U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                 FORM 10-KSB/A-1
    

[X]   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

[ ]   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______


                         Commission file number 0-25114

                           California Pro Sports, Inc.
                 ----------------------------------------------
                 (Name of small business issuer in its charter)

Delaware                                                              84-1217733
-------------------------------             ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

                          1221-B South Batesville Road
                           Greer, South Carolina         29650
               --------------------------------------------------
               (Address of principal executive office) (zip code)

                    Issuer's telephone number (864) 848-5160

           Securities registered under Section 12(b) of the Act: None

             Securities registered under Section 12(g) of the Act:
                          Common Stock, $.01 par value
                                (Title of Class)

                        Warrants to Purchase Common Stock
                                (Title of Class)

     Check  whether  the issuer (1) filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during the past 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. (1) Yes /x/ No  / / (2) Yes /x/ No / /

     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of Regulation S-B contained herein, and no disclosure will be contained,  to
the  best  of  the  issuer's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [ ]

     State the issuer's revenues for its most recent fiscal year. $9,087,767

     As of February 28, 1998,  6,942,021 shares of Common Stock were outstanding
and aggregate  market value of the shares (based upon the average of the bid and
asked  price of the shares on the  over-the-counter  market) of  California  Pro
Sports, Inc. held by nonaffiliates was approximately $7,999,217.

     Documents Incorporated by Reference - None

     Transitional Small Business disclosure format (check one): Yes / / No /x/

<PAGE>
                           CALIFORNIA PRO SPORTS, INC.
                                AND SUBSIDIARIES

   
                                 FORM 10-KSB/A-1
    

THIS REPORT MAY CONTAIN  CERTAIN  "FORWARD-LOOKING"  STATEMENTS  AS SUCH TERM IS
DEFINED  IN THE  PRIVATE  SECURITIES  LITIGATION  REFORM  ACT OF  1995 OR BY THE
SECURITIES AND EXCHANGE COMMISSION IN ITS RULES, REGULATIONS AND RELEASES, WHICH
REPRESENT THE  REGISTRANT'S  EXPECTATIONS OR BELIEFS,  INCLUDING BUT NOT LIMITED
TO, STATEMENTS  CONCERNING THE REGISTRANT'S  OPERATIONS,  ECONOMIC  PERFORMANCE,
FINANCIAL CONDITION, GROWTH AND ACQUISITION STRATEGIES,  INVESTMENTS, AND FUTURE
OPERATIONAL  PLANS. FOR THIS PURPOSE,  ANY STATEMENTS  CONTAINED HEREIN THAT ARE
NOT  STATEMENTS  OF  HISTORICAL  FACT  MAY  BE  DEEMED  TO  BE   FORWARD-LOOKING
STATEMENTS.  WITHOUT  LIMITING THE  GENERALITY OF THE  FOREGOING,  WORDS SUCH AS
"MAY," "WILL," "EXPECT," "BELIEVE," "ANTICIPATE," "INTENT," "COULD," "ESTIMATE,"
"MIGHT," OR "CONTINUE" OR THE NEGATIVE OR OTHER VARIATIONS THEREOF OR COMPARABLE
TERMINOLOGY  ARE  INTENDED  TO  IDENTIFY   FORWARD-LOOKING   STATEMENTS.   THESE
STATEMENTS BY THEIR NATURE INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES,  CERTAIN
OF WHICH ARE BEYOND THE  REGISTRANT'S  CONTROL,  AND ACTUAL  RESULTS  MAY DIFFER
MATERIALLY  DEPENDING ON A VARIETY OF IMPORTANT FACTORS,  INCLUDING  UNCERTAINTY
RELATED TO  ACQUISITIONS,  GOVERNMENTAL  REGULATION,  MANAGING  AND  MAINTAINING
GROWTH,  VOLATILITY OF STOCK PRICE AND ANY OTHER  FACTORS  DISCUSSED IN THIS AND
OTHER REGISTRANT FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.


                                     PART I

ITEM 1.    DESCRIPTION OF BUSINESS
           -----------------------

(a)        BUSINESS DEVELOPMENT.

     California Pro Sports, Inc.,  (hereinafter  referred to as the "Company" or
"Registrant"), is a Delaware corporation organized on January 4, 1993 to acquire
the California  Pro(TM)  in-line skate  business from  California Pro USA Corp.,
subsequently renamed SCYL, Inc. ("SCYL") and later dissolved. Playmaker Co., LTD
("Playmaker"),  the Taiwanese  in-line skate  manufacturer and majority owner of
the seller,  granted the Company an exclusive,  perpetual,  non-royalty  bearing
license to the  California  Pro(TM)  names and  trademarks  and  entered  into a
five-year  manufacturing  agreement to supply substantially all of the Company's
in-line skate  products.  This  acquisition  was a taxable  transaction  and was
accounted  for  as a  purchase.  Due  to the  significant  continuing  ownership
participation of Playmaker in the Company,  the assets acquired were recorded at
historical cost. Cash paid and notes given by the Company for the agreements not
to compete,  management buy-out and consulting fees, and the guaranty fees, were
recorded as intangible assets.

     In another  acquisition  completed on August 1, 1994, the Company purchased
certain  assets,  including an exclusive,  perpetual  world-wide  license to the
Kemper(R) name and  trademark,  subject to a royalty.  The Company  acquired its
license  directly from the registered owner of the Kemper(R) name and trademark,
Front 500 Corporation ("Front 500").

                                       -2-
<PAGE>
     In 1995, the Company formed USA Skate Corporation,  a Delaware corporation,
("Skate Corp.").  Skate Corp. is a majority owned (approximately 62%) subsidiary
of the Company and its financial  statements are consolidated  with those of the
Company in this report.  Effective as of April 30,  1996,  Skate Corp.  acquired
100% of USA Skate Co., Inc. ("USA Skate"),  a New York  corporation,  in a stock
purchase transaction. USA Skate owns, directly or indirectly, all of the capital
stock  of  Les  Equipements  Sportifs  Davtec,  Inc.   ("Davtec"),   a  Canadian
corporation. The acquisition was accounted for as a purchase.  Consideration for
the purchase was $10.5 million,  consisting of $3.65 million of cash  (including
approximately  $98,000 of cash  acquired),  a $1.05 million 8% installment  note
payable due through  November 1998,  250,000 shares of Skate Corp.  common stock
valued at $300,000, and assumption of approximately $5.5 million of debt.

     The cash  portion of the  purchase  price for USA Skate was paid with funds
raised by Skate Corp.,  including  the private  placement  of 884,667  shares of
common stock of Skate Corp. for  approximately  $1.06  million;  the issuance of
approximately   $1.08  million  of  9%  promissory   notes  payable  to  certain
officers/stockholders  due June 30, 1997; and the issuance of approximately $2.5
million  of 9%  promissory  notes due  January  1997  (the  "Skate  Notes").  As
permitted  under the terms of the Skate  Notes,  the due date of the Skate Notes
has been  extended to May 5, 1998 and bear  interest at 12% during the extension
period and are convertible under certain circumstances.

     The debt assumption  portion of this  acquisition was financed in part by a
bank loan to USA Skate by LaSalle National Bank, the proceeds of which were used
to repay the outstanding indebtedness under the credit facility in place for USA
Skate prior to completion of the acquisition. The LaSalle loan agreement allowed
for advances up to 75% of  qualifying  accounts  receivable,  50% of  qualifying
inventories and 50% of outstanding letters of credit, with a maximum limit of $5
million.  Loans under the  agreement  bear interest at 1% above the bank's prime
rate and are due on  demand.  The loan  agreement  required  payment  of initial
financing  fees of $100,000 and fees of $50,000  annually and contained  certain
financial covenants and restrictions  regarding payment of dividends,  officers'
compensation  and consulting  fees, as well as restrictions on USA Skate's loans
and investments. The loan was collateralized by substantially all of USA Skate's
assets and was  guaranteed  by Skate  Corp.  and certain of its  affiliates  and
stockholders.  At December 31, 1996, Skate Corp. was in technical  default under
this lending arrangement primarily due to the Company's wholly-owned  subsidiary
being in default under its loan with LaSalle. At year-end 1996,  California Pro,
Inc. was undercollateralized by approximately $800,000 and was not in compliance
with  certain  of its  financial  covenants.  As a result,  LaSalle  could  have
accelerated both loans and required immediate full repayment.  However, based on
an oral arrangement with the Company, LaSalle did not accelerate either loan nor
did it require full repayment.

   
     At the time of the acquisition,  Skate Corp. made a capital contribution of
$500,000 to Davtec,  and the former  controlling  shareholder  of USA Skate paid
Davtec  $165,000 in return for a $125,000,  8% promissory  note due December 31,
1996 and payment of a $40,000 outstanding  receivable.  The proceeds of $665,000
were used to reduce  Davtec's  indebtedness  to its  Canadian  bank  lender.  In
connection with the payments, and subject to certain other terms and conditions,
the  Canadian  bank  agreed to extend the  existing  line of credit  with Davtec
through July 31, 1997. In March 1997,  the Company repaid $50,000 under the note

                                       -3-
<PAGE>

to the former controlling shareholder of USA Skate, Warren Amendola, and entered
into a modification agreement extending the due date of the remaining $75,000 to
October 1, 1997. In February  1997, the Company  received  notice that it was in
violation  of a loan  covenant  and in March  1997,  the bank  filed a notice of
intention to enforce security and to demand payment of the loan.

     At the time of the USA Skate acquisition,  the Company, Skate Corp. and USA
Skate also entered into certain  other  agreements  with the former  controlling
shareholder  of USA Skate,  Warren  Amendola.  USA Skate entered into a one-year
employment agreement with the former controlling shareholder of USA Skate, which
provided for annual compensation of $90,000. The former controlling  shareholder
of USA Skate  entered into a five-year  consulting  agreement  with the Company,
Skate Corp. and USA Skate and a ten-year  noncompete  agreement in consideration
for receipt of 400,000 shares of the Company's  common stock valued at $900,000.
USA Skate also entered into a worldwide,  exclusive license agreement for use of
certain  trademarks  owned by the former  controlling  shareholder of USA Skate,
Warren  Amendola,  in exchange for minimum royalty payments of $3 million due on
or before December 2001. Finder's fees, bank origination,  legal, accounting and
other costs of the  acquisition  were  approximately  $1.53  million,  including
guarantee  fees  to  two   officers/stockholders  of  $600,000  related  to  the
officers'/stockholders'  providing  personal  guarantees  of certain of the debt
assumed and issued in the transaction.
    

     In 1996 and 1997, due to continuing operating losses, management decided to
restructure  and de-leverage  the Company.  Accordingly,  in September 1997, the
Company  completed the sale of substantially  all of the assets of Skate Corp.'s
direct and indirect  operating  subsidiaries,  USA Skate and Davtec, to Rawlings
Sporting  Goods  Company,   Inc.  and  Rawlings   Canada,   Inc.   (collectively
"Rawlings").  Consideration  to Skate Corp.  consisted  of $14.5  million  cash,
inclusive of $1.0 million retained in escrow for purchase price  adjustments and
proven claims by the  purchasers,  and  assumption of trade payables and accrued
liabilities related to the assets purchased.

     An additional  component of the  restructuring  plan included  management's
decision to cease  operating its California Pro and Kemper  licenses,  eliminate
most of the operating and overhead  expenses  associated with its sporting goods
business  and begin to  concentrate  on sub-  licensing  its  trademark  rights.
Accordingly,  in the second quarter of 1997, the Company began  liquidating  any
remaining  inventories  and  commenced a search for  sub-licensees  and a merger
candidate.

     As a result of its search,  on October 2, 1997, the Company signed a letter
of intent to merge with ImaginOn, Inc. ("ImaginOn") of San Carlos, California, a
privately held company.  Thereafter, the Company signed an agreement and plan of
merger as of January 30, 1998 whereby  there would be an exchange of 100% of the
outstanding  shares of ImaginOn  for an amount  equal to 60% of the  outstanding
post merger common stock of California Pro.

     ImaginOn,  formed in March  1996,  designs,  manufactures  and  sells:  (i)
consumer  software products for the CD/DVD-ROM  market;  and (ii) a navigational
tool for sophisticated Internet users. ImaginOn's proprietary technology, called
"Transformation Database Processing and Playback" ("TDPP"), enables the creation
of  new  business  and  consumer   products  that  provide   user-friendly   and
entertaining access to multimedia databases.

                                       -4-
<PAGE>

     The  transaction,  which is expected to be completed by mid-summer 1998, is
contingent  upon certain  customary  conditions  including,  but not limited to,
approval by the boards of directors of both  companies,  a vote by the Company's
stockholders  (to  approve the merger and  increase  the  authorized  shares the
Company may issue),  and the completion of a fairness  opinion by an independent
valuation company.

     ImaginOn  has  developed  and   manufactured  a  general  purpose  software
application, named "WebZinger" for internet browsers. WebZinger(TM) mediates Web
searches  for both naive and  sophisticated  users,  increasing  efficiency  and
saving time. ImaginOn's core technology, TDPP, has enabled the creation of a new
class of business and consumer  products;  a hybrid of local and remote database
content  with  seamless  real-time  access to video,  audio,  graphics and text.
ImaginOn has designed  eleven  software  tools based on TDPP. The first software
title "World Cities 2000 San Francisco," an interactive travelogue, is complete.

     Prior to implementation  of the  restructuring and de-leveraging  plan, the
Company  operated  its  in-line  skate  and  snowboard  businesses  through  its
wholly-owned  subsidiary,  California  Pro,  Inc.,  also a Delaware  corporation
("CP").  The Company's only  significant  assets are the capital stock of CP and
Skate  Corp.  CP and USA Skate were the  borrowers  under  bank loan  agreements
described  above and the Company was a  guarantor  of each of their  obligations
thereunder.  In  addition,  CP's bank loan was  guaranteed  by USA Skate and USA
Skate's bank loan was guaranteed by CP.

(b)        BUSINESS OF ISSUER.

     The  Company  licenses   California  Pro(R)  in-line  skates,  and  related
protective gear and accessories from Playmaker. Kemper(R) snowboards and related
snowboard accessories are licensed from Front 500. VIC(R), VICTORIAVILLE(TM) and
McMartin(TM) ice and street/roller hockey skates,  sticks and related protective
gear and  accessories  were  licensed  until  September  1997  from  the  former
controlling  shareholder of USA Skate. Davtec, USA Skate's wholly-owned Canadian
subsidiary,  manufactured hockey sticks,  pants and gloves for USA Skate and was
the Canadian  distributor  for all of the hockey related  VICTORIAVILLE(TM)  and
VIC(R) product lines.

     The  Company's  in-line  skate  products  were sold in the  United  States,
Canada,  the Caribbean and U.S.  military  bases world wide.  Its snowboards and
related  accessories  were sold  primarily  in the United  States  and  European
countries.  The Company sold through September 1997 its hockey-related  products
in the United States and Canada through  independent sales  representatives  and
internationally   through   independent   distributors   located   in   Germany,
Switzerland, Italy, Austria, Czech Republic, Sweden, Finland, France and Brazil.

     As  part  of  management's  restructuring  plan  [see  Item  1(a)--Business
Development],  the Company  recently  entered  into two  sub-license  agreements
regarding  the use of the  Kemper  name.  Additionally,  the  Company is seeking
sub-licensees  for the California Pro brand, not only for in-line skates but for
other sporting goods categories such as snowboards and waterskis.

     The Company will rely on the expertise of their  sub-licensees  to develop,
import or manufacture,  and market and distribute  within their licensed product
categories and territories.

                                       -5-
<PAGE>

     One  of the  Kemper  sub-licensees,  a  major  west  coast  sporting  goods
retailer,  designs,  imports and sells directly to consumers a line of snowboard
apparel. The other Kemper sub- licensee is one of the leading  manufacturers and
marketers of snowboards and related  products such as bindings,  boots and other
accessories.

     Each of the Kemper  sub-licensees  offer a full line of products at various
price points within their respective product categories.

PRODUCTS

     The Company, until September 1997, had five major hockey product categories
consisting of (1) hockey sticks;  (2) hockey protective gear; (3) figure and ice
hockey skates;  (4) hockey bags and related  accessories;  and (5) street/roller
hockey skates and  protective  gear.  These  products  were  marketed  under the
VICTORIAVILLE(TM),   VIC(R)  and  McMartin(R)   brands.   Davtec,  the  Canadian
subsidiary of the Company's hockey division,  manufactured hockey sticks,  pants
and gloves  for the  Company  and was the  Canadian  distributor  for all of the
hockey related VIC(R) and VICTORIAVILLE(TM)  product lines. The Company's hockey
product lines were constructed of various  materials and incorporated the latest
designs,  graphics and technology.  Approximately  70% of Skate Corp.'s products
were manufactured by the Canadian subsidiary.

PRODUCT DESIGN AND DEVELOPMENT

     Design and  development  of the  Company's  hockey  products  sold  through
September  1997  was  undertaken  by  the  Company's  research  and  development
personnel  in  conjunction   with  outside  design  firms  and  vendors,   where
appropriate. The Company believes its manufacturing facilities were state of the
art and produced  consistent and competitive  products from innovative  designs.
USA Skate redesigned its logo in 1997 and all of its products through  September
1, 1997 incorporated the new logo.

SALES AND MARKETING

     The Company  marketed its ice hockey products  primarily in retail sporting
goods  chains and  specialty  shops.  Distribution  was  accomplished  primarily
through national  networks of independent sales  representative  groups who sell
directly to buyers and retail accounts.

     USA Skate had oral agreements with ten sales representative groups covering
the United States and Canada. These sales  representative  groups were paid on a
standard, commission-only basis. In addition, there were distributors located in
Germany,  Switzerland,  Italy, Austria, Czech Republic,  Sweden, Finland, France
and Brazil.

     The Company's marketing strategy emphasized the price/value relationship of
its branded products. In particular, the Company believed that within its hockey
business,  retailers were afforded an excellent  mark-up for  VICTORIAVILLE(TM),
VIC(R) and  McMartin(R)  hockey  products when the features were compared to the
features of the competitors at virtually all price points.

     USA Skate  advertised  and promoted its hockey  products  through  multiple
methods  customary  within the  industry.  It  participated  in all major  trade

                                       -6-
<PAGE>

exhibits,  conducted  special  promotions  and  advertised in trade and consumer
publications on a national, regional and local basis. Point of purchase material
and  promotional  items  were made  available  to the  customer  base as well as
directly to consumers through USA Skate and trade supported programs. A critical
component of USA Skate's promotional strategy had lain in its ability to attract
NHL and other  professional  league  players to use and  promote  the  Company's
products, thereby reinforcing the brand's authenticity and performance. In 1997,
over  100  NHL  players  used  the  Company's   VICTORIAVILLE(TM),   VIC(R)  and
Hespeler(TM)  branded  products,  including NHL All- Stars Steve  Yzerman,  John
Vanbiesbrouck and Jeff Richter.

SUPPLIERS AND MANUFACTURING

     IN-LINE  SKATE  PRODUCTS.  The  Company  has  an  exclusive   manufacturing
agreement with Playmaker which expires in 1998,  under which Playmaker  supplied
most of the Company's in-line skates and in-line skate accessory products. Prior
to the Company's decision to temporarily suspend marketing of in-line skates and
related  accessories while it searches for sub-licensees and a merger candidate,
Playmaker manufactured, assembled and packaged its in-line skate products at its
facilities  in Taiwan  and China for set  prices,  in U.S.  dollars,  negotiated
annually.  In 1996, the Company began sourcing certain in-line skate models from
an alternative Pacific Rim supplier.

     HOCKEY PRODUCTS.  The Company, prior to selling certain assets in September
1997,  had  three  manufacturing  facilities;  one in  London,  Ontario,  one in
Montreal and the other in Daveluyville,  Quebec,  Canada. The Daveluyville plant
manufactured  the Company's hockey sticks,  the Montreal plant  manufactured the
Company's  premium  pants and gloves and the London  facility  manufactured  the
Company's  goalie  protective  equipment  under  the  McMartin  brand.  Products
representing approximately 70% of USA Skate's sales were manufactured by Davtec.
The other  products  marketed  by the  Company  were  sourced  from a variety of
suppliers throughout the world. Cortina  International  Corporation and Superior
Sports  were  the  Company's  main  suppliers  of ice and  street/roller  hockey
protection  products.  Figure and hockey skates were supplied by Taiwan  Sakurai
and premium  quality figure skates were  manufactured  in the Czech Republic and
supplied to the Company by Benal.

LICENSES, PATENTS AND TRADEMARKS

     The Company derives its proprietary protection primarily from licenses with
others who own  patents  and  trademarks.  The  Company  owns no patents and has
applied for or owns a limited number of trademarks.

     IN-LINE  SKATE  PRODUCTS.  The Company  entered  into a  perpetual  license
agreement with Playmaker under which the Company has the exclusive, royalty-free
right to use the California Pro(R) and Rolling  Thunder(TM) names and trademarks
on in-line  skates,  accessories  and any other  products in the United  States,
Canada,  certain areas of the Caribbean and U.S. military  exchanges  worldwide.
The  Company has also  entered  into an  agreement  with  Playmaker  under which
Playmaker will pay the Company a five percent royalty on all sales of any


                                       -7-
<PAGE>

product made by  Playmaker  to any new  customer of  Playmaker  generated by the
Company. No royalties have been agreed to or paid to date under this agreement.

     The Company and Playmaker each have  non-exclusive  royalty  bearing patent
license  agreements with Rollerblade,  Inc. related to one feature on several of
the  Company's  in-line  skate  models.  These  agreements  require  payment  to
Rollerblade,  Inc. of a percentage  of the net sales price to retail  merchants.
Playmaker reimburses the Company for 90% of the royalties paid by the Company to
Rollerblade under these agreements.

     The Company,  after  continuing to analyze the competitive  position of the
California  Pro  brand  in  the  marketplace,  has  decided  to  seek  potential
sub-licensing candidates. Management feels there is value in the brand, not only
for in-line skates but in other sporting  goods  categories  such as skateboards
and waterskis.

     SNOWBOARD  PRODUCTS.  In August 1994, the Company entered into an agreement
with Front 500 Corporation,  for an exclusive,  perpetual,  worldwide license to
use  the  name  "Kemper  Snowboards  Inc."  and  the  Kemper(R)  design  and all
derivations  thereof in the  manufacture,  import,  export,  design,  marketing,
promotion  and  distribution  of  Kemper(R)  snowboards  and related  equipment,
clothing and accessories. In return for these license rights, the Company pays a
royalty of net sales for products sold under this license.

     In  February  1998,  the  Company  reached  a  two-year  agreement  with an
international  manufacturer and marketer of snowboards and related products. The
agreement,  in effect, assigns all the license rights the Company had from Front
500 to the sub-licensee. The Company has no further obligations to Front 500 and
is  entitled  to the  greater  of a  royalty-based  payment  on net sales by the
sub-licensee, or an annual minimum guaranteed payment.

     In 1997, the Company  entered into a three year  non-exclusive  sub-license
agreement with a major west coast sporting goods chain  retailer.  The agreement
allows  for the  sub-licensee  to  manufacture,  or  cause  to be  manufactured,
snowboard apparel (jackets,  pants,  fleece garments,  socks,  etc.) bearing the
name and/or logo of Kemper,  and to sell such  products  in retail  stores.  The
agreement  requires  the  retailer  to pay  to  the  Company  the  greater  of a
percentage  of their  cost to  manufacture  the  apparel  or an  annual  minimum
guaranteed payment.

     HOCKEY PRODUCTS.  The Company,  through September 1997, owned the exclusive
worldwide trademark rights to the  VICTORIAVILLE(TM) and VIC(R) trademarks under
a royalty  bearing  license.  Included  with the sale of  certain  assets of the
Company's hockey business were these trademarks.  Accordingly,  the Company paid
$2,678,000 of the proceeds from Rawlings to the former  controlling  shareholder
of USA Skate for, primarily, the purchase price of these trademarks.

                                       -8-
<PAGE>

COMPETITION

     IN-LINE SKATE BUSINESS.  The in-line skate business is a highly competitive
industry.  Some of the Company's  competitors  have greater  financial and other
resources  than the  Company.  The  Company  believes  that there has been lower
consumer  demand for in-line  skates as well as  retailers  not quickly  selling
through their existing  inventory.  With respect to the Company's  in-line skate
business its primary competitors are Rollerblade, Inc., Ultra Wheels (First Team
Sports,  Inc.),  Bauer and  Variflex.  With regard to in-line  skate  protective
equipment,   Rollerblade,  First  Team  Sports  and  Franklin  are  the  primary
competitors.  Management  believes that these  competitors  collectively  have a
market share of over 50%.

     The primary  competitive  factors in the in-line skate business are product
features, quality, price, service and name recognition.  Although Rollerblade is
still the most recognized name in the in-line skate industry,  consumers are now
comparing features and price more closely.

     SNOWBOARD  BUSINESS.  The  Company's   sub-licensees  compete  with  Burton
Snowboards,  with a world market share  estimated at  approximately  50%.  Other
competitors  include Sims Snowboards and Ride Snowboard  Company.  Additionally,
many of the ski  manufacturers  (i.e.  K2 and  Rossignol)  have also entered the
market.  Management  believes that these  companies  have greater  financial and
other resources than the Company's sub-licensees.

     HOCKEY BUSINESS.  Both ice and  street/roller  hockey businesses are highly
competitive,  with  competition  predominantly  focused on  product  innovation,
performance and styling, price, marketing and delivery and name recognition. The
hockey  markets are dominated by a relatively  small number of large  companies,
most of whom have greater  financial and other  resources than the Company.  The
primary  competitors of USA Skate are Bauer,  CCM,  Sherwood and Karhu Corp. The
Company believes that these competitors collectively have a market share of over
50%. USA Skate enjoys  strong brand  recognition  and believes it also  competes
favorably  with  respect to the other major  competitive  factors.  There are no
significant  technological  or capital  barriers to entry into  markets for many
sporting goods  products.  These markets  compete with other leisure  activities
markets for  discretionary  income spending in a continuously  evolving consumer
market.

CUSTOMERS

     For the year ended  December 31, 1997,  no customers  accounted  for 10% or
more of the Company's sales.

EMPLOYEES

     As of December 31, 1997,  reflecting the Company's limited operations,  the
Company had 2 full-time employees, 2 part-time employees and 3 consultants.  The
Company  believes its relations with its employees and consultants are good. The
Company's employees are not subject to collective bargaining agreements.

                                       -9-
<PAGE>
SPECIAL CONSIDERATIONS AFFECTING THE COMPANY

     Inevaluating the Company,  readers of this Report should carefully consider
the  following  special  considerations  affecting  the Company,  its  business,
markets,  operations and  competitive  environment.  Any one or a combination of
these  considerations  may have a material adverse effect on the Company and its
operations and management's beliefs or predictions about future performance.

     LIMITED  OPERATIONS.   The  Company  and  ImaginOn  have  limited  business
operations.  The Company is currently  receiving income from sub-licenses it has
entered into regarding the use of the Kemper name and trademark for which it has
a license.  The Company also licenses the  California Pro name and trademark and
is pursuing entering into  sub-licenses.  The Company has received no commitment
from any  party  for such  sub-license  and  there  can be no  assurance  that a
sub-license will be entered into.

     NO  INVENTORIES.  The Company has liquidated  its remaining  inventory and,
therefore, it does not maintain, nor does it intend to accumulate,  an inventory
of in-line skate, snowboard or hockey products.

     Working Capital Shortages and Operating Losses.  Recently,  the Company has
generated  significant operating losses and has failed to generate positive cash
flow.  As a result,  the Company has, and continue to  experience,  shortages of
working  capital  to fund day to day  operations.  ImaginOn  also has  generated
significant operating losses and has failed to generate positive cash flow.

     The shortages of working capital and insufficient cash flow have, from time
to  time,   prevented  the  Company  from  making  prompt   payment  of  current
obligations.  As a result,  the  Company  is  subject  to  numerous  claims  for
collection  of past  due  amounts  and  are  past  due on  certain  of its  debt
obligations.

     LIMITED  CAPITALIZATION.   The  Company  and  ImaginOn  have  only  limited
financing available to it and is dependent on significant  additional  financing
being available to continue as a going concern.

     On March 13, 1998,  the Company  began a private  placement for the sale of
1,842,000  shares of Skate Corp.  common stock it owns, which includes an option
to acquire  2,763,000  shares of the Company's  common stock in exchange for the
Skate Corp.  shares.  The Company is selling 14 units at $100,000 each for total
aggregate proceeds of $1,400,000.  Each unit consists of 131,571 shares of Skate
Corp. with an option to acquire 197,357 shares of the Company's  common stock in

                                      -10-
<PAGE>

exchange  for  the  Skate  Corp.  shares.  Although  the  Company  has  received
commitments to purchase all of the units there can be no assurance that the sale
of the units will be completed or that, if completed, the proceeds from the sale
will be received in a timely manner and thus be available as working  capital to
fund day to day operations. The failure to complete this private placement would
hinder the Company's  ability to complete the merger with ImaginOn,  which could
materially adversely affect results of operations.

     The Company may also seek  additional  equity or debt  financing to further
fund day to day  operations.  There can be no assurance that such financing will
be available  when needed,  or that,  if available,  it will be on  satisfactory
terms.

     Merger  with  ImaginOn;  Change  of  Business.  The  Company  has  signed a
definitive Agreement and Plan of Merger with ImaginOn,  Inc.  ("ImaginOn").  The
closing of this  transaction  is subject  to  certain  contingencies,  including
shareholder approval.  If the transaction is consummated,  the Company's line of
business will change to include computer software manufacturing,  production and
other  related  activities.  Although  the  Company's  management  believes  the
transaction will close upon satisfaction of certain contingencies,  there can be
no such assurance.

                                      -11-
<PAGE>

ITEM 2.  DESCRIPTION OF PROPERTY
         -----------------------

(a)      FACILITIES
                                                      Lease (L)    Annual
Location         Use                    Sq. Ft.       Own (O)      Rent
--------         ---                    -------       -------      ----
Greer, SC        Corporate Offices       3,900           L        $36,000  *

--------------
*          Leased on a month-to-month basis.

(b) and (c)

     Not applicable

ITEM 3.    LEGAL PROCEEDINGS
           -----------------

     The Company was a named  defendant in a lawsuit  styled  Basquiat v. Kemper
Snowboards, et al. The action was filed on January 11, 1996 in the United States
District  Court  for  the  Southern  District  of New  York  alleging  copyright
infringement with respect to snowboards  allegedly  distributed by the Company's
Kemper  Snowboard  division  which  allegedly  included   reproductions  of  the
plaintiff's  copyrighted  works.  Plaintiff sought damages in an amount not less
than  $200,000.  The  Company  referred  the  complaint  to its  insurer,  which
thereafter provided a defense. On October 14, 1997, a jury verdict in the amount
of $450,000 was awarded against the defendants, including the Company. The Court
has not yet entered  judgment  on the jury  verdict,  in light of certain  post-
trial  motions  filed by the  Company  to  overturn  or reduce the amount of the
verdict.  The Company  believes  that there are  meritorious  grounds for such a
motion, which is still pending a decision by the court. In the event such motion
is denied,  the Company  intends to appeal the verdict and any judgment  entered
thereon,  and  believes  it has  meritorious  grounds  for  such an  appeal.  As
previously noted, the Company's insurer has preliminarily indicated that it will
provide  coverage,  subject to relevant  deductibles and a reservation of rights
with respect to certain matters the Company  strongly  believes will be resolved
in its favor.

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

     No  matters  were  submitted  to a vote of  stockholders  during the fourth
quarter of 1997.

                                      -12-
<PAGE>
                                     PART II


ITEM 5.    MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
           --------------------------------------------------------

(a)        MARKET INFORMATION.

     The Company's  Common Stock and Warrants have been traded  over-the-counter
since  January 18, 1995 and are quoted on the Nasdaq  SmallCap  Market under the
symbols CALP and CALPW,  respectively.  The following table sets forth the range
of high and low bid prices as quoted by Nasdaq.  These market quotations reflect
inter-dealer prices without retail mark-up, mark-down or commissions and may not
represent actual transactions.

                                      Common Stock         Warrants
                                       Bid Prices          Bid Prices
                                    ---------------     ---------------
1997                                 High      Low       High      Low
----                                 ----      ---       ----      ---
First Quarter (1/1/97-3/31/97) ..   $1.53     $ .81     $ .40     $ .25
Second Quarter (4/1/97-6/30/97) .   $2.00     $ .93     $ .68     $ .21875
Third Quarter (7/1/97-9/30/97) ..   $2.37     $1.37     $ .75     $ .4375
Fourth Quarter (10/1/97-12/31/97)   $3.06     $1.06     $1.15     $ .6875

1996
----
First Quarter (1/1/96-3/31/96) ..   $4.62     $2.56     $1.92     $ .65625
Second Quarter (4/1/96-6/30/96) .   $4.00     $2.25     $1.00     $ .50
Third Quarter (7/1/96-9/30/96) ..   $3.06     $1.87     $ .90     $ .375
Fourth Quarter (10/1/96-12/31/96)   $2.31     $1.25     $ .56     $ .21875


     NASDAQ NOTIFICATION OF DELISTING.  The NASDAQ Stock Market, Inc. issued new
standards for continued  listing of SmallCap  Market  participants  which became
effective  February 23, 1998. The Company is a SmallCap  Market  participant and
must meet these new  requirements.  On the effective  date,  the Company did not
meet one of the new  requirements  of having net tangible  assets that exceed $2
million.  Under the new standards,  NASDAQ has  established a review process for
companies  temporarily out of compliance.  The Company filed its written request
for a temporary  exemption to the new  standards on March 27, 1998 and NASDAQ is
scheduled to review the matter during the week of April 13, 1998. Along with the
written request, the Company filed a Form 8-K which, on a pro-forma basis, shows
compliance with the new continued listing requirements.

(b)        HOLDERS.

     The number of record holders of the Company's  Common Stock as of April 14,
1998 was approximately  117. Based on information from the brokerage  community,
the  Company  believes  that  its  Common  Stock  and  Warrants  each  are  held
beneficially by more than 300 persons.

(c)        DIVIDENDS.

     The Company has not  declared or paid  dividends on its Common  Stock,  nor
does it anticipate  paying any cash  dividends in the  foreseeable  future.  The
Company  currently  intends to retain any future earnings to fund operations and
for the continued  development  of its business.

                                      -13-
<PAGE>

   
(d)        RECENT SALES OF UNREGISTERED SECURITIES.

     On October 10, 1997,  the Company  issued 28,059 shares of its common stock
in exchange for the extensions of the maturity date to November 5, 1998 on notes
of Skate  Corp.  The amount was owed based upon 5% of the  oustanding  principal
balance and payment was made based on $2.24 per share. The Company relied on the
exemption  from  registration  provided by Section  4(6) of the  Securities  Act
related to the issuance of these shares.

     On November 16, 1997,  the Company issued 32,230 shares of its common stock
in exchange for the extensions of the maturity date to December 5, 1997 on notes
of Skate Corp.  The amount was owed based upon 5% of the  outstanding  principal
balance and payment was made based on $1.95 per share. The company relied on the
exemption  from  registration  provided by Section  4(6) of the  Securities  Act
related to the issuance of these shares.

     On November 26, 1997, the Company issued 15,000 shares to a director of the
Company  upon the exercise of a previously  granted  option under the  Company's
1994 Stock Option Plan.

     On December  11, 1997,  the Company  issued an aggregate of 7,500 shares to
one  present  and one  former  employee  of the  Company  upon the  exercise  of
previously granted options under the Company's 1994 Stock Option Plan.
    

                                      -14-
<PAGE>

ITEM 6.    MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
           ---------------------------------------------------------

THIS REPORT MAY CONTAIN  CERTAIN  "FORWARD-LOOKING"  STATEMENTS  AS SUCH TERM IS
DEFINED  IN THE  PRIVATE  SECURITIES  LITIGATION  REFORM  ACT OF  1995 OR BY THE
SECURITIES AND EXCHANGE COMMISSION IN ITS RULES, REGULATIONS AND RELEASES, WHICH
REPRESENT THE  REGISTRANT'S  EXPECTATIONS OR BELIEFS,  INCLUDING BUT NOT LIMITED
TO, STATEMENTS  CONCERNING THE REGISTRANT'S  OPERATIONS,  ECONOMIC  PERFORMANCE,
FINANCIAL CONDITION, GROWTH AND ACQUISITION STRATEGIES,  INVESTMENTS, AND FUTURE
OPERATIONAL  PLANS. FOR THIS PURPOSE,  ANY STATEMENTS  CONTAINED HEREIN THAT ARE
NOT  STATEMENTS  OF  HISTORICAL  FACT  MAY  BE  DEEMED  TO  BE   FORWARD-LOOKING
STATEMENTS.  WITHOUT  LIMITING THE  GENERALITY OF THE  FOREGOING,  WORDS SUCH AS
"MAY," "WILL," "EXPECT," "BELIEVE," "ANTICIPATE," "INTENT," "COULD," "ESTIMATE,"
"MIGHT," OR "CONTINUE" OR THE NEGATIVE OR OTHER VARIATIONS THEREOF OR COMPARABLE
TERMINOLOGY  ARE  INTENDED  TO  IDENTIFY   FORWARD-LOOKING   STATEMENTS.   THESE
STATEMENTS BY THEIR NATURE INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES,  CERTAIN
OF WHICH ARE BEYOND THE  REGISTRANT'S  CONTROL,  AND ACTUAL  RESULTS  MAY DIFFER
MATERIALLY  DEPENDING ON A VARIETY OF IMPORTANT FACTORS,  INCLUDING  UNCERTAINTY
RELATED TO  ACQUISITIONS,  GOVERNMENTAL  REGULATION,  MANAGING  AND  MAINTAINING
GROWTH,  VOLATILITY OF STOCK PRICE AND ANY OTHER  FACTORS  DISCUSSED IN THIS AND
OTHER REGISTRANT FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.

OVERVIEW

     During  1997,  the Company had  limited  revenues in its in-line  skate and
snowboard  businesses,  and in September  1997,  sold  substantially  all of the
assets of its ice and street/roller  hockey business  ("Hockey").  The following
discussion  pertains to the  business  operations  for 1996 and 1997 for in-line
skates and snowboards and from May 1996 (the  acquisition  date of USA Skate) to
September  1,  1997  (the  asset  disposition  date  of  USA  Skate)  for  ice &
street/roller hockey products.

     The Company imported and distributed  products in three participant  sports
categories.  In-line skates and related  accessory  products were marketed under
the brand names California Pro(R) and Rolling Thunder(TM); since August 1, 1994,
snowboards  and snowboard  accessory  products were marketed under the Kemper(R)
brand;  and from May 1996 to September  1, 1997,  ice and  street/roller  hockey
skates,  sticks,  related gear and  accessories,  as well as figure  skates were
marketed  under the  VICTORIAVILLE(TM),  VIC(R),  Hespeler(TM)  and  McMartin(R)
brands.  The Company purchased most of its in-line skate and snowboard  products
from manufacturers in Taiwan,  mainland China,  Austria and Canada.  Some of the
Company's   accessory   products  were   purchased   from  domestic   suppliers.
Approximately  70% of all hockey  products sold were  manufactured by Davtec and
skates and related gear were purchased from foreign suppliers.

     The Company sold its in-line  skate  products  principally  to major retail
sporting goods chains in North America and to U.S. military exchanges worldwide,
through independent sales representative groups, under an exclusive royalty free
perpetual  license.  Snowboard  products  were sold to regional  sporting  goods
chains and specialty  shops through  independent  sales agencies in the U.S. and
Canada and directly by the Company to its foreign distributors.  Hockey products
were sold in North America through a network of independent sales representative

                                      -15-
<PAGE>

groups to major retail  sporting  goods  chains as well as smaller,  specialized
independent sporting goods shops. Internationally,  hockey products were sold to
and  distributed  by  independent  distributors  located  primarily  in Germany,
Switzerland, Italy, Austria, Czech Republic, Sweden, France, Finland and Brazil.

MANAGEMENT'S PLAN OF RESTRUCTURE

     As a  result  of the  1996  operating  loss of  $4,690,853,  the  Board  of
Directors,  early in 1997,  decided to restructure  and de-leverage the Company.
Accordingly,  in September  1997, the Company and Skate Corp. sold assets of the
ice  hockey  related  business   (including  the  trademark  rights  to  VIC(R),
VICTORIAVILLE(TM)  and  McMartin(TM)  to Rawlings for $14.5  million and certain
debt  assumption.  The proceeds of the sale were  substantially  utilized to pay
secured revolving lines of credit, purchase the remainder of the trademarks from
the  previous  owner,  and  partially  reduce  notes  payable of Skate Corp.  to
unaffiliated noteholders.

     As  a  result  of  the  sale  to  Rawlings,  and  other  restructuring  and
de-leveraging  activities,  including the  assumption  and assignment of certain
notes  and trade  payables  to third  parties  in  exchange  for  common  and/or
preferred  stock of the Company,  the Company has reduced its  liabilities  from
approximately $18,988,000 as of December 31, 1996 to approximately $2,297,000 as
of December 31, 1997.

     Having  taken major steps to  de-leverage  the  Company  and  redirect  the
Company towards profitability, three other parts of the Company's plan remain to
be completed. The Company is in the process of completing a sale of its interest
in  Skate  Corp.  in  order  to  generate   aggregate  proceeds  of  $1,400,000.
Additionally,  in conjunction  with  dramatically  reduced  overhead,  a plan to
restore operating profitability to the remaining sporting goods businesses is in
place through licensing programs.  Finally,  the Company is seeking to diversify
its business  through a merger with  ImaginOn,  Inc.  Each part of the Company's
plan is discussed in detail below.

     On March 13, 1998,  the Company  began a private  placement for the sale of
the  1,842,000  shares of Skate Corp.  common stock it owns,  which  includes an
option to acquire 2,763,000 shares of the Company's common stock in exchange for
the Skate Corp.  shares.  The  Company is selling 14 units at $100,000  each for
total aggregate  proceeds of $1,400,000.  Each unit consist of 131,571 shares of
Skate Corp.  with an option to acquire  197,357  shares of the Company's  common
stock  in  exchange  for the  Skate  Corp.  shares.  The  Company  has  received
commitments to purchase all of the units and the Company  anticipates  receiving
the proceeds no later than April 30, 1998.

     As part of its  restructuring  plan, the Company has eliminated most of the
overhead  expenses  associated with its sporting goods business and has begun to
concentrate on sub- licensing its trademark  rights to the Kemper and California
Pro trade names.

   
     The Company recently entered into two sub-license  agreements regarding the
use of the  Kemper  name.  Effective  May 1, 1997 the  Company  entered  into an
agreement through April 30, 2000 with United  Merchandising  Corp., A California
corporation ("UMC").  The Company granted UMC a non-exclusive,  non-transferable
license to manufacture  and/or  purchase and sell various  snowboarding  apparel
bearing  the name and/or logo of  "Kemper",  in its retail  stores in the United
States.  The  royalty  rate is 7.5% of the cost to UMC with a minimum of $30,000
per annum.  UMC has an option to renew for one or two additional  years.  During
the first  contract  year  (May 1, 1997  through  April  30,  1998) the  Company
received royalties of approximately $34,300.

                                      -16-
<PAGE>

     Effective in February  1998 the Company  entered into a two year  exclusive
Licensing Agreement with Jaysport International,  Inc., a California corporation
("Jaysport").  Subject  to the prior  sub-license  granted to UMC,  the  Company
sub-licensed  to Jaysport the exclusive  worldwide  right to use the Kemper name
and trademark on snowboards,  related  equipment,  clothing and accessories (the
"Products").  Jaysport has the  option to renew the agreement for additional two
year periods  thereafter.  The agreement includes a royalty payment of 3% of net
sales on all Products with a minimum royalty of $25,000 per annum.
    

     After  considerable  consolidation  in the snowboard  industry in 1997, the
Company believes the snowboard market is rebounding. Kemper, one of the original
snowboard brands,  should prosper in this new environment.  The combined minimum
annual royalty of these licenses is $55,000, and based upon discussions with the
sub-licensors  and review of their sales  plans,  management  projects  that the
actual  combined  royalty  income from these two  licenses  may be $125,000  and
$175,000 in 1998 and 1999, respectively.

     The Company also  believes that there is value in the  marketplace  for the
California Pro brand,  not only in in-line  skates,  but in other sporting goods
categories such as skateboards  and waterskis.  The Company has begun to discuss
these, as well as other product categories, with various sub-licenses.

     The Company  believes it can achieve  profits based on its  sub-licenses of
its existing  sporting  goods brands in  conjunction  with the limited  overhead
expenses associated with licensing operations.

     In August 1997, the Company began  negotiating with ImaginOn of San Carlos,
California,  a privately held company,  to acquire, in an exchange of stock, all
of the outstanding  capital stock of ImaginOn.  ImaginOn,  formed in March 1996,
designs,  manufactures  and  sells:  (i)  consumer  software  products  for  the
CD/DVD-ROM market and (ii) a navigational tool for sophisticated Internet users.
ImaginOn's proprietary technology,  called "Transformational Database Processing
and  Playback"  ("TDPP"),  enables the  creation of new  business  and  consumer
products  that  provide  user-friendly  and  entertaining  access to  multimedia
databases.

     The Company  signed an Agreement  and Plan of Merger as of January 30, 1998
whereby there would be an exchange of 100% of the outstanding shares of ImaginOn
for an amount equal to 60% of the  outstanding  post-merger  common stock of the
Company.  The transaction,  which is expected to be completed by mid-summer,  is
contingent  upon certain  customary  conditions  including,  but not limited to,
approval by the boards of directors of both  companies,  a vote by the Company's
stockholders  (to  approve the merger and  increase  the  authorized  shares the
Company may issue),  and the completion of a fairness  opinion by an independent
valuation company.

                                      -17-

<PAGE>

     ImaginOn  has  developed  and   manufactured  a  general  purpose  software
application, named "WebZinger" for internet browsers. WebZinger(TM) mediates Web
searches  for both naive and  sophisticated  users,  increasing  efficiency  and
saving time. ImaginOn's core technology, TDPP, has enabled the creation of a new
class of business and consumer  products;  a hybrid of local and remote database
content  with  seamless  real-time  access to video,  audio,  graphics and text.
ImaginOn has designed  eleven  software  tools based on TDPP. The first software
title "World Cities 2000 San Francisco," an interactive travelogue is complete.

     ImaginOn's  potentially  largest  marketing  partner for  WorldCities  2000
travelogues  has requested that four cities be completed prior to starting their
marketing effort: San Francisco, New York, London and Paris. At the current rate
of production, all four will be complete by December 1998.

     WebZinger(TM)  will be marketed  during 1998 via electronic  downloads from
multiple  websites by distributors who specialize in that channel.  In addition,
WebZinger(TM) will be distributed on CD-ROM within conventional retail channels.
ImaginOn  has entered  into a co-  marketing  arrangement  with AT&T whereby the
WebZinger(TM)  CD  includes  the  built-in  option of using AT&T  WorldNet as an
internet  service   provider.   WebZinger(TM)  can  also  be  purchased  through
Netscape's  Software  Depot  and  Testdrive  Com.   Additionally,   co-marketing
arrangements are under negotiation with other leading software providers.

     Management  believes it has begun the successful  implementation  of a plan
that will  provide the Company  with the  liquidity  necessary  to continue as a
going concern.

     The Company adopted Statement of Financial  Accounting  Standards  ("SFAS")
No. 128 during 1997.  This  statement  requires dual  presentation  of basic and
diluted  earnings per share ("EPS") with a  reconciliation  of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS  computation.  Basic EPS amounts are based on the  weighted  average
shares of common stock outstanding. Diluted reflects the potential dilution that
could  occur if  securities  other than  contracts  to issue  common  stock were
exercised or  converted  into common stock or resulted in the issuance of common
stock  that then  shared in the  earnings  of the  entity.  The  Company  had no
potential common stock instruments which would result in diluted EPS in 1997 and
1996. The adoption of SFAS No. 128 did not impact previously reported EPS.

     The Financial Accounting Standard's Board recently issued SFAS Nos. 130 and
131,  "Reporting  Comprehensive  Income" and  "Disclosures  about Segments of an
Enterprise and Related Information," respectively.  Both of these statements are
effective  for fiscal years  beginning  after  December  15, 1997.  SFAS No. 130
establishes  requirements for disclosure of comprehensive  income which includes
certain  items  previously  not included in the  statement  of income  including
minimum  pension   liability   adjustments  and  foreign  currency   translation
adjustments, among others.  Reclassification of earlier financial statements for
comparative  purposes is required.  SFAS No. 131 revises existing  standards for
reporting  information  about  operating  segments and requires the reporting of
selected information in interim financial reports. SFAS No. 131 also establishes
standards for related disclosures about products and services, geographic areas,
and major customers.  Management  believes that  implementation of SFAS Nos. 130
and 131 will materially impact the Company's financial statements.

                                      -18-
<PAGE>

RESULTS OF OPERATIONS

     The  following  table  sets  forth  the  Company's  sales by major  product
category for the periods indicated:

                                               Year ended December 31,
                                            1997                    1996
                                      -----------------       -----------------
                                              (dollars in thousands)

                                        $            %          $             %
                                       ---          ---        ---           ---
In-line skates, snowboards
  and related accessories             $1,311        14%       $5,948         35%
Ice and street/roller hockey (1)       7,777        86%       11,005         65%
                                      ------       ----      -------        ----
                                      $9,088       100%      $16,953        100%
                                      ======       ====      =======        ====

(1) Sale of hockey products began May 1, 1996 and ceased on September 12, 1997.

     The following  table sets forth for the periods  indicated the  percentages
which selected items in the  Consolidated  Statements of Operations  bear to net
sales:

                                                               Year ended
                                                              December 31,
                                                            -----------------
                                                            1997         1996
                                                            ----         ----
Net Sales                                                   100.0        100.0
Cost of Goods Sold                                           77.5         82.9
Gross Profit                                                 22.5         17.1
Sales & Marketing Expenses                                   13.8         14.3
General & Administrative Expenses                            41.7         17.9
Depreciation and Amortization                                 6.9          4.0
Consulting & Management Fees                                  2.3          1.2
Restructuring Charges                                         2.6          7.3
Loss from Operations                                        (44.8)       (27.7)
Interest and Other Expenses (Income)                         22.1          5.5
Income Tax Expense (Benefit)                                 (1.8)        (1.4)
Minority Interest                                             8.0          1.1
Extraordinary Item                                            4.2           --
                                                            -----        -----
Net Loss                                                    (52.9)       (32.8)
                                                            =====       ======

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

     Net Sales.  Net sales for the year ended  December  31, 1997  decreased  to
$9,087,767  from  $16,952,904  or  by  $7,865,137  representing  an  approximate
decrease of 46%. This  decrease was primarily  caused by a reduction of sales of
the Company's hockey products from $11,005,000 in the 1996 period (May 1 through
December 31) to $7,777,000  for the 1997 period  (January 1 through  August 31).
The  reason  for the  decline  in sales of the  Company's  hockey  products  was
primarily due to the timing of the Company's  majority ownership  position.  The
1996 (May through  December)  period  included the months when sales activity is

                                      -19-
<PAGE>

highest  while the 1997 time of  majority  ownership  (January  through  August)
excluded some of the historically higher sales months.  Additionally,  sales for
the Company's in-line skate and snowboard  products decreased from $5,948,000 in
the 1996 period to  $1,311,000  in the 1997 period.  The cause of this  decrease
included new competitors  entering both the in-line skate and snowboard  markets
with new product  features  that took away market share from the  Company.  This
significant  decrease  was a major  factor  in  management's  decision  to cease
operating  its  California  Pro and  Kemper  licenses  (see Item 1(a) - Business
Development) and to begin to concentrate on sub-licensing its trademark rights.

     GROSS  PROFIT.  Gross  profit  decreased to  $1,642,423  for the year ended
December 31, 1997 compared to $2,891,870  for the year ended  December 31, 1996.
As a percent of sales,  gross  profit  increased  to 18.2% in 1997 from 17.1% in
1996.  The primary  reason for the increase in gross profit  percentage  was the
inventory  markdowns and  adjustments  of $1,059,750  incurred by the Company in
1996  attributable  to remaining  in-line  skate and  snowboard  inventory.  The
Company  believes  these  writedowns  and  adjustments,  which  accounted for an
approximate 6.3% decline in its gross profit, were necessary to reflect the then
current market value of its inventory.

     SALES AND MARKETING  EXPENSES.  Sales and marketing  expenses  decreased to
$1,253,670 for the year ended December 31, 1997,  compared to $2,434,255 for the
year ended December 31, 1996. This represents a decrease of $1,180,585 or 48.4%.
Of this decrease,  sales and marketing expenses related to the Company's in-line
skate and  snowboard  business  decreased  by  $1,059,319  to  $263,829  in 1997
compared to $1,359,148 in 1996. This decrease was due to  management's  decision
to cease acting distribution of its California Pro and Kemper licensed products.

     GENERAL AND ADMINISTRATIVE  EXPENSES.  General and administrative  expenses
increased  to  $3,387,882  for the year ended  December  31,  1997,  compared to
$3,037,751 for the year ended December 31, 1996.  This represents an increase of
$350,131.  The primary reason for the increase is  attributable  to increases in
the following  1997 general and  administrative  expenses  related to USA Skate;
professional  fees  ($209,250),  consulting  ($147,375)  and  bad  debt  expense
($293,672).  Additionally  in 1996,  USA Skate  reduced its accounts  receivable
reserve by $208,000.  These 1997 increases were partially  offset by a reduction
in the Company's general and  administrative  expenses related to in-line skates
and snowboards of  approximately  $778,000 due to managements  decision to cease
active distribution of its California Pro and Kemper licensed products.

     DEPRECIATION AND AMORTIZATION.  Depreciation and amortization  decreased to
$628,601 for the year ended  December 31, 1997 from  $681,717 for the year ended
December 31, 1996. The decrease of $53,116 was mainly  attributable to decreased
depreciation and amortization of intangible  assets as a result of the USA Skate
sale on September 12, 1997.

     CONSULTING FEES, RELATED PARTY. Consulting fees, related party increased to
$210,000 for the year ended  December 31, 1997 from  $200,000 for the year ended
December 31, 1996. The Company pays an officer/stockholder $10,000 per month for
services  primarily  related to  long-term  strategic  planning,  financing  and
acquisitions  and an  additional  $5,000  from USA Skate  during the time of the
Company's  majority ownership  position.  Another  officer/stockholder  received
$5,000  per  month  from USA Skate  during  the time of the  Company's  majority
ownership position.

     RESTRUCTURING  CHARGES.  For the year ended  December  31, 1997 the Company
recorded a  restructuring  charge of  $237,452  related to the write down of the
Company's investment in Skate Corp. (See Note 4 to the financial statements) For
the year ended  December  31,  1996,  the Company had  restructuring  charges of
$1,229,000.  These  charges  related  to  management's  plan  for  restructuring
operations, whereby, the Company wrote off $411,700 related to certain equipment


                                      -20-
<PAGE>

(molds)  for  certain  of  its  in-line  skate  and  snowboard   product  lines.
Additionally, the Company re-evaluated certain trademarks and licenses and other
intangibles  and recorded  expenses of $368,000 and $205,700,  respectively.  As
further described in Note 1 to the financial statements,  the Company has signed
a  distribution  agreement  with Skate Corp.  to distribute  California  Pro and
Kemper branded products,  resulting in the closure of the previous  distribution
facility and  termination  of  warehouse  employees at an expense of $76,500 and
$22,100,  respectively.  Finally,  the  Company  wrote off  previously  deferred
expenses  related to a potential  acquisition  that the  Company  elected not to
pursue to completion.

     LOSS FROM OPERATIONS. For the year ended December 31, 1997, the Company had
a loss from  operations of $3,837,730  compared to $4,690,853 for the year ended
December 31,  1996.  The decrease in loss of $853,123 was a result of a decrease
in gross  profit of $849,447  and an increase in general and  administrative  of
$853,865,  offset by decreases in sales and marketing expenses of $1,180,855, as
described above.  Additionally,  the restructure charge of $1,229,000 negatively
affected the 1996 results of operations.

     OTHER INCOME/EXPENSES.  Other expenses for the year ended December 31, 1997
were  $2,011,339  compared to $935,848 for the year ended December 31, 1996. The
increase of $1,055,491 was primarily attributable to the loss on the sale of USA
Skate  assets (see Note 4 of the  financial  statements)  of $751,522  and other
finance  fees for the  refinancing  of the USA Skate  notes of  $440,643.  These
increases were offset by decreases in interest  expense/other  of $414,134 and a
gain recorded in 1996 of $479,100 on the book value of Skate Corp. stock held by
California  Pro (See  Note 4 to the  financial  statements).  The 1996  gain was
offset  by a loss  on  marketable  securities  of  $144,457  (see  Note 3 to the
financial  statements)  that the Company had received in  settlement  of certain
obligations.

     INCOME TAX BENEFIT.  For the year ended  December 31, 1997, the Company had
an income tax  benefit  of  $166,404  compared  to  $244,500  for the year ended
December 31, 1996.

     LIQUIDITY AND CAPITAL RESOURCES. During 1996 and through September 1, 1997,
the  Company  funded  its  operations  principally  through a  revolving  credit
facility with a bank, and, to a lesser degree,  loans from private investors and
trade credit.  Concurrent  with the sale of the USA Skate assets,  the revolving
line of credit facility was repaid in full and other indebtedness of the Company
was significantly reduced.

     On September 12, 1997, the Company sold  substantially all of the assets of
its hockey business for $14,500,000  inclusive of $1,000,000  retained in escrow
for  purchase  price  adjustments  and  proven  claims  by the  purchasers,  and
assumption of trade payables and accrued liabilities of approximately $1,600,000
related to the assets purchased. The proceeds were utilized as follows:

           Secured revolving lines of credit  $ 7,984,000
           Convertible noteholders                949,000
           Secured debt                           519,000
           Other notes                            100,000
           Stockholder notes                      505,000
           Payment to previous USA Skate
             owners                             2,678,000

                                      -21-
<PAGE>

           Interest payments                       85,000
           Cash to escrow account               1,000,000
           Cash in bank                           680,000
                                               ----------
                                              $14,500,000
                                              ===========

     In  February  1998,  Rawlings  and the Company  agreed to a purchase  price
reduction of $395,108 due to a final  valuation by Rawlings of the fair value of
the net assets purchased.

     At  December  31,  1997,  the  Company  had a working  capital  deficit  of
approximately  $384,312  compared  to  $5,264,000  at  December  31,  1996.  The
reduction in the working capital deficit is primarily related to the sale of USA
Skate as well as converting debt to equity and  negotiating  settlements at less
than the  recorded  liability.  Management's  plans  to  resolve  the  Company's
immediate  financial   difficulties  and  improve  its  liquidity  position  are
described in this section  above under  Overview and in Note 1 to the  financial
statements.

     On  October 2, 1997,  the  Company  signed a letter of intent to merge with
ImaginOn,   Inc.  of  San  Carlos,   California,   a  privately   held  company.
Subsequently,  the Company  signed an agreement and plan of merger as of January
30, 1998 whereby there will be an exchange of 100% of the outstanding  shares of
ImaginOn for an amount equal to 60% of the outstanding  post merger common stock
of California  Pro.  ImaginOn is a  developmental  stage company  engaged in the
business of designing,  manufacturing and selling consumer software products for
the  rapidly  growing  "edutainment"  CD/DVD ROM  market as well as an  internet
utility   and   an   authoring   tool.   ImaginOn's   proprietary    technology,
Transformational  Database Processing and Playback,  enables the creation of new
business  and consumer  products  that provide  user-friendly  and  entertaining
access to multimedia and mixed- format databases  distributed  across local disk
storage and networks.

     In addition,  the Company announced that the exercise price of its publicly
traded common stock  purchase  warrants has been reduced from $6.00 to $1.50 per
share  and the  expiration  date has been  extended  from  January  18,  1998 to
December 31, 1998.

     For payments to foreign suppliers,  the Company utilized trade acceptances,
which generally are payable upon receipt of documentation by the Company's bank,
but no later than time of delivery, utilizing available cash under the Company's
revolving line of credit.

     SEASONALITY.  The  Company's  in-line  skate and hockey  related sales were
strongest  in the second and third  quarters of each  calendar  year.  Snowboard
product  sales  were  strongest  during the third and  fourth  quarters  of each
calendar  year.  However,  industry  trade shows and other sales,  marketing and
administrative costs typically precede the strong selling season and, therefore,
the  Company  anticipates  that it may  incur a  significant  loss in the  first
quarter of each year, including 1997.

     FOREIGN EXCHANGE.  The Company's  products were principally  purchased from
suppliers  located in Taiwan,  mainland China,  Korea,  Austria and Canada.  The
Company purchased its in-line skate products for set prices negotiated  annually

                                      -22-
<PAGE>

in U.S.  dollars at exchange  rates reset  annually.  The Company  purchased its
snowboards in Deutsche Marks. The Company sold its snowboard and hockey products
both  domestically  and  internationally.  As a result,  extreme  exchange  rate
fluctuations  could have had a significant  effect on its sales,  costs of goods
sold and the Company's gross margins.

     EFFECT OF  INFLATION.  Management  believes  that  inflation  has not had a
significant impact on its business.

ITEM 7.    FINANCIAL STATEMENTS

     The  Company's  audited  financial  statements,  described as follows,  are
included in this report following the signature page of this report.

California Pro Sports, Inc. Consolidated Financial Statements
-------------------------------------------------------------

         Independent auditors' report...................................    F-1

         Consolidated financial statements:

            Balance Sheet at December 31, 1997..........................    F-2

            Statements of operations - for the years
            ended December 31, 1997 and 1996............................    F-3

            Statement of stockholders' equity
            for the years ended
            December 31, 1997 and 1996.................................     F-4

            Statements of cash flows - for the years
            ended December 31, 1997 and 1996............................    F-8

            Notes to consolidated financial statements..................    F-10


ITEM 8.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
           FINANCIAL DISCLOSURE
           ---------------------------------------------------------------

           None

                                      -23-
<PAGE>

                                    PART III

ITEM 9.    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; 
           COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
           -------------------------------------------------------------

(a)        IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS.

     The officers and directors of the Company are listed  below.  The directors
of the  Company are  elected to hold  office  until the next  annual  meeting of
stockholders  and  until  their  respective  successors  have been  elected  and
qualified.  Officers of the Company  are elected by the Board of  Directors  and
hold office until their successors are elected and qualified.

     The chart below identifies persons who, at any time during the fiscal year,
served as officers and/or directors of the Company.

Name                     Age       Positions
----                     ---       ---------
Henry Fong               62        Chairman of the Board of Directors 
                                     and Chief Executive Officer

Michael S. Casazza       48        President, Chief Operating Officer and 
                                     Director, resigned September 1997

Barry S. Hollander       40        Acting President, Treasurer and 
                                     Chief Financial Officer

Steve C.Y. Lin           35        Director, resigned June 1997

Brian C. Simpson         64        Director

Hung-Chang Yang          52        Director

Jonathan C. Hodgins      34        President and Chief Executive Officer 
                                     of USA Skate, resigned September 1997

   
     HENRY  FONG has been the Chief  Executive  Officer  and a  director  of the
Company since its  inception in January 1993. In addition,  Mr. Fong serves as a
member of the executive committee of the Company's Board of Directors. Mr. Fong,
a founder of the  Company,  provides  the Company  with  expertise  on long-term
strategic  planning,  financing  and  acquisitions,  but is not  involved in the
Company's day-to-day  operations.  From 1987 to June 1997, Mr. Fong was chairman
of the board and chief  executive  officer  of RDM  Sports  Group,  Inc.  (f/k/a
Roadmaster Industries,  Inc. ("RDM")), a New York Stock Exchange listed company,
and was its president and  treasurer  from 1987 to 1996.  Mr. Fong resigned from
his positions  with RDM on June 20, 1997  concurrent  with the closing of a $100
million  refinancing.  In August 1997, RDM filed for Chapter 11 bankruptcy.  Mr.
Fong has been named as a  defendant  in a class  action suit filed by former RDM
shareholders.  Since  1983,  Mr.  Fong also has  served as the  President  and a
director and is a  significant  stockholder  of Equitex,  Inc., a  publicly-held
business  development  company.  In March 1994,  Mr. Fong was one of twelve CEOs
selected  as Silver  Award  winners  in  Financial  World  magazine's  Corporate
American "Dream Team."
    

                                      -24-
<PAGE>

     MICHAEL S. CASAZZA, a founder of the Company,  was President and a director
of the Company since the Company's  inception in 1993 through September 1997. In
addition,  Mr.  Casazza  served as a member of the  executive  committee  of the
Company's Board of Directors until September 1997. Since the Company's inception
through  September  1997 he acted as Chief  Operating  Officer and was  formally
designated to that position in September  1994.  While a director and officer of
the Company,  Mr. Casazza devoted  substantially all of his time to the business
of the Company.  From 1991 through July 1996,  Mr.  Casazza served as President,
Chief  Executive  Officer and a Director  of  MacGregor  Sports & Fitness,  Inc.
(subsequently renamed IntraNet Solutions,  Inc.), a publicly-held  company. From
1988 to  1990,  Mr.  Casazza  served  as Vice  President/General  Manager,  Golf
Division for Wilson Sporting Goods Company.  From 1972 to 1988, Mr. Casazza held
various positions with Dunlop-Slazenger Corporation,  including President of its
Racket  Sports  Division and National  Sales Manager of its Golf  Division.  Mr.
Casazza resigned from all his positions with the Company in September 1997.

     BARRY S. HOLLANDER has served as Treasurer and Chief  Financial  Officer of
the Company since March 1993 and as Acting  President  since September 1997. Mr.
Hollander devotes  substantially all of his business time to the business of the
Company. From May 1991 through July 1996, Mr. Hollander served as Vice President
of Operations and Chief Financial Officer of MacGregor Sports and Fitness,  Inc.
(subsequently renamed IntraNet Solutions,  Inc.), a publicly-held  company. From
August  1986 to 1989,  Mr.  Hollander  held  various  positions  with  MacGregor
Sporting Goods, Inc.,  including  Accounting Manager and Chief Financial Officer
of  the  Athletic  Products  Division.  Mr.  Hollander  is  a  certified  public
accountant.

     STEVE C.Y.  LIN was a director of the Company  from May 1994  through  June
1997.  Since  1989,  he also has  served  as  Chairman  of the  Board of Yuan Fu
Brothers Co. Ltd., a Taiwanese petroleum  equipment  distribution  company,  and
executive  assistant  to the  president  of Aicello  Taiwan  Ltd.,  a  Taiwanese
environmental  engineering services company. From 1989 until it was dissolved in
1995,  Mr. Lin served as  chairman  of the board of the  Company's  predecessor,
SCYL. Mr. Lin resigned his position with the Company in June 1997.

     BRIAN C. SIMPSON has been a director of the Company since November 1994. In
addition,  Mr.  Simpson serves as a member of the  executive,  compensation  and
audit committees of the Company's Board of Directors.  Since 1992, his principal
occupation has been that of an international  management  consultant,  providing
management  support and  strategic  planning  services  for  various  companies,
Dunlop-Slazenger  and BTR  Industries.  From 1989 to 1992, Mr. Simpson served as
Strategic   Planning   Director  on  a  worldwide  basis  for   Dunlop-Slazenger
International  Limited.  Prior to 1989,  Mr.  Simpson  served  as  president  of
Dunlop-Slazenger  Corporation  USA and as regional  director,  North America for
Dunlop-Slazenger   Corporation   International  Limited,  UK.  Mr.  Simpson  has
extensive experience in sales, licensing,  distribution and manufacturing,  both
nationally and internationally, in the sporting goods business.

     HUNG-CHANG (HERO) YANG was elected as a director of the Company in November
1994.  In addition,  Mr. Yang serves as a member of the  compensation  and audit
committees of the Company's Board of Directors. Since 1984, Mr. Yang's principal
occupation  has been that of  president of Precision  Golf  Associates,  Ltd., a

                                      -25-
<PAGE>

Taiwanese  company which engages in the  manufacture and sale of golf equipment.
From time-to-time, Mr. Yang has served as an unpaid consultant to the Company in
areas such as quality control of products and components.

     JONATHAN C. HODGINS  joined the Company in September  1996 as President and
Chief  Executive  Officer of USA Skate.  Mr.  Hodgins was the  principal  person
responsible for the Company's  hockey division.  He has extensive  experience in
developing  sporting goods sales through  marketing,  research and  development,
team sales, offshore licensing, sales forecasting and budgeting. From 1990 until
he joined the Company in September  1996, Mr. Hodgins was employed by CCM/Sports
Maska, Inc., Saint Laurent,  Quebec,  Canada in various management and executive
capacities.  From 1986 to 1990, Mr. Hodgins was employed by Canstar Sports Group
Inc., Missasauga,  Ontario, Canada, in product management.  Mr. Hodgins earned a
Bachelor  of Arts  degree in  business  administration  from the  University  of
Western Ontario in 1985. Mr. Hodgins resigned his position in September 1997.

(b)        SIGNIFICANT EMPLOYEES.

           None.

(c)        FAMILY RELATIONSHIPS.

           None.

(d)        INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS.

           None.

(e)        COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

     Section  16(a) of the  Securities  Exchange  Act of 1934,  as amended  (the
"Exchange Act"),  requires the officers and directors of the Company and persons
who own more than ten percent of a registered class of the Company's  securities
(collectively, "reporting persons"), to file reports of ownership and changes in
ownership  on  Forms 3, 4, and 5 with the  Securities  and  Exchange  Commission
("SEC"). Reporting Persons are required by SEC regulation to furnish the Company
with copies of all Forms 3, 4, and 5 filed.

     Based  solely upon a review of the copies of such forms it has received and
representations  from the Reporting Persons,  the Company believes all reporting
persons have complied with the applicable filing  requirements,  except that Mr.
Casazza filed three late Forms 4 reporting  transactions in the Company's common
stock.

ITEM 10.   EXECUTIVE COMPENSATION
           ----------------------

SUMMARY COMPENSATION TABLE.

           The following  table sets forth  information  regarding  compensation
paid to (i) the  Company's  Chief  Executive  Officer and (ii) each of its other
executive  officers whose total annual  compensation  exceeded  $100,000 for the

                                      -26-
<PAGE>

years ended  December 31, 1995,  1996 and 1997.  No executive  officer  received
awards or payments of any  long-term  compensation  from the Company  during the
period covered.

<TABLE>
<CAPTION>
                                                  Annual                    Long Term       All Other
                                               Compensation                Compensation    Compensation
                                  ---------------------------------------  ------------    ------------
                                                   ($$)                                        ($$)
                                                                            Securities
                                                                            Underlying
Name and Position                 Year    Salary        Bonus       Other    Options
-----------------                 ----    ------        -----       -----   ----------
<S>                               <C>    <C>          <C>            <C>    <C>             <C>
Henry Fong, ...................   1997   165,000(1)       -0-        -0-       -0-              -0-
Chief Executive Officer .......   1996   160,000(1)       -0-        -0-       -0-          $300,000(3)
and Chairman of the Board .....   1995   120,000(1)       -0-        -0-     150,000(2)         -0-

Michael S. Casazza, ...........   1997   157,500      413,000(4)     -0-       -0-              -0-
President, Chief ..............   1996   190,000          -0-        -0-       -0-          $300,000(3)
Operating Officer & Director ..   1995   137,000          -0-        -0-     150,000(2)         -0-
Resigned September 1997

Barry S. Hollander, ...........   1997   117,738          -0-        -0-       -0-              -0-
Acting President, Treasurer and   1996   125,000          -0-        -0-       -0-              -0-
Chief Financial Officer .......   1995   116,923          -0-        -0-       -0-              -0-
------------
</TABLE>

(1)  Mr. Fong is not an employee of the Company and he receives  fees of $10,000
     per month for consulting  services  rendered to the Company and received an
     additional  $5,000 per month from USA Skate  effective  May 1, 1996 through
     September  1997,   primarily  related  to  long-term   strategic  planning,
     financing and acquisitions and is not involved in the day-to-day operations
     of the  Company.  $30,000 of Mr.  Fong's  salary was  non-cash and was paid
     through  common stock of the Company.  An additional  $14,000 of Mr. Fong's
     salary remains unpaid and is an accrued liability of the Company.

(2)  Warrants granted in 1995 were repriced during 1996 from $4.50 and $3.56 per
     share  to  $2.38  per  share,  representing  market  value  at the  time of
     repricing.

(3)  Represents   Guaranty  fees  accrued  in  connection  with  the  USA  Skate
     acquisition.  These fees were paid at December 31, 1996 in shares of common
     stock based on a price of $1.375 per share,  the  December  31, 1996 market
     price.

(4)  Represents  a bonus of 236,000  shares of common  stock of the Company for,
     among other things,  the forgiveness of the remaining amount of $149,000 of
     the $400,000  promissory note, making other loans to the Company and/or its
     subsidiaries in order for the Company to meet  immediately due obligations,
     and his efforts in negotiating  and moving the USA Skate asset sale forward
     to completion, as well as for his past services to the Company.

OPTION/SAR GRANTS IN LAST FISCAL YEAR.

     During 1997,  85,000  incentive  stock  options were granted at an exercise
price of $1.00 to Mr. Hollander under the Company's 1994 Stock Option Plan.

                                      -27-

<PAGE>

AGGREGATED OPTION/SAR EXERCISES AND YEAR-END 1997 OPTION/SAR VALUES.

     The  following  table  sets  forth  information  concerning  the  value  of
unexercised options held by each of the named executive officers at December 31,
1997. No stock appreciation rights are outstanding and no options were exercised
by the named officers during 1997.

                                Number of                       Value of
                          Securities Underlying               Unexercised
                           Unexercised Options            In-the-Money options
                        at December 31, 1997 (#)       at December 31, 1997 (#)
Name                    Exercisable/Unexercisable      Exercisable/Unexercisable
----                    -------------------------      -------------------------
Henry Fong                    298,600/0                           $0/0
Michael S. Casazza            201,400/0                           $0/0
Barry S. Hollander            105,000/0                      $37,188/0

     COMPENSATION OF DIRECTORS.  During 1997, Messrs. Lin, Simpson and Yang, the
outside directors of the Company,  received a retainer of $10,000 per year, paid
quarterly, and $1,000 for each Board of Directors meeting attended in person. In
addition,  they are reimbursed for expenses  incurred to attend  meetings of the
Board of Directors or otherwise in connection  with their  services as directors
of the Company.  Directors  also are eligible to receive grants of stock options
under the Company's 1994 Stock Option Plan.  During 1997, 10,000 incentive stock
options were granted to the then outside directors of the Company at an exercise
price of $1.00.

ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
           --------------------------------------------------------------

     Set forth  below is certain  information  as of  February  28,  1998,  with
respect to ownership of the Company's  Common and Preferred Stock held of record
or  beneficially  by (i) the Company's  executive  officers named in the summary
compensation  table,  (ii) each  director of the Company,  (iii) each person who
owns beneficially more than five percent of the Company's outstanding Common and
Preferred Stock; and (iv) all directors and executive officers as a group:

<TABLE>
<CAPTION>
                                                 Percentage              Percentage
                                Number of        Owned of    Number of    Owned of
Name and Address                 Common           Common     Preferred    Preferred
of Beneficial Owner            Shares Owned       Shares    Shares Owned    Shares
-------------------            ------------      ---------- ------------ ----------
<S>                             <C>                <C>        <C>           <C>
Henry Fong .................    898,715 (1)        12.4        30,167        2.7
2401 PGA Blvd., Suite 280F
Palm Beach Gardens, FL 33410
</TABLE>

                                      -28-
<PAGE>

<TABLE>
<CAPTION>
   
                                                 Percentage              Percentage
                                Number of        Owned of    Number of    Owned of
Name and Address                 Common           Common     Preferred    Preferred
of Beneficial Owner            Shares Owned       Shares    Shares Owned    Shares
-------------------            ------------      ---------- ------------ ----------
<S>                             <C>                <C>        <C>           <C>            
Michael S. Casazza              422,087 (2)         5.9           --          --
1221-B South Batesville Road
Greer, South Carolina  29650

Resource Preservation, LLC(5)   526,280             7.6        26,660        2.4
c/o Fred LeBaron
Ross & Hardies
150 N. Michigan Ave.
Suite 2500
Chicago, IL  60601

CLB Investment Corp.(6)             --               --        228,606       20.4
c/o Dave Schaper
11 Oxford Drive
Lincolnshire, IL  60069

Barry S. Hollander (Officer)     78,500 (3)         1.1        18,500        1.7
1221-B South Batesville Road
Greer, South Carolina  29650

Brian C. Simpson                   --               --           --           --
15 Langhams Way
Wargrave, Berkshire
RG 10 8AX U.K.

Hung-Chang Yang (Director)       15,000 (4)          .2          --           --
First Floor, No. 16
Lane 238
Taipei, Taiwan

USA Skate Corporation(7)(8)     360,000             5.2       750,471       67.1
1221-B South Batesville Road
Greer, SC  29650

All directors and executive     992,215 (1)(3)(4)  13.6        48,667        4.4
officers as a group(4 persons)
----------
</TABLE>

(1)  Includes warrants currently exercisable to acquire 298,600 shares of Common
     Stock and 148,636 shares of Common  Stock  owned by a  charitable  trust of
     which Mr. Fong and his spouse are trustees.

(2)  Includes warrants currently exercisable to acquire 201,400 shares of Common
     Stock.

(3)  Includes options  currently  exercisable to acquire 49,500 shares of Common
     Stock.

(4)  Includes options  currently  exercisable to acquire 15,000 shares of Common
     Stock.

                                      -29-
<PAGE>

(5)  Fred LeBaron  controls  the voting of the shares of Resource  Preservation,
     LLC.

(6)  Dave Schaper, president of CLB Investment Corp., controls the voting shares
     of this entity.

(7)  CalPro controls the voting of the shares of USA Skate Corporation

(8)  As long as CalPro  owns a majority  of the shares of USA Skate  Corporation
     ("USA  Skate")  entitled to vote in the election of directors of USA Skate,
     the shares of CalPro  held by USA Skate  shall  neither be entitled to vote
     nor be counted for quorum purposes.
    

           CHANGES IN CONTROL.  None.

ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
           ----------------------------------------------

   
     In April 1994, the Company issued  warrants to Henry Fong, a founder of the
Company, to purchase up to 148,600 shares of Common Stock and issued warrants to
Michael S. Casazza, a founder of the Company, to purchase up to 51,400 shares of
Common Stock,  exercisable at $4.50 per share through April 14, 1997 (the "April
Warrants").  In August 1995,  the Company  issued  warrants to Messrs.  Fong and
Casazza each to purchase up to 150,000  shares of Common Stock,  exercisable  at
$3.56 per share  through  August 1, 1998 (the "August  Warrants").  The exercise
price of these warrants  represented 100% of the closing bid price of the Common
Stock as reported by Nasdaq on the date of grant. The warrants issued to Messrs.
Fong and  Casazza  in April  1994 and  August  1995 were  issued  as  additional
compensation for their valuable services rendered to the Company. In April 1996,
as compensation for their extra efforts in causing the USA Skate  acquisition to
close,  the Company  lowered the exercise  price of all of the warrants  held by
Messrs. Fong and Casazza to $2.38 per share, the closing bid price of the Common
Stock on the date the warrants were  repriced.  Additionally,  the exercise date
for the April  Warrants was extended to April 14, 2002 and the exercise date for
the August Warrants was extended to August 1, 2003.
    

     At December  31,  1995,  the Company  owed Mr. Fong  $90,000 of accrued but
unpaid fees. During the second quarter of 1996, the Company  transferred  75,000
shares of USA Skate common stock to Mr. Fong in satisfaction of this debt, based
on a price of $1.20 per share of USA Skate common stock.

     Messrs.  Fong and Casazza have personally  guaranteed the Company's in-line
skate/snowboard  related  bank line of credit up to $5.5  million and its hockey
related  bank line of credit up to $5 million.  In  addition,  Messrs.  Fong and
Casazza have each guaranteed,  jointly and severally with other  guarantors,  an
additional  $5.25 million of indebtedness of the Company  incurred in connection
with the USA Skate  acquisition,  and Messrs.  Fong and Casazza have guaranteed,
jointly and severally with another guarantor, approximately CDN $650,000 owed by
the  Canadian  subsidiary  to a Canadian  bank.  The Company has accrued fees of
$300,000 each for Messrs.  Fong and Casazza as compensation  for their extensive
personal guaranties.  As of December 31, 1996 Messrs. Fong and Casazza agreed to
accept  payment  of  these  fees in  common  stock of the  Company  based on the
December 31, 1996 market price of $1.375 per share.

                                      -30-
<PAGE>

     In March 1996, the Chief  Operating  Officer  loaned the Company  $170,000.
During the second quarter of 1996, the Company transferred 141,667 shares of USA
Skate common stock to Mr. Casazza in satisfaction of this debt, based on a price
of $1.20 per share of USA Skate common stock. In May 1997, the 141,667 shares of
USA Skate  common  stock were  returned to the  Company in exchange  for 170,000
shares of common stock of the Company.

     In May 1996, Mr. Fong loaned  $680,000,  and Mr. Casazza loaned $400,000 to
the Company's majority owned subsidiary,  which funds were used to pay a portion
of the purchase price for the USA Skate acquisition.  In return for these loans,
the subsidiary  issued  promissory  notes for the principal  amount of each loan
with interest at nine percent payable quarterly,  due July 1, 1997. In addition,
the subsidiary  granted  warrants to Mr. Fong to purchase  566,667 shares of USA
Skate common stock and to Mr.  Casazza to purchase  333,333  shares of USA Skate
common stock,  all exercisable  through April 30, 1998 at $1.20 per share of USA
Skate common stock.

     In December  1996,  Mr. Fong agreed to convert  $60,000  owed to him by the
Company for consulting  services for the period July 1 through December 31, 1996
into shares of the Company,  at the December 31, 1996 market price of $1.375 per
share.

     In March  1997,  Mr.  Fong  agreed to  convert  $30,000  owed to him by the
Company for consulting services for the period January 1, 1997 through March 31,
1997,  and $10,000 for a note payable  into shares of the Company,  at the March
31, 1997 market price of $1.00 per share.

     In September  1997, Mr. Fong agreed to convert  $181,000 owed to him by the
Company,  for a note  payable  of the  Company,  assumed  by  Mr.  Fong,  at the
September 30, 1997 market price of $2.00 per share.  In December  1997, Mr. Fong
agreed to convert  the  common  shares  issued  September  30,  1997 to Series A
Preferred  Shares of the Company.  The Series A Preferred Shares are entitled to
three votes for each preferred share on any matter submitted to the stockholders
of the Company,  and every preferred share shall  immediately and  automatically
convert  to  three  shares  of  common  stock  upon  stockholder  approval  of a
recapitalization measure.

   
     In  September  1997,  the Company  awarded  Mr.  Casazza a bonus of 236,000
shares of common stock (at a value of $1.75 per share,  a discount of $.031 from
the September  11, 1997 market price of $1,781) of the Company for,  among other
things,  the  forgiveness  of the  remaining  amount of $149,000 of the $400,000
promissory  note,  making other loans to the Company and/or its  subsidiaries in
order for the Company to meet  immediately due  obligations,  and his efforts in
negotiating  and moving the USA Skate asset sale forward to completion,  as well
as for his past services to the Company. Additionally, Mr. Casazza resigned from
all positions effective with the completion of the sale of USA Skate, however he
agreed to assist, as requested and act as a consultant to the Company.
    

     From time to time as deemed  appropriate  and in amounts  determined by the
Company's  Board of  Directors,  fees may be paid by the  Company to persons who
facilitate  acquisitions  and/or financing  transactions for the Company,  which
persons may be directors and/or officers of the Company.

     Transactions between the Company and its officers, directors, employees and
affiliates  will be on terms no less  favorable  to the  Company  than  would be
available from  unaffiliated  parties.  Any such transactions will be subject to
the  approval  of a  majority  of the  disinterested  members  of the  Board  of
Directors.

                                      -31-
<PAGE>

ITEM 13.   EXHIBITS AND REPORTS ON FORM 8-K
           --------------------------------

(a)        EXHIBITS.

           Exhibits being filed herewith are listed below.

     Number         Description
     ------         -----------
     3.1            Certificate   of    Incorporation    of   the    Registrant.
                    (INCORPORATED   BY   REFERENCE   TO   EXHIBIT   3.1  TO  THE
                    REGISTRANT'S    REGISTRATION   STATEMENT   ON   FORM   SB-2,
                    REGISTRATION  NO.  33-85108 AS FILED WITH THE SECURITIES AND
                    EXCHANGE  COMMISSION  "SEC" ON OCTOBER  13,  1994 (THE "1994
                    REGISTRATION STATEMENT").)

     3.2            Bylaws as currently in effect. (INCORPORATED BY REFERENCE TO
                    EXHIBIT 3.2 TO THE 1994 REGISTRATION STATEMENT.)

     4.1            Specimen  of  Common  Stock  certificate.  (INCORPORATED  BY
                    REFERENCE  TO  EXHIBIT  4.1 TO  AMENDMENT  NO. 4 TO THE 1994
                    REGISTRATION  STATEMENT,  FILED WITH THE SEC ON DECEMBER 22,
                    1994 (" 1994 AMENDMENT #4).)

     10.1           Manufacturing  Agreement,  dated April 1, 1993,  between the
                    Registrant  and  Playmaker.  (INCORPORATED  BY  REFERENCE TO
                    EXHIBIT 10.2 TO THE 1994 REGISTRATION STATEMENT.)

     10.2           Exclusive License  Agreement,  dated April 1, 1993,  between
                    the Registrant and Playmaker.  (INCORPORATED BY REFERENCE TO
                    EXHIBIT 10.4 TO THE 1994 REGISTRATION STATEMENT.)

     10.3(a)        Indemnity letter agreement, dated April 1, 1993, between the
                    Registrant  and  Playmaker.  (INCORPORATED  BY  REFERENCE TO
                    EXHIBIT 10.8(A) TO THE 1994 REGISTRATION STATEMENT.)

     10.3(b)        Patent License Agreement, dated April 1, 1993 and Assignment
                    thereof.  (INCORPORATED  BY REFERENCE TO EXHIBIT  10.8(B) TO
                    THE 1994 REGISTRATION STATEMENT.)

     10.4           Loan and  Security  Agreement,  dated  April 1,  1993,  with
                    LaSalle    National   Bank,   N.A.    ("Loan    Agreement").
                    (INCORPORATED  BY  REFERENCE  TO  EXHIBIT  10.10 TO THE 1994
                    REGISTRATION STATEMENT.)

     10.5(a)        Amendment,   dated  June  15,  1994,   to  Loan   Agreement.
                    (INCORPORATED  BY REFERENCE TO EXHIBIT 10.10(A) TO AMENDMENT
                    NO. 1 TO THE 1994 REGISTRATION STATEMENT, FILED WITH THE SEC
                    ON OCTOBER 28, 1994 ("1994 AMENDMENT #1).)

     10.5(b)        Consent  and  Amendment,  dated  August  3,  1994,  to  Loan
                    Agreement. (INCORPORATED BY REFERENCE TO EXHIBIT 10.10(B) TO
                    1994 AMENDMENT #1.)

                                      -32-
<PAGE>

     Number         Description
     ------         -----------
     10.5(c)        Amendment,   dated  August  30,  1995,  to  Loan  Agreement.
                    (INCORPORATED   BY   REFERENCE   TO  EXHIBIT   10.10(C)   TO
                    REGISTRATION  STATEMENT  ON  FORM  SB-2,   REGISTRATION  NO.
                    33-98898 ("REGISTRATION STATEMENT 33-98898.")

     10.6           Demand Note, dated April 1, 1993. (INCORPORATED BY REFERENCE
                    TO EXHIBIT 10.11 TO THE 1994 REGISTRATION STATEMENT.)

     10.7           Continuing Unconditional Guaranties, dated April 1, 1993, of
                    Henry  Fong  and  Michael  S.  Casazza.   (INCORPORATED   BY
                    REFERENCE  TO  EXHIBIT   10.12  TO  THE  1994   REGISTRATION
                    STATEMENT.)

     10.8           Letter  Agreement,  dated April 1, 1993, from the Registrant
                    to LaSalle.  (INCORPORATED  BY REFERENCE TO EXHIBIT 10.13 TO
                    THE 1994 REGISTRATION STATEMENT.)

     10.9           1994  Stock  Option  Plan.  (INCORPORATED  BY  REFERENCE  TO
                    EXHIBIT 10.14 TO THE 1994 REGISTRATION STATEMENT.)

     10.10          License  Agreement,  dated July 28, 1994,  between Front 500
                    Corporation  and CP.  (INCORPORATED  BY REFERENCE TO EXHIBIT
                    10.16 TO THE 1994 REGISTRATION STATEMENT.)

     10.11          Exclusive Distributorship  Agreement, dated March 1994, with
                    Maneuverline Co. Ltd.  (INCORPORATED BY REFERENCE TO EXHIBIT
                    10.20 TO THE 1994 REGISTRATION STATEMENT.)

     10.12          Exclusive  Distributorship  Agreement,  dated March 1, 1991,
                    with  Airtool  Ltd.  (Incorporated  by  reference to Exhibit
                    10.21 to the 1994 Registration Statement.)

     10.13          Exclusive  Distributorship  Agreement,  dated June 15, 1994,
                    with  Wolf  Strobel   Sportswear   GMBH.   (INCORPORATED  BY
                    REFERENCE  TO  EXHIBIT   10.22  TO  THE  1994   REGISTRATION
                    STATEMENT.)

     10.14          License Agreement, dated May 10, 1995, granted by California
                    Pro,  Inc. to Big5 Co., Ltd.  (INCORPORATED  BY REFERENCE TO
                    EXHIBIT 10.23 IN REGISTRATION STATEMENT 33-98898.)

     10.15          Form of Warrant  related  to the  Registrant's  issuance  of
                    warrants to purchase up to 200,000  shares of Common  Stock.
                    (INCORPORATED  BY REFERENCE TO EXHIBIT  10.29(A) TO THE 1994
                    REGISTRATION STATEMENT.)

     10.16          Form of  Warrant  related to the  issuance  of  warrants  to
                    purchase up to 21,000 shares of Common Stock.  (INCORPORATED
                    BY REFERENCE TO EXHIBIT 10.29(C) TO 1994 AMENDMENT #1.)

                                      -33-

<PAGE>

     Number         Description
     ------         -----------
     10.17          Form of Indemnity Agreements for the Registrant's  directors
                    and officers. (INCORPORATED BY REFERENCE TO EXHIBIT 10.31 TO
                    THE 1994 REGISTRATION STATEMENT.)

     10.18          Lease Agreement,  dated February 16, 1993, for office space,
                    as amended by letter  agreement  dated  February  16,  1994.
                    (INCORPORATED  BY  REFERENCE  TO  EXHIBIT  10.32 TO THE 1994
                    REGISTRATION STATEMENT.)

     10.19          Patent  License  Agreement,  with Out of Line  Sports,  Inc.
                    dated as of September 30, 1994.  (INCORPORATED  BY REFERENCE
                    TO EXHIBIT 10.33 TO THE 1994 REGISTRATION STATEMENT.)

     10.20          Trademark License Agreement, dated as of September 30, 1994.
                    (INCORPORATED  BY  REFERENCE  TO  EXHIBIT  10.34 TO THE 1994
                    REGISTRATION STATEMENT.)

     10.21          Agreement,  dated October 31, 1994,  between  California Pro
                    Sports,  Inc.  and  Playmaker  related to royalty  payments.
                    (INCORPORATED BY REFERENCE TO EXHIBIT 10.35 TO AMENDMENT NO.
                    2 TO THE  REGISTRATION  STATEMENT,  FILED  WITH  THE  SEC ON
                    NOVEMBER 16, 1994 ("1994 AMENDMENT #2").)

     10.22          Form of Warrant  related  to the  Registrant's  issuance  of
                    warrants to purchase up to 300,000  shares of Common  Stock.
                    (INCORPORATED  BY REFERENCE TO EXHIBIT 10.37 IN REGISTRATION
                    STATEMENT 33-98898.)

     10.23          Letter  Agreement dated August 24, 1995 among the Registrant
                    and Warren Amendola, Patricia Amendola, Three R Sales, Inc.,
                    Three  R  Profit  Sharing  Retirement  Plan  and  USA  Skate
                    Company, Inc. (Incorporated by reference to Exhibit 10.38 in
                    Registration Statement 33-98898.)

     10.24          Form of Warrant  related  to the  Registrant's  issuance  of
                    warrants to purchase  up to 150,000  shares of Common  Stock
                    with  Registration   Rights   Agreement.   (INCORPORATED  BY
                    REFERENCE TO EXHIBIT  10.39 IN  REGISTRATION  STATEMENT  33-
                    98898.)

     10.25          Stock Purchase  Agreement  effective as of April 30, 1996 by
                    and among Warren Amendola,  Sr., Patricia Amendola,  Three R
                    Profit  Sharing  Retirement  Plan,  Warren  Amendola,   Jr.,
                    Richard Amendola and Russell Amendola,  as sellers, and USA,
                    as purchaser,  and the  Registrant,  including the following
                    exhibit  agreements  thereto.  (INCORPORATED BY REFERENCE TO
                    EXHIBIT  10.1 TO THE  REGISTRANT'S  FORM 8-K,  FILED MAY 30,
                    1996,  REPORTING AN EVENT ON MAY 15, 1996,  COMMISSION  FILE
                    NO. 0-25114 (THE "1996 FORM 8- K").)

                                      -34-
<PAGE>

     Number         Description
     ------         -----------
     10.26(a)       Exhibit  A  -  USA's  Promissory  Note  to  sellers  in  the
                    principal  amount  of  $1,050,000,  with  related  Guaranty.
                    (INCORPORATED  BY REFERENCE  TO EXHIBIT  10.1(A) TO THE 1996
                    FORM 8-K.)

     10.26(b)       Exhibit B - License  Agreement from Warren Amendola,  Sr. to
                    USA Skate, with related Guaranty. (INCORPORATED BY REFERENCE
                    TO EXHIBIT 10.1(B) TO THE 1996 FORM 8-K.)

     10.26(c)       Exhibit C - Consulting and  Non-Competition  Agreement among
                    Warren Amendola,  Sr., USA and the Registrant,  with related
                    Guaranty.  (INCORPORATED  BY REFERENCE TO EXHIBIT 10.1(C) TO
                    THE 1996 FORM 8-K.)

     10.26(d)       Exhibit D - Escrow  Agreement by and among Warren  Amendola,
                    Sr.,  USA,  the  Registrant  and  Blau,  Kramer,  Wactlar  &
                    Lieberman,   P.C.  (INCORPORATED  BY  REFERENCE  TO  EXHIBIT
                    10.1(D) TO THE 1996 FORM 8-K.)

     10.26(e)(1)    Exhibit  E1 -  Employment  Agreement  between  USA Skate and
                    Warren Amendola,  Sr.  (INCORPORATED BY REFERENCE TO EXHIBIT
                    10.1(E)(1) TO THE 1996 FORM 8-K.)

     10.26(e)(2)    Exhibit E2 - Non-Disclosure and Non-Competition Agreement by
                    and among  Warren  Amendola,  Jr.,  USA  Skate,  USA and the
                    Registrant. (INCORPORATED BY REFERENCE TO EXHIBIT 10.1(E)(2)
                    TO THE 1996 FORM 8-K.)

     10.26(e)(3)    Exhibit E3 - Non-Disclosure and Non-Competition Agreement by
                    and  among  Richard   Amendola,   USA  Skate,  USA  and  the
                    Registrant. (INCORPORATED BY REFERENCE TO EXHIBIT 10.1(E)(3)
                    TO THE 1996 FORM 8-K.)

     10.26(f)       Exhibit F - Registration  Rights  Agreement by and among the
                    sellers and USA,  with related  Guaranty.  (INCORPORATED  BY
                    REFERENCE TO EXHIBIT 10.1(F) TO THE 1996 FORM 8-K.)

     10.26(g)       Exhibit G - Guaranty  for the benefit of Patricia  Amendola.
                    (INCORPORATED  BY REFERENCE  TO EXHIBIT  10.1(G) TO THE 1996
                    FORM 8-K.)

     10.26(h)       Exhibit H - Davtec's Promissory Note to Warren Amendola, Sr.
                    in the principal amount of $125,000,  with related Guaranty.
                    (INCORPORATED  BY REFERENCE  TO EXHIBIT  10.1(H) TO THE 1996
                    FORM 8-K.)

     10.27(a)       Loan and  Security  Agreement  between USA Skate and LaSalle
                    National Bank (the "USA Skate Loan Agreement)  (INCORPORATED
                    BY  REFERENCED  TO EXHIBIT  10.27(A) TO THE  COMPANY'S  FORM
                    10-KSB FOR THE YEAR ENDED  DECEMBER 31, 1996 (THE "1996 FORM
                    10-KSB").)

                                      -35-
<PAGE>

     Number         Description
     ------         -----------
     10.27(b)       Demand  Note  related  to  the  USA  Skate  Loan  Agreement.
                    (INCORPORATED  BY REFERENCE  TO EXHIBIT  10.2(A) TO THE 1996
                    FORM 8-K.)

     10.27(c)(1)    Guaranty of the USA Skate Loan by the Registrant, California
                    Pro,  Inc.  and USA.  (INCORPORATED  BY REFERENCE TO EXHIBIT
                    10.27(C)(1) TO THE 1996 FORM 10-KSB.)

     10.27(c)(2)    Guaranty of the USA Skate Loan by Henry Fong.  (INCORPORATED
                    BY  REFERENCE  TO  EXHIBIT  10.27(C)(2)  TO  THE  1996  FORM
                    10-KSB.)

     10.27(c)(3)    Guaranty   of  the  USA  Skate  Loan  by  Michael   Casazza.
                    (INCORPORATED  BY  REFERENCE TO EXHIBIT  10.27(C)(3)  TO THE
                    1996 FORM 10-KSB.)

     10.27(d)       Letter from the Registrant,  USA and Three R Sales,  Inc. to
                    LaSalle National Bank. (INCORPORATED BY REFERENCE TO EXHIBIT
                    10.2(C) TO THE 1996 FORM 8-K.)

     10.28(a)       Letter  Amendment,  dated as of April 30, 1996,  to the Loan
                    Agreement  dated April 1, 1993 between  California Pro, Inc.
                    and  LaSalle  National  Bank,  as amended  (the "CP  Loan").
                    (INCORPORATED  BY REFERENCE  TO EXHIBIT  10.3(A) TO THE FORM
                    8-K.)

     10.28(b)       Guaranty  of the CP  Loan  by USA  Skate.  (Incorporated  by
                    reference to Exhibit 10.3(b) to the 1996 Form 8-K.)

     10.29          Lease  Agreement,  dated  November 1, 1996,  between  Philip
                    Calabrese and USA Skate Co., Inc. (INCORPORATED BY REFERENCE
                    TO EXHIBIT 10.31 IN REGISTRATION STATEMENT 33-98898.)

     10.30(a)       Asset Purchase  Agreement,  dated  September 10, 1997 by and
                    among Les  Equipements  Sportifs Davtec Inc., USA Skate Co.,
                    Inc., USA Skate Corporation, the Registrant, Rawlings Canada
                    Inc. and Rawlings Sporting Goods Company, Inc. (INCORPORATED
                    BY REFERENCE TO EXHIBIT  10.1(A) TO  REGISTRANT'S  FORM 8-K,
                    FILED  SEPTEMBER  29, 1997,  REPORTING AN EVENT ON SEPTEMBER
                    12,  1997,  COMMISSION  FILE NO.  0-25114  (THE  "1997  FORM
                    8-K").)

     10.30(b)       Exhibit A - Escrow  Agreement,  dated  September 12, 1997 by
                    and among Les  Equipements  Sportifs  Davtec Inc., USA Skate
                    Co., Inc.,  Rawlings  Canada Inc.,  Rawlings  Sporting Goods
                    Company,  Inc.  and the Bank of New York.  (INCORPORATED  BY
                    REFERENCE TO EXHIBIT 10.1(B) TO REGISTRANT'S 1997 FORM 8-K.)

     10.30(c)       Exhibit C - Guaranty,  dated September 12, 1997 for Rawlings
                    Canada  Inc.  and  Rawlings  Sporting  Goods  Company,  Inc.
                    (INCORPORATED   BY   REFERENCE   TO   EXHIBIT   10.1(C)   TO
                    REGISTRANT'S 1997 FORM 8-K.)

                                      -36-
<PAGE>
   
     Number         Description
     ------         -----------
     10.31          Agreement and Plan of Merger,  dated January 30, 1998 by and
                    among  the   Registrant,   ImaginOn,   Inc.   and   ImaginOn
                    Acquisition  Corp.  (INCORPORATED  BY  REFERENCE  TO EXHIBIT
                    10.31  TO THE  COMPANY'S  FORM  10-KSB  FOR THE  YEAR  ENDED
                    DECEMBER 31, 1997 (THE "1997 FORM 10-KSB").)

     10.32          Licensing Agreement, effective May 1, 1997, by and among the
                    Registrant and United Merchandising Corp.  FILED HEREWITH.

     10.33          Licensing  Agreement,  effective April 1, 1997, by and among
                    the  Registrant  and  Jaysport  International,  Inc. . FILED
                    HEREWITH.

     11.1           Statement   Re:   Computation   of   Per   Share   Earnings.
                    (INCORPORATED  BY REFERENCE TO EXHIBIT 11.1 TO THE 1997 FORM
                    10-KSB)

     21.1           List of Subsidiaries.  (INCORPORATED BY REFERENCE TO EXHIBIT
                    21.1 IN REGISTRATION STATEMENT 33-98898.)

     27.1           Financial  Data  Schedule.  (INCORPORATED  BY  REFERENCE  TO
                    EXHIBIT 27.1 TO THE 1997 FORM 10-KSB)
    


(b)      REPORTS ON FORM 8-K.

         None.

                                      -37-
<PAGE>

                                   SIGNATURES

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

                                       CALIFORNIA PRO SPORTS, INC.


Date: October 23, 1998                 /s/ Barry S. Hollander
                                       -----------------------------------------
                                       Barry S. Hollander, Acting President


     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 Company
and in the capacities and on the dates indicated.


Date: October 23, 1998                 /s/ Henry Fong
                                       -----------------------------------------
                                       Henry Fong, Chief Executive
                                        Officer and Director


Date: October 23, 1998                 /s/ Barry S. Hollander
                                       -----------------------------------------
                                       Barry S. Hollander, Chief Financial 
                                        Officer and Principal Accounting Officer


Date: October 23, 1998                 /s/ Brian C. Simpson
                                       -----------------------------------------
                                       Brian C. Simpson, Director


Date: October 23, 1998                 /s/ Hung-Chang Yang
                                       -----------------------------------------
                                       Hung-Chang Yang, Director


                                      -38-

<PAGE>
                          INDEPENDENT AUDITORS' REPORT

Board of Directors
California Pro Sports, Inc.

We have audited the  accompanying  consolidated  balance sheet of California Pro
Sports,  Inc.  and  subsidiaries  as of  December  31,  1997,  and  the  related
consolidated  statements of operations,  shareholders' equity and cash flows for
each of the  years  in the  two-year  period  ended  December  31,  1997.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of  California  Pro
Sports,  Inc. and subsidiaries as of December 31, 1997, and the results of their
operations  and their  cash flows for each of the years in the  two-year  period
ended  December 31, 1997,  in  conformity  with  generally  accepted  accounting
principles.

The accompanying  consolidated  financial statements have been prepared assuming
that California Pro Sports, Inc. will continue as a going concern. As more fully
described in Note 1, the Company incurred significant recurring operating losses
in 1997 and  1996,  has a  working  capital  deficiency  and has an  accumulated
deficit at December 31, 1997. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans with regard
to these matters are also  described in Note 1. The financial  statements do not
include  any   adjustments  to  reflect  the  possible  future  effects  on  the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.

GELFOND HOCHSTADT PANGBURN & CO.



Denver, Colorado
April 14, 1997

                                      F-1
<PAGE>
                           CALIFORNIA PRO SPORTS, INC.
                           CONSOLIDATED BALANCE SHEETS
                                DECEMBER 31, 1997

                                     Assets
                                     ------
<TABLE>
<CAPTION>
                                                           Unaudited
                                                           pro forma       Historical
                                                           ---------       ----------
                                                           (Note 4)
<S>                                                       <C>             <C>
Current assets:
      Cash ............................................   $  1,413,969    $     13,969
      Accounts receivable, less allowance
       for doubtful accounts of $216,000:
        Trade .........................................         10,000          10,000
        Related parties ...............................        131,270         131,270
        Other .........................................         90,000          90,000
      Prepaid expenses and other ......................         28,141          28,141
      Assets of subsidiary held for sale (Note 4) .....                      1,104,527
                                                          ------------    ------------
          Total current assets ........................      1,673,380       1,377,907
                                                          ------------    ------------

Furniture and equipment, net of accumulated
 depreciation of $319,866 .............................        153,387         153,387
                                                          ------------    ------------
Intangible assets, net of accumulated
 amortization of $ 66,137:
      Trademark license and other costs ...............        546,212         546,212
      Goodwill ........................................                        191,121
                                                          ------------    ------------
                                                               546,212         737,333
                                                          ------------    ------------
                                                          $  2,372,979    $  2,268,627
                                                          ============    ============

                      Liabilities and Shareholders' Equity
                      ------------------------------------
Current liabilities:
      Accounts payable and accrued expenses ...........   $     64,393    $     64,393
      Liabilities of subsidiary held for sale (Note 4)                       1,714,139
                                                          ------------    ------------
          Total liabilities (all current) .............         64,393       1,778,532
                                                          ------------    ------------
Minority interest .....................................                        385,149
                                                          ------------    ------------
Commitments and contingencies  (Notes 4, 5, and 11)
Shareholders'  equity (Note 7):
      Preferred stock, $0.01 par value, authorized
       5,000,000 shares; issued 1,099,685 ............          10,997          10,997
      Common stock, $0.01 par value, authorized
       10,000,000  shares; issued 6,734,430 ..........          67,344          67,344
      Warrants ........................................        394,200         394,200
      Options .........................................      1,310,000
      Capital in excess of par ........................     11,080,758      11,080,758
      Accumulated deficit .............................    (10,554,713)    (10,554,713)
      Treasury stock held by subsidiary; consisting of
         750,471 shares of preferred stock; 360,000
         shares of common stock .......................                       (893,640)
                                                          ------------    ------------
          Total shareholders' equity ..................      2,308,586         104,946
                                                          ------------    ------------
                                                          $  2,372,979    $  2,268,627
                                                          ============    ============
</TABLE>

                 See notes to consolidated financial statements.

                                      F-2
<PAGE>
                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                     YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
                                                                      1997            1996
                                                                  ------------    ------------
<S>                                                               <C>             <C>         
Net sales .....................................................   $  9,087,767    $ 16,952,904
                                                                  ------------    ------------
Cost of sales:
      Substantially from a related party (Note 1) .............                      3,148,423
      Others ..................................................      7,445,344       9,852,861
      Inventory markdowns and adjustments .....................                      1,059,750
                                                                  ------------    ------------
                                                                     7,445,344      14,061,034
                                                                  ------------    ------------
        Gross profit ..........................................      1,642,423       2,891,870
                                                                  ------------    ------------
Operating expenses:
      Sales and marketing expenses ............................      1,253,670       2,434,255
      General and administrative expenses .....................      3,387,882       3,037,751
      Depreciation and amortization ...........................        628,601         681,717
      Consulting fees, related party (Note 5) .................        210,000         200,000
      Restructuring and impairment charges (Note 11) ..........        237,452       1,229,000
                                                                  ------------    ------------
Total operating expenses ......................................      5,717,605       7,582,723
                                                                  ------------    ------------
Loss from operations ..........................................     (4,075,182)     (4,690,853)
                                                                  ------------    ------------
Other expenses (income):
      Interest expense:
        Related parties .......................................        297,338         305,947
        Other .................................................        669,140       1,083,274
      Foreign currency (gains) losses .........................        (59,791)         44,012
      Royalty and other income ................................        (62,312)        (51,376)
      Loss on marketable securities (Note 3) ..................         62,392         144,457
      Gain on sale of investment in subsidiary (Note 4) .......        (87,593)       (111,366)
      Gain from issuance of common stock by subsidiary (Note 4)                       (479,100)
      Finance fees (Note 4) ...................................        440,643
      Loss on sale of USA Skate assets (Note 4) ...............        751,522
                                                                  ------------    ------------
                                                                     2,011,339         935,848
                                                                  ------------    ------------
Loss before income taxes and minority interest ................     (6,086,521)     (5,626,701)
Income tax benefit (Note 6) ...................................       (166,404)       (244,500)
                                                                  ------------    ------------

Loss before minority interest .................................     (5,920,117)     (5,382,201)

Minority interest .............................................       (727,197)        193,681
                                                                  ------------    ------------
Loss before extraordinary item ................................     (5,192,920)     (5,575,882)

Extraordinary item (Note 9) ...................................        383,705
                                                                  ------------    ------------

Net loss ......................................................   $ (4,809,215)   $ (5,575,882)
                                                                  ============    ============
Loss per share:
     Before extraordinary item                                    $      (0.94)   $      (1.37)
     Extraordinary item                                                   0.07
                                                                  ------------    ------------
Loss per common share .........................................   $      (0.87)   $      (1.37)
                                                                  ============    ============

Weighted average number of shares outstanding .................      5,544,833       4,078,864
                                                                  ============    ============
</TABLE>

                 See notes to consolidated financial statements.

                                       F-3
<PAGE>

                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                     YEARS ENDED DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
                                         Common Stock                Preferred Stock            Warrants
                                   --------------------------    --------------------------    -----------
                                     Shares         Amount         Shares         Amount
                                   -----------    -----------    -----------    -----------
<S>                                <C>            <C>            <C>            <C>            <C>        
Balances, January 1, 1996 ......     3,783,511    $    37,835                                  $   394,200

Issuance of 400,000 shares
 of common stock (Note 7) ......       400,000          4,000

Issuance of 36,000 shares of
 common stock in settlement of an
 account payable (Note 7) ......        36,000            360

Issuance of 480,000 shares of
 common stock in
 settlement of payables to
 officers/shareholders (Note 7)        480,000          4,800

Net loss for 1996 ..............

Cumulative foreign currency
 translation adjustment ........   
                                   -----------    -----------    -----------    -----------    -----------
Balances, December 31, 1996 ....     4,699,511         46,995                                      394,200
</TABLE>
                                                                     (Continued)
                                       F-4
<PAGE>

                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                 YEARS ENDED DECEMBER 31, 1997 AND 1996 (PAGE 2)

<TABLE>
<CAPTION>
                                                                 Cumulative
                                                                  foreign
                                                                  currency
                                   Capital in                    translation     Treasury
                                  excess of par     Deficit      adjustment        Stock          Total
                                  -------------   -----------    -----------    -----------    -----------
<S>                                <C>            <C>            <C>            <C>            <C>                  <C>        
Balances, January 1, 1996 ......   $ 4,727,492    $  (169,616)                                 $ 4,989,911

Issuance of 400,000 shares
 of common stock (Note 7) ......       896,000                                                     900,000

Issuance of 36,000 shares of
 common stock in settlement of an
 account payable (Note 7) ......       107,640                                                     108,000

Issuance of 480,000 shares of
 common stock in
 settlement of payables to
 officers/shareholders (Note 7)        655,200                                                     660,000

Net loss for 1996 ..............                   (5,575,882)                                  (5,575,882)

Cumulative foreign currency
 translation adjustment ........                                 $    (7,774)                       (7,774)
                                   -----------    -----------    -----------    -----------    -----------
Balances, December 31, 1996 ....     6,386,332     (5,745,498)        (7,774)                    1,074,255
</TABLE>
                                                                     (Continued)
                                       F-5
<PAGE>

                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                 YEARS ENDED DECEMBER 31, 1997 AND 1996 (PAGE 3)
                              
<TABLE>
<CAPTION>
                                         Common Stock                Preferred Stock            Warrants
                                   --------------------------    --------------------------    -----------
                                     Shares         Amount         Shares         Amount
                                   -----------    -----------    -----------    -----------
<S>                                <C>            <C>            <C>            <C>            <C>              
Issuance of 371,493 shares of
 common stock in exchange for
 480,417 shares of the Company's
 subsidiary stock (Note 4) ......      371,493          3,715

Issuance of 75,000 shares of
 common stock in satisfaction of
 300,000 options to purchase
 common stock (Note 5) ..........       75,000            750

Issuance of 75,000 shares of
 common stock for consulting
 and financial services (Note 5)        75,000            750

Issuance of 865,225 shares of
 common stock in satisfaction
 of $1,171,656 of liabilities
 (Note 7) .......................      865,225          8,652

Issuance of 235,701 shares of
 common stock for extending
 maturity date on certain notes
 (Note 4) .......................      235,701          2,357

Issuance of 52,500 shares of
 common stock upon the exercise
 of options (Note 7) ............       52,500            525

Issuance of 349,214 Class A 
 Series Preferred Stock  (Note 7)                                    349,214    $     3,492

Issuance of stock to subsidiary
 in satisfaction of $893,640
 liabilities (Note ) ............      360,000          3,600        750,471          7,505

Net loss for 1997 ...............

Foreign currency translation
 adjustment .....................
                                   -----------    -----------    -----------    -----------    -----------
Balances, December 31, 1997 .....    6,734,430    $    67,344      1,099,685    $    10,997    $   394,200
                                   ===========    ===========    ===========    ===========    ===========
</TABLE>
                                                                     (Continued)
                                       F-6
<PAGE>

                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                 YEARS ENDED DECEMBER 31, 1997 AND 1996 (PAGE 4)

<TABLE>
<CAPTION>
                                                                 Cumulative
                                                                  foreign
                                                                  currency
                                   Capital in                    translation     Treasury
                                  excess of par     Deficit      adjustment        Stock          Total
                                  -------------   -----------    -----------    -----------    -----------
<S>                                <C>            <C>            <C>            <C>            <C>        
Issuance of 371,493 shares of
 common stock in exchange for
 480,417 shares of the Company's
 subsidiary stock (Note 4) ......      407,677                                                     411,392

Issuance of 75,000 shares of
 common stock in satisfaction of
 300,000 options to purchase
 common stock (Note 5) ..........       69,563                                                      70,313

Issuance of 75,000 shares of
 common stock for consulting
 and financial services (Note 5)        74,250                                                      75,000

Issuance of 865,225 shares of
 common stock in satisfaction
 of $1,171,656 of liabilities
 (Note 7) .......................    1,163,004                                                   1,171,656

Issuance of 235,701 shares of
 common stock for extending
 maturity date on certain notes
 (Note 4) .......................      438,284                                                     440,641

Issuance of 52,500 shares of 
 common stock upon the exercise
 of options (Note 7) ............       94,475                                                      95,000

Issuance of 349,214 Class A 
 Series Preferred Stock  (Note 7)    1,564,638                                                   1,568,130

Issuance of stock to subsidiary
 in satisfaction of $893,640
 liabilities (Note ) ............      882,535                                                    (893,640)

Net loss for 1997 ...............                  (4,809,215)                                  (4,809,215)

Foreign currency translation
 adjustment .....................                                      7,774                         7,774
                                   -----------    -----------    -----------    -----------    -----------
Balances, December 31, 1997 .....  $11,080,758   $(10,554,713)                  $  (893,640)   $   104,946
                                   ===========    ===========    ===========    ===========    ===========
</TABLE>
                See notes to consolidated financial statements.

                                       F-7
<PAGE>
                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     YEARS ENDED DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
                                                                       1997            1996
                                                                   ------------    ------------
<S>                                                                <C>             <C>
Cash flows from operating activities:
      Net loss .................................................   $ (4,809,215)   $ (5,575,882)
                                                                   ------------    ------------
      Adjustments to reconcile net loss to
       net cash used in operating activities:
      Extraordinary gain .......................................       (383,705)
      Inventory markdowns and adjustments ......................                      1,059,750
      Net unrealized holding loss ..............................         62,392         144,457
      Gain on sale of investment in subsidiary .................        (87,593)       (111,366)
      Gain from issuance of common stock by subsidiary .........                       (479,100)
      Loss on sale of USA Skate assets .........................        751,522
      Expense incurred upon issuance of common stock and options        724,223
      Depreciation and amortization ............................        628,601         681,717
      Amortization of license fee payable and other ............         88,867         214,688
      Provision for losses on accounts receivable ..............        250,836         228,000
      Foreign currency (gains) loss ............................        (59,791)         44,012
      Minority interest ........................................       (727,197)        193,681
      Restructuring and impairment charges .....................        237,452       1,229,000
Decrease (increase) in assets:
      Accounts receivable ......................................       (135,947)      2,432,580
      Income taxes receivable ..................................        221,624        (221,624)
      Due from related parties .................................       (310,369)         22,866
      Inventories ..............................................      1,806,578       2,578,805
      Prepaid expenses and other ...............................        436,111        (236,638)
      Assets of subsidiary held for sale
Increase (decrease) in liabilities:
      Accounts payable and accrued expenses ....................       (394,606)     (1,210,188)
      Payables to officers/shareholders and other
        related parties ........................................        (36,804)        136,250
      Income taxes payable .....................................                       (208,304)
      Liabilities of subsidiary held for sale                        (1,340,648)
                                                                   ------------    ------------
            Total adjustments ..................................      1,731,546       6,498,586
                                                                   ------------    ------------
Net cash provided by (used in) operating activities ............     (3,077,669)        922,704
                                                                   ------------    ------------

Cash flows from investing activities:
      Payment from sale of USA Skate Co., Inc. .................     14,500,000
      Payment for purchase of subsidiary,
       net of cash acquired ....................................                     (3,551,760)
      Payments for intangible assets ...........................                       (436,600)
      Capital expenditures .....................................        (95,141)       (237,545)
      Proceeds from sale of marketable securities ..............        166,260
      Acquisition, offering and financing costs ................                       (421,770)
                                                                   ------------    ------------
Net cash used in investing activities ..........................     14,571,119      (4,647,675)
                                                                   ------------    ------------
</TABLE>

                                       F-8
<PAGE>
                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                     YEARS ENDED DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
                                                                       1997            1996
                                                                   ------------    ------------
<S>                                                                <C>             <C>
Cash flows from financing activities:
      Proceeds from notes payable and long-term debt ...........        174,545       4,543,522
      Repayments of notes payable, license fees
        and long-term debt .....................................    (11,713,124)     (1,587,263)
      Net proceeds from issuance of
       common stock and warrants ...............................                        819,600
                                                                   ------------    ------------
Net cash provided by financing activities ......................    (11,538,579       3,775,859
                                                                   ------------    ------------
Net increase (decrease) in cash ................................        (45,129)         50,888
                                                               
Cash, beginning ................................................         59,098           8,210
                                                                   ------------    ------------
Cash, ending ...................................................   $     13,969    $     59,098
                                                                   ============    ============

Supplemental disclosure of cash flow information:
      Cash paid for interest ...................................   $               $  1,041,900  
                                                                   ============    ============

      Cash paid for income taxes ...............................   $               $     89,300
                                                                   ============    ============

Supplemental disclosure of noncash investing 
  and financing activities:
      Purchase (disposition) of USA Skate Co., Inc. ............
        net of cash acquired:
        Fair value (cost) of assets acquired ...................   $(16,937,947)     11,334,200
        Intangible assets ......................................                      2,777,774
        Liabilities (assumed) disposed of ......................      1,899,533      (9,210,214)
        Fair value of assets exchanged .........................                     (1,350,000)
        Loss on disposition                                             538,414
                                                                   ------------    ------------
      Total cash paid (received), net of cash acquired .........   $(14,500,000)   $  3,551,760
                                                                   ============    ============

      Issuance of 371,493 shares of common stock in
        exchange for 480,417 shares of Company's
        Subsidiary stock .......................................   $    411,392    $
                                                                   ============    ============

      Issuance of 865,225 shares in 1997 and
        36,000 shares in 1996 of common stock in satisfaction
        of amounts due .........................................   $  1,171,656         108,000
                                                                   ============    ============

      Issuance of 400,000 shares of common stock
        in exchange for consulting and non-compete
        agreements .............................................                   $    900,000
                                                                                   ============

      Issuance of 480,000 shares of common stock
        in settlement of payables to officers/shareholders .....                   $    660,000
                                                                                   ============

      Minimum royalties payable in exchange
        for a license agreement ................................                   $  2,213,235
                                                                                   ============
</TABLE>

                                       F-9
<PAGE>
                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 1997 AND 1996

1.       Basis of presentation, business and plan of restructuring:

         Basis of presentation:

         The accompanying consolidated financial statements include the accounts
           of California Pro Sports,  Inc. (the "Company") and its subsidiaries,
           California  Pro,  Inc.  ("CP")  and  USA  Skate  Corporation  ("Skate
           Corp.").  Skate  Corp.  was formed in 1995 to acquire  USA Skate Co.,
           Inc. ("USA  Skate").  On December 31, 1997, the Company owned 100% of
           the outstanding CP capital stock and 62.3% of the  outstanding  Skate
           Corp.  capital  stock.  Minority  interest  represents  Skate Corp.'s
           minority  shareholders'  37.7%  ownership  interest  in  Skate  Corp.
           Intercompany transactions have been eliminated in consolidation.

         Effective April 30, 1996, the Company,  through Skate Corp.,  completed
           the acquisition of all of the outstanding capital stock of USA Skate,
           a New York corporation,  which owns,  directly or indirectly,  all of
           the capital stock of Les Equipements Sportifs Davtec Inc., a Canadian
           corporation  ("Davtec").  The  acquisition  was  accounted  for  as a
           purchase.  Accordingly,  the  consolidated  statements  of operations
           include the results of USA Skate and Davtec beginning May 1, 1996. In
           September 1997, Skate Corp., sold  substantially all of the operating
           assets of USA Skate and Davtec (Note 4).

         Business and plan of restructuring:

         Prior to the second  quarter of 1997,  the Company sold in-line  skates
           and accessories,  under the brand names California Pro(R) and Rolling
           Thunder(TM),  to retail  sporting  goods stores  principally in North
           America,  and sold  snowboards  and  accessories  under the Kemper(R)
           brand  name to retail  sporting  goods  stores in North  America  and
           distributors  in Europe  and  Japan.  Prior to  September  1997,  the
           Company also manufactured,  imported and marketed  VICTORIAVILLE(TM),
           VIC(R), and McMartin(TM) ice and street/roller hockey skates,  sticks
           and  related  protective  gear and  accessories  for  sale to  retail
           sporting goods stores in the United States and Canada and independent
           distributors  primarily  located in Europe. A majority of the in-line
           skates  were  manufactured  for the  Company by  Playmaker  Co.  Ltd.
           ("Playmaker"), a minority shareholder of the Company.

         In 1996 and  1997,  due  to  continuing  operating  losses,  management
           decided to restructure and deleverage the Company. In connection with
           these plans, the Company:

                                      F-10
<PAGE>
                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 1997 AND 1996

         a.       Ceased  operating  the  California  Pro and  Kemper  licenses,
                  eliminated  most  of  the  operating  and  overhead   expenses
                  associated  with its  sporting  goods  business  and  began to
                  concentrate on sub-licensing  the Company's  trademark rights.
                  Accordingly,   in  1996  the  Company  recorded  restructuring
                  charges of $1,229,000  (Note 11) and in the second  quarter of
                  1997, the Company began  liquidating  remaining in-line skate,
                  snowboard and accessories inventories.

         b.       Completed  the  sale  of  substantially  all of the  operating
                  assets of USA Skate and Davtec (Note 4).

         c.       Commenced a search for sub-licensees of its California Pro and
                  Kemper licenses.

         d.       Commenced a search for a merger candidate.  As a result of its
                  search,  on October 2, 1997,  the  Company  signed a letter of
                  intent to merge with ImaginOn, Inc., a privately held company,
                  and on January 30, 1998,  the Company  signed an agreement and
                  plan of merger with ImaginOn (Note 10).

         e.       Began  investigating  other  options,  including  the  sale of
                  subsidiaries and potential private offerings (Note 4).

         The accompanying  financial statements have been prepared assuming that
           the  Company  will  continue  as a going  concern.  The  Company  has
           incurred  significant  operating  losses  in 1997  and 1996 and has a
           working capital deficiency and a accumulated  deficit at December 31,
           1997. These conditions  raise  substantial  doubt about the Company's
           ability to continue as a going concern.  The financial  statements do
           not include any adjustments to reflect the possible future effects on
           the  recoverability  and  classification of assets or the amounts and
           classification  of  liabilities  that may result  from the outcome of
           these uncertainties.

2.       Significant accounting policies:

         Use of accounting estimates in financial statement preparation:

         The preparation  of financial  statements in conformity  with generally
           accepted accounting  principles requires management to make estimates
           and  assumptions  that  affect  the  reported  amount of  assets  and
           liabilities  and disclosure of contingent  assets and  liabilities at
           the date of the financial statement and the

                                      F-11
<PAGE>


                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 1997 AND 1996

           reported  amounts of  revenues  and  expenses  during  the  reporting
           periods. Actual results could differ from those estimates.

         Inventories:

         Inventories are stated at the lower of cost (first-in first-out method)
           or market. At December 31, 1997, there are no remaining inventories.

         Furniture, equipment, and depreciation:

         Furniture and equipment are stated at cost. Depreciation is provided by
           use of  accelerated  and  straight-line  methods  over the  estimated
           useful lives (5 to 10 years) of the related assets.

         Intangible assets:

         Intangible  assets at December 31, 1997  consist of  trademark  licence
           costs  related to the  California  Pro and Kemper  perpetual  license
           agreements  and  goodwill  representing  the  cost  of the  Company's
           investments in Skate Corp. and its  subsidiaries in excess of the net
           tangible assets  acquired.  Trademark  license costs are amortized on
           the straight-line method over 5 to 11 years. Goodwill is amortized on
           the straight-line method over 15 to 25 years.

         Management   assesses  the  carrying  value  of  intangible  and  other
           long-lived  assets for impairment when  circumstances  warrant such a
           review, primarily by comparing current and projected sales, operating
           income  and  annual  cash flows on an  undiscounted  basis,  with the
           related annual  amortization  expenses.  In 1997, goodwill related to
           Skate Corp.  with a carrying  value of $428,573  was written  down to
           $191,121 (Note 4). In 1996,  intangible  assets with a carrying value
           of  $9,192,506  were  written  down  to  $8,473,806  (Note  11).  The
           resulting  expense  of  $237,452  and  $718,700  for 1997  and  1996,
           respectively, was included in restructuring and impairment charges.

         Revenue recognition:

         The Company's revenue  recognition policy is to record sales as product
           is shipped and recognizes royalty and other income when sub-licensees
           report royalties and the Company receives payment.

         Foreign currency transactions:

         CP primarily purchased  and sold its  in-line  skate  products  in U.S.
           dollars.  CP primarily  purchased  its  snowboard  products in German
           Deutsche  Marks ("DM") and sold to its customers in either DM or U.S.
           dollars.  USA Skate primarily purchased and sold its products in U.S.
           dollars, and Davtec primarily purchased

                                      F-12
<PAGE>
                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 1997 AND 1996

           its goods in Canadian  dollars and sold to customers in both U.S. and
           Canadian dollars.  Gains and losses on foreign currency  transactions
           are included in determining consolidated net loss.

         Loss per share:

         The Company adopted Statement of Financial  Accounting  Standards (SFAS
           No. 128) during 1997.  This statement  requires dual  presentation of
           basic and diluted earnings per share (EPS) with a  reconciliation  of
           the numerator and  denominator  of the basic EPS  computation  to the
           numerator and denominator of the diluted EPS  computation.  Basic EPS
           amounts  are based on the  weighted  average  shares of common  stock
           outstanding. Diluted EPS reflects the potential dilution assuming the
           conversion,  exercise  or  issuance  of all  potential  common  stock
           instruments  such as options,  warrants and  convertible  securities,
           unless the effect is to reduce a loss or increase earnings per share.
           Accordingly,  this  presentation  has been  adopted  for all  periods
           presented. Diluted EPS was not materially different from basic EPS in
           1997 and 1996. The adoption of SFAS No. 128 did not impact previously
           reported EPS.

         Fair value of financial instruments:

         The carrying  value of the Skate  Corp.  convertible  promissory  notes
           payable,  included in liabilities of subsidiary  held for sale on the
           consolidated  balance sheet (Note 4), is not  practicable to estimate
           because  management  believes that due to the financial  condition of
           the Company,  similar  instruments  with  similar  terms could not be
           obtained elsewhere.  The fair values of the Company's receivables and
           payables to related parties are not  practicable to estimate,  due to
           the  related  party  nature  of  the  underlying   transactions   and
           indefinite payment terms. The carrying amounts of the Company's other
           financial  instruments  approximates their fair values because of the
           short maturities of these instruments.

         Subsidiary equity transactions:

         In 1996, the Company  adopted an accounting  policy to recognize in its
           consolidated  financial  statements,  gains and losses resulting from
           the sales of previously  unissued  stock by its  subsidiaries,  which
           have the effect of reducing the parent's percentage equity holding.

         Stock-based compensation:

                                      F-13
<PAGE>
                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 1997 AND 1996


         Statement of Financial Accounting Standard ("SFAS") No. 123, Accounting
           for Stock-Based  Compensation,  defines a fair-value-based  method of
           accounting   for   stock-based   employee   compensation   plans  and
           transactions  in which an entity  issues  its equity  instruments  to
           acquire goods or service from non-employees,  and encourages but does
           not require  companies to record  compensation  cost for  stock-based
           employee  compensation plans at fair value. The Company has chosen to
           continue to account for stock-based  compensation using the intrinsic
           value method  prescribed in Accounting  Principles  Board Opinion No.
           25,  ACCOUNTING  FOR STOCK  ISSUED TO  EMPLOYEES  ("APB NO.  25") and
           related  interpretations.  Accordingly,  compensation  cost for stock
           options is measured as the excess,  if any of the quoted market price
           of the  Company's  stock at the date of the grant  over the amount an
           employee must pay to acquire the stock.

         Recently issued accounting standards:

         The Financial Accounting Standards Board recently issued SFAS No.'s 130
           and 131,  "Reporting  Comprehensive  Income" and  "Disclosures  about
           Segments of an  Enterprise  and Related  Information,"  respectively.
           Both of these  statements  are effective  for fiscal years  beginning
           after December 15, 1997.  SFAS No. 130 establishes  requirements  for
           disclosure  of  comprehensive  income which  includes  certain  items
           previously not included in the statement of income including  minimum
           pension  liability   adjustments  and  foreign  currency  translation
           adjustments,  among  others.  Reclassification  of earlier  financial
           statements for comparative purposes is required. SFAS No. 131 revises
           existing standards for reporting information about operating segments
           and  requires  the  reporting  of  selected  information  in  interim
           financial  reports.  SFAS No.  131  also  establishes  standards  for
           related  disclosures  about products and services,  geographic areas,
           and major customers.  Management believes that implementation of SFAS
           No.  130 and  No.  131  will  not  materially  impact  the  Company's
           financial statements.

         Reclassifications:

         Certain amounts  reported in the 1996  financial  statements  have been
           reclassified to conform to the 1997 presentation.

3.       Marketable securities:

         In 1996, the Company  received  marketable securities from an affiliate

                                      F-14
<PAGE>
                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 1997 AND 1996

           in payment of an amount owed to the Company by a related party, which
           the  Company  classified  as trading  securities  under SFAS No. 115,
           ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES.  At
           December  31,  1996,  the  market  value  of  these   securities  had
           decreased,  and  therefore,  the Company  recognized a net unrealized
           holding loss of $144,457.  In 1997, the Company sold these securities
           and  recognized  an  additional  loss of $62,392.  These  amounts are
           included  in  loss  on  marketable  securities  in  the  consolidated
           statements of operations.

4.       Skate Corp. transactions:

         Gain from issuance of common stock by subsidiary:

         During 1996,  Skate Corp.  sold  884,667  shares of its common stock at
           $1.20 per share in a private  placement  for  $1,061,600  and  issued
           250,000  shares of common stock at $1.20 per share valued at $300,000
           in  connection  with  the  acquisition  of USA  Skate.  Before  these
           transactions,   the  Company   owned  100%  of  Skate   Corp.   These
           transactions  resulted  in a gain from the  issuance  of stock by the
           subsidiary of $479,100.

         Gain on sale of investment in subsidiary:

         In June 1996,  the Company  satisfied  $260,000  of amounts  payable to
           officers/shareholders  by transferring  to the  officers/shareholders
           216,667  shares  of Skate  Corp.  common  stock  from  the  Company's
           original  investment in 2,000,000  Skate Corp.  shares.  The recorded
           cost of the Skate Corp. shares transferred was $148,634, and the fair
           value of those shares was $260,000 (based on sales of the Skate Corp.
           shares to third parties), resulting in a gain of $111,366.

         In March 1997, the Company satisfied payables in the amount of $106,500
           by exchanging  88,750 shares of Skate Corp.  common stock held by the
           Company in satisfaction  of the liability.  The carrying value of the
           Skate Corp.  shares was $61,237 and the estimated fair value of those
           shares was  $106,500.  The Company  also sold 83,000  shares of Skate
           Corp. common stock held by the Company to a third party. The carrying
           value of the Skate  Corp.  shares was $57,270 and the sales price was
           $99,600. These transactions resulted in total gains of $87,593.

                                      F-15
<PAGE>
                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 1997 AND 1996

         Purchase of subsidiary common stock:

         In May and September 1997, the Company acquired 230,417 shares of Skate
           Corp.  common  stock  from  two  shareholders  (one of  which  was an
           officer)  in  exchange  for  238,160  shares of  common  stock of the
           Company.

         Sale of USA Skate assets:

         On September 12,  1997,  the  Company  sold  substantially  all  of the
           operating assets of USA Skate for $14,500,000,  with $1,000,000 to be
           held in escrow for potential  purchase  price  adjustments  and other
           claims.  The  proceeds  of the sale were used to repay the  Company's
           outstanding  lines of credit  and other  liabilities.  Subsequent  to
           September,  purchase  price and other  adjustments  have  reduced the
           escrow account by approximately  $422,000 and approximately  $105,000
           of the  escrow  account  was  disbursed  and  used  to  repay a trade
           liability.  The balance of the escrow  account is to be  disbursed to
           the Company in June 1998,  subject to  resolution  of any  additional
           adjustments  or claims that arise.  The Company  recognized a loss of
           approximately $752,000 on the sale of the USA Skate assets.

         The remaining  account  balances of Skate Corp. have been classified as
           assets  and   liabilities   of  subsidiary   held  for  sale  in  the
           accompanying consolidated balance sheet and consist of the following:

          Assets of subsidiary held for sale:
               Cash held in escrow .................   $  472,002
               Accounts receivable:
                 Trade .............................       47,525
                 Related parties ...................      585,000
                                                       ----------
                                                       $1,104,527
                                                       ==========
          Liabilities of subsidiary held for sale:
               Accounts payable and accrued expenses   $  589,239
               Note payable, related party .........       50,000
               Convertible promissory notes payable     1,074,900
                                                       ----------

                                                       $1,714,139
                                                       ==========

                                      F-16
<PAGE>
                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 1997 AND 1996

         The accounts  receivable,  related parties are non-interest bearing and
           are due June through September 1998. The note payable,  related party
           bears  interest at 10% and is currently in default.  The  convertible
           promissory notes were originally due in January 1997 with interest at
           9%. In January  1997,  the due date of the notes was extended to July
           1997 and the interest rate was adjusted to 12%.  Beginning July 1997,
           substantially  all of the note holders agreed to extend the notes for
           30 day intervals in exchange for the Company issuing the note holders
           common stock of the Company at each extension date.  Through December
           31, 1997,  the Company has issued  235,701 shares of common stock and
           recognized financing fees of approximately  $441,000.  Subsequent the
           December 31, 1997,  the notes have been extended  through May 1998 in
           exchange  for  149,285  shares of common  stock.  The  Company  is in
           default on $95,625 of the notes held by those note  holders that have
           not agreed to the extensions.

         Subsequent sale of the Company's  investment in Skate Corp. and sale of
           options:

         In April  1998, the  Company  received  commitments  from  a  group  of
           accredited  investors to purchase for $1,400,000 the shares of common
           stock of Skate Corp.  that are  currently  owned by the Company along
           with an option to acquire  shares of the Company in exchange  for the
           purchased  shares of Skate Corp.  The options  allow the investors to
           exchange  each  common  share of Skate  Corp.  for 1.5  shares of the
           Company's  common  stock.  The  transaction  results in the investors
           acquiring 1,842,000 shares of Skate Corp. common stock and options to
           exchange  those shares for 2,763,000  shares of the Company's  common
           stock. Of the total  $1,400,000  purchase  price,  $1,310,000 will be
           allocated to the options and $90,000 will be allocated to the sale of
           the Skate Corp.  stock.  At December 31, 1997, the Company wrote down
           its investment in Skate Corp.  (Note 2).  Therefore,  the transaction
           will  not   result  in  any  gain  or  loss  to  the   Company.   Two
           officers/shareholders  of the Company  have  agreed to  purchase  the
           shares of Skate  Corp.  from the  Company  for  $90,000 if all of the
           investors  exercise their options to exchange the Skate Corp.  common
           shares for common shares of the Company.

         The accompanying  consolidated  balance sheet includes an unaudited pro
           forma consolidated  balance sheet as of December 31, 1997, that gives
           effect to the sale of the Skate Corp. stock as if the transaction had
           been  consummated  on December  31,  1997.  The  unaudited  pro forma
           consolidated  balance  sheet should be read in  conjunction  with the
           historical  financial  statements  of the Company.  The unaudited pro
           forma consolidated balance sheet does not purport to be indicative of
           the  financial  position  of the  Company  had the sale  occurred  on
           December 31, 1997.

                                      F-17
<PAGE>
                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 1997 AND 1996

         The unaudited pro forma balance sheet includes pro forma adjustments to
           record the receipt of $90,000 of cash in exchange  for the  Company's
           investment  in Skate Corp.  and the receipt of  $1,310,000 of cash in
           exchange  for options to acquire  2,763,000  shares of the  Company's
           common stock in exchange for 1,842,000  shares of Skate Corp.  common
           stock.

5.       Commitments and contingencies:

         Office lease:

         The Company is currently  leasing  office space in South  Carolina on a
           month-to-month  basis for $3,000 per month.  Total rent  expense  for
           1997 and 1996 was approximately $227,000 and $277,000,  respectively,
           and includes rent expense and lease termination fees on the Company's
           prior operating warehouses and office space.

         In-line skate license agreements:

         The Company has various license agreements with Playmaker,  under which
           the  Company  has  the  exclusive,  royalty-free  right  to  use  the
           California  Pro and Rolling  Thunder names and  trademarks on in-line
           skates,  accessories and other products in the United States, Canada,
           certain areas of the Caribbean and U.S. military exchanges worldwide.
           The Company has also entered into an agreement with Playmaker whereby
           Playmaker  will pay the  Company  a 5%  royalty  on all  sales of any
           product made by Playmaker to any new customer of Playmaker  generated
           by the  Company.  No  royalties  have been  agreed to or paid to date
           under this  agreement.  The agreements are subject to cancellation if
           the Company does not meet certain sales and/or purchase requirements.

         The Company has a patent  license  agreement  related to one feature on
           several of the  Company's  in-line  skate  models.  Under the license
           agreements,  the Company  pays royalty fees based on its sales of the
           related items.  Playmaker reimburses the Company for a portion of the
           royalties paid. The royalties were not significant in 1997 or 1996.

         Kemper license agreements:

         The Company has a license agreement for the exclusive, perpetual use of
           the Kemper name on  snowboards  and  accessories.  The Company pays a
           royalty based on net

                                      F-18
<PAGE>
                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 1997 AND 1996

           sales of products sold under this license.

         In 1997, the Company  entered into a three-year  exclusive  sub-license
           agreement  with a  third  party  which  allows  the  third  party  to
           manufacture and sell certain Kemper products.  The agreement provides
           for the Company to receive license fees based on manufacturing costs,
           or an annual minimum guaranteed payment.

         In February 1998, the Company  entered into a two-year agreement with a
           third  party  snowboard  manufacturer  and  marketer.  The  agreement
           assigns  all of the  Company's  license  rights  to the  Kemper  name
           (except for the  sub-license  described  above) to the third party in
           exchange  for the  greater  of a royalty  fee  based on sales,  or an
           annual minimum guaranteed payment.

         Employment, consulting and non-compete agreements:

         On a month to month  basis, the Company  pays an  officer/  shareholder
           consulting  fees of $10,000  per month.  Prior to the sale of the USA
           Skate  assets,  the Company also paid another  officer/shareholder  a
           monthly consulting fee.

         Effective July 1995, the Company entered into a twelve-month consulting
           agreement with an unrelated third party to receive financial advisory
           and  consulting  services in exchange for fees of $24,000 in 1996 and
           an  agreement  to issue  warrants to purchase up to an  aggregate  of
           300,000 shares of the Company's common stock. In 1997, in lieu of the
           warrants  to purchase  300,000  shares of common  stock,  the Company
           issued the party  75,000  shares of common  stock.  A new  consulting
           agreement  with this  third  party was  entered  into in 1997,  which
           expires in 1999.  Under this  agreement,  the Company  issued  75,000
           shares of common stock and 33,333  shares of  preferred  stock to the
           consultant.

         Litigation:

         The Company,  along  with  other  defendants,  has been  involved  in a
           copyright  infringement action. In October 1997 a jury verdict in the
           amount of $450,000 was awarded  against the  defendants.  The Company
           believes  that  any  amount  it  may  ultimately  pay is  covered  by
           insurance  in its  entirety,  subject to  relevant  deductibles.  The
           Company  has filed  motions to  overturn  or reduce  the  award.  The
           Company is also involved in various claims and legal actions  arising
           in the ordinary course of business. In the opinion of management, the
           ultimate disposition of these matters will not have a material effect
           on the financial statements of the Company.

                                      F-19
<PAGE>
                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 1997 AND 1996

         NASDAQ notification of delisting:

         The NASDAQ  Stock  Market,  Inc.  issued new  standards  for  continued
           listing of SmallCap  Market  participants  which became  effective in
           February 1998. The Company is a SmallCap Market  participant and must
           meet these new  requirements.  On the effective date, the Company did
           not meet the new  requirements  of having net  tangible  assets  that
           exceed $2,000,000.  Under the new standards, NASDAQ has established a
           review  process for  companies  temporarily  out of  compliance.  The
           Company  filed its written  request for a temporary  exemption to the
           new  standards  in March 1998 and NASDAQ is  scheduled  to review the
           matter during April 1998. Along with the written request, the Company
           filed a Form 8-K which, on a pro-forma  basis,  shows compliance with
           the new continued listing requirements.

6.       Income taxes:

         The Company  recognizes  deferred  tax  liabilities  and assets for the
           expected future tax  consequences of events that have been recognized
           in the  financial  statements  or tax  returns.  Under  this  method,
           deferred  tax  liabilities  and  assets are  determined  based on the
           difference  between the financial  statement carrying amounts and tax
           bases of assets and liabilities  using enacted tax rates in effect in
           the years in which the differences are expected to reverse.

         The benefit for income taxes for the years ended  December 31, 1997 and
           1996 consists of the following:

                                             1997                 1996
                                             ----                 ----
        Current:
           Federal ..................                        $  (174,000)
           State and local ..........                             41,900
           Foreign ..................    $  (166,404)            (29,300)
                                         -----------         -----------
                                            (166,404)           (161,400)
                                         -----------         -----------
        Deferred:
           Federal ..................     (1,345,000)         (1,393,000)
           State and local ..........       (219,000)           (230,600)
           Foreign ..................       (120,000)             46,000
                                         -----------         -----------
                                          (1,684,000)         (1,577,600)
                                         -----------         -----------
        Change in valuation allowance
          for deferred tax assets ...      1,684,000           1,494,500
                                         -----------         -----------
        Income tax benefit               $  (166,404)        $  (244,500)
                                         ===========         ===========

                                      F-20
<PAGE>
                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 1997 AND 1996

         A reconciliation  of the  statutory  federal  income  tax  rate  to the
           Company's  effective income tax rate for the years ended December 31,
           1997 and 1996 is as follows:

                                                         1997              1996
                                                         ----              ----

        Statutory income tax benefit ...........         (34)%             (34)%
        State and local income taxes ...........                              1%
        Deferred income tax valuation allowance            28%               24%
        Nondeductible expense ..................            1%                2%
        Other ..................................            2%                3$
                                                         -----             -----
                                                          (3)%              (4)%
                                                         =====             =====

         The following  is a summary of the  Company's  deferred  tax assets and
           liabilities at December 31, 1997:

         Deferred tax assets:
           Net operating loss carryforward ...     $ 2,919,000
           Intangible assets .................         308,000
           Accounts receivable ...............         174,000
                                                   -----------
                                                     3,401,000
         Valuation allowance
          for deferred tax assets                  $(3,401,000)
                                                   -----------
                                                   $       -0-
                                                   ===========

         Net  operating  loss  carryforwards  of  approximately  $7,800,000  are
           available to offset future taxable  income,  if any,  through 2012. A
           valuation  allowance  has been  provided to reduce the  deferred  tax
           assets, as realization of the assets is not assured.

7.       Shareholders' equity:

         Preferred stock:

         The holders of the  Company's  preferred  stock are entitled to vote on
           any matter submitted to the  shareholders of the Company.  Each share
           of preferred stock is entitled to three

                                      F-21
<PAGE>
                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 1997 AND 1996

           votes. Each share of outstanding preferred stock will immediately and
           automatically   convert  to  three   shares  of  common   stock  upon
           shareholder approval of a recapitalization measure that increases the
           authorized number of common shares of the Company.

         Issuances of preferred stock:

         In 1997,   the   Company  issued  349,214  shares  of  preferred  stock
           (including  30,167  to an  officer/shareholder)  in  satisfaction  of
           $1,568,130   of   liabilities   (including   $181,000   due   to  the
           officer/shareholder).  The shares were valued  based upon the trading
           price of the Company's  common stock,  adjusted for the one for three
           conversion feature of the preferred stock.

         Issuances of common stock:

         In 1997, the Company  issued  865,225 shares of common stock (including
           299,633 to  officers/shareholders)  in  satisfaction of $1,171,656 of
           liabilities  (including  $493,995 due to the  officers/shareholders).
           The shares were valued at the trading price of the  Company's  common
           stock.

         Issuance of stock to Skate Corp.:

         In 1997,  the  Company  issued  750,471  shares of preferred  stock and
           360,000  shares of common  stock to Skate Corp.  is  satisfaction  of
           intercompany  liabilities  of  $893,640.  This  transaction  has been
           accounted for as a treasury  stock  transaction  in the  consolidated
           financial statements.

         Issuances of common stock in 1996:

         During 1996, the Company issued 400,000 shares of the Company's  common
           stock  at an  agreed  value  of  $900,000,  or $2.25  per  share,  as
           compensation under a consulting and non-compete agreement; and 36,000
           shares of common stock at $3.00 per share (the  trading  price of the
           stock at the date the Board of Directors  authorized the issuance) in
           satisfaction of a $108,000 account  payable.  The Company also issued
           480,000 shares of the Company's common stock to officers/shareholders
           of the Company at $1.37 per share (the trading  price of the stock at
           the  date  the  Board  of  Directors   authorized  the  issuance)  in
           satisfaction of $660,000 of payables.

                                      F-22
<PAGE>
                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 1997 AND 1996

         Stock options:

         The Company  has a stock  option plan (the "1994  Stock  Option  Plan")
           which  provides for the issuance to employees,  officers,  directors,
           and  consultants  of the  Company  options to  purchase up to 200,000
           shares of common  stock.  Options may be granted as  incentive  stock
           options or as non-statutory  options.  Only employees are eligible to
           receive incentive options. For options that are granted, the exercise
           period may not exceed ten years.  The  exercise  price for  incentive
           options  may not be less  than 100% of the fair  market  value of the
           Company's  common  stock on the date of  grant,  except  for  options
           issued to persons  controlling  more than 10% of the Company's common
           stock,  for which the  option  price may not be less than 110% of the
           fair market value of the Company's common stock on the date of grant.
           The exercise price for non-statutory options may not be less than 80%
           of the fair market value of the Company's common stock on the date of
           grant.

         In 1997,  the  Company  granted  options to purchase 150,000  shares of
           common stock to non-employees  for services  provided to the Company.
           General and administrative expense was charged $42,500.

         A summary of the status of the  Company's  stock  options and  weighted
           average exercise prices is as follows:

                         1994 Plan              Other               Total
                     -----------------    -----------------   -----------------
                      Shares     Price     Shares     Price    Shares     Price
                     --------    -----    --------    -----   --------    -----
Outstanding,
 January 1, 1996 .     36,500    $2.50                          36,500    $2.50

Forfeited             (16,500)   $2.50                         (16,500)   $2.50
                     --------    -----    --------    -----   --------    -----

Outstanding,
 December 31, 1996     20,000    $2.50                          20,000    $2.50

Granted ..........    130,000    $1.00     150,000    $0.97    280,000    $0.95

Exercised ........    (22,500)   $1.00     (30,000)   $1.00    (52,500)   $1.00
                     --------    -----    --------    -----   --------    -----

Outstanding,
 December 31, 1997    127,500    $1.24     120,000    $0.89    247,500    $1.07
                     ========    =====    ========    =====   ========    =====

                                      F-23
<PAGE>
                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 1997 AND 1996

         The 1994 Plan options  expire from 1999 through 2003. The other options
           expire from 2000 through 2002.

         Had  compensation  cost for the 1994 Plan options  granted in 1997 been
           determined based on the fair value at the grant dates consistent with
           the  provisions  of SFAS No. 123, the Company's net loss and loss per
           share would not have been materially different from that reported.

         Warrants:

         The Company has outstanding  warrants to purchase  1,990,000  shares of
           common  stock at $2.50  per  share  that  expire  in June  1998  (the
           "Warrants").  In 1998, the exercise price of the warrants was changed
           to $1.50 per share and  extended to December  1998.  The Company also
           has outstanding  warrants to purchase  120,000  Warrants at $0.30 per
           Warrant that expire in June 1998.

         In 1997,  the exercise  price of warrants to purchase 500,000 shares of
           the   Company's   common   stock   that  had  been   granted  to  two
           officers/shareholders  of the  Company  were  reduced  from $2.38 per
           share to $1.00 per  share  (which  approximates  fair  value).  These
           warrants expire from 2002 through 2003.

         The Company also has outstanding  warrants to purchase 58,331 shares of
           common stock at $4.81 per share that expire in 2000.

8.       Extraordinary item:

         The Company  recognized  an  extraordinary  gain of $383,705  (of which
           $149,000 is related to debt owed to an officer/shareholder)  from the
           extinguishment  of debt for amounts less than the  carrying  value of
           the liabilities.

                                      F-24
<PAGE>
                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 1997 AND 1996

9.       Foreign operations and export sales:

         Information  about the  Company's  operations  in the United States and
           Canada for the years ended December 31, 1997 and 1996 are as follows:

         1997:
                          United                                     Combined
                          States        Canada       Eliminations      total
                       -----------    -----------    ------------   -----------
Sales to unaffiliated
  customers .........  $ 5,494,000    $ 3,594,000                   $ 9,088,000
Intercompany sales ..                     740,000    $  (740,000)
                       -----------    -----------    -----------    -----------
Net sales ...........  $ 5,494,000    $ 4,334,000    $  (740,000)   $ 9,088,000
                       ===========    ===========    ===========    ===========
Loss from operations   $(3,650,000)   $  (418,000)   $    (7,000)   $(4,075,000)
                       ===========    ===========    ===========    ===========
Identifiable assets .  $ 2,269,000                                  $ 2,269,000
                       ===========    ===========    ===========    ===========

         1996:
                          United                                     Combined
                          States        Canada       Eliminations      total
                       -----------    -----------    ------------   -----------
Sales to unaffiliated
  customers .........  $11,877,000    $ 5,076,000                   $16,953,000
Intercompany sales ..                     841,000    $  (841,000)
                       -----------    -----------    -----------    -----------
Net sales ...........  $11,877,000    $ 5,917,000    $  (841,000)   $16,953,000
                       ===========    ===========    ===========    ===========

Income (loss) from
 operations .........  $(5,366,000)   $   590,000    $    85,000    $(4,691,000)
                       ===========    ===========    ===========    ===========

         During the years ended December 31, 1997 and 1996,  sales by geographic
           regions were as follows:

                                           1997           1996
                                           ----           ----

        Europe and other ........      $ 1,395,330    $ 3,225,000
        Canada ..................        3,185,923      4,949,000
        Japan ...................          101,595        312,000
                                       -----------    -----------
             Total exports ......        4,682,848      8,486,000

        USA sales ...............        4,404,919      8,467,000
                                       -----------    -----------
             Total sales ........      $ 9,087,767    $16,953,000
                                       ===========    ===========

10.      Merger agreement:

         On October 2, 1997, the Company signed a letter of intent to merge with
           ImaginOn, Inc. of San Carlos,  California  ("ImaginOn"),  a privately

                                      F-25
<PAGE>
                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 1997 AND 1996

           held  company.  On January 30, 1998,  the Company,  through  ImaginOn
           Acquisition  Corp.,  a newly formed,  wholly owned  subsidiary of the
           Company, signed an agreement and plan of merger with ImaginOn whereby
           there  would be an  exchange  of 100% of the  outstanding  shares  of
           ImaginOn  for an amount equal to 60% of the  outstanding  post-merger
           common stock of California Pro.

         ImaginOn,  formed  in  March  1996,  designs,  manufactures  and  sells
           consumer   software   products   for  Internet   users.   The  merger
           transaction,  which is  expected  to be  completed  by July 1998,  is
           contingent  upon  certain  customary  conditions  including,  but not
           limited to, approval by the boards of directors of both companies,  a
           vote by the Company's stockholders, and certain other conditions.


11.      Restructuring and impairment charges:

         The Company  initiated its  restructuring  plan in 1996, which included
           the  implementation  of product  line  changes  and a cost  reduction
           program beginning in the fourth quarter of 1996. The Company recorded
           restructuring and impairment  charges which consists of the following
           components:

                                   Non-cash asset    Other
                                     write downs    Charges        Total
                                     ----------    ----------    ----------
        1996:
        Equipment ...............    $  411,700                  $  411,700
        Trademarks ..............       368,000                     368,000
        Organizational costs and
          other intangibles .....       205,700                     205,700
        Consulting costs ........       145,000                     145,000
        Severance ...............                  $   22,100        22,100
        Lease termination .......                      76,500        76,500
                                     ----------    ----------    ----------
                                     $1,130,400    $   98,600    $1,229,000
                                     ==========    ==========    ==========
        1997:
        Goodwill                     $  237,452    $             $  237,452
                                     ==========    ==========    ==========

                                      F-26