<PAGE>

               UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D. C. 20549
                                  FORM 10-K

(Mark One)
/X/  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 (FEE REQUIRED)
     For the fiscal year ended January 3, 1998
                                         OR
/ /  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE SECURITIES
     EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
     For the transition period from  __________  to  ___________

                       Commission file number  0-9904

                             ARDEN GROUP, INC.

              (Exact name of registrant as specified in its charter) 
        Delaware                                  95-3163136
--------------------------------      ------------------------------------
(State or other jurisdiction of       (I.R.S. Employer Identification No.)
 incorporation or organization) 

2020 South Central Avenue, Compton, California                 90220      
-----------------------------------------------              ---------
  (Address of principal executive offices)                   (Zip Code)

Registrant's telephone number, including area code (310) 638-2842
                                                   --------------

Securities registered pursuant to Section 12(b) of the Act: 

     Title of each class      Name of each exchange on which registered
     -------------------      -----------------------------------------
            None                            None            

Securities registered pursuant to Section 12(g) of the Act:

                                Class A Common Stock
                                --------------------
                                 (Title of class) 

Indicate by check mark whether the registrant (1) has filed all reports 
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 
1934 during the preceding 12 months (or for such shorter period that the 
registrant was required to file such reports), and (2) has been subject to 
such filing requirements for the past 90 days.  Yes  /X/      No  / /

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

The aggregate market value of the voting stock held by non-affiliates of the 
registrant based on the closing price of such stock on March 6, 1998 was:     

                     Class A Common Stock  $38,407,765 

The number of shares outstanding of the registrant's classes of common stock 
as of March 6, 1998 was:

                        554,134 of Class A Common Stock
                        342,246 of Class B Common Stock 


This report, including the Exhibits, contains a total of 63 pages.  An index 
to the Exhibits appears on pages 46 and 47, inclusive.

<PAGE>

                                    PART I


ITEM 1.   BUSINESS;

ITEM 2.   PROPERTIES; AND

ITEM 3.   LEGAL PROCEEDINGS

GENERAL

The Registrant, Arden Group, Inc. (sometimes hereinafter referred to as the 
"Company"), is a holding company with certain real estate holdings and 
conducts other operations through its wholly-owned subsidiary, Arden-Mayfair, 
Inc. ("Arden-Mayfair").  Arden-Mayfair's wholly-owned subsidiary, Gelson's 
Markets ("Gelson's"), operates supermarkets in the greater Los Angeles, 
California area. Another wholly-owned subsidiary of Arden-Mayfair, AMG 
Holdings, Inc. ("AMG Holdings"), distributed and serviced facsimile and other 
communications equipment and parts prior to the sale of its operating assets 
and liabilities in 1993.  See "Arbitration Proceedings" below and Note 14 of 
Notes to Financial Statements.  

Arden Group is headquartered at 2020 South Central Avenue, Compton, 
California 90220 and its telephone number is (310) 638-2842.

               BUSINESS AND PROPERTIES OF ARDEN-MAYFAIR AND GELSON'S

MARKET OPERATIONS

Gelson's currently operates 13 supermarkets in the greater Los Angeles, 
California area; ten under the name "Gelson's" and three under the name 
"Mayfair."  Gelson's and Mayfair are self-service cash-and-carry markets and 
offer a broad selection of local and national brands as well as a limited 
number of private label items.  The Gelson's supermarkets target the consumer 
who values superior customer service and merchandise presentation, selection 
and quality.

STORE FORMATS AND BUSINESS STRATEGY

Gelson's business strategy is to offer a comfortable shopping experience 
which is superior to its competitors in terms of customer service and 
merchandise selection and presentation.  The goal of this strategy is to 
continue to develop and maintain Gelson's loyal base of customers.  Central 
elements of this strategy are as follows:

MERCHANDISE.  The merchandise offerings in the markets are tailored in 
response to Gelson's customer profile.  Gelson's stores, which range in size 
from approximately 29,000 to approximately 40,000 square feet, typically 
carry a wide range of items, including all of the traditional grocery 
categories such as produce, dry groceries, meats, dairy, wine and liquor, 
floral, sushi and health and beauty aids.  Gelson's perishables are premium 
products, which are rigorously maintained and culled as appropriate to assure 
quality and freshness. Gelson's merchandising emphasizes specialty items such 
as imported foods and unusual delicatessen items, and items found in service 
departments such as seafood, sit-down coffee areas and bakeries.


                                       1
<PAGE>

The three Mayfair stores, which are smaller than Gelson's stores 
(approximately 18,000 to approximately 26,000 square feet), offer a 
merchandise selection which is less broad than at Gelson's. 

SERVICE.  Gelson's emphasizes customer service by operating a variety of 
departments offering personal service including seafood, delicatessen, 
floral, sushi and bakery departments.  Some Gelson's stores include 
additional service departments such as fresh pizza and pasta preparation and 
coffee bars. Additionally, the stores at Calabasas and Northridge offer 
banking and pharmacy services through third parties.  Stores are staffed so 
that, even at peak times, customer checkout time is minimized.  In addition 
to checkers, there are personnel assigned to bagging and carrying out 
purchases.  All employees are encouraged to know customers by name and assist 
them whenever possible.  All stores offer Company credit cards to qualified 
customers as well as allowing customers the option of paying for their 
purchases with cash, checks or credit and debit cards.  Stores are typically 
open 12 hours to 18 hours per day, with hours of operation determined by 
local code or lease provisions, or as appropriate for the business 
characteristics of a specific area.

PRESENTATION.  All stores are maintained in accordance with extremely high 
standards.  Personnel continuously fill and face shelves with groceries. 
Produce and other perishables are aggressively trimmed and culled to maintain 
quality and appearance. 

PRICING.  The pricing strategy at the stores is to be competitive within 
their market niches, ranging from the more traditional to the more exotic, 
specialty or high-end products.

EXPANSION AND STORE DEVELOPMENT.  Management regularly evaluates the 
feasibility of opening new stores and remodeling existing stores in order to 
maximize their appeal to consumers and their profit potential.  Total capital 
expenditures for 1997, including the new Gelson's Market in Northridge, and 
costs of remodeling, new equipment and leasehold improvements on existing 
stores, were $7,896,000. The Company has entered into an option to ground 
lease certain property which, if the option were exercised, would be 
developed, in part, as a new market location.  The exercise of the option and 
the ultimate development of a supermarket there is subject to the Company's 
or a possible developer's due diligence, fulfilling certain conditions and 
the Company and the developer obtaining certain entitlements.

ADVERTISING AND PROMOTION.  Gelson's advertises in newspapers on a limited 
basis.  Direct advertising is limited (primarily newsletters and direct mail) 
and is typically "event" rather than "price" oriented; emphasizing, for 
example, special holiday selections, specialty items and services, recipes 
and new products.


                                       2
<PAGE>

COMPETITION

The retail grocery business is very competitive nationwide.  It is especially 
intense in the greater Los Angeles area. Competition in the supermarket 
business is based primarily upon price, merchandise quality, service and 
location.  The number of stores, market share and availability of capital are 
also important competitive factors.  Gelson's is in direct competition with 
numerous local outlets of regional and national supermarket chains (most of 
which have greater resources and a larger market share than Gelson's), 
independent grocery stores, convenience stores, specialty and gourmet markets 
and food departments in mass merchandise stores and club stores.  Competition 
also exists from many other types of retailers with respect to particular 
products.  Stores compete primarily by offering a combination of high-quality 
products and superior customer service.  The Company also believes that 
Gelson's prime store locations and long-standing reputation add to its 
competitive strength.

SEASONALITY

Gelson's business is somewhat seasonal, with sales tending to increase during 
the last quarter of the year because of the holiday season.

SUPPORT AND OTHER SERVICES

Each store has an on-site stockroom, the size of which varies for each store. 
In addition, Gelson's operates an 89,000 square foot warehouse in the City of 
Commerce, California, which distributes fresh fruits and vegetables, liquor, 
wine and a limited number of grocery, meat, delicatessen and supply items to 
stores.

The bulk of all merchandise purchasing is accomplished through Gelson's 
office in Encino, California.  Approximately one third of the purchases are 
distributed through the central warehouse; the remainder are delivered 
directly to the stores from manufacturers or wholesalers.  The central 
purchasing and distribution operations are conducted based on electronic 
in-store ordering systems.  Stores place orders for merchandise an average of 
five times per week, with perishable goods ordered more frequently.

The largest supplier for the stores is Certified Grocers, a cooperative 
wholesaler which has been a supplier for over twenty years and which 
accounted for approximately 21.5% of Gelson's purchases in 1997.  No other 
supplier accounts for a material percentage of Gelson's purchases.  The 
Company believes that the negative impact of a loss of Certified Grocers as a 
supplier for Gelson's likely would be mitigated by a combination of events, 
which could include:  (i) purchasing certain items for direct store delivery, 
thereby freeing warehouse capacity to allow other items to be purchased 
through the warehouse, and (ii) purchasing certain products through other 
wholesalers in the area.  However, such a loss could have a short-term 
adverse effect on the performance of Gelson's.


                                       3
<PAGE>

EMPLOYEES

Gelson's has approximately 900 full-time and 770 part-time employees.  Most 
store level and warehouse employees of Gelson's are covered by collective 
bargaining agreements that require union membership and establish rates of 
pay, hours of work, working conditions and procedures for the orderly 
settlement of disputes.  In general, these agreements have been negotiated on 
an area-wide and industry-wide basis.  The Company believes that its employee 
relations are good. 

In addition, Arden-Mayfair has approximately 59 full-time employees at its 
executive and headquarters offices, some of whom are covered by a collective 
bargaining agreement.

GOVERNMENTAL REGULATION

Gelson's is subject to regulation by a variety of governmental agencies, 
including the U.S. Food and Drug Administration, the California Department of 
Alcoholic Beverage Control, and state and local health departments.  The 
Company believes that Gelson's and Mayfair store operations comply with all 
federal, state and local health, environmental and other laws and 
regulations.  Although the Company cannot predict the effect of future laws 
or regulations on the operations of Gelson's, expenditures for continued 
compliance with current laws are not expected to have a material effect on 
capital expenditures, earnings or Gelson's competitive position.

LEGAL PROCEEDINGS

The Company and certain of its subsidiaries are involved in a number of 
pending legal and/or administrative proceedings.  Such proceedings are not 
expected individually or in the aggregate to have a material adverse effect 
upon either the Company's consolidated financial position or results of 
operations.  See "Management's Discussion and Analysis of Financial Condition 
and Results of Operations."  

PROPERTIES

The Company currently owns two of its freestanding supermarket properties and 
a shopping center in which a Gelson's Market is located.  The shopping center 
owned by the Company, located in Calabasas, California, consists of 
approximately 18,000 square feet of space leased to twelve tenants in 
addition to the Gelson's Market.  Ten supermarkets and the warehouse and 
distribution facility which services its markets are leased.  Supermarkets 
are leased for terms which may include options of up to 20 years under leases 
which generally stipulate a minimum rental against a percentage of gross 
sales.  The average term remaining on the supermarket leases, including 
renewal options, is approximately 20 years.  The 13 markets range in size 
from approximately 18,000 to approximately 40,000 square feet.  Gelson's 
warehouse and distribution facility in the City of Commerce, California, is 
approximately 89,000 square feet and the term of the lease expires in 
September 2005.

After extensive site, demographic and competitive analysis the Company has 
decided not to enter the Santa Barbara marketplace and has entered into 
escrow to sell the property it purchased in 1996.  The sale is expected to 
finalize in the first quarter of 1998.  In 1996 the Company entered into an 
option for a long-term ground lease to develop, build and open a new Gelson's 
market, the development, building and opening of which is subject to, among 
other things, the Company's 


                                       4
<PAGE>

or a developer's due diligence, receipt of necessary governmental 
entitlements and the developer fulfilling certain conditions.  The Company 
has entered into a confidentiality agreement and non-binding letter of intent 
with a developer to assist in the development of the location.

The Company owns its 30,000 square foot corporate headquarters office 
building in Compton, California.  In addition, AMG Holdings leases a 64,000 
square foot building in Los Angeles consisting of office and warehouse space, 
which is subleased until the lease on the property expires in 2012 (including 
renewal options).

ARBITRATION PROCEEDINGS

Pursuant to an Asset Purchase Agreement dated September 1, 1993 (the "Asset 
Purchase Agreement"), by and among Telautograph Corporation (currently known 
as AMG Holdings), the Company and Danka Industries, Inc. (the "Purchaser") 
and Danka Business Systems PLC ("Danka"), on September 17, 1993 AMG Holdings 
sold its communication equipment business and substantially all the operating 
assets and certain liabilities of such business to the Purchaser, a 
wholly-owned indirect subsidiary of Danka, for a cash purchase price of 
approximately $45,780,000 (which included $1,000,000 received for a covenant 
not-to-compete), subject to certain post-closing adjustments.  In fiscal 
1993, AMG Holdings booked a gain related to the sale of approximately 
$620,000, net of income taxes of $424,000.  

The purchase price and the gain were subject to adjustment after resolution 
of disputes between AMG Holdings and Purchaser concerning the assets and 
liabilities transferred to the Purchaser.  In March 1997, the Company 
received notice of a decision rendered in the arbitration proceedings 
relating to the sale in 1993 of its communication equipment business to Danka 
Business Systems PLC.  The arbitrators upheld Arden's claim for approximately 
$2,200,000 and awarded Danka on its counterclaims approximately $4,065,000.  
As a result of this decision, the Company paid Danka approximately $1,865,000 
in April 1997.

As the result of an earlier arbitration, Arden was awarded, in April 1994, 
$1,750,000.  No income or expenses related to that award and no expenses 
related to the arbitration completed in 1997 were recognized in the 1994 and 
1995 statements of operations of Arden.  In the third and fourth quarters of 
1996, arbitration costs, net of taxes, which exceeded the first arbitration 
award ($311,000 and $145,000, respectively) were expensed as discontinued 
operations.

In the concluding phase of the arbitration proceedings, the arbitrators 
determined that neither party was a prevailing party and, therefore, neither 
party was awarded costs and fees incurred by the other party with respect to 
the proceedings.

The above arbitration awards, the associated expenses not expensed in 1996 
and the resulting adjustments to the purchase price for the transaction 
resulted in the Company recognizing a loss, net of taxes, from discontinued 
operations of $2,738,000 in 1997.


                                       5
<PAGE>

                                      PART II


ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER 
         MATTERS

(a)  The Company's Class A Common Stock is traded over-the-counter in the NASDAQ
     National Market System.  During the past two years, the range of high and
     low sales prices (not including markups, markdowns or commissions) for each
     quarterly period was, according to NASDAQ, the following:

<TABLE>
<CAPTION>
                                         1997                       1996
                                         ----                       ----
                                    High       Low             High       Low
                                    ----       ---             ----       ----
         <S>                       <C>        <C>             <C>       <C> 
         1st Quarter                62        54              66        56-1/2
         2nd Quarter                64-1/2    54              79        65
         3rd Quarter                92        56-1/2          67-1/2    58
         4th Quarter               109        80-1/2          62        54
</TABLE>

     There is no established public trading market for the Company's Class B 
     Common Stock, which is subject to various restrictions on transfer.

     Effective February 23, 1998 the listing and maintenance requirements of 
     the NASDAQ Stock Market for securities listed on the NASDAQ National 
     Market and the NASDAQ Small Cap Market were changed.  The new 
     maintenance requirements for the NASDAQ National Market increased the 
     required amount of public float (shares held by the public, exclusive of 
     shares owned directly or indirectly by officers, directors and 10% 
     stockholders) to 750,000 shares and in February 1998 the Company was 
     informed that the Class A Common Stock would be delisted from the NASDAQ 
     National Market since it did not meet this new maintenance requirement.  
     The Company has requested a hearing before the NASDAQ Stock Market 
     seeking an extension of time within which to amend its Certificate of 
     Incorporation so as to allow it to accomplish a stock split which would 
     result in the Class A Common Stock being in compliance with the new 
     maintenance requirement for public float.  Pending the completion of the 
     hearing, the Company has a temporary exception to the new maintenance 
     requirement for its Class A Common Stock.  Subject to obtaining such 
     extension and stockholder approval at its Annual Meeting of Stockholders 
     presently scheduled for June 1998 of an Amendment to its Certificate of 
     Incorporation increasing the authorized number of shares of Class A 
     Common Stock and Class B Common Stock, the Company will effectuate a 
     four-for-one stock split of its Class A Common Stock and Class B Common 
     Stock.  This proposed stock split would be accomplished by a stock 
     dividend of three additional shares of Class A Common Stock and three 
     additional shares of Class B Common Stock being distributed to holders 
     of Class A Common Stock and Class B Common Stock, respectively, for each 
     share of Class A Common Stock and each share of Class B Common Stock 
     held and would result in the public float of the Class A Common Stock 
     being in compliance with the new maintenance requirements for continued 
     listing on the NASDAQ National Market.  If the Company is successful in 
     obtaining the requested extension, it is anticipated that it will 


                                       6
<PAGE>

     distribute in July 1998 a stock dividend of three shares of Class A 
     Common Stock for each share of Class A Common Stock held and three 
     shares of Class B Common Stock for each share of Class B Common Stock 
     held.  No assurance can be given that the Company will be successful in 
     obtaining the requested extension and if the Company is not successful 
     in obtaining the requested extension or reaching some other acceptable 
     arrangement with the NASDAQ Stock Market, the Company's Class A Common 
     Stock will be delisted from the NASDAQ National Market.
     
(b)  As of January 3, 1998, there were 1,440 holders of record of the Company's
     Class A Common Stock, with aggregate holdings of 554,134 shares of Class 
     A Common Stock.  This does not include 339,300 shares of the Company's 
     Class A Common Stock owned by AMG Holdings.  As of the same date, there 
     were 11 holders of record of the Company's Class B Common Stock, with 
     aggregate holdings of 342,246 shares of Class B Common Stock.

(c)  No dividends have been paid on either Class A Common Stock or Class B
     Common Stock during the past three years.  Cash or property dividends on 
     Class B Common Stock are restricted to an amount equal to 90% of any 
     dividend paid on Class A Common Stock.


                                       7
<PAGE>

Item 6.   SELECTED FINANCIAL DATA OF ARDEN GROUP, INC.

(In Thousands, Except Per Share Data and Other Data)

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
                                              1997          1996           1995           1994            1993
----------------------------------------------------------------------------------------------------------------
Operations For The Year:                                                                                        
----------------------------------------------------------------------------------------------------------------
<S>                                       <C>           <C>            <C>            <C>             <C>       
Sales                                     $274,354      $252,019       $242,962       $246,199        $246,912  
Gross profit                               109,988        99,167         95,053         95,021          94,150  
Operating income                            12,861         5,922          8,212          8,305           6,411  
Other income (expense), net                  1,422           679          3,560           (183)             50  
Income tax expense                          (5,586)       (2,622)        (4,661)        (3,273)         (2,623) 
                                          --------      --------       --------       --------        --------  
Income from continuing operations,                                                                              
  net of income taxes                        8,697         3,979          7,111          4,849           3,838  
                                                                                                                
Income (loss) from discontinued                                                                                 
  operations, net of income taxes           (2,738)         (456)                                        2,836  
                                          --------      --------       --------       --------        --------  
  Net income                                $5,959        $3,523         $7,111         $4,849          $6,674  
                                          --------      --------       --------       --------        --------  
                                          --------      --------       --------       --------        --------  
                                                                                                                
Depreciation on continuing operations       $5,049        $4,642         $3,308         $3,576          $4,110  
----------------------------------------------------------------------------------------------------------------
Financial Position At Year End:                                                                                 
----------------------------------------------------------------------------------------------------------------
Total assets                               $88,126       $91,248        $89,478        $91,322        $112,471  
Working capital                            $13,898       $23,142        $28,706        $36,506         $51,549  
Long term debt                              $7,663        $6,663         $7,695         $6,465          $7,654  
Stockholders' equity                       $48,260       $55,737        $53,827        $57,836         $67,535  
Capital expenditures                        $7,896       $12,841        $10,731         $6,948          $6,406  
----------------------------------------------------------------------------------------------------------------
Per Share Data: 
----------------------------------------------------------------------------------------------------------------
Income from continuing operations, net of                                                                       
  income taxes                               $8.42         $3.57          $5.47          $3.18           $2.38  
Income (loss) from discontinued                                                                                 
operations, net of income taxes              (2.65)         (.41)                                         1.76  
                                          --------      --------       --------       --------        --------  
  Net income                                 $5.77         $3.16          $5.47          $3.18           $4.14  
                                          --------      --------       --------       --------        --------  
                                          --------      --------       --------       --------        --------  
----------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding      1,032,777     1,115,227      1,299,002      1,527,128       1,612,724  
----------------------------------------------------------------------------------------------------------------
</TABLE>

ALL YEARS ARE 52 WEEKS EXCEPT FOR 1997 WHICH IS 53 WEEKS.


                                       8
<PAGE>

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

The Company cautions readers that any forward-looking statements contained in 
this Form 10-K or made by the management of the Company involve risks and 
uncertainties, and are subject to change based on various important factors. 
The following factors, among others, could affect the Company's financial 
results and could cause the Company's financial performance to differ 
materially from the expectations expressed in any forward-looking statement 
made by or on behalf of the Company--the strength of the U.S. economy; the 
effects of and changes in fiscal policies and laws, inflation and competition 
from other supermarkets and retailers with a food presentation.

RESULTS OF OPERATIONS

1997 COMPARED TO 1996

During 1997, the Company had net income of $5,959,000 compared to net income 
of $3,523,000 during 1996.  Pretax income from continuing operations was 
$14,283,000 for 1997 compared to pretax income of $6,601,000 for 1996.

During 1997, the Company's operating income was $12,861,000 compared to 
operating income of $5,922,000 during 1996. 

Sales from the Company's 13 supermarkets in the greater Los Angeles area were 
$274,354,000 in 1997 (a 53 week fiscal year), an increase of 8.9% from 1996 
(a 52 week fiscal year), when sales were $252,019,000.  Same store sales for 
a comparable 52 week period increased 5.0% in 1997 compared to the prior 
year. The increase in sales is due to a number of factors including a more 
robust economy in Southern California, the effect of product pricing 
decisions and the positive impact of store remodel activity.  Additionally, 
the Calabasas store, opened in February 1996, has experienced higher sales 
and lower expenses in 1997 compared to 1996.  In November 1997, the Company 
opened a Gelson's Market in Northridge, California, the sales of which are 
significantly below management's projections.  Sales at Northridge are 
expected to improve as construction activity is completed and additional 
tenants occupy the shopping center in which the store is located, although 
there are no assurances that full occupancy of the center will increase store 
sales to acceptable levels.  The foregoing statement is a forward looking 
statement and actual future sales are dependent on a number of factors which 
may or may not occur including, among others, the timing and completion of 
construction activity, the timing and occupancy of the other tenant spaces, 
the success of the other tenants and competition from other supermarkets in 
the trade area.

The Company's gross profit as a percentage of sales was 40.1% in 1997 
compared to 39.3% in 1996.  Added controls over product costs and increased 
volume rebates, buying and promotional allowances were factors in increasing 
margins. 

Delivery, selling, general and administrative ("DSG&A") expenses as a 
percentage of sales were 35.4% in 1997 compared to 36.9% for 1996.  DSG&A 
activity in 1997 reflects an improvement in labor efficiency at the stores, 
improved purchasing of store services and supplies as well as 


                                       9
<PAGE>

lower liability and workers' compensation insurance costs, offset partially 
by preopening costs at the Northridge store and expenses related to other 
real estate projects.  The higher expense in 1996 is due, in part, to 
preopening expenses, promotional costs and higher than expected operating 
costs associated with the Gelson's market in Calabasas which opened in 
February 1996.  Additionally, in 1996, certain costs relating to the sublease 
of the former AMG Holdings headquarters facility were expensed.  Included in 
1996 DSG&A is a gain of $584,000 relating to the property sale of a former 
Mayfair market and a $385,000 expense to settle a claim against the Company 
for costs and damages relating to the alleged contamination of real property 
previously owned by the Company.

Interest and dividend income was $1,536,000 in 1997 compared to $1,728,000 
for 1996 primarily due to a decrease in earnings rates.  

Interest expense decreased to $702,000 in 1997 from $879,000 in 1996 
primarily due to 1996 interest expense resulting from a Federal income tax 
audit and lower average levels of fixture financing debt in 1997 compared to 
1996.

Other income (expense) includes realized gains on the sale of marketable 
securities of $605,000 and $36,000 in 1997 and 1996, respectively.

Statement of Financial Accounting Standards No. ("SFAS") 115, "Accounting for 
Certain Investments in Debt and Equity Securities" requires that unrealized 
holding gains and losses for trading securities be included in the 
determination of net income.  All securities are defined as trading 
securities or available-for-sale securities.  Management determines the 
appropriate classification of its investments in marketable securities at the 
time of purchase and reevaluates such determination at each balance sheet 
date.  Securities that are bought and held principally for the purpose of 
selling them in the near term are classified as trading securities and 
unrealized holding gains and losses are included in earnings.  Debt 
securities for which the Company does not have the intent or ability to hold 
to maturity and equity securities are classified as available-for-sale 
securities.  As a result, no net unrealized gains or losses related to 
trading securities were recognized in 1997 compared to net unrealized losses 
of $151,000 in 1996.  Unrealized gains in 1997 on available-for-sale 
securities were $416,000 (net of income tax expense of $275,000) and were 
recorded as a separate component of shareholders' equity.

For an analysis of the Company's provision for income taxes, see Note 10 of 
Notes to Financial Statements.

The loss on discontinued operations resulted from a decision in an 
arbitration proceeding relating to the sale in 1993 of the Company's 
communication equipment business and is reflected as an adjustment to the 
purchase price.  See Note 14 of Notes to Financial Statements.

Income per share from continuing operations and net income increased due to 
increased income from continuing operations and net income for the period, as 
well as from a reduction in the weighted average shares outstanding due to 
the purchase of Class A Common Stock in August 1997.  See Capital 
Expenditures/Liquidity.  See Note 1 of Notes to Financial Statements. 


                                      10
<PAGE>

1996 COMPARED TO 1995

During 1996, the Company had net income of $3,523,000 compared to net income 
of $7,111,000 during 1995.  Pretax income from continuing operations was 
$6,601,000 for 1996 compared to pretax income of $11,772,000 for 1995.  As 
described below, included in 1996 income is $151,000 of net unrealized losses 
related to marketable securities as compared to net unrealized gains of 
$1,430,000 in 1995.

During 1996, the Company's operating income from its supermarket operations 
was $5,922,000 compared to operating income of $8,212,000 during 1995.

Sales from the Company's 12 supermarkets in the greater Los Angeles area were 
$252,019,000 in 1996, an increase of 3.7% from 1995, when sales were 
$242,962,000 (1995 included sales from a Mayfair Market in West Hollywood 
which was closed in October 1995).  Chain wide same store sales increased 
1.1% in 1996 compared to the prior year, even though sales of certain stores 
have been negatively impacted by competitors opening new stores in Gelson's 
trading areas. In January 1996, the Company opened a shopping center it 
developed in Calabasas, California which includes a Gelson's market and 
spaces for additional tenants. Although sales of the Calabasas market have 
improved, they have not met projections.  The Company has entered into leases 
for most of the tenant spaces, some of which were unoccupied at the end of 
the year.  It is anticipated that supermarket sales will improve as Gelson's 
and the other tenants become established in the trading area.  The foregoing 
statement is a forward looking statement and actual future sales are 
dependent on a number of factors which may or may not occur including, among 
others, the timing of the opening of the vacant spaces, the success of the 
other tenants and competition from other supermarkets and shopping centers.

The Company's gross profit from supermarket operations as a percentage of 
sales was 39.3% in 1996 compared to 39.1% in 1995 primarily due to a sales 
mix in 1996 favoring higher gross margin categories.

Delivery, selling, general and administrative ("DSG&A") expenses as a 
percentage of sales were 36.9% for 1996 compared to 35.7% for 1995.  The 
increase in 1996 is due, in part, to higher than anticipated operating costs 
at Calabasas as well as preopening expenses associated with that market.  
Also, an increase in real estate and remodel expenditures during the past 
year resulted in $1,334,000 higher depreciation expense in 1996 compared to 
1995 offset partially by a decrease in equipment rent.  In 1996, the Company 
expensed $385,000 to settle a claim against it for costs and damages relating 
to the alleged contamination of real property previously owned by the 
Company.  In 1995, the Company recognized contractual credits of $966,000 
against health and welfare payments due the retail clerks and meat cutters 
unions.  No such credits were received in 1996. Included in 1996 DSG&A is a 
gain of $584,000 relating to the property sale of a former Mayfair market 
located in West Hollywood, California.

Interest and dividend income was $1,728,000 in 1996 compared to $2,702,000 in 
1995 due to decreased levels of investments and a decrease in earnings rates. 

Interest expense increased to $879,000 in 1996 from $559,000 in 1995 
primarily due to an increase in average fixture financing debt levels in 1996 
versus 1995 and interest resulting from a Federal income tax audit.


                                      11
<PAGE>

In 1996, the market value of the Company's aggregate holdings in marketable 
securities decreased from the market value of such holdings at December 30, 
1995.  Pursuant to SFAS 115, net unrealized losses of $151,000 related to 
marketable securities were reflected in income in 1996 compared to net 
unrealized gains of $1,430,000 in 1995.

For an analysis of the Company's provision for income taxes, see Note 10 of 
Notes to Financial Statements.

In 1996, the Company recognized in discontinued operations $456,000 of costs, 
net of income tax benefits of $305,000, associated with an arbitration of 
disputed items relating to the sale of its communication equipment business 
in 1993.  See Note 14 of Notes to Financial Statements. 

Net income per share is based on the weighted average number of common shares 
outstanding during the period.

LIQUIDITY AND CAPITAL RESOURCES

The Company has an ongoing program to remodel existing supermarkets and to 
add new stores.  In 1997, the Company had capital expenditures of 
approximately $7,896,000.  At January 3, 1998, there were no significant 
capital expenditure commitments.

After extensive site, demographic and competitive analysis the Company has 
decided not to enter the Santa Barbara marketplace and has negotiated the 
sale of the property it purchased in 1996 for a pretax gain of approximately 
$400,000.  The sale is expected to finalize in the first quarter of 1998.  In 
1996, the Company entered into an option to lease on a long-term basis a 
property on which a new Gelson's market would be built, the development and 
opening of which is subject to, among other things, the Company's due 
diligence, receipt of necessary governmental approvals and the developers 
fulfilling certain conditions.

The Company and its subsidiaries are subject to a myriad of environmental 
laws and regulations regarding air, water and land use, and the use, storage 
and disposal of hazardous materials. The Company believes it substantially 
complies, and has in the past substantially complied, with federal, state, 
and local environmental laws and regulations. However, a claim has been made 
against the Company in connection with a real property previously leased by a 
subsidiary of the Company by the current owner of such property.  The Company 
has been asked to pay for a portion of the cost of remediation of hazardous 
substances allegedly existing on such properties. The Company cannot at this 
time estimate the expenses it ultimately may incur in connection with the 
claim, however, it believes such expense will not be of a material amount. 
Although unexpected violations may occur in the future and although the 
Company cannot predict the effect of future laws or regulations on the 
Company's operations, expenditures for continued compliance with current laws 
are not expected to have a material impact on its capital expenditures, 
earnings or competitive position.

The Company utilizes a significant number of computer software programs 
including proprietary software.  To the extent the Company's software 
applications contain source codes that are unable to appropriately interpret 
the upcoming calendar Year 2000, some level of modification, or even possibly 
replacement of such applications, may be necessary.  The Company has made an 


                                      12
<PAGE>

assessment of the impact of the Year 2000 issue on its internal operations 
and has developed a plan to bring its computer systems into compliance before 
the end of 1999.  The plan addresses the modification or replacement of 
applications and operating systems to achieve timely Year 2000 compliance and 
also includes communication and analysis with outside vendors with whom the 
Company interfaces electronically.  Although it is not possible to quantify 
the aggregate cost of such modifications, the Company does not anticipate the 
cost will have a material adverse impact on its financial position or results 
of operations. The Company may be adversely affected if its vendors and 
service providers (included its banking relations) are unable to fully 
correct any Year 2000 problems they may have.

The Company has a credit facility with a bank with a revolving line of credit 
totaling $9,000,000 with a standby letter of credit subfacility in the amount 
of $5,000,000, and a non-revolving term loan line of credit totaling 
$10,000,000. In addition, the Company has a revolving line of credit with 
another bank in the amount of $3,000,000.  The Company borrowed $2,750,000 
and $2,500,000 against the term loan line of credit on December 30, 1995 and 
December 30, 1997, respectively, to finance store fixtures and equipment of 
which $4,104,000 was outstanding at January 3, 1998.  There were no 
outstanding balances against either of the revolving lines as of January 3, 
1998.  The Company's current cash position including marketable securities, 
the lines of credit and net cash provided by operating activities 
(approximately $26,059,000 for 1997) are the primary sources of funds 
available to meet the Company's current liquidity requirements. See Note 7 of 
Notes to Financial Statements for a description of the Company's credit lines.

In August 1997, the Company completed a self tender offer pursuant to which 
it purchased 212,619 shares of its Class A Common Stock for cash at $65 per 
share. The Company funded the aggregate purchase price of $13,820,000 from 
cash-on-hand, the liquidation of marketable securities and from a short-term 
bank loan of $5,000,000 under the Company's revolving line of credit.  By the 
end of September 1997, the Company had repaid the $5,000,000 bank loan from 
its working capital.

The Company's total liabilities to equity ratio increased to .82 at January 
3, 1998 from .64 at December 28, 1996 due to the reduction in equity related 
to the purchase of Class A Common Stock.  The Class A Common Stock purchase 
also negatively affected the Company's current ratio, which was 1.49 at 
January 3, 1998 compared to 1.96 at December 28, 1996.  The Company's current 
assets at the end of 1997 were approximately $5,100,000 less than at the end 
of 1996 primarily due to the use of funds for capital expenditures incurred 
in 1997 and the purchase of stock through the self tender.

The Company's cash position, including marketable securities, at the end of 
1997 was $22,722,000 compared to $26,829,000 at the end of 1996.  Cash not 
required for the immediate needs of the Company has been temporarily invested 
in marketable securities.  See Notes 1 and 2 of Notes to Financial 
Statements.  The Company is actively investigating opportunities for the use 
of these funds, primarily for the expansion of its supermarket operations.

RECENT ACCOUNTING STANDARDS

In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS 
130, "Reporting Comprehensive Income", which established standards for 
reporting and display of comprehensive income and its components.  This 
statement requires a separate statement to report the 


                                      13
<PAGE>

components of comprehensive income for each period reported.  The provisions 
of this statement are effective for fiscal years beginning after December 15, 
1997.  Management believes this statement may require expanded disclosure in 
the Company's financial statements.

In June 1997, the FASB also issued SFAS 131, "Disclosures About Segments of 
an Enterprise and Related Information".  The standard requires that companies 
disclose "operating segments" based on the way management disaggregates the 
company for making internal operating decisions.  The new rules will be 
effective for the 1998 fiscal year.  Abbreviated quarterly disclosure will be 
required beginning first quarter of 1999, with both 1999 and 1998 
information. The Company does not believe that the new standard will have a 
material impact on the reporting of its segments.


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

          Not applicable.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

          See Index to Consolidated Financial Statements, Supporting 
          Schedules and Supplemental Data.

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

          None.


                                      14
<PAGE>

                                   PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Identification of Directors

     Below is set forth certain information about each of the directors of 
     the Company as of March 6, 1998. Certain of this information has been 
     supplied by the persons shown.


<TABLE>
<CAPTION>


                                                               Principal Occupation (1)                         Director     Term
      Name                    Age                              and Other Directorships                          Since (2)   Expires
      ----                    ---                              ------------------------                         ---------   -------
 <S>                          <C>         <C>                                                                   <C>         <C>
 Bernard Briskin              73          Chairman of the Board of Directors, President and Chief Executive       1970       1998
                                          Officer of the Company and Arden-Mayfair, Inc., a subsidiary of
                                          the Company, and Chairman of the Board of AMG Holdings, Inc. and
                                          Gelson's Markets, both subsidiaries of Arden-Mayfair.

 John G. Danhakl              41          Partner, Leonard Green & Partners since March 1995. Managing            1995       1998
                                          Director of Donaldson Lufkin Jenrette Securities Corporation from
                                          March 1990 to February 1995.  Director of Big 5 Sporting Goods,
                                          Inc., Communications Power and Industries, Inc. and Twin
                                          Laboratories Corporation.

 Robert A. Davidow            55          Director and Vice Chairman of WHX Corporation since April 1991;         1993       1999
                                          private investor.

 Stuart A. Krieger            80          Business Consultant, Director of American Rocket Co.                    1978       2000

 Daniel Lembark               73          Financial consultant and Certified Public Accountant.                   1978       1998

 Ben Winters                  77          Business Consultant.                                                    1978       2000

</TABLE>

(1)  Unless otherwise indicated, principal occupation or occupations shown 
     have been such for a period of at least five years in the aggregate.

(2)  Date shown for term of service indicates commencement of service as a 
     director of the Company or Arden-Mayfair.


                                       15

<PAGE>

Identification of Executive Officers

     Below is set forth certain information about each of the executive 
     officers of the Company as of March 6, 1998:

<TABLE>
<CAPTION>

            Name      Age                       Position(s)
            ----      ---                       -----------
  <S>                 <C>    <C>
  Bernard Briskin     73     Chairman of the Board of Directors, President and
                             Chief Executive Officer of the Company and 
                             Arden-Mayfair, and Chairman of the Board of AMG 
                             Holdings and Gelson's Markets.

  Ernest T. Klinger   62     Vice President Finance and Administration and Chief
                             Financial Officer of the Company and Arden-Mayfair,
                             and Secretary/Treasurer of AMG Holdings and 
                             Gelson's Markets.

</TABLE>

Mr. Briskin served as Chairman of the Executive Committee of the Board of 
Directors of Arden-Mayfair until August 1978, when he was elected President 
and Chief Executive Officer of Arden-Mayfair.  In November 1978, Mr. Briskin 
was elected President and Chief Executive Officer of the Company and in June 
1994 he was elected Chairman of the Board of the Company.  Mr. Briskin serves 
as Chairman of the Board, President and Chief Executive Officer of the 
Company and Arden-Mayfair, and Chairman of the Board and Chief Executive 
Officer of AMG Holdings and Gelson's Markets, pursuant to an employment 
agreement which expires on January 1, 2004, although the term will be 
automatically extended for successive one year periods unless certain 
termination notices are given by either Mr. Briskin or the employers.  See 
"Item 11. Executive Compensation".

Mr. Klinger has been Vice President Finance and Administration and Chief 
Financial Officer of the Company since October 1986.  Between January 1983 
and September 1986 he held the position of Vice President Finance and 
Treasurer and Chief Financial Officer of the Company.  In 1989, he was 
appointed Secretary/Treasurer of Gelson's Markets and in 1993 was appointed 
Secretary/Treasurer of AMG Holdings, Inc.

Except for Mr. Briskin, who has an employment agreement, all officers serve 
at the pleasure of the Board of Directors.


                                       16

<PAGE>

ITEM 11.  EXECUTIVE COMPENSATION

     General

     The following table sets forth the total annual and long-term 
     compensation paid or accrued by the Company and its subsidiaries in 
     connection with all businesses of the Company and its subsidiaries to or 
     for the account of the Chief Executive Officer of the Company and each 
     other executive officer of the Company whose total annual salary and 
     bonus for the fiscal year ended January 3, 1998 exceeded in the 
     aggregate $100,000.

<TABLE>
<CAPTION>
                                                                          ---Long Term Compensation---

              -------Annual Compensation--------                     --------Awards---------           -Payouts-
                                                                                  Securities-
                                                    Other Annual     Restricted     Underlying              All Other
Name and                                            Compensation   Stock Award(s)    Options/      LTIP      Compen-
Principal                                                                              SARS       Payouts    sation
Position             Year  Salary ($)  Bonus ($)      ($) (4)           (1)           (#)(1)        (1)     ($)(2)(3)
---------            ----  ----------  ---------      -------           ---           ------        ---     ---------
<S>                  <C>    <C>        <C>          <C>            <C>              <C>           <C>       <C>
Bernard Briskin,     1997   500,000    496,780 (5)                                                            12,800
Chief Executive      1996   450,177    191,632                                                                 9,000
Officer              1995   444,400    407,624                                                                10,500

Ernest T. Klinger,   1997   190,000     40,000                                                                12,800
CFO, VP Finance      1996   190,000     40,000                                                                 9,000
and Administration   1995   190,000     40,000                                                                10,500

</TABLE>

(1)  The Company did not grant to Mr. Briskin or Mr. Klinger any restricted 
     stock, stock options or stock appreciation rights ("SARs") and made no 
     payout to them on any long-term incentive plan in fiscal years 1997, 
     1996 or 1995. 

(2)  Includes the Company contribution to the Arden Group, Inc. 401(k) 
     Retirement Savings Plan and the Arden Group, Inc. Stock Bonus Plan.  In 
     1997, Messrs. Briskin and Klinger were each allocated $9,600 to their 
     401(k) account and $3,200 to their Stock Bonus Plan account. 

(3)  Does not include retirement benefits from the Telautograph Pension Plan 
     (terminated in December 1993).

(4)  Perquisites and other personal benefits did not exceed the lesser of 
     $50,000 or 10% of the compensation received by the named officers in any 
     of the years for which compensation information is reported. 

(5)  Payment of the bonus for 1997 is subject to stockholder approval of the 
     bonus arrangement contained in Mr. Briskin's Amended Employment 
     Agreement.  If the arrangement is not approved by stockholders, the 
     amount of the bonus will be calculated and paid under the prior bonus 
     arrangement.  See "Employment Agreement" below.


     Employment Agreement

     The compensation of Mr. Bernard Briskin, the Chief Executive Officer of 
     the Company, is established under an Employment Agreement dated May 13, 
     1988, as amended by 


                                       17

<PAGE>

     Amendment to Employment Agreement dated April 27, 1994 (the "Employment 
     Agreement") which was further amended in January 1998, effective January 
     1, 1997 (the "Amended Employment Agreement").  The Amended Employment 
     Agreement extended the expiration date of the term of the Employment 
     Agreement from January 1, 2001 to January 1, 2004, increased Mr. 
     Briskin's base annual salary to $500,000 effective January 1, 1997, 
     excluded from the definition of Pre-Tax Profits upon which Mr. Briskin's 
     bonus is determined any arbitration award to Danka and the associated 
     expense in 1997 as a charge to discontinued operations which had the 
     effect of increasing the amount of Mr. Briskin's bonus in 1997 from 
     $344,871 to $496,780, increased the maximum annual reimbursement for 
     medical expenses for Mr. Briskin and his immediate family from $100,000 
     to $200,000 and provides for annual retirement compensation equal to 
     twenty-five percent of Mr. Briskin's average base salary and bonus 
     earned in the last three fiscal years prior to his retirement and 
     continuation of health insurance benefits and automobile allowance.  Mr. 
     Briskin's bonus arrangement for 1997 and years following under the 
     Amended Employment Agreement is subject to stockholder approval.  If Mr. 
     Briskin's bonus arrangement is not approved by the stockholders of the 
     Company, the bonus will be determined under the Employment Agreement and 
     Mr. Briskin will have the right to terminate the Employment Agreement as 
     amended by the Amended Employment Agreement on six months prior notice 
     to the Company.  Pursuant to the terms of the Amended Employment 
     Agreement, Mr. Briskin's base salary will be increased on January 1 of 
     each year of the term of the Amended Employment Agreement commencing 
     January 1, 1998 based upon increases in the Consumer Price Index 
     subject, however, to a maximum annual increase.  His annual bonus will 
     equal 2-1/2% of the Company's first $2,000,000 of Pre-Tax Profits (as 
     defined in the Amended Employment Agreement) plus 3-1/2% of Pre-Tax 
     Profits in excess of $2,000,000.  The Amended Agreement also provides 
     for certain expense reimbursement and personal benefits, including 
     payment or reimbursement for uninsured medical expenses of Mr. Briskin 
     and his immediate family up to a maximum of $200,000 during any calendar 
     year.  In addition, if he becomes permanently disabled, dies or his 
     employment is terminated prior to January 1, 2004, the cumulative unpaid 
     portion of two notes from Mr. Briskin to the Company, in the amount of 
     $255,000 as of March 6, 1998, will be forgiven.  The maturity dates of 
     the two notes was extended to December 31, 2003 with equal annual 
     principal payments of $40,000 plus interest at 6% per annum.  

     Remuneration of Directors

     Non-employee directors are compensated for their services as directors 
     at an annual rate of $18,000, plus $1,000 for each Board meeting 
     attended and $1,000 for attendance at each committee meeting.  
     Non-employee directors who serve as committee chairmen are entitled to 
     an additional $4,200 per year.   In 1996, the Company awarded Frederick 
     A. Schnell, who had served as a Director of the Company through June 19, 
     1996, payment of $50,000 in recognition of his over 20 years of service 
     as a Director of the Company.  Such sum is payable in three installments 
     of $8,000, $24,000 and $18,000 on September 1996, January 1997 and 
     January 1998, respectively.  Mr. Briskin is an employee of the Company 
     and does not receive the compensation otherwise payable to directors.

                                       18

<PAGE>

     Compensation Committee Interlocks and Insider Participation

     The Board of Directors has a Compensation Committee.  In 1997 the 
     Compensation Committee was comprised of the following directors:

                           John G. Danhakl, Chairman
                           Robert A. Davidow
                           Daniel Lembark

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT

     (a)  Security Ownership of Certain Beneficial Owners

          The following table sets forth information as of March 6, 1998 
          relating to the stockholdings of persons known to the Company to be 
          the beneficial owner of more than 5% of any class of the Company's 
          voting securities: (1)

<TABLE>
<CAPTION>
                                                                    Amount and
       Name and Address of                                          Nature of        Percent of     Percent of
         Beneficial Owner                     Title of Class        Beneficial         Class        Total Vote
         ----------------                     --------------        Ownership          -----        ----------
                                                                    ---------
<S>                                        <C>                      <C>              <C>            <C>
City National Bank, as Trustee of the      Class A Common Stock       64,385           11.6%           1.6%
Company's Stock Bonus Plan and Trust
(the "Stock Bonus Plan")
500 North Roxbury Drive, Suite 500
Beverly Hills, CA 90210

Bernard Briskin                            Class A Common Stock      166,666 (2)       30.1%           4.2%
Arden Group, Inc.
9595 Wilshire Blvd., Suite 411
Beverly Hills, CA 90212

Bernard Briskin                            Class B Common Stock      340,624           99.5%          85.7%

</TABLE>

(1)  Unless otherwise indicated to the contrary, all beneficial owners have 
     sole investment and voting power.  For purposes of this table, 339,300 
     shares of Company Class A Common Stock, which are held by AMG Holdings, 
     are not deemed to be outstanding.  

(2)  This amount includes the following shares:  (i) 59,944 shares owned by 
     Mr. Briskin's wife; (ii) 46,524 shares held in trust (of which Mr. 
     Briskin is a trustee) for the benefit of Mr. Briskin, his children and 
     his mother; and (iii) 24,503 shares held in an Individual Retirement 
     Account by Mr. Briskin's wife.  Mr. Briskin disclaims any beneficial 
     ownership of the shares set forth in clauses (i) and (iii) hereof.  Mr. 
     Briskin shares voting and investment power with respect to the shares 
     referred to in clause (ii), shares voting power but denies that he has 
     or shares investment power with respect to the shares referred to in 
     clauses (i) and (iii).  Nothing herein should be construed as an 
     admission that Mr. Briskin is in fact the beneficial owner of any of 
     these shares.


                                       19

<PAGE>

If Mr. Briskin converted all of his Class B Common Stock to Class A Common 
Stock (convertible on a share for share basis) his and his spouse's 
beneficial ownership of Class A Common Stock would be increased to 507,290 
shares or 56.6% of the total shares outstanding as of March 6, 1998.

     (b)  Security Ownership of Management

          The following table shows, as of March 6, 1998, the beneficial 
          ownership of the Company's equity securities by each director, 
          executive officer and by all directors and executive officers as a 
          group: (1)

<TABLE>
<CAPTION>

                                                                      Amount and Nature                   Percent
                                                                        of Beneficial        Percent     of Total
Name of Beneficial Owner                  Title of Class                  Ownership          of Class      Vote
------------------------                  --------------                  ---------          --------      ----
<S>                                  <C>                              <C>                    <C>         <C>
Bernard Briskin                      Class A Common Stock                166,666 (2)          30.1%         4.2%
                                     Class B Common Stock                340,624              99.5%        85.7%
John G. Danhakl                      Class A Common Stock                      0
Robert A. Davidow                    Class A Common Stock                      0
Ernest T. Klinger                    Class A Common Stock                    343 (3)            (4)          (5)
Stuart A. Krieger                    Class A Common Stock                      0
Daniel Lembark                       Class A Common Stock                      0
Ben Winters                          Class A Common Stock                    100                (4)          (5)

All directors and executive          Class A Common Stock                167,109 (3)          30.2%         4.2%
officers as a group (7 persons)      Class B Common Stock                340,624              99.5%        85.7%

</TABLE>

(1)  Unless otherwise indicated to the contrary, all beneficial owners have  
     sole investment and voting power.  The number of outstanding shares of  
     Company Class A Common Stock on which the percentages shown in this  
     table are based does not include 339,300 shares of Company Class A  
     Common Stock held by AMG Holdings.

(2)  See note (2) to the table under "Security Ownership of Certain 
     Beneficial Owners" set forth above.

(3)  Includes shares held in the Company Stock Bonus Plan for their accounts.

(4)  Did not exceed 1% of the outstanding shares of the class.

(5)  Did not exceed 1% of the total vote.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In connection with the purchase by Mr. Briskin of shares of the Company's 
Class A Common Stock in 1979 and 1980, the Company loaned Mr. Briskin 
$212,500 and $303,750, respectively.  Effective January 1, 1997 the terms of 
the notes were modified to extend the maturity date to December 31, 2003 from 
December 31, 2000 and to reduce the annual principal payments to $40,000 from 
$73,750 plus interest at 6% per annum.  The highest cumulative outstanding 
balance of the two loans was $369,000 during 1997 and was $255,000 as of 
March 6, 1998.


                                       20


<PAGE>

                                      PART IV


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
          FORM 8-K
     
     (a)  Exhibits and Financial Statements and Schedules
          
          (1)  Financial Statements
               See Index to Consolidated Financial Statements and Supplementary
               Data
          
          (2)  Financial Statement Schedules
               See Index to Consolidated Financial Statements and Supplementary
               Data
          
          (3)  Exhibits
               See Index to Exhibits

     (b)  Reports on Form 8-K

          None
          
     (c)  Exhibits
     
          See Index to Exhibits
          
     (d)  Other Financial Schedules
     
          See Index to Consolidated Financial Statements and Supplementary Data
     

                                        21     
<PAGE>     
                                     SIGNATURES


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

ARDEN GROUP, INC.
                                                             Date
                                                             ----

By   BERNARD BRISKIN                                        3/17/98     
     ---------------------------------------------------
     Bernard Briskin, Chairman of the Board,                
     President and Chief Executive Officer                     

By   ERNEST T. KLINGER                                      3/17/98
     ---------------------------------------------------
     Ernest T. Klinger, Vice President Finance and                  
     Administration and Chief Financial Officer
     (Principal Financial and Principal Accounting Officer)


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 date indicated.  The undersigned 
have also relied upon the reports of the registrant's independent accountants 
at page 24.

                                                             Date
                                                             ----

     BERNARD BRISKIN                                        3/17/98
     ----------------------------------------------------
     Bernard Briskin, Director and Chairman of the Board                   

     JOHN G. DANHAKL                                        3/17/98
     ----------------------------------------------------
     John G. Danhakl, Director                                        

     ROBERT A. DAVIDOW                                      3/17/98
     ----------------------------------------------------
     Robert A. Davidow, Director                                      

     STUART A. KRIEGER                                      3/17/98
     ----------------------------------------------------
     Stuart A. Krieger, Director                                      

     DANIEL LEMBARK                                         3/17/98
     ----------------------------------------------------
     Daniel Lembark, Director                                    

     BEN WINTERS                                            3/17/98
     ----------------------------------------------------
     Ben Winters, Director                                            


                                        22
<PAGE>


                   ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY

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

                           INDEX TO FINANCIAL STATEMENTS
                               AND SUPPLEMENTAL DATA 

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

                                                                          PAGE

Report of Independent Accountants........................................  24

Financial Statements:
     Balance Sheets, January 3, 1998 and December 28, 1996...............  25
     Statements of Operations for fiscal years 1997, 1996 and 1995.......  26
     Statements of Stockholders' Equity for fiscal years 1997,
     1996 and 1995.......................................................  27
     Statements of Cash Flows for fiscal years 1997, 1996 and 1995.......  28
     Notes to Financial Statements.......................................  30

          The financial statements include the Registrant's subsidiary (Arden-
          Mayfair, Inc.) and the subsidiaries of Arden-Mayfair, Inc.

Selected Quarterly Financial Data........................................  45



Schedules are omitted because of the absence of the conditions under which they
                               are required.

                                     23

<PAGE>

                                       
                       REPORT OF INDEPENDENT ACCOUNTANTS
                               ---------------



To the Stockholders of
Arden Group, Inc.


We have audited the consolidated financial statements of Arden Group, Inc. 
and its subsidiary listed in the index on page 23 of this Form 10-K.  These 
financial statements are the responsibility of the Company's management.  Our 
responsibility is to express an opinion on these financial statements based 
on our audits.

We conducted our audits in accordance with generally accepted auditing 
standards.  Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement.  An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements. 
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation.  We believe that our 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 Arden Group, 
Inc. and its subsidiary at January 3, 1998 and December 28, 1996, and the 
consolidated results of their operations and their cash flows for each of the 
three fiscal years in the period ended January 3, 1998 in conformity with 
generally accepted accounting principles.




                                         COOPERS & LYBRAND L.L.P.








Los Angeles, California
March 13, 1998

                                      24


<PAGE>


                 ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY
                 ---------------------------------------------
                                BALANCE SHEETS
                                       
(In Thousands, Except Share and Per Share Data)

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

ASSETS                                   January 3, 1998      December 28, 1996
-------------------------------------------------------------------------------
<S>                                      <C>                  <C>
Current assets:
   Cash                                     $  7,099               $  5,473
   Marketable securities                      15,623                 21,356
   Accounts and notes receivable, net          6,310                  6,629
   Inventories                                11,552                 10,728
   Other current assets                        1,626                  3,102
-------------------------------------------------------------------------------
      Total current assets                    42,210                 47,288

Property for resale or sublease                4,051                  1,440
Property, plant and equipment, net            39,163                 39,875
Other assets                                   2,702                  2,645
-------------------------------------------------------------------------------
      Total assets                           $88,126                $91,248
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------------------------------------------------
Current liabilities:
   Accounts payable, trade                   $14,434                $11,357
   Other current liabilities                  12,409                 11,816
   Current portion of long-term debt           1,469                    973
-------------------------------------------------------------------------------
      Total current liabilities               28,312                 24,146

Long-term debt                                 7,663                  6,663
Deferred income taxes                          2,430                  2,160
Other liabilities                              1,461                  2,542
-------------------------------------------------------------------------------
      Total liabilities                       39,866                 35,511
-------------------------------------------------------------------------------
Commitments and contingent liabilities
Stockholders' equity:
   Common stock, Class A, $ .25 par value;
      893,434 and 1,106,053 shares 
      issued and outstanding,
      respectively, including 339,300 
      treasury shares                            223                    276
   Common stock, Class B, $ .25 par value; 
      342,246 shares issued and  
      outstanding                                 86                     86
   Capital surplus                             4,793                  5,617
   Notes receivable from officer/director       (255)                  (369)
   Unrealized gain on available-for-sale 
   securities                                    416
   Retained earnings                           46,750                53,880
-------------------------------------------------------------------------------
                                               52,013                59,490
   Less, treasury stock;  339,300 
      shares at cost                            3,753                 3,753
-------------------------------------------------------------------------------
          Total stockholders' equity           48,260                55,737
-------------------------------------------------------------------------------
          Total liabilities and stockholders' 
            equity                            $88,126               $91,248
-------------------------------------------------------------------------------
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

                                      25


<PAGE>

                 ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY
                 ---------------------------------------------
                           STATEMENTS OF OPERATIONS


(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
                                                             1997           1996           1995
-------------------------------------------------------------------------------------------------
<S>                                                      <C>            <C>            <C>
Sales                                                    $274,354       $252,019       $242,962
Cost of sales                                             164,366        152,852        147,909
-------------------------------------------------------------------------------------------------
           Gross profit                                   109,988         99,167         95,053
Delivery, selling, general and administrative expenses     97,127         93,245         86,841
-------------------------------------------------------------------------------------------------
           Operating income                                12,861          5,922          8,212
Interest and dividend income                                1,536          1,728          2,702
Other income (expense), net                                   588            (19)           (13)
Interest expense                                             (702)          (879)          (559)
Net unrealized gain (loss) on marketable securities                         (151)         1,430
-------------------------------------------------------------------------------------------------
      Income from continuing operations, before 
        income taxes                                       14,283          6,601         11,772
Income tax provision                                        5,586          2,622          4,661
-------------------------------------------------------------------------------------------------
      Income from continuing operations, net of 
        income taxes                                        8,697          3,979          7,111
Loss from discontinued operations, net of income tax
  benefits of $1,602 in 1997 and $305 in 1996              (2,738)          (456)
-------------------------------------------------------------------------------------------------
           Net income                                      $5,959         $3,523         $7,111
-------------------------------------------------------------------------------------------------
Income per common share:
      Income from continuing operations                     $8.42          $3.57          $5.47
      Loss from discontinued operations                     (2.65)          (.41)
-------------------------------------------------------------------------------------------------
           Net income                                       $5.77          $3.16          $5.47
-------------------------------------------------------------------------------------------------
Weighted average common shares outstanding              1,032,777      1,115,227      1,299,002
-------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.


                                      26

<PAGE>

                 ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY

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

                      STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>

(In Thousands, Except Share Data)

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

------------------------------------------------------------------------------------------------
<S>                                                      <C>            <C>           <C>
Common stock, Class A:
 Balance, beginning of year                                $  276         $  283         $  327
 Purchase and retirement of stock (212,619,
  25,884, and 179,229 shares, respectively)                   (53)            (7)           (44)

------------------------------------------------------------------------------------------------
     Balance, end of year                                     223            276            283

------------------------------------------------------------------------------------------------
Common stock, Class B:
 Balance, beginning and end of year                            86             86             86

------------------------------------------------------------------------------------------------
Capital surplus:
 Balance, beginning of year                                 5,617          5,718          6,413
 Purchase and retirement of common stock                     (824)          (101)          (695)

------------------------------------------------------------------------------------------------
    Balance, end of year                                    4,793          5,617          5,718

------------------------------------------------------------------------------------------------
Notes receivable from officer/director:
 Balance, beginning of year                                  (369)          (369)          (442)
 Principal paid                                               114                            73

------------------------------------------------------------------------------------------------
    Balance, end of year                                     (255)          (369)          (369)

------------------------------------------------------------------------------------------------
Unrealized gain (loss) on available-for-sale securities
 Balance, beginning of year                                     0
 Unrealized gain                                              416

------------------------------------------------------------------------------------------------
    Balance, end of year                                      416

------------------------------------------------------------------------------------------------
Retained earnings:
 Balance, beginning of year                                53,880         51,862         55,205
 Net income for the year                                    5,959          3,523          7,111
 Purchase and retirement of common stock                  (13,089)        (1,505)       (10,454)

------------------------------------------------------------------------------------------------
    Balance, end of year                                   46,750         53,880         51,862

------------------------------------------------------------------------------------------------
Stockholders' equity before treasury stock                 52,013         59,490         57,580

Treasury stock, at cost                                    (3,753)        (3,753)        (3,753)

------------------------------------------------------------------------------------------------
    Total stockholders' equity                          $  48,260        $55,737        $53,827

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

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

                                             27

<PAGE>

                 ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY

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

                           STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

(In Thousands)

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

------------------------------------------------------------------------------------------------
<S>                                                    <C>            <C>            <C>
Cash flows from operating activities:
 Cash received from customers                            $274,683       $252,482       $243,589
 Cash paid to suppliers and employees                    (254,622)      (242,869)      (231,614)
 Purchases/sales of trading securities, net                 8,851         (1,311)         1,014
 Interest and dividends received                            1,683          1,678          2,784
 Interest paid                                               (705)          (878)          (701)
 Income taxes paid                                         (3,831)        (2,694)        (4,085)

------------------------------------------------------------------------------------------------
    Net cash provided by operating activities              26,059          6,408         10,987

------------------------------------------------------------------------------------------------
Cash flows from investing activities:
 Capital expenditures                                      (7,896)       (12,841)       (10,731)
 Deposits for property in escrow                                           2,664         (2,664)
 Transfer to discontinued operations                       (2,575)          (456)
 Purchases of available-for-sale securities                (3,202)
 Sales of available-for-sale securities                     1,380
 Net cash from sale of GPS                                                                2,511
 Proceeds from the sale of property, plant and
  equipment, liquor licenses and leasehold
  interests                                                   163          2,338            241
 Payments received on notes from the sale of
  property, plant and equipment and liquor
  licenses                                                     53              3              3

------------------------------------------------------------------------------------------------
    Net cash used in investing activities                 (12,077)        (8,292)       (10,640)

------------------------------------------------------------------------------------------------
Cash flows from financing activities:
 Purchase and retirement of stock                         (13,966)        (1,613)       (11,193)
 Principal payments on long-term debt                        (799)          (752)          (199)
 Principal payments under capital lease obligations          (205)          (325)          (917)
 Loan payments from officer/director                          114                            73
 Proceeds from equipment financing                          2,500                         2,750
 Purchase of Company debentures                                              (55)

------------------------------------------------------------------------------------------------
    Net cash used in financing activities                 (12,356)        (2,745)        (9,486)

------------------------------------------------------------------------------------------------
Net increase (decrease) in cash                            $1,626        $(4,629)       $(9,139)

Cash at beginning of year                                   5,473         10,102         19,241

------------------------------------------------------------------------------------------------
Cash at end of year                                        $7,099         $5,473        $10,102

------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL 
STATEMENTS.

                                              28
<PAGE>

<TABLE>
<CAPTION>

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

------------------------------------------------------------------------------------------------
<S>                                                      <C>            <C>            <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
 BY OPERATING ACTIVITIES:

Net income                                                 $5,959         $3,523         $7,111

Adjustments to reconcile net income to net cash
 provided by operating activities:
  Loss from discontinued operations                         2,738            456
  Depreciation and amortization                             5,111          4,686          3,480
  Unrealized (gain) loss on trading securities                               151         (1,430)
  Provision for losses on accounts and
   notes receivable                                            62             55             94
  Deferred income taxes                                       270            577            474
  Net loss (gain) from the disposal of property,
   plant and equipment, liquor licenses
   and early lease terminations                               731           (556)           (33)
  Realized gains on marketable securities, net               (605)
  Non-compete payment on sale of GPS                                                        (86)
  Gain on purchase of 7% debentures                                           (5)


Change in assets and liabilities net of effects from
 noncash investment and financing activities:

 (Increase) decrease in assets:
  Marketable securities                                     8,851         (1,347)           970
  Accounts and notes receivable                             1,639              8            647
  Inventories                                                (824)          (556)           493
  Other current assets                                       (274)          (456)          (465)
  Other assets                                                (90)          (548)          (325)


 Increase (decrease) in liabilities:
  Accounts payable and other accrued expenses               3,847            493           (507)
  Deferred income taxes on unrealized gains                  (275)
  Other liabilities                                        (1,081)           (73)           564
------------------------------------------------------------------------------------------------
                                                          $26,059         $6,408        $10,987

------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

                                             29

<PAGE>

                 ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY
                 ---------------------------------------------
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

1.  Accounting Policies:
    
    The following is a summary of significant accounting policies followed in
    the preparation of these consolidated financial statements.
    
    BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
    
    The consolidated financial statements of Arden Group, Inc. (the "Company")
    include the accounts of the Company and its direct and indirect
    subsidiaries.  All intercompany accounts and transactions are eliminated in
    consolidation.  The Company operates exclusively in the supermarket business
    in the greater Los Angeles, California area.
    
    FISCAL YEAR
    
    The Company operates on a fiscal year ending on the Saturday closest to
    December 31.  Fiscal years for the financial statements included herein
    ended on January 3, 1998 (fifty-three weeks), December 28, 1996 (fifty-two
    weeks), and December 30, 1995 (fifty-two weeks).
    
    CASH AND CASH EQUIVALENTS
    
    The Statements of Cash Flows classify changes in cash or cash equivalents
    (short-term, highly liquid investments readily convertible into cash with an
    original maturity at date of purchase of three months or less) according to
    operating, investing or financing activities.  Financial instruments which
    potentially subject the Company to concentrations of credit risk consist
    principally of cash and temporary cash investments.  At times, cash balances
    held at financial institutions were in excess of federally insured limits.
    The Company places its temporary cash investments with high-credit, quality
    financial institutions and, by policy, limits the amount of credit exposure
    to any one financial institution.  The Company believes no significant
    concentration of credit risk exists with respect to these cash investments.
    
    MARKETABLE SECURITIES
    
    Marketable securities consist of mutual funds, fixed-income securities,
    preferred stock, common stock, mortgage backed government securities and
    collateralized mortgage obligations. Marketable securities are stated at
    market value as determined by the most recently traded price of each
    security at the balance sheet date.  By policy, the Company invests
    primarily in high-grade marketable securities.  All marketable securities
    are defined as trading securities or available-for-sale securities under the
    provisions of Statement of Financial Accounting Standards No. ("SFAS") 115,
    "Accounting for Certain Investments in Debt and Equity Securities".


                                      30
<PAGE>

    Management determines the appropriate classification of its investments in
    marketable securities at the time of purchase and reevaluates such
    determination at each balance sheet date.  Securities that are bought and
    held principally for the purpose of selling them in the near term are
    classified as trading securities and unrealized holding gains and losses are
    included in earnings.  Debt securities for which the Company does not have
    the intent or ability to hold to maturity and equity securities are
    classified as available-for-sale.  Available-for-sale securities are carried
    at fair value, with the unrealized gains and losses, net of tax, reported as
    a separate component of stockholders' equity.  The cost of investments sold
    is determined on the specific identification or the first-in, first-out
    method.
    
    ACCOUNTS AND NOTES RECEIVABLE
    
    The Company closely monitors extensions of credit and has not experienced
    significant losses related to its receivables.  At January 3, 1998, the
    Company did not have significant credit risk concentrations.  No single
    group or customer represents greater than 2% of total accounts and notes
    receivable.  Issuance costs related to Gelson's charge cards are not
    significant and are expensed as incurred.
    
    INVENTORIES
    
    The cost of supermarket nonperishable inventories is determined by the
    retail inventory method using the last-in, first-out (LIFO) method, which is
    lower than market. Perishable supermarket and other inventories are valued
    at the lower of cost (first-in/first-out, or average) or market.
    
    PROPERTY FOR RESALE OR SUBLEASE
    
    It is the Company's policy to make available for sale or sublease property
    considered by management as excess and no longer necessary for the
    operations of the Company.  The aggregate carrying values of such owned
    property and property under capital leases are periodically reviewed and
    adjusted downward to market, when appropriate.
    
    PROPERTY, PLANT AND EQUIPMENT
    
    Owned property, plant and equipment is valued at cost.  Depreciation is
    provided on the straight-line method at rates based on the estimated useful
    lives of individual assets or classes of assets.  Improvements to leased
    properties or fixtures are amortized over their estimated useful lives or
    lease period, whichever is shorter.
    
    Leased property meeting certain criteria is capitalized and the present
    value of the related lease payments is recorded as a liability.
    Amortization of capitalized leased assets is computed on the straight-line
    method over the term of the lease.
    
    Normal repairs and maintenance are expensed as incurred.  Expenditures which
    materially increase values, change capacities or extend useful lives are
    capitalized.  Replacements are capitalized and the property, plant and
    equipment accounts are relieved of the items being replaced.  The related
    costs and accumulated depreciation of disposed assets are eliminated and any
    gain or loss on disposition is included in income.


                                      31
<PAGE>

    ENVIRONMENTAL COSTS
    
    Costs incurred to investigate and remediate contaminated sites are expensed
    as incurred.
    
    STORE OPENING COSTS
    
    Noncapital expenditures incurred in opening a new store are expensed as
    incurred.
    
    ADVERTISING AND SALES PROMOTION COSTS
    
    Advertising and sales promotion costs are expensed as incurred and totaled
    $1,496,000, $2,075,000 and $1,559,000 in 1997, 1996 and 1995, respectively.
    
    INCOME TAXES
    
    The Company accounts for income taxes under the provisions of SFAS 109,
    "Accounting for Income Taxes".  Under SFAS 109, deferred tax liabilities and
    assets are determined based on the difference between the financial
    statement and tax bases of assets and liabilities, using enacted tax rates
    in effect for the year in which the differences are expected to reverse.
    
    NET INCOME PER COMMON SHARE
    
    SFAS 128, "Earnings Per Share", was adopted in the fourth quarter of 1997
    and supersedes the Company's previous standards for computing net income per
    share under Accounting Principles Board No. 15.  The new standard requires
    dual presentation of net income per common share and net income per common
    share assuming dilution on the face of the income statement.  Basic net
    income per share is computed by dividing the net income attributable to
    common stockholders by the weighted average number of common shares
    outstanding during the period.  The Company does not have any dilutive
    shares for any of the three fiscal years in the period ended January 3,
    1998.  The financial statements present basic net income per share.

    USE OF ESTIMATES

    The preparation of financial statements in conformity with generally
    accepted accounting principals requires management to make estimates and
    assumptions for the reporting period and as of the financial statement date.
    These estimates and assumptions affect the reported amounts of assets and
    liabilities, the disclosure of contingent liabilities and the reported
    amounts of revenues and expenses.  Actual results could differ from these
    estimates.
 
    FAIR VALUE OF FINANCIAL INSTRUMENTS
 
    SFAS 107, "Disclosure about Fair Value of Financial Instruments" requires
    certain disclosures regarding the fair value of financial instruments.  Cash
    and cash equivalents, accounts receivable, accounts payable, accrued
    liabilities and amounts due to and from affiliates are reflected in the
    consolidated financial statements at fair value because of the short-term
    maturity of these instruments.  The fair value of long-term debt closely


                                      32
<PAGE>

    approximates its carrying value.  The Company uses quoted market prices,
    when available, or discounted cash flows to calculate these fair values.

    LONG-LIVED ASSETS
 
    In fiscal year 1996, the Company adopted SFAS 121, "Accounting for the
    Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
    of." The adoption of SFAS 121 had no impact on the Company's financial
    position or on its results of operations.
 
    In accordance with SFAS 121, long-lived assets held and used by the Company
    are reviewed for impairment whenever events or changes in circumstances
    indicate that the carrying amount of an asset may not be recoverable.  For
    purposes of evaluating the recoverability of long-lived assets, the
    recoverability test is performed using undiscounted net cash flows of the
    individual stores and consolidated undiscounted net cash flows for long-
    lived assets not identifiable to individual stores.
 
    RECLASSIFICATIONS
 
    Certain prior period amounts have been reclassified to conform to the
    current year presentation.
 
    NEW ACCOUNTING STANDARDS
 
    In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
    130, "Reporting Comprehensive Income", which established standards for
    reporting and display of comprehensive income and its components.  This
    statement requires a separate statement to report the components of
    comprehensive income for each period reported.  The provisions of this
    statement are effective for fiscal years beginning after December 15, 1997.
    Management believes this statement may require expanded disclosure in the
    Company's financial statements.
    
    In June 1997, the FASB also issued SFAS 131, "Disclosures About Segments of
    an Enterprise and Related Information".  The standard requires that
    companies disclose "operating segments" based on the way management
    disaggregates the company for making internal operating decisions.  The new
    rules will be effective for the 1998 fiscal year.  Abbreviated quarterly
    disclosure will be required beginning first quarter of 1999, with both 1999
    and 1998 information.  The Company does not believe that the new standard
    will have a material impact on the reporting of its segments.


                                      33
<PAGE>

2. Marketable Securities:

   Marketable securities are carried on the balance sheet at their market
   value.

<TABLE>
<CAPTION>
   ------------------------------------------------------------------------------------------
                                                                 Unrealized
   (in thousands)                                      Cost      Gain (Loss)    Market Value 
   ------------------------------------------------------------------------------------------
   <S>                                               <C>           <C>          <C>
   As of January 3, 1998:                            

      Available-for-sale Securities:
          Mutual funds                                14,529          843        15,372
          Equity securities                              832         (581)          251
                                                     -------       ------       -------
          Total                                      $15,361       $  262       $15,623
                                                     -------       ------       -------
                                                     -------       ------       -------
                                                                               
   As of December 28, 1996:                          
                          
      Trading Securities:                                                      
          Mutual funds                               $10,997        $  35       $11,032
          Fixed income securities                      7,707         (662)        7,045
          Equity securities                            1,413          114         1,527
          Mortgage-backed government securities        1,419            7         1,426
          Collateralized mortgage obligations            328           (2)          326
                                                     -------       ------       -------
          Total                                      $21,864        $(508)      $21,356
                                                     -------       ------       -------
                                                     -------       ------       -------
</TABLE>
   
    Realized gains from sale of securities were $605,000, $36,000 and $31,000
    in 1997, 1996 and 1995, respectively.

3.  Accounts and Notes Receivable, Net:
<TABLE>
<CAPTION>
    -------------------------------------------------------------------------------
    (in thousands)                              January 3, 1998   December 28, 1996
    -------------------------------------------------------------------------------
    <S>                                              <C>               <C>
    Accounts receivable, trade                       $4,600            $4,677
    Notes receivable                                    452               592
    Other accounts receivable                         1,882             2,070
                                                     ------            ------
                                                      6,934             7,339

    Less:  Allowance for doubtful accounts and
           notes receivable                            (624)             (710)
                                                     ------            ------
                                                     $6,310            $6,629
                                                     ------            ------
                                                     ------            ------
</TABLE>

                                      34
<PAGE>

    The provision for doubtful accounts and notes receivable in 1997, 1996, and
    1995 was approximately $62,000, $55,000 and $94,000, respectively.

4.  Inventories:

    Inventories valued by the LIFO method ($9,545,000 in 1997, $9,271,000 in
    1996 and $8,899,000 in 1995) would have been $2,570,000, $2,394,000 and
    $2,282,000 higher at January 3, 1998, December 28, 1996 and December 30,
    1995, respectively, if they had been stated at the lower of FIFO cost or
    market.  The LIFO effect on net income and income per share in 1997, 1996
    and in 1995 was a decrease of approximately $105,000 ($.10 per share),
    $67,000 ($.06 per share) and $81,000 ($ .06 per share), respectively.
    
5.  Property, Plant and Equipment, Net:

<TABLE>
<CAPTION>
    -------------------------------------------------------------------------------
    (in thousands)                              January 3, 1998   December 28, 1996
    -------------------------------------------------------------------------------
    <S>                                             <C>                <C>
    Land                                             $7,732            $  8,775
    Buildings and improvements                        9,661              11,453
    Store fixtures and office equipment              20,565              16,837
    Transportation equipment                          1,701               1,794
    Machinery and equipment                             874                 879
    Leasehold improvements                           24,972              21,973
    Assets under capital leases                       3,058               3,058
    Assets under construction                           479                 773
                                                    -------              ------
                                                     69,042              65,542

    Accumulated depreciation and amortization       (29,879)            (25,667)
                                                    -------             -------
                                                    $39,163             $39,875
                                                    -------             -------
                                                    -------             -------
</TABLE>

    As of January 3, 1998 approximately $8,900,000 of property, plant and
    equipment (at cost) was fully depreciated.

6.  Other Current Liabilities:
<TABLE>
<CAPTION>
    -------------------------------------------------------------------------------
    (in thousands)                              January 3, 1998   December 28, 1996
    -------------------------------------------------------------------------------
    <S>                                             <C>                <C>
    Compensated absences                            $ 3,032            $ 2,830
    Taxes (including taxes collected from 
      others of $1,259 and $994, respectively)        3,689              2,991
    Other                                             5,688              5,995
                                                    -------            -------
                                                    $12,409            $11,816
                                                    -------            -------
                                                    -------            -------
</TABLE>


                                      35
<PAGE>

7.  Long-Term Debt:

<TABLE>
<CAPTION> 
    --------------------------------------------------------------------------------------------------
                                                   Current                       Non-Current
                                           -------------------------     -----------------------------
                                           January 3,   December 28,     January 3,       December 28, 
     (in thousands)                           1998         1996             1998             1996
     --------------------------------------------------------------------------------------------------
     <S>                                   <C>           <C>              <C>              <C> 
     Notes and contracts payable           $1,239        $  768           $3,062           $1,832
     Obligations under capital             
     leases                                   230           205            3,348            3,578
     7% Subordinated income
     debentures due
     September 1, 2014                                                     1,253            1,253
                                           ------        ------           ------           ------
                                           $1,469        $  973           $7,663           $6,663
                                           ------        ------           ------           ------
                                           ------        ------           ------           ------
</TABLE>

    At January 3, 1998, the approximate principal payments required on long-term
    debt for each year are as follows (in thousands):

<TABLE>
<CAPTION>
        1998      1999        2000        2001        2002     Subsequent
        ----      ----        ----        ----        ----     ----------
       <S>       <C>          <C>         <C>         <C>      <C>

       $1,469    $1,311       $1,296      $823        $861       $3,372
</TABLE>

    The Company has a 15 month loan agreement for a credit facility with a bank
    establishing a revolving line of credit in the amount of $9,000,000 with a
    standby letter of credit subfacility in the amount of $5,000,000, and a
    $10,000,000 non-revolving line of credit providing for term loans.  Major
    provisions of the agreement include interest on the revolving loan at the
    bank's reference rate or at the bank's adjusted LIBOR rate plus .8% or 1.0%
    (depending on the Company's debt-to-equity ratio), and interest on the term
    loan at .8% or .9% (depending on the debt-to-equity ratio) above either of
    the bank's adjusted Treasuries rate or the bank's adjusted LIBOR rate.
    Additionally, there are certain minimum requirements as to the Company's
    equity, working capital and debt-to-equity relationships.  The Company also
    has a one year revolving line of credit with another bank in the amount of
    $3,000,000 with interest at the bank's reference rate.  At the end of 1997
    and 1996 there were no amounts borrowed under either of the revolving lines
    of credit.
    
    Notes payable:  In 1997 and 1995, the Company borrowed $2,500,000 (at 6.76%)
    and $2,750,000 (at 6.18%), respectively, from its $10,000,000 non-revolving
    line of credit to finance the purchase of supermarket equipment.  In 1993,
    the Company financed $1,021,000 (at an average interest rate 7.5%) of
    supermarket equipment.  All equipment financing borrowings are five year,
    fully amortized notes.  Only the obligations of the 1993 borrowings are
    collateralized by the equipment.
    
    Debentures: The indenture relating to the 7% (6% prior to November 7, 1978)
    subordinated income debentures ("7% Debentures"), due September 1, 2014,
    provides for interest payable semiannually on March 1 and September 1 to the
    extent that current annual net income (consolidated net income before income
    taxes and interest accrued on the 7% Debentures) is 


                                      36
<PAGE>

   sufficient therefor, or at the discretion of the Company, out of available 
   retained earnings.  No accrued interest was in arrears as of January 3, 1998.
   
   The aggregate fair market value of long term debt approximates its carrying
   value.

8. Capital Stock:

   Class A Common Stock:  The Company is authorized to issue 5,000,000 shares
   of Class A common stock, par value $.25 per share.  At January 3, 1998 and
   December 28, 1996, shares issued were 893,434 and 1,106,053, respectively,
   including 339,300 treasury shares at the end of each year.  In the third
   quarter of 1997, the Company completed a self-tender offer by purchasing
   212,619 shares at $65.00 per share.  In 1996, the Company purchased 25,884
   shares at an average price of $62.29 per share.  In 1995, the Company
   purchased 179,229 shares at an average price of $62.46 per share.  The Class
   A common stock has one vote per share on all matters on which stockholders
   are entitled to vote or consent.
   
   Class B Common Stock:  The Company is authorized to issue 500,000 shares of
   Class B common stock, par value $.25 per share.  At January 3, 1998 and
   December 28, 1996 there were 342,246 shares issued and outstanding.  The
   Class B common stock has ten votes per share on virtually all matters on
   which shareholders are entitled to vote or consent.  Transfer of Class B
   common stock is restricted to other Class B stockholders and certain other
   classes of transferees.  Class B common stock is convertible, at the option
   of the holder, into Class A common stock on a share-for-share basis.  The
   Class B common stock is also automatically converted into Class A common
   stock under certain circumstances, including upon the transfer of such stock
   to a transferee other than another Class B stockholder and certain other
   classes of transferees.  There were 1,000 shares of Class B common stock
   converted to Class A common stock in 1996.  No shares were converted in 1997
   or 1995.  Cash or property dividends on Class B common stock are restricted
   to an amount equal to 90% of any dividend paid on Class A common stock.
   
9. Retirement Plans:

   The Company contributes to multi-employer union pension plans administered
   by various trustees which may be deemed to be defined benefit plans.
   Contributions to these plans are based upon negotiated wage contracts.
   Information relating to accumulated benefits and fund assets as they may be
   allocable to the participants at January 3, 1998 is not available.  The
   Company's total union pension expense for all plans for 1997, 1996 and 1995
   amounted to $937,000, $906,000 and $891,000, respectively.
   
   The Company has a noncontributory, trusteed stock bonus plan which is
   qualified under Section 401 of the Internal Revenue Code of 1986, as
   amended.  All nonunion employees over 18 years of age who complete 1,000
   hours of service within the year ending on the anniversary date of
   employment are eligible to become participating employees in the plan.
   Contributions to the plan for any fiscal year, as determined by the Board of
   Directors, are discretionary, but in no event will they exceed 15% of the
   annual aggregate salaries of those employees eligible for participation in
   the plan.  Contributions must be invested in the Company's Class A common
   stock with excess cash being invested in certain government backed
   securities.  Contributions to the plan are allocated among eligible
   participants in the 

                                      37

<PAGE>

   proportions of their salaries to the salaries of all participants. 
   Contributions accrued for the plan in 1997, 1996 and 1995 were
   $135,000, $133,000, and $130,000, respectively.
   
   The Arden Group, Inc. 401(k) Retirement Savings Plan (the "Company Savings
   Plan") covers all non-union employees of the Company and its subsidiaries
   who have attained the age of 18 and have completed at least one year of
   service with any of such companies.  The Company Savings Plan provides that,
   with certain limitations, a participating employee may elect to contribute
   up to 15% of such employee's annual compensation to the Company Savings Plan
   on a tax-deferred basis, subject to a limitation that the annual elective
   contribution may not exceed an annual indexed dollar limit determined
   pursuant to the Internal Revenue Code ($9,500 in 1997).  Annual matching
   contributions are made by the Company each year for those participants whose
   annualized gross earnings for the previous year were $45,000 or less, and
   such matching contribution was $10,000 in 1997, $8,000 in 1996 and $9,000 in
   1995.  An additional discretionary amount of $406,000 was accrued in 1997
   and contributed to the plan in early 1998. Similarly, $263,000 was accrued
   in 1996 and contributed in early 1997 and $317,000 was accrued in 1995 and
   contributed in early 1996.
   
   An employment agreement with a key executive officer provides for annual
   retirement compensation equal to twenty-five percent of his average base
   salary and bonus earned in the last three years prior to his retirement.
   The obligation is being accrued over the seven year term of his agreement.
   In 1997, the Company accrued $226,000 toward this benefit.

10.Income Taxes:

   Income (loss) before income taxes and the related income tax expense
   (benefit) are as follows:

<TABLE>
<CAPTION>
   ----------------------------------------------------------------------------
   (in thousands)                              1997      1996      1995
   ----------------------------------------------------------------------------
   <S>                                      <C>        <C>        <C>
   Income (loss) before income tax:

     Continuing operations                  $14,283    $ 6,601    $11,772
     Discontinued operations                 (4,340)      (761)
                                            --------   --------   -------
        Total                               $ 9,943    $ 5,840    $11,772
                                            --------   --------   -------
                                            --------   --------   -------

   Income tax expense (benefit):

     Continuing operations                  $ 5,586    $ 2,622    $ 4,661
     Discontinued operations                 (1,602)      (305)
                                            --------   --------   -------
        Total                               $ 3,984    $ 2,317    $ 4,661
                                            --------   --------   -------
                                            --------   --------   -------
</TABLE>

                                      38


<PAGE>


   The composition of federal and state income tax expense (benefit) is as
   follows:

<TABLE>
<CAPTION>
   ----------------------------------------------------------------------------
   (in thousands)                            1997       1996       1995
   ----------------------------------------------------------------------------
   <S>                                      <C>        <C>        <C>
   Current
      Federal                               $2,701     $1,222     $3,242
      State                                  1,013        517        945
                                            --------   --------   -------
         Total                               3,714      1,739      4,187

   Deferred
      Federal                                  359        553        324
      State                                    (89)        25        150
                                            --------   --------   -------
         Total                                 270        578        474
                                            --------   --------   -------
      Total income tax expense              $3,984     $2,317     $4,661
                                            --------   --------   -------
                                            --------   --------   -------
</TABLE>


   The Company's deferred income taxes assets (liabilities) were attributable
   to the following:
   
<TABLE>
<CAPTION>
   ------------------------------------------------------------------------------------
                                                            January 3,     December 28,
   (in thousands)                                              1998            1996
   ------------------------------------------------------------------------------------
   <S>                                                      <C>            <C>
   Deferred tax assets
      Debt under capital leases                               $1,547         $1,653
      Book accruals not recognized for tax until paid          1,117          1,076
      Unrealized loss on marketable securities                   183            224
      Excess of book over tax depreciation                                      520
      State tax expense recognized in current period
         for books but in following year for tax                 279            175
      Bad debt allowance not deductible for tax
         until year of write-off                                 267            307
      Other                                                      439            360
                                                             --------       --------
         Deferred tax assets                                  $3,832         $4,315
   
   Deferred tax liabilities
      Deferred gain on debenture exchange                    $(4,480)       $(4,694)
      Deferred gain on sale of property                         (250)          (253)
      Property leased under capital leases, net of
         accumulated depreciation                             (1,059)        (1,147)
      Excess of book over tax depreciation                      (141)
      Other                                                     (332)          (381)
                                                             --------       --------
         Deferred tax liabilities                             (6,262)        (6,475)
                                                             --------       --------
         Deferred income taxes, net                          $(2,430)       $(2,160)
                                                             --------       --------
                                                             --------       --------
</TABLE>

                                      39

<PAGE>

   The Company has not established a valuation allowance because its deferred
   tax assets can be realized by offsetting taxable income in the carryback
   period, and also against deferred tax liabilities and future taxable income,
   which management believes will more likely than not be earned, based on the
   Company's historical earnings record.

   Reconciliation of the statutory federal rate and effective rate is as
   follows:

<TABLE>
<CAPTION>
 -----------------------------------------------------------------------------------
                                             1997           1996           1995
 (in thousands, except                  -------------   ------------   -------------
 percentage amounts)                    Amount   Rate   Amount  Rate   Amount   Rate
 -----------------------------------------------------------------------------------
 <S>                                    <C>      <C>    <C>     <C>    <C>      <C>
   Federal tax at statutory
    rate                                $3,380   34.0%  $1,986  34.0%  $4,020   34.2%
   
   State income taxes, net of
    federal tax benefits                   610   6.1%      354   6.0%     712    6.0%
   
   Federal dividend exclusion               (6) (0.1)%     (23) (0.4%)    (71)  (0.6)%
                                        -------------   ------------   -------------
                                        $3,984  40.0%   $2,317  39.7%  $4,661   39.6%
                                        -------------   ------------   -------------
                                        -------------   ------------   -------------
</TABLE>
   
   The California Franchise Tax Board has rendered tax assessments against the
   Company.  The Company believes the assessments are without merit and has
   filed an appeal.  The Company believes that adequate reserves have been
   provided for all years.

11.  Leases:

   The principal kinds of property leased by the Company and its subsidiaries
   are supermarket buildings, fixtures and delivery equipment.  The most
   significant obligations assumed under the lease terms, other than rental
   payments, are the upkeep of the facilities, insurance and property taxes.
   Most supermarket leases contain contingent rental provisions based on sales
   volume and have renewal options.  The exercise of renewal options is
   primarily dependent on the level of business conducted at the location.
   
   All leases and subleases with an initial term greater than one year are
   accounted for under SFAS 13, "Accounting for Leases".  These leases are
   classified as either capital leases, operating leases or subleases, as
   appropriate.
   
   Assets Under Capital Leases:  Assets under capital leases are capitalized
   using interest rates appropriate at the inception of each lease.  Contingent
   rentals associated with capital leases in 1997, 1996 and 1995 were $107,000,
   $110,000 and $109,000, respectively, and accordingly have been charged to
   expense as incurred.  Following is an analysis of assets under capital
   leases:
   
                                      40

<PAGE>

<TABLE>
<CAPTION>
   
   ------------------------------------------------------------------------------
   (in thousands)                    January 3, 1998            December 28, 1996
   ------------------------------------------------------------------------------
   <S>                               <C>                        <C>
   Buildings:
   Cost                                    $3,058                     $3,058
   Accumulated amortization                (1,957)                    (1,844)
                                       -------------               -------------
                                           $1,101                     $1,214
                                       -------------               -------------
                                       -------------               -------------
</TABLE>


   Also, included in property for sublease are two properties classified as
   capital leases with aggregate net book values of $1,372,000 and $1,435,000
   as of the end of 1997 and 1996, respectively.
   
   Future minimum lease payments for the above assets under capital leases at
   January 3, 1998 are as follows:

<TABLE>
<CAPTION>
   ---------------------------------------------------------------
   (in thousands)
   ---------------------------------------------------------------
   <S>                                             <C>
   1998                                                   $  637
   1999                                                      637
   2000                                                      637
   2001                                                      637
   2002                                                      637
   Remainder                                               2,757
                                                   -------------
   Total minimum obligations                              $5,942
   Executory costs                                           (46)
                                                   -------------
   Net minimum obligations                                 5,896
   Interest                                               (2,318)
                                                   -------------
   Present value of net minimum obligations                3,578
   Current portions                                         (230)
                                                   -------------
   Long-term obligations at January 3, 1998               $3,348
                                                   -------------
                                                   -------------
</TABLE>


   Minimum capital lease obligations have not been reduced by related minimum
   future sublease rentals of $2,590,000.
   
   Executory costs include such items as property taxes and insurance.

                                      41

<PAGE>

   Operating Leases and Subleases:  Future minimum lease payments for all 
   noncancelable operating leases having a remaining term in excess of one 
   year at January 3, 1998 are as follows:

<TABLE>
<CAPTION>
---------------------------------------------------------------------
                                              Deduct       Net
                                             Sublease     Rental
   (in thousands)               Commitments  Rentals   Commitments
---------------------------------------------------------------------
<S>                             <C>          <C>       <C>
   1998                           $4,096       $456      $3,640
   1999                            4,102        469       3,633
   2000                            3,967        464       3,503
   2001                            3,826        382       3,444
   2002                            3,756        330       3,426
   Remainder                      47,961      3,848      44,113
                                --------   --------    --------
                                 $67,708     $5,949     $61,759
                                --------   --------    --------
                                --------   --------    --------
</TABLE>

   Rent expense under operating leases is as follows:

<TABLE>
<CAPTION>
---------------------------------------------------------------------
   (in thousands)                   1997       1996       1995
---------------------------------------------------------------------
<S>                             <C>           <C>       <C>
   Minimum rent                   $4,361     $4,300      $4,484
   Contingent rent                 1,192        972       1,103
                                --------   --------    --------
                                   5,553      5,272       5,587
   Sublease rentals                 (975)      (798)     (1,450)
                                --------   --------    --------
                                  $4,578     $4,474      $4,137
                                --------   --------    --------
                                --------   --------    --------
</TABLE>

12.  Related Party Transactions:
   
   At January 3, 1998, the Company held two notes receivable with balances 
   totaling $255,000 from an officer/director of the Company. These notes 
   arose from transactions in 1979 and 1980 whereby the Company loaned the 
   officer/director money to purchase an aggregate of 200,000 shares of the 
   Company's Class A common stock at the then fair market value. These notes, 
   which bear interest at the rate of 6% per annum, mature on December 31, 
   2003 with principal payments of $40,000 due annually prior thereto.  If 
   the officer's employment is terminated prior to January 1, 2004, the 
   unpaid portion of the two notes would be forgiven. The loans are 
   collateralized by 180,000 shares of Class B common stock.  The receivable 
   is shown on the balance sheets as a reduction in stockholder's equity.

13.  Commitments and Contingent Liabilities:
   
   The Company has an employment agreement with a key executive officer which 
   expires on January 1, 2004. In addition to a base salary, the agreement 
   provides for a bonus based on 

                                       42

<PAGE>

   pre-tax earnings. No maximum compensation limit exists. The compensation 
   expensed in 1997, 1996 and 1995 was approximately $1,020,000, $673,000 and 
   $910,000, respectively.
   
   The Company is contingently liable as a guarantor of certain leases which 
   it has either assigned or subleased. Any liability arising as a result of 
   these guarantees would have no significant effect on either the Company's 
   results of operations or consolidated financial position of the Company.
   
   The Company and its subsidiaries are subject to a myriad of environmental 
   laws and regulations regarding air, water and land use, and the use, 
   storage and disposal of hazardous materials. The Company believes it 
   substantially complies, and has in the past substantially complied, with 
   federal, state, and local environmental laws and regulations. However, a 
   claim has been made against the Company in connection with real property 
   previously leased by a subsidiary of the Company by the current owner of 
   such property.  The Company has been asked to pay for a portion of the 
   cost of remediation of hazardous substances allegedly existing on such 
   properties. The Company cannot at this time estimate the expense it 
   ultimately may incur in connection with the claim, however, it believes 
   such expense, or expenses related to violations which may occur in the 
   future, will not have a material impact on the Company's results of 
   operations or consolidated financial position.

   The Company or its subsidiaries are defendants in a number of cases 
   currently in litigation, being vigorously defended, in which the 
   complainants pray for monetary damages.  As of the date hereof, no 
   estimate of potential liability, if any, is possible. Based upon current 
   information, management, after consultation with legal counsel defending 
   the Company's interests in the cases, believes the ultimate disposition 
   thereof will have no material effect upon either the Company's results of 
   operations or the consolidated financial position.
   
14.  Arbitration Proceedings:
   
   Pursuant to an Asset Purchase Agreement dated September 1, 1993 (the 
   "Asset Purchase Agreement"), by and among Telautograph, the Company and 
   Danka Industries, Inc. (the "Purchaser") and Danka Business Systems PLC 
   ("Danka"), on September 17, 1993 AMG Holdings sold its communication 
   equipment business and substantially all the operating assets and certain 
   liabilities of such business to the Purchaser, a wholly-owned indirect 
   subsidiary of Danka, for a cash purchase price of approximately 
   $45,780,000 (which includes $1,000,000 received for a covenant 
   not-to-compete), subject to certain post-closing adjustments.  In fiscal 
   1993, AMG Holdings booked a gain related to the sale of approximately 
   $620,000, net of income taxes of $424,000.
   
   The purchase price and the gain were subject to adjustment after 
   resolution of disputes between AMG Holdings and the Purchaser concerning 
   the assets and liabilities transferred to the Purchaser.  In March 1997, 
   the Company received notice of a decision rendered in the arbitration 
   proceedings relating to the sale in 1993 of its communication equipment 
   business to Danka Business Systems PLC.  The arbitrators upheld Arden's 
   claim for approximately $2,200,000 and awarded Danka on its counterclaims 
   approximately $4,065,000.  As a result of this decision, the Company paid 
   Danka approximately $1,865,000 in April 1997.

                                       43
<PAGE>

   As the result of an earlier arbitration, Arden was awarded, in April 1994, 
   $1,750,000.  No income or expenses related to that award and no expenses 
   related to the arbitration completed in 1997 were recognized in the 1994 
   and 1995 statements of operations of Arden.  In the third and fourth 
   quarters of 1996, arbitration costs, net of taxes, which exceeded the 
   first arbitration award ($311,000 and $145,000, respectively) were 
   expensed as discontinued operations.
   
   In the concluding phase of the arbitration proceedings, the arbitrators 
   determined that neither party was a prevailing party and, therefore, 
   neither party was awarded costs and fees incurred by the other party with 
   respect to the proceedings.
   
   The above arbitration awards, the associated expenses not expensed in 1996 
   and the resulting adjustments to the purchase price for the transaction 
   resulted in the Company recognizing a loss, net of taxes, from 
   discontinued operations of $2,738,000 in 1997.

                                       44
<PAGE>

                 ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY

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

                 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>

(In Thousands, Except Per Share Data)

--------------------------------------------------------------------------------------------------------------------------
                              Continuing Operations                    Discontinued Operations
                   ---------------------------------------------     ---------------------------

                               Gross                     Income                       Loss          Net       Net Income
 Quarter            Sales      Profit      Income      Per Share(2)      Loss       Per Share      Income      Per Share(2)
--------------------------------------------------------------------------------------------------------------------------
<S>             <C>          <C>         <C>           <C>           <C>         <C>             <C>            <C>
 1995
     First         $59,941     $23,209     $1,425         $1.08                                    $1,425         $1.08 
     Second         60,317      23,742      2,246          1.71                                     2,246          1.71
     Third          60,968      23,787      1,801          1.37                                     1,801          1.37
     Fourth         61,736      24,315      1,639          1.31                                     1,639          1.31
--------------------------------------------------------------------------------------------------------------------------
 1996
     First         $60,616     $23,646     $  134        $  .12                                    $  134         $ .12
     Second         62,864      24,649        895           .81                                       895           .81
     Third          62,891      24,855      1,485          1.34        $ (311)     $  (.28)         1,174          1.06
     Fourth         65,648      26,017      1,465          1.32          (145)        (.13)         1,320          1.19

--------------------------------------------------------------------------------------------------------------------------
 1997
     First         $64,961     $25,547     $1,785         $1.61       $(2,695)      $(2.43)       $  (910)        $(.82)
     Second         65,360      26,341      2,292          2.07           (43)        (.04)         2,249          2.03
     Third          65,897      26,445      2,349          2.29                                     2,349          2.29
     Fourth (1)     78,136      31,655      2,271          2.53                                     2,271          2.53

--------------------------------------------------------------------------------------------------------------------------
</TABLE>
Earnings per share is calculated on the weighted average outstanding
shares in the quarter.

(1) The fourth quarter of 1997 was a 14 week quarter compared to 13 weeks in the
    fourth quarters of 1996 and 1995.

(2) The cumulative net income per share of the four quarters in 1997 will not 
    equal the net income per share for the year due to the Class A Common Stock
    repurchase in the third quarter of 1997.


                                          45


<PAGE>

                 ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY

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

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>

Exhibit
-------
<S> <C>
2.1   Asset Purchase Agreement dated September 1, 1993 by and among
      Telautograph Corporation, Arden Group, Inc., Danka Industries, Inc. and
      Danka Business Systems PLC filed as Exhibit 2.1 to the Form 8-K of Arden
      Group, Inc. dated September 30, 1993 and incorporated herein by
      reference.

3.1   Restated Certificate of Incorporation of Arden Group, Inc. dated November
      7, 1988 filed as Exhibit 3.1 to the Annual Report on Form 10-K of Arden
      Group, Inc. for the fiscal year ended December 31, 1988 and incorporated
      herein by reference.

3.2   Amended and Restated By-Laws of Arden Group, Inc. (as amended and
      restated as of June 25, 1991) filed as Exhibit 3.2 to the Annual Report
      on Form 10-K of Arden Group, Inc. for the fiscal year ended January 2,
      1993 and incorporated herein by reference.

4.1   Indenture dated as of September 1, 1964 between Arden Farms Co. and
      Security First National Bank, as Trustee, pertaining to 6% Subordinated
      Income Debentures, due September 1, 2014, filed as Exhibit 4.2 to
      Registration Statement on Form S-1 of Arden Group, Inc. and Arden-
      Mayfair, Inc., Registration No. 2-58687, and incorporated herein by
      reference.

4.1.1 First Supplemental Indenture dated as of November 7, 1978, to Indenture
      which is Exhibit 4.1, filed as Exhibit 7 to the Annual Report on Form 10-
      K of Arden Group, Inc. for the fiscal year ended December 30, 1978 and
      incorporated herein by reference.

4.1.2 Second Supplemental Indenture dated as of November 7, 1978, to Indenture
      which is Exhibit 4.1, filed as Exhibit 8 to the Annual Report on Form 10-
      K of Arden Group, Inc. for the fiscal year ended December 30, 1978 and
      incorporated herein by reference.

4.1.3 Third Supplemental Indenture dated April 24, 1981, to Indenture which is
      Exhibit 4.1, filed as Exhibit 4.2.3 to the Quarterly Report on Form 10-Q
      of Arden Group, Inc. for the quarter ended April 4, 1981 and incorporated
      herein by reference.

4.2   Loan Agreement dated December 23, 1993, as amended by a Second Amendment
      thereto dated December 20, 1995, a Third Amendment thereto dated December
      18, 1996 and a Fourth Amendment thereto dated January 13, 1997, between
      Arden Group, Inc. and Union Bank. [filed as Exhibit 4.2 to the Annual 
      Report on Form 10-K of Arden Group, Inc. for the fiscal year ended 
      December 28, 1996 and incorporated herein by reference.]

10.1* Employment Agreement dated May 13, 1988 by and among Arden Group, Inc.,
      Arden-Mayfair, Inc., Telautograph Corporation and Gelson's Markets and
      Bernard Briskin, filed as Exhibit 10 to the Quarterly Report on Form 10-Q
      of Arden Group, Inc. for the quarter ended July 2, 1988 and incorporated
      herein by reference.


                                        46
<PAGE>

Exhibit
-------

10.2*  Amendment to Employment Agreement dated April 27, 1994 by and between
       Arden Group, Inc., Arden-Mayfair, Inc., AMG Holdings, Inc. and Gelson's
       Markets and Bernard Briskin, filed as Exhibit 10.7 to the Quarterly
       Report on Form 10-Q of Arden Group, Inc. for the quarter ended April 2,
       1994 and incorporated herein by reference.

10.3*  Extension Agreement dated January 4, 1981 regarding promissory notes held
       by the Registrant between Arden Group, Inc. and Bernard Briskin, filed as
       Exhibit 10.2 to the Quarterly Report on Form 10-Q of Arden Group, Inc.
       for the quarter ended July 4, 1981 and incorporated herein by reference. 

10.4*  Extension Agreement dated January 1, 1984 regarding promissory notes held
       by the Registrant between Arden Group, Inc. and Bernard Briskin filed as
       Exhibit 19.1 to the Quarterly Report on Form 10-Q of Arden Group, Inc.
       for the quarter ended September 29, 1984 and incorporated herein by
       reference.

10.5*  Extension Agreement dated May 13, 1988 regarding promissory notes held by
       the Registrant between Arden Group, Inc. and Bernard Briskin filed as
       Exhibit 10.11 to the Annual Report on Form 10-K of Arden Group, Inc. for
       the fiscal year ended December 31, 1988 and incorporated herein by
       reference.

10.6*  Modification and Fourth Extension Agreement dated as of January 1, 1994
       regarding promissory notes held by the Registrant between Arden Group,
       Inc. and Bernard Briskin, filed as Exhibit 10.8 to the Quarterly Report
       on Form 10-Q of Arden Group, Inc. for the quarter ended April 2, 1994 and
       incorporated herein by reference.

10.7   Form of Indemnification Agreement between the Registrant and the
       Directors and certain officers, filed as Exhibit 10.13 to the Annual
       Report on Form 10-K of Arden Group, Inc. for the year ended December 29,
       1990 and incorporated herein by reference. 

10.8*  Amended Loan and Stock Pledge Agreement dated November 4, 1993 regarding
       promissory notes held by the Registrant between Arden Group, Inc. and
       Bernard Briskin, filed as Exhibit 10.6 to the Annual Report on Form 10-K
       of Arden Group, Inc. for the year ended January 1, 1994 and incorporated
       herein by reference.

10.9*  Second Amendment to Employment Agreement as of January 1, 1997 by and
       between Arden Group, Inc., Arden-Mayfair, Inc., AMG Holdings, Inc. and
       Gelson's Markets and Bernard Briskin.

10.10* Modification and Fifth Extension Agreement as of January 1, 1997
       regarding promissory notes held by the Registrant between Arden Group,
       Inc. and Bernard Briskin.

21.    Subsidiaries of Registrant.

27.    Financial Data Schedules.

*  Indicates management contracts or compensatory plans or arrangements
   required to be filed as an exhibit to this report.

</TABLE>
                                         47