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               UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
 
                               ----------------
 
                                   FORM 10-K
 
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934 (FEE REQUIRED)
 
   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
 
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
 
   FOR THE TRANSITION PERIOD FROM     TO    .
 
COMMISSION FILE NUMBER 0-16611
 
                   GLOBAL SPORTS, INC. (FORMERLY RYKA INC.)
            (Exact name of registrant as specified in its charter)
 
              DELAWARE                                 04-2958132
   (State or other jurisdiction of        (I.R.S. employer identification no.)
   incorporation or organization)
 
        555 S. HENDERSON ROAD, KING OF PRUSSIA, PA 19406 (610) 878-8600
  (Address, including zip code, and telephone number, including area code, of
                   registrant's principal executive offices)
 
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None
 
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
 
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                                                       NAME OF EACH EXCHANGE ON
      TITLE OF EACH CLASS                                  WHICH REGISTERED
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<S>                                                    <C>
Common Stock, par value $.01 per share................
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  Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
 
  Indicate by check mark whether the registrant (i) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (ii) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
 
  As of the close of business on March 16, 1998, the aggregate market value of
the voting stock held by non affiliates of the registrant was approximately
$11,065,000/(1)/ and common shares outstanding were 10,418,111, not including
1,069,086 shares of treasury stock.
 
                               ----------------
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 (Specific sections incorporated are identified under applicable items herein)
 
  Certain exhibits from the Company's prior filings under the Securities
Exchange Act of 1934 and registration statements under the Securities Act of
1933 are incorporated by reference as Exhibits in Part IV of this report on
pages 29-31.
 
--------
/(1)/ The aggregate dollar amount of the voting stock set forth equals the
      number of shares of the Company's common stock outstanding, reduced by
      treasury shares held by the Company and the amount of common stock held by
      officers, directors and shareholders owning in excess of 10% of the
      Company's common stock, multiplied by the last reported sale price for the
      Company's common stock on March 16, 1998. The information provided shall
      in no way be construed as an admission that any officer, director or 10%
      shareholder in the Company may or may not be deemed an affiliate of the
      Company or that he/it is the beneficial owner of the shares reported as
      being held by him/it and any such inference is hereby disclaimed. The
      information provided herein is included solely for record keeping purposes
      of the United States Securities and Exchange Commission.
 
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<PAGE>
 
                              GLOBAL SPORTS, INC.
 
                          ANNUAL REPORT ON FORM 10-K
 
                     FOR THE YEAR ENDED DECEMBER 31, 1997
 
                                     INDEX
 
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                                                                           PAGE
                                                                           ----
                                    PART I
 <C>      <S>                                                              <C>
 ITEM 1:  BUSINESS......................................................     1
          Recent Developments...........................................     1
          Products......................................................     3
          Marketing and Sales...........................................     4
          Advertising and Promotion.....................................     5
          Manufacturing and Distribution................................     5
          Competition...................................................     6
          Patents, Trademarks and Other Proprietary Rights..............     6
          Employees.....................................................     6
          Governmental Regulation.......................................     6
 ITEM 2:  PROPERTIES....................................................     7
 ITEM 3:  LEGAL PROCEEDINGS.............................................     7
 ITEM 4:  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...........     8
                                    PART II
 ITEM 5:  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
           STOCKHOLDER MATTERS..........................................     9
 ITEM 6:  SELECTED FINANCIAL DATA.......................................    10
 ITEM 7:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
           AND RESULTS OF OPERATIONS....................................    11
 ITEM 8:  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................    18
 ITEM 9:  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
           AND FINANCIAL DISCLOSURE.....................................    18
                                   PART III
 ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............    19
 ITEM 11: EXECUTIVE COMPENSATION........................................    20
 ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
           MANAGEMENT...................................................    27
 ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................    27
                                    PART IV
 ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-
           K............................................................    29
</TABLE>
 
  EXCEPT WHERE OTHERWISE INDICATED, ALL INFORMATION IN THIS ANNUAL REPORT
REFLECTS THE 1-FOR-20 REVERSE STOCK SPLIT AS IF SUCH SPLIT HAD OCCURRED FOR
ALL PERIODS PRESENTED.
<PAGE>
 
                                    PART I
 
ITEM 1: BUSINESS
 
RECENT DEVELOPMENTS
 
REORGANIZATION
 
  On December 15, 1997, Global Sports, Inc. ("Global" or the "Company"),
formerly known as RYKA Inc. ("RYKA"), consummated a Second Amended and
Restated Agreement and Plan of Reorganization, as amended (the "Reorganization
Agreement"), among RYKA, KPR Sports International, Inc., a Pennsylvania
corporation ("KPR"), Apex Sports International, Inc., a Pennsylvania
corporation ("Apex"), MR Management, Inc., a Pennsylvania corporation
("Management"), and Michael G. Rubin, the Chairman and Chief Executive Officer
of the Company, which provided for, among other things, the reorganization
(the "Reorganization") of RYKA and the KPR Companies (as defined below) as
follows: (i) the transfer by the Company to RYKA Sub, Inc. ("RYKA Sub"), a
Pennsylvania corporation, of all of the assets and liabilities of the Company
in exchange for all of the issued and outstanding capital stock of RYKA Sub,
(ii) the Reorganization of KPR Acquisitions, Inc., a Pennsylvania corporation
that is wholly-owned by the Company, with and into KPR, with KPR surviving the
Reorganization as a wholly-owned subsidiary of the Company, (iii) the
acquisition by the Company of all of the issued and outstanding shares of
capital stock of Apex and Management (KPR, Apex and Management are
collectively referred to as the "KPR Companies"), and (iv) the issuance to
Michael G. Rubin, the sole stockholder of the KPR Companies, of an aggregate
of 8,169,086 new shares of common stock (after giving effect to the 1-for-20
reverse stock split) in exchange for his shares of common stock of the KPR
Companies and the KPR Companies' holdings of common stock of the Company. RYKA
Sub subsequently changed its name to RYKA Inc. after the Reorganization.
 
  Global Sports, Inc. designs, develops and markets branded footwear under the
RYKA, Yukon and Apex brand names as well as distributes off price athletic
footwear, apparel and sporting goods worldwide with primary distribution in
the United States. RYKA designs, develops and markets high performance
athletic footwear specifically for women. RYKA's product line currently
consists of five categories: Aerobic Fitness, Cross-Training, Running, Walking
and Aqua Conditioning. RYKA was organized in Delaware in 1986. RYKA commenced
operations and introduced its first two styles of high performance athletic
footwear in 1987 and began shipping its first products in 1988. The KPR
Companies design, develop and market performance athletic and outdoor footwear
under the brand names Yukon and Apex which are distributed by athletic
footwear specialty retailers, department stores and sporting goods stores, as
well as family shoe stores and independent retailers. In addition, the KPR
Companies distribute off price athletic footwear, apparel and sporting goods
worldwide with primary distribution in the United States. KPR was founded in
1990 by Michael G. Rubin. Global maintains its principal executive offices and
warehouse at 555 S. Henderson Road, King of Prussia, PA and its telephone
number is (610) 878-8600. Unless the context requires otherwise, all
references herein to Global or the Company refer to Global Sports, Inc. and
its subsidiaries.
 
FINANCING ISSUES
 
  During the latter part of 1996 and for most of 1997, the KPR Companies had a
number of financing issues with its then lending bank which also impacted
RYKA. For a more detailed discussion of these issues see RYKA's 1996 Annual
Report on Form 10-K or Definitive Proxy Materials filed November 12, 1997. As
a result of these financing issues, the completion of RYKA's audited financial
statements for the year ended December 31, 1996 was delayed, and RYKA was
unable to file timely its Annual Report on Form 10-K for the year ended
December 31, 1996 or its Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997. RYKA filed such Form 10-K and Form 10-Q on June 30, 1997 and
July 17, 1997, respectively.
 
  At the same time the KPR Companies were experiencing financing issues with
its then lending bank, RYKA and the KPR Companies were in discussions with
certain other financial institutions to obtain a new credit facility and with
certain investors to obtain equity and/or subordinated debt. On April 21,
1997, RYKA sold to
 
                                       1
<PAGE>
 
certain investors 125,000 shares of common stock for an aggregate purchase
price of $750,000. The proceeds of this sale were used by RYKA to repay
$385,000 of the $851,000 subordinated loan from the KPR Companies. The
remaining proceeds were used to open $810,000 letters of credit for the
benefit of the KPR Companies.
 
  On November 20, 1997, the KPR Companies and RYKA entered into a Loan and
Security Agreement (the "Loan Agreement") with a new lender pursuant to which
their prior lender was repaid in full on November 21, 1997. Under the Loan
Agreement, the Company has access to a combined credit facility of $25,000,000
which is comprised of the KPR Companies' credit facility of $20,000,000 and
RYKA's credit facility of $5,000,000. The term of the Loan Agreement is five
years. The KPR Companies and RYKA have an interest rate choice of prime plus
1/4% or LIBOR (Adjusted Eurodollar Rate) plus two hundred seventy-five basis
points. The Company's combined credit facility was subsequently increased to
$30,000,000 on February 20, 1998 by increasing the line of credit available to
the KPR Companies to $25,000,000.
 
  Under the Loan Agreement, both the KPR Companies and RYKA may borrow up to
the amount of their revolving line based upon 85% of their eligible accounts
receivable and 65% of their eligible inventory, as those terms are defined in
the Loan Agreement.
 
  In addition to the revolving lines of credit described above, provided that
80% of their orders are pre-sold, the new lender will over-advance to the
Company a combined additional total of $3,000,000, comprised of the KPR
Companies' additional $2,000,000 and RYKA's additional $1,000,000 over the
collateral for additional letters of credit needed for seasonal production of
new merchandise for the Fall 1998, Spring 1999 and Fall 1999 seasons.
 
  As of the closing of the Loan Agreement, the KPR Companies owed Michael
Rubin subordinated debt of $3,055,841 which was comprised of (i) a loan from
Mr. Rubin to the KPR Companies in the principal amount of $851,440, plus
accrued and unpaid interest on such loan of $180,517 through October 31, 1997
and (ii) a note in the principal amount of $2,204,401 representing
undistributed sub chapter S corporation retained earnings previously taxed to
Mr. Rubin as the sole shareholder of the KPR Companies. No interest accrued on
the note representing sub chapter S corporation earnings until December 15,
1997, the effective date of the Reorganization, at which time interest began
to accrue on such note at a choice of prime plus 1/4% or LIBOR (Adjusted
Eurodollar Rate) plus two hundred seventy-five basis points.
 
  The Loan Agreement and a related Subordination Agreement (the "Subordination
Agreement") by and among the KPR Companies, Mr. Rubin and the lender entered
into at the same time as the Loan Agreement allowed a subsidiary of the
Company to repay Mr. Rubin $1,000,000 of the subordinated debt principal and
the accrued interest of $180,517 at the time of the closing of the Loan
Agreement or within five days thereafter, subject to there being $2,000,000 of
availability under the KPR Companies' credit line after taking into account
such payments. Such payments were made to Mr. Rubin on November 26, 1997.
 
  In addition, the Loan Agreement and the Subordination Agreement permit the
Company to make continued regular payments of interest on the subordinated
debt and to further reduce principal on a quarterly basis, commencing with the
first quarter of 1998, in an amount up to 50% of the cumulative consolidated
net income of both borrowers, reduced by net losses of the borrowers during
such period.
 
  At December 31, 1997, the Company was not in compliance with a financial
covenant of its Loan Agreement, namely the financial covenant requiring
$2,500,000 of consolidated net income plus depreciation, amortization and
other non-cash charges plus interest and income taxes ("EBITDA") on an
annualized basis for the period July 1, 1997 through December 31, 1997. A
waiver was obtained from the bank to remedy its violation of the financial
covenant. In March 1998, the Company renegotiated the terms of and executed an
amendment to the Loan Agreement such that the financial covenant will require
the Company to maintain EBITDA of $5,000,000 on an annualized basis for
periods subsequent to December 31, 1997.
 
 
                                       2
<PAGE>
 
PRODUCTS
 
GENERAL OVERVIEW
 
  Global Sports, Inc. designs, develops and markets branded footwear under the
RYKA, Yukon and Apex brand names as well as distributes off price athletic
footwear, apparel and sporting goods worldwide with primary distribution in
the United States.
 
 Industry
 
  Sales for the branded athletic footwear market in the United States
increased approximately 11% in 1997 from $7.2 billion in 1996 to $8.0 billion
in 1997 with Nike and Reebok accounting for 62% collectively in both 1996 and
1997. After these market leaders, the remainder of the market is highly
fragmented with the third largest producer accounting for almost 6% of
industry footwear sales each year. A number of smaller companies compete with
the industry leaders or amongst themselves for specialty niches based on
various factors including product quality, design, pricing, fashion appeal,
performance and brand awareness and positioning. Many companies have
capitalized on the strong name recognition associated with their footwear to
produce or market related apparel and accessories with the brand's logo.
Although much of the footwear produced is primarily designed for athletic use,
a large percentage of the products are worn for casual or leisure purposes.
Basketball, fitness, running, walking and children's shoes are the top selling
product categories followed by more specialized footwear for tennis, golf,
soccer, baseball, football, bicycling, volleyball, aquatic activities and
other athletic and recreational uses. Newly designed products are introduced
each year for the fall and spring seasons and to a lesser degree for the year
end holiday season.
 
  The retail price for many of the brands which feature design, fashion
appeal, performance or technology tend to be higher than those which
concentrate on basic quality, functionality and pricing. The amount which a
brand spends on research, design and development as well as marketing,
advertising, endorsements and promotional activities may have a significant
impact in the determination of the retail price of the product which may be in
excess of $100 for many models of branded athletic footwear.
 
 Branded Division
 
  RYKA. Global believes it is the only company to make performance athletic
footwear exclusively for women. All of RYKA's footwear are made on women's
lasts, which results in shoes that are designed and manufactured with the
anatomical features and foot morphology unique to women's feet (typically
narrow in the heel and wide in the forefoot). The product line is targeted at
the following categories: aerobics, running, cross training, walking and aqua
conditioning. RYKA's models incorporate Nitrogen/ES (R) System, which is
designed to provide enhanced shock absorption, resiliency and durability. The
Nitrogen/ES (R) System in higher priced models consists of visible and non-
visible nitrogen pads and slabs which are placed in the heel, the mid-sole and
the forefoot of the shoe. In standard models, non-visible nitrogen pads are
placed in the mid-sole only. During 1994, RYKA introduced what it believes to
be the first women's shoe designed specifically for the growing activity of
aqua fitness, the Aqueous (TM) 9H20. In Fall 1998 RYKA introduces its new
Elemental Technology System (TM) ("E.T.S. (TM)"). E.T.S. (TM) delivers the
four most important benefits concerning women and their athletic footwear: fit
(unique RYKA last), comfort (Nitracel), cushioning (Nitrogen ES (R)), and
control.
 
  Yukon. The Company introduced Yukon, a rugged outdoors and casual line of
footwear for men, women and children in 1995 which was originally presented as
a quality value priced alternative to higher priced brands. Yukon has
experienced excellent sell through results at the retail level with
distribution through moderate priced department stores, sporting goods stores
and footwear stores domestically and internationally. The Yukon line was
expanded significantly in 1996 with updated styling and designs to include
sandals and work boots in addition to the popular existing models in the
walking, rugged casual, cross terrain and hiker categories. The Company plans
to continue this rapid growth to an even broader line in Fall of 1998. The
Company also expects to launch an apparel line in Fall of 1999.
 
 
                                       3
<PAGE>
 
  Apex. The Company purchased the Apex trademark in Spring 1996, a brand well
known in the sporting goods industry for its licensed product apparel and
footwear lines. The product line is marketed as a quality and value priced
alternative to higher priced athletic footwear brands, while maintaining
performance features. The Company first manufactured an athletic footwear line
under the Apex brand for cross training, basketball and running categories for
delivery to retailers in the fourth quarter of 1996. An expanded product line
was presented for Spring 1997 with a number of models for men and boys in the
cross training, tennis, basketball, running, baseball/softball and soccer
footwear categories. The Apex line is targeted to sporting good stores,
moderately priced department stores and independent retailers. The Company is
currently targeting key accounts with special makeup product to enhance the
retailers' margins and mitigate the Company's inventory risk.
 
 Off Price Division
 
  The Off Price Division purchases manufacturers' closeout merchandise,
overstocks and canceled orders and offers that merchandise to retailers
worldwide. Global is one of the leading wholesalers of athletic and casual
footwear worldwide with the distribution network to purchase large quantities
of excess and slow moving merchandise from the top footwear manufacturers, as
well as excess inventories from many retailers. The merchandise is then sold
to sporting goods stores, off price specialty stores, family footwear stores
and independent retailers. Due to the large quantities of merchandise that the
division purchases and warehouses in its distribution centers, the Company is
able to pass along its value pricing to the retailer. In an effort to
diversify its product line and expand its overall business, Global has
expanded its purchases and sales of off price athletic apparel and accessories
in 1997 and intends on continuing this expansion into 1998.
 
MARKETING AND SALES
 
  The branded footwear division largely relies on independent representative
organizations covering territories throughout the United States to promote and
sell its products to retailers. These representative organizations dedicate
the majority of their time to Global's brands and, although they handle
products of other sporting goods companies, they do not sell brands that
compete with Global's brands. The Company's customer base consists primarily
of moderately priced department stores, sporting goods stores and footwear
stores. Public relations advertising strategies will be utilized to continue
to build brand identity within the trade community, as well as introduce the
brand directly to its potential customer base by targeting mainstream consumer
media, including print and television retail networks. The Company also
participates in industry trade shows with major exhibits to present the coming
season's product line to a large group of existing and potential retail
customers including many major national retail customers. Sales executives
also attend various regional footwear trade shows serving independent and
small regional retailers. Global's slow moving and discontinued branded
products are sold through selected off price distribution.
 
  Global's sales force for off price merchandise consists of a small group of
experienced commissioned sales executives. These sales executives deal
exclusively with off price merchandise and have established strong working
relationships with a wide range of major retailers.
 
  At December 31, 1997, the Company's backlog of orders was approximately
$25,600,000, which was comprised of $11,700,000 for the Branded Division and
$13,900,000 for the Off Price Division. Of such orders, approximately
$20,600,000 ($8,600,000 and $12,000,000 for Branded and Off Price,
respectively) are scheduled for delivery through the end of the First Quarter
of 1998, with the remainder scheduled for delivery during the Second Quarter
of 1998 and later.
 
  At March 20, 1998, the Company's backlog of orders was approximately
$30,900,000, which was comprised of $17,600,000 for the Branded Division and
$13,300,000 for the Off Price Division. Of such orders, approximately
$21,600,000 ($8,700,000 and $12,900,000 for Branded and Off Price,
respectively) are scheduled for delivery through the end of the Second Quarter
of 1998, with the remainder scheduled for delivery during the Third Quarter of
1998 and later.
 
 
                                       4
<PAGE>
 
  The Company expects that most of these backlog orders will be filled,
although certain of such orders are cancelable.
 
ADVERTISING AND PROMOTION
 
  The competitive nature of the athletic footwear business makes advertising
and promotion critical to the creation of brand preference in consumers.
Accordingly, Global has employed and will continue to employ both conventional
and innovative advertising and promotional techniques to build brand identity.
Because of Global's limited resources for advertising, it has historically
concentrated its efforts on relatively less costly, grass-roots approaches
designed to build brand awareness and demand at the retail level including
point-of-purchase and other retailer promotions. Recently, RYKA has begun to
advertise in consumer publications which target active women. Such
publications include Self, Fitness and Cooking Light. The Yukon brand began
print advertising in 1997, but still relied heavily on point-of-purchase
promotion and cooperative advertising at the retail level. The 1998 marketing
program for Yukon will include a stronger advertising program in targeted
consumer publications such as Outside, Sierra and Backpacker magazines during
the Fall season the message is further enforced through exciting in-store
concept shops, unique point-of-purchase displays and direct mail campaigns.
RYKA has also developed a variety of creative promotional programs, such as a
marketing program with Jazzercise and the "RYKA Instructor and Trainer
Alliance" (RITA) program. In 1998, Yukon will be implementing two new
marketing programs, "Team Yukon" and the "Yukon Preservation Alliance". "Team
Yukon" will involve a series of field product tests in conjunction with key
retailers. The "Yukon Preservation Alliance" will promote environmental
awareness and resource preservation through certain events throughout the
year. The Company also will continue to utilize its endorsement contract with
Karl Malone, a professional athlete currently with the Utah Jazz and former
NBA MVP, to position its Apex and Yukon brands with sporting goods' largest
retailers.
 
MANUFACTURING AND DISTRIBUTION
 
  As is common in the athletic footwear industry, Global contracts for the
manufacture of its footwear products to its specifications through independent
manufacturers in the Far East. The Company negotiates directly with these
manufacturers to execute open-ended manufacturing contracts which specify
pricing, purchasing of raw materials and minimum quality/delivery standards,
as well as certain confidentiality and human rights issues. The Company's
production executives conduct regular visits of these facilities to monitor
the status of production. The Company also utilizes several independent
consultants based within key factories as inspectors of product during
production.
 
  The principal materials used in Global's footwear are leather, nylon,
rubber, ethyl vinyl acetate, polyurethane, cambrelle and hytrel. Most of these
materials are available in the countries where manufacturing takes place and
from a number of sources within the United States and abroad, although a loss
of supply could temporarily disrupt operations and increase the costs to
manufacture Global's products.
 
  Global's supply arrangements are U.S. dollar denominated. The importing of
footwear, however, could be adversely affected by fluctuations in currency
exchange rates, as well as the adoption of bilateral trade agreements between
the United States and countries in which Global's suppliers are located, work
stoppages or the imposition of unilateral restrictions on trade, including
quotas or additional duties, by either the United States or any supplier
country.
 
  Global has expanded its production alternatives and currently manufactures
substantially all of its product in China. If, however, Global is prevented
from acquiring products from overseas manufacturers, Global's operations could
be materially and adversely affected until alternative suppliers are found.
See "Business--Governmental Regulation".
 
  Global imports its footwear from independent manufacturers in the Far East,
primarily to third-party public warehousing facilities in California with
which Global contracts on an as-needed basis. Global also utilizes third-
 
                                       5
<PAGE>
 
party public warehouses, in California, primarily for branded inventories, and
in Maryland and New Jersey, primarily for off price inventories, as well as a
warehousing facility in King of Prussia, Pennsylvania which the Company leases
from Mr. Rubin. From these warehousing facilities, Global distributes its
footwear throughout the United States, usually by common carrier. Global
believes that by utilizing such warehousing facilities, it both reduces
inbound transportation costs and the amount of time required to import its
products from the Far East. The Company is currently analyzing the cost and
distribution efficiency of its warehousing structure and plans on reducing the
number of third-party public warehousing facilities in 1998.
 
COMPETITION
 
  The footwear industry is highly competitive. Global's competitors include
specialized athletic and outdoor shoe companies as well as companies with
diversified product lines. Global believes that its unique niche, combined
with effective advertising and marketing, fashionable styling, high quality
and technological advances are the most important competitive factors.
However, 1997 saw substantial growth and interest in the women's segment of
the high performance athletic footwear market as well as the casual hiking, or
"brown shoe," market. Global is therefore well positioned for growth with its
RYKA and Yukon brands. There has been increased competition from established
companies that have developed advertising and promotional programs directed to
these segments of the market. Most of these competitors, including Adidas,
Avia, Asics, Converse, K-Swiss, New Balance, Nike, Reebok and Saucony in
athletic footwear or Timberland and Wolverine in casual hiking footwear, have
significantly greater financial and other resources and more extensive
marketing staffs than Global.
 
  Additionally, Global may be unable to remain price competitive at the retail
level as competitors with larger volume production capabilities achieve better
economies of scale and, therefore, better cost pricing for products offering
similar or more advanced technology.
 
PATENTS, TRADEMARKS AND OTHER PROPRIETARY RIGHTS
 
  The Company's principal trademarks are Apex, RYKA (stylized), Nitrogen/ES,
Yukon and the Yukon Design. The Company applies its trademarks to all of its
footwear and apparel products. The Company has registered or in the process of
registering these and other marks in the United States and certain other
countries where significant markets or potential markets for its products
exist. The Company believes that its trademarks, technologies and designs are
valuable to its ability to market footwear and apparel products and the loss
of the right to use any of these marks or patents could have a material
adverse effect on the Company's business. The Company intends to defend these
trademarks or patents vigorously against infringements by third parties should
any arise.
 
  RYKA was granted a patent in November, 1990, which expires in 2007, covering
certain uses of its Nitrogen/ES(R) System in athletic footwear. There can be
no assurance that the patent granted will be enforceable or will provide RYKA
with meaningful protection from competitors.
 
EMPLOYEES
 
  At December 31, 1997, Global employed 77 people on a full-time basis. Global
is not a party to any collective bargaining agreements with its employees. In
general, the Company considers relations with its employees to be
satisfactory.
 
GOVERNMENTAL REGULATION
 
  Substantially all of Global's footwear products are manufactured overseas
and subject to U.S. customs duties. Under the fixed duty structure in effect
since July 1981, duties on the footwear products imported by Global to date
approximate 8 1/2-10% of cost, depending on gender, plus administrative
charges. If Global were to significantly increase the amount of synthetic raw
material, as opposed to leather, in its footwear, these duties would increase
substantially.
 
                                       6
<PAGE>
 
  Global is unable to predict whether additional customs duties, quotas or
other restrictions may be imposed on the importation of its products in the
future. Any such action could result in increases in the cost of footwear in
general and, accordingly, might adversely affect the sales or profitability of
Global and the imported footwear industry as a whole. Global, however,
believes that the higher priced end of the footwear market, in which it
participates, would be better able to adjust its pricing in response to any
such increases.
 
  From time to time, the United States enters into trade legislation with
other countries, including China, which may impact on the duty rates on
footwear imported into the United States and Global's ability to access
foreign markets. Any such legislation that would substantially increase duty
rates on footwear imported into the United States or limit Global's ability to
access foreign markets could adversely affect Global's operations.
 
ITEM 2: PROPERTIES
 
  The Company's main executive offices and warehouse are located in King of
Prussia, Pennsylvania in a 70,000 square foot facility leased from Mr. Rubin.
Pursuant to the lease, the Company pays approximately $29,000 per month, plus
maintenance and utilities, for use of these facilities and the lease expires
on September 30, 2009.
 
  Additionally, the Company uses the services of five third-party public
warehousing facilities in California (2), Maryland (2) and New Jersey (1). See
"Business--Manufacturing and Distribution."
 
  Management believes that the Company's leased and third-party properties are
adequate for its present needs and that suitable additional or replacement
space will be available as required.
 
ITEM 3: LEGAL PROCEEDINGS
 
  On March 21, 1997, Big Smith Brands, Inc. ("Big Smith") commenced an action
against the Company in the United States District Court for the Eastern
District of Pennsylvania. The complaint seeks damages in the amount of
$954,342, which Big Smith alleges is owed to it under the contract with the
Company. The contract at issue was for the purchase of Caterpillar brand,
first quality apparel that Big Smith offered to sell in connection with its
liquidation of its Caterpillar inventory. The Company paid Big Smith
$1,000,000 prior to shipment, with the balance to have been paid seventy-five
(75) days thereafter. Big Smith contends that the Company breached the
contract by failing to pay the amount owed thereunder. Alternatively, Big
Smith alleges that the Company converted the Caterpillar apparel for its own
use and benefit, and therefore, Big Smith contends that it is entitled to
compensatory damages.
 
  The Company has filed its Answer and its Counterclaim. The Counterclaim
seeks damages arising from Big Smith's breaches of the parties' contract.
Specifically, the Company discovered that the goods were not first quality in
accordance with Big Smith's warranties. Moreover, Big Smith had fraudulently
misrepresented that there were not any restrictions on the Company's right to
sell the merchandise to its contact/distributor in England. The Company
alleges in its Counterclaim that Caterpillar had terminated Big Smith's
license to sell Caterpillar apparel before Big Smith's sale to the Company. As
a result of Big Smith's misrepresentations and defects in some of the apparel,
the Company has not been able to sell all of the merchandise and/or has sold
it for much lesser amounts than it had reasonably anticipated. In addition,
the Company has been forced to provide a credit to its distributor in England
who cannot sell the apparel there due to pressure being exerted by Caterpillar
and local authorities. The Company, therefore, has demanded that Big Smith
compensate it for its losses.
 
  The case settled pre-court, resulting in an agreement whereby the Company
was required to pay Big Smith $600,000, payable in six equal monthly
installments of $100,000 commencing on November 1, 1997. The Company had
approximately $818,000 recorded in accounts payable to Big Smith relating to
this matter at December 31, 1996 and had recorded a charge to operations in
1996 to account for the impairment in the inventory that management believes
existed due to the above facts and circumstances.
 
 
                                       7
<PAGE>
 
  The Company is involved in other various routine litigation, including
litigation in which the Company is a plaintiff, incidental to its business.
The Company believes that the disposition of such routine litigation will not
have a material adverse effect on the financial position or results of
operations of the Company.
 
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
  On December 4, 1997, the Company held its Annual Meeting of Shareholders
(the "Annual Meeting"). Proxies were solicited for the Annual Meeting pursuant
to Regulation 14 of the Securities Exchange Act of 1934. At the Annual Meeting
the following matters were voted on:
 
    (i) Michael G. Rubin and Kenneth J. Adelberg were elected to serve on the
  Board of Directors of the Company for one-year term and until their
  respective successors are duly elected and qualified, each receiving
  57,583,557 votes for their election and 362,188 votes withheld;
 
    (ii) an Amended and Restated Certificate of Incorporation to effect,
  among other things, a 1-for-20 reverse stock split, was approved by a vote
  of 36,187,063 for the amendment and restatement and 763,483 votes against
  the amendment and restatement (with 20,995,199 broker non-votes and
  abstentions);
 
    (iii) the Second Amended and Restated Agreement and Plan of
  Reorganization pursuant to which RYKA became a holding company by
  transferring all of its assets and liabilities to a wholly-owned subsidiary
  and acquired certain companies owned by Michael G. Rubin in exchange for
  8,169,086 shares of RYKA (after giving effect to the 1-for-20 reverse stock
  split) was approved by a vote of 35,129,408 for the Reorganization and
  768,863 votes against the Reorganization (with 22,047,474 broker non-votes
  and abstentions); and
 
    (iv) an increase in the number of shares issuable pursuant to RYKA's 1996
  Equity Incentive Plan was approved by a vote of 35,470,499 for the increase
  and 1,767,940 votes against the increase (with 20,707,306 broker non-votes
  and abstentions).
 
  The above voting information is presented on a basis prior to the 1-for-20
reverse stock split effected on December 15, 1997.
 
                                       8
<PAGE>
 
                                    PART II
 
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS
 
STOCK PRICES
 
  As of December 31, 1997, the common stock was held by approximately 2,219
holders of record. From March 28, 1988 until September 15, 1995, the common
stock was included for quotation on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") Small Cap Market under the
symbol "RYKA". Subsequent to its delisting on the NASDAQ Small Cap Market, the
common stock has traded on the NASD Over-the-Counter ("NASD-OTC") Bulletin
Board. On March 16, 1998, the Company submitted an application to NASDAQ for
relisting on the Small Cap Market. The Company believes it has now met the
requirements of the NASDAQ's Small Cap Market and anticipates being relisted
by the end of the Second Quarter of 1998, although there can be no assurances.
 
  The following table sets forth the high and low sales prices per share of
the common stock of the Company as reported by the NASD-OTC. On December 15,
1997, concurrent with the Reorganization of RYKA and the KPR Companies, RYKA
changed its name to Global Sports, Inc. As a result, the Company changed its
trading symbol to "GSPT". On the same date, Global effected a 1-for-20 reverse
stock split. The information shown below reflects the split as if it had
occurred for all periods presented. The prices shown do not include retail
markups, markdowns or commissions.
 
<TABLE>
<CAPTION>
                                                                    SALES PRICES
                                                                    ------------
                                                                     HIGH   LOW
                                                                    ------ -----
     <S>                                                            <C>    <C>
     1997
      First Quarter................................................ $10.00 $5.31
      Second Quarter............................................... $ 8.75 $4.38
      Third Quarter................................................ $ 5.31 $3.13
      Fourth Quarter............................................... $ 5.31 $2.50
     1996
      First Quarter................................................ $17.00 $4.00
      Second Quarter............................................... $11.60 $5.40
      Third Quarter................................................ $11.00 $6.00
      Fourth Quarter............................................... $11.20 $5.60
</TABLE>
 
  The Company has never declared or paid a cash dividend on its common stock.
The Company currently intends to retain any future earnings for funding growth
and, therefore, does not anticipate declaring or paying any cash dividends on
its common stock for the foreseeable future. In addition, the Company's credit
facility with its bank restricts the payment of dividends on the Company's
common stock.
 
RECENT STOCK ACTIVITY
 
  On April 21, 1997, the Company issued an aggregate of 125,000 shares of
common stock to certain private investors at a purchase price of $6.00 per
share for an aggregate purchase price of $750,000. No underwriters or
underwriting discounts or commissions were involved. There was no public
offering in this transaction, and the Company believes that this transaction
was exempt from registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), by reason of Section 4(2) thereof.
 
  In connection with MR Acquisitions' acquisition of RYKA, Inc. in 1995, MR
Acquisitions was granted contingent warrants to purchase 455,000 shares of
common stock. In November 1997, MR Acquisitions had exercised warrants to
purchase 361,587 of the 455,000 shares of common stock for which it paid an
aggregate exercise price of $72,317. These 361,587 shares represents the full
number of warrants that MR Acquisitions was entitled to exercise under the
terms of the warrants. MR Acquisitions was not entitled to exercise the
remaining 93,413 warrants because Mr. Rubin did not fully satisfy the
contingency under the warrants in that he did not raise the required amount of
capital for RYKA through equity offerings by the date specified in the
warrants.
 
                                       9
<PAGE>
 
ITEM 6: SELECTED FINANCIAL DATA
 
                            SELECTED FINANCIAL DATA
 
  As a result of reverse purchase accounting applied in the Reorganization,
the following Selected Financial Data for the year ended December 31, 1997 are
derived from the consolidated financial statements of the Company, which
include RYKA for periods subsequent to December 15, 1997, the Reorganization
date, and the Selected Financial Data for the four years ended December 31,
1996 are derived from the combined financial statements of the KPR Companies,
all of which have been audited. This table should be read in conjunction with
the Company's Financial Statements and Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
 
<TABLE>
<CAPTION>
                                            YEAR ENDED DECEMBER 31,
                          ---------------------------------------------------------------
                              1997         1996         1995         1994        1993
                          ------------  -----------  -----------  ----------- -----------
<S>                       <C>           <C>          <C>          <C>         <C>
STATEMENTS OF OPERATIONS
 DATA:
Net sales...............  $ 60,671,407  $47,340,450  $43,272,594  $26,593,465 $17,151,170
Costs and expenses:
Cost of goods sold......    48,376,966   37,857,455   32,853,181   21,406,070  14,550,126
Operating expenses......    13,857,361    8,600,191    9,400,603    4,647,346   1,784,870
                          ------------  -----------  -----------  ----------- -----------
Operating income
 (loss).................    (1,562,920)     882,804    1,018,810      540,049     816,174
Other expenses, net.....     2,000,282    1,027,143      732,669      185,785     129,247
Equity in net loss of
 RYKA Inc. .............       592,093      518,491      261,331          --          --
                          ------------  -----------  -----------  ----------- -----------
Income (loss) before
 foreign taxes..........    (4,155,295)    (662,830)      24,810      354,264     686,927
Foreign income taxes....           --        81,483          --           --          --
                          ------------  -----------  -----------  ----------- -----------
Net income (loss).......  $ (4,155,295) $  (744,313) $    24,810  $   354,264 $   686,927
                          ============  ===========  ===========  =========== ===========
Unaudited Pro Forma
 Data:
Income (loss) before
 foreign taxes..........  $ (4,155,295) $  (662,830) $    24,810  $   354,264 $   686,927
Provision for income
 taxes..................           --        21,000      144,000      164,000     302,000
                          ------------  -----------  -----------  ----------- -----------
Pro forma net income
 (loss).................  $ (4,155,295) $  (683,830) $  (119,190) $   190,264 $   384,927
                          ============  ===========  ===========  =========== ===========
Basic earnings (losses)
 per common
 share/(1)//(2)/........  $      (1.39) $     ( .27) $      (.07) $       .16 $       .33
                          ============  ===========  ===========  =========== ===========
Diluted earnings
 (losses) per common
 share/(1)//(2)/........  $      (1.39) $      (.27) $      (.07) $       .16 $       .33
                          ============  ===========  ===========  =========== ===========
Weighted average number
 of common shares
 outstanding--basic and
 diluted/(1)/...........     2,996,027    2,568,431    1,717,033    1,210,504   1,178,666
Number of common shares
 outstanding/(1)/.......    10,418,111    2,831,766    2,306,766    1,323,716   1,186,068
BALANCE SHEET DATA:
Total assets............    43,431,909   26,678,544   22,369,130   11,688,810   3,603,942
Total long-term debt....    20,975,479    5,905,225    5,000,725    2,415,955      48,893
Net working capital ....    13,700,430      558,241    2,002,733    1,200,094     440,862
Stockholders' equity
 (deficiency)...........     2,157,349     (552,133)      92,787      748,220     694,956
</TABLE>
--------
/(1)/All share and per share amounts give effect to the December 15, 1997 1-
     for-20 reverse stock split as if it had occurred for all periods
     presented.
/(2)/Basic and diluted earnings (losses) per share reflect the adoption of
     Statement of Financial Accounting Standard No. 128, Earnings Per Share,
     (see Note 2 to the financial statements).
 
                                      10
<PAGE>
 
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS
 
  The following discussion of the Company's historical results of operations
and of its liquidity and capital resources should be read in conjunction with
the Company's Financial Statements and Notes thereto.
 
FORWARD LOOKING STATEMENTS
 
  Certain information contained in this Form 10-K contains forward looking
statements (as such term is defined in the Securities Exchange Act of 1934 and
the regulations thereunder), including without limitation, statements as to
the Company's financial condition, results of operations and liquidity and
capital resources and statements as to management's beliefs, expectations or
options. Such forward looking statements are subject to risks and
uncertainties and may be affected by various factors which may cause actual
results to differ materially from those in the forward looking statements.
Certain of these risks, uncertainties and other factors, as and when
applicable, are discussed in the Company's filings with the Securities and
Exchange Commission. Factors that could cause actual results to differ
naturally include, but are not limited to, those discussed herein under "Risk
Factors".
 
GENERAL OVERVIEW
 
  On December 15, 1997, the Company consummated the Reorganization. As a
result, Mr. Rubin, as sole shareholder of the KPR Companies, received RYKA
shares which gave him voting control over the combined companies. Accordingly,
for accounting purposes, the KPR Companies are considered the continuing
entity, and the transaction has been accounted for as a Reorganization of the
KPR Companies followed by the issuance of new shares of common stock of the
KPR Companies for the net assets of RYKA. The financial discussions which
follow are based on comparisons of the results of operations for 1997, defined
as (1) the results of operations for the former KPR Companies for the period
January 1, 1997 through December 14, 1997 plus (2) the results of operations
of RYKA and the KPR Companies for the period December 15, 1997 through
December 31, 1997. For all years prior to 1997, the results of operations
represent that of the KPR Companies as they existed prior to the
Reorganization. As a result, comparisons of the results of operations
presented in this report with the results of operations discussed in RYKA's
public filings would not be meaningful.
 
RESULTS OF OPERATIONS
 
  The following table sets forth, for the periods indicated, the relative
percentages that certain items in the Company's Statements of Operations bear
to net sales and the percentage change in those items from period to period:
 
<TABLE>
<CAPTION>
                                     YEAR ENDED DECEMBER 31,
                           ---------------------------------------------------
                                                        PERIOD TO PERIOD
                                                           PERCENTAGE
                           PERCENTAGE OF NET SALES     INCREASE (DECREASE)
                           --------------------------  -----------------------
                                                        1997 VS       1996 VS
                            1997      1996     1995      1996          1995
                           -------   -------  -------  ----------    ---------
<S>                        <C>       <C>      <C>      <C>           <C>
Net sales................    100.0%    100.0%   100.0%       28.2%          9.4%
Costs and expenses:
  Cost of goods sold.....     79.7%     80.0%    75.9%       27.8%         15.2%
  Operating expenses:
    General and
     administrative
     expenses............     10.4%      9.6%    17.0%       38.6%        (38.1%)
    Sales and marketing
     expenses............     11.6%      7.8%     4.1%       90.9%        107.1%
    Research and
     development
     expenses............      0.8%      0.8%     0.6%       41.6%         37.6%
Operating income (loss)..     (2.6%)     1.9%     2.4%     (277.0%)       (13.3%)
Other expenses, net......      3.3%      2.2%     1.7%       94.7%         40.2%
</TABLE>
 
                                      11
<PAGE>
 
 YEAR ENDED DECEMBER 31, 1997 AS COMPARED TO THE YEAR ENDED DECEMBER 31, 1996.
 
 Net Sales
 
  Net sales in 1997 increased by $13,330,957, or 28.2%, over 1996. Net Sales
included sales of RYKA products of $1,076,027 during the 15 day period ended
December 31, 1997. Without these RYKA sales, the net sales increase would have
been $12,254,930, or 25.9%. This sales increase was primarily related to
increases in volume for the Branded Division of $10,292,000, or 86.8%, to
$22,148,000 in 1997 (excluding RYKA) from $11,856,000 in 1996. The Off Price
Division increased sales volumes marginally by $1,963,000, or 5.5%, to
$37,447,000 in 1997 from $35,484,000 in 1996.
 
 Cost of Goods Sold/Gross Margin
 
  Cost of goods sold in 1997 increased by $10,519,511, or 27.8%, over 1996.
Cost of goods sold included the cost of goods sold related to sales of RYKA
products of $664,277 during the 15 day period ended December 31, 1997. Without
these RYKA sales, cost of goods sold would have increased $9,855,234, or
26.0%, over 1996. Overall gross margin (as a percentage of sales, excluding
RYKA) remained relatively the same from year to year at approximately 20%. The
Branded Division (excluding RYKA) experienced gross margins of 25.9% in 1997
compared to 22.4% in 1996, while the Off Price Division experienced gross
margins of 16.4% in 1997 compared to 19.2% in 1996. Cost of goods sold for
1997 and 1996 include charges of $1,365,000 and $1,200,000, respectively, for
inventory write downs based on a reassessment of net realizable values,
primarily related to Off Price inventories.
 
 General and Administrative Expenses
 
  General and administrative expenses in 1997 increased by $1,758,411, or
38.6%, over 1996. This increase was due to (1) an increase in professional
fees and bank service charges of approximately $621,000 and $357,000,
respectively, related to the financing issues the Company had with its former
lender and other costs incurred as a result of the Reorganization, (2) an
increase in bad debts of $488,000 and (3) an increase in salaries and bonuses
of $179,000 as a result of headcount increases to support the growth of the
business. Additionally, in 1997 the Company recorded $152,333 of compensation
expense for warrants granted to a former officer. These increases are
partially offset by a $264,000 decrease in Mr. Rubin's salary and commissions
for the current year.
 
 Sales and Marketing Expenses
 
  Sales and marketing expenses in 1997 increased by $3,348,506, or 90.9%, over
1996. This increase was due to (1) an increase of approximately $835,000 in
salaries for sales and marketing staff to support higher sales volumes and
facilitate marketing efforts to better establish the Yukon brand, (2) an
increase in third-party warehousing and distribution costs of approximately
$795,000 to support higher inventory levels, (3) an increase in advertising
and promotion costs of approximately $745,000 for point-of-purchase and
cooperative advertising and the cost of contingent warrants ($347,000 in 1997)
granted to an athlete representing the Company's branded footwear, (4) an
increase in trade show costs of approximately $530,000 resulting from the
Company's decision to maintain a major presence amongst retailers through
industry exhibitions, and (5) an increase in sales commissions of
approximately $366,000 as a result of sales volume increases and broadening of
the independent sales agency network. The Company is currently analyzing the
cost and distribution efficiency of its warehousing structure and plans on
reducing the number of third-party warehousing facilities in 1998, which will
result in storage cost savings.
 
 Research and Development Expenses
 
  Research and development expenses in 1997 increased by $150,253, or 41.6%,
over 1996. This increase was primarily due to an increase in salary and
related expenses associated with continued Branded Division development and
expansion.
 
 Other (Income) Expense
 
  Other (income) expense in 1997 increased by $973,139, or 94.7%, over 1996
primarily as a result of increased interest expense related to higher debt
levels maintained to support higher production and inventory
 
                                      12
<PAGE>
 
levels necessary to support 1997 sales growth as well as higher interest rates
as a result of the financing issues discussed in "Liquidity and Capital
Resources."
 
 YEAR ENDED DECEMBER 31, 1996 AS COMPARED TO THE YEAR ENDED DECEMBER 31, 1995.
 
 Net Sales
 
  Net sales in 1996 increased by $4,067,856, or 9.4%, over 1995. The increase
in sales was primarily due to an increase of approximately $9,800,000 from the
Company's Branded Division. The increase in sales was offset in part by a
decrease in sales of approximately $5,700,000 in the Company's Off Price
Division due to the tentative financial condition of the Company during 1996
and the corresponding unavailability of off price goods to purchase on terms
satisfactory to the Company.
 
 Cost of Goods Sold/Gross Margin
 
  Cost of goods sold increased $5,004,274, or 15.2%, over 1995. Overall gross
margin decreased from 24% in 1995 to 20% in 1996. This decline in gross margin
was primarily due to declining margins from the Off Price Division.
Specifically, off price inventory write downs were taken in 1996 of
approximately $1,200,000, a majority of which related to off price inventory
purchased from one vendor which turned out to be less marketable than the
Company was led to believe at the time of purchase. These writedowns were
taken to mark the inventory down to its net realizable value and accounted for
2.6% of the decline in gross profit between 1995 and 1996.
 
 General and Administrative Expenses
 
  Excluding salary and bonus paid to Michael Rubin of $390,192 and $3,007,643
in 1996 and 1995, respectively, general and administrative expenses increased
by $381,169, or 8.8%, over 1995. This increase was due to (1) an increase in
professional fees of $187,000, (2) an increase in travel and entertainment
expenses of $90,000 and (3) an increase in general administrative expenses of
$97,000. The decrease in salary and bonus paid to Mr. Rubin in 1996 as
compared to 1995 was due to the fact that the Company restructured Mr. Rubin's
compensation package in 1996 to conform to the terms of his then proposed
employment agreement.
 
 Sales and Marketing Expenses
 
  Excluding commissions paid to Michael Rubin of $176,808 and $642,726 in 1996
and 1995, respectively, sales and marketing expenses increased by $1,803,222,
or 158.7%, over 1995. This increase was primarily due to (1) an increase in
advertising of $171,000 primarily attributable to the growth of the Company's
Branded Division, (2) an increase in trade show expenses of $181,000
attributable to establishing a presence in the Branded Division during 1996,
(3) an increase in salaries and related expenses of $93,000 primarily
attributable to growth of the Company's Branded Division, (4) an increase in
sample freight of $175,000 also attributable to growth of the Company's
Branded Division, (5) an increase in sales and marketing expenses from the
Company's European operations of $312,000 primarily attributable to the 80%
increase in sales for 1996 over 1995 and (6) an increase in sales commissions
of $265,000.
 
 Research and Development Expenses
 
  Research and development expenses increased $98,566, or 37.6%, over 1995.
This increase was primarily due to an increase in salary and related expenses
associated with supporting two brands in 1996 versus one brand in 1995.
 
LIQUIDITY AND CAPITAL RESOURCES
 
  Prior to Reorganization, the operations of the KPR Companies have been
financed by a combination of internally generated resources and annual
increases in the size of the bank credit facility and the operations of
 
                                      13
<PAGE>
 
RYKA were financed by equity transactions, subordinated borrowings and annual
increases in the size of RYKA's bank credit facility. Increases in the bank
credit facilities for the KPR Companies and RYKA were required to fund the
Company's increased investment in accounts receivable and inventory necessary
to support the increases in revenue. As of December 31, 1997, the Company had
working capital of $13,700,430. The Company used $7,974,012 in cash flow from
operating activities for the year ended December 31, 1997, whereas in the same
period of the prior year the Company provided $463,878 in cash flow from
operating activities.
 
  On February 7, 1997, due to defaults in its credit facility with its then
lender, the KPR Companies entered into a forbearance agreement which provided
for a termination date of April 18, 1997. As of June 4, 1997, the bank agreed
to extend the KPR Companies credit facility to November 30, 1997 or on event
of default (as defined) whichever was earlier. The amended credit facility
included certain financial covenants, including maintenance of prescribed
amounts of net worth and leverage ratios. The amended credit facility was
personally guaranteed by Mr. Rubin and by related entities owned by Mr. Rubin.
 
  During the first week of November, 1997, it was determined that the KPR
Companies had violated certain covenants of the forbearance agreement with
their lender relating to the total amount of allowable closeout inventory and
in-transit inventory. The lender had agreed to forbear on these covenant
violations provided that the KPR Companies reduce the amount of the over-
advances relating to these violations by November 14, 1997, reduce the amount
of its closeout inventory to a level acceptable to the lender by November 19,
1997 and make certain payments to the lender if the credit facility is not
repaid by November 22, 1997 or November 30, 1997. Though RYKA's credit
facility was cross-defaulted with the KPR Companies' credit facility, RYKA's
lender did not declare RYKA's credit facility in default.
 
  On November 20, 1997, the KPR Companies and RYKA entered into the Loan
Agreement with a new lender pursuant to which their prior lender was repaid in
full on November 21, 1997. Under the Loan Agreement, the Company has access to
a combined credit facility of $25,000,000, which is comprised of the KPR
Companies' credit facility of $20,000,000 and RYKA's credit facility of
$5,000,000. The term of the Loan Agreement is five years. The KPR Companies
and RYKA have an interest rate choice of prime plus 1/4% or LIBOR (Adjusted
Eurodollar Rate) plus two hundred seventy-five basis points. The Company's
credit facility was subsequently increased to $30,000,000 on February 20, 1998
by increasing the line of credit available to the KPR Companies to
$25,000,000.
 
  Under this new credit facility, both the KPR Companies and RYKA may borrow
up to the amount of their revolving line based upon 85% of their eligible
accounts receivable and 65% of their eligible inventory, as those terms are
defined in the Loan Agreement.
 
  In addition to the revolving lines of credit described above, provided that
80% of their orders are pre-sold, the new lender will over-advance to the
Company a combined additional total of $3,000,000, comprised of the KPR
Company's additional $2,000,000 and RYKA's additional $1,000,000 over the
collateral for additional letters of credit needed for seasonal production of
new merchandise for the Fall 1998, Spring 1999 and Fall 1999 seasons.
 
  As of the closing of the Loan Agreement, the KPR Companies owed Michael
Rubin subordinated debt of $3,055,841 which was comprised of (i) a loan from
Mr. Rubin to the KPR Companies in the principal amount of $851,440, plus
accrued and unpaid interest on such loan of $180,517 through October 31, 1997
and (ii) a note in the principal amount of $2,204,401 representing
undistributed sub chapter S corporation retained earnings previously taxed to
Mr. Rubin as the sole shareholder of the KPR Companies. No interest accrued on
the note representing sub chapter S corporation earnings until December 15,
1997, the effective date of the Reorganization, at which time the interest
began to accrue on such note at a choice of prime plus 1/4% or LIBOR (Adjusted
Eurodollar Rate) plus two hundred seventy-five basis points.
 
  The Loan Agreement and the related Subordination Agreement allowed a
Subsidiary of the Company to repay Mr. Rubin $1,000,000 of the subordinated
debt principal and the accrued interest of $180,517 at the time
 
                                      14
<PAGE>
 
of the closing of the Loan Agreement or within five days thereafter, subject
to there being $2,000,000 of availability under the KPR Companies' credit line
after taking into account such payments. Such payments were made to Mr. Rubin
on November 26, 1997.
 
  In addition, the Loan Agreement and the Subordination Agreement permit the
KPR Companies to make continued regular payments of interest on the
subordinated debt and to further reduce principal on a quarterly basis,
commencing with the first quarter of 1998, in an amount up to 50% of the
cumulative consolidated net income of both borrowers, reduced by net losses of
the borrowers during such period.
 
  At December 31, 1997 the Company was not in compliance with a financial
covenant of its Loan Agreement requiring $2,500,000 of consolidated net income
plus depreciation, amortization and other non-cash charges plus interest and
income taxes ("EBITDA") on an annualized basis for the period July 1, 1997
through December 31, 1997. A waiver was obtained from the bank to remedy its
violation of the financial covenant. In March 1998, the Company renegotiated
the terms of and executed an amendment to the Loan Agreement such that the
financial covenant would require the Company to maintain EBITDA of $5,000,000
on an annualized basis for periods subsequent to December 31, 1997.
 
  Management believes that they have adequate financing to allow the Company
to continue its operations, meet its obligations as they mature, and comply
with its debt covenants (as amended March 27, 1998) during the forseeable
future. Ultimately, the Company must generate sufficient revenues from sales
of its products to attain profitability. In addition, the Company is
contemplating raising additional equity financing through a private or
secondary public offering.
 
SEASONALITY
 
  The Company's business continues to be seasonal. The first and third quarter
sales are typically the strongest, which correspond to the spring and back-to-
school seasons.
 
INFLATION
 
  The Company does not believe that inflation has had a material effect on
operating results in past years. Although increases in operating costs could
adversely affect the Company's operations, the Company generally has been able
to modify its operating procedures or to increase prices to offset increases
in operating costs.
 
RISK FACTORS
 
  In addition to the other information contained in this Form 10-K, the
following risk factors should be considered by investors in evaluating the
Company and its business. The risk factors reflected below are not intended to
be an exhaustive list of all risks involved, but merely a representative
listing of those risks currently contemplated by the Company.
 
  Competition. The athletic footwear industry in which Global markets and
sells its products is highly competitive. Global's competitors include
specialized athletic shoe companies as well as companies with diversified
product lines. The Company believes that its unique niche, combined with
effective advertising and marketing, fashionable styling, high quality and
technological advances are the most important competitive factors. However,
due to substantial growth and interest in the women's segment of the high
performance athletic footwear market, there has been increased competition
from established companies, especially Nike and Reebok, which have developed
advertising and promotional programs directed to this segment of the market.
The brown shoe market, in which Yukon actively competes, has also experienced
this substantial growth recently. The Company's competitors have significantly
greater financial and other resources and more extensive marketing staffs than
the Company. Accordingly, there is no assurance that the Company will be able
to compete successfully with any of these companies or achieve any meaningful
market share without significant additional resources.
 
  Substantially All Assets Pledged. In connection with its financing
arrangements with the Company's current bank, the Company has pledged
substantially all of its assets as security for the performance of its
obligations. In the event that the Company were to default on the payment of
any amounts owed under the agreements, the Company's lenders would have the
ability to satisfy the Company's obligations to them by selling or causing the
sale of some or all assets of the Company.
 
 
                                      15
<PAGE>
 
  Dependence Upon Key Personnel. The Company's ability to market its products
and to achieve profitability will depend, in large part, on its ability to
attract and retain qualified personnel. Competition for such personnel is
intense and there can be no assurance that the Company will be able to attract
and retain such personnel. In particular, Global is dependent upon the
services of Michael G. Rubin, its Chairman and Chief Executive Officer. Global
has entered into a five-year employment agreement with Mr. Rubin which became
effective upon the completion of the Reorganization. Global maintains key
person life insurance policies on Mr. Rubin with coverage in the amount of
$1,000,000. This policy is pledged as collateral to the Company's primary
lender at December 31, 1997. The loss of Mr. Rubin could have a materially
adverse effect on the Company.
 
  Reliance on Foreign Manufacturers. As is customary in the footwear industry,
all of the footwear marketed by the Company is manufactured to its
specifications by independent factories in the Far East. The Company's
importing of footwear may be adversely affected by fluctuations in currency
exchange rates, the adoption of bilateral trade agreements between the United
States and countries in which the Company's suppliers are located, work
stoppages or the imposition of unilateral restrictions on trade, including
quotas or additional duties, by either the United States or any supplier
country. In addition, the current political climate in the Far East is not
always stable and may cause delays in the Company's ability to deliver
products to its customers in a timely manner or, depending upon the severity
of the situation, may limit or restrict the Company's ability to have its
products manufactured at all. Although the Company does not believe that these
factors have had a material impact on operations to date, such factors could
ultimately increase the Company's cost of goods, resulting in higher product
prices and lower gross profits unless alternative manufacturing arrangements
could be implemented.
 
  Customer Preferences and Competition. The athletic footwear industry is
intensely competitive and subject to rapid changes in consumer preferences, as
well as technological innovations. A major technological breakthrough or
unusual marketing or promotional success by one of the Company's competitors
could adversely affect the Company's competitive position. Competition in the
markets for the Company's products occurs in a variety of ways, including
price, quality, brand image and ability to meet delivery commitments to
retailers. The intensity of the competition faced by the Company and the rapid
changes in the consumer preference and technology that can occur in the
footwear market constitute significant risk factors in the Company's
operations.
 
  Sales Concentration. During 1997, the largest single customer accounted for
approximately $12,800,000 or 22% of total net sales and the second largest
customer accounted for approximately $7,500,000 or 13% of total net sales. In
the aggregate, these customers accounted for approximately 34% of net sales
during 1997. The loss of these two customers could have a material adverse
impact on the Company's future financial results.
 
  Dividends. The Company has paid no dividends to its stockholders since its
inception and does not plan to pay dividends in the foreseeable future. The
Company currently intends to retain any earnings to finance the growth of the
Company. In addition, the Company's credit facility with its bank restricts
the amount of dividends which may be paid on the common stock.
 
  Limitation on Directors' Liabilities under Delaware Law. Pursuant to the
Company's Certificate of Incorporation and under Delaware law, directors of
the Company are not liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty, except for liability in connection with
a breach of duty of loyalty for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, for dividend
payments or stock repurchasing illegal under Delaware law or any transaction
in which a director has derived an improper personal benefit.
 
  Securities Market Factors. There have been periods of extreme volatility in
the stock markets, which in many cases were unrelated to the operating
performance of, or announcements concerning, the issuers of the affected
stock. During such periods, the price of the affected stock, including the
Company's common stock, has fluctuated substantially. General market price
declines or market volatility in the future could adversely affect the price
of the Company's common stock.
 
 
                                      16
<PAGE>
 
  NASDAQ Delisting. Previously, the Company did not meet the listing standards
for inclusion on the NASDAQ Small Cap Market and was delisted on September 15,
1995. The Company's common stock is currently listed on the NASDAQ Over-the-
Counter Bulletin Board. Such delisting may have decreased the liquidity and
transferability of the Company's common stock. On March 16, 1998, the Company
submitted an application to NASDAQ for relisting on the Small Cap Market
Board. The Company believes it has now met NASDAQ's requirements and
anticipates being relisted by the end of the Second Quarter of 1998. However,
there can be no assurance that NASDAQ will accept the Company's application.
 
  Possible Adverse Effect of Penny Stock Rules. As a result of the delisting
of the Company's common stock from the NASDAQ Small Cap Market, the Company's
common stock is subject to Rule 15g-9 under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), which imposes additional sales practice
requirements for broker-dealers which sell such securities to persons other
than established customers and accredited investors as defined in Regulation D
under the Securities Act. For transactions covered by this rule, a broker-
dealer must make a special suitability determination for the purchaser and
have received the purchaser's written consent to the transaction prior to
sale. Consequently, such rule may adversely affect the ability of broker-
dealers to sell the Company's common stock and may adversely affect the
ability of persons acquiring shares in this offering to sell any of the shares
acquired in the secondary market.
 
  The Commission regulations define a "penny stock" as any equity security not
registered on a national securities exchange or for which quotation
information is not disseminated on NASDAQ and has a market price (as therein
defined) of less than $5.00 per share or an exercise price of less than $5.00
per share, subject to certain exceptions. For any transaction involving a
penny stock, unless exempt, the rules require delivery, prior to a transaction
in a penny stock, of a disclosure schedule prepared by the Commission relating
to the penny stock market. Disclosure is also required to be made about
commissions payable to both the broker-dealer and registered representative
and current quotations for the securities. Finally, monthly statements are
required to be sent disclosing recent price information for the penny stock
held in the account and information on the limited market in penny stocks.
 
  The foregoing required penny stock restrictions will not apply to the
Company's common stock if such securities are included for quotation on NASDAQ
and have certain price and volume information provided on a current and
continuing basis or meet certain minimum net tangible assets or average
revenue criteria. There can be no assurance that the Company's common stock
will qualify for exemption from these restrictions. In any event, even if the
Company's common stock were exempt from such restrictions, it would remain
subject to Section 15(b)(6) of the Exchange Act, which gives the Commission
the authority to prohibit any person that is engaged in unlawful conduct while
participating in a distribution of a penny stock from associating with a
broker-dealer or participating in a distribution of a penny stock, if the
Commission finds that such a restriction would be in the public interest. The
market liquidity for the Company's common stock could be severely adversely
affected by these rules.
 
  Year 2000. The Company is currently enhancing its current information
systems to make them Year 2000 compliant. The Company has created a Year 2000
project team which will coordinate efforts to evaluate, identify, correct or
reprogram, and test the Company's existing systems for Year 2000 compliance.
The Company will take the required steps to make its existing systems Year
2000 compliant prior to the end of 1998 and does not expect the costs of such
steps to have a material impact on the Company's results of operations,
financial position, liquidity or capital resources. However, if such efforts
are not completed on a timely basis, the Year 2000 issue could have a material
adverse impact on the operations of the Company.
 
  In addition to making its own systems Year 2000 compliant, the Company also
will contact its key suppliers and customers to determine the extent to which
the systems of such suppliers and customers are Year 2000 compliant and the
extent to which the Company could be affected by the failure of such third
parties to become Year 2000 compliant. The Company cannot presently estimate
the impact of the failure of such third parties to become Year 2000 compliant.
 
                                      17
<PAGE>
 
NEW ACCOUNTING PRONOUNCEMENTS
 
  In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement, which established standards for reporting and
disclosure of comprehensive income, is effective for interim and annual
periods beginning after December 15, 1997, although earlier adoption is
permitted. Reclassification of financial information for earlier periods
presented for comparative purposes is required under this standard. As this
statement only requires additional disclosures in the Company's financial
statements, its adoption will not have any impact on the Company's financial
position or results of operations. The Company will adopt SFAS No. 130 in its
1998 fiscal year.
 
  In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This statement, which establishes
standards for the reporting of information by operating segments and requires
the reporting of selected information about operating segments in interim
financial statements, is effective for periods beginning after December 15,
1997, although earlier adoption is permitted. SFAS No. 131 is not required to
be applied to interim financial statements in the initial year of application,
but comparative information for interim periods in the initial year of
application is to be reported in the financial statements for interim periods
in the second year of application. Reclassification of segment information for
earlier periods presented for comparative purposes is required under SFAS No.
131. As this statement only requires additional disclosures in the Company's
consolidated financial statements, its adoption will not have any impact on
the Company's consolidated financial position, results of operations or cash
flows. The Company will adopt SFAS No. 131 in its 1998 fiscal year.
 
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
  See pages F-1 through F-19 for consolidated financial statements and page S-
1 for Schedule VIII "Valuation and Qualifying Accounts" attached hereto.
 
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE
 
  None.
 
                                      18
<PAGE>
 
                                   PART III
 
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
  The following sets forth information regarding the executive officers and
directors of the Company at December 31, 1997:
 
<TABLE>
<CAPTION>
    NAME                   AGE POSITION
    ----                   --- --------
   <S>                     <C> <C>
   Michael G. Rubin......   25 Chief Executive Officer and Chairman of the Board
   Kathyrn N. Bednarski..   38 President--RYKA Inc.
   Dennis F.
    DiDominicis..........   53 Senior Vice President--Branded Division
   Steven A. Wolf........   39 Chief Financial Officer
   Kenneth J. Adelberg...   45 Director
</TABLE>
 
  Michael G. Rubin has served as Chairman of the Board and Chief Executive
Officer of the Company since July 31, 1995. Since establishing KPR Sports
International, Inc., a privately-held footwear distribution company, in 1990,
Mr. Rubin has served as its President and Director. Mr. Rubin received the
1995 Entrepreneur of the Year Award for the Delaware Valley Region which is
sponsored by Inc. magazine and Ernst & Young. Mr. Rubin attended Villanova
University, Villanova, Pennsylvania.
 
  Kathryn N. Bednarski has served as President of RYKA Inc. since April 1,
1997. Ms. Bednarski has over fifteen years of experience in the marketing of
women's athletic footwear and apparel. From 1995 to 1996, Ms. Bednarski was
Vice President of Global Marketing for Avia, a manufacturer of athletic
footwear. Prior to Avia, from 1994 to 1995, she served as Vice President of
Product and Marketing for the Keds Division of Stride Rite Corporation and
Divisional Global Marketing Director of Nike Inc's Women's Division from 1990
through 1993. Ms. Bednarski holds a BS degree in Microbiology from Penn State
University and a MS degree in Biomechanics from Northeastern University.
 
  Dennis F. DiDominicis became the Company's President on September 25, 1995.
Currently, Mr. DiDominicis serves as the Company's Senior Vice President--
Branded Divisions. Mr. DiDominicis has over 25 years of sales, marketing,
product development and sourcing experience. From November 1988 to September
1995, Mr. DiDominicis worked for Asics Tiger Corporation, a Japanese footwear
and apparel manufacturer and distributor, as a Senior Director of its footwear
division and then as a Vice President of its North American sales and
operations. Prior to Asics, Mr. DiDominicis worked at American Sporting Goods
Corporation, Laconia Shoe Company, Hyde Athletic Industries, Colgate-Kendall
Division and Proctor and Gamble.
 
  Steven A. Wolf is a certified public accountant who joined the Company on
August 1, 1995 as its Vice President of Finance and Chief Financial Officer.
From November 1990 to August 1995, Mr. Wolf was the Controller/Chief Financial
Officer of Ellessee USA, Inc., a $50 million footwear and sportswear company
which, through September 1993, was a wholly-owned subsidiary of Reebok
International. Mr. Wolf received a B.S. degree in accounting in 1980 from the
State University of New York at Binghamton and is a member of the American
Institute of Certified Public Accountants and the New York State Society of
CPA's.
 
  Kenneth J. Adelberg has served as a Director of the Company since July 31,
1995. Since 1987, he has been President and Chief Executive Officer of HiFi
House Group of Companies, a privately-held company based in Broomall,
Pennsylvania. Mr. Adelberg was a director and founding stockholder of US Wats,
Inc., a publicly-traded company specializing in business telecommunications
services, located in Bala Cynwyd, Pennsylvania, which was established in 1989.
Mr. Adelberg is a founding stockholder and director of First Republic Bank,
Philadelphia, Pennsylvania, a publicly-traded bank which has been in operation
since 1989. He is also a director of America Digital Communications, Inc., a
publicly-traded company engaged in the wireless communications business in
Englewood, Colorado, since 1993. Mr. Adelberg holds Bachelor of Science
degrees in Biophysics and Physiological Psychology from Pennsylvania State
University and attended the MBA program at Drexel University, Philadelphia,
Pennsylvania.
 
 
                                      19
<PAGE>
 
  On March 11, 1998, the Company announced the nomination for appointment of
Harvey Lamm to its Board of Directors. Mr. Lamm and his partner founded Subaru
of America and served as its Chairman of the Board, Chief Executive Officer,
President and Chief Operating Officer since 1967. Sales of Subaru peaked to
nearly $2 billion with a net income of $94 million before Subaru was purchased
by their long term manufacturing partner, Fuji Heavy Industries, Ltd. On March
24, 1998, the Board of Directors adopted a resolution to increase the size of
the Company's existing board from two members to three members.
 
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
 
  Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than 10% of a registered class of
the Company's equity securities, to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
common stock and other equity securities of the Company. Officers, directors
and greater than 10% shareholders are required by the Commission regulation to
furnish the Company with copies of all Section 16(a) forms they file.
 
  To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required during the fiscal year ended December 31, 1997, all
Section 16(a) filing requirements applicable to its executive officers,
directors and greater than 10% beneficial owners were complied with, except
that Messrs. Rubin, Adelberg, DiDominicis and Wolf each failed to file a Form
5.
 
ITEM 11: EXECUTIVE COMPENSATION
 
SUMMARY COMPENSATION TABLE
 
  The following table sets forth certain information regarding compensation
paid to the Chief Executive Officer of Global and to each of the three other
most highly compensated executive officers of Global for services rendered in
all capacities to Global during the three years ended December 31, 1997.
 
<TABLE>
<CAPTION>
                                                                                      LONG TERM
                                              ANNUAL COMPENSATION                     SECURITIES
                                    FISCAL -------------------------- OTHER ANNUAL    UNDERLYING
 NAME AND PRINCIPAL POSITION         YEAR    SALARY          BONUS    COMPENSATION     OPTIONS
 ---------------------------        ------ ----------      ---------- ------------    ----------
<S>                                 <C>    <C>             <C>        <C>             <C>
Michael G. Rubin/(1)/.......         1997  $  297,115/(5)/        --    $17,191/(5)/       --
 Chief Executive Officer             1996  $  593,942             --    $17,191            --
 and Chairman of the Board           1995  $1,082,406      $2,750,000   $22,224            -- 
                                                                                              
Kathryn N. Bednarski/(2)/...         1997  $  112,119             --        --          30,000
 President--RYKA Inc.                1996         --              --        --             --
                                     1995         --              --        --             --
Dennis F. DiDominicis/(3)/..         1997  $  179,423      $    1,000   $ 6,000            --
 Senior Vice President--             1996  $  165,000             --    $ 6,000            -- 
 Branded Divisions                   1995  $   45,688      $    1,500   $ 6,000         25,000 
                                                                                               
Steven A. Wolf/(4)/.........         1997  $  112,178      $   25,000       --          32,500
 Chief Financial Officer             1996  $  101,563             --        --           7,500
                                     1995  $   44,687      $    1,500       --          10,000
</TABLE>
---------------------
/(1)/  Mr. Rubin joined RYKA on July 31, 1995 and is serving as Global's Chief
       Executive Officer and Chairman of the Board.
/(2)/  Ms. Bednarski joined RYKA on April 1, 1997 as the President of RYKA Inc.
       and subsequent to the reorganization currently serves as the President of
       RYKA Inc.
/(3)/  Mr. DiDominicis joined RYKA on September 25, 1995 as its President.
       Currently, Mr. DiDominicis serves as the Company's Senior Vice 
       President--Branded Divisions.
/(4)/  Mr. Wolf joined RYKA on August 1, 1995.
/(5)/  Includes amounts paid by the KPR Companies up to the Reorganization and
       paid by the Company for the period from December 15, 1997 through 
       December 31, 1997.
 
                                      20
<PAGE>
 
EMPLOYMENT AGREEMENTS
 
  Michael G. Rubin. On September 25, 1996, the Company entered into an
agreement with Michael Rubin for an initial term of five years commencing on
the effective date of the Reorganization, subject to automatic annual
extensions, to serve as the Company's Chairman and Chief Executive Officer.
Pursuant to the terms of the employment agreement, Mr. Rubin is entitled to
receive (i) an annual base salary of $350,000 for the period January 1997 to
December 1997 increasing $50,000 each year commencing in January 1, 1998 and
January 1, 1999, and increasing $50,800 effective January 1, 2000 and $49,280
effective January 1, 2001, (ii) an annual bonus based upon the achievements of
Mr. Rubin and the results of operations of the Company, (iii) the rental cost
of one luxury automobile and one sports utility vehicle inclusive of
insurance, gasoline and maintenance costs. This agreement was entered into in
anticipation of the reorganization occurring on or about January 1, 1997. The
terms of the agreement specified that in the event that the Reorganization did
not occur prior to June 30, 1997, the agreement would become null and void. On
December 15, 1997, subsequent to the consummation of the Reorganization, the
employment agreement was amended such that the terms of the original agreement
were adopted.
 
  Mr. Rubin's employment agreement may be terminated by Global with cause,
which is defined to include, among other things, the willful failure or
refusal by Mr. Rubin to comply with explicit directions of the Board of
Directors or Executive Committee or to render the services required by the
employment agreement, willful breach or habitual neglect in the performance of
his duties, conviction of a felony or fraud or embezzlement involving assets
of Global. In the event of termination by Global for any other reason, Mr.
Rubin will be entitled to receive any unpaid salary and benefits through the
date of termination. Under the employment agreement, for a period of one year,
Mr. Rubin is prohibited from engaging in the planning, research, development,
production, manufacturing, marketing, sales or distribution of athletic
footwear, rugged outdoor footwear, sportswear, licensed products, related
products, equipment or services or any other line of business engaged in or
under demonstrable development by the Company. In addition, Mr. Rubin is
prohibited from enticing, inducing or encouraging other employees of the
Company to engage in any other activity which done by them would violate any
provision of the contract.
 
  Kathryn N. Bednarski. On April 1, 1997, RYKA entered into an employment
agreement with Kathryn N. Bednarski, President of RYKA Inc., for an initial
term of five years, subject to automatic annual extensions. Pursuant to the
terms of Ms. Bednarski's employment agreement, Ms. Bednarski is entitled to
receive (i) an annual base salary of $150,000, subject to annual increases at
the discretion of the Board of Directors, (ii) an annual bonus equal to one
half of one percent of gross annual sales of the RYKA Inc. in excess of
$25,000,000 provided that the gross profit on such sales exceed 30%, (iii) an
annual bonus base on Ms. Bednarski's participation in the Company's executive
bonus. Pursuant to the employment agreement, Ms. Bednarski is also entitled to
a car allowance of $400 per month and has been granted a five year option to
purchase 30,000 shares of Global's common stock at an exercise price per share
equal to the fair market value of the stock on the date of the grant of which
6,000 shares automatically vest on each of the first, second, third, fourth
and fifth anniversary dates of the agreement. Subsequently on September 5,
1997, the Company amended Ms. Bednarski's contract to (i) increase her car
allowance to $600 per month and (ii) guarantees Ms. Bednarski a bonus of
$15,000 in 1998 in lieu of the original provision requiring a threshold of
$25,000,000 in sales of RYKA product.
 
  Ms. Bednarski's employment agreement may be terminated by Global with cause,
which is defined identically to Mr. DiDominicis' employment agreement
described below. In the event of termination without cause Ms. Bednarski will
be entitled to receive an amount in cash equal to six months of her then
current annual base salary, payable monthly over a six month period from the
date of termination. Under this employment agreement Ms. Bednarski, for a
period of one year after termination or expiration of the agreement, is
prohibited from engaging or participating in any Company which competes with
the company in the womens' athletic footwear and apparel business.
 
  Dennis F. DiDominicis. On September 25, 1995, the Company entered into an
employment agreement with Dennis F. DiDominicis, Senior Vice President-Branded
Divisions, for an initial term of five years, subject
 
                                      21
<PAGE>
 
to automatic annual extensions. Pursuant to the terms of Mr. DiDominicis'
employment agreement, Mr. DiDominicis is entitled to receive (i) an annual
base salary of $165,000 which will be increased $5,000 each year commencing in
calendar year 1997, (ii) an annual bonus based on Mr. DiDominicis' achievement
of specific performance goals as determined by Global's Board of Directors,
and (iii) other benefits similar to those provided to Global's other officers.
Pursuant to the employment agreement, Mr. DiDominicis is also entitled to
receive a car allowance of $6,000 per year and has been granted a five year
option to purchase 25,000 shares of Global's common stock at an exercise price
per share equal to the fair market value of the underlying common stock on the
date of the grant, of which (i) 2,500 shares shall automatically vest on each
of the first, second, third, fourth, and fifth yearly anniversaries of
September 25, 1995, and (ii) 2,500 shares shall vest on each of the first,
second, third, fourth, and fifth yearly anniversaries of December 31, 1995
based on the achievement by Mr. DiDominicis of performance goals to be
established by RYKA's Board of Directors. Subsequently, on February 1997, the
Company amended Mr. DiDominicis' contract so that the 12,500 shares which were
to vest pursuant clause (ii) would vest at 2,500 shares per year on the first,
second, third, fourth, and fifth anniversaries of September 25, 1995. On
December 15, 1997, the effective date of the reorganization, the Company's
Board of Directors and Compensation Committee elected to cancel and regrant
these options to Mr. DiDominicis. The original grant was made with an exercise
price of $8.00, the fair market value at the date of grant. These options were
canceled and regranted at an exercise price which equaled the fair market
value at the date of Reorganization or $3.20 per share. The vesting schedule
remains the same as in the original grant.
 
  Mr. DiDominicis' employment agreement may be terminated by Global with or
without cause which is defined to include, among other things, the willful
failure or refusal by Mr. DiDominicis to comply with explicit directions of
the Board of Directors or to render the services required by the employment
agreement, willful breach or habitual neglect in the performance of his
duties, conviction of a felony or fraud or embezzlement involving assets of
Global. In the event of termination without cause by Global, Mr. DiDominicis
will be entitled to receive a lump sum amount in cash equal to one-half of his
then current annual base salary less any amounts owed to Global. In the event
of termination by Global for any other reason, Mr DiDominicis will be entitled
to receive any unpaid salary and benefits through the date of termination.
Under the employment agreement, Mr. DiDominicis is prohibited from disclosing
confidential information during and after the term of the agreement. In
addition, Mr. DiDominicis is prohibited from soliciting employees of Global or
engaging or participating in any business which competes with Global while he
is employed by Global and for one year thereafter.
 
  Steven A. Wolf. On August 1, 1995, the Company entered into an employment
agreement with Steven A. Wolf, Chief Financial Officer of Global, for an
initial term of three years, subject to automatic annual extensions. Pursuant
to the terms of Mr. Wolf's employment agreement, Mr. Wolf is entitled to
receive (i) an annual base salary of $97,500, subject to annual adjustments
determined by Global's Board of Directors, (ii) incentive compensation up to
35% of his base salary based on sales and/or profit projections for Global and
based on his performance as determined by the Board of Directors, and (iii)
other benefits similar to those provided to Global's other officers. Pursuant
to the employment agreement, Mr. Wolf has been granted a five-year option to
purchase 10,000 shares of Global's common stock at an exercise price per share
equal to the fair market value of the underlying common stock on the date of
the grant, of which 2,500 shares shall vest on the date of grant and 2,500
shares on each of the first, second, and third yearly anniversaries of August
1, 1995. On January 2, 1996, Mr. Wolf was granted a ten-year option to
purchase an additional 7,500 shares of Global's common stock at an exercise
price equal to the fair market value of the underlying common stock on the
date of the grant, of which 2,500 shares shall vest on the date of grant and
2,500 shares on each of the first and second yearly anniversaries of January
1, 1996.
 
  On December 15, 1997, in connection with the consummation of the
reorganization, Mr. Wolf was granted a ten-year option to purchase an
additional 32,500 shares of Global's common shares at a price equal to the
fair market value of the underlying common stock on the date of grant. These
shares shall vest on each of the first, second, third, fourth and fifth
anniversaries of December 15, 1997. Also on that date, the Company's Board of
Directors and Compensation Committee elected to cancel and regrant the 17,500
options referred to above. The original grants were made with exercise prices
ranging from $4.00 to $9.375, the fair market values at the dates
 
                                      22
<PAGE>
 
of grant. These options were canceled and regranted at an exercise price which
equaled the fair market value at the date of Reorganization or $3.20 per
share. The vesting schedules remain the same as in the original grants.
 
  Mr. Wolf's employment agreement may be terminated by Global with cause,
which is defined identically to Mr. DiDominicis' employment agreement
described above. In the event of termination without cause by Global, Mr. Wolf
will be entitled to receive a lump sum amount in cash equal to five-twelfths
of his then current annual base salary less any amounts owed to Global and to
have any unvested stock options accelerate and become fully exercisable. In
the event of termination by Global for any other reason, Mr. Wolf will be
entitled to receive any unpaid salary and benefits through the date of
termination. Under the employment agreement, Mr. Wolf is prohibited from
disclosing confidential information during and after the term of the
agreement. In addition, Mr. Wolf is prohibited from soliciting employees of
Global or engaging or participating in the technical women's athletic footwear
business while he is employed by Global and for one year thereafter.
 
OPTION GRANTS
 
  The following table sets forth certain information concerning options
granted during 1997 to the executive officers named in the Summary
Compensation Table. The following table also sets forth the potential
realizable value over the term of the options (the period from the grant date
to the expiration date), based on assumed rates of stock appreciation of 5%
and 10%, compounded annually. These amounts do not represent Global's estimate
of future stock price. Actual realizable values, if any, of stock options will
depend on the future performance of the common stock.
 
                         OPTION GRANTS IN FISCAL 1997
 
<TABLE>
<CAPTION>
                                       INDIVIDUAL GRANTS
                         ---------------------------------------------
                                                                            POTENTIAL REALIZABLE
                                                                              VALUE AT ASSUMED
                         NUMBER OF   PERCENT OF                            ANNUAL RATES OF STOCK
                         SECURITIES TOTAL OPTIONS                          PRICE APPRECIATION FOR
                         UNDERLYING  GRANTED TO   EXERCISE                    OPTION TERM/(1)/
                          OPTIONS   EMPLOYEES IN    PRICE   EXPIRATION     ----------------------
          NAME            GRANTED    FISCAL YEAR  ($/SHARE)    DATE            5%         10%
          ----           ---------- ------------- --------- ----------     ---------- -----------
<S>                      <C>        <C>           <C>       <C>            <C>        <C>
Michael G. Rubin........      --          --          --          --              --          --
Kathryn N. Bednarski....   30,000        6.74%      $3.20    12/14/02      $   13,888 $    42,665
Dennis F. DiDominicis...   25,000        5.62%      $3.20    12/14/02      $   11,573 $    35,554
Steven A. Wolf..........   50,000       11.24%      $3.20     Various/(2)/ $   63,626 $   183,983
</TABLE>
--------
/(1)/  Represents the difference between the market value of the common stock
       for which the option may be exercised, assuming that the market value of
       the common stock appreciates in value from the date of grant to the end
       of the option term at annualized rates of 5% and 10%, respectively, and
       the exercise price of the option.
/(2)/  Expiration dates range from 12/14/02 through 12/14/07.
 
AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUES
 
  No options were exercised in 1997 by any of the executive officers named in
the Summary Compensation Table above. The following table sets forth, for each
of such executive officers, the number and value of options held at December
31, 1997.
 
                                      23
<PAGE>

<TABLE>
<CAPTION>
                           AGGREGATED OPTION EXERCISES IN FISCAL 1997 AND FISCAL YEAR-END OPTION VALUES
 
                                                NUMBER OF SECURITIES
                                               UNDERLYING UNEXERCISED     VALUE OF UNEXERCISED
                                                     OPTIONS AT          IN-THE-MONEY OPTIONS AT
                           SHARES                 DECEMBER 31, 1997       DECEMBER 31, 1997/(1)/
                          ACQUIRED    VALUE   ------------------------- -------------------------
          NAME           ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
          ----           ----------- -------- ----------- ------------- ----------- -------------
<S>                      <C>         <C>      <C>         <C>           <C>         <C>
Michael G. Rubin........     --        --          --           --           --            --
Kathryn N. Bednarski....     --        --          --        30,000          --        $ 9,750
Dennis F. DiDominicis...     --        --       10,000       15,000       $3,250       $ 4,875
Steven A. Wolf..........     --        --       12,500       37,500       $4,063       $12,188
</TABLE>
--------
/(1)/ Calculated by determining the difference between the deemed fair value of
      the securities underlying the options on December 31, 1997 and the
      exercise price.
 
STOCK OPTION PLANS
 
 1996 Equity Incentive Plan
 
  In March 1996, the Board of Directors adopted and in July 1996 the Company's
Stockholders approved the Company's 1996 Equity Incentive Plan (the "Incentive
Plan"). The purposes of the Incentive Plan are to attract and retain key
employees and certain other persons who are in a position to make significant
contributions to the success of the Company, to reward these employees and
other persons for their contributions, to provide additional incentive to
these employees and other persons to continue making similar contributions and
to further align the interests of these employees and other persons with those
of the Company's stockholders. To achieve these purposes, the Incentive Plan
permits grants of incentive stock options ("ISO's"), options not intended to
qualify as incentive stock options ("Non-ISO's"), stock appreciation rights
("SAR's"), restricted and unrestricted stock awards, performance awards,
loans, and supplemental cash awards and combinations of the foregoing (all
referred to as "Awards").
 
  The Incentive Plan originally permitted Awards to be granted for a total of
100,000 shares of the Company's common stock. On September 24, 1996, the Board
of Directors approved an amendment to the Incentive Plan that increased the
maximum number of shares issuable under the Incentive Plan to 1,000,000
shares. This amendment was approved by the shareholders at a vote held in
connection with the Company's annual shareholders meeting on December 4, 1997.
Shares issuable under Awards that terminate unexercised, shares issuable under
Awards that are payable in stock or cash but are paid in cash and shares
issued but later forfeited will be available for future Awards under the
Incentive Plan.
 
  All current and future employees of the Company, and other persons who, in
the opinion of the Board of Directors, are in a position to make significant
contributions to the success of the Company, such as consultants and non-
employee directors, are eligible to receive Awards under the Incentive Plan.
 
  The Incentive Plan is administered by the Board of Directors, which
determines, among other things and subject to certain conditions, the persons
eligible to receive Awards, the persons who actually receive Awards, the type
of each Award, the number of shares of common stock subject to each Award, the
date of grant, exercise schedule, vesting schedule and other terms and
conditions of each Award, whether to accelerate the exercise or vesting
schedule or waive any other terms or conditions of each Award, whether to
amend or cancel an Award and the form of any instrument used under the
Incentive Plan. The Board of Directors has the right to adopt rules for the
administration of the Incentive Plan, settle all controversies regarding the
Incentive Plan or any Award, and construe and correct defects and omissions in
the Incentive Plan or any Award. The Incentive Plan may be amended, suspended
or terminated by the Board of Directors, subject to certain conditions,
provided that stockholder approval will be required whenever necessary for the
Incentive Plan to continue to satisfy the requirements of certain securities
and tax laws, rules and regulations.
 
                                      24
<PAGE>
 
  Recipients of stock options under the Incentive Plan will have the right to
purchase shares of common stock at an exercise price, during a period of time
and on such other terms and conditions as are determined by the Board of
Directors. For ISO's, the recipient must be an employee, the exercise price
must be at least 100% (110% if issued to a 10% or greater stockholder of the
Company) of the fair market value of the Company's common stock on the date of
grant and the term cannot exceed ten years (five years if issued to a 10% or
greater stockholder of the Company) from date of grant. If permitted by the
Board of Directors and subject to certain conditions, an option exercise price
may be paid by delivery of shares of the Company's common stock that have been
outstanding, a promissory note, a broker's undertaking to promptly deliver the
necessary funds or by a combination of those methods. If permitted by the
Board of Directors, options (other than those granted in tandem with SAR's)
may be settled by the Company paying to the recipient, in cash or shares of
common stock (valued at the then fair market value of the Company's common
stock), an amount equal to such fair market value minus the exercise price of
the option shares.
 
  SAR's may be granted under the Incentive Plan either alone or in tandem with
stock options. Generally, recipients of SAR's are entitled to receive upon
exercise, cash or shares of common stock (valued at the then fair market value
of the Company's common stock) equal to such fair market value on the date of
exercise minus such fair market value on the date of grant of the shares
subject to the SAR, although certain other measurements also may be used. A
SAR granted in tandem with a stock option is exercisable only if and to the
extent that the option is exercised.
 
  The Incentive Plan provides for restricted and unrestricted stock awards.
Stock awards allow the recipient to acquire shares of the Company's common
stock for their par value or any higher price determined by the Board of
Directors. In the case of restricted stock awards, the shares acquired are
subject to a vesting schedule and other possible conditions determined by the
Board of Directors.
 
  The Incentive Plan provides for performance awards entitling the recipient
to receive stock options, stock awards or other types of Awards conditional
upon achieving performance goals determined by the Board of Directors.
Performance goals may involve overall corporate performance, operating group
or business unit performance, personal performance or any other category of
performance determined by the Board of Directors. Financial performance may be
measured by revenue, operating income, net income, earnings per share, common
stock price, price-earnings multiple or other financial factors determined by
the Board of Directors.
 
  Under the Incentive Plan, loans or supplemental cash awards may be granted
to recipients of Awards to help defray taxes due as a result of the Awards.
The terms and conditions of loans and supplemental cash awards, including the
interest rate, which may be zero, and whether any loan will be forgiven, are
determined by the Board of Directors.
 
  Generally, upon termination of a recipient's employment or other
relationship with the Company, stock options and SAR's remain exercisable for
a period of three months (one year if termination is due to death or
disability) to the extent that they were exercisable at the time of
termination, except as otherwise agreed between the employee and the Company,
unvested shares under outstanding restricted stock awards vest immediately
except in the case of a voluntary resignation or termination for cause (as
defined in the Incentive Plan). Stock options, SAR's and other Awards that are
not exercisable at the time of termination automatically terminate, and
payments or benefits under deferred stock awards, performance awards and
supplemental cash awards that are not irrevocably due at the time of
termination are forfeited.
 
  In addition to the 1996 Equity Incentive Plan, which is discussed above, the
Company has adopted the following seven separate stock option plans (the
"Plans"): the 1987 Stock Option Plan, the 1988 Stock Option Plan, the 1990
Stock Option Plan, the 1992 Stock Option Plan, the 1993 Stock Option Plan, the
1995 Stock Option Plan, and the 1995 Non-Employee Directors' Stock Option
Plan. The following terms and conditions are virtually identical for each of
the Plans, except for the 1995 Non-Employee Directors' Stock Option Plan which
is separately summarized below. Pursuant to the Plans, options may be granted
with respect to 31,321; 17,500; 37,500; 43,750; 45,000; 75,000 and 12,500
shares of common stock, respectively.
 
                                      25
<PAGE>
 
  Options under the Plans may be granted as incentive stock options intended
to qualify under Section 422 of the Code or as options not intended to so
qualify. In the case of both incentive stock options and non-qualified stock
options, the option price must be equal to at least 100% of the fair market
value of the Company's common stock on the date of grant. There is no limit on
the number of shares for which options may be granted to any single employee
under a Plan, except that incentive stock options first exercisable by a
recipient in any one year under a Plan may not exceed $100,000 in value
(determined at the time of grant). In addition, an incentive option granted to
any person who owns 10% or more of the shares of voting stock of Global must
have had an option price of not less than 110% of the fair market value of the
shares at the time of grant and the option must expire not more than five
years after its grant.
 
  Payment of the option exercise price may be made in cash, shares of common
stock or a combination of cash and common stock. Except with respect to the
1995 Stock Option Plan, all officers, directors and key employees of the
Company or any current or future parent or subsidiary of the Company are
eligible to receive options under the Plans. Under the 1995 Stock Option Plan,
non-employee members of the Board of Directors of the Company are not eligible
to receive options. The Plans are administered by the Board of Directors which
selects the optionee, determines the number of shares subject to each option
and prescribes other terms and conditions of each option.
 
 1995 Directors' Plan
 
  On September 19, 1995, the Board of Directors adopted, and on November 15,
1995, the shareholders approved, the 1995 Non-Employee Directors' Stock Option
Plan (the "Directors' Plan"). Pursuant to the Directors' Plan, options may be
granted with respect to an aggregate of 12,500 shares of common stock.
 
  Options granted under the Directors' Plan are nonstatutory stock options
which do not qualify under Section 422 of the Code. Only non-employee
directors of Global or any subsidiary of Global ("Non-Employee Director") are
eligible to participate in the Directors' Plan. Mr. Adelberg qualified as a
Non-Employee Director.
 
  While grants of stock options under the Directors' Plan are automatic and
non-discretionary, all questions of interpretation of the Directors' Plan are
determined by the Executive Committee of the Board of Directors. The
Directors' Plan provides that commencing January 1, 1996 and annually on
January 1 of each year thereafter, an option to purchase 1,250 shares of
Global common stock will be granted to each Non-Employee Director. The option
exercise price for each option granted under the Directors' Plan is the fair
market value on the date the option is granted. All options granted under the
Directors' Plan vest at the rate of 25% per calendar quarter after the date of
grant (or earlier in event of the death or disability of the Non-Employee
Director or sale of Global). Upon departure from the Board of Directors by
reason of death or disability, all options held by a Non-Employee Director may
be exercised by him or her or by his or her executor or administrator, or by
the person or persons to whom the option is transferred by will or the
applicable laws of descent and distribution, only during the one-year period
after such departure. If a Non-Employee Directors' service with Global
terminates for any other reason, all options held by the Non-Employee Director
that are not then exercisable will terminate and options that are exercisable
on the date of termination will continue to be exercisable for the original
option exercise period. Upon sale of Global, all options held by Non-Employee
Directors will terminate. In all other events, options granted under the
Directors' Plan remain exercisable until the fifth anniversary of the date of
grant. No option may be transferred other than by will or by the laws of
descent and distribution.
 
DIRECTOR COMPENSATION
 
  Each Director who is not an employee of Global received an option to
purchase 1,250 shares of Global's common stock upon joining the Board of
Directors and annual stock option grants to purchase 1,250 shares. The
Directors do not receive any cash compensation for their services on behalf of
Global but are reimbursed for reasonable travel and lodging expenses incurred
in attending meetings of the Board of Directors and any Committee. Those
Directors who are employees of Global do not receive any compensation for
their services as Directors.
 
 
                                      26
<PAGE>
 
  On December 15, 1997, in conjunction with the consummation of the
reorganization, the Company made a one-time discretionary grant to Mr.
Adelberg of a five year option to purchase 50,000 shares of Global's common
stock at an exercise price per share equal to the fair market value of the
stock on the date of grant. The shares vest twenty percent per year on each
anniversary retroactive back to the date of Mr. Adelberg's appointment to the
Board, July 31, 1995. As such, 20,000 of Mr. Adelberg's shares vested upon
grant, with an additional 10,000 shares vesting July 31, 1998, 1999 and 2000.
 
COMPENSATION COMMITTEE INTERLOCKS AND INSIDE TRANSACTIONS
 
  During 1997, Global had no compensation committee "interlocks", meaning that
it was not the case that an executive officer of Global served as a director
or member of the compensation committee of another entity and an executive
officer of the other entity served as a director or member of the Compensation
Committee or the Board of Directors of Global.
 
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
  The following table sets forth information regarding beneficial ownership of
Global's common stock as of March 16, 1998 by (i) by each person known to
Global to be the beneficial owner of more than 5% of Global's common stock,
(ii) each of Global's directors, (iii) each of the named executive officers,
and (iv) all directors and executive officers as a group.
 
<TABLE>
<CAPTION>
                                                   NUMBER OF SHARES OF
                                                      COMMON STOCK           PERCENTAGE OF
   NAME AND ADDRESS OF BENEFICIAL OWNER /(1)/   BENEFICIALLY OWNED /(2)/     COMMON STOCK
   ------------------------------------------   ------------------------     -------------
   <S>                                          <C>                          <C>
   Michael G. Rubin.................                   8,169,087                 78.4%
   Kenneth J. Adelberg..............                      66,750/(3)/               *
   Dennis F. DiDominicis............                      10,000/(4)/               *
   Harvey Lamm......................                      20,000/(6)/               *
   Steven A. Wolf...................                      15,000/(5)/               *
   All directors and executive
    officers as a group
    (5 persons).....................                   8,280,837/(3)//(7)/       79.1%
</TABLE>
--------
*     Less than 1.0%
/(1)/ The address of each person listed above is in care of Global Sports,
      Inc., 555 S. Henderson Road, King of Prussia, PA 19406.
/(2)/ Pursuant to the rules of the United States Securities and Exchange
      Commission, shares of common stock which an individual or member of a
      group has a right to acquire within 60 days pursuant to the exercise of
      options or warrants are deemed to be outstanding for the purposes of
      computing the percentage ownership of such individual or group, but are
      not deemed to be outstanding for the purpose of computing the percentage
      ownership of any other person shown in the table.
/(3)/ Includes 23,750 shares of common stock issuable upon exercise of
      outstanding options.
/(4)/ Represents 10,000 shares of common stock issuable upon exercise of
      outstanding options.
/(5)/ Represents 15,000 shares of common stock issuable upon the exercise of
      outstanding options.
/(6)/ Represents 20,000 shares of common stock issuable upon the exercise of
      outstanding options.
/(7)/ Includes 68,750 shares of common stock issuable upon exercise of
      outstanding options and warrants.
 
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
  The Company is located in King of Prussia, Pennsylvania where it conducts
its operations and warehouses inventory in a facility subleased from Mr.
Rubin. Terms of the lease were negotiated on an arm's-length basis and require
rental payments of approximately $29,000 per month for use of these facilities
and warehousing services commencing August 1, 1995 through September 30, 2009.
Rent expense related to this lease totaled $347,498 and $231,667 for the years
ended 1997 and 1996, respectively. Any cost related to the use of the
 
                                      27
<PAGE>
 
facility or for other services provided by Mr. Rubin will be charged to the
Company on an arm's-length basis and will be subject to approval by a special
disinterested committee of the Board of Directors.
 
  At the refinancing in November 1997, the KPR Companies owed Michael Rubin
subordinated debt of $3,055,841 which was comprised of (i) a loan from Mr.
Rubin to the KPR Companies in the principal amount of $851,440, plus accrued
and unpaid interest on such loan of $180,517 through October 31, 1997 and (ii)
a note in the principal amount of $2,204,401 representing undistributed sub
chapter S corporation retained earnings previously taxed to Mr. Rubin as the
sole shareholder of the KPR Companies. No interest was to accrue on the note
representing sub chapter S corporation earnings until the effective date of
the reorganization at which time the interest will begin to accrue on such
note at a choice of prime plus 1/4% or LIBOR (Adjusted Eurodollar Rate) plus
two hundred seventy-five basis points.
 
  The Loan Agreement and a related Subordination Agreement by and among the
KPR Companies, Mr. Rubin and the lender entered into at the same time as the
Loan Agreement (the "Subordination Agreement") allowed the KPR Companies to
repay Mr. Rubin $1,000,000 of the subordinated debt principal and the accrued
interest of $180,517 at the time of this loan closing or within five days
thereafter, subject to there being $2,000,000 of availability under the KPR
Companies' credit line after taking into account such payments. Such payments
were made to Mr. Rubin on November 26, 1997.
 
  In addition, the Loan Agreement and the Subordination Agreement permit the
KPR Companies to make continued regular payments of interest on the
subordinated debt and to further reduce principal on a quarterly basis,
commencing with the first quarter of 1998, in an amount up to 50% of the
cumulative consolidated net income of both borrowers, reduced by net losses of
the borrowers during such period.
 
                                      28
<PAGE>
 
                                    PART IV
 
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
 
<TABLE>
<CAPTION>
                                                                          PAGE
                                                                     --------------
 <C>           <S>                                                   <C>
 (A)(1)        FINANCIAL STATEMENTS
               Report of Independent Auditors--Deloitte & Touche
                LLP...............................................              F-1
               Report of Independent Accountants--Margolis &
                Company PC........................................              F-2
               Balance Sheets as of December 31, 1997 and 1996....              F-3
               Statements of Operations for the years ended
                December 31, 1997, 1996 and 1995..................              F-4
               Statements of Stockholders' Equity (Deficiency) for
                the years ended December 31, 1997, 1996 and 1995..              F-5
               Statements of Cash Flows for the years ended
                December 31, 1997, 1996 and 1995..................              F-6
               Notes to Financial Statements......................        F-7--F-19
 (A)(2)        SCHEDULES
               Schedule VIII--Valuation and Qualifying Accounts
                for the years ended 1997, 1996 and 1995...........              S-1
               All other schedules not listed have been omitted
               since the required information is included in the
               financial statements or the notes thereto or is not
               applicable or required.
 (A)(3)        EXHIBITS
<CAPTION>
      NO.                          DESCRIPTION
      ---                          -----------
 <C>           <S>                                                   
   2.1/(1)/    Securities Purchase Agreement dated June 21, 1995 by and between
                the Registrant and MR Acquisitions, Inc.
   2.2/(2)/    First Amendment to Securities Purchase Agreement by and between
                the Registrant and MR Acquisitions, Inc. dated July 31, 1995.
   2.3/(12)/   Second Amended and Restated Agreement and Plan of Reorganization,
                as amended, among RYKA Inc., a Delaware corporation, KPR Sports
                International, Inc., a Pennsylvania corporation, Apex Sports
                International, Inc., a Pennsylvania corporation, MR Management,
                Inc., a Pennsylvania corporation, and Michael G. Rubin.
   3.1/(12)/   Amended and Restated Certificate of Incorporation of the Company
                filed with the Secretary of State of the State of Delaware on
                December 15, 1997.
   3.2/(3)/    The Company's Bylaws as amended.
   4.1/(3)/    Specimen of Common Stock Certificate.
  10.1/(2)/    Loan and Security Agreement by and between the Registrant and KPR
                Sports International, Inc
  10.2/(2)/    Promissory Note in the principal amount of $851,440 by and between
                Registrant as maker and KPR Sports International, Inc. as payee.
  10.3/(2)/    Demand Promissory Note in the principal amount of $2,000,000 by
                and between Registrant as borrower and KPR Sports International,
                Inc. as lender.
  10.4/(2)/    Letter of Credit Financing Agreement by and between Registrant and
                KPR Sports International, Inc.
  10.5/(2)/    Warrant to Purchase 5,100,000 shares of the Registrant's common
                stock issued to MR Acquisitions, L.L.C.
  10.6/(2)/    Warrant to purchase 4,000,000 shares of the Registrant's common
                stock issued to MR Acquisitions, L.L.C.
  10.7/(2)/    Registration Rights Agreement by and between the Registrant and MR
                Acquisitions, Inc.
  10.8/(2)/    Promissory Note in the principal amount of $500,000 by and between
                the Registrant and Michael Rubin.
  10.9/(2)/    Sublease Agreement dated July 31, 1995 by and between KPR Sports
                International, Inc. as sublessor and Registrant as sublessee.
  10.10/(2)/   Settlement Agreement by and between Registrant and Pro-Specs
                America Corporation.
 +10.11/(2)/   Employment Agreement dated July 31, 1995 by and between the
                Registrant and Sheri Poe.
</TABLE>
 
                                       29
<PAGE>
 
<TABLE>
<CAPTION>
      NO.                                 DESCRIPTION
      ---                                 -----------
 <C>            <S>
 +10.12/(11)/   Key Employee Termination Agreement dated August 3, 1996 by and
                 between the Registrant and Sheri Poe.
 +10.13/(2)/    Employment Agreement dated July 31, 1995 by and between the
                 Registrant and Steven Wolf.
 +10.14/(2)/    Employment Agreement dated September 25, 1995 by and between
                 the Registrant and Dennis F. DiDominicis.
 +10.15         Employment Agreement dated September 25, 1996 by and between
                 the Registrant and Michael G. Rubin.
 +10.15-A       First Amendment to the Employment Agreement dated September 25,
                 1996 by and between the Registrant and Michael G. Rubin.
 +10.16         Employment Agreement dated April 11, 1997 by and between the
                 Registrant and Kathryn N. Bednarski.
 +10.20/(5)/    1987 Stock Option Plan.
 +10.21/(6)/    1988 Stock Option Plan.
 +10.22/(7)/    1990 Stock Option Plan.
 +10.23/(8)/    1992 Stock Option Plan.
 +10.24/(9)/    1993 Stock Option Plan.
 +10.25/(2)/    1995 Stock Option Plan.
 +10.26/(10)/   1995 Non-Employee Directors' Stock Option Plan.
 +10.27/(11)/   1996 Equity Incentive Plan.
 +10.27-A       Amendment to the 1996 Equity Incentive Plan.
  10.30/(11)/   Revolving Credit Agreement dated August 15, 1996 by and between
                 the Registrant and CoreStates Bank, N.A.
  10.31/(11)/   Security Agreement dated August 15, 1996 by and between the
                 Registrant and CoreStates Bank, N.A.
  10.32/(11)/   Memorandum of Security Agreement dated August 15, 1996 by and
                 between the Registrant and CoreStates Bank, N.A.
  10.33/(11)/   Limited Guaranty of Michael Rubin dated August 15, 1996 in
                 favor of CoreStates Bank, N.A.
  10.34/(11)/   Letter Agreement dated February 7, 1997 by and among the
                 Registrant, CoreStates Bank, N.A. and Michael Rubin.
  10.35/(11)/   Second Amended Forbearance Agreement dated June 4, 1997 by and
                 among the Registrant, CoreStates Bank, N.A. and Michael Rubin.
  10.36/(11)/   Letter Agreement dated June 4, 1997 by and among the
                 Registrant, CoreStates Bank, N.A. and Michael Rubin.
  21.1          Subsidiaries of the Company.
  27.1          Financial Data Schedule (electronic filing only).
</TABLE>
--------
 +    Management contract or compensatory plan or arrangement.
(/1/) Incorporated by reference to Form 8-K dated June 21, 1995.
(/2/) Incorporated by reference to Form 8-K dated July 31, 1995.
(/3/) Incorporated by reference to the Company's Registration Statement No. 33-
      33754.
 
                                       30
<PAGE>
 
/(4)/  Incorporated by reference to the Company's Registration Quarterly Report
       on Form 10-Q for the nine-month period ended September 30, 1995.
/(5)/  Incorporated by reference to the Company's Registration Statement No. 33-
       19754-B.
/(6)/  Incorporated by reference to the Company's Registration Statement No. 33-
       27501.
/(7)/  Incorporated by reference to the Company's Quarterly Report on Form 10-Q
       for the nine-month period ended September 30, 1990.
/(8)/  Incorporated by reference to the Company's Annual Report on Form 10-K for
       the fiscal year ended December 31, 1991.
/(9)/  Incorporated by reference to the Company's Form S-8 Registration
       Statement filed on January 3, 1994.
/(10)/ Incorporated by reference to the Company's Proxy Statement filed on
       October 13, 1995 in connection with the 1995 Special Meeting in lieu of
       Annual Meeting held on November 15, 1995.
/(11)/ Incorporated by reference to the Company's Annual Report on Form 10-K for
       the year ended December 31, 1996.
/(12)/ Incorporated by reference to the Company's Definitive Proxy Materials
       filed November 12, 1997.
 
(b)    REPORTS ON FORM 8-K
       The Company filed a Current Report on Form 8-K dated December 15, 1997
       reporting the consummation of the reorganization of RYKA Inc. and the KPR
       Companies. The Company then filed an amended current report on Form 8-K/A
       to incorporate certain financial information.
 
                                      31
<PAGE>
 
                         INDEPENDENT AUDITORS' REPORT
 
To the Shareholders and Board of Directors of Global Sports, Inc.
 
  We have audited the accompanying consolidated balance sheet of Global
Sports, Inc. and Subsidiaries (the "Company") as of December 31, 1997 and the
related consolidated statements of operations, stockholders' equity
(deficiency), and cash flows for the year then ended and the combined balance
sheet of Global Sports, Inc. and Subsidiaries (formerly KPR Sports
International, Inc. and Affiliates) as of December 31, 1996 and the related
combined statements of operations, shareholder's equity (deficiency) and cash
flows for the year then ended. Our audit also included the financial statement
schedule for the years ended December 31, 1997 and 1996 listed in the Index at
Item 14. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedule
based on our audits.
 
  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
 
  In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1997 and
1996 and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles. Also,
in our opinion such financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
 
      /s/ Deloitte & Touche LLP
_____________________________________
        DELOITTE & TOUCHE LLP
 
Philadelphia, Pennsylvania
March 27, 1998
 
                                      F-1
<PAGE>
 
                       REPORT OF INDEPENDENT ACCOUNTANTS
 
Board of Directors and Stockholders
Global Sports, Inc.
King of Prussia, Pennsylvania
 
  We have audited the combined statements of operations, stockholders' equity
(deficiency) and cash flows of Global Sports, Inc. and Subsidiaries (the
"Company"), formerly KPR Sports International, Inc. and Affiliates (see Note
1), for the year ended December 31, 1995. 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 audit.
 
  We conducted our audit 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 audit provides a reasonable basis
for our opinion.
 
  In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined results of operations and cash
flows of Global Sports, Inc. and Subsidiaries for the year ended December 31,
1995, in conformity with generally accepted accounting principles.
 
 
                                                /s/ Margolis & Company P.C.
                                         _____________________________________
                                                  MARGOLIS & COMPANY P.C.
 
Bala Cynwyd, Pennsylvania
February 2, 1996
 
                                      F-2
<PAGE>
 
                      GLOBAL SPORTS, INC. AND SUBSIDIARIES
 
                                 BALANCE SHEETS
 
<TABLE>
<CAPTION>
                                                      DECEMBER 31,  DECEMBER 31,
                                                          1997          1996
                                                      ------------  ------------
                                                      CONSOLIDATED    COMBINED
<S>                                                   <C>           <C>
                       ASSETS
Current assets:
  Cash and cash equivalents.......................... $    98,881   $   275,871
  Accounts receivable, net of allowance for doubtful
   accounts of $743,223 in 1997 and $279,682 in
   1996..............................................  16,060,911     9,660,543
  Inventory..........................................  16,906,171    10,749,460
  Prepaid expenses and other current assets..........     933,548     1,197,819
                                                      -----------   -----------
    Total current assets.............................  33,999,511    21,883,693
Property and equipment, net of accumulated
 depreciation and amortization.......................   3,282,712     3,331,540
Investment in and advances to RYKA, Inc..............         --      1,167,986
Goodwill, net........................................   4,057,768           --
Intangibles, net.....................................   2,089,514       295,325
Other assets.........................................       2,404           --
                                                      -----------   -----------
    Total assets..................................... $43,431,909   $26,678,544
                                                      ===========   ===========
  LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
  Current portion--notes payable..................... $ 2,000,000   $10,682,171
  Current portion--capital lease obligation, related
   party.............................................     116,124       105,378
  Accounts payable and accrued expenses..............  16,114,305    10,537,903
  Subordinated note payable, related party...........   2,068,652           --
                                                      -----------   -----------
    Total current liabilities........................  20,299,081    21,325,452
Capital lease obligation, related party and other
 liabilities.........................................   2,309,231     2,425,355
Notes payable........................................  18,666,248           --
Subordinated note payable, related party.............         --      3,479,870
Commitments and contingencies........................
Stockholders' equity (deficiency):
  Preferred stock, $0.01 par value, 1,000,000 shares
   authorized in 1997, none issued...................         --            --
  Common stock, $0.01 par value, 20,000,000 shares
   authorized, 11,487,197 shares issued, 10,418,111
   shares outstanding................................     114,875           --
  Common stock, no par value, 37,000 shares
   authorized, 2,000 shares issued, 1,900 shares
   outstanding.......................................         --          2,000
  Additional paid in capital.........................   8,001,132     1,066,758
  Cumulative translation adjustment..................     (35,520)      (41,865)
  Accumulated deficit................................  (5,709,321)   (1,554,026)
                                                      -----------   -----------
                                                        2,371,166      (527,133)
  Less: Treasury stock, at cost......................     213,817        25,000
                                                      -----------   -----------
    Total stockholders' equity (deficiency)..........   2,157,349      (552,133)
                                                      -----------   -----------
    Total liabilities and stockholders' equity
     (deficiency).................................... $43,431,909   $26,678,544
                                                      ===========   ===========
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-3
<PAGE>
 
                      GLOBAL SPORTS, INC. AND SUBSIDIARIES
 
                            STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                             YEAR ENDED DECEMBER 31,
                                       --------------------------------------
                                           1997         1996         1995
                                       ------------  -----------  -----------
                                       CONSOLIDATED   COMBINED     COMBINED
<S>                                    <C>           <C>          <C>
Net sales............................. $60,671,407   $47,340,450  $43,272,594
                                       -----------   -----------  -----------
Costs and expenses:
  Cost of goods sold..................  48,376,966    37,857,455   32,853,181
  General and administrative expense..   6,314,769     5,123,358    7,359,640
  Selling and marketing expense.......   7,031,519     3,116,013    1,778,709
  Research and development expenses...     511,073       360,820      262,254
                                       -----------   -----------  -----------
    Total costs and expenses..........  62,234,327    46,457,646   42,253,784
                                       -----------   -----------  -----------
Operating income (loss)...............  (1,562,920)      882,804    1,018,810
                                       -----------   -----------  -----------
Other (income) expenses:
  Interest expense....................   2,013,028     1,152,473      790,439
  Interest income.....................     (58,732)      (87,629)     (37,978)
  Other, net..........................      45,986      (37,701)      (19,792)
                                       -----------   -----------  -----------
    Total other expenses, net.........   2,000,282     1,027,143      732,669
                                       -----------   -----------  -----------
Income (loss) before equity in net
 loss of RYKA Inc.....................  (3,563,202)     (144,339)     286,141
Equity in net loss of RYKA Inc........    (592,093)     (518,491)    (261,331)
                                       -----------   -----------  -----------
Income (loss) before income taxes.....  (4,155,295)     (662,830)      24,810
Foreign income taxes..................         --         81,483          --
                                       -----------   -----------  -----------
Net income (loss)..................... $(4,155,295)  $  (744,313) $    24,810
                                       ===========   ===========  ===========
Unaudited Pro Forma Data:
Income (loss) before income taxes..... $(4,155,295)  $  (662,830) $    24,810
Provision for income taxes............         --         21,000      144,000
                                       -----------   -----------  -----------
Pro forma net loss.................... $(4,155,295)  $  (683,830) $  (119,190)
                                       ===========   ===========  ===========
Pro forma basic losses per share...... $     (1.39)  $      (.27) $      (.07)
                                       ===========   ===========  ===========
Pro forma diluted losses per share.... $     (1.39)  $      (.27) $      (.07)
                                       ===========   ===========  ===========
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-4
<PAGE>
 
                      GLOBAL SPORTS, INC. AND SUBSIDIARIES
 
                STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
 
<TABLE>
<CAPTION>
                             COMMON STOCK     ADDITIONAL               CUMULATIVE    TREASURY STOCK
                          -------------------  PAID IN     RETAINED    TRANSLATION --------------------
                            SHARES   DOLLARS   CAPITAL     EARNINGS    ADJUSTMENT   SHARES     DOLLARS
                          ---------- -------- ----------  -----------  ----------- ---------  ---------
<S>                       <C>        <C>      <C>         <C>          <C>         <C>        <C>
Combined balance at
 January 1, 1995........       2,000 $  2,000 $      --   $   771,220   $    --          100  $  25,000
Contributions to
 additional paid-in
 capital................                         155,430
Distributions to
 shareholder............                                     (823,543)
Net income..............                                       24,810
Translation
 adjustments............                                                 (12,130)
                          ---------- -------- ----------  -----------   --------   ---------  ---------
Combined balance at
 December 31, 1995......       2,000    2,000    155,430      (27,513)   (12,130)        100     25,000
Distributions to
 shareholder............                                     (782,200)
Equity in stock
 issuances of RYKA
 Inc. ..................                         911,328
Net loss................                                     (744,313)
Translation
 adjustments............                                                 (29,735)
                          ---------- -------- ----------  -----------   --------   ---------  ---------
Combined balance at
 December 31, 1996......       2,000    2,000  1,066,758   (1,554,026)   (41,865)        100     25,000
Warrant compensation
 related to former
 officer................                         152,333
Equity in stock
 issuances of RYKA
 Inc. ..................                         356,534
Adjustments arising from
 reorganization,
 1,608.06-for-1 stock
 split and change from
 no par value to $.01
 per share..............   3,316,111   31,184     (6,184)                               (100)   (25,000)
Common stock issued in
 acquisition of RYKA
 Inc. and acquisition of
 treasury stock.........   8,169,086   81,691  6,431,691                           1,069,086   (213,817)
Net loss................                                   (4,155,295)
Translation
 adjustments............                                                   6,345
                          ---------- -------- ----------  -----------   --------   ---------  ---------
Consolidated balance at
 December 31, 1997......  11,487,197 $114,875 $8,001,132  $(5,709,321)  $(35,520)  1,069,086  $(213,817)
                          ========== ======== ==========  ===========   ========   =========  =========
</TABLE>
 
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-5
<PAGE>
 
                      GLOBAL SPORTS, INC. AND SUBSIDIARIES
 
                            STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                YEAR ENDED DECEMBER 31,
                                          --------------------------------------
                                              1997         1996         1995
                                          ------------  -----------  -----------
                                          CONSOLIDATED   COMBINED     COMBINED
<S>                                       <C>           <C>          <C>
Cash Flows from Operating Activities:
  Net income (loss).....................  ($4,155,295)  $  (744,313) $    24,810
  Adjustments to reconcile net income
   (loss) to net cash provided by (used
   in) operating activities:
    Depreciation and amortization.......      417,020       302,314      219,292
    Provision for losses on accounts
     receivable.........................      507,146       250,845      141,200
    Equity in undistributed loss of RYKA
     Inc................................      592,093       518,491      261,331
    Loss on disposition of equipment....       46,163        31,772          --
    Warrants expense....................      152,333           --           --
  Changes in operating assets and
   liabilities, net of acquisitions:
    Accounts receivable.................   (4,902,102)     (897,553)  (4,942,482)
    Inventory...........................   (3,770,153)     (754,856)  (4,124,722)
    Prepaid expenses and other current
     assets.............................      544,269    (1,067,382)    (109,723)
    Other assets........................   (1,206,817)     (204,473)     200,000
    Accounts payable and accrued
     expenses...........................    3,801,331     3,029,033    1,002,782
                                          -----------   -----------  -----------
    Net cash provided by (used for)
     operating activities...............   (7,974,012)      463,878   (7,327,512)
                                          -----------   -----------  -----------
Cash Flows from Investing Activities:
  Acquisition of Trail BV...............          --            --    (1,023,000)
  Proceeds from sale of equipment.......       85,000         2,000
  Acquisition of property and
   equipment............................     (231,987)     (508,850)    (282,278)
  Cash acquired in Reorganization.......       66,806           --           --
  Investment in RYKA Inc................      473,589           --      (148,560)
  Advances to RYKA Inc..................       12,311       (17,040)    (853,483)
  Note receivable.......................          --            --        70,000
                                          -----------   -----------  -----------
    Net cash provided by (used for)
     investing activities...............      405,719      (523,890)  (2,237,321)
                                          ===========   ===========  ===========
Cash Flows from Financing Activities:
  Net borrowings under line of credit...    7,906,336       970,441    7,750,500
  Repayment of capitalized lease
   obligation...........................     (105,378)      (86,251)     (39,659)
  Stockholder's advances................          --        244,153    2,502,130
  Contributions to capital..............          --            --       155,430
  Repayment of subordinated debt........     (416,000)          --           --
  Distributions to stockholder..........          --       (782,200)    (823,543)
                                          -----------   -----------  -----------
    Net cash provided by financing
     activities.........................    7,384,958       346,143    9,544,858
                                          -----------   -----------  -----------
Effect of exchange rate on cash.........        6,345       (29,735)     (12,130)
                                          -----------   -----------  -----------
Net increase (decrease) in cash and cash
 equivalents............................     (176,990)      256,396      (32,105)
Cash and cash equivalents, beginning of
 year...................................      275,871        19,475       51,580
                                          -----------   -----------  -----------
Cash and cash equivalents, end of year..       98,881   $   275,871  $    19,475
                                          ===========   ===========  ===========
Supplemental disclosure of cash flow
 information:
  Cash paid during the year for
   interest.............................  $ 1,882,198   $ 1,026,499  $   736,011
Supplemental disclosure of noncash investing and
 financing activities:
  Modification of existing capital
   lease................................          --    $   916,960          --
  Issuance of common stock of affiliate
   at a price per share in excess of the
   Company's carrying amount............  $   356,534   $   911,328          --
  Refinancing of revolving credit
   agreement............................  $16,718,420           --           --
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-6
<PAGE>
 
                     GLOBAL SPORTS, INC. AND SUBSIDIARIES
 
                         NOTES TO FINANCIAL STATEMENTS
 
NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION
 
  Global Sports, Inc. ("Global" or the "Company", formerly RYKA Inc.), a
Delaware corporation, designs, develops and markets athletic footwear to
retail outlets primarily located in the United States.
 
  On December 15, 1997, RYKA Inc., ("RYKA") consummated a Second Amended and
Restated Agreement and Plan of Reorganization, as amended (the "Reorganization
Agreement") among RYKA, KPR Sports International, Inc., a Pennsylvania
corporation ("KPR"), Apex Sports International, Inc., a Pennsylvania
corporation ("Apex"), MR Management, Inc., a Pennsylvania corporation
("Management"), and Michael G. Rubin, the Chairman and Chief Executive Officer
of the Company, which provided for, among other things, the reorganization
(the "Reorganization") of RYKA and the KPR Companies (as defined below) as
follows: (i) RYKA was renamed Global Sports, Inc. (ii) the transfer by the
Company to RYKA Sub, Inc. ("RYKA Sub"), a Pennsylvania corporation, of all of
the assets and liabilities of the Company in exchange for all of the issued
and outstanding capital stock of RYKA Sub, (iii) the merger of KPR
Acquisitions, Inc., a Pennsylvania corporation that is wholly-owned by the
Company, with and into KPR, with KPR surviving the merger as a wholly-owned
subsidiary of the Company, (iv) the acquisition by the Company of all of the
issued and outstanding shares of capital stock of Apex and Management (KPR,
Apex and Management are collectively referred to as the "KPR Companies"), and
(v) the issuance to Michael G. Rubin, the sole stockholder of the KPR
Companies, of an aggregate of 8,169,086 new shares of common stock (after
giving effect to the 1-for-20 reverse stock split) in exchange for his shares
of common stock of the KPR Companies and the KPR Companies' holdings of common
stock of the Company. RYKA Sub subsequently changed its name to RYKA Inc.
after the reorganization.
 
  After the Reorganization, Mr. Rubin, the former sole shareholder of the KPR
Companies, now owns approximately 78.4% of the outstanding voting power of the
Company. Accordingly, the Reorganization has been accounted for as a reverse
purchase under generally accepted accounting principles pursuant to which the
KPR Companies are considered to be the acquiring entity and the Company is the
acquired entity for accounting purposes, even though the Company is the
surviving legal entity. As a result of this reverse purchase accounting
treatment, (i) the historical financial statements of the Company for periods
prior to the date of the Reorganization are no longer the historical financial
statements of the Company, and therefore, are no longer presented; (ii) the
historical financial statements of the Company for periods prior to the date
of the Reorganization are those of the KPR Companies, (iii) all references to
the financial statements of the Company apply to the historical financial
statements of the KPR Companies prior to and subsequent to the Reorganization,
and (iv) any references to RYKA apply solely to that company and its financial
statements prior to the Reorganization.
 
  Total consideration for RYKA amounted to $6,513,382. The historical cost of
assets and liabilities recorded by RYKA on the date of the Reorganization
equaled fair value. An independent valuation was performed to identify and
value intangible assets (patents and trademarks). The remainder of the
consideration was allocated to goodwill. The following table details the
allocation of the total consideration:
 
<TABLE>
           <S>                                    <C>
           Assets acquired....................... $4,374,805
           Identified intangibles................  1,762,800
           Liabilities assumed................... (3,912,786)
           Treasury stock acquired...............    213,817
           Goodwill..............................  4,074,746
                                                  ----------
               Total............................. $6,513,382
                                                  ==========
</TABLE>
 
                                      F-7
<PAGE>
 
                     GLOBAL SPORTS, INC. AND SUBSIDIARIES
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The following unaudited pro forma information is presented as if the
Reorganization had occurred on January 1, 1996:
 
<TABLE>
<CAPTION>
                                                          1997         1996
                                                       -----------  -----------
     <S>                                               <C>          <C>
       Net sales...................................... $73,728,000  $57,535,000
       Net loss.......................................  (5,814,000)  (2,298,000)
       Loss per share.................................        (.56)        (.22)
</TABLE>
 
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
 
  Principles of Consolidation: The consolidated financial statements presented
for 1997 include the accounts of Global Sports, Inc., a Delaware corporation,
and the following wholly-owned subsidiaries: Apex Sports International, Inc.;
KPR Sports International, Inc.; MR Management, Inc.; and RYKA Inc. (all
Pennsylvania corporations) subsequent to the Reorganization. The combined
financial statements presented for 1996 and 1995 include the accounts of KPR
Sports International, Inc. and Affiliates, MR management, Inc., KPR Sports
International BVBA (an entity organized pursuant to the laws of Belgium and
owned 79% by the Company and 21% by MR Management, Inc.), KPR Sports
International Europe B.V. (an entity organized pursuant to the laws of the
Netherlands Ministry of Justice and owned 79% by the Company and 21% by MR
Management, Inc.), MR Acquisitions, LLC (an entity owned 99% by the Company
and 1% by MR Management, Inc.), Abington Ski, Inc., Delmar Ski, Inc.,
Lancaster Ski, Inc. and Apex Sports International, Inc. all of which are
affiliated through the common ownership of an individual shareholder and are a
part of Global after the Reorganization (see Note 1). All intercompany
accounts and transactions have been eliminated in consolidation and
combination.
 
  Operations and Financing: As discussed in Note 4, during the latter part of
1996 and for most of 1997, the Company had a number of financing issues which
were mitigated on November 20, 1997 when the Company secured adequate
financing with a new lender. In addition, during that same time, the Company
was preparing to reorganize RYKA and the KPR Companies (see Note 1), which
became effective December 15, 1997. Such issues and efforts had a negative
impact on the Company's results of operations. Management believes that they
have adequate financing to allow the Company to continue its operations, meet
its obligations as they mature, and comply with its debt covenants (as amended
March 27, 1998) during the forseeable future. Ultimately, the Company must
generate sufficient revenues from sales of its products to attain
profitability.
 
  Cash Equivalents: The Company considers highly liquid investments with
maturities at date of purchase of less than three months to be cash
equivalents.
 
  Inventory: Inventory, primarily consisting of athletic footwear and apparel,
is valued at the lower of cost (determined by the first-in, first-out method)
or market.
 
  Property and Equipment: Property and equipment are stated at cost.
Depreciation is provided over the estimated useful lives of the assets,
generally five to seven years, using the straight-line method. Included in
these assets are leasehold improvements which are amortized over the shorter
of the useful life of the improvement or the remaining term of the lease.
Expenditures for maintenance and repairs are expensed as incurred. Upon
retirement or other disposition of these assets, the cost and related
accumulated depreciation are removed from the accounts and the resulting gain
or loss, if any, is reflected in results of operations.
 
  Sale of Stock by an Equity Method Investee: Prior to the Reorganization,
changes in the KPR Companies' proportionate share of the underlying equity of
RYKA, an equity method investee, which result from the issuance of additional
securities by such investee, were credited directly to additional paid-in
capital. In 1997 and 1996, $356,534 and $911,328, respectively, of such gains
were credited to additional paid-in capital (see Note 16).
 
                                      F-8
<PAGE>
 
                     GLOBAL SPORTS, INC. AND SUBSIDIARIES
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
  Foreign Currency Translation: In accordance with the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 52, Foreign Currency
Translation, exchange adjustments resulting from foreign currency transactions
generally are recognized currently in income, whereas adjustments resulting
from translations of financial statements are reflected as a separate
component of shareholder's equity. The currency translation loss for the years
ended December 31, 1997, 1996 and 1995 were $35,520, $41,865 and $12,130,
respectively.
 
  Goodwill and Intangibles. The cost of goodwill and intangibles is amortized
on a straight-line basis over ten years. The realizability of goodwill and
intangibles is evaluated periodically as events or circumstances indicate a
possible inability to recover their carrying amount. Such evaluation is based
on various analyses, including undiscounted cash flow and profitability
projections that incorporate, as applicable, the impact on existing company
businesses. The analyses necessarily involve significant management judgment.
Goodwill is reported net of accumulated amortization of $16,978 in 1997.
Intangibles, which principally represent the cost of acquiring licenses,
patents and trademarks, are reported net of accumulated amortization of
$55,611 and $7,383 in 1997 and 1996, respectively.
 
  Income Taxes: Prior to December 15, 1997, the KPR Companies had elected to
be taxed as S Corporations, under provisions of the Internal Revenue Code and
various state income tax regulations. As such, current taxable income had been
included on the income tax returns of the then sole shareholder for federal
and state income tax purposes and no provision had been made for federal
income taxes (see pro forma presentation). On December 15, 1997, the KPR
Companies effected a merger with RYKA Inc. (see Note 1). As a result of the
merger, the KPR Companies' S election was terminated. The Company, now renamed
Global Sports, Inc., is considered a C corporation and is subject to federal
and state income taxes. As such, taxes on income are provided based upon SFAS
No. 109, Accounting for Income Taxes, which requires an asset and liability
approach to financial accounting and reporting for income taxes. Deferred
income tax assets and liabilities are computed for differences between the
financial statements and tax bases of assets and liabilities that will result
in taxable or deductible amounts in the future. Such deferred income tax asset
and liability computations are based on enacted tax laws and rates applicable
to periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized.
 
  Unaudited Pro Forma Net Income: Pro forma net income represents net income
after pro forma adjustments for income taxes as if the KPR Companies had been
subject to federal and state income taxation as a C Corporation since its
inception.
 
  Revenue Recognition: Sales, net of discounts, are recognized upon the
shipment of product.
 
  Advertising: The Company expenses the cost of advertising upon the first
time the advertising takes place. Advertising expense was $431,753, $206,842
and $23,242 for 1997, 1996, and 1995 respectively.
 
  Reclassifications: Certain 1995 and 1996 balances have been reclassified to
conform with the 1997 financial statement presentation.
 
  Use of Estimates: The presentation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
 
 
                                      F-9
<PAGE>
 
                     GLOBAL SPORTS, INC. AND SUBSIDIARIES
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
  Fair Value of Financial Instruments: The carrying amounts of cash and cash
equivalents, accounts receivable, accounts payable and note payable, bank are
a reasonable estimate of their fair values at December 31, 1997 and 1996,
based on either the short maturity of the instrument or current rates offered
to the Company for debt of a similar nature. The fair value of the
subordinated note payable, related party is not practicable to determine
because of the lack of quoted market prices for such debt and the Company's
lack of offers to provide comparable subordinated debt.
 
  Stock Based Compensation: SFAS No. 123, Accounting for Stock Based
Compensation, 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 method prescribed in Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees, 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 (see Note 11).
 
 New Accounting Pronouncements:
 
  Earnings (Losses) Per Share: Earnings (losses) per share for all periods
have been computed in accordance with SFAS No. 128, Earnings Per Share. Basic
net income (loss) per share is computed by dividing net income (loss) by the
weighted average number of shares of common stock outstanding during the year.
Diluted net income (loss) per share is computed by dividing the net income
(loss) by the weighted average number of shares outstanding during the year,
assuming dilution.
 
  Pro forma basic earnings (losses) per share represents pro forma net income
(loss) (after a pro forma provision for income taxes as if the Company had
been subject to federal and state income taxation as a C corporation since
inception) divided by the weighted average number of common shares outstanding
during the period.
 
  Pro forma diluted earnings (losses) per share is computed by dividing pro
forma net income (loss) by the weighted average number of common shares
outstanding during the period, assuming dilution.
 
  The amounts used in calculating earnings (losses) per share data are as
follows:
 
<TABLE>
<CAPTION>
                                    1997            1996           1995
                                 -----------      ---------      ---------
   <S>                           <C>              <C>            <C>
   Pro Forma Net Loss..........  $(4,155,295)     $(683,830)     $(119,190)
                                 ===========      =========      =========
   Weighted Average Shares
     Outstanding--Basic and
      Diluted..................    2,996,027/(1)/ 2,568,431/(1)/ 1,717,033/(1)/
                                 ===========      =========      =========
   Outstanding Common Stock
    Options having no Dilutive
    Effect.....................      542,681        241,250        192,750
                                 ===========      =========      =========
   Outstanding Common Stock
    Warrants having no Dilutive
    Effect.....................      236,486         81,186         37,686
                                 ===========      =========      =========
</TABLE>
 
  The Company's pro forma net loss in 1997, 1996, and 1995 results in an
antidilutive effect in the calculation of pro forma diluted earnings (losses)
per share.
--------
/(1)/On December 15, 1997, the Company effected a 1-for-20 reverse stock split
     of its common stock. All share amounts have been adjusted to reflect the
     reverse split (see Note 1).
 
 
                                     F-10
<PAGE>
 
                     GLOBAL SPORTS, INC. AND SUBSIDIARIES
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 Comprehensive Income:  In June 1997, the Financial Accounting Standards Board
("FASB") issued SFAS No. 130, Reporting Comprehensive Income. This statement,
which establishes standards for reporting and disclosure of comprehensive
income, is effective for interim and annual periods beginning after December
15, 1997, although earlier adoption is permitted. Reclassification of
financial information for earlier periods presented for comparative purposes
is required under SFAS No. 130. As this statement only requires additional
disclosures in the Company's financial statements, its adoption will not have
any impact on the Company's financial position, results of operations or cash
flows. The Company will adopt SFAS No. 130 in its 1998 fiscal year.
 
 Segment Information:   In June 1997, the FASB issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. This
statement, which establishes standards for the reporting of information
operating segments and requires the reporting of selected information about
operating segments in interim financial statements, is effective for periods
beginning after December 15, 1997, although earlier adoption is permitted.
SFAS No. 131 is not required to be applied to interim financial statements in
the initial year of application, but comparative information for interim
periods in the initial year of application is to be reported in financial
statements for interim periods in the second year of application. As this
statement only requires additional disclosures in the Company's financial
statements, its adoption will not have any impact on the Company's financial
position, results of operations or cash flows. The Company will adopt SFAS No.
131 in its 1998 fiscal year.
 
NOTE 3--RELATED PARTY TRANSACTIONS
 
  The Company is located in King of Prussia, Pennsylvania where it conducts
its operations and warehouses inventory in a facility leased from the
Company's Chairman and CEO (see Note 5).
 
  A summary of the KPR Companies' related party transactions with RYKA Inc.
(prior to the Reorganization) for the years ended December 31, 1997 and 1996
are as follows:
 
<TABLE>
<CAPTION>
                                                                      FISCAL YEAR
                                                                   -----------------
        NATURE OF TRANSACTIONS  FINANCIAL STATEMENT CLASSIFICATION   1997     1996
        ----------------------  ---------------------------------- -------- --------
      <S>                       <C>                                <C>      <C>
      Purchase of inventory...     Cost of Goods Sold/Inventory    $196,274 $151,985
      Rent....................     Other (Income) Expenses         $ 45,521 $ 47,500
      Interest on subordinated
       debt...................     Interest Income                 $ 56,854 $ 80,723
</TABLE>
 
NOTE 4--NOTES PAYABLE
 
  During the latter part of 1996 and for most of 1997, the KPR Companies had a
number of financing issues with its then lending bank which also impacted
RYKA. At December 31, 1996, the Company had an outstanding balance on its line
of credit of $10,682,171. On June 4, 1997, the KPR Companies obtained an
extension of the then line of credit through November 30, 1997. The terms of
the extension modified the existing line of credit in several significant ways
including an increase in the interest rate from prime plus 1/2% (8 3/4% at
December 31, 1996) to prime plus 3% for the first 30 days, increasing 1% per
month, allowing the Company to borrow up to $5,750,000 in excess of its
original $15,000,000 credit line and to borrow up to $5,200,000 in excess of
the collateral value as defined by the bank, obtaining the then Shareholder's
guarantee and resetting certain financial covenants.
 
  At the same time the KPR Companies were experiencing financing issues with
its then lending bank, RYKA and the KPR Companies were in discussions with
certain other financial institutions to obtain a new credit facility and with
certain investors to obtain equity and/or subordinated debt. On April 21,
1997, RYKA sold to certain investors 2,500,000 shares of common stock for an
aggregate purchase price of $750,000. The proceeds of this
 
                                     F-11
<PAGE>
 
                     GLOBAL SPORTS, INC. AND SUBSIDIARIES
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
sale were used by RYKA to repay $385,000 of the $851,000 subordinated loan
from the KPR Companies. The remaining proceeds were used to open $810,000
letters of credit for the benefit of the KPR Companies.
 
  The total interest incurred in connection with the former lender in 1997 was
$1,289,537.
 
  On November 20, 1997, the KPR Companies and RYKA entered into a Loan and
Security Agreement (the "Loan Agreement") with a new lender pursuant to which
their prior lender was repaid in full on November 21, 1997. Under the Loan
Agreement, the Company has access to a combined credit facility of $25,000,000
which is comprised of the KPR Companies' credit facility of $20,000,000 and
RYKA's credit facility of $5,000,000. The term of the Loan Agreement is five
years. At December 31, 1997, the Company has classified $2,000,000 of the
amount outstanding as a current liability based on the Company's expectation
of the amounts which will be satisfied by December 31, 1998.The KPR Companies
and RYKA have an interest rate choice of prime plus 1/4% or LIBOR (Adjusted
Eurodollar Rate) plus two hundred seventy-five basis points (8 3/4% at
December 31, 1997). The Company's combined credit facility was subsequently
increased to $30,000,000 on February 20, 1998 by increasing the line of credit
available to the KPR Companies to $25,000,000.
 
  Under the Loan Agreement, both the KPR Companies and RYKA may borrow up to
the amount of their revolving line based upon 85% of their eligible accounts
receivable and 65% of their eligible inventory, as those terms are defined in
the Loan Agreement. The Loan Agreement also includes 50% of outstanding
letters of credit as collateral for borrowing.
 
  In addition to the revolving lines of credit described above, provided that
80% of their orders are pre-sold, the new lender will over-advance to the
Company a combined additional total of $3,000,000, comprised of the KPR
Companies' additional $2,000,000 and RYKA's additional $1,000,000 over the
collateral for additional letters of credit needed for seasonal production of
new merchandise for the Fall 1998, Spring 1999 and Fall 1999 seasons.
 
  At December 31, 1997, the Company was not in compliance with a financial
covenant of its Loan Agreement, namely the financial covenant requiring
$2,500,000 of consolidated net income plus depreciation, amortization and
other non-cash charges plus interest and income taxes ("EBITDA") on an
annualized basis for the period July 1, 1997 through December 31, 1997. A
waiver was obtained from the bank to remedy its violation of the financial
covenant. In March 1998, the Company renegotiated the terms of and executed an
amendment to the Loan Agreement such that the financial covenant would require
the Company to maintain EBITDA of $5,000,000 on an annualized basis for
periods subsequent to December 31, 1997.
 
  The total interest incurred in connection with these new facilities in 1997
was $168,046. Closing and other fees incurred at the inception of the new
facilities in the amount of approximately $266,000 have been included in Other
Current Assets and are being amortized over the term of the Loan Agreement.
The total available credit under the combined facilities was $2,729,983 at
December 31, 1997.
 
NOTE 5--CAPITAL LEASE OBLIGATION, RELATED PARTY
 
  In September, 1994, the KPR Companies entered into a fifteen year capital
lease with its CEO and Chairman, for warehouse and office space for its
corporate headquarters. On October 1, 1996, the lease was amended from an
annual rental amount of $193,056 to an annual rental amount of $347,498. Such
amended amount more closely reflects the market value of the lease at the time
it was amended. The Company pays all insurance and maintenance relating to the
leased property. The mortgage on the leased property is collateralized by a
guaranty of a subsidiary of the Company and has an outstanding principal
balance of $1,588,618 and $1,643,338 at December 31, 1997 and 1996,
respectively.
 
  Interest on all capital leases for 1997, 1996 and 1995 was $242,120,
$160,003 and $215,902, respectively.
 
 
                                     F-12
<PAGE>
 
                     GLOBAL SPORTS, INC. AND SUBSIDIARIES
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
  Future minimum lease payments under capital lease with the Chairman and CEO
of the Company at December 31, 1997, together with the present value of the
minimum lease payments, are as follows:
 
<TABLE>
     <S>                                                             <C>
     1998........................................................... $  347,498
     1999...........................................................    347,498
     2000...........................................................    347,498
     2001...........................................................    347,498
     2002...........................................................    347,498
     Thereafter.....................................................  2,345,611
                                                                     ----------
     Total minimum payments.........................................  4,083,101
     Less interest discount amount..................................  1,657,746
                                                                     ----------
     Total present value of minimum payments........................  2,425,355
     Less current portion...........................................    116,124
                                                                     ----------
     Total non-current portion...................................... $2,309,231
                                                                     ==========
</TABLE>
 
NOTE 6--SUBORDINATED NOTE PAYABLE, RELATED PARTY
 
  At the refinancing in November 1997, the KPR Companies owed Michael Rubin
subordinated debt of $3,055,841 which was comprised of (i) a loan from Mr.
Rubin to the KPR Companies in the principal amount of $851,440, plus accrued
and unpaid interest on such loan of $180,517 through October 31, 1997 and (ii)
a note in the principal amount of $2,204,401 representing undistributed sub
chapter S corporation retained earnings previously taxed to Mr. Rubin as the
sole shareholder of the KPR Companies. No interest accrued on the note
representing sub chapter S corporation earnings until December 15, 1997, the
effective date of the Reorganization, at which time the interest began to
accrue on such note at a choice of prime plus 1/4% or LIBOR (Adjusted
Eurodollar Rate) plus two hundred seventy-five basis points.
 
  The Loan Agreement and a related Subordination Agreement (the "Subordination
Agreement") by and among the KPR Companies, Mr. Rubin and the lender entered
into at the same time as the Loan Agreement allowed the KPR Companies to repay
Mr. Rubin $1,000,000 of the subordinated debt principal and the accrued
interest of $180,517 at the time of this loan closing or within five days
thereafter, subject to there being $2,000,000 of availability under the KPR
Companies' credit line after taking into account such payments. Such payments
were made to Mr. Rubin on November 26, 1997.
 
  In addition, the Loan Agreement and the Subordination Agreement permit the
KPR Companies to make continued regular payments of interest on the
subordinated debt and to further reduce principal on a quarterly basis,
commencing with the first quarter of 1998, in an amount up to 50% of the
cumulative consolidated net income of both borrowers, reduced by net losses of
the borrowers during such period.
 
                                     F-13
<PAGE>
 
                     GLOBAL SPORTS, INC. AND SUBSIDIARIES
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
NOTE 7--INCOME TAXES
 
  For the years ended December 31, 1997, 1996 and 1995 the Company had no
provision for federal and state income taxes. In 1996, the Company had a
provision for foreign taxes of $81,483. The components of the net deferred tax
assets at December 31, 1997 consisted of the following:
 
<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                                       1997
                                                                   ------------
     <S>                                                           <C>
     Deferred tax asset:
       Inventory..................................................   $ 596,592
       Provision for doubtful accounts............................     458,914
       Net operating loss carryforwards...........................   7,750,306
                                                                   -----------
     Gross deferred tax asset.....................................   8,805,812
     Intangibles..................................................    (684,000)
     Valuation allowance..........................................  (8,121,812)
                                                                   -----------
     Net deferred tax asset....................................... $       --
                                                                   ===========
</TABLE>
 
  Due to the uncertainty surrounding the realization of these favorable tax
attributes in future income tax returns, the Company has placed a valuation
allowance against its otherwise recognizable deferred tax assets. As of
December 31, 1997 the Company had available net operating loss carryforwards,
attributable to RYKA, of approximately $19,975,000 which expire in the years
beginning 2002 through 2011. The use of net operating loss carryforwards may
be subject to annual limitations based on ownership changes of the Company's
stock, as defined by Section 382 of the Internal Revenue Code. To the extent
that such net operating loss carryforwards are realized, they will reduce the
carrying value of goodwill.
 
NOTE 8--PROPERTY AND EQUIPMENT
 
  Major classes of property and equipment, at cost, are as follows:
 
<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                         ----------------------
                                                            1997        1996
                                                         ----------  ----------
   <S>                                                   <C>         <C>
   Equipment............................................ $1,090,148  $  920,346
   Building (under capitalized lease--See Note 5).......  2,666,958   2,666,958
   Leasehold improvements...............................    353,767     312,147
                                                         ----------  ----------
                                                          4,110,873   3,899,451
   Less: Accumulated depreciation and amortization......   (828,161)   (567,911)
                                                         ----------  ----------
                                                         $3,282,712  $3,331,540
                                                         ==========  ==========
</TABLE>
 
NOTE 9--COMMITMENTS AND CONTINGENCIES
 
 Legal Proceedings
 
  In March 1997, Big Smith Brands, Inc, ("Big Smith"), alleging breach of
contract, commenced an action against the Company seeking damages in the
amount of $954,000. The Company filed a countersuit alleging misrepresentation
and defects in merchandise sold to the Company.
 
  The case settled pre-court, resulting in an agreement whereby the Company
was required to pay Big Smith $600,000, payable in six equal monthly
installments of $100,000 commencing on November 1, 1997. The Company had
approximately $818,000 recorded in accounts payable to Big Smith relating to
this matter at December 31, 1996 and had recorded a charge to operations in
1996 to account for the impairment in the inventory that management believes
existed due to the above facts and circumstances.
 
  The Company is involved in other various routine litigation, including
litigation in which the Company is a plaintiff, incidental to its business.
The Company believes that the disposition of such routine litigation will not
have a material adverse effect on the financial position or results of
operations of the Company.
 
                                     F-14
<PAGE>
 
                     GLOBAL SPORTS, INC. AND SUBSIDIARIES
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
 Employment Agreements
 
  At December 31, 1997, the Company has employment agreements with several of
its officers for an aggregate annual base salary of $820,000 plus bonus and
increases in accordance with the terms of the agreements. Terms of such
contracts range from three to five years and are subject to automatic annual
extensions.
 
 Purchases
 
  As of December 31, 1997, outstanding purchase commitments exist totalling
$2,967,183, for which commercial letters of credit have been issued.
 
NOTE 10--EQUITY
 
  The Company, after the Reorganization, is authorized to issue up to
1,000,000 shares of preferred stock, $.01 par value. The preferred stock may
be issued in one or more series, the terms of which may be determined at the
time of issuance by the Board of Directors, without further action by
stockholders, and may include voting rights (including the right to vote as a
series on particular matters), preferences as to dividends and liquidation,
conversion and redemption rights. No preferred stock has been issued as of
December 31, 1997.
 
  On April 21, 1997, RYKA sold 125,000 shares of the its common stock for
$750,000 to certain private investors. The proceeds from this sale were used
to repay $385,000 of the Subordinated Note Payable owed to the KPR Companies
from RYKA and to enable the Company to open $810,000 in letter of credit
agreements for the benefit of KPR.
 
  In connection with MR Acquisitions' investment in RYKA Inc. in 1995 (see
Note 16), MR Acquisitions was granted contingent warrants to purchase 455,000
shares of common stock. As of December 31, 1997, MR Acquisitions had exercised
warrants to purchase 361,587 of the 455,000 shares of RYKA common stock for
which it paid an aggregate exercise price of $72,317. These 361,587 shares
represent the full number of warrants that MR Acquisitions was entitled to
exercise under the terms of the warrants. MR Acquisitions was not entitled to
exercise the remaining warrants for 93,413 shares because Mr. Rubin did not
fully satisfy the contingency under the warrants in that he did not raise the
required amount of capital for RYKA through equity offerings by the date
specified in the warrants.
 
  At December 31, 1996, the KPR Companies' common stock consisted of:
 
<TABLE>
      <S>                                                               <C>
      KPR Sports International, Inc., no par value, 1,000 shares
       authorized, 200 shares issued and outstanding................... $1,000
      MR Management, Inc., no par value, 1,000 shares authorized, 100
       shares issued and outstanding...................................    500
      KPR Sports International, BVBA, no par value, 1,000 shares
       authorized, 100 shares issued and outstanding...................
      KPR Sports International Europe B.V., no par value, 1,000 shares
       authorized, 100 shares issued and outstanding...................
      MR Acquisitions, LLC, no par value, 1,000 shares authorized, 100
       shares issued and outstanding...................................
      Abington Ski, Inc., no par value, 10,000 voting and 10,000
       nonvoting shares authorized, 100 shares of voting stock issued
       and outstanding.................................................
      Delmar Ski, Inc., no par value, 1,000 shares authorized, 100
       shares issued and outstanding...................................    500
      Lancaster Ski, Inc., no par value, 10,000 voting and 10,000
       nonvoting shares authorized, 100 shares of voting stock issued
       and outstanding.................................................
      Apex Sports International, Inc., no par value, 1,000 shares
       authorized, 100 shares issued and outstanding...................
                                                                        ------
                                                                        $2,000
                                                                        ======
</TABLE>
 
 
                                     F-15
<PAGE>
 
                     GLOBAL SPORTS, INC. AND SUBSIDIARIES
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 11--STOCK OPTIONS
 
  All share and per share amounts have been adjusted to reflect the 1-for-20
reverse stock split, effected on December 15, 1997 (see Note 1). As part of
the Reorganization (see Note 1), the following stock options and stock option
plans were assumed by the Company effective December 15, 1997.
 
  Pursuant to option grant letters, but not pursuant to any formal plan ("Non-
Plan Grants"), the Company assumed options issued to certain individuals to
purchase shares of the Company's common stock at prices which approximated
fair market value at the date of grant. The options vest at various times over
periods ranging up to five years and, if not exercised, expire up to ten years
after the date of grant.
 
  The Company assumed eight separate stock option plans (the "Plans"). Under
the terms of the 1987 Stock Option Plan, 1988 Stock Option Plan, 1990 Stock
Option Plan, 1992 Stock Option Plan, 1993 Stock Option Plan, 1995 Stock Option
Plan, 1996 Stock Option Plan and 1995 Non-employee Directors Plan, the Company
may grant qualified and nonqualified options to purchase up to 31,321; 17,500;
37,500; 43,750; 45,000; 75,000; 1,000,000; and 12,500 shares of common stock,
respectively, to employees, directors and consultants of the Company. The
options vest at various times over periods ranging up to five years. All
options have been granted at not less than fair market value of the common
stock as of the date of grant. The options, if not exercised, expire up to 10
years after the date of grant. Stock appreciation rights ("SAR's") may be
granted under the Plans either alone or in tandem with stock options.
Generally, recipients of SAR's are entitled to receive, upon exercise, cash or
shares of common stock (valued at the then fair market value of the Company's
common stock) equal to such fair market value on the date of exercise minus
such fair value on the date of grant of the shares subject to the SAR,
although certain other measurements also may be used. A SAR granted in tandem
with a stock option is exercisable only if and to the extent that the option
is exercised. No SAR's have been granted under the Plans.
 
  If permitted by the Board of Directors, options (other than those granted in
tandem with SAR's) may be settled by the Company paying to the recipient, in
cash or shares of common stock (valued at the then fair market value of the
Company's common stock), an amount equal to such fair market value minus the
exercise price of the option shares.
 
  The following table summarizes the options assumed and the option activity
for the period December 15, 1997 through December 31, 1997:
 
<TABLE>
<CAPTION>
                                                                        WEIGHTED
                                                NUMBER                  AVERAGE
                                                  OF                    EXERCISE
                                                SHARES  EXERCISE PRICE   PRICE
                                                ------- --------------- --------
<S>                                             <C>     <C>             <C>
Assumed at
 December 15, 1997............................. 219,547 $ 4.00 - $25.00  $10.90
Granted........................................ 441,850 $ 3.20 - $ 5.00  $ 3.69
Exercised......................................
Canceled....................................... 118,716 $ 4.00 - $13.20  $ 8.95
                                                ------- ---------------  ------
Outstanding at
 December 31, 1997............................. 542,681 $ 3.20 - $25.00  $ 5.45
                                                ======= ===============  ======
</TABLE>
 
  The following table summarizes information about options outstanding at
December 31, 1997:
 
<TABLE>
<CAPTION>
                                  OPTIONS OUTSTANDING                      OPTIONS EXERCISABLE
                 ----------------------------------------------------- ----------------------------
   RANGE OF                      WEIGHTED AVERAGE     WEIGHTED AVERAGE             WEIGHTED AVERAGE
   EXERCISE        NUMBER           REMAINING             EXERCISE       NUMBER        EXERCISE
    PRICES       OUTSTANDING CONTRACTUAL LIFE (YEARS)      PRICE       EXERCISABLE      PRICE
---------------  ----------- ------------------------ ---------------- ----------- ----------------
<S>              <C>         <C>                      <C>              <C>         <C>
$ 3.20 - $10.00    463,917             8.32                $ 3.86        170,084        $ 4.99
$10.01 - $20.00     68,336             5.01                 13.32         64,086         13.46
$20.01 - $25.00     10,428             4.66                 23.36         10,428         23.36
                   -------             ----                ------        -------        ------
$ 3.20 - $25.00    542,681             7.83                $ 5.45        244,598        $ 7.99
                   =======             ====                ======        =======        ======
</TABLE>
 
 
                                     F-16
<PAGE>
 
                     GLOBAL SPORTS, INC. AND SUBSIDIARIES
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
  On December 15, 1997, the effective date of the Reorganization, the
Company's Board of Directors and Compensation Committee elected to cancel and
regrant options to two of its executive officers. The original grants were
made in July and September of 1995 and January of 1996 for an aggregate of
42,500 shares. The exercise prices ranged from $4.00 to $9.375 and had similar
vesting schedules. The options were canceled and regranted at an exercise
price which equaled the fair market value at the date of merger or $3.20 per
share. The vesting schedules remain the same as in the original grants.
 
  In addition, on December 15, 1997, the Company hired the former RYKA founder
to promote it's RYKA products for several future appearances. At that date,
the Company cancelled her existing warrants to purchase 76,000 shares of
common stock and regranted the same amount of options at an exercise price of
$5.00 per share, which exceeded the fair market value at date of grant.
 
  The Company accounts for the Plans in accordance with Accounting Principles
Board Opinion No. 25, under which no compensation cost has been recognized for
stock option awards. Had compensation cost for the Plans been determined
consistent with SFAS No. 123, Accounting for Stock-Based Compensation, the
Company's pro forma net loss and losses per share for 1997 would have been as
follows:
 
<TABLE>
<CAPTION>
                                                                       PRO
                                                        REPORTED      FORMA
                                                      ------------ ------------
<S>                                                   <C>          <C>
Net loss............................................. $(4,155,295) $(4,805,295)
Net loss per share--basic and diluted................ $     (1.39) $     (1.60)
</TABLE>
 
  The weighted average fair value of the stock options granted subsequent to
the Reorganization were $1.49 per share.
 
  The fair value of options granted under the Plans during 1997 was estimated
on the date of grant using the Black-Scholes option pricing model, with the
following assumptions:
 
  .  no dividend yield;
 
  .  expected volatility of 50%;
 
  .  risk free interest rate of 6.10%; and
 
  .  expected lives of 5 years.
 
NOTE 12--COMMON STOCK PURCHASE WARRANTS
 
  All share and per share amounts have been adjusted to reflect the 1-for-20
reverse stock split, effected on December 15, 1997. Prior to the
Reorganization (see Note 1), RYKA issued various common stock warrants in
connection with financings and other activities. As part of the
Reorganization, the following common stock purchase warrants were assumed by
the Company, effective December 15, 1997.
 
<TABLE>
<CAPTION>
                                         NUMBER OF    RANGE OF       RANGE OF
                   ISSUE DATE             SHARES   EXERCISE PRICES TERMS (YEARS)
                   ----------            --------- --------------- -------------
        <S>                              <C>       <C>             <C>
        1994............................   10,026  $12.00 - $20.00    3 - 10
        1995............................   27,660  $ 8.40 - $30.00       5
        1996............................   43,500  $ 5.30 - $ 8.40    5 - 10
        1997............................  155,300  $ 3.20 - $ 5.60       5
                                          -------
            Total.......................  236,486
                                          =======
</TABLE>
 
  Included in the warrants assumed above were contingent and common stock
purchase warrants for which the Company recorded a charge fee for $347,000 in
1997.
 
                                     F-17
<PAGE>
 
                     GLOBAL SPORTS, INC. AND SUBSIDIARIES
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
 
NOTE 13--SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK
 
  The Company's sales and accounts receivable are primarily with national
chain stores. If the financial condition or operations of these customers
deteriorate substantially, the Company's operating results could be adversely
affected. Credit risk with respect to other trade accounts receivable is
generally diversified due to the large number of entities comprising the
Company's customer base. The Company performs ongoing credit evaluations of
its customers' financial condition and generally the Company does not require
collateral. Sales to key customers each amounting to in excess of 10% are as
follows:
 
<TABLE>
<CAPTION>
                                                                  1997 1996 1995
                                                                  ---- ---- ----
     <S>                                                          <C>  <C>  <C>
     Customer A.................................................. 22%  14%  13%
     Customer B.................................................. 13%  17%  19%
</TABLE>
 
  At December 31, 1997, accounts receivable for a significant customer
amounted to approximately $5,045,038 and the top two customers accounted for
$6,536,871 in the aggregate.
 
  Accounts receivable for the top two significant customers at December 31,
1996 amounted to $2,483,847 in the aggregate.
 
NOTE 14--ECONOMIC DEPENDENCY / MAJOR SUPPLIER
 
  During 1997, the Company purchased substantially all its finished goods
(Branded and Off Price) inventory from two suppliers. At December 31, 1997,
the amount due to those suppliers included in accounts payable was
approximately $11,261,105 and open letters of credit were $604,033, which are
included in the Note Payable, Bank.
 
NOTE 15--SAVINGS PLAN
 
  The Company sponsors a defined contribution savings plan covering all U.S.
employees. Company contributions to the plan may not exceed $2,500 per
employee. Amounts charged to expense were $18,594 and $12,394 in 1997 and
1996, respectively, related to the Company's contribution to the plan. The
plan commenced in February 1996.
 
NOTE 16--INVESTMENT IN RYKA INC.
 
  All share and per share amounts have been adjusted to reflect the 1-for-20
reverse stock split, effected on December 15, 1997 (see Note 1).
 
  On July 31, 1995, MR Acquisitions ("MR") purchased, for consideration of
$148,560, a total of 740,000 shares of common stock of RYKA representing
approximately 32% of the equity, and a warrant to purchase an additional
255,000 shares of common stock for $.20 per share. Further, the Company loaned
$851,440 to RYKA in the form of a secured subordinated loan with interest at
prime plus one percent and repayment terms coincident with the revolving
credit facility with the then principal lender of RYKA.
 
  As part of the transaction, RYKA also issued a contingent stock purchase
warrant (the "Contingent Warrant", see Note 10), to MR to purchase up to an
additional 200,000 shares of common stock for an exercise price of $.20 per
share, of which 23,072 shares vested at closing on July 31, 1995. The
Contingent Warrant called for further vesting based on the number of shares of
common stock RYKA issued through July 31, 1996. As of December 31, 1996, the
contingency had been fully resolved and an additional 106,587 shares related
to this warrant were vested.
 
 
                                     F-18
<PAGE>
 
                     GLOBAL SPORTS, INC. AND SUBSIDIARIES
 
                  NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
 
  Further, RYKA reimbursed MR approximately $125,000 for its costs in
connection with the transaction described above.
 
  A summary of activity relating to the Company's investment in RYKA Inc. for
the two years ended December 31, 1997 follows:
 
<TABLE>
     <S>                                                            <C>
     Investment in RYKA, January 1, 1996........................... $  746,122
       Equity in net loss of RYKA..................................   (518,491)
       Equity in stock issuance of RYKA............................    911,328
       Additional advances.........................................     16,040
       Amortization of negative goodwill...........................     12,987
                                                                    ----------
     Investment in RYKA, December 31, 1996.........................  1,167,986
       Equity in net loss of RYKA..................................   (592,093)
       Equity in stock issuances of RYKA...........................    356,534
       Additional advances.........................................     12,311
       Amortization of negative goodwill...........................     12,446
       RYKA partial repayment of initial advance...................   (385,000)
                                                                    ----------
     Investment in RYKA, December 14, 1997......................... $ (572,184)
                                                                    ==========
</TABLE>
 
  During 1996, RYKA issued for cash 525,000 shares of common stock for $5.00
per share which was in excess of the Company's per share carrying amount. The
Company accounted for the change in its proportionate share of RYKA equity as
an increase in both its investment and additional paid-in capital. As of
December 31, 1996, the Company had a 26% equity interest in the net assets of
RYKA. Prior to such issuances by RYKA, the Company had a 32% interest in RYKA.
 
  During 1997, RYKA issued for cash 125,000 shares of common stock for $6.00
per share which was in excess of the Company's per share carrying amount. Also
in 1997, MR Acquisitions exercised its warrants to purchase an additional
361,587 RYKA shares. The Company accounted for these transactions as an
increase in both its investment and additional paid-in capital. As of December
14, 1997, just prior to the Reorganization (See Note 1), the Company had a 33%
equity interest in the net assets of RYKA.
 
NOTE 17--ACQUISITION OF TRAIL BV
 
  In April 1995, the Company acquired the inventory, furniture, fixtures and
certain other assets of an entity located in the Netherlands, which operated
as a wholesaler of footwear, for approximately $1,025,000. Of this amount,
$700,000 represented inventory, $100,000 represented a customer list and
$95,000 represented goodwill.
 
                                     F-19
<PAGE>
 
                                                                   SCHEDULE VIII
 
                       VALUATION AND QUALIFYING ACCOUNTS
 
<TABLE>
<CAPTION>
                                           ADDITIONS
                                     ---------------------
                         BALANCES AT CHARGED TO CHARGED TO                     BALANCES AT
                          BEGINNING  COSTS AND    OTHER                          END OF
       DESCRIPTION        OF PERIOD   EXPENSES   ACCOUNTS      DEDUCTIONS/(1)/   PERIOD
       -----------       ----------- ---------- ----------     --------------- -----------
<S>                      <C>         <C>        <C>            <C>             <C>
Year ended December 31,
 1997:
  Allowance for doubtful
   accounts.............  $279,682    507,146    121,315/(2)/     (164,920)     $743,223
Year ended December 31,
 1996:
  Allowance for doubtful
   accounts.............  $122,887    250,845        --            (94,050)     $279,682
Year ended December 31,
 1995:
  Allowance for doubtful
   accounts.............  $ 44,864    141,200        --            (63,177)     $122,887
</TABLE>
--------
/(1)/ Accounts written off against the allowance.
/(2)/ Balance acquired from RYKA Inc.
 
                                      S-1
<PAGE>
 
                                  SIGNATURES
 
  Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf on March 27, 1998 by the undersigned thereunto duly authorized.
 
                                          Global Sports, Inc.
 
                                                  
                                          By:   /s/ Michael G. Rubin 
                                              ---------------------------------
                                                    MICHAEL G. RUBIN
                                          Chairman and Chief Executive Officer
 
  Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 27, 1998.
 
              SIGNATURE                        TITLE                 DATE
 
        /s/ Michael G. Rubin           Chairman and Chief       March 27, 1998
-------------------------------------   Executive Officer
          MICHAEL G. RUBIN
 
         /s/ Steven A. Wolf            Chief Financial          March 27, 1998
-------------------------------------   Officer
           STEVEN A. WOLF
 
       /s/ Kenneth J. Adelberg         Director                 March 27, 1998
-------------------------------------
         KENNETH J. ADELBERG