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

                                   FORM 10-KSB

  [X]   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
        OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996

  [ ]   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
incorporation or organization)                               Identification No.)

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.    $16,952,904

    As of May 1, 1997,  4,699,511  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 $2,633,111.

                   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

                                     PART I

Item 1.  DESCRIPTION OF BUSINESS
         -----------------------

(a)  BUSINESS DEVELOPMENT.

     California Pro Sports, Inc., (hereinafter referred to as the "Company"), 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,  and  approximately  $3.5
million of purchase orders for Kemper(R) snowboard  products,  for approximately
$1.1  million.   The  purchase  orders  were  acquired  from  Kemper   Snowboard
Corporation  ("Kemper").  The Company  acquired  its license  directly  from the
registered  owner of the Kemper(R)  name and  trademark,  Front 500  Corporation
("Front 500"). Neither Kemper nor Front 500 were affiliates with the Company.

     In 1995, the Company formed USA Skate Corporation,  a Delaware corporation,
("Skate Corp.").  Skate Corp. is a majority owned (approximately 57%) 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 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/shareholders due  June 30, 1997;  and  the  issuance  of  approximately

                                       -2-

<PAGE>

$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 July 1, 1997 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 acquisiton.  The LaSalle loan agreement  allows
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 which expires in May 1999. 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.  The
loan agreement contains 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 is collateralized by
substantially  all of USA Skate's  assets and is guaranteed  by Skate Corp.  and
certain of its affiliates and  shareholders.  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, CP was under collateralized by approximately  $800,000 and was
not in compliance with certain of its financial covenants.  As a result, LaSalle
could accelerate both loans and require immediate full repayment although, as of
the date of this report,  the Company has not received any notice to this effect
from LaSalle and it is continuing  to negotiate  with LaSalle to bring the loans
into compliance.

     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
to  the  former  controlling  shareholder  of  USA  Skate  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.  The Company
currently  is in  negotiations  with the bank to cure the default and extend the
maturity date of the agreement.

     At the time of the USA Skate acquisiton,  the Company,  Skate Corp. and USA
Skate also entered into certain  other  agreements  with the former  controlling
shareholder of USA Skate. USA Skate entered into a one-year employment agreement
with the former controlling  shareholder of USA Skate, which provides for annual
compensation of $90,000 and ends in May 1997. 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 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

                                       -3-

<PAGE>

of the acquisition were approximately $1.53 million, including guarantee fees to
two  officers/shareholders  of $600,000  related to the  officers'/shareholders'
providing  personal  guarantees of certain of the debt assumed and issued in the
transaction.

     The Company operates 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 are the borrowers  under bank loan  agreements  and
the Company is a guarantor of each of their obligations thereunder. In addition,
CP's  bank  loan is  guaranteed  by USA  Skate  and  USA  Skate's  bank  loan is
guaranteed by CP.

(b)  BUSINESS OF ISSUER.

     The  Company  markets   California  Pro(R)  in-line  skates,   and  related
protective  gear and  accessories,  Kemper(R)  snowboards and related  snowboard
accessories  and  VIC(R)  and   VICTORIAVILLE(TM)   and   McMartin(TM)  ice  and
street/roller hockey skates, sticks and related protective gear and accessories.
Davtec,  USA  Skate's  wholly-owned  Canadian  subsidiary,  manufactures  hockey
sticks,  pants and gloves for USA Skate and is the Canadian  distributor for all
of the hockey related  VICTORIAVILLE(TM)  and VIC(R) product lines.  Davtec also
manufactures the Hespeler(TM)  premium brand of hockey sticks which are marketed
worldwide.

     The Company's in-line skate products are sold in the United States, Canada,
the Caribbean and U.S.  military  bases world wide.  Its  snowboards and related
accessories are sold primarily in the United States and European countries.  The
Company  sells 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.

PRODUCTS

     IN-LINE  SKATES.  The  Company  currently  markets  performance,   fitness,
recreational and hockey in-line skates for both the adult and youth markets,  as
well as a full line of protective gear and other related accessory products. The
Company's  in-line skates are  constructed of durable,  injected molded polymers
and incorporate the latest designs,  graphics and technology.  Retail prices for
the Company's skates range from approximately $50 to $200.

     The  Company  markets  a full line of  in-line  skate  accessory  products,
including  protective gear,  replacement parts and soft goods for use by in-line
skaters.  Protective gear offered by the Company includes an assortment of wrist
guards, knee and elbow pads in both adult and youth sizes which can be purchased
separately  or in  combination  packs.  The  Company  also  offers a variety  of
replacement  parts,  including  skate  laces,  brake sets and brake pads,  power
straps, wheels,  bearings,  8-wheel hardware kits and rink guard axle caps. Soft
goods offered under the  California  Pro(R) brand name include skate bags and an
assortment of tee shirts.

     In addition to its standard  models of skates,  the Company markets special
models for some of its larger retail customers.  These specially designed skates
contain one or more features which vary slightly from the corresponding standard
model  based  on the  preference of the  retailer and  the  retailer's desire to

                                       -4-

<PAGE>

offer a special  model of the  Company's  in-line  skates  in their  stores at a
particular  price  point.  The  Company's  close  relationship  with its primary
in-line skate manufacturer provides the Company with additional  flexibility and
ease in meeting its retail customers' market needs with these special models.

     The  Company  offers a  competitive  limited  warranty on  workmanship  and
materials for six months after the purchase of its in-line  skate  products from
an authorized California Pro(R) dealer.

     SNOWBOARDS.  The Company offers  several series of Kemper(R)  snowboards in
different models in various lengths. Kemper(R) snowboards come in either wood or
a polyurethane matrix, depending on the series and model, and range in suggested
retail price from approximately $200 to $520, with bindings.

     The  Kemper(R)   snowboard  designs  are  created  and  modified  with  the
assistance of the Kemper(R) team riders, European distributors, the manufacturer
and others.

     The  Kemper(R)  PPS+ binding  system has become a standard of the industry.
Snowboard   manufacturers   worldwide  employ  the  Kemper(R)  four-hole  insert
technology.  With the PPS+ binding system,  a snowboard rider can quickly adjust
his  stance  from 11 to 24  inches  between  runs.  The  Kemper(R)  PPS+  system
accommodates  regular footed riders as well as creative footed riders because of
its base rotation feature which permits 360 degrees of rotation.

     The Company  offers two types of high quality soft boots.  The Kemper(R) FS
boot consists of a flexible oil-tanned leather upper and a low cuff with zig zag
eyelets  for a tighter  fit.  The  Kemper(R)  FR boot  consists of a stiffer and
taller leather upper with a low profile instep,  molded inner tongue, deep tread
sole with a cushioned heel and a velcro heel hold down.

     The  Company  also  markets  snowboard  accessories  and  clothing  such as
leashes,  gloves  and mitts,  hats,  sweatshirts,  tee shirts and other  similar
items.

     HOCKEY  PRODUCTS.  The  Company  currently  has 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 are marketed
under the ViCTORIAVILLE(TM), VIC(R) and McMartin(R) brands. Davtec, the Canadian
subsidiary of the Company's hockey division,  manufactures hockey sticks,  pants
and gloves for the Company and is the Canadian distributor for all of the hockey
related VIC(R) and VICTORIAVILLE(TM) product lines. The Company's hockey product
lines are  constructed of various  materials and incorporate the latest designs,
graphics  and  technology.  Approximately  70% of  Skate  Corp.'s  products  are
manufactured by the Canadian subsidiary.

                                       -5-

<PAGE>

PRODUCT DESIGN AND DEVELOPMENT

     IN-LINE  SKATES.  The  Company  views  product  design and  development  as
integral to its growth.  Since the in-line  skate  acquisition,  the Company has
refined its current skate models by improving the  componentry  and  appearance,
and has introduced new skate models.

     The  Company  offers a  competitive  limited  warranty on  workmanship  and
materials for six months after the purchase of its in-line  skate  products from
an authorized California Pro(R) dealer.

     SNOWBOARDS.  The Kemper(R)  snowboard designs are created and modified with
the  assistance  of  the  Kemper(R)  team  riders,  European  distributors,  the
manufacturer and others.

     HOCKEY PRODUCTS. Design and development of the Company's hockey products is
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 are state of the art and produces  consistent and
competitive  products from innovative designs. USA Skate has redesigned its logo
and all its products for 1997 will incorporate the new logo.

                                       -6-

<PAGE>

SALES AND MARKETING

     The Company markets its products  primarily in retail sporting goods chains
and specialty  shops.  Distribution is accomplished  primarily  through national
networks of independent sales representative  groups who sell directly to buyers
and retail accounts.  The Company has oral agreements with sales  representative
groups which cover the United States,  Canada,  the Caribbean and U.S.  military
exchanges world wide. These sales representative  groups are paid on a standard,
commission-only basis. In addition, the Company has foreign distributors, mostly
in European countries, for distribution of Kemper(R) snowboards and accessories,
as well as VIC(R) and VICTORIAVILLE(TM) hockey products.

     IN-LINE  SKATE  ADVERTISING  AND  PROMOTION.  The  Company  advertises  and
promotes its in-line skate products through  multiple  methods  customary within
the industry.  It participates in all major trade exhibitions,  conducts special
promotions  and has advertised in trade and consumer  publications  such as Spin
and Outside on a national, regional and local basis. Point of purchase materials
and promotional items are made available to the Company's  customer base as well
as directly to  consumers  through  Company and trade  supported  programs.  The
Company  also  sponsors  consumer  demonstration  days to  further  promote  the
California Pro(R) brand and the sport of in-line skating.

     SNOWBOARD  ADVERTISING  AND  PROMOTION.  A Company  objective is to promote
Kemper(R) as a leading brand within the snowboard industry. The Company believes
that world class  customer  service is an  essential  ingredient  to  successful
promotion of the  Kemper(R)  brand.  The Company  focuses its trade and consumer
advertising on leading industry publications such as Transworld Snowboarding and
Snowboarder.  To promote  its  Kemper(R)  brand,  the Company  sponsors  various
professional  snowboarders  each season (the  "Kemper(R) team riders") to attend
snowboarding events organized by retailers.  Videos featuring the Kemper(R) team
riders also are distributed by the Company's sales  representatives to consumers
and to the retail trade for promotional purposes.

     HOCKEY  ADVERTISING AND PROMOTION.  The Company markets its hockey products
primarily to retail  sporting  goods chains and specialty  shops.  Its marketing
strategy  emphasizes the price/value  relationship if its branded  products.  In
particular, the Company believes that within its hockey business,  retailers are
afforded an  excellent  mark-up for  VICTORIAVILLE(TM),  VIC(R) and  McMartin(R)
hockey  products  when  the  features  are  compared  to  the  features  of  the
competitors at virtually all price points.  USA Skate is  considering  utilizing
multiple brands for brand positioning in different channels of distribution.

     USA  Skate  sells  it  products  primarily  through  national  networks  of
independent  sales  representative  groups who sell through  direct contact with
buyers  and  retail  accounts.  USA  Skate  has oral  agreements  with ten sales
representative  groups  which cover the United  States and  Canada.  These sales
representative  groups  are  paid  on  a  standard,  commission-only  basis.  In
addition,  there  are  distributors  located  in  Germany,  Switzerland,  Italy,
Austria, Czech Republic, Sweden, Finland, France and Brazil.

                                       -7-

<PAGE>

     USA Skate  advertises  and promotes its hockey  products  through  multiple
methods  customary  within the  industry.  It  participates  in all major  trade
exhibits,  conducts  special  promotions  and  advertises  in trade and consumer
publications on a national, regional and local basis. Point of purchase material
and  promotional  items  are  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 lies 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. At this time, over
100 NHL players use 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  supplies
most of the  Company's  in-line  skates and in-line  skate  accessory  products.
Playmaker  manufactures,  assembles  and packages the  Company's  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.

     SNOWBOARD PRODUCTS.  The Company's major supplier of snowboards is Pale Ski
& Sport GmbH & Co. of Austria which annually  manufactures  approximately 40% of
all snowboards sold worldwide.  In 1995, the Company began to purchase wood core
boards from a domestic  supplier.  The Company  believes  that it could  readily
obtain  another  supplier or multiple  suppliers for all of its snowboards if it
were unable to continue its current relationships.

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

                                       -8-

<PAGE>

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
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.

     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.

     HOCKEY PRODUCTS.  The Company owns the exclusive worldwide trademark rights
to the  VICTORIAVILLE(TM)  and VIC(R) trademarks for seven years under a royalty
bearing  license.  If  royalties of at least $3 million are paid to the licensor
under the license during the term of the agreement,  ownership to the marks will
transfer automatically to the Company.  The Company owns the trademark rights to
the McMartin(R) name and logo.

COMPETITION

     All of the Company's businesses are extremely competitive.

     IN-LINE  SKATE  BUSINESS.  The  Company  operates  in 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.) and  Canstar  Sports.  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.  Burton Snowboards is the Company's largest competitor,
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.

                                       -9-

<PAGE>

Management  believes  that these  companies  have  greater  financial  and other
resources than the Company.  The Company is continuing to assess its competitive
position with respect to each of these factors.

     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.

PURCHASE ORDERS AND CUSTOMERS

     At December 31, 1996, the Company had purchase  orders for future  delivery
of products of  approximately  $.7 million,  compared  with  approximately  $1.2
million  at  December  31,  1995.   Although  purchase  orders  are  subject  to
cancellation in the normal course of business,  the Company expects to fill most
of these orders by May 31, 1997.  The decrease in purchase  orders in 1996 is in
part due to the  Company's  smaller  backlog in its in-line  skate and snowboard
businesses  of  $724,000,  offset by the backlog of its hockey  related  product
lines of $220,000.

     For the year ended  December 31, 1996,  no customers  accounted  for 10% or
more of the  Company's  sales.  For the year ended  December  31,  1995,  a U.S.
governmental  agency and C.A.S.  Sports Agency  accounted for 10% and 12% of the
Company's sales, respectively.

EMPLOYEES

     As of December 31, 1996,  the Company had 139 employees and 2  consultants.
The Company  believes its relations with its employees and its  consultants  are
good.  The  Company's  employees  are  not  subject  to  collective   bargaining
agreements, except for the employees in the Daveluyville manufacturing facility.

                                      -10-

<PAGE>

Item 2.  Description of Property
         -----------------------

(a) FACILITIES
<TABLE>
<CAPTION>
                                                                                   Lease (L)        Annual
Location                   Use                                       Sq. Ft.        Own (O)          Rent
--------                   ---                                       -------       ---------       --------
<S>                        <C>                                        <C>              <C>         <C>    
Commack, NY                Warehouse & Distribution                   31,000           L            $58,800
Commack, NY                Warehouse & Distribution                   31,000           L           $155,800
Montreal, QC               Manufacturing                               9,600           L            $25,000
Daveluyville, QC           Manufacturing & Distribution               74,665           O(1)             N/A
London, OC                 Manufacturing                               5,000           L            $15,000
Montreal QC                Sales & Marketing                           1,400           L            $19,000
Greenville, SC             Corporate Offices                           3,900           L            $36,000(2)
</TABLE>
----------  
(1) Subject to mortgage. See Note 9 to the financial statements included in this
    report. 
(2) Leased on a month-to-month basis.

(b) and (c)

     Not applicable


Item 3.  Legal Proceedings
         -----------------

     The Company is not a party to any material legal  proceedings,  nor does it
have  knowledge of any  threatened  material  litigation.  From time to time the
Company  may be  subject to various  legal  proceedings  which are normal to its
business,  including claims for product  liability.  The Company believes it has
adequate  liability  insurance for the risks arising in the normal course of its
business, including product liability insurance.


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 1996.

                                      -11-

<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.

<TABLE>
<CAPTION>
                                        Common Stock               Warrants
                                         Bid Prices               Bid Prices
                                      ----------------        ------------------
        1995                          High         Low        High           Low
        ----                          ----         ---        ----           ---
<S>                                 <C>         <C>         <C>           <C>    
First Quarter (1/1/95-3/31/95) ..   $  5.25     $  4.25     $  1.125      $   .50
Second Quarter (4/1/95-6/30/95) .   $  4.75     $  3.375    $  1.03125    $   .625
Third Quarter (7/1/95-9/30/95) ..   $  6.875    $  2.875    $  2.6875     $   .50
Fourth Quarter (10/1/95-12/31/95)   $  5.25     $  3.375    $  2.625      $   .875

        1996
        ----
First Quarter (1/1/96-3/31/96) ..   $  4.623    $  2.5625   $  1.9275     $   .65625
Second Quarter (4/1/96-6/30/96) .   $  4.00     $  2.25     $  1.00       $   .50
Third Quarter (7/1/96-9/30/96) ..   $  3.0625   $  1.875    $   .90625    $   .375
Fourth Quarter (10/1/96-12/31/96)   $  2.3125   $  1.25     $   .5625     $   .21875
</TABLE>


(b)  HOLDERS.

     The number of record holders of the Company's  Common Stock as of April 30,
1997 was  approximately  85. 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.  Further,  the loan  agreements
provide that without the prior  written  consent of the lender,  the Company may
not declare or pay any dividend on any class of stock until  satisfaction of all
liabilities under the loan agreements.

                                      -12-

<PAGE>

Item 6. Management's Discussion and Analysis or Plan of Operation
        ---------------------------------------------------------

OVERVIEW

     The Company imports and distributes  products in three  participant  sports
categories.  In- line skates and related  accessory  products are marketed under
the brand names California Pro(R) and Rolling Thunder(TM); since August 1, 1994,
snowboards  and  snowboard  accessory  products  have  been  marketed  under the
Kemper(R)  brand;  and since  May 1996,  ice and  street/roller  hockey  skates,
sticks,  related  gear and  accessories,  as well as figure  skates are marketed
under  the  VICTORIAVILLE(TM),  VIC(R),  Hespeler(TM)  and  McMartin(R)  brands.
Management  believes that continual  product  refinement and new product designs
and  development,  along with  attractive  packaging  and first  class  customer
service are vital to sales  growth.  The Company  purchases  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 are purchased from
domestic   suppliers.   Approximately  70%  of  all  hockey  products  sold  are
manufactured  by Davtec and skates and related gear are  purchased  from foreign
suppliers.

     The  Company  sells  its  in-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 are 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 are
sold in North  America  through a network of  independent  sales  representative
groups to major retail  sporting  goods  chains as well as smaller,  specialized
independent sporting goods shops.  Internationally,  hockey products are sold to
and  distributed  by  independent  distributors  located  primarily  in Germany,
Switzerland, Italy, Austria, Czech Republic, Sweden, France, Finland and Brazil.

     During the first  quarter of 1995 the Company  closed its IPO of  1,200,000
shares of Common Stock and  1,380,000  common  stock  purchase  warrants.  After
deducting offering expenses, the Company received net proceeds from the offering
of approximately $4,200,000.

                                      -13-

<PAGE>

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
                                               Year ended December 31,
                                            1996                    1995
                                     ------------------      -------------------
                                                (dollars in thousands)
                                        $           %           $            %
                                     -------       ----      -------        ----
<S>                                  <C>           <C>       <C>            <C>
In-line skates and accessories       $ 4,911        29%      $11,037         64%
Snowboards and accessories             1,037         6%        6,092         36%
Ice and street/roller hockey (1)      11,005        65%      _______        ____
                                     -------       ----      -------        ----
                                     $16,953       100%      $17,129        100%
                                     =======       ====      =======        ====
</TABLE>

(1)  Sale of hockey products began May 1, 1996.

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

<TABLE>
<CAPTION>
                                                                 Year ended
                                                                December 31,
                                                             -------------------
                                                             1996           1995
                                                             ----           ----
<S>                                                         <C>            <C>  
Net Sales .........................................         100.0          100.0
Cost of Goods Sold ................................          82.9           71.0
Gross Profit ......................................          17.1           29.0
Sales & Marketing Expenses ........................          14.3           10.3
General & Administrative Expenses .................          17.8           12.4
Depreciation and Amortization .....................           4.0            3.2
Consulting & Management Fees ......................            .7             .7
Rent Expense, Related Party (Seller) ..............            .6            -.-
Restructuring Charges .............................           7.3            -.-
Income (Loss) from Operations .....................         (27.7)           2.5
Interest and Other Expenses (Income) ..............           5.5            1.6
Income Tax Expense (Benefit) ......................          (1.4)            .7
Minority Interest .................................           1.1            -.-
                                                           ------         ------
Net Income (Loss) .................................         (32.8)            .2
                                                           ======         ======
</TABLE>

                                      -14-

<PAGE>

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

     The Company  commenced  operations  on April 1, 1993,  when it acquired the
in-line skate business from SCYL, the predecessor  company. As described in Note
1 of the Company's consolidated  financial statements,  the assets acquired from
the predecessor  have been recorded at their carrying value to the  predecessor.
Except for the amortization of the purchased  intangibles,  the accounting bases
used by the Company are the same as used by the predecessor.

     On  August  1, 1994 the  Company  acquired  certain  assets,  including  an
exclusive,  perpetual  worldwide  license to the Kemper(R)  name and  trademark,
subject to a royalty, and approximately $3.5 million of existing purchase orders
for Kemper(R) snowboard products.

     Effective  April  30,  1996,  the  Company,  through  its  recently  formed
subsidiary,  USA Skate Corp.,  began selling  hockey  related  products under an
exclusive  worldwide  license to the VIC(R),  VICTORIAVILLE(TM)  and McMartin(R)
brand names.

     NET SALES.  Net sales for the year ended  December  31, 1996  decreased  to
$16,952,904  from  $17,128,711  or  by  $175,807,  representing  an  approximate
decrease of 1.0%.  This decrease was primarily  attributable  to the decrease in
revenues of $6,126,000  and  $5,055,000 of the Company's  California Pro in-line
skates and Kemper(R) snowboard products,  respectively. This decrease was offset
by including $10,949,000 of the Company's ice and street/roller hockey equipment
sales due to the  acquisition of USA Skate effective April 30, 1996. The Company
believes  the  decline in sales was caused by high  inventory  levels of in-line
skate and snowboard  products at some of the Company's  major retail accounts as
well as more  competitors  entering the  snowboard  business,  some with greater
financial and other resources than the Company.

     GROSS  PROFIT.  Gross  profit  decreased to  $2,871,870  for the year ended
December 31, 1996 compared to $4,973,168  for the year ended  December 31, 1995.
As a percent of sales, gross profit decreased to 17.1% in 1996 from 29% in 1995.
The  primary  reasons  for the  decline  in gross  profit  were sales at reduced
margins for the Company's  in-line skate and snowboard  products.  Additionally,
the Company incurred  inventory  markdowns and adjustments of $1,059,750 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 current market
value of its inventory.

     SALES AND MARKETING  EXPENSES.  Sales and marketing  expenses  increased to
$2,434,255 for the year ended December 31, 1996,  compared to $1,758,221 for the
year ended December 31, 1995.  This represents an increase of $676,034 or 38.4%.
Sales  and  marketing  expenses  related  to the  Company's  in-line  skate  and
snowboard  business  were  $1,359,148  in 1996  compared to  $1,758,221 in 1995,
representing a decrease of $399,073.  This decrease was offset by the additional
sales and  marketing  expenses  of  $1,075,107  related to the  revenues  of the
Company's hockey business which it acquired effective April 30, 1996.

                                      -15-

<PAGE>

     GENERAL AND ADMINISTRATIVE  EXPENSES.  General and administrative  expenses
increased  to  $3,014,419  for the year ended  December  31,  1996,  compared to
$2,121,855 for the year ended December 31, 1995.  This represents an increase of
$892,564.  The primary  reason for the increase is  attributable  to $746,887 of
general and  administrative  expenses  incurred  within the  Company's  recently
acquired (effective April 30, 1996) hockey business.

     DEPRECIATION AND AMORTIZATION.  Depreciation and amortization  increased to
$681,717 for the year ended  December 31, 1996 from  $544,245 for the year ended
December  31,  1995.  The  increase  of  $137,472  was  mainly  attributable  to
depreciation and  amortization of $301,437 related to the Company's  acquisition
of USA Skate effective April 30, 1996.

     CONSULTING FEES,  RELATED PARTY.  Consulting  fees,  related party remained
$120,000  for the years ended  December  31, 1996 and 1995.  The Company pays an
officer/shareholder   $10,000  per  month  for  services  primarily  related  to
long-term strategic planning, financing and acquisitions.

     RESTRUCTURING  CHARGES.  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.  As a result of the restructuring  plan, the
Company wrote off $411,700 related to certain  equipment  (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 terminating
warehouse  employees at an expense of $76,500 and $22,100.  Lastly,  the Company
wrote off previously  deferred expenses related to a potential  acquisition that
the Company elected not to pursue to completion.

     INCOME (LOSS) FROM  OPERATIONS.  For the year ended  December 31, 1996, the
Company  had a loss from  operations  of  $4,690,853  compared  to  income  from
operations  of $428,847 for the year ended  December  31, 1995.  The decrease of
$5,119,700  was a  result  of a  decrease  in gross  profit  of  $2,081,298  and
increases in sales and marketing and general and  administrative of $676,034 and
$892,564,  respectively as described above. Additionally, the restructure charge
of $1,229,000 negatively affected the results of operations.

     OTHER INCOME/EXPENSES.  Other expenses for the year ended December 31, 1996
were  $955,848  compared to $280,491 for the year ended  December 31, 1995.  The
increase of $655,351 was primarily  attributable  to interest and other expenses
relating to the acquisition  and operation of USA Skate of $1,047,308.  This was
partially offset by a decrease of $391,951 within  California Pro. This decrease
was a direct  result of a gain  recorded  of $479,100 on the book value of Skate
Corp. stock held by California Pro (see Note 11) as well as a gain recognized on
debt  conversion  (see  Note 10) of  $111,366  which  were  offset  by a loss on
marketable  securities of $144,457 (see Note 3) that the Company had received in
settlement of certain obligations.

                                      -16-

<PAGE>

     INCOME TAX EXPENSE  (BENEFIT).  For the year ended  December 31, 1996,  the
Company had an income tax benefit of $244,500  compared to an income tax expense
of $112,900 for the year ended December 31, 1995.

     LIQUIDITY  AND CAPITAL  RESOURCES.  During  1996,  the  Company  funded its
in-line  skate and  snowboard  operations  principally  through  a $5.5  million
revolving  credit  facility  with a bank,  and, to a lesser  degree,  loans from
private  investors  and trade  credit.  During the first  quarter  of 1995,  the
Company competed its IPO,  realizing net proceeds of approximately  $4.2 million
after payment of offering expenses.

     Under the bank credit facility  related to the Company's  in-line skate and
snowboard businesses,  the amount the Company may borrow is limited by the level
of its eligible  accounts  receivable  and  inventory.  As of December 31, 1996,
based upon the agreed to formulas, the bank was undercollateralized by $808,000.
Accordingly,  there  can be no  further  advances  under the  in-line  skate and
snowboard line of credit.  The U.S. and Canadian bank credit facilities  related
to the Company's  hockey business are structured the same.  Borrowing is limited
to  50%  of  eligible  inventory,  plus  75%  of  accounts  receivable,  and  is
collateralized  by the  accounts  receivable  and  inventory.  Loans  under  the
agreements  bear interest at one percent above the bank's prime rate and are due
on  demand.   The  loan  agreement   also  requires  the  respective   operating
subsidiaries to maintain a certain  tangible net worth and restricts its ability
to (i) incur  additional  obligations or debt; (ii) pay dividends on its capital
stock; (iii) enter into any transaction of merger, consolidation, acquisition or
sale of assets  other  than in the  ordinary  course of  business,  and (iv) pay
annual  aggregate  compensation  of its  officers  and  directors in excess of a
specified amount,  unless the bank consents to such actions and waives or amends
the applicable  restrictions in the loan agreement.  At December 31, 1996, based
on the limitations  described above, under the in-line  skate/snowboard  line of
credit the Company was eligible to borrow $1,933,000 and the outstanding balance
was  approximately  $2,742,000.  Under the hockey products lines of credit,  the
Company  was  eligible  to borrow  $4,893,000  and the  outstanding  balance was
approximately $5,308,000.

     At  December  31,  1996,  the  Company  had a working  capital  deficit  of
approximately $5,264,000 compared to working capital of approximately $2,399,000
at December 31, 1995.  The decrease in working  capital is primarily  related to
operating  losses as well as debt issued and assumed in the  acquisition  of USA
Skate. In addition,  as described in the foregoing paragraph,  the Company is in
default on substantially all three of its bank loan agreements. As a result, the
independent auditors' report which accompanies the financial statements included
in this report  contains a going  concern  explanatory  paragraph.  Management's
plans to resolve the Company's immediate financial  difficulties and improve its
liquidity  position  are  described in this  section  above under  RESTRUCTURING
CHARGES and in note 1 to the financial statements included in this report.

     In May 1996,  the Company,  through USA,  completed the  acquisition of the
outstanding  capital  stock of USA Skate.  Consideration  for the  purchase  was
$10,500,000  which  consisted of  $3,650,000  of cash  (including  approximately
$98,000 of cash  acquired),  a $1,050,000 8% installment  note payable,  250,000
shares of  Skate Corp.  common  stock  valued at  $300,000,  and  assumption  of

                                      -17-

<PAGE>

approximately  $5,500,000  of debt.  The cash portion of the purchase  price was
paid with funds  raised by Skate  Corp.,  including  the  private  placement  of
884,667  shares of Skate  Corp.  common  stock for  $961,000,  the  issuance  of
$1,080,000  of 9%  notes  payable  to  certain  officers/shareholders,  and  the
issuance of  $2,515,000  of 9%  convertible  promissory  notes due January  1997
(which have been extended to July 1, 1997 with  interest  adjusted to 12% during
the extension  period,  and are convertible into Skate Corp.  common stock under
certain conditions).  The debt assumption was financed in part by a bank loan to
USA Skate. Additionally,  the former controlling shareholder of USA Skate signed
consulting  and  noncompete  agreements  in  consideration  for the  issuance of
400,000 shares of the Company's  common stock valued at $900,000,  and USA Skate
also entered into a worldwide  exclusive  license  agreement  for use of certain
trademarks owned by the former controlling  shareholder of USA Skate in exchange
for minimum  royalty  payments due on or before  December 2001,  with an imputed
(9.5%^) present value of $2,213,235.

     The  Company  intends to continue  to fund its hockey  operations  from two
credit  facilities  with banks,  under  $8,600,000 of revolving  lines of credit
agreements.

     Generally,  invoices for the Company's in-line skate and snowboard products
are payable within 60 days. The Company's  hockey products are sold  customarily
with dating terms normal in the hockey industry.  Historically,  the Company has
not experienced  significant write-offs with respect to trade receivables due to
its credit management procedures. Management believes its allowance for doubtful
accounts is adequate.

     For  payments  to  foreign  suppliers,   the  Company  has  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.  For  1997  the  Company  has
negotiated  with its  suppliers  to be paid 50% upon  shipment and 50% on 90 day
terms.

     SEASONALITY.  The  Company's  in-line  skate and hockey  related  sales are
strongest  in the second and third  quarters of each  calendar  year.  Snowboard
product  sales  are  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 are principally  purchased from
suppliers  located in Taiwan,  mainland China,  Korea,  Austria and Canada.  The
Company purchases its in-line skate products for set prices negotiated  annually
in U.S.  dollars at exchange  rates reset  annually.  The Company  purchases its
snowboards  in  Deutsche  Marks.  The  Company  sells its  snowboard  and hockey
products both domestically and  internationally.  As a result,  extreme exchange
rate fluctuations  could have a significant  effect on its sales, costs of goods
sold and the Company's  gross  margins.  Further,  if exchange  rates  fluctuate
dramatically,  it may  become  uneconomical  for the  relationship  between  the
Company and its  suppliers to  continue.  The Company does not engage in hedging
transactions.

                                      -18-

<PAGE>

     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
-------------------------------------------------------------
<TABLE>
<CAPTION>
               <S>                                           <C>
               Independent auditors' report ..............   F-1

               Consolidated financial statements:

                 Balance Sheet at December 31, 1996 ......   F-2

                 Statements of operations - for the years
                 ended December 31, 1996 and 1995 ........   F-4

                 Statement of shareholders' equity
                 for the years ended
                 December 31, 1996 and 1995 ..............   F-5

                 Statements of cash flows - for the years
                 ended December 31, 1996 and 1995 ........   F-7

                 Notes to consolidated financial statments   F-9
</TABLE>


Item 8.  Changes in and Disagreements with Accountants on Accounting and
         ---------------------------------------------------------------
         Financial Disclosure
         --------------------

    None

                                      -19-

<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
shareholders  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 current officers and directors of the Company are:

<TABLE>
<CAPTION>
Name                       Age       Positions
----                       ---       ---------
<S>                        <C>       <C>
Henry Fong                 61        Chairman of the Board of Directors 
                                     and Chief Executive Officer

Michael S. Casazza         47        President, Chief Operating Officer 
                                     and Director

Barry S. Hollander         40        Treasurer and Chief Financial Officer

Steve C.Y. Lin             35        Director

Brian C. Simpson           63        Director

Hung-Chang Yang            51        Director

Jonathan C. Hodgins        33        President and Chief Executive Officer of 
                                     USA Skate
</TABLE>

     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.  His principal occupation is that of President,
Chief  Executive  Officer,  Treasurer and a director of  Roadmaster  Industries,
Inc.,  positions held since August 1987.  Roadmaster  Industries,  Inc. is a New
York Stock  Exchange  listed  company  which is a leading  manufacturer  fitness
equipment and toy products in the United  States.  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.  Since December
1991, Mr. Fong also has served as Chairman of the Board of Directors of IntraNet
Solutions,  Inc.  (f/k/a  MacGregor  Sports & Fitness,  Inc.),  a  publicly-held
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."

                                      -20-

<PAGE>

     MICHAEL S.  CASAZZA,  a founder of the Company,  has been  President  and a
director of the Company since its inception in 1993.  In addition,  Mr.  Casazza
serves  as a  member  of the  executive  committee  of the  Company's  Board  of
Directors. Since the Company's inception he has acted as Chief Operating Officer
and was formally  designated to that  position in September  1994.  Mr.  Casazza
devotes  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.

     BARRY S. HOLLANDER has served as Treasurer and Chief  Financial  Officer of
the Company since March 1993. 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 has been a director  of the Company  since May 1994.  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.

     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
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  is the  principal  person

                                      -21-

<PAGE>

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
the 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.

(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  and Mr.  Fong  each  filed one late Form 4  reporting  one  transaction
regarding the conversion of debt into shares of 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 years ended


                                      -22-

<PAGE>

December  31,  1994,  1995 and 1996.  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,                              1996     160,000(1)   -0-      -0-                  -0-(2)         300,000(3)
Chief Executive Officer                  1995     120,000(1)   -0-      -0-                150,000            -0-
and Chairman of the Board                1994     120,000(1)   -0-      -0-                148,600            -0-

Michael S. Casazza,                      1996     190,000      -0-      -0-                  -0-(2)         300,000(3)
President, Chief                         1995     137,000      -0-      -0-                150,000            -0-
Operating Officer & Director             1994     120,000      -0-      -0-                 51,400            -0-

Barry S. Hollander,                      1996     125,000      -0-      -0-                  -0-              -0-
Treasurer and Chief Financial            1995     116,923      -0-      -0-                  -0-              -0-
Officer
----------
</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
         an  additional  $5,000  per  month  from  USA  Skate   effective May 1,
         1996, primarily related to long-term strategic planning,  financing and
         acquisitions  and is not involved in the  day-to-day  operations of the
         Company.

(2)      Options granted in 1994 and 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 year  end in  shares of  common
         stock  based on a  price of  $1.375 per share, the  December 31, market
         price.

OPTION/SAR GRANTS IN LAST FISCAL YEAR TABLE.  

     During 1996, no stock options were granted to any of the exeutive  officers
named in the Summary Compensation Table.

AGGREGATED  OPTION/SAR  EXERCISES AND YEAR-END 1996 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,
1996. No stock appreciation rights are outstanding and no options were exercised
by the named officers during 1996.

                                      -23-

<PAGE>

<TABLE>
<CAPTION>
                                Number of                      Value of
                          Securities Underlying              Unexercised
                           Unexercised Options         In-the-Money options
                        at December 31, 1996 (#)      at December 31, 1996 (#)
Name                    Exercisable/Unexercisable     Exercisable/Unexercisable
----                    -------------------------     -------------------------
<S>                              <C>                             <C> 
Henry Fong                       298,600/0                       $0/0
Michael S. Casazza               228,900/0                       $0/0
Barry S. Hollander                20,000/0                       $0/0
</TABLE>

     COMPENSATION OF DIRECTORS.  During 1996, 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 1996, no options were granted
to the directors of the Company.


Item 11. Security Ownership of Certain Beneficial Owners and Management
         --------------------------------------------------------------

     Set forth  below is certain  information  as of  December  31,  1996,  with
respect  to  ownership  of  the  Company's   Common  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
Stock; and (iv) all directors and executive officers as a group:

                                      -24-

<PAGE>

<TABLE>
<CAPTION>
Name and Address                   Number of Common              Percentage
of Beneficial Owner                  Shares Owned                  Owned
-------------------                ----------------              ----------
<S>                                  <C>                            <C> 
Henry Fong                           1,345,358 (1)                  26.9
2401 PGA Blvd., Suite 280F
Palm Beach Gardens, FL 33410

Michael S. Casazza                     733,542 (2)                  14.9
1221-B South Batesville Road
Greer, South Carolina  29650

Steve C.Y. Lin                         193,800                       4.1
Rm. 906, #111
Nanking E. Road
Section 2
Taipei, Taiwan

Barry S. Hollander                      25,000 (3)                    .5
1221-B South Batesville Road
Greer, South Carolina  29650

Playmaker Co., Ltd.                    316,200                       6.7
10th Floor 101
Sung Chiang Road
Taipei, Taiwan

Wayne Mills                            250,000 (4)                   5.3
The Colonnade, Suite 290
5500 Wayzata Blvd.
Golden Valley, MN  55416

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

Hung-Chang Yang                             --                        --
First Floor, No. 16
Lane 238
Taipei, Taiwan

All directors and
executive officers as
a group (7 persons)                  2,297,700 (1)(2)(3)            43.8
</TABLE>

                                      -25-

<PAGE>

----------

(1) Includes warrants currently  exercisable to acquire 298,600 shares of Common
    Stock.

(2) Includes warrants currently  exercisable to acquire 228,900 shares of Common
    Stock.

(3) Includes  options  currently  exercisable to acquire 20,000 shares of Common
    Stock.

(4) Information  obtained from  the Schedule 13D on file with the Securities and
    Exchange Commission.


    CHANGES IN CONTROL.  None.


Item 12. Certain Relationships and Related Transactions
         ----------------------------------------------

     In April 1994, the Company issued  warrants to Henry Fong to purchase up to
148,600  shares of Common  Stock and issued  warrants  to Michael S.  Casazza to
purchase up to 51,400  shares of Common  Stock,  exercisable  at $4.50 per share
through April 14, 1997. 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 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.

     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.

     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.

                                      -26-

<PAGE>

     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 market price of $1.375 per share.

     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. At December 31, 1996, the balance owed Mr. Fong was $530,000
and Mr. Casazza was owed $149,000.

     In  November  1996,  Mr.  Casazza  loaned  $45,000 to the Company and there
remains a balance due of $26,000 at December 31, 1996.

     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.

     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.

                                      -27-

<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).)

                                      -28-

<PAGE>

    Number          Description
    ------          -----------

     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.)

     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.)

                                      -29-

<PAGE>

    Number          Description
    ------          -----------

     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.)

     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.)

                                      -30-

<PAGE>

    Number          Description
    ------          -----------

     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 "Form 8-K").)

     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 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 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 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 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 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 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 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 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 Form
                    8-K.)

                                      -31-

<PAGE>

    Number          Description
    ------          -----------

     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 Form
                    8-K.)

     10.27(a)       Loan and  Security  Agreement  between USA Skate and LaSalle
                    National  Bank  (the  "USA  Skate  Loan   Agreement)   FILED
                    HEREWITH.

     10.27(b)       Demand  Note  related  to  the  USA  Skate  Loan  Agreement.
                    (Incorporated  by reference  to Exhibit  10.2(a) to the Form
                    8-K.)

     10.27(c)(1)    Guaranty of the USA Skate Loan by the Registrant, California
                    Pro, Inc. and USA. FILED HEREWITH.

     10.27(c)(2)    Guaranty  of  the  USA  Skate  Loan  by  Henry  Fong.  FILED
                    HEREWITH.

     10.27(c)(3)    Guaranty  of the USA Skate  Loan by Michael  Casazza.  FILED
                    HEREWITH.

     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 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 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.)

     11.1           Statement  Re:  Computation  of Per  Share  Earnings.  FILED
                    HEREWITH.

     21.1           List of Subsidiaries.  (Incorporated by reference to Exhibit
                    21.1 in Registration Statement 33-98898.)

     27.1           Financial Data Schedule. FILED HEREWITH.


(b)  REPORTS ON FORM 8-K.

     None.          

                                      -32-

<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: May 4, 1997                      /s/ Michael S. Casazza
                                       -----------------------------------
                                       Michael S. Casazza, 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: May 4, 1997                      /s/ Henry Fong
                                       -----------------------------------
                                       Henry Fong, Chief Executive
                                       Officer and Director


Date: May 4, 1997                      /s/ Michael S. Casazza
                                       -----------------------------------
                                       Michael S. Casazza, President,
                                       Chief Operating Officer and Director


Date: May 4, 1997                      /s/ Barry S. Hollander
                                       -----------------------------------
                                       Barry S. Hollander, Chief Financial
                                       Officer and Principal Accounting
                                       Officer


Date: May 4, 1997                      /s/ Steve C.Y. Lin
                                       -----------------------------------
                                       Steve C.Y. Lin, Director


Date: May 4, 1997                      /s/ Brian C. Simpson
                                       -----------------------------------
                                       Brian C. Simpson, Director


Date: May 4, 1997                      /s/ Hung-Chang Yang
                                       -----------------------------------
                                       Hung-Chang Yang, Director

                                      -33-

<PAGE>

                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                     YEARS ENDED DECEMBER 31, 1996 AND 1995

<PAGE>

                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES

                     YEARS ENDED DECEMBER 31, 1996 AND 1995

                          INDEX TO FINANCIAL STATEMENTS

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

Consolidated financial statements:

     Balance sheet ...........................................         F-2 - F-3

     Statements of operations ................................               F-4

     Statements of shareholders' equity ......................         F-5 - F-6

     Statements of cash flows ................................         F-7 - F-8

Notes to financial statements ................................        F-9 - F-30

<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,  1996,  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,  1996.  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, 1996, and the results of their
operations  and their  cash flows for each of the years in the  two-year  period
ended  December 31, 1996,  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 had a significant  operating loss in 1996 and a
working capital  deficiency at year end. In addition,  the Company is in default
on substantially all of its loan agreements.  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 11, 1997

                                       F-1

<PAGE>

                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET

                                DECEMBER 31, 1996

<TABLE>
<CAPTION>
Assets
------
<S>                                                                  <C>
Current assets:
   Cash ......................................................       $    59,098
   Accounts receivable, less allowance
    for doubtful accounts of $662,000 (Note 12) ..............         4,372,320
   Income taxes receivable (Note 14) .........................           221,624
   Marketable securities (Note 3) ............................           228,652
   Inventories (Note 4) ......................................         5,214,917
   Prepaid expenses and other ................................           579,570
                                                                     -----------

                Total current assets .........................        10,676,181
                                                                     -----------
Property and equipment, net of accumulated
 depreciation (Note 5) .......................................         1,919,756
Intangible and other assets, net of accumulated
 amortization (Note 2) .......................................         8,473,806
                                                                     -----------

                                                                      10,393,562
                                                                     -----------
                                                                     $21,069,743
                                                                     ===========
</TABLE>

                                   (Continued)
                                       F-2

<PAGE>

                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET

                                DECEMBER 31, 1996
<TABLE>
<CAPTION>
Liabilities and Shareholders' Equity
------------------------------------
<S>                                                                  <C>
Current liabilities:
   Current portion of:
       Long-term debt (Note 9) ...............................       $   192,726
       License fee payable, seller (Note 13) .................            99,215
   Notes payable:
       Banks (Note 6) ........................................         8,050,734
       Seller (Note 7) .......................................           656,250
       Officers/shareholders (Note 7) ........................           705,000
       Convertible promissory notes (Note 8) .................         2,518,000
       Other (Note 8) ........................................           718,172
   Accounts payable and accrued expenses .....................         2,758,834
   Payables to officers/shareholders (Note 7) ................            88,982
   Income taxes payable and other (Note 14) ..................           152,201
                                                                     -----------

                Total current liabilities ....................        15,940,114
                                                                     -----------
Long-term debt, net of current portion (Note 9) ..............           430,098
Notes payable, seller, net of current portion (Note 7) .......           287,500
License fee payable, seller, net of current portion (Note 13)          2,269,971
Deferred income taxes (Note 14) ..............................            60,600
                                                                     -----------

Total long-term debt .........................................         3,048,169
                                                                     -----------
Minority interest ............................................         1,007,205
                                                                     -----------
Commitments and contingencies (Notes 6, 7, 8, 9, and 13)

Shareholders' equity (Note 15):
   Preferred stock, $0.01 par value, authorized 5,000,000
    shares; no shares issued
   Common stock, $0.01 par value, authorized 10,000,000
    shares; issued and outstanding 4,699,511 .................            46,995
   Warrants ..................................................           394,200
   Capital in excess of par ..................................         6,386,332
   Deficit ...................................................        (5,745,498)
   Cumulative foreign currency translation adjustment ........            (7,774)
                                                                     -----------

                Total shareholders' equity ...................         1,074,255
                                                                     -----------
                                                                     $21,069,743
                                                                     ===========
</TABLE>

                 See notes to consolidated financial statements.
                                       F-3

<PAGE>

                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                     YEARS ENDED DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
                                                                    1996             1995
                                                                ------------    ------------
<S>                                                             <C>             <C>
Net sales ...................................................   $ 16,952,904    $ 17,128,711
                                                                ------------    ------------
Cost of sales:
   Substantially from a related party (Note 12) .............      3,148,423       7,649,290
   Others ...................................................      9,852,861       4,506,253
   Inventory markdowns and adjustments ......................      1,059,750
                                                                ------------    ------------
                                                                  14,061,034      12,155,543
                                                                ------------    ------------
       Gross profit .........................................      2,891,870       4,973,168
                                                                ------------    ------------
Operating expenses:
   Sales and marketing expenses .............................      2,434,255       1,758,221
   General and administrative expenses ......................      3,014,417       2,121,855
   Depreciation and amortization ............................        681,717         544,245
   Consulting fees, related party (Note 13) .................        120,000         120,000
   Rent expense, seller (Note 13) ...........................        103,334
   Restructuring charges (Note 17) ..........................      1,229,000
                                                                ------------    ------------
                                                                   7,582,723       4,544,321
                                                                ------------    ------------
Income (loss) from operations ...............................     (4,690,853)        428,847
                                                                ------------    ------------
Other expenses (income):
   Interest expense:
       Related parties ......................................        305,947           2,804
       Others ...............................................      1,083,274         310,379
   Foreign currency loss ....................................         44,012          33,590
   Royalty and other income .................................        (51,376)        (66,282)
   Net unrealized holding loss (Note 3) .....................        144,457
   Gain on sale of investment in Subsidiary (Note 10) .......       (111,366)
   Gain from issuance of common stock by subsidiary (Note 11)       (479,100)
                                                                ------------    ------------
                                                                     935,848         280,491
                                                                ------------    ------------

Income (loss) before income taxes and minority interest .....     (5,626,701)        148,356

Income tax expense (benefit) ................................       (244,500)        112,900
                                                                ------------    ------------
Income (loss) before minority interest ......................     (5,382,201)         35,456
Minority interest ...........................................        193,681
                                                                ------------    ------------

Net income (loss) ...........................................   $ (5,575,882)   $     35,456
                                                                ============    ============

Net income (loss) per share .................................   $      (1.37)   $       0.01
                                                                ============    ============
Weighted average number of
 shares outstanding .........................................      4,078,864       3,599,320
                                                                ============    ============
</TABLE>

                 See notes to consolidated financial statements.
                                       F-4

<PAGE>

                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                     YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
                                                                                                          Cumulative
                                                                                                        foreign currency
                                                                             Capital in                   translation
                                          Common stock          Warrants    excess of par    Deficit      adjustment       Total
                                          ------------          --------    -------------    -------      ----------       -----
                                      Shares        Amount
                                      ------        ------   
<S>                                <C>           <C>           <C>           <C>           <C>            <C>           <C>
Balances, January 1, 1995 ......     2,225,054   $    22,251   $       100   $   162,912   $  (205,072)                 $   (19,809)
Issuance of common stock
 and warrants in initial public
 offering, net of offering costs
 (Note 15) .....................     1,200,000        12,000       345,100     3,848,447                                  4,205,547
Issuance of warrants in
 connection with private
 placement (Note 15) ...........                                    49,000                                                   49,000
Issuance of common stock in
 cancellation of a note payable
 (Note 15) .....................        80,000           800                     199,200                                    200,000
Issuance of common stock
 upon exercise of warrants
 (Note 15) .....................        74,623           746                      55,221                                     55,967
Issuance of common stock in
 conversion of notes payable
 (Note 15) .....................       183,334         1,833                     410,667                                    412,500
Issuance of common stock from
 exercise of employee stock
 options (Note 15) .............        20,500           205                      51,045                                     51,250
Net income for 1995 ............                                                                35,456                       35,456
                                   -----------   -----------   -----------   -----------   -----------    -----------   -----------

Balances, December 31, 1995 ....     3,783,511        37,835       394,200     4,727,492      (169,616)                   4,989,911
</TABLE>

                                   (Continued)
                                       F-5

<PAGE>

                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)

                     YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
                                                                                                          Cumulative
                                                                                                        foreign currency
                                                                             Capital in                   translation
                                          Common stock          Warrants    excess of par    Deficit      adjustment       Total
                                          ------------          --------    -------------    -------      ----------       -----
                                      Shares        Amount
                                      ------        ------   
<S>                                <C>           <C>           <C>           <C>           <C>            <C>           <C>
Issuance of 400,000 shares
 of common stock (Note 15) .....       400,000         4,000                     896,000                                    900,000
Issuance of 36,000 shares of
 common stock in settlement
 of an account payable (Note 15)        36,000           360                     107,640                                    108,000
Issuance of 480,000 shares of
 common stock in settlement of
 payables to officers/shareholders
 (Note 15) .....................       480,000         4,800                     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 ....     4,699,511   $    46,995   $   394,200   $ 6,386,332   $(5,745,498)   $    (7,774)  $ 1,074,255
                                   ===========   ===========   ===========   ===========   ===========    ===========   ===========
</TABLE>

                 See notes to consolidated financial statements.
                                       F-6

<PAGE>

                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                     YEARS ENDED DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
                                                                                        1996           1995
                                                                                    -----------    -----------
<S>                                                                                 <C>            <C>
Cash flows from operating activities:
   Net income (loss) ............................................................   $(5,575,882)   $    35,456
                                                                                    -----------    -----------
   Adjustments to reconcile net income (loss) to
    net cash used in operating activities:
   Inventory markdowns and adjustments ..........................................     1,059,750
   Net unrealized holding loss ..................................................       144,457
   Gain on sale of investment in subsidiary .....................................      (111,366)
   Gain from issuance of common stock by subsidiary .............................      (479,100)
   Depreciation and amortization ................................................       681,717        544,245
   Amortization of license fee payable and other ................................       214,688
   Provision for losses on accounts receivable ..................................       228,000        291,488
   Foreign currency loss ........................................................        44,012         33,590
   Minority interest ............................................................       193,681
   Restructuring charges ........................................................     1,229,000
Decrease (increase) in assets:
   Accounts receivable ..........................................................     2,432,580       (523,152)
   Income taxes receivable ......................................................      (221,624)
   Due from related parties .....................................................        22,866       (285,203)
   Inventories ..................................................................     2,578,805        234,115
   Prepaid expenses and other ...................................................      (236,638)        10,280
Increase (decrease) in liabilities:
   Accounts payable and accrued expenses ........................................    (1,210,188)      (465,671)
   Payables to officers/shareholders and other related parties ..................       136,250     (3,164,769)
   Income taxes payable .........................................................      (208,304)
                                                                                    -----------    -----------
           Total adjustments ....................................................     6,498,586     (3,325,077)
                                                                                    -----------    -----------
Net cash provided by (used in) operating activities .............................       922,704     (3,289,621)
                                                                                    -----------    -----------

Cash flows from investing activities:
   Payment for purchase of subsidiary,
    net of cash acquired ........................................................    (3,551,760)
   Payments for intangible assets ...............................................      (436,600)
   Capital expenditures .........................................................      (237,545)      (879,324)
   Acquisition, offering and financing costs ....................................      (421,770)      (343,030)
                                                                                    -----------    -----------
Net cash used in investing activities ...........................................    (4,647,675)    (1,222,354)
                                                                                    -----------    -----------

Cash flows from financing activities:
   Decrease in bank overdraft ...................................................                      (35,499)
   Proceeds from notes payable and long-term debt ...............................     4,543,522
   Repayments of notes payable and long-term debt ...............................    (1,587,263)      (622,532)
   Net proceeds from issuance of
    common stock and warrants                                                           819,600       5,178,216
                                                                                    -----------    ------------
Net cash provided by financing activities                                             3,775,859       4,520,185
                                                                                    -----------    ------------
</TABLE>

                 See notes to consolidated financial statements
                                       F-7

<PAGE>

                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
                                                                                        1996           1995
                                                                                    -----------    -----------
<S>                                                                                 <C>            <C>  
Net increase (decrease) in cash .................................................        50,888          8,210
Cash, beginning .................................................................         8,210
                                                                                    -----------    -----------
Cash, ending ....................................................................   $    59,098    $     8,210
                                                                                    ===========    ===========

Supplemental disclosure of cash flow information:
   Cash paid for interest .......................................................   $ 1,041,900    $   369,300
                                                                                    ===========    ===========

   Cash paid for income taxes ...................................................   $    89,300    $    36,600
                                                                                    ===========    ===========
Supplemental disclosure of noncash investing and financing activities:
   Purchase of USA Skate Co., Inc. net of cash acquired:
       Fair value of assets acquired ............................................   $11,334,200
       Intangible assets ........................................................     2,777,774
       Liabilities assumed ......................................................    (9,210,214)
       Fair value of assets exchanged ...........................................    (1,350,000)
                                                                                    -----------
   Total cash paid, net of cash acquired ........................................   $ 3,551,760
                                                                                    ===========
   Minimum royalties payable in exchange
       for a license agreement ..................................................   $ 2,213,235
                                                                                    ===========
   Issuance of 400,000 shares of common stock
       in exchange for consulting and non-compete
       agreements ...............................................................   $   900,000
                                                                                    ===========
   Issuance of 36,000 shares of common
       stock in settlement of an account payable ................................   $   108,000
                                                                                    ===========
   Issuance of 480,000 shares of common stock
       in settlement of payables to officers/shareholders .......................   $   660,000
                                                                                    ===========
   Deferred offering costs deducted from the
       proceeds of the initial public offering ..................................                  $   816,452
                                                                                                   ===========
   Issuance of 183,334 shares of common stock
       in conversion of notes payable ...........................................                  $   412,500
                                                                                                   ===========
   Issuance of 80,000 shares of common stock
       in cancellation of a convertible note payable ............................                  $   200,000
                                                                                                   ===========
</TABLE>

                 See notes to consolidated financial statements.
                                       F-8

<PAGE>

                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     YEARS ENDED DECEMBER 31, 1996 AND 1995


1.   Basis of presentation and acquisition of USA Skate Co., Inc.:

     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, 1996, the Company owned 100% of the  outstanding
      CP capital stock and 56.5% of the outstanding  Skate Corp.  capital stock.
      Minority interest  represents Skate Corp.'s minority  shareholders'  43.5%
      share  of  the  equity  and  net  income  of  Skate   Corp.   Intercompany
      transactions have been eliminated in consolidation.

     In May 1996, the Company, through Skate Corp., completed the acquisition of
      all of the outstanding capital stock of USA Skate, a New York corporation.
      USA Skate owns,  directly or  indirectly,  all of the capital stock of Les
      Equipements Sportifs Davtec Inc., a Canadian corporation  ("Davtec").  The
      acquisition  was effective as of April 30, 1996 and was accounted for as a
      purchase.  Accordingly,  the consolidated statements of operations include
      the results of USA Skate and Davtec  beginning May 1, 1996.  Consideration
      for the purchase was  $10,500,000  and  consisted  of  $3,650,000  of cash
      (including  approximately  $98,000 of cash  acquired),  a  $1,050,000,  8%
      installment  note payable (Note 7), 250,000  shares of Skate Corp.  common
      stock  valued at  $300,000  (Note 13),  and  assumption  of  approximately
      $5,500,000 of debt.  The cash portion of the purchase  price was paid with
      funds raised by Skate Corp.,  including  the private  placement of 884,667
      shares of common  stock of Skate Corp.  for  $1,061,600,  the  issuance of
      $1,080,000 of 9% notes payable to certain  officers/shareholders (Note 7),
      and the issuance of $2,515,000 of 9%  convertible  promissory  notes (Note
      8). The cost of raising the capital  necessary to complete the acquisition
      was approximately $242,000.

     The following  unaudited,  consolidated  pro forma condensed  statements of
      operations  for 1996 and 1995  have  been  prepared  to  reflect  the 1996
      acquisition by the Company as if the acquisition  had occurred  January 1,
      1995:

<TABLE>
<CAPTION>
                                         1996           1995
                                     -----------    -----------
         <S>                         <C>            <C>        
         Total revenue ...........   $20,026,000    $31,429,000
                                     ===========    ===========
         Net income (loss) .......   $(5,686,000)   $    71,000
                                     ===========    ===========
         Earnings (loss) per share   $     (1.35)   $      0.02
                                     ===========    ===========
</TABLE>

                                       F-9

<PAGE>

                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 1996 AND 1995


1.   Basis of presentation and acquisition of USA Skate Co., Inc. (continued):

     The accompanying  financial statements have been prepared assuming that the
      Company  will  continue  as  a  going  concern.  The  Company  incurred  a
      significant operating loss in 1996 and has a working capital deficiency at
      December 31, 1996. In addition, the Company is in default on substantially
      all of its bank  loan  agreements  at year  end.  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.

     During  the  fourth  quarter  of 1996,  management  implemented  a plan for
      restructuring  the  Company's  operations.  The plan's  objectives  are to
      return the Company to profitability,  primarily through  implementation of
      product line changes and a cost reduction program (Note 17).

     In addition,  the Company has signed a  distribution  agreement  with Skate
      Corp.,  for California Pro and Kemper branded  products,  which management
      believes will result in substantial selling and general and administrative
      cost reductions due to  consolidation  of  Company-wide  activities at one
      location. Management is also in the process of renegotiating its bank loan
      agreements in order to extend their maturities.

     Management is currently exploring the possibility of various other options,
      including the sale of subsidiaries or license and trademark  rights and an
      initial  public  offering  for Skate Corp.  Management  believes  that the
      successful  implementation  of one or more of these options,  coupled with
      the restructuring  which has been  implemented,  and the renegotiated bank
      loan agreements  will provide the Company with the liquidity  necessary to
      continue as a going concern.

2.   Business and summary of significant accounting policies:

     Business of the Company:

     CP sells 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.   A  majority  of  in-line  skates  are
      manufactured by Playmaker Co., Ltd. ("Playmaker"),  a minority shareholder
      of the  Company.  CP also  sells  snowboards  and  accessories  under  the
      Kemper(R)  brand name to retail sporting goods stores in North America and
      distributors   in  Europe  and  Japan,   and  through   Skate  Corp.,   it
      manufactures,  imports  and markets  VICTORIAVILLE(TM)  and VIC(R) ice and
      street/roller  hockey  skates,  sticks  and  related  protective  gear and
      accessories.

                                      F-10

<PAGE>

                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 1996 AND 1995


2.   Business and summary of significant accounting policies (continued):

     Business of the Company (continued):

     USA Skate is based in Long Island,  New York,  and markets and  distributes
      ice and  street/roller  hockey skates,  related gear and accessories under
      the  VICTORIAVILLE(TM),  VIC(R),  and McMartin(R) brands as well as figure
      skates.  USA  Skate  has an  exclusive  worldwide  license  for use of the
      VICTORIAVILLE(TM)  and VIC(R)  brands.  USA Skate sells skates and related
      accessories through a network of independent sales  representative  groups
      to over 1,000 accounts. Internationally, USA Skate's products are sold and
      distributed through independent distributors located primarily in Germany,
      Switzerland,  Italy, Austria, Czech Republic, Sweden, Finland, France, and
      Brazil.

     Davtec  manufactures  hockey sticks,  pants and gloves for USA Skate and is
      the Canadian  distributor for all of the hockey related  VICTORIAVILLE(TM)
      and VIC(R)  product  lines.  Davtec  also  manufactures  the  Hespeler(TM)
      premium brand of hockey sticks which are marketed worldwide.

     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  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.

                                      F-11

<PAGE>

                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 1996 AND 1995


2.   Business and summary of significant accounting policies (continued):

     Property, equipment, and depreciation:

     Property and equipment are stated at cost.  Depreciation is provided by use
      of accelerated and  straight-line  methods over the estimated useful lives
      of the related  assets as follows:  building and  improvements,  20 years;
      machinery, equipment, molds and furniture, 5 to 10 years.

     Intangible and other assets:

     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 connection with management's  restructuring plan, during the
      fourth  quarter  of  1996,  intangible  assets  with a  carrying  value of
      $718,700  were written down and included in  restructuring  charges  (Note
      17). At December 31, 1996, intangible and other assets consist of:

<TABLE>
                <S>                                   <C>       
                Licenses for trademarks ...........   $4,209,042
                Goodwill ..........................    2,420,128
                Non-compete/consulting agreements .    1,050,000
                Loan guarantee fees ...............      600,000
                Finders fees and organization costs      250,000
                Deferred financing costs ..........      256,805
                Deposits and other ................      104,078
                                                      ----------
                                                       8,890,053
                Less accumulated amortization .....      416,247
                                                      ----------
                                                      $8,473,806
                                                      ==========
</TABLE>

     Trademark  license costs relate to perpetual  license  agreements which are
      amortized on the straight-line method over 15 to 25 years (Note 13).

     Goodwill  represents the cost of the Company's  investments in subsidiaries
      in excess of the net tangible  assets acquired and is being amortized over
      15 to 25 years.

                                      F-12

<PAGE>

                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 1996 AND 1995


2.   Business and summary of significant accounting policies (continued):

     Intangible and other assets (continued):

     Costs  of   non-compete/consulting   agreements   are   amortized   on  the
      straight-line  method,  primarily  over  the 5 to 10  year  terms  of  the
      agreements.

     Fees to two officers/shareholders of the Company relate to their guarantees
      of bank and certain other debt of the Company.  The guarantees are subject
      to  certain   terms  and   conditions,   including   certain   net  income
      requirements.  If the terms are satisfied, the fees will be amortized over
      the remaining terms of the agreements. If the terms are not satisfied, the
      amounts will be adjusted accordingly.

     Financing costs related to the bank debt and convertible  promissory  notes
      are  amortized  on  the  straight-line   method  over  the  terms  of  the
      agreements.

     Organization and other costs incurred in connection with the acquisition of
      USA Skate are being amortized over 5 years.

     Foreign currency transactions:

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

     The balance sheet accounts of Davtec are translated  from Canadian  dollars
      to U.S.  dollars at the rates of exchange at the balance  sheet date.  The
      resultant  translation  adjustments  are included in a cumulative  foreign
      currency  translation  adjustment,  a separate  component of shareholders'
      equity.  Income and expense  accounts are  translated  at average rates of
      exchange  during  the  periods.  Gains  and  losses  on  foreign  currency
      transactions are included in determining consolidated net earnings.

                                      F-13

<PAGE>

                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 1996 AND 1995


2.   Business and summary of significant accounting policies (continued):

     Fair value of financial instruments:

     The carrying  values of the Company's  long-term  debt and notes payable to
      banks  approximate  their fair values at December 31,  1996,  because they
      bear interest at current market rates.  The guaranteed  minimum  royalties
      payable of  $3,000,000,  due under the license  agreement with the parties
      who sold USA Skate to the  Company  (the  "Seller")  (Note 13),  have been
      discounted at 9.5%,  which results in a discounted  license fee payable of
      $2,369,971 at December 31, 1996, which  approximates  fair value. The fair
      values  of  the  Company's  payables  to  officers/shareholders   are  not
      practicable to estimate, due to the related party nature of the underlying
      transactions and the 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.

     Net income (loss) per share:

     Net  income  (loss)  per share  for 1995 has been  calculated  based on the
      weighted  average  number of  outstanding  common shares.  The convertible
      promissory  notes,  options and  warrants are not  considered  in the 1996
      calculation  as they  would  decrease  loss  per  share  in 1996  would be
      antidilutive in 1995.

     Primary and fully diluted earnings per share are the same.

     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.

                                      F-14

<PAGE>

                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 1996 AND 1995


2.   Business and summary of significant accounting polices (continued)

     Stock-based compensation:

     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
      nonemployees,  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.

     Reclassifications:

     Certain  amounts  reported  in the  1995  financial  statements  have  been
      reclassified to conform to the 1996 presentation.

3.   Marketable securities:

     In 1996, the Company  received  marketable  securities from an affiliate 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, which is
      included in net loss for the year ended December 31, 1996.

                                      F-15

<PAGE>

                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 1996 AND 1995


4.   Inventories:

         At December 31, 1996, inventories consist of:

<TABLE>
                <S>                                   <C>       
                Raw materials .....................   $  805,430
                Work-in-process ...................      430,740
                Finished goods ....................    3,978,747
                                                      ----------
                                                      $5,214,917
                                                      ==========
</TABLE>

     The elements of cost in inventories include materials, labor, and overhead.
     During 1996,  $1,059,750  of inventory   was written down below cost to its
     estimated market value.  This charge is  included as a component of cost of
     sales.

5.   Property and equipment:

     In  connection  with  management's  restructuring  plan,  during the fourth
      quarter of 1996,  property and equipment with a carrying value of $411,700
      was written down and included in restructuring charges (Note 17).

     At December 31, 1996, property and equipment consists of the following:

<TABLE>
                <S>                                   <C>       
                Land ..............................   $   27,000
                Building and improvements .........      803,105
                Machinery and equipment ...........    1,431,810
                Molds .............................      236,963
                Office equipment and furniture ....      571,548
                                                      ----------
                                                       3,070,426
                Less accumulated depreciation .....    1,150,670
                                                      ----------
                                                      $1,919,756
                                                      ==========
</TABLE>

                                       F-16

<PAGE>

                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 1996 AND 1995


6.   Notes payable, banks:

     CP has a loan agreement with a bank for advances of up to 75% of qualifying
      accounts receivable,  50% of qualifying inventory,  and 50% of outstanding
      letters of credit,  with a maximum limit of  $5,500,000,  which expires in
      May  1999.  The  agreement   contains  certain  financial   covenants  and
      restrictions  as to the  payment  of  dividends.  At  December  31,  1996,
      $2,741,920  was   outstanding   under  the  loan   agreement,   which  was
      approximately  $808,000  above the loan  availability  requirements.  As a
      result, the Company is in default under this loan agreement,  and the loan
      balance is due on demand.  Loans under the  agreement  bear interest at 1%
      above the bank's  prime  rate  (9.25% at  December  31,  1996).  Loans are
      collateralized  by  substantially  all of the  Company's  assets  and  are
      guaranteed by two officers/shareholders of the Company.

     At December 31, 1996,  USA Skate had  $2,623,454 of borrowings  outstanding
      under a second loan  agreement  with the bank  discussed  above.  The loan
      agreement allows 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 $5,000,000, which expires in May 1999. Loans under
      the  agreement  bear  interest at 1% above the bank's prime rate (9.25% at
      December 31, 1996). The agreement contains 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.  Loans are collateralized by substantially all of USA Skate's
      assets,   $300,000   of  liquid   collateral,   and  are   guaranteed   by
      officers/shareholders of the Company. Additionally,  $221,770 of notes due
      to  the  Seller  are  subordinated  to  the  bank  loan.  Due  to  certain
      cross-default  provisions,  this  bank loan  agreement  is in  default  at
      December 31, 1996.

                                      F-17

<PAGE>

                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 1996 AND 1995


6.   Notes payable, banks (continued):

     At December 31, 1996, Davtec had $2,685,360 of borrowings outstanding under
      a loan  agreement  with a  Canadian  bank.  Advances  are  based on 75% of
      qualifying accounts receivable,  plus 50% of qualifying  inventories,  and
      net of accounts  payable  less than 30 days in  inventory,  with a maximum
      limit of  $3,648,000.  Loans under the Davtec bank agreement bear interest
      at the bank's prime rate plus 1% (5.75% at December 31, 1996), and are due
      on demand.  The  agreement  contains  provisions  whereby  Davtec may not,
      without  prior  consent,  provide  third  parties with  guarantees  having
      precedence over the claims of the lender, pay dividends or bonuses or make
      any  payments  to any  director,  or  effect  any share  redemptions.  The
      agreement   also  contains   certain   financial   covenants.   Loans  are
      collateralized by Davtec's accounts receivable,  inventories, and personal
      guarantees  from two  officers/shareholders  of the  Company.  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.  The  Company  is
      currently in negotiations with the bank to cure the default and extend the
      maturity date of the agreement.

     The weighted  average  interest rate on the notes payable to banks was 8.7%
      and 9.9% in 1996 and 1995, respectively.

7.   Notes payable, officers/shareholders and Seller:

     At December 31, 1996,  $679,000  remains payable under the  $1,080,000,  9%
      notes payable to certain officers/shareholders of the Company. These notes
      are unsecured and are due June 30, 1997. In addition, $600,000 remains due
      under the $125,000,  9% note and the  $1,050,000,  8% note, both issued to
      the Seller in connection with the acquisition.  In March 1997,  $50,000 of
      the $125,000 note was paid, and the remaining balance is due October 1997.
      The  $475,000  remaining  on the 8% note is  payable  in  installments  of
      $187,500, $225,000, and $62,500 in 1997, 1998, and 1999, respectively. The
      Company also has a $26,000, 10% note payable to an officer/shareholder due
      on demand at December 31, 1996.

     At December 31, 1996, USA Skate had $343,750 of unsecured, 8% notes payable
      to the Seller, which are due December 31, 1997.

     Payables of $88,982  primarily  represent  interest due to the Seller and a
      trade payable to Playmaker.

                                      F-18

<PAGE>

                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 1996 AND 1995


8.   Convertible promissory notes and other:

     In connection with the acquisition of USA Skate,  effective April 30, 1996,
      Skate Corp.  issued  $2,518,000 of 9% convertible  promissory  notes which
      were  originally  due  January 1, 1997.  On January 1, 1997,  Skate  Corp.
      exercised its right to extend the maturity date to July 1, 1997. Effective
      January 1, 1997, the interest rate increased to 12%.

     The terms of the  convertible  notes  provide  that 50% of the note balance
      automatically converts to common stock of Skate Corp. twenty calendar days
      after the effective date of a proposed  Initial Public Offering ("IPO") at
      the  lower of 75% of the IPO  price  or the  average  closing  bid and ask
      prices for the twenty  consecutive  calendar days  following the effective
      date of the IPO. The  remaining  50% may be converted on the same terms as
      the automatic conversion at the note holders' sole option.

     In connection with the  acquisition,  the Company assumed an unsecured note
      payable to a third party of $476,172,  which is  non-interest  bearing and
      due on demand.  During 1996, the Company issued $242,000 of 9%,  unsecured
      notes payable to third parties, due August 1, 1997.

9    Long-term debt:

     Long-term  debt  consists  of bank and other  loans  obtained by Davtec for
      land, building, machinery and equipment purchases. The loans bear interest
      at rates  ranging  from prime rate to prime  plus  1.5%,  (4.75%-6.25%  at
      December  31,  1996)  and  fixed  rates of 8.38% to 11% and are  generally
      collateralized by land, building,  machinery and equipment.  The loans are
      payable in aggregate monthly installments of approximately $14,000 and are
      due from 1997 through 2001.  Aggregate  long-term  debt  maturities are as
      follows:

<TABLE>
                <S>                                  <C>       
                1997 .............................   $  192,726
                1998 .............................      144,036
                1999 .............................      143,623
                2000 .............................       96,935
                2001 .............................       45,504
                                                     ----------
                                                     $  622,824
                                                     ==========
</TABLE>

                                      F-19

<PAGE>

                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 1996 AND 1995


10.  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, resulting in a gain of $111,366.

11.  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.  After  these   transactions,   the  Company  owned
      approximately  57% of the  outstanding  common stock of Skate Corp.  These
      transactions  resulted  in a  gain  from  the  issuance  of  stock  by the
      subsidiary of $479,100.

12.  Significant concentrations and major customers:

     The Company grants credit,  generally without collateral,  to its customers
      in the retail  sporting goods  industry.  The Company's  customers are not
      concentrated in any specific geographic region. No customers accounted for
      10% or more of sales in 1996.  During 1995, one U.S.  governmental  agency
      and one other customer  accounted for 10% and 12% of sales,  respectively.
      During the years ended  December 31, 1996 and 1995, the Company's bad debt
      expense was approximately $228,000 and $291,500, respectively.

                                      F-20

<PAGE>

                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 1996 AND 1995


12.  Significant concentrations and major customers (continued):

     The Company currently buys  substantially all of its in-line skate products
      from Playmaker,  and  substantially  all of its snowboard  products from a
      third party supplier.  Approximately  70% of USA Skate's products sold are
      manufactured  by  Davtec.  Approximately  11%  of  USA  Skate  and  Davtec
      purchases in 1996 were from one supplier.  Management  believes that other
      suppliers could provide similar products on comparable  terms. A change in
      suppliers,  however,  could cause a delay in manufacturing  and a possible
      loss of sales which would affect operating results adversely.

13.  Commitments and contingencies:

     Facility leases:

     The  Company  leases  certain  facilities  under  non-cancelable  operating
      leases. USA Skate leases its warehouse  facilities under a five-year lease
      from the Seller which  expires in 2000 and a five-year  lease with a third
      party which  expires in 2001,  and Davtec  leases office and factory space
      from  unrelated  third  parties.  Future  minimum  lease  payments  are as
      follows:

<TABLE>
<CAPTION>
                                   Seller     Other      Total
                                  --------   --------   --------
                <S>               <C>        <C>        <C>     
                 1997  ........   $155,800   $117,100    272,900
                 1998  ........    155,800     80,900    236,700
                 1999  ........    155,800     67,900    223,700
                 2000  ........    129,800     62,000    191,800
                 2001  ........                52,800     52,800
                                  --------   --------   --------
                                  $597,200   $380,700   $977,900
                                  ========   ========   ========
</TABLE>

     During 1996, the Company  terminated its facility lease in South  Carolina,
      which  was  originally  due to expire in 1998.  As a result,  the  Company
      accrued  $76,500 of lease  termination  expense,  which was  expensed as a
      restructuring  charge (Note 17). The Company is currently  leasing  office
      space in South Carolina on a month-to-month basis.

     Total  rent  expense  for  1996 and 1995  was  approximately  $277,000  and
      $120,000. 

                                      F-21

<PAGE>

                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 1996 AND 1995


13.  Commitments and contingencies (continued):

     License agreements:

     The Company has patent  license  agreements  for certain  models of in-line
      skates.  Under the license  agreements,  the Company and/or  Playmaker pay
      royalty  fees to the  licensor.  The  Company's  share  of the fees is the
      greater of up to 0.2% or $0.30 per pair of applicable in-line skate sales.

     Effective  April 30, 1996,  USA Skate  entered  into an  exclusive  license
      agreement  with the Seller.  The agreement  grants USA Skate the exclusive
      worldwide rights to the  VICTORIAVILLE(TM)  and VIC(R) trademarks  through
      February  2003,  in return for  royalties of 1% of net sales,  as defined,
      subject to total guaranteed  minimum royalties of $3,000,000.  The license
      agreement  was modified in March 1997, to provide for  guaranteed  minimum
      royalty payments as follows: $300,000 payable in installments during 1997,
      $450,000  installments in June and December 1998, and $300,000 semi-annual
      installments  beginning in June 1999,  subordinated  to the USA Skate bank
      credit  facility.  Upon  the  payment  of  $3,000,000  in  royalties,  the
      trademarks  will vest to USA  Skate.  Interest  expense  incurred  in 1996
      related to the license fees payable was approximately $155,000.

     Davtec has an agreement with a third party to manufacture  and sell certain
      licensed  hockey stick  products in Canada in return for license fees of a
      percentage of sales, as defined,  through October 2002. License fees under
      this agreement were approximately $15,000 in 1996.

     Davtec  manufactures  hockey  equipment under the  Hespeler(TM)  trademark.
      Davtec pays fees based on a percentage of Hespeler(TM)  sales, as defined,
      to  the  trademark  owner.   Fees  related  to  Hespeler(TM)   sales  were
      approximately $50,800 in 1996.

     Employment, consulting and non-compete agreements:

     In  connection  with the  acquisition,  USA Skate  entered  into a one-year
      employment   agreement   with  the  Seller,   which  provides  for  annual
      compensation  of $90,000.  Compensation  expense under this  agreement was
      $60,000 in 1996.

                                      F-22
<PAGE>

                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 1996 AND 1995


13.  Commitments and contingencies (continued):

     Employment, consulting and non-compete agreements (continued):

     Effective  April  30,  1996,  the  Company   entered  into  consulting  and
      non-compete  agreements  with the Seller in exchange for 400,000 shares of
      common stock (Note 15).

     On a  month  to  month  basis,  the  Company  pays  an  officer/shareholder
      consulting fees of $10,000 per month.

     The  Company  entered  into a  twelve-month  consulting  agreement  with an
      unrelated  third  party  effective  July 25,  1995,  to provide  financial
      advisory and  consulting  services to the Company.  As  compensation,  the
      consultant  received  fees of  $24,000  and the  Company  agreed  to issue
      warrants to purchase up to an aggregate of 300,000 shares of common stock,
      of which 150,000 warrants have been issued (Note 15).

     In November  1995,  the Company  terminated a consulting  agreement  with a
      third party who was previously providing public relations  consulting.  As
      compensation, the consultant received options to purchase 58,331 shares of
      common  stock at an  exercise  price of $4.81 per share,  which  expire in
      October 1997.

     Kemper manufacturing and distribution agreement:

     In May 1995,  the Company  entered into a three year agreement with a third
      party,  whereby the third party will  manufacture  and distribute  certain
      Kemper apparel and accessories.  The third party was granted  nonexclusive
      manufacturing  rights for apparel,  gloves,  bags and related  accessories
      worldwide,  and exclusive  manufacturing and distributor  rights for these
      products in the Japanese market.  The Company receives  royalties based on
      sales made. The Company did not receive any royalties in 1996 and received
      royalties of $60,000 in 1995.

                                      F-23

<PAGE>

                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 1996 AND 1995


13.  Commitments and contingencies (continued):

     Registration rights agreement:

     In connection  with the  acquisition of USA Skate,  250,000 shares of Skate
      Corp. common stock, valued at $300,000,  were issued to the Seller.  Skate
      Corp.  entered  into a  registration  rights  agreement  with the  Seller,
      modified in March 1997,  which provides that Skate Corp. will use its best
      efforts to register  the Skate  Corp.  common  stock,  and  guarantee  the
      $300,000 value of the common stock through June 15, 1997. At that date, if
      the shares have been registered and are publicly traded,  the market price
      per share will be  utilized  to value the  shares.  If the shares have not
      been  registered  by June 15,  1997,  the shares will be deemed to have no
      value,  and Skate Corp.  will be required to pay $300,000 to the Seller in
      $100,000 installments through December 1997, in exchange for the shares of
      Skate Corp. common stock.

     Litigation:

     The Company is 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.

14.  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.

     All U.S.  federal and state  income  taxes and foreign  taxes are  provided
      currently on the undistributed  earnings of foreign  subsidiaries,  giving
      recognition  to current  tax rates and  applicable  foreign  tax  credits.
      Canadian  investment  tax credits for Davtec are included in income in the
      period the credit is earned.

                                      F-24

<PAGE>

                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 1996 AND 1995


14.  Income taxes (continued):

     The provision  (benefit) for income taxes for the years ended  December 31,
      1996 and 1995 consists of the following:

<TABLE>
<CAPTION>
                                              1996           1995
                                           ----------     ----------
          <S>                             <C>            <C>
          Current:
                  Federal .............   $  (174,000)   $   100,300
                  State and local .....        41,900         12,600
                  Foreign .............       (29,300)
                                          -----------    -----------
                                             (161,400)       112,900
                                          -----------    -----------

          Deferred:
                  Federal .............    (1,393,000)       (57,000)
                  State and local .....      (230,600)        (7,200)
                  Foreign .............        46,000
                                          -----------    -----------
                                           (1,577,600)       (64,200)
                                          -----------    -----------
          Change in valuation allowance
            for deferred tax assets ...     1,494,500         64,200
                                          -----------    -----------

          Income tax expense (benefit)    $  (244,500)   $   112,900
                                          ===========    ===========
</TABLE>

     Areconciliation  of the statutory  federal income tax rate to the Company's
      effective  income tax rate for the years ended  December 31, 1996 and 1995
      is as follows:

<TABLE>
<CAPTION>
                                                      December 31,
                                                  1996            1995
                                               -----------     -----------
     <S>                                       <C>             <C> 
     Statutory income tax (benefit) ........         (34)%            34 %
     State and local income taxes ..........           1 %             6 %
     Deferred income tax valuation allowance          24 %            34 %
     Nondeductible expense .................           2 %             4 %
     Other .................................           3 %            (2)%
                                               -----------     -----------
                                                      (4)%            76 %
                                               ===========     ===========
</TABLE>

                                      F-25

<PAGE>

                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 1996 AND 1995


14.     Income taxes (continued):

     The  following  is a summary  of the  Company's  deferred  tax  assets  and
      liabilities at December 31, 1996:

<TABLE>
                 <S>                                 <C>
                 Deferred tax assets:
                   Net operating loss carryforward   $1,060,000
                   Intangible assets .............      200,000
                   Accounts receivable ...........      228,000
                   Inventories ...................      229,000
                                                     ----------

                                                      1,717,000

                 Valuation allowance
                   for deferred tax assets .......    1,717,000
                                                     ----------

                                                     $        0
                                                     ==========

                 Deferred tax liabilities:
                   Property and equipment .........  $   60,600
                                                     ==========
</TABLE>

     Net operating loss carryforwards of approximately  $2,800,000 are available
      to offset  future  taxable  income,  if any,  through  2011.  A  valuation
      allowance  has been  provided  to  reduce  the  deferred  tax  assets,  as
      realization of the assets is not assured.

                                      F-26

<PAGE>

                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 1996 AND 1995


15.  Shareholders' equity:

     Initial public offering:

     On January 25,  1995,  the  Company  closed an initial  public  offering of
      1,200,000  shares  of  common  stock at $4.50  per  share,  and  1,200,000
      warrants  (the   "Warrants")  at  $0.25  per  warrant.   Each  Warrant  is
      exercisable  through January 1998 and allows for the purchase of one share
      of common  stock at $6.00 per  share.  The  Company  and  certain  selling
      shareholders granted an option,  exercisable through March 4, 1995, to the
      underwriters  to purchase  up to an  additional  180,000  shares of common
      stock and/or 180,000 Warrants,  to be exercised to cover  over-allotments,
      if any. The underwriter  exercised its  over-allotment  option to purchase
      180,000 Warrants.  The Company also granted to the underwriter warrants to
      purchase  120,000 shares of common stock at $7.20 per share,  and warrants
      to  purchase  120,000  Warrants  at $0.30 per  Warrant.  The  warrants  to
      purchase   common  stock  and  the  warrants  to  purchase   Warrants  are
      exercisable  beginning January 1996 through January 2000. The Company paid
      the  underwriter a  non-accountable  expense  allowance of 3% of the gross
      proceeds realized in the public offering and a 10% commission on the gross
      proceeds of the public offering.  After deducting offering  expenses,  the
      Company   received  net  proceeds  from  the  offering  of   approximately
      $4,200,000.

     1994 Stock Option Plan:

     In 1994,  the Company  adopted 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 September 1994.

                                      F-27

<PAGE>

                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 1996 AND 1995


15.  Shareholders' equity (continued):

     1994 Stock Option Plan (continued):

      options to purchase 57,000 shares of common stock, at an exercise price of
      $2.50 per share,  were granted  under the 1994 Stock  Option  Plan.  These
      options expire in September  1999.  Management  believes that the exercise
      price of the options approximated the market value of the Company's common
      stock on the date of grant. In 1995,  options to purchase 20,500 shares of
      common stock were exercised.

     Warrants:

     In 1996, 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 $3.56 and $4.50 per share to $2.38 per
      share and warrants to purchase  150,000 shares of common stock issued to a
      third party  consultant  were  extended from July 1996 to October 1997 and
      the  exercise  price was reduced from $3.25 to $2.38 per share (the market
      value of the stock at the date the Board of Directors authorized the price
      reduction in April 1996).

     Issuance of stock:

     During 1996,  the Company  issued  400,000  shares of the Company's  common
      stock to the Seller 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 market  value of the stock
      at  the  date  the  Board  of  Directors   authorized   the  issuance)  in
      satisfaction of a $108,000 account payable.  During 1996, 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 market value
      of the stock at the date the Board of Directors  authorized  the issuance)
      in satisfaction of $660,000 of payables.

                                      F-28

<PAGE>

                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 1996 AND 1995


15.  Shareholders' equity (continued):

     In January  1995,  warrants to purchase  74,623  shares of common  stock at
      $0.75 per share were exercised.  The Company received  proceeds of $55,967
      In addition, the holder of a $200,000 note exercised an option to purchase
      80,000  shares of common  stock at $2.50 per share,  in  exchange  for the
      $200,000 note.

     During 1995,  $412,500 of 8%,  convertible  notes were converted to 183,334
      shares of the Company's common stock at 2.50 per share.

16.  Foreign operations and export sales:

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

<TABLE>
<CAPTION>
                           United                                       Combined
                           States         Canada       Eliminations       total
                        ------------   ------------    ------------   ------------
<S>                     <C>            <C>             <C>            <C>
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)
                        ============   ============    ============   ============

Identifiable assets .   $ 19,285,000   $  5,417,000    $ (3,632,000)  $ 21,070,000
                        ============   ============    ============   ============
</TABLE>

     During the years  ended  December  31, 1996 and 1995,  sales by  geographic
      regions were as follows: 

<TABLE>
<CAPTION>
                                         1996          1995 
                                     -----------   -----------
                  <S>                <C>           <C>        
                  Europe and other   $ 3,225,000   $   583,000
                  Canada .........     4,949,000     1,976,000
                  Japan ..........       312,000     1,507,000
                                     -----------   -----------
                     Total exports     8,486,000     4,066,000

                  USA sales ......     8,467,000    13,063,000
                                     -----------   -----------
                     Total sales .   $16,953,000   $17,129,000
                                     ===========   ===========
</TABLE>

                                      F-29

<PAGE>

                  CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 1996 AND 1995


17.  Restructuring charges:

     In the fourth quarter of 1996, the Company adopted a plan for restructuring
      its  operations.  This plan was developed by the Company's  management and
      approved by the Company's  board of directors,  and its  objectives are to
      return the Company to profitability,  primarily through  implementation of
      product line changes and a cost reduction program.

     As a result of the restructuring  plan, the Company recorded  restructuring
      charges of $1,229,000, which consists of the following components:

<TABLE>
<CAPTION>
                                   Non-cash asset
                                    write downs    Accruals        Total
                                    -----------   -----------   -----------
         <S>                        <C>           <C>           <C>        
         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
                                    ===========   ===========   ===========
</TABLE>

                                      F-30