Table of Contents





                                                                            Page


Stockholders'Letter............................................................2


Financial Highlights...........................................................5


Management's Discussion and Analysis of
Financial Condition and Results of Operations..................................6


Consolidated Financial Statements.............................................10


Notes to Consolidated Financial Statements....................................14


Report of Independent Public Accountants......................................29


Market and Dividend Information...............................................30


Selected Consolidated Financial Data..........................................31


Directors, Officers, Subsidiaries and Stockholder Information.................32







<PAGE>

Stockholders' Letter
================================================================================



Dear Fellow Stockholders,

     Despite the fact that for fiscal  1998,  Topps  recorded a net loss of $4.6
million,  or $.10 per share, as I write to you today, there are ample reasons to
believe that we can deliver  profitable results for the new year and beyond. Let
me provide some background and share with you why I believe that to be so.


Organizational  Changes and  Developments
-----------------------------------------
     During this last year, it grew increasingly  clear that worldwide  revenues
and profit  contribution had become insufficient to offset an expanding overhead
structure.  Simply put, costs had to go down and priorities needed  re-ordering.
We took decisive action, commensurate with the circumstances under which we were
operating,  cutting off activities  and expenses that were no longer  justified.
All in all,  this  involved a wide  variety of steps to get the Company  back on
secure ground and set the stage near term for a more profitable  future -- steps
that included:

     Reducing headcount throughout the entire organization;

     Cutting expenses in virtually every department in the Company;

     Limiting investments of time and money to those operations that can deliver
     appropriate returns;

     Entering  into a new term loan and  revolving  credit  facility  with Chase
     Manhattan Bank to refinance our former arrangements;

     Closing the sale of our former manufacturing plant in Duryea,  Pennsylvania
     and relocating  administrative operations efficiently within the building, 
     as tenant of the new owner;

     Negotiating  an  extension to our contract  with Hershey  Foods Corp.  (for
     Bazooka bubble gum manufacturing) which should serve us well for years to  
     come;

     Negotiating  a card  license  with  the  National  Hockey  League  Players'
     Association (subject to the execution of a definitive agreement), effective
     this year and on terms that make economic sense;

     Entering into a contract to sell our Cork, Ireland manufacturing facility;

     Achieving  significantly  improved on-time performance relative to shipping
     our sports card releases;

     Launching  two new candy  products,  Flip Pop and Baby Bottle Pop, that are
     showing encouraging early market results; and

     Throughout the organization  worldwide,  creating greater focus on building
     cash, profits and stockholder value.



Our Businesses
--------------
     Domestically, sports cards still represent important business to us despite
a contracted market and constant  competitive  challenges.  We continued to gain
market  share  during  calendar  year 1997 and again  won  numerous  prestigious
industry awards. We produced some of the most sought-after cards and sets in the
industry,  including the newly  introduced  Chrome line,  and intend to continue
doing so.

                                       2
<PAGE>


     During the year, our levels of product  quality,  pre-press  technology and
collation  accuracy  were  much  improved.  Customer  service  and  distribution
benefited from Topps "Home Team  Advantage," a program which is designed to help
hobby dealers generate greater in-store traffic and operate more profitably.  As
part of Home Team Advantage,  we continue to sponsor the popular  "Retailing for
Success" seminars,  and get high marks from participating hobby store owners for
our active support.  Incidentally, we also have a program that enables consumers
to find the hobby stores nearest them. If you would like such  information,  you
can obtain it simply by dialing  1-888-GO-TOPPS  or by  visiting  our website at
www.topps.com.

     As for new sports  business,  in addition to traditional  picture  products
featuring  professional  athletes,  we  believe  that our  brands  and  consumer
franchise  can support new marketing  initiatives,  some of which are already in
the pipeline. The objective is to attract into our consumer base sports fans who
are not currently there, by offering new types of collectible products.

     Internationally  also, there is further  potential for us in sports,  given
new focus and a pared down  organization  structure.  As you may know,  Topps UK
does an excellent  job with sticker  album  collections  featuring  professional
football (soccer) players of the English Premier League. This past year, for the
first  time,  our  subsidiary,  Topps  Italia,  got a chance to show the Italian
football  leagues  what we could do by  publishing  a sticker  album  collection
featuring their players.  The product we developed was outstanding and marketing
results were excellent. All things being equal, we should get the green light to
continue with our program in Italy this year.  Additionally,  in the future,  we
will seek opportunities to market sports products in other parts of the world.

     I   wish   we   could   be  as   encouraged   about   the   prospects   for
entertainment-based picture products overseas. However, as last year progressed,
consumer  interest  in this type of  sticker  collection  became a shadow of its
former  level,  causing  us to  close  three  offices  in  Europe  and cut  back
substantially on acquiring new licenses.  We know from experience that, with the
exception of properties for which there is extraordinary  consumer demand (there
well may be one or two),  the best strategy is not to force  anything but rather
to wait patiently until the general market returns to life -- and so we will.

     On the confectionery front, all news is good news. The transition last year
to outsourcing  Bazooka created unavoidable supply and customer service problems
which took a great  deal of time,  money and effort to  correct.  However,  that
transition is now complete and the  arrangement  with Hershey for product supply
has been extended.

     Our core  lollipop  brands,  Ring Pop and Push Pop,  continue  to be strong
performers,  showing growth and retail  vitality.  We have increased  efforts to
develop  additional  confectionery  brands,  both by committing greater internal
resources  to  this  area,  and by  opening  ourselves  to  ideas  from  outside
developers.  So far, these efforts have resulted in two very promising new items
-- Baby  Bottle  Pop and Flip  Pop --  which  were  recently  introduced  to the
marketplace, plus other potentially strong product entries now in various stages
of development.


                                       3
<PAGE>


Looking Ahead
-------------
     Today,  good things are happening in virtually  every area of our business.
Near term,  building  cash,  profits and  stockholder  value will be our primary
points of  concentration.  We will be very  selective in deciding where to spend
our time and  money.  We will seek ways to be even more  customer  friendly  and
continue   being   aggressive  at  marketing,   distribution   and  new  product
development.

     Looking ahead, however,  there needs to be more. Besides Topps considerable
strengths  -- people  power,  the  makings of a worldwide  distribution  system,
strong brands,  licenses,  business  relationships and operating capabilities --
the Company must work to add some new initiatives to its business mix to achieve
its full strategic potential.  Medium- and long-term,  therefore, we will pursue
such initiatives by both acquisition and internal development,  staying close to
areas we know best -- sports, collectibles and confectionery.

     In  closing,  we thank the Topps  family of present  and  former  employees
everywhere for their  dedication and commitment to helping make things right. On
behalf of the  entire  organization,  we also  thank our  customers,  licensors,
stockholders and suppliers for their valued support.












                 Chairman, Chief Executive Officer and President










                       OFFICERS OF THE TOPPS COMPANY, INC.



                                       4
<PAGE>

Financial Highlights
<TABLE>

<CAPTION>

                                                                                          Year Ended
---------------------------------- ------------------------------------------------------------------------------------
                                                                        February                March             March
                                                                        28, 1998              1, 1997           2, 1996
-----------------------------------------------------------------------------------------------------------------------
                                                                           (In thousands of dollars, except share data)
<S>                                                                   <C>                  <C>                <C>      
Net sales                                                            $  241,250           $  268,975         $  265,495
-----------------------------------------------------------------------------------------------------------------------
Income (loss) from operations                                            (2,020)             (14,475)            16,571
-----------------------------------------------------------------------------------------------------------------------
Net income (loss)                                                        (4,572)             (10,943)             8,394
-----------------------------------------------------------------------------------------------------------------------
Cash provided by (used by) operations                                       (62)              12,707              4,149
-----------------------------------------------------------------------------------------------------------------------
Working capital                                                          20,971               18,716             31,278
-----------------------------------------------------------------------------------------------------------------------
Current ratio                                                             125.9%               118.7%            138.6%
-----------------------------------------------------------------------------------------------------------------------
Net property, plant and equipment                                        10,148                12,900            31,610
-----------------------------------------------------------------------------------------------------------------------
Stockholders' equity                                                     61,609                68,052            81,850
-----------------------------------------------------------------------------------------------------------------------
Per share data:
     Net income (loss)                                                    (0.10)               (0.23)              0.18
-----------------------------------------------------------------------------------------------------------------------
     Book value                                                         $  1.33              $  1.45            $  1.74
-----------------------------------------------------------------------------------------------------------------------
</TABLE>




Corporate Profile
================================================================================

The Topps Company, Inc. is an international marketer of entertainment  products,
principally   collectible   picture  cards,   sticker  and  album   collections,
confections,  magazines and comic books. The Company,  founded in 1938,  created
Bazooka brand bubble gum in 1947 and marketed its first Topps  baseball cards in
1951.


                                       5
<PAGE>



Management's  Discussion  and  Analysis of
Financial  Condition  and Results of Operations
================================================================================



The following table sets forth, for the periods indicated,  net sales by product
group:

<TABLE>
<CAPTION>
                                                                                           Year Ended                  
-----------------------------------------------------------------------------------------------------------------------
                                                                        February                March             March
                                                                        28, 1998              1, 1997           2, 1996
                                                                      (52 weeks)           (52 weeks)        (53 weeks)
-----------------------------------------------------------------------------------------------------------------------
                                                                                     (In thousands of dollars)         
<S>                                                                    <C>                  <C>               <C>      
Collectible picture products                                           $ 156,769            $ 179,184         $ 169,983
-----------------------------------------------------------------------------------------------------------------------
Confectionery products                                                    84,481               89,791            95,512
-----------------------------------------------------------------------------------------------------------------------
     Total                                                             $ 241,250            $ 268,975         $ 265,495
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

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

Financial  results for the year ended  February  28, 1998 reflect an extra month
for Topps  Europe as a result of a change in its fiscal  year to  coincide  with
that of the rest of the Company. Topps Europe's net sales and net income for the
extra month were $4,937,000 and $702,000, respectively.


Fiscal 1998 Versus 1997*

In  1998,  the  Company's  net  sales  decreased  10.3%  to  $241,250,000   from
$268,975,000.  This was the result of lower  sales of both  collectible  picture
products and confectionery products.

Net sales of collectible  picture  products,  which consist  primarily of sports
cards, entertainment cards, comic books and the Merlin line of sticker and album
collections,  decreased 12.5% from $179,184,000 in 1997 to $156,769,000 in 1998.
This decrease resulted from lower sales of sports cards,  principally  baseball,
and to a lesser extent,  the Company's decision not to renew its NHL licenses on
terms it deemed  unfavorable.  Revenues  versus a year ago were also  negatively
impacted by weakness in the entertainment card and sticker/album  markets in the
U.S.  and  Europe.   Collectible   picture  products   accounted  for  65.0%  of
consolidated net sales of the Company in 1998, versus 66.6% in 1997.

The sports card category  continued to contract in calendar 1997.  This extended
industry decline has occurred as a result of several factors, including: product
and brand proliferation  which have led to consumer confusion and oversupply;  a
competitive rise in other  sports-related  merchandise  choices;  a reduction in
retailer  support;  and labor strife between  players and team owners in various
sports leagues. Topps continued to gain market share in the sports card industry
in calendar 1997, reaching a seven-year high across the three sports in which it
participated.

Net sales of  confectionery  products,  which include  Bazooka brand bubble gum,
Ring Pop and Push Pop lollipops and other novelty  products,  decreased  5.9% in
1998 to $84,481,000  from  $89,791,000 in 1997.  This decrease was the result of
lower sales of Bazooka  bubble gum in the U.S. and decreased  lollipop  sales in
Europe.  Baby  Bottle  Pop and Flip Pop,  which  were  introduced  in the fourth
quarter of fiscal  1998,  contributed  positively  to year over year sales.  The
Company's  confectionery  business  accounted for 35.0% of total 1998 net sales,
compared with 33.4% in 1997.


---------------------------------------------
* Unless otherwise indicated, all date references to 1998, 1997
  and 1996 refer to the fiscal years ended February 28, 1998, March
  1, 1997 and March 2, 1996, respectively.

                                       6
<PAGE>

Gross profit as a percentage of net sales  decreased to 33.0% in 1998 from 33.5%
in 1997. This decrease in gross profit resulted from higher product costs in the
U.S. and Ireland.  The Company benefited during the year from savings related to
the December 1996 closure of the Duryea, Pennsylvania manufacturing facility.

The decrease in royalties  and other income and expense from  $2,728,000 in 1997
to $390,000 in 1998, was in part the result of the  termination of the Company's
Canadian  licensee  in March  1997 (due to the  Company's  decision  to  conduct
business  directly in Canada),  the  recognition of foreign  exchange  losses in
Europe and Latin  America and the absence of a one-time  benefit from  royalties
received in 1997 relating to the sale of Mars Attacks products.

Selling,  general and  administrative  expenses increased as a percentage of net
sales to 32.5% in 1998 from 28.2% in 1997.  The  increase in 1998 was  primarily
the result of costs  associated with the startup of operations in Latin America,
the impact of inflation on other overhead costs and higher promotional  spending
in the U.S., particularly with respect to sports card autograph programs.

1998 results include $5,929,000 in severance and other non-recurring costs. This
charge  consists of  $3,407,000  related to headcount  reductions  in the United
States  and  Europe,  $1,518,000  related to the  closure  of the Cork,  Ireland
manufacturing  facility and  $1,004,000  of all other  costs.  1998 results also
include a $2,247,000  benefit from the reversal of the plant closure reserve set
up in fiscal 1997. 1997 results included a charge of $30,000,000 relating to the
closure of the Duryea,  Pennsylvania  manufacturing  facility and $1,350,000 for
the impairment of long-lived  assets at the Cork,  Ireland factory in compliance
with Statement No. 121 of the Financial Accounting Standards Board.

The  effective  tax rate of (26.8)% in 1998  reflected  provisions  for federal,
state and local income taxes in accordance with statutory  income tax rates. The
lack of a tax  benefit  was  driven  primarily  by the  Company's  inability  to
recognize certain foreign losses for tax purposes.

Net  loss  decreased  to  $(4,572,000),  or  $(0.10)  per  share  in  1998  from
$(10,943,000),  or  $(0.23)  per share in 1997.  Excluding  severance  and other
non-recurring  items and the  plant-related  charges/benefit  in both years, net
income (loss) would have been $(2,288,000),  or $(0.05) per share in 1998 versus
$9,493,000, or $0.20 per share in 1997.

Fiscal 1997 Versus 1996

In  1997,  the  Company's  net  sales  increased  1.3%  to   $268,975,000   from
$265,495,000.  This was the result of  increased  sales of  collectible  picture
products  which  were  largely  offset by a decrease  in sales of  confectionery
products.

Net sales of collectible  picture products  increased 5.4% from  $169,983,000 in
1996 to  $179,184,000  in 1997.  This increase was due primarily to 12 months of
Topps  Europe  sales in 1997 versus 7 months in 1996.  Despite the  difficulties
experienced  by the sports card market and the  Company's  decision not to renew
its NHL license,  net sales of sports card products were up slightly.  Partially
offsetting  these increases were decreases in net sales of  entertainment  cards
and comics. Collectible picture products accounted for 66.6% of consolidated net
sales of the Company in 1997, versus 64.0% in 1996.

Net sales of confectionery  products  decreased 6.0% in 1997 to $89,791,000 from
$95,512,000  in 1996.  This  decrease  was the result of lower  sales of Bazooka
bubble gum overall,  and lollipops outside the U.S. Two relatively new products,
Puppy In My Pocket and Topps Baby Wild  Animals,  contributed  positively to net
sales. The Company's  confectionery  business  accounted for 33.4% of total 1997
net sales, compared to 36.0% in 1996.

Gross profit as a percentage of net sales  increased to 33.5% in 1997 from 30.9%
in 1996. This increase in gross profit resulted from, among other things,  lower
card design costs in the U.S.,  as well as lower direct  costs,  in general,  in
both the U.S. and Ireland. In addition,  gross profit was positively impacted by
the  reduction  in  manufacturing  expenses  resulting  from the  fourth-quarter
closure of the Company's plant in Duryea, Pennsylvania.

Royalties and other income were  $2,728,000 in 1997 compared with  $3,129,000 in
1996.  This  decrease  resulted  primarily  from the  expiration  of a long-term
licensing  agreement in Argentina  and a reduction  in certain  one-time  income

                                       7
<PAGE>

items which benefited the Company in 1996.

Selling,  general and  administrative  expenses increased as a percentage of net
sales to 28.2% in 1997 from 25.8% in 1996. This percentage  increase in 1997 was
primarily  the result of  one-time  charges  relating to the  relocation  of two
Merlin offices in Europe,  the  reorganization of the U.S. sales force and other
increases in compensation expense, as well as costs associated with the start-up
of operations in Mexico.

Results for 1997 included  non-recurring  charges of $30,000,000 for the closure
of the  Duryea,  Pennsylvania  manufacturing  facility  and  $1,350,000  for the
impairment of long-lived assets at the Cork,  Ireland factory in compliance with
Statement No. 121 of the Financial Accounting Standards Board.

The effective tax rate of 33.3% in 1997 reflected provisions for federal,  state
and local income tax rates in accordance  with statutory  income tax rates.  The
effective rate was below the 44.5% tax rate in 1996 as a result of the impact of
non-deductible items on the Company's net loss position.

Net income (loss) decreased to $(10,943,000),  or $(0.23) per share in 1997 from
$8,394,000,  or $0.18 per share in 1996. Excluding the Duryea,  Pennsylvania and
Cork,  Ireland  plant-related  charges,  net  income  in 1997  would  have  been
$9,493,000, or $0.20 per share.

Quarterly Comparisons

Management believes that  quarter-to-quarter  comparisons of sales and operating
results are affected by a number of fluctuating factors, including the timing of
product   introductions  and  variations  in  shipping  and  factory  scheduling
requirements. Thus, annual sales and earnings amounts are unlikely to consist of
equal  quarterly  portions.  See  Note 16 of  Notes  to  Consolidated  Financial
Statements.

Inflation

The Company has been subject to price  increases for materials,  labor,  royalty
rates,  utilities and services,  which have been  partially  offset by effective
buying of materials and by  adjustment in the contents of finished  products and
their prices, as competition has permitted.

Liquidity and Capital Resources

In July 1995,  the Company  entered into a $65 million  credit  agreement with a
syndicate of eight banks in order to finance the  acquisition  of Topps  Europe,
Ltd.,  formerly  known as Merlin  Publishing,  Ltd.  and to provide  for working
capital and letter of credit  needs.  As of February 28,  1998,  the Company had
outstanding  $24,950,000  on the term loan  facility,  $6,000,000  of  revolving
credit and $700,000 in standby  letters of credit.  As of February 28, 1998, the
Company was in technical default of this credit agreement.

In May 1998, the total facility was refinanced  with Chase  Manhattan  Bank. The
new credit  agreement  provides for a  $24,950,000  term loan payable in monthly
installments  and a  $9,450,000  facility to cover letter of credit and revolver
needs. The facility expires on July 6, 2000. This credit agreement is secured by
a pledge  of the  Company's  domestic  trademarks  and 65% of the stock of Topps
Europe. Interest rates on the term loan and outstanding revolving credit balance
are based on LIBOR  plus an  applicable  margin of 2.75%,  or prime.  The credit
agreement contains  restrictions and prohibitions of a nature generally found in
loan  agreements of this type and requires the Company,  among other things,  to
comply with certain financial covenants, limits the Company's ability to sell or
acquire assets or borrow additional money and prohibits the payment of dividends
and the acquisition of treasury stock.

As of February 28, 1998, the Company had $22,153,000 in cash, and $30,950,000 in
debt primarily as a result of the Merlin acquisition.  The reduction in accounts
receivable,  accounts  payable and accrued expenses was due to the drop in sales
volume.  Accrued  expenses  were also  impacted  by the  payment of  liabilities
included in the $30,000,000  restructuring  reserve.  Capital  expenditures  for
fiscal  1998  totaled  $1,776,000,  the  majority  of which were  related to the
expansion of computer systems throughout the Company and investments required to

                                       8
<PAGE>

support the manufacture of confectionery products in the U.S.

Management believes that, in light of the Company's borrowing capacity,  cash on
hand as of February 28, 1998 and expected cash flow from operations, the Company
has adequate  cash to meet its working  capital,  capital  expenditure  and loan
repayment requirements for the foreseeable future.

Year 2000

The Year 2000 issue is the result of computer  programs using only two digits to
identify a year in the date field. If not corrected,  many systems could fail or
create  erroneous  results on January 1, 2000 by reading  the date as January 1,
1900.  Failure  to  fix  this  problem  could  result  in  systems  failures  or
miscalculations leading to disruptions in the Company's operations.

The Company  began work on Year 2000 issues in 1996.  Over 92% of the  Company's
mainframe programs have been reviewed for compliance. Where necessary,  programs
have been  fixed,  tested and put into  production.  The  Company is also in the
process of addressing the needs of all other systems such as personal computers,
customer and vendor systems,  telephone  systems and other electronic  hardware.
The Company  expects that its essential  systems and business  functions will be
Year 2000 compliant in all material respects in a timely manner.

Year 2000 compliance costs have not and are not expected to significantly affect
the financial condition or results of operations of the Company.

Accounting Changes

In the fourth quarter of fiscal 1998, the Company adopted Statement of Financial
Accounting  Standards  No. 128,  "Earnings  per Share",  which  established  new
standards for computing and presenting  earnings per share ("EPS").  It replaced
the  presentation  of  primary  EPS with a  presentation  of basic EPS and fully
diluted EPS. All prior  periods'  EPS data was restated in  accordance  with the
provisions  of this  statement.  The adoption of this  statement  did not have a
significant impact on the Company's reported earnings (loss) per share.

During  the past  year,  other  statements  have been  issued  by the  Financial
Accounting   Standards  Board  which  do  not  currently  affect  the  financial
statements  and are not  expected to have any  significant  financial  effect on
future financial statements.


                                       9
<PAGE>


Consolidated Statements of Operations
===============================================================================
The Topps Company, Inc. and Subsidiaries
(In thousands of dollars, except share data)

<TABLE>

<CAPTION>
                                                                                           Year Ended                  
-----------------------------------------------------------------------------------------------------------------------
                                                                        February                March             March
                                                                        28, 1998              1, 1997            2,1996
                                                                      (52 Weeks)           (52 Weeks)        (53 Weeks)
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>                    <C>               <C>      
Net sales                                                            $  241,250            $  268,975        $  265,495
-----------------------------------------------------------------------------------------------------------------------
Cost of sales                                                           161,541               178,854           183,490
-----------------------------------------------------------------------------------------------------------------------
     Gross profit on sales                                               79,709                90,121            82,005
-----------------------------------------------------------------------------------------------------------------------
Royalties and other income                                                  390                 2,728             3,129
-----------------------------------------------------------------------------------------------------------------------
                                                                         80,099                92,849            85,134
-----------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses                             78,437                75,974            68,563
-----------------------------------------------------------------------------------------------------------------------
Severance and other non-recurring items                                   5,929                   -                 -  
-----------------------------------------------------------------------------------------------------------------------
Plant closure reserve                                                    (2,247)               30,000               -  
-----------------------------------------------------------------------------------------------------------------------
Impairment loss                                                             -                   1,350               -  
-----------------------------------------------------------------------------------------------------------------------
     Income (loss) from operations                                       (2,020)              (14,475)           16,571
-----------------------------------------------------------------------------------------------------------------------
Interest expense, net                                                     1,585                 1,942             1,447
-----------------------------------------------------------------------------------------------------------------------
     Income (loss) before provision (benefit)
        for income taxes                                                 (3,605)              (16,417)           15,124
-----------------------------------------------------------------------------------------------------------------------
Provision (benefit) for income taxes                                        967                (5,474)            6,730
-----------------------------------------------------------------------------------------------------------------------
     Net income (loss)                                               $   (4,572)           $  (10,943)       $    8,394
-----------------------------------------------------------------------------------------------------------------------
Net income (loss) per share - basic and diluted                      $    (0.10)           $    (0.23)       $     0.18
-----------------------------------------------------------------------------------------------------------------------
</TABLE>


See Notes to Consolidated Financial Statements.

                                       10
<PAGE>

Consolidated Balance Sheets
===========================================
The Topps Company, Inc. and Subsidiaries
(In thousands of dollars, except share data)
<TABLE>
<CAPTION>
                                                                                February                 March
                                                                                28, 1998               1, 1997
--------------------------------------------------------------------------------------------------------------
                                              ASSETS
--------------------------------------------------------------------------------------------------------------
Current assets:
--------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                  <C>      
     Cash and cash equivalents                                                 $  22,153             $  24,199
--------------------------------------------------------------------------------------------------------------
     Accounts receivable, less allowance for doubtful
        accounts of $1,161 (1998) and $1,126 (1997)                               49,727                59,776
--------------------------------------------------------------------------------------------------------------
     Inventories                                                                  16,613                19,181
--------------------------------------------------------------------------------------------------------------
     Income tax receivable                                                         6,829                 2,901
--------------------------------------------------------------------------------------------------------------
     Deferred tax assets                                                           2,792                 3,489
--------------------------------------------------------------------------------------------------------------
     Prepaid expenses and other current assets                                     3,821                 9,012
--------------------------------------------------------------------------------------------------------------
          Total current assets                                                   101,935               118,558
--------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net                                                10,148                12,900
--------------------------------------------------------------------------------------------------------------
Intangible assets, net of amortization of $38,075 (1998)
     and $35,457 (1997)                                                           62,825                65,456
--------------------------------------------------------------------------------------------------------------
Other assets                                                                       3,498                 4,264
--------------------------------------------------------------------------------------------------------------
TOTAL ASSETS                                                                   $ 178,406             $ 201,178
--------------------------------------------------------------------------------------------------------------
                                 LIABILITIES AND STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------------------------------------
Current liabilities:
--------------------------------------------------------------------------------------------------------------
     Accounts payable                                                          $  27,752             $  35,150
--------------------------------------------------------------------------------------------------------------
     Accrued expenses and other liabilities                                       43,714                52,701
--------------------------------------------------------------------------------------------------------------
     Income taxes payable                                                          1,165                 4,491
--------------------------------------------------------------------------------------------------------------
     Current portion of long-term debt                                             8,333                 7,500
--------------------------------------------------------------------------------------------------------------
          Total current liabilities                                               80,964                99,842
--------------------------------------------------------------------------------------------------------------
Long-term debt, less current portion                                              22,617                27,450
--------------------------------------------------------------------------------------------------------------
Deferred income taxes                                                              6,864                   379
--------------------------------------------------------------------------------------------------------------
Other liabilities                                                                  6,352                 5,455
--------------------------------------------------------------------------------------------------------------
          Total liabilities                                                      116,797               133,126
--------------------------------------------------------------------------------------------------------------
Commitments (See note 17)
Stockholders' equity:
--------------------------------------------------------------------------------------------------------------
     Preferred stock, par value $.01 per share, authorized
         10,000,000 shares, none issued                                             -                      -  
--------------------------------------------------------------------------------------------------------------
     Common stock, par value $.01 per share, authorized
         100,000,000 shares, issued 47,502,510 in 1998 and 1997                      475                   475
--------------------------------------------------------------------------------------------------------------
     Additional paid-in capital                                                   16,812                16,812
--------------------------------------------------------------------------------------------------------------
     Treasury stock, 1,102,500 shares (1998) and 967,500 (1997)                   (8,881)               (8,358)
--------------------------------------------------------------------------------------------------------------
     Retained earnings                                                            54,204                58,776
--------------------------------------------------------------------------------------------------------------
     Cumulative adjustment due to foreign currency translation                    (1,001)                  347
--------------------------------------------------------------------------------------------------------------
          Total stockholders' equity                                              61,609                68,052
--------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                     $ 178,406             $ 201,178
--------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.

                                       11
<PAGE>


Consolidated Statements of Cash Flows
================================================================================

The Topps Company, Inc. and Subsidiaries
(In thousands of dollars)
<TABLE>
<CAPTION>
                                                                                          Year Ended
-----------------------------------------------------------------------------------------------------------------------
                                                                        February               March              March
                                                                        28, 1998             1, 1997            2, 1996
                                                                      (52 Weeks)          (52 Weeks)         (53 Weeks)
-----------------------------------------------------------------------------------------------------------------------
Cash provided by (used by) operations:
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>                <C>                 <C>      
   Net income (loss)                                                   $ (4,572)          $ (10,943)          $  8,394 
-----------------------------------------------------------------------------------------------------------------------
   Add (subtract) non-cash items included in income:
-----------------------------------------------------------------------------------------------------------------------
        Plant closure reserve                                               -                30,000                -   
-----------------------------------------------------------------------------------------------------------------------
        Impairment loss                                                     -                 1,350                -   
-----------------------------------------------------------------------------------------------------------------------
        Gain on sale of property, plant and equipment                    (1,317)                -                  -   
-----------------------------------------------------------------------------------------------------------------------
        Depreciation and amortization                                     4,374               5,245              5,562 
-----------------------------------------------------------------------------------------------------------------------
        Deferred taxes on income                                          7,182             (11,705)              (912)
-----------------------------------------------------------------------------------------------------------------------
   Net effect of changes in:
-----------------------------------------------------------------------------------------------------------------------
        Receivables                                                      10,049             (16,419)             1,831 
-----------------------------------------------------------------------------------------------------------------------
        Inventories                                                       2,568               8,707                597 
-----------------------------------------------------------------------------------------------------------------------
        Income tax receivable                                            (3,928)                107             (2,456)
-----------------------------------------------------------------------------------------------------------------------
        Prepaid expenses and other current assets                         5,188               2,256             (2,583)
-----------------------------------------------------------------------------------------------------------------------
        Other assets                                                        122                 880             (1,389)
-----------------------------------------------------------------------------------------------------------------------
        Payables and other current liabilities                          (19,710)              3,319             (5,287)
-----------------------------------------------------------------------------------------------------------------------
        Other                                                               (18)                (90)               392 
-----------------------------------------------------------------------------------------------------------------------
             Cash provided by (used by) operations                          (62)             12,707              4,149 
-----------------------------------------------------------------------------------------------------------------------
Cash provided by (used by) investing activities:
-----------------------------------------------------------------------------------------------------------------------
   Proceeds from disposition of property, plant and equipment             4,315                 -                  -   
-----------------------------------------------------------------------------------------------------------------------
   Additions to property, plant and equipment                            (1,776)             (1,074)            (2,147)
-----------------------------------------------------------------------------------------------------------------------
   Purchase of Merlin, net of cash acquired                                 -                   -              (39,953)
-----------------------------------------------------------------------------------------------------------------------
             Cash provided by (used by) investing activities              2,539              (1,074)           (42,100)
-----------------------------------------------------------------------------------------------------------------------
Cash provided by (used by) financing activities:
-----------------------------------------------------------------------------------------------------------------------
   Proceeds from borrowing                                                6,000                 -               50,000 
-----------------------------------------------------------------------------------------------------------------------
   Reduction of debt                                                    (10,000)             (9,350)            (5,700)
-----------------------------------------------------------------------------------------------------------------------
   Exercise of employee stock options                                       -                   -                   20 
-----------------------------------------------------------------------------------------------------------------------
   Purchase of treasury stock                                              (523)             (2,238)               -   
-----------------------------------------------------------------------------------------------------------------------
             Cash provided by (used by) financing activities             (4,523)            (11,588)            44,320 
-----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash                                          (2,046)                 45              6,369 
-----------------------------------------------------------------------------------------------------------------------
Cash at beginning of year                                                24,199              24,154             17,785 
-----------------------------------------------------------------------------------------------------------------------
Cash at end of year                                                    $ 22,153           $  24,199           $ 24,154 
-----------------------------------------------------------------------------------------------------------------------

Interest paid                                                          $  3,260           $   2,605           $  2,217 
-----------------------------------------------------------------------------------------------------------------------
Income taxes paid                                                      $  3,354           $   7,811           $ 10,587 
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Consolidated Financial Statements.


                                       12
<PAGE>

Consolidated Statements of Stockholders' Equity
================================================================================

The Topps Company, Inc. and Subsidiaries
(In thousands of dollars)
<TABLE>
<CAPTION>


                                                                                                             Cumulative
                                                                                                             Adjustment
                                                                                                Minimum        Due to  
                                                         Additional                             Pension       Foreign  
                                               Common     Paid-in      Treasury    Retained    Liability      Currency 
                                    Total      Stock      Capital       Stock      Earnings    Adjustment   Translation
-----------------------------------------------------------------------------------------------------------------------

<S>                               <C>          <C>       <C>          <C>          <C>           <C>           <C>     
Balance at February 25, 1995      $ 73,869     $ 475     $ 16,792     $ (6,120)    $ 61,325      $  -          $ 1,397 
-----------------------------------------------------------------------------------------------------------------------
Exercise of employee
     stock options                      20        -            20          -            -           -              -   
-----------------------------------------------------------------------------------------------------------------------
Translation adjustment                (323)       -           -            -            -           -             (323)
-----------------------------------------------------------------------------------------------------------------------
Minimum pension liability
     adjustment                       (110)       -           -            -            -         (110)             -  
-----------------------------------------------------------------------------------------------------------------------
Net income                           8,394        -           -            -          8,394         -               -  
-----------------------------------------------------------------------------------------------------------------------

Balance at March 2, 1996            81,850       475       16,812       (6,120)      69,719       (110)          1,074 
-----------------------------------------------------------------------------------------------------------------------
Translation adjustment                (727)       -           -            -            -           -             (727)
-----------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock          (2,238)       -           -         (2,238)         -           -               -  
-----------------------------------------------------------------------------------------------------------------------
Minimum pension liability
     adjustment                        110        -           -            -            -          110              -  
-----------------------------------------------------------------------------------------------------------------------
Net loss                           (10,943)       -           -            -        (10,943)        -               -  
-----------------------------------------------------------------------------------------------------------------------

Balance at March 1, 1997            68,052       475       16,812       (8,358)      58,776         -              347 
-----------------------------------------------------------------------------------------------------------------------
Translation adjustment              (1,348)       -           -            -            -           -           (1,348)
-----------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock            (523)       -           -           (523)         -           -               -  
-----------------------------------------------------------------------------------------------------------------------
Net loss                            (4,572)       -           -            -         (4,572)        -               -  
-----------------------------------------------------------------------------------------------------------------------

Balance at February 28, 1998      $ 61,609     $ 475     $ 16,812     $ (8,881)    $ 54,204       $ -         $ (1,001)
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

See  Notes to Consolidated Financial Statements.


                                       13
<PAGE>


Notes to Consolidated Financial Statements
================================================================================


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------------------

Principles of Consolidation:  The consolidated  financial statements include the
accounts  of the  Company  and its  subsidiaries.  All  intercompany  items  and
transactions have been eliminated in consolidation.

The Company and its  subsidiaries  have fiscal  years which end on the  Saturday
closest to the end of  February.  Financial  results  for the fiscal  year ended
February 28, 1998 reflect a change in Topps Europe's fiscal year end to coincide
with the  parent  company's  and  include  thirteen  months  of  Topps  Europe's
operations.

Foreign Currency  Translation:  The financial statements of subsidiaries outside
the United  States,  except those  subsidiaries  located in highly  inflationary
economies,  are generally  measured  using the local  currency as the functional
currency.  Assets and  liabilities of these  subsidiaries  are translated at the
rates of exchange  as of the  balance  sheet  date.  The  resultant  translation
adjustments  are  included  in  cumulative  adjustment  due to foreign  currency
translation,  a separate component of stockholders'  equity.  Income and expense
items are  translated  at the  average  exchange  rate for the month.  Gains and
losses from foreign currency  transactions of these subsidiaries are included in
net income (loss). For subsidiaries operating in highly inflationary  economies,
the financial  statements are measured  using the U.S.  dollar as the functional
currency.  Gains and losses from balance sheet translation  adjustments are also
included in net income (loss).

Derivative Financial Instruments:  Derivative financial instruments are used for
hedging  purposes  by the Company in the  management  of its  interest  rate and
foreign  currency  exposures.  The  Company  does not  hold or issue  derivative
financial instruments for trading purposes.

Accounting  Changes:  In the fourth quarter of fiscal 1998, the Company  adopted
Statement of Financial  Accounting  Standards  ("SFAS") No. 128,  "Earnings  per
Share,"  which  established new standards for computing and presenting  earnings
per share (EPS). It replaced the presentation of primary EPS with a presentation
of basic EPS and fully diluted EPS. All prior  periods' EPS data was restated in
accordance with the provisions of this statement. The adoption of this statement
did not have a significant  impact on the Company's reported earnings (loss) per
share.

During  the past  year,  other  statements  have been  issued  by the  Financial
Accounting   Standards  Board  which  do  not  currently  affect  the  financial
statements  and are not  expected to have any  significant  financial  effect on
future financial statements.

Cash  Equivalents:  The  Company  considers  investments  in highly  liquid debt
instruments with a maturity of three months or less to be cash equivalents.

Inventories:  Inventories  are  stated  at  lower  of  cost or  market.  Cost is
determined on the first-in, first-out basis.

Property,  Plant  and  Equipment  ("PP&E"):  PP&E is  stated  at cost  with  the
exception of certain  assets.  See Note 2.  Depreciation  is computed  using the
straight-line method.  Estimated useful lives used in computing depreciation are
twenty-five  years  for  buildings,  five to  twelve  years  for  machinery  and
equipment  and  the  remaining  lease  period  for  leasehold  improvements.  In
accordance  with SFAS No. 121, the Company  periodically  evaluates the carrying
value of its PP&E for circumstances which may indicate impairment.

Intangible Assets:  Intangible assets include  trademarks,  the value of sports,
entertainment  and  proprietary  product  rights and goodwill (the excess of the
purchase  price  over the  estimated  fair  value  of  identifiable  net  assets
acquired).  Amortization is by the straight-line  method over estimated lives of
up to forty years.  Management evaluates the recoverability of intangible assets
under the  provisions  of SFAS No. 121,  based on  undiscounted  projections  of
future cash flows attributable to the individual assets.

Net  Sales:  Sales are  recorded  upon  shipment  of  products.  Sales made on a
returnable  basis are recorded net of provision  for  estimated  returns.  These
estimates are revised,  as necessary,  to reflect  actual  experience and market
conditions.

                                       14
<PAGE>
Estimates:  The preparation of financial statements in conformity with generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions which affect the reporting of assets and liabilities as of the dates
of the  financial  statements  and revenues and  expenses  during the  reporting
period.  These  estimates  primarily  relate to  provision  for  sales  returns,
allowance for doubtful accounts, inventory obsolescence, restructuring costs and
asset valuations. Actual results could differ from these estimates.

Reclassifications:  Certain items in the prior years' financial  statements have
been reclassified to conform with the current year's presentation.

NOTE 2 - OTHER STATEMENT OF OPERATIONS CHARGES
--------------------------------------------------------------------------------
Fiscal 1998's income (loss) from operations  includes a charge of $5,929,000 for
severance and other  non-recurring  items related to a reduction of employees in
the United States and Europe, the closure of the manufacturing facility in Cork,
Ireland,  the closure of the direct marketing  business and the additional costs
of renegotiating our Credit Agreement. See Note 9.

During the third  quarter of fiscal 1997,  the Company  announced  that it would
discontinue  operations  at  its  Duryea,  Pennsylvania  factory  following  the
expiration of a labor agreement in December 1996. This resulted in the severance
of both union and non-union  employees  and the  outsourcing  of all  production
activities previously performed at that location.

As a result of the closing,  the Company recorded a charge of $30,000,000 before
applicable income tax effects. The charge consisted of approximately $16,100,000
in  non-cash  write-offs  relating  to the  disposition  of factory  and related
equipment  and  approximately   $13,900,000  relating  to  severance  and  other
employee-related  costs,  costs to hold and sell the  factory and other costs of
the  closure.  In the  fourth  quarter  of fiscal  1998,  the  Company  reversed
$2,247,000 of the $30,000,000 reserve to income, as a result of the actual price
received for the factory and an excess of reserves.

During the third  quarter of fiscal  1997,  the Company  recorded an  impairment
reserve  of  $1,350,000  in  accordance  with SFAS No.  121 with  respect to its
factory in Cork, Ireland.

Excluding  these items in both years,  net income (loss) from operations for the
year ended February 28, 1998 would have been  $(2,288,000) or $(0.05) per share,
versus $9,493,000 or $0.20 per share for the prior year.

NOTE 3 - EARNINGS PER SHARE
--------------------------------------------------------------------------------
In the fourth quarter of fiscal 1998, the Company adopted the provisions of SFAS
No. 128,  "Earnings  Per Share."  Basic EPS is computed  based upon the weighted
average  number of shares  outstanding.  Diluted EPS is computed  based upon the
same number of shares plus additional shares  representing  stock  distributable
under stock based plans computed using the treasury stock method. Because fiscal
years ended 1998 and 1997 reflect losses,  basic and diluted EPS were calculated
using the basic weighted average shares outstanding. For fiscal 1996, there were
no dilutive securities outstanding.

The following  table  represents the  computation  of weighted  average shares -
diluted:
<TABLE>
<CAPTION>
                                   Year ended
---------------------- ------------------------------------
                          February       March       March 
                          28, 1998     1, 1997     2, 1996 
-----------------------------------------------------------
Weighted average
 shares outstanding
<S>                     <C>         <C>          <C>       
 - basic                46,421,301  46,928,369   47,047,251
-----------------------------------------------------------
Effect of dilutive
 stock options issued
 January 1, 1998            12,363      -            -     
-----------------------------------------------------------
Weighted average
 shares outstanding
 - diluted              46,433,664  46,928,369  47,047,251 
-----------------------------------------------------------
</TABLE>
All other stock  option  plans have not been  included as they would have had an
antidilutive effect. See Note 12.

                                       15
<PAGE>

<TABLE>
<CAPTION>

NOTE 4 - INVENTORIES
--------------------------------------------------------------------------------

                                   February        March
                                   28, 1998      1, 1997
--------------------------------------------------------
                               (In thousands of dollars)
<S>                            <C>             <C>      
Raw materials                  $   1,794       $   6,236
--------------------------------------------------------
Work in process                    1,619           1,874
--------------------------------------------------------
Finished products                 13,200          11,071
--------------------------------------------------------
     Total                    $   16,613      $   19,181
--------------------------------------------------------
</TABLE>


<TABLE>
<CAPTION>

NOTE 5 - PROPERTY, PLANT AND EQUIPMENT, NET
--------------------------------------------------------------------------------
                                    February       March
                                    28, 1998     1, 1997
--------------------------------------------------------
                               (In thousands of dollars)
<S>                                  <C>          <C>   
Land                                 $   200      $  200
--------------------------------------------------------
Buildings and improvements             3,718       6,936
--------------------------------------------------------
Machinery and equipment               10,633       9,204
--------------------------------------------------------
     Total PP&E                       14,551      16,340
--------------------------------------------------------
Accumulated depreciation              (4,403     (3,440)
--------------------------------------------------------
     Total PP&E, net                $ 10,148    $ 12,900
--------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>

NOTE 6 - INTANGIBLE ASSETS
--------------------------------------------------------------------------------

                                   February         March
                                   28, 1998       1, 1997
---------------------------------------------------------
                                (In thousands of dollars)
<S>                                 <C>          <C>     
Value of sports,
  entertainment and
  proprietary products             $ 36,635      $ 36,635
---------------------------------------------------------
Goodwill                             64,265        64,197
---------------------------------------------------------
Other intangible assets                 -              81
---------------------------------------------------------
Less: accumulated
  amortization                      (38,075)     (35,457)
---------------------------------------------------------
     Total                         $ 62,825      $ 65,456
---------------------------------------------------------
</TABLE>










<TABLE>
<CAPTION>

NOTE 7 - ACCRUED EXPENSES AND OTHER LIABILITIES
--------------------------------------------------------------------------------

                                   February         March
                                   28, 1998       1, 1997
---------------------------------------------------------
                                (In thousands of dollars)
<S>                               <C>            <C>     
Royalties                         $  12,351      $  8,488
---------------------------------------------------------
Employee compensation                   346         1,112
---------------------------------------------------------
Provision for estimated
  losses on sales returns            19,258        23,239
---------------------------------------------------------
Plant closure, severance and
  other non-recurring items           3,260        11,582
---------------------------------------------------------
Other                                 8,499         8,280
---------------------------------------------------------
     Total                        $  43,714     $  52,701
---------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>

NOTE 8 - DEPRECIATION AND AMORTIZATION
--------------------------------------------------------------------------------

                                    Year Ended
----------------------------------- ----------------------
                          February       March       March
                          28, 1998     1, 1997     2, 1996
                        (52 weeks)  (52 weeks)  (53 weeks)
----------------------------------------------------------
                                 (In thousands of dollars)
<S>                        <C>         <C>         <C>    
Depreciation expense       $ 1,099     $ 2,402     $ 3,146
----------------------------------------------------------
Amortization of
 intangible assets           2,618       2,649       2,312
----------------------------------------------------------
Amortization - other           657         194         104
----------------------------------------------------------
     Total                 $ 4,374     $ 5,245     $ 5,562
----------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>

NOTE 9 - LONG-TERM DEBT
--------------------------------------------------------------------------------

                                   February         March 
                                   28, 1998       1, 1997 
----------------------------------------------------------
                                (In thousands of dollars) 
<S>                              <C>             <C>      
Term loan                        $ 24,950        $ 34,950 
----------------------------------------------------------
Less: current portion              (8,333)         (7,500)
----------------------------------------------------------
Revolver outstanding                6,000             -   
----------------------------------------------------------
     Total                       $ 22,617        $ 27,450 
----------------------------------------------------------
</TABLE>


                                       16
<PAGE>


The scheduled repayment of the term loan is as follows:

<TABLE>
<CAPTION>
                                          
Fiscal Year:                         (In thousands of dollars)
--------------------------------------------------------------
<S> <C>                                               <C>     
    1999                                              $ 8,333 
--------------------------------------------------------------
    2000                                               11,458 
--------------------------------------------------------------
    2001                                                5,159 
--------------------------------------------------------------
         Total                                $        24,950 
--------------------------------------------------------------
</TABLE>



In July 1995,  the Company  entered into a $65 million  credit  agreement with a
syndicate of eight banks in order to finance the  acquisition  of Topps  Europe,
Ltd.,  formerly  known as Merlin  Publishing,  Ltd.  and to provide  for working
capital and letter of credit  needs.  As of February 28,  1998,  the Company had
outstanding  $24,950,000  on the term loan,  $6,000,000 of revolving  credit and
$700,000 in standby letters of credit.  As of February 28, 1998, the Company was
in technical default of this credit agreement.

In May 1998, the total facility was refinanced  with Chase  Manhattan  Bank. The
new credit  agreement  provides for a  $24,950,000  term loan payable in monthly
installments  and a  $9,450,000  facility to cover  letter of credit and working
capital needs. The facility expires on July 6, 2000.  Amounts  outstanding under
the  credit  agreement  are  secured  by a  pledge  of  the  Company's  domestic
trademarks and 65% of the stock of Topps Europe. Interest rates on the term loan
and outstanding  revolving  credit balance are based on LIBOR plus an applicable
margin of 2.75%, or prime.  The credit agreement  contains certain  restrictions
and prohibitions of a nature generally found in loan agreements of this type and
requires  the Company,  among other  things,  to comply with  certain  financial
covenants,  limits the  Company's  ability  to sell or acquire  assets or borrow
additional  money and prohibits the payment of dividends and the  acquisition of
treasury stock.

                                       17
<PAGE>



NOTE 10 - INCOME TAXES
--------------------------------------------------------------------------------


U.S. and foreign operations contributed to income before provision (benefit) for
income taxes as follows:


<TABLE>
<CAPTION>

                                                                                         Year Ended
----------------------------------------------------------------------------------------------------------------------
                                                                        February              March              March
                                                                        28, 1998            1, 1997            2, 1996
                                                                      (52 weeks)         (52 weeks)         (53 weeks)
----------------------------------------------------------------------------------------------------------------------
                                                                                             (In thousands of dollars)
<S>                                                                    <C>               <C>                  <C>     
     United States                                                     $  4,083          $ (21,622)           $  7,689
----------------------------------------------------------------------------------------------------------------------
     Europe                                                              (5,368)             5,492               7,215
----------------------------------------------------------------------------------------------------------------------
     Canada                                                                 737                241                 220
----------------------------------------------------------------------------------------------------------------------
     Latin America                                                       (3,057)              (528)                 - 
----------------------------------------------------------------------------------------------------------------------
          Total                                                        $ (3,605)         $ (16,417)           $ 15,124
----------------------------------------------------------------------------------------------------------------------
</TABLE>



Provision (benefit) for income taxes consists of:
<TABLE>
<CAPTION>

                                                                                        Year Ended
-----------------------------------------------------------------------------------------------------------------------
                                                                        February              March               March
                                                                        28, 1998            1, 1997             2, 1996
                                                                      (52 weeks)         (52 weeks)          (53 weeks)
-----------------------------------------------------------------------------------------------------------------------
                                                                                       (In thousands of dollars)       
<S>                                                                    <C>                  <C>                <C>     
Current income taxes:
-----------------------------------------------------------------------------------------------------------------------
     Federal                                                           $ (4,657)            $ 1,484            $ 2,988 
-----------------------------------------------------------------------------------------------------------------------
     Foreign                                                               (679)              3,501              3,317 
-----------------------------------------------------------------------------------------------------------------------
     State and local                                                       (293)                299                899 
-----------------------------------------------------------------------------------------------------------------------
          Total current                                                  (5,629)              5,284              7,204 
-----------------------------------------------------------------------------------------------------------------------
Deferred income taxes:
-----------------------------------------------------------------------------------------------------------------------
     Federal                                                              5,890              (9,289)              (171)
-----------------------------------------------------------------------------------------------------------------------
     State and local                                                        706              (1,469)              (303)
-----------------------------------------------------------------------------------------------------------------------
          Total deferred                                                  6,596             (10,758)              (474)
-----------------------------------------------------------------------------------------------------------------------
          Total income tax expense (benefit)                           $    967             $(5,474)           $ 6,730 
-----------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       18
<PAGE>


The reasons for the difference between the provision  (benefit) for income taxes
and the amount  computed by applying the  statutory  federal  income tax rate to
income before provision (benefit) for income taxes are as follows:

<TABLE>
<CAPTION>

                                                                                      Year Ended
---------------------------------------------------------------------------------------------------------------------
                                                                        February              March             March
                                                                        28, 1998            1, 1997           2, 1996
                                                                      (52 weeks)         (52 weeks)        (53 weeks)
---------------------------------------------------------------------------------------------------------------------
                                                                               (In thousands of dollars)             
<S>                                                                    <C>                <C>                 <C>    
Computed expected tax provision (benefit):                             $ (1,262)          $ (5,746)           $ 5,293
---------------------------------------------------------------------------------------------------------------------
Increase (decrease) in taxes resulting from:
---------------------------------------------------------------------------------------------------------------------
     State and local taxes, net of federal tax benefit                       586              (668)               588
---------------------------------------------------------------------------------------------------------------------
     Foreign and U.S. tax effects attributable
         to foreign operations                                             1,113               212                316
---------------------------------------------------------------------------------------------------------------------
     Goodwill and other permanent differences                                530               728                533
---------------------------------------------------------------------------------------------------------------------
                                                                       $     967          $ (5,474)           $ 6,730
---------------------------------------------------------------------------------------------------------------------
</TABLE>



The components of deferred income tax assets and liabilities are as follows:

<TABLE>
<CAPTION>

                                                                                         Year Ended
-----------------------------------------------------------------------------------------------------------------------
                                                                        February              March               March
                                                                        28, 1998            1, 1997             2, 1996
                                                                      (52 weeks)         (52 weeks)          (53 weeks)
-----------------------------------------------------------------------------------------------------------------------
                                                                               (In thousands of dollars)               
Deferred income tax assets:
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>                <C>                 <C>     
     Provision for estimated losses on sales returns                    $  2,792           $  3,489            $  2,598
-----------------------------------------------------------------------------------------------------------------------
Deferred income tax liabilities:
     Depreciation                                                       $    627           $    814            $  4,668
-----------------------------------------------------------------------------------------------------------------------
     Undistributed earnings - foreign subsidiaries                         5,303              5,143               4,759
-----------------------------------------------------------------------------------------------------------------------
     Amortization and other                                                  619             (1,617)              1,765
-----------------------------------------------------------------------------------------------------------------------
     Plant closure reserve                                                   315             (3,961)                 - 
--------------------------------------------------------------------------------------------------------------- -------
       Total deferred income tax liabilities                            $  6,864           $    379            $ 11,192
-----------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       19
<PAGE>

NOTE 11 - EMPLOYEE BENEFIT PLANS
--------------------------------------------------------------------------------


Retirement Plans


The Company has a trusteed  non-contributory  defined  benefit  retirement  plan
covering substantially all domestic non-bargaining unit personnel. Plan benefits
are based on years of service and the employee's average  compensation in the 60
consecutive  months which produce the highest average within the last 120 months
of  employment.  The Company funds pension costs in accordance  with the funding
requirements   of  the  Employee   Retirement   Income  Security  Act  of  1974.
Contributions  are  intended  to provide  not only for  benefits  attributed  to
service to date but also for those  expected  to be earned in the  future.  Plan
assets consist of high-quality, marketable fixed income and equity securities.


The following table sets forth the retirement plan's funded status as determined
by an independent actuary:

<TABLE>
<CAPTION>
                                                                        February              March              March
                                                                        28, 1998            1, 1997            2, 1996
----------------------------------------------------------------------------------------------------------------------
                                                                                (In thousands of dollars)
<S>                                                                    <C>                 <C>               <C>      
Actuarial present value of benefit obligation:
     Vested                                                            $ 13,155            $ 12,288          $ 12,200 
----------------------------------------------------------------------------------------------------------------------
     Non-vested                                                             324                 507               500 
----------------------------------------------------------------------------------------------------------------------
          Accumulated benefit obligation                               $ 13,479            $ 12,795          $ 12,700 
----------------------------------------------------------------------------------------------------------------------

Projected benefit obligation                                           $ 17,200            $ 16,071          $ 16,350 
----------------------------------------------------------------------------------------------------------------------
Plan assets at market value                                             (14,738)            (15,442)          (12,050)
----------------------------------------------------------------------------------------------------------------------
          Projected benefit obligation in excess
----------------------------------------------------------------------------------------------------------------------
             of plan assets                                               2,462                 629             4,300 
----------------------------------------------------------------------------------------------------------------------
Unrecognized net loss                                                    (3,914)             (2,580)           (4,280)
----------------------------------------------------------------------------------------------------------------------
Unrecognized transition asset                                                72                  96               320 
----------------------------------------------------------------------------------------------------------------------
Minimum liability                                                            -                   -                310 
----------------------------------------------------------------------------------------------------------------------
          Accrued (prepaid) pension liability                          $ (1,380)           $ (1,855)         $    650 
----------------------------------------------------------------------------------------------------------------------
Net pension expense included in the following components:
----------------------------------------------------------------------------------------------------------------------
     Service cost - benefits earned during the year                    $    636            $    701          $    600 
----------------------------------------------------------------------------------------------------------------------
     Interest cost on projected benefit obligation                        1,234               1,196             1,150 
----------------------------------------------------------------------------------------------------------------------
     Actual (gain) loss on plan assets                                   (1,295)             (1,011)           (1,720)
----------------------------------------------------------------------------------------------------------------------
     Net amortization and deferral                                          (51)                 77               855 
----------------------------------------------------------------------------------------------------------------------
     Voluntary retirement benefit                                            -                  (14)               -  
----------------------------------------------------------------------------------------------------------------------
          Net pension expense                                          $     524           $    949          $    885 
----------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       20
<PAGE>


The Company also has defined benefit agreements,  which are non-qualified,  with
certain retirees and the Chairman,  Chief Executive  Officer and President.  The
table  below  sets  forth the  funded  status as  determined  by an  independent
actuary:

<TABLE>
<CAPTION>
                                                                        February            March              March
                                                                        28, 1998          1, 1997            2, 1996
--------------------------------------------------------------------------------------------------------------------
                                                                                (In thousands of dollars)
<S>                                                                     <C>               <C>               <C>     
Present value of vested benefit obligation                              $ 3,063           $ 2,852           $ 3,250 
--------------------------------------------------------------------------------------------------------------------

Projected benefit obligation in excess of plan assets                     3,639             3,553             3,900 
--------------------------------------------------------------------------------------------------------------------
Unrecognized net loss                                                       232               179              (375)
--------------------------------------------------------------------------------------------------------------------
Unrecognized transition obligation                                         (881)             (961)           (1,040)
--------------------------------------------------------------------------------------------------------------------
Minimum liability                                                           -                  81               765 
--------------------------------------------------------------------------------------------------------------------
     Accrued pension liability                                            2,990             2,852             3,250 
--------------------------------------------------------------------------------------------------------------------

Net pension expense                                                     $   286           $   355           $   380 
--------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>


                                                                        February            March              March
                                                                        28, 1998          1, 1997            2, 1996
--------------------------------------------------------------------------------------------------------------------

Principal actuarial assumptions used for
  measurement of projected benefit obligations were:
--------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>             <C>                 <C> 
     Discount rate                                                          7.0%            7.8%                7.5%
--------------------------------------------------------------------------------------------------------------------
     Rate of increase in future compensation level                          5.0%            5.0%                5.0%
--------------------------------------------------------------------------------------------------------------------
     Long-term rate of return on assets                                     9.0%            9.0%                9.0%
--------------------------------------------------------------------------------------------------------------------
</TABLE>



The Company is a participant in a multi-employer  defined  contribution  pension
plan covering  domestic  bargaining  unit  employees.  In addition,  the Company
sponsors a defined  contribution plan, which qualifies under Sections 401(a) and
401(k) of the Internal Revenue Code (the "401(k) Plan"). All non-bargaining unit
employees  are  eligible  to  participate;  participation  in the 401(k) Plan is
optional.  The Company does not contribute to the 401(k) Plan.  Pension  expense
for all plans was $914,000 (1998), $1,922,000 (1997) and $1,889,000 (1996).


                                       21
<PAGE>




Post-retirement Health Care Benefit Plan

The Company provides certain  post-retirement health care benefits for employees
who meet minimum age and service  requirements.  The following  tables set forth
the plan's status as determined by an independent actuary:

<TABLE>
<CAPTION>

                                                                        February              March             March
                                                                        28, 1998            1, 1997           2, 1996
---------------------------------------------------------------------------------------------------------------------
                                                                                (In thousands of dollars)

Accumulated post-retirement benefit obligation:
---------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>                  <C>             <C>      
     Retirees                                                          $  4,223             $  3,780        $  3,700 
---------------------------------------------------------------------------------------------------------------------
     Active employees                                                     2,016                3,571           3,500 
---------------------------------------------------------------------------------------------------------------------
          Total                                                           6,239                7,351           7,200 
---------------------------------------------------------------------------------------------------------------------
Unrecognized net transition obligation                                   (3,658)              (3,879)         (4,100)
---------------------------------------------------------------------------------------------------------------------
Unrecognized net loss                                                       782               (1,057)         (1,292)
---------------------------------------------------------------------------------------------------------------------
          Accrued post-retirement obligation                           $  3,363             $  2,415        $  1,808 
---------------------------------------------------------------------------------------------------------------------

The components of the net periodic post-retirement
  benefit cost are as follows:
---------------------------------------------------------------------------------------------------------------------
     Service cost                                                      $    362             $    122        $    170 
---------------------------------------------------------------------------------------------------------------------
     Interest cost                                                          579                  539             510 
---------------------------------------------------------------------------------------------------------------------
     Net amortization and deferral                                          239                  259             220 
---------------------------------------------------------------------------------------------------------------------
          Post-retirement benefit expense                              $  1,180             $    920        $    900 
---------------------------------------------------------------------------------------------------------------------

Actual assumptions used to measure the post-
  retirement benefit cost are as follows:
---------------------------------------------------------------------------------------------------------------------
     Discount rate                                                          7.8%                7.8%             7.5%
---------------------------------------------------------------------------------------------------------------------
     Health care trend rate
          Year end                                                         10.5%               10.5%            10.5%
---------------------------------------------------------------------------------------------------------------------
     Decreasing to year 2010                                                6.0%                6.0%             6.0%
---------------------------------------------------------------------------------------------------------------------

Effects of increasing the health care trend rates
  by one percentage point in each year are
  summarized below:
---------------------------------------------------------------------------------------------------------------------
   Increase in accumulated post-retirement benefit
     obligation                                                        $    739             $  1,225        $  1,200 
---------------------------------------------------------------------------------------------------------------------
   Increase in the aggregate of service cost and interest cost              104                  119             140 
---------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       22
<PAGE>

NOTE 12 - STOCK OPTION PLANS
--------------------------------------------------------------------------------

Employee Plan

On June 26, 1996, the Company's Stockholders ratified the 1996 Stock Option Plan
(the "Plan") to replace the expiring  1987 Stock Option Plan.  The Plan provides
for the granting of  non-qualified  stock options,  incentive  stock options and
stock  appreciation  rights  (SARs) to  employees,  non-employee  directors  and
consultants  within the meaning of Section  422A of the Internal  Revenue  Code.
Options  granted  generally  vest over two or three  years and  expire ten years
after the grant date.  The total number of shares of Common Stock  available for
issuance is limited to those  remaining under the 1987 Stock Option Plan on June
26, 1997,  plus as increased  annually on the last day of the  Company's  fiscal
year,  by an amount  equal to 0.70% of the  aggregate  total number of shares of
Common Stock outstanding on the last day of each fiscal year commencing March 1,
1997, and ending with the fiscal year ending February 25, 2001.


The following table summarizes information about the Plan:

<TABLE>
<CAPTION>
                                   Available                                                            Option
                                   for Grant     Outstanding     Unexercisable       Exercisable     Price per Share 
---------------------------------------------------------------------------------------------------------------------
<S>                                <C>            <C>                <C>             <C>              <C>            
Balance February 25, 1995           791,636        2,372,062          835,000         1,537,062      $3.850 - $17.625
---------------------------------------------------------------------------------------------------------------------
     Exercisable during year            -              -             (455,666)          455,666       5.313 -  8.000 
---------------------------------------------------------------------------------------------------------------------
     Granted                       (864,000)        864,000           864,000              -          5.000 - 10.250 
---------------------------------------------------------------------------------------------------------------------
     Canceled                        73,250         (73,250)          (32,000)          (41,250)      5.313 - 17.625 
---------------------------------------------------------------------------------------------------------------------
     Exercised                                         -               (5,062)           (5,062)          3.850      
---------------------------------------------------------------------------------------------------------------------
     Annual increase                352,856            -                 -                 -                -        
---------------------------------------------------------------------------------------------------------------------
Balance March 2, 1996               353,742       3,157,750         1,211,334         1,946,416       4.037 - 17.625 
---------------------------------------------------------------------------------------------------------------------
     Exercisable during year                         -                   -             (464,350)      5.000 - 10.250 
---------------------------------------------------------------------------------------------------------------------
     Granted                       (146,000)        146,000           146,000              -          3.500 - 4.750  
---------------------------------------------------------------------------------------------------------------------
     Canceled                        63,500         (63,500)          (24,000)          (39,500)      5.313 - 17.625 
---------------------------------------------------------------------------------------------------------------------
     Annual increase                325,749            -                 -                 -                -        
---------------------------------------------------------------------------------------------------------------------
Balance March 1, 1997               596,991       3,240,250           868,984         2,371,266        3.500 - 17.625
---------------------------------------------------------------------------------------------------------------------
     Exercisable during year                           -                 -             (503,475)       4.750 - 5.000 
---------------------------------------------------------------------------------------------------------------------
     Granted                     (1,386,250)      1,386,250         1,386,250              -           2.219 - 3.438 
---------------------------------------------------------------------------------------------------------------------
     Canceled                     1,175,500      (1,175,500)                         (1,175,500)      4.037 - 15.750 
---------------------------------------------------------------------------------------------------------------------
     Annual increase                348,000            -                 -                 -    
---------------------------------------------------------------------------------------------------------------------
Balance February 28, 1998           734,241       3,451,000         1,751,759         1,699,241      $2.219 - $17.625
---------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       23
<PAGE>

Director Plan

On June 22,  1994,  the  Company's  stockholders  approved  the  Company's  1994
Non-Employee  Director  Stock Option Plan (the  "Director  Plan") to attract and
retain the services of qualified  people who are neither  employees nor officers
of the Company as members of the Board of Directors.

The  Director  Plan  authorized  the  grant of  non-qualified  options  up to an
aggregate of 490,000 shares of Common Stock.  Under this Plan, no options may be
granted after June 2003.


The following table summarizes information abount the Director Plan:

<TABLE>
<CAPTION>
                                 Available                                                            Option
Description                      for Grant     Outstanding     Unexercisable     Exercisable      Price per Share
-----------------------------------------------------------------------------------------------------------------
<S>                               <C>               <C>              <C>             <C>                <C>      
   Plan as adopted                490,000           -                 -               -                   -      
-----------------------------------------------------------------------------------------------------------------
   Granted                        (49,000)         49,000           49,000            -               $7.125     
-----------------------------------------------------------------------------------------------------------------
Balance February 25, 1995         441,000          49,000           49,000            -                7.125     
-----------------------------------------------------------------------------------------------------------------
   Granted                        (42,000)         42,000           42,000            -                6.375     
-----------------------------------------------------------------------------------------------------------------
   Exercisable                       -               -             (49,000)         49,000             7.125     
-----------------------------------------------------------------------------------------------------------------
   Canceled                         7,000          (7,000)            -             (7,000)            7.125     
-----------------------------------------------------------------------------------------------------------------
Balance March 2, 1996             406,000          84,000           42,000          42,000          6.375 - 7.125
-----------------------------------------------------------------------------------------------------------------
   Granted                        (42,000)         42,000           42,000            -                 5.250    
-----------------------------------------------------------------------------------------------------------------
   Exercisable                       -               -             (42,000)         42,000              6.375    
-----------------------------------------------------------------------------------------------------------------
   Canceled                        14,000         (14,000)            -            (14,000)         6.375 - 7.125
-----------------------------------------------------------------------------------------------------------------
Balance March 1, 1997             378,000         112,000           42,000          70,000          5.250 - 7.125
-----------------------------------------------------------------------------------------------------------------
   Granted                        (42,000)         42,000           42,000             -                3.625    
-----------------------------------------------------------------------------------------------------------------
   Exercisable                       -               -             (42,000)         42,000              5.250    
-----------------------------------------------------------------------------------------------------------------
Balance February 28, 1998         336,000         154,000           42,000         112,000        $3.625 - $7.125
-----------------------------------------------------------------------------------------------------------------
</TABLE>

Effective  March 3, 1996,  the Company  adopted the  provisions of SFAS No. 123,
"Accounting for Stock-Based  Compensation." As permitted by this statement,  the
Company has chosen to continue to account for stock-based compensation using the
intrinsic value method. Accordingly, no compensation expense has been recognized
in the  Company's  Consolidated  Statements of  Operations  for its  stock-based
compensation  plans. The average fair value of options granted during 1998, 1997
and 1996 was $1.43, $2.05 and $2.55, respectively.  The fair value was estimated
using the Black-Scholes option pricing model based on the following  assumptions
for fiscal 1998, 1997 and 1996:  risk free interest rate of 6.7%,  expected life
of six  years,  estimated  volatility  of  52%,  with  no  dividend  yield.  Had
compensation costs been determined under the provisions of SFAS No. 123, the pro
forma net income and earnings per share would have been as follows:
<TABLE>
<CAPTION>

                                             1998                               1997                               1996          
------------------------------------------------------------------------------- - -----------------------------------------------
                                                       (In thousands of dollars, except share data)                              
                                 As reported      Pro forma          As reported      Pro forma         As reported     Pro forma
---------------------------------------------------------------------------------------------------------------------------------
<S>                               <C>            <C>                <C>             <C>                   <C>           <C>      
Net income (loss)                 $   (4,572)    $   (5,297)        $   (10,943)    $   (11,637)          $   8,394     $   8,045
---------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per share         $    (0.10)    $    (0.11)        $     (0.23)    $     (0.25)          $    0.18     $    0.17
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       24
<PAGE>

NOTE 13 - CAPITAL STOCK
--------------------------------------------------------------------------------

The  Company  has a  Shareholder  Rights Plan which  entitles  stockholders,  in
certain circumstances, to purchase one one-hundredth of a share of the Company's
Series A Junior  Participating  Preferred  Stock at an exercise price of $62 for
each share of Common Stock  owned.  The  Shareholder  Rights Plan is intended to
protect the interests of the Company's  stockholders in the event the Company is
confronted with coercive or unfair takeover tactics.

In connection  with an advisory  agreement  entered into between the Company and
Creative  Artists Agency,  Inc.  ("CAA"),  which was  terminated on November 30,
1995,  options to acquire 866,667 shares of Common Stock at an exercise price of
$8.00 per share were issued to CAA.  These fully  vested  options will expire on
April 1, 2003.

During fiscal 1998 and 1997 the Company  purchased  135,000 shares of its Common
Stock for $523,000 and 512,000 shares for $2,238,000, respectively.




NOTE 14 - GEOGRAPHIC AREA INFORMATION
--------------------------------------------------------------------------------

Net sales to  unaffiliated  customers and income from  operations,  as presented
below,  are  based  on the  locations  of the  ultimate  customer.  Income  from
operations is defined as total net sales less operating  expenses,  depreciation
and  amortization.  Identifiable  assets,  as presented  below, are those assets
located in each geographic area.

<TABLE>
<CAPTION>
                                                                                         Year Ended                    
-------------------------------------------------------------------- --------------------------------------------------
                                                                        February              March               March
                                                                        28, 1998            1, 1997             2, 1996
                                                                      (52 weeks)         (52 weeks)          (53 weeks)
-----------------------------------------------------------------------------------------------------------------------
                                                                                (In thousands of dollars)              
Net sales
<S>                                                                  <C>                 <C>                 <C>       
     United States                                                   $  157,208          $  178,883          $  188,818
-----------------------------------------------------------------------------------------------------------------------
     Europe                                                              64,599              77,955              62,161
-----------------------------------------------------------------------------------------------------------------------
     Other                                                               19,443              12,137              14,516
-----------------------------------------------------------------------------------------------------------------------
                                                                     $  241,250          $  268,975          $  265,495
-----------------------------------------------------------------------------------------------------------------------
Income from operations
     United States                                                   $    5,566          $  (19,204)         $    9,070
-----------------------------------------------------------------------------------------------------------------------
     Europe                                                              (6,215)              5,187               6,606
-----------------------------------------------------------------------------------------------------------------------
     Other                                                               (1,371)               (458)                895
-----------------------------------------------------------------------------------------------------------------------
                                                                     $   (2,020)         $  (14,475)         $   16,571
-----------------------------------------------------------------------------------------------------------------------
Identifiable assets
     United States                                                   $  126,498          $  140,643          $  163,145
-----------------------------------------------------------------------------------------------------------------------
     Europe                                                              43,972              55,630              51,616
-----------------------------------------------------------------------------------------------------------------------
     Other                                                                7,936               4,905               2,366
-----------------------------------------------------------------------------------------------------------------------
                                                                     $  178,406          $  201,178          $  217,127
-----------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       25
<PAGE>


NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS
--------------------------------------------------------------------------------

The following disclosure of the estimated fair value of financial instruments is
made in accordance with the  requirements  of SFAS No. 107, " Disclosures  About
Fair Value of Financial  Instruments."  These  estimates have been determined by
the  Company  using  available  market  information  and  appropriate  valuation
techniques  based on  information  as of  February  28,  1998.  As  considerable
judgment  is  inherent  in the  development  of  these  estimates,  they are not
necessarily  indicative  of the amounts  that the Company  could  realize in the
current market exchange.


The recorded amounts and fair values are as follows:

<TABLE>
<CAPTION>

                                                            February 28, 1998                     March 1, 1997
-------------------------------------------------------------------------------------- -----------------------------
                                                        Recorded            Fair            Recorded            Fair
                                                          Amount           Value              Amount           Value
--------------------------------------------------------------------------------------------------------------------
                                                                       (In thousands of dollars)
Assets:
--------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>            <C>                  <C>            <C>      
   Cash and equivalents                                 $ 22,153       $ 22,153             $ 24,199       $ 24,199 
--------------------------------------------------------------------------------------------------------------------
   Prepaid expenses                                        3,821          3,821                9,012          8,549 
--------------------------------------------------------------------------------------------------------------------
Liabilities:
--------------------------------------------------------------------------------------------------------------------
   Current portion of long-term debt                       8,333          8,333                7,500          7,500 
--------------------------------------------------------------------------------------------------------------------
   Long-term debt                                         22,617         22,617               27,450         27,450 
--------------------------------------------------------------------------------------------------------------------
Foreign currency forward contracts                           -            1,959                 -               755 
--------------------------------------------------------------------------------------------------------------------
Interest rate swap contracts                            $    -         $    (16)            $   -          $    (37)
--------------------------------------------------------------------------------------------------------------------
</TABLE>


NOTE 16 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                         1998                                            1997                   
------------------------------------------------------------------------------------------------------------------------------- 
                                      1st          2nd         3rd         4th         1st          2nd       3rd         4th   
--------------------------------------------------------------------------------------------------------------------------------
                                                            (In thousands of dollars, except share data)
<S>                               <C>         <C>           <C>         <C>         <C>         <C>         <C>         <C>     
Net sales                         $ 60,177    $  55,118     $ 54,173    $ 71,782    $ 79,261    $ 55,025    $ 62,491    $ 72,198
--------------------------------------------------------------------------------------------------------------------------------
Gross profit on sales               22,463       17,625       11,649      27,972      26,174      20,328      20,755      22,864
--------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations        2,011       (2,934)     (10,005)      8,908       7,363       2,768     (28,117)      3,511
--------------------------------------------------------------------------------------------------------------------------------
Net income (loss)                      822       (1,763)      (8,538)      4,907       3,740       1,227     (18,498)      2,588
--------------------------------------------------------------------------------------------------------------------------------
Net income (loss) per share -
   basic and diluted              $   0.02    $   (0.04)    $  (0.18)   $   0.11    $   0.08    $   0.03    $  (0.39)   $   0.06
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       26
<PAGE>

NOTE 17 - COMMITMENTS AND OTHER MATTERS
--------------------------------------------------------------------------------

Future  minimum  payments  under  non-cancelable  leases  which  extend into the
calendar year 2010 are $1,614,000 (1999),  $1,649,000 (2000)  $1,558,000 (2001),
$1,399,000 (2002) and $8,330,000 thereafter.

Future minimum payments required under the Company's  existing sports contracts,
with various expiration dates extending into calendar year 2001 are estimated to
be $16,090,000 (1999), $9,983,000 (2000) and $7,600,000 (2001).

Total royalty  expense under the Company's  sports and  entertainment  licensing
contracts was $33,662,000 (1998), $37,960,000 (1997) and $34,614,000 (1996).

Advertising  expenses included in selling,  general and administrative  expenses
amounted to $13,240,000 (1998), $13,573,000 (1997) and $13,488,000 (1996).

Two of the Company's  subsidiaries,  Topps  Ireland and Topps  Europe,  transact
business in many countries,  utilizing many different currencies.  They are thus
exposed  to the  effect of  exchange  rate  fluctuations  on sales and  purchase
transactions  denominated in currencies  other than their  functional  currency.
These  subsidiaries  enter into both  foreign  currency  forward  contracts  and
options on currency forward  contracts to manage these exposures and to minimize
the effects of foreign currency  transactions on their cash flow. Such contracts
are entered into primarily to hedge against future commitments. The Company does
not engage in foreign  currency  speculation.  Gains and losses on these hedging
instruments  that are designated and effective as hedges of firm commitments are
deferred and  recognized in income in the same period as the hedge  transaction.
The Company may be exposed to credit losses in the event of  non-performance  by
counterparties to these instruments.  Management believes,  however, the risk of
incurring  such losses is remote as the  contracts  are entered  into with major
financial institutions.

At February 28, 1998, the Company had outstanding foreign currency forward sales
and purchase  contracts with banks in the amounts of $8,238,000 and $13,161,000,
respectively, as compared to $9,174,000 and $15,389,000, as of March 1, 1997.

These  contracts  have various  maturity  dates ranging up to twelve months from
February 28, 1998,  with over 74% of the contracts  maturing  within six months.
The recognition of net losses,  which amounted to $92,000 using spot rates as of
year end, is deferred  until the period of the hedge  transaction.  In addition,
the Company also had options to purchase foreign  currencies  outstanding in the
amount of $3,178,000 as of February 28, 1998.

Legal proceedings:

In August  1996,  the  Company was named a  defendant  in a class  action in the
United States Court for the Eastern District of New York (the "Court")  entitled
Sullivan,  et.al.  v.  The  Topps  Company,  Inc.  No.  CV-96-3779  (EDNY)  (the
"Action"). The Action alleged, among other things, that the Company violated the
federal  Racketeer  Influenced and Corrupt  Organizations Act by its practice of
selling sports and entertainment cards with randomly-inserted "insert" cards, in
violation of state and federal  anti-gambling  statutes.  Each of the  Company's
principal  competitors,  as well as  several  of its  principal  licensors,  was
separately sued in its home state for employing,  or participating  in, the same
or similar  practices.  The Action sought treble damages and attorney's  fees on
behalf of all purchasers of packs of cards potentially  including "insert" cards
over a  four-year  period.  On August  21,  1997,  the Court  entered a judgment
granting the  Company's  motion to dismiss the  complaint  with  prejudice.  The
plaintiffs have filed a Motion to Alter, Amend and Vacate Judgment and for Leave
to File Amended Complaint. The Company has opposed the motion and, by Memorandum

                                       27
<PAGE>

and Order Dated  April 28,  1998,  the Court  denied  plaintiffs' motion in all 
respects.

In  November  1996,  Teamsters  Local 229 (the  "Union")  filed an unfair  labor
practice charge with the National Labor Relations Board (the "NLRB") relating to
the Duryea plant closing. In April 1997, the NLRB issued a complaint against the
Company  based upon the Union's  charge,  alleging  that the Company  refused to
bargain over its decision to close the Duryea plant.  On November 25, 1997,  the
parties entered into a Settlement  Agreement and Release,  settling this matter.
Under the Settlement  Agreement and Release,  all individuals who worked for the
Company in 1996 and were  affected  by the  closure of Duryea were paid $450 for
each full year of service to the Company,  provided such individuals  executed a
release.  Individuals  who did not work during 1996,  but who  retained  certain
recall rights,  received a lump sum payment of $1,500,  provided they executed a
release.  Based on the Settlement  Agreement and Release,  on December 10, 1997,
the NLRB  signed an order  approving  withdrawal  of the unfair  labor  practice
charge and dismissing  the  complaint.  As of February 28, 1998, all amounts due
under the Settlement Agreement have been paid.

The Company is a defendant in several  other civil actions which are routine and
incidental to its business.  In management's  opinion,  after  consultation with
legal  counsel,  these  actions will not have a material  adverse  effect on the
Company's financial condition or results of operations.


                                       28
<PAGE>


Report of Independent Public Accountants
================================================================================


Board of Directors and Stockholders
The Topps Company, Inc.:

We have  audited  the  accompanying  consolidated  balance  sheets  of The Topps
Company,  Inc. and  Subsidiaries  as of February 28, 1998 and March 1, 1997, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended  February 28, 1998.  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,  such  financial  statements  present  fairly,  in all material
respects,  the financial position of The Topps Company, Inc. and Subsidiaries as
of February 28, 1998 and March 1, 1997 and the results of their  operations  and
cash flows for each of the three years in the period ended  February 28, 1998 in
conformity with generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, during the year
ended March 1, 1997, the Company changed its method of accounting for impairment
of long-lived assets as required by Statement of Financial  Accounting Standards
No. 121.



                                             DELOITTE & TOUCHE LLP

                                             New York, New York
                                             April 3, 1998
                                             May 11,1998, as per Note 9.


                                       29
<PAGE>



Market and Dividend Information
================================================================================


The  Company's  Common Stock is traded on the Nasdaq  National  Market under the
symbol TOPP. The following table sets forth, for the periods indicated, the high
and low sales  price for the Common  Stock  during the last two fiscal  years as
reported  on the  Nasdaq  National  Market.  As of April  9,  1998,  there  were
approximately 5,559 holders of record.

<TABLE>
<CAPTION>
                                                         Fiscal year ended                     Fiscal year ended    
                                                         February 28, 1998                       March 1, 1997      
--------------------------------------------------------------------------------------------------------------------
                                                                                                                    
                                                     High Price        Low Price         High Price        Low Price
--------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>              <C>               <C>              <C>     
First quarter                                           $ 4.313          $ 3.438           $ 6.625          $ 4.6875
--------------------------------------------------------------------------------------------------------------------
Second quarter                                            4.188            3.250             6.500            4.625 
--------------------------------------------------------------------------------------------------------------------
Third quarter                                             3.563            2.375             5.000            3.125 
--------------------------------------------------------------------------------------------------------------------
Fourth quarter                                          $ 3.000          $ 1.500           $ 5.000          $ 3.500 
--------------------------------------------------------------------------------------------------------------------
</TABLE>




The Company's Credit Agreement currently prohibits the payment of dividends. See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations  -  Liquidity  and  Capital  Resources"  and  "Notes to  Consolidated
Financial Statements - Note 9."



                                       30
<PAGE>


Selected Consolidated Financial Data
================================================================================
<TABLE>
<CAPTION>


                                                    1998           1997           1996           1995           1994
--------------------------------------------------------------------------------------------------------------------
                                                         (In thousands of dollars, except share data)               
OPERATING DATA:                            
<S>                                           <C>            <C>            <C>            <C>            <C>       
Net sales                                     $  241,250     $  268,975     $  265,495     $  265,386     $  268,047
--------------------------------------------------------------------------------------------------------------------
Gross profit on sales                             79,709         90,121         82,005         83,217         94,488
--------------------------------------------------------------------------------------------------------------------
Selling, general and administrative
     expenses                                     78,437         75,974         68,563         59,250         51,876
--------------------------------------------------------------------------------------------------------------------
Income (loss) from operations                     (2,020)       (14,475)        16,571         26,924         45,930
--------------------------------------------------------------------------------------------------------------------
Interest income (expense), net                    (1,585)        (1,942)        (1,447)           461            157
--------------------------------------------------------------------------------------------------------------------
Net income (loss)                                 (4,572)       (10,943)         8,394         15,747         26,592
--------------------------------------------------------------------------------------------------------------------
Per share:
     Income (loss) from operations                 (0.04)         (0.31)          0.35           0.57           0.98
--------------------------------------------------------------------------------------------------------------------
     Net income (loss)                             (0.10)         (0.23)          0.18           0.33           0.57
--------------------------------------------------------------------------------------------------------------------
     Cash dividends                           $      -       $      -       $      -       $     0.21     $     0.28
--------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding           46,421,301     46,928,369     47,047,251     47,039,287     47,030,902
--------------------------------------------------------------------------------------------------------------------

BALANCE SHEET DATA:                        
Cash and equivalents                         $    22,153     $   24,199     $   24,154     $   17,785     $   27,737
--------------------------------------------------------------------------------------------------------------------
Working capital                                   20,971         18,716         31,278         30,917         23,624
--------------------------------------------------------------------------------------------------------------------
Net property, plant and equipment                 10,148         12,900         31,610         31,964         29,479
--------------------------------------------------------------------------------------------------------------------
Long-term debt, less current portion              22,617         27,450         37,500           -              -   
--------------------------------------------------------------------------------------------------------------------
Total assets                                     178,406        201,178        217,127        136,324        141,677
--------------------------------------------------------------------------------------------------------------------
Stockholders' equity                         $    61,609     $   68,052     $   81,850     $   73,869     $   66,955
--------------------------------------------------------------------------------------------------------------------
</TABLE>



Amounts in 1996 include the impact of Topps Europe from the date of  acquisition
on July 6, 1995.

Certain items in the prior years' financial statements have been reclassified to
conform with the current year's presentation.

                                       31
<PAGE>


BOARD OF DIRECTORS
================================================================================
Arthur T. Shorin                        Seymour P. Berger
Chairman, Chief Executive               Business Consultant
Officer and President


Allan A. Feder *                        Stephen D. Greenberg
Independent Business                    President
Consultant, President and               Classic Sports Network, Inc.
Chief Executive Officer,
Vitarroz Corporation

Wm. Brian Little                        David Mauer  *
Private Investor                        Chief Executive Officer
                                        Riddell Sports, Inc.

Jack H. Nusbaum *                       Stanley Tulchin
Senior Partner and Chairman             Chairman
Wilkie Farr & Gallagher                 Stanley Tulchin Associates, Inc.

*Nominated to stand for  re-election to the Company's  Board of Directors at the
1998 Annual Meeting of Stockholders.


OFFICERS
================================================================================
Arthur T. Shorin               Michael P. Clancy
Chairman, Chief Executive      Vice President, Managing
Officer and President          Director - Topps Ireland,
                               Co-Managing Director -
                               Topps Europe


Ronald L. Boyum                Michael J. Drewniak
Vice President - Marketing     Vice President -
and Sales                      Manufacturing


Edward P. Camp                 Ira Freidman                  William G. O'Connor
Vice President, President -    Vice President - Publishing   Vice President -
Hobby Division                 and New Product Development   Administration

Leon J. Gutmann                Catherine K. Jessup
Assistant Treasurer and        Vice President - Chief
Assistant Secretary            Financial Officer


John Perillo                   Scott Silverstein
Vice President - Operations    Vice President - Business
                               Affairs, General Counsel

SUBSIDIARIES
===============================================================================
Topps Argentina S.A.           Topps Canada, Inc.         Topps Ireland, Limited
Managing Director -            Managing Director -        Managing Director -  
Juan P. Georgalos              Kevin J. Crux              Michael P. Clancy


Topps Brasil, Ltda.            Topps Europe, Limited         Topps Italia SRL
Managing Director - Jeroen     Co-Managing Directors -       Managing Director -
Servaes                        Christopher Rodman            Furio Cicogna
                               Michael P. Clancy


Topps Mexico S.A. DE C.V.
Managing Director - 
Enrique Sherwell

STOCKHOLDER AND OTHER INFORMATION
================================================================================
Annual Meeting                          Corporate Counsel
Tuesday, June 30, 1998, 10:30 A.M.      Willkie Farr & Gallagher
Chase Manhattan Bank                    787 Seventh Avenue
1 Chase Manhattan Plaza                 New York, New York 10019
New York, New York  10081

Registrar and Transfer Agent
Chemical Mellon Shareholder Service, LLC
85 Challenger Road
Ridgefield Park, NJ 07660
(800)851-9677


Form 10-K -- A copy of the  Company's  Annual  Report on Form 10-K as filed with
the  Securities and Exchange  Commission  will be available to  stockholders  of
record upon written request to the Assistant Treasurer.
--------------------------------------------------------------------------------






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