<PAGE>   1
                                      UNITED STATES
                            SECURITIES AND EXCHANGE COMMISSION
                                  WASHINGTON, D.C. 20549

                                        FORM 10-K

[ ]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934

                                             OR

[X]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM JANUARY 1, 1998
      TO JUNE 30, 1998

                         COMMISSION FILE NUMBER: 1-13042

                                   RIDE, INC.

             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

          WASHINGTON                                    91-1571027
 (STATE OR OTHER JURISDICTION OF           (I.R.S. EMPLOYER IDENTIFICATION NO.)
  INCORPORATION OR ORGANIZATION)

       8160 304TH AVENUE SOUTHEAST
           PRESTON, WASHINGTON                                      98050
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                         (ZIP CODE)

             REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (425) 222-6015

               SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

TITLE OF EACH CLASS                    NAME OF EACH EXCHANGE ON WHICH REGISTERED
   COMMON STOCK                                 NASDAQ NATIONAL MARKET

        SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

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

   Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]

   As of September 23, 1998, the aggregate market value of the registrant's
common stock held by nonaffiliates of the registrant was $12,618,749 based on
the closing sale price of the registrant's Common Stock on the Nasdaq Stock
Market.

   As of September 23, 1998, the number of shares of the registrant's Common
Stock outstanding was 12,618,749.

                           DOCUMENTS INCORPORATED BY REFERENCE:

(1)   NONE
<PAGE>   2
   Items 1,2,3 and 7 of this Form 10-K contain forward-looking statements within
the meaning of that term in the Private Securities Litigation Reform Act of 1995
(Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934). Statements contained herein that are not historical facts
are forward-looking statements made pursuant to the safe harbor provisions
referenced above. Forward-looking statements may include, but are not limited
to, projections of revenue, income or loss and capital expenditures, statements
regarding future operations, financing needs, compliance with financial
covenants in loan agreements, plans for acquisitions or sales of assets or
businesses and consolidation of operations of newly acquired businesses, and
plans relating to products or services of the Company, assessments of
materiality, predictions of future events and the effects of pending and
possible litigation, as well as assumptions relating to the foregoing. In
addition, the words "anticipates," "believes," "estimates," "expects,"
"intends," "plans" and variations thereof and similar expressions are intended
to identify forward-looking statements.

   Forward-looking statements are inherently subject to risks and uncertainties,
some of which cannot be predicted or quantified based on current expectations.
Consequently, future events and actual results could differ materially from
those set forth in, contemplated by, or underlying the forward-looking
statements contained in this Annual Report. Factors that could cause such future
events or actual results to differ include, but are not limited to, those set
forth in "Item 1. Business -- Risk Factors" below.

   Readers are cautioned not to place undue reliance on any forward-looking
statements contained herein, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of unexpected
events.

                                          PART I

ITEM 1. BUSINESS

INTRODUCTION

   Ride, Inc. (the "Company") is a leading designer, manufacturer and marketer
of contemporary sporting goods equipment and apparel for snowboard and wakeboard
consumers. The Company markets its equipment and apparel throughout the world
under multiple brands specifically targeted to serve certain price points,
product lines and distribution channels. This report on Form 10-K is being filed
as a result of the change in the Company's fiscal year end from December 31 to
June 30, beginning with the six month period ended June 30, 1998. The change in
fiscal year end was made to more closely align the Company's accounting and
reporting practices with its product cycle. References herein to "fiscal 1998"
refer to the period January 1, 1998 to June 30, 1998.

   The Company was founded in September 1992 and acts as a holding company for
the following subsidiaries: Ride Snowboard Company ("Ride Snowboards"), Ride
Manufacturing, Inc. ("Ride Manufacturing"), Ride Canada, Inc. ("Ride Canada"),
SMP Clothing, Inc. ("SMP"), Smiley Hats, Inc. ("Smiley"), and Carve, Inc. d/b/a
US2 Sports ("US2"). The Company acquired C.A.S. Sports International, Inc. and
C.A.S. Sports Agency, Inc. (collectively, "CAS") in August 1994. The Company
acquired Ride Manufacturing and 5150 Snowboards, Inc. ("5150") and SMP in
September and October 1995, respectively. The Company later merged 5150 with and
into Ride Snowboards. In October 1996, the Company transferred certain of its
assets and liabilities of the CAS business to Ride Canada and Ride Snowboards,
and sold the CAS entities. In June 1997, the Company acquired substantially all
of the assets (except cash and accounts receivable) and liabilities of Device
Mfg Corp. ("Device") and transferred those assets and liabilities to Ride
Snowboards. In July 1997, the Company purchased substantially all of the assets
of Galena Creek Trading Company, Inc., d/b/a Smiley Hats, and transferred those
assets to its Smiley subsidiary, which the Company formed specifically for that
purpose. Finally, in December 1997, the Company acquired US2 Sports Group, Inc.
d/b/a FullTilt Wakeboards, through a merger of that company with and into Carve,
Inc., a newly-formed corporation.

   Ride Snowboards sells premium to mid-range snowboards and related products
primarily through specialty snowboard and ski shops. Ride Manufacturing is a
manufacturer of premium snowboards principally for Ride Snowboards and, to a
lessor extent, a limited number of other snowboard companies on an OEM basis.
SMP designs and manufactures snowboard, surf, skate, motocross and street
apparel which is sold primarily through specialty shops. Ride Canada acts as the
Company's Canadian distributor. Smiley designs and manufactures premium head and
neck wear for the winter sports industry which products are sold through
specialty shops. US2 designs, manufactures and distributes wakeboards, wakeboard
bindings and accessories under the "FullTilt" and "Sub Rosa" brand names through
sporting goods, marine and specialty retailers. Until its disposition in October
1996, CAS marketed entry-level snowboards and related products under various
brand names and on a private label basis, primarily to regional sporting goods
stores and large-format sporting goods retailers. In addition, CAS sold
snowboards and related products on an OEM basis to other


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snowboard companies and bought excess snowboard and sporting goods inventories
from manufacturers and sold such products to retailers throughout the world. The
OEM and excess inventory portions of the CAS business were sold in October 1996
while the branded and private label portions of the business were retained by
the Company and have been integrated as an additional component of the Company's
product offering.

   In fiscal 1998, the Company began operating under the d/b/a "Ride Sports" to
reflect the expanded scope of sporting goods products currently offered by the
Company for outdoor sports enthusiasts.

INDUSTRY BACKGROUND

Snowboarding

   Tracing its roots to surfing and skateboarding, snowboarding was invented in
the late 1970's. The first products available were unsophisticated in design and
were made almost entirely by small "backyard" manufacturers. In the early
1990's, snowboard design advanced to higher performance standards and the sport
began to attract broader demographic participation.

   The majority of snowboarders continue to be young males, however, the sport
is growing in popularity among females and older sports enthusiasts, especially
downhill skiers. The sport is now welcome and promoted at nearly all of the ski
areas worldwide. Snowboarding recently made its debut with four full medal
events at the 1998 Winter Olympic Games in Nagano, Japan.

   The Company believes that the growth of snowboarding is attributable in large
part to advantages the sport holds over alpine skiing. Many people find that
snowboarding not only is more natural and easier to learn than alpine skiing,
but also provides a greater degree of excitement over more diverse terrain. For
many, snowboarding equipment is also less cumbersome and more comfortable than
alpine ski equipment; poles are unnecessary and the boots are softer and lighter
than ski boots. Moreover, recent design improvements are making step-in
snowboard bindings a more attractive option for crossover skiers and others
seeking the functionality and ease of use of alpine ski step-in products.

   The Company believes the snowboard industry is dominated by approximately
seven major competitors, including one industry market share leader, three
predominantly snowboard-related companies, including the Company, and three ski
manufacturers. The remainder of the market is highly fragmented among scores of
competitors. The Company believes that recent acquisitions of smaller brands by
larger competitors represents a broader consolidation trend in the industry as
weaker brands are either absorbed by larger companies or cease business
operations.

   Industry data show continued growth in snowboard participation. The Company
believes that similar growth continues in the European and Japanese markets,
although the economic recession currently affecting Japan may cause growth in
that market to slow or stop until the economy improves and discretionary income
is once again available to the average consumer to expend on leisure pursuits
such as snowboarding. However, the Company believes sales at the wholesale level
in each of the past three winter seasons outpaced retail growth and that there
remains an oversupply of product at the retail level. While the Company believes
that this oversupply of product is declining, this condition persists to the
greatest degree in the Japanese market. The Company anticipates current
oversupply conditions may continue to adversely affect worldwide wholesale sales
growth opportunities in the 1998-1999 season.

Wakeboarding

   The Company believes that the relatively new sport of wakeboarding shares
many functional and demographic characteristics with snowboarding and
snowboarders. In function, wakeboarding is comparable to waterskiing in the same
manner that snowboarding is comparable to alpine skiing. Appealing predominantly
to young outdoor enthusiasts, wakeboard riders are typically pulled behind a
power boat or personal water craft and perform aerial tricks and other maneuvers
on the wake of the towing vessel for recreational or competitive purposes. While
the current market for wakeboards is relatively small in comparison to
snowboarding, the Company believes that the sport is growing in popularity. The
Company believes the wakeboard market is dominated by a single competitor while
four or five other competitors, including the Company, share a smaller but
growing segment of the market, with the balance divided among twenty to thirty
smaller companies. With relatively low barriers to entry, the Company expects
there to be additional entrants into the market in the short term similar to
what occurred in the snowboard industry.


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OPERATING STRATEGY

   The Company's operating strategy is to creatively market high quality,
technologically innovative contemporary sports products and extend its position
in the sporting goods equipment market into the apparel marketplace.

   Brand Marketing of Sporting Goods Equipment: The Company uses a multiple
brand strategy to serve the product needs, price points and demographics of its
diverse consumer base. The "Ride" brand is specifically positioned to appeal to
a broad range of snowboard enthusiasts at mid to higher price points; "5150" is
targeted at the Company's more aggressive counterculture snowboard consumers;
"Liquid" produces entry level products at moderate price points; and "FullTilt"
and "Sub Rosa" serve the wakeboard and wakeboard binding markets.

   Technology Based Products: The Company uses its in-house production
capabilities at Ride Manufacturing, an extensive engineering staff and its team
of world-class professional snowboarders and wakeboarders to develop
high-performance snowboard and wakeboard equipment incorporating the most
advanced technologies currently available. The Company believes the products
designed by these professional athletes, with production and management
oversight provided by Company engineers, gives its snowboard brands competitive
advantages in the consumer marketplace. This strategy was rewarded in 1997 with
snowboardingonline's first ever product review in which the Company's "Ride"
Timeless and Jeff Brushie snowboards were selected as the best in their
respective product categories. The awards have continued in 1998 with Mountain
Sports & Living (f.k.a. Snowcountry) naming the Company's "Ride" Timeless and
Control snowboards "Tester's Choice" in their respective categories.

   Expansion into Apparel: The Company seeks to broaden its revenue base by
marketing accessories and softgoods specifically targeted to snowboard and
wakeboard enthusiasts. The Ride Snowboard Apparel brand is targeted at the high
end snowboard enthusiast who requires extensive technical features such as
waterproof breathable fabrics. The "SMP" brand, originating in Southern
California, is marketed to the Company's more fashion oriented motocross, snow,
skate and wakeboard consumers. The Company intends to expand the recognition of
its equipment brands with accessories such as backpacks, snowboard bags, gloves
and hats. Recently acquired Smiley produces high-quality head and neck-wear for
winter sports enthusiasts, further increasing the Company's presence in the
winter sports accessories marketplace.

PRODUCTS

Snowboard Equipment

"Ride"

   The "Ride" brand is designed for high performance, capitalizes on the
Company's most advanced technologies and has historically been positioned toward
the higher price points in the snowboard market. In 1997, the Company began
offering moderate price point products under the "Ride" brand to target entry
and intermediate level consumers, thus expanding recognition of the "Ride" brand
name. Designed to connect the snowboarder to the snowboard, the "Ride" product
line includes both traditional "strap" snowboard bindings and boots and a
complete line of "Device-compatible" step-in snowboard bindings and boots.
Included in the Company's products for the first time in 1997, step-in snowboard
bindings provide an increased level of convenience by allowing the user to
simply step-in to the binding to connect himself to the snowboard as opposed to
sitting down in the snow to "strap-in" to traditional snowboard bindings. In
order to maximize the strength and positioning of the "Ride" product series, the
Company merged its "Preston" high end strap-in bindings into the '98-'99 "Ride"
product line. The mounting features of all of the Company's bindings are
compatible with the Company's snowboards and those offered by virtually all
competitors.

   The "Ride" product line currently includes 47 sizes of snowboards within 12
board series with suggested retail prices ranging from $165 for a children's
board to $525 for a high-end expert board, five models of traditional "strap"
snowboard bindings with suggested retail prices ranging from $100 to $170, two
models of "Device-compatible" step-in snowboard bindings with suggested retail
prices from $130 to $160 and 13 models of "Device-compatible" step-in and 13
models of traditional "strap" snowboard boots with suggested retail prices
ranging from $130 to $250.

"5150"


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   Incorporating many of the technologies available under the "Ride" brand, the
"5150" brand is targeted at the counter-culture niche of the snowboarding
market. The "5150" product line currently includes 15 sizes of snowboards within
four board series with suggested retail prices ranging from $325 to $430.

"Liquid"

   The "Liquid" product line is aimed at entry level snowboarders who require
quality products at a competitive price. The line currently includes 28 sizes of
snowboards within seven board series with suggested retail prices ranging from
$230 to $300, nine models of traditional "strap" snowboard bindings with
suggested retail prices ranging from $35 to $85, one model of
"Device-compatible" step-in snowboard bindings with a suggested retail price of
$115 and one and four models, respectively, of "Device-compatible" step-in and
traditional snowboard boots with suggested retail prices ranging from $80 to
$110.

Apparel

   The Company believes that clothing is an important element of the
snowboarding subculture and that the demand for snowboarding apparel will grow
with the popularity of the sport. In addition, snowboard apparel has crossed
over into everyday fashion, thereby increasing the potential market for the
Company's apparel products.

   The Company has developed and introduced for the 1998-1999 season a new line
of technical snowboard outerwear and apres snowboard apparel under the "Ride
Snowboard Apparel" brand name. Previously produced under the "Cappel" brand
name, this product line extends the "Ride" brand's reputation for equipment
quality and performance to the snowboard apparel market. "Ride" brand apparel is
intended for the consumer who desires technology and function in his or her
snowboard clothing. Retail value for outerwear ranges from $90 for an entry
level pair of pants to $270 for the line's full featured waterproof, breathable
parka.

   Developed by San Diego-based SMP Clothing, the "SMP" product line includes
clothing and accessory items used in snowboarding, surfing, skateboarding, and
motocross, as well as pants, shirts, sweaters and other street and beach wear.
SMP apparel is targeted at a more fashion conscious consumer desirous of
technically advanced features with retail prices ranging from $15 for fashion
T-shirts to $240 for a high-end snowboard jacket.

Accessories

   The Company offers a variety of snow and wakeboarding accessories, including
snowshoes, gloves, bags, packs, hats and caps under the "Ride," "5150,"
"Liquid,", "SMP," "FullTilt" and "Smiley" brands. The Company's subsidiary,
Smiley, offers high quality head and neck wear for wintersports enthusiasts
ranging from basic wool hats to alternative synthetic fleece hats and headbands.
Smiley's products generally retail for $10 to $40. The Company also offers a
line of "Slim" snowboard tools for adjustment of snowboard bindings and
maintenance during use.

Wakeboards and Wakeboard Bindings

   The Company's December 1997 acquisition of US2 Sports Group has extended the
Company's product line to wakeboards and wakeboard bindings. The Company offers
15 models of wakeboards under the "FullTilt" brand with suggested retail prices
ranging from $270 to $700 and five models of wakeboard bindings under the "Sub
Rosa" brand with suggested retail prices ranging from $100 to $280. These
products are distributed through specialty retailers, marine dealerships and
large format sporting goods chains. In 1998, the Company moved its wakeboard
production to its state-of-the-art Ride Manufacturing facility in Corona,
California. The move is reflected in the enhanced quality and technologically
advanced features of the Company's 1999 "FullTilt" wakeboard product line.

   The following table sets forth the contribution to net sales (in thousands
and as a percentage of net sales) attributable to each of the Company's product
groups for the year ended December 31, 1997 and the six month period ended June
30, 1998.

<TABLE>
<CAPTION>
                        Dec 31, 1997     June 30, 1998
                        ------------     -------------
<S>                    <C>        <C>    <C>        <C>
Snowboards...........  $12,520    34%      $2,034   28%
Bindings.............    8,287    23          863   12
                       
Boots................    3,714    10          115    2
Skate, wake and other      971     3        1,277   17
                       -------    --       ------   --
Total hard goods.....   25,492    70        4,289   59

Apparel..............    8,387    23        2,649   36
Accessories..........    2,596     7          341    5
                       -------    --       ------   --
Total soft goods.....   10,983    30        2,990   41
                       -------   ---       ------   --
Net sales............  $36,475   100%      $7,279  100%
                       =======   ===       ======  ===
</TABLE>



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TIERED DISTRIBUTION STRATEGY

   The Company's worldwide distribution strategy is centered around a policy of
limited distribution and market segmentation. Although the Company believes that
more rapid sales growth might be achieved in the short term by selling all
brands across all distribution channels, the Company believes that continued
growth and brand loyalty can be best achieved by selling each of the Company's
brands primarily through those retailers that best serve the market segment to
which the particular brand is targeted.

North America

The Company distributes its branded products to retailers through its
independent sales representatives and a limited number of employee sales
representatives. The following table details the Company's tiered distribution
strategy for each of its brands:

<TABLE>
<CAPTION>
                                                      PRIMARY RETAIL OUTLETS
                                                      ----------------------
                                                             REGIONAL SPORTING    LARGE-FORMAT
                                            SPECIALTY SNOW,  GOODS AND APPAREL   SPORTING GOODS
                                             AND SKI SHOPS       CHAINS             RETAILERS
                                             -------------       ------             ---------
<S>                                         <C>               <C>                <C>
   Snowboard Equipment & Accessories          Ride, 5150 &    Ride & Liquid           Liquid
                                               Smiley
   Apparel                                    Ride & SMP           SMP
</TABLE>


   The three main retail channels of distribution for the Company's branded
products in North America are defined as follows:

   Specialty Snowboard and Ski Shops. These retailers generally operate one to
three relatively small sized shops specifically targeted at the core of their
respective markets. Providing the highest amount of customer service and
significantly influencing the purchasing decisions of consumers, they tend to
cater to experienced snowboarders, a majority of whom are repeat buyers, as well
as intermediate snowboarders, cross-over skiers and other winter sports
enthusiasts. These retailers primarily sell the Company's premium and mid-priced
snowboards, including "Ride," and "5150" snowboards, bindings, boots and
accessories and "Ride Snowboard Apparel" and "SMP".

   Regional Sporting Goods Stores and Apparel Chains. These retailers typically
have 10 or more large to moderate size stores within a large geographical area,
target their product lines at specific sport sectors and generally appeal to
intermediate and novice sports enthusiasts. Accordingly, they offer trained
sport specific sales assistance for their customers at the moderate to upper
price points. These stores primarily sell the Company's "Ride" and "Liquid"
product lines. The Company's "SMP" brand is widely distributed through this
channel by multiple location young men's apparel chains typically found in most
major shopping malls.

   Large-Format Sporting Goods Retailers. These retailers sell primarily to
first-time and price-sensitive buyers. Offering the broadest range of sporting
goods equipment, these stores maximize volume based on providing price point
products and offer a modest amount of sales and service support for their
customers. These retailers typically carry the Company's "Liquid" product line.

International

   The Company has historically generated the largest portion of its
international revenues in the Japanese marketplace through sales of its "Ride",
"5150", and "SMP" brands to independent distributors who, in turn, sell these
product lines to Japanese retailers. Due to the oversupply of snowboard
equipment in the Japanese marketplace, the Company determined that its ability
to maintain market share and control its "Ride" brand image is directly related
to the level of control the Company has over its distribution channels in that
marketplace. During 1997, the Company implemented a two-tiered distribution
strategy in Japan for the "Ride" brand whereby it sells directly to the top
retailers in that market and distributes to specialty retailers through a
sub-distributor.


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   Throughout the rest of the world, the Company sells to independent
distributors who in turn market and sell products to retailers in their
respective markets, except in France and Great Britain, where the Company sells
directly to retailers through independent sales representatives. The Company
works closely with its international distributors to ensure that its policies of
limited distribution and market segmentation are followed worldwide.

   The Company's North American and export sales (in thousands) are set forth
below for the year ended December 31, 1997 and the six-month period ended June
30, 1998. No customer accounted for more than 10% of sales in either period. See
"--Risk Factors--Risks of International Business."

<TABLE>
<CAPTION>
                                              Dec 31, 1997    June 30, 1998
                                              ------------    -------------

<S>                                         <C>        <C>   <C>       <C>
                   North America......      $24,907    68%   $5,976     82%
                   Japan..............        7,989    22       821     11
                   Europe and other...        3,579    10       482      7
                                              -----    --       ---      -
                   Net sales..........      $36,475   100%   $7,279     100%
                                            =======   ===    ======     ===
</TABLE>

INNOVATIVE PRODUCT DESIGNS

   A key component of the Company's progressive image and operating strategy is
its commitment to be the industry leader in technologically innovative product
design. Unlike many other snowboard companies, which rely largely on third-party
design technicians and engineers, the Company uses in-house product development
teams in collaboration with Company team riders to develop high-performance
products that incorporate the most advanced snowboarding technology. The Company
continues advances in the use of light weight, durable materials in the
construction of its snowboards. For the 1998/1999 snowboard product line, the
Company has introduced several new construction styles, including the "Concept"
board, designed especially for freestyle riding, which is lighter than any board
the Company has produced to date, and the "Enigma" board that incorporates an
innovative variable angle cap. The Company is applying this same approach to the
development of its 1999 wakeboard product line. The Company pioneered the use of
lightweight and durable aircraft-grade aluminum in traditional "strap-in"
snowboard bindings. Research and development expenses totaled approximately
$417,000 and $338,000 in 1996 and 1997, respectively, and $180,000 in fiscal
1998. The Company expects to spend comparable amounts the 1999 fiscal year as it
has in recent past fiscal years on research and development efforts for
snowboard equipment and apparel while increasing its expenditures on wakeboards
and wakeboard bindings.

IN-HOUSE MANUFACTURING CAPABILITY

   The Company's September 1995 acquisition of Ride Manufacturing significantly
expanded its snowboard development, production and quality assurance
capabilities. To date, the Company has been able to lower its snowboard
production costs, reduce reliance on outside suppliers and enhance product
development efforts. In fiscal 1998, the Company produced virtually all of its
snowboards in this factory and anticipates to continue doing so in 1999 fiscal
year. The Company devoted the majority of the Ride Manufacturing production
efforts toward construction of "Ride," "5150" and "Liquid" brand snowboards in
fiscal 1998. In addition, the Company produced a limited number of OEM and
promotional snowboards to the mix. The Company anticipates to repeat this
production pattern in 1999 fiscal year. The Company successfully moved the
"FullTilt" wakeboard production to the Ride Manufacturing factory in fiscal
1998. The Company anticipates this production shift will consume production time
and capacity in the fall and early winter months when the factory would
otherwise be idle due to the seasonality of snowboard production. See "-- Risk
Factors -- Manufacturing."

MARKETING

   The Company has established its flagship "Ride" brand name as an aggressive,
technologically advanced brand on the leading edge of snowboarding. The Company
has established different brands for other target markets and seeks to increase
consumer awareness of these brands without jeopardizing the "Ride" brand image.
An important element of this strategy is the Company's "Ride," "5150," "SMP,"
and "FullTilt" professional snowboard and wakeboard riders, who are prominently
featured in the Company's print advertising in leading industry magazines and
several "underground" snow/surf/skate/wakeboard publications. Participating in
their respective sports approximately 250 days a year, the Company's
professional teams provide significant brand exposure through


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<PAGE>   8
photographic and editorial coverage in major industry magazines and at organized
events. The Company also sponsors top local riders in various markets with free
products. Additionally, the Company's product demo program, "We Put the Ass Back
in Passion," provides trial rides to customers and potential customers at ski
areas around the country through the Company's five demo vans. The Company has
also increased its efforts to bring industry media attention to the
technological features of its products through Company-sponsored tours of its
state-of-the-art Ride Manufacturing factory and on-hill demonstration events. In
fiscal 1998, the Company employed a public relations firm to further enhance the
Company's exposure in important industry media and events. These programs are
each designed to improve the visibility of the Company's products while
enhancing the high-performance reputation of the "Ride," "5150," and "FullTilt"
brands. The Company also markets its products through regular attendance at
industry trade shows.

SUPPLIERS

   In fiscal 1998, the Company sourced all of its "strap" and
"Device-compatible" step-in snowboard bindings from the Taiwan-based Snowboard
Factory, Inc. ("SFI") to capitalize on lower product cost opportunities
available in the Far East. The Company expects to continue this arrangement in
1999. The Company's apparel, boot and accessory products will continue to be
sourced through a variety of U.S. and foreign manufacturers.

   The Company generally does not have contracts with its manufacturing sources
and competes with other companies for the production capacity of certain
manufacturers. Although the Company believes that it has established close
relationships with its principal manufacturing sources, its future success may
depend on its ability to maintain such relationships. If the Company's
relationship with any of its binding, boot, apparel or other product
manufacturers were interrupted, the Company could find it difficult to locate
another source with sufficient production capacity to meet the Company's
short-term needs, and the Company could miss the retailing season for that
product. The establishment of new manufacturing relationships involves numerous
uncertainties, including those relating to payment terms, costs of
manufacturing, adequacy of manufacturing capacity, quality control and
timeliness of delivery, and the Company is unable to predict whether such
relationships would be on terms that the Company regards as satisfactory. Should
an unexpected change in binding, boot, apparel or other product suppliers become
necessary, the Company would likely experience increased costs, as well as a
substantial disruption and a potential loss of sales. In addition, from time to
time manufacturers in the snowboard industry have experienced shortages and, in
some cases, price increases in certain raw materials, and such shortages or
price increases may recur. At times, the Company has also experienced delays in
the receipt of products from its suppliers as a result of shortages in raw
materials, including fiberglass and P-Tex. Although the Company believes that it
is well-positioned to minimize the impact of raw material shortages and delays
in supplier shipments, such shortages and delays could have a material adverse
affect on the Company's business, financial condition and results of operations.
See "-- Risk Factors -- Dependence on Outside Manufacturers."

COMPETITION

   Both the snowboarding and wakeboarding businesses are highly competitive and
have relatively few technological or manufacturing barriers to entry. The
Company's technology is generally not proprietary. The Company competes with a
number of established manufacturers and distributors whose brand names enjoy
recognition that exceeds that of the Company's brand names. In all its product
categories, the Company competes with numerous manufacturers and distributors
that have significantly greater financial, distribution, advertising and
marketing resources than the Company. There can be no assurance that the Company
will compete successfully in the future. Moreover, the current industry
oversupply position, future events affecting the Company or its competitors,
consumer buying patterns, the introduction of new products by the Company or its
competitors, weather patterns that may affect the demand for the Company's
products, product supply fluctuations in the Company's markets, regulations
affecting the Company's products, the financial condition of the Company's
suppliers and the entry of additional competitors in the Company's markets,
among other factors, could result in insufficient or excess inventory levels,
missed market opportunities or higher markdowns, any of which could have a
material adverse effect on the Company's financial condition and results of
operations. See "-- Risk Factors -- Competition."

LICENSING

   The Company is currently licensing its recently acquired "Device Compatible"
step-in snowboard binding technology to several competitors in the snowboard
boot and binding market and anticipates licensing this technology to additional
snowboard boot and binding manufacturers in the future. The Company expects
these licensing arrangements will increase the market penetration of its "Device
Compatible" snowboard boot and binding system in North America, Europe and
Japan. The Company is also licensing its


                                       8
<PAGE>   9
"Liquid" brand name for worldwide apparel distribution, and the "SMP" brand for
distribution in specific regions outside the United States.

INTELLECTUAL PROPERTY

   The Company aggressively seeks to protect its intellectual property rights
such as trademarks, product designs and new concepts. These rights are protected
through trademark registrations, the maintenance of trade secrets, the
development of trade dress and, when necessary, appropriate action against those
who are, in the Company's opinion, unfairly competing. In addition, the Company
is seeking and, when appropriate, will continue to seek patent protection for
product function and design innovations.

   The Company has applied for or been granted trademark registration in the
United States and certain foreign jurisdictions for "Ride," "Liquid," "5150,"
"Preston," "Cappel," "SMP," "Device," "Smiley," "FullTilt," and "Sub Rosa" as
well as certain associated logos. The Company also claims rights to the
foregoing and to various other trademarks arising out of use of such marks.
Although the Company believes these rights are enforceable, there can be no
assurance that any of these trademarks are enforceable or that the Company is
otherwise capable of protecting the goodwill associated with them. The Company
believes that the failure to protect its trademarks could have a material
adverse effect on the Company's business. See "-- Risk Factors -- Limited
Protection of Technology;" "Item 3. Legal Proceedings."

RECENT DEVELOPMENTS

   On August 31, 1998, the Company entered into a Loan and Security Agreement
with CIT Group/Credit Finance, Inc. ("CIT") whereby the Company was extended a
$15.0 million credit facility, which is increased to $17.0 million during the
October 15 - December 15 time period. On the same date, the Company entered into
a Consent, Reaffirmation, and Release Agreement with US Bank NA, pursuant to
which the Company retained a $3.0 million credit facility with that institution.
The CIT facility has a term of three years, expiring August 30, 2001, and is
secured by substantially all of the assets of Ride and its subsidiaries. The US
Bank facility has a term of one year, expiring August 30,1999, and is secured by
a $1.8 million note receivable, the personal guarantee of one of the Company's
outside directors (including certain real property owned by that director), and
a second position on the other assets of Ride and its subsidiaries.

      In August 1998, the Company, together with the individually named
defendants, entered into a Memorandum of Understanding with the plaintiffs in
the lawsuit filed by certain current and/or former shareholders of the Company
styled Murray v. Ride, Inc., et al., wherein the parties have agreed to settle
the lawsuit upon the following principal terms: (1) the creation of a settlement
fund consisting of: (a) $3,000,000 cash paid by the Company's insurance carrier;
and (b) warrants to purchase 600,000 shares of the Company's Common Stock,
exercisable for a four year period ending December 31, 2002 at a price of $3.00
per share; and (2) the dismissal of the lawsuit against all named defendants
with prejudice. The Memorandum of Understanding is to be reduced to a
Stipulation of Settlement, which will be presented to the Court for approval.
While the Company is hopeful such approval will be forthcoming, there can be no
assurance such approval will be given. In the event Court approval of the
settlement is denied, the Company expects the litigation will resume and the
Company will renew its vigorous defense of the claims.

   On June 16, 1998, Robert E. Hall resigned his position as the Company's Chief
Executive Officer and President, and as a member of the Company's Board of
Directors; and Bruce Manke resigned his position as the Company's Senior Vice
President of Board Sports and Administration. Contemporaneous with the
resignations, Robert F. Marcovitch, formerly the Company's Senior Vice President
of International and Apparel, was appointed President and Chief Executive
Officer, and Greg Cook, formerly President of the Company's Ride Canada
subsidiary, was appointed Chief Operating Officer. Mr. Marcovitch was also
appointed to the Company's Board of Directors to fill the position left vacant
by Mr. Hall's resignation. Effective August 31, 1998, Scott Stewart resigned his
position as the Company's Vice President, Chief Financial Officer and Treasurer.
Mr. Cook has assumed Mr. Stewart's role as the Company's principal financial and
accounting officer.

   Fiscal 1998 results include non-recurring charges totaling approximately
$1,046,000. The charges include a $280,000 expense for the restructure of the
Company's SMP operations, which includes asset write-downs, lease termination
and severance charges. The Company's agreement to settle the securities class
action lawsuit, while a positive step for the business of the Company, requires
the Company to issue warrants to purchase 600,000 shares of the Company's Common
Stock. The Company has accrued a charge of $500,000 in fiscal 1998 representing
the fair value and costs


                                       9
<PAGE>   10
of issuing the warrants as well as related settlement expenses. An additional
charge of $266,000 has been taken to cover severance and other expenses
resulting from the resignations of Mr. Hall and Mr. Manke and related management
transition costs.

EMPLOYEES

   As of September 23, 1998, the Company had 237 full-time (including seasonal)
employees. None of the Company's employees are subject to a collective
bargaining agreement. The Company considers its employee relations to be good.

RISK FACTORS

   In evaluating the Company's business, careful consideration should be given
to the following factors in addition to the other information presented in this
Annual Report on Form 10-K:

   Liquidity; Dependence on Line of Credit. The Company operates a seasonal
business and generates the majority of its sales in the quarters ending
September 30 and December 31. In order to manufacture product during the
remainder of the year, the Company has a revolving line of credit arrangement
with an asset-based lender, CIT Group/Credit Finance, Inc. ("CIT"), to finance
import letters of credit and working capital needs (the "CIT Line"). The term of
the line is three years, expiring August 30, 2001. The maximum amount available
under the line is $15 million, which is extended to $17 million between October
15 and December 15 of each year during the term. In addition to the CIT Line,
the Company has retained a line of credit with US Bank NA ("US Bank") in the
reduced amount of $3.0 million (the "US Bank Line"). The term of the US Bank
Line expires on August 30, 1999. The Company believes the CIT Line is adequate
to meet the current needs of its business. There is, however, no assurance the
CIT Line is sufficient to fund the demands of the Company's future growth. To
this end, the Company and CIT have agreed to review the line in March 1999 with
a view to increasing same if then current business conditions warrant doing so.
However, there can be no assurance such an increase in the CIT Line will be
available even if the Company's business prospects at that time require and
warrant doing so. In addition, availability of funds under the CIT Line is at
all times conditioned on the Company achieving certain collateral requirements.
There can be no assurance such requirements will be achieved or, if achieved,
that they can be consistently maintained. The Company's inability to increase
the CIT Line or meet or maintain specific collateral requirements could each
have a material adverse impact on the Company's financial condition and could
result in a substantial limitation or reduction in the scope of the Company's
business. With respect to the US Bank Line, the Company is obligated to satisfy
all sums due thereunder on or before its August 30, 1999 expiration date. There
can be no assurance the Company will be successful in doing so. The Company's
inability to successfully satisfy or extend the US Bank Line, if necessary,
could have a material adverse impact on the Company's financial condition.

   Risks of International Business. In fiscal 1998, approximately 18% of the
Company's sales were outside of North America. The Company's business is subject
to the risks generally associated with doing business internationally, such as
fluctuations in exchange rates, foreign governmental regulation, product
distribution patterns and changes in economic conditions. These factors, among
others, could influence the Company's ability to sell its products in
international markets, as well as its ability to procure products or components.
The Company sources all of its binding and boot production in China. A large
portion of its apparel is manufactured in Asia as well. While the Company
believes the financial health of its Asian suppliers to be good, there can be no
assurance that the economic slowdown affecting Asia today will not have an
adverse effect on the Company's Asian suppliers' ability to source or fund their
production requirements, or fulfill the Company's orders. The Company ships its
Asian-sourced products in sea-borne containers from a central facility in Hong
Kong to central distribution centers in North America and Europe, and to
individual customers in Japan. The economic slowdown in Asia has dramatically
reduced the availability of such containers and increased the cost of those
containers that are available. The Company's inability to timely ship its
Asian-sourced products, or its being forced to use alternative, higher cost air
freight, as a result of the paucity of sea-borne containers available to the
Company's shipper may adversely effect the Company's business, financial
condition and results of operations. In addition, the Company believes that its
relationship with its current Japanese retailer customers is good and that they
will continue to do business with the Company. However, the Company believes
that current adverse economic conditions in Japan may negatively affect end-user
buying patterns in that country, which may in turn cause a reduction in future
orders from its Japanese retailer customers. Any such reduction may adversely
effect the Company's business and results of operations. The Company purchases
many of its products and components from sources outside of the United States,
with purchase prices often denominated in foreign currencies. From time to time,
the Company enters into foreign currency forward contracts to either buy or sell
foreign currencies at future dates in order to minimize currency risk. Despite
this hedging program, unanticipated or long-term changes in the value of the
U.S. dollar relative to that of certain foreign currencies could have a material
adverse effect on the Company's results of operations through either higher
product


                                       10
<PAGE>   11
costs or reduced export sales prices and/or export sales volumes. The Company is
also subject to risks inherent in hedging programs and in 1997 and 1996 the
Company recognized losses on foreign currency contracts totalling $17,000 and
$160,000, respectively. In addition, the Company's business is subject to the
risks associated with the imposition of legislation and regulation relating to
imports, including quotas, duties or taxes and other charges, restrictions or
retaliatory actions on imports to the United States and other countries in which
the Company's products are sold or manufactured. The Company cannot predict
whether the foregoing legislation and regulation will be imposed by the United
States or other countries, nor can it predict what effect such imposition would
have on its business or results of operations.

   Issuance of Preferred Stock; Dilution. In December 1997, the Company issued
3,000 shares of Series B 5% Cumulative Convertible Preferred Stock (the "Series
B Preferred Stock") to a single institutional investor. Subject to certain
adjustments, the Series B Preferred Stock converts to Common Stock at the lesser
of $2.68 per share or 90% of the market price (as defined) of the Common Stock
at the time of the conversion. During the period ended June 30, 1998, 716 shares
of Series B Preferred Stock were converted into 441,687 shares of Common Stock.
As of September 21, 1998, approximately 2.8 million shares of Common Stock would
have been issuable upon conversion of all of the remaining Series B Preferred
Stock. Any unconverted Series B Preferred Stock converts automatically to Common
Stock in December 2000.

   The Board of Directors may, without shareholder approval, issue additional
preferred stock with dividend, liquidation, conversion, voting or other rights
that could adversely affect the voting power and other rights of the holders of
the Common Stock. In the event of additional issuances, the preferred stock
could be utilized, under certain conditions, as a method of delaying, deterring
or preventing a change in control of the Company. Although the Company has no
current plans to issue any additional shares of preferred stock, there can be no
assurance that it will not do so in the future.

   Potential Applicability of "Penny Stock Restrictions"; Potential to Fail to
Meet Continuing Nasdaq Listing Requirements. Stocks selling for less than $5.00
per share, excluding broker or dealer commissions, may be designated as "penny
stocks" and may be subject to certain requirements imposed by Rules 15g-1
through 15g-9 under the Exchange Act. The net effect of these regulations may be
to delay transactions in stocks that are deemed to be penny stocks. The
Company's Common Stock is currently trading for less than $5.00 per share,
however the "penny stock restrictions" are not applicable based on exemptions
provided in Rule 3a51-1 under the Exchange Act, which among other things
provides an exemption from the penny stock restrictions for securities that are
quoted on the Nasdaq and for those that have tangible assets in excess of $2.0
million. If the Company's Common Stock were to be delisted from Nasdaq and its
net worth drop below $2.0 million at a time when its stock price was less than
$5.00 per share, and if no other exemption from the penny stock restrictions
were available to the Company, then its Common Stock could be subject to such
restrictions and sales of the Company's Common Stock by brokers and dealers and
resales by investors would likely be adversely affected. To meet the continued
listing requirements for the Nasdaq National Market, among other things, the
minimum bid price of the Common Stock must be $1.00. If the minimum bid price of
the Common Stock were for a continuing period of time to be less than $1.00, the
Common Stock could be delisted from the Nasdaq National Market which would
adversely affect the ability of shareholders to buy and sell shares of Common
Stock.

      Year 2000 Problem. The "year 2000 problem" is the result of computer
programs being written using two digits rather than four to define the
applicable year. Software programs and systems that have date-sensitive features
may recognize a date using "00" as the year 1900 instead of the year 2000. The
Company has assessed its year 2000 needs and has purchased and is presently
installing year 2000-compliant software in all its known non-compliant hardware
and software systems, which installation the Company anticipates will be
completed by the June 30, 1999 year-end. The cost of the purchase and
installation of the year 2000-compliant software is anticipated to exceed
$250,000. The Company is in the process of reviewing with each of its material
suppliers, service providers and customers the steps each is taking to insure
their respective computer systems are presently or will be year 2000-compliant
in a timely fashion. The Company's shipper has confirmed to the Company it has
installed year 2000-compliant software in all of its material systems. There can
be no assurance the computer systems of third parties on whose commercial
efforts the Company directly or indirectly relies, will be year 2000-compliant
in a timely fashion. Because the Company has not completed its review of its
material third party suppliers, service providers and customers, it has not
created a contingency plan setting forth what steps will be taken if such third
parties are not year 2000 compliant by December 31, 1999. Based on information
received from its third party vendors, service providers and customers, the
Company intends to have a contingency plan in place by June 1999. The failure of
third parties to be year 2000 compliant could cause material delays in the
design, manufacture and shipment of products, delay in payment for products, and
delay in the availability of credit or funds necessary to operate the business
of the Company. The failure of the Company's or one or more third-party's
computer systems as a result of year 2000 non-compliance may have a material
adverse effect on the Company's business and results of operations.


                                       11
<PAGE>   12
   Industry and Product Concentration. The Company's current product offerings
consist predominantly of snowboards and related products. As a result of this
concentration, the Company's future success will depend in large part on the
continued growth of the snowboard market. Snowboarding is a relatively new
sport, and there can be no assurance that the sport will continue to grow at the
rate experienced in recent years, or that its popularity will not decline.
Moreover, the market for snowboards is characterized largely by image-conscious,
brand-driven younger consumers, and the Company's future success depends on its
ability to regularly update its products and maintain its progressive,
cutting-edge image, particularly with respect to its flagship "Ride" brand. Any
failure by the Company to accurately predict and target future trends or to
maintain its progressive image could have a material adverse effect on its
results of operations.

   The Company believes that controlling its channels of distribution is
critical to maintaining the premium image of its brands. While the Company can
control the initial wholesale distribution of its products, it has limited
ability to monitor or control the resale of its products through alternative
channels. Failure to adequately control distribution of its products could have
an adverse effect on its brand image and sales which in turn could have a
material impact on the Company's financial position and results of operations.
In addition, supply and demand imbalances in the snowboard industry could also
have a material adverse effect on the Company's growth prospects, financial
condition and results of operations. The Company believes that its future
success will depend, among other things, on its ability to introduce innovative,
well-received products, and there can be no assurance of its ability to do so.
In addition, a major innovation by one or more of the Company's competitors
could have a negative effect on the sales of one or more of the Company's
product lines or brands.

   Acquisition-Related Risks; Ability to Manage Change. During 1997 the Company
completed three acquisitions. In June, the Company purchased substantially all
of the assets (except cash and accounts receivable) and the liabilities of
Device Mfg Corp., a manufacturer of step-in snowboard bindings. In July, the
Company purchased substantially all of the assets of Galena Creek Trading
Company, Inc. (dba Smiley Hats), a manufacturer of winter head and neckwear. In
December, the Company purchased the stock of US2 Sports Group, Inc., a
manufacturer of wakeboards and related products. Acquisitions involve numerous
risks, including difficulties in the assimilation of the operations,
technologies and products of the acquired companies, the diversion of
management's attention from other business concerns, risks associated with
entering markets or conducting operations with which the Company has no or
limited direct prior experience, and the potential loss of key employees of the
acquired company. Moreover, there can be no assurance that the anticipated
benefits of an acquisition will be realized. Acquisitions also place
considerable demands on existing financial and management control systems.
Acquired operations entail transition of key systems, establishment of new
systems and often require improvement, upgrade or replacement of existing
financial and management control systems. Failure to adequately absorb acquired
operations into the Company's systems or difficulties encountered during such
improvements and upgrades could adversely affect the Company's financial
condition and results of operations. The Company may, when and if the
opportunity arises, acquire other businesses. Future acquisitions by the Company
could result in potentially dilutive issuances of equity securities, the
incurrence of debt and contingent liabilities and amortization expense related
to goodwill and other tangible assets, all of which could materially adversely
affect the Company's financial condition and results of operations.

   Dependence on Outside Manufacturers. Many of the Company's products are
manufactured by outside suppliers. In 1998, the Company sourced its entire line
of "Ride," "Liquid" and "Slim" traditional "strap" and "Device compatible"
step-in bindings from Taiwan-based Snowboard Factory, Inc. In addition, all of
the Company's snowboard boots and the majority of its apparel are manufactured
to the Company's specifications by independent contractors. The Company
generally does not have contracts with its manufacturing sources and competes
with other companies for the production capacity of certain manufacturers.
Although the Company believes that it has established close relationships with
its principal manufacturing sources, its future success may depend on its
ability to maintain such relationships. If the Company's relationship with any
of its binding, boot, apparel or other product manufacturers were interrupted,
the Company could find it difficult to locate another source with sufficient
production capacity to meet the Company's short-term needs, and the Company
could miss the retailing season for that product. The establishment of new
manufacturing relationships involves numerous uncertainties, including those
relating to payment terms, costs of manufacturing, adequacy of manufacturing
capacity, quality control and timeliness of delivery, and the Company is unable
to predict whether such relationships would be on terms that the Company regards
as satisfactory. Should an unexpected change in binding, boot, apparel or other
product suppliers become necessary, the Company would likely experience
increased costs, as well as a substantial disruption and a potential loss of
sales. In addition, from time to time manufacturers in the snowboard industry
have experienced shortages and, in some cases, price increases in certain raw
materials, and such shortages or price increases may recur. At times, the
Company has also experienced delays in the receipt of products from its
suppliers as a result of shortages in raw materials, including fiberglass and
P-Tex. Although the Company believes that it is well-positioned to minimize the
impact of raw material shortages and delays in


                                       12
<PAGE>   13
supplier shipments, such shortages and delays could have a material adverse
affect on the Company's business, financial condition and results of operations.

   Seasonality; Fluctuations in Quarterly Operating Results. Because
snowboarding is traditionally a winter sport and the Company's sales are
concentrated in the northern hemisphere, sales of the Company's products
predominantly occur in what was traditionally the Company's quarters ending
September 30 and December 31. Although the Company believes that its recent
entry into the wakeboard industry should reduce overall seasonality, the Company
expects that for the foreseeable future the majority of net sales will continue
to be generated in the quarters ending September 30 and December 31. Because
relatively lower net sales are to be realized in the quarters ending March 31
and June 30 of each year, the Company expects to incur operating losses in such
quarters for the foreseeable future. Apart from seasonal factors, demand for the
Company's products fluctuates in response to consumer buying patterns, weather
conditions, discretionary spending habits, general economic conditions in the
United States and abroad, product supply fluctuations in the United States and
abroad and other factors. In addition to seasonal fluctuations, the Company's
operating results fluctuate from quarter to quarter as a result of the timing of
order shipments, new product introductions and new retailer openings.
Furthermore, the Company's gross margins will fluctuate with product mix, the
timing of product price adjustments, the mix of international and domestic sales
and in-house production cost fluctuations. The Company's operating results for
any interim period may not be indicative of the results for the entire year.

   Risks Associated With the Apparel Business. Fashion trends are volatile, and
there can be no assurance that the Company will accurately anticipate shifts in
fashion trends and adjust its merchandise mix to appeal to changing consumer
tastes in a timely manner. If the Company is unsuccessful in responding to
changes in fashion trends or market demand, the Company could experience
insufficient or excess inventory levels, missed market opportunities or higher
markdowns, any of which would have a material adverse effect on the Company's
financial condition and results of operations.

   Manufacturing. As a manufacturer of certain of the Company's products, the
Company continually faces risks regarding the availability and cost of raw
materials and labor, the potential need for additional capital equipment,
increased manufacturing costs, potential organized labor issues, plant and
equipment obsolescence, worker's safety and compensation issues and quality
control. A disruption in the Company's production or distribution could have a
material adverse effect on the Company's results of operations. Like certain of
its suppliers, the Company has experienced delays in the receipt of raw
materials used in the manufacturing process.

   Dependence on Third-Party Selling Efforts. The Company primarily relies on
third parties to sell, and in some cases to distribute, its products to
retailers. In the United States and Canada, the Company generally uses
independent sales representatives who work under contract. Generally, such
contracts may be terminated by either party upon 30 days' notice. The Company
uses distributors under long-term contractual arrangements in certain
international markets. Loss of services, poor performance or difficulties
encountered with any of the Company's independent sales representatives or
distributors could each have a material adverse effect on the Company's results
of operations.

   Dependence on Key Individuals. The Company's future success depends in large
part on the continued service of Robert F. Marcovitch, the Company's President
and Chief Executive Officer and Greg Cook, the Company's Chief Operating Officer
and acting Chief Financial Officer. The loss of the services of either of these
officers could have a material adverse effect on the Company's business.
Further, the Company believes that the market for key personnel in its industry
is highly competitive. There can be no assurance that the Company will be able
to attract and retain key personnel with the skills and expertise necessary to
manage the Company's business, both in the United States and abroad.

   Competition. The snowboarding and wakeboarding businesses are highly
competitive and have relatively few technological or manufacturing barriers to
entry. The Company's technology is generally not proprietary. The Company
competes with a number of established manufacturers and distributors whose brand
names enjoy recognition that exceeds that of the Company's brand names. In all
its product categories, the Company competes with numerous manufacturers and
distributors that have significantly greater financial, distribution,
advertising and marketing resources than the Company. There can be no assurance
that the Company will continue to compete successfully in the future. Moreover,
the current industry oversupply position, future events affecting the Company or
its competitors, consumer buying patterns, the introduction of new products by
the Company or its competitors, weather patterns that may affect the demand for
the Company's products, product supply fluctuations in the Company's markets,
regulations affecting the Company's products, the financial condition of the
Company's suppliers and the entry of additional competitors in the


                                       13
<PAGE>   14
Company's markets, among other factors, could result in insufficient or excess
inventory levels, missed market opportunities or higher markdowns, any of which
could have a material adverse effect on the Company's financial condition and
results of operations.

   Product Liability. The Company's products are often used in relatively
high-risk recreational settings. Consequently, the Company is exposed to the
risk of product liability claims in the event that users of the Company's
products are injured in connection with such use. In many cases, users of the
Company's products may engage in imprudent or even reckless behavior while using
such products, thereby increasing the risk of injury. The Company maintains
product liability, general liability and excess liability insurance coverage.
There can be no assurance that such coverages will continue to be available on
acceptable terms, or will be available in sufficient amounts to cover one or
more large claims, or that the insurer will not disclaim coverage as to any
claim. The successful assertion of one or more large claims against the Company
that exceed available insurance coverage or changes in the Company's insurance
policies, including premium increases or the imposition of large deductible or
co-insurance requirements, could have a material adverse effect on the Company's
financial condition and results of operations.

   Limited Protection of Technology. Most of the Company's products are not
based on proprietary technology. As a result, there are relatively few
technological or other barriers to entry, and the Company's products may be
replicated by competitors. There can be no assurance that current or future
competitors will not offer products substantially identical to the Company's
products, or competing products to customers at lower prices. The Company has
filed for trademark and patent registration in the United States and certain
foreign countries for certain of its trademarks and product designs and/or
functions. There can be no assurance that trademark or patent protection, as the
case may be, will be granted in any or all of the countries in which
applications are currently pending, or granted on the breadth of the current
description of goods or designs. The Company has substantial international
sales; the laws of foreign countries treat the protection of proprietary rights
and intellectual property differently from, and may not protect the Company's
proprietary or intellectual property rights to the same extent as do, the laws
in the United States.

   Volatility of Stock Price. The market price of the Common Stock has
fluctuated substantially in the past. There can be no assurance that the market
price of the Common Stock will not significantly fluctuate from its current
level. Future announcements concerning the Company or its competitors, quarterly
variations in operating results, the introduction of new products or changes in
product pricing policies by the Company or its competitors, weather patterns
that may be perceived to affect the demand for the Company's products, changes
in earnings estimates by analysts, changes in accounting policies, future
inventory supply situations and events in current or future legal proceedings,
among other factors, could cause the market price of the Common Stock to
fluctuate substantially. In addition, stock markets have experienced extreme
price and volume volatility in recent years. This volatility has had a
substantial effect on the market prices of securities of many smaller public
companies for reasons frequently unrelated to the operating performance of the
specific companies. These broad market fluctuations may adversely affect the
market price of the Company's Common Stock.

   Legal Proceedings. In March 1997, a shareholder filed a lawsuit against the
Company and four of its current or former officers and directors, styled Murray
v. Ride, Inc. et al. The lawsuit alleges violations of certain federal
securities laws and state laws, and purports to seek unspecified monetary
damages on behalf of a class of shareholders who purchased the Company's common
stock during the period of August 10, 1995 through December 30, 1996. In August
1998, the Company, together with the individually named defendants, entered into
a Memorandum of Understanding with the plaintiffs in the lawsuit, wherein the
parties have agreed to settle the lawsuit upon the following principal terms:
(1) a settlement fund will be created consisting of: (a) $3,000,000 cash paid by
the Company's insurance carrier; and (b) warrants to purchase 600,000 shares of
the Company's Common Stock, exercisable for a four year period ending December
31, 2002 at a price of $3.00 per share; and (2) the dismissal of the lawsuit
against all named defendants with prejudice. The Memorandum of Understanding is
presently being reduced to a Stipulation of Settlement, which will be presented
to the Court for approval. While the Company anticipates approval will be
forthcoming, there can be no assurance the Court will approve the settlement. In
the event Court approval of the settlement is denied, the Company expects the
litigation will resume and the Company will renew its vigorous defense of the
claims. In the event of a renewal of the litigation, an award of monetary
damages against the Company in excess of applicable insurance, if any, the
expenditure of significant sums in the defense thereof or diversion of
management's attention from other business concerns, could each have a material
adverse effect on the Company's financial condition and results of operations.
The Company is also engaged in legal proceedings against Switch Manufacturing,
Inc. alleging patent infringement and seeking monetary damages. While the
Company intends to vigorously prosecute the lawsuit, there can be no assurance
that the Company will prevail in the action. The expenditure of significant sums
in the prosecution of the action could have a material adverse effect on the
Company's financial condition and results of operations.


                                       14
<PAGE>   15
   Potential Adverse Effect of Environmental Regulations. The Company is subject
to federal, state and local governmental regulations relating to the storage,
use, discharge and disposal of toxic, volatile or otherwise hazardous chemicals
used in its manufacturing process. There can be no assurance that changes in
environmental regulations or in the kinds of raw materials used by the Company
will not impose the need for additional capital equipment or other requirements.
Any failure by the Company to control the use of, or adequately restrict the
discharge of, hazardous substances under present or future regulations could
subject the Company to substantial liability or could cause its manufacturing
operations to be suspended. Such liability or suspension of manufacturing
operations could have a material adverse effect on the Company's results of
operations.

ITEM 2. PROPERTIES

   Ride Snowboards leases approximately 82,400 square feet of office and
warehouse space in Preston, Washington, under a lease that expires December 31,
2003. The Company is currently subleasing approximately 3,900, 12,600, and 4,300
square feet under agreements which expire in November 1998, May 2002, and
September 2002, respectively, and is seeking to sublet additional office space.

   Ride Canada leases approximately 13,000 square feet of warehouse and office
space in Etobicoke, Ontario, pursuant to a lease that expires on November 30,
2001.

   Ride Manufacturing occupies a 25,000 square foot manufacturing and office
facility in Corona California under a lease expiring August 31, 2001. Ride
Manufacturing also occupies a 16,300 square foot facility adjacent to the 25,000
square foot facility under a sublease expiring March 31, 1999.

   SMP leases approximately 26,250 square feet of office, warehouse and light
manufacturing space in Chula Vista, California, pursuant to a lease that expires
June 30, 1999.

   Smiley Hats leases approximately 21,000 square feet of office, warehouse and
light manufacturing space in Sparks, Nevada, under a lease that expires in
September 1999. Smiley Hats subleases roughly 5,000 square feet of this space
under an agreement expiring in September 1999.

   US2 leased approximately 11,300 square feet of office, warehouse and
manufacturing space in Woodinville, Washington under an agreement which expires
in September 2001. In 1998, the Company assigned its interest in the lease
agreement to a third party for the remaining term of the lease, but remains
secondarily liable in the event of default by the assignee.

   In connection with the Company's acquisition of Device Mfg Corp, the Company
assumed a lease for approximately 5,100 square feet of office and manufacturing
space in Boulder, Colorado expiring in January 2000. The Company has subleased
this space for the remaining term of the lease.

   The Company anticipates that its current facilities will satisfy its needs
through at least 1999.

ITEM 3. LEGAL PROCEEDINGS

   On March 14, 1997, a shareholder filed a lawsuit against the Company and four
of its current or former officers and directors in the United States District
Court for the Western District of Washington at Seattle, styled Murray v. Ride,
Inc. et al., Civil Action No. C97-0402-Z. In August 1998, the Company, together
with the individually named defendants, entered into a Memorandum of
Understanding with the plaintiffs in the lawsuit, wherein the parties have
agreed to settle the lawsuit upon the following principal terms: (1) a
settlement fund will be created consisting of: (a) $3,000,000 cash paid by the
Company's insurance carrier; and (b) warrants to purchase 600,000 shares of the
Company's Common Stock, exercisable for a four year period ending December 31,
2002 at a price of $3.00 per share; and (2) the dismissal of the lawsuit against
all named defendants with prejudice. The Memorandum of Understanding is
presently being reduced to a Stipulation of Settlement, which will be presented
to the Court for approval. While the Company anticipates approval will be
forthcoming, there can be no assurance the Court will approve the settlement. In
the event Court approval of the settlement is denied, the Company expects the
litigation will resume and the Company will renew its vigorous defense of the
claims. In the event of a renewal of the litigation, an award of monetary
damages against the Company in excess of applicable insurance, if any, the
expenditure of significant sums in the defense thereof or diversion of
management's attention from other business concerns, could each have a material
adverse effect on the Company's financial condition and results of operations.


                                       15
<PAGE>   16
   In 1996, the Company initiated legal proceedings against Switch
Manufacturing, alleging infringement by Switch of certain of the Company's
patented binding technologies and seeking monetary damages. The case is pending
in the United States District Court for the Northern District of California as
Raines, et al. v. Switch Manufacturing, Civil Action No. C96-2648-DLJ. The
Company intends to vigorously prosecute this lawsuit. However, there can be no
assurance that the Company will prevail in the action. An expenditure of
significant sums in the prosecution of the Switch action could have a material
adverse effect on the Company's financial condition and results of operations.

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

The Company's Annual Meeting of Shareholders was held on May 18, 1998. The
following members were elected to the Company's Board of Directors to hold
office for the ensuing year.

<TABLE>
<CAPTION>
               Nominee              For        Withheld
               -------              ---        --------
<S>                              <C>           <C>
       Robert E. Hall            9,282,467     1,385,072
       Cory J. Hechler           9,812,300      855,239
       Mark M. Salter            9,338,225      118,023
</TABLE>


The proposal to increase the Company's authorized amount of Common Stock from
20,000,000 shares to 40,000,000 shares was approved as follows:

<TABLE>
<CAPTION>
           In Favor         Opposed          Withheld
           --------         -------          --------
<S>                       <C>                <C>
          9,385,519        1,221,518          60,502
</TABLE>


The proposal to ratify Ernst & Young LLP as the Company's independent public
accountants for the 1998 fiscal year was approved as follows:

<TABLE>
<CAPTION>
           In Favor         Opposed          Withheld
           --------         -------          --------
<S>                         <C>              <C>
          10,606,145         40,700           20,694
</TABLE>




                                       16
<PAGE>   17
                                     PART II

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

                                   STOCK TABLE

   The following table sets forth for the calendar quarters indicated the high
and low closing bid prices as reported by NASDAQ:

<TABLE>
<CAPTION>
                                  1996               1997                1998
                                  ----               ----                ----
                             HIGH     LOW       HIGH       LOW      HIGH       LOW
                             ----     ---       ----       ---      ----       ---
<S>                      <C>       <C>       <C>       <C>       <C>       <C>
      Quarter
      Ended:
        March 31           $33.5000  $13.8750  $7.1250   $3.1250   $2.8750   $1.8750
        June 30             14.1875   10.3750   5.1250    3.3750    2.5625    1.5000
        September 30        13.3750    9.2500   3.9375    2.8125
        December 31         12.4375    5.8125   3.1875    1.7813
</TABLE>

   The prices quoted reflect inter-dealer quotations, without retail mark-ups,
mark-downs or commissions, and do not necessarily represent actual transactions.
As of September 23, 1998, there were 676 record holders of the Company's common
stock.

   Except for distributions paid to shareholders when the Company was an S
Corporation, the Company has never paid dividends on its common stock and does
not anticipate paying regular cash dividends in the foreseeable future. The
Company's bank loan agreement restricts the payment of dividends.

SALES OF UNREGISTERED SECURITIES

   In the six month period ended June 30, 1998, the Company issued unregistered
securities in the amounts, at the dates and for the aggregate amounts of
consideration given below. The issuances were made in reliance upon Section 4(2)
of the Securities Act of 1933, as amended (the "Act"), and/or Regulation 506
promulgated under the Act.

   On January 22, 1998, the Company issued 44,237 shares of common stock valued
at $66,000 to one accredited individual in connection with the retirement of a
note payable.



                                       17
<PAGE>   18
ITEM 6. SELECTED FINANCIAL DATA.

                         SELECTED FINANCIAL INFORMATION
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                                    Six Months       
                                                       Year ended December 31,                     Ended June 30,
                                         ----------------------------------------------------    ------------------
                                          1993     1994 (1)    1995 (2)   1996 (3)    1997 (4)    1997       1998
                                         ------    --------    --------   -------    --------    -------    -------
                                                                                               (Unaudited)        
<S>                                      <C>       <C>         <C>        <C>        <C>         <C>       <C>
Net sales                                $5,877     $25,349    $74,850    $75,728    $ 36,475    $ 7,559   $  7,279
Cost of goods sold                        3,879      18,398     54,988     61,641      26,656      5,567      8,287
                                         ------     -------    -------    -------    --------    -------   --------
Gross profit (loss)                       1,998       6,951     19,862     14,087       9,819      1,992     (1,008)
Selling, general and
  administrative expenses                 1,373       4,022     10,868     20,487      18,278      8,392     10,735

Goodwill write down                          --          --         --         --       8,600         --         --
Restructuring charges                        --          --         --      2,500          --         --         --
                                         ------     -------    -------    -------    --------    -------   --------
Operating income (loss)                     625       2,929      8,994     (8,900)    (17,059)    (6,400)   (11,743)

Interest expense                           (130)         (1)       (18)      (268)       (426)       (43)      (147)
Interest income                               2          72        406        333         195        103        117
Gain on sale of subsidiary                   --          --         --        482          --         --         --
                                         ------     -------    -------    -------    --------    -------   --------

Income (loss) before income 
  taxes and extraordinary item              497       3,000      9,382     (8,353)    (17,290)    (6,340)   (11,773)
Income taxes provision (benefit)             --       1,134      3,427     (2,863)       (595)    (1,904)        --
                                         ------     -------    -------    -------     -------    -------   --------
Income (loss) before 
  extraordinary item                        497       1,866      5,955     (5,490)    (16,695)    (4,436)   (11,773)

Extraordinary item                          (83)         --         --         --          --         --         --
                                         ------     -------    -------    -------     -------    -------   --------
Net income (loss)                        $  414     $ 1,866    $ 5,955    $(5,490)   $(16,695)   $(4,436)  $(11,773)
                                         ======     =======    =======    =======    ========    =======   ========
Pro Forma net income (loss) (5)          $  343
                                         ======
Net income (loss) per share:
  Basic                                      --     $  0.29    $  0.67    $ (0.52)   $  (1.51)   $ (0.41)  $  (0.99)
  Diluted                                    --     $  0.28    $  0.59    $ (0.52)   $  (1.51)   $ (0.41)  $  (0.99)
         Pro forma                       $ 0.08          --         --         --          --         --         --
</TABLE>

<TABLE>
<CAPTION>
                                                    DECEMBER 31,                                    JUNE 30,
                                                    ------------                                -------------------
                                          1993       1994      1995(2)    1996(3)    1997(4)      1997       1998
                                         ------     -------    -------    -------    --------   -------    --------
CONSOLIDATED BALANCE SHEET DATA:
<S>                                      <C>        <C>        <C>        <C>        <C>        <C>        <C>
Working capital                          $1,046     $ 7,663    $26,104    $20,941    $ 14,823    $15,644   $  2,489
Total assets                              2,431      15,718     57,599     50,655      40,610     50,728     34,604
Long-term obligations                        --          --         --        832       1,582        555        979
Shareholders' equity                      1,152      11,524     46,495     42,309      31,070     39,627     19,252
</TABLE>

-------

(1)   Results for the year ended December 31, 1994 reflect the Company's August
      18, 1994 acquisition of CAS Sports.

(2)   Results for the year ended December 31, 1995 reflect the Company's
      September 1, 1995 acquisitions of Ride Manufacturing, Inc. and 5150
      Snowboards, Inc. and the October 20, 1995 acquisition of SMP Clothing,
      Inc.

(3)   Results for the year ended December 31, 1996 include the CAS Sports excess
      inventory and OEM businesses from January 1, 1996 through October 11,
      1996, the date those businesses were sold.

(4)   Results for the year ended December 31, 1997 reflect the Company's June
      12, 1997 acquisition of the assets and liabilities of Device Mfg Corp, the
      July 22, 1997 acquisition of the assets of Galena Creek Trading Company
      (dba Smiley Hats), and the December 19, 1997 acquisition of US2 Sports
      Group, Inc.

(5)   For the year ended December 31, 1993, the Company was exempt from the
      payment of federal income taxes as a result of its election to be treated
      as an S Corporation. The pro forma net income (loss) per share for these
      periods include pro forma provisions for income taxes as if the Company
      had been subject to such taxes for the periods presented. Historical net
      income (loss) per share data is not presented because per share amounts of
      an S Corporation may not be meaningful.


                                       18
<PAGE>   19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

OVERVIEW

   This report of Form 10-K is being filed as a result of the change in the
Company's fiscal year end from December 31 to June 30, beginning with the six
month period ended June 30, 1998. The change in fiscal year end was made to more
closely align the Company's accounting and reporting practices with its product
cycle. In the following discussion, the six month period ended June 30, 1998
will be compared to the corresponding unaudited six month period ended June 30,
1997. The Liquidity and Capital Resources discussion is as of June 30, 1998.

   The Company is a leading designer, manufacturer and marketer of snowboards
and related products through its subsidiaries: Ride Snowboard Company ("Ride
Snowboards"), Ride Manufacturing, Inc. ("Ride Manufacturing"), Ride Canada, Inc.
("Ride Canada"), SMP Clothing, Inc. ("SMP"), Smiley Hats, Inc. ("Smiley") and
Carve, Inc. ("US2"). The Company was founded in September 1992 and acquired
C.A.S. Sports International, Inc. and C.A.S. Sports Agency, Inc. (collectively,
"CAS") in August 1994, Ride Manufacturing in September 1995 and SMP in October
1995. The Company also acquired 5150 Snowboards, Inc. ("5150") in September 1995
and later merged 5150 with and into Ride Snowboards. In October 1996, the
Company transferred substantially all of the Canada-based operating assets and
liabilities of CAS (other than fixed assets) into Ride Canada, a newly formed
corporation, and all of the US-based operating assets and liabilities of CAS
into Ride Snowboards, and sold the CAS entities. In June 1997, the Company
acquired substantially all of the assets and liabilities of Device Mfg Corp. and
transferred those assets and liabilities to Ride Snowboards. In July 1997, the
Company's newly formed Smiley subsidiary acquired substantially all of the
assets of Galena Creek Trading Corp. In December 1997, the Company acquired US2
Sports Group Inc. through a merger of that company with and into Carve, Inc., a
newly formed corporation. The results of operations of these acquired
subsidiaries are included in the Company's financial statements from their
respective dates of acquisition through their applicable dates of disposition.

   Because snowboarding traditionally is a winter sport and the Company's sales
are concentrated in the northern hemisphere, sales of the Company's products
predominantly occur in the months of July through December, the Company's first
and second fiscal quarters. Because relatively lower net sales are realized in
the months of January through June of each year, the Company expects to incur
operating losses in its third and fourth fiscal quarters for the foreseeable
future. The Company expects the addition of wakeboarding products to its product
line-up through its acquisition of US2 will help to supplement sales in the
third and fourth fiscal quarters of the year in future periods. In addition to
seasonal fluctuations, the Company's operating results fluctuate from quarter to
quarter as a result of the timing of order shipments, new product introductions,
new retailer openings, consumer buying patterns, weather conditions,
discretionary spending habits, general economic conditions in the United States
and abroad and other factors. Furthermore, the Company's gross margins fluctuate
with product mix, the timing of product price adjustments and the mix of
international and domestic sales. See "Business - Risk Factors - Seasonality;
Fluctuations in Quarterly Operating Results."

   The Company accumulates a backlog of orders beginning in February as a result
of preseason orders placed in connection with winter sports trade shows. The
backlog decreases beginning in late spring as product begins to be shipped.


                                       19
<PAGE>   20
Backlog in the snowboarding industry is subject to delay or cancellation. The
Company's backlog of orders as of June 15, 1998 was approximately $37 million,
compared to a backlog of $26 million as of June 1997.

RESULTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1998

   Net sales decreased 4% to $7.3 million for the six months ended June 30, 1998
from $7.6 million for the corresponding period in 1997. Device, Smiley and US2
contributed a total of $1.2 million to net sales in the fiscal 1998 period. The
remaining net decrease was due primarily to higher sales of closeout products in
the 1997 period as the Company worked down its excess inventories remaining for
the 1996 calendar year.

SALES BY PRODUCT GROUP

<TABLE>
<CAPTION>
                                    SIX MONTHS ENDED JUNE 30,
                                    -------------------------
                                    1997                  1998
                                    ----                  ----
                                         (DOLLARS IN 000'S)
<S>                         <C>         <C>        <C>         <C>
Snowboards                  $2,362       31%       $2,034       28%
Bindings                       527        7           863       12
Boots                          360        5           115        2
Skate, wake and other          540        7         1,277       17
                            ------       --        ------       --

Total hard goods             3,789       50         4,289       59


Apparel                      3,510       46         2,649       36
Accessories                    260        4           341        5
                            ------       --        ------       --
Total soft goods             3,770       50         2,990       41
                            ------       --        ------       --

Total                       $7,559      100%       $7,279       100%
                            ======       ==        ======       ==
</TABLE>



      Snowboard hardgood sales, comprising boards, boots and bindings, decreased
by $237,000 from the corresponding period of 1997. Sales from January through
June of each year are traditionally closeout in nature and are highly dependent
on market price at the time of sale. Hardgood sales of wake, skate and other are
up $737,000 due to the inclusion of the Fulltilt brand of wake boards in 1998.

      In the first six months of 1998, sales in North America made up 82% of
total sales with international sales making up the remaining 18%. Amounts for
the corresponding period in the previous year were 68% and 32%, respectively.
The change in sales mix was primarily due to a decline in apparel sales in
Japan.

      Gross profit for the six months ended June 30, 1998 was negative $1.0
million versus a profit of $2.0 million for the first six months of 1997. A
number of factors contributed to this change. In fiscal 1998, the Company
transferred its US2 operations to Ride Manufacturing incurring closure and
consolidation costs, had close out sales at lower than expected margins, and
increased its inventory reserves for the remaining close out merchandise due to
the continued soft market conditions.

      Selling, general and administrative expenses for the first six months of
1998 were $10.7 million versus $8.4 million for the corresponding period in
1997. Approximately $1.0 million of the increase was due to non-recurring costs
associated with the settlement of the Class Action Lawsuit, certain severance
and other costs associated with management reorganization, and restructuring
SMP. Bad debt expense increased by approximately $700,000 in the 1998 period due
to slower than expected collection of accounts receivable from 1997 and write
off of the remaining CAS sales accounts receivable. The balance was attributable
to additional administrative cost related to the inclusion of Device, Smiley 
Hats, and US2 acquisitions made in the second half of 1997 and included in the 
first six months of 1998.

      Interest expense increased by $104,000 in fiscal 1998 due to higher
borrowing levels attributed to the Company's cash losses.

      For the six months ended June 30, 1998, there was no income tax benefit 
recorded as the Company was in a net operating loss carryforward position. For 
the six months ended June 30, 1997, a tax benefit was recorded based upon the 
amount of income tax that was recoverable in carryback periods.

                                       20
<PAGE>   21
   As a result of the foregoing, the Company's net loss increased to $11.8
million in the first six months of 1998 from a loss $4.4 million in 1997.

YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1997

   Net sales decreased 52% to $36.5 million in 1997 from $75.7 million in 1996.
Device, Smiley and US2 contributed a total of $2.5 million to net sales in 1997,
subsequent to their respective acquisition dates. The CAS excess inventory and
OEM businesses contributed $15.4 million to sales in 1996 through their October
11, 1996 disposition date. The remaining net decrease was due primarily to soft
market conditions throughout the industry due to an oversupply of snowboard
products.

SALES BY PRODUCT GROUP

<TABLE>
<CAPTION>
                                     YEARS ENDED DECEMBER 31,
                                     ------------------------
                                   1996                   1997
                                   ----                   ----
                                            (DOLLARS IN 000'S)
<S>                         <C>          <C>        <C>           <C>
Snowboards                  $39,926        53%       $12,520        34%
Bindings                     12,241        16          8,287        23 
Boots                         4,458         6          3,714        10 
Skate, wake and other         3,464         5            971         3 
                            -------       ---        -------       --- 
Total hard goods             60,089        80         25,492        70 
                            -------       ---        -------       --- 
                                                                       
                                                                       
Apparel                      13,597        18          8,387        23 
Accessories                   2,042         2          2,596         7 
                            -------       ---        -------       --- 
Total soft goods             15,639        20         10,983        30 
                            -------       ---        -------       ---
Total                       $75,728       100%       $36,475       100%
                            =======       ===        =======       ===
</TABLE>


   Net sales of hard goods (snowboards, bindings, boots, wakeboards and
skateboards) represented 70% of total sales in 1997 while soft goods (apparel
and accessories) made up 30%. In 1996, hard goods comprised 80% of total sales
and soft goods 20%. The increase in percentage of soft goods sales to total
sales is attributable to additional sales added by the Smiley acquisition and to
relatively smaller declines in sales of soft goods as compared to hard goods due
to relatively less severe oversupply conditions. In the hard goods categories,
snowboards declined to 34% of sales in 1997 from 53% in 1996 due to the
disposition of the CAS entities. Snowboard bindings increased to 23% of sales in
1997 from 16% in 1996 due to the relative strength of the Company's "Preston"
brand strap-in series of bindings and the step-in binding sales added from the
acquisition of Device. Boots increased to 10% of sales in 1997 compared to 6% in
the prior year due to the 1997 introduction of boots under the Ride label as
well as the step-in boot sales added as a result of the acquisition of Device.
Skate, wake and other hard goods declined to 3% of sales in 1997 from 5% in 1996
primarily due to the disposition of the CAS excess inventory business which was
involved in numerous non-snowboard close-out categories. Apparel increased to
23% of sales in 1997 from 18% in 1996 due to smaller net declines than seen in
the hard goods categories. Accessories increased to 7% of net sales in 1997 due
primarily to the addition of Smiley in July 1997.

   In 1997, net sales in North America made up 68% of total sales with
international sales making up the remaining 32%. In 1996, North American sales
comprised 54% and international sales 46%. The decrease in international sales
in 1997 is attributable to the relatively more severe excess inventory
conditions in the Japanese market.

   Gross profit decreased to $9.8 million in 1997 from $14.1 million in 1996
while gross margins increased to 27% in 1997 from 19% in 1996. The dollar
decrease was due to the large drop in sales volume in 1997. The increase in
gross margins was due to the $6.5 million inventory write down taken by the
Company in 1996 related to canceled commitments from the Company's principal
Japanese distributor. Absent the 1996 inventory write down, gross margins would
also have been 27% in 1996. Gross margins in 1997 were positively impacted by
the sale of the CAS businesses, which generally had lower gross margins than
other divisions, the addition of the relatively high gross margin Smiley
business, and cost savings associated with moving the Company's binding
operations offshore.

Offsetting these improvements was the sale of lower margin 1996 close out
products and the under-utilization of the Company's manufacturing facility as a
result of the decline in snowboard sales volumes. The Company began moving the
"FullTilt" wakeboard production to its Corona facility in April 1998. The
Company anticipates that this production shift will consume production time and
capacity in the fall and early winter months when the factory would otherwise be
operating below capacity due to the seasonality of snowboard production.


                                       21
<PAGE>   22
   Selling, general and administrative expenses decreased 11% to $18.3 million
in 1997 from $20.5 million in 1996. This decrease was due primarily to staff
reductions, lower executive salaries, lower variable expenses associated with
the lower sales volumes (primarily commissions and bad debt accruals) and the
disposition of the CAS businesses, offset partly by increased occupancy and
legal expenses as well as the expenses of Device, Smiley and US2 acquired in
1997. The primary components of selling, general and administrative expenses
were salaries, wages, commissions and other compensation ($7.5 million in 1997
and $8.6 million in 1996), advertising, promotion and team ($3.7 million in 1997
and $4.3 million in 1996), and occupancy, depreciation and amortization expense
($2.1 million in 1997 and $1.9 million in 1996).

   Also included in operating expenses in 1997 is an $8.6 million loss on
impairment of goodwill. FASB Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of, requires the
Company to periodically review the events and circumstances affecting its
operations for indications that the Company's long-lived assets might be
impaired. During the fourth quarter of 1997, the Company determined that
reorders for its primary products would not meet previously anticipated levels
and the Company realized pricing pressure on its lower-end products, thus
suggesting that the Company's current production capacity and infrastructure
were underutilized. Based on this evaluation, the Company determined that the
$13.9 million of goodwill associated with its acquisitions of CAS, SMP and Ride
Manufacturing was impaired and wrote it down by $8.6 million. The Company's
estimates of the discounted cash flows expected to be generated from these
entities indicate that the remaining carrying amounts are expected to be
recovered. However, it is possible that the current industry oversupply of
snowboard products may be a sign of a permanent shift in demand and there can be
no assurance that the carrying value of the goodwill associated with these
acquisitions will be fully recoverable. Operating expenses in 1996 included $2.5
million in restructuring charges associated with the moving the Company's
snowboard binding operations offshore and the withdrawal of snowboard production
from two outside snowboard manufacturers. The primary components of the
restructuring charges are write-offs of abandoned equipment, tooling and
leasehold improvements, accrual of future lease costs and vendor cancellation
fees.

   Interest income decreased to $195,000 in 1997 from $333,000 in 1996. The
decrease was due to lower invested cash balances on hand in 1997 as a result of
operating losses incurred in 1996 and 1997. Interest expense increased to
$426,000 in 1997 from $268,000 in 1996. This increase was due principally to
higher seasonal utilization of the Company's line of credit for working capital
purposes. Also included in the 1996 results is a gain of $482,000 on the
disposition of the CAS excess inventory and OEM businesses.

   At December 31, 1997, the Company was in a tax loss carryforward position.
Accordingly, the Company's tax benefit is limited to the amount of income taxes
recoverable from prior years, or approximately $0.6 million, resulting in an
effective tax rate of 3.4%. The effective tax rate in 1996 was 34.3% which
reflects full recoverability of tax losses through carryback of such losses
against taxes paid in 1994 and 1995.

   As a result of the foregoing, the Company's net loss increased to $16.7
million in 1997 from $5.5 million in 1996.

YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1996

   Net sales increased 1% to $75.7 million in 1996 from $74.9 million in 1995.
Ride Manufacturing, 5150 and SMP contributed a total of $7.6 million to net
sales in 1995, subsequent to their respective acquisition dates, and $16.1
million in 1996. The remaining difference is due to the inclusion of the CAS
excess inventory and OEM businesses for the full year in 1995 as opposed to 1996
when they were included only through their October 11, 1996 disposition date.

SALES BY PRODUCT GROUP
<TABLE>
<CAPTION>
                               YEARS ENDED DECEMBER 31,
                               ------------------------
                              1995                  1996
                              ----                  ----
                                  (DOLLARS IN 000'S)
<S>                   <C>          <C>       <C>           <C>
Snowboards            $50,304       67%      $39,926       53%
Bindings                5,334        7        12,241       16 
Boots                   5,056        7         4,458        6 
Skate and other         6,437        9         3,464        5 
                       ------       --        ------       --

Total hard goods       67,131       90        60,089       80 
                       ------       --        ------       --


Apparel                 6,699        9        13,597       18 
Accessories             1,020        1         2,042        2 
                       ------       --        ------       --
Total soft goods        7,719       10        15,639       20 
                       ------       --        ------       --
Total                 $74,850      100%      $75,728       100%
                       ======       ==        ======       ==
</TABLE>


                                       22
<PAGE>   23
   Net sales of hard goods represented 80% of total sales in 1996 while soft
goods made up 20%. In 1995, hard goods comprised 90% of total sales and soft
goods 10%. As a percentage of sales, snowboards decreased to 53% in 1996 from
67% in 1995. The decline was due to a substantial decrease in OEM snowboard
business in 1996, both at Ride Manufacturing where factory production was
utilized almost exclusively for internal production as well as brokered OEM
snowboards sold by CAS. In addition, sales decreased in the retained CAS branded
and private label businesses due to increased competition at the lower price
points where these products were targeted. The increase in snowboard binding
sales in 1996 is due primarily to the market success of the Company's "Preston"
brand aluminum bindings. The decrease in other hard goods was due to the sale of
the CAS excess inventory business which was involved in numerous non-snowboard
close-out categories. The increase in apparel sales is attributable primarily to
the inclusion of SMP for the entire year in 1996 as opposed to 1995 when SMP was
included only from its October 20, 1995 acquisition date.

   In 1996, net sales in North America made up 54% of total sales with
international sales making up the remaining 46%. In 1995, North American sales
comprised 67% and international sales 33% of total sales. The increase in
international sales in 1996 was attributable primarily to the addition of SMP
for the entire year in 1996 as a majority of that company's sales were to
international markets.

   Gross profit decreased to $14.1 million in 1996 from $19.9 million in 1995
while gross margins dropped to 19% in 1996 from 27% in 1995. These decreases
were due to a $6.5 million inventory write down taken by the Company in December
1996. This write down was necessitated by excess inventories resulting primarily
from canceled commitments from the Company's principal Japanese distributor.
Without the inventory write down, gross margins would have been 27% in 1996. The
addition of Ride Manufacturing in September 1995 allowed the Company to
internally manufacture 45% of its branded snowboards in 1996 compared to only
10% in 1995. Cost savings from this change had a positive impact on gross
margins. In addition, the inclusion of a full year of higher-margin SMP sales in
1996 also served to increase gross margins. Offsetting these gains was an
aggressive fourth quarter 1996 discounting program offered by the Company in an
attempt to reduce the amount of excess inventory on hand.

   Selling, general and administrative expenses increased 88% to $20.5 million
in 1996 from $10.9 million in 1995. The increase was due to the inclusion of the
operations for Ride Manufacturing and SMP for the entire year in 1996 as well as
the increased scope of the Company's operations in 1996. In addition, the
Company incurred $1.0 million in management transition expenses in 1996
associated with the 1996 changes in top management. The primary components of
selling, general and administrative expenses were salaries, wages, commissions
and other compensation ($8.6 million in 1996 and $5.5 million in 1995),
advertising, promotion and team ($4.3 million in 1996 and $1.9 million in 1995)
and occupancy, depreciation and amortization expense ($1.9 million in 1996 and
$735,000 in 1995).

   Operating expenses in 1996 also included $2.5 million in restructuring
charges associated with the moving the Company's snowboard binding operations
offshore and the withdrawal of snowboard production from two outside snowboard
manufacturers. The primary components of the restructuring charges are
write-offs of abandoned equipment, tooling and leasehold improvements, accrual
of future lease costs and vendor cancellation fees.

   Interest income decreased to $333,000 in 1996 from $406,000 in 1995. The
decrease was due to higher cash balances on hand in 1995 from the Company's
secondary stock offering in August 1995 and the proceeds from exercise of common
stock warrants. Interest expense increased to $268,000 in 1996 from $18,000 in
1995. This increase was due to principally to seasonal utilization of the
Company's line of credit for working capital purposes. Also included in the 1996
results is a gain of $482,000 on the disposition of the CAS excess inventory and
OEM businesses.

   The provision for income taxes represents a 36.5% effective tax rate for 1995
compared with a 34.3% effective rate for 1996. The decrease is due primarily to
expense for state income tax purposes lowering the overall tax benefit of the
1996 loss.

   As a result of the foregoing factors, including the non-recurring
restructuring charges, inventory write down and management transition expenses,
the Company incurred a net loss of $5.5 million in 1996 compared to net income
of $6.0 million in 1995.

LIQUIDITY AND CAPITAL RESOURCES


                                       23
<PAGE>   24
   The Company requires capital for the development of its technology and
products, procurement of raw materials and finished goods manufactured by
others, and capital equipment. The Company financed its 1998 and 1997 operations
from seasonal borrowings under its lines of credit and through a $3.0 million
private placement of convertible preferred stock in December 1997. The Company
financed its 1996 operations through cash and securities remaining from its 1995
secondary stock offering and from seasonal borrowings under its lines of credit.
Net cash used in operating activities totaled $2.6 million in 1998, $4.0 million
in 1997 and $10.8 million in 1996. The decrease in cash used in operations in
1998 was attributable primarily to decreases in accounts receivable, partially
offset by increases in inventory balances. The decrease in cash used in
operations in 1997 was attributable primarily to decreases in accounts
receivable and inventory balances, net of amounts received in acquisitions and
income tax refunds received. Net inventory balances increased approximately 10%
at December 31, 1997 compared to December 31, 1996, primarily due to inventories
received in the Device, Smiley and US2 acquisitions. Due to the seasonal nature
of its business, the Company's need for cash has been greater in the months of
July through December, when working capital has been invested in accounts
receivable and inventories.

   Net cash used in investing activities totaled $818,000 in 1998, $3.0 million
in 1997 and $1.2 million in 1996. The 1998 amount pertains primarily to
$738,000 of capital expenditures. The 1997 amount included approximately $2.0
million expended in the Company's acquisitions of Device, Smiley and US2 and
$753,000 in capital expenditures. Net cash used in investing activities in 1996
included $5.4 million in capital expenditures, offset by liquidation of
securities and investments of $3.8 million and $884,000 in net cash received
from the sale of the CAS businesses. Principal capital expenditures in 1998 and
1997 included manufacturing equipment, new business software and snowboard
molds and tooling. The Company expects to invest similar amounts in capital
expenditures during 1999. The Company intends to finance 1999 capital
expenditures through internally generated funds, through leasing or from
borrowings under its line of credit.

   Net cash provided by financing activities totaled $2.3 million in 1998, $5.0
million in 1997 and $0.9 million in 1996. Financing sources in 1998 were
principally net advances on the Company's line of credit of $2.6 million.
Financing sources in 1997 included $2.8 million in net proceeds received on a
private placement of convertible preferred stock, $307,000 in exercises of stock
options and $2.0 million in net advances on the Company's line of credit.
Financing sources in 1996 included $1.1 million in exercises of stock options
and $750,000 in long term debt proceeds associated with the Company's tenant
improvements, offset by $1.0 million in repayments of acquisition notes payable.

   The Company operates in a highly seasonal business, generating the majority
of its sales in the months of July through December. The Company's cash receipts
from its North American customers are received predominantly in the months of
December, January and February while its international customers generally pay
by cash in advance or letter of credit. In order to finance operations and
manufacture and purchase products during the remainder of the year, the Company
has historically utilized a revolving line of credit. 

   In December 1997, the Company issued 3,000 shares of Series B 5% Cumulative
Convertible Preferred Stock for $3,000,000 ("Series B Preferred"). In connection
with this transaction, the Company also issued warrants to purchase 283,720
shares of common stock for an exercise price of approximately $2.68 per share
("the Warrants"). Dividends on the Series B Preferred accrue quarterly, are
payable in cash or stock and must be paid before dividends can be declared and
paid on the Company's Common Stock. Portions of the Series B Preferred may be
converted into the Company's Common Stock, at the option of the holders,
beginning in March 1998. All the Series B Preferred automatically converts to
common stock in December 2000. Subject to certain adjustments, the Series B
Preferred converts to Common Stock at the lesser of $2.68 per share or 90% of
the market price (as defined) of the Company's Common Stock at the time of
conversion. The Company has reserved approximately 2,245,000 shares of Common
Stock for issuance upon conversion of the Series B Preferred and exercise of the
warrants. The 10% discount from market price of the conversion of

                                       24
<PAGE>   25
preferred stock is accounted for as a preferred stock dividend. The dividend is
required to be included in earnings per share computations over the period from
the date of issuance through the date the security is first convertible. The
Company has therefore included a $30,000 preferred stock dividend in its net
loss per share calculations for the year ended December 31, 1997 and an
additional $270,000 preferred stock dividend in its net income (loss) per share
for fiscal 1998.

    On August 31, 1998, the Company entered into a Loan and Security Agreement
("Agreement") with CIT Group/Credit Finance, Inc. ("CIT") which credit facility
replaces the Company's prior credit facility. The Company's line of credit under
the new credit facility is up to $15.0 million (to be increased to $17.0 million
from October 15, 1998 to December 15, 1998) for a term of three years. The
amount that may be borrowed is also limited to the sum of (i) 85% of eligible
accounts receivable, so long as dilution does not exceed 5.0% and after
implementation of an 11.0% dilution reserve against loan availability during the
season, and (ii) 55% of eligible finished goods inventory, not to exceed $6.5
million during April through September, $3.25 million in October, $2.5 million
in November, and $2.0 million in December. There will be no advances against
inventory during January through March of each year. The new facility provides
for a maximum letter of credit subline of $8.0 million.

    The facility bears interest at the Prime interest rate plus 1.5% and is
collateralized by substantially all the assets of the Company. The Company was
required to pay a closing fee of $75,000 at the time of closing. Additionally,
the facility requires an annual facility of 0.50% due each anniversary of the
closing and a monthly letter of credit fee of 1.5% per annum of the face amount
of any standby and documentary letters of credit.

    Simultaneous with the execution of the Agreement, the Company entered into a
Consent, Reaffirmation, and Release Agreement with US Bank NA. Pursuant to which
the Company retained a $3.0 million credit facility with that institution. The
US Bank facility bears interest at Prime Rate plus 1.5% per annum until February
28, 1999 and Prime rate plus 2.0% per annum from March 1, 1999 through and
including the date Borrower repays the principal amount owed hereunder, is
subordinated to the CIT credit line, has a term of one year and is secured by
$1.8 million of promissory notes from Global Sports, Inc. Additionally, the
facility is secured by the personal guarantee of one of the Company's outside
directors, including certain real property owned by that director.
    
    The Company believes the CIT Line is adequate to meet the current needs
of its business. There is, however, no assurance the CIT Line is sufficient to
fund the demands of the Company's future growth. To this end, the Company and
CIT have agreed to review the line in March 1999 with a view to increasing same
if then current business conditions warrant doing so. However, there can be no
assurance such an increase in the CIT Line will be available even if the
Company's business prospects at that time require and warrant doing so. In
addition, availability of funds under the CIT Line is at all times conditioned
on the Company achieving certain collateral requirements. There can be no
assurance such requirements will be achieved or, if achieved, that they can be
consistently maintained. The Company's inability to increase the CIT Line or
meet or maintain specific collateral requirements could each have a material
adverse impact on the Company's financial condition and could result in a
substantial limitation or reduction in the scope of the Company's business.
With respect to the US Bank Line, the Company is obligated to satisfy all sums
due thereunder on or before its August 30, 1999 expiration date. There can be
no assurance the Company will be successful in doing so. The Company's
inability to successfully satisfy or extend the US Bank Line, if necessary,
could have a material adverse impact on the Company's financial condition.
                                 
    Although the Company cannot accurately anticipate the effects of inflation,
the Company does not believe inflation has had or is likely to have a material
effect on its results of operations or liquidity.

   Except for distributions paid to shareholders when the Company was an S
Corporation, the Company has never paid dividends on its common stock. The
Company's present policy is to retain any earnings to finance the Company's
business. Any future dividends will be dependent upon the Company's financial
condition, results of operations, current and anticipated cash requirements,
acquisition plans and plans for expansion, and any other factors which the
Company's Board of Directors deems relevant. The Company's bank loan agreement
restricts the payment of dividends. The Company has no present intention of
paying dividends on its common stock in the foreseeable future.

The "year 2000 problem" is the result of computer programs being written using
two digits rather than four to define the applicable year. Software programs and
systems that have date-sensitive features may recognize a date using "00" as the
year 1900 instead of the year 2000. The Company has assessed its year 2000 needs
and has purchased and is presently installing year 2000-compliant software in
all its known non-compliant hardware and software systems, which installation
the Company anticipates will be completed by the June 30, 1999 year-end. The
cost of the purchase and installation of the year 2000-compliant software is
anticipated to exceed $250,000. The Company is in the process of reviewing with
each of its material suppliers, service providers and customers the steps each
is taking to insure their respective computer systems are presently or will be
year 2000-compliant in a timely fashion. The Company's shipper has confirmed to
the Company it has installed year 2000-compliant software in all of its material
systems. There can be no assurance the computer systems of third parties on
whose commercial efforts the Company directly or indirectly relies, will be year
2000-compliant in a timely fashion. Because the Company has not completed its
review of its material third party suppliers, service providers and customers,
it has not created a contingency plan setting forth what steps will be taken if
such third parties are not year 2000 compliant by December 31, 1999. Based on
information received from its third party vendors, service providers and
customers, the Company intends to have a contingency plan in place by June 1999.
The failure of third parties to be year 2000 compliant could cause material
delays in the design, manufacture and shipment of products, delay in payment for
products, and delay in the availability of credit or funds necessary to operate
the business of the Company. The failure of the Company's or one or more
third-party's computer systems as a result of year 2000 non-compliance may have
a material adverse effect on the Company's business and results of operations.

MARKET RISK

   The Company's Ride Canada subsidiary operates and maintains its accounting
records using the Canadian dollar as its functional currency. In accordance with
generally accepted accounting principles, upon consolidation the assets,
liabilities, revenues and expenses of this subsidiary are translated into US
dollars at the appropriate exchange rate prevailing during the period and are
therefore subject to fluctuations in the exchange rates between the Canadian
dollar and the US dollar.

   The Company purchases certain raw materials from foreign suppliers with
payments denominated in foreign currencies. In order to protect against changes
in the exchange rate between these currencies and the US dollar, the Company,
from time to time, enters into forward foreign exchange contracts with financial
institutions to fix the cost of these purchases. Although the Company believes
that these contracts decrease the Company's overall exposure to gains and losses
from currency fluctuations, such exposure cannot be entirely eliminated. In
addition, during the contractual periods, the Company is exposed to certain
losses in the event of nonperformance by the counterparties to the forward
contracts. At December 31, 1997 and June 30, 1998, the Company did not have any
open forward contracts.



                                       25
<PAGE>   26
                REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Ride, Inc.

   We have audited the accompanying consolidated balance sheets of Ride, Inc.
and subsidiaries as of December 31, 1996 and 1997, and June 30, 1998 and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997 and the
six months ended June 30, 1998. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.

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

   In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Ride, Inc. and
subsidiaries at December 31, 1996 and 1997, and June 30, 1998 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997 and for the six months ended
June 30, 1998 in conformity with generally accepted accounting principles. Also,
in our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.

     The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As more fully
described in Note 1, the Company has incurred significant operating losses and
negative cash flows from operations for the years ended December 31, 1996, and
1997, and for the six months ended June 30, 1998. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
consolidated financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome
of this uncertainty.

                                                               ERNST & YOUNG LLP

Seattle, Washington
September 11, 1998



                                       26
<PAGE>   27
                                   RIDE, INC.
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                            DECEMBER 31,
                                                                        -------------------         JUNE 30,
                                                                        1996           1997          1998
                                                                        ----           ----          ----
ASSETS
Current assets:
<S>                                                                  <C>           <C>           <C>
   Cash and cash equivalents                                         $ 3,232       $  1,332      $    165
   Accounts receivable, less allowance for doubtful
     accounts of $655 in 1996, $925 in 1997, and $981 in 1998         14,193         12,588         4,487
   Inventories  (Note 7)                                               5,986          6,564         9,752
   Prepaid expenses and other current assets                             450            728           887
   Income taxes receivable                                             2,836          1,569         1,571
   Deferred tax assets  (Note 10)                                      1,423             --            --
                                                                     -------       --------      --------
Total current assets                                                  28,120         22,781        16,862
Plant and equipment, net (Note 8)                                      5,757          5,670         5,792
Notes receivable, net of discount of $116 in 1996 (Note 5)             1,884          1,600         1,400
Goodwill, net of accumulated amortization of $514 in 1996,
     $842 in 1997, and $1,044 in 1998 (Note 3)                        14,292          9,358         9,205
Other assets                                                             602          1,201         1,345
                                                                     -------       --------      --------
Total assets                                                         $50,655       $ 40,610      $ 34,604
                                                                     =======       ========      ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                                  $ 4,631       $  3,719      $  5,918
   Accrued expenses and other current liabilities                      2,161          1,555         2,911
   Accrued restructuring charges (Note 6)                                387             --            --
   Short-term borrowings (Note 9)                                         --          1,995         5,236
   Notes payable (Note 9)                                                 --            689           308
                                                                     -------       --------      --------
Total current liabilities                                              7,179          7,958        14,373
Other long-term liabilities                                              832          1,582           979
Deferred income taxes (Note 10)                                          335             --            --

Commitments and contingencies (Note 14)

Shareholders' equity:
    Convertible preferred stock, no par value, 10,000
     shares authorized
       Series A: 100 shares issued and outstanding
          Aggregate liquidation preference of $500 (Note 11)             500            500           500
       Series B: 3 shares 1977, and 2 shares in 1998
          issued and outstanding
          Aggregate liquidation preference of $3,000 (Note 11)            --          2,841         2,332
     Common stock, no par value, 40,000 shares
       authorized with 10,760 in 1996, 12,092 in 1997, and
       12,619 in 1998 issued and outstanding, respectively            39,583         42,393        43,257
     Accumulated other comprehensive loss                                 --           (125)         (163)
     Retained earnings (deficit)                                       2,226        (14,539)      (26,674)
                                                                     -------       --------      --------
        Total shareholders' equity                                    42,309         31,070        19,252
                                                                     -------       --------      --------
Total liabilities and shareholders' equity                           $50,655       $ 40,610      $ 34,604
                                                                     =======       ========      ========
</TABLE>

                             See accompanying notes.



                                       27
<PAGE>   28
                                   RIDE, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>

                                                            YEAR ENDED DECEMBER 31,             SIX MONTHS
                                                            ----------------------                 ENDED
                                                     1995           1996            1997       JUNE 30, 1998
                                                     ----           ----             ----      -------------
<S>                                               <C>             <C>             <C>             <C>
Net sales                                         $ 74,850        $ 75,728        $ 36,475        $  7,279
Cost of goods sold                                  54,988          61,641          26,656           8,287
                                                  --------        --------        --------        --------
Gross profit (loss)                                 19,862          14,087           9,819          (1,008)

Selling, general and administrative expenses        10,868          20,487          18,278          10,735
Loss on impairment of goodwill (Note 3)                 --              --           8,600              --
Restructuring charges (Note 6)                          --           2,500              --              --
                                                  --------        --------        --------        --------
Operating expenses                                  10,868          22,987          26,878          10,735
                                                  --------        --------        --------        --------
Operating income (loss)                              8,994          (8,900)        (17,059)        (11,743)

Interest expense                                       (18)           (268)           (426)           (147)
Interest income                                        406             333             195             117
Gain on sale of subsidiary (Note 5)                     --             482              --              --
                                                  --------        --------        --------        --------
Income (loss) before income taxes                    9,382          (8,353)        (17,290)        (11,773)
Income tax expense (benefit) (Note 10)               3,427          (2,863)           (595)             --
                                                  --------        --------        --------        --------
Net income (loss)                                 $  5,955        $ (5,490)       $(16,695)       $(11,773)
                                                  ========        ========        ========        ========
Net income (loss) per share (Note 17):
    Basic                                         $   0.67        $  (0.52)       $  (1.51)       $  (0.99)
                                                  ========        ========        ========        ========
    Diluted                                       $   0.59        $  (0.52)       $  (1.51)       $  (0.99)
                                                  ========        ========        ========        ========
Share used in the computation of
net income (loss) per share:
   Basic                                             8,872          10,614          11,128          12,261
                                                  ========        ========        ========        ========
   Diluted                                          10,132          10,614          11,128          12,261
                                                  ========        ========        ========        ========
</TABLE>



                                       28
<PAGE>   29
                                   RIDE, INC.
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                            ACCUMULATED
                                              PREFERRED STOCK                                   OTHER
                                       SERIES A            SERIES B      COMMON STOCK       COMPREHENSIVE   RETAINED
                                  SHARES    AMOUNT    SHARES   AMOUNT  SHARES    AMOUNT          LOSS       EARNINGS        TOTAL
                                  ------    ------    ------   ------  ------    ------      ----------     --------        -----
<S>                              <C>        <C>       <C>     <C>      <C>      <C>        <C>              <C>            <C>
Balances at January 1, 1995         100      $500       --        --   7 ,710    $9,193          --          $1,831       $11,524
  Net income for the year                                                                                     5,955         5,955
  Preferred stock dividends                                                                                     (35)          (35)
  Public offering of common
    stock, net of offering costs                                        1,465    23,311                                    23,311
  Exercise of warrants                                                  1,239     4,515                                     4,515
  Common stock issued in
    SMP acquisition                                                        28       593                                       593
  Stock option exercises                                                   72       571                                       571
  Issuance of common stock under
    employee stock purchase plan                                            4        61                                        61
                                 ------     ------   -----     -----   ------    ------      ------         -------        -------
Balances at December 31, 1995       100       500       --        --   10,518    38,244          --           7,751        46,495
  Net loss for the year                                                                                      (5,490)       (5,490)
  Preferred stock dividends                                                                                     (35)          (35)
  Stock option exercises                                                  231     1,258                                     1,258
  Issuance of common stock under 
    employee stock purchase plan                                           11        81                                        81
                                 ------     ------   -----     -----   ------    ------      ------         -------        -------
Balances at December 31, 1996       100       500       --        --   10,760    39,583          --           2,226        42,309

  Net loss for the year                                                                                     (16,695)      (16,695)
  Preferred stock dividends                                       30                                            (70)          (40)
  Stock option exercises                                                   98       307                                       307
  Issuance of common stock under
    employee stock purchase plan                                           24        53                                        53
  Issuance of preferred
    stock, net of offering costs                         3     2,811                                                        2,811
  Common stock issued in
    acquisitions                                                        1,210     2,450                                     2,450
  Foreign currency translation loss                                                            (125)                         (125)
                                 ------     ------   -----     -----   ------    ------      ------        -------         -------
Balances at December 31, 1997       100       500        3     2,841   12,092    42,393        (125)        (14,539)       31,070
  Net loss for the period                                                                                   (11,773)      (11,773)
  Preferred stock dividends                                      270       41        75                        (362)          (17)
  Conversion of preferred stock                         (1)     (779)     442       734                                       (45)
  Other common stock issued                                                35        42                                        42
  Issuance of common stock under
    employee stock purchase plan                                            9        13                                        13
  Foreign currency translation loss                                                             (38)                          (38)
                                 ------     -----    -----     -----   ------    ------      ------         -------       -------
Balances at June 30, 1998           100      $500        2    $2,332   12,619   $43,257       $(163)       $(26,674)      $19,252
                                 ======     =====    =====    ======   ======   =======       =====        ========       =======
                                                                                                         
</TABLE>

                             See accompanying notes.




                                       29
<PAGE>   30
                                    RIDE INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                                                                 SIX
                                                                           YEAR ENDED DECEMBER 31,              MONTHS
                                                                           -----------------------               ENDED
                                                                    1995           1996            1997    JUNE 30, 1998
                                                                    ----           ----            ----    -------------
   OPERATING ACTIVITIES
Reconciliation of net income (loss) to net cash
  provided by (used in) operations:
<S>                                                             <C>             <C>            <C>            <C>
Net income (loss)                                               $  5,955        $ (5,490)      $(16,695)      $(11,773)
Depreciation                                                         196           1,288          1,560            616
Amortization                                                         190             421            453            227
Deferred income tax (benefit) expense                                (27)           (876)         1,088             --
Loss on impairment                                                    --              --          8,600             --
Non-cash restructuring charges                                        --           2,397             --             --
Gain on sale of subsidiary                                            --            (482)            --             --
Amortization of discount on notes receivable                          --             (34)          (116)            --
Changes in operating assets and liabilities:
  (Increase) decrease in accounts receivable                      (8,076)           (637)         2,689          8,101
  (Increase) decrease in inventories                              (1,316)         (1,577)           308         (3,188)
  (Increase) decrease in prepaid expenses and other assets          (590)            294           (227)          (159)
  (Increase) decrease in income taxes receivable                     (15)         (2,894)         1,267             --
  Increase (decrease) in accounts payable                          3,649          (3,065)        (1,652)         2,199
  Decrease in accrued expenses and other current liabilities        (698)           (102)        (1,247)         1,354
                                                                --------        --------        -------        -------
Net cash used in operating activities                               (732)        (10,757)        (3,972)        (2,623)

INVESTING ACTIVITIES
Purchases of plant and equipment                                  (1,910)         (5,364)          (753)          (738)
Acquisitions, net of cash acquired                               (13,039)             --         (1,979)            --
Sales of (purchases) of securities available-for-sale             (3,840)          3,840             --             --
Proceeds from sale of subsidiary, net of costs                        --             884             --             --
Cash received from note receivable                                    --              --             --            200
Increase in other assets                                            (157)           (532)          (223)          (280)
                                                                --------        --------        -------        -------
Net cash used in investing activities                            (18,946)         (1,172)        (2,955)          (818)

FINANCING ACTIVITIES
Net advances on line of credit                                        --              --          1,995          2,552
Net proceeds from sale of preferred stock                             --              --          2,811            (45)
Proceeds from exercise of common stock options                       267           1,087            307             --
Proceeds from sale of common stock                                23,372              --             --             --
Proceeds from exercise of common stock warrants                    4,515              --             --             --
Proceeds from Employee Stock Purchase Plan                            --              81             53             13
Proceeds from long-term borrowings                                    --             750             --             --
Repayments of notes payable and long-term borrowings                  --            (993)           (99)          (229)
Dividends paid                                                       (35)            (35)           (40)           (17)
                                                                --------        --------        -------        -------
Net cash provided by financing activities                         28,119             890          5,027          2,274
                                                                --------        --------        -------        -------

Net increase (decrease) in cash and cash equivalents               8,441         (11,039)        (1,900)        (1,167)
Cash at beginning of period                                        5,830          14,271          3,232          1,332
                                                                --------        --------        -------        -------
Cash at end of period                                           $ 14,271        $  3,232        $ 1,332        $   165
                                                                ========        ========        =======        =======

SUPPLEMENTAL DISCLOSURE
Cash paid for interest                                          $      8        $    275        $   414        $   123
Cash paid for income taxes                                      $  3,505        $    910        $    68        $    --
NONCASH INVESTING AND FINANCING ACTIVITIES
Common stock and notes payable issued in acquisitions           $  1,531        $     --        $ 2,450        $    --
Issuance of Common stock to retire note payable                 $     --        $     --        $    --        $    66

</TABLE>



                             See accompanying notes.




                                       30
<PAGE>   31
                                   RIDE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 1998

1.    SIGNIFICANT ACCOUNTING POLICIES

Description of Business

   The consolidated financial statements include the accounts of Ride, Inc.
("Ride" or the "Company") and its subsidiaries: Ride Snowboard Company ("Ride
Snowboards"), Ride Manufacturing, Inc. ("Ride Manufacturing"), Ride Canada, Inc.
("Ride Canada"), SMP Clothing, Inc. ("SMP"), Smiley Hats, Inc. ("Smiley") and
Carve, Inc. ("US2"). The Company was founded in September 1992 and acquired
C.A.S. Sports International, Inc. and C.A.S. Sports Agency, Inc. (collectively,
"CAS") in August 1994, Ride Manufacturing in September 1995 and SMP in October
1995. The Company also acquired 5150 Snowboards, Inc. ("5150") in September 1995
and later merged 5150 with and into Ride Snowboards. In October 1996, the
Company transferred substantially all of the Canada-based operating assets and
liabilities of CAS (other than fixed assets) into Ride Canada, a newly formed
corporation, and all of the US-based operating assets and liabilities of CAS
into Ride Snowboards, and sold the CAS entities. In June 1997, the Company
acquired substantially all of the assets and liabilities of Device Mfg Corp. and
transferred those assets and liabilities to Ride Snowboards. In July 1997, the
Company's newly formed Smiley subsidiary acquired substantially all of the
assets of Galena Creek Trading Corp. In December 1997, the Company acquired US2
Sports Group Inc. through a merger of that company with and into Carve, Inc., a
newly formed corporation. The results of operations of these acquired
subsidiaries are included in the Company's financial statements from their
respective dates of acquisition through their applicable dates of disposition.
See Notes 4 and 5.

   Ride Snowboards sells premium to mid-range snowboards and related products
primarily through specialty snowboard and ski shops. Ride Manufacturing is a
manufacturer of premium snowboards which are produced principally for Ride
Snowboards. Ride Manufacturing also produces a limited number of snowboards for
other snowboard companies on an OEM basis. SMP designs and manufactures
snowboard, surf, skate, motocross and street apparel which is sold primarily
through specialty shops. Ride Canada acts as the Company's Canadian distributor
for the Company's branded products. Smiley designs and manufactures premium head
and neck wear for the winter sports industry and is sold through specialty
shops. US2 designs, manufactures and distributes wakeboards, wakeboard bindings
and accessories under the "FullTilt" and "Sub Rosa" brand names through marine
and specialty retailers. Until its disposition in October 1996, CAS marketed
entry-level snowboards and related products under various brand names and on a
private label basis primarily to regional sporting goods stores and large-format
sporting goods retailers. In addition, CAS sold snowboards and related products
on an OEM basis to other snowboard companies and bought excess snowboard and
sporting goods inventories from manufacturers and sold such products to
retailers throughout the world. The OEM and excess inventory portions of the CAS
business were sold in October 1996 (see Note 5) while the branded and private
label portions of the business were retained by the Company.

Liquidity

   The Company has incurred losses of $5.5 million, $16.7 million and $11.8
million for the years ended December 31, 1996 and 1997, and for the six months
ended June 30, 1998, respectively. The Company used $17.4 million of cash in
operations during these periods which resulted in a decrease in working capital
to $2.5 million at June 30, 1998. The financial statements have been prepared
assuming the Company will continue as a going concern and do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets and liabilities that may result from this uncertainty.

   The Company operates a seasonal business and generates the majority of its
sales in the quarters ending September 30 and December 31. In order to
manufacture product during the remainder of the year, the Company has a
revolving line of credit arrangement with an asset-based lender, CIT, to finance
import letters of credit and working capital needs. The Company believes the CIT
Line is adequate to meet the current needs of its business. There is, however,
no assurance the CIT Line is sufficient to fund the demands of the Company's
future growth. In addition, availability of funds under the CIT Line is at all
times conditioned on the Company achieving certain collateral requirements.
There can be no assurance such requirements will be achieved or, if achieved,
that they can be consistently maintained. The Company's inability to increase
the CIT Line or meet or maintain specific collateral requirements could each
have a material adverse impact on the Company's financial condition and could
result in a substantial limitation or reduction in the scope of the Company's
business.


                                       31


<PAGE>   32
    In June 1998, the Company replaced certain members of management and
reorganized its operations. Subsequent thereto, operational changes have been
put in place to reduce fixed costs to a level that can be supported by
forecasted sales and gross margin levels. Additional financing has been obtained
in August 1998 and the Company anticipates increasing its lines of credit or
seeking other sources of financing through long term debt or additional equity
financing. However, there can be no assurance that the Company will meet its
sales and gross margin forecast for fiscal year ended June 30, 1999, control
expenditures to an acceptable level, or that such additional sources of
financing will be available on favorable terms or at all. The Company's
inability to meet the above business plan would have a material adverse impact
on the Company's financial condition and may require the Company to further
reduce its expenditures, curtail certain operations, or dispose of operating
assets to enable the Company to continue its operations at least through June
1999.

Principles of Consolidation

    The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. Intercompany transactions have been
eliminated in consolidation.

Use of Estimates

    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Foreign Currency

    The local currency is considered the functional currency of the Company's
Canadian operations. The financial statements of the Company's Canadian
subsidiary are translated into U.S. dollars using the exchange rate at the
balance sheet date for assets and liabilities and the average exchange rate for
the period for revenues and expenses. Resulting translation adjustments are
recorded as a separate component of shareholders' equity.

     The Company enters into foreign currency forward contracts, generally with
terms of 270 days or less, as a hedge against some of its foreign currency
commitments. Offsetting gains and losses on these contracts are recognized
concurrently with the exchange gains and losses stemming from the associated
commitments. During the contractual periods, the Company is exposed to certain
losses in the event of nonperformance by the counterparties to the forward
contracts. At June 30, 1998, the Company did not have any open forward
contracts.

Cash Equivalents

    The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.

Inventories

    Inventories are carried at the lower of cost or market using the first-in,
first-out method.

Plant and Equipment

    Plant and equipment is stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, generally
five to ten years. Leasehold improvements are amortized over the lesser of the
estimated useful life of the asset or 


                                       32
<PAGE>   33
the term of the related lease. Snowboard and snowboard binding molds are
amortized to cost of goods sold over one to three years based on the number of
related snowboards and bindings sold.

Goodwill

    Goodwill is being amortized over 15 to 40 years using the straight-line
method. The Company periodically reviews the carrying value of goodwill to
determine if the facts and circumstances suggest that the value may be impaired.
See Note 3.

Revenue Recognition

    The Company recognizes revenue from the sale of its products when the
products are shipped to customers.

Research and  Development Costs

    Research and development costs are charged to expense as incurred and
totaled approximately $217,000 in 1995, $417,000 in 1996, $338,000 in 1997 and
$180,000 for the six months ended June 30, 1998.

Advertising Costs

    The Company expenses the production costs of advertising the first time the
advertising takes place. Advertising expense totaled $528,000 in 1995, $847,000
in 1996, $1,090,000 in 1997 and $596,000 for the six months ended June 30, 1998.

Warranty Costs

    The Company generally offers a one-year warranty on its products from the
time of retail sale. Anticipated net costs associated with warranties are
charged to expense at the time of the sale of its products. The Company is
reimbursed for a portion of the cost of defective products by the manufacturers.

Income Taxes

    The Company accounts for income taxes under the liability method. Deferred
tax assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the tax
rates and laws that will be in effect when the differences are expected to
reverse. Valuation allowances are established when necessary to reduce deferred
tax assets to the amounts expected to be realized.

Net Income (Loss) Per Share

    Basic earnings per share is computed by dividing net income (loss) by the 
average number of common shares outstanding during the period. Diluted earnings 
per share is computed by dividing net income (loss) by the average number of 
common and dilutive common equivalent shares outstanding during the period.

Stock Based Compensation

    The Company has elected to apply the disclosure-only provisions of FASB
Statement No. 123, "Accounting for Stock-Based Compensation." Accordingly, the
Company accounts for stock-based compensation using the intrinsic method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations. Compensation cost for stock
options is measured at the excess, if any, of the fair value of the Company's
common stock at the date of the grant over the stock option price.

Comprehensive income

    As of January 1, 1998, the Company adopted Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the Company's net income or shareholders'
equity. Statement 130 requires unrealized gains or losses on the Company's
available-for-sale securities and the foreign currency translation adjustments,
which prior to adoption were reported separately in shareholders' equity, to be
included in other comprehensive income. Prior year financial statements have
been reclassified to conform to the requirements of Statement 130. The Company's
total comprehensive income (loss) for the years ended December 31, 1995, 1996, 
and 1997 and the six months ended June 30, 1998 was $5,955,000, ($5,490,000),
($16,820,000), and ($11,811,000), respectively.

Reclassifications

    Certain reclassifications have been made to prior year balances to conform
with current year presentation.



                                       33
<PAGE>   34
2. CHANGE IN YEAR END

The Company's Board of Directors approved a change in the Company's fiscal
year-end from December 31 to June 30, beginning with the six month period ended
June 30, 1998. The change in fiscal year end was made to more closely align the
Company's accounting and reporting practices with its product cycle.
Comparative information for the six month periods ended June 30, 1997 and 1998
are as follows:

<TABLE>
<CAPTION>
                                                      SIX MONTHS ENDED JUNE 30,
                                                      -------------------------
                                                      1997                1998
                                                      ----                ----
                                                  (UNAUDITED) 
                                                (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                <C>                 <C>     
Net sales                                          $  7,559            $  7,279
Gross profit (loss)                                   1,992              (1,008)
Operating loss                                       (6,400)            (11,743)
Income tax benefit                                   (1,904)                 --
Net loss                                             (4,436)            (11,773)
Net loss per share - diluted                       $  (0.41)           $  (0.99)
</TABLE>

3. IMPAIRMENT OF LONG-LIVED ASSETS

    In accordance with FASB Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of, the Company
periodically reviews the events and circumstances affecting its operations for
indications that the Company's long-lived assets might be impaired. In December
1997, the Company determined that reorders for its primary products would not
meet previously anticipated levels and the Company realized pricing pressure on
its lower-end products, thus suggesting that the Company's current production
capacity and infrastructure were underutilized. Based on this evaluation, the
Company determined that the $13.9 million of goodwill associated with its
acquisitions of CAS, SMP and Ride Manufacturing was impaired and wrote it down
by $8.6 million. The Company's estimates of the discounted cash flows expected
to be generated from these entities indicate that the remaining carrying amounts
are expected to be recovered. However, it is possible that the current industry
oversupply of snowboard products may be a sign of a permanent demand shift and
there can be no assurance that the carrying value of the goodwill related to
these acquisitions will be recoverable which could result in additional
write-down of goodwill in the future.

4. ACQUISITIONS

Ride Manufacturing and 5150

    On September 1, 1995, the Company acquired all of the capital stock of Ride
Manufacturing, a snowboard manufacturer, and 5150, a marketer of snowboards, for
$11.9 million in cash. The acquisition has been accounted for as a purchase with
the excess of the purchase price over the fair value of the assets acquired
allocated primarily to goodwill.

SMP

    On October 20, 1995, SMP, a newly-formed, wholly owned subsidiary of the
Company acquired certain assets (primarily inventories, fixed assets, trademarks
and other intangibles) of Sex Money Power Clothing, Inc., a manufacturer of
snowboard, surf, skate and street apparel. The aggregate purchase price of $2.46
million was comprised of $937,500 in cash, $937,500 in short-term notes payable,
and 28,409 newly-issued shares of Common Stock valued at $593,000. The
transaction has been accounted for as a purchase with the excess of the purchase
price over the fair value of the assets acquired allocated primarily to
goodwill.

Device

    On June 12, 1997, the Company purchased substantially all of the assets
(except cash and accounts receivable) and liabilities of Device, a manufacturer
of step-in snowboard bindings and boots based in Boulder, Colorado. The purchase
price was comprised of approximately $1.0 million in assumed liabilities and
276,220 newly-issued shares of Common Stock valued at $764,900. The transaction
has been accounted for as a purchase with the excess of the purchase price over
the fair value of the assets acquired allocated primarily to goodwill. During
1998, the Company took back 9,045 common shares valued at $25,000 previously
issued as consideration, pursuant to a performance adjustment provision in the
purchase agreement.



                                       34
<PAGE>   35
Smiley Hats

    On July 22, 1997, the Company purchased substantially all of the assets of
Galena Creek Trading Company, Inc. (d.b.a. Smiley Hats), a manufacturer of
winter hats based in Sparks, Nevada. The purchase price was comprised of
approximately $550,000 in cash and 320,000 shares of Common Stock valued at
$750,000. Galena Creek Trading Company was majority owned and controlled by the
Company's then Chief Executive Officer. The transaction has been accounted for
as a purchase with the excess of the purchase price over the fair value of the
assets acquired allocated primarily to goodwill.

US2

    On December 19, 1997, Carve, Inc., a newly-formed, wholly owned subsidiary
of the Company acquired the stock of US2 Sports Group, Inc., a manufacturer of
wakeboards and wakeboard bindings. The purchase price was comprised of 605,263
newly-issued shares of Common Stock valued at $910,000 plus the assumption of
net liabilities of $652,000. The transaction has been accounted for as a
purchase with the excess of the purchase price over the fair value of the assets
acquired allocated primarily to goodwill. During 1998, the Company issued 44,237
shares of its common stock in settlement of a $66,000 note payable to a former
owner of US2.

    Summarized unaudited pro forma results of operations, assuming the Device,
Smiley Hats and US2 acquisitions took place on January 1 of each year, are as
follows:

<TABLE>
<CAPTION>
                                                                     DECEMBER 31,              
                                                                     ------------              
                                                         1995           1996            1997
                                                       --------       --------        --------
                                                                    (IN THOUSANDS)
<S>                                                    <C>            <C>             <C>     
           Net sales                                   $ 84,345       $ 80,569        $ 40,595
           Net income (loss)                              6,716         (6,185)        (18,743)
           Net income (loss) per share - diluted       $   0.66       $  (0.53)       $  (1.56)
</TABLE>

5. DISPOSITION

    On October 11, 1996, the Company sold the stock of CAS to Gen-X Equipment,
Inc., a company formed by two former Company executives and a number of CAS
employees. The $3.0 million sales price was comprised of $1,000,000 in cash and
short-term notes and $2.0 million in long-term notes. The Company recognized a
pre-tax gain of $482,000 in connection with this sale.

    The long-term notes are secured by the stock of the sold corporations and
bear interest at prime. Principal payments of $100,000 plus interest are due
quarterly through September 2002. The balance outstanding on the note at June
30, 1998 was $1.8 million and the $400,000 current portion of the notes due in
fiscal year 1999 is included in Accounts Receivable.

    In May 1998, Gen-X was sold to Global Sports, Inc. (GSI) and the notes
payable to Ride were assumed by GSI. GSI, a publicly held company, designs and
markets branded footwear and distributes off-price athletic sporting goods.
Realization of the Company's $1.8 million notes receivable is dependent on GSI's
successful conduct of future operations. The eventual outcome of these matters
cannot be determined at this time.

6. RESTRUCTURING AND INVENTORY WRITE-DOWN

    On December 12, 1996 the Company's Board of Directors approved a plan to
writedown excess inventories and restructure the Company's manufacturing
operations. Due to canceled commitments from the Company's principal Japanese
distributor and an oversupply of snowboards from other manufacturers, the
Company recognized a $6.5 million write-down of its inventories. This amount has
been included in cost of sales for the year ended December 31, 1996. In
addition, the Company recognized a $2.5 million restructuring charge in
connection with moving the Company's binding production offshore and the
withdrawal of snowboard production from two outside snowboard manufacturers used
in 1996. The primary components of this charge were write-offs of abandoned
equipment, tooling and leasehold improvements, cancellation fees paid to U.S.
vendors and future lease costs. The Company anticipates future cash outlays will
not exceed the $228,000 included in other long-term liabilities for future
minimum lease payments and will be funded through normal operating cash flows.

7. INVENTORIES

    Inventories consisted of the following:

<TABLE>
<CAPTION>
                                                         DECEMBER 31,                     
                                                    ----------------------        JUNE 30,
                                                      1996           1997           1998
                                                    -------        -------        -------
                                                               (IN THOUSANDS)
<S>                                                 <C>            <C>            <C>    
                   Finished goods                   $ 9,415        $ 6,186        $ 8,283
                   Work in process                       96            228            491
                   Raw materials and supplies         2,391          2,189          2,425
                   Obsolescence reserve              (5,916)        (2,039)        (1,447)
                                                    -------        -------        -------
                                                    $ 5,986        $ 6,564        $ 9,752
                                                    =======        =======        =======
</TABLE>

                                       35
<PAGE>   36


8. PLANT AND EQUIPMENT

    Plant and equipment consisted of the following:

<TABLE>
<CAPTION>
                                                           DECEMBER 31,
                                                           ------------       JUNE 30,
                                                          1996       1997       1998
                                                         ------    -------    -------
                                                                (IN THOUSANDS)      
<S>                                                      <C>       <C>        <C>    
                   Office equipment                      $1,364    $ 1,609    $ 1,828
                   Production equipment and tooling       2,674      3,147      3,413
                   Leasehold improvements                 2,126      2,211      2,264
                   Vehicles and other                       588        753        831
                   Construction in process                   --        205        327
                                                         ------    -------    -------
                                                          6,752      7,925      8,663
                   Accumulated depreciation                (995)    (2,255)    (2,871)
                                                         ------    -------    -------
                                                         $5,757    $ 5,670    $ 5,792
                                                         ======    =======    =======
</TABLE>


9. LINE OF CREDIT AND LONG-TERM DEBT

    At June 30, 1998, Ride had a $11.0 million revolving credit line agreement
with US Bank NA to finance its import letters of credit and working capital
needs. Advances on the line bear interest at 1% over the bank's prime rate
(effective rate of 9.5% at June 30, 1998). At June 30, 1998, the Company had
outstanding advances of $5,236,000 and $5,764,000 in outstanding import letters
of credit drawn against this line.

    On August 31, 1998, the Company entered into a Loan and Security Agreement
("Agreement") with CIT Group/Credit Finance, Inc. ("CIT") which credit facility
replaces the Company's prior credit facility. The Company's line of credit under
the new credit facility is up to $15.0 million (to be increased to $17.0 million
from October 15, 1998 to December 15, 1998) for a term of three years. The
amount that may be borrowed is also limited to the sum of (i) 85% of eligible
accounts receivable, so long as dilution does not exceed 5.0% and after
implementation of an 11.0% dilution reserve against loan availability during the
season, and (ii) 55% of eligible finished goods inventory, not to exceed $6.5
million during April through September, $3.25 million in October, $2.5 million
in November, and $2.0 million in December. There will be no advances against
inventory during January through March of each year. The new facility provides
for a maximum letter of credit subline of $8.0 million.

    The facility bears interest at the Prime interest rate plus 1.5% and is
collateralized by substantially all the assets of the Company. The Company was
required to pay a closing fee of $75,000 at the time of closing. Additionally,
the facility requires an annual facility of 0.50% due each anniversary of the
closing and a monthly letter of credit fee of 1.5% per annum of the face amount
of any standby and documentary letters of credit. The bank loan agreement
restricts the payment of dividends.

    Simultaneous with the execution of the Agreement, the Company entered into a
Consent, Reaffirmation, and Release Agreement with US Bank NA. Pursuant to which
the Company retained a $3.0 million credit facility with that institution. The
US Bank facility bears interest at Prime Rate plus 1.5% per annum until February
28, 1999 and Prime rate plus 2.0% per annum from March 1, 1999 through and
including the date Borrower repays the principal amount owed hereunder, is
subordinated to the CIT credit line, has a term of one year and is secured by
$1.8 million of promissory notes from Global Sports, Inc. (see Note 5).
Additionally, the facility is secured by the personal guarantee of one of the
Company's outside directors, including certain real property owned by that
director.

    During 1996, the Company's landlord loaned the Company $750,000 to fund a
portion of the expansion and improvement of the Company's Preston, Washington
office and warehouse facilities. The loan has an effective interest rate of
approximately 3% and is due in monthly payments of principal and interest of
$9,100 through December 2003. The total amount outstanding at June 30, 1998 was
$554,000 of which $103,000 is current.

10.  INCOME TAXES

    Deferred tax assets and (liabilities) consisted of the following:

<TABLE>
<CAPTION>
                                                                                        DECEMBER 31,
                                                                                 ------------------------        JUNE 30,
                                                                                   1996            1997            1998
                                                                                 --------        --------        --------
                                                                                              (IN THOUSANDS)                  
<S>                                                                              <C>             <C>             <C>     
                         Deferred tax assets:
                            Net operating loss carryforwards                     $    102        $  2,931        $  6,279
                            Goodwill writedown                                         --           2,924           2,924
                            Inventory reserves                                        914             641             929
                            Allowance for bad debts                                   213             220             431
                            Warranty reserves                                         119              82              35
                            Restructuring reserves                                    122              68             152
                            Other accruals                                             55             165             141
                                                                                 --------        --------        --------
</TABLE>


                                       36
<PAGE>   37
<TABLE>
<S>                                                                              <C>             <C>             <C>     
                         Total deferred tax assets                                  1,525           7,031          10,891
                         Less: Valuation allowance for deferred tax assets             --          (6,646)        (10,158)
                                                                                 --------        --------        --------
                                                                                    1,525             385             733
                         Deferred tax liabilities:
                            Depreciation and amortization                            (437)           (385)           (733)
                                                                                 --------        --------        --------
                         Total deferred tax liabilities                              (437)           (385)           (733)
                                                                                 --------        --------        --------
                             Net deferred tax assets                             $  1,088        $     --        $     --
                                                                                 ========        ========        ========
                         Balance sheet classification:
                           Current assets                                        $  1,423        $     --        $     --
                           Noncurrent liabilities                                    (335)             --              --
                                                                                 --------        --------        --------
                                                                                 $  1,088        $     --        $     --
                                                                                 ========        ========        ========
</TABLE>


    At June 30, 1998, the Company had net operating loss carryforwards for
income tax purposes of $18.2 million, which are available to offset future
federal taxable income, if any. The federal operating loss carryforwards begin
to expire in 2007 through 2018. Recognition of approximately $3.2 million of the
Company's federal operating loss carryforwards may be limited pursuant to
Section 382 of the Internal Revenue Code. The valuation allowance was
established for the deferred tax assets in excess of deferred tax liabilities.

    Significant components of the provision (benefit) for income taxes are as
follows:

<TABLE>
<CAPTION>
                                                     YEAR ENDED DECEMBER 31,             SIX MONTHS
                                             -------------------------------------         ENDED
                                               1995           1996           1997      JUNE 30, 1998
                                               ----           ----           ----      -------------
                                                                (IN THOUSANDS)                  
<S>                                          <C>            <C>            <C>         <C>      
             Current:
               Federal                       $ 3,147        $(1,713)       $(1,760)            --
               State                             164            106             --             --
               Canada                            143           (380)            77             --
                                             -------        -------        -------        -------
                                               3,454         (1,987)        (1,683)            --
                                             -------        -------        -------        -------
             Deferred:
               Federal                           (48)          (928)           996             --
               State                              21             52            301             --
               Canada                             --             --           (209)            --
                                             -------        -------        -------        -------
                                                 (27)          (876)         1,088             --
                                             -------        -------        -------        -------
             Total provision (benefit)       $ 3,427        $(2,863)       $  (595)       $    --
                                             =======        =======        =======        =======
</TABLE>


                                       37
<PAGE>   38
    The Company's effective income tax rate varied from the U.S. federal
statutory tax rate as follows:

<TABLE>
<CAPTION>
                                                                        YEAR ENDED DECEMBER 31,           SIX MONTHS
                                                                   ------------------------------            ENDED
                                                                   1995        1996          1997        JUNE 30, 1998
                                                                   ----        ----          ----        -------------
<S>                                                                <C>        <C>          <C>           <C>    
               U.S. federal statutory tax rate                     34.0%      (34.0%)      (34.0%)          (34.0%)
                                                                                                         
               Change in tax rate resulting from:                                                        
                  State income taxes, net of federal benefit        1.3         1.2         (1.7)              --
                  Foreign taxes                                     0.8         0.5         (0.2)              --
                  Nondeductible goodwill amortization               0.3         0.3          0.1              0.2
                  Benefit of foreign sales corporation               --        (1.1)          --               --
                  Valuation allowance                                --          --         32.1             29.8
                  Other                                             0.1        (1.2)         0.3              4.0
                                                                   ====        ====         ====             ====
               Effective tax rate                                  36.5%      (34.3%)       (3.4%)           (0.0%)
                                                                   ====        ====         ====             ====
</TABLE>


11.  SHAREHOLDERS' EQUITY

Preferred Stock

Series A

    On December 31, 1993, the Company issued 100,000 shares of Series A 7%
cumulative convertible nonvoting preferred stock for $500,000 ("Series A
Preferred"). Dividends on the Series A Preferred accrue quarterly and must be
paid before dividends can be declared and paid on the Company's Common Stock. In
the event of liquidation, the holders of the Series A Preferred will be entitled
to $5.00 per share plus unpaid dividends before any payments are made to the
holders of Common Stock. The Series A Preferred is convertible at the holder's
option into 200,000 shares of Common Stock. The Series A Preferred may be
redeemed by the Company at $5.00 per share beginning January 1, 1999 and ending
December 31, 2004. The Company has reserved 200,000 shares of Common Stock for
issuance upon the conversion of the Series A Preferred.

Series B

    On December 19, 1997, the Company issued 3,000 shares of Series B 5%
cumulative convertible nonvoting preferred stock for $3,000,000 ("Series B
Preferred"). In connection with this transaction, the Company also issued
warrants to purchase 283,720 shares of common stock for an exercise price of
approximately $2.68 per share ("the Warrants"). Dividends on the Series B
Preferred accrue quarterly, are payable in cash or stock and must be paid before
dividends can be declared and paid on the Company's Common Stock. The Series B
Preferred is convertible into the Company's Common Stock at the option of the
holders through December 2000 at which time all of the remaining shares
automatically convert to common stock. Subject to certain adjustments, the
Series B Preferred converts to Common Stock at the lesser of $2.68 per share or
90% of the market price (as defined) of the Company's Common Stock at the time
of conversion. During the six month period ended June 30, 1998, 716 shares of
Series B Preferred were converted into 441,687 shares of common stock. The
Company has reserved approximately 3,000,000 shares of Common Stock for issuance
upon conversion of the remaining shares of Series B Preferred and exercise of
the warrants.

    The 10% discount from market price of the conversion of preferred stock has
been accounted for as a preferred stock dividend. The dividend is required to be
included in earnings per share computations over the period from the date of
issuance through the date the security is first convertible. Accordingly, the
Company has recorded preferred stock dividends relating to this discount of
$30,000 for the year ended December 31, 1997 and $270,000 for the six months
ended June 30, 1998.

Stock Purchase Plan

    In 1995, the Company adopted an Employee Stock Purchase Plan which allows
eligible employees to buy the Company's Common Stock at a 15% discount from
market price utilizing payroll deductions. A total of 100,000 shares have been
reserved for issuance under this Plan. During the years ended December 31, 1995,
1996 and 1997 and for the six months ended June 30, 1998, 3,971, 11,123, 23,600
and 8,690 shares of Common Stock were purchased by employees under this Plan,
respectively. As of June 30, 1998, 52,616 shares were available for future sale
under the Plan.



                                       38
<PAGE>   39
12.  STOCK-BASED COMPENSATION

    The Company adopted two stock option plans in 1994 that provide for the
grant of incentive and nonqualified stock options to the Company's employees,
officers, and directors. At June 30, 1998, the Company had 2,103,513 shares of
Common Stock reserved for issuance pursuant to these plans. Options generally
vest over a four-year period commencing one year from the date of grant.

    Pro forma information regarding net income (loss) per share is required by
FASB Statement 123, and has been determined as if the Company had accounted for
its employee stock options under the fair value method of that Statement. The
value for these options was estimated at the date of grant using a Black-Scholes
option-pricing model with the following weighted average assumptions:

<TABLE>
<CAPTION>
                                                                1995          1996          1997          1998
                                                                ----          ----          ----          ----
<S>                                                             <C>           <C>           <C>           <C> 
                      Expected dividend yield                      0%            0%            0%            0%
                      Expected stock price volatility           37.6%         48.5%         61.3%         64.9%
                      Risk-free interest rate                    6.9%          6.1%          6.1%          5.8%
                      Expected life of options in years          4.5           3.1           3.1           3.1
</TABLE>

    For purposes of pro forma disclosures, the estimated weighted average value
of the options granted of $3.05, $4.91, $2.65 and $0.93 per share during the
years ended December 31,1995, 1996 and 1997 and the six months ended June 30,
1998, respectively, is amortized to expense over the options' vesting period.
The Company's pro forma information is as follows (in thousands except per share
amounts):

<TABLE>
<CAPTION>
                                                                                   DECEMBER 31,                       
                                                                  -------------------------------------------         JUNE 30
                                                                     1995            1996             1997              1998    
                                                                     ----            ----             ----              ----    
<S>                                                               <C>             <C>              <C>               <C>        
                   Net income (loss) - as reported                $    5,955      $   (5,490)      $  (16,695)       $  (11,773)
                   Net income (loss) - pro forma                  $    5,459      $   (6,731)      $  (17,586)       $  (12,007)

                   Diluted earnings per share - as reported       $     0.59      $    (0.52)      $    (1.51)       $    (0.99)
                   Diluted earnings per share - pro forma         $     0.54      $    (0.64)      $    (1.59)       $    (1.01)
</TABLE>


    A summary of options granted and outstanding are as follows (in thousands
except per share amounts):

<TABLE>
<CAPTION>
                                                                                         WEIGHTED AVERAGE
                                                                              NUMBER OF   EXERCISE PRICE
                                                                               OPTIONS       PER SHARE
                                                                               -------       ---------
<S>                                                                           <C>        <C>      
                         Balance at January 1, 1995                               974        $    3.65
                           Granted                                              1,067        $    8.54
                           Exercised                                              (72)       $    4.01
                           Forfeited/Canceled                                    (114)       $    5.70
                                                                                -----

                         Balance at December 31, 1995  (exercisable 237)        1,855        $    6.32
                           Granted                                                278        $   13.43
                           Exercised                                             (231)       $    4.80
                           Forfeited/Canceled                                    (222)       $    9.94
                                                                                -----

                         Balance at December 31, 1996  (exercisable 801)        1,680        $    7.21
                           Granted                                                492        $    5.74
                           Exercised                                              (98)       $    3.17
                           Forfeited/Canceled                                    (566)       $   10.19
                                                                                -----

                         Balance at December 31, 1997 (exercisable 904)         1,508        $    5.29
                           Granted                                                571        $    1.98
                           Exercised                                               --
                           Forfeited/Canceled                                    (202)       $    4.82
                                                                                -----

                         Balance at June 30, 1998 (exercisable 1,081)           1,877        $    4.34
                                                                                =====
</TABLE>


                                       39
<PAGE>   40
    Included in the 1997 option grants are approximately 400,000 employee
options repriced to $6.50 per share.

    The following table summarizes information concerning currently outstanding
and exercisable options:

<TABLE>
<CAPTION>
                                     OPTIONS OUTSTANDING                              OPTIONS EXERCISABLE     
                      -------------------------------------------------         ------------------------------
                                            WEIGHTED
                                            AVERAGE            WEIGHTED                               WEIGHTED
     RANGE OF             NUMBER           REMAINING            AVERAGE             NUMBER             AVERAGE
     EXERCISE           OUTSTANDING       CONTRACTUAL          EXERCISE           EXERCISABLE         EXERCISE
      PRICES          (IN THOUSANDS)          LIFE               PRICE          (IN THOUSANDS)          PRICE
      ------          --------------          ----               -----          --------------          -----
<S>                   <C>                 <C>                  <C>              <C>                   <C>            
   $ 1.88-$ 2.80            505            9.8 years            $  1.98                --                 --
   $ 2.80-$ 4.20            438            6.1 years            $  3.20               429              $  3.18
   $ 4.20-$ 6.30            558            6.8 years            $  5.47               443              $  5.42
   $ 6.30-$17.50            376            7.8 years            $  7.13               209              $  7.45
                          -----                                                     -----
                          1,877            7.6 years            $  4.34             1,081              $  4.92
                          =====                                                     =====
</TABLE>

    At June 30, 1998 options to purchase 226,906 shares were available for
future grant.

13.  FOREIGN CURRENCY TRANSACTIONS

    The Company enters into foreign currency forward contracts, generally with
terms of 270 days or less, as a hedge against some of its foreign currency
commitments. Derivative financial instruments held by the Company are generally
used to manage well-defined foreign exchange and interest rate risks which occur
in the normal course of business. Forward foreign exchange contracts are used by
the Company to reduce the potential impact of unfavorable fluctuations in
foreign exchange rates. The Company regularly has off balance sheet commitments
to buy and sell foreign currencies relating to foreign exchange contracts to
hedge against future currency fluctuations.

    Gains and losses on foreign currency contracts not intended to hedge
operating requirements are reported currently in other income. Gains and losses
on foreign currency contracts intended to meet firm commitments are deferred and
recognized as part of the cost of the underlying transaction being hedged.
Counterparties to the foreign exchange contracts are typically major
international financial institutions. The Company's theoretical risk in these
transactions is the cost of replacing, at current market rates, these contracts
in the event of default by the counterparty. Management believes the risk of
incurring such losses as a result of a default by a counterparty is remote.

    During 1996 and 1997, the Company recognized losses on foreign currency
contracts totaling approximately $160,000 and $17,000, respectively. The Company
recognized approximately $646,000 in gains on foreign currency futures and
forward contracts during the year ended December 31, 1995. These amounts are
included in cost of goods sold in the accompanying statements of operations. The
Company had no open foreign currency contracts at December 31, 1997 or June 30,
1998.

14.  COMMITMENTS AND CONTINGENCIES

Leases

    The Company is committed under noncancelable operating leases expiring at
various dates through 2003 for warehouse, manufacturing and office facilities.
The leases generally require that the payments of taxes, insurance and
maintenance are the responsibility of the Company.



                                       40
<PAGE>   41
    At June 30, 1998, the Company's future minimum rental payments with respect
to capital leases, non-cancelable operating leases with terms in excess of one
year and related sublease receivables were as follows:

<TABLE>
<CAPTION>
                                                                             RENTS        
                                                                           RECEIVABLE
                                                     CAPITAL   OPERATING     UNDER
         YEARS ENDING JUNE 30,                       LEASES      LEASES    SUBLEASES
         ---------------------                       ------      ------    ---------
                                                              (IN THOUSANDS)           
<S>                                                  <C>       <C>         <C>  
            1999                                       $127      $1,292      $ 267
            2000                                        116       1,100        255
            2001                                        110       1,041        214
            2002                                        102         835        135
            2003                                         85         806          8
            Thereafter                                   --         399         --
                                                     ------      ------      -----
                                                       $540      $5,473      $ 879
                                                                 ======      =====
            Amount representing interest                (94)
                                                     ------
            Present value of minimum lease 
              payments (including current portion    
              of $70)                                  $446
                                                     ======
</TABLE>


    Rent expense, net of sublease income, for the years ended December 31, 1995,
1996 and 1997 and for the six month period ended June 30, 1998 was approximately
$406,000, $1,042,000, $1,053,000, and $401,000, respectively.

Class Action Lawsuit

         In August 1998, the Company, together with the individually named
defendants, entered into a Memorandum of Understanding with the plaintiffs in
the lawsuit filed by certain current and/or former shareholders of the Company
styled Murray v. Ride, Inc., et al., wherein the parties have agreed to settle
the lawsuit upon the following principal terms: (1) the creation of a settlement
fund consisting of: (a) $3,000,000 cash paid by the Company's insurance carrier;
and (b) warrants to purchase 600,000 shares of the Company's Common Stock,
exercisable for a four year period ending December 31, 2002 at a price of $3.00
per share; and (2) the dismissal of the lawsuit against all named defendants
with prejudice. The Memorandum of Understanding is to be reduced to a
Stipulation of Settlement, which will be presented to the Court for approval.
While the Company is hopeful such approval will be forthcoming, there can be no
assurance such approval will be given. In the event Court approval of the
settlement is denied, the Company expects the litigation will resume and the
Company will renew its vigorous defense of the claims.

    From time to time, the Company is subject to various other pending and
threatened legal actions that arise in the normal course of business. In the
opinion of management, liabilities arising from these claims will not have a
material effect on the financial position of the Company.

15.  EMPLOYEE BENEFIT PLANS

    Beginning January 1996, the Company provided a 401(k) plan covering
substantially all of its U.S. employees. Under this plan, participating
employees may defer up to 15% of their pre-tax earnings, subject to certain
Internal Revenue Service limitations. The Company provides matching
contributions which vest 20% annually over a five year period equal to 25% of
each employee's contribution. The Company's 1996 and 1997 matching contributions
for this plan were approximately $31,000 and $39,000, respectively. 
Contributions for the period ending June 30, 1998 were $21,000.

16.  CONCENTRATION OF CREDIT RISK AND GEOGRAPHICAL INFORMATION

    The Company sells its products to customers predominantly located throughout
North America, Japan and Europe. The concentrations of credit risk with respect
to trade receivables are considered minimal due to the Company's ongoing credit
evaluations of its customers. Based on the Company's assessment of credit risk,
sales in the United States and Canada are made on open credit, C.O.D., cash in
advance, or by postdated check. International sales are generally made on a cash
in advance or letter of credit basis. In 1995 and 1996, sales to the Company's
principal Japanese distributor accounted for approximately 22% and 17% of net
sales, 



                                       41
<PAGE>   42
respectively. In 1996, sales to another of the Company's Japanese distributors
accounted for 12%. No one customer accounted for more than 10% of revenues in
1997 or 1998.

    Worldwide sales of the Company's products were (in thousands):

<TABLE>
<CAPTION>
                                                  DECEMBER 31,           
                                      -----------------------------------       JUNE 30
                                        1995          1996          1997          1998
                                      -------       -------       -------       -------
<S>                                   <C>           <C>           <C>           <C>    
               North America          $50,212       $41,016       $24,907       $ 5,976
               Japan                   17,051        28,470         7,989           821
               Europe and other         7,587         6,242         3,579           482
                                      -------       -------       -------       -------
                                      $74,850       $75,728       $36,475       $ 7,279
                                      =======       =======       =======       =======
</TABLE>

17. EARNINGS PER SHARE

    The following table sets forth the computation of basic and diluted earnings
per share:

<TABLE>
<CAPTION>
                                                                        YEAR ENDED DECEMBER 31,               SIX MONTHS   
                                                               ----------------------------------------          ENDED    
                                                                 1995            1996            1997        JUNE 30, 1998
                                                               --------        --------        --------      -------------
                                                                        (IN THOUSANDS, EXCEPT
                                                                          PER SHARE AMOUNTS)          
<S>                                                            <C>             <C>             <C>           <C>      
        Numerator:
            Net income (loss)                                  $  5,955        $ (5,490)       $(16,695)       $(11,773)
            Preferred stock dividends                               (35)            (35)            (70)           (362)
                                                               --------        --------        --------        --------
            Numerator for basic earnings per share -
              income available to common stockholders             5,920          (5,525)        (16,765)        (12,135)

            Effect of dilutive securities:
               Preferred stock dividends                             35              --              --              --
                                                               ========        ========        ========        ========
            Numerator for diluted earnings per share -
              income available to common stockholders
              after assumed conversions                        $  5,955        $ (5,525)       $(16,765)       $(12,135)
                                                               ========        ========        ========        ========

        Denominator:
            Denominator for basic earnings per share -
              weighted average shares                             8,872          10,614          11,128          12,261

            Effect of dilutive securities: (1)
               Employee stock options                             1,060              --              --              --
               Convertible preferred stock                          200              --              --              --
                                                               --------        --------        --------        --------
            Dilutive potential common shares                      1,260              --              --              --
                                                               --------        --------        --------        --------
            Denominator for diluted earnings per share -
              adjusted weighted average shares and
              assumed conversions                                10,132          10,614          11,128          12,261
                                                               ========        ========        ========        ========

            Basic earnings per share                           $   0.67        $  (0.52)       $  (1.51)       $  (0.99)
                                                               ========        ========        ========        ========
            Diluted earnings per share                         $   0.59        $  (0.52)       $  (1.51)       $  (0.99)
                                                               ========        ========        ========        ========
</TABLE>


(1) The effects of potential common securities are excluded from the diluted
    calculation for 1996, 1997 and 1998 as their effects would be antidilutive.

18. BUSINESS SEGMENTS

    In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information (Statement 131), which is effective for years
beginning after December 15, 1997. Statement 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports. It
also establishes standards for related disclosures about products and services,
geographic areas, and major customers. Statement 131 is effective for financial
statements for fiscal years beginning after December 15, 1997. The Company has 
adopted Statement 131 for the six months ended June 30, 1998 but has not 
retroactively adjusted previously reported segments because it was impractical 
to do so.

    The Company reports operating results in two segments due to distinct
product differences. These two segments include the Company's hardgoods and
softgoods product lines. The hardgoods segment includes snowboards, snowboard
bindings, snowboard boots, wakeboards, and wakeboard boots. The softgoods
segment includes apparel and accessories.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Year ended June 30, 1998
--------------------------------------------------------------------------------
                                           Apparel/
                                         Accessories     Hardgoods     Total
--------------------------------------------------------------------------------
<S>                                        <C>            <C>        <C>
                                                      (IN THOUSANDS)
Revenues from external customers
     USA                                   $ 2,285        $ 2,968    $  5,253
     Foreign                                   705          1,321       2,026
                                           -------        -------    --------
     Total                                 $ 2,990        $ 4,289    $  7,279
                                           =======        =======    ========

Interest expense                           $    13        $   134    $    147
Depreciation and amortization expense          147            696         843
Segment loss                                (2,262)        (9,511)    (11,773)
Segment assets                               6,661         27,943      34,604
Expenditures for long-lived assets              70            668         738
--------------------------------------------------------------------------------
</TABLE>

    The SMP apparel and Smiley Hats subsidiaries are stand alone units and make
up approximately 84% of the Apparel and Accessory segment. The remaining 16% is
comprised of the Ride apparel and accessory lines which are sold through the
traditional hardgoods distribution units, namely Ride Snowboards and Ride
Canada. The Sales for this remaining portion are specifically calculated.
Expenses and assets for the Apparel and Accessory segments of Ride Snowboards
and Ride Canada are allocated based on sales.

    Plant and equipment, goodwill and other long-lived assets of $16,342,000
represent $16,075,000 located in the United States, the Company's country of
domicile, and $267,000 located in Canada.

19. QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                                            MARCH 31        JUNE 30       SEPTEMBER 30     DECEMBER 31
                                                            --------        -------       ------------     -----------
                                                                      (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)   
<S>                                                         <C>             <C>             <C>            <C>
            1996:
              Net sales                                     $ 12,777        $ 13,501        $ 35,329       $ 14,121
              Gross profit (loss)                              3,387           4,164          11,344         (4,808)(1)
              Net income (loss)                                 (982)            411           3,642         (8,561)(2)
              Net income (loss) per share (basic)              (0.09)           0.04            0.34          (0.80)
              Net income (loss) per share (diluted)            (0.09)           0.04            0.32          (0.80)
</TABLE>

                                       42
<PAGE>   43
<TABLE>
<S>                                                              <C>             <C>             <C>            <C>     
                   Balance sheet data (at end of quarter):
                     Accounts receivable, net                       9,404          13,993          28,257         14,193
                     Inventories                                    6,153          11,865          16,302          5,986
                     Working capital                               23,584          23,411          26,920         20,941

                 1997:
                   Net sales                                     $  5,034        $  2,525        $ 18,215       $ 10,701
                   Gross profit                                     1,328             664           5,824          2,003
                   Net income (loss)                               (2,182)         (2,254)            661        (12,920)(3)
                   Net income (loss) per share (basic)              (0.20)          (0.21)           0.06          (1.12)
                   Net income (loss) per share (diluted)            (0.20)          (0.21)           0.06          (1.12)

                   Balance sheet data (at end of quarter):
                     Accounts receivable, net                       8,311           6,339          17,300         12,588
                     Inventories                                    6,289          10,111          11,065          6,564
                     Working capital                               18,435          15,644          16,768         14,823

                 1998:
                   Net sales                                     $  4,417        $  2,862
                   Gross profit (loss)                                877          (1,885)
                   Net income (loss)                               (3,980)         (7,793)
                   Net income (loss) per share (basic)              (0.35)          (0.63)
                   Net income (loss) per share (diluted)            (0.35)          (0.63)

                   Balance sheet data (at end of quarter):
                     Accounts receivable, net                       5,990           4,487
                     Inventories                                    7,766           9,752
                     Working capital                               11,165           2,489
</TABLE>


(1) Includes $6.5 million inventory write-down. See Note 6.

(2) Includes $6.5 million inventory write-down and $2.5 million restructuring
    charge. See Note 6.

(3) Includes $8.6 million loss on impairment of goodwill. See Note 3.


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

      None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The Directors of the Registrant are as follows:

         Cory J. Hechler, age 33, has served as a director of the Company since
December 1993. Mr. Hechler joined Bear Stern Securities, Inc., an investment
banking firm, in January 1986 and has been a Senior Managing Director since
September 1993. Mr. Hechler received his B.A. degree from the State University
of New York at Oneonta.

         Robert F. Marcovitch, age 41, was elected as a director of the Company
on June 16, 1998 to fill the vacancy created by the resignation of Robert E.
Hall. Mr. Marcovitch was also appointed to serve as the Company's President and
Chief Executive Officer. Prior to that time, Mr. Marcovitch served as Sr. Vice
President of the Company's Apparel and International divisions since October
1996. Before that he was employed by C.A.S. Sports International, Inc., a
Canadian-based former subsidiary of the Company, where he served as President
from August 1994 through October 1996. From December 1992 to August 1994, Mr.
Marcovitch was Director of Apparel for Nike Canada, where he was responsible for
all of Nike's non-footwear business in Canada. From 1989 to 1992, Mr. Marcovitch
was Strategic Account Manager of Nike Canada's apparel division. Mr. Marcovitch
attended Concordia University in Montreal.



                                       43
<PAGE>   44
         Mark M. Salter, age 38, has been a director of the Company since April
1993, and served as Vice Chairman of the Board from November 1993 to December
1995. He also served as the Company's Director of Investor Relations from
October 1994 until September 1995. Mr. Salter has been the Director of fixed
Income Securities for Amherst Securities Group, Inc., a Houston-based securities
broker-dealer, since October 1995. From 1989 to 1994, he was Executive Vice
President and Director of Trading for Westcap Securities L.P., a Houston-based
fixed income securities firm. Mr. Salter received his B.A. degree from York
University in Toronto.

The Executive Officers of the Registrant who are not also Directors are as
follows:

         Mark Braiser, 34, joined the Company in June 1995 as Vice President of
Sales for the Company's C.A.S. Sports International subsidiary. He was promoted
to Vice President of Sales for the Company's Special Products Group in October
1996 and was appointed the Company's Vice President of Sales in June 1998. Prior
to joining the Company, Mr. Brasier owned his own Independent Sales
Representative agency for the preceding 10-year period. Mr. Brasier graduated
from the University of Western Ontario with a BA in Business.

         Gregory S. Cook, 50, joined the Company in March 1996 as Chief
Financial Officer and Chief Operating Officer for the Company's C.A.S. Sports
International subsidiary. In October 1996, Mr. Cook was appointed President of
the Company's Ride Canada subsidiary, a position he served until his appointment
as the Company's Chief Operating Officer in June 1998. Mr. Cook served as
President of Head/Tyrollia Sports Canada from 1985 until his departure in 1996
to join the Company. Mr. Cook is a Certified Management Accountant and holds a
degree in Business Administration and Accounting from Mohawk College in
Hamilton, Ontario.

         David H. Davis, 39, joined the Company as Secretary and General Counsel
in September 1996. Prior to that he served as Corporate Counsel and Assistant
Secretary of Egghead, Inc., a reseller of computer software, hardware and
peripherals, where he was employed from September 1994 through August 1996.
Before joining Egghead, Mr. Davis was an associate attorney with the Seattle law
firm of Stanislaw Ashbaugh from April 1990 through September 1994. Mr. Davis
earned his BA degree from Whitman College and his JD from the University of
Oregon.

         Former executive officer Robert E. Hall, age 50, joined the Company in
August 1996 as Chief Executive Officer and President, was appointed to the Board
of Directors in September 1996, and resigned as a director and employee of the
Company in June 1998.

         Former executive officer Bruce Manke, age 55, joined the Company in
September 1996 as Senior Vice President of Winter Sports and Administration and
resigned his position in June 1998.

         Scott C. Mavis, 30, joined the Company in March 1993 as its Customer
Services Manager. Mr. Mavis worked his way through the organization, performing
duties as an Assistant Product Manager, an Inventory Trafficking Manager and
International Sales Coordinator, before being appointed to Managing Director of
European Sales, a position he held until being promoted to the Company's Vice
President of Marketing in June 1998. Mr. Mavis graduated from the University of
Vermont with a BS in Business Administration with a focus on International
Marketing.

         Former executive officer G. Scott Stewart, 36, served as the Company's
Vice President from April 1995 until September 1996, when he was appointed
Senior Vice President of Finance, a position he held until his resignation in
August 1998.


ITEM 11. EXECUTIVE COMPENSATION.

Executive Compensation

         The following table sets forth annual and long-term compensation for
services rendered during the six months ended June 30, 1998 and the years ended
December 31, 1997, 1996 and 1995 by the Named Executive Officers.

Summary Compensation Table



                                       44
<PAGE>   45
<TABLE>
<CAPTION>
                                                                                      Long-Term                               
                                                                                      Compensation
                                                      Annual Compensation             Awards
                                             --------------------------------------   ------------
                                                                          Other 
                                                                          Annual      Securities          All Other
Name and                                                                  Compen-     Underlying          Compensation
Principal Position                 Year      Salary ($)     Bonus ($)     sation($)   Options (#)         ($)
------------------                 ----      ----------     ---------     ---------   -----------         ------------
<S>                                <C>       <C>            <C>           <C>         <C>                 <C>
Robert E. Hall (1)                 1998       105,000             0         5,152        30,000             0
  Former Chief                     1997       200,000             0         6,855        62,500             0
  Executive                        1996        76,590             0         5,255        62,500             0
Officer and President              1995           N/A           N/A           N/A           N/A           N/A

Bruce Manke (2)                    1998        82,500             0         2,500        27,500             0
  Former Sr. Vice President        1997       148,750        20,000         5,751        22,500             0
Board Sports and                   1996        49,800             0         2,375        15,000             0
   Administration                  1995           N/A           N/A           N/A           N/A           N/A


Robert F. Marcovitch (3)           1998       100,000             0           913        27,500
  President and Chief              1997       200,000             0         1,957         7,500             0
 Executive Officer                 1996       200,000             0         1,957             0             0
                                   1995       214,683             0         2,190        80,000             0


G. Scott Stewart (4)               1998        60,000             0         4,150        27,500             0
Former Vice President,             1997       110,000             0         4,550         7,500             0
Chief Financial Officer and        1996       100,000        15,000         1,479             0             0
Treasurer                          1995        48,657        10,000             0        30,000             0


Gregory S. Cook (5)                1998        50,000             0         4,000        14,500             0
 Chief Operating Officer           1997       100,000             0         8,571        12,500             0
                                   1996        79,167         4,166         6,884             0             0
                                   1995            NA            NA            NA            NA            NA

David H. Davis (6)                 1998        55,000             0         1,375        14,500             0
  Secretary and General            1997       103,332             0         2,375        12,500             0
Counsel                            1996        33,334             0           792        10,000             0
                                   1995           N/A           N/A           N/A           N/A           N/A

Mark Brasier (7)                   1998        75,000             0         2,515        14,500             0
  Vice President, Sales            1997       150,000             0         5,986        17,500             0
                                   1996       150,000         6,250         5,507             0             0
                                   1995        75,000        10,000         2,750         2,000             0

Scott Mavis (8)                    1998        25,000             0           625         8,500             0
   Vice President, Marketing       1997        50,000             0         1,250         4,500             0
                                   1996        50,000         2,083         1,250             0             0
                                   1995        50,000         4,166         1,250             0             0
</TABLE>


                                       45
<PAGE>   46
         (1) Mr. Hall joined the Company in August 1996 and resigned on June,
16, 1998; the salaries shown for each of 1996 and the six months ending June 30,
1998 are for a partial year's employment. The amount shown for other annual
compensation represents contributions by the Company to the Company's 401(k)
savings plan on behalf of Mr. Hall and an automobile allowance. Stock option
grants for 1997 include the cancellation, repricing and reissuance of 62,500
options originally issued in 1996.

         (2) Mr. Manke joined the Company in September 1996 and resigned from
his position on June 16, 1998; the salaries shown for each of 1996 and the six
months ending June 30, 1998 are for a partial year's employment. The amount
shown for other annual compensation represents contributions by the Company to
the Company's 401(k) savings plan on behalf of Mr. Manke. Stock option grants
for 1997 include the cancellation, repricing and reissuance of 15,000 options
originally issued in 1996.

         (3) The amount shown for other annual compensation for Mr. Marcovitch
represents contributions by the Company to the Company's Retirement Savings Plan
on behalf of Mr. Marcovitch.

         (4) Mr. Stewart joined the Company in April 1995 and resigned his
position in August 1998; the salary shown for 1995 is for a partial year's
employment. The amount shown for other annual compensation represents
contributions by the Company to the Company's 401(k) savings plan on behalf of
Mr.
Stewart and an automobile allowance in 1997 and 1998.

         (5) Mr. Cook joined the Company in March 1996; the salary shown for
that year is for a partial year's employment. The amount shown for other annual
compensation represents contributions by the Company to the Company's Retirement
Savings Plan on behalf of Mr. Cook and an automobile allowance.

         (5) Mr. Davis joined the Company in September 1996; the salary shown
for that year is for a partial year's employment. The amount shown for other
annual compensation represents contributions by the Company to the Company's
401(k) savings plan on behalf of Mr. Davis. Stock option grants for 1997 include
the cancellation, repricing and reissuance of 10,000 options originally issued
in 1996.

         (6) Mr. Braiser joined the Company in June 1995; the salary shown for
that year is for a partial year's employment. The amount shown for other annual
compensation represents contributions by the Company to the Company's Retirement
Savings Plan on behalf of Mr. Brasier and an automobile allowance.

         (7) The amount shown for other annual compensation represents
contributions by the Company to the Company's 401(k) savings plan on behalf of
Mr. Mavis.


                                       46
<PAGE>   47
Option Grants in 1998

         The following table provides information on option grants to the Named
Executive Officers in 1998.

<TABLE>
<CAPTION>
                                                    Individual Grants                       
                           -------------------------------------------------------------------
                                                Percent of                                            Potential Realizable
                             Number of             Total                                             Value at Assumed Annual
                            Securities         Options/SARs                                           Rates of Stock Price
                            Underlying          Granted to       Exercise                            Appreciation for Option
                           Options/SARs        Employees in      or Base                                    Term (2)       
                             Granted            Fiscal Year       Price             Expiration       -----------------------
                               (#)                  (1)           ($/Sh)               Date             5%             10%  
                           ------------        ------------    ------------         ----------       --------       --------
<S>                        <C>                 <C>             <C>                  <C>              <C>            <C>     
Robert E. Hall               30,000                5.26%       $      2.000          9/13/1998       $  3,000       $  6,000

Bruce Manke                   7,500                1.31%       $      1.875          9/14/1998       $    703       $  1,406

                             20,000                3.51%       $      2.000          9/14/1998       $  2,000       $  4,000

Robert F. Marcovitch          7,500                1.31%       $      1.875           1/2/2008       $  8,843       $ 22,411

                             20,000                3.51%       $      2.000          5/19/2008       $ 25,155       $ 63,749

G. Scott Stewart              7,500                1.31%       $      1.875           1/2/2008       $  8,843       $ 22,411

                             20,000                3.51%       $      2.000          5/19/2008       $ 25,155       $ 63,749

David H. Davis                2,500                0.44%       $      1.875           1/2/2008       $  2,947       $  7,470

                             12,000                2.10%       $      2.000          5/19/2008       $ 15,093       $ 38,249

Greg Cook                     2,500                0.44%       $      1.875           1/2/2008       $  2,947       $  7,470

                             12,000                2.10%       $      2.000          5/19/2008       $ 15,093       $ 38,249

Mark Braiser                  2,500                0.44%       $      1.875           1/2/2008       $  2,947       $  7,470

                             12,000                2.10%       $      2.000          5/19/2008       $ 15,093       $ 38,249

Scott Mavis                   2,500                0.44%       $      1.875           1/2/2008       $  2,947       $  7,470

                              6,000                 1.5%       $       2.00          5/19/2008       $  7,546       $ 19,124
                            -------

                            164,500
</TABLE>

         (1) Based on an aggregate of 570,500 stock options granted to employees
during the six month period ended June 30, 1998.

         (2) Potential realizable value is based on an assumption that the value
of the Common Stock appreciates at the annual rate shown (compounded annually)
from the date of grant until the end of the option term. This formula is
calculated based on SEC requirements and does not reflect the Company's estimate
of future stock price growth.

         The Company's Stock Option Plan is administered by the Compensation
Committee of the Board of Directors, which consists of Messrs. Hechler, and
Salter. The Compensation Committee determines to whom options are granted, the
number of shares subject to each option, the vesting schedule and the exercise
price. The exercise price may not be less than the fair market value of the
Common Stock on the date of grant. Options generally vest over four years and
have a duration of ten years. The exercise price may be paid in cash, by
delivering shares of Common Stock already owned by the option holder or by
complying with any other payment mechanism approved by the plan administrator.
Subject to certain limitations, the Compensation Committee may modify the terms
of and reprice outstanding options.

Option Exercises and Fiscal Year-End Option Values

         The following table shows data relating to stock options exercised by
the Company's Named Executive Officers and unexercised options held by such
persons at June 30, 1998.




                                       47
<PAGE>   48
<TABLE>
<CAPTION>
                                                                        Number of Securities                Value of Unexercised
                              Shares Acquired                      Underlying Unexercised Options           In-the-Money Options
                                on Exercise      Value Realized        at Fiscal Year-End (#)              at Fiscal Year-End ($)   
        Name                        (#)               ($)            Exercisable/Unexercisable         Exercisable/Unexercisable (1)
        ----                  ---------------    --------------    ------------------------------      -----------------------------
<S>                           <C>                <C>               <C>                                 <C>
Robert E. Hall                      -0-               N/A                      15,625 / 0                         $0 / $0
Bruce Manke                         -0-               N/A                       5,625 / 0                         $0 / $0
Robert F. Marcovitch                -0-               N/A                  48,125/ 59,375                         $0 / $0
G. Scott Stewart                    -0-               N/A                  19,375/ 40,625                         $0 / $0
David H. Davis                      -0-               N/A                   3,125/ 23,875                         $0 / $0
Greg Cook                           -0-               N/A                  3,125 / 21,375                         $0 / $0
Mark Braiser                        -0-               N/A                 12,625 / 21,875                         $0 / $0
</TABLE>

         (1) The amount shown is the aggregate number of shares of Common Stock
that may be purchased pursuant to the exercise of outstanding options,
multiplied by the difference between the closing price of the Common Stock
reported on Nasdaq National Market on September 23, 1998, $1.00, and the per
share exercise price of such options.

COMPENSATION OF DIRECTORS

         Directors who are employees of the Company are not compensated for
service as directors. Non-employee directors of the Company receive $1,000 per
board meeting attended in person. The Company also reimburses each director for
reasonable expenses incurred in attending meetings of the Board of Directors. In
addition, in June 1998 the Directors approved, subject to shareholder approval,
a Non-Employee Directors' Nonqualified Stock Option Plan whereby upon election
or appointment to the Board of Directors, each non-employee director receives an
option under such Plan to purchase 5,000 shares of Common Stock. The option
vests and is exercisable on the earlier of one year from the date of grant or
the last business day preceding the next following Annual Shareholders' Meeting.
Unvested and unexpired options terminate upon the first of the following events:
(i) ten years from the date of grant; (ii) the expiration of 90 days from the
date of an optionee's termination as a director for any reason other than death
or disability; or (iii) the expiration of one year from the date of death of an
optionee or cessation of the optionee's service as a director by reason of
disability.

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Common Stock Ownership of Certain Beneficial Owners and Management

         The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of September 21, 1998 by (i) each
person known by the Company to be the beneficial owner of more than five percent
of the Company's Common Stock; (ii) by each director; (iii) by the group of
individuals collectively referred to as "the Named Executive Officers"
consisting of all individuals serving as the Company's Chief Executive Officer
or acting in a similar capacity during the six months ended June 30, 1998, and
the other five most highly paid executive officers of the Company other than the
Chief Executive Officer; and (iv) by all directors and executive officers of the
Company as a group.

Table of Beneficial Ownership

<TABLE>
<CAPTION>
Name of Beneficial Owner (1)                    Amount and Nature of       Percent of Shares
                                                Beneficial Ownership       Outstanding
--------------------------------------------------------------------------------------------
<S>                                             <C>                        <C>   
James J. Salter                                     1,013,764(2)                 8.03%       
   2700 Dufferin Street, #B3
</TABLE>




                                       48
<PAGE>   49
<TABLE>
<CAPTION>
Name of Beneficial Owner (1)                    Amount and Nature of       Percent of Shares
                                                Beneficial Ownership       Outstanding
--------------------------------------------------------------------------------------------
<S>                                             <C>                        <C>   
   Toronto, Ontario Canada M6B 4J3
Mark M. Salter                                      1,164,818(3)                  9.2%
   1900 W. Loop South, #550
   Houston, TX 77027
Cory J. Hechler                                       419,000(4)                  3.3%
Robert F. Marcovitch                                   54,909(5)                    *
G. Scott Stewart                                       26,681(6)                    *
Robert E. Hall                                         16,240(7)                    *
Bruce Manke                                               -0-                       *
Mark Braiser                                            7,875(8)                    *
David H. Davis                                         10,374(9)                    *
Greg Cook                                               3,125(10)                   *
All directors and executive officers as a           2,728,983                   21.62%
group (11 persons)
</TABLE>

  * Less than 1%

         (1) Except as otherwise noted in these footnotes, each of the persons
named in the table has sole voting and investment power with respect to the
shares shown beneficially owned by such person. As noted in these footnotes,
shares beneficially owned may include shares subject to options that are
exercisable on or before November 20, 1998.

         (2) Includes 893,764 shares held by DLS Financial Holdings, Inc., a
trust controlled by Mr. Salter and 120,000 shares subject to options that are
currently exercisable or exercisable on or before November 20, 1998.

         (3) Includes: (i) 835,000 shares held by Salter Family Partners, Ltd.,
a limited partnership of which Mark Salter and his wife are the sole general
partners, with shared voting and investment control; (ii) 6,000 shares held by
Mark Salter as custodian for his two minor children, for which Mr. Salter
disclaims beneficial ownership; (iii) 200,000 shares that are issuable upon the
conversion of 100,000 shares of the Company's Series A Convertible Preferred
Stock held by Salter Family Partners, Ltd.; and (iv) 123,818 shares subject to
options that are currently exercisable or exercisable on or before November 20,
1998.

         (4) Includes 339,000 shares owned directly and 80,000 shares subject to
options that are currently exercisable or exercisable on or before November 20,
1998.

         (5) Includes 534 shares owned directly and 54,375 shares subject to
options that are currently exercisable or exercisable on or before November 20,
1998.

         (6) Includes 2,306 shares owned directly and 24,375 shares subject to
options that are currently exercisable or exercisable on or before November 20,
1998. Mr. Stewart resigned from the Company on August 31, 1998, but remains as a
consultant to the Company. Under his consulting agreement, Mr. Stewart continues
to participate in the Company's employee stock option plan in accordance with
the terms of such plan.

         (7) Includes 9,240 shares owned directly, and 7,000 shares held by the
Robert E. Hall Family Trust, a trust controlled by Mr. Hall.

         (8) Represents 7,875 shares subject to options that are currently
exercisable or exercisable on or before November 20, 1998.

         (9) Includes 4,749 shares owned directly and 5,625 shares subject to
options that are currently exercisable or exercisable on or before November 20,
1998.

         (10) Represents 3,125 shares subject to options that are currently
exercisable or exercisable on or before November 20, 1998.



                                       49
<PAGE>   50
ITEM 13.   CERTAIN RELATIONSHIPS AND TRANSACTIONS.

         None.

                                     PART IV

ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

    (a) Documents filed as part of this report:

        1. Financial Statements.

<TABLE>
<CAPTION>
                                                                                           FORM 10-K
                                                                                          PAGE NUMBER
<S>                                                                                       <C> 
             A.  Report of Ernst & Young LLP, Independent Auditors..............               26

             B.  Consolidated Balance Sheets as of December 31, 1996
                 and 1997 and June 30, 1998.....................................               27

             C.  Consolidated Statements of Operations for the years
                 ended December 31, 1995, 1996 and 1997 and the six
                 months ended June 30, 1998.....................................               28

             D.  Consolidated Statements of Shareholders' Equity for
                 the years ended December 31, 1995, 1996 and 1997 and
                 the six months ended June 30, 1998.............................               29

             E.  Consolidated Statements of Cash Flows for the years
                 ended December 31, 1995, 1996 and 1997 and the six
                 months ended June 30, 1998.....................................               30

             F.  Notes to Consolidated Financial Statements.....................               31
</TABLE>

        2. Financial Statement Schedules.

<TABLE>
<CAPTION>
                                                                                           FORM 10-K
                                                                                          PAGE NUMBER
<S>                                                                                       <C> 
             Schedule II - Valuation and Qualifying Accounts....................               56

             Financial statements and schedules not included herein have been
             omitted because of the absence of conditions under which they are
             required or because the required information, where material,
             is shown in the consolidated financial statements or notes
             thereto.
</TABLE>

        3. Exhibits.

<TABLE>
<CAPTION>
EXHIBIT NO.                               DESCRIPTION
-----------                               -----------
<S>            <C>
    3.1        Restated Articles of Incorporation and Certificate of Designation
               of Relative Rights and Preferences of the Series A 7% Cumulative
               Nonvoting Preferred Stock (1)

    3.2        Bylaws of the Company (1)

    3.3        Articles of Amendment to Articles of Incorporation (9)

    3.4        Articles of Amendment to Articles of Incorporation (11)

    3.5        Articles of Correction (12)

    3.6        Amendment to Certificate of Designation of Relative Rights and
               Preferences of the Series A 7% Cumulative Nonvoting Preferred
               Stock (26)

    3.7        Certificate of Designation of Relative Rights and Preferences of
               the Series B 5% Cumulative Convertible Nonvoting Preferred Stock
               (27)

    4.1        Article VI of the Articles of Incorporation regarding Shareholder
               Rights (See Exhibit 3.1) (1)
</TABLE>

                                       50
<PAGE>   51
<TABLE>
<CAPTION>
EXHIBIT NO.                               DESCRIPTION
-----------                               -----------
<S>            <C>
    4.2        Article VIII of the Articles of Incorporation regarding Voting
               Rights (See Exhibit 3.1) (1)

    4.3        Specimen Stock Certificate (2)

   10.10       Exclusive Distributorship Agreement dated December 7, 1992, by
               and between Ride Snowboard Company and Far East Trading Co., Ltd.
               (3)

   10.24       Exchange Agreement dated December 31, 1993, between Ride
               Snowboard Company and Mark M. Salter (1)

   10.25       Employment Agreement, dated August 18, 1994, by and between Ride
               Snowboard Company and James J. Salter (4)

   10.26       Form of Employment Agreement between Ride Snowboard Company and
               Roger B. Madison, Jr.(1)

   10.27       Employment Agreement, dated January 1, 1995, by and between Ride
               Snowboard Company and Timothy G. Pogue(7)

   10.28       Form of Ride Snowboard Company 1994 Stock Option Plan(1)

   10.29       Form of Ride Snowboard Company 1994 Directors' Nonqualified Stock
               Option Plan(1)

   10.30       Lease Agreement with Teachers Insurance & Annuity Association
               dated January 10, 1994(1)

   10.32       Amended Form of Underwriting Agreement(5)

   10.34       Standard Form Multiple Occupancy Lease, dated November 29, 1994,
               by and between Ride Snowboard Company and BDC Preston Properties
               One Limited Partnership(6)

   10.35       Business Loan Agreement, dated June 30, 1997, by and between
               Ride, Inc. and U.S. Bank of Washington, N.A.(25)

   10.36       Stock Purchase Agreement, dated August 18, 1994, between Ride
               Snowboard Company and James J. Salter, the James Salter Family
               Trust, Kenneth Finkelstein Family Trust, The Snow Trust, Robert
               Marcovitch, Kerry Wasserman, Rick Clarfield, Howard Cohen, Gary
               Kell, Sandra Pelegrin, Alan Langer, Dan Opyc, C.A.S. Sports
               International, Inc. and C.A.S. Sports Agency, Inc.(8)

   10.45       Ride Snowboard Company 1995 Employee Stock Purchase Plan(9) 

   10.46       Ride Snowboard Company 1995 Foreign Subsidiary Employee Stock
               Purchase Plan(9)

   10.47*      Exclusive OEM Agreement, dated July 26, 1995, by and between Ride
               Snowboard Company and Straight Line Water Sports, Inc.(11)

   10.48       Employment Agreement, dated September 1, 1995, between the
               Company and David A. Janes, Jr.(13)

   10.49       Employment Agreement, dated September 1, 1995, between the
               Company and Bernard Gervasoni(13)

   10.50       Employment Agreement, dated October 19, 1995, between the Company
               and David Milo Myers(14)

   10.51       Registration Rights Agreement dated October 19, 1995, between the
               Company and David Milo Myers, Lawrence Kraus and Michael Wise(14)

   10.52       Stock Purchase Agreement, dated September 1, 1995, between the
               Company and the shareholders and option holders of 5150
               Snowboards, Inc. and Thermal Snowboards, Inc.(15)

   10.53       Asset Purchase Agreement, dated October 19, 1995, among the
               Company, Sex Money Power Clothing, Inc., David Milo Myers,
               Lawrence Kraus and Michael Wise(16)

   10.54       Form of Underwriting Agreement by and between the Company and
               Hambrecht & Quist LLC and Dain Bosworth Incorporated(17)

   10.55*      Amendment No.1 to Exclusive Distributorship Agreement, dated
               October 24, 1995, by and between Ride Snowboard Company, 5150
               Snowboards, Inc., SMP Clothing, Inc. and Far East Trading Company
               Ltd.(18)

   10.56       Employment Agreement, dated October 14, 1995, by and between the
               Company and Kenneth J. Finkelstein(19)

   10.57       Employment Agreement, dated January 1, 1996, by and between
               C.A.S. Sports International, Inc. and Robert F. Marcovitch(19)

   10.58       First Amendment, dated August 4, 1995, to Lease Agreement by and
               between Ride Snowboard Company and BDC Preston Properties One
               Limited Partnership(19)

   10.59       Second Amendment, dated November 21, 1995, to Lease Agreement by
               and between Ride Snowboard Company and BDC Preston Properties One
               Limited Partnership(19)
</TABLE>

                                       51
<PAGE>   52
<TABLE>
<CAPTION>
EXHIBIT NO.                               DESCRIPTION
-----------                               -----------
<S>            <C>
   10.60       Third Amendment, dated March 26, 1996, to Lease Agreement by and
               between Ride Snowboard Company and BDC Preston Properties One
               Limited Partnership(19)

   10.61       Amendment No. 2 to Exclusive Distributorship Agreement, dated
               March 1996, by and between Ride Snowboard Company, SMP Clothing,
               Inc. and Far East Trading Company Ltd.(20)

   10.63       Agreement, dated May 7, 1996, by and between Ride, Inc. and James
               J. Salter(21)

   10.64       Agreement, dated August 2, 1996, by and between Ride, Inc. and
               Kenneth J. Finkelstein(21)

   10.65       Agreement, dated August 7, 1996, by and between Ride, Inc. and
               Robert E. Hall(21)

   10.66       Stock Purchase Agreement, dated October 11, 1996, by and between
               Ride, Inc. and Gen-X Equipment, Inc.(22)

   10.67       Amendment No. 1 to Resignation Agreement, dated October 11, 1996,
               by and between Ride, Inc. and James J. Salter.(22)

   10.68       Amendment No. 1 to Resignation Agreement, dated October 11, 1996,
               by and between Ride, Inc. and Kenneth J. Finkelstein.(22)

   10.69       Resignation and Release Agreement, dated October 28, 1996, by and
               between Ride, Inc. and Timothy G. Pogue(23)

   10.70       Letter agreement, dated December 6, 1996, by and between Ride
               Inc. and Straight Line Water Sports, Inc.(23)

   10.71       Letter agreement, dated December 12, 1996, by and between Ride
               Inc. and Straight Line Water Sports, Inc.(23)

   10.72*      Financial Advisory Agreement, dated January 15, 1997, by and
               between Ride, Inc. and Roger Madison, Jr.(24)

   10.73       Asset Purchase Agreement, dated July 15, 1997, by and between
               Ride, Inc. and Galena Creek Trading Company, Inc. (dba Smiley
               Hats)(25)

   10.74       Subscription Agreement, dated December 19, 1997 by and between
               Ride, Inc. and Advantage Fund II, Ltd.(28)

   10.75       Registration Rights Agreement, dated December 19, 1997 by and
               between Ride, Inc. and Advantage Fund II, Ltd.(28)

   10.76       Warrant Agreement, dated December 18, 1997 by and between Ride,
               Inc. and Rochon Capital Group, Ltd.(28)

   10.77       Placement Agency Agreement, dated December 18, 1997 by and
               between Ride, Inc. and Rochon Capital Group, Ltd.(28)

   10.78       Common Stock Purchase Warrant issued to Advantage Fund II, Ltd.
               dated December 19, 1997(28)

   10.79       Common Stock Purchase Warrant issued to Rochon Capital Group,
               Ltd. dated December 19, 1997(29)

   10.80       Loan and Security Agreement, dated August 31, 1998, by and
               between CIT Group/Credit Finance, Inc., Ride Snowboard Company,
               Ride Manufacturing, Inc., SMP Clothing, Inc., and Smiley Hats,
               Inc.

   10.81       Consent, Reaffirmation and Release Agreement, dated August 31,
               1998, by and between US Bank NA, Ride, Inc., Carve, Inc., Preston
               Binding Company, Ride International, Inc., Ride Manufacturing,
               Inc., Ride Snowboard Company, Smiley Hats, Inc., and SMP
               Clothing, Inc.

   21.1        Schedule of Subsidiaries of Ride, Inc.

   23.1        Consent of Ernst & Young LLP, Independent Auditors

   27.1        Financial Data Schedule
</TABLE>

----------

(1)      Exhibit is incorporated by reference to an identically numbered exhibit
         to the Company's Registration Statement on Form SB-2, file no.
         33-75770-LA.

(2)      Exhibit is incorporated by reference to an identically numbered exhibit
         to the Company's Amendment No. 1 to Registration Statement on Form
         SB-2, file no. 33-75770-LA.



                                       52
<PAGE>   53
(3)      Exhibit is incorporated by reference to an identically numbered exhibit
         to the Company's Registration Statement on Form SB-2, file no.
         33-75770-LA, with confidential portions omitted and filed separately
         with the Commission pursuant to a Request of Confidential Treatment
         under Rule 406 of the Securities Act of 1933.

(4)      Exhibit is incorporated by reference to Exhibit No. 10.1 to the
         Company's Current Report on Form 8-K, dated August 31, 1994.

(5)      Exhibit is incorporated by reference to Exhibit No. 1.1A to the
         Company's Amendment No. 1 to Registration Statement on Form SB-2, file
         no. 33-75770-LA.

(6)      Exhibit is incorporated by reference to an identically numbered exhibit
         to the Company's Annual Report on Form 10-K for the fiscal year ended
         December 31, 1994.

(7)      Exhibit is incorporated by reference to an identically numbered exhibit
         to the Company's Post-Effective Amendment No. 1 to the Registration
         Statement on Form SB-2, file no. 33-75770-LA.

(8)      Exhibit is incorporated by reference to an identically numbered exhibit
         to the Company's Post-Effective Amendment No. 2 to the Registration
         Statement on Form SB-2, file no. 33-75770-LA.

(9)      Exhibit is incorporated by reference to an identically numbered exhibit
         to the Company's Registration Statement on Form S-1, file no. 33-94814.

(10)     Exhibit is incorporated by reference to an identically numbered exhibit
         to Amendment No. 1 to the Company's Registration Statement on Form S-1,
         file no. 33-94814.

(11)     Exhibit is incorporated by reference to an identically numbered exhibit
         to Amendment No. 1 to the Company's Registration Statement on Form S-1,
         file no. 33-94814, with confidential portions omitted and filed
         separately with the Commission pursuant to a Request of Confidential
         Treatment under Rule 406 of the Securities Act of 1933.

(12)     Exhibit is incorporated by reference to an identically numbered exhibit
         to Amendment No. 2 to the Company's Registration Statement on Form S-1,
         file no. 33-94814.

(13)     Exhibit is incorporated by reference to an identically numbered exhibit
         to the Company's Current Report on Form 8-K, dated September 1, 1995.

(14)     Exhibit is incorporated by reference to an identically numbered exhibit
         to the Company's Current Report on Form 8-K, dated October 20, 1995.

(15)     Exhibit is incorporated by reference to Exhibit No. 2.1 to the
         Company's Current Report on Form 8-K, dated September 1, 1995.

(16)     Exhibit is incorporated by reference to Exhibit No. 2.2 to the
         Company's Current Report on Form 8-K, dated October 20, 1995.

(17)     Exhibit is incorporated by reference to Exhibit No. 1.1 to the
         Company's Registration Statement on Form S-1, file no. 33-94814.

(18)     Exhibit is incorporated by reference to an identically numbered exhibit
         to the Company's Quarterly Report on Form 10-Q, for the fiscal quarter
         ended September 30, 1995.

(19)     Exhibit is incorporated by reference to an identically numbered exhibit
         to the Company's Annual Report on Form 10-K for the fiscal year ended
         December 31, 1995.

(20)     Exhibit is incorporated by reference to an identically numbered exhibit
         to the Company's Quarterly Report on Form 10-Q for the fiscal quarter
         ended March 31, 1996.

(21)     Exhibit is incorporated by reference to an identically numbered exhibit
         to the Company's Quarterly Report on Form 10-Q for the fiscal quarter
         ended June 30, 1996.



                                       53
<PAGE>   54
(22)     Exhibit is incorporated by reference to an identically numbered exhibit
         to the Company's Current Report on Form 8-K, dated October 11, 1996.

(23)     Exhibit is incorporated by reference to an identically numbered exhibit
         to the Company's Annual Report on Form 10-K for the fiscal year ended
         December 31, 1996.

(24)     Exhibit is incorporated by reference to an identically numbered exhibit
         to the Company's Quarterly Report on Form 10-Q for the fiscal quarter
         ended March 31, 1997.

(25)     Exhibit is incorporated by reference to an identically numbered exhibit
         to the Company's Quarterly Report on Form 10-Q for the fiscal quarter
         ended September 30, 1997.

(26)     Exhibit is incorporated by reference to exhibit 4.6 to the Company's
         Current Report on Form 8-K, dated January 8, 1998.

(27)     Exhibit is incorporated by reference to exhibit 4.5 to the Company's
         Current Report on Form 8-K, dated January 8, 1998.

(28)     Exhibit is incorporated by reference to an identically numbered exhibit
         to the Company's Current Report on Form 8-K, dated January 8, 1998.

(29)     Exhibit is incorporated by reference to exhibit 4.4 to the Company's
         Current Report on Form 8-K, dated January 8, 1998.

*        Certain portions of this exhibit have been omitted and filed separately
         with the Commission pursuant to an Application for Confidential
         Treatment.

(b)      Reports on Form 8-K

The Company filed a report on Form 8-K, dated December 19, 1997, related to the
private placement of Series B Convertible Preferred Stock.


                                       54
<PAGE>   55
                                   SIGNATURES

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

                                                       RIDE, INC.
                                                      (Registrant)     


                                              /s/ ROBERT  F, MARCOVITCH     
                                        -------------------------------------
                                                  Robert F. Marcovitch       
                                        Chief Executive Officer and President

DATE:  September 28, 1998

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

<TABLE>
<S>                             <C>                                           <C> 
/s/  ROBERT F. MARCOVITCH       Chief Executive Officer, President and        Date: September 28, 1998
-------------------------       Director (Principal Executive Officer)
     Robert F. Marcovitch       

/s/  GREG COOK                            Vice President and                  Date: September 28, 1998
-------------------------              Chief Operating Officer
     Greg Cook                          (Principal Financial
                                       and Accounting Officer)

/s/  MARK M. SALTER                           Director                        Date: September 28, 1998
-------------------------
     Mark M. Salter

/s/  CORY J. HECHLER                          Director                        Date: September 28, 1998
-------------------------
     Cory J. Hechler
</TABLE>




                                       55
<PAGE>   56
                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
                                                                         MANUAL
EXHIBIT NO.                        DESCRIPTION                          PAGE NO.
-----------                        -----------                          --------
<S>                <C>                                                  <C>    
    21.1           Schedule of Subsidiaries

    23.1           Consent of Ernst & Young LLP, Independent Auditors

    27.1           Financial Data Schedule
</TABLE>




                                       56
<PAGE>   57
                                   RIDE, INC.
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                               COL. A       COL. B       COL. C       COL. D       COL. E
                                                              ---------    --------     --------     --------      ------


                                                                                 ADDITIONS       
                                                                          ------------------------
                                                                                        CHARGED TO
                                                              BALANCE AT  CHARGED TO      OTHER                  BALANCE AT
                                                              BEGINNING   COSTS AND     ACCOUNTS-   DEDUCTIONS-    END OF
                               DESCRIPTION                    OF PERIOD    EXPENSES     DESCRIBE     DESCRIBE      PERIOD
                               -----------                    ---------    --------     --------     --------      ------
<S>                                                           <C>         <C>           <C>         <C>          <C>    
                  SIX MONTHS ENDED JUNE 30, 1998
                       Reserves and allowances deducted
                          from asset accounts
                          Allowance for bad debts              $  925      $   735                  $   679(2)    $   981
                          Inventory reserves                   $2,039      $   859                  $ 1,451(3)    $ 1,447

                  YEAR ENDED DECEMBER 31, 1997
                       Reserves and allowances deducted
                          from asset accounts
                          Allowance for bad debts              $  655      $   361      $ 109(1)    $   200(2)    $   925
                          Inventory reserves                   $5,916                   $  42(1)    $ 3,919(3)    $ 2,039

                  YEAR ENDED DECEMBER 31, 1996
                       Reserves and allowances deducted
                          from asset accounts
                          Allowance for bad debts              $  359      $   495                  $   199(2)    $   655
                          Inventory reserves                   $  100      $ 6,500                  $   684(3)    $ 5,916

                  YEAR ENDED DECEMBER 31, 1995
                       Reserves and allowances deducted
                          from asset accounts
                          Allowance for bad debts              $  143      $   253      $  44(1)    $    81(2)    $   359
                          Inventory reserves                   $   --      $    60      $ 130(1)    $    90(3)    $   100
</TABLE>

(1) Amounts acquired in purchase acquisitions.

(2) Uncollectible accounts written off, net of recoveries.

(3) Cost of goods sold in excess of net realized value and obsolete inventories
written off, net of recoveries.


                                       57