any of its representatives pursuant to
this Agreement  shall be held in strictest  confidence and shall not be revealed
to any third  party,  except to the extent  required  by law,  without the prior
written approval of the Corporation in each instance.

     4.02.  Conduct of Business.  The Corporation  shall conduct its business in
the ordinary and usual course consistent with past practice and make no material
change in its policies  without the prior written consent of Buyer,  which shall
not be unreasonably withheld or delayed.

     4.03.  Liabilities.  The  Corporation  shall not incur  any  obligation  or
liability, absolute or contingent, except for those incurred in the ordinary and
usual course of its business

                                                      -15-


<PAGE>



consistent  with past  practice;  nor shall it pay any  obligation  or liability
other  than:  (i)  regularly  scheduled  payments  or  maturities  of the debts,
liabilities,  and  obligations  set forth in the Balance  Sheet;  (ii) regularly
scheduled  payments or  maturities  of the debts,  liabilities  and  obligations
arising  after the Balance  Sheet Date in the  ordinary  course of its  business
consistent  with  past  practice;  and (iii)  regularly  scheduled  payments  or
maturities  of the  debts,  liabilities  and  obligations  under the  contracts,
agreements,   arrangements,  documents  and  instruments  listed,  described  or
contained in this Agreement or in the Schedules annexed to this Agreement.

         4.04.  Preservation  of  Business.  The  Shareholder  will use its best
efforts to preserve the Corporation's business organization intact.

         4.05.  No  Breach.  The  Shareholder  will (i) use its best  efforts to
assure that all of the representations and warranties  contained herein are true
in all  material  respects  as of the  Closing as if  repeated at and as of such
time, and that no material  breach or default shall occur with respect to any of
the covenants,  representations or warranties contained herein that has not been
cured by the Closing;  (ii) not voluntarily take any action or do anything which
will cause a breach of or default respecting such covenants,  representations or
warranties;  and  (iii)  promptly  notify  Buyer  of any  event  or  fact  which
represents or is likely to cause such a breach or default.

         4.06  Satisfaction  of Conditions.  Without  limiting the generality or
effect of any other provision hereof,  prior to the Closing, the Shareholder and
Buyer will each use their best efforts with due  diligence  and in good faith to
satisfy promptly all conditions  required hereby to be satisfied by each of them
prior to the consummation of the transactions contemplated hereby.

         4.07  Acquisition  Proposals.   During  the  period  (the  "Pre-Closing
Period")  between the date  hereof and the  earliest to occur of (a) the Closing
and (b) the  termination of this Agreement,  the Shareholder  will not, and will
cause  officers,  partners,  directors,  employees,  agents,  legal or financial
advisors or other  representatives  not to,  solicit,  initiate or consider  any
proposals  or offers  from any person or entity  relating  to, or enter into (or
continue)  any  discussions,   or  deliver  any  information,   concerning,  any
acquisition  or  purchase  of all or a material  amount of the assets of, or any
securities of, or any merger,  consolidation or other business combination with,
the Corporation (any such transaction, a "Competitive Transaction").  During the
Pre-Closing  Period, the Shareholder will promptly notify the Buyer in the event
of any proposal or offer in respect of a Competitive Transaction.

         4.08 Transfer  Taxes.  The  Shareholder  shall be liable for, and shall
timely pay, any and all  transfer,  documentary  and stamp taxes that may result
from, or be incurred in connection with, this Agreement,  to the extent that the
primary  obligation  to pay  such  tax is  imposed  by law on  Shareholder.  The
Shareholder shall, at its own expense,  properly complete, sign, and timely file
any and all  required tax returns with respect to such taxes and, if required by
applicable law, the Buyer will join in the execution of any such tax returns.

         4.09 Other Tax Matters.

         (a) INTENTIONALLY OMITTED


                                                      -16-


<PAGE>



         (b) Liability for Taxes and Related Matters.

         (i) Shareholder's  Liability for Taxes. The Shareholder shall be liable
for and shall indemnify the Buyer for all taxes  (including  without  limitation
any  obligation  to  contribute  to  the  payment  of  a  tax  determined  on  a
consolidated,  combined or unitary basis with respect to a group of corporations
that includes or included the  Corporation)  imposed on the  Corporation  or for
which the Corporation may otherwise be liable (1) for any taxable year or period
that ends on or before the Closing  Date or (2) with respect to any taxable year
or period  beginning  before and ending after the Closing  Date,  the portion of
such taxable year or period ending on and including the Closing Date.  Except as
set forth in clause  (iii) of this Section  4.09(b),  the  Shareholder  shall be
entitled to any refund of taxes of the Corporation attributable to such periods.

         (ii) Taxes for Short  Taxable  Year.  Each of the  Shareholder  and the
Buyer  shall  close the  taxable  period of the  Corporation  as of the close of
business on the Closing  Date,  unless such action is  prohibited by law. In any
case where  applicable  law prohibits the  Corporation  from closing its taxable
year on the  Closing  Date then,  for  purposes  of clause  (i) of this  Section
4.09(b),  the  determination  of the taxes of the Corporation for the portion of
the year or period  ending on, and the  portion of the year or period  beginning
after,  the Closing Date shall be determined on the basis of an interim  closing
of the  books as of the close of  business  on the  Closing  Date,  except  that
exemptions,  allowances  or deductions  that are  calculated on an annual basis,
such as the deduction for depreciation,  shall be ratably  apportioned on a time
basis.

         (iii)  Carryforwards  of  Losses.  The  Buyer  is  free  to  cause  the
Corporation to elect, where permitted by law, to carry forward any net operating
loss, net capital loss, charitable  contribution or other item arising before or
after the Closing Date that would,  absent such  election,  be carried back to a
taxable  period of the  Corporation  ending on or before the Closing  Date.  The
Buyer shall be entitled  to any refund of income  taxes paid by the  Corporation
before the  Closing  Date,  to the extent that such  refund is  attributable  to
losses or deductions of the Corporation that accrue after the Closing Date.

         (c) Assistance and Cooperation. After the Closing Date, the Shareholder
shall:

         (i) assist (and cause its  affiliates and  subsidiaries  to assist) the
Buyer and its  affiliates in preparing any tax returns or reports that the Buyer
and its affiliates are responsible for preparing and filing;

         (ii)  cooperate  fully in preparing for any audits of, or disputes with
taxing authorities regarding, any tax returns of the Corporation; and

         (iii) make  available to the Buyer,  the Buyer's  affiliates and to any
taxing authority as reasonably requested all information,  records and documents
relating to taxes of the Corporation.

         (d)  Transfer  Taxes.  Notwithstanding  any  other  provision  of  this
Agreement to the contrary, the Shareholder shall be liable for, and shall timely
pay' any and all transfer,  documentary and stamp taxes that may result from, or
be incurred in connection with, the

                                                      -17-


<PAGE>



transactions  contemplated by this Agreement,  including without  limitation the
New York  State real  estate  transfer  tax and the New York City real  property
transfer  tax,  to the extent  that the  primary  obligation  to pay such tax is
imposed by law on the  Shareholder.  The Shareholder  shall, at its own expense,
properly  complete,  sign, and timely file any and all required tax returns with
respect to such taxes and, if required by applicable law, the Buyer will join in
the execution of any such tax returns.

         (e) Survival of  Obligations.  The obligations of the parties set forth
in this  Section  4.09 shall be  unconditional  and absolute and shall remain in
effect  until the date  sixty  (60) days after the  expiration  of the  relevant
statute of limitations applicable to the taxes at issue.

         4.10 Other  Shareholder  Obligations.  The Shareholder  shall be liable
for, and shall pay at the Closing,  (i) the fees,  costs and expenses of Dames &
Moore in connection  with their limited Phase II  environmental  site assessment
and the related  report dated August 27, 1997, up to the amount of $25,000,  and
(ii)  one-half  (1/2) the Consent  Fee payable to the Lender  referred to in the
letter agreement dated the date hereof (the "Lender Consent") between the Lender
and the Corporation and joined in by Buyer.

                                 ARTICLE V
            CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER TO CLOSE

         The  obligations  of Buyer to enter into and  complete  the  Closing is
subject to the  fulfillment,  prior to or on the  Closing  Date,  of each of the
following  conditions,  any one or more of which may be waived by Buyer  (except
when the fulfillment of such condition is a requirement of law):

         5.01.   Representations   and  Warranties.   All   representations  and
warranties  of the  Shareholder  contained in this  Agreement and in any written
statement (including financial statements),  exhibit,  certificate,  schedule or
other document  delivered pursuant hereto or in connection with the transactions
contemplated hereby shall be true and correct in all material respects as at the
Closing Date, as if made at the Closing and as of the Closing Date.

         5.02.  Covenants.  The Shareholder shall have performed and complied in
all  material  respects  with all  covenants  and  agreements  required  by this
Agreement to be performed or complied with by it prior to or at the Closing.

         5.03. No Action.  No action,  suit,  proceeding or investigation  shall
have  been  instituted  and be  continuing  before  a court  or  before  or by a
governmental  body or agency,  or have been  threatened and be unresolved by any
governmental  body or agency,  to restrain or to prevent or to obtain damages in
respect of, the carrying out of the transactions  contemplated  hereby, or which
might  materially  affect the right of the Buyer to own the Shares or to operate
or control the assets,  properties  and  business of the  Corporation  after the
Closing Date.

         5.04. Consents, Licenses and Permits. The Corporation,  the Shareholder
and Buyer shall have each obtained all  consents,  licenses and permits of third
parties necessary for the performance by each of them of all of their respective
obligations under this Agreement, and

                                                      -18-


<PAGE>



such other  consents,  if any,  to prevent  (i) the Lease or any other  material
agreement between the Corporation and any third party from terminating,  or (ii)
any material  indebtedness  of the  Corporation  (other than the Mortgage)  from
becoming  due or being  subject to  becoming  due with the passage of time or on
notice as a result of the performance of this Agreement, any other provisions of
this Agreement to the contrary notwithstanding.

         5.05. No Material  Adverse Change.  There shall have been no materially
adverse  change at the Closing Date in the financial  consolidation,  results of
operations,  business,  assets and  properties,  or prospects of the Corporation
since the Balance Sheet Date.

         5.06.  Resignations.  All  members  of the  Board of  Directors  of the
Corporation and all officers of the Corporation  shall execute and deliver their
resignations as of the Closing Date.

         5.07.  Amendment of Lease.  Effective as of the Closing Date, the lease
between the Corporation,  as Landlord,  and TAC, as tenant,  dated July 28, 1995
(the "Tops  Operating  Lease")  shall be amended  substantially  as set forth in
Exhibit 5.07 (the "Amendment").

         5.08.  Lender Consent to  Continuance of Mortgage.  Effective as of the
Closing Date, the Mortgage and all related obligations of the Corporation to the
Lender shall remain in place pursuant to the Lender Consent.

         5.09.    INTENIONALLY OMITTED

         5.10.  Certain  Records.  Buyer shall have  received the  Corporation's
original minute books,  stock  certificate and corporate record books (including
unissued stock certificates and all cancelled stock  certificates),  Certificate
of  Incorporation  and  By-Laws  and  all  amendments  thereto  (the  "Corporate
Documents").

         5.11. Certification. Buyer shall have received a certification from the
Shareholder  under Section  1445(b)(2) of the Code and the rules and regulations
thereunder,  in a form reasonably acceptable to Buyer, stating the Shareholder's
taxpayer  identification number and that the Shareholder is not a foreign person
(the "Section 1445(b)(2) Certificate").

         5.12.  Transfer Taxes. Buyer shall have received,  properly  completed,
all required transfer,  stamp and other similar tax returns duly executed by the
Shareholder  in  a  form  reasonably  acceptable  to  Buyer  (collectively,  the
"Transfer Tax Returns"), together with evidence reasonably satisfactory to Buyer
that the Shareholder has paid all transfer, stamp and other similar taxes due or
becoming due in connection with the transactions contemplated hereby.

         5.13.  Due  Diligence  Review.  Buyer shall be  satisfied,  in its sole
discretion,  with  the  results  of  its  due  diligence  investigation  of  the
Corporation, the Owned Property and the Leased Property.

         5.14. Resolutions of the Board of Directors.  Buyer shall have received
from  the  Shareholder  a  certified  copy of the  resolutions  of the  Board of
Directors of the Shareholder

                                                      -19-


<PAGE>



approving this Agreement and  authorizing the  consummation of the  transactions
contemplated hereby (the "Shareholder Board Resolutions").

         5.15. Delivery of Stock Certificates.  There will be delivered to Buyer
by the Shareholder certificates  representing the Shares, duly endorsed in blank
for transfer or accompanied  by duly executed stock powers  endorsed in blank to
the Buyer (the "Share Certificates").


                                                    ARTICLE VI
                                     CONDITIONS PRECEDENT TO THE OBLIGATION OF
                                             THE SHAREHOLDER TO CLOSE

         The obligation of Shareholder to enter into and complete the Closing is
subject to the  fulfillment,  prior to or on the  Closing  Date,  of each of the
following conditions,  any one or more of which may be waived by the Shareholder
(except when the fulfillment of such condition is a requirement of law).

         6.01.   Representations   and  Warranties.   All   representations  and
warranties of Buyer  contained in this  Agreement and in any written  statement,
schedule or other document  delivered  pursuant hereto or in connection with the
transactions  contemplated  hereby  shall be true and  correct  in all  material
respects as at the Closing Date, as if made at the Closing and as of the Closing
Date.

     6.02.  Covenants.  Buyer shall have  performed and complied in all material
respects  with all  covenants and  agreements  required by this  Agreement to be
performed or complied with by it prior to or at the Closing.

     6.03. No Actions. No action, suit, proceedings, or investigation shall have
been  instituted,  and  be  continuing,  before  a  court  or  before  or  by  a
governmental body or agency, or have been threatened,  and be unresolved, by any
governmental body or agency to restrain or prevent, or obtain damages in respect
of, the carrying out of the transactions contemplated hereby.

     6.04.  Amendment  of Lease.  Effective  as of the  Closing  Date,  the Tops
Operating Lease shall be executed.

     6.05.  Lender  Consent to  Continuance  of  Mortgage.  Effective  as of the
Closing Date, the Mortgage and all related obligations of the Corporation to the
Lender shall remain in place pursuant to the Lender Consent.

     6.06.  Transfer  Taxes.  The Buyer will have  received  properly  completed
transfer,  documentary and stamp tax returns that may be required as a result of
the transactions contemplated by this Agreement duly executed by the Shareholder
in a form reasonably  acceptable to the Buyer, together with evidence reasonably
satisfactory to the Buyer that the

                                                      -20-


<PAGE>



Shareholder  shall have paid all  transfer,  documentary  and stamp taxes due or
becoming due in connection with the transactions contemplated hereby.


                                                    ARTICLE VII
                                                      CLOSING

         7.01. Location. The Closing provided for herein shall take place at the
office of Jones,  Day, Reavis & Pogue at 10:00 o'clock a.m. on November 5, 1997,
or at such  other  time and place as may be  mutually  agreed to by the  parties
hereto. Such date is referred to in this Agreement as the "Closing Date."

         7.02.  Items to be Delivered by the  Shareholder.  At the Closing,  the
Shareholder will deliver or cause to be delivered to Buyer:

                  (a)      the Share Certificates;

                  (b)      the Directors and Officers Resignation;

                  (c)      the Amendment;

                  (d)      the Lender Consent;

                  (e)      INTENTIONALLY OMITTD;

                  (f)      the Corporate Documents;

                  (g)      the Section 1445(b)(2) Certificate;

                  (h)      the Transfer Tax Returns;

                  (i)      the Shareholder Board Resolutions;

                  (j)  such   other   certified   resolutions,   documents   and
certificates as are required to be delivered by the Shareholder  pursuant to the
provisions of this Agreement and such other agreements, documents or instruments
as are customary for the consummation of the transactions contemplated hereby.

         7.03.  Items to be  Delivered  by Buyer.  At the  Closing,  Buyer  will
deliver or cause to be delivered to the Shareholder:

                  (a) A wire  transfer  of funds in the  amount of the  Purchase
Price set forth in Section 1.02 hereof  subject to all  adjustments as set forth
in Section 1.03 hereof;

                  (b)  Such   other   certified   resolutions,   documents   and
certificates as are required to be delivered by Buyer pursuant to the provisions
of this Agreement.

                                                      -21-


<PAGE>





                                                   ARTICLE VIII
                                   SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION

         8.01. Survival.  The parties hereto agree that none of their respective
representations,   warranties,   covenants  and  agreements  contained  in  this
Agreement  shall survive the Closing,  except that (i) the  representations  and
warranties  contained in Section(s)  2.01,  2.03,  2.04, 2.06, 2.07, 2.08, 2.10,
2.11, 2.12, 2.13, 2.14, 2.15, 2.16, 2.17, 2.18, 2.19 and 2.20, shall survive the
Closing for a period of one (1) year;  (ii) the  representations  and warranties
contained  in  Sections  2.02 and 2.05 will  survive the Closing for five years:
(iii) the representations and warranties  contained in Section 2.09 will survive
until  the date 60 days  after  the  expiration  of the  applicable  statute  of
limitations;  and (iv) the covenants and agreements in Section 1.04 will survive
indefinitely.

         8.02.  Indemnification  by Shareholder.  TAC agrees to save, defend and
indemnify Buyer, its officers, directors,  employees, agents and representatives
(the  "Indemnified  Parties")  against and hold them  harmless  from any and all
liabilities, losses, claims, demands, obligations,  damages, deficiencies, costs
or  expenses  of  every  kind,  nature  and  description,  fixed  or  contingent
(including, without limitation, counsel fees and expenses in connection with any
action, claim or proceeding relating to such liabilities) arising out of (i) any
transaction  or event  commencing  or  occurring on or prior to the Closing Date
relating to the  Corporation or its  properties or business,  which is not fully
disclosed or provided for in the Balance  Sheet,  this  Agreement or the several
schedules  and  exhibits  hereto,   including,   without  limitation,   any  tax
liabilities  to the extent not so  reflected  or  reserved  against  the Balance
Sheet;  (ii) a  breach  by the  Shareholder  or  TAC of any  representations  or
warranties contained in Article II; (iii) environmental damages,  response costs
(including response costs under CERCLA or any comparable state, local or foreign
law),  remediation  expenses and disbursements  resulting from or arising out of
any action, suit or administrative proceeding brought by any person or entity or
governmental  authority  and any  settlement or  compromise  thereof,  provided,
however,  that such damages and costs relate to  Constituents  of Concern  which
were  discharged  onto the Owned Property or Leased  Property by the Corporation
prior to the  Closing  Date;  and  (iv)  any  liability  for  transfer  taxes in
connection with the transaction contemplated by this Agreement.

         8.03.  Defense of Claims.  Buyer agrees to give  written  notice to TAC
with reasonable promptness of any claim asserted against an Indemnified Party in
respect of which TAC may be liable under this Agreement (a "Third Party Claim"),
which notification shall be accompanied by a written statement setting forth the
basis of such claim and the manner of  calculation  thereof.  The giving of such
written notice shall be a condition precedent to any liability of TAC hereunder.
TAC shall have the right to defend any such  claim at its own  expense  and with
counsel  of its  choice  and Buyer may  participate  in such  defense,  if it so
chooses, with its own counsel and at its own expense;  provided that TAC will be
liable for the fees and  expenses of counsel  employed by the Buyer or any other
Indemnified Party for any period during which TAC has not assumed the defense of
the Third Party Claim whether or not TAC ultimately chooses to defend such Third
Party Claim. The parties hereto will cooperate in the defense of any Third Party
Claim  whether or not TAC chooses to defend such Third Party Claim.  Neither the
Indemnified  Party nor TAC will admit any liability  with respect to, or settle,
compromise

                                                      -22-


<PAGE>



or discharge,  any such Third Party Claim  without the prior written  consent of
the other, with consent will not be unreasonably withheld.

     8.04.  Certain  Limitations.  The  liability  of TAC for claims  under this
Agreement shall be limited by the following:

                  (a) no claim for  indemnification  shall be  asserted by Buyer
under this Article  VIII until the  aggregate  amount of all losses  relating to
this Agreement  exceeds  $100,000,  and then only to the extent that such losses
exceed $100,000.

                  (b) the amount of losses otherwise  recoverable by Buyer under
this Article VIII shall be reduced by the amount of insurance  proceeds actually
received  and  self-insured  retentions  applied by Buyer  with  respect to such
losses.

                  (c)  recovery  against TAC under this Article VIII shall in no
event exceed the Purchase Price.

                  (d) the  liability  of TAC to Buyer  under this  Article  VIII
shall  be  limited  to the  time  period  for  the  survival  of the  applicable
representations  and warranties  under Section 8.01,  except for any losses with
respect to which the Buyer has given TAC written notice prior to such date.

         8.05.  Indemnification  by Buyer. The Buyer agrees to save,  defend and
indemnify the Shareholder and TAC, its officers,  directors,  employees,  agents
and  representatives  (the "Buyer  Indemnified  Parties")  against and hold them
harmless from any and all liabilities,  losses,  claims,  demands,  obligations,
damages, deficiencies,  costs or expenses of every kind, nature and description,
fixed or contingent (including, without limitation, counsel fees and expenses in
connection with any action,  claim or proceeding  relating to such  liabilities)
arising out of (i) any transaction or event  commencing or occurring  subsequent
to the Closing Date relating to the  Corporation  or its properties or business;
(ii) a breach by the Buyer of any  obligation to the Lender,  its  successors or
assigns pursuant to the Mortgage or any agreement  executed and delivered to the
Lender in  connection  therewith;  (iii) any claim  against  TAC by LaSalle  (as
hereafter  defined),  its  successors  or  assigns,  pursuant  to  that  certain
Reaffirmation  of Environmental  Indemnity  Agreement and Consent of Indemnitors
(other  than any claim in respect of which TAC is  obligated  to  indemnify  the
Buyer pursuant to Section 8.02(iii)),  or that certain Reaffirmation of Guaranty
of Payment and Consent of Indemnitor, both dated the date hereof, by and between
the Corporation and TAC and LaSalle National Bank, as Trustee for the Registered
Holders of Chase Commercial  Securities Corp.,  Commercial Mortgage Pass-Through
Certificates,   Series  1996-1  ("LaSalle"),   or  the  Environmental  Indemnity
Agreement or Guaranty referred to therein.

         8.06. Defense of Claims. The affected Buyer Indemnified Party agrees to
give  written  notice  to the  Buyer  with  reasonable  promptness  of any claim
asserted against any Buyer  Indemnified  Party in respect of which the Buyer may
be liable  under  Section  8.05 of this  Agreement  (a  "Seller  Claim"),  which
notification shall be accompanied by a written statement setting forth the basis
of such claim and the manner of calculation thereof. The giving of such

                                                      -23-


<PAGE>



written  notice  shall be a condition  precedent  to any  liability of the Buyer
hereunder.  The Buyer  shall  have the right to defend any such claim at its own
expense  and with  counsel  of its choice  and the Buyer  Indemnified  Party may
participate in such defense,  if it so chooses,  with its own counsel and at its
own expense; provided that the Buyer will be liable for the fees and expenses of
counsel employed by the Buyer  Indemnified Party for any period during which the
Buyer has not assumed the defense of the Seller  Claim  whether or not the Buyer
ultimately  chooses  to defend  such  Seller  Claim.  The  parties  hereto  will
cooperate in the defense of any Seller Claim whether or not the Buyer chooses to
defend such Seller Claim. Neither the Buyer Indemnified Party nor the Buyer will
admit any liability  with respect to, or settle,  compromise  or discharge,  any
such Seller Claim without the prior written consent of the other,  which consent
will not be unreasonably withheld.

         8.07.  Rights  Without  Prejudice.  The  rights  of Buyer and any Buyer
Indemnified  Party under this  Article  VIII are without  prejudice to any other
rights or remedies  that it or they may have by reason of this  Agreement  or as
otherwise  provided by law. The rights of Shareholder and any Buyer  Indemnified
Party under this  Article  VIII are  without  prejudice  to any other  rights or
remedies  that it or they may have by reason of this  Agreement  or as otherwise
provided by law.

                                                    ARTICLE IX
                                                      WAIVER

         9.01.  Waiver.  Any condition to the  performance of the Shareholder or
Buyer which  legally may be waived on or prior to the Closing Date may be waived
at any time by the party  entitled  to the  benefit  thereof by action  taken or
authorized  by an  instrument  in  writing  executed  by the  relevant  party or
parties. The failure of any party at any time or times to require performance of
any  provision  hereof  shall in no manner  affect  the right of such party at a
later  time to  enforce  the same.  No waiver by any party of the  breach of any
term,  covenant,  representation  or warranty  contained in this  Agreement as a
condition  to such party's  obligations  hereunder  shall  release or affect any
liability  resulting from such breach,  and no waiver of any nature,  whether by
conduct or  otherwise,  in any one or more  instances,  shall be deemed to be or
construed  as a further or  continuing  waiver of any such  condition  or of any
breach  of  any  other  term,  covenant,  representation  or  warranty  of  this
Agreement.

                                                     ARTICLE X
                                             MISCELLANEOUS PROVISIONS

         10.01. Expenses. Each of the parties hereto shall bear its own expenses
in connection herewith.

         10.02. Confidential Information.  Each party agrees that such party and
its representatives will hold in strict confidence all information and documents
received from the other  parties and, if the  transactions  herein  contemplated
shall not be consummated,  each party will continue to hold such information and
documents  in strict  confidence  and will  return to such other  party all such
documents  (including  the  documents  annexed to this  Agreement)  then in such
receiving  party's  possession  without  retaining  copies  thereof;   provided,
however, that each

                                                      -24-


<PAGE>



party's  obligations  under this Section 10.02 to maintain such  confidentiality
shall not apply to any information or documents that are in the public domain at
the time  furnished by the other or that become in the public domain  thereafter
through any means other than as a result of any act of the receiving party or of
its agents,  officers,  directors or shareholders  which constitutes a breach of
this Agreement, or that are required by applicable law to be disclosed.

         10.03.  Modification,  Termination  or Waiver.  This  Agreement  may be
amended,  modified,  superseded or terminated,  and any of the terms, covenants,
representations,  warranties or conditions  hereof may be waived,  but only by a
written instrument executed by the party waiving compliance.  The failure of any
party at any time or times to require  performance of any provision hereof shall
in no manner affect the right of such party at a later time to enforce the same.

         10.04.  Publicity.  The Shareholder on one hand, and Buyer on the other
hand,  each agrees not to disclose to any person or entity or to make any public
statement  of the  transactions  proposed  by this  Agreement  without the prior
written consent of the other party hereto,  except any such disclosure  required
by law. Notwithstanding the preceding sentence, the Corporation, the Shareholder
and  Buyer  understand  that  certain  disclosures  regarding  the  transactions
contemplated by this Agreement must be made to parties whose consent or approval
may be  required  in  connection  with  the  transactions  contemplated  by this
Agreement, and to the attorneys,  accountants and other professional advisors of
the parties  hereto,  and that such  disclosures  may be made  without any prior
written consent.

         10.05. Notices. Any notice or other communication required or which may
be given hereunder shall be in writing and either be delivered  personally or by
reputable  overnight  delivery  service,  or be mailed,  certified or registered
mail, postage prepaid, as follows:

     If to the Shareholder, to: the addresses above written

                     With a copy to:
                     Joseph M. Oriolo, Esq.
                     Greenbaum, Rowe, Smith, Ravin, Davis & Himmel
                     99 Wood Ave. South
                     Iselin, NJ 08830

     and if to Buyer,  to: the address above written,  attention  James Stomber,
Esq.

         The parties may change the persons and  addresses  to which the notices
or other  communications  are to be sent to it by giving  written  notice of any
such change in the manner provided herein for giving notice.

         10.06.  Binding Effect and Assignment.  This Agreement shall be binding
upon and inure to the  benefit of the  successors  and  assigns  of the  parties
hereto; provided, however, that no assignment of any rights or delegation of any
obligations  provided  for herein may be made by any party  without  the express
consent of the other party.


                                                      -25-


<PAGE>



     10.07.  Entire  Agreement.  This  Agreement  contains the entire  agreement
between the parties with respect to the subject matter hereof.

     10.08.  Exhibits and Schedules.  All Exhibits and Schedules  annexed hereto
and the documents and instruments referred to herein or required to be delivered
simultaneously  herewith  or at the Closing  are  expressly  made a part of this
Agreement as fully as though completely set forth herein,  and all references to
this  Agreement  herein  or in any of such  Exhibits,  Schedules,  documents  or
instruments  shall  be  deemed  to  refer  to and  include  all  such  Exhibits,
Schedules, documents and instruments.

     10.09.  Governing Law. This Agreement shall be governed by and construed in
accordance  with the laws of the State of New York applicable to agreements made
and to be  performed  entirely  within that state,  excluding  the choice of law
rules thereof.

     10.10. Choice of Forum; Consent to Service of Process and Jurisdiction. Any
suit,  action or  proceeding  brought in connection  with this  Agreement or any
document executed in connection  herewith may be brought solely in the courts of
the State of New York located in New York County, or in the United States courts
for the Southern  District of New York and all parties to this Agreement  hereby
submit to the exclusive  jurisdiction of such courts for the purpose of any such
suit, action or proceeding.  Each party hereby  irrevocably waives any objection
which it may now or hereafter have to the laying of venue of any suit, action or
proceeding  brought in such  courts and hereby  further  irrevocably  waives any
claim that any such  suit,  action or  proceeding  brought in any such court has
been brought in any inconvenient forum.

         EACH PARTY HERETO WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY
SUCH SUIT, ACTION OR PROCEEDING BROUGHT BY EITHER PARTY HERETO
AGAINST THE OTHER PARTY HERETO.

         10.11. No Third Party  Beneficiaries.  Except as specifically set forth
or referred to herein,  nothing  herein is  intended  or shall be  construed  to
confer  upon any  person or  entity  other  than the  parties  hereto  and their
successors  or  assigns,  any  rights  or  remedies  under or by  reason of this
Agreement.

         10.12. Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent  jurisdiction to be invalid, void
or  unenforceable,   the  remainder  of  the  terms,  provision,  covenants  and
restrictions  of this Agreement  shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.

         10.13.  Specific Performance.  The Shareholder  acknowledges that money
damages would not be a sufficient  remedy for any breach by it of this Agreement
and agrees that Buyer shall be entitled to specific  performance  and injunctive
relief as remedies for any breach by the Shareholder.

         10.14.  Remedies  Cumulative.  Except as otherwise provided herein, the
remedies  provided  herein  shall be  cumulative  and  shall  not  preclude  the
assertion  by any party  hereto of any other  rights or the seeking of any other
remedies against any other party hereto.

                                                      -26-


<PAGE>




     10.15. Counterparts.  This Agreement may be executed in counterparts,  each
of which shall be deemed to be an original,  but which together shall constitute
one and the same instrument.

     10.16.  Section Headings.  The section headings contained in this Agreement
are inserted for  convenience of reference only and shall not affect the meaning
or interpretation of this Agreement.

         WITNESS  the  execution  of this  Agreement  as of the date first above
written.

                                                     SHAREHOLDER:
                                                     TOPS APPLIANCE CITY OF
                                                       NEW YORK, INC.
Attest:
/s/Alexander Burlotos                            /s/Thomas Zambelli
___________________________                  By:________________________________
Alexander Burlotos, Assistant Secretary          Thomas Zambelli, Vice President

                                     BUYER:
Witness:
                                                     SSP, L.L.C.
/s/James F. Stomber                             /s/Steven C. Witkoff
___________________________________          By:________________________________
James F. Stomber, Counsel                     Steven C. Witkoff, Managing Member
                                      TAC:
                                                TOPS APPLIANCE CITY, INC.
Attest:

/s/ Alexander Burlotos                          /s/ Thomas Zambelli
___________________________________          By:________________________________
Alexander Burlotos, Assistant Secretary         Thomas Zambelli,
                                                Senior Vice President

                                                      -27-


<PAGE>



                                            TOPS APPLIANCE REALTY, INC.

                                             STOCK PURCHASE AGREEMENT

                                                 LIST OF SCHEDULES

<TABLE>
<S>                                         <C>

Schedule 2.04                               Agreements Breached by Execution of Stock Purchase
                                            Agreement; Consents

Schedule 2.06                               Exceptions to GAAP preparation

Schedule 2.06(b)                            Attach copies of Balance Sheets

Schedule 2.07                               Debts, Liabilities and Obligations not on Balance Sheet of
                                            the Company

Schedule 2.08                               Adverse Developments

Schedule 2.09                               Taxes

Schedule 2.09(a)(ii)                        List of Jurisdictions

Schedule 2.09(a)(xiv)                       Adjusted Basis in Assets

Schedule 2.10                               Liens and Licensing Agreements

Schedule 2.11                               Pending Litigation

Schedule 2.12                               Attach copy of Title Policy

Schedule 2.12(b)                            Landlord Consent

Schedule 2.12(c)                            Improvements to Owned Property

Schedule 2.13                               Listed Agreements

Schedule 2.14                               Permits and Licenses

Schedule 2.15                               Banking Arrangements

Schedule 2.20                               Insurance Policies

Schedule 2.21                               Suppliers

</TABLE>


<PAGE>





















                                            TOPS APPLIANCE REALTY, INC.


                                             STOCK PURCHASE AGREEMENT














November 5, 1997



<PAGE>



                                                   Schedule 2.04

                                                     Consents

NONE, except consent of Lender is required.


<PAGE>



                                                   Schedule 2.06

                                          Exceptions to GAAP preparation

NONE


<PAGE>



                                                 Schedule 2.06(b)

                                                  Balance Sheets

See attached.


<PAGE>



                                                   Schedule 2.07

                                        Debts, Liabilities and Obligations
                                        not on Balance Sheet of the Company

NONE




<PAGE>



                                                   Schedule 2.08

                                               Adverse Developments


NONE,  except that from time to time, the Corporation has distributed  dividends
to the Shareholder in amounts equal to or less than net operating profits of the
Corporation during the fiscal period immediately preceding such distribution.


<PAGE>



                                                   Schedule 2.09

                                                       Taxes

TAC is currently undergoing sales and use tax audits by the States of New Jersey
and  New  York.  TAC  may  have  executed  waivers  of  applicable  statutes  of
limitations with respect to such audits.



<PAGE>



                                               Schedule 2.09(a)(ii)

                                                   Jurisdictions

New York State



<PAGE>



                                               Schedule 2.09(a)(xiv)

                                             Adjusted Basis in Assets

See attached.


<PAGE>



                                                   Schedule 2.10

                                          Liens and Licensing Agreements


NONE,  except the  Mortgage  from  Lender and  exceptions  to title  policy (see
Schedule 2.12).



<PAGE>



                                                   Schedule 2.11

                                                Pending Litigation

NONE


<PAGE>



                                                   Schedule 2.12

                                               Copy of Title Policy

See attached.


<PAGE>



                                                 Schedule 2.12(b)

                                                 Landlord Consent

The Leased  Property  is subject to the  Mortgage  and the  Lender's  consent is
required.



<PAGE>



                                                 Schedule 2.12(c)

                                          Improvements to Owned Property

NONE


<PAGE>



                                                   Schedule 2.13

                                                 Listed Agreements

NONE,  except the  Mortgage and the  following  additional  agreements  with the
Lender, all dated July 28, 1995 (or otherwise as noted):

Environmental Indemnity Agreement
Assignment of Permits and Contracts with Respect to the Property
Replacement Reserve and Security Agreement
Tenant  Improvement,  Leasing  Commission and Debt Service  Reserve and Security
Agreement  Post-Closing  Undertaking  Letter  Commitment  Letter relating to the
above indebtedness, dated April 26, 1995, as amended May 19, 1995, June 1, 1995,
June 8, 1995, June 19, 1995, and June 27, 1995.



<PAGE>



                                                   Schedule 2.14

                                               Permits and Licenses



1.       Certificates of Occupancy
2.       Business License for Electronics Store*
3.       Business License as Electronic Home Appliance Dealer*


*Held by Tops Appliance City, Inc., as Tenant



<PAGE>



                                                   Schedule 2.15

                                               Banking Arrangements
<TABLE>
<S>                                         <C>                                 <C>


Financial                                                                       Authorized
Institution                                 Type                                Persons

Chase Manhattan Bank                        Investment Acct.
                                            Acct. #1130171


Chase Manhattan Bank                        Money Market Acct.
                                            Acct. #006-991912

Summit Bank                                 Money Market Business               Robert Gross
                                            (Checking)                          Philip Schmidt
                                            Acct. #093709452                    Richard Jones
                                                                                Sandy Belli

Chase Manhattan                             Mortgage Loan


</TABLE>

<PAGE>



                                                   Schedule 2.20

                                                Insurance Policies
<TABLE>
<S>                                 <C>                               <C>                        <C>

Insurance                           Type of                           Expiration
Company                             Insurance                          Date                      Deductible

Liberty Mutual                      General Liability                  9/03/97                   $0

Liberty Mutual                      Property                           10/11/97                  $25,000

Liberty Mutual                      Boiler and Machinery               10/11/97                  $25,000

New Jersey Manufacturers            Workers compensation               9/03/97                   $0

</TABLE>

<PAGE>


                                                   Schedule 2.21

                                                     Suppliers

NONE





<PAGE>

                                                   Exhibit 5.07

                                             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 term of this Lease for a
                  further  period of ten years  following the end of the Initial
                  Term (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  Term  (herein
                  referred to as the "Second  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.

                  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:


                                                      -1-


<PAGE>



                  (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  ($500,000)  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 benefit 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  FIVE  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

                                                      -2-


<PAGE>



                  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 4.1(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  hereof)."  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




                                                      -3-


<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



                                                      -4-


<PAGE>



     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




                                                      -5-


<PAGE>



                                  Exhibit 10.34

                                           DEBENTURE EXCHANGE AGREEMENT

                  Debenture  Exchange  Agreement dated as of August 20, 1997, by
and between Tops Appliance City, Inc., a New Jersey corporation ("Tops"), having
an address at 45  Brunswick  Avenue,  CN 14,  Edison,  New Jersey  08818 and BEA
ASSOCIATES,  a New York partnership ("BEA"),  having an address at 153 East 53rd
Street, New York, New York 10022.
                  WHEREAS,  pursuant to an indenture (the "Indenture")  dated as
of November 30, 1993 by and between Tops and Midlantic National Bank as Trustee,
Tops  issued   $40,000,000  in  principal   amount  of  its  6  1/2  Convertible
Subordinated Debentures due 2003 (the "Debentures"); and
                  WHEREAS, BEA, on behalf of itself and the accounts it manages,
is the registered and beneficial owner of $15,375,000 in principal amount of the
Debentures (the "BEA Debentures"); and
                  WHEREAS,  BEA has agreed to exchange the BEA  Debentures for a
new debenture (the "New Debenture") having the terms and conditions set forth in
this Agreement, all on the terms and conditions set forth in this Agreement; and
                  WHEREAS, Tops has agreed to issue the New Debentures to BEA in
exchange for the BEA  Debentures,  all on terms and conditions set forth in this
Agreement;
                  NOW,  THEREFORE,  in  consideration  of the  foregoing and the
mutual covenants contained herein, Tops and BEA agree as follows:
                  1. Effective  September 1, 1997 (the  "Effective  Date"),  BEA
will sell, transfer and assign all of its right, title and


<PAGE>



interest in and to the BEA Debentures to Tops in exchange for the  consideration
set  forth  in  paragraph  2  of  this  Agreement.  BEA  will  deliver  to  Tops
certificate(s) representing the BEA Debentures along with bond powers or similar
transfer instrument, duly endorsed for transfer, or take such other steps as may
be  reasonably  appropriate  and  necessary  in order to effect the transfer and
assignment of the BEA Debentures to Tops.
                  2. In consideration of the purchase of the BEA Debentures from
BEA, on the Effective  Date, Tops will issue and deliver to BEA a certificate or
certificates  representing  New  Debentures  in the  principal  amount  of Seven
Million Six Hundred Eighty Seven Thousand Five Hundred and No/00 ($7,687,500.00)
Dollars.  The New  Indenture  shall be in form of  Exhibit  A  attached  to this
Agreement.
                  3. The New  Debentures  will be freely  tradeable and have the
same terms and conditions as the Debentures,  including  without  limitation the
same  interest  rate  and  interest  payment  dates,  subject  to the  following
exceptions:
               a. The conversion price of the New Debentures will
be One and 75/00 Dollars  ($1.75) per share of Tops common stock;  provided that
the New  Debentures  may not be  converted to common stock prior to February 28,
1999;  and  provided  further  that if,  upon  conversion  BEA owns 12.5% of the
outstanding  common  stock of Tops,  it shall  have the right to  designate  one
director, and if BEA owns 25% of such outstanding stock, it shall have the right
to



                                                      -2-

<PAGE>



designate two directors; and
               b. The New Debentures will rank pari passu with the
Debentures in respect of the payment of principal and interest; and
               c.  Tops will have no right to effect an optional
redemption of the New Debentures; and
                d. In the event a third party offers to purchase
all of the  common  stock  of Tops or the  securities  held by BEA at a price in
excess of $1.75 per share and Tops' Board of  Directors  rejects  such an offer,
BEA may convert its New  Debentures  and sell to such third party,  subject to a
right of first refusal in favor of Tops for thirty (30) days.
                  4. On or before October 31, 1997,  Tops will prepare,  execute
and file with the Securities and Exchange Commission a registration statement on
Form S-3 or such other form as Tops may be  qualified  to use for the purpose of
registering  the New  Debentures  and the  common  stock of Tops  issuable  upon
conversion of the New  Debentures  under the  Securities Act of 1933, as amended
(the "Act"),  and will thereafter  cause such  registration  statement to become
effective under the Act.
                  5. Tops hereby represents to BEA that the execution,  delivery
and  performance of this Agreement has been duly authorized by all necessary and
appropriate  corporate action by Tops, that this Agreement constitutes the legal
and binding obligation of Tops,  enforceable against Tops in accordance with its
terms, and that the New Debentures have been duly authorized and will be



                                                      -3-

<PAGE>



validly issued by Tops and will  constitute the valid and binding  obligation of
Tops in accordance with their terms.
                  6. BEA  represents  to Tops that the  execution,  delivery and
performance  of this  Agreement  has been duly  authorized  and  approved by all
necessary  corporate  action  on  the  part  of  BEA  and  that  this  Agreement
constitutes the binding obligation of BEA, enforceable against BEA in accordance
with its terms.
                  7. The parties  acknowledge that, if required,  Tops will take
all appropriate  action to offer to all other holders of Debentures the right to
receive  New  Debentures  on the same  terms and  conditions  as  applied to BEA
pursuant to this  Agreement.  Such action will be taken in  accordance  with all
requirements of the Indenture, the Act and any other agreement,  statute, law or
regulation  binding upon or applicable to Tops. Tops agrees that it will provide
to any such  holder  terms  no more  favorable  to such  holder  than the  terms
applicable to BEA and the New  Debentures  under this  Agreement.  To the extent
necessary or appropriate,  if Tops issues additional New Debentures  pursuant to
an indenture or other  agreement,  BEA agrees to execute (if  applicable) and be
bound by the terms of such indenture or agreement,  provided that such terms are
no more burdensome or detrimental to BEA than the terms of this Agreement.
                  8. This Agreement  constitutes  the entire  agreement  between
Tops and BEA relating to the subject  matter  hereof,  shall be binding upon and
inure to the benefit of the parties hereto and



                                                      -4-

<PAGE>



their respective  successors and assigns;  may be amended only in writing signed
by the  parties  hereto,  and shall be  governed by the laws of the State of New
Jersey, excluding the conflicts law provisions of such state.
                  IN WITNESS  WHEREOF,  this  Agreement  has been  executed  and
delivered as of the date first written above.

                                                    TOPS APPLIANCE CITY, INC.


                                                     /s/Robert Gross
                                                  BY:________________________

                                                        Robert Gross
                                                  NAME:______________________

                                                        Chairman/CEO
                                                  TITLE:_____________________



                                                     BEA ASSOCIATES

                                                        /s/Todd M. Rice
                                                  BY:________________________

                                                         Todd M. Rice
                                                   NAME:______________________

                                                         Senior Vice President
                                                   TITLE:_____________________




                                                      -5-

<PAGE>



                                            EXHIBIT A



                                     TOPS APPLIANCE CITY, INC.

                          6 1/2% Convertible Subordinated Debenture Due 2003



                                                      CUSIP #


                                                      $_______________________



                                             TOPS APPLIANCE CITY, INC.

promises  to  pay  to  ___________________________________,  or  its  registered
assigns,       the       principal       sum      of       _____________________
____________________________________  (or greater or lesser  amount as indicated
on the Schedule of Exchanges of  Definitive  Securities  on the reverse  hereof)
Dollars on November  30, 2003,  and to pay  interest  thereon as provided on the
reverse hereof until the principal hereof is paid or duly provided for.

Interest Payment Dates:  February 28 and August 31.

Record Dates:  February 15 and August 15.

         The provisions on the back of this  certificate are  incorporated as if
set forth on the face hereof.

         IN WITNESS WHEREOF, TOPS APPLIANCE CITY, INC. has caused this
instrument to be duly signed.


Authenticated:                                       TOPS APPLIANCE CITY, INC.

First National Bank of
  Chicago, as Registrar                            By:_________________________
                                                        Philip M. Schmidt
                                                            President
By:__________________________
    Authorized Officer

Dated:_______________________                      By:_________________________
                                                         Thomas L. Zambelli
                                                        Chief Financial Officer



                                                      -6-


<PAGE>



<PAGE>


                                            EXHIBIT 22

                                    SUBSIDIARIES OF THE REGISTRANT







Tops Appliance City of New York, Inc.


<PAGE>

                                           Exhibit 24.1

                                    CONSENT OF INDEPENDENT AUDITORS



To Tops Appliance City, Inc.:

As indepenedent public  accountants,  we hereby consent to the incorporation
by reference of our report dated February 18, 1998,  included in this Form 10-K,
into Tops Appliance City,  Inc.'s  previously filed  Registration  Statements on
Form S-8 No.  33-54180  pertaining to the Section 401(k) Salary Savings Plan and
Trust of Tops Appliance City,  Inc. and on Form S-8 No.  33-68508  pertaining to
the Tops Appliance City, Inc. Employee Stock Purchase Plan.


                                                        Arthur Andersen L.L.P.



Roseland, New Jersey
March 30, 1998

<PAGE>



                          Exhibit 24.2


                 Consent of Independent Auditors


     We consent to the incorporation by reference in the Registration Statements
(1) Form S-8 No. 33-54180,  pertaining to the Section 401(k) Salary Savings Plan
and Trust of TOPS Appliance City, Inc. and (2) Form S-8 No. 33-68508, pertaining
to the TOPS  Appliance  City,  Inc.  Employee Stock Purchase Plan, of our report
dated April 15, 1997 with respect to the consolidated  financial  statements and
schedule of TOPS Appliance City, Inc. included in the Annual Report (Form 10-K),
for the year ended December 30, 1997.



                                                           ERNST & YOUNG LLP



MetroPark, New Jersey
March 24, 1998



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