GI JOES INC, S-1/A, 1999-01-11

GI JOES INC
S-1/A, 1999-01-11
MISCELLANEOUS SHOPPING GOODS STORES

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 11, 1999.

REGISTRATION NO. 333-61527
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 2

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

G.I. JOE'S, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
OREGON 5940 93-0500948
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NUMBER)
</TABLE>

9805 SW BOECKMAN ROAD
WILSONVILLE, OREGON 97070
(503) 682-2242
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

NORMAN P. DANIELS
CHIEF EXECUTIVE OFFICER, PRESIDENT
AND CHAIRMAN OF THE BOARD
G.I. JOE'S, INC.
9805 SW BOECKMAN ROAD
WILSONVILLE, OREGON 97070
(503) 682-2242
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

COPIES TO:

<TABLE>
<S> <C>
PATRICK J. SIMPSON TODD A. BAUMAN
DAVID S. MATHESON STOEL RIVES LLP
PERKINS COIE LLP 900 SW FIFTH AVENUE, SUITE 2300
1211 SW FIFTH AVENUE, 15TH FLOOR PORTLAND, OREGON 97204
PORTLAND, OREGON 97204 (503) 224-3380
(503) 727-2000
</TABLE>

------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS DATED JANUARY , 1999

2,500,000 SHARES

LOGO
COMMON STOCK
------------------------

The 2,500,000 shares of Common Stock (the "Common Stock") offered hereby
(the "Offering") are being sold by G.I. Joe's, Inc. ("G.I. Joe's" or the
"Company"). Prior to the Offering, there has been no public market for the
Common Stock. It is currently estimated that the initial public offering price
per share will be between $9.00 and $11.00. See "Underwriting" for information
relating to the factors to be considered in determining the initial public
offering price. Application has been made for quotation of the Common Stock on
the Nasdaq National Market under the symbol "GIJO."
------------------------

SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS TO
TO PUBLIC(1) DISCOUNTS(2) COMPANY(3)
- -----------------------------------------------------------------------------------------------------------------
Per Share...................................... $ $ $
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Total(4)....................................... $ $ $
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</TABLE>

(1) In connection with the Offering, the Underwriters may reserve up to 125,000
shares of Common Stock for sale at the initial public offering price to
persons associated with the Company.

(2) In addition, the Company has agreed to sell to each of Black & Company, Inc.
and Cruttenden Roth Incorporated, as representatives for the Underwriters,
for nominal consideration, warrants to purchase an aggregate of 250,000
shares of Common Stock at an exercise price equal to 120% of the Price to
Public. The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."

(3) Before deducting expenses payable by the Company, estimated at $ .
The Company intends to use approximately $8.5 million of the net proceeds
from the Offering to redeem all of the Company's outstanding Series A 9%
Non-Voting Redeemable Preferred Stock. Peregrine Capital, Inc.
("Peregrine"), an affiliate of the Company will be paid an aggregate of
$ upon such redemption of shares they hold. If the Offering is not
completed prior to May 8, 1999, holders of the Company's preferred stock may
require Peregrine to purchase their shares. See "Use of Proceeds" and "The
Reorganization."

(4) The Company has granted to the Underwriters a 30-day option to purchase up
to 375,000 additional shares of Common Stock, on the same terms as set forth
above, solely to cover over-allotments, if any. If such option is exercised
in full, the total Price to Public, Underwriting Discounts and Proceeds to
Company will be $ , $ and $ , respectively. See
"Underwriting."
------------------------

The shares of Common Stock are being offered by the Underwriters subject to
prior sale, when, as and if delivered to and accepted by the Underwriters and
subject to certain other conditions. The Underwriters reserve the right to
reject any order in whole or in part and to withdraw, cancel or modify the
Offering without notice. It is expected that delivery of the certificates
representing the shares will be made in New York, New York on or about
, 1999.

------------------------

BLACK & COMPANY, INC.CCRUTTENDEN ROTH
INCORPORATED

The date of this Prospectus is , 1999.

<PAGE> 3

[PICTURE]

CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH SECURITY,
AND THE IMPOSITION OF PENALTY BIDS. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."

2
<PAGE> 4

PROSPECTUS SUMMARY

This summary highlights information found elsewhere in this Prospectus. It
is not complete and may not contain all of the information prospective
purchasers should consider before investing in the Common Stock. Prospective
purchasers should read the entire Prospectus carefully, including the "Risk
Factors" section and the financial statements and the notes to those statements.
Except as otherwise noted, all information in this Prospectus (i) assumes no
exercise of the Underwriters' over-allotment option, (ii) assumes no exercise of
the Orkney Warrant (as defined below), (iii) gives effect to the redemption of
the Company's Series A 9% Non-Voting Redeemable Preferred Stock to be effected
with a portion of the proceeds from the Offering and (iv) gives retroactive
effect to a 2.5567-for-1 split of the Common Stock effected in July 1998. See
"Underwriting" and "Use of Proceeds." The Company's fiscal year ends January 31.

"G.I. Joe's" is among the Company's trademarks. This Prospectus includes
other trademarks and trade names of the Company and of other companies.

RISK FACTORS

Prospective purchasers of the Common Stock should consider all of the
information contained in this Prospectus before making an investment in the
Common Stock. The Company's business, financial condition and results of
operations are subject to various risks, including risks related to the
Company's ability to implement its business and growth and expansion strategies
and manage growth, including the integration of any acquired businesses,
competition in the markets in which the Company operates, seasonality and
fluctuations in the Company's periodic operating results, the effects of weather
on the Company's sales, fluctuations in comparable store sales, and changing
economic conditions and consumer preferences. Prospective purchasers should
consider these and other factors set forth in the "Risk Factors" section of this
Prospectus.

THE COMPANY

OVERVIEW

G.I. Joe's is a leading operator of full-service sports and automotive
merchandise superstores in the Pacific Northwest. The Company currently has 16
stores, eight in the Portland, Oregon metropolitan area, two in the
Seattle/Puget Sound area of Washington and six in various other Oregon
communities. These stores average approximately 55,000 square feet in size. In
calendar year 1997, the Company was among the top 15 full-line sporting goods
retailers in the nation based on revenue. The Company has developed a successful
store concept that has significantly increased same-store sales and sales per
square foot in recently opened and remodeled stores. For the fiscal year ended
January 31, 1998, the Company's new and remodeled stores generated average
annual sales of approximately $9.9 million, compared to approximately $8.6
million for the Company's other stores. In fiscal 1998, new and remodeled stores
achieved average sales per selling square foot of $213, compared to $193 for
other stores. Average annual per store contribution (i.e., average per store
gross margin less average per store expenses) in fiscal 1998 was approximately
$1.6 million for new and remodeled stores and $1.3 million for other stores. The
Company has opened two new stores and remodeled four existing stores over the
past four fiscal years using its updated store concept.

Most of the products offered by the Company are geared to traditionally
male-oriented activities and the majority of the consumers of G.I. Joe's
merchandise are males between the ages of 21 and 59. However, approximately 45%
of the Company's customers are women, who either purchase merchandise for men
or, increasingly, for themselves. The Company offers full lines of (i) sporting
goods, including equipment for snow and water skiing, snowboarding, kayaking,
canoeing, camping, fishing and hunting, (ii) outdoor apparel and footwear and
(iii) automotive aftermarket parts and accessories. The Company's net sales of
$128.2 million in fiscal 1998 were derived 39% from the sale of sporting goods,
27% from the sale of outdoor apparel and footwear, 21% from the sale of
automotive parts and accessories and 13% from the sale of other assorted
products.

3
<PAGE> 5

product lines. Through 1997 the Company pursued a conservative operating
strategy while refining its internal systems, distribution system and training
programs and undertaking selective management additions, all of which created a
solid foundation to support future expansion. In May 1998, Mr. Daniels acquired
majority ownership of the Company and the Company began implementing an
aggressive growth strategy. See "The Reorganization" and "Business -- Growth and
Expansion Strategy."

BUSINESS AND GROWTH AND EXPANSION STRATEGIES

The Company's business strategy is based on the following key competitive
strengths:

- Unique merchandise mix consisting of full lines of sporting goods,
outdoor apparel and footwear, and automotive aftermarket parts and
accessories, which generates substantial cross-shopping by
customers.

- Proven improved store design concept and remodeling strategy, which
has significantly increased same-store sales and sales per square
foot.

- Leading position in and focus on the Pacific Northwest, which has
increased the Company's buying power and economies of scale.

- Competitively priced quality merchandise as a result of favorable
pricing from vendors and internal efficiencies.

- Superior customer service, which the Company believes differentiates
it from mass merchandisers and other large format sporting goods and
automotive parts and accessories retailers.

- Enhanced margins as a result of increased sales of higher margin
merchandise, vendor concept stores and increased direct imports and
buying power.

- Significant management ownership of and experience with the Company.

G.I. Joe's intends to expand its business by implementing a growth and
expansion strategy that includes the following key features:

- Remodeling 10 existing stores over the next four years to increase
same-store sales and sales per square foot.

- Opening eight new stores in the Pacific Northwest, primarily in
Washington, over the next four years.

- Pursuing strategic acquisitions in portions of Montana, Idaho, Utah,
Nevada and Northern California that have consumer demographics and
seasonal outdoor activity patterns similar to those of the Pacific
Northwest.

- Further developing alternative channels of distribution, primarily
mail order catalog and Internet-based retail channels.

- Examining opportunities for national expansion and vertical
integration.

RECENT ACQUISITION

------------------------

The Company was founded in 1952 and incorporated under Oregon law in 1961.
The Company's executive offices are located at 9805 SW Boeckman Road,
Wilsonville, OR 97070, and its telephone number is (503) 682-2242.

4
<PAGE> 6

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered hereby.................. 2,500,000 shares
Common Stock to be outstanding after the 8,500,000 shares(1)
Offering...................................
Use of proceeds.............................. To redeem all of the Company's outstanding
Series A 9% Non-Voting Redeemable Preferred
Stock, to complete the remodeling of the
Company's stores, to open new stores,
potentially to acquire other complementary
businesses and for working capital and
general corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market Symbol....... GIJO
</TABLE>

- ---------------

(1) Based on shares outstanding as of December 31, 1998. Excludes (i) 522,833
shares issuable upon exercise of outstanding stock options, with a weighted
average exercise price of $7.19 per share, (ii) 277,167 shares reserved for
future grants under the Company's 1998 Stock Incentive Compensation Plan,
(iii) 148,877 shares issuable in connection with the Timberline Direct
acquisition and (iv) 482,722 shares issuable upon the closing of the
Offering upon exercise of a warrant granted to David Orkney, a Director and
the former majority shareholder of the Company (the "Orkney Warrant"). The
Orkney Warrant is exercisable for a number of shares equal to 5% of the
Company's Common Stock outstanding, on a fully-diluted basis, on the date of
exercise at an exercise price equal to 70% of the fair market value of the
Common Stock on the exercise date. If the Orkney Warrant is exercised prior
to the closing of the Offering, it will be exercisable for approximately
351,143 shares of Common Stock. See "Management -- Retirement and Certain
Other Benefit Plans," "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview" and "Description of Capital
Stock -- Warrants and Stock Options."

5
<PAGE> 7

SUMMARY FINANCIAL AND OTHER DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND SELECTED OPERATING DATA)

<TABLE>
<CAPTION>
PREDECESSOR(1) PRO FORMA(2) PREDECESSOR(1)
---------------------------------------------------- ------------ -------------------------
FISCAL YEAR THREE MONTHS
FISCAL YEARS ENDED JANUARY 31, ENDED ENDED APRIL 30,
---------------------------------------------------- JAN. 31, -------------------------
1994 1995 1996 1997 1998 1998 1997 1998
-------- -------- -------- -------- -------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net sales............ $136,629 $127,008 $124,052 $128,112 $128,238 $128,238 $24,013 $25,908
Gross margin......... 41,631 41,742 41,706 43,928 43,686 43,686 7,588 8,238
Selling, general and
administrative
expense............. 39,574 36,598 37,154 37,976 39,528 42,671 8,717 9,755
Income (loss) from
operations.......... 2,057 5,144 4,552 5,952 4,158 1,015 (1,129) (1,517)
Extraordinary item:
loss on early
extinguishment of
debt................ -- -- -- -- -- -- -- (2,220)
Net income (loss).... $ (1,364) $ 1,398 $ 851 $ 2,340 $ 681 $ (1,176) $(1,951) $(4,059)
Income (loss) per
share before
extraordinary
item(3):
-- Basic............ $(0.33) $0.34 $0.21 $0.58 $0.17 $(0.32) $(0.48) $(0.45)
-- Diluted.......... $(0.33) $0.34 $0.20 $0.52 $0.15 $(0.32) $(0.48) $(0.45)
Net income (loss) per
share(3):
- -- Basic............. $(0.33) $0.34 $0.21 $0.58 $0.17 $(0.32) $(0.48) $(1.00)
- -- Diluted........... $(0.33) $0.34 $0.20 $0.52 $0.15 $(0.32) $(0.48) $(1.00)
Weighted average
shares outstanding,
as adjusted(3):
- -- Basic............. 4,107 4,097 4,076 4,065 4,053 6,000 4,053 4,053
- -- Diluted........... 4,107 4,171 4,311 4,508 4,625 6,000 4,053 4,053

SELECTED OPERATING
DATA:
Number of stores open
for full period..... 14 14 14 14 14 14 14 15
Number of remodeled
stores open for full
period.............. -- -- 2 3 3 3 3 4
Gross margin as a
percentage of
sales............... 30.5% 32.9% 33.6% 34.3% 34.1% 34.1% 31.6% 31.8%
Store
contribution(4)..... $1,436 $1,373 $1,321 $1,351 $1,417 $1,192 $154 $195
Total comparable
store net sales
increase
(decrease)(5)....... (1.7)% (7.0)% (2.3)% 3.3% (1.8)% (1.8)% (5.6)% 3.0%
Remodeled same store
net sales
increase(6)......... -- -- 1.6% 14.6% -- -- -- 24.0%

<CAPTION>
G.I. JOE'S, INC. PRO FORMA(2)
---------------- ------------
SIX MONTHS NINE MONTHS
ENDED ENDED
OCTOBER 31, OCTOBER 31,
1998 1998
---------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net sales............ $75,201 $101,109
Gross margin......... 25,589 33,827
Selling, general and
administrative
expense............. 23,086 33,626
Income (loss) from
operations.......... 2,503 201
Extraordinary item:
loss on early
extinguishment of
debt................ -- --
Net income (loss).... $ 376 $ (1,123)
Income (loss) per
share before
extraordinary
item(3):
-- Basic............ $ (0.00) $ (0.28)
-- Diluted.......... $ (0.00) $ (0.28)
Net income (loss) per
share(3):
- -- Basic............. $ (0.00) $ (0.28)
- -- Diluted........... $ (0.00) $ (0.28)
Weighted average
shares outstanding,
as adjusted(3):
- -- Basic............. 6,000 6,000
- -- Diluted........... 6,000 6,000
SELECTED OPERATING
DATA:
Number of stores open
for full period..... 15 15
Number of remodeled
stores open for full
period.............. 4 4
Gross margin as a
percentage of
sales............... 34.0% 33.5%
Store
contribution(4)..... $737 $901
Total comparable
store net sales
increase
(decrease)(5)....... 2.0% 2.3%
Remodeled same store
net sales
increase(6)......... 22.0% 22.7%
</TABLE>

<TABLE>
<CAPTION>
OCTOBER 31, 1998
-----------------------------
ACTUAL(3) AS ADJUSTED(7)
----------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $20,493 $34,543
Inventories................................................. 44,778 44,778
Total assets................................................ 83,439 97,489
Total liabilities........................................... 70,974 70,974
Total shareholders' equity.................................. 12,465 26,515
</TABLE>

(Footnotes on following page)

6
<PAGE> 8

(1) Effective May 1, 1998, the Company underwent a reorganization in which
Norman Daniels, the Company's current Chairman of the Board, President and
Chief Executive Officer, acquired a majority interest in ND Holdings, Inc.,
an Oregon corporation ("Holdings"), which owned more than 80% of the
outstanding capital stock of G.I. Joe's. In July 1998, Holdings merged into
G.I. Joe's, with G.I. Joe's being the surviving corporation. See "The
Reorganization." The financial information with respect to periods prior to
May 1, 1998 reflects information for G.I. Joe's prior to the Reorganization
(the "Predecessor").

(2) The pro forma statement of operations data for the fiscal year ended January
31, 1998 and the nine-months ended October 31, 1998 give effect to the
Reorganization as if it had occurred as of February 1, 1997 and February 1,
1998, respectively. Prior to the Reorganization, the Company was an S
corporation and, accordingly, was not subject to federal and state income
taxes during the periods indicated, other than during the six-month period
ended October 31, 1998. As of May 1, 1998, the Company was converted to a C
corporation and is now subject to federal and applicable state income
taxation. See "Dividend Policy and Prior S Corporation Status" and Note 1 to
Financial Statements.

(3) The per share statement of operations data for the six-months ended October
31, 1998 and the pro forma per share statement of operations data for the
fiscal year ended January 31, 1998 and the nine-months ended October 31,
1998 give effect to the issuance of 5,948,302 shares of the Company's Common
Stock in the Merger as if it had occurred at the beginning of such periods
and include dividends paid on the Company's Series A 9% Non-Voting
Redeemable Preferred Stock. See "The Reorganization."

(4) Store contribution is determined by deducting average per store expenses
from average per store gross margin.

(5) A new or remodeled store becomes comparable after it has been open or
remodeled for a full 12 months.

(6) Compares first full fiscal year following the remodeling to the preceding
fiscal year.

(7) Adjusted to reflect (i) the sale of the shares of Common Stock offered
hereby at an assumed initial public offering price of $10.00 per share (the
mid-point of the range set forth on the cover page of this Prospectus) and
(ii) the application of the net proceeds from such transaction.

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<PAGE> 9

RISK FACTORS

An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Certain statements under the captions "Prospectus Summary," "Use
of Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," as well as statements made in the
following "Risk Factors" and elsewhere in this Prospectus, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors, such as the risk factors set
forth below and elsewhere in this Prospectus, that may cause actual results to
be materially different from those projected in the forward-looking statements.
In addition to the other information contained in this Prospectus, the following
factors should be considered carefully by potential purchasers in evaluating an
investment in the Company's Common Stock offered hereby.

ABILITY TO IMPLEMENT BUSINESS AND GROWTH AND EXPANSION STRATEGIES AND MANAGE
GROWTH

Principal components of the Company's business and growth and expansion
strategies are to increase sales and income from operations in the Company's
existing markets, to complete the remodeling of the Company's stores, to open
new stores, primarily in Washington, to enter new geographic markets through the
acquisition of complementary businesses or internal growth, to further develop
the Company's channels of distribution by means of internal growth or
acquisitions and to examine opportunities for national expansion and vertical
integration. The Company's future growth will depend upon a number of factors,
both within and outside of the Company's control, including: the identification
of new geographic markets in which the Company can successfully compete; the
identification and lease or acquisition on favorable terms of suitable new store
sites; the identification and acquisition on favorable terms of complementary
businesses; the receipt of any required governmental authorizations for proposed
development or expansion; the construction cost of and build-out time required
for new stores; the remodeling of certain existing stores without undue delay,
expense or disruption of operations; results of operations for new and remodeled
stores; the acceptance by potential customers of the Company's expansion into
new markets; and the Company's ability to obtain required financing on favorable
terms. Management estimates that the capital cost of new and remodeled stores
will be approximately $1.3 million per store, and that each new store will
require approximately $2.1 million for inventory and approximately $175,000 in
pre-opening and promotional expenses. Actual costs to remodel or to construct
and open stores may substantially exceed such amounts. The Company has opened
only two stores since 1991. The Company has remodeled only four stores using its
updated store concept, and only two stores since 1994. Consequently, the Company
has a limited history of opening, remodeling and operating new and remodeled
stores. The results achieved to date by the Company's remodeled stores,
particularly the two stores remodeled since 1994, may not be indicative of
results that will be achieved from stores remodeled as part of the Company's
growth and expansion strategy. In addition, the results achieved by the Company
to date in Oregon, particularly in the Portland metropolitan area, may not be
indicative of its prospects in or its ability to penetrate new geographic
markets, many of which may have different competitive conditions and demographic
characteristics than the Company's current markets. See "Business -- Business
Strategy" and "Business -- Growth and Expansion Strategy." The Company may not
be able to successfully expand its operations or to operate remodeled or new
stores or acquired businesses on a profitable basis.

As the Company expands its operations, it will experience growth in the
number of its employees, the scope of its distribution, operating and financial
systems and the geographic area of its operations. This growth will increase the
operating complexity of the Company and the level of responsibility of existing
and new management personnel. As the Company grows, it may not be able to hire,
train and retain qualified management and employees. In addition, the Company's
current distribution, operating, and financial systems and controls may become
inadequate, and failure by the Company to expand, supplement or improve such
systems and controls adequately and in a timely and cost effective manner could
have an adverse impact on the Company's business, financial condition and
results of operations. Management estimates that the Company's existing
distribution center can accommodate at least five additional stores in the
Pacific Northwest without material modification or increased expense. The
Company may not be able to successfully

8
<PAGE> 10

integrate new stores into its existing operating and financial systems. Any
failure to manage growth effectively could have a material adverse effect on the
Company's business, financial condition and results of operations.

LIMITED EXPERIENCE WITH ACQUISITIONS

As part of its growth and expansion strategy, the Company expects to
acquire complementary businesses. To date, the Company has grown primarily by
means of internal growth and has limited experience with completing and
integrating acquisitions. In September 1998, the Company acquired certain assets
and assumed certain liabilities of Timberline Direct, a direct marketing
retailer that sells merchandise complementary to that offered by the Company
through catalog and Internet-based channels. See "Management Discussion and
Analysis of Financial Condition and Results of Operations -- Overview." The
Company has no current understandings or agreements regarding potential
acquisitions. Any acquisitions would involve risks commonly encountered in
acquisitions of companies, such as the difficulty of assimilating the operations
and personnel of the acquired companies into the Company's existing structure,
the potential disruption of the Company's ongoing business, diversion of
management time and resources, increases in administrative costs, potential loss
of key employees of acquired companies and additional costs associated with debt
or equity financing of any such acquisitions. The failure to integrate
effectively any acquired businesses, including Timberline Direct, could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, acquisitions may require additional
financing. Such financing may involve public or private offerings of debt or
equity securities, and may include bank debt. Debt financing may increase the
Company's leveraged position, require the Company to devote significant cash to
service debt and limit funds available for working capital, capital
expenditures, acquisitions and general corporate purposes, all of which could
increase the Company's vulnerability to adverse economic and industry conditions
and competitive pressures. Equity financing may cause additional dilution to
purchasers of the Common Stock in the Offering. The Company will issue up to
148,877 shares of Common Stock, and may issue up to an additional 148,877 shares
of Common Stock, in connection with the Timberline Direct acquisition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview." The Company has no other commitments for, and may not
be able to obtain, any such financing for future acquisitions. In addition,
restrictions contained in the Company's existing revolving line of credit
facility limit the Company's ability to obtain additional bank or similar
financing. Any inability to obtain required financing when needed on terms
favorable to the Company could have a material adverse effect on the Company's
ability to implement its growth and expansion strategy and on the Company's
business, financial condition and results of operations. The Company may not be
successful in overcoming these risks or any other problems encountered in
connection with potential acquisitions. See "Business -- Growth and Expansion
Strategy."

COMPETITION

The markets for sports and automotive merchandise are highly competitive.
Within the sporting goods and outdoor apparel and footwear markets, the Company
faces significant competition from national, regional and local retailers,
including mass merchandisers, as well as from manufacturers' own retail stores
(such as stores owned and operated by Nike, Inc.). Within the automotive parts
and accessories markets, the Company faces significant competition from
national, regional and local retailers. These and other competitors pose
significant challenges to the Company's market share in its existing markets and
will make it more difficult for the Company to succeed in new markets. Many of
the Company's competitors have substantially greater financial, distribution,
marketing and other resources and have achieved greater name recognition than
the Company. Increased competition by existing and future competitors could
result in reductions in the Company's sales or margins. The Company may not be
able to compete successfully against present or future competitors and
competitive pressures faced by the Company may have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business -- Competition."

SEASONALITY AND FLUCTUATIONS IN PERIODIC OPERATING RESULTS

The Company's results of operations have fluctuated and likely will
continue to fluctuate significantly from period to period. The Company's
seasonal sporting goods merchandise mix is weighted substantially

9
<PAGE> 11

toward the summer and winter seasons. Consequently, the Company's results of
operations for the quarters ending July 31 and January 31 have in the past been
much stronger than results for the other two quarters. The Company has
historically incurred net losses in the quarters ending April 30 and achieved
limited net income or incurred net losses in the quarters ending October 31. In
addition, the Company's sporting goods and outdoor apparel and footwear
operations are subject to traditional retail seasonality patterns related to the
holiday season. This seasonality, along with other factors, including weather
conditions, general and regional economic conditions, changes in consumer
preferences and changes in the Company's merchandise mix, could adversely affect
the Company's business and cause its periodic results of operations to
fluctuate. The timing and expenses associated with the Company's store
remodeling program and the opening of new stores or the acquisition of other
businesses as part of the Company's growth and expansion strategy will also
contribute to fluctuations in periodic operating results. Accordingly, results
of operations in any period may not be indicative of the results to be expected
for any future period. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Quarterly Operating Results and
Seasonality." Because a high percentage of the Company's operating expenses are
relatively fixed, if sales in any quarter do not occur as expected, the
Company's operating results may be adversely affected and fall short of
expectations.

FLUCTUATIONS IN COMPARABLE STORE SALES

A variety of factors affect the Company's comparable store sales,
including, among others, the general retail sales environment, the Company's
ability to source and distribute products efficiently, changes in the Company's
merchandise mix, the impact of competition and the Company's ability to execute
its business strategy effectively. The Company's comparable store sales results
have fluctuated significantly in the past and the Company believes that such
fluctuations will continue. The Company's comparable store net sales increases
and decreases for the fiscal years ended January 31, 1996, 1997 and 1998 were
(2.3)%, 3.3% and (1.8)%, respectively. Past comparable store sales results may
not be indicative of future results.

EFFECTS OF WEATHER

Weather and changes in weather significantly affect the Company's sales of
sporting goods equipment and outdoor apparel and footwear. Net sales and margins
are adversely affected in periods of unseasonable weather conditions. Customers
delay or forego purchases of skiing and snowboarding equipment and winter
outdoor apparel and footwear in periods of unseasonably warm fall or winter
weather. Unseasonably cool or wet spring or summer weather adversely affects
sales of sporting goods for warmer weather activities, such as camping, fishing,
water sports, golf and tennis, and of spring and summer apparel and footwear.
Delays in seasonal weather changes also shorten the selling period for the
Company's seasonal merchandise and the Company may have to reduce prices in
order to sell seasonal merchandise before the season expires or carry over
merchandise. Any such delays in or reductions of sales of seasonal merchandise
could have a material adverse effect on the Company's business, financial
condition and results of operations.

CHANGING ECONOMIC CONDITIONS; DEPENDENCE ON REGIONAL ECONOMIES

The Company's business is sensitive to changes in discretionary consumer
spending. Such changes are significantly related to prevailing economic
conditions and particularly affect the Company's sales of sporting goods and
outdoor apparel and footwear. A recession in the national or regional economies,
particularly in the Pacific Northwest or Oregon, where a majority of Company's
business is conducted, or uncertainties regarding future economic prospects,
could affect consumer spending habits and have a material adverse effect on the
Company's business, financial condition and results of operations.

CHANGING CONSUMER PREFERENCES

Any change in consumer preferences or consumer interest in sports or
outdoor activities, outdoor apparel and footwear, or automotive aftermarket
parts and accessories could have a material adverse effect on the Company's
business, financial condition and results of operations. Failure to anticipate
and appropriately respond to changes in consumer preferences could lead to,
among other things, lower sales, excess inventories and lower margins, any of
which could have a material adverse effect on the Company's business, financial

10
<PAGE> 12

condition and results of operations. The Company often works with vendors to
plan future orders as much as 12 months in advance to ensure timely delivery.
This, together with the seasonal nature of much of the Company's merchandise
mix, can result in unbalanced inventories, increased inventory levels, and
related carrying costs if consumer preferences change prior to delivery.

SMALL STORE BASE

The Company operated 16 stores as of December 31, 1998. Five of the
Company's stores were opened before 1980, an additional nine stores were opened
between 1980 and 1991 and only two stores have been opened since 1991.
Consequently, the Company has a limited recent history of opening and operating
new stores. The results achieved to date by the Company's relatively small store
base may not be indicative of the results that may be achieved from a larger
number of stores. In addition, should any store (including any new or remodeled
store) be unprofitable, experience a decline in profitability or be
significantly damaged or destroyed, the effect on the Company's results of
operations would be more significant than would be the case if the Company had a
larger store base.

DEPENDENCE ON VENDORS

The Company offers an extensive and changing mix of merchandise,
substantially all of which is supplied by independent vendors. The Company must
develop and maintain relationships with these vendors in order to maintain an
adequate supply of merchandise for the Company's stores. The Company does not
have long-term supply contracts with its vendors. In addition, the Company
competes with other companies for the merchandise supplied by these vendors and
many of these other companies have substantially greater leverage and financial
and other resources than the Company. As a result, the Company may be unable to
obtain from its vendors adequate merchandise at the times or prices or in the
quantities it desires, if at all. The Company's failure to obtain any such
merchandise or to obtain favorable or competitive prices and terms could result
in reduced sales or margins and could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Vendors, Purchasing and Distribution."

The Company's ten largest vendors for the fiscal year ended January 31,
1998, which accounted for approximately 24% of the Company's purchases for such
year, were Nike, Inc., Columbia Sportswear Co., All Sports Supply, Inc., Coleman
& Company, Coast Auto Supply, World Wide Distributors, Remington Arms Co., Inc.,
Adidas U.S.A. Incorporated, Levi Strauss & Company, and Valvoline Incorporated.
The Company is not dependent on any vendor.

Vendors provide the Company with substantial incentives in the form of
volume discounts, longer payment terms and cooperative advertising. Vendor funds
used to offset outside advertising costs amounted to approximately 35%, 46% and
42%, respectively, of such costs in the fiscal years ended January 31, 1996,
1997 and 1998, respectively. A reduction in or discontinuation of these
incentives could have a material adverse effect on the Company's business,
financial condition and results of operations.

INTERNATIONAL RISKS AND CONSTRAINTS

A majority of the Company's merchandise (other than automotive parts and
accessories) is manufactured outside the United States. As a result, the
Company's operations are subject to risks generally associated with
international business, such as foreign governmental regulation, political
unrest, disruptions or delays in shipments, changes in economic conditions and
fluctuations of currency exchange rates. These factors, among others, including
the recent economic turmoil in Asia, could adversely affect the Company's
ability to obtain certain merchandise, which, in turn, could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, a significant portion of the merchandise supplied to
the Company is subject to existing or potential duties, tariffs or quotas that
may limit the quantity of certain types of goods that may be imported into the
United States. The imposition of additional duties, tariffs or quotas or the
adverse adjustment of existing duties, tariffs or quotas could have a material
adverse effect on the Company's business, financial condition and results of
operations. To date the Company has not

11
<PAGE> 13

experienced any material adverse effects on its operations due to uncertainties
involving international risks and constraints.

DEPENDENCE ON KEY PERSONNEL; STAFFING AND LABOR COSTS

The Company's future success will depend in part on the continued service
of certain key management and other personnel, including Norman Daniels, the
Company's Chairman of the Board, President and Chief Executive Officer, Philip
M. Pepin, the Company's Vice President of Finance and Chief Financial Officer,
Edward A. Ariniello, the Company's Vice President of Operations, B.G. Eilertson,
Patrick E. Hortsch and Ron J. Menconi, the Company's three Merchandise Managers,
Mark H. Mieher, Vice President and Chief Information Officer, and Douglas B.
Spink, General Manager of Direct Marketing. Another important factor in the
Company's future success will be its ability to attract and retain qualified
managerial, purchasing, sales and marketing personnel. Competition for these
employees is intense. A shortage of qualified personnel may require the Company
to increase compensation and benefit levels in order to compete successfully.
The Company is also dependent upon the available labor pool of lower-wage
employees. The Company may be unable to retain its existing key personnel, may
not be able to attract and retain sufficient numbers of qualified employees in
the future and may experience increased labor costs which may not be matched by
corresponding increases in revenues. Any of these factors could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management." The Company maintains life insurance on Mr.
Daniels in the amount of $3.0 million, but does not maintain life insurance on
any other employee. The Company has no employment agreements with any of its
employees other than Mr. Spink and Gregory Biggs, Operations Manager of Direct
Marketing. See "Management -- Employment Agreements."

DEPENDENCE ON DISTRIBUTION CENTER AND LEASED PREMISES

The Company maintains a single warehouse and distribution center adjacent
to its corporate headquarters in Wilsonville, Oregon. If this facility were to
be destroyed or significantly damaged by fire or other disaster, the Company
would need to obtain alternative facilities and replenish its inventory, either
of which would result in significant costs and delays in distributing
merchandise to its stores. The costs and delays associated with any such
disruption could have a material adverse effect on the Company's business,
financial condition and results of operations. Although the Company maintains
business interruption insurance in the amount of $19.3 million, the level of
coverage may not be adequate. In addition, all of the Company's current stores
are located on leased premises. If leases were prematurely terminated for any
reason or if the Company were unable to renew leases, the Company would be
required to relocate subject stores to other locations. Relocations would result
in substantial additional costs and could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Properties."

CONTROL BY PRINCIPAL SHAREHOLDERS

Upon the closing of the Offering, Norman Daniels, the Company's Chairman of
the Board, President and Chief Executive Officer, and Peregrine Capital, Inc.
(together, the "Controlling Shareholders") will beneficially own approximately
57.1% of the Company's issued and outstanding Common Stock (approximately 54.7%
if the Underwriters' over-allotment option is exercised in full). As a result,
the Controlling Shareholders will be able to elect all the Company's directors
and to control the vote on substantially all other matters, including
significant corporate actions, without the approval of other shareholders. Such
ownership and control may have the effect of delaying or preventing a takeover
of the Company by third parties, which could deprive the Company's shareholders
of a control premium that might otherwise be realized by them in connection with
an acquisition of the Company. See "Principal Shareholders."

ENVIRONMENTAL AND OTHER GOVERNMENTAL REGULATION

environmentally sensitive materials. Although management of the Company is not
aware of any significant environmental contamination at any of the Company's
properties from its own or prior activities at such locations or from
neighboring properties, such contamination may exist at such properties or at
additional store sites or facilities acquired or leased by the Company, and any
such contamination could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the
Company is subject to various local zoning requirements with regard to the
location and design of its stores. The Company's ability to obtain zoning
permits in a timely manner, if at all, will have an impact on the Company's
planned expansion. The failure to comply with such laws, regulations and
requirements or material changes to them could have a material adverse effect on
the Company's business, financial condition and results of operations.

Sales of hunting equipment, including firearms, ammunition and shooting
accessories accounted for approximately 4.0% of the Company's sales in the
fiscal year ended January 31, 1998. Government regulation of firearms or hunting
can affect sales of these and other goods offered by the Company, and an
increase or material changes in such regulation could have a material adverse
effect on the Company's business, financial condition and results of operations.

POTENTIAL PRODUCT LIABILITY EXPOSURE

The Company's merchandise includes firearms, ammunition, air guns,
paintball guns, bows, knives, automobile and marine parts, kayaks, canoes and
water and snow skiing and snowboarding equipment and other products that create
product liability risks. Although the Company is not a manufacturer of any of
these products, the sale of these and other products carried by the Company
involves a risk of being named as a defendant in product liability litigation.
The Company's insurance may not cover all potential claims arising from the sale
of such products, the amount of coverage may not be adequate, and adequate
insurance coverage may not be available in the future at acceptable rates, if at
all. Any uninsured or inadequately insured claim or liability could have a
material adverse effect on the Company's business, financial condition and
results of operations.

DEPENDENCE ON TRADEMARKS

The Company uses a number of trademarks in connection with the operation of
its business. The Company's "G.I. Joe's" trademark is registered with the United
States Patent and Trademark Office. The Company's other trademarks are not
registered. The Company believes its trademarks are important to its ability to
create and sustain demand for its business and private label products. Although
the Company's operations have not been materially restricted as a result of
trademark disputes, significant obstacles may arise as the Company expands its
business into new market segments and geographic markets. In addition, it may be
determined that the Company's trademarks violate the proprietary rights of
others, they may not be upheld if challenged and the Company may be prevented
from using these trademarks, any of which could have a material adverse effect
on the Company's business, financial condition and results of operations.

YEAR 2000 COMPLIANCE

The Company relies on computer systems and software to operate its
business, including applications used in sales, purchasing, inventory
management, finance and various administrative functions. The Company has
determined that certain of its software applications will be unable to interpret
appropriately the calendar year 2000 and subsequent years. Management believes
that only minor modifications will be required to make its systems "Year 2000"
compliant. However, failure by the Company to achieve full Year 2000 compliance
in a timely manner or consistent with its current cost estimates could have an
adverse effect on the Company's business, financial condition and results of
operations. In addition, the Company could be adversely affected by the failure
of one or more of its vendors, lenders or other organizations with which it
conducts business to become fully Year 2000 compliant. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000 Compliance."

13
<PAGE> 15

NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF SHARE PRICE

Prior to the Offering there has been no public market for the Common Stock.
An active trading market for the Common Stock may not develop or be sustained as
a result of the Offering and the price of the Common Stock may drop below the
initial public offering price. The initial public offering price of the Common
Stock will be determined through negotiations between the Company and
representatives of the Underwriters and may not be indicative of the price at
which the Common Stock will actually trade after the Offering. See
"Underwriting" for a discussion of the factors that will be considered in
determining the initial public offering price of the Common Stock.

Following the Offering, the market price of the Common Stock could be
subject to significant variation due to fluctuations in the Company's operating
results, changes in or actual results varying from earnings or other estimates
made by securities analysts, the degree of success the Company achieves in
implementing its growth and expansion strategy, changes in business or economic
conditions affecting the Company, its customers or its competitors and other
factors both within and outside the Company's control. In addition, the stock
market may experience volatility that affects the market prices of companies in
ways unrelated to the operating performance of such companies, and such
volatility may adversely affect the market price of the Common Stock.

SUBSTANTIAL DILUTION TO NEW INVESTORS

The initial public offering price will be substantially higher than the net
tangible book value per share of the Common Stock immediately prior to the
Offering. Investors purchasing Common Stock in the Offering will be subject to
immediate dilution of $7.28 per share in net tangible book value, assuming an
initial public offering price of $10.00 (the mid-point of the range set forth on
the cover page of this Prospectus). Further dilution would result from the
exercise of outstanding warrants or options. See "Dilution" and "Description of
Capital Stock -- Warrants and Stock Options."

SHARES ELIGIBLE FOR FUTURE SALE

Sales of a substantial number of shares of the Common Stock in the public
market following the Offering, or the prospect of such sales, could adversely
affect the market price of the Common Stock and the Company's ability to raise
capital in the equity markets. Upon the closing of the Offering, there will be
approximately 8,500,000 shares of Common Stock outstanding (approximately
8,875,000 shares if the Underwriters' over-allotment option is exercised in
full). Of these shares, all the shares to be sold in the Offering will be
eligible for immediate resale without restriction under the Securities Act of
1933, as amended (the "Securities Act"), unless such shares were purchased by an
"affiliate" of the Company, as that term is defined in Rule 144 under the
Securities Act. The remaining outstanding shares of Common Stock, which
constitute "restricted securities" as defined in Rule 144, are not yet eligible
for resale under Rule 144, but will become eligible in July 1999 subject to Rule
144 restrictions (other than shares to be issued in connection with the
Timberline Direct acquisition, which will become eligible for resale under Rule
144 on the first anniversary of their issuance). The holders of 2,379,320 of the
restricted shares have certain registration rights with respect to such shares.
See "Description of Capital Stock -- Registration Rights." The Company, its
directors, executive officers and other shareholders holding an aggregate of
5,289,618 shares have agreed that, without the prior written consent of Black &
Company, Inc., they will not directly or indirectly offer to sell, sell, or
otherwise dispose of shares of Common Stock or any securities convertible or
exchangeable therefor, for a period of 180 days after the date of this
Prospectus, subject to certain limited exceptions. See "Underwriting" and
"Shares Eligible for Future Sale."

The Company intends to file a registration statement under the Securities
Act following the date of this Prospectus to register the future issuance of up
to 800,000 shares of Common Stock under the Company's 1998 Stock Incentive
Compensation Plan (the "1998 Plan"). Shares issued under the 1998 Plan after the
effective date of such registration statement will be freely tradable in the
open market, subject to the lock-up agreements with the Underwriters described
above and, in the case of sales by affiliates, to certain requirements of Rule
144. As of December 31, 1998, options to purchase approximately 522,833 shares
of

14
<PAGE> 16

Common Stock were outstanding under the 1998 Plan, of which options to purchase
69,033 shares of Common Stock were vested. In addition, the Orkney Warrant is
exercisable for a number of shares equal to 5% of the Company's Common Stock
outstanding, on a fully-diluted basis, on the date of exercise at an exercise
price equal to 70% of the fair market value of the Common Stock on the exercise
date. If the Orkney Warrant is not previously exercised, it will be exercisable
for 482,722 shares of Common Stock upon the closing of the Offering. The holder
of the Orkney Warrant has certain registration rights with respect to the shares
of Common Stock issuable upon exercise thereof. Further, up to an additional
297,754 shares of Common Stock will be issued in connection with the Timberline
Direct acquisition, all of which shares will be covered by certain registration
rights granted to the recipients thereof. See "Description of Capital Stock --
Warrants and Stock Options," "Management -- Retirement and Certain Other Benefit
Plans," "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Overview," "Description of Capital Stock -- Registration
Rights" and "Shares Eligible For Future Sale."

POTENTIAL ISSUANCE OF PREFERRED STOCK; ANTI-TAKEOVER EFFECT OF OREGON LAW

The Company is authorized to issue up to 10,000,000 shares of Preferred
Stock and the Company's Board of Directors has the authority to fix the rights,
preferences, privileges and restrictions of such shares without any further vote
or action by the Company's shareholders. The potential issuance of Preferred
Stock may have the effect of delaying, deferring or preventing a change in
control of the Company, may discourage bids for the Common Stock at a premium
over the market price of the Common Stock and may adversely affect the market
price and the voting and other rights of the holders of Common Stock. Moreover,
certain "business combination" provisions of Oregon law could make it more
difficult to consummate a merger or tender offer involving the Company, even if
such event could be beneficial to the interests of the shareholders. See
"Description of Capital Stock."

15
<PAGE> 17

THE REORGANIZATION

During the fiscal quarter ended July 31, 1998, the Company was reorganized
in connection with a management buy-out by Norman Daniels, the Company's current
Chairman of the Board, President and Chief Executive Officer. Prior to the
reorganization, Mr. Daniels owned approximately 6% of the Company's outstanding
capital stock and David Orkney, a Director of the Company and the son of the
Company's founder, owned approximately 78% of the outstanding capital stock.
Peregrine Capital, Inc., an affiliate of the Company ("Peregrine"), acted as an
advisor to Mr. Daniels in connection with the transaction and assisted in
arranging financing for, and invested in the Company as part of, the
reorganization. The primary components of the reorganization -- the Redemption,
the Exchange and the Merger (as defined below) -- as well as its primary
benefits to certain key participants, are described below. The Redemption, the
Exchange and the Merger are referred to in this Prospectus as the
"Reorganization."

REDEMPTION

In May 1998, in order to effect the Reorganization, the Company redeemed
all the Company's outstanding capital stock, other than shares held by Mr.
Daniels and two individuals who elected not to have their shares redeemed and
are not affiliates of the Company (the "Redemption"), and repurchased
outstanding options held by nine individuals, including Wayne Jackson, the
Company's former Chief Operating Officer. The Company was an S corporation at
the time of the Redemption. The redeemed shares and repurchased options
represented approximately 83% of the Company's outstanding capital stock on a
fully-diluted basis prior to the Redemption. The Company financed the Redemption
and stock option repurchases primarily with proceeds from the sale and
lease-back of substantially all the Company's owned real estate and proceeds
from the sale to 61 individuals and entities, including Peregrine (the
"Investors"), of 9% subordinated notes of the Company (the "Subordinated
Notes"). See "Certain Related Transactions." In connection with the Redemption,
the Company also issued to Mr. Orkney the Orkney Warrant, which entitles him to
purchase a number of shares equal to 5% of the Company's Common Stock
outstanding, on a fully-diluted basis, on the date of exercise at a purchase
price equal to 70% of the fair market value of the Common Stock on the exercise
date. Prior to the Redemption, the Company made S corporation distributions to
its shareholders which were intended to cover all state and federal income tax
liabilities arising from the Company's income prior to the Redemption and from
the sale of the Company's real estate. The Redemption resulted in no gain for
state and federal income tax purposes for the redeemed shareholders.

Set forth below are the sources and uses of funds related to the
Redemption:

<TABLE>
<CAPTION>
SOURCES
-------
<S> <C>
Sale of real estate............. $31.2 million
Sale of Subordinated Notes...... 9.5 million
Notes payable to former option
holders....................... 0.5 million
Repayment of officers' notes.... 0.1 million
-------------
Total................. $41.3 million
=============
</TABLE>

<TABLE>
<CAPTION>
USES
----
<S> <C>
Redemption of stock............. $16.6 million
Repurchase of options........... 3.9 million
S-corporation distributions to
redeemed shareholders......... 5.5 million
S-corporation distributions to
continuing shareholders....... 1.7 million
Mortgage payoffs................ 8.9 million
Mortgage and loan prepayment
fees........................ 1.9 million
Real estate fee to Peregrine
affiliate................... 1.0 million
Miscellaneous fees and
expenses...................... 0.5 million
Working capital................. 1.3 million
-------------
Total................. $41.3 million
=============
</TABLE>

EXCHANGE

Following the Redemption, ND Holdings, Inc. ("Holdings") was organized and
Mr. Daniels exchanged his Common Stock in the Company for all the outstanding
common stock of Holdings, which resulted in the

16
<PAGE> 18

Company becoming a subsidiary of Holdings. Peregrine, which had purchased $1.45
million principal amount of the Subordinated Notes from the Company, exchanged
$1.0 million principal amount of the Subordinated Notes for common stock of
Holdings. See "Certain Related Transactions." In addition, Peregrine and the
other Investors exchanged the remaining $8.5 million principal amount of
Subordinated Notes for preferred stock of Holdings and warrants to purchase
common stock of Holdings (the "Exchange"). Following the Redemption and the
Exchange, (i) Mr. Daniels and the Investors owned 54% and 46%, respectively, of
the common stock of Holdings, on a fully-diluted basis, (ii) the Investors owned
all the outstanding preferred stock of Holdings and (iii) Holdings owned 82% of
the Company's outstanding Common Stock and held all of the Subordinated Notes.

MERGER

In July 1998, Holdings merged with and into the Company, with the Company
being the surviving corporation (the "Merger"). In the Merger, (i) the
outstanding preferred stock of Holdings was exchanged for an aggregate of 85,000
shares of the Company's Series A 9% Non-Voting Redeemable Preferred Stock
("Redeemable Preferred Stock"), (ii) the outstanding common stock of Holdings
was exchanged for an aggregate of 3,568,982 shares of the Company's Common
Stock, (iii) warrants to purchase common stock of Holdings were exchanged for an
aggregate of 2,379,320 shares of the Company's Common Stock and (iv) the
Subordinated Notes were canceled. The Redeemable Preferred Stock will be
redeemed with $8.5 million of the proceeds from the Offering. See "Use of
Proceeds." Following the Merger, there were 6,000,000 shares of the Company's
Common Stock outstanding, which includes 47,863 shares held by an individual who
has indicated an intention to dissent from the Merger. If this shareholder
perfects his dissenter's rights under Oregon law, he will be entitled to receive
from the Company the fair value of his share of the Company immediately prior to
the Merger. The Company has tendered to this shareholder $154,000, which is the
estimated fair value of his share of the Company.

BENEFITS OF THE REORGANIZATION TO CERTAIN KEY PARTICIPANTS

Certain key participants received material benefits in connection with the
Reorganization, as described below:

Norman P. Daniels. Prior to the Reorganization, Mr. Daniels owned
approximately 6% of the Company's outstanding Common Stock. He also held options
which after the Merger would have been exercisable for 745,278 shares of Common
Stock at a weighted average exercise price of $1.68 per share. If exercised,
these options would have increased Mr. Daniels' ownership of the Company's
outstanding Common Stock prior to the Reorganization to approximately 16%. As a
result of the Reorganization, Mr. Daniels owned approximately 54% of the
Company's outstanding Common Stock as of July 31, 1998. In connection with the
Reorganization, Mr. Daniels' options to purchase shares of the Company's Common
Stock were canceled. See "Certain Related Transactions."

Peregrine Capital, Inc. In connection with the Reorganization, Peregrine
purchased $1.45 million principal amount of Subordinated Notes from the Company.
Peregrine exchanged $1.0 million principal amount of the Subordinated Notes for
common stock of Holdings, which was converted into 356,898 shares of the
Company's Common Stock in the Merger. Peregrine exchanged the remaining $450,000
principal amount of the Subordinated Notes for preferred stock and a warrant to
purchase common stock of Holdings. In the Merger, the shares of preferred stock
of Holdings were converted into 4,500 shares of the Company's Redeemable
Preferred Stock and the warrant was converted into 40,909 shares of the
Company's Common Stock. For services rendered in connection with the
Reorganization, Peregrine received an additional warrant exercisable for shares
of Holdings common stock (the "Master Warrant"), which in the Merger was
converted into 1,606,599 shares of the Company's Common Stock. Prior to the
Merger, Peregrine assigned to various unaffiliated third parties a portion of
the Master Warrant which otherwise would have entitled Peregrine to 337,780 of
the shares of the Company's Common Stock issuable upon conversion of the Master
Warrant. Peregrine has certain registration rights with respect to the shares of
the Company's Common Stock it received in exchange for the Holdings warrants.
See "Description of Capital Stock -- Registration Rights." Subsequent to the
Merger, Peregrine transferred 45,454 shares of the Company's Common Stock to an

17
<PAGE> 19

unaffiliated third party in connection with a loan. Peregrine has the right to
repurchase up to 22,727 of such shares if it repays the loan prior to the
maturity date. An affiliate of Peregrine received a $1.0 million fee for
assisting with the sale of certain of the Company's real estate in connection
with the Reorganization, which fee was credited against the purchase price for
two parcels of the Company's real estate purchased by that affiliate. See
"Certain Transactions."

As part of the Reorganization, Peregrine agreed to pay certain accounting,
legal and other expenses incurred in connection with the Reorganization, paid a
fee of $100,000 to David Orkney to induce him to extend the terms of his
agreement regarding the sale of his interest in the Company and agreed to
reimburse the Company for all dividends paid on the Company's Redeemable
Preferred Stock. In addition, Peregrine has agreed to purchase from the
Investors all outstanding shares of the Company's Redeemable Preferred Stock for
$8.5 million, plus accumulated dividends, if the Company does not complete,
prior to May 8, 1999, an initial public offering of its Common Stock with net
proceeds to the Company of at least $12.0 million. In connection with the
Reorganization, four individuals associated with Peregrine, including Roy Rose,
a director of the Company and a director and the president and chief executive
officer of Peregrine, and his wife, agreed to guarantee the Company's
obligations under six leases arising from the sale and lease-back of the
Company's owned real estate to unaffiliated third parties. Aggregate annual base
rent under these leases is approximately $3.0 million. This guarantee will
expire upon the closing of the sale of the shares offered hereby. See "Certain
Related Transactions."

As of December 31, 1998, Peregrine beneficially owned 1,643,899 shares of
the Company's Common Stock and 7,000 shares of the Company's Redeemable
Preferred Stock. Peregrine's shares of Redeemable Preferred Stock include 2,500
shares issued upon conversion in the Merger of 250,000 shares of Holdings
preferred stock purchased by Peregrine from another Investor.

Other Investors. The Investors, other than Peregrine, purchased $8.05
million in principal amount of the Company's Subordinated Notes. None of these
Investors are affiliates of the Company. In the Exchange, these Investors
exchanged the Subordinated Notes for preferred stock of Holdings and warrants to
purchase common stock of Holdings. In the Merger, these Investors exchanged the
shares of Holdings preferred stock for an aggregate of 80,500 shares of the
Company's Redeemable Preferred Stock, which will be redeemed with $8.05 million
of the Offering proceeds, and exchanged the warrants to purchase common stock of
Holdings for an aggregate of 754,539 shares of the Company's Common Stock. These
Investors have certain registration rights with respect to these shares of
Common Stock. See "Description of Capital Stock -- Registration Rights." In
addition, these Investors will receive accrued dividends payable with respect to
the Redeemable Preferred Stock (which will be paid by Peregrine upon redemption
of such shares). The Investors have the right to require Peregrine to repurchase
these shares of Redeemable Preferred Stock for an aggregate of $8.05 million
plus accrued dividends if the Company does not complete, prior to May 8, 1999,
an initial public offering of its Common Stock with net proceeds to the Company
of at least $12.0 million. See "Certain Related Transactions."

18
<PAGE> 20

USE OF PROCEEDS

The Company will receive approximately $22.6 million (approximately $26.0
million if the Underwriter's over-allotment option is exercised in full) in net
proceeds from the sale of the shares of Common Stock offered hereby, assuming an
initial public offering price of $10.00 per share (the mid-point of the range
set forth on the cover page of this Prospectus), and after deducting
underwriting discounts and estimated offering expenses.

The Company intends to use approximately $8.5 million of the net proceeds
from the Offering to redeem all of the Company's outstanding Series A 9%
Non-Voting Redeemable Preferred Stock and approximately $13.0 million of the net
proceeds in remodeling the Company's stores over the next four calendar years.
The Company intends to use the remaining net proceeds for working capital and
general corporate purposes.

The foregoing represents the Company's best estimate of its use of the net
proceeds from the Offering based on current planning and business conditions.
The Company reserves the right to change its use of proceeds when and if market
conditions or unexpected changes in operating conditions or results occur.
Pending any specific application, the net proceedings from the Offering will be
invested in short-term, interest bearing securities.

DIVIDEND POLICY AND PRIOR S CORPORATION STATUS

The Company intends to retain all earnings for use in its business and,
therefore, does not anticipate paying any cash dividends in the foreseeable
future. The payment of any future dividends will be at the discretion of the
Company's Board of Directors and will depend upon the Company's results of
operations, financial condition, contractual restrictions and other factors
deemed relevant by the Board of Directors. The Company's existing revolving line
of credit facility prohibits the payment of dividends.

Prior to May 1, 1998, the Company was treated for federal and state income
tax purposes as an S corporation under Subchapter S of the Internal Revenue Code
of 1986, as amended (the "Code"), and comparable state laws. As a result, the
earnings of the Company were included in the taxable income of the Company's
shareholders, at their individual federal and state income tax rates, rather
than those otherwise applicable to the Company. As of May 1, 1998, the Company's
S corporation status was terminated in connection with the Reorganization. See
"The Reorganization." Since that date the Company has been fully subject to
federal and applicable state income taxes on its earnings. See Note 1 to
Financial Statements.

In the fiscal years ended January 31, 1997 and 1998 and the three-month
period ended April 30, 1998, the Company paid cash dividends to its shareholders
in the aggregate amounts of approximately $618,000, $410,000 and $6.9 million,
respectively, principally for the payment of the shareholders' income tax
liabilities in connection with the Company's status as an S corporation.

19
<PAGE> 21

DILUTION

As of October 31, 1998, the Company's net tangible book value per share of
Common Stock was approximately $1.51. Net tangible book value per share
represents the amount of the Company's tangible assets less the amount of its
liabilities, divided by the number of shares of Common Stock outstanding.

Giving effect to the issuance of the shares of Common Stock offered hereby
at an assumed initial public offering price of $10.00 per share (the mid-point
of the range set forth on the cover page of this Prospectus) and the deduction
of underwriting discounts and estimated offering expenses, and assuming no
exercise of outstanding options or the Orkney Warrant, the net tangible book
value of the Company as of October 31, 1998, would have been approximately $2.72
per share. This represents an immediate increase in net tangible book value of
$1.21 per share to existing shareholders of shares of Common Stock in the
Offering. The following table illustrates the per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $10.00
Net tangible book value per share as of October 31,
1998(1)................................................ $1.51
Increase in net tangible book value per share attributable
to new investors....................................... 1.21
-----
Pro forma net tangible book value per share after the
Offering(1)............................................... 2.72
------
Dilution of net tangible book value per share to new
investors................................................. $ 7.28
======
</TABLE>

The following table summarizes as of October 31, 1998, after giving effect
to the Offering, the differences between existing shareholders and purchasers of
shares of Common Stock in the Offering with respect to the number of shares of
Common Stock purchased from the Company, the total consideration paid and the
average price per share paid:

<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION
-------------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ------- -------- -------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Existing shareholders............ 6,000,000 70.6% $ 2.9 10.4% $ 0.48
New investors.................... 2,500,000 29.4 25.0 89.6 10.00
--------- ----- ----- -----
Total.................. 8,500,000 100.0% $27.9 100.0%
========= ===== ===== =====
</TABLE>

- ---------------

(1) Includes 5,948,302 shares of the Company's Common Stock issued in the
Merger. Excludes (i) 522,833 shares issuable upon exercise of outstanding
stock options, with a weighted average exercise price of $7.19 per share,
(ii) 277,167 shares reserved for future grants under the Company's 1998
Plan, (iii) 148,877 shares issuable in connection with the Timberline Direct
acquisition and (iv) 482,722 shares issuable upon the closing of the
Offering pursuant to the exercise of the Orkney Warrant, which is
exercisable for a number of shares equal to 5% of the Company's Common Stock
outstanding, on a fully-diluted basis, on the date of exercise at an
exercise price equal to 70% of the fair market value of the Common Stock on
the exercise date. If the Orkney Warrant is exercised prior to the closing
of the Offering, it will be exercisable for approximately 351,143 shares of
Common Stock. See "The Reorganization," "Management -- Retirement and
Certain Other Benefit Plans," "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview" and "Description
of Capital Stock -- Warrants and Stock Options."

20
<PAGE> 22

CAPITALIZATION

The following table sets forth the Company's capitalization as of October
31, 1998 and as adjusted to give effect to the sale of the shares of Common
Stock offered hereby at an assumed initial public offering price of $10.00 per
share (the mid-point of the range set forth on the cover page of this
Prospectus) and the application of the estimated net proceeds therefrom. See
"Use of Proceeds." The information set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's financial statements and related notes thereto and
other financial information included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
OCTOBER 31, 1998
----------------------
ACTUAL AS ADJUSTED
------- -----------
(DOLLAR AMOUNTS IN
THOUSANDS)
<S> <C> <C>
Current portion of long-term debt and capital lease
obligations............................................... $ 1,447 $ 1,447
Long-term debt and capital lease obligations, less current
portion................................................... 39,615 39,615
------- -------
Shareholders' equity:
Preferred Stock, no par value; 10,000,000 shares authorized;
85,000 shares of Series A 9% Non-Voting Redeemable
Preferred Stock issued and outstanding, actual; no shares
issued and outstanding, as adjusted(1).................... 7,887 --
Common Stock, no par value; 50,000,000 shares authorized;
6,000,000 shares issued and outstanding, actual; 8,500,000
shares issued and outstanding, as adjusted(2)............. 2,888 25,438
Issued warrant(3)........................................... 1,100 1,100
Additional paid-in capital.................................. 597 597
Accumulated deficit......................................... (7) (620)
------- -------
Total shareholders' equity............................. 12,465 26,515
------- -------
Total capitalization.............................. $53,527 $67,577
======= =======
</TABLE>

- ---------------
(1) The outstanding shares of Series A 9% Non-Voting Redeemable Preferred Stock
will be redeemed with $8.5 million of the proceeds from the Offering.
Approximately $613,000 of such amount will be treated as an addition to the
Company's accumulated deficit.

(2) Excludes (i) 522,833 shares issuable upon exercise of outstanding stock
options, with a weighted average exercise price of $7.19 per share, (ii)
277,167 shares reserved for future grants under the Company's 1998 Plan,
(iii) 148,877 shares issuable in connection with the Timberline Direct
acquisition and (iv) 482,722 shares issuable upon the closing of the
Offering pursuant to the exercise of the Orkney Warrant, which is
exercisable for a number of shares equal to 5% of the Company's Common Stock
outstanding on the date of exercise at an exercise price equal to 70% of the
fair market value of the Common Stock on the exercise date. If the Orkney
Warrant is exercised prior to the closing of the Offering, it will be
exercisable for approximately 351,143 shares of Common Stock upon the
closing of the Offering. See "Management -- Retirement and Certain Other
Benefit Plans," "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Overview" and "Description of Capital
Stock -- Warrants and Stock Options."

(3) Consists of the Orkney Warrant, the terms of which are described in footnote
2 above.

21
<PAGE> 23

SELECTED FINANCIAL AND OTHER DATA

The following selected financial and other data relating to the Predecessor
(as defined in footnote 1 to the following table) and the Company has been taken
or derived from the financial statements and other records of the Company and
should be read in conjunction with the financial statements and the related
notes thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the other financial information included elsewhere in
this Prospectus. The selected financial data for the Predecessor for each of the
years in the five-year period ended January 31, 1998 and for the three-month
period ended April 30, 1998 have been derived from financial statements which
have been audited by Arthur Andersen LLP, independent public accountants. The
selected financial data for the Predecessor for the three-month period ended
April 30, 1997 has been derived from unaudited financial statements for that
period prepared on the same basis as the audited financial statements and, in
the opinion of management, include all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of such financial data.
As of May 1, 1998, a new entity for purposes of financial accounting treatment
("G.I. Joe's, Inc.") was created through a management buy-out that was accounted
for as a purchase transaction. The selected financial and other data for G.I.
Joe's, Inc. for the six-month period ended October 31, 1998 has been derived
from unaudited financial statements for that period prepared on the same basis
as the audited financial statements as of and for the two-month period ended
June 30, 1998 and, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of such financial data. The selected financial and other data for
the six-month period ended October 31, 1998 are not necessarily indicative of
the results to be expected for any other period. Pro forma data for the fiscal
year ended January 31, 1998 and the nine-month period ended October 31, 1998 has
been provided to show the effect upon the Company's statement of operations of
the Reorganization, as if it had occurred as of February 1, 1997 and 1998,
respectively. See "The Reorganization." The pro forma financial data, which is
based upon available information and certain assumptions that management
believes are reasonable, is provided for informational purposes only and should
not be construed to be indicative of the Company's results of operations had the
Reorganization been consummated prior to the periods presented and does not
project the Company's results of operations for any future period.

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND SELECTED OPERATING DATA)

PRO
PREDECESSOR(1) FORMA(2)
------------------------------------------------------- -----------
FISCAL YEAR
FISCAL YEARS ENDED JANUARY 31, ENDED
------------------------------------------------------- JAN. 31,
1994 1995 1996 1997 1998 1998
-------- -------- -------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................... $136,629 $127,008 $124,052 $128,112 $128,238 $128,238
Cost of sales....................... 94,998 85,266 82,346 84,184 84,552 84,552
-------- -------- -------- -------- -------- --------
Gross margin........................ 41,631 41,742 41,706 43,928 43,686 43,686
Selling, general and administrative
expense............................ 39,574 36,598 37,154 37,976 39,528 42,671
-------- -------- -------- -------- -------- --------
Income (loss) from operations....... 2,057 5,144 4,552 5,952 4,158 1,015
Interest expense, net............... (3,421) (3,746) (3,726) (3,612) (3,477) (2,975)
Gain on sale of real estate......... -- -- 25 -- -- --
-------- -------- -------- -------- -------- --------
Income (loss) before income taxes
and extraordinary item............. (1,364) 1,398 851 2,340 681 (1,960)
(Provision for) benefit from income
taxes.............................. -- -- -- -- -- 784
-------- -------- -------- -------- -------- --------
Income (loss) before extraordinary
item............................... (1,364) 1,398 851 2,340 681 (1,176)
Extraordinary item: loss on early
extinguishment of debt............. -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Net income (loss)................... $ (1,364) $ 1,398 $ 851 $ 2,340 $ 681 $ (1,176)
======== ======== ======== ======== ======== ========
Income (loss) per share before
extraordinary item(3):
- -- Basic............................ $(0.33) $0.34 $0.21 $0.58 $0.17 $(0.32)
- -- Diluted.......................... $(0.33) $0.34 $0.20 $0.52 $0.15 $(0.32)
Net income (loss) per share(3):
- -- Basic............................ $(0.33) $0.34 $0.21 $0.58 $0.17 $(0.32)
- -- Diluted.......................... $(0.33) $0.34 $0.20 $0.52 $0.15 $(0.32)
Weighted average shares outstanding,
as adjusted(3):
- -- Basic............................ 4,107 4,097 4,076 4,065 4,053 6,000
- -- Diluted.......................... 4,107 4,171 4,311 4,508 4,625 6,000

<CAPTION>
PRO
G.I. JOE'S, FORMA(2)
PREDECESSOR(1) INC. -----------
------------------------- ----------- NINE
THREE MONTHS ENDED SIX MONTHS MONTHS
APRIL 30, ENDED ENDED
------------------------- OCTOBER 31, OCTOBER 31,
1997 1998 1998 1998
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................... $24,013 $25,908 $75,201 $101,109
Cost of sales....................... 16,425 17,670 49,612 67,282
------- ------- ------- --------
Gross margin........................ 7,588 8,238 25,589 33,827
Selling, general and administrative
expense............................ 8,717 9,755 23,086 33,626
------- ------- ------- --------
Income (loss) from operations....... (1,129) (1,517) 2,503 201
Interest expense, net............... (822) (962) 1,876 (2,073)
Gain on sale of real estate......... -- 640 -- --
------- ------- ------- --------
Income (loss) before income taxes
and extraordinary item............. (1,951) (1,839) 627 (1,872)
(Provision for) benefit from income
taxes.............................. -- -- (251) 749
------- ------- ------- --------
Income (loss) before extraordinary
item............................... (1,951) (1,839) 376 (1,123)
Extraordinary item: loss on early
extinguishment of debt............. -- (2,220) -- --
------- ------- ------- --------
Net income (loss)................... $(1,951) $(4,059) $376 $(1,123)
======= ======= ======= ========
Income (loss) per share before
extraordinary item(3):
- -- Basic............................ $(0.48) $(0.45) $(0.00) $(0.28)
- -- Diluted.......................... $(0.48) $(0.45) $(0.00) $(0.28)
Net income (loss) per share(3):
- -- Basic............................ $(0.48) $(1.00) $(0.00) $(0.28)
- -- Diluted.......................... $(0.48) $(1.00) $(0.00) $(0.28)
Weighted average shares outstanding,
as adjusted(3):
- -- Basic............................ 4,053 4,053 6,000 6,000
- -- Diluted.......................... 4,053 4,053 6,000 6,000
</TABLE>

22
<PAGE> 24

<TABLE>
<CAPTION>
PREDECESSOR G.I. JOE'S, INC.
------------------------------------------------------- ----------------------------
AS OF JANUARY 31, OCTOBER 31, 1998
------------------------------------------------------- ----------------------------
1994 1995 1996 1997 1998 ACTUAL(3) AS ADJUSTED(7)
------- -------- -------- -------- -------- ----------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital....................... $11,637 $ 9,762 $ 12,041 $ 14,923 $ 15,527 $20,493 $34,543
Inventories........................... 26,916 27,042 28,961 29,442 33,368 44,778 44,778
Total assets.......................... 61,792 62,212 58,365 58,527 66,539 83,439 97,489
Total liabilities..................... 55,538 54,758 50,552 48,734 57,119 70,974 70,974
Total shareholders' equity............ 6,254 7,454 7,813 9,793 9,420 12,465 26,515
</TABLE>

- ---------------

(2) The pro forma statement of operations data for the fiscal year ended January
31, 1998 and the nine-month period ended October 31, 1998 give effect to the
Reorganization as if it had occurred as of February 1, 1997 and February 1,
1998, respectively. Prior to the Reorganization, the Company was an S
corporation and, accordingly, was not subject to federal and state income
taxes during the periods indicated. As of May 1, 1998, the Company was
converted to a C corporation and is now subject to federal and applicable
state income taxation. See "Dividend Policy and Prior S Corporation Status"
and Note 1 to Financial Statements.

(3) The per share statement of operations data for the six-month period ended
October 31, 1998 and the pro forma per share statement of operations data
for the fiscal year ended January 31, 1998 and the nine-month period ended
October 31, 1998 give effect to the issuance of 5,948,302 shares of the
Company's Common Stock in the Merger as if it had occurred at the beginning
of such periods and include dividends paid on the Company's Series A 9% Non-
Voting Redeemable Preferred Stock. See "The Reorganization."

(4) Store contribution is determined by deducting average per store expenses
from average per store gross margin.

(5) A new or remodeled store becomes comparable after it has been open or
remodeled for a full 12 months.

(6) Compares first full fiscal year following the remodeling to the preceding
fiscal year.

23
<PAGE> 25

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the financial condition and
results of operations of the Company should be read in conjunction with the
selected financial and operating data and the financial statements of the
Company and the related notes thereto included elsewhere in this Prospectus.

OVERVIEW

G.I. Joe's began operations in 1952 in Portland, Oregon as a government
surplus store. Over the years the Company shifted its focus from surplus goods
to new, general merchandise. By 1995, under the direction of Norman Daniels, the
Company's current Chairman of the Board, President and Chief Executive Officer,
the Company had streamlined its product offerings to focus on sports and
automotive merchandise, its best-selling product lines. Through 1997 the Company
pursued a conservative operating strategy while refining the Company's internal
systems, distribution system and training programs and undertaking selective
management additions, all of which created a solid foundation to support future
expansion. In May 1998, Mr. Daniels acquired majority ownership of the Company
and the Company began implementing an aggressive growth strategy. See "The
Reorganization" and "Business -- Growth and Expansion Strategy."

G.I. Joe's growth and expansion strategy is to increase the profitability
of the Company's existing stores through a major remodeling program; selectively
open new stores, primarily in Washington; enter new geographic markets in
Montana, Idaho, Utah, Nevada and Northern California through complementary
acquisitions or internal growth; further develop alternative distribution
channels; and examine opportunities for national expansion and vertical
integration.

As part of its growth and expansion strategy, the Company plans to open
eight new stores and remodel ten existing stores prior to the end of the fiscal
year ending January 31, 2003. Stores open for at least 12 months have generally
contributed positively to the Company's margins. For the fiscal year ended
January 31, 1998, the average annual per store contribution for stores open for
at least 12 months was approximately $1.4 million, or approximately 16% of
average annual per store sales. Management estimates that new stores will
contribute positively to the Company's margins after 12 months of operation and
that after approximately three years of operation new stores will generate net
sales comparable to average net sales

24
<PAGE> 26

generated at existing stores. However, new stores may not achieve historic or
anticipated levels of operating results. Unless and until new stores contribute
positively to operating margins or generate anticipated levels of sales, the
opening of new stores will result in reduced average per store results for the
Company. See "Risk Factors -- Ability to Implement Business and Growth and
Expansion Strategies and Manage Growth."

The Company has remodeled four stores using its updated store concept. Two
of these stores were remodeled in 1994, while the Company was in the process of
streamlining its product offerings to focus on sports and automotive
merchandise. See "Business -- Properties." Consequently, management does not
believe that same-store results of those two remodeled stores are comparable to
the same-store results for the two stores remodeled subsequent to the
streamlining of the Company's merchandise mix. Same-store sales at the two most
recently remodeled stores have increased approximately 18% on average in the
first year of operation after remodeling.

Weather and changes in weather significantly affect the Company's sales of
sporting goods equipment and outdoor apparel and footwear. Net sales and margins
are adversely affected in periods of unseasonable weather conditions. In
addition, the Company's seasonal sporting goods merchandise mix is weighted
substantially toward the summer and winter seasons, which historically has led
to much stronger results of operations for the quarters ending July 31 and
January 31 than for the other two quarters. The Company has historically
incurred net losses in the quarters ending April 30 and achieved limited net
income or incurred net losses in the quarters ending October 31. In addition,
the Company's sporting goods and outdoor apparel and footwear operations are
subject to traditional retail seasonality patterns related to the holiday
season. This seasonality, dependence on weather conditions and other factors
contribute to fluctuations in periodic operating results. Accordingly, results
of operations in any period may not be indicative of the results to be expected
for any future period. See "Risk Factors -- Effects of Weather," "Risk
Factors -- Seasonality and Fluctuations in Periodic Operating Results" and
"-- Quarterly Operating Results and Seasonality."

Sales by the Company's automotive aftermarket parts and accessories
department have been relatively unchanged for each of the four fiscal years
ended January 31, 1998, and accounted for 21% of the Company's sales in fiscal
1998. For the purpose of increasing sales of its automotive merchandise, the
Company hired a new Automotive Merchandise Manager in June 1998, and has
recently implemented a revised automotive merchandise marketing plan. This plan
features lower everyday prices made possible by a change in product lines and
more aggressive promotional strategies. The plan also calls for an update of the
electronic automotive parts look-up systems at all stores, which are intended to
increase the efficiency with which the Company serves its automotive parts
customers.

In the first quarter of the fiscal year ended January 31, 1998, the Company
implemented a revised inventory management strategy that focused on reducing
inventory levels, increasing inventory turns and lowering carrying costs.
Although the strategy successfully met its direct objectives, it adversely
affected sales by limiting the availability of in-stock merchandise at the
Company's stores. In the second quarter of fiscal 1998, the Company returned to
its traditional inventory management strategy.

In the three-month period ended July 31, 1998, the Company was restructured
pursuant to the Reorganization. See "The Reorganization." The Reorganization was
financed primarily with net proceeds of approximately $19.6 million from the
sale and lease-back of substantially all the Company's owned real estate (net of
related mortgage payoffs, prepayment penalties and miscellaneous fees and
expenses) and proceeds from the sale of $9.5 million of the Company's
Subordinated Notes, which notes have since been exchanged for shares of the
Company's Preferred Stock and Common Stock. The terms of the leases covering the
real estate sold and leased back to the Company are triple net at market rates,
over a period of 15 years with two five-year renewal options. The Company
estimates that the incremental annual operating cost to lease these facilities
as compared to owning them is approximately $2.3 million, taking into account,
among other things, rental expense, reduced interest expense as a result of
mortgage payoffs and reduced depreciation. In conjunction with the sale and
lease-back of the real estate, the Company paid off mortgage loans and the
Company's former revolving credit facility before maturity, resulting in an
extraordinary loss on early extinguishment of debt of approximately $2.2 million
recorded in the three-month period ended April 30, 1998. Prior to the
Reorganization, the Company made S corporation distributions of approximately
$7.2

25
<PAGE> 27

million to its shareholders which were intended to cover all state and federal
income tax liabilities arising from the Company's income prior to the Redemption
and from the sale of the Company's real estate. As a result of the
Reorganization, including the termination of the Company's S corporation status
discussed below, results for the six-month period ended October 31, 1998 are
not, and results for future periods will not be, comparable to results for prior
periods.

Prior to the Reorganization, the Company was an S corporation and,
accordingly, not subject to federal or state income taxes. As part of the
Reorganization, the Company was converted to a C corporation and is now subject
to federal and applicable state income taxation. Pro forma statement of
operations data has been provided to give effect to estimated income tax
expenses that would have been incurred if the Company had been subject to
federal and state income taxes for all periods shown. Such pro forma statement
of operations data should not be construed as indicative of future tax expenses.

In September 1998, the Company acquired certain assets and assumed certain
liabilities of three affiliated direct marketing retailers (collectively,
"Timberline Direct") that sell merchandise complementary to that offered by the
Company through catalog and Internet-based channels. The purchase price for the
acquisition is $5.4 million. In September 1998, $450,000 of the purchase was
paid in cash; in December 1998, an additional $350,000 of the purchase price was
paid in cash; in January 1999, an additional $250,000 of the purchase price will
be paid in cash; and an additional $150,000 of the purchase price will be paid
in cash in three equal payments in April, July and October 1999. An additional
portion of the purchase price consists of approximately $896,000 in assumed
liabilities. The balance of the purchase price will be paid in shares of the
Company's Common Stock, valued at $11.00 per share or, if the initial public
offering price of the Company's Common Stock is less than $8.80 per share, the
initial public offering price. The Common Stock is payable in four equal
installments. The first installment of 74,438 shares will be paid in January;
the second installment will be paid in February 1999. The third installment will
be paid following the fiscal year ending January 31, 2000 or any subsequent
fiscal year in which the Company's catalog and Internet-based sales division
achieves (i) earnings before interest, depreciation and amortization, income
taxes and bonus payments to Douglas Spink, the Company's General Manager of
Direct Marketing, of at least 10% of the division's gross sales and (ii) gross
sales of at least $5.5 million. The final installment shall be paid following
the fiscal year ending January 31, 2001 or any subsequent fiscal year in which
standards similar to those for the third installment are achieved but at levels
of 12% and $8.0 million, respectively. The Company has granted registration
rights with respect to the shares to be issued as part of the purchase price.
See "Description of Capital Stock -- Registration Rights."

26
<PAGE> 28

RESULTS OF OPERATIONS

The tables below set forth, for the periods indicated, (i) the percentage
of net sales of the Company and the Predecessor (as defined in footnote 1 to the
following table) represented by certain statement of operations and (ii) certain
store data. As a result of the Reorganization, results for the six-months ended
October 31, 1998 are not comparable to prior periods.

<TABLE>
<CAPTION>
G.I.
JOE'S,
PREDECESSOR(1) INC.
----------------------------------------------------- -----------
THREE THREE SIX
FISCAL YEARS ENDED MONTHS MONTHS MONTHS
JANUARY 31, ENDED ENDED ENDED
------------------------- APRIL 30, APRIL 30, OCTOBER 31,
1996 1997 1998 1997 1998 1998
------ ------ ------ ----------- --------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.............................. 66.4 65.7 65.9 68.4 68.2 66.0
------ ------ ------ ------ ------ ------
Gross margin............................. 33.6 34.3 34.1 31.6 31.8 34.0
Selling, general and administrative
expense.................................. 30.0 29.6 30.8 36.3 37.7 30.7
------ ------ ------ ------ ------ ------
Income (loss) from operations.............. 3.6 4.7 3.3 (4.7) (5.9) 3.3
Interest expense, net...................... (3.0) (2.9) (2.8) (3.4) (3.7) (2.5)
Gain on sale of real estate................ 0.1 -- -- -- 2.5 --
------ ------ ------ ------ ------ ------
Income (loss) before income taxes and
extraordinary item....................... 0.7 1.8 0.5 (8.1) (7.1) 0.8
(Provision for) benefit from income
taxes(2)................................. -- -- -- -- -- 0.3
------ ------ ------ ------ ------ ------
Income (loss) before extraordinary item.... 0.7 1.8 0.5 (8.1) (7.1) 0.5
Extraordinary item: loss on early
extinguishment of debt, net of
taxes(2)................................. -- -- -- -- (8.6) --
------ ------ ------ ------ ------ ------
Net income (loss).......................... 0.7% 1.8% 0.5% (8.1)% (15.7)% 0.5%
====== ====== ====== ====== ====== ======
STORE DATA:
Number of stores open for full period...... 14 14 14 14 15 15
Number of remodeled stores open for full
period................................... 2 3 3 3 4 4
Average sales per store (in
thousands)(3)............................ $8,861 $9,151 $8,999 $1,715 $1,725 $5,277
Store contribution (in thousands)(4)....... $1,321 $1,351 $1,417 $ 154 $ 195 $ 737
Total comparable store net sales
increase (decrease)(5)............... (2.3)% 3.3% (1.8)% (5.6)% 3.1% 2.0%
Remodeled same store net sales
increase(6).............................. 1.6% 14.6% -- -- 24.0% 22.0%
</TABLE>

- ---------------

(2) The Company was an S corporation prior to May 1, 1998, and, accordingly, was
not subject to federal and state income taxes during the periods indicated
other than during the six-month period ended October 31, 1998. See Note 1 to
Financial Statements.

(3) Based upon the weighted average number of stores open during the period
indicated.

(4) Store contribution is determined by deducting average per store expenses
from average per store gross margin.

(5) A new or remodeled store becomes comparable after it has been open or
remodeled for a full 12 months.

(6) Compares first full fiscal year following the remodeling to the preceding
fiscal year.

27
<PAGE> 29

Selling, general and administrative expense includes store payroll, store
occupancy, advertising expenses, other store expenses, distribution expenses and
general and administrative expenses, including salary, bonuses and benefits of
corporate employees, administrative office occupancy expenses, data processing,
credit card and bank fees and expenses, professional expenses and other related
expenses.

Cost of sales includes inventory and certain freight costs.

SIX MONTHS ENDED OCTOBER 31, 1998 COMPARED TO THE SIX MONTHS ENDED OCTOBER
31, 1997.

Net sales. Net sales for the six months ended October 31, 1998, were
approximately $75.2 million compared with approximately $68.8 million for the
six months ended October 31, 1997, an increase of approximately $6.4 million or
9.3%. Approximately $5.0 million of the overall sales increase was attributable
to the Puyallup, Washington and Hillsboro, Oregon stores which opened in October
1997 and July 1998, respectively. Comparable store sales for the period
increased by approximately $1.4 million, or 2.0%. The increase in comparable
store sales resulted from increased demand due to seasonal weather conditions
favorable to the Company's summer and fall merchandise lines, the Company's
return to its traditional inventory management strategy for its stores, and a
22% sales increase in the Bend, Oregon store, which was remodeled in August
1997. See "-- Overview."

Gross Margin. Gross margin was 34.0% of net sales for the six-month period
ended October 31, 1998, compared with 33.7% of net sales for the six-month
period ended October 31, 1997. The increase in gross margin for the period is
the result of increased demand for seasonal merchandise due to favorable weather
conditions as well as a change in promotional strategy, both resulting in less
discounting and fewer promotional markdowns. The change in promotional strategy
included a shift from distribution of coupon books that focused heavily on
automotive parts and accessories at discounted prices, to distribution of color
catalogs. The catalog format enhanced merchandise presentation, was directed at
higher margin merchandise including seasonal apparel and footwear, camping,
fitness, and seasonal sporting goods, and resulted in sales of merchandise with
a higher gross margin. Separate print advertising was provided to customers that
focused on automotive merchandise.

Selling, General and Administrative Expense. Selling, general and
administrative expense was approximately $23.1 million, or 30.7% of net sales
for the six-month period ended October 31, 1998, compared to $20.1 million, or
29.3% of net sales, for the six-month period ended October 31, 1997.
Approximately $1.3 million of the $3.0 million increase in selling, general and
administrative expense relates to operating costs associated with the Puyallup,
Washington and Hillsboro, Oregon stores which opened in October 1997 and July
1998, respectively. The balance of the increase is attributable primarily to
increased rent expense and amortization as a result of the sale and lease-back
of the Company's owned real estate in April of 1998 in connection with the
Reorganization. See "-- Overview" and "The Reorganization."

Net Interest Expense. Net interest expense was approximately $1.9 million
for the six months ended October 31, 1998, compared to approximately $1.7
million for the six months ended October 31, 1997. The increase in net interest
expense of approximately $200,000 resulted from an increase in average
outstanding borrowings under the revolving line of credit facility due to higher
inventory levels, primarily from the addition of the Puyallup, Washington and
Hillsboro, Oregon stores, costs associated with the Reorganization, and by an
increase in interest on capitalized lease obligations, due primarily to the
addition of the two stores. These increases in interest expense were offset by a
reduction for the period of approximately $372,000 in mortgage interest expense
resulting from the sale and lease-back of the Company's owned real estate.

Net Income before Income Taxes. As a result of the foregoing factors, the
Company's net income before income taxes for the six-month period ended October
31, 1998 was $627,000, compared to net income of $1.4 million for the six-month
period ended October 31, 1997.

THREE-MONTH PERIOD ENDED APRIL 30, 1998 COMPARED TO THREE-MONTH PERIOD
ENDED APRIL 30, 1997

Net Sales. Net sales for the three-month period ended April 30, 1998, were
$25.9 million, compared with $24.0 million for the three-month period ended
April 30, 1997, an increase of $1.9 million, or 7.9%.

28
<PAGE> 30

Comparable store sales increased by $744,000, or 3.1%, for the same period
because of several factors, including weather conditions more favorable to the
sale of the Company's late winter and spring merchandise lines, the Company's
return to its traditional inventory management strategy for its stores, and a
24% sales increase at the Bend, Oregon store, which was remodeled in August
1997. See "-- Overview."

Gross Margin. Gross margin was 31.8% of net sales for the three-month
period ended April 30, 1998, compared with 31.6% of net sales for the
three-month period ended April 30, 1997. The increase in gross margin for the
period was due primarily to the liquidation during the three-month period ended
April 30, 1998 of certain LIFO inventory quantities carried at lower levels
compared with the cost of current purchases.

Selling, General and Administrative Expense. Selling, general and
administrative expense was $9.8 million, or 37.7% of net sales, for the
three-month period ended April 30, 1998, compared to $8.7 million, or 36.3% of
net sales, for the three-month period ended April 30, 1997. Approximately
$402,000 of the $1.1 million increase in selling, general and administrative
expense related to operating costs associated with the Puyallup, Washington
store, which opened in October 1997. The balance of the increase in selling,
general and administrative expense related primarily to increased payroll costs
attributable to inflationary salary adjustments as well as bonuses based on
sales increases, and to increased rent expense as a result of the sale and
lease-back of the Company's owned real estate in April 1998. See "-- Overview"
and "The Reorganization."

Net Interest Expense. Net interest expense was $962,000 for the three-month
period ended April 30, 1998, compared to $822,000 for the three-month period
ended April 30, 1997. The increase in net interest expense of $140,000 resulted
from an increase in average outstanding borrowings for the period to finance the
Company's operations, including increased borrowings due to higher inventory
levels, primarily from the addition of the Puyallup, Washington store, and
interest on capital lease obligations incurred in connection with opening such
store.

Gain on Sale of Real Estate. The gain on the sale of real estate was
$640,000 for the three-month period ended April 30, 1998. The gain resulted from
the sale of a tract of undeveloped land adjacent to the Company's headquarters
and distribution center. The sale was made in conjunction with the sale and
leaseback of substantially all the Company's owned real estate as part of the
Reorganization. Because the undeveloped land was not leased back by the Company,
a gain was recognized on the sale.

Extraordinary Item: Loss on Early Extinguishment of Debt. In conjunction
with the sale and leaseback of substantially all the Company's owned real estate
in April 1998, the Company paid off mortgages and the Company's former revolving
credit facility before maturity, resulting in an extraordinary loss on early
extinguishment of debt of approximately $2.2 million. See "-- Overview" and "The
Reorganization."

Net Loss. As a result of the foregoing factors, the Company incurred a net
loss of $4.1 million for the three-month period ended April 30, 1998, as
compared to a net loss of $2.0 million for the three-month period ended April
30, 1997.

FISCAL YEAR ENDED JANUARY 31, 1998 COMPARED TO FISCAL YEAR ENDED JANUARY
31, 1997

Net Sales. Net sales for the fiscal year ended January 31, 1998 were $128.2
million, compared with $128.1 million for the fiscal year ended January 31,
1997. While total net sales increased slightly, due to the opening in October
1997 of the Puyallup, Washington store, comparable store sales decreased by
1.8%. The comparable store sales decrease was due primarily to unseasonably mild
weather in the fall and early winter of calendar 1997, which had a significant
impact on sales of winter sports merchandise and cold weather apparel and
footwear during fiscal 1998, and to the Company's revised inventory management
strategy implemented in the first quarter of fiscal 1998. See "-- Overview." In
the second quarter of fiscal 1998, the Company returned to its traditional
inventory management strategy.

Gross Margin. Gross margin was 34.1% of net sales in the fiscal year ended
January 31, 1998, compared with 34.3% of net sales in the fiscal year ended
January 31, 1997. This reduction in gross margin was due primarily to an
increase in inventory shrinkage, from approximately 1.0% to 1.3% of net sales.
The Company believes this level of inventory shrinkage is less than the average
in its industry.

29
<PAGE> 31

Selling, General and Administrative Expense. Selling general and
administrative expense was $39.5 million, or 30.8% of net sales, in the fiscal
year ended January 31, 1998, compared to $38.0 million, or 29.6% of net sales,
in the fiscal year ended January 31, 1997. Approximately $925,000 of the $1.5
million increase in selling, general and administrative expense related to
pre-opening, promotional and operating costs associated with the Company's
Puyallup, Washington store, which opened in October 1997. It is the Company's
policy to expense all pre-opening costs as incurred. The balance of the increase
was due primarily to additional advertising and promotional costs incurred to
stimulate sales which were adversely affected by the mild fall and winter
weather conditions in calendar year 1997.

Net Interest Expense. Net interest expense was $3.5 million for the fiscal
year ended January 31, 1998, compared to $3.6 million for the fiscal year ended
January 31, 1997. The reduction in net interest expense resulted from lower
interest rates and lower average borrowings outstanding under the Company's
revolving line of credit facility, offset in part by an increase in interest
expense on capitalized lease obligations incurred in connection with the
construction of the Puyallup, Washington store. Interest income was virtually
unchanged for the fiscal year ended January 31, 1998 from 1997 levels. Interest
income relates primarily to interest earned by the Company on market-rate loans
to the Henway Partnerships, which partnership's partners are officers and former
officers of the Company, as well as interest earned on direct loans to officers
and former officers. See "Certain Related Transactions."

Net Income. As a result of the foregoing factors, the Company's net income
decreased to $681,000 in the fiscal year ended January 31, 1998, from $2.3
million in the preceding fiscal year.

FISCAL YEAR ENDED JANUARY 31, 1997 COMPARED TO FISCAL YEAR ENDED JANUARY
31, 1996

Net Sales. Net sales for the fiscal year ended January 31, 1997 were $128.1
million, compared with $124.1 million for the fiscal year ended January 31,
1996, an increase of $4.0 million, or 3.3%. This increase in net sales was
primarily the result of unusually cold weather and winter storms in the Pacific
Northwest during February, March, October and November of 1996. The cold weather
and storms in February and March resulted in significant increases in sales of
winter clothing and footwear, rain gear and winter-related automotive products
and sporting goods. The cold weather and storms in late October and November
provided an early start to the winter sports season and allowed the Company to
sell its winter clothing and footwear and skiing and snowboarding merchandise
early in the season at regular retail prices instead of at promotional prices
during the holiday season. Increased sales at remodeled stores and the
installation of additional concept shops featuring nationally prominent brands
within the Company's stores also contributed to increased sales in the fiscal
year ended January 31, 1997.

Gross Margin. Gross margin was 34.3% of net sales in the fiscal year ended
January 31, 1997, compared with 33.6% of net sales in the fiscal year ended
January 31, 1996. The increase in gross margin as a percent of sales was due
primarily to a reduction in inventory shrinkage from approximately 1.2% of net
sales in fiscal 1996 to 1.0% of net sales in fiscal 1997, the liquidation in
fiscal 1997 of certain LIFO inventory quantities carried at lower costs compared
with the cost of current purchases and fewer promotional markdowns as a
percentage of sales in fiscal 1997 as compared to fiscal 1996.

Selling, General and Administrative Expense. Selling, general and
administrative expense was $38.0 million, or 29.6% of net sales, in the fiscal
year ended January 31, 1997, compared to $37.2 million, or 30.0% of net sales,
in the fiscal year ended January 31, 1996. Selling, general and administrative
expense as a percentage of sales decreased in fiscal 1997 because net sales
growth exceeded the growth of selling, general and administrative expense in
that period. The $800,000 increase in selling, general and administrative
expense in fiscal 1997 was due primarily to a $705,000, or 4.0%, increase in
payroll costs attributable to inflationary salary adjustments, as well as to
bonuses based on sales increases. Other increases in employee benefit expenses,
store operating expenses and credit card discount fees were offset in part by
reductions in advertising and promotional expenses.

Net Interest Expense. Net interest expense was $3.6 million for the fiscal
year ended January 31, 1997, compared to $3.7 million for the fiscal year ended
January 31, 1996. A $600,000 reduction in interest expense from $4.3 million in
the fiscal year ended January 31, 1996 to $3.7 million in the fiscal year ended
January 31,

30
<PAGE> 32

1997 was largely offset by a reduction in interest income from fiscal 1996 to
fiscal 1997. The reduction in interest expense resulted from lower interest
rates and lower average borrowings outstanding under the Company's revolving
line of credit facility, the repayment in fiscal 1997 of a bank term loan and
the refinancing in late fiscal 1996 of two existing real estate mortgages at
lower interest rates. The decrease in interest income was attributable to the
repayment of a loan by the Henway Partnerships, the proceeds of which were used
to pay down the revolving credit facility and pay off the term loan. See
"Certain Related Transactions."

Net Income. As a result of the foregoing factors, the Company's net income
increased to $2.3 million for the fiscal year ended January 31, 1997, from
$851,000 in the preceding fiscal year.

31
<PAGE> 33

QUARTERLY OPERATING RESULTS AND SEASONALITY

The following tables set forth certain unaudited financial information for
each of the four quarters in the fiscal years ended January 31, 1997 and 1998
and for the first three quarters of fiscal 1999. This unaudited quarterly
information has been prepared on the same basis as the audited financial
statements and, in the opinion of management, includes all necessary adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the data presented. The unaudited quarterly results should be
read in conjunction with the financial statements and related notes thereto
included elsewhere in this Prospectus. As a result of the recent Reorganization
and for other reasons, the Company believes that quarter-to-quarter comparisons
of its historical financial results should not be relied upon as an indication
of future performance. See "The Reorganization," "Risk Factors -- Effects of
Weather" and "Risk Factors -- Seasonality and Fluctuations in Periodic Operating
Results."

<TABLE>
<CAPTION>
PREDECESSOR(1)
------------------------------------------------------------------------------------------------
QUARTER ENDED
------------------------------------------------------------------------------------------------
APR. 30, JULY 31, OCT. 31, JAN. 31, APR. 30, JULY 31, OCT. 31, JAN. 31, APR. 30,
1996 1996 1996 1997 1997 1997 1997 1998 1998
-------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $25,450 $35,991 $31,868 $34,803 $24,013 $36,215 $32,538 $35,472 $25,908
Cost of sales........... 17,103 24,408 20,848 21,825 16,425 24,134 21,434 22,559 17,670
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross margin.......... 8,347 11,583 11,020 12,978 7,588 12,081 11,104 12,913 8,238
Selling, general and
administrative
expense............... 8,659 9,581 9,609 10,127 8,717 9,871 10,244 10,696 9,755
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations............ (312) 2,002 1,411 2,851 (1,129) 2,210 860 2,217 (1,517)
Interest expense, net... (903) (930) (882) (897) (822) (851) (816) (988) (962)
Gain on sale of real
estate................ -- -- -- -- -- -- -- -- 640
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
taxes and
extraordinary item.... (1,215) 1,072 529 1,954 (1,951) 1,359 44 1,229 (1,839)
(Provision for) benefit
from income taxes..... -- -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
extraordinary item.... (1,215) 1,072 529 1,954 (1,951) 1,359 44 1,229 (1,839)
Extraordinary item: loss
on early
extinguishment of
debt.................. -- -- -- -- -- -- -- -- (2,220)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)....... $(1,215) $ 1,072 $ 529 $ 1,954 $(1,951) $ 1,359 $ 44 $ 1,229 $(4,059)
======= ======= ======= ======= ======= ======= ======= ======= =======
Basic income (loss) per
share before
extraordinary item.... $ (0.30) $ 0.26 $ 0.13 $ 0.48 $ (0.48) $ 0.34 $ 0.01 $ 0.30 $ (0.45)
======= ======= ======= ======= ======= ======= ======= ======= =======
Diluted income (loss)
per share before
extraordinary item.... $ (0.30) $ 0.26 $ 0.12 $ 0.43 $ (0.48) $ 0.31 $ 0.01 $ 0.27 $ (0.45)
======= ======= ======= ======= ======= ======= ======= ======= =======
Basic net income (loss)
per share............. $ (0.30) $ 0.26 $ 0.13 $ 0.48 $ (0.48) $ 0.34 $ 0.01 $ 0.30 $ (1.00)
======= ======= ======= ======= ======= ======= ======= ======= =======
Diluted net income
(loss) per share...... $ (0.30) $ 0.26 $ 0.12 $ 0.43 $ (0.48) $ 0.31 $ 0.01 $ 0.27 $ (1.00)
======= ======= ======= ======= ======= ======= ======= ======= =======

<CAPTION>
G.I. JOE'S, INC.
-------------------
QUARTER ENDED
-------------------
JULY 31, OCT. 31,
1998 1998
-------- --------

<S> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $38,212 $36,989
Cost of sales........... 25,263 24,349
------- -------
Gross margin.......... $12,949 12,640
Selling, general and
administrative
expense............... 11,226 11,860
------- -------
Income (loss) from
operations............ 1,723 780
Interest expense, net... (896) (980)
Gain on sale of real
estate................ -- --
------- -------
Income (loss) before
taxes and
extraordinary item.... 827 (200)
(Provision for) benefit
from income taxes..... (331) 80
------- -------
Income (loss) before
extraordinary item.... 496 (120)
Extraordinary item: loss
on early
extinguishment of
debt.................. -- --
------- -------
Net income (loss)....... $ 496 $ (120)
======= =======
Basic income (loss) per
share before
extraordinary item.... $ 0.05 $ (0.05)
======= =======
Diluted income (loss)
per share before
extraordinary item.... $ 0.05 $ (0.05)
======= =======
Basic net income (loss)
per share............. $ 0.05 $ (0.05)
======= =======
Diluted net income
(loss) per share...... $ 0.05 $ (0.05)
======= =======
</TABLE>

32
<PAGE> 34

<CAPTION>
G.I. JOE'S, INC.
-------------------
QUARTER ENDED
-------------------
JULY 31, OCT. 31,
1998 1998
-------- --------
<S> <C> <C>
Net sales............ 100.0% 100.0%
Cost of sales........ 66.1 65.8
----- -----
Gross margin....... 33.9 34.2
Selling, general and
administrative
expense............ 29.4 32.1
----- -----
Income (loss) from
operations......... 4.5 2.1
Interest expense,
net................ (2.3) (2.6)
Gain on sale of real
estate............. -- --
----- -----
Income (loss) before
extraordinary
item............... 2.2 (0.5)
(Provision for)
benefit from income
taxes(2)........... (0.9) 0.2
Income (loss) before
extraordinary
item............... 1.3 (0.3)
Extraordinary item:
loss on early
extinguishment of
debt............... -- --
----- -----
Net income (loss).... 1.3% (0.3)%
===== =====
</TABLE>

- ---------------

(2) The Company was an S corporation prior to May 1, 1998, and, accordingly, was
not subject to federal and state income taxes during the periods indicated
other than during the three-month period ended July 31, 1998 and the
three-month period ended October 31, 1998. See Note 1 to Financial
Statements.

The Company's results of operations have fluctuated, and likely will
continue to fluctuate, significantly from period to period. Weather and changes
in weather significantly affect the Company's sales of sporting goods equipment
and outdoor apparel and footwear. Net sales and margins are adversely affected
in periods of unseasonable weather conditions. In addition, the Company's
seasonal sporting goods merchandise mix is weighted substantially toward the
summer and winter seasons, which historically has led to much stronger results
of operations for the quarters ending July 31 and January 31 than for the other
two quarters. The Company has historically incurred net losses in the quarters
ending April 30 and achieved limited net income or incurred net losses in the
quarters ending October 31. The Company's sporting goods and outdoor apparel and
footwear operations are also subject to traditional retail seasonality patterns
related to the holiday season and to changes in general and regional economic
conditions and changes in consumer preferences. The timing and expenses
associated with the Company's store remodeling program and the opening of new
stores or the acquisition of other businesses as part of the Company's growth
and expansion strategy will also contribute to fluctuations in periodic
operating results. Accordingly, the Company's operating results may vary
materially

33
<PAGE> 35

from quarter to quarter. See "Risk Factors -- Effects on Weather," "Risk
Factors -- Seasonality and Fluctuations in Periodic Operating Results" and
"Business -- Growth and Expansion Strategy."

LIQUIDITY AND CAPITAL RESOURCES

The Company requires capital principally to finance working capital needs,
remodel and upgrade existing stores and open new stores. Historically, these
activities have been funded by internally generated cash, long-term mortgage
financing, capital and operating leases and borrowings under the Company's
revolving line of credit facilities. Prior to the end of the fiscal year ending
January 31, 2003, the Company plans to open eight new stores and remodel ten
existing locations at an estimated aggregate cost of approximately $23.4
million, which figure excludes inventory for the new stores. See
"Business -- Growth and Expansion Strategy." Management expects to fund these
expenditures through internally generated cash, lease financings, borrowings
under the Company's revolving line of credit facility and proceeds from the sale
of shares in the Offering. See "Use of Proceeds." This or further expansion of
the Company's operations, including the possible acquisition of complementary
businesses, may also be funded by public or private debt or subsequent equity
offerings by the Company. See "Risk Factors -- Risks Associated With Potential
Acquisitions." Management estimates that the capital cost of new or remodeled
stores will be approximately $1.3 million per store. In addition, management
expects that each new store will require approximately $2.1 million for
inventory, which will be financed on normal trade credit terms, and
approximately $150,000 in pre-opening and promotional expenses. Actual costs to
remodel or to construct and open stores may substantially exceed such amounts.

Capital expenditures by the Company in the nine months ended October 31,
1998 and in the fiscal years ended January 31, 1998, 1997 and 1996 were
approximately $1.8 million, $2.5 million, $2.3 million and $1.7 million,
respectively. These capital expenditures were primarily for remodeling existing
stores, acquiring land for new store locations and constructing and opening new
stores.

In March 1998, the Company entered into a three-year revolving line of
credit facility with Foothill Capital Corporation to replace an existing
revolving line of credit facility and term loan. The amount available under the
new line of credit facility is the lesser of $20.0 million or an amount equal to
60% of eligible FIFO inventory, less specified reserves and the aggregate amount
of all undrawn letters of credit. Interest is payable monthly at the lender's
prime reference rate plus 1/2%. Letters of credit are issuable against the
revolving line of credit facility up to a maximum of the lesser of $1.0 million
or available borrowings under the facility. The line of credit facility is
secured by a security interest in substantially all of the Company's assets and
contains covenants which restrict, among other things, the Company's ability to
incur additional indebtedness.

In conjunction with the Reorganization, in May 1998, the Company redeemed
all of the Company's outstanding capital stock, other than shares held by Norman
Daniels and two minority shareholders, for an aggregate purchase price of
approximately $16.6 million, and repurchased certain of the Company's
outstanding options to purchase Common Stock for an aggregate purchase price of
approximately $3.9 million. See "The Reorganization" and "Certain Related
Transactions." The redemption of shares as part of the Reorganization resulted
in no gain to redeemed shareholders for state or federal income tax purposes.
The Company financed the stock redemption and the repurchase of stock options
primarily with the net proceeds of approximately $19.6 million from the sale and
lease-back of substantially all its owned real estate (net of related mortgage
payoffs, prepayment penalties and miscellaneous fees and expenses) and the
proceeds from the sale of $9.5 million of the Company's Subordinated Notes. See
"The Reorganization." The terms of the leases covering the real estate sold by
and leased back to the Company are triple net at market rates, over a period of
15 years with two five-year renewal options. The Company estimates that the
incremental annual operating cost to lease these facilities as compared to
owning them is approximately $2.3 million, taking into account, among other
things, rental expense, reduced interest expense as a result of mortgage payoffs
and reduced depreciation. In conjunction with the sale and lease back of the
real estate, the Company paid off mortgage loans and the Company's former
revolving credit facility before maturity, resulting in an extraordinary loss on
early extinguishment of debt of approximately $2.2 million recorded in the
three-month period ended April 30, 1998. Prior to the Reorganization, the
Company made S corporation distributions of approximately $7.2 million to its
shareholders which are intended to cover all state and federal

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<PAGE> 36

income tax liabilities arising from the Company's income prior to the Redemption
and from the sale of the Company's real estate. See "The Reorganization."

The Company believes that the net proceeds from the Offering, combined with
borrowings under its line of credit facility and internally generated funds,
will be sufficient to fund its requirements for working capital and capital
expenditures for at least the next 12 months.

As of October 31, 1998, the Company had checks outstanding in excess of
cash deposits of $1.3 million and borrowing capacity under its revolving line of
credit facility of approximately $2.5 million.

Cash Flow for the Six-Month Period Ended October 31, 1998. During the
six-month period ended October 31, 1998, checks outstanding in excess of cash
deposits increased by $1.1 million. Net cash used by operating activities was
$943,000, derived principally from cash net income (net income plus depreciation
and amortization) of $1.7 million and an increase in accounts payable and
accrued liabilities of $2.9 million, offset by an increase in inventory of $3.8
million and an increase in accounts receivable and other current assets of $1.8
million.

Investing activities during the period included capital expenditures of
$1.8 million, related principally to the Company's new store in Hillsboro,
Oregon, which opened in July 1998. Approximately $1.5 million of these
expenditures were offset by the proceeds from the sale and lease back of
substantially all of the fixtures and improvements associated with the Hillsboro
location. Investing activities also included a cash payment of $450,000 and an
increase in notes receivable of $100,000 in conjunction with the acquisition of
Timberline Direct, and $508,000 related to professional fees and financing fees
incurred by the Company in connection with Reorganization and the Offering. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview" and "The Reorganization."

Financing activities during the period consisted of a net increase in
borrowing of $1.9 million under the Company's revolving line of credit facility,
principle payments of $212,000 on term loan obligations and $457,000 on capital
lease obligations.

Cash Flow for the Three-Month Period Ended April 30, 1998. During the
three-month period ended April 30, 1998, checks outstanding in excess of cash
deposits decreased by $370,000. Net cash used by operating activities was $1.2
million, derived principally from a cash net loss (net loss less depreciation
and amortization, plus the gain on sale of real estate, less the extraordinary
loss on early extinguishment of debt) of $1.9 million, an increase in accounts
payable and accrued liabilities of $2.8 million and a net reduction in all other
current assets, excluding inventory, of $289,000, offset in part by an increase
in inventory of $2.6 million. The increase in inventory is due primarily to
seasonal increases in spring and summer merchandise and inventory designated for
the new Hillsboro, Oregon store, which opened in July 1998.

Investing activities during the three-month period ended April 30, 1998
included the proceeds of $25.1 million from the sale and lease-back of
substantially all the Company's owned real estate and capital expenditures of
$90,000. Investing activities also included an increase in other non-current
assets of $768,000, related to professional and financing fees incurred by the
Company in conjunction with the Reorganization. See "The Reorganization."

Financing activities during the period included a net reduction in
borrowings of $3.5 million under the Company's revolving line of credit
facility. Net proceeds resulting from the sale and lease-back in late April 1998
of substantially all the Company's owned real estate (net of related mortgage
payoffs, prepayment penalties and miscellaneous fees and expenses) were used to
pay down temporarily the revolving line of credit facility prior to the
redemption in May 1998 of capital stock and options of the Company as part of
the Reorganization. See "The Reorganization." This reduction in the revolving
line of credit facility was net of an increase of approximately $1.0 million
attributable to a term loan that was rolled into the revolving credit facility
when the Company replaced its former revolving credit facility in May 1998.
Prior to the sale and lease-back transaction, borrowings under the revolving
line of credit facility had actually increased for the period to finance the
Company's operations. The Company historically incurs net operating losses
during the three-month period ending April 30.

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<PAGE> 37

Financing activities during the three-month period ended April 30, 1998
also included a pay-down of long term debt of $10.1 million, which related
primarily to the payoff of mortgage obligations on the properties included in
the sale and lease-back transaction and the rollover of the term loan discussed
above, principal payments on capital lease obligations of $226,000, prepayment
penalties of $1.9 million incurred on the payoff of the mortgages and the
Company's former revolving credit facility, and S corporation distributions in
the amount of $6.9 million to cover shareholder tax liabilities for the fiscal
years ended January 31, 1997 and 1998, and the three-month period ended April
30, 1998. See "The Reorganization."

Cash Flow for the Fiscal Year Ended January 31, 1998. During the fiscal
year ended January 31, 1998, checks outstanding in excess of cash decreased by
$87,000. Operating activities generated net cash of $1.5 million, principally
from cash net income (net income plus depreciation and amortization) of $3.0
million and an increase in accounts payable and accrued liabilities of $2.0
million, offset in part by an increase in inventory of $3.9 million. The
increase in inventory was due primarily to the opening of the Puyallup,
Washington store in October 1997.

Investing activities during the period included capital expenditures of
$2.5 million, the majority of which was used to remodel an existing store in
Bend, Oregon, and to open the Puyallup, Washington store.

Financing activities during the period consisted principally of a net
increase of $1.4 million in borrowings under a revolving line of credit
facility, $3.2 million borrowed to refinance mortgages on two Company owned
store locations, and $1.3 million borrowed for fixtures and equipment for the
Puyallup, Washington store. Other financing activities included principal
payments of $3.4 million on term loan obligations, payments of $854,000 on
capital lease obligations and S corporation distributions of $370,000 to cover
shareholder tax liabilities.

YEAR 2000 COMPLIANCE

Since June 1997, the Company has been actively engaged in achieving Year
2000 compliance. The Company's Year 2000 compliance project has been divided
into several phases. First, all hardware and operating system software
applications were audited and found to be Year 2000 compliant. Second, all
third-party software applications were checked for compliance. Since the Company
has developed most of its applications internally, few applications needed to be
checked. Of these, only two minor applications were found to have Year 2000
issues and the Company has taken steps to replace these applications. Third, the
Company has completed an inventory of its database files and
internally-developed software applications, and has developed an application to
modify non-Year-2000-compliant database files, re-compile software applications
and monitor progress. Finally, the Company re-prioritized existing information
technology ("IT") projects to allocate programming resources to the Company's
Year 2000 project.

As of December 31, 1998, approximately 85 percent of the Company's systems
are Year 2000 compliant. The target date for full compliance is June 30, 1999.

The Company's total budget for its Year 2000 project is $145,000,
approximately half of which amount had been spent through December 31, 1998.
This amount represents approximately 10 percent of total IT expenditures
budgeted for the period from June 1997 through June 1999. The Company continues
to manage total IT expenses by re-prioritizing or curtailing less critical
investments, incorporating Year 2000 readiness into previously planned system
enhancements and by using existing staff to implement its Year 2000 program. The
Company has not hired any outside consultants for its Year 2000 project, nor has
it needed to purchase any hardware or software.

The Company has also conducted an inventory of non-computer equipment that
may contain date-sensitive microprocessor chips. All of the Company's telephone
systems, environmental controls, copiers, fax machines, forklift equipment and
other similar equipment have been found to be Year 2000 compliant.

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<PAGE> 38

Upgrades will need to be made to a camera surveillance system installed in two
of the Company's 16 retail stores. This upgrade is scheduled for the second
quarter of fiscal 1999.

The Company acquires a majority of its inventory from approximately 30
vendors. If these vendors have unresolved Year 2000 issues which affect their
ability to supply merchandise, the Company could be adversely affected. The
Company plans to complete a Year 2000 readiness survey of its top vendors by
December 1998. In the event that it appears a vendor will be adversely affected
by Year 2000 issues, the Company believes that it will be able to find
alternative suppliers.

Should the Company not achieve full compliance in a timely manner or
complete its Year 2000 project within its current cost estimates, the Company's
business, financial condition and results of operations could be adversely
affected. However, in the event that the Company fails to meet the deadlines
above, the Company believes that the financial impact will not be material since
all systems believed by the Company to be critical have already been certified
as Year 2000 compliant.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130 "Reporting Comprehensive Income" ("SFAS 130"). This statement
establishes standards for reporting and displaying comprehensive income and its
components in a full set of general purpose financial statements. The objective
of SFAS 130 is to report a measure of all changes in equity of an enterprise
that result from transactions and other economic events of the period other than
transactions with owners. The Company adopted SFAS 130 during the first quarter
of fiscal 1999. Comprehensive loss did not differ from currently reported net
loss in the periods presented.

Effective in its fiscal year ending January 31, 1999, the Company will be
required to adopt SFAS No. 131 "Disclosures about Segments of an Enterprise and
Related Information." SFAS No. 131 changes current practice under SFAS No. 14 by
establishing a new framework on which to base segment reporting (referred to as
the "management" approach) and also requires interim reporting of segment
information. Management does not expect that the impact of adoption of this
pronouncement will be material to the Company's financial position or results of
operations.

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for all derivative instruments.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. The
Company currently has no derivative instruments and, therefore, the adoption of
SFAS 133 will have no impact on the Company's financial position or results of
operations.

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<PAGE> 39

BUSINESS

INTRODUCTION

G.I. Joe's began operations in 1952 in Portland, Oregon as a government
surplus store. Over the years the Company shifted its focus from surplus goods
to new, general merchandise. By 1995, under the direction of Norman Daniels, the
Company's current Chairman of the Board, President and Chief Executive Officer,
the Company had streamlined its product offerings to focus on sports and
automotive merchandise, its best-selling product lines. Through 1997 the Company
pursued a conservative operating strategy while refining its internal systems,
distribution system and training programs and undertaking selective management
additions, all of which created a solid foundation to support future expansion.
In May 1998, Mr. Daniels acquired majority ownership of the Company and the
Company began implementing an aggressive growth strategy. See "The
Reorganization" and "Business -- Growth and Expansion Strategy."

INDUSTRY OVERVIEW

According to the National Sporting Goods Association, between 1992 and 1997
the U.S. sports merchandise retail market grew 23% to $42.9 billion from $34.9
billion, representing a compound annual growth rate of 4.0%. There are four
principal categories of sports merchandise retailers in the United States: (i)
traditional sports merchandise retailers which generally operate stores under
30,000 square feet in size and are regional in focus, (ii) specialty sports
merchandise retailers which generally focus on high-end products relating to a
single activity category, such as The Orvis Company, Inc., (iii) mass
merchandisers such as Wal-Mart and K-Mart and (iv) large format sports
merchandise retailers which generally operate stores larger than 50,000 square
feet in size, such as The Sports Authority, Inc. and Gart/Sportmart. Large
format sports merchandise retailers represent a rapidly increasing percentage of
this retail market. From 1995 to 1997, sales

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<PAGE> 40

by the top five large format sports merchandise retailers grew approximately
20%, from approximately $3.0 billion to approximately $3.6 billion.

According to the Automotive Parts and Accessories Association, between 1992
and 1997 the U.S. market for automotive aftermarket parts and accessories grew
35% to $30.0 billion from $22.3 billion, representing a compound annual growth
rate of 6%. Automotive parts retailers account for over one-third of all sales
in this market. Growth in this market has been driven primarily by two trends:
(i) the increasing sales of pickup trucks, mini-vans and sports-utility vehicles
and (ii) the increasing average age of automobiles in the United States. In
1997, sales of light trucks accounted for 45% of all new U.S. vehicle sales and
a record 6.9 million pickup trucks, mini-vans and sport-utility vehicles were
sold, representing a 4.5% increase over 1996. Increased sales of pickup trucks,
mini-vans and sport-utility vehicles have increased demand for automotive
accessories such as utility racks, running boards and truck bed liners and
covers. In addition, as the average sales price of new vehicles has continued to
increase, so has the average length of vehicle ownership. In 1996, more than 33%
of vehicles were five to ten years old, and more than 35% of the remaining
vehicles were more than ten years old. These factors have led to growth in the
"do-it-yourself" automotive parts market, as vehicle owners reduce costs by
performing repairs and maintenance. People who perform work on their own
automobiles account for more than half of the purchases of starting, fuel system
and charging system parts, and more than one-third of all purchases of brake and
engine parts.

The retail markets for sports and automotive merchandise are both highly
fragmented on a national and regional basis. This fragmentation presents
numerous opportunities for consolidation. Although there is substantial overlap
between consumers of sports merchandise and automotive merchandise, most
participants in these retail markets carry only sports or automotive merchandise
or a limited mix of these products. Few participants take advantage of the
cross-selling opportunities available by carrying full lines of both types of
merchandise.

BUSINESS STRATEGY

The Company's business strategy is based on the following key competitive
strengths.

Unique Merchandise Mix. G.I. Joe's carries full lines of sporting goods,
outdoor apparel and footwear, and automotive aftermarket parts and accessories.
The Company's merchandise mix has led to substantial cross-shopping by customers
between the sporting goods and automotive departments. Based on a survey of
approximately 1,400 customers conducted by the Company in 1997, during the same
visit to a G.I. Joe's store over 50% of the Company's sporting goods customers
also purchased automotive products, and over 30% of the Company's automotive
customers also purchased sporting goods products. For example, a customer may
purchase both a bicycle and a bicycle rack for his vehicle, or snow skis, a ski
rack and snow chains for his vehicle. The Company continually adjusts its
merchandise mix to respond to changes in consumer preference, to target higher
margin products and to attract additional customers in an ongoing effort to
increase sales and improve profitability. A typical G.I. Joe's store stocks over
65,000 active stock keeping units ("SKUs") (including different styles and
colors as separate units) of sports and automotive merchandise. No other
superstore retailer pursues the Company's two-stores-in-one merchandise mix
strategy, and the Company's extensive and diverse merchandise selection
differentiates it from other retailers of sports or automotive merchandise.

Proven Store Concept and Remodeling Strategy. The Company has developed a
successful open ceiling, racetrack design concept for its stores that has
significantly increased same-store sales and sales per square foot. See "Store
Concept." Same-store sales at the two stores remodeled in the last three years
have increased approximately 18% on average in the first year of operation after
remodeling, which equates to an improvement in average sales from $196 per
selling square foot in the year prior to remodeling to $231 per selling square
foot in the first year after remodeling. For the fiscal year ended January 31,
1998, the Company's new and remodeled stores generated average annual sales of
approximately $9.9 million, compared to approximately $8.6 for the Company's
other stores. In fiscal 1998, new and remodeled stores achieved average sales
per selling square foot of $213, compared to $193 for other stores. Average
annual per store contribution in fiscal 1998 was approximately $1.6 million for
new and remodeled stores and $1.3 million for other stores.

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<PAGE> 41

In addition, in fiscal 1998 the average sale per transaction at the Company's
new and remodeled stores was $34, which is 17% higher than the $29 amount at the
Company's other stores. The Company has opened two new stores and remodeled four
existing stores over the past four fiscal years using its updated store concept.
The Company intends to open eight new stores and remodel ten existing stores
prior to the end of fiscal 2003. See "Business -- Growth and Expansion
Strategy."

Leading Position in the Pacific Northwest. By focusing on the Pacific
Northwest, the Company has established a significant presence in the region. The
Company has developed customer loyalty by offering an extensive selection of
quality merchandise. The Company has gained strong regional name recognition by
sponsoring nationally and regionally promoted sporting events, such as the
nationally televised Budweiser/G.I. Joe's 200 Champ Car race. The Company's
status as a leading regional retailer has increased its buying power with
vendors. In addition, the Company's regional focus has allowed it to benefit
from certain economies of scale, including those related to the Company's
concentrated advertising and marketing plan and centralized distribution system.
Management believes that favorable economic conditions and population trends in
the Northwest will result in increased demand for the Company's merchandise and
provide further opportunities for the Company to leverage its strong market
position in the region.

Quality Merchandise Competitively Priced. G.I. Joe's focuses on providing
customer value. The Company has developed strong working relationships with its
vendors, which contributes to the Company's ability to obtain leading brand name
merchandise at favorable prices. The Company frequently receives significant
volume discounts from vendors because of its strong regional presence, high
sales volume and membership in national buying groups. Favorable pricing from
vendors, together with the Company's direct purchasing and efficient
distribution system, enables the Company to offer premium quality merchandise at
competitive prices.

Superior Customer Service. Superior customer service is a key component of
the quality shopping experience provided at G.I. Joe's. The Company has
established a reputation in its markets for sales associates who understand the
needs of customers and are knowledgeable about the Company's merchandise. The
Company extensively trains its sales associates by merchandise department and
activity category, and many sales associates actively participate in the
activities related to the specific merchandise they sell. The Company also
specially trains its sales associates to serve female customers shopping in
traditionally male-oriented product categories, such as field and stream and
automotive products. The Company believes that the extensive product knowledge
of its sales associates and the Company's superior customer service and
after-sale support differentiate it from mass merchandisers and other large
concept sporting goods and automotive parts and accessories retailers.

Enhanced Margins. The Company continually seeks to improve its gross margin
and operating margin. The Company has improved its gross margin by: increasing
sales of higher margin outdoor apparel and footwear and private label products;
including vendor concept shops within the Company's stores; increasing the
quantity of merchandise the Company directly imports; and increasing its buying
power as a result of its expanded operations and membership in national buying
groups. To the extent the Company expands its business in the Pacific Northwest,
the Company anticipates that its operating margin will improve as a result of
further economies of sale, including those related to the Company's concentrated
advertising and marketing plan and centralized distribution system. Stores open
for at least 12 months have generally contributed positively to the Company's
margins. For the fiscal year ended January 31, 1998, the average annual per
store contribution for stores open for at least 12 months was approximately $1.4
million, or approximately 16% of average annual per store sales.

Management Ownership and Experience. In May 1998, Norman Daniels, the
Company's current Chairman, President and Chief Executive Officer, acquired
control of the Company in a management buy-out. After the Offering, Mr. Daniels
will own approximately 37.8% of the Company's outstanding Common Stock
(approximately 36.2% if the Underwriters' over-allotment option is exercised in
full). Mr. Daniels has served in various positions with the Company over the
past 34 years and the Company's executive officers have an average of over 18
years' experience with the Company. Ten of the Company's 14 full-time
purchasing, sales

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<PAGE> 42

and managerial employees (excluding the executive officers) have been with the
Company for over ten years. The Company's store managers average over 12 years
of service with the Company.

GROWTH AND EXPANSION STRATEGY

G.I. Joe's intends to expand its business by implementing the following
growth and expansion strategy:

Remodel Existing Stores to Increase Sales. The Company has embarked upon a
major remodeling program to increase same-store sales. Same-store sales at the
two stores remodeled in the last three years have increased approximately 18% on
average in the first year of operation after remodeling, which equates to an
improvement in average sales from $196 per selling square foot in the year prior
to remodeling to $231 per selling square foot in the first year after
remodeling. The Company has remodeled four of its existing stores over the past
four fiscal years using its updated store concept and intends to remodel the
following ten stores prior to the end of the fiscal year ending January 31,
2003.

<TABLE>
<CAPTION>
SCHEDULED DATE PLACED IN
LOCATION REMODELING DATE(1) SERVICE SQUARE FOOTAGE
-------- ------------------ -------------- --------------
<S> <C> <C> <C>
Beaverton, Oregon 2/99 04/74 55,120
Tualatin, Oregon 7/99 09/85 55,120
Gresham, Oregon 7/99 05/87 55,120
Medford, Oregon 2/00 03/86 48,500
Federal Way, Washington 2/00 03/91 55,120
Vancouver, Washington 2/00 06/89 55,120
Oak Grove, Oregon 2/01 04/72 67,100
South Salem, Oregon 2/01 03/85 55,120
Albany, Oregon 2/01 11/89 55,120
Portland, Oregon 2/02 03/79 55,120
</TABLE>

- ---------------

(1) Scheduled remodeling dates represent management's estimates of the dates
remodeling will commence. Actual commencement dates may differ from these
estimates.

The criteria used by the Company in determining when a store will be
remodeled includes the store's sales volume, the remaining term of the related
lease, proximity to other G.I. Joe's stores (to limit cannibalization of sales)
and to competitors' stores and the general prospects for the store based on
local population and demographic trends, including items such as income levels
and distribution, age and family size.

The remodeling procedure includes improvements in store layout, lighting,
signage, fixtures and merchandise presentation and a conversion from a drop
ceiling to an open ceiling. Remodeling of each store is performed in stages in
order to permit continued operation during the typical 70- to 90-day remodeling
period. Remodeling costs are estimated to be approximately $1.3 million per
store, including approximately $700,000 for fixtures and approximately $600,000
for leasehold improvements. Actual remodeling costs may be higher. The average
annual per store contribution (i.e., store gross margin less store expenses) for
the Company's four remodeled stores that have been operating for over a year is
approximately $1.6 million, compared to a corresponding per store contribution
of approximately $1.3 million for the Company's non-remodeled stores (excluding
newer stores).

Open New Stores in the Pacific Northwest. The Company intends to expand its
presence in the Pacific Northwest, primarily in Washington, by selectively
opening two new stores each year for the next four fiscal years. The Company
currently has two stores operating in the Seattle/Puget Sound area of
Washington, with two additional stores scheduled to open in this area in
calendar year 1999. The Company believes that it can successfully expand its
business in Washington because of the geographic proximity of this area to the
Company's Oregon operations, which strengthens name-brand recognition for the
Company in the Washington markets, and the lack of a dominant sports merchandise
retailer in Washington. Weather patterns and consumer demographics in Washington
and Oregon are similar, which will assist the Company in predicting

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<PAGE> 43

the merchandise mix suitable for Washington stores and enable the Company to
employ advertising campaigns used successfully to target Oregon consumers. The
Company intends to implement in the Seattle/ Puget Sound area its strategic
multi-store placement strategy used successfully in the Portland metropolitan
area, where a cluster of stores in an urban center has led to increased market
penetration and economies of scale. Management believes that the Company's
distribution center can accommodate at least five additional stores in the
Pacific Northwest without material modification. Expansion beyond five
additional stores in the Pacific Northwest and expansion into other geographic
areas may require material modification of the Company's distribution center or
the construction or development of additional distribution facilities. See " --
Vendors, Purchasing and Distribution."

The Company carefully evaluates potential new store sites in an effort to
maximize profitability and market share. Factors considered by the Company in
evaluating a potential site include: proximity to other G.I. Joe's stores
(balancing the benefits of market penetration with possible cannibalization of
sales) and to competitors' stores; local demographics (such as income levels and
distribution, age and family size), and population base and trends; availability
of adequate parking; and proximity to commercial thoroughfares. The Company
generally decides whether to construct its standard 55,000 square foot store or
the smaller 35,000 square foot version based upon the size of the population of
the surrounding community, with larger stores typically serving local
populations in excess of 50,000 people and smaller stores typically serving
smaller communities.

The Company currently operates all of its stores on a long-term operating
lease basis. Management estimates that capital expenditures required to open new
stores on an operating lease basis will be approximately $1.3 million per store.
In addition, management expects that each new store will require approximately
$2.1 million of inventory, which will be financed on normal trade credit terms.
If the Company purchases the underlying real estate and building, or if opening
a new store at a location requires that an existing building be retrofitted, the
initial investment by the Company will increase. In addition to capital
expenditures, the Company anticipates incurring expenses of approximately
$175,000 for pre-opening and promotional activities associated with each store
opening, including the cost of training employees and stocking the store. It is
the Company's policy to expense all pre-opening costs as incurred.

Stores open for at least 12 months have generally contributed positively to
the Company's margins. For the fiscal year ended January 31, 1998, the average
annual per store contribution for stores open for at least 12 months was
approximately $1.4 million, or approximately 16% of average annual per store
sales. Management estimates that new stores will contribute positively to the
Company's margins after 12 months of operation and that after approximately
three years of operation new stores will generate net sales comparable to
average net sales generated at existing stores. However, new stores may not
achieve historic or anticipated levels of operating results for the Company. See
"Risk Factors -- Ability to Implement Business and Growth and Expansion
Strategies and Manage Growth."

Pursue Acquisitions in Existing and New Markets. The retail markets for
sports and automotive merchandise are both highly fragmented. Management
believes that the fragmented nature of these markets, together with the
similarity of the consumer demographics and seasonal outdoor activity patterns
in the Pacific Northwest and portions of Montana, Idaho, Utah, Nevada and
Northern California, provide attractive expansion opportunities for the Company
by means of strategic acquisitions. Most participants in the retail sports and
automotive markets carry only sports or automotive merchandise or a limited mix
of these products. After a strategic acquisition of a local or regional sports
or automotive retail chain, the Company would introduce its other product
categories into those stores' merchandise mix where management deems such new
product introductions to be profitable. The Company has no current
understandings or agreements regarding potential acquisitions.

Further Develop Alternative Channels of Distribution. G.I. Joe's is
entering new distribution channels that the Company believes are suited to its
competitive strengths. For example, management believes that expansion
opportunities exist in the mail order catalog and Internet-based retail
distribution channels. As part of this expansion, the Company has completed a
test mailing of catalogs to 50,000 potential customers in the Pacific Northwest
and has developed the G.I. Joe's Online Store, a complete Internet store to sell
its products.

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The Company is planning additional catalogs for specific categories of its
merchandise, including bicycles, camping gear, backpacking equipment,
snowboards, skateboards and aftermarket automotive supplies. In addition, in
September 1998 the Company acquired Timberline Direct, a direct marketing
retailer which sells merchandise complementary to that offered by the Company
through catalog and Internet-based channels. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Overview."
Management anticipates that use of these types of alternative distribution
channels will present additional up-selling and cross-selling opportunities to
the Company on a national level.

Examine Opportunities for National Expansion and Vertical
Integration. Management believes that the Company's experience in developing a
strong position in the Pacific Northwest and the fragmented nature of the sports
and automotive retail markets place it in a position to replicate its success in
other regions. Management further believes that the Company's sports and
automotive merchandise mix would prove equally effective in other regions,
particularly in the Northern and Central portions of the United States. The
Company intends to evaluate national expansion opportunities, particularly those
available by means of acquisitions and alternative distribution channels. The
Company also intends to explore vertical integration opportunities through the
acquisition of complementary manufacturing operations.

TARGET CUSTOMERS

The Company tailors its merchandise mix of full lines of sports and
automotive products to the active Pacific Northwest lifestyle. The majority of
the consumers of the Company's merchandise are males between the ages of 21 and
59 who engage in outdoor activities, especially field and stream activities, and
who perform light to medium work on their vehicles. While many of the products
carried by the Company are geared to traditionally male-oriented activities
(such as hunting and fishing), approximately 45% of the Company's customers are
women purchasing products for themselves, as women's participation in outdoor
and team activities increases, or for men. In response to increasing numbers of
female customers, the Company has expanded its women's activewear departments.
The Company is also in the process of adding active kids' clothing departments
to its stores.

MERCHANDISE

G.I. Joe's stores offer full lines of sports and automotive merchandise at
a wide range of retail price points. A typical store stocks over 65,000 active
SKUs (including different styles and colors as separate units). The Company
supplements its extensive selection of in-stock merchandise by means of a
special order department. The Company's understanding of the Pacific Northwest's
seasonal weather patterns and its customers' active lifestyles allows it to
stock merchandise that appeals to its customers' unique needs. The demographics
of consumers drawn to the Company's sporting goods and automotive product lines
are similar, which leads to significant cross-shopping between G.I. Joe's
sporting goods and automotive departments.

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<PAGE> 45

The following charts set forth the approximate percentage of sales and SKUs
attributable to each merchandise category during the fiscal year ended January
31, 1998.

PERCENTAGE SALES BY PRODUCT CATEGORY TOTAL SKUS BY PRODUCT CATEGORY

[GRAPHIC] [GRAPHIC]

Sporting Goods

Sales of sporting goods have increased at an average annual rate of 3% for
the four fiscal years ended January 31, 1998, and such sales accounted for
approximately 39% of the Company's sales in fiscal 1998. The sporting goods
departments of the Company's stores carry equipment for, among other activities,
cycling, golf, tennis, outdoor games, snow skiing and snowboarding, water skiing
and water sports, kayaking and canoeing, camping, backpacking, fishing, hunting,
archery, team sports and general fitness. The sporting goods departments also
stock fishing boats and motors and marine accessories.

The Company sells leading name-brand products, including sporting goods
supplied by the following manufacturers, among others:

- - ALUMACRAFT
- - BAUSCH AND LOMB
- - COLEMAN
- - CLEVELAND GOLF
- - DIAMONDBACK
- - DYNASTAR
- - EUREKA
- - G-LOOMIS
- - GARCIA
- - HOSPORTS
- - HUFFY SPORT
- - JANSPORT
- - K2
- - MARKER
- - NORDICA
- - O'BRIEN
- - OLD TOWN
- - RAICHLE
- - RAWLINGS
- - RIDE
- - ROLLERBLADE
- - ROSSIGNOL
- - SALOMON
- - SPALDING
- - TOMMY ARMOUR
- - WILSON

Outdoor Apparel and Footwear

The Company's fastest growing department is the outdoor apparel and
footwear department, which also generates the highest gross margin for the
Company. Sales attributable to this department have grown at an

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<PAGE> 46

average annual rate of 2.8% for the four fiscal years ended January 31, 1998,
and accounted for approximately 27% of the Company's sales in fiscal 1998. The
outdoor apparel and footwear department includes several categories of products:
men's and women's casual wear; men's and women's active wear; NFL, NBA, MLB, NHL
and NCAA-licensed team shops (with special emphasis on Northwest professional
and college teams); work clothing; outdoor wear; ski wear; and men's and women's
outerwear and accessories. Footwear includes various types of athletic shoes as
well as seasonal footwear, "brown shoes" (i.e., leather outdoor, non-athletic
footwear) and hiking, fishing and hunting boots, including waders and insulated
paks.

The Company purchases outdoor apparel and footwear from leading sports and
apparel manufacturers such as:

- - ADIDAS
- - AIRWALK
- - ASICS
- - CARHART
- - CHAMPION
- - COLUMBIA SPORTSWEAR
- - DANNER
- - HELLY-HANSEN
- - LEVI STRAUSS
- - NIKE
- - PACIFIC TRAIL
- - REEBOK
- - ROFFE
- - RUSSELL ATHLETICS
- - SPEEDO
- - STARTER
- - VANS
- - WOLVERINE
- - WOOLRICH

Automotive Aftermarket Parts and Accessories

Each G.I. Joe's store features a full-service automotive aftermarket parts
and accessory department. Sales by these departments have been relatively
unchanged for each of the four fiscal years ended January 31, 1998, and
accounted for approximately 21% of the Company's sales in fiscal 1998. These
"stores-within-a-store" are divided into parts, accessories and lube sections.
The parts section carries a full selection of name-brand parts, including
brakes, shocks, tune-up, exhaust and engine parts and batteries, as well as
certain private label products. Merchandise in the accessory section includes
seat covers, floor mats, light truck and sport utility vehicle accessories,
recreational vehicle parts, supplies and accessories (including chemical
toilets, propane accessories, solar panels and recreational vehicle hookup
parts), lift equipment, engine additives, utility racks and custom parts and
accessories. The sport utility and recreational vehicle parts, supplies and
accessories merchandise categories are the Company's fastest growing merchandise
categories within this department. The lube section of this department offers
oil and antifreeze and generates year-round traffic for the Company's stores.
For the purpose of increasing sales of its automotive merchandise, the Company
hired a new Automotive Merchandise Manager in June 1998, and has recently
implemented a revised automotive merchandise marketing plan. This plan features
lower everyday prices made possible by a change in product lines and more
aggressive promotional strategies. The plan also calls for an update of the
electronic automotive parts look-up systems at all stores, which are intended to
increase the efficiency with which the Company serves its automotive parts
customers.

The Company purchases name-brand automotive aftermarket parts and
accessories from leading manufacturers such as:

- - BOSCH
- - CHAMPION
- - FELPRO
- - FRAM
- - GNB
- - KENCO
- - LUND
- - MONROE
- - OMNIGUARD
- - PENNZOIL
- - PUROLATOR
- - STANDARD BATTERY
- - SUPERWINCH
- - SYLVANIA
- - VALVOLINE

Other Merchandise

The Company enhances its sporting goods and automotive merchandise mix with
related electronics equipment and other assorted merchandise. Sales of
electronics equipment and other assorted merchandise accounted for approximately
13% of the Company's sales in the fiscal year ended January 31, 1998. The
electronics department features name-brand electronic automotive accessories,
primarily for sports utility and recreational vehicles, and electronics suited
for an active lifestyle. Such products include auto alarms, CB and VHF radios,
cellular phones, radar detectors, compact stereos and CD players, car stereos,
personal

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<PAGE> 47

electronics, sport watches, GPS (global positioning system) units and marine and
fishing electronics. The Company also offers a wide selection of outdoor cooking
and furniture merchandise on a seasonal basis.

TicketMaster

Each of the Company's retail locations includes a TicketMaster outlet,
which is located near the main entrance. During calendar 1997, the G.I. Joe's
TicketMaster outlets accounted for approximately 63% of all entertainment ticket
sales by ticket outlets in Oregon. These TicketMaster outlets offer tickets to
sporting events, concerts and plays as well as game licenses, ski lift tickets,
river running passes and snow park permits. Pursuant to an operating agreement
with TicketMaster-Oregon, the Company receives a percentage of the convenience
charges to which TicketMaster-Oregon is entitled under its own operating
agreement with TicketMaster Northwest for sales generated in G.I. Joe's Oregon
stores. The Company has established a similar arrangement directly with
TicketMaster Northwest with respect to its Washington stores. Revenue to the
Company generated by the TicketMaster outlets is generally offset by related
expenses, primarily for labor. The primary benefits to the Company of having
TicketMaster outlets in its stores are the increased foot traffic and
familiarity with the Company's store locations generated thereby. Certain of
TicketMaster-Oregon's partners are affiliated with the Company. See "Certain
Related Transactions."

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<PAGE> 48

STORE CONCEPT

The Company has developed a successful open-ceiling, racetrack design
concept for its new and remodeled stores. This store concept offers a flexible
store footprint that uses floor space more efficiently and is designed to
enhance the customers' shopping experience by creating an inviting atmosphere.
High ceilings, bright lighting and wide aisles create an open, spacious
environment and increase customer traffic flow and exposure to merchandise.
Within each store, merchandise is organized by activity category, and each
department and product category is identified with extensive, easy-to-read
signage to facilitate access to the Company's major product lines. The store
layout increases floor space by decreasing the area used for back room and
office purposes. Increased selling-floor space typically is used for the
prominent display of soft goods and other high margin products. The store layout
also promotes cross-shopping by strategically placing complementary departments
adjacent to one another.

A map of the Company's typical store layout is set forth below.

[MAP OF STORE LAYOUT]

The Company changes its merchandise mix by season and shifts its seasonal
display areas to highlight high margin products, which result in increases in
same-store sales and gross and operating margins for stores which employ this
layout.

VENDORS, PURCHASING AND DISTRIBUTION

The Company offers its customers a changing mix of products supplied by
over 2,600 vendors. The Company considers numerous factors in selecting vendors,
including: customer demand for the vendor's merchandise; product availability,
quality and performance; vendor return policies; and price and credit terms.
Although the Company has no long-term contracts with vendors for the purchase of
merchandise, the Company has developed strong working relationships with its
vendors. These relationships, together with the Company's high sales volume and
strong regional presence, frequently result in favorable volume discounts,
additional advertising funds and extended payment terms for the Company. The
Company also receives volume discounts and additional advertising funds as a
result of its participation in national buying groups. No vendor accounted for
more than 5% of total purchases by the Company in any of the last three fiscal
years and the Company is not dependent on any vendor. The Company's ten largest
vendors for the fiscal year ended January 31, 1998, which accounted for
approximately 24% of the Company's purchases for such year, were Nike, Inc.,
Columbia Sportswear Co., All Sports Supply, Inc., Coleman Company, Inc., Coast
Auto Supply,

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<PAGE> 49

World Wide Distributors, Remington Arms Co., Inc., Adidas U.S.A. Incorporated,
Levi Strauss & Company and Valvoline Incorporated. Although brand name products
and individual items are important to the Company's business, management
believes that competitive sources of supply are available in substantially all
of the merchandise categories that the Company carries. However, the Company
competes with other companies for the merchandise supplied by its vendors and
many of these other companies have substantially greater leverage and financial
and other resources than the Company. As a result, the Company may be unable to
obtain from its vendors adequate merchandise at the times or prices or in the
quantities it desires, if at all. See "Risk Factors -- Dependence on Vendors."

The Company's buying group utilizes three centralized buying teams: a
sporting goods team, an apparel and footwear team and an automotive parts and
accessories team. In addition, the Company has activity-based sub-teams (e.g.
skiing, fishing, hunting, etc.) to ensure that there is coordination between
equipment and apparel for certain activities. Each team is led by a merchandise
manager and is supported by individual category buyers, a store merchandiser and
an administrative assistant. The primary objective of the teams is to maintain
close relationships with vendors and store and department managers, and to
monitor changes in consumer preferences. Each buyer's performance is measured
against sales, inventory turns and gross margin targets.

The Company's purchasing system allows its buyers to ship inventory
directly to individual stores or to the Company's centralized, 150,000 square
foot distribution center located adjacent to the Company's headquarters. A
perpetual inventory system monitors each store's sales and replenishes the
inventory two or three times a week with shipments from the distribution center.
By monitoring SKU movements, the Company is able to optimize its purchasing and
maintain adequate amounts of merchandise at its distribution center. This system
has greatly reduced the levels of surplus inventory at the Company's retail
stores. Stores can obtain merchandise rapidly from the Company's distribution
center or can place special orders with vendors for items not held in inventory.

Approximately 80% of the merchandise purchased by the Company is shipped by
vendors to the Company's distribution center. The remaining merchandise is
shipped directly to individual stores. The Company makes two or three weekly
deliveries to its stores using its fleet of 3 leased tractors and 22 owned
trailers. Management believes this system is substantially less expensive than
drop shipping goods directly to its stores because it allows more timely
matching of store inventory needs, reduces each retail store's inventory
investment, allows better use of relatively higher cost store floor space and
reduces freight costs. Management believes that the distribution center has
sufficient capacity to support at least five additional stores, which would be
sufficient to support the Company's planned expansion in Washington for the next
two to three years. As the Company enters new markets and the geographic scope
of its operations increases, the Company will examine several options for
supplying new stores. Such options include increasing its use of direct vendor
deliveries and increasing its use of contract shipping to transport merchandise
to its retail stores from the distribution center. In addition, the Company may
establish one or more additional regional distribution centers as the Company
expands its operations beyond Oregon and Washington.

MARKETING, ADVERTISING AND PROMOTION

The Company's extensive marketing plan is designed to identify and promote
the Company as a major retailer of sports and automotive merchandise, and to
differentiate the Company from its competition by emphasizing its extensive
selection, excellent customer service and competitive prices. The Company's
marketing plan primarily targets males between the ages of 21 and 59, who make
up the bulk of the consumers of the Company's merchandise. The Company has
recently highlighted its "Joe's" brand name in its advertisements in recognition
of its greater acceptability as a brand name in its markets. The Company created
its "Go to Joe's. Grab the Gear. Seize the Weekend." advertising campaign to
target its main customer base. Key components of the Company's marketing program
include multi-focus advertising via print, radio and television, in-store,
vendor-specific concept shops, sponsorship of high-profile local sports and
outdoors events and selective special promotional events.

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<PAGE> 50

The Company's advertising strategy allocates its advertising budget
approximately as follows: 62% print; 34% radio and television; and 4% event
advertising. The Company's print advertising campaign employs newspaper
advertisements (usually in the form of inserts or run of the press display
advertisements), catalogs (which are direct mailed to targeted households) and
coupon books (which are direct mailed to potential customers three times each
year). The Company produces several newspaper inserts annually, which are run in
various local newspapers. The Company's television and radio commercials
generally focus on seasonal messages to promote specific sales events, and
showcase two to three non-competing products.

The Company was an early proponent of vendor-sponsored concept shops.
Concept shops create a shopping environment that is consistent with the vendor's
specific image and enable the Company to display and stock a greater volume of
the vendor's products per square foot of retail space. The Columbia Sportswear
concept shops at the Company's Bend and Eugene, Oregon stores have increased
same-store sales of Columbia Sportswear products by as much as 45%. The
Company's stores feature two of the first 25 Adidas concept shops installed on
the West Coast. Installation of concept shops in the Company's stores as part of
the remodeling process boosts the potential for increasing sales and margins by
using the manufacturer's own fixtures and signage, and by targeting higher
margin products. As of December 31, 1998, the Company had over 28 concept shops
in its stores, including shops for Columbia Sportswear, Nike clothing, Woolrich,
Levi Strauss and Adidas.

Cooperative advertising is a vital part of the Company's advertising
strategy. The Company works closely with vendors to obtain cooperative
advertising funds. The Company's flexibility and mid-size market have led
vendors to make funds available in excess of normal allowances. Vendor funds
used to offset outside advertising costs amounted to approximately 35%, 46% and
42% of such costs in the fiscal years ended January 31, 1996, 1997 and 1998,
respectively. Vendor promotions further supplement the Company's marketing
efforts.

As part of its marketing efforts, the Company sponsors sporting and auto
racing events in the Pacific Northwest. These include the nationally televised
Budweiser/G.I. Joe's 200 Champ Car race, and the G.I. Joe's/Thriftway Portland
Invitational Golf Tournament. The Budweiser/G.I. Joe's 200 Champ Car race is one
of 19 such races held annually worldwide and is broadcast to over 61 million
viewers in 188 countries. This race was attended by more than 150,000 people in
1998, which is the largest attendance of any sporting event in Oregon. The
Company has sponsored this race for 15 years and will continue to sponsor the
race for at least two more years. As a major annual golf event in the Pacific
Northwest, the G.I. Joe's/Thriftway Portland Invitational Golf Tournament draws
professional golfers from around the country to compete. The Company has
sponsored the golf tournament for 12 years and intends to continue this
sponsorship for the foreseeable future. The Company is also a long-time radio
sponsor of Portland Trailblazers basketball games, which are broadcast on more
than 25 radio stations in Oregon and Washington, and hosts several in-arena
promotions during home games. In addition to reinforcing the effects of the
Company's marketing efforts in its local markets, these sponsorships give the
Company regional and national exposure it would not otherwise receive.

Part of the Company's annual promotion events include sales designed to
highlight the latest sports and automotive merchandise. The Company has four
major annual sales events: the Anniversary Sale, the Sidewalk Sale, the Fall
Kick-Off and the Thanksgiving Weekend Sale. Other significant promotions are
seasonal or target specific holidays and special events. These activities are
designed to promote the Company as a leading retailer of sports and automotive
merchandise in the Pacific Northwest.

CUSTOMER SERVICE

The Company believes that the extensive product knowledge of its employees,
and its superior customer service and after-sale product support differentiate
G.I. Joe's from mass merchandisers and other large concept sporting goods and
automotive parts retailers. The Company strongly emphasizes the training of its
sales associates so that they are prepared to address customer inquiries and
assist with purchasing decisions. The Company trains its employees using
seminars, videos, vendor representative tours and product knowledge events. In
addition, the Company specially trains sales associates to serve female
customers shopping for traditionally male-oriented products. Key departments of
each store are supported by "Pro Staff" personnel

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<PAGE> 51

who have met specified technical requirements and have extensive sales and
service experience. These highly qualified specialists offer exceptional product
knowledge and assistance to customers.

The Company's Sports and Recreation Services Department provides customers
certain product assembly, installation, testing, repair and other support
services, as well as winter equipment rental services. The Company's service
technicians are trained and certified by merchandise manufacturers. A Sports and
Recreation Service Department located at the Company's distribution center
provides much of this support for the Portland metropolitan area. Additional
Sports and Recreation Service Departments are prominently included in a majority
of the Company's stores in geographic areas located outside the Portland area
and will be included in the Company's new and remodeled stores. The Sports and
Recreation Departments primarily offer services in connection with the sale of
high-quality branded merchandise.

MANAGEMENT INFORMATION SYSTEM

The Company makes significant expenditures with respect to its information
system in order to operate efficiently and to control costs. Expenditures for
the nine-month period ended October 31, 1998 and each of the three fiscal years
ended January 31, 1998 were $500,000, $587,000, $516,000 and $499,000,
respectively. The Company's IBM AS/400-based information system includes fully
integrated store, merchandising, distribution and financial systems and includes
a local area network and a sophisticated wide area network, on-line credit and
check authorization and electronic data exchange. The wide area network links
all store locations with the Company's headquarters and distribution center and
allows (i) direct communications to all store locations, (ii) point-of-sale
("POS") data collection and (iii) daily reporting of store sales. This system
provides an immediate link between the Company, its stores and its customers,
enhancing the Company's ability to monitor its performance against historical
and budgetary benchmarks, as well as to make better informed operational
decisions. Other in-store systems capture payroll hours and inventory receipts,
and maintain on-hand inventory quantities. The perpetual inventory reporting
system monitors, at cost and retail, all SKUs carried in inventory. This system
interfaces with the merchandising, receiving and POS systems to provide the
Company with accurate real-time inventory information which assists management
in implementing merchandise assortment, allocation and markdown decisions, as
well as decisions regarding future merchandise orders. Each day, the Company's
IBM AS/400 processes merchandise movement by SKU to automatically generate
orders for the Company's distribution center and stores. This is accomplished by
calculating the store inventory, comparing it to the desired inventory level and
ordering appropriately. The Company utilizes a series of Microsoft Windows NT
servers to run in-house developed applications and a variety of third-party
software and maintains a high-speed Internet connection which supports the G.I.
Joe's Online Store. An in-house information systems staff performs development,
programming and support services for the Company's information system.

The Company's information system allows the Company to efficiently
integrate new stores, as demonstrated by the recent addition of the Company's
Puyallup, Washington and Hillsboro, Oregon stores. The system is also capable of
expansion as needed to service additional locations. Although management
believes that the Company's operating systems will provide the Company with an
adequate platform to support its growth and expansion strategy for the
foreseeable future, the Company intends to continue to invest in its information
systems as necessary to remain competitive.

COMPETITION

The markets for sports and automotive merchandise are highly competitive.
Within the sporting goods and outdoor apparel and footwear markets the Company
faces significant competition from national, regional and local retailers, as
well as from manufacturers' own retail stores (such as stores owned and operated
by Nike, Inc.). The Company's retail competitors in the sporting goods market
include, among others: large format sporting goods retailers which generally
operate stores larger than 50,000 square feet in size, such as Gart/Sportmart
and The Sports Authority, Inc.; traditional sporting goods retailers which
generally operate stores under 30,000 square feet in size, such as Big 5
Corporation, Copeland's Sports, Inc. and Recreational Equipment, Inc. (REI);
specialty sporting goods retailers which focus on high-end products relating to
a specific activity category, such as The Orvis Company, Inc.; and mass
merchandisers such as Wal-Mart,

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K-Mart, Target and Fred Meyer. The Company competes with these companies, chains
such as Foot Locker and with department stores in the apparel and footwear
markets. Within the automotive parts and accessories markets the Company faces
competition from: national chains such as Shucks Auto Supply, Sears and NAPA;
regional and local companies such as Thrifty Auto Supply, Baxter's Auto Supply
and Al's Auto Supply; and from mass merchandisers with automotive departments,
such as Wal-Mart, K-Mart, Target and Fred Meyer. Many of the Company's
competitors have substantially greater financial, distribution, marketing and
other resources and have achieved greater name recognition than the Company. The
primary competitive factors in the sports and automotive markets are merchandise
selection, quality and mix, price and customer service. See "Risk
Factors -- Competition."

ENVIRONMENTAL AND OTHER GOVERNMENTAL REGULATIONS

The Company is subject to federal, state and local laws and regulations
which affect its business, relating to, among other things, advertising, worker
safety and the use, storage, discharge and disposal of environmentally sensitive
materials. Although Company's management is not aware of any significant
environmental contamination at any of the Company's properties from its own or
prior activities at such locations or from neighboring properties, such
contamination may exist at such properties or at additional store sites or
facilities acquired or leased by the Company, and any such contamination could
have a material adverse effect on the Company's business, financial condition
and results of operations. Because the Company is subject to various local
zoning requirements with regard to the location and design of its stores, the
development or expansion of the Company's operations will be contingent upon the
timely receipt of required licenses, permits and other governmental
authorizations. The Company is also subject to laws and regulations in certain
jurisdictions which may restrict the sale of certain merchandise, such as
firearms, ammunition and shooting accessories. In addition, state and local
government regulation of hunting can also affect the sales of hunting equipment
by the Company. See "Risk Factors -- Environmental and Other Governmental
Regulation." The Company believes that it is in compliance in all material
respects with all laws, regulations and requirements that affect its business,
and that compliance with such laws, regulations and requirements does not impose
a material impediment on the Company's ability to conduct its business.

TRADEMARKS

The Company uses a number of trademarks in connection with the operation of
its business, primarily in connection with its private label products. The
Company's "G.I. Joe's" trademark is registered with the United States Patent and
Trademark Office. The Company's other trademarks are not registered. The
Company's private label trademarks include: "Power Plus," used for automobile
supplies such as oil, anti-freeze and batteries; "North X Northwest," used for
fishing rods; "Cotton Wear By Joe's" and "Rugged Wear By Joe's," used for
certain outdoor apparel; "Comfort Plus by Joe's" for casual wear; and "Power
Play By Joe's," which it intends to use for additional private label sports and
active wear apparel. See "Risk Factors -- Dependence on Trademarks."

PROPERTIES

The Company's retail stores range in size from 35,000 to 73,000 square
feet, with an average size of approximately 55,000 square feet. The Company
generally decides whether to construct its standard 55,000 square foot store or
a smaller 35,000 square foot version based upon the size of the population of
the surrounding community, with larger stores typically serving local
populations in excess of 50,000 people and smaller stores typically serving
smaller communities. The stores are either free standing units or located in
malls or strip centers which are easily accessible and provide ample parking.
G.I. Joe's stores are open seven days a week, typically from 9 a.m. to 9 p.m.
All of the Company's retail store properties are leased. The Company generally
obtains long-term leases for its retail stores, with a minimum initial term of
15 years and renewal options for up to an additional 10 years. These leases
generally provide for fixed monthly rental payments plus additional amounts
calculated as a percentage of income earned on the leased premises above a given
threshold. The aggregate annualized minimum rental commitment under the
Company's real estate leases for the fiscal year ending January 31, 1999 is
approximately $7.0 million. See Note 10 to Financial

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Statements. The 16 stores currently operated by the Company are located in
Oregon and Washington, including eight in the Portland metropolitan area. An
additional two stores are scheduled to open in the Seattle/Puget Sound area of
Washington in calendar year 1999.

The following table includes certain information for each of the Company's
properties:

<TABLE>
<CAPTION>
DATE
REMODELED OR
SCHEDULED LEASE
SQUARE DATE PLACED REMODELING MATURITY TYPE OF STORE
LOCATION FOOTAGE IN SERVICE DATE(1) DATE LOCATION
-------- ------- ----------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C>
RETAIL STORES:
North Portland, Oregon................ 73,000 03/82 5/94 8/2008 Free-Standing
Tualatin, Oregon...................... 55,120 09/85 7/99 4/2013 Strip Center
Gresham, Oregon....................... 55,120 05/87 7/99 4/2013 Strip Center
Oak Grove, Oregon..................... 67,100 04/72 2/01 4/2013 Free-Standing
Beaverton, Oregon..................... 55,120 04/74 2/99 4/1999 Mall
Portland, Oregon...................... 55,120 03/79 2/02 2/2004 Strip Center
Hillsboro, Oregon..................... 55,000 08/98 New 7/2018 Strip Center
Vancouver, Washington................. 55,120 06/89 2/00 6/2014 Strip Center
South Salem, Oregon................... 55,120 03/85 2/01 4/2013 Free-Standing
Salem, Oregon......................... 67,100 08/76 5/94 4/2013 Free-Standing
Albany, Oregon........................ 55,120 11/89 2/01 10/2014 Free-Standing
Eugene, Oregon........................ 55,120 03/83 10/95 12/2005 Free-Standing
Medford, Oregon....................... 48,500 03/86 2/00 10/2009 Strip Center
Bend, Oregon.......................... 35,400 07/79 8/97 1/2018 Mall
Federal Way, Washington............... 55,120 03/91 2/00 3/2021 Free-Standing
Puyallup, Washington.................. 53,000 10/97 New 9/2017 Strip Center
DISTRIBUTION CENTER................... 150,000 06/79 4/2013
HEADQUARTERS.......................... 20,000 07/82 4/2013
</TABLE>

- ---------------

(1) Scheduled remodeling dates represent management's estimates of the dates
remodeling will commence. Actual commencement dates may differ from these
estimates.

In addition, the Company owns vacant parcels of land in Renton, Washington
and Grants Pass, Oregon. The Company is currently under contract to sell part of
the Renton property.

EMPLOYEES

As of December 31, 1998, the Company employed approximately 1,000
employees, approximately 30% of whom worked part-time. The number of part-time
employees varies seasonally. The Company expects to increase its number of
employees as it expands its operations and hires additional employees to staff
new stores. The Company is not subject to any collective bargaining agreements
and believes that its relationships with its employees are good.

A typical G.I. Joe's store requires a store manager, a manager in training,
a training specialist, five department managers and 57 sales, merchandising and
support staff.

LEGAL PROCEEDINGS

From time to time the Company has been, and expects to continue to be,
subject to legal proceedings and claims in the ordinary course of its business.
Such claims, even if lacking merit, could result in the expenditure of
significant financial and managerial resources. The Company is not aware of any
legal proceedings or claims that it believes will have, individually or in the
aggregate, a material adverse effect on the Company's business, financial
condition or results of operations.

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MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES

The executive officers, directors and key employees of the Company and
their ages and positions as of December 31, 1998 are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Norman P. Daniels................ 50 Chairman of the Board, President and Chief
Executive Officer
Philip M. Pepin.................. 47 Vice President of Finance and Chief Financial
Officer
Edward A. Ariniello.............. 37 Vice President of Operations
Marc H. Mieher................... 35 Vice President and Chief Information Officer
David E. Orkney.................. 52 Director
Roy Rose......................... 40 Director

KEY EMPLOYEES
B.G. Eilertson................... 43 Merchandise Manager
David N. Fouts................... 43 Director of Planning and Logistics
Patrick E. Hortsch............... 43 Merchandise Manager
Dennis E. Irish.................. 47 Director of Advertising and Promotions
Ron J. Menconi................... 48 Merchandise Manager
Douglas B. Spink................. 27 General Manager of Direct Marketing
</TABLE>

EXECUTIVE OFFICERS AND DIRECTORS

Norman P. Daniels joined the Company in 1965. Mr. Daniels has been a
Director since 1975 and was named President of the Company in March 1992 and
Chief Executive Officer in January 1996. Mr. Daniels became Chairman of the
Board in June 1998. Mr. Daniels also has served as the Company's Advertising
Manager, Sporting Goods Merchandise Manager and Vice President of Merchandise
and Marketing.

Philip M. Pepin joined the Company in 1994 as Controller and was promoted
to Vice President of Finance and Chief Financial Officer in November 1996. Prior
to joining the Company, from 1990 to 1994 and from 1982 to 1988, Mr. Pepin
worked in public accounting with Arthur Andersen LLP in Portland, Oregon and
Seattle, Washington. In addition, from 1988 to 1990, Mr. Pepin served as
corporate controller of VWR Corporation, a wholesale distributor of scientific
and laboratory equipment. Mr. Pepin is a Certified Public Accountant.

Edward A. Ariniello joined the Company in 1982 and has worked in various
operations positions, including Department Manager, Warehousing and Store
Manager. Mr. Ariniello was promoted to Director of Training and Merchandising in
March 1994, and Vice President of Operations in December 1996.

Marc H. Mieher joined the Company in 1989 as Programmer/Analyst and was
promoted to Director of Information Services in May 1994 and to Vice President
and Chief Information Officer on October 1, 1998.

David E. Orkney has served as a Director of the Company since 1974, and
served as Chairman of the Board of Directors from 1976 until May 1998. Mr.
Orkney has served in various positions at the Company, including President from
1976 to 1992 and Chief Executive Officer from 1976 to 1996. Mr. Orkney founded
and has served as chief executive officer of Buckingham Investment Group, a
personal investment company, since December 1997.

Roy Rose has served as a Director of the Company since May 1998. Mr. Rose
founded and has served as the president and chief executive officer of Peregrine
Holdings (Oregon), Ltd. since 1991 and Peregrine Capital, Inc. since 1997. These
entities are involved in making investments in various businesses. Peregrine

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<PAGE> 55

Capital, Inc. is a principal shareholder of the Company and, together with
affiliated entities, has entered into various transactions with the Company. See
"Certain Related Transactions."

KEY EMPLOYEES

B.G. Eilertson joined the Company in 1972 and has held various operations
and merchandising positions with the Company, including Department Manager,
Assistant Store Manager and Sporting Goods Buyer. He was promoted to Merchandise
Manager for Sporting Goods in March 1996.

David Fouts joined the Company in 1974 and became Director of Planning and
Logistics in October 1995. From 1980 until 1995, Mr. Fouts served as a Store
Manager. From 1974 to 1979 he held positions in location retail and distribution
center management. Mr. Fouts is a member of APICS Resource Management
Educational Society.

Patrick E. Hortsch joined the Company in June 1998 as Merchandise Manager
for the Automotive Group. Prior to joining the Company, from January 1997 to
June 1998, Mr. Hortsch owned and operated a retail automotive parts store in
Vancouver, Washington. From 1986 to 1996, Mr. Hortsch was the executive vice
president of Team Marketing Inc., a manufacturer's representative firm and from
1982 to 1986 was a district manager for Rognlien, Wright & Harrison, Inc., a
manufacturer's representative firm. Mr. Hortsch has over 23 years of experience
in the automotive aftermarket industry.

Dennis E. Irish joined the Company in 1974 and has worked in various
positions, including Store Manager. In 1987, Mr. Irish became Advertising
Manager and in March 1992 was promoted to Director of Advertising and
Promotions.

Ron J. Menconi joined the Company in 1967 and has held various positions
with the Company, including Department Manager and Buyer. Mr. Menconi became
Merchandise Manager for Sporting Goods in 1989 and Merchandise Manager for
Apparel and Footwear, Cycling, Athletics, Fitness and Winter Sports in May 1992.
Mr. Menconi served as the inaugural president of the Oregon Ski Industry
Association from 1988 to 1996, and as a board member from 1992 to 1995. Mr.
Menconi has been serving as a director of the National Sporting Goods
Association since June 1998.

Douglas B. Spink has served as the General Manager of Direct Marketing
since September 1998, when the Company acquired Timberline Direct. Mr. Spink was
a founder and the President and Chief Executive Officer of Timberline Direct, a
catalog and Internet-based retailer, since May 1997. From March 1996 to April
1997, Mr. Spink served as Western Regional Director for Tessera Enterprise
Systems, a leading builder of database marketing systems for large direct
marketers. From October 1994 to March 1996, he was Vice President of Finance for
Ideon Group, a financial services company. Mr. Spink, who started his career as
a database marketing analyst with Leo Burnett & Co., has also served as a
strategic consultant with the Boston Consulting Group.

The Company has no employment or noncompetition agreements with any of its
employees other than Mr. Spink and Gregory Biggs, Operations Manager of Direct
Marketing. See "-- Employment Agreements."

DIRECTOR COMMITTEES AND COMPENSATION

The Company will establish an Audit Committee and a Compensation Committee,
each of which will be comprised of independent directors. The Audit Committee
will review the functions of the Company's management and independent auditors
pertaining to the Company's financial statements and will perform such other
related duties and functions as are deemed appropriate by the Audit Committee
and the Board of Directors. The Compensation Committee will determine officer
and director compensation and administer the Company's compensation plans.

Directors who are employees of the Company receive no additional
compensation for their service as directors. Nonemployee directors will each
receive $1,000 for each Board of Directors meeting attended and $500 for each
committee meeting attended, plus reimbursement for travel expenses in attending
meetings. In addition, prior to the closing of the Offering, the Company intends
to grant nonqualified stock options to purchase 2,000 shares of Common Stock to
each nonemployee director which will be fully vested on the first anniversary of
the date of grant. The Company also intends to grant an additional fully-vested
nonqualified

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<PAGE> 56

stock option to purchase 2,000 shares of Common Stock to each nonemployee
director immediately following each annual meeting of shareholders.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

No executive officer of the Company serves as a member of the compensation
committee of any entity that has one or more executive officers serving as a
member of the Company's Board of Directors.

EXECUTIVE COMPENSATION

Summary Compensation Table

The following table sets forth certain information with respect to
compensation paid by the Company in the fiscal year ended January 31, 1998 to
its Chief Executive Officer and the other executive officers of the Company
whose total annual salary and bonus exceeded $100,000 (collectively the "Named
Executive Officers").

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
------------------------------------- SECURITIES ALL OTHER
OTHER ANNUAL UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1) OPTIONS(2) (3)
--------------------------- -------- -------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Norman P. Daniels,
President and Chief Executive
Officer.......................... $225,000 $100,000 $9,600 3,835 $2,192
Philip M. Pepin,
Chief Financial Officer.......... 100,000 12,000 6,000 3,835 1,010
David E. Orkney(4)
Chairman of the Board of
Directors........................ 190,000 -- -- -- 2,150
Wayne T. Jackson(5)
Chief Operating Officer.......... 210,000 -- 8,400 3,835 2,244
</TABLE>

- ---------------
(1) Consists of amounts paid for car allowance.

(2) Mr. Daniels' stock options (which, including the options indicated above,
entitled him to purchase up to 745,278 shares of Common Stock) were canceled
in connection with the Reorganization. Mr. Jackson's stock options (which,
including the options indicated above, entitled him to purchase up to
681,361 shares of Common Stock) were repurchased in connection with the
Reorganization for $2,267,268. See "Certain Related Transactions."

(3) Consists of Company matching contributions to the 401(k) Savings Plan.

(4) Mr. Orkney resigned as Chairman of the Board of the Company in May 1998.

(5) Mr. Jackson resigned as Chief Operating Officer of the Company in May 1998.

Option Grants in Last Fiscal Year

The following table sets forth certain information regarding stock options
granted to the Named Executive Officers during the fiscal year ended January 31,
1998.

<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 PER SHARE OPTION TERM(3)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION -----------------------
NAME GRANTED(1) FISCAL YEAR(2) PRICE DATE 5% 10%
---- ---------- -------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Norman P.
Daniels.......... 3,835 8.8% $2.42 7/31/2007 $5,837 $14,791
Philip M. Pepin.... 3,835 8.8 2.42 7/31/2007 5,837 14,791
David E. Orkney.... -- -- -- -- -- --
Wayne T. Jackson... 3,835 8.8 2.42 7/31/2007 5,837 14,791
</TABLE>

55
<PAGE> 57

- ---------------
(1) Mr. Daniels' stock options (which, including the options indicated above,
entitled him to purchase up to 745,278 shares of Common Stock) were canceled
in connection with the Reorganization. Mr. Jackson's stock options (which,
including the options indicated above, entitled him to purchase up to
681,361 shares of Common Stock) were repurchased in connection with the
Reorganization for $2,267,268. See "Certain Related Transactions."

(2) Based on a total of 43,464 shares subject to options granted to employees in
the fiscal year ended January 31, 1998.

(3) The assumed rates of growth are prescribed by the Securities and Exchange
Commission (the "Commission") for illustrative purposes only and are not
intended to forecast or predict future stock prices.

Year-End Option Values

No options were exercised by the Named Executive Officers during the fiscal
year ended January 31, 1998. The following table sets forth certain information
regarding unexercised stock options held by the Named Executive Officers as of
January 31, 1998.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR-END(1) FISCAL YEAR-END (2)
------------------------------ ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Norman P. Daniels..................... 383,505 361,773 $3,602,056 $3,346,233
Philip M. Pepin....................... -- 16,619 -- 173,539
David E. Orkney....................... -- -- -- --
Wayne T. Jackson...................... 383,505 297,856 3,602,056 2,758,641
</TABLE>

- ---------------
(1) Mr. Daniels' stock options were canceled in connection with the
Reorganization. Mr. Jackson's stock options were repurchased in connection
with the Reorganization for $2,267,268. See "Certain Related Transactions."

(2) Calculated based on the difference between the exercise price and the
assumed initial public offering price of $10.00 per share (the mid-point of
the range set forth on the cover page of this Prospectus).

RETIREMENT AND CERTAIN OTHER BENEFIT PLANS

Defined Benefit Pension Plan

The Company established a defined benefit retirement plan (the "Pension
Plan"), effective March 1, 1976, which is intended to be qualified under Section
401(a) of the Code. The Pension Plan covers all non-union employees who have
both attained the age of 21 and completed one year of service with the Company.

The Pension Plan generally provides each participant with a retirement
benefit in an amount equal to the benefit accrued by such participant as of
February 28, 1993, under the terms of the Pension Plan as then in effect, plus
the sum of 1.1% of such participant's annual compensation and .364% of the
participant's excess compensation for each plan year of participation in the
plan during which the participant completes at least 1,000 hours of service with
the Company. A participant's annual compensation generally is the participant's
compensation for the plan year for federal income tax withholding purposes,
except that for the plan year commencing March 1, 1993, a participant's annual
compensation is limited to $235,840 and for plan years commencing after February
28, 1994, a participant's annual compensation is limited to $150,000 (plus cost-
of-living increases promulgated by the Internal Revenue Service). A
participant's excess contribution for a plan year is the amount of such
participant's annual compensation for such plan year in excess of the social
security taxable wage base in effect under Section 230 of the Social Security
Act for the calendar year in which such plan year begins. A plan year is the
12-consecutive-month period beginning each March 1. The formula set forth above
calculates benefits in the form of a single life annuity (payable for the
participant's lifetime) with a 10-year term commencing at age 65. If a
participant's benefit is distributed in a form other

56
<PAGE> 58

than a single life annuity with a 10-year term or commencing prior to the
participant's 65th birthday, the benefit amount will be the actuarial equivalent
of such an annuity. Actuarial adjustments may also be made to a participant's
benefit, if that benefit commences after the participant's 65th birthday.

The Pension Plan provides for full vesting of benefits upon the earliest of
the participant's completion of five years of service with the Company,
attainment of age 65 while employed by the Company or death while employed by
the Company. Payment of the participant's vested benefit will generally commence
upon the latest of the participant's separation from service, attainment of age
55 or completion of a distribution request.

The Company funds at least the minimum annual contribution required under
Section 412 of the Code and the Employee Retirement Income Security Act of 1974,
as amended.

The estimated annual benefit (calculated as a single life annuity with a
10-year term) payable under the Pension Plan upon retirement at normal
retirement age (age 65) for each of the Named Executive Officers, based on their
current compensation levels, are as follows:

<TABLE>
<CAPTION>
ESTIMATE OF
NAME ANNUAL BENEFIT
---- --------------
<S> <C>
Norman P. Daniels $60,882
Philip M. Pepin 3,790
David E. Orkney 71,142
Wayne T. Jackson 54,286
</TABLE>

401(k) Savings Plan

The G. I. Joe's, Inc. Savings Plan (the "Savings Plan"), established in
1991, is intended to be qualified under Sections 401(a) and 401(k) of the Code.
The Savings Plan covers all non-union employees who have both attained age 21
and completed one year of service with the Company. Subject to certain
limitations imposed by the Code and the regulations promulgated thereunder,
under the Savings Plan, employees may contribute up to 15% of their compensation
each calendar year on a pre-income-tax basis and the Company may make matching
contributions in such amount as it determines each calendar year. Only the first
6% of compensation deferred by a participant during a calendar year will be
taken into account for purposes of allocating any matching contributions made by
the Company for such year. In addition, the Company may make supplemental
contributions for any calendar year in such amount as it determines.
Supplemental contributions are allocated among eligible participants in
proportion to their compensation. Only participants who have completed 1,000
hours of service with the Company during the calendar and are employed with the
Company on the last day of such year and participants whose employment with the
Company terminated during the calendar year on account of their retirement,
disability or death are eligible to share in the Company's supplemental
contributions for such calendar year. The Company's matching and supplemental
contributions to the Savings Plan for the fiscal years ended January 31, 1996,
1997 and 1998 totaled $99,000, $103,000 and $109,000, respectively.

1998 Stock Incentive Compensation Plan

In July 1998, the Company adopted the 1998 Plan. The purpose of the 1998
Plan is to enhance the long-term shareholder value of the Company by offering
employees, directors, officers, consultants, agents, advisors and independent
contractors of the Company an opportunity to participate in the Company's growth
and success, and to encourage them to remain in the service of the Company and
acquire and maintain stock ownership in the Company. The 1998 Plan includes both
stock options and stock awards, including restricted stock. A maximum of 800,000
shares of Common Stock are subject to the 1998 Plan. As of December 31, 1998,
522,833 shares of Common Stock were issuable upon the exercise of outstanding
stock options under the 1998 Plan, with a weighted average exercise price of
$7.19 per share, and 277,167 shares were reserved for future grants. Of such
outstanding options, options exerciseable for 69,033 shares of Common Stock were
issued under a prior stock option plan of the Company and rolled over into the
1998 Plan when it was adopted in July 1998. These outstanding options include
options granted to Philip M. Pepin, the Company's Chief Financial Officer, for
16,619 shares of Common Stock with a weighted average exercise price of $1.96
per

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<PAGE> 59

share, and options granted to Edward A. Ariniello, the Company's Vice President
of Operations, for 3,835 shares of Common Stock with an exercise price of $2.42
per share.

Stock Option Grants. The Plan Administrator of the 1998 Plan is currently
the Company's Board of Directors, which has the authority to select individuals
who are to receive options under the 1998 Plan and to specify the terms and
conditions of each option granted (incentive or nonqualified), the exercise
price (which, for incentive stock options, must be at least equal to the fair
market value of the Common Stock on the date of grant), the vesting provisions
and the option term. For purposes of the 1998 Plan, fair market value means the
closing sale price of the Common Stock as reported on the Nasdaq National Market
on the date of grant. Unless otherwise provided by the Plan Administrator, and
to the extent required for incentive stock options by the Code, an option
granted under the 1998 Plan will expire 10 years from the date of grant or, if
earlier, three months after the optionee's termination of service, other than
termination for cause, or one year after the optionee's retirement, early
retirement at the Company's request, death or disability. Once established, the
Compensation Committee of the Board of Directors will serve as the Plan
Administrator.

Stock Awards. The Plan Administrator is authorized under the 1998 Plan to
issue shares of Common Stock to eligible participants on such terms and
conditions and subject to such restrictions, if any, as the Plan Administrator
may determine in its sole discretion. Restrictions may be based on continuous
service with the Company or its subsidiaries or the achievement of such
performance goals as the Plan Administrator may determine. Holders of restricted
stock are recorded as shareholders of the Company and have, subject to certain
restrictions, all the rights of shareholders with respect to such shares.

Adjustments. Proportional adjustments to the aggregate number of shares
issuable under the 1998 Plan and to outstanding awards will be made for stock
splits and other capital adjustments.

Corporate Transactions. In the event of certain Corporate Transactions (as
defined below), each outstanding option and restricted stock award under the
1998 Plan will automatically accelerate so that it will become fully vested
immediately before the Corporate Transaction, except that acceleration will not
occur if such option or restricted stock award is, in connection with the
Corporate Transaction, to be assumed by the successor corporation or parent
thereof. Any option or restricted stock award granted to an "executive officer"
(as defined below) that is assumed or replaced in the Corporate Transaction and
does not otherwise accelerate at that time shall be accelerated in the event the
executive officer, for Good Reason (as defined below), or the successor
corporation, without cause, terminates the executive officer's employment or
services within two years following such Corporate Transaction.

As used in this paragraph, the term "Corporate Transaction" means any of
the following events: (a) consummation of any merger or consolidation of the
Company in which the Company is not the continuing or surviving corporation, or
pursuant to which shares of Common Stock are converted into cash, securities or
other property, if following such merger or consolidation the holders of the
Company's outstanding voting securities immediately prior to such merger or
consolidation own less than 66 2/3% of the outstanding voting securities of the
surviving corporation; (b) consummation of any sale, lease, exchange or other
transfer in one transaction or a series of related transactions of all or
substantially all of the Company's assets other than a transfer of the Company's
assets to a majority-owned subsidiary corporation of the Company; (c) approval
by the holders of the Common Stock of any plan or proposal for the liquidation
or dissolution of the Company; or (d) acquisition by a person of a majority or
more of the Company's outstanding voting securities (whether directly or
indirectly, beneficially or of record). The term "executive officer" means the
Company's president, principal financial officer, principal accounting officer
(or, if there is no such accounting officer, the controller), any vice president
of the Company in charge of a principal business unit, division or function
(such as sales, administration or finance), any other officer who performs a
policy-making function, or any other person who performs similar policy-making
functions for the Company. The term "Good Reason" means the occurrence of any of
the following events or conditions and the failure of the successor corporation
to the Company after a Corporate Transaction (or the parent company of such
successor corporation) to cure such event or condition within 30 days after
receipt of written notice by the option holder: (a) a change in the holder's
status, title, position or responsibilities (including reporting
responsibilities) that, in the holder's reasonable judgment, represents a
substantial reduction in the status,

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<PAGE> 60

title, position or responsibilities as in effect immediately prior thereto; the
assignment to the holder of any duties or responsibilities that, in the holder's
reasonable judgment, are materially inconsistent with such status, title,
position or responsibilities; or any removal of the holder from or failure to
reappoint or reelect the holder to any of such positions, except in connection
with the termination of the holder's employment for cause, for disability or as
a result of his or her death, or by the holder other than for Good Reason; (b) a
reduction in the holder's annual base salary; (c) the successor corporation's
requiring the holder (without the holder's consent) to be based at any place
outside a 50-mile radius of his or her place of employment prior to a Corporate
Transaction, except for reasonably required travel on the successor
corporation's business that is not materially greater than such travel
requirements prior to the Corporate Transaction; (d) the successor corporation's
failure to (i) continue in effect any material compensation or benefit plan (or
the substantial equivalent thereof) in which the holder was participating at the
time of a Corporate Transaction, including, but not limited to, the 1998 Plan,
or (ii) provide the holder with compensation and benefits substantially
equivalent (in terms of benefit levels and/or reward opportunities) to those
provided for under each material employee benefit plan, program and practice as
in effect immediately prior to the Corporate Transaction; (e) any material
breach by the successor corporation of its obligations to the holder under the
1998 Plan or any substantially equivalent plan of the successor corporation; or
(f) any purported termination of the holder's employment or service for cause by
the successor corporation that does not comply with the terms of the 1998 Plan
or any substantially equivalent plan of the successor corporation.

Employee Stock Purchase Plan

In September 1998, the Company adopted the G.I. Joe's, Inc. Employee Stock
Purchase Plan ("ESPP"). The ESPP provides employees with the opportunity to
purchase shares of the Company's common stock at 85% of the fair market value
during certain specified periods to time.

Employment Agreements

As part of the Timberline Direct acquisition, the Company entered into an
employment agreement with Douglas B. Spink, an executive officer and a majority
shareholder of Timberline Direct. Mr. Spink serves as the Company's General
Manager of Direct Marketing. The employment agreement, which continues until
January 31, 2004 unless earlier terminated, provides for an annual base salary
of $100,000 for Mr. Spink. It also provides for an annual bonus for Mr. Spink in
an amount equal to 0.6% of the annual sales for the Company's catalog and
Internet-based sales division, but only if certain net profit and sales
thresholds are achieved. The net profit thresholds are calculated before income
taxes and bonus payments to this employee and range from 10% to 15% of sales for
the Company's catalog and Internet-based sales division; the minimum sales
thresholds range from $5.5 million to $30.0 million. The employment agreement
may be terminated by the Company at any time, generally upon notice. However, if
Mr. Spink is terminated without cause, the agreement provides that his base
salary will continue to be paid through January 31, 2004, as will bonuses in
annual amounts equal to the average of bonuses paid prior to termination of
employment. Mr. Spink also entered into a noncompetition agreement that contains
noncompetition, nonsolicitation and confidentiality provisions.

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<PAGE> 61

CERTAIN RELATED TRANSACTIONS

Prior to the Offering, the Company entered into transactions and business
relationships with certain of its officers, directors and 5% shareholders. Any
future transactions between the Company and its officers, directors and 5%
shareholders will be subject to approval by a majority of the Company's
disinterested directors and will be on terms no less favorable to the Company
than would be available from unaffiliated third parties.

TicketMaster-Oregon, a partnership whose partners include, among others,
Norman Daniels, the Company's Chairman of the Board, President and Chief
Executive Officer, David Orkney, a Director of the Company, and former
shareholder and officer Wayne Jackson ("TicketMaster-Oregon"), has entered into
an operating agreement with TicketMaster Northwest. TicketMaster-Oregon has
placed TicketMaster outlets which are operated by the Company in all of the
Company's Oregon stores. The Company receives a percentage of the convenience
charges to which TicketMaster-Oregon is entitled under its own operating
agreement with TicketMaster Northwest for sales generated in G.I. Joe's Oregon
stores. The Company has established a similar arrangement directly with
TicketMaster Northwest with respect to its Washington stores. For the fiscal
years ended January 31, 1996, 1997 and 1998, TicketMaster-Oregon received an
aggregate of $221,727, $284,084 and $279,955, respectively, from TicketMaster
fees. Messrs. Daniels, Orkney and Jackson each beneficially own 20% of
TicketMaster-Oregon. Revenue to the Company generated by the TicketMaster
outlets is generally offset by related expenses, primarily for labor. The
primary benefits to the Company of having TicketMaster outlets in its stores are
the increased foot traffic and familiarity with the Company's store locations
generated thereby. See "Business -- Merchandise -- TicketMaster."

In July 1994, the Company loaned $181,788, $97,769 and $127,791 to Messrs.
Daniels, Orkney and Jackson, respectively. Each loan was made pursuant to a
promissory note with an annual interest rate equal to the Applicable Federal
Rate determined by the Internal Revenue Service, and which required minimum
annual payments of $10,000 each year until all interest and principal was paid
in full. Mr. Jackson repaid his loan in full upon termination of employment with
the Company in connection with the Reorganization in May 1998. In November 1995,
the Company loaned Mr. Daniels an additional $37,735 and from April 1996 through
April 1997, the Company loaned Mr. Orkney an additional $99,970, each on the
same terms described above. Just prior to the Reorganization, the outstanding
balances of Mr. Daniels' and Mr. Orkney's indebtedness to the Company were
approximately $187,000 and $132,000, respectively. In April 1998, the Company
awarded a bonus payment to Mr. Daniels which was paid by canceling his
indebtedness of $187,000. In connection with the Reorganization, the Company
forgave Mr. Orkney's indebtedness to the Company.

In July 1994, the Company loaned approximately $5.6 million in the
aggregate to two partnerships in which Messrs. Daniels, Orkney and Jackson are
three of four partners (the "Henway Partnerships") to refinance two parcels of
real estate upon which are located the Company's stores in Vancouver, Washington
and Albany, Oregon. Each partner holds a 25% interest in each Henway
Partnership. The Henway Partnerships lease these properties to the Company.
These loans accrued interest at Bank of America's prime rate plus 2.5% per year,
and were due in August 1996. The Henway Partnerships repaid all amounts
outstanding under these loans in January 1996, other than $257,849, which was
refinanced pursuant to a promissory note from one of the Henway Partnerships in
favor of the Company, with an annual interest rate of 10.5% and a 60-month
payment schedule. The leases for the Vancouver and Albany stores were entered
into in June and November 1989, respectively, and each has a 25-year term and a
10-year renewal option. Base rental payments under these leases are $385,836 and
$391,344 per year for the Vancouver and Albany locations, respectively, on a
triple-net basis. In addition, the Company is obligated to pay additional rent
for the Vancouver and Albany stores in the amount of 1.5% of gross receipts in
excess of approximately $15.3 million and $11.9 million, respectively, but has
not been required to pay any such additional rent in the last three fiscal
years. The Company believes the leases for the Vancouver and Albany stores were
entered into on terms no less favorable to the Company than would have been
obtained from unaffiliated third parties.

In April 1998, in connection with the Reorganization, the Company sold two
parcels of real estate to PD Properties, LLC ("PD"), an Oregon limited liability
company affiliated with Roy Rose, a Director of the Company and a director and
the president and chief executive officer of Peregrine Capital, Inc.
("Peregrine"),

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<PAGE> 62

a principal shareholder of the Company. Linda Rose, Mr. Rose's wife, has a
controlling interest in both PD and Peregrine. PD paid approximately $2.7
million in the aggregate to the Company for the South Salem, Oregon store
location and for the Company's vacant land located in Forest Grove, Oregon (the
"PD Real Properties"). The Company leases the South Salem property from PD
pursuant to a lease which commenced in April 1998 (the "PD Lease"). The initial
term of the PD Lease is 15 years, with two renewal options of 5 years each.
Rental payments under the PD Lease consist of a base rent of $385,836 per year
on a triple net basis. The base rent will be adjusted every five years based on
changes in the consumer price index. The PD Lease is in substantially the same
form as the six leases (the "Non-PD Leases") entered into with an unaffiliated
party in connection with the sale and lease-back of the Company's owned store
locations consummated in connection with the Reorganization. The Company
believes the PD Lease was entered into on terms no less favorable to the Company
than would have been obtained from an unaffiliated third party. In connection
with the Reorganization, four individuals associated with Peregrine, including
Mr. Rose and his spouse, agreed to guarantee the Company's performance of its
obligations under the Non-PD Leases. Aggregate annual base rent under the Non-PD
Leases is approximately $3.0 million. This guarantee will expire upon the
closing of an initial public offering of the Company's Common Stock. PD received
a fee of $1.0 million in connection with the sale of the properties subject to
the Non-PD Leases, which fee was credited against the purchase price for the PD
Real Properties.

As stated above, Roy Rose, a Director of the Company, is a director and the
president and chief executive officer of Peregrine, a principal shareholder of
the Company. Mr. Rose's wife, Linda Rose, has a controlling interest in
Peregrine. In connection with the Reorganization, Peregrine purchased $1.45
million of Subordinated Notes from the Company. Peregrine exchanged $1.0 million
of the Subordinated Notes for common stock of ND Holdings, Inc. ("Holdings"),
which was converted into 356,898 shares of the Company's Common Stock in the
Merger. Peregrine exchanged the remaining $450,000 of the Subordinated Notes for
preferred stock and a warrant to purchase common stock of Holdings. In the
Merger, the shares of preferred stock of Holdings were converted into 4,500
shares of the Company's Series A 9% Non-Voting Redeemable Preferred Stock (the
"Redeemable Preferred Stock") and the warrant was converted into 40,909 shares
of the Company's Common Stock. See "The Reorganization." For services rendered
in connection with the Reorganization, Peregrine received an additional warrant
exercisable for shares of Holdings common stock (the "Master Warrant"), which in
the Merger was converted into 1,606,599 shares of the Company's Common Stock.
Prior to the Merger, Peregrine assigned to various unaffiliated third parties a
portion of the Master Warrant which otherwise would have entitled Peregrine to
315,053 shares of the Company's Common Stock issuable upon conversion of the
Master Warrant. Peregrine has certain registration rights with respect to the
shares of the Company's Common Stock it received in exchange for the Holdings
warrants. See "Description of Capital Stock -- Registration Rights." Subsequent
to the Merger, Peregrine transferred 45,454 shares of the Company's Common Stock
to an unaffiliated third party in connection with a loan. Peregrine is entitled
to repurchase up to 22,727 of such shares if it repays the loan prior to the
maturity date. In addition, as of January 7, 1999, Peregrine has issued certain
promissory notes to 14 accredited investors that are exchangeable for shares of
the Company's Common Stock at an exchange rate of $8.00 per share of Common
Stock for a total of 109,500 shares of the Company's Common Stock. Peregrine
purchased from another Investor 250,000 shares of Holdings preferred stock,
which in the Merger were converted into 2,500 shares of Redeemable Preferred
Stock. All outstanding shares of Redeemable Preferred Stock will be redeemed for
$100 per share using proceeds from the Offering. See "Use of Proceeds."
Peregrine has agreed to pay certain accounting, legal and other expenses in
connection with the Reorganization, paid a fee of $100,000 to David Orkney to
induce him to extend the terms of his agreement regarding the sale of his
interest in the Company and agreed to reimburse the Company for all dividends
paid on the Company's Redeemable Preferred Stock. In addition, Peregrine has
agreed to purchase from the Investors all outstanding shares of the Company's
Redeemable Preferred Stock for $8.5 million, plus accumulated dividends, if the
Company does not complete, prior to May 8, 1999, an initial public offering of
its Common Stock with net proceeds to the Company of at least $12.0 million. See
"The Reorganization."

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<PAGE> 63

pursue. As compensation for Peregrine's services, the Company has agreed to pay
to Peregrine 4% of the gross amount of all cash and non-cash fees and
consideration paid by the Company or any of its affiliates [(other than
Peregrine)] as a result of or directly related to any transaction between the
Company and candidates identified by Peregrine that is completed within the term
of the agreement or one year thereafter. The agreement terminates on October 31,
2003, unless earlier terminated by either party upon at least 30 days' notice to
the other party.

In connection with the Reorganization, in May 1998 the Company redeemed all
of Mr. Orkney's outstanding shares of Common Stock in the Company for an
aggregate purchase price of approximately $13.9 million. In addition, the
Company issued to Mr. Orkney a warrant to purchase a number of shares equal to
5% of the Company's Common Stock outstanding, on a fully-diluted basis, at the
time of exercise at a purchase price equal to 70% of the fair market value of
the Common Stock on the exercise date. Mr. Orkney has certain registration
rights with respect to the Common Stock issuable upon exercise of the warrant.
See "The Reorganization" and "Description of Capital Stock -- Registration
Rights." The Company also entered into an agreement with Mr. Orkney pursuant to
which Mr. Orkney received a $140,000 bonus in May 1998 (consisting of $132,000
in debt forgiveness and a Company car with an estimated value of $8,000) and
will be paid an additional $150,000 over the following two years ($100,000 of
which is to be paid in 12 equal monthly installments during the first year, and
the remaining $50,000 of which is to be paid in 12 equal monthly installments
during the second year). During the first year, Mr. Orkney will also receive a
car allowance in accordance with the Company's past practice as well as health
insurance and certain other benefits. Mr. Orkney's mother and sister received
compensation from the Company for the last three fiscal years in the aggregate
amounts of approximately $105,000 and $59,000, respectively. The Company stopped
making such payments in May 1998.

In connection with the Reorganization, the Company redeemed all of Mr.
Jackson's outstanding shares of Common Stock for approximately $977,000 (at the
same price per share offered to the Company's other shareholders, excluding the
warrant issued to Mr. Orkney). The Company also repurchased Mr. Jackson's
outstanding options exercisable for 681,361 shares of the Company's Common Stock
for approximately $2.3 million. The Company issued to Mr. Jackson a promissory
note in the amount of approximately $283,000 in partial payment of the purchase
price for such options. This promissory note is due in July 1999, and does not
bear interest, except after maturity or default.

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<PAGE> 64

PRINCIPAL SHAREHOLDERS

The following table sets forth, as of December 31, 1998, certain
information with respect to the beneficial ownership of the Company's Common
Stock by (i) each person (or group of affiliated persons) known by the Company
to beneficially own more than a number of shares equal to 5% of the Common
Stock, (ii) each director of the Company, (iii) each of the Named Executive
Officers and (iv) all of the Company's directors and executive officers as a
group. Except as otherwise indicated, the Company believes that the beneficial
owners of the Common Stock listed below, based on information furnished by such
owners, have sole voting and investment power with respect to such shares.

<TABLE>
<CAPTION>
PERCENTAGE OF COMMON STOCK
SHARES BENEFICIALLY --------------------------------
NAME AND ADDRESS OWNED(1) BEFORE OFFERING AFTER OFFERING
---------------- ------------------- --------------- --------------
<S> <C> <C> <C>
Norman P. Daniels............................ 3,212,084 53.5% 37.8%
c/o G.I. Joe's, Inc.
9805 S.W. Boeckman Road
Wilsonville, OR 97070
Roy Rose(2).................................. 1,643,899 27.4 19.3
c/o Peregrine Capital, Inc.
9725 S.W. Beaverton-Hillsdale Highway, #350
Beaverton, OR 97005
Peregrine Capital, Inc....................... 1,643,899 27.4 19.3
9725 S.W. Beaverton-Hillsdale Highway, #350
Beaverton, OR 97005
David E. Orkney(3)........................... 351,143 5.0% 5.0%
2562 S.W. Buckingham Avenue
Portland, OR 97201
Philip M. Pepin(4)........................... 16,619 * *
c/o G.I. Joe's, Inc.
9805 S.W. Boeckman Road
Wilsonville, OR 97070
Wayne T. Jackson(5).......................... -- -- --
5250 S.W. Landing Square #3
Portland, OR 97201.
All directors and executive officers as a
group
(six persons)(6)........................... 5,276,159 82.1 58.1
</TABLE>

- ---------------
* Less than 1%.

(1) Beneficial ownership is determined in accordance with rules of the
Commission and includes shares over which the indicated beneficial owner
exercises voting and/or investment power. Shares of Common Stock subject to
options or warrants currently exercisable or exercisable within 60 days are
deemed outstanding for purposes of computing the percentage ownership of the
person holding the options or warrants, but are not deemed outstanding for
computing the percentage ownership of any other person.

(2) Consists entirely of shares beneficially owned by Peregrine Capital, Inc.
("Peregrine"), of which Mr. Rose is the president and chief executive
officer. Includes up to 22,727 shares of Common Stock which Peregrine is
entitled to repurchase from a lender upon prepayment of a loan.

(3) Consists solely of shares to be issued upon exercise of the Orkney Warrant,
which is exercisable for a number of shares equal to 5% of the Company's
Common Stock outstanding, on a fully diluted basis, on the date of exercise
at an exercise price equal to 70% of the fair market value of the Common
Stock on the exercise such date. The number of shares listed in the table is
based upon a total of (i) 7,022,853 shares of Common Stock outstanding
before the closing of the Offering on a fully-diluted basis (including
351,143 shares issuable upon exercise of the Orkney Warrant) and (ii)
9,654,432 shares outstanding after the Offering on a fully-diluted basis
(including 482,722 shares issuable upon exercise of the Orkney Warrant if it
is not exercised prior to the closing of the Offering).

(4) Consists solely of shares subject to options exercisable within 60 days.

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<PAGE> 65

(5) All of Mr. Jackson's shares and options were redeemed and canceled,
respectively, in connection with the Reorganization. See "The
Reorganization." Mr. Jackson resigned as the Company's Chief Operating
Officer in May 1998.

(6) Includes (i) 20,454 shares subject to options exercisable within 60 days,
(ii) 1,643,899 shares beneficially owned by Peregrine Capital, Inc. (see
Note 2 above) and (iii)(a) 351,143 shares issuable upon exercise of the
Orkney Warrant before the closing of the Offering (based upon a total of
7,022,853 shares of Common Stock outstanding, on a fully-diluted basis
(including the shares issuable upon exercise of the Orkney Warrant)) and (b)
482,722 shares issuable upon exercise of the Orkney Warrant after the
closing of the Offering (based upon a total of 9,654,432 shares outstanding,
on a fully-diluted basis (including the shares issuable upon exercise of the
Orkney Warrant)) See Note 3 above.

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<PAGE> 66

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 50,000,000 shares
of Common Stock, having no par value, and 10,000,000 shares of Preferred Stock,
having no par value.

The following summary description of the Company's capital stock is
qualified in its entirety by reference to the Company's Amended and Restated
Articles of Incorporation (the "Articles") and Amended and Restated Bylaws,
copies of which are filed as exhibits to the Registration Statement of which
this Prospectus forms a part.

COMMON STOCK

As of December 31, 1998, there were 6,000,000 shares of Common Stock
outstanding held of record by approximately 88 shareholders.

The holders of shares of Common Stock, on the basis of one vote per share,
have the right to vote for the election of members of the Board of Directors of
the Company and the right to vote on all other matters. Subject to preferences
that may be applicable to any Preferred Stock outstanding at the time, holders
of Common Stock are entitled to receive ratably such dividends, if any, as may
be declared from time to time by the Board of Directors out of funds legally
available therefor. In the event of a liquidation, dissolution or winding up of
the Company, holders of Common Stock are entitled to share ratably in all assets
remaining after payment of the Company's liabilities and the liquidation
preference, if any, of any outstanding shares of Preferred Stock. Holders of
Common Stock have no preemptive rights and no rights to convert their Common
Stock into any other securities, and there are no redemption provisions with
respect to such shares. All the outstanding shares of Common Stock are fully
paid and nonassessable. The rights, preferences and privileges of holders of
Common Stock are subject to, and may be adversely affected by, the rights of
holders of shares of any series of Preferred Stock that the Company may
designate and issue in the future.

PREFERRED STOCK

The Board of Directors has the authority to issue up to 10,000,000 shares
of Preferred Stock in one or more series and to fix the powers, designations,
preferences and relative, participating, optional or other rights thereof,
including dividend rights, conversion rights, voting rights, redemption terms,
liquidation preferences and the number of shares constituting each such series,
without any further vote or action by the Company's shareholders. As of December
31, 1998 there were 85,000 shares of Series A 9% Non-Voting Redeemable Preferred
Stock outstanding, all of which will be redeemed with $8.5 million of the net
proceeds from the Offering. See "Use of Proceeds."

The issuance of additional shares of Preferred Stock could have one or more
of the following effects: (i) restrict Common Stock dividends if Preferred Stock
dividends have not been paid, (ii) dilute the voting power and equity interest
of holders of Common Stock to the extent that any series of Preferred Stock has
voting rights or is convertible into Common Stock or (iii) prevent current
holders of Common Stock from participating in the Company's assets upon
liquidation until any liquidation preferences granted to holders of Preferred
Stock are satisfied. In addition, the issuance of Preferred Stock may, under
certain circumstances, have the effect of discouraging a change in control of
the Company by, for example, granting voting rights to holders of Preferred
Stock that require approval by the separate vote of the holders of Preferred
Stock for any amendment to the Articles or any reorganization, consolidation or
merger (or other similar transaction involving the Company). As a result, the
issuance of such Preferred Stock may discourage bids for the Company's Common
Stock at a premium over the market price therefor and could have a material
adverse effect on the market value of the Common Stock. The Board of Directors
does not currently intend to issue any additional shares of Preferred Stock. See
"Risk Factors -- Potential Issuance of Preferred Stock; Anti-Takeover Effect of
Oregon Law."

WARRANTS AND STOCK OPTIONS

In connection with the Reorganization, the Company granted David Orkney a
warrant to purchase a number of shares equal to 5% of the Company's Common Stock
outstanding, on a fully-diluted basis, on the

65
<PAGE> 67

date of exercise at a purchase price equal to 70% of the fair market value of
the Common Stock on the exercise date. Mr. Orkney's warrant is exercisable until
May 8, 2008. See "The Reorganization" and "Certain Related Transactions." As of
Prior to the Offering, the Orkney Warrant is exercisable for 351,143 shares of
Common Stock. If the Orkney Warrant is not previously exercised, it will be
exercisable for 482,722 shares of Common Stock upon the closing of the Offering.

In connection with the Offering, the Company has agreed to issue to each of
Black & Company Inc. and Cruttenden Roth Incorporated, as representatives for
the Underwriters, warrants (the "Representatives' Warrants") to purchase an
aggregate of 250,000 shares. The Representatives' Warrants are exercisable for a
period of three years, beginning one year from the date of this Prospectus. The
Representatives' Warrants are exercisable at a price equal to 120% of the
initial public offering price per share. The number of shares covered by the
Representatives' Warrants and the exercise price are subject to adjustment in
certain circumstances to prevent dilution. The Representatives' Warrants are
nontransferable for a period of one year following the date of this Prospectus,
except to (i) other brokers or dealers; (ii) one or more bona fide officers
and/or partners of the Representatives; (iii) a successor to the transferring
holder in a merger or consolidation; (iv) a purchaser of all or substantially
all of the transferring holder's assets; or (v) any person receiving a
Representatives' Warrant from one or more of the persons listed in subsections
(i), (ii), (iii) or (iv) above. The holders of the Representatives' Warrants
will have, in that capacity, no voting, dividend or other shareholder rights.

As of December 31, 1998, the Company had options outstanding to purchase
522,833 shares of Common Stock, with a weighted average exercise price of $7.19
per share. Of such options, options exercisable for 69,033 shares of Common
Stock had vested as of such date and an additional 277,167 shares were reserved
for future grants under the 1998 Plan. See "Management -- Retirement and Certain
Other Benefit Plans -- 1998 Stock Incentive Compensation Plan."

REGISTRATION RIGHTS

Pursuant to the terms of a Registration Rights Agreement, individuals and
entities, including Peregrine and its affiliates who received in the Merger an
aggregate of 2,379,320 shares of the Company's Common Stock in exchange for
warrants exercisable for Holdings common stock may request that their Common
Stock be included in any public offering of Common Stock of the Company at the
Company's expense. In addition, at any time after the first anniversary of the
closing of the Offering, the holders of 50% or more of such shares of Common
Stock may make one request that the Company use its best efforts to register
such shares of Common Stock under the Securities Act at the Company's expense.
In any underwritten offering of shares of Common Stock being issued by the
Company, if the underwriters determine that marketing factors require a
limitation on the number of shares to be sold on account of shareholders, the
Company may limit or exclude from the registration such shares of Common Stock.

Mr. Orkney received registration rights with respect to the shares of
Common Stock to be issued to him upon exercise of the warrant he received in
connection with the Reorganization. The Company has also granted registration
rights with respect to the shares of Common Stock to be issued in connection
with the Company's acquisition of Timberline Direct. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Overview." Mr. Orkney and the persons who will receive the shares
to be issued in connection with the Timberline Direct acquisition may request
that their shares of Common Stock be included in any public offering of capital
stock of the Company at the Company's expense. In any underwritten offering of
the Company's capital stock, if the underwriters determine that marketing
factors require a limitation on the number of shares to be sold for the account
of shareholders, then the Company may limit or exclude from the registration
such shares of Common Stock.

At any time during the period in which the Representatives' Warrants are
exercisable, the holders of the Representatives' Warrants have the right,
subject to certain limitations, to require the Company on one occasion to
register under the Securities Act, at the Company's expense, the shares of
Common Stock issuable upon exercise of the Representatives' Warrants. Such
holders also may request that such shares be included in any public offering of
Common Stock of the Company at the Company's expense. In any underwritten
offering of the Company's capital stock, if the underwriters determine that
marketing factors require a limitation on the number of shares to be sold for
the account of shareholders, then the Company may limit or exclude from the
registration such shares of Common Stock.

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<PAGE> 68

OREGON CONTROL SHARE AND BUSINESS COMBINATION STATUTES

The Company is subject to certain provisions of the Oregon Business
Corporation Act that, in certain circumstances, restrict the ability of
significant shareholders to exercise voting rights (the "Control Share Act").
The Control Share Act generally provides that a person (the "Acquiring Person")
who acquires voting stock of an Oregon corporation in a transaction that results
in the Acquiring Person holding more than 20%, 33 1/3% or 50% of the total
voting power of the corporation (a "Control Share Acquisition") cannot vote the
shares such person acquires in a Control Share Acquisition ("Control Shares")
unless voting rights are accorded to the Control Shares by (i) a majority of
each voting group entitled to vote and (ii) the holders of a majority of the
outstanding voting shares, excluding the Control Shares held by the Acquiring
Person and shares held by the corporation's officers and inside directors. The
term "Acquiring Person" is broadly defined to include persons acting as a group.

The Acquiring Person may, but is not required to, submit to the corporation
a statement setting forth certain information about the Acquiring Person and its
plans with respect to the corporation. The statement may also request that the
corporation call a special meeting of shareholders to determine whether voting
rights will be accorded to the Control Shares. If the Acquiring Person does not
request a special meeting of shareholders, the issue of voting rights of Control
Shares will be considered at the next annual or special meeting of shareholders.
If the Acquiring Person's Control Shares are accorded voting rights and
represent a majority of all voting power, shareholders who do not vote in favor
of voting rights for the Control Shares will have the right to receive the
appraised "fair value" of their shares, which may not be less than the highest
price paid per share by the Acquiring Person for the Control Shares.

The Company is also subject to certain provisions of the Oregon Business
Corporation Act that govern business combinations between corporations and
interested shareholders (the "Business Combination Act"). The Business
Combination Act generally provides that if a person or entity acquires 15% or
more of the voting stock of an Oregon corporation (an "Interested Shareholder"),
the corporation and the Interested Shareholder, or any affiliated entity of the
Interested Shareholder, may not engage in certain business combination
transactions for three years following the date the person became an Interested
Shareholder. Business combination transactions for this purpose include (a) a
merger or plan of share exchange, (b) any sale, lease, mortgage or other
disposition of 10% or more of the assets of the corporation and (c) certain
transactions that result in the issuance of capital stock of the corporation to
the Interested Shareholder. These restrictions do not apply if (i) the
Interested Shareholder, as a result of the transaction in which such person
became an Interested Shareholder, owns at least 85% of the outstanding voting
stock of the corporation (disregarding shares owned by directors who are also
officers and certain employee benefit plans), (ii) the board of directors
approves the share acquisition or business combination before the Interested
Shareholder acquired 15% or more of the corporation's outstanding voting stock
or (iii) the board of directors and the holders of at least two-thirds of the
outstanding voting stock of the corporation (disregarding shares owned by the
Interested Shareholder) approve the transaction after the Interested Shareholder
acquires 15% or more of the corporation's voting stock.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services L.L.C.

SHARES ELIGIBLE FOR FUTURE SALE

Prior to the Offering, there has been no public market for the Company's
Common Stock and a significant public market for the Common Stock may not be
developed or sustained after the Offering. Future sales of substantial amounts
of the Company's Common Stock in the public market, or the prospect of such
sales, could adversely affect the prevailing market prices of the Company's
Common Stock or the future ability of the Company to raise capital through an
offering of equity securities.

Upon the closing of the Offering, the Company will have 8,500,000 shares of
Common Stock outstanding (8,875,000 shares if the Underwriters' over-allotment
option is exercised in full), assuming no exercise of outstanding options under
the Company's 1998 Plan and no exercise of the Orkney Warrant. The

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<PAGE> 69

2,500,000 shares sold in the Offering will be freely tradable without
restriction or limitation under the Securities Act, except for any such shares
purchased by "affiliates" of the Company, as such term is defined under Rule 144
of the Securities Act, which will be subject to the resale limitations of Rule
144. The remaining 6,000,000 shares of the Company's Common Stock issued and
outstanding are "restricted securities" within the meaning of Rule 144 and were
issued and sold by the Company in private transactions. Such restricted
securities may be publicly sold only if registered under the Securities Act or
sold in accordance with an applicable exemption from registration, such as Rule
144.

In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
for at least one year, including an affiliate of the Company, would be entitled
to sell, within any three-month period, that number of shares that does not
exceed the greater of 1% of the then-outstanding shares of Common Stock (85,000
shares upon the closing of the Offering) or the average weekly trading volume in
the Common Stock during the four calendar weeks immediately preceding the date
on which a notice of sale is filed with the Commission, provided certain manner
of sale and notice requirements and requirements as to the availability of
current public information about the Company are satisfied. In addition,
affiliates of the Company must comply with the restrictions and requirements of
Rule 144, other than the one-year holding period requirement, in order to sell
shares of Common Stock which are not restricted securities. As defined in Rule
144, an "affiliate" of an issuer is a person who directly or indirectly through
the use of one or more intermediaries controls, or is controlled by, or is under
common control with, such issuer. Under Rule 144(k), a holder of "restricted
securities" who is not deemed an affiliate of the issuer and who has
beneficially owned shares for at least two years would be entitled to sell
shares under Rule 144(k) without regard to the limitations described above.

Currently outstanding restricted shares of the Company's Common Stock are
not yet eligible for sale under Rule 144, but will become eligible for sale in
July 1999 subject to Rule 144 restrictions (other than shares to be issued in
connection with the Timberline Direct acquisition, which will become eligible
for resale under Rule 144 on the first anniversary of their issuance). The
holders of 2,379,320 of the Company's outstanding restricted shares, including
Peregrine, have certain registration rights with respect to such shares. All
shares registered under the Securities Act upon exercise of these registration
rights will be freely tradable without restriction or limitation under the
Securities Act, except for any such shares (i) purchased by affiliates of the
Company, which will remain subject to the resale limitations of Rule 144, or
(ii) subject to lock-up agreements with the Underwriters. The Company, its
directors, executive officers and other certain shareholders holding an
aggregate of 5,203,695 shares have agreed that, without the prior written
consent of Black & Company, Inc., they will not directly or indirectly offer to
sell, sell, or otherwise dispose of shares of Common Stock or any securities
convertible or exchangeable therefor, for a period of 180 days after the date of
this Prospectus, subject to certain limited exceptions. See "Underwriting."

The Company intends to file a registration statement under the Securities
Act following the date of this Prospectus to register the future issuance of up
to 800,000 shares of Common Stock under the 1998 Plan. Shares issued under the
1998 Plan after the effective date of such registration statement will be freely
tradable in the open market, subject to the lock-up agreements with the
Underwriters described above and, in the case of sales by affiliates, to certain
requirements of Rule 144. As of December 31, 1998, options to purchase 522,833
shares of Common Stock were outstanding under the 1998 Plan, of which options
exercisable for 69,033 shares of Common Stock were vested. In addition, the
Orkney Warrant is exercisable for a number of shares equal to 5% of the
Company's Common Stock outstanding, on a fully-diluted basis, on the date of
exercise at an exercise price equal to 70% of the fair market value of the
Common Stock on the exercise date. If the Orkney Warrant is not previously
exercised, it will be exercisable for 482,722 shares of Common Stock upon the
closing of the Offering. The holder of the Orkney Warrant has certain
registration rights with respect to the shares of Common Stock issuable upon
exercise thereof. Further, up to 148,877 shares Common Stock will be issued, and
up to an additional 148,877 shares of Common Stock may be issued, in connection
with the Timberline Direct acquisition, all of which shares will be covered by
certain registration rights granted to the recipients thereof. See "Description
of Capital Stock -- Warrants and Stock Options," "Management -- Retirement and
Certain Other Benefit Plans," and "Description of Capital Stock -- Registration
Rights."

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UNDERWRITING

Under the terms and subject to the conditions of the Underwriting
Agreement, the Underwriters named below (the "Underwriters"), for whom Black &
Company, Inc. and Cruttenden Roth Incorporated are acting as representatives
(the "Representatives"), have severally agreed to purchase from the Company, and
the Company has agreed to sell to each Underwriter, the aggregate number of
shares of Common Stock set forth opposite their respective names in the table
below. The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the shares of Common Stock are
subject to certain conditions precedent and that the Underwriters are committed
to purchase and pay for all shares if any shares are purchased.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Black & Company, Inc..............................
Cruttenden Roth Incorporated......................

---------
Total................................... 2,500,000
=========
</TABLE>

The Company has been advised by the Representatives that the Underwriters
propose initially to offer the shares of Common Stock to the public at the
offering price set forth on the cover page of this Prospectus and to certain
dealers (who may include the Underwriters) at such price less a concession not
in excess of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession to certain other dealers (who may include the
Underwriters) not in excess of $ per share. After the initial offering to
the public, the offering price and other selling items may be changed by the
Representatives.

The Company has granted an option to the Underwriters exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 375,000 shares of Common Stock at the initial public offering price per
share, less the underwriting discounts, set forth on the cover page of this
Prospectus. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of the Common Stock offered
hereby. To the extent the Underwriters exercise such option, each of the
Underwriters will be committed, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number of
shares of Common stock to be purchased by such underwriter as shown in the above
table bears to the total shown.

In the Underwriting Agreement, the Company has agreed to indemnify the
Underwriters against certain liabilities that may be incurred in connection with
the Offering, including liabilities under the Securities Act, or to contribute
payments that the Underwriters may be required to make in respect thereof.

The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.

The Company, its directors, executive officers and other shareholders have
agreed that, without the prior written consent of Black & Company, Inc., they
will not directly or indirectly offer to sell, sell, or otherwise dispose of
shares of Common Stock or any securities convertible or exchangeable therefor,
for a period of 180 days after the date of this Prospectus, subject to certain
limited exceptions.

69
<PAGE> 71

In connection with the Offering, the Underwriters may reserve up to
approximately 125,000 shares of Common Stock for sale at the initial public
offering price to persons associated with the Company. The number of shares
available for sale to the general public will be reduced to the extent any
reserved shares are purchased. Any reserved shares not so purchased will be
offered by the Underwriters on the same basis as the other shares offered
hereby.

In connection with the Offering, the Company has agreed to issue to the
Representatives Representatives' Warrants to purchase an aggregate of 250,000
shares of Common Stock. The Representatives' Warrants are exercisable for a
period of three years, beginning one year from the date of this Prospectus. The
Representatives' Warrants are exercisable at a price equal to 120% of the
initial public offering price per share. The number of shares covered by the
Representatives' Warrants and the exercise price are subject to adjustment in
certain circumstances to prevent dilution. The Representatives' Warrants are
nontransferable for a period of one year following the date of this Prospectus,
except to (i) other brokers or dealers; (ii) officers and/or partners of the
Representatives; (ii) members of the selling group for the Offering or their
respective officers and/or partners; (iii) a successor to the transferring
holder in a merger or consolidation; or (iv) a purchaser of all or substantially
all of the transferring holder's assets. The holders of the Representatives'
Warrants will have, in that capacity, no voting, dividend or other shareholder
rights. At any time during the period in which the Representatives' Warrants are
exercisable, the holders of the Representatives' Warrants shall have the right,
subject to certain limitations, to require the Company on one occasion to
register under the Securities Act, at the Company's expense, the shares of
Common Stock issuable upon exercise of the Representatives' Warrants. Such
holders also may request that such shares be included in any registered public
offering of Common Stock of the Company at the Company's expense.

Prior to the Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price will be determined by
negotiations between the Company and the Representatives. Among the factors to
be considered in such negotiations will be the history of and prospects for the
Company and the industry in which it competes, an assessment of the Company's
management, its past and present operations and financial performance, the
present state of the Company's development, the general condition of the
securities markets at the time of the Offering and the market prices of and
demand for publicly traded common stock of comparable companies in recent
periods.

LEGAL MATTERS

Certain legal matters will be passed on for the Company by Perkins Coie
LLP, Portland, Oregon. Certain legal matters will be passed on for the
Underwriters by Stoel Rives LLP, Portland, Oregon.

EXPERTS

The financial statements included in this Prospectus and elsewhere in the
Registration Statement, to the extent and for the periods indicated in their
reports, have been audited by Arthur Andersen LLP, independent public
accountants, and are included herein in reliance upon the authority of said firm
as experts in giving said reports.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby (as
amended, the "Registration Statement"). This Prospectus, which constitutes part
of the Registration Statement, omits certain information contained in the
Registration Statement and the exhibits and schedules thereto on file with the
Commission pursuant to the Securities Act and the rules and regulations of the
Commission thereunder. The Registration Statement, including the exhibits and
schedules thereto, may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the Commission's Regional Offices at 7 World
Trade Center, Suite 1300, New York, New York 10048, and

70
<PAGE> 72

500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and copies may be
obtained at the prescribed rates from the Public Reference Section of the
Commission at its principal office in Washington, D.C. The Commission also
maintains a Web site on the Internet that contains reports, proxy and
information statements and other information regarding registrants that file
electronically, including the Company, with the Commission at
http://www.sec.gov.

Statements contained in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete, and in
each instance reference is made to the copy of such contract, agreement or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference. All provisions of such
contracts, agreements and other documents that are material to the subject of
such statements, however, are described in the appropriate portions of this
Prospectus.

The Company will furnish its shareholders with annual reports containing
audited financial statements and an opinion thereon expressed by independent
auditors and will furnish its shareholders with quarterly reports for the first
three quarters of each fiscal year containing unaudited summary financial
information.

71
<PAGE> 73

G.I. JOE'S, INC.

INDEX TO FINANCIAL STATEMENTS

CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Arthur Andersen LLP, Independent Public
Accountants............................................... F-2
Financial Statements:
Balance Sheets............................................ F-3
Statements of Operations.................................. F-4
Statements of Shareholders' Equity........................ F-5
Statements of Cash Flows.................................. F-6
Notes to Financial Statements............................. F-7
</TABLE>

F-1
<PAGE> 74

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of
G.I. Joe's, Inc.:

We have audited the accompanying balance sheets of G.I. Joe's, Inc. (an
Oregon corporation) as of June 30, 1998, and the related statements of
operations, shareholders' equity and cash flows for the two months ended June
30, 1998. We have also audited the accompanying balance sheets of the
Predecessor, as described in Note 1, as of January 31, 1997 and 1998 and April
30, 1998, and the related statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended January 31, 1998 and
for the three months ended April 30, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of G.I. Joe's, Inc. as of June
30, 1998, and the results of its operations and its cash flows for the two
months ended June 30, 1998, and the financial position of the Predecessor as of
January 31, 1997 and 1998 and April 30, 1998, and the results of its operations
and its cash flows for each of the three years in the period ended January 31,
1998 and for the three months ended April 30, 1998, in conformity with generally
accepted accounting principles.

Portland, Oregon,
September 18, 1998 /s/ ARTHUR ANDERSEN LLP

F-2
<PAGE> 75

G.I. JOE'S, INC.

BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

ASSETS

<TABLE>
<CAPTION>
PREDECESSOR G.I. JOE'S, INC. G.I. JOE'S, INC.
------------------------------- ---------------- ----------------
JANUARY 31,
----------------- APRIL 30, JUNE 30, OCTOBER 31,
1997 1998 1998 1998 1998
------- ------- ----------- ---------------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash..................................... $ -- $ -- $ -- $ -- $ --
Accounts and notes receivable............ 302 264 235 260 362
Current portion of receivables from
officers and employees................. 48 49 39 9 10
Merchandise inventories.................. 29,442 33,368 35,919 41,687 44,778
Prepaid expenses and other............... 1,236 873 613 1,371 1,629
Amounts held in escrow................... -- -- 5,002 819 787
------- ------- ------- ------- -------
Total current assets.............. 31,028 34,554 41,808 44,146 47,566
PROPERTY AND EQUIPMENT, net................ 17,393 18,531 7,255 8,545 7,781
CAPITALIZED LEASED PROPERTY AND EQUIPMENT,
net...................................... 8,797 12,021 13,312 17,323 22,184
OTHER ASSETS:
Receivables from officers and employees,
net of current portion................. 583 631 449 250 246
Other, net............................... 726 802 1,252 1,852 5,662
------- ------- ------- ------- -------
Total other assets................ 1,309 1,433 1,701 2,102 5,908
------- ------- ------- ------- -------
$58,527 $66,539 $64,076 $72,116 $83,439
======= ======= ======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Checks outstanding in excess of cash
deposits............................... $ 705 $ 618 $ 248 $ 522 $ 1,330
Current portion of long-term
obligations............................ 1,194 1,560 1,089 1,102 1,447
Accounts payable......................... 9,641 11,665 14,787 17,219 18,581
Accrued payroll and related
liabilities............................ 1,280 1,201 1,205 1,311 934
Deferred income taxes.................... -- -- -- 1,844 1,877
Other accrued liabilities................ 3,285 3,983 2,922 3,905 2,904
------- ------- ------- ------- -------
Total current liabilities......... 16,105 19,027 20,251 25,903 27,073
REVOLVING LINE OF CREDIT................... 11,563 12,976 9,445 14,348 17,497
LONG-TERM DEBT, net of current portion..... 9,758 10,532 948 900 800
CAPITAL LEASE OBLIGATIONS, net of current
portion.................................. 11,308 14,584 15,874 15,728 20,467
NOTES PAYABLE.............................. -- -- -- 474 851
DEFERRED GAIN ON SALE LEASEBACK............ -- -- 18,363 -- --
DEFERRED INCOME TAXES...................... -- -- -- 2,624 2,648
PURCHASE OBLIGATION PAYABLE IN COMMON
STOCK.................................... -- -- -- -- 1,638
COMMITMENTS AND CONTINGENCIES (Note 10)
SHAREHOLDERS' EQUITY:
Preferred stock, no par value, 10,000,000
shares authorized, Series A nonvoting
redeemable preferred 0, 0, 0, 85,000
and 85,000 shares issued and
outstanding, $8,500 redemption value... -- -- -- 7,887 7,887
Common stock, no par value, 50,000,000
shares authorized, 4,052,906,
4,052,906, 4,052,906, 6,000,000 and
6,000,000 shares issued and
outstanding............................ 1,585 1,585 1,585 2,888 2,888
Warrants for common stock................ -- -- -- 1,100 1,100
Additional paid-in capital............... 911 911 911 342 597
Retained earnings (accumulated
deficit)............................... 7,297 6,924 (3,301) (78) (7)
------- ------- ------- ------- -------
Total shareholders' equity........ 9,793 9,420 (805) 12,139 12,465
------- ------- ------- ------- -------
$58,527 $66,539 $64,076 $72,116 $81,051
======= ======= ======= ======= =======
</TABLE>

The accompanying notes are an integral part of these balance sheets.

F-3
<PAGE> 76

G.I. JOE'S, INC.

STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
PREDECESSOR G.I. JOE'S, INC. G.I. JOE'S, INC.
---------------------------------------------------------- ---------------- ----------------
THREE THREE TWO SIX
MONTHS MONTHS MONTHS MONTHS
JANUARY 31, ENDED ENDED ENDED ENDED
------------------------------ APRIL 30, APRIL 30, JUNE 30, OCTOBER 31,
1996 1997 1998 1997 1998 1998 1998
-------- -------- -------- ----------- ----------- ---------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
NET SALES.............. $124,052 $128,112 $128,238 $24,013 $25,908 $23,461 $75,201
COST OF GOODS SOLD..... 82,346 84,184 84,552 16,425 17,670 15,511 49,612
-------- -------- -------- ------- ------- ------- -------
Gross margin......... 41,706 43,928 43,686 7,588 8,238 7,950 25,589
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSE.............. 37,154 37,976 39,528 8,717 9,755 7,264 23,086
OTHER INCOME (EXPENSE):
Interest expense....... (4,331) (3,663) (3,542) (829) (971) (602) (1,885)
Interest income........ 605 51 65 7 9 -- 9
Gain on sale of real
estate............... 25 -- -- -- 640 -- --
-------- -------- -------- ------- ------- ------- -------
(3,701) (3,612) (3,477) (822) (322) (602) (1,876)
-------- -------- -------- ------- ------- ------- -------
INCOME (LOSS) BEFORE
TAXES AND EXTRA-
ORDINARY ITEM........ 851 2,340 681 (1,951) (1,839) 84 627
INCOME TAX PROVISION... -- -- -- -- -- 34 251
-------- -------- -------- ------- ------- ------- -------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM... 851 2,340 681 (1,951) (1,839) 50 376
EXTRAORDINARY ITEM:
Loss on early
extinguishment of
debt................. -- -- -- -- (2,220) -- --
-------- -------- -------- ------- ------- ------- -------
NET INCOME (LOSS)...... 851 2,340 681 (1,951) (4,059) 50 376
Preferred dividends.... -- -- -- -- -- (128) (383)
-------- -------- -------- ------- ------- ------- -------
INCOME (LOSS)
ATTRIBUTABLE TO
COMMON
SHAREHOLDERS......... $ 851 $ 2,340 $ 681 $(1,951) $(4,059) $ (78) (7)
======== ======== ======== ======= ======= ======= =======
INCOME (LOSS) PER SHARE
BEFORE EXTRAORDINARY
ITEM
Basic................ $ 0.21 $ 0.58 $ 0.17 $ (0.48) $ (0.45) $ (0.01) $ (0.00)
Diluted.............. $ 0.20 $ 0.52 $ 0.15 $ (0.48) $ (0.45) $ (0.01) $ (0.00)
NET INCOME (LOSS) PER
SHARE
Basic................ $ 0.21 $ 0.58 $ 0.17 $ (0.48) $ (1.00) $ (0.01) $ (0.00)
Diluted.............. $ 0.20 $ 0.52 $ 0.15 $ (0.48) $ (1.00) $ (0.01) $ (0.00)
</TABLE>

The accompanying notes are an integral part of these statements.
F-4
<PAGE> 77

G.I. JOE'S, INC.

STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
RETAINED
PREFERRED STOCK COMMON STOCK ADDITIONAL EARNINGS
--------------- ------------------- PAID-IN (ACCUMULATED)
SHARES AMOUNT SHARES AMOUNT WARRANTS CAPITAL DEFICIT) TOTAL
------ ------ ---------- ------ -------- ---------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 31, 1995
Predecessor................. 4,075,917 $1,594 $946 $ 4,914 $ 7,454
Acquisition of common
stock..................... (4,551) (2) (6) -- (8)
Dividends................... -- -- -- (484) (484)
Net income.................. -- -- -- 851 851
---------- ------ ---- ------- -------
BALANCE, January 31, 1996
Predecessor................. 4,071,366 1,592 940 5,281 7,813
Acquisition of common
stock..................... (18,460) (7) (29) -- (36)
Dividends................... -- -- -- (324) (324)
Net income.................. -- -- -- 2,340 2,340
---------- ------ ---- ------- -------
BALANCE, January 31, 1997
Predecessor................. 4,052,906 1,585 911 7,297 9,793
Dividends................... -- -- -- (1,054) (1,054)
Net income.................. -- -- -- 681 681
---------- ------ ---- ------- -------
BALANCE, January 31, 1998
Predecessor................. 4,052,906 1,585 911 6,924 9,420
Dividends................... -- -- -- (6,166) (6,166)
Net loss.................... -- -- -- (4,059) (4,059)
---------- ------ ---- ------- -------
BALANCE, April 30, 1998
Predecessor................. 4,052,906 $1,585 $911 $(3,301) $ (805)
========== ====== ==== ======= =======
=======================================================================================================================
BALANCE, May 1, 1998
G.I. Joe's, Inc............. 85,000 $7,887 6,000,000 $2,888 $1,100 $214 $ -- $12,089
Net income.................. -- -- -- -- -- -- 50 50
Dividends accrued but
undeclared................ -- -- -- -- -- 128 (128) --
------ ------ ---------- ------ ------ ---- ------- -------
BALANCE, June 30, 1998
G.I. Joe's, Inc............. 85,000 $7,887 6,000,000 $2,888 $1,100 $342 $ (78) $12,139
Net income.................. -- -- -- -- -- -- 326 326
Dividends accrued but
undeclared................ -- -- -- -- -- 255 (255) --
BALANCE, October 31, 1998
G.I. Joe's, Inc.
(unaudited)............... 85,000 $7,887 6,000,000 $2,888 $1,100 $597 $ (7) $12,465
====== ====== ========== ====== ====== ==== ======= =======
</TABLE>

The accompanying notes are an integral part of these statements.
F-5
<PAGE> 78

G.I. JOE'S, INC.

STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
PREDECESSOR G.I. JOE'S, INC. G.I. JOE'S, INC.
---------------------------------------------------- ---------------- ----------------
THREE THREE TWO SIX
MONTHS MONTHS MONTHS MONTHS
JANUARY 31, ENDED ENDED ENDED ENDED
-------------------------- APRIL 30, APRIL 30, JUNE 30, OCTOBER 31,
1996 1997 1998 1997 1998 1998 1998
------- ------ ------- ----------- --------- ---------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)................. $ 851 $2,340 $ 681 $(1,951) $ (4,059) $ 50 $ 376
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities --
Extraordinary item:
Loss on early extinguishment of
debt.......................... -- -- -- -- 2,220 -- --
Gain on sale of property and
equipment..................... (25) -- -- -- (640) -- --
Depreciation and amortization... 2,481 2,472 2,366 573 604 378 1,368
Amortization of deferred gain on
sale leaseback................ -- -- -- -- (32) -- --
Forgiveness of officer
receivables................... -- -- -- -- 187 -- --
Change in deferred income
taxes......................... -- -- -- -- -- (36) 21
Changes in current assets and
liabilities:
Accounts and notes
receivable.................. 153 358 38 182 29 (25) (127)
Merchandise inventories....... (1,919) (481) (3,926) 805 (2,551) (757) (3,812)
Prepaid expenses and other.... (26) (129) 363 (6) 260 (735) (1,721)
Accounts payable and accrued
liabilities................. 879 (3,266) 1,959 (268) 2,779 3,278 2,952
------- ------ ------- ------- -------- ------- -------
Net cash provided by (used in)
operating activities........ 2,394 1,294 1,481 (665) (1,203) 2,153 (943)
------- ------ ------- ------- -------- ------- -------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Additions to property and
equipment....................... (1,668) (2,292) (2,491) (199) (90) (896) (1,754)
Proceeds from sale of property and
equipment, net.................. 82 -- -- -- 25,057 -- 1,463
Increase in deposits and other
assets.......................... (238) (71) (196) (75) (768) (77) (508)
Business acquisition.............. -- -- -- -- -- -- (450)
Increase in receivables from
officers, employees and
others.......................... (315) (94) (86) (38) -- -- (100)
Payments received on receivables
from officers and employees..... 5,439 227 37 2 5 -- 3
------- ------ ------- ------- -------- ------- -------
Net cash provided by (used in)
investing activities........ 3,300 (2,230) (2,736) (310) 24,204 (973) (1,346)
------- ------ ------- ------- -------- ------- -------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Change in checks outstanding in
excess of cash deposits......... (1,027) 705 (87) (705) (370) 274 1,082
Net borrowings (repayments) on
revolving line of credit........ (2,062) 843 1,413 2,765 (3,531) (1,273) 1,876
Borrowings on long-term debt...... 6,300 1,100 4,525 -- -- -- --
Payments on long-term debt........ (7,725) (291) (3,372) (90) (10,054) (48) (212)
Payments on capital lease
obligations..................... (896) (883) (854) (202) (226) (133) (457)
Prepayment penalties due to early
extinguishment of debt.......... -- -- -- -- (1,940) -- --
Acquisition of common stock....... (8) (36) -- -- -- -- --
Cash dividends.................... (160) (618) (370) (147) (6,880) -- --
------- ------ ------- ------- -------- ------- -------
Net cash provided by (used in)
financing activities........ (5,578) 820 1,255 1,621 (23,001) (1,180) 2,289
------- ------ ------- ------- -------- ------- -------
NET INCREASE (DECREASE) IN CASH..... 116 (116) -- 646 -- -- --
CASH, beginning of period........... -- 116 -- -- -- -- --
------- ------ ------- ------- -------- ------- -------
CASH, end of period................. $ 116 $ -- $ -- $ 646 $ -- $ -- $ --
======= ====== ======= ======= ======== ======= =======
SUPPLEMENTAL CASH FLOW
INFORMATION --
Cash paid for interest............ $ 4,297 $3,662 $ 3,559 $ 906 $ 897 $ 602 $ 1,885
NONCASH TRANSACTIONS:
Additions of capital leases for
property and equipment.......... -- 268 4,117 -- 1,515 -- 5,408
Applied deposits to purchase
options of leased equipment..... -- 108 -- -- -- -- --
Dividends declared but unpaid..... 324 30 714 -- -- 128 383
Sale of property in exchange for
note receivable................. 211 -- -- -- -- -- --
Proceeds from sale of property
held in escrow.................. -- -- -- -- 5,002 -- --
Deferred gain on sale of property
and equipment................... -- -- -- -- 18,395 -- --
Write-off of unamortized loan
fees............................ -- -- -- -- 280 -- --
Liabilities assumed in business
acquisition..................... -- -- -- -- -- -- 896
Goodwill associated with business
acquisition..................... -- -- -- -- -- -- 2,388
</TABLE>

The accompanying notes are an integral part of these statements.
F-6
<PAGE> 79

G.I. JOE'S, INC.

NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1997, JANUARY 31, 1998, APRIL 30, 1998 AND JUNE 30, 1998
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
AND AS OTHERWISE INDICATED)

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The Company

G.I. Joe's, Inc. (the "Company") was founded in 1952 by Edward Orkney as a
government surplus store, and evolved over the years into a mass merchandiser.
By 1995, under the direction of Norman Daniels, the Company's current Chairman
of the Board, President and Chief Executive Officer, the Company had streamlined
its product offerings to focus on sports and automotive merchandise, its
best-selling product lines. The Company currently has 16 stores in Oregon and
Washington, and also maintains a corporate office and operates an attached
150,000 square foot distribution center at its headquarters location in
Wilsonville, Oregon. In addition, the Company sells tickets to all major
entertainment and sporting events through TicketMaster outlets located in all of
its retail locations. TicketMaster-Oregon, which has entered into an operating
agreement with TicketMaster Northwest to operate TicketMaster outlets in Oregon,
includes officers and former officers of the Company. Ticket sales are made on
behalf of, or for the benefit of, related parties and are not a direct
revenue-producing activity of the Company. (See Note 12 for further discussion
of TicketMaster-Oregon.

Reorganization and Prior S Corporation Status

A majority of the Company's capital stock was owned by David Orkney, the
founder's son and a Director of the Company. On May 5, 1998, the Company
redeemed all of the Company's outstanding capital stock and options, other than
shares held by Mr. Daniels and two minority shareholders, for an aggregate
consideration of approximately $20,500 (the "Redemption"). In connection with
the Redemption, the Company granted David Orkney a warrant to purchase 5% of the
Company's Common Stock outstanding on the date of exercise at a purchase price
equal to 70% of the fair market value of the Common Stock on such date (the
"Orkney Warrant").

The Company financed the Redemption with the proceeds from the sale of its
owned real estate and the sale of $9,500 of subordinated notes of the Company to
investors (the "Investors"). Following the Redemption, Mr. Daniels exchanged his
common stock in the Company for all the common stock of ND Holdings, Inc., an
Oregon corporation ("Holdings"), which resulted in the Company becoming a
subsidiary of Holdings. In addition, holders of the Company's subordinated notes
exchanged their notes for preferred stock, common stock and warrants to purchase
common stock of Holdings (the "Exchange"). Following the Redemption and the
Exchange, Mr. Daniels and the Investors owned 54% and 46%, respectively, of the
common stock of Holdings, on a fully-diluted basis, and the Investors owned all
of the outstanding preferred stock of Holdings.

In July 1998, Holdings merged with and into the Company, with the Company
being the surviving corporation (the "Merger"). In the Merger, all preferred
shareholders of Holdings received shares of preferred stock of the Company, and
all common shareholders and warrant holders of Holdings received 5,948,302
shares of the Company's Common Stock. Following the Merger, there were 85,000
outstanding shares of the Company's Series A Non-Voting Redeemable Preferred
Stock, all of which shares are redeemable with approximately $8,500 of the
proceeds from an initial public offering, and 6,000,000 outstanding shares of
the Company's Common Stock.

The Redemption, the Exchange and the Merger are a series of planned
transactions (the "Reorganization") executed to consummate the acquisition of
the Company. Accordingly, this series of transactions has been reflected as if
they occurred on May 1, 1998. The financial statements with respect to periods
prior to

F-7
<PAGE> 80
G.I. JOE'S, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997, JANUARY 31, 1998, APRIL 30, 1998 AND JUNE 30, 1998
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
AND AS OTHERWISE INDICATED)

May 1, 1998 reflect the financial position and results of operations of the
Company prior to the Reorganization (the "Predecessor").

The acquisition was accounted for as a purchase. The total purchase price
was comprised of cash of $20,500, common stock valued at $1,888, the Orkney
Warrant valued at $1,100, forgiveness of loans of $132 (see Note 5), and $475 of
fees and expenses related to the acquisition. The aggregate consideration has
been allocated to the assets of the Company, based on fair market value. The
excess of the purchase price over the assets acquired and liabilities assumed
was allocated as follows:

<TABLE>
<S> <C>
Inventory.................................................. $ 5,011
Property................................................... 572
Capitalized leased property and equipment.................. 4,209
Goodwill................................................... 1,037
-------
$10,829
=======
</TABLE>

The following unaudited pro forma financial information has been prepared
based upon the historical financial statements of the Company as if the
acquisition had occurred at the beginning of the respective periods.

<TABLE>
<CAPTION>
FOR THE NINE
FOR THE YEAR ENDED MONTHS
JANUARY 31, ENDED OCTOBER 31,
1998 1998
------------------ -------------------
<S> <C> <C>
Net sales................................... $128,238 $101,109
Net loss attributable to common
shareholders.............................. (1,941) (1,697)
Basic net loss per share.................... (0.32) (0.28)
Diluted net loss per share.................. (0.32) (0.28)
</TABLE>

Prior to the Exchange, the Company was treated for federal and state income
tax purposes as an S Corporation under Subchapter S of the Internal Revenue Code
of 1986, as amended (the "Code"), and comparable state laws. Upon the Exchange,
the Company's S Corporation status was terminated and, accordingly, the Company
is fully subject to federal and state income taxes on its earnings. See also
"Income Taxes" below.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the 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.

Fair Value of Financial Instruments

The Company's financial instruments consist of accounts and notes
receivable and debt instruments. For the periods presented, the fair value of
the Company's receivables and debt under the loan and security agreement
approximated the carrying value.

F-8
<PAGE> 81
G.I. JOE'S, INC.

Advertising

Advertising costs are expensed as incurred. The Company has cooperative
advertising arrangements with certain vendors whereby the vendors will reimburse
the Company for advertising their products. Cooperative advertising funds are
accounted for as a reduction in advertising expense. For the fiscal years ended
January 31, 1996, 1997 and 1998 and for the three months ended April 30, 1998
and the two months ended June 30, 1998, advertising costs were $4,963, $3,828,
$4,498, $890 and $756, respectively.

Property and Equipment

The Financial Accounting Standards Board has issued SFAS 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," which establishes criteria for measuring impairment losses of long-lived
assets and determining when such losses should be recognized. In fiscal year
1997, the Company adopted SFAS 121, with no effect on its financial position or
results of operations.

Property and equipment are recorded at cost. Additions and improvements,
including interest costs incurred during construction, are capitalized, whereas
maintenance and repairs are charged to expense as incurred.

Revenue Recognition

Revenues are recorded at the time of sale of merchandise to customers.

Capitalized Leased Property and Equipment

Capitalized leased property and equipment are recorded at the lesser of the
present value of minimum lease payments or the fair value of the leased
property.

Depreciation and Amortization

Depreciation of property and equipment is computed using the straight-line
method over the estimated useful lives of the assets. Leasehold improvements are
amortized on the straight-line method over the shorter of the remaining lease
period or the estimated useful life of the asset. Capital leases are amortized
using the straight-line method over the shorter of the estimated useful lives of
the leased assets or primary terms of the leases. The estimated useful lives of
property and equipment are as follows:

<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings............................................ 20-40
Fixtures & equipment................................. 3-10
Leasehold improvements............................... 10-25
</TABLE>

Sale-Leaseback Transaction

The Company entered into a sale-leaseback transaction totaling $31,200 in
April 1998, relating to 5 store locations and the Company's distribution center.
The net gain of $18,395 was deferred and was being amortized over the applicable
leaseback period. In conjunction with the acquisition, the deferred amount was
reduced to zero. The leases for the distribution center and four of the five
store locations are operating leases and the lease for the remaining store
location is a capital lease.

F-9
<PAGE> 82
G.I. JOE'S, INC.

Goodwill

Goodwill is the excess of the purchase price paid over the value of net
assets acquired. Amortization expense is calculated on a straight-line basis
over forty years. The carrying value of goodwill is reviewed quarterly if the
facts and circumstances suggest that it may be permanently impaired. If the
review indicates that goodwill will not be recoverable, as determined by the
undiscounted cash flow method, the asset will be reduced to its estimated
recoverable value. Goodwill is included in other long-term assets in the
accompanying balance sheet as of June 30, 1998.

Income Taxes

Prior to the Exchange, the Company was treated for federal and state income
tax purposes as an S Corporation under Subchapter S of the Internal Revenue Code
of 1986, as amended (the "Code"), and comparable state laws. As a result, the
earnings of the Company prior to the Exchange were included in the taxable
income of the Company's shareholders at their individual federal and state
income tax rates, rather than that of the Company. Upon the Exchange, the
Company's S Corporation status was terminated and, accordingly, the Company is
fully subject to federal and state income taxes on its earnings.

In connection with the Redemption and Exchange, the Company established a
net deferred tax liability of $4,504 using the asset and liability method.

Under the asset and liability method, deferred income tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred income tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred income tax assets and liabilities
of changes in tax rates is recognized in income in the period that includes the
enactment date.

Computation of Per Share Amounts

Basic earnings per share (EPS) and diluted EPS are computed using the
methods prescribed by Statement of Financial Accounting Standard No. 128,
Earnings per Share (SFAS 128). Basic EPS is calculated using the weighted
average number of common shares outstanding for the period and diluted EPS is
computed using the weighted average number of common shares and dilutive common
equivalent shares outstanding. Following is a reconciliation of basic EPS and
diluted EPS (all share amounts in thousands):

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
---------------------------------------------------------------------------------------
1996 1997 1998
--------------------------- --------------------------- ---------------------------
PER SHARE PER SHARE PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------ ------ --------- ------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income available to Common
Shareholders................... $851 4,076 $0.21 $2,340 4,065 $0.58 $681 4,053 $0.17
===== ===== =====
Effect of Dilutive Securities:
Stock Options.................... -- 235 -- 443 -- 572
---- ----- ------ ----- ---- -----
Diluted EPS:
Income available to Common
Shareholders................... $851 4,311 $0.20 $2,340 4,508 $0.52 $681 4,625 $0.15
===== ===== =====
</TABLE>

F-10
<PAGE> 83
G.I. JOE'S, INC.

<TABLE>
<CAPTION>
PERIOD ENDED APRIL 30, 1997 PERIOD ENDED APRIL 30, 1998 PERIOD ENDED JUNE 30, 1998
---------------------------- ---------------------------- ---------------------------
PER SHARE PER SHARE INCOME PER SHARE
LOSS SHARES AMOUNT LOSS SHARES AMOUNT (LOSS) SHARES AMOUNT
------- ------ --------- ------- ------ --------- ------ ------ ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net Income (Loss)......... $(1,951) $(4,059) $ 50
Preferred Dividends....... -- -- (128)
------- ------- ------
Loss attributable to
Common Shareholders..... $(1,951) 4,053 $(0.48) $(4,059) 4,053 $(1.00) $ (78) 6,000 $(0.01)
====== ====== ======
Effect of Dilutive
Securities:
Stock Options and
Warrants................ -- -- -- -- -- --
------- ----- ------- ----- ------ ------
Diluted EPS:
Loss attributable to
Common Shareholders..... $(1,951) 4,053 $(0.48) $(4,059) 4,053 $(1.00) $ (78) 6,000 $(0.01)
====== ====== ======

<CAPTION>
PERIOD ENDED OCTOBER 31, 1998
------------------------------
INCOME PER SHARE
(LOSS) SHARES AMOUNT
------- ------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Basic EPS:
Net Income (Loss)......... $ 376
Preferred Dividends....... (383)
-----
Loss attributable to
Common Shareholders..... $ (7) 6,000 $(0.00)
======
Effect of Dilutive
Securities:
Stock Options and
Warrants................ -- -- --
----- ------ ------
Diluted EPS:
Loss attributable to
Common Shareholders..... $ (7) 6,000 $(0.00)
======
</TABLE>

Reclassifications

Certain amounts in the prior year financial statements have been
reclassified to conform to current year presentation.

Interim Financial Statements

The accompanying interim financial statements of the Company for the
three-month period ended April 30, 1997 and for the six-month period ended
October 31, 1998 have been prepared by the Company without audit. Certain
information and footnote disclosures normally included in financial statements
presented in accordance with generally accepted accounting principles have been
condensed or omitted for these periods. G.I. Joe's, Inc. believes the
disclosures made are adequate to make the information presented not misleading.
However, the interim financial statements should be read in conjunction with the
financial statements and notes thereto.

In the opinion of G.I. Joe's, Inc., the accompanying unaudited financial
statements reflect all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position of G.I. Joe's,
Inc. as of April 30, 1997 and October 31, 1998 and the results of operations and
cash flows for the three months ended April 30, 1997 and for the six months
ended October 31, 1998. Interim results are not necessarily indicative of fiscal
year performance because of the impact of seasonal and short-term variations.

Recent Accounting Pronouncements

F-11
<PAGE> 84
G.I. JOE'S, INC.

does not expect that the impact of adoption of this pronouncement will be
material to the Company's financial position or results of operations.

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for all derivative instruments.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. The
Company currently has no derivative instruments and, therefore, the adoption of
SFAS No. 133 will have no impact on the Company's financial position or results
of operations.

2. MERCHANDISE INVENTORIES:

Substantially all of the Company's inventories are determined using the
retail last-in, first-out (LIFO) inventory valuation method. Vendor discounts on
inventory are accounted for as a reduction in inventory cost. Merchandise
inventories are summarized as follows:

<TABLE>
<CAPTION>
PREDECESSOR G.I. JOE'S, INC.
------------------------------- ----------------
JANUARY 31,
------------------ APRIL 30, JUNE 30,
1997 1998 1998 1998
------- ------- --------- ----------------
<S> <C> <C> <C> <C>
Inventories at retail cost...................... $36,231 $39,686 $42,131 $41,687
Less -- LIFO reserve............................ (6,789) (6,318) (6,212) --
------- ------- ------- -------
$29,442 $33,368 $35,919 $41,687
======= ======= ======= =======
</TABLE>

During fiscal years 1996, 1997 and 1998, certain inventory quantities were
reduced, resulting in a liquidation of LIFO inventory quantities carried at
lower costs than prevailing in prior years as compared with the cost of
purchases. The effect of these liquidations was to increase net income by
approximately $146, $190 and $98 for the years ended January 31, 1996, 1997 and
1998, respectively. For the three months ended April 30, 1998 and the two months
ended June 30, 1998, the effect of liquidation of LIFO inventory quantities on
net income was not material.

F-12
<PAGE> 85
G.I. JOE'S, INC.

3. PROPERTY AND EQUIPMENT:

Property and equipment consist of the following:

<TABLE>
<CAPTION>
PREDECESSOR G.I. JOE'S, INC.
--------------------------------- ----------------
JANUARY 31,
-------------------- APRIL 30, JUNE 30,
1997 1998 1998 1998
-------- -------- --------- ----------------
<S> <C> <C> <C> <C>
Property and equipment used in operations --
Land...................................... $ 2,871 $ 2,940 $ -- $ --
Buildings................................. 11,089 11,370 -- --
Fixtures and equipment.................... 9,401 8,969 8,857 2,646
Leasehold improvements.................... 4,238 5,416 4,134 2,942
Construction in progress.................. 80 111 81 973
-------- -------- ------- ------
27,679 28,806 13,072 6,561
Less -- Accumulated depreciation and
amortization.............................. (12,979) (12,877) (7,405) (178)
-------- -------- ------- ------
Net property and equipment used in
operations...................... 14,700 15,929 5,667 6,383
-------- -------- ------- ------
Property held for future development or
sale:
Land...................................... 2,071 2,010 1,588 2,162
Buildings................................. 1,058 1,007 -- --
-------- -------- ------- ------
3,129 3,017 1,588 2,162
Less -- Accumulated depreciation............ (436) (415) -- --
-------- -------- ------- ------
Net property held for future
development or sale............. 2,693 2,602 1,588 2,162
-------- -------- ------- ------
$ 17,393 $ 18,531 $ 7,255 $8,545
======== ======== ======= ======
</TABLE>

4. CAPITALIZED LEASED PROPERTY AND EQUIPMENT:

Capitalized leased property and equipment consist of the following:

<TABLE>
<CAPTION>
G.I. JOE'S,
PREDECESSOR INC.
--------------------------------- ----------------
JANUARY 31,
-------------------- APRIL 30, JUNE 30,
1997 1998 1998 1998
-------- -------- --------- ----------------
<S> <C> <C> <C> <C>
Buildings.................................. $ 15,223 $ 19,132 $ 19,899 $17,308
Fixtures and equipment..................... 6,790 6,645 6,645 213
-------- -------- -------- -------
22,013 25,777 26,544 17,521
Less -- Accumulated amortization........... (13,216) (13,756) (13,232) (198)
-------- -------- -------- -------
$ 8,797 $ 12,021 $ 13,312 $17,323
======== ======== ======== =======
</TABLE>

5. RECEIVABLES FROM OFFICERS AND EMPLOYEES:

Receivables from officers include loans made by the Company to four current
and former officers at interest rates that approximate market rates. They also
include advances, at market rates, made to a partnership comprised of former
officers and shareholders of the Company. Receivables from employees consist
mainly of advances made by the Company to facilitate employee relocations.
Interest income earned on these receivables was $588, $46, $48, $9 and $0 for
the years ended January 31, 1996, 1997 and 1998 and for the three months ended
April 30, 1998 and the two months ended June 30, 1998, respectively.
F-13
<PAGE> 86
G.I. JOE'S, INC.

In 1994, the Company advanced amounts to the partnership referred to above
for bridge financing for two retail sites owned by the partnership which are
leased to and operated by the Company. In fiscal years 1997 and 1998, and the
three months ended April 30, 1998, $31, $34 and $9, including principal and
interest, of these advances were repaid to the Company, respectively. In May
1998, in conjunction with the termination of their employment, two officers of
the Company repaid the principal and interest on their loans totaling $99. The
outstanding balance of the partnership at January 31, 1997, January 31, 1998,
April 30, 1998 and June 30, 1998 was $251, $243, $240, and $240, respectively.

In April 1998, the Company awarded a bonus to one officer which was paid by
forgiving all principal and interest owed by the officer of approximately $187.

In May 1998, in connection with the Redemption and Exchange the Company
forgave all principal and interest owed by one officer of the Company, who was a
selling shareholder, totaling approximately $132. This forgiveness was
considered a part of the purchase price in connection with the acquisition of
the Company. (See Note 1.)

Outstanding receivables from current and former officers and employees are
as follows:

<TABLE>
<CAPTION>
G.I. JOE'S,
PREDECESSOR INC.
------------------------- -----------
JANUARY 31,
------------ APRIL 30, JUNE 30,
1997 1998 1998 1998
---- ---- --------- -----------
<S> <C> <C> <C> <C>
Officers............................................... $612 $660 $469 $240
Employees.............................................. 19 20 19 19
---- ---- ---- ----
631 680 488 259
Less -- Current portion................................ (48) (49) (39) (9)
---- ---- ---- ----
$583 $631 $449 $250
==== ==== ==== ====
</TABLE>

6. OTHER ACCRUED LIABILITIES:

Other accrued liabilities consist of the following:

<TABLE>
<CAPTION>
PREDECESSOR G.I. JOE'S, INC.
----------------------------- -----------------
JANUARY 31,
---------------- APRIL 30, JUNE 30,
1997 1998 1998 1998
------ ------ --------- -----------------
<S> <C> <C> <C> <C>
Amounts due to TicketMaster..................... $1,597 $1,399 $1,133 $1,671
Unredeemed customer gift certificates........... 835 973 893 873
Other........................................... 853 1,611 896 1,361
------ ------ ------ ------
$3,285 $3,983 $2,922 $3,905
====== ====== ====== ======
</TABLE>

F-14
<PAGE> 87
G.I. JOE'S, INC.

7. LONG-TERM DEBT:

Following is a summary of long-term debt:

<TABLE>
<CAPTION>
PREDECESSOR G.I. JOE'S, INC.
------------------------------- -----------------
JANUARY 31,
------------------ APRIL 30, JUNE 30,
1997 1998 1998 1998
------- ------- --------- -----------------
<S> <C> <C> <C> <C>
Term loan, prime plus .25%, payable $6 monthly
plus interest, matures August 1999 with
final payment of $1,027..................... $ 1,100 $ 1,033 $ -- $ --
Term loan, 8.80%, payable $33 monthly
including interest, matures 2001............ -- 1,293 1,246 1,198
Revolving line of credit facility, prime plus
.25%, balance refinanced in March 1998...... 11,563 12,976 -- --
Revolving line of credit facility, reference
rate plus .50%, due March 2001.............. -- -- 9,445 14,348
Mortgage notes:
8.63%, payable $12 monthly including interest,
matures 2011................................ 1,193 1,185 -- --
8.63%, payable $21 monthly including interest,
matures 2011................................ 1,794 1,974 -- --
8.30%, payable $22 monthly including interest,
fully amortizing, matures 2010.............. 2,205 2,116 -- --
7.96%, payable $38 monthly including interest,
fully amortizing, matures 2011.............. 3,855 3,699 -- --
------- ------- ------- -------
21,710 24,276 10,691 15,546
Less -- Current portion....................... (389) (768) (298) (298)
------- ------- ------- -------
$21,321 $23,508 $10,393 $15,248
======= ======= ======= =======
</TABLE>

On March 10, 1998, the Company entered into a $20,000, three-year loan and
security agreement with Foothill Capital Corporation (Foothill) to replace its
existing revolving line of credit facility and term loan. Amounts available
under this line of credit facility are the lesser of $20,000, or an amount
calculated as the sum of 60% of eligible FIFO inventory, as defined, less
specified reserves and the aggregate amount of all undrawn outstanding letters
of credit. Interest is payable at the bank's reference rate plus .50% (9% at
June 30, 1998). Letters of credit are issuable against the revolving line of
credit up to a maximum of the lesser of $1,000 or available borrowings under the
revolving line of credit facility.

Borrowings outstanding under the Foothill loan and security agreement are
secured by all of the assets of the Company, including receivables, inventory,
and property and equipment. The loan and security agreement contain restrictive
covenants relating to minimum levels of EBITDA and net worth, and restrictions
on dividend payments and capital expenditures. The Company was in compliance
with these covenants at June 30, 1998.

During the three months ended April 30, 1998, the Company used the proceeds
from the sale of certain properties to pay-off certain mortgages and other
long-term debt prior to maturity. This resulted in an extraordinary charge of
$2,220 ($0.55 per diluted share).

F-15
<PAGE> 88
G.I. JOE'S, INC.

Principal payment requirements on long-term debt after June 30, 1998 are as
follows:

<TABLE>
<CAPTION>
FISCAL YEAR ENDING JANUARY 31,
------------------------------
<S> <C>
1999(for the remaining 7 months)............................ $ 203
2000........................................................ 324
2001........................................................ 352
2002........................................................ 14,667
-------
$15,546
=======
</TABLE>

8. SHAREHOLDERS' EQUITY:

Common Stock

In the fiscal year ended January 31, 1998, the Company declared a 10-for-1
stock split of its common stock effective April 15, 1997 and in the fiscal year
ending January 31, 1999, the Company declared a 2.5567-for-1 stock split of its
common stock effective in July 1998. All share and per share amounts have been
retroactively restated for the stock splits.

Redeemable Preferred Stock

In connection with the Redemption, Exchange and Merger, the Company
authorized 10,000,000 shares of preferred stock without par value. Of the total
authorized shares, 85,000 shares were issued. These shares designated as Series
A Non-Voting Preferred Stock (Preferred Stock), are non-voting and have a
redemption price equal to the original issue price of $100 per share, together
with any accrued and unpaid dividends thereon. The Preferred Stock is redeemable
upon the completion of an initial public offering of the Company's common stock
in which the aggregate offering proceeds to the Company are not less than
$12,000.

The net proceeds received have been classified as Preferred Stock on the
Company's balance sheet. The difference between the stated value and the
carrying amount represents the fair value of warrants issued to the holders of
Preferred Stock. This difference will be accreted to the Preferred Stock upon
redemption with a corresponding charge to retained earnings (accumulated
deficit).

Dividends on the Preferred Stock are due at a rate of 9% of the original
issue price per share, payable when, as and if declared by the Board of
Directors. Accrued but undeclared dividends totaled $128 for the two months
ended June 30, 1998. No dividends have been paid by the Company.

The Preferred Stock has liquidation preferences over any other class of
preferred stock and the common stock. The Preferred Stock is nonconvertible and
has a liquidation value equal to the original issue price of $100 per share plus
any accrued and unpaid dividends.

F-16
<PAGE> 89
G.I. JOE'S, INC.

9. INCOME TAXES

The provision for income taxes for the two months ended June 30, 1998 is as
follows:

<TABLE>
<S> <C>
Current
Federal................................................... $ 58
State..................................................... 12
----
70
Deferred.................................................... (36)
----
Total............................................. $ 34
====
</TABLE>

Total deferred income tax assets were $246 and liabilities were $4,714 at
June 30, 1998. Individually significant temporary differences, which are
primarily a result of the purchase accounting treatment for the Redemption and
Exchange and the allocation of excess purchase price to the fair value of assets
and liabilities, are as follows at June 30, 1998:

<TABLE>
<S> <C>
Inventory (including unicap)............................... $(1,844)
Fixed Assets............................................... (2,709)
Other...................................................... 85
-------
$(4,468)
=======
</TABLE>

The Company's deferred tax assets are realizable as a result of past and
future income, therefore, a valuation allowance is not considered necessary.

The difference between the effective tax rate of 40% and the statutory
federal income tax rate of 34% is a result of state income taxes.

10. COMMITMENTS AND CONTINGENCIES:

Operating Leases

The Company leases certain retail store facilities, fixtures and equipment
under operating leases. The real estate leases generally range in terms from 20
to 30 years with renewal options from 5 to 10 years. Certain real estate leases,
with terms of 25 years, are leased from a partnership made up of current and
former officers and stockholders of the Company. Rental expense incurred on
operating leases was $1,636, $1,767 and $1,909 for the years ended January 31,
1996, 1997 and 1998, respectively, and $618 and $888 for the three months ended
April 30, 1998 and the two months ended June 30, 1998, respectively. These
amounts include rental expense incurred on leases from related parties of $403,
$415 and $314 for the years ended January 31, 1996, 1997 and 1998, respectively,
and $61 and $40 for the three months ended April 30, 1998 and the two months
ended June 30, 1998, respectively. The Company also incurs other direct rental
costs associated with its operating leases, principally real estate taxes and
insurance.

F-17
<PAGE> 90
G.I. JOE'S, INC.

Future minimum rental commitments after June 30, 1998 for all noncancelable
operating leases are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR ENDING JANUARY 31,
------------------------------
<S> <C>
1999 (for the remaining 7 months).......................... $ 2,770
2000....................................................... 4,486
2001....................................................... 4,301
2002....................................................... 4,239
2003....................................................... 4,221
Thereafter................................................. 45,203
-------
$65,220
=======
</TABLE>

Capital Leases

Capital leases for retail store facilities and equipment range in terms
from 5 to 30 years with renewal options on certain leases to 70 years.

Future minimum lease payments under capital leases as of June 30, 1998 are
as follows:

<TABLE>
<CAPTION>
FISCAL YEAR ENDING JANUARY 31,
------------------------------
<S> <C>
1999 (for the remaining 7 months)......................... $ 1,585
2000...................................................... 2,639
2001...................................................... 2,572
2002...................................................... 2,516
2003...................................................... 2,292
Thereafter................................................ 23,923
--------
Total minimum lease payments.................... 35,527
Less -- Amount representing interest (at a weighted
average interest rate of 11.4%)......................... (18,995)
--------
Present value of minimum lease payments................... 16,532
Less -- Current portion................................... (804)
--------
$ 15,728
========
</TABLE>

The Company pays contingent rentals based on sales volume for certain of
its retail store facilities under capital leases. Total contingent rentals were
$198, $218 and $200 in fiscal years 1996, 1997 and 1998. Total contingent
rentals were $5 and $23 for the three months ended April 30, 1998 and the two
months ended June 30, 1998, respectively. The Company also incurs other direct
expenses for its capital leases, principally real estate taxes and insurance.

Included in total capital lease obligations is $4,154, $4,086, $4,067 and
$4,055 at January 31, 1997, January 31, 1998, April 30, 1998 and June 30, 1998,
respectively, payable to a partnership comprised of current and former officers
and shareholders of the Company.

Contingencies

There are various claims involving employment matters against the Company
incident to the operations of its business. The liability, if any, associated
with these matters was not determinable at April 30, 1998. It is

F-18
<PAGE> 91
G.I. JOE'S, INC.

the opinion of management that the ultimate resolution of these claims will not
have a materially adverse effect on the Company's financial position or results
of operations.

11. PENSION AND OTHER POST-RETIREMENT PLANS:

Defined Benefit Pension Plan

Full-time employees who have attained the age of 21 and have completed one
year of service are covered under a Company sponsored defined benefit pension
plan (the Plan). The Plan provides benefits based on participants' years of
service and compensation. The Company funds at least the minimum annual
contribution required by the Employee Retirement Income Security Act of 1974.

The following table sets forth the funded status of the Plan:

<TABLE>
<CAPTION>
PREDECESSOR
-----------------------------
JANUARY 31,
----------------- APRIL 30,
1997 1998 1998
------- ------- ---------
<S> <C> <C> <C>
Accumulated benefit obligations:
Vested.................................................... $(3,857) $(5,287) $(5,287)
Nonvested................................................. (286) (333) (333)
------- ------- -------
(4,143) (5,620) (5,620)
Projected benefit obligation................................ (5,258) (6,591) (6,591)
Plan assets at fair value................................... 5,054 5,756 5,756
------- ------- -------
Projected benefit obligation in excess of plan assets....... (204) (835) (835)
Unrecognized prior service cost............................. (1,020) (933) (933)
Unrecognized net obligation at February 1, 1987 being
recognized over 15 years.................................. 144 115 115
Unrecognized net loss from past experience different from
that assumed and effects from changes in assumptions...... 611 1,032 1,032
------- ------- -------
Accrued pension cost........................................ $ (469) $ (621) $ (621)
======= ======= =======
</TABLE>

In connection with the Merger and Exchange, and in accordance with APB 16,
the Company recorded an additional accrued pension cost of $214 in order to
record the projected benefit obligation in excess of plan assets at May 1, 1998.
This represents the projected benefit obligation in excess of plan assets as of
the most recent actuarial valuation received by the Company.

Net pension expense included the following components:

<TABLE>
<CAPTION>
PREDECESSOR
---------------------------------
THREE
MONTHS
JANUARY 31, ENDED
--------------------- APRIL 30,
1996 1997 1998 1998
----- ----- ----- ---------
<S> <C> <C> <C> <C>
Service cost -- benefits earned during the period..... $ 233 $ 236 $ 289 $ 88
Interest cost on projected benefit obligations........ 354 363 429 127
Actual return on plan assets.......................... (863) (553) (786) (136)
Net amortization and deferral......................... 525 108 293 (4)
----- ----- ----- -------
Net periodic pension cost............................. $ 249 $ 154 $ 225 $ 75
===== ===== ===== =======
</TABLE>

F-19
<PAGE> 92
G.I. JOE'S, INC.

Rates used in determining the actuarial present value of the projected
benefit obligation were as follows:

<TABLE>
<CAPTION>
PREDECESSOR
-------------------------
JANUARY 31,
------------ APRIL 30,
1997 1998 1998
---- ---- ---------
<S> <C> <C> <C>
Discount rate............................................... 8.0% 7.5% 7.5%
Increase in future compensation levels...................... 5.0 5.0 5.0
Expected long-term rate of return........................... 9.0 9.0 9.0
</TABLE>

The Company has a custodial agreement with a trust wherein certain plan
assets are invested in one or more pooled investment funds.

Savings Plan

The G.I. Joe's, Inc. Savings Plan is a defined contribution plan and covers
substantially all employees who have attained age 21 and have completed one year
of service. The Savings Plan provides for employer matching contributions, which
are determined annually by the Company. Contributions to the Savings Plan made
by the Company were $99, $103, $109, $27 and $19 in fiscal years 1996, 1997 and
1998 and the three months ended April 30, 1998 and the two months ended June 30,
1998, respectively.

Executive Stock Option Plan

The Company has three Incentive Stock Option Plans (the Plans), the purpose
of which is to make available common stock of the Company for purchase by
eligible officers and other key employees. The Plans have authorized an
aggregate of 2,216,664 shares of common stock, no par value, to be reserved for
issuance under the Plans. The administrator of the Plans, an officer of the
Company, is responsible for granting options, and is not eligible to receive any
options. The option price shall be set by the administrator of the Plans, and
shall approximate, as nearly is feasible without appraisal, the fair market
value of the common stock as of the date on which the options are granted, but
may not be less than the stated par value. The options vest over three to five
years from date of grant and expire at dates no later than March 31, 2010.

<TABLE>
<CAPTION>
SHARES
AVAILABLE FOR SHARES SUBJECT WEIGHTED AVERAGE
GRANT TO OPTIONS EXERCISE PRICE
------------- -------------- ----------------
<S> <C> <C> <C>
BALANCE, January 31, 1995 -- Predecessor............ 299,135 1,917,529 $1.67
--------- ---------- -----
BALANCE, January 31, 1996 -- Predecessor............ 299,135 1,917,529 $1.67
Granted........................................... (12,784) 12,784 $1.83
--------- ---------- -----
BALANCE, January 31, 1997 -- Predecessor............ 286,351 1,930,313 $1.67
Granted........................................... (43,464) 43,464 $2.42
--------- ---------- -----
BALANCE, January 31, 1998 -- Predecessor............ 242,887 1,973,777 $1.69
--------- ---------- -----
BALANCE, April 30, 1998 -- Predecessor.............. 242,887 1,973,777 $1.69
Redeemed.......................................... 1,159,464 (1,159,464) $1.68
Canceled.......................................... 745,280 (745,280) $1.68
--------- ---------- -----
BALANCE, June 30, 1998 -- G.I. Joe's, Inc. ......... 2,147,631 69,033 $1.90
========= ========== =====
</TABLE>

During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 123 ("SFAS 123"), Accounting for Stock Based
Compensation, which defines a fair value based method of accounting for employee
stock options and similar equity instruments and encourages all entities to
adopt that method of accounting for all of their employee stock compensation
plans. However,
F-20
<PAGE> 93
G.I. JOE'S, INC.

SFAS123 also allows an entity to continue to measure compensation cost for those
plans using the method of accounting prescribed by APB25. Entities electing to
remain with the accounting in APB25 must make pro forma disclosures of net
income and, if presented, earnings per share, as if the fair value based method
of accounting defined in SFAS123 had been adopted.

The Company has elected to account for its stock based compensation plans
under APB25; however, the Company has computed, for pro forma disclosure
purposes, the value of all options granted during fiscal 1997 and 1998 (no
options were granted during fiscal 1996) using the minimum value method, as
prescribed by SFAS123, using the following weighted average assumptions for
grants:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED JANUARY 31, 1997 1998
------------------------------ ---- ----
<S> <C> <C>
Risk-free interest rate..................................... 6% 6.25%
Expected dividend yield..................................... 0% 0%
Expected lives (years)...................................... 6 4
</TABLE>

Using the minimum value methodology, the total value of options granted
during fiscal 1997 and fiscal 1998 was $7 and $23, respectively, which would be
amortized on a pro forma basis over the vesting period of the options (5 years
for 1997 grants and 3 years for 1998 grants). The weighted average fair value of
options granted during 1997 and 1998 was $0.55 per share and $0.53 per share,
respectively.

If the Company had accounted for its stock-based compensation plan in
accordance with SFAS123, the Company's net income would not have been materially
different and net income (loss) per share would have been the same as reported
net income (loss) per share amounts.

The following table summarizes information about stock options outstanding
on June 30, 1998:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- --------------------------------------------------- ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
PRICES AT 6/30/98 LIFE (YEARS) PRICE AT 6/30/98 PRICE
- ------------ ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$1.53 25,567 5.8 $1.53 25,567 $1.53
1.83 12,784 7.8 1.83 12,784 1.83
1.99 12,784 4.8 1.99 12,784 1.99
2.42 17,898 9.1 2.42 17,898 2.42
- ------------ ------ --- ----- ------ -----
$1.53 - 2.42 69,033 6.8 $1.90 69,033 $1.90
============ ====== === ===== ====== =====
</TABLE>

At January 31, 1996, 1997 and 1998, 383,505, 767,010 and 1,150,515 options,
respectively, were exercisable at a weighted average exercise price of $1.61 per
share at each date. At April 30, 1998, 1,534,021 options were exercisable at a
weighted average exercise price of $1.71.

1998 Stock Incentive Compensation Plan (unaudited)

In July 1998, the Company adopted the G.I. Joe's, Inc. 1998 Stock Incentive
Compensation Plan (the "1998 Plan"). In conjunction with the adoption of the
1998 Plan, options outstanding under the Plans covering 69,033 shares of the
Company's common stock were converted to options outstanding under the 1998 Plan
and the Plans were terminated. The purpose of the 1998 Plan is to enhance the
long-term shareholder value of the Company by offering employees, directors,
officers, consultants, agents, advisors and independent contractors of the
Company an opportunity to participate in the Company's growth and success, and
to encourage them to remain in the service of the Company and acquire and
maintain stock ownership in the
F-21
<PAGE> 94
G.I. JOE'S, INC.

Company. The 1998 Plan includes both stock options and stock awards, including
restricted stock. A maximum of 800,000 shares of common stock are available for
issuance under the 1998 Plan.

The Plan Administrator of the 1998 Plan will be the Compensation Committee
of the Board of Directors (the "Plan Administrator"), which will have the
authority to select individuals who are to receive options under the 1998 Plan
and to specify the terms and conditions of each option granted (incentive or
nonqualified), the exercise price (which, for incentive stock options, must be
at least equal to the fair market value of the common stock on the date of
grant), the vesting provisions and the option term. For purposes of the 1998
Plan, fair market value means the closing sale price of the common stock as
reported on the Nasdaq National Market on the date of grant. Unless otherwise
provided by the Plan Administrator, and to the extent required for incentive
stock options by the Code, an option granted under the 1998 Plan will expire 10
years from the date of grant or, if earlier, three months after the optionee's
termination of service, other than termination for cause, or one year after the
optionee's retirement, early retirement at the Company's request, death or
disability.

At June 30, 1998, there were options covering 69,033 shares of the
Company's common stock outstanding at a weighted average exercise price of
$1.90, all of which were exercisable. At June 30, 1998, there were 800,000
shares of the Company's common stock reserved for issuance under the 1998 Plan
and 730,967 shares available for future grant.

EMPLOYEE STOCK PURCHASE PLAN

12. RELATED PARTY TRANSACTIONS:

TicketMaster-Oregon

TicketMaster-Oregon, a partnership whose partners include, among others,
Norman P. Daniels, the Company's Chairman of the Board, President and Chief
Executive Officer, David E. Orkney, a Director of the Company, and former
shareholders and officers Wayne Jackson and B. Duane Mellen ("TicketMaster-
Oregon"), has entered into an operating agreement with TicketMaster Northwest to
operate TicketMaster outlets in Oregon. TicketMaster-Oregon has placed
TicketMaster outlets in all of the Company's Oregon stores. The Company has
established a similar arrangement directly with TicketMaster Northwest with
respect to its Washington stores. The Company receives a percentage of the
convenience charges to which TicketMaster-Oregon is entitled under its operating
agreement with TicketMaster Northwest for sales generated in G.I. Joe's Oregon
stores. For the fiscal years ended January 31, 1996, 1997 and 1998 and for the
three months ended April 30, 1998 and the two months ended June 30, 1998, the
Company received an aggregate of $665, $539, $589, $125 and $88 respectively,
from TicketMaster fees.

Officer Loans

In July 1994, the Company loaned $182, $98 and $128 to Messrs. Daniels,
Orkney and Jackson, respectively. Each loan was made pursuant to a promissory
note with an annual interest rate equal to the applicable federal rate
determined by the Internal Revenue Service, and require minimum annual payments
of $10 each year until all interest and principal was paid in full. Mr. Jackson
repaid his loan in full upon termination of employment with the Company in
connection with the Redemption and Exchange in May 1998. In November 1995, the
Company loaned Mr. Daniels an additional $38 and from April 1996 through

F-22
<PAGE> 95
G.I. JOE'S, INC.

April 1997, the Company loaned Mr. Orkney an additional $100, each on the same
terms described above. Just prior to the Redemption and Exchange, the
outstanding balance of Mr. Daniels' and Mr. Orkney's indebtedness to the Company
were approximately $187 and $132, respectively. In April 1998, the Company
awarded a bonus payment to Mr. Daniels which was paid by canceling his
indebtedness of $187. In connection with the Redemption and Exchange, the
Company canceled Mr. Orkney's indebtedness to the Company. See also Note 5.

Henway Partnerships

In July 1994, the Company loaned $5,672 in the aggregate to two
partnerships in which Messrs. Daniels, Orkney and Jackson are three of four
partners (the "Henway Partnerships") to finance the purchase by the partnerships
of two parcels of real estate upon which are located the Company's stores in
Vancouver, Washington and Albany, Oregon. Each partner holds a 25% interest in
each Henway Partnership. The Henway Partnerships lease these properties to the
Company. These loans accrued interest at Bank of America's prime rate plus 2.5%
per year, and were due in August 1996. The Henway Partnerships repaid all
amounts outstanding under these loans in January 1996, other than $258, which
was refinanced pursuant to a promissory note from one of the Henway Partnerships
in favor of the Company, with an annual interest rate of 10.5% and a 60-month
payment schedule. The leases for the Vancouver and Albany stores were entered
into in June and November 1989, respectively, and each has a 25-year term and a
10-year renewal option. Base rental payments under these leases are $386 and
$391 per year for the Vancouver and Albany locations, respectively, on a
triple-net basis. In addition, the Company is obligated to pay additional rent
for the Vancouver and Albany stores in the amount of 1.5% of gross receipts to
the extent that gross receipts exceed $15,304 and $11,898, respectively, but has
not been required to pay any such additional rent in the last three fiscal
years. The Company believes the leases for the Vancouver and Albany stores were
entered into on terms no less favorable to the Company than would have been
obtained from unaffiliated third parties.

PD Properties

In April 1998, in connection with the Redemption and Exchange, the Company
sold two parcels of real property to PD Properties, LLC ("PD"), an Oregon
limited liability company affiliated with Roy Rose, a Director of the Company
and of Peregrine Capital, Inc. ("Peregrine"), a principal shareholder of the
Company. PD paid $2,725 in the aggregate to the Company for the South Salem,
Oregon store location and for the Company's vacant land located in Forest Grove,
Oregon (the "PD Real Properties"). The Company leases the South Salem property
from PD pursuant to a lease, which commenced in April 1998 (the "PD Lease"). The
initial term of the PD Lease is 15 years, with two renewal options of 5 years
each. Rental payments under the PD Lease consist of a base rent of $386 per year
on a triple net basis. The base rent will be adjusted every five years based on
changes in the consumer price index. The PD Lease is in substantially the same
form as the six leases (the "Non-PD Leases") entered into with an unaffiliated
party in connection with the sale and lease-back of the Company's owned store
locations consummated in connection with the Reorganization. The Company
believes the PD Lease was entered into on terms no less favorable to the Company
than would have been obtained from an unaffiliated third party. In addition, in
connection with the Reorganization, four individuals associated with Peregrine,
including Roy Rose and his wife, agreed to guarantee the performance of the
Company's obligations under the Non-PD Leases. Aggregate annual base rent under
the Non-PD Leases is approximately $3,000. This guarantee will expire upon the
closing of an initial public offering of the Company's Common Stock. PD received
a fee of $1,000 in connection with the sale of the properties subject to the
Non-PD Leases, which fee was credited against the purchase price for the PD Real
Properties.

F-23
<PAGE> 96
G.I. JOE'S, INC.

Peregrine Capital, Inc.

In connection with the Redemption and Exchange, Peregrine Capital, Inc.
("Peregrine") purchased $1,450 of subordinated notes from the Company. Peregrine
exchanged $1,000 of the subordinated notes for common stock of Holdings, which
was converted into 356,898 shares of the Company's Common Stock in the Merger.
Peregrine exchanged the remaining $450 of the subordinated notes for preferred
stock and a warrant to purchase common stock of Holdings, which in the Merger
were converted into 4,500 shares of the Company's Series A Non-Voting Redeemable
Preferred Stock (the "Redeemable Preferred Stock") and 40,909 shares of the
Company's common stock. For services rendered in connection with the Redemption
and Exchange, Peregrine received an additional warrant exercisable for shares of
Holdings common stock (the "Master Warrant"), which in the Merger was converted
into 1,606,599 shares of the Company's Common Stock. Prior to the Merger,
Peregrine assigned to various unaffiliated third parties a portion of the Master
Warrant which otherwise would have entitled Peregrine to 315,053 shares of the
Company's Common Stock issued upon conversion of the Master Warrant. In
addition, Peregrine has agreed to purchase from the Investors all outstanding
shares of the Company's Redeemable Preferred Stock for $8,500, plus accumulated
dividends, if the Company does not complete, prior to May 8, 1999, an initial
public offering of its Common Stock with net proceeds to the Company of at least
$12,000.

In October 1998, the Company and Peregrine entered into an agreement that
provides that Peregrine will act as a non-exclusive independent representative
of the Company to identify potential acquisition or investment candidates and
assist in completing any such acquisitions or investments the Company chooses to
pursue. As compensation for Peregrine's services, the Company has agreed to pay
to Peregrine 4% of the gross amount of all cash and non-cash fees and
consideration paid by the Company or any of its affiliates [(other than
Peregrine)] as a result of or directly related to any transaction between the
Company and candidates identified by Peregrine which is completed within the
term of the agreement or one year thereafter. The agreement terminates on
October 31, 2003, unless earlier terminated by either party upon at lease 30
days' notice to the other party.

Orkney Agreement

In connection with the Redemption and Exchange, in May 1998 the Company
redeemed all of Mr. Orkney's outstanding shares of common stock in the Company
for an aggregate purchase price of $13,893. In addition, the Company issued to
Mr. Orkney a warrant to purchase 5% of the Company's common stock outstanding,
on a fully-diluted basis, at the time of exercise at a purchase price equal to
70% of the fair market value of the common stock on the exercise date. Mr.
Orkney has registration rights with respect to the common stock issuable upon
exercise of the warrant. The Company also entered into an agreement with Mr.
Orkney, pursuant to which Mr. Orkney received a $140 bonus in May 1998
(consisting of $132 in debt forgiveness and a Company car worth $8) and will be
paid an additional $150 over the following two years ($100 of which is to be
paid in 12 equal monthly installments during the first year, and the remaining
$50 of which is to be paid in 12 equal monthly installments during the second
year). During the first year, Mr. Orkney will also receive a car allowance in
accordance with the Company's past practice as well as health insurance and
certain other benefits. Mr. Orkney's mother and sister received compensation
from the Company for the last two fiscal years in the aggregate amounts of
approximately $105 and $59, respectively. The Company stopped making such
payments in May 1998.

Buyout of Former Officer of the Company

In connection with the Redemption and Exchange, the Company redeemed all of
Mr. Jackson's outstanding shares of common stock for $977 (at the same per share
purchase price received by the Company's other shareholders, excluding the
warrant issued to Mr. Orkney). The Company also repurchased

F-24
<PAGE> 97
G.I. JOE'S, INC.

Mr. Jackson's outstanding options exercisable for 681,361 shares of the
Company's common stock for $2,267. The Company issued to Mr. Jackson a
promissory note in the amount of $283, in partial payment of the purchase price
for such options. The promissory note is due in July 1999, and does not bear
interest, except after maturity or default. The promissory note is included in
Notes Payable in the accompanying balance sheets.

13. RECENT ACQUISITION:

In September 1998, the Company acquired certain assets and assumed certain
liabilities of Timberline Direct, a direct marketing retailer that sells
merchandise complementary to that offered by the Company through catalog and
Internet-based channels. The purchase price for the acquisition is $5.4 million
consisting of $1.2 million paid in cash, $896,000 of assumed liabilities and the
balance payable, in installments, in shares of the Company's Common Stock. The
shares of Common Stock are payable in four installments, the first two of which
are expected to be paid in early 1999 based on a formula in the purchase
agreement which determines the number of shares to be issued. This obligation
has been classified as purchase obligation payable in Common Stock in the
accompanying balance sheets at October 31, 1998. The final two installments are
payable contingent upon meeting certain performance criteria.

F-25
<PAGE> 98

G.I. JOE'S INC.

PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 31, 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
(PREDECESSOR) PRO FORMA G.I. JOE'S, INC.
G.I. JOE'S, INC. ADJUSTMENTS PRO FORMA
---------------- ----------- ----------------
<S> <C> <C> <C>
Net sales............................................ $128,238 $ -- $128,238
Cost of goods sold................................... 84,552 -- 84,552
-------- ------- --------
Gross margin....................................... 43,686 -- 43,686
Selling, general and administrative expense.......... 39,528 3,143(a) 42,671
Other income (expense)
Interest expense................................... (3,542) 502(b) (3,040)
Interest income.................................... 65 -- 65
-------- ------- --------
(3,477) 502 (2,975)
-------- ------- --------
Income (loss) before income taxes.................... 681 (2,641) (1,960)
Benefit from income taxes............................ -- 784(c) 784
-------- ------- --------
Net income (loss).................................... 681 (1,857) (1,176)
Preferred dividends.................................. -- (765)(d) (765)
-------- ------- --------
Loss attributable to common shareholders............. $ 681 $(2,622) $ (1,941)
======== ======= ========
Basic net income (loss) per share.................... $ 0.17 $ -- $ (0.32)
======== ======= ========
Diluted net income (loss) per share.................. $ 0.15 $ -- $ (0.32)
======== ======= ========
Shares used in per share calculations:
Basic.............................................. 4,053 -- 6,000
Diluted............................................ 4,625 -- 6,000
</TABLE>

PF-1
<PAGE> 99

G.I. JOE'S INC.

PRO FORMA STATEMENT OF OPERATIONS

FOR THE NINE MONTHS ENDED OCTOBER 31, 1998 (UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
(PREDECESSOR) G.I. JOE'S, INC.
G.I. JOE'S, INC. SIX MONTHS
THREE MONTHS ENDED
ENDED OCTOBER 31, PRO FORMA G.I. JOE'S, INC.
APRIL 30, 1998 1998 ADJUSTMENTS PRO FORMA
---------------- ---------------- ----------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales.............................. $25,908 $75,201 $ -- $101,109
Cost of goods sold..................... 17,670 49,612 -- 67,282
------- ------- ------ --------
Gross margin......................... 8,238 25,589 -- 33,827
Selling, general and administrative
expense.............................. 9,755 23,086 785(a) 33,626
Other income (expense)
Interest expense..................... (971) (1,885) 125(b) (2,731)
Interest income...................... 9 9 -- 18
Gain on sale of real estate.......... 640 -- -- 640
------- ------- ------ --------
(322) (1,876) 125 (2,073)
------- ------- ------ --------
Income (loss) before income taxes...... (1,839) 627 (660) (1,872)
(Provision for) benefit from income
taxes................................ -- (251) 1,000(c) 749
------- ------- ------ --------
Net income (loss)...................... (1,839) 376 340 (1,123)
Preferred dividends.................... -- (383) (191)(d) (574)
------- ------- ------ --------
Loss attributable to common
shareholders......................... $(1,839) $ (7) $ 149 $ (1,697)
======= ======= ====== ========
Basic net loss per share............... $ (0.45) $ (0.00) $ -- $ (0.28)
======= ======= ====== ========
Diluted net loss per share............. $ (0.45) $ (0.00) $ -- $ (0.28)
======= ======= ====== ========
Shares used in per share calculations:
Basic and diluted.................... 4,053 6,000 -- 6,000
</TABLE>

PF-2
<PAGE> 100

G.I. JOE'S, INC.

FOOTNOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS)

1. BASIS OF PRESENTATION

The accompanying unaudited pro forma financial statements have been
prepared to present the effect of the Redemption, the Exchange and the Merger of
the Company as more fully discussed in Note 1 to the financial statements. The
pro forma financial statements have been prepared based upon the historical
financial statements of the Predecessor and the Company as if the Redemption,
the Exchange and the Merger had occurred at the beginning of the respective
periods.

A Pro Forma Balance Sheet is not included since the most recent balance
sheet filed with the Company's financial statements includes the effects of the
Redemption, the Exchange and the Merger. The Redemption, the Exchange and the
Merger are a series of planned transactions executed to consummate the
acquisition of the Company. Accordingly, this series of transactions has been
reflected as if they occurred on May 1, 1998.

The Pro Forma Statements of Operations may not be indicative of the results
of operations that actually would have occurred if the transactions had been in
effect as of the beginning of the respective periods nor do they purport to
indicate the results of future operations of the Company. The pro forma
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's audited financial statements and
notes thereto, included elsewhere in this Prospectus. Management believes that
all adjustments necessary to present fairly such pro forma financial statements
have been made based on the terms and structure of the transaction.

2. EXTRAORDINARY ITEM

The Pro Forma Statement of Operations for the nine-month period ended
October 31, 1998 does not include an extraordinary loss item related to the
early extinguishment of debt in the amount of $1,332, net of tax benefit of
$888.

3. PRO FORMA ADJUSTMENTS

(a) The adjustment to selling, general and administrative expense consists
of the following:

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
JANUARY 31, 1998 OCTOBER 31, 1998
---------------- -----------------
<S> <C> <C>
Reduction in depreciation from properties sold
and leased back............................... $ (336) $(84)
Rental expense on properties sold and leased
back.......................................... 3,092 773
Amortization expense on capitalized leased
assets recorded at fair market value.......... 387 96
------ ----
$3,143 $785
====== ====
</TABLE>

(b) To record the reduction in interest expense related to mortgages on
sold properties.

(d) To record 9% cumulative dividend on preferred stock.

PF-3
<PAGE> 101

- ------------------------------------------------------
- ------------------------------------------------------

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER TO SELL OR SOLICITATION IS NOT AUTHORIZED, OR
IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO,
OR TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER OR SOLICITATION

------------------------

TABLE OF CONTENTS

<TABLE>
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 8
The Reorganization.................... 16
Use of Proceeds....................... 19
Dividend Policy and Prior S
Corporation Status.................. 19
Dilution.............................. 20
Capitalization........................ 21
Selected Financial and Other Data..... 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 24
Business.............................. 38
Management............................ 53
Certain Related Transactions.......... 60
Principal Shareholders................ 63
Description of Capital Stock.......... 65
Shares Eligible for Future Sale....... 67
Underwriting.......................... 69
Legal Matters......................... 70
Experts............................... 70
Additional Information................ 70
Index to Financial Statements......... F-1
</TABLE>

------------------------

UNTIL , 1999 (25 DAYS AFTER THE DATE OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------

2,500,000 SHARES

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COMMON STOCK
------------------------

PROSPECTUS
------------------------
BLACK & COMPANY, INC.

CRUTTENDEN ROTH
INCORPORATED

, 1999

- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 102

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in connection
with the sale of the Common Stock being registered hereby. All amounts shown are
estimates, except the Securities and Exchange Commission registration fee, the
NASD filing fee and the Nasdaq National Market listing fee.

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 9,330
NASD filing fee............................................. 3,663
Nasdaq National Market listing fee.......................... 72,875
Printing and engraving expenses............................. 90,000
Legal fees and expenses..................................... 230,000
Accounting fees and expenses................................ 140,000
Directors' and Officers' Liability Insurance................ 96,000
Transfer Agent and Registrar fees........................... 4,000
Miscellaneous expenses...................................... 54,132
--------
Total............................................. $700,000
--------
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

As an Oregon corporation, the registrant is subject to the laws of the
State of Oregon governing private corporations and the exculpation from
liability and indemnification provisions contained therein. Pursuant to Section
60.047(2)(d) of the Oregon Revised Statutes ("ORS"), Article 6 of the
registrant's Amended and Restated Articles of Incorporation, as amended (the
"Articles"), eliminates the liability of the registrant's directors to the
registrant or its shareholders except for any liability related to (i) breach of
the duty of loyalty; (ii) acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law; (iii) any unlawful
distribution under ORS 60.367; or (iv) any transaction from which the director
derived an improper personal benefit.

ORS Section 60.391 allows corporations to indemnify their directors and
officers against liability where the director or officer has acted in good faith
and with a reasonable belief that actions taken were in the best interests of
the corporation or at least not opposed to the corporation's best interests and,
if in a criminal proceeding, the individual had no reasonable cause to believe
the conduct in question was unlawful. Under ORS Sections 60.387 to 60.414,
corporations may not indemnify a director or officer against liability in
connection with a claim by or in the right of the corporation or for any
improper personal benefit in which the director or officer was adjudged liable
to the corporation. ORS Section 60.394 mandates indemnification for all
reasonable expenses incurred in the successful defense of any claim made or
threatened whether or not such claim was by or in the right of the corporation.
Finally, pursuant to the ORS Section 60.401, a court may order indemnification
in view of all the relevant circumstances, whether or not the director or
officer met the good-faith and reasonable belief standards of conduct set out in
ORS Section 60.391.

ORS Section 60.414 also provides that the statutory indemnification
provisions are not deemed exclusive of any other rights to which directors or
officers may be entitled under a corporation's articles of incorporation or
bylaws, any agreement, general or specific action of the board of directors,
vote of shareholders or otherwise.

The Articles provide that the registrant is required to indemnify its
current and former directors to the fullest extent permitted by law. The Company
intends to enter into indemnification agreements with all its directors and
executive officers which would obligate the registrant to indemnify such
individuals for liabilities incurred by such individuals while serving as
directors or officers of the registrant.

II-1
<PAGE> 103

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Since December 31, 1995, the registrant has issued and sold the following
unregistered securities:

1. On July 31, 1997, the registrant granted to 15 of its employees
stock options exercisable for an aggregate of 43,467 shares of the
registrant's Common Stock at an exercise price of $2.42 per share, the fair
market value per share of Common Stock on the grant date. The options were
granted under a written stock option plan of the registrant in
consideration of these employee's services to the registrant, and in
issuing these securities the Company relied on an exemption from
registration pursuant to Rule 701 under Section 3(b) of the Securities Act.

2. On May 8, 1998, the registrant issued to 61 individuals and
entities an aggregate principal amount of $9.5 million of its 9%
Subordinated Notes due 2008. The consideration paid for the notes was $9.5
million. Each such investor represented that he, she or it is an
"accredited investor" within the meaning of Rule 501 under the Securities
Act and the shares were not offered or sold by means of a general
solicitation or general advertising. In issuing these securities, the
Company relied on an exemption from registration pursuant to Rule 506 under
Section 4(2) of the Securities Act.

3. On May 8, 1998, the Company issued to David E. Orkney a warrant to
purchase an amount of the Company's common stock equal to 5% of the
registrant's outstanding shares of common stock (on a fully-diluted basis)
at an exercise price equal to 70% of the initial public offering price. Mr.
Orkney represented that he is an "accredited investor" within the meaning
of Rule 501 under the Securities Act. This warrant was issued in connection
with the redemption of shares of the Company's Common Stock owned by Mr.
Orkney, and in issuing this security the Company relied on an exemption
from registration under Section 4(2) of the Securities Act.

4. On July 27, 1998, and in connection with the merger of ND Holdings,
Inc. with and into the registrant (with the registrant being the surviving
corporation), the registrant issued to (a) 86 individuals and entities an
aggregate of 5,948,302 shares of the registrant's Common Stock in exchange
for common stock and warrants exercisable for common stock of ND Holdings,
Inc. and (b) to 61 individuals and entities an aggregate of 85,000 shares
of the registrant's Series A 9% Non-Voting Redeemable Preferred Stock in
exchange for preferred stock of ND Holdings, Inc. Each such investor
represented that he, she or it is an "accredited investor" within the
meaning of Rule 501 under the Securities Act and the shares were not
offered or sold by means of a general solicitation or general advertising.
In issuing these securities, the Company relied on an exemption from
registration pursuant to Rule 506 under Section 4(2) of the Securities Act.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
+1.1 Form of Underwriting Agreement between G.I. Joe's, Inc., and
Black & Company, Inc. and Cruttenden Roth Incorporated, as
agents for the Underwriters
*2.1 Agreement and Plan of Merger dated July 1, 1998 between ND
Holdings, Inc. and G.I. Joe's, Inc.
*3.1 Amended and Restated Articles of Incorporation
*3.2 Bylaws, as restated
+4.1 Form of Common Stock Certificate
+5.1 Opinion of Perkins Coie LLP
+10.1 Ticket Center Agreement dated as of August 1, 1998 between
TicketMaster-Oregon and G.I. Joe's, Inc. (certain portions
of this Exhibit have been omitted based upon a request for
confidential treatment; such portions have been filed
separately with the SEC)
</TABLE>

II-2
<PAGE> 104

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
*10.2 Lease dated June 3, 1997, as amended, between Milestone
Properties, Inc. and G.I. Joe's, Inc. (Bend, Oregon)
*10.3 Eastport Plaza Lease dated April 21, 1978 between Eastport
Plaza Shopping Center and G.I. Joe's, Inc.
*10.4 Lease dated May 10, 1973, as amended, between Center
Development Oreg., Ltd. and G.I. Joe's, Inc. (Beaverton,
Oregon)
*10.5 Sublease dated March 28, 1984 between Donald R. Wyant, Sr.
and Martin L. Peterson, (dba The Wyant-Peterson Company) and
G.I. Joe's, Inc. (Medford, Oregon)
*10.6 Building Lease dated October 9, 1980, as amended, between
Hayden Meadows and G.I. Joe's, Inc. (North Portland, Oregon)
*#10.7 Lease dated April 17, 1998 between WREP 1998-1 LLC and G.I.
Joe's, Inc. (South Salem, Oregon)
*10.8 Purchase and Sale Agreement dated April 17, 1998 among WREP
1998-1 LLC, G.I. Joe's, Inc., and PD Properties, L.L.C.
*10.9 Real Estate Purchase and Sale Agreement dated April 17, 1997
between PD Properties, L.L.C. and G.I. Joe's, Inc.
*10.10 Sublease dated October 8, 1981 between Pacific Cascade
Corporation, dba PCC Associates and G.I. Joe's, Inc.
*10.11 First Amendment to Lease dated June 15, 1991 between Eugenie
E. Keene and Philip A. Keene and G.I. Joe's, Inc. (Eugene,
Oregon)
*10.12 Lease dated May 12, 1997 between South Hill Village Limited
Partnership and G.I. Joe's, Inc. (Puyallup, Washington)
*#10.13 Lease dated June 23, 1989, as amended, between The Henway
Group XII and G.I. Joe's, Inc. (Vancouver, Washington)
*10.14 Lease dated June 23, 1989, as amended, between West Campus
Square Joint Venture and G.I. Joe's, Inc. (Federal Way,
Washington)
*10.15 Lease dated January 28, 1998 between Pacific Realty
Associates, L.P. and G.I. Joe's, Inc. (Hillsboro, Oregon)
*10.16 Purchase and Sale Agreement dated April 21, 1998 between
G.I. Joe's and ESA Management, Inc. (Renton, Washington)
*10.17 G.I. Joe's, Inc. Pension Plan
*10.18 1998 Incentive Compensation Plan
*10.19 Loan and Security Agreement dated March 10, 1998 between
G.I. Joe's, Inc. and Foothill Capital Corporation
*#10.20 9% Subordinated Note Due 2008 dated May 4, 1998 in favor of
certain investors
*10.21 ND Holdings, Inc. Common Stock Purchase Warrant dated May 8,
1998 evidencing the right of Peregrine Capital, Inc. to
purchase shares of common stock of ND Holdings, Inc.
*#10.22 Warrant dated May 8, 1998 by ND Holdings, Inc. in favor of
Blackwell Donaldson & Company
*#10.23 Warrant dated May 8, 1998 by ND Holdings, Inc. in favor of
certain investors
*10.24 Registration Rights Agreement dated May 8, 1998 between ND
Holdings, Inc. and certain investors
*10.25 Security Agreement dated October 31, 1997 between G.I.
Joe's, Inc. and Heller Financial, Inc.
*10.26 Promissory Notes dated October, 1997 and December 22, 1997
in the amounts of $929,092.82 and $396,003.00, respectively,
in favor of Heller Financial, Inc.
</TABLE>

II-3
<PAGE> 105

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
*10.27 Promissory Note dated April, 1998 in the amount of
$283,410.00 in favor of Wayne T. Jackson
*10.28 Promissory Note dated April, 1998 in the amount of
$191,106.00 in favor of B. Duane Mellen
*10.29 Agreement between David Orkney and G.I. Joe's, Inc.
*10.30 G.I. Joe's, Inc. Common Stock Purchase Warrant evidencing
the right of David E. Orkney to purchase shares of Common
Stock
+10.31 G.I. Joe's, Inc. Employee Stock Purchase Plan
+10.32 Finder Agreement date October 6, 1998 between Peregrine
Capital, Inc. and G.I. Joe's, Inc.
+10.33 Asset Purchase Agreement date August 24, 1998 between Joe
Direct, Inc. and Athletica, Inc., Gravity Games, Inc. and TS
Holding, Inc. [, as amended]
+10.34 Form of Warrant by G.I. Joe's, Inc. in favor of Black &
Company, Inc. and Cruttenden Roth Incorporated, respectively
+23.1 Consent of Perkins Coie LLP (included in Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP (included on page II-7)
*27.1 Financial Data Schedule for the Fiscal Year Ended January
31, 1998
*27.2 Financial Data Schedule for the Three-Month Period Ended
April 30, 1998
*27.3 Financial Data Schedule for the Two-Month Period Ended June
30, 1998
</TABLE>

- ---------------

+ To be filed.

* Previously filed.

# A schedule attached to this exhibit identifies all other documents not
required to be filed as exhibits because such exhibits are substantially
identical to this exhibit. The Schedule also sets forth material detail by
which the omitted documents differ from this exhibit.

(b) FINANCIAL STATEMENT SCHEDULES

All schedules are omitted because they are inapplicable.

ITEM 17. UNDERTAKINGS

The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.

II-4
<PAGE> 106

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-5
<PAGE> 107

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused Amendment No. 2 to this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Wilsonville, State of Oregon, on the 11 th day of January, 1999.

G.I. JOE'S, INC.

By: /s/ NORMAN P. DANIELS
--------------------------------
Norman P. Daniels
Chairman of the Board, President
and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, as amended,
Amendment No. 2 to this Registration Statement has been signed by the following
persons in the capacities indicated below on the 11 th day of January, 1999.

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ NORMAN P. DANIELS Chairman of the Board, President
- -------------------------------------------------------- and Chief Executive Officer
Norman P. Daniels (principal executive officer)

PHILIP M. PEPIN* Chief Financial Officer
- -------------------------------------------------------- (principal financial and accounting officer)
Philip M. Pepin

DAVID E. ORKNEY* Director
- --------------------------------------------------------
David E. Orkney

ROY ROSE* Director
- --------------------------------------------------------
Roy Rose
</TABLE>

* By: /s/ NORMAN P. DANIELS

---------------------------------
Norman P. Daniels,
Attorney-in-Fact

II-6
<PAGE> 108

CONSENT OF INDEPENDENT AUDITORS

As independent public accountants, we hereby consent to the use of our
reports (and to all references to our firm) included in or made a part of this
registration statement.

/s/ ARTHUR ANDERSEN LLP

Portland, Oregon

January 11, 1999

II-7
<PAGE> 109

EXHIBIT LIST

<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT PAGE
NO. DESCRIPTION NUMBER
- ------- ----------- ------------
<C> <S> <C>
+1.1 Form of Underwriting Agreement between G.I. Joe's, Inc., and
Black & Company, Inc. and Cruttenden Roth Incorporated, as
agents for the Underwriters.................................
*2.1 Agreement and Plan of Merger dated July 1, 1998 between ND
Holdings, Inc. and G.I. Joe's, Inc. ........................
*3.1 Amended and Restated Articles of Incorporation..............
*3.2 Bylaws, as restated.........................................
+4.1 Form of Common Stock Certificate............................
+5.1 Opinion of Perkins Coie LLP.................................
+10.1 Ticket Center Agreement dated as of August 1, 1998 between
TicketMaster-Oregon and G.I. Joe's, Inc. (certain portions
of this Exhibit have been omitted based upon a request for
confidential treatment; such portions have been filed
separately with the SEC)....................................
*10.2 Lease dated June 3, 1997, as amended, between Milestone
Properties, Inc. and G.I. Joe's, Inc. (Bend, Oregon)........
*10.3 Eastport Plaza Lease dated April 21, 1978 between Eastport
Plaza Shopping Center and G.I. Joe's, Inc...................
*10.4 Lease dated May 10, 1973, as amended, between Center
Development Oreg., Ltd. and G.I. Joe's, Inc. (Beaverton,
Oregon).....................................................
*10.5 Sublease dated March 28, 1984 between Donald R. Wyant, Sr.
and Martin L. Peterson, (dba The Wyant-Peterson Company) and
G.I. Joe's, Inc. (Medford, Oregon)..........................
*10.6 Building Lease dated October 9, 1980, as amended, between
Hayden Meadows and G.I. Joe's, Inc. (North Portland,
Oregon).....................................................
*#10.7 Lease dated April 17, 1998 between WREP 1998-1 LLC and G.I.
Joe's, Inc. (South Salem, Oregon)...........................
*10.8 Purchase and Sale Agreement dated April 17, 1998 among WREP
1998-1 LLC, G.I. Joe's, Inc., and PD Properties, L.L.C. ....
*10.9 Real Estate Purchase and Sale Agreement dated April 17, 1997
between PD Properties, L.L.C. and G.I. Joe's, Inc. .........
*10.10 Sublease dated October 8, 1981 between Pacific Cascade
Corporation, dba PCC Associates and G.I. Joe's, Inc. .......
*10.11 First Amendment to Lease dated June 15, 1991 between Eugenie
E. Keene and Philip A. Keene and G.I. Joe's, Inc. (Eugene,
Oregon).....................................................
*10.12 Lease dated May 12, 1997 between South Hill Village Limited
Partnership and G.I. Joe's, Inc. (Puyallup, Washington).....
*#10.13 Lease dated June 23, 1989, as amended, between The Henway
Group XII and G.I. Joe's, Inc. (Vancouver, Washington)......
*10.14 Lease dated June 23, 1989, as amended, between West Campus
Square Joint Venture and G.I. Joe's, Inc. (Federal Way,
Washington).................................................
*10.15 Lease dated January 28, 1998 between Pacific Realty
Associates, L.P. and G.I. Joe's, Inc. (Hillsboro, Oregon)...
</TABLE>

<PAGE> 110

<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT PAGE
NO. DESCRIPTION NUMBER
- ------- ----------- ------------
<C> <S> <C>
*10.16 Purchase and Sale Agreement dated April 21, 1998 between
G.I. Joe's and ESA Management, Inc. (Renton, Washington)....
*10.17 G.I. Joe's, Inc. Pension Plan...............................
*10.18 1998 Incentive Compensation Plan............................
*10.19 Loan and Security Agreement dated March 10, 1998 between
G.I. Joe's, Inc. and Foothill Capital Corporation...........
*#10.20 9% Subordinated Note Due 2008 dated May 4, 1998 in favor of
certain investors...........................................
*10.21 ND Holdings, Inc. Common Stock Purchase Warrant dated May 8,
1998 evidencing the right of Peregrine Capital, Inc. to
purchase shares of common stock of ND Holdings, Inc. .......
*#10.22 Warrant dated May 8, 1998 by ND Holdings, Inc. in favor of
Blackwell Donaldson & Company...............................
*#10.23 Warrant dated May 8, 1998 by ND Holdings, Inc. in favor of
certain investors...........................................
*10.24 Registration Rights Agreement dated May 8, 1998 between ND
Holdings, Inc. and certain investors........................
*10.25 Security Agreement dated October 31, 1997 between G.I.
Joe's, Inc. and Heller Financial, Inc. .....................
*10.26 Promissory Notes dated October, 1997 and December 22, 1997
in the amounts of $929,092.82 and $396,003.00, respectively,
in favor of Heller Financial, Inc. .........................
*10.27 Promissory Note dated April, 1998 in the amount of
$283,410.00 in favor of Wayne T. Jackson....................
*10.28 Promissory Note dated April, 1998 in the amount of
$191,106.00 in favor of B. Duane Mellen.....................
*10.29 Agreement between David Orkney and G.I. Joe's, Inc. ........
*10.30 G.I. Joe's, Inc. Common Stock Purchase Warrant evidencing
the right of David E. Orkney to purchase shares of Common
Stock.......................................................
+10.31 G.I. Joe's, Inc. Employee Stock Purchase Plan...............
+10.31 Finder Agreement date October 6, 1998 between Peregrine
Capital, Inc. and G.I. Joe's, Inc...........................
+10.32 Asset Purchase Agreement date August 24, 1998 between Joe
Direct, Inc. and Athletica, Inc., Gravity Games, Inc. and TS
Holding, Inc. [, as amended]................................
+10.33 Form of Warrant by G.I. Joe's, Inc. in favor of Black &
Company, Inc. and Cruttenden Roth Incorporated,
respectively................................................
+23.1 Consent of Perkins Coie LLP (included in Exhibit 5.1).......
23.2 Consent of Arthur Andersen LLP (included on page II-7)......
***27.1 Financial Data Schedule for the Fiscal Year Ended January
31, 1998....................................................
***27.2 Financial Data Schedule for the Three-Month Period Ended
April 30, 1998..............................................
***27.3 Financial Data Schedule for the Two-Month Period Ended June
30, 1998....................................................
</TABLE>

- ---------------

+ To be filed.

* Previously filed.