MORROW SNOWBOARDS INC, 10-K, 2000-04-25

MORROW SNOWBOARDS INC
10-K, 2000-04-25
SPORTING & ATHLETIC GOODS, NEC

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K

/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 1, 2000

COMMISSION FILE NUMBER 0-27002

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MORROW SNOWBOARDS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

OREGON 93-1011046
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

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2600 PRINGLE ROAD, S.E.
SALEM, OREGON 97302
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(916) 415-0864
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
(TITLE OF EACH CLASS) (NAME OF EACH EXCHANGE ON WHICH REGISTERED)
None N/A
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
(TITLE OF CLASS)
Common Stock, no par value (registered December 13, 1995)

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

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

The aggregate market value of voting shares held by non-affiliates of
the registrant's common stock on March 31, 2000 was approximately $49,438,357
(based on last sale price of such stock as reported by Nasdaq, $2.80).

The number of shares outstanding of the registrant's common stock, no
par value, as of March 31, 2000 was 17,656,556.

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<PAGE>

CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I.................................................................................1
Item 1. Business.........................................................1
Item 2. Properties......................................................14
Item 3. Legal Proceedings...............................................15
Item 4. Submission of Matters to a Vote of Security Holders.............16

PART II...............................................................................16
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.............................................16
Item 6. Selected Consolidated Financial Data............................17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................19
Item 8. Financial Statements and Supplementary Data.....................33
Item 9. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure.............................54

PART III..............................................................................56
Item 10. Directors and Executive Officers of the Registrant..............56
Item 11. Executive Compensation..........................................59
Item 12. Security Ownership of Certain Beneficial Owners and
Management......................................................64
Item 13. Certain Relationships and Related Transactions..................66

PART IV...............................................................................67
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K........................................................67

SIGNATURES............................................................................68
</TABLE>

<PAGE>

PART I

ITEM 1. BUSINESS

INTRODUCTION

Morrow Snowboards, Inc., dba Granite Bay Technologies, and subsidiaries
(the "Company" or "Granite Bay"), headquartered in Salem, Oregon, was organized
in 1989 to design, manufacture and market snowboards, boots, bindings, apparel
and accessories to retail outlets in the United States as well as international
distributors in several foreign countries. In March 1999, the Company sold its
Morrow(TM) intellectual property, along with all 1999/2000 inventories and its
snowboard and binding production equipment to K2 Acquisitions Inc. (K2) and
discontinued the manufacturing and marketing of snowboards, boots and bindings.
The sale of this business was completed on March 26, 1999, and the snowboard,
boot and binding results for 1995, 1996, 1997, 1998 and 1999 have been shown as
discontinued operations. The Company's wholly-owned subsidiary, Westbeach Canada
ULC, a Nova Scotia unlimited liability company ("Westbeach"), on November 12,
1999, sold substantially all its assets, including its remaining two retail
stores in Vancouver and Whistler, British Columbia, and its apparel line,
together with the Westbeach trademarks, to Westbeach Sports, Inc., a British
Columbia corporation, not affiliated with either the Company or Westbeach. The
Westbeach apparel results for 1997, 1998 and 1999 have been shown as
discontinued operations. These sales effectively eliminated all the prior
ongoing operations of the Company.

On March 30, 1999, certain of the Company's trade creditors filed an
Involuntary Petition ("Involuntary Petition") for relief under Chapter 7 of the
United States Bankruptcy Code in the United States Bankruptcy Court for the
District of Oregon (Case No. 699-61663-FRA7). On March 30, 1999, the Company's
accounts payable were approximately $2,500,000 with all overdue more than 90
days. The Company negotiated a settlement with substantially all those creditors
and the Involuntary Petition was dismissed on June 16, 1999. The settlement was
accepted by over 90% of the Company's creditors (by number and dollar amount of
claims) with undisputed claims. Under the terms of the settlement, as reflected
in the Payment Agreement among the Company, certain creditors and others (the
"Payment Agreement"), certain creditors holding undisputed, non-contingent,
liquidated claims against the Company (approximately $2.5 million in the
aggregate) have received or will receive payments from the Company as follows:
$250,000 within 60 days after the order dismissing the Involuntary Petition
(which payment was made on August 28, 1999); $200,000 each calendar quarter
after the first payment is made; and the remaining unpaid balance of such
claims, without interest, all due and payable in one year. All payments required
to date have been timely made. The balance owing as of March 31, 2000, was
approximately $1,650,000 with a payment of $200,000 due in May 2000 and the
balance of approximately $1,450,000 due on or before June 28, 2000. Such
payments are secured by a lien against the Company's Salem, Oregon facility,
subject to a senior lien up to $750,000 to secure a $675,000 principal amount
bridge loan or replacement financing therefore. There is no assurance that the
Company will be able to make the payments provided under such plan. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" and "- Factors that May Affect
Future Results - PRC Companies' Operating Results; Payment of Balance of
Purchase Price for the PRC Companies" and "--Granite Bay's Capital Resources and
Liquidity; Potential Consequences of Failure to Raise Additional Needed Capital"
regarding the Company's capital and resources to finance such payments and the
risks associated therewith.

In November and December 1999, the Company purchased shares of
Globalgate e-Commerce, Inc. ("Globalgate"), a recently formed company whose
business purpose is to build a dominant scalable e-commerce platform for
merchants selling to businesses and consumers. Globalgate's investments consist
of six operating companies, including majority ownership of YellowPages.Com,
Inc., a business

<PAGE>

directory web-site; BrightInfo.com, Inc., which provides technology to power
online selling sites; Spark Online, Inc., which connects internet advertisers
and ad space; TradeWind CTS, Inc., a business-to-business marketplace for
non-production goods; ThinkMart.com, a developer of a variety of
e-marketplaces; and GrapeVINE, a technology that permits personalization of
e-commerce products and services. The Company hopes to make a return on its
investment in Globalgate, if Globalgate or one or more of its subsidiaries
are successful, through a return from the disposition of Globalgate's
securities if Globalgate goes public or is merged, through distributions from
the sale or merger of its subsidiaries, or through the return from
investments in Globalgate's subsidiaries if those companies go public, or are
sold or merged. However, there is no assurance that the Company will recover
its investment or realize a profit from its investment.

In a Form 8-K filed February 1, 2000 with the Securities and Exchange
Commission ("SEC"), as amended February 15, 16 and 24 and April 17, 2000,
Granite Bay reported its acquisition on January 31, 2000 of International
DisplayWorks, Inc. ("IDW"), a Delaware corporation with offices and headquarters
at 599 Menlo Drive, Suite 200, Rocklin, California 95765; telephone:
916-415-0864, and IDW's subsequent acquisition on February 1, 2000, through its
wholly owned subsidiary, International DisplayWorks Hong Kong ("IDW HK"), a
company organized under the laws of Hong Kong, People's Republic of China
("PRC") of (i) MULCD Microelectronics Company Ltd. ("MULCD") and (ii) IDW
Shenzhen Technology Development Company, Ltd. ("IDW STD"), two companies
organized under PRC law (collectively, the "PRC Companies"). IDW, IDW HK and the
PRC Companies will operate as an integrated company. The business activities of
each of the companies is discussed under "IDW Business" herein.

The Independent Auditors' Report for the Company's financial statements
as of and for the year ended January 1, 2000 contains a going concern
qualification. See Note 1 to the Consolidated Financial Statements herein and
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations," "-Liquidity and Capital Resources," and "-Factors That May
Affect Future Results, --PRC Companies' Operating Results; Payment for Balance
of Purchase Price for the PRC Companies, --Granite Bay's Capital Resources and
Liquidity, --Going Concern Qualifications, --Need for Additional Financing."
Further the Company has been advised by the auditors for the PRC Companies that
the financial statements for the PRC Companies when issued will contain a going
concern qualification. The going concern qualification relates to the facts that
the auditors are (i) unable to verify with the PRC Companies' former parent and
its affiliates (collectively "Former Parent") receivables on the books of the
PRC Companies due from the Former Parent in the approximate amount of $39.3
million or accounts payable to the Former Parent in the amount of approximately
$21.5 million and (ii) due to the existing judicial management procedure in
Singapore affecting the Former Parent, the ability of the Former Parent to pay
such receivables or the ability of the PRC Companies to offset such receivables
against the accounts payable owing to the Former Parent. While the judicial
managers for the Former Parent have indicated they will enter into a "novation
agreement" that would allow the offset of the receivables against the accounts
payable, such novation agreement cannot be entered until certain further action
is taken in the judicial proceeding and, there is no assurance, that such
agreement will be entered or that the Former Parent will otherwise have the
resources to pay the receivables of the Former Parent held by the PRC Companies.
The Company understands that as a matter of law, the PRC Companies cannot offset
the receivables from the Former Parent against the accounts payable, absent such
novation agreement. While such receivables and accounts payable are reflected in
the PRC Companies financial statements for prior periods, except for
approximately $2.3 million of accounts payable assumed by IDW HK in acquiring
the PRC Companies, such receivables and accounts payables are neither an asset
or liability of the PRC Companies on an ongoing basis.

The acquisition of IDW was pursuant to a Securities Purchase Agreement
under which Granite Bay exchanged 2,680,000 shares of its Common Stock (no par
value) ("Common Stock") for all the

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outstanding securities and rights to acquire securities of IDW. Following
such share exchange, IDW became a wholly owned subsidiary of Granite Bay.
Additionally, Granite Bay loaned approximately $4.3 million to IDW to finance
the acquisition of MULCD and IDW STD, as outlined below, and to provide for
working capital needs. The Company expects to advance a total of $10.0
million or more to IDW to provide financing for the balance of the purchase
price for the PRC Companies and additional working capital. The loans are
evidenced by demand promissory notes that bear interest at the rate of 6% per
annum, subject to adjustment. Unless otherwise noted, all references herein
to monetary amounts are to United States Dollars ("US $").

IDW's corporate offices consist of 9,300 sq.ft. in an industrial park
in Rocklin, California. The lease is for a term of 62 months expiring April
2005. Besides the base rent of $8,817 per month, IDW pays a proportionate share
of operating expenses not to exceed $2,149 per month. After 32 months, the base
rent will adjust to $9,259 for the remainder of the lease.

IDW HK. On February 1, 2000, using funds advanced by Granite Bay to
IDW, IDW HK acquired pursuant to a Sale and Purchase Agreement ("Purchase
Agreement") from the Judicial Manager, KMPG Peat Marwick, in a Judicial
Management Proceeding in Singapore (a form of bankruptcy proceeding), all of the
outstanding voting stock and rights to acquire stock and other equity interests
in MULCD and IDW STD. The Singapore Judicial Management Proceeding resulted from
the bankruptcy of the parent of the PRC Companies, Vikay Industrial, Ltd.
("Vikay"), headquartered in Singapore. Prior to December 6, 1997, Vikay was a
publicly listed company on the SESDAQ Exchange in Singapore, with its trading
privileges suspended when it went under judicial management on December 6, 1997.
The total net adjusted purchase price for the equity interests was $8,816,468
(US$) with $4,271,729 paid at closing and notes for $4,544,739, bearing interest
at the rate of 6% per annum, given for the balance of the purchase price, with
such notes being due and payable in the amount of $3,584,347 plus accrued
interest on May 1, 2000 and the balance of $960,392 plus accrued interest on May
31, 2000, such numbers being based on the January 27, 2000 conversion rate of
the Singapore dollar into the US Dollar of 1.6855 to 1. As noted, the initial
payment for the PRC Companies was funded through loans from Granite Bay.
Proceeds from collection of PRC Companies' accounts receivable, that were to be
applied to the May 1, 2000 payment under the Purchase Agreement, have been used
to fund higher than expected initial operating losses for the PRC Companies to
date and higher than expected costs in establishing IDW's California and
Singapore offices, including sales staffing. IDW HK has renegotiated with the
Judicial Manager the May 1 and May 31, 2000 payments due under the Purchase
Agreement. As renegotiated, the May 1, 2000 payment will be $600,000 and the May
31, 2000 payment will be $3,944,739, plus interest with the total of the May 1
and May 31, 2000 payments of $4,544,739, plus interest, being unchanged. While
oral agreement has been reached on such restructuring, there is no assurance
that the restructuring will occur. Further, there is no assurance that the
Company will be able to make the payments provided under the Purchase Agreement
when due, as presently structured or expected to be restructured. If that
occurs, the Company could face a risk of the loss of its investment in the PRC
Companies. See the next paragraph and "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" and "- Factors that May Affect Future Results -- PRC
Companies' Operating Results; Payment of Balance of Purchase Price for the PRC
Companies" and "-- Granite Bay's Capital Resources and Liquidity; Potential
Consequences of Failure to Raise Additional Needed Capital" regarding the
Company's capital and resources to finance such payments and the risks
associated therewith.

Besides the Purchase Agreement, IDW HK entered into a Supplemental Deed
and Charge ("Charge Agreement") among IDW and IDW HK, as Chargors, and Vikay
Industrial (Hong Kong) Ltd. and Vikay Industrial, Ltd., as Chargees. Under the
Charge Agreement, IDW pledged the Common Stock of IDW HK and the PRC Companies'
assets to secure the payment of the balance of the purchase price for the PRC
Companies. While Granite Bay presently expects to be fully able to finance those
payments,

<PAGE>

if such payments are not timely made, the security interest in the IDW HK
Common Stock and/or the PRC Companies' assets could be foreclosed upon on
short notice and IDW's investment through IDW HK in the PRC Companies lost.

IDW HK's corporate offices consist of 3,100 sq.ft. in a high-rise
office building in Hong Kong, SAR (Special Administrative Zone). The lease is
for 6 months with a base rent of HK$30,000 per month and a building management
fee of HK$11,000 per month. Management of IDW is reviewing a possible extension
to this lease.

THE PRC COMPANIES. The PRC Companies are located in Heng Gang,
Shenzhen, China. The PRC Companies are involved in the manufacture of liquid
crystal displays (LCDs), turnkey assemblies, front panel display systems,
subassemblies and products incorporating LCDs for use in telecommunications and
other electronics equipment, including cellular telephones. The PRC Companies
employ approximately 1,350, and own a manufacturing facility in Heng Gang,
Shenzhen, China. The manufacturing facilities consist of three buildings
totaling approximately 270,000 sq.ft. with its own electric power generation
plant (diesel fuel), situated on four acres in Heng Gang Industrial Estate,
located 30 minutes from the city of Shenzhen and about one hour from Hong Kong.
The PRC Companies' facilities are on land leased pursuant to a 50-year land
lease expiring in 2043. The PRC Companies must pay annual land rent of
approximately US$2,500, subject to certain periodic rent increases. Space is
also leased in Singapore for sales and design staff personnel of the PRC
Companies.

Following the acquisition of the PRC Companies, IDW, together with IDW
HK and the PRC Companies, will design, market and produce LCDs and products
incorporating LCDs, principally in Asia, the United States and Europe, with
design and manufacture of such products to be at the facilities of the PRC
Companies, with a focus on high-volume original equipment manufacturers ("OEMs")
who are leaders in their fields. IDW's corporate mission is to be the most
customer-oriented LCD company in the world. Unless the context indicates
otherwise, IDW means IDW, IDW HK and the PRC Companies and references to IDW or
IDW's electronics business, unless the context indicates otherwise, is to the
business conducted by the PRC Companies prior to their acquisition by IDW HK and
by IDW and its subsidiaries thereafter.

IDW designs and manufactures a wide range of display modules including
liquid crystal display ("LCD") products, turnkey assemblies, front panel display
systems and subassemblies with integrated circuits ("ICs") for use in the end
products of original equipment manufacturers ("OEMs"). Over 60% of IDW's sales
in 1999 were believed to consist of custom display modules developed in close
collaboration with its customers. Devices designed and manufactured by IDW
include applications in telecommunications (cell phones and other wireless
communication services), as well as in medical equipment, appliances, utility
applications, automotive equipment, retail and office equipment, and consumer
electronic products, including entertainment systems. Targeted areas for new
applications include office equipment (copiers, facsimile machines, and
printers) and high resolution graphic display products for personal digital
assistance and small computer and map displays. Approximately 30% of 1999 sales
were believed to be to the office machinery market (principally calculators) and
approximately 20% to the telecommunications industry (principally cellular
telephones) with the balance spread over a variety of products and industries.
IDW currently specializes in LCD components and technology and providing design
and manufacturing services for its customers. IDW currently markets its services
primarily in Hong Kong and, to a lesser extent, Asia, but intends to expand
sales efforts in the United States, Europe and Asia. IDW maintains design
centers at its manufacturing facilities and in Singapore, a country which
contains corporate headquarters or regional headquarters for many major
electronics firms.

IDW took over management of the two PRC Companies beginning August 1,
1999 while the PRC Companies' parent, Vikay, was under Judicial Management (a
form of bankruptcy) by KMPG Peat

<PAGE>

Marwick in Singapore. The PRC Companies had the following estimated sales
revenue on an individual and combined basis for the years ended December 31,
1999, 1998 and 1997.

SALES REVENUE IN UNITED STATES DOLLARS (ESTIMATED AND UNAUDITED)

<TABLE>
<CAPTION>
Years ended December 31
---------------------------------------------------------------------
1999 1998 1997
-------------------- --------------------- --------------------
<S> <C> <C> <C>
MULCD $13,213,000 $ 9,376,000 $ 2,055,000

IDW STD 10,934,000 37,253,000 53,286,000
-------------------- --------------------- --------------------

The PRC Companies (combined) $24,147,000 $46,629,000 $55,341,000
</TABLE>

IDW believes that the decline in sales in 1999 reflects the
uncertainty, financing problems, and other factors related to the judicial
management of Vikay which began in December 1997. In addition, since the
acquisition was announced, IDW has been successful in sourcing purchase orders
for new business from existing customers such as Qualcomm and Ecowater,
supporting Granite Bay's belief of favorable sales trends for future revenue.
Qualcomm has advised IDW that Qualcomm may reduce the number of vendors from
which Qualcomm sources LCDs for cellular phones and require those vendors to
have a broad range of capabilities, such as Chip-on-Glass ("COG") production
capability. Some other cell phone manufacturers are now sourcing LCD display
panel designs that require such COG production capability. See "Item 7
Management's Discussion and Analysis of Financial Conditions and Results of
Operations, --Factors that May Affect Future Results, --Rapidly Changing
Technologies" and "--A Few Customers and Applications Account For a Significant
Portion of IDW's Sales; Order Calculations." IDW believes that prior sales
and performance for the PRC Companies over the past several years are not
reflective or predictive of IDW's current or future operations due to the
Vikay judicial management and related factors.

The Company has filed a current report on Form 8-K reporting the
Company's acquisition of IDW and the two PRC Companies, and expects to file an
amended Form 8-K, including audited financial statements for the PRC Companies
around May 15, 2000. The audited financial statements for the PRC Companies
which were required to be filed on April 17, 2000, as an amendment to the
Company's Current Report on Form 8-K for January 31, 1999, as filed on February
1, 2000 and amended February 15, 16 and 24, 2000, will be filed late due to the
auditors' need to undertake additional sampling to verify the accuracy of the
existing records due to the differences in accounting and record-keeping systems
for each of the fiscal years being audited, the need to verify price changes
(adjustments) between delivery receipts and final invoices, the need to match
delivery of supplies to invoices (often more than one delivery is reflected in a
vendor invoice), the status of the PRC Companies' records under judicial
administration, including a number of records being kept at the Former Parent's
or other offices, among other factors, and lack of original invoices on site in
many cases. The current expected filing date is mid-May 2000. As noted
previously, the independent auditors' opinion or report accompanying those
financial statements is expected to include a going concern qualification. See
"Item 7 Management's Discussion and Analysis of Financial Conditions and Results
of Operations, -Factors that May Affect Future Results, --Going Concern
Qualifications."

Company sales by product for the years ended January 1, 2000, December
26, 1998 and December 27, 1997 in the winter sports product lines are not
included due to the Company's discontinued operations and the fact that it is no
longer manufacturing, marketing, distributing or otherwise dealing in product
lines that it dealt with during those years.

For similar reasons, the Company is not reporting a breakdown of its
sales for the fiscal years ended January 1, 2000, December 26, 1998, and
December 27, 1997 by wholesale/retail and geographic distribution as all such
product lines have been discontinued. The following table sets forth estimated
sales revenue by region for MULCD and IDW STD for the fiscal periods ended
January 1, 2000, with sales by region for the fiscal years ended December 26,
1998, and December 27, 1997 not yet available.

<PAGE>

<TABLE>
<CAPTION>
1999
-----------------------------------------
(estimated and unaudited)
Percentage of
Net Sales Revenue Net Sales
-------------------- -----------------
<S> <C> <C>
MULCD
Asia $10,042,000 76%

Europe 1,189,000 9%

United States 1,982,000 15%
-------------------- -----------------

Totals $13,213,000 100%

IDW STD
Asia $1,312,000 12%

Europe 1,422,000 13%

United States 8,200,000 75%
-------------------- -----------------

Totals $10,934,000 100%

THE PRC COMPANIES (COMBINED)
Asia $11,354,000 47.0%

Europe 2,611,000 10.8%

United States 10,182,000 42.2%
-------------------- -----------------

Totals $24,147,000 100%
</TABLE>

The Company estimates that through 1999, substantially all its physical
assets such as fixed assets and equipment, except for leasehold interests, were
located in the continental United States. Following the disposition of the
physical assets related to the winter sports industry and the acquisition of
IDW, the Company estimates that as of February 29, 2000, approximately 15% of
the Company's fixed assets and equipment was located in the United States
(consisting of the Company's real property in Salem, Oregon) and approximately
85% located in the PRC.

IDW believes it is positioned to recapture sales lost during judicial
management, expand production capacity and capabilities, open sales offices in
North America, Europe and Asia, capture large OEM and foundry accounts, focus on
high-volume production and management support to increase yields, reduce
inventories through careful planning and scheduling of components to arrive on a
just-in-time plan ("JIT Plan") thus improving cash flow, increase design staff
to support new projects and products, reduce overhead and lower operating costs
and establish a new inter-company computer system that integrates the functions
of IDW HK and the PRC Companies, increasing communication between the factories,
sales offices and customers so information flow will be rapid and accurate with
sales quotes and invoices done in a timely manner.

IDW believes that such positioning will restore sales of the PRC
Companies to prior levels, generate sales growth in excess of 25% per year for
at least the next five years, expand the customer base and markets IDW serves,
give IDW strength in designing prototypes and producing products on a timely

<PAGE>

and cost-efficient basis, including a wide variety of custom design-quality
display modules required in the end products of OEMs and increase IDW's range
of standard display module products. IDW expects the sales growth to come
equally from increased production and replacement of existing production with
higher-price, higher-margin LCD displays.

Unless otherwise indicated, all financial numbers and operating results
presented for the Company for 1999 include information for the consolidated
Company for the entire fiscal year December 27, 1998 through January 1, 2000. On
a comparison basis, prior year financial numbers and operating results include
information for the consolidated Company for the entire fiscal year December 28,
1997 through December 26, 1998. All financial results related to the snowboard
operations sold to K2 and the Westbeach operations sold to Westbeach Sports,
Inc. have been reflected as discontinued operations. Financial information for
IDW is not included in the financial statements for the Company's fiscal year
ending January 1, 2000 and prior fiscal years, as IDW was acquired on January
31, 2000 and the "purchase" method of accounting will apply to the acquisition.
Under the purchase method of accounting, financial information regarding IDW and
the operating results of IDW will only be included with the Company's
consolidated statements for operations rising as of and after January 31, 2000.

INDUSTRY

Since the commercial production of the first light emitting diodes,
("LEDs") in the 1960s and twisted pneumatic liquid crystal displays in the
1970s, the use of LCD and LED indicators has become widespread in industrial and
consumer electronic products with LCD now the predominant technology. These new
technologies were developed to overcome limitations in uses, principally in
terms of size, life, and power consumption, of prior common displays or
indicators.

LCD modifies light that passes through or is reflected by it, rather
than emitting light like an LED. An LCD generally consists of a layer of liquid
crystalline material suspended between two glass plates. The crystals align
themselves in a predictable manner, which alignment changes when stimulated
electrically. The change in alignment produces a visual representation of the
information desired when used in conjunction with a polarizer and either an
external light source or natural ambient light.

The flexibility of liquid crystal technology allows for easy
customization in both size and design. For instance, displays are manufactured
in sheet form; and, the images can be changed by generating artwork to the
customer's requirements. Display size can be controlled by programming the
cutting tool to the desired dimensions. There is no significant additional
manufacturing cost for a fully custom display that allows each product to have
its own unique appearance such as icons, annunciators, and color printing.

OEMs often design their products to contain unique display modules and
features as a highly cost-effective means of differentiating their products from
competing products. OEMs then make the decision whether to use standard devices,
design and produce devices in-house or outsource design and/or production. In
making the decision, OEMs often recognize that their greatest strengths are
consumer recognition of their brand names, market research and product
development expertise and effective sales and distribution channels. OEMs also
recognize the time constraints and limitation of available resources often
preclude them from maintaining the specialized in-house expertise and equipment
necessary to design and manufacture custom devices and that standard
"off-the-shelf" devices are not always available. As a result, many OEMs decide
to outsource the design and production of devices and components in which they
lack the requisite technology and expertise and focus their resources on the
areas where they have the greatest expertise and leverage. Outsourcing allows
them to gain access to specialized design and manufacturing technology and
expertise, accelerate the design process, reduce their own investment

<PAGE>

in equipment, facilities, and personnel necessary for specialized design and
production capabilities, reduce design and manufacturing costs by utilizing
the specialized resources of the supplier, and concentrating their resources
on their strengths in the production and distribution of their core products.

IDW expects to benefit from the decision by certain OEMs in the
electronics industry to outsource the design and production of certain
components included in the end products of those OEMs. IDW believes that the
following factors, among others, have contributed to this growing trend among
OEMs: 1) major companies such as Xerox, Hewlett-Packard and IBM have decided to
focus efforts on designing concepts, software and marketing the finished
product; and 2) low cost suppliers, offering design capabilities and who take
responsibility for quality and reliability, and who can provide lower overall
product and service costs.

The estimated world market for segmented and character LCDs is reported
to be $1.3 billion, of which $225.0 million is in North America. The majority of
IDW's LCD business (through MULCD) is small alpha-numeric displays and modules
which represents a significant portion of that market. IDW will concentrate on
high-volume LCD applications with preferred customers who are leaders in the
field. IDW, through IDW STD, concentrates on sales of add-ons to the LCDs and
products incorporating LCDs. IDW does not have information on the size of that
market.

MANUFACTURING AND QUALITY CONTROL

MANUFACTURING

The PRC Companies have a broad range of production processes to
manufacture a variety of LCD types and features, including twisted nematic
("TN") and super-twisted nematic ("STN") displays which incorporate a wide
variety of interface technology, as well as appearance and environmental
options. Various assembly processes are in production to support the
requirements of telecommunications, consumer and outdoor applications. IDW's
manufacturing operations are comprised of two manufacturing divisions. MULCD,
the display subsidiary, has a state-of-the-art, fully automated, LCD front-end
sheet processing production line started in 1998, supported by backend
processing and testing operators. The existing LCD front-end processing
production line is currently operating at 90% capacity with the majority of the
business supporting the local Hong Kong market. IDW will focus on shifting
existing production to higher priced displays for the USA, European and
selective Asian markets and longer production runs to reduce the cost of product
changes. Near term, if IDW is successful in increasing orders, its capital
expenditure plans include an accelerated movement into chip-on-glass ("COG")
production and related product development programs this calendar year. Long
term, other capital expenditures, including adding a second automated LCD
production line (expected cost, $14.0 million) will be reviewed. Any
expansion is contingent upon financing at acceptable terms. MULCD's LCD line
was awarded an ISO 9001 certification for quality.

IDW STD, the module and assembly division, is an ISO 9002 certified
high volume display module and assembly production facility geared for customers
having $1.0-$5.0 million per month production volumes. This factory is currently
running at approximately 20% capacity and is qualified to produce LCD modules
for several major cell phone and telecommunication manufacturers. Current
manufacturing technologies are surface mount technology ("SMT"), chip-on-board
("COB"), and tape automated bonding ("TAB") assembly and heat seal flex
circuitry assembly. IDW STD has the option to buy displays from outside sources
in order to expand its production capabilities or to have a second source to
meet customers' requirements. IDW STD's production capabilities include five (5)
SMT lines for high-speed electronic component placement and seventeen (17)
production lines for LCD Modules and PCB assemblies. IDW STD also produces
printed circuit board assemblies without LCDs. MULCD and IDW STD run separate
cost centers; and, IDW is reviewing the operations and cost allocation of

8
<PAGE>
those companies currently. Until the audited financial statements for the PRC
Companies are available, IDW will not be in a position to release information
regarding the sales and profitability of each cost center at this time based
on the limited records available from the Judicial Manager and the need to
reflect intercompany transfers among the PRC Companies and their former
parent.

IDW's manufacturing operations are located in China. IDW believes that
wage costs are currently materially lower in China, a competitive advantage that
will allow IDW to compete effectively for business in the United States and
Europe and throughout Asia, with companies with facilities located closer to
customers in those countries or areas. IDW may be unable to compete for
customers outside China with companies with closer manufacturing facilities if
this wage advantage were to disappear or lessen other cost differentials
affecting IDW's ability to provide products at competitive prices.

IDW seeks to increase its value to its customers by providing
responsive, flexible, total design and manufacturing services. To date,
manufacturing services have been concentrated towards the manufacture of LCDs
and assembly of IDW designed display module assemblies. IDW will provide
extended manufacturing services beyond those base services if the customer
requests them. Extended services may include design, process development and
turnkey manufacturing.

The PRC Companies' manufacturing facilities consist of three buildings
comprising a 270,000 sq. ft. facility with its own electric power generation
plant (diesel fuel fired) located on four acres in the Heng Gang Industrial
Estate, located 30 minutes from the city of Shenzhen and about one hour from
Hong Kong. The buildings are approximately ten years old, the LCD production
line approximately two years old, the SMT production machinery approximately two
to three years old and the balance of the machinery of varying ages. There is
sufficient land to accommodate future expansion and growth of the business.
Since the business is operating below peak capacity, there is additional
production floor space for available support and expansion in IDW's
manufacturing operations. The facilities are located on property that is leased
through year 2043.

QUALITY CONTROL.

IDW has an aggressive quality control program and maintains quality
systems and processes that meet or exceed the requirements set by many leading
OEMs in targeted industries. IDW bases its quality control program upon Total
Quality Management ("TQM"). IDW routinely performs product-like testing on its
standard and custom products to ensure product reliability and quality. IDW
analyzes test results and takes actions to adjust the manufacturing process or
enhance product design and quality. IDW primarily competes for customers based
on customer expectations regarding design and performance, price, delivery, and
quality. IDW's customers generally evaluate price in the quotation process,
while delivery and quality are evaluated after the product is shipped.
Therefore, many customers evaluate a company's quality by reviewing the quality
systems employed. IDW's receipt of an ISO 9001 certification for quality for the
MULCD facility and an ISO 9002 certification for the IDW STD facility should
give its clients assurance as to IDW's quality control processes. ISO is a
quality standard established by the International Organization for
Standardization. IDW expects to be certified with QS9000 by third quarter 2000
for automotive products.

PRODUCTS

As discussed previously, in March 1999, the Company sold its snowboard,
boot and binding business to K2. The snowboard business results for 1999, 1998
and 1997 are reflected as discontinued operations in the accompanying
consolidated financial statements. Revenues for the discontinued snowboard
business were $86 thousand, $16.0 million and $18.4 million, respectively.

9
<PAGE>

As discussed previously, in November 1999, the Company sold its
Westbeach apparel business to Westbeach Sports, Inc. The apparel business
results for 1999, 1998 and 1997 are reflected as discontinued operations in the
accompanying consolidated financial statements. Revenues for the discontinued
apparel business were $9.0 million, $9.4 million and $1.8 million, respectively.

IDW's products consist of LCDs and sub assemblies, ranging from the
low-end LCDs for calculators, watches and electronic games to STN-LCDs for use
in applications that require high multiplex rates and wide viewing angles. Such
devices are used in cellular telephones, consumer appliances, office equipment,
bar code readers, automotive equipment, and medical electronics. The display
division, MULCD, produces the LCDs. The electronics division, IDW STD, designs
and manufactures customized LCD modules adding value to the basic displays with
electronics, keypads, interface circuitry, back lighting and mounting hardware.
This division also produces assemblies without LCDs. IDW STD has production and
design capability in module processes, including surface mount technology
("SMT"), chip-on-board ("COB"), chip-on-film ("COF"), tape automated bonding
("TAB"), keypads and back lighting and expects to add chip-on-glass ("COG")
processing in 2000.

IDW currently emphasizes custom-design display modules. IDW believes
that custom devices represent approximately 85% of its sales and 85% profit and
the best opportunity for higher profits and potential growth. For each custom
device, IDW works directly with its customer to develop and produce the original
design and manufacture the device in accordance with the customer's
specifications. IDW attempts to identify the specific needs of existing and
prospective customers' applications. IDW then assigns a cross-functional team of
IDW engineers to a custom design project to develop the product working with the
customer's engineers throughout the design phase, prototype development and
manufacturing process. This effort normally results in a complete system or
product requiring a specific visual display (cellular telephone, medical
instrument or hand-held data collection device). IDW has a number of previously
prepared custom designs that are currently generating revenue and are expected
to generate additional revenue in the future.

IDW also designs and produces standard or "off-the-shelf" devices which
include designs that are adaptable to various fixed-end uses without
modifications or with slight modification. Standard devices encompass a wide
variety of LCD devices having varied applications including dot matrix modules,
graphic modules, and watch and calculator displays.

IDW will pursue a product development strategy designed to enable it to
establish its position as a major, worldwide supplier of custom-design and
manufacture display modules for products distributed by OEMs in various high
growth industries. Approximately 30% of IDW's sales are currently to the
telecommunication industry, an industry IDW expects to continue growing and
25-40 % to medical products, office equipment and automotive and the balance to
various industries. IDW is instituting a careful marketing and customer
selection process to more closely align its growth and development with that of
the customers and industries IDW believes offer the greatest opportunity for
growth. IDW's research and development will focus upon technological
developments and products that meet the current and future requirements of those
industries and companies.

With its high-volume LCD manufacturing line at its MULCD facilities,
IDW will focus its efforts on creating advanced display technologies. These
advanced display technologies will allow IDW to provide its customers with
differentiating products or products that provide higher information content in
either custom or standard devices.

10
<PAGE>

SALES AND DISTRIBUTION

IDW has established a network of sales representatives in much of the
USA, Canada and Mexico to be supplemented and supported by IDW regional sales
managers and engineers. IDW expects to establish OEM and distribution sales
managers in Europe in the first half of 2000. In the Far East, IDW HK and IDW
Singapore were established to provide engineering and sales support to sales
representatives and direct local sales in the region. Sales offices are
currently maintained in Hong Kong and Singapore with design services available
at the plant facilities and at the Singapore office.

IDW's sales to customers in Asia are believed to represent
approximately 50% of net sales in 1999, with 80% of Asian sales believed to be
to customers in Hong Kong and the balance to customers in other areas in Asia.
The United States was believed to account for approximately 40% of sales and
Europe 10%. Further, approximately 20% of those sales were to customers in the
telecommunications industry and 40% in the consumer, appliance and watch
industries.

PRODUCT DEVELOPMENT

IDW will conduct active and ongoing research and development that is
focused on improving technology, developing improved designs, improving
manufacturing processes, and improving the overall quality of the products and
services that IDW offers. IDW's research and development is focused on LCD
technology. IDW expects to increase its research and development efforts on new
display technologies and more sophisticated display technologies. While Vikay
was under judicial management, no material funding was allocated to and spent on
research and development for the PRC Companies. IDW expects to restore research
and development funding activities to appropriate levels and is hiring research
personnel to accomplish that goal.

IDW is currently developing LCD technology to compete for the
automotive dashboard and clock business, laser printer and copier business and
the point-of-sale market (through development of cold cathode fluorescent "CCF"
back-lighting production capability) and, through development of large graphic
LCDs, portable word processing, medical instrument, ticketing machines,
hand-held computers, financial terminals and point-of-sale and other electronics
markets.

MARKETING

The Company's products are presently marketed through a combination of
in-house sales personnel and sales representatives in Asia and through sales
representatives in North America and Europe.

CUSTOMERS

In 1999, 5% or more of the sales revenue of MULCD was believed to be
from sales to Kingchamp (11.3%), and Richway (5%) in Asia and to Ademco (6.3%)
in the United States. In 1999, 5% or more of the 1999 sales revenue for IDW STD
was believed to be from sales to Qualcomm (36%), Ademco (14.9%) and Ablenet
(6%). Sales information for 1998 and 1997 are not currently available, but are
expected to be available with the filing of a Current Report on Form 8-K showing
the audited financial statements for MULCD and IDW STD. IDW expects to continue
to focus on the personal communications market, and could increase its
percentage of sales to that industry to more than the current 30% of sales.

As noted herein, continued sales to Qualcomm (cellular phone LCDs) may
require IDW adding Chip-on-Glass ("COG") and/or other production capabilities.
Certain other cellular phone manufacturers are also developing and sourcing new
LCD displays requiring COG production capability. See "Item 7 Management's
Discussion and Analysis of Financial Conditions and Results of Operations,
- --Factors that May Affect Future Results, --Rapidly Changing Technologies" and
"--A Few Customers and Applications Account For a Significant Portion of IDW's
Sales; Order Calculations."

11
<PAGE>

BACKLOG

As of March 31, 2000, IDW had a backlog of orders in excess of US$7.5
million all of which is believed to be firm and expected to be filled during
calendar year 2000. The estimated backlog for IDW at March 31, 1999 is
unavailable due to the record keeping that existed under judicial management.

IDW's business has some seasonality due to the significant percentage
of retail products in which its products are incorporated, the production of
which tends to ramp up in the second quarter and start to decline in the fourth
quarter because of the holiday sales season, with the potential for a
disproportionate lower percentage of the year's total sales being in the first
quarter of the calendar year.

SUPPLIERS

IDW has alternative sources of supply for the majority of these
materials and believes that additional sources would be available if any of its
existing suppliers were to go out of business or not be able to furnish
materials. Several of these materials, however, must be obtained from foreign
suppliers, which subjects IDW to the risk inherent in obtaining materials from
foreign sources, including currency fluctuations and supply interruptions. IDW's
ability to produce significant percentage of its requirements of LCD glass and
its training facility has reduced its dependence on foreign LCD glass suppliers.
While oil producing nations have limited production, diesel fuel still remains
available for the PRC Companies' electric generation plant; diesel fuel prices
have been increasing which will affect margins.

COMPETITION

IDW believes Three-Five Systems, Wintek, Epson, Varitronix and Optrex,
constitute the principal competitors for IDW's LCD devices. These competitors
are presently larger companies that are believed to have greater financial,
technical, marketing, manufacturing, research and development, and personnel
resources than IDW. IDW's success, including its revenue and profitability,
depends substantially upon its ability to compete with the other suppliers of
display modules. There is no assurance that IDW will continue to be able to
compete successfully with such companies. There are also other companies in the
electronics industry that have significantly greater financial and other
resources than the Company and these other companies could decide to enter the
LCD market and compete with the Company. While oil producing nations have
limited production, diesel still remains available for the PRC Companies'
electric generation plant, diesel fuel prices have been increasing which will
affect margins.

IDW currently competes principally on the basis of the technical
innovation and performance for display modules, their cost, quality and timely
delivery. To remain competitive and increase market share, IDW needs to develop
more sophisticated, higher-end LCD modules. IDW could also be adversely affected
if one or more of its existing significant customers or potential customers
determined to design and manufacture their own display modules or to secure them
from other OEM manufacturers.

INTELLECTUAL PROPERTY

IDW relies upon a combination of trade secrets, trademark laws,
confidentiality procedures and contractual provisions to protect its
intellectual property. IDW's core business is not dependent on any patent or
trademark protection and IDW does not expect to seek patent protection for any
technology in the near future.

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<PAGE>

RESEARCH AND DEVELOPMENT

The Company is not reporting the amounts spent on research and
development during the last three fiscal years due to its discontinued
operations, as it believes those amounts no longer reflect the Company's current
operations.

IDW presently believes that the two PRC Companies did not conduct any
material research and development during calendar years 1999 and 1998.
Information regarding 1997 is not presently available.

RAW MATERIALS

The principal raw materials used in producing IDW's products consists
of raw and coated glass, polarizers, liquid crystal, chemicals, PCBs, driver
IC's, molded plastic parts, electronic components and packaging materials. The
PRC Companies electric power plant uses diesel fuel to generate electricity. IDW
has alternative sources of supply for the majority of these materials and
believes that additional sources would be available if any of its existing
suppliers were to go out of business or not be able to furnish materials.
Several of these materials, however, must be obtained from foreign suppliers,
which subjects IDW to the risk inherent in obtaining materials from foreign
sources, including currency fluctuations and supply interruptions. IDW's ability
to produce a significant percentage of its requirements of LCD glass and its
training facility has reduced its dependence on foreign LCD glass suppliers.
While oil producing nations have limited production, diesel fuel still remains
available for the PRC Companies' electric generation plant; diesel fuel prices
have been increasing which will affect margins.

EMPLOYEES

As of January 1, 2000, IDW employed a total of 1,375 persons, including
approximately 1,361 of those employees employed by the PRC Companies, 4 by IDW
in California and 10 by IDW HK in Hong Kong. Ninety percent (90%) of those
persons employed by the PRC Companies work in manufacturing. IDW considers its
relationship with its employees to be good, its benefits to be similar to
comparable employees in the same geographic markets, with none of its employees
currently represented by a union or similar organization in collective
bargaining with IDW. As of January 1, 2000, Granite Bay had 5 employees
world-wide, all of which were in general and administrative. The Company's
employees are not subject to a collective bargaining agreement. The Company
considers its employee relations to be good.

ENVIRONMENTAL

IDW's operations generate small amounts of hazardous waste as
manufacturing byproducts, including various gases, epoxies, inks, solvents, and
other wastes. The PRC Companies also operate a diesel-fired electricity plant on
its property. As IDW's operations expand, the amount of such hazardous waste
produced may increase. Over time, hazardous waste has received increased
regulation from federal, state, local, and international governments and
agencies. IDW believes that its operations comply with applicable environmental
regulations and hazardous waste is being stored, used and disposed of in
accordance with applicable laws.

INVESTMENT IN GLOBALGATE e-COMMERCE, INC.

Between November 5, 1999 and December 30, 1999, the Company purchased
1,000,000 shares of Globalgate e-Commerce, Inc. ("Globalgate") Series A
Participating Convertible Preferred Stock ("Series A Preferred") at a purchase
price of $1.00 per share ($1,000,000 total). Globalgate e-Commerce, Inc. is a

13
<PAGE>

recently formed company, whose business purpose is to build a dominant scalable
e-commerce platform for merchants selling to businesses and consumers. To
accomplish that goal, Globalgate has acquired control of www.yellowpages.com, an
underdeveloped directory site with a well-known brand name and subsequently made
four additional strategic investments in companies involved in internet or
e-commerce related business lines or products. Globalgate is not publicly traded
and there is limited public information available about it. The Company does not
hold a significant ownership interest in Globalgate or have any ability to
influence or control Globalgate. The Globalgate shares are "restricted"
securities under federal and state securities and, therefore, not freely
tradable. There is no assurance that the Company will recover its investment or
realize a profit from such investment. The Company hopes to make a return on its
investment in Globalgate, if Globalgate or one or more of its subsidiaries are
successful, through a return from the disposition of Globalgate's securities if
Globalgate goes public or is merged, through distributions from the sale or
merger of its subsidiaries; or through the return from investments in
Globalgate's subsidiaries if those companies were to go public, or were sold or
merged.

ITEM 2. PROPERTIES

The Company owns its approximately 103,000 square foot facility in
Salem, Oregon ("Salem Facility"). Prior to March 1996, the Company leased the
space. The building is currently being subleased to two lessees. The first lease
originated in December 1999 and consists of approximately 18,000 sq.ft. of
warehouse with base rent of $6,660 per month and the lease continuing through
June 30, 2000. The tenant does have the right to sublease all or a portion of
the leased premises with the landlord's prior written approval. The second lease
originated in February 2000 and consists of approximately 14,200 sq.ft. of space
with base rent of $6,674 continuing in effect until 60 days after notice of
termination is given by either the landlord or tenant. Such notice of
termination may be given by either party at any date on or after December 2,
2000. The Salem facility secures repayment of a short-term loan of $675,000
which is payable in full on June 28, 2000, and repayment of amounts owing the
creditors under the Payment Agreement. The lien of the loan for $675,000 has a
priority over the lien securing payments under the Payment Agreement.

The Company leases 2,200 sq.ft. in the building adjacent to the
Company's manufacturing facility under a lease expiring September 30, 2000. This
building is not currently being used.

The five leases for Westbeach facilities previously reported were
assumed by Westbeach Sports, Inc. (four leases) with the purchase of the
Westbeach business lines and the purchaser of the Bellevue, Washington retail
store (one lease).

The PRC Companies' facilities are on land leased pursuant to a 50-year
land lease expiring in 2043. The PRC Companies must pay annual land rent of
approximately US$2,500, subject to certain periodic rent increases. Space is
also leased in Singapore for sales and design staff personnel of the PRC
Companies. In Singapore, the Company leases approximately 2,100 sq. ft in an
office building at a lease rate of $3,000 per month which lease expires March
2003.

14
<PAGE>

Item 3. LEGAL PROCEEDINGS

The Company is currently involved in the litigation and proceedings
described below.

There are six legal matters before the Company, four of which have been
settled (the Sandra Teal, Marmot Mountain Ltd., Pama Limited and Ameri-Tool
Industries matters). While not all matters are material on an individual basis,
they would be material to the Company, if considered together.

1. SANDRA TEAL V. MORROW SNOWBOARDS, INC. (United States District
Court, District of Oregon, No. 99-6005-HO). The lawsuit filed by a former
employee is a civil action for declaratory injunctive relief, damages and
attorneys' fees for federal claims pursuant to the Family and Medical Leave Act
of 1993, 29 U.S.C. (S) 2601-2619 (1994) ("FMLA Claims"). The action also
included supplemental claims under the Oregon Family Leave Act, ORS 659.470 to
659.494 ("OFLA Claims") and ORS 659.030 (prohibiting employment discrimination
based on sex). The FMLA Claims alleged that Morrow violated the plaintiff's
leave and re-employment rights. For the FMLA Claims, the plaintiff sought
reinstatement to her former position, compensatory damages estimated to exceed
$50,000, and equivalent liquidated damages, plus attorneys' fees. The OFLA
Claims were similar to the FMLA Claims. For the OFLA Claims, the plaintiff
sought reinstatement to her former position, compensatory damages estimated to
exceed $50,000, plus attorneys' fees. Additionally, under Oregon law, the
plaintiff sought damages for Morrow's alleged sex discrimination in hiring new
employees to perform duties that plaintiff performed, reinstatement to her
former position, compensatory damages estimated to exceed $50,000, and punitive
damages in excess of $50,000, plus attorneys' fees. This case was settled for
approximately $15,000.

2. VENDOR CLAIM. Pama Limited, a Hong Kong company ("Pama") was an
agent of Westbeach for fall 1997 production and fall 1998 sales samples. Pama
claimed approximately $84,000 was owing for services provided. Westbeach claimed
Pama failed to perform given that fall 1998 samples were not timely delivered
and that certain surcharges were not agreed to. This case was settled for
approximately $22,000.

3. MICHAEL JOSEPH FASHION AGENCY, INC. V. MORROW SNOWBOARDS, INC.
(Supreme Court, Province of British Columbia, No. C981832). Michael Joseph
Fashion Agency Inc. ("Michael Joseph"), the Company's former Western Canadian
sales representative, filed a suit in Vancouver, British Columbia claiming
damages of approximately $127,000 (US$), together with interest, attorneys' fees
and certain litigation costs. Michael Joseph is seeking approximately $60,000
for lost sales commissions due to the alleged termination of its sales
representative relationship without adequate notice under Canadian common law
principles, approximately $60,000 for alleged lost sales commissions on gray
market goods shipped through unauthorized distribution channels in its exclusive
sales territory and the balance for certain expenses incurred. The Company has
retained legal counsel in Vancouver, British Columbia to defend this action. The
Company believes it has a reasonable basis for defending against any such claim,
but there can be no assurance the Company will be successful in this defense.
Discovery is underway in this lawsuit and trial is expected in October 2000.

4. MARMOT MOUNTAIN LTD. V. MORROW SNOWBOARDS, INC. (United States
District Court for the Northern District of California, No. C99-1786). Marmot
Mountain Ltd. (MML) is seeking payment of damages in the amount of $130,000 plus
interest at the legal rate on $60,000 of such amount from January 15, 1998, and
on $70,000 of such amount from January 15, 1999. In its complaint, MML alleges
breach of a contract whereby MML agreed to provide the Company with design,
manufacturing and merchandising services related to snowboard apparel. A
settlement of $35,500 has been reached, with payment under the Payment
Agreement.

15
<PAGE>

5. AMERI-TOOL INDUSTRIES V. MORROW SNOWBOARDS, INC. (Marion County,
Oregon Circuit Court, No. 98C19786). Ameri-Tool sought payment for molded
plastic products and related goods furnished to the Company in the amount of
$169,405, together with interest. The Company believed that the Company and
Ameri-Tool, subsequent to their initial agreement for the sale of such goods,
entered into a revised payment arrangement with regard to such products, in
addition to other agreements regarding the delivery by Ameri-Tool of additional
products and tooling. The Company filed an answer containing a counterclaim for
alleged damage incurred by the Company due to Ameri-Tool's failure to deliver
the products and tooling in accordance with the revised agreement. Morrow did
not disagree with the amount claimed by Ameri-Tool. This matter was resolved by
the agreement with Ameri-Tool to receive payment under the Payment Agreement
with creditors, which includes Ameri-Tool, with Ameri-Tool scheduled to receive
payment of such amounts under the Payment Agreement.

6. EMPIRE OF CAROLINA, INC. ("EMPIRE") V. MORROW SNOWBOARDS, INC. (Palm
Beach County, Florida, Circuit Court of the Fifteenth Judicial Circuit, No.
CL99-3453-AE). Empire has filed a lawsuit claiming a breakage fee of $500,000
and reimbursement of its costs under the Letter of Intent with the Company dated
March 2, 1999. The Company has responded that it believes the Letter of Intent
was terminated without any obligation on the Company's part to pay such a fee or
reimburse any costs. The Company believes it has a reasonable basis for that
position and will vigorously defend against any action by Empire seeking such
fee. In December 1999, the court approved the Company's motion to dismiss the
lawsuit for lack of jurisdiction under Florida law. Empire has appealed that
decision. While that appeal is pending, the parties have agreed to voluntary
mediation of the dispute. No discovery has occurred to date.

An award of damages or the expenditure of significant sums in some or a
combination of some of the matters described above could have a material adverse
effect on the Company's financial condition and results of operations. The
Company's financial condition and capital resources may also adversely affect
its ability to vigorously defend any action.

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

NOT APPLICABLE.

PART II

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

From December 14, 1995 until February 18, 2000, the Company's Common
Stock was trading under the symbol "MRRW" and since February 18, 2000, under the
symbol "GBAY." On April 27, 1999, the Company was delisted from the Nasdaq
National Market, but is currently traded in the pink sheets. As of March 19,
2000, there were approximately 626 registered (record) holders of the Common
Stock of the Company. Since certain of the shares of Common Stock are held in
street name, there may be additional beneficial holders of the Company's Common
Stock. On March 31, 2000, there were 17,656,556 shares outstanding.

The following table shows the range of high and low market prices as
reported by the Nasdaq National Market for the past two calendar years and the
first quarter of 2000.

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<PAGE>

<TABLE>
<CAPTION>
MARKET SYMBOL: GBAY (FORMERLY MRRW) HIGH LOW
<S> <C> <C>
1st Quarter, 1998 $ 4.50 $ 1.38
2nd Quarter, 1998 $ 2.22 $ 1.03
3rd Quarter, 1998 $ 1.56 $ 0.88
4th Quarter, 1998 $ 1.75 $ 0.50
1st Quarter, 1999 $ 0.84 $ 0.38
2nd Quarter, 1999 $ 0.38 $ 0.01
3rd Quarter, 1999 $ 0.25 $ 0.01
4th Quarter, 1999 $ 1.00 $ 0.01
1st Quarter, 2000 $ 5.25 $ 0.28
</TABLE>

The Company has paid no dividends on its Common Stock since its
inception. For the foreseeable future, any earnings will be retained to finance
the growth of the Company and, accordingly, the Company does not anticipate the
payment of cash dividends.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following table presents a summary of selected financial data for
each of the five years in the period ended January 1, 2000.

17
<PAGE>

<TABLE>
<CAPTION>
Years Ended
------------------------------------------------------------------
January 1, December 26, December 27, December 31, December 31,
2000 1998 1997 1996 1995
------------------------------------------------------------------
(in thousands, except per share and share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales (1) $ - $ - $ - $ - $ -
Cost of goods sold - - - - -
Gross profit - - - - -
Operating expenses:
Selling, marketing and customer service - - - - -
Engineering, advance design and product
management - - - - -
General and administrative 347 295 332 315 286
------------------------------------------------------------------
Total operating expenses 347 295 332 315 286
------------------------------------------------------------------
Operating income (loss) (347) (295) (332) (315) (286)
Interest expense (27) - - - -
Other expense - - - - -
------------------------------------------------------------------
Income (loss) from continuing operations (374) (295) (332) (315) (286)
------------------------------------------------------------------
Income (loss) from discontinued apparel operations (3,309) (4,939) - - -
Loss from discontinuance of apparel operations (132) - - - -
Income (loss) from discontinued snowboard
operations 165 (7,402) (6,688) 2,462 771
Loss from discontinuance of snowboard operations - (1,952) - - -
------------------------------------------------------------------
Income (loss) from discontinued snowboard and
apparel operations (3,276) (14,293) (6,688) 2,462 771
------------------------------------------------------------------
Net income (loss) $ (3,650) $ (14,588) $ (7,020) $ 2,147 $ 485
------------------------------------------------------------------

Income (loss) per share from continuing operations(2)
Basic $ (0.06) $ (0.05) $ (0.06) $ (0.05) $ (0.09)
Diluted $ (0.06) $ (0.05) $ (0.06) $ (0.05) $ (0.07)
Income (loss) per share from discontinued operations (2)
Basic $ (0.51) $ (2.31) $ (1.18) $ 0.43 $ 0.24
Diluted $ (0.51) $ (2.31) $ (1.18) $ 0.41 $ 0.20
Net income (loss) per share (2)
Basic $ (0.57) $ (2.36) $ (1.24) $ 0.38 $ 0.15
Diluted $ (0.57) $ (2.36) $ (1.24) $ 0.36 $ 0.13
------------------------------------------------------------------
Weighted average number of shares outstanding (2)
Basic 6,377,556 6,176,556 5,671,634 5,684,053 3,130,636
Diluted 6,377,556 6,176,556 5,671,634 5,929,674 3,822,569
------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
As Of
------------------------------------------------------------------
January 1, December 26, December 27, December 31, December 31,
2000 1998 1997 (3) 1996 (3) 1995 (3)
------------------------------------------------------------------
(in thousands, except per share and share data)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents $ 1,930 $ 1,348 $ 855 $ 5,062 $ 15,026
Short term investments - - - 3,700 -
Net current assets from continuing operations 2,111 1,348 9,790 23,017 24,200
Net current assets of discontinued operations 2,332 9,449 4,006 - -
Equipment, fixtures, and property, net 3,061 3,108 3,980 9,183 6,936
Total assets from continuing operations 6,172 4,456 17,965 32,243 31,179
Total net assets from discontinued operations 2,404 15,622 9,332 - -
Current liabilities 3,973 12,583 5,196 3,789 5,478
Long-term debt and capital lease obligations, net
of current portion - - 13 258 475
Shareholders' equity (4) 4,603 7,495 22,058 27,892 25,150
</TABLE>

18
<PAGE>

(1) The Company is not reporting a breakdown of its net sales, costs of goods,
sold and operating expenses for fiscal years 1995-2000 as all product lines have
been discontinued.

(2) Common share equivalents included in the computation of per share amounts
represent shares issuable upon assumed exercise of stock options and warrants
using the treasury stock method.

(3) The 1997 balance sheet has been restated to reflect the discontinuance of
the snowboard operations, but has not been restated to reflect the
discontinuance of the apparel operations. The 1996 and 1995 balance sheets have
not been restated to reflect either of the discontinuances.

(4) In December 1995, the Company completed an initial public offering of
1,919,500 shares of common stock at $11.00 per share. Net proceeds to the
Company were $18,517,000.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

Since its formation, the Company has focused its business activities on
designing, manufacturing and marketing premium snowboards and related products
under the "Morrow" brand name. The Company acquired Westbeach, a merchandiser of
snowboarding apparel and casual clothing, on November 13, 1997. In March 1999,
the Company sold its "Morrow" intellectual property, along with all 1999/2000
inventories and its snowboard and binding production equipment to K2. In
November 1999, the Company sold its "Westbeach" brand name to Westbeach Sports,
Inc. resulting in all discontinued operations. The Company's consolidated net
sales were $9,108,000 for discontinued operations during the fiscal year ended
January 1, 2000, of which $86,000 related to discontinued snowboard operations
and $9,022,000 related to discontinued apparel operations. This compares to
$25,419,000 for the discontinued operations during the fiscal year ended
December 26, 1998, of which $15,991,000 related to discontinued snowboard
operations and $9,428,000 related to discontinued apparel operations.

COMPARISON OF THE YEARS ENDED JANUARY 1, 2000, (FISCAL 1999) AND DECEMBER 26,
1998, (FISCAL 1998)

CONTINUING OPERATIONS. As previously mentioned, the Company sold its
Morrow business to K2 in March 1999, and its Westbeach business to Westbeach
Sports, Inc. in November 1999. As a result of these transactions, all continuing
operations ceased except for some general and administrative expenses incurred
to wind down operations and interest expense on the Company's bridge loan. These
continuing operations expenses were $374,000 for 1999.

NET SALES. All sales are a part of the Company's discontinued
operations and therefore not reflected in this comparison.

GROSS PROFIT. All sales and cost of sales are a part of the Company's
discontinued operations and therefore no gross profit is reflected in this
comparison.

OPERATING EXPENSES. Operating expenses for continuing operations
consist of general and administrative costs. These costs increased to $347,000
for the year ended January 1, 2000 from $295,000 for the year ended December 26,
1998. This increase is a result of greater consulting needs in 1999 to wind down
operations. The general and administrative expenses for 1999 consisted of
salaries and accounting consulting of $242,000 as well as $105,000 in
depreciation expense.

INTEREST EXPENSE. Interest expense increased to $27,000 for the year
ended January 1, 2000 from $-0- for the year ended December 26, 1998. The
interest expense in 1999 related to payments on the

19
<PAGE>

$675,000 outstanding bridge loan. The 1998 interest expense is a part of
discontinued operations and is not reflected in this comparison.

OTHER INCOME / EXPENSE. There were no other income/expenses due to the
Company's discontinued operations and therefore none are reflected in this
comparison.

There was income from discontinued snowboard operations of $165,000 in
1999 compared to a loss on discontinued snowboard operations of $7,402,000 in
fiscal 1998. The Company recognized a loss on the discontinuance of $1,952,000
in fiscal 1998, which is comprised of a $454,000 loss on the sale to K2 and
$1,498,000 in accruals related to discontinued snowboard operations in the first
quarter of fiscal 1999. The Company also saw decreased sales and write downs in
the value of certain equipment related to future usage for the discontinued
snowboard operations in 1998. The income from discontinued snowboard operations
in fiscal 1999 resulted from the revaluation of allowances and accruals
established at the time of the sale to K2.

On November 12, 1999, the Westbeach subsidiaries were sold creating
discontinued apparel operations for the apparel business. Westbeach had a loss
from discontinued apparel operations in 1999 of $3,309,000 compared to a loss
from discontinued apparel operations of $4,939,000 in 1998. The Company
recognized a loss on the discontinuance of $132,000 in fiscal 1999, which
results from a loss on the sale to Westbeach Sports, Inc. The 1999 loss from
discontinued apparel operations included a loss on impairment of goodwill of
$1,135,000.

NET (LOSS) INCOME. Net loss for fiscal 1999 was $3,650,000 compared to
net loss of $14,588,000 for fiscal 1998. The difference is mainly attributable
to the discontinuance of the snowboard business and the significant losses it
created in 1998. Of the $3,650,000 net loss for fiscal 1999, $374,000 is net
loss from continuing operations related to the operating expense and interest
expense previously mentioned.

COMPARISON OF THE YEARS ENDED DECEMBER 26, 1998 (FISCAL 1998) AND DECEMBER 27,
1997 (FISCAL 1997)

DISCONTINUED OPERATIONS. On March 26, 1999, the Company sold all of its
snowboard, boot and binding assets to K2 for $3.2 million. The Company retained
all of the related receivables and liabilities, except for capital lease
obligations and certain contract team rider obligations. On November 12, 1999,
the Westbeach subsidiaries' operating assets were sold creating discontinued
operations for the apparel business.

As a result of these sales, all fiscal 1998 and fiscal 1997 operations
are discontinued and therefore no sales, cost of sales or gross profit is
reflected in this comparison. There were general and administrative expenses in
continuing operations of $295,000 and $332,000 for 1998 and 1997, respectively,
which represent costs incurred for depreciation on the Salem, Oregon, facility,
salaries, and consulting fees.

YEAR 2000

IDW has updated and tested its software to correct for the Year 2000
problem. However, there can be no assurances these software corrections will be
free of errors. IDW's manufacturing facilities operate independently of the
municipal power supply, as IDW has its own power generation plant onsite.

20
<PAGE>

IDW does not expect Year 2000 problems to adversely affect operations or its
power supply. IDW has been verifying that its vendors are Year 2000
compliant. While that verification has not been completed, to date, IDW has
not encountered any significant problems with any suppliers it has contacted.
Presently, IDW does not expect to incur any material expenses due to Year
2000 compliance.

MARKET RISK

The Company accumulates foreign currency in payment of accounts
(principally Canadian dollars) which it then uses to pay its foreign vendors or
converts to U.S. dollars, exposing the Company to fluctuations in currency
exchange rates. The Company currently holds foreign currencies which are
translated into U.S. dollars using the year-end exchange rate, for a total of
$473,162. The potential loss in fair value resulting from an adverse change in
quoted foreign currency exchange rates of 10% amounts to $43,289. Actual results
may differ. The Company does not hold other market sensitive instruments and
therefore does not expect to be affected by any adverse changes in commodity
prices, or marketable equity security prices. The Company may be exposed to
future interest rate changes on its debt. The Company does not believe that a
hypothetical 10 percent change in interest rates would have a material effect on
the Company's cash flow.

LIQUIDITY AND CAPITAL RESOURCES

The Company requires capital to pay certain existing fixed obligations
and provide working capital for the PRC Companies and to cover administrative
overhead for the parent company and certain costs related to being a public
company. The increase in cash at January 1, 2000, partially resulted from
decisions by the Company and its Canadian subsidiary to terminate certain
business lines in 1999, the sale of which generated working capital for the
Company to fund the payment of Company debt and provide additional funds for
investment. As discussed below, the Company will require additional working
capital to implement its current Business Plan for IDW. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Operations,
- -Factors That May Affect Future Results, --PRC Companies' Operating Results;
Payment of Balance of Purchase Price for PRC Companies, --Granite Bay's Capital
Resources and Liquidity."

Net cash provided by operating activities for 1999 was $4,741,000
resulting primarily from a net loss of $3,650,000, decreases in accounts
receivable and inventories of $3,339,000 and $4,099,000, respectively, an add
back for loss on discontinuance of apparel operations and loss on write-down of
fixed assets of $1,267,000 and $2,659,000 respectively, and decreases in accrued
liabilities and accrued loss on disposal of $1,998,000 and $1,498,000,
respectively. This compares to cash used in operating activities for 1998 of
$2,297,000 resulting primarily from a net loss of $14,588,000, with add backs
for loss from discontinuance of snowboard operations of $1,952,000, depreciation
and amortization of $2,209,000, loss on write-down of fixed assets of
$2,745,000, loss on asset retirements of $89,000, loss on forgiveness of
shareholder notes receivable of $94,000, decreases in accounts receivable of
$1,215,000, decreases in inventories of $1,757,000, decreases in prepaid
expenses of $32,000 and increases in accounts payable and accrued liabilities of
$1,405,000 and $899,000, respectively.

Net cash provided by investing activities for 1999 was $365,000. Of
that amount, $1,000,000 was invested in Globalgate, $209,000 was used for the
acquisition of property and equipment, offset by $1,574,000 proceeds from the
sale of equipment. Net cash used in investing activities for 1998 was $843,000
of which $924,000 was used for the acquisition of property and equipment, offset
by $81,000 from the proceeds of sales of property and equipment.

Net cash used in financing activities was $4,524,000 in 1999,
consisting of $2,251,000 in principal payments and $3,698,000 in repayment of
line of credit borrowings, offset by $675,000 from the

21
<PAGE>

acquired bridge loan and $750,000 from the issuance of common stock. Net cash
provided by financing activities in 1998 was $3,633,000, consisting of
$1,775,000 from net borrowings under the revolving credit facility, proceeds
of $2,000,000 from a term loan and repayments of $142,000 on long-term
borrowings.

On May 7, 1998, the Company entered into a new credit facility
("Foothill Facility") with Foothill Capital Corporation ("Lender") which credit
facility replaced the Company's prior credit facility with LaSalle Business
Credit, Inc., which had been fully repaid. At December 26, 1998, the Company had
borrowed approximately $5,698,000 under the credit facility, including a
$2,000,000 term loan and $3,698,000 under the revolving line of credit. In
addition, the Company had issued letters of credit for $331,000 under the letter
of credit subline. At December 26, 1998, the Company had utilized the full
extent of its revolving line of credit.

The credit facility was secured by substantially all of the Company's
assets. At December 26, 1998, the Company was not in compliance with certain
financial covenants under the Foothill Facility, including, among other things,
a tangible net worth value and an "EBITDA" test as defined in the credit
facility. Such noncompliance continued into 1999. The Foothill Facility was
acquired by Capitol Bay Management, Inc. ("Capitol Bay") from the Lender on May
7, 1999 pursuant to an Assignment and Acceptance among Capitol Bay, Morrow
Snowboards, Inc. and certain other parties. At the time, the amount owing under
the credit facility was $217,722, which amount was increased to $451,055,
reflecting a reduced Termination Fee (as defined in the credit facility) of
$100,000 and an unpaid closing fee of $133,333. The credit facility has been
fully repaid and no further borrowings are expected under the credit facility.

On March 30, 1999, certain of the Company's trade creditors filed an
Involuntary Petition ("Involuntary Petition") for relief under Chapter 7 of the
United States Bankruptcy Code in the United States Bankruptcy Court for the
District of Oregon (Case No. 699-61663-FRA7). On March 30, 1999, the Company's
accounts payable were approximately $2,500,000 with all overdue more than 90
days. The Company negotiated a settlement with substantially all those creditors
and the Involuntary Petition was dismissed on June 16, 1999. The settlement was
accepted by over 90% of the Company's creditors (by number and dollar amount of
claims) with undisputed claims. Under the terms of the settlement, as reflected
in the Payment Agreement among the Company, certain creditors and others (the
"Payment Agreement"), certain creditors holding undisputed, non-contingent,
liquidated claims against the Company (approximately $2.5 million in the
aggregate) have received or will receive payments from the Company as follows:
$250,000 within 60 days after the order dismissing the Involuntary Petition
(which payment was made on August 28, 1999); $200,000 each calendar quarter
after the first payment is made; and the remaining unpaid balance of such
claims, without interest, all due and payable in one year. All payments required
to date have been timely made. Such payments are secured by a lien against the
Company's Salem, Oregon facility, subject to a senior lien up to $750,000 to
secure a $675,000 principal amount bridge loan or replacement financing
therefore. The Company is current in its payment objectives under the Payment
Agreement. The balance owing as of March 31, 2000, was approximately $1,650,000
with a payment of $200,000 due in May 2000 and the balance of approximately
$1,450,000 due on or before June 28, 2000.

The Company requires capital to pay certain existing fixed obligations
and provide working capital for the PRC Companies and to cover administrative
overhead for the parent company and certain costs related to being a public
company. Additionally, planned future expansion for the PRC Companies includes
an accelerated movement into chip-on-glass ("COG") production and related
product development requiring additional capital of approximately $2.0 million
during the year 2000. Future expansion plans under review for 2001 and
subsequent years include a previously proposed second LCD production line.
Except for the PRC Companies, the Company currently has no operating businesses
that

22
<PAGE>

are expected to provide working capital. The PRC Companies are not expected
to generate significant amounts of working capital in the near future and are
expected to require infusions of approximately $500,000 of working capital in
the near future to offset projected near term operating losses and provide a
working capital cushion.

Fixed existing obligations the Company must fund include the following
sources.

PAYMENT OBLIGATION AMOUNT PAYMENT DATE
------------------ ------ ------------
<S> <C> <C>
Purchase Agreement $ 600,000(1)(2) May 1, 2000
Purchase Agreement 3,944,740(1)(2) May 31, 2000
Payment Agreement 200,000 May 31, 2000
Payment Agreement 1,450,000 June 28, 2000
Bridge Loan 675,000(2) June 28, 2000
--------
Total $ 6,869,740
</TABLE>

(1) Assumes May 1 and May 31, 2000 payments under the Purchase Agreement are
renegotiated
(2) Does not include interest due with such payment.

The Company expects to fund the above obligations from the following
sources. Due to the expected timing of receipt of the Vikay receivables, the
Company may need to raise the funding required through May 31, 2000 from a
refinance of the Company's Salem, Oregon facility, the expected private
placement and, to the extent any additional funding is needed to bridge the
May 2000 payments until the Vikay receivables are received, a larger private
placement and/or short term financing.

SOURCE EXPECTED FINANCING AMOUNT
----------------------------------- -------------------------
<S> <C>
Refinance of Salem, Oregon facility $2,000,000
Sale of Company stock 3,000,000
Collection of Vikay Receivables 3,000,000 (1)
----------

$8,000,000
</TABLE>

(1) Under the Purchase Agreement, IDW is to receive the proceeds from
collection of $3,000,000 of Vikay receivables held by the Judicial Manager
upon payment of the final May 31, 2000 payment under the Purchase Agreement.
IDW presently expects the full $3,000,000 of proceeds from collection of such
receivables to be collected and available on May 31, 2000.

After paying such fixed payment obligations from the expected financing
proceeds, the remaining approximate $1,000,000 will be used to fund immediate
projected working capital needs of the PRC Companies' operations at the parent
level and near term capital expenditure plans. The Company is presently
projecting that the PRC Companies will generate positive cash flow in the third
quarter and not require additional working capital for manufacturing operations
thereafter.

The expected $2.0 million of capital expenditures for 2000 will still
need to be financed by the Company. The Company is exploring a number of
alternatives to raise such capital, including sale of its Salem, Oregon
facility, margining IDW's accounts receivable, selling and/or (if available)
borrowing against the Company's Globalgate stock and issuing additional debt or
equity securities. Note: future sales of the PRC Companies' products are
expected to be made through IDW, not the PRC Companies.

Any financing, involving equity or rights to acquire equity interests,
would result in dilution in the percentage ownership of existing shareholders
when such equity interests were issued and, depending on the sales price, a
dilution in book value. There is no assurance the expected $8.0 million in
financing needed in May and June 2000 and $2.0 million needed for the balance
of 2000 will be raised or raised in a timely manner. In such event, the
Company would face a loss of its involvement in the PRC Companies.

See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Factors that May Affect Future Results --
PRC Companies' Operating Results; Payment of Balance of Purchase Price for the
PRC Companies" and "--Granite Bay's Capital Resources and

23
<PAGE>

Liquidity; Potential Consequences of Failure to Raise Additional Needed
Capital," "--Rapidly Changing Technologies" and "--A Few Customers and
Applications Account For a Significant Portion of IDW's Sales; Order
Calculations" regarding the Company's capital and resources to finance such
payments and the risks associated therewith.

FACTORS THAT MAY AFFECT FUTURE RESULTS

This report contains forward-looking statements which are made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. The forward-looking statements involve risks and uncertainties that could
cause actual results to differ materially from the forward-looking statements.
When used in this report, the words "anticipate," "believe," "estimate,"
"expect" and similar expressions as they relate to Morrow Snowboards, Inc. dba
Granite Bay Technologies ("Granite Bay") or its management, including without
limitation, IDW (as defined herein) and Granite Bay's other subsidiaries, are
intended to identify such forward-looking statements. Granite Bay's actual
results, performance or achievements could differ materially from the results
expressed in, or implied by these forward-looking statements. Granite Bay wishes
to caution readers of the important factors, among others, that in some cases
have affected, and in the future could affect Granite Bay's actual results and
could cause actual consolidated results for fiscal year 2000, and beyond, to
differ materially from those expressed in any forward-looking statements made
by, or on behalf of, Granite Bay. These factors include without limitation,
Granite Bay's change in business lines, Granite Bay's ability to obtain capital
and other financing in the amounts and the times needed (including to complete
payment of the acquisition costs of the PRC Companies and fund those companies'
growth and operations), realization of forecasted income and expenses by the PRC
Companies, initiatives by competitors, price pressures, changes in the political
climate for business in China, addition of Chip-on-Glass and/or other
production capabilities for the cellular phone display market, and the loss of
one or more of IDW's significant customers, and the risk factors listed from
time to time in Granite Bay's SEC reports and risk factors listed below.

Granite Bay's principal assets consist of its equity interests in
Globalgate e-Commerce, Inc. ("Globalgate") and IDW. No immediate return is
expected from Granite Bay's interest in Globalgate. As a result, Granite Bay's
operating results will primarily reflect IDW's operating results. A wide variety
of factors will affect IDW's operating results and could adversely impact its
net sales and profitability. Significant factors in IDW's success will be its
ability to establish and, in certain cases, re-establish design and
manufacturing relationships with key OEM customers that will generate sufficient
orders, including orders of higher margin products, to increase revenues and
profitability. Although IDW products are incorporated in a wide variety of
communications, consumer and appliance products, approximately 20% of its sales
in 1999 were for display modules for cellular products and 30% for use in office
machines (primarily calculators). A slowdown in demand for cellular products or
calculators that utilize IDW's devices as a result of economic or other
conditions and the market served by IDW or other factors could adversely affect
IDW's operating results. IDW's products are sold into an industry characterized
by increasingly rapid product turnaround, increasingly shorter lead times,
product obsolescence, order cancellation and other factors that make it
difficult to forecast future orders, production and personnel needs and other
resources requirements with a high level of certainty. IDW's ability to
anticipate such factors and respond to them in a timely fashion will affect its
ability to utilize its manufacturing capacity effectively, maintain a proper
product mix and avoid downtimes due to product conversions and other factors.
Such uncertainty also creates difficulties in maintaining adequate supplies of
raw materials to meet shifting customer needs and customer orders placed on
short notice.

Other factors, many of which could be beyond Granite Bay's and IDW's
control, include the following:

- IDW's ability to increase sales, including sales of higher
margin products and sales in Asia, Europe and the United
States;

24
<PAGE>
- IDW's ability to expand sales into other industries that have
significant growth potential and to establish strong and
long-lasting relationships with companies in those industries;

- IDW's ability to provide significant design and manufacturing
services for those companies in a timely and cost-efficient
manner;

- Granite Bay's and IDW's ability to raise sufficient working
capital to fund IDW's operations and growth;

- Over the long run, Granite Bay's ability to raise additional
capital for IDW to buy equipment and expand plant facilities
to expand into higher margin products;

- IDW's success in maintaining customer satisfaction with its
design and manufacturing services and its products'
performance and reliability;

- Customer order patterns, changes in order mix, and the level
and timing of customer orders placed by customers that IDW can
complete in a calendar quarter;

- Market acceptance and demand for customer products and the
product life;

- The availability and effective utilization of manufacturing
capacity;

- The quality, availability and cost of raw materials, equipment
and supplies;

- Continuation of IDW's wage cost advantages;

- The cyclical nature of the electronics industries;

- Technological changes and technological obsolescence; and

- Competition and competitive pressure on prices.

PRC COMPANIES' OPERATING RESULTS; PAYMENT FOR BALANCE OF PURCHASE PRICE
FOR THE PRC COMPANIES. The actual performance of the PRC Companies for February
and March 2000, following their acquisition by IDW, was materially less than
forecasted. As a result, collections from accounts receivable of the PRC
Companies expected to fund the April 30, 2000 payment for the purchase price of
the PRC Companies were instead applied to such operating losses and certain
other expenses and IDW HK has renegotiated the payment terms for the balance of
the purchase price for the PRC Companies as noted herein. If such renegotiated
payment terms are not formally documented, the Company could face a risk of loss
of the PRC Companies through foreclosure of the security interest held by the
Judicial Manager in the stock of such companies or foreclosure upon the PRC
Companies' assets. Further, there is no assurance that the Company will be able
to raise the approximate $4.0 million owing on May 30, 2000 (based on the
expected restructure of the payment obligations) and working capital needs. As
noted elsewhere herein, Granite Bay will need to raise additional financing to
make such payment. There is no assurance that the PRC Companies will, as
presently expected, based on the recent increase in sales in late March and
early April, be able to achieve the revised forecasted sales and expenses by
June or July 2000. In such event, the Company would be forced to raise
additional money to finance the operations of the PRC Companies. If Granite Bay
were unsuccessful in any of such events, then Granite Bay could face a total
risk of loss of its investment in IDW and the underlying PRC Companies. See
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Liquidity and

25
<PAGE>

Capital Resources" and "- Factors that May Affect Future Results" regarding
the Company's capital and resources to finance such payments and the risks
associated therewith.

GRANITE BAY'S CAPITAL RESOURCES AND LIQUIDITY; POTENTIAL CONSEQUENCES
OF FAILING TO RAISE ADDITIONAL NEEDED CAPITAL. Granite Bay currently has no
operating businesses that generate income that will provide working capital or
capital to pay existing fixed obligations due in May 2000, other than
prospective future income from the PRC Companies, which income is not expected
to be available in significant amounts in the near future. Based on presently
estimated revenues, collectible accounts receivable and cash flow from the PRC
Companies, Granite Bay will need to raise approximately $8.0 million by June
28, 2000 (with $6.0 million needed by May 31, 2000) to make the required
payments under the Purchase Agreement for the PRC Companies, pay the bridge
loan and balance owing under the Payment Agreement when due (the payments for
which are secured by the Company's Salem, Oregon facility) and provide the
estimated working capital needed to fund the Company, including working
capital for IDW and the PRC Companies. The Company currently expects to obtain
such funding through a private placement of its securities, collection of the
PRC Companies' accounts receivable and a mortgage of its Salem, Oregon
facility. Any financing, involving equity or rights to acquire equity
interests, would result in dilution in the percentage ownership of existing
shareholders when such equity interests were issued and, depending on the
sales price, a dilution in book value. Such financing needs are in addition to
those financing needs to expand the facilities or operational capabilities of
the PRC Companies. While Granite Bay believes it will be able to raise such
additional financing, there is no assurance such additional financing will be
raised or raised when needed or that such funds will be raised on terms
favorable to the Company or existing shareholders. In such event, Granite Bay
could face a loss of its investment in the PRC Companies, foreclosure against
its Salem, Oregon facility and possible legal action by its domestic
creditors. Further, to capitalize on certain growth opportunities for the PRC
Companies or if projected revenues are less and/or costs higher than
projected, the Company would have to raise additional financing beyond that
outlined above. Without such expansion, the potential for the PRC Companies to
grow, as well as maximize revenues and potential profitability, will be limited;
this could affect the value of the Company's Common Stock. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "--Factors that May Affect
Future Results" regarding the Company's capital and resources to finance such
payments and the risks associated therewith.

GOING CONCERN QUALIFICATIONS. The Independent Auditors' Report for
the Company's financial statements as of and for the year ended January 1,
2000 contains a going concern qualification. See Note 1 to the Consolidated
Financial Statements herein and "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations," "-Liquidity and Capital
Resources," and "-Factors That May Affect Future Results, --PRC Companies'
Operating Results; Payment for Balance of Purchase Price for the PRC
Companies, --Granite Bay's Capital Resources and Liquidity, --Going Concern
Qualifications, --Need for Additional Financing." Further the Company has
been advised by the auditors for the PRC Companies that the financial
statements for the PRC Companies when issued will contain a going concern
qualification. The going concern qualification relates to the facts that the
auditors are (i) unable to verify with the PRC Companies' former parent and
its affiliates (collectively "Former Parent") receivables on the books of the
PRC Companies due from the Former Parent in the approximate amount of $39.3
million or accounts payable to the Former Parent in the amount of
approximately $21.5 million and (ii) due to the existing judicial management
procedure in Singapore affecting the Former Parent, the ability of the Former
Parent to pay such receivables or the ability of the PRC Companies to offset
such receivables against the accounts payable owing to the Former Parent.
While the judicial managers for the Former Parent have indicated they will
enter into a "novation agreement" that would allow the offset of the
receivables against the accounts payable, such novation agreement cannot be
entered until certain further action is taken in the judicial proceeding and,
there is no assurance, that such agreement will be entered or that the Former
Parent will otherwise have the resources to pay the receivables of the Former
Parent held by the PRC Companies. The Company understands that as a matter of
law, the PRC Companies cannot offset the receivables from the Former Parent
against the accounts payable, absent such novation agreement. The Company
understands that as a matter of law, the

26
<PAGE>

PRC Companies cannot offset the receivables from the Former Parent against
the accounts payable, absent such novation agreement. While such receivables
and accounts payable are reflected in the PRC Companies financial statements
for prior periods, except for approximately $2.3 million of accounts payable
assumed by IDW HK in acquiring the PRC Companies, such receivables and
accounts payables are neither an asset or liability of the PRC Companies on
an ongoing basis.

DEPENDENCE ON KEY PERSONNEL. IDW's success is largely dependent upon
the sales and expertise of Anthony Genovese, President and CEO. Loss of his
services could materially and adversely affect IDW's business, its future
prospects and operating results, including its ability to penetrate the United
States market. IDW presently has no long-term employment agreements with Mr.
Genovese or other key employees. IDW's business and operating results also
depends substantially on its efforts and ability of its senior management and
technical personnel. The competition for qualified management and technical
personnel is intense. The loss of service of one or more of its key employees or
the ability to add and retain key personnel (including those required to manage
the manufacturing facilities) have a material adverse effect on IDW. IDW does
not presently maintain key-person life insurance. IDW intends to implement
employment agreements and obtain key-person life insurance with key employees,
including appropriate non-disclosure and assignment of inventions provisions.

A FEW CUSTOMERS AND APPLICATIONS ACCOUNT FOR A SIGNIFICANT PORTION OF
IDW'S SALES; ORDER CANCELLATIONS. For the past several years, IDW has generated
most of its revenue from sales to a few significant customer applications and
regions. In 1999, 5% or more of the sales revenue of MULCD was believed to be
from sales to Kingchamp (11.3%), and Richway (5%) in Asia and to Ademco (6.3%)
in the United States. In 1999, 5% or more of the 1999 sales revenue for IDW STD
was believed to be from sales to Qualcomm (36%), Ademco (14.9%) and Ablenet
(6%). Sales information for 1998 and 1997 are not currently available, but are
expected to be available with the filing of a Current Report on Form 8-K showing
the audited financial statements for MULCD and IDW STD. IDW expects to continue
to focus on the personal communications market, and could increase its
percentage of sales to that industry to more than the current 35% of sales. The
United States was believed to account for approximately 40% of sales and Europe
10%. Further, approximately 20% of those sales were to customers in the
telecommunications industry and 40% in the consumer, appliance and watch
industries. As noted herein, certain cell phone manufacturers are now sourcing
LCD display panels requiring Chip-on-Glass ("COG") production capabilities,
and Qualcomm, a key IDW customer in prior years, has indicated that IDW may
need to have such capability or other capabilities to be a qualified Qualcomm
vendor to continue as a Qualcomm vendor. IDW presently expects to add such
capability during this calendar year in a timeframe that will not adversely
impact forecasted sales and sales revenues. The failure to add such capability
or to add such capability in a timely manner could adversely impact IDW's
forecasted sales, sales revenue and cash flow and, if sales are adversely
impacted, could require the Company to raise additional working capital for IDW.

Generally, customers do not make firm long-term buying purchase
commitments. Further, most orders are subject to cancellation on short notice.
Cancellation, delay or reduction of customer orders could result in IDW holding
excess or obsolete inventory and having unfavorable manufacturing variances as a
result of under-absorption of manufacturing capacity. These risks are enhanced
because of the large percentage of sales to customers in the electronic industry
which is subject to severe competitive pressures, rapid technological change and
obsolescence. While IDW expects to continue to receive orders from the customers
named above and new customers, there is no assurance orders will be received,
and if received, not cancelled, delayed or reduced, which could have a material
adverse effect on IDW's results of operations. To address this problem, IDW
expects to increase sales to the above customers or new customers for custom
devices where purchase orders are generally longer term with more limited
cancellation provisions.

NEED FOR ADDITIONAL FINANCING. The opportunities for long-term growth
in IDW's lines of business are dependent upon having sufficient capital
resources available to realize the rapid growth potential of significant OEM key
accounts which IDW has identified and targeted. IDW is expected to need working
capital commensurate with its growth. For example, a second LCD production line
would cost an estimated $14.0 million to install and implement new production
lines. Such second production line and other capital expenditures beyond 2000
are currently under review. Such capital expenditure plans, if implemented,
would require additional capital or financing, including possibly, additional
working capital.

27
<PAGE>

Certain types of display devices require expensive manufacturing
equipment, in certain cases costing in excess of several million dollars for the
manufacturing line and facility. An example is Active Matrix production
equipment. IDW does not expect to create sufficient capital, or, through Granite
Bay, raise the capital, to design and manufacture such display devices. The
inability to include such display devices in its product offerings may affect
IDW's ability to seek business from certain customers who want complete
solutions to all their display device needs or adversely affect IDW's operating
results if technology shifts to such higher-end devices in general.

RAMIFICATIONS OF A LONG PERIOD OF JUDICIAL MANAGEMENT. Since the parent
of MULCD and IDW STD was under judicial management from December 6, 1997 through
January 2000, many of IDW customers found second sources of supply or purchased
goods elsewhere. The probability of recovering much of that lost business has
been impaired by the passage of time. Judicial management also affected the
pricing, terms and conditions of payments to its suppliers. In many cases,
supplier relationships may have been adversely impacted in the short and long
run. IDW will need to reestablish credit and verify that material costs are in
line with the industry. In some cases, IDW may have to establish new sources of
supply. IDW also believes that the judicial management resulted in financial and
operating performances that are not reliable in terms of predicting future
financial performance operations.

IDW FACES INTENSE COMPETITION. IDW operates in a competitive
environment that is characterized by price erosion, rapid technological change
and foreign competition. IDW competes with major Asian and international
companies. Most of IDW's competitors have greater market recognition and
substantially greater financial, technical, marketing, distribution,
manufacturing and other resources than IDW. Further, many of IDW's competitors
have manufacturing and sales forces that are geographically diversified allowing
them to reduce transportation, tariff costs and currency fluctuations for
certain customers in markets where their facilities are located. Many
competitors have production lines that allow them to produce more sophisticated
and complex devices than IDW and to offer a broader range of display devices to
customers. New emerging companies or companies in related industries may also
increase their participation in the display module market increasing
competition.

IDW currently competes principally on the basis of price, timely
delivery, customer service and quality in its standard devices and lower-end
devices and, also on the basis of design and manufacturing capability and
technical innovation and performance on its more complex display models and
custom devices, including their ease of use and reliability. IDW's ability to
compete successfully depends on a number of factors, both in and outside of its
control. Those factors include: the price, quality, performance, reliability,
ease of use and features of its products; the variety of its product solutions;
foreign currency fluctuation; trade barriers and custom duties which may effect
the cost of products; ability to design and manufacture new product solutions,
including incorporating new technology; the availability and price of raw
materials; IDW's ability to fully utilize its manufacturing facility; new
product technology or solutions by IDW's competitors; the number and success of
competitors; and general market and economic conditions. IDW's competitive
position can also be adversely affected if one or more of its customers,
including its key customers, decide to design and manufacture their own display
modules, use different devices or purchase devices from competitors. IDW cannot
assure that it will compete successfully in the future.

RISK OF INABILITY TO PRODUCE HIGH-END PRODUCTS. IDW's success and
Granite Bay's profitability will be dependent upon IDW's ability to effectively
offer or manufacture higher-end products such as large graphic STN, color
graphic displays, micro-displays and black mask automotive products.

These products offer both the opportunity to increase utilization of
existing manufacturing capacity, and also the opportunity to generate higher
margins and profits at given revenue levels. The

28
<PAGE>
production of such products requires increased custom design and
manufacturing and the maintenance of strong customer relationships. This will
require IDW to maintain and upgrade its research, engineering and designing
capabilities to remain in the forefront of developments in the industries.

RAPIDLY CHANGING TECHNOLOGIES. IDW operates in an industry
characterized by constant technological advances, the introduction of new
products, and new design and manufacturing techniques. As a result, IDW will be
required to extend substantial funds and commit significant resources to
continuing research and development activities, engaging additional engineering
and other technical personnel, purchasing new design, production and test
equipment, and continually enhancing design and manufacturing processes and
techniques.

IDW's future operating results will depend significantly on its ability
to timely provide design and manufacturing services for new products that
compete favorably with the design and manufacturing capabilities of OEMs and
third-party suppliers. As noted herein, certain cell phone manufacturers are
now sourcing LCD display panels requiring Chip-on-Glass ("COG") production
capabilities, and Qualcomm, a key IDW customer in prior years, has indicated
that IDW may need to have such capability or other capabilities to be a
qualified Qualcomm vendor to continue as a Qualcomm vendor. IDW presently
expects to add such capability during this calendar year in a timeframe that
will not adversely impact forecasted sales and sales revenues. The failure to
add such capability or to add such capability in a timely manner could
adversely impact IDW's forecasted sales, sales revenue and cash flow and, if
sales are adversely impacted, could require the Company to raise additional
working capital for IDW.

IDW could invest significant sums in design and manufacturing services
for new product solutions that may not receive or maintain customer or market
acceptance or effectively address customer needs which could adversely affect
its future operating results. Further, customers may change or delay product
introductions or terminate existing products without notice for any number of
reasons unrelated to IDW, including lack of market acceptance for a product.

As noted, IDW's LCD line is operating near full capacity, while its
manufacturing facilities and lines in its module subsidiary are operating at
significantly less than full capacity. The conversion of that line to
higher-end, higher-margin displays may result in having to drop some current
customers and increase downtime for that line due to change over time to new
products. In the short run, this exchange may produce lower margins due to loss
of orders from existing customers and downtime. Increasing manufacturing
capacity utilization and increasing the product mix to higher-end products will
be primary goals for IDW in 2000 and subsequent years. Further, IDW will attempt
to convert the higher-end products without losing any of its existing customers
and minimizing the downtime due to such conversion.

IDW's efforts to expand and diversify its product and customer base is
expected to cause IDW's overhead and selling expenses to increase. IDW may also
be required to increase its design staff and other personnel and incur other
expenses on capital equipment, leasehold permits and other items to meet the
anticipated or actual demand of its customers. Those additional costs may
adversely impact operating margins in the short term.

MAINTENANCE OF SATISFACTORY MANUFACTURING YIELDS AND CAPACITIES;
VARIABILITY OF CUSTOMER REQUIREMENTS. The profitability and operating results of
IDW are dependent upon a variety of factors, including product mix, utilization
rates of its manufacturing lines, down time due to product changeover,
impurities in raw materials causing shutdowns, maintenance of contaminant-free
operations and other factors.

RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. IDW has made a decision
to locate all of its manufacturing operations in China and to establish sales
offices in Asia, Europe and the United States. The geographical distance between
its manufacturing facilities in China and in North America create a number of
logistical and communications challenges. Because of the location of the
manufacturing facilities in China, IDW may be affected by economic and political
conditions in that country, as well as economic and political conditions in the
countries in which it markets and distributes its products, including without
limitation, problems related to labor unrest, lack of developed infrastructure,
variances in payment cycles, currency fluctuations, overlapping taxes and
multiple taxation issues, employment and

29
<PAGE>

severance taxes, compliance with local laws and regulatory requirements,
greater difficulty in collecting accounts receivable, political and economic
instability, and the burdens of cost and compliance with a variety of foreign
laws.

Further, changes in policies by the United States or other foreign
governments resulting in, among other things, increased duties, higher taxation,
currency conversion, limitations and restrictions on the transfer or
repatriation of funds or limitations on imports or exports, or the expropriation
of private enterprises could also have a material adverse effect on IDW and its
results of operations. In addition, IDW could be adversely affected if China
were to change its current policies encouraging foreign investment or foreign
trade. IDW could also be adversely impacted if the United States were to
withdraw the "most favored nation" status and trade preferences currently being
extended to China. That status is annually reviewed and there is no assurance
the United States will renew China's MFN status in future years. The nonrenewal
of China's MFN status could adversely affect IDW by increasing the cost to
United States customers or products manufactured by IDW in China. IDW's
operators are further subject to significant political, economic, legal and
other uncertainties in China. Despite progress in developing its legal system,
China does not have a comprehensive nor highly developed system of laws,
particularly with respect to foreign investment activities and foreign trade.
Enforcement of existing and future laws and contracts is uncertain, and
implementation and interpretation of such laws may be inconsistent. Changes in
existing laws, the adoption of new laws and preemption of local regulations by
national laws may adversely affect foreign investment in China. IDW could also
be adversely affected by other factors, including the imposition of austerity
and other monetary measures to fight inflation or to achieve other economic
objectives; inadequate development or maintenance of infrastructure, including
adequate power and water supplies, transportation or raw materials in parts or
the deterioration in the general political, economic or social environment.

RISKS ASSOCIATED WITH COLLECTIBILITY OF RECEIVABLES. IDW extends credit
to its customers based on an assessment of a customer's financial circumstances,
generally without requiring collateral. Additionally, the PRC Companies have
given certain Asian customers extended payment terms, subject to a careful
credit assessment, where customary and to meet competition. These extended
payment terms, if continued, may increase IDW's exposure to risk of uncollected
receivables. The inability to collect on these accounts receivables taking into
account normal bad debt reserves, could have a material adverse affect on IDW
and Granite Bay's results of operations and profitability.

RISKS ASSOCIATED WITH CURRENCY FLUCTUATIONS AND INTERNATIONAL TRADE.
Sales outside the PRC represented approximately 50% of IDW's net sales in 1999.
Sales in foreign markets, primarily Europe, the United States and other parts of
Asia, are expected to increase significantly in 2000 and subsequent years.
Economic and political conditions outside China may adversely affect the
manufacture and sale of IDW's products. Protectionist trade legislation in the
United States or foreign countries, such as a change in export or import
compliance laws, tariff or duty structures, or other trade policies, could
adversely affect IDW's ability to sell devices in foreign markets, to purchase
raw materials or equipment from foreign suppliers.

IDW transacts business in a variety of currencies including HK dollars,
Singapore dollars, US dollars and the Chinese renmimbi ("RMB"). Increased sales
to Europe may result in payments in other currencies, such as the Euro. Further,
IDW accounts for a portion of its costs, such as payroll, land rent and certain
other costs in RMB. While foreign currency exchange fluctuations are not
believed to materially affect IDW's operations, changes in the relation of the
RMB or other currencies to the US dollar, could affect IDW's cost of goods sold,
operating margins and result in exchange losses. In addition, currency
devaluations, changes in exchange rate fluctuations could affect the value of
deposits of currencies IDW holds or results of operations. The Chinese RMB has
experienced significant devaluation against most major currencies in the past.
Establishment of the current exchange rate system

30
<PAGE>

as of January 1, 1994 produced a significant devaluation of the RMB from
$1.00 to RMB 5.7 to approximately $1.00 to RMB 8.7. Any future material
decrease in the value of the RMB relative to the US dollar would adversely
increase IDW's cost and expenses and therefore have a material adverse affect
on IDW's profitability and results of operations. Further, any decrease in
the value could also affect the value of any US dollar-denominated
intercompany loans from Granite Bay or its subsidiaries to IDW. Because the
RMB is not freely traded, hedging that currency is difficult.

IDW MAY EXPERIENCE SHORTAGES OF RAW MATERIALS AND SUPPLIES. Principal
raw materials used in producing IDW's products consist of raw and coated glass,
polarizers, liquid crystal, chemicals, PCBs, driver IC's, molded plastic parts,
electronic components and packaging materials. IDW purchases most of these
materials from Asian sources. IDW does not have long term supply contracts with
its suppliers. IDW believes that it has secondary sources of supplies for most
of its products and, if it were to lose any of its primary or secondary
suppliers, could develop new sources of supply. Because IDW sources many
materials from foreign suppliers, IDW may be subject to certain risks, including
tariffs, currency fluctuations and supply interruptions. While diesel fuel for
the electric generation plant has been available, prices have been increasing
with the current production cutbacks by oil producing nations. The impact of
such price increases will affect operating costs and product margins, the
materiality of which cannot be presently determined. Further, there is no
assurance diesel fuel supplies will not be limited and/or further price
increases in the future, possibly adversely affecting operations, revenues and
margins for the PRC Companies.

IDW IS SUBJECT TO ENVIRONMENTAL REGULATIONS. IDW's operations result in
the creation of small amounts of hazardous wastes, including various gases,
epoxies, inks, solvents and other coal wastes. IDW is, therefore, subject to
national, state and local governmental regulations related to the use, storage
and disposal of such hazardous wastes used in its manufacturing processes. IDW
also has its own electric power generation plant which operates on diesel fuel.
The amounts of such hazardous waste are expected to increase in the future as
IDW's manufacturing operations increase. The failure to comply with present and
future environmental regulation can result in the imposition of fines,
suspension or halting of production, or closure of manufacturing operations.
Environmental compliance may also require IDW to purchase pollution-control
equipment or to incur significant capital or other expenses. Although IDW
believes it is operating in compliance with applicable environmental laws, there
is no assurance that IDW is in compliance or will remain in compliance as such
laws and regulations change.

GOVERNMENTAL REGULATIONS. IDW is subject to numerous foreign, state and
local government regulation. It is subject to laws and regulation governing its
relationship with its employees, including wage and hour requirements, working
and safety conditions, citizenship requirements, work permits and travel
restrictions. Further, the PRC Companies are leasing the land under their
facilities under a 50-year lease, expiring in the year 2043. IDW is also subject
to significant government regulation relating to property ownership and use,
import restrictions, currency restrictions and other areas, all of which
consistently impact profits and operating results. Chinese law and/or employment
customs in the area extend certain severance and other benefits to longer term
employees (over one year), where employees are involuntarily terminated, which
laws and customs in the future could affect IDW's decision and the cost of a
decision to shut down or relocate plants.

ACQUISITION OF PRC PROPERTY. The PRC Companies have not yet received
all the land use transfers necessary for their 50-year lease in the land in
which the industrial facilities are located, together with ownership of the
improvements constructed thereon. Based on advice from PRC counsel, IDW HK
believes that such transfers have received all necessary PRC governmental
approvals, all transfer fees have been paid and the issuance of such permits and
this point is merely administrative in nature. Such formal land transfers are
expected within the next two to three months. If such land transfers were not

31
<PAGE>

received for some unexpected reason, the PRC Companies' operations may be
impacted, although the exact impact cannot presently be determined.

OTHER RISKS. Other risks IDW faces include the prior cyclical nature of
the electronics industry, the protection of IDW's trade secrets and technology,
management of expected rapid growth in personnel, capital equipment, outside
sales force, sales and accounts receivable and other items, and maintenance of
adequate research and development efforts and personnel.

Besides the general risk factors noted above, there are several
specific risks that should be noted:

SIGNIFICANT SHAREHOLDER INFLUENCE ON CORPORATE ACTION. Stephen C.
Kircher, a director, directly and through voting control of certain affiliated
companies and irrevocable proxies, has the ability to vote approximately
20.01%(23.72% following the exercise of certain options held by Mr. Kircher and
his affiliated companies) of the Company's Common Stock. While such percentage
ownership, by itself, is not sufficient to elect the Company's Board of
Directors or approve any corporate action, such a sizable voting block can
significantly impact the election of directors or the outcome of the vote on any
corporate action.

FUTURE POTENTIAL DEPRESSIVE EFFECT IN STOCK PRICES FROM RECENTLY ISSUED
SECURITIES. In January 2000, the Company issued an additional 8,480,000 shares
of its Common Stock. All of those shares are restricted under federal and state
securities laws and may only be resold pursuant to exemptions or under Rule 144
in the future. Under Rule 144, each of the holders of those securities, after
holding them one year, may sell in any given calendar quarter thereafter, the
greater of (i) 1% of the outstanding Common Stock, approximately 176,000 shares
per quarter based on the Company's currently, or (ii) the average weekly trading
volume for the Common Stock for the prior four full calendar weeks. Under Rule
144, a significant amount of stock could be sold in any calendar quarter after
January 31, 2000, with a potential depressive effect on the Company's stock
prices.

GLOBALGATE INVESTMENT. Globalgate and the companies in which it has
invested are involved in the internet and e-business. Such companies are trying
to establish their products or market niches in such business lines. There is no
assurance that any of those companies will be successful and establish
themselves in such markets, will be able to maintain positions in such markets
once established, or will be effective competitors. Further, rapid technological
change in these markets and other factors could affect the ongoing long-term
prospects for Globalgate and companies in which it has invested. There is no
assurance that the Company will realize any return on its investment in
Globalgate.

Management is unaware of any other trends or conditions that could have
a material adverse effect on the Company's consolidated financial position,
future results of operations or liquidity. However, investors should also be
aware of factors which could have a negative impact on prospects and the
consistency of progress. These include political, economic or other factors such
as currency exchange rates, inflation rates, recessionary or expansive trends,
taxes and regulations and laws affecting the worldwide business in each of the
Company's markets; competitive product, advertising, promotional and pricing
activity; dependence on the rate of development and degree of acceptance of new
product introductions in the marketplace; and the difficulty of forecasting
sales at certain times in certain markets.

32
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

INDEPENDENT AUDITOR'S REPORT

Board of Directors of
Morrow Snowboards, Inc.
and Subsidiaries
dba Granite Bay Technologies

We have audited the accompanying consolidated balance sheet of Morrow
Snowboards, Inc. (an Oregon corporation) and subsidiaries, dba Granite Bay
Technologies, (the "Company") as of January 1, 2000, and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for the year then ended. These consolidated financial statements and the
schedule referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Morrow Snowboards, Inc. and subsidiaries, dba Granite Bay Technologies, as of
January 1, 2000, and the consolidated results of their operations and their cash
flows for the year then ended, in conformity with generally accepted accounting
principles.

The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated financial statements, certain matters raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are described in Note 1. The consolidated
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.

Our audit was conducted for the purpose of forming an opinion on the
basic consolidated financial statements taken as a whole. The Supplemental
Schedule of Valuation and Qualifying Accounts is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not a part
of the basic consolidated financial statements. This information has been
subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic consolidated financial statements
taken as a whole.

Certified Public Accountants

Sacramento, California
February 29, 2000, except for
Note 19 as to which the date
is March 27, 2000.

Perry-Smith LLP

33
<PAGE>

INDEPENDENT PUBLIC ACCOUNTANTS' REPORT

To the Board of Directors of
Morrow Snowboards, Inc.
and Subsidiaries
dba Granite Bay Technologies

We have audited the accompanying consolidated balance sheet of Morrow
Snowboards, Inc. (an Oregon corporation, dba Granite Bay Technologies) and
subsidiaries (the Company) as of December 26, 1998 and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
two years in the period ended December 26, 1998. These financial statements and
the schedule referred to below 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 Morrow Snowboards, Inc. (dba
Granite Bay Technologies) and subsidiaries as of December 26, 1998, and the
results of their operations and their cash flows for each of the two years in
the period ended December 26, 1998 in conformity with generally accepted
accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company incurred significant losses in 1998 and had
liquidity problems. These matters raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are described in Note 1. The financial statements do not include any
adjustments relating to the recoverability and classifications of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.

Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The Schedule of Valuation
and Qualifying Accounts as of and for the years ended December 26, 1998 and
December 27, 1997 is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic consolidated financial
statements. This information has been subjected to the auditing procedures
applied in our audit of the basic consolidated financial statements and, in our
opinion, fairly states in all material respects, the financial data required to
be set forth therein, in relation to the basic consolidated financial statements
taken as a whole.

Arthur Andersen, LLP

Portland, Oregon
June 17, 1999
(except with respect to the discontinuance
of the Westbeach operations discussed in
Notes 1 and 18, as to which the date
is November 12, 1999)

34
<PAGE>

MORROW SNOWBOARDS, INC. AND SUBSIDIARIES
DBA GRANITE BAY TECHNOLOGIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
-------------------- ------------------
ASSETS January 1, December 26,
2000 1998
-------------------- ------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,930 $ 1,348
Prepaid expense 127 -
Refundable income taxes 54 -
Net current assets of discontinued operations (Notes 4
and 18) 2,332 9,449
-------------------- ------------------

Total current assets 4,443 10,797
-------------------- ------------------

Property and equipment, at cost (Note 5) 3,061 3,108

Other assets:
Investments (Note 6) 1,000 -
Net non-current assets of discontinued operations
(Note 18) 72 6,173
-------------------- ------------------

Total other assets 1,072 6,173
-------------------- ------------------

Total assets $ 8,576 $ 20,078
==================== ==================

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Line of credit (Note 8) $ - $ 3,698
Accounts payable 2,796 3,053
Accrued liabilities (Note 7) 502 2,321
Accrued loss on disposal (Note 18) - 1,498
Debt and capital lease obligations (Notes 8 and 9) 675 2,013
-------------------- ------------------

Total current liabilities 3,973 12,583
-------------------- ------------------

Commitments and contingencies (Note 10)

Shareholders' equity (Note 11)
Preferred stock, no par, 10,000,000 shares authorized,
no shares issued or outstanding - -
Common stock, no par, 20,000,000 shares authorized,
9,176,556 and 6,176, 556 shares issued and
outstanding 27,866 27,116
Accumulated deficit (23,252) (19,602)
Accumulated other comprehensive loss (11) (19)
-------------------- ------------------

Total shareholders' equity 4,603 7,495
-------------------- ------------------

Total liabilities and shareholders' equity $ 8,576 $ 20,078
==================== ==================
</TABLE>

The accompanying notes are an integral part of these financial statements.

35
<PAGE>

MORROW SNOWBOARDS, INC. AND SUBSIDIARIES
DBA GRANITE BAY TECHNOLOGIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>

Year Ended
----------------------------------------------------
January 1, December 26, December 27,
2000 1998 1997
---------------- ----------------- ---------------
<S> <C> <C> <C>
Operating expense:
General and administrative $ 347 $ 295 $ 332
---------------- ----------------- ----------------
Operating loss (347) (295) (332)

Other expense:
Interest expense (27) - -
---------------- ----------------- ----------------

Loss from continuing operations (374) (295) (332)
----------------- ---------------- ----------------

Income (loss) from discontinued apparel operations (3,309) (4,939) -
Loss from discontinuance of apparel operations (132) - -
Income (loss) from discontinued snowboard operations 165 (7,402) (6,688)
Loss from discontinuance of snowboard operations - (1,952) -
----------------- ---------------- ----------------
Loss from discontinued snowboard and apparel operations
(Note 18) (3,276) (14,293) (6,688)
----------------- ---------------- ----------------

Net Loss $ (3,650) $ (14,588) $ (7,020)
================= ================ ================

Net loss per common share:
Loss from continuing operations - basic $ (.06) $ (.05) $ (.06)
Loss from continuing operations - diluted $ (.06) $ (.05) $ (.06)
Loss from discontinued operations - basic $ (.51) $ (2.31) $ (1.18)
Loss from discontinued operations - diluted $ (.51) $ (2.31) $ (1.18)
Net loss - basic $ (.57) $ (2.36) $ (1.24)
Net loss - diluted $ (.57) $ (2.36) $ (1.24)

Weighted average number of shares used in computing per share
amounts:
Basic 6,377,556 6,176,556 5,671,634
================= ================ ===============

Diluted 6,377,556 6,176,556 5,671,634
================= ================ ===============
</TABLE>

The accompanying notes are an integral part of these financial statements.

36
<PAGE>

MORROW SNOWBOARDS, INC. AND SUBSIDIARIES
DBA GRANITE BAY TECHNOLOGIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>

Notes Retained Other
Common Stock Receivable Earnings Comprehensive
-------------------------- For Common (Accumulated Income
Shares Amount Stock Deficit) (Loss) Total
------------- ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 5,667,749 $ 25,980 $ (94) $ 2,006 $ - $ 27,892
Stock issued for acquisition (Note 2) 584,240 1,680 1,680
Common stock options exercised 12,250 40 40
Repurchase of common stock (92,583) (596) (596)
Warrant activity 4,900 12 12
Comprehensive loss:
Net loss (7,020) (7,020)
Change in translation adjustment 50 50
-------------
Total comprehensive loss (6,970)
------------- ------------ ------------ ------------ ------------ -------------
Balance, December 27,1997 6,176,556 27,116 (94) (5,014) 50 22,058
Forgiveness of shareholder notes
receivable - 94 94
Comprehensive loss:
Net loss - - (14,588) - (14,588)
Change in translation adjustment - - - (69) (69)
-------------
Total comprehensive loss (14,657)
------------- ------------ ------------ ------------ ------------ -------------
Balance, December 26, 1998 6,176,556 27,116 - (19,602) (19) 7,495
Sale of stock (Note 12) 3,000,000 750 750
Comprehensive loss:
Net loss (3,650) (3,650)
Translation adjustment 8 8
-------------
Total comprehensive loss (3,642)
------------- ------------ ------------ ------------ ------------ -------------
Balance, January 1, 2000 9,176,556 $ 27,866 $ - $ (23,252) $ (11) $ 4,603
============= ============ ============ ========================= =============
</TABLE>

The accompanying notes are an integral part of these financial statements.

37
<PAGE>

MORROW SNOWBOARDS, INC. AND SUBSIDIARIES
DBA GRANITE BAY TECHNOLOGIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>

Years Ended
--------------------------------------------------------------
January 1, December 26, December 27,
2000 1998 1997
------------------- -------------------- ---------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (3,650) $ (14,588) $ (7,020)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Loss from discontinuance of operations 1,267 1,952 -
Depreciation and amortization 758 2,209 1,593
Loss on write-down of fixed assets 2,659 2,745 1,568
Loss on retirement of fixed assets 30 89 -
Deferred income taxes - (30) 146
Loss on forgiveness of shareholder notes
receivable - 94 -
Comprehensive loss 8 (69) 28
Changes in operating assets and liabilities - -
(Increase) decrease in accounts receivable 3,339 1,215 5,155
(Increase) decrease in inventories 4,099 1,757 732
(Increase) decrease in prepaid expenses 469 32 18
(Increase) decrease in refundable income
taxes (54) 285 (285)
(Increase) decrease in other assets (431) (292) (252)
Increase (decrease) in accounts payable (257) 1,405 (1,486)
Increase (decrease) in accrued liabilities (1,998) 899 (408)
Increase (decrease) in accrued loss on
disposal (1,498) - -
------------------- -------------------- ------------------
Net cash provided by/(used in) operating
activities 4,741 (2,297) (211)
------------------- -------------------- ------------------
Cash flows from investing activities:
Purchase of Investment (1,000) - -
Redemption of short-term investments - - 3,700
Acquisition of Westbeach, net of cash acquired - - (2,554)
Acquisition of property and equipment (209) (924) (2,975)
Proceeds from sale of equipment 1,574 81 -
------------------- -------------------- ------------------
Net cash provided by/(used in)
investing activities 365 (843) (1,829)
------------------- -------------------- ------------------
Cash Flows From Financing Activities:
Proceeds from issuance of common stock 750 - 52
Payments for repurchase of common stock - - (596)
Proceeds from issuance of term loan 675 2,000 -
Principal payments on debt assumed from
Westbeach - - (3,271)
Principal payments on long-term liabilities (2,251) (142) (275)
Line of credit (payments) borrowings, net (3,698) 1,775 1,923
------------------- -------------------- ------------------
Net cash provided by/(used in)
financing activities (4,524) 3,633 (2,167)
------------------- -------------------- ------------------
Net Increase (decrease) in cash and cash
equivalents 582 493 (4,207)
Cash and cash equivalents at beginning of year 1,348 855 5,062
------------------- -------------------- ------------------
Cash and cash equivalents at end of year $ 1,930 $ 1,348 $ 855
=================== ==================== ===================
</TABLE>

The accompanying notes are an integral part of these financial statements.

<PAGE>

MORROW SNOWBOARDS, INC.
dba GRANITE BAY TECHNOLOGIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION

DESCRIPTION OF BUSINESS

Morrow Snowboards, Inc. and subsidiaries, dba Granite Bay Technologies
(the "Company"), headquartered in Salem, Oregon, was organized in October 1989
to design, manufacture and market snowboards, boots, bindings, apparel and
accessories to retail outlets in the United States as well as international
distributors in several foreign countries. On November 13, 1997, the Company
acquired all of the outstanding securities of Westbeach Snowboard Canada Ltd., a
manufacturer, wholesaler and retailer of snowboarding apparel and casual
clothing. Westbeach has three subsidiaries, an Austrian organization whose
principal activity consists of a European sales warehousing operation, a United
Kingdom organization consisting of European sales and a Washington State
corporation whose principal activity is U.S. retail sales. On March 26, 1999,
the Company sold all of its "Morrow" intellectual property, along with all
1999-2000 snowboard inventories and its snowboard and binding production
equipment to K2 Acquisitions Inc. ("K2"). On November 12, 1999, a subsidiary of
the Company, Westbeach Canada ULC, sold all of its "Westbeach" operations, along
with all apparel inventories to Westbeach Sports, Inc. The results of operations
for these business segments have been reflected as discontinued operations in
the accompanying Consolidated Statements of Operations. (Note 18)

The consolidated financial statements include the wholly owned
subsidiaries, Westbeach Canada ULC, a Nova Scotia unlimited liability company
and Morrow International, Inc., a Guam foreign sales corporation as well as the
continuing operations expenses. All significant intercompany accounts and
transactions have been eliminated.

GOING CONCERN

The Company incurred net losses of $3,650,000, $14,588,000 and
$7,020,000 in the fiscal years ended 1999, 1998 and 1997, respectively.
Commencing in 1998, management evaluated its ability to continue under the then
existing corporate structure and determined to sell the snowboard, boot and
binding business. In addition, in 1999 a subsidiary of the Company sold its
Westbeach operations. The results of operations for 1999, 1998 and 1997 reflect
the losses incurred in connection with the discontinuance of operations,
including impairment write-downs of equipment and other assets of $2,659,000,
$2,745,000 and $1,568,000, respectively (Note 5). Accordingly, as of January 1,
2000, the Company had no revenue generating operations. Also, as of December 26,
1998, and continuing into fiscal 1999, the Company had liquidity problems, and
was in default with its debt covenants. In addition, as a result of these
issues, the Company had to restructure its payables to creditors which are now
secured by the Company's property.

The Company completed a $4,350,000 private placement of common stock
subsequent to year end (Note 19). Consistent with management's strategic plans
for the Company, the proceeds for the offering were used to facilitate the
acquisition of certain manufacturing companies (Note 19). Management believes
that these companies will generate sufficient net income and liquidity to
sustain the Company's operations. Further, in the event of a capital shortfall,
management of the Company believes that it has the ability to raise additional
equity capital. However, there can be no assurances that the Company's recent
acquisitions will operate profitably or that management will be successful in
raising additional equity capital.

39
<PAGE>

The matters described above raise a substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going concern.

2. WESTBEACH

ACQUISITION.

On November 13, 1997, the Company acquired all of the outstanding
securities of Westbeach Snowboard Canada Ltd. (Westbeach) in exchange for
584,240 newly-issued shares of the Company's common stock valued at $1,680,000,
cash of approximately $2,251,000 and fees and expenses of $425,000. Subsequent
to the acquisition, Westbeach was merged into Westbeach Canada ULC, a wholly
owned subsidiary of the Company. The transaction has been accounted for as a
purchase with the excess of the purchase price over the fair value (which
approximated historical carrying value) of the net assets acquired allocated to
goodwill. The operations of Westbeach have been included in the accompanying
financial statements since the date of acquisition, and are reflected in
discontinued operations.

SALE

In October 1999, Westbeach's Bellevue, Washington retail store lease,
inventory and trade fixtures were sold for approximately $196,000, with the
payment amount including the assumption of accounts payable related to that
store's inventory, assumption of the retail store lease (including a release of
Westbeach) and the payment of the balance of the purchase price of approximately
$48,000 payable in installments without interest based on subsequent store sales
on January 5, 2000 and December 31, 2000.

The Company's wholly-owned subsidiary, Westbeach Canada ULC, a Nova
Scotia unlimited liability company ("Westbeach") on November 12, 1999, sold
substantially all its assets, including its remaining two retail stores in
Vancouver and Whistler, British Columbia, and its apparel line, together with
the Westbeach trademarks, to a British Columbia corporation for $2,680,000 (Note
18).

3. SIGNIFICANT ACCOUNTING POLICIES

FISCAL YEAR

Effective January 1, 1997, the Company changed its year-end from a
calendar year end to a 52 or 53 week fiscal year ending on the Saturday nearest
December 31st. Accordingly, the 1999 fiscal year ended on January 1, 2000,
whereas the prior fiscal years ended on December 26, 1998 and December 27, 1997,
respectively.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of cash on hand and on deposit and
highly liquid investments purchased with a maturity of three months or less.

FINANCIAL INSTRUMENTS

A financial instrument is cash or a contract that imposes or conveys a
contractual obligation, or right, to deliver or receive cash or another
financial instrument. The fair value of financial instruments approximated their
carrying value as of January 1, 2000 and December 26, 1998.

40
<PAGE>

INVENTORIES

Inventories for discontinued operations are stated at the lower of cost
or market using standard costs or average costs, which approximate the first-in,
first-out (FIFO) method. Costs for valuation of manufacturing inventory are
comprised of labor, materials (including freight and duty) and manufacturing
overhead.

INVESTMENTS

Investments, as of January 1, 2000, consist of equity securities deemed
by management to be available-for-sale and are reported at fair value with net
unrealized gains or losses reported within shareholder's equity. There were no
unrealized gains or losses for the year ended January 1, 2000.

DEPRECIATION AND AMORTIZATION

Property, plant and equipment are carried at cost. Depreciation of
property, plant and equipment is provided using the straight-line method over
the estimated useful lives of the assets, which are 10-35 years for buildings
and improvements and 3-12 years for equipment, fixtures and other. As of
December 28, 1997, the Company prospectively revised the lives of certain
equipment and tooling. This change increased the loss for discontinued
operations for the year ended December 26, 1998 by $349,000 or $.06 per share.
Amortization of leasehold improvements and equipment under capital leases is
provided using the straight-line method over the expected useful lives of the
assets or the initial term of the lease (including periods related to renewal
options which are expected to be exercised), whichever is shorter. Amortization
is included in depreciation expense.

GOODWILL AND OTHER LONG LIVED ASSETS

Prior to the sale of Westbeach operations, the Company recorded an
impairment loss on goodwill in 1999 of $1,135,000. Goodwill was previously being
amortized over 15 years using the straight-line method and was net of
amortization of $312,000 at December 26, 1998. Goodwill and other long-lived
assets are periodically evaluated when facts and circumstances indicate that the
value of such assets may be impaired. Evaluations are based on non-discounted
projected earnings. If the valuation indicates that non-discounted earnings are
insufficient to recover the recorded assets, then the projected earnings are
discounted to determine the revised carrying value and a write-down for the
difference is recorded.

WARRANTY COSTS

The Company offers a one-year warranty on its products. The Company
provides for anticipated warranty expense related to products sold, which is
reflected in discontinued operations.

ADVERTISING AND PROMOTION COSTS

Advertising and promotion costs are expensed as incurred and included
in selling, marketing and customer service expenses. There were no advertising
and promotion expenses for continuing operations in 1999. These same expenses
related to discontinued operations were $1,001,000, $1,456,000 and $1,440,000 in
1999, 1998 and 1997, respectively.

41
<PAGE>

REVENUE RECOGNITION

The Company recognized revenue from the sale of its products, from
discontinued operations, when the products were shipped to customers or for
retail sales when the customer took the product.

INCOME TAXES

The Company accounts for income taxes under the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). SFAS 109 uses the liability method so that deferred taxes are determined
based on the estimated future tax effects of differences between the financial
statement and tax bases of assets and liabilities given the provisions of
enacted tax laws and tax rates. Deferred income tax expenses or credits are
based on the changes in the financial statement bases versus the tax bases in
the Company's assets or liabilities from period to period.

STOCK-BASED COMPENSATION PLANS

The Company accounts for its stock-based plans under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25). In 1996, the Company adopted the disclosure provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123), as described in Note 11.

PRODUCT DEVELOPMENT COSTS

Expenditures associated with the development of new products and
improvements to existing products are expensed as incurred. There were no
product development expenses for continuing operations in 1999. These same
expenses related to discontinued operations were $175,000, $2,197,000 and
$932,000 in 1999, 1998 and 1997, respectively.

NET LOSS PER SHARE

The shares used in the calculation of net loss per share are computed
as follows:

<TABLE>
<CAPTION>
Year Ended
------------------------------------------------------
January 1, December 26, December 27,
2000 1998 1997
----------------- ----------------- ----------------
<S> <C> <C> <C>
Shares:
Weighted average shares outstanding for basic EPS 6,377,556 6,176,556 5,671,634
Stock option and convertible debenture dilution(1) - - -
----------------- ----------------- ----------------
Weighted average shares outstanding for diluted EPS 6,377,556 6,176,556 5,671,634
================= ================= ================
</TABLE>

(1)The effect of potential common securities of 550,448, 398,998 and 80,464
shares for 1999, 1998 and 1997, respectively, are excluded from the dilutive
calculation as their effect would be anti-dilutive.

FOREIGN CURRENCY TRANSLATION

The financial statements of the Company's foreign subsidiaries are
translated into U. S. dollars using exchange rates at the balance sheet date for
assets and liabilities, and average exchange rates for the period for revenues
and expenses. Adjustments resulting from translating foreign functional currency
balance sheet components into U.S. dollars are included in other comprehensive
income (loss) in the Consolidated Statements of Shareholders' Equity.

42
<PAGE>

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,
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.

RECLASSIFICATIONS

Certain reclassifications have been made to prior year balances to
conform to classifications used in l999. Such reclassifications have no effect
on previously reported results of operations.

4. INVENTORY

Inventory, included in net current assets of discontinued operations,
consisted of the following (in thousands):

<TABLE>
<CAPTION>
January 1, December 26,
2000 1998
--------------- ----------------
<S> <C> <C>
Total discontinued operations inventory, net $ 70 $ 4,169
=============== ================
</TABLE>

5. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following (in thousands):

<TABLE>
<CAPTION>
January 1, December 26,
2000 1998
------------- -------------
<S> <C> <C>
Property:
Building and improvements $ 3,300 $ 3,204
Land 500 500
------------- -------------
3,800 3,704

Less accumulated depreciation (739) (596)
------------- -------------
Property for continuing operations, net $ 3,061 $ 3,108
------------- -------------

Equipment, fixtures and other assets for dis-
continued operations, net $ 72 $ 2,178
============= =============
</TABLE>

Included in equipment from discontinued operations was $479,000 of
equipment under capital lease as of December 26, 1998.

As discussed in Note 1, the Company performed an evaluation of its
machinery, equipment and other assets and, as a result, recognized impairment
write-downs primarily related to discontinued operations of $2,659,000,
$2,745,000 and $1,568,000 in 1999, 1998 and 1997, respectively.

43
<PAGE>

6. INVESTMENTS

In November and December 1999, the Company acquired 1,000,000 shares of
participating convertible preferred stock of an unrelated company. These equity
securities have been deemed available-for-sale and are reported at fair value.
There were no unrealized gains or losses at January 1, 2000.

7. ACCRUED LIABILITIES

Accrued liabilities consisted of the following (in thousands):

<TABLE>
<CAPTION>
January 1, December 26,
2000 1998
-------------- ---------------
<S> <C> <C>
Accrued commissions $ 46 $ 361
Accrued payroll and related liabilities 27 456
Accrued inventory purchases 128 504
Accrued warranty 17 464
Other 284 536
-------------- ---------------
Total accrued liabilities $ 502 $ 2,321
============== ===============
</TABLE>

8. DEBT

Debt consisted of the following:

<TABLE>
<CAPTION>
January 1, December 26,
2000 1998
-------------- --------------
(in thousands)
<S> <C> <C>
Operating line of credit with Foothill Capital Corporation of up to
$10,000,000 collateralized by accounts receivable, inventory, personal
property, investment property, intangibles and all deposit accounts. An
unused line fee equal to 0.25% per annum times the average unused portion
of the maximum revolving amount was assessed on the first of each month.
Monthly interest payments were made at the Lender's Reference Rate plus
0.5% to 1.5% depending on the principal amount outstanding when combined
with the term loan, yielding a total interest rate of 8.75% as of
December 26, 1998; retired in 1999. - $3,698

Term loan with Foothill Capital Corporation of $2,000,000, secured by land and
buildings. Monthly installments in the amount of $41,667 were due
beginning May 1999 and bore interest at a rate of 0.5% to 1.5% over the
Lender's Reference Rate depending on the principal amount outstanding when
combined with the operating line of credit, yielding a total interest rate
of 8.75% as of December 26, 1998; retired in 1999. - 2,000

Secured note payable; interest only payments are due in monthly installments
of $6,750 at 12%; principal balance due and payable in full June 28, 2000.
Secured by first deed of trust on property held for rent. $ 675 -
-------------- --------------

$ 675 $5,698
============== ==============
</TABLE>

The Foothill credit facility, retired in 1999, included a revolving
line of credit up to $10,000,000, including an inventory subline of up to
$3,500,000, a letter of credit subline up to $5,000,000, and a term loan of
$2,000,000. At December 26, 1998, the Company had borrowed approximately
$5,698,000 under the credit facility which includes the $2,000,000 term loan and
$3,698,000 under the revolving line of credit. In addition, at December 26,
1998, the Company had outstanding letters of credit of $331,000 under the letter
of credit subline.

44
<PAGE>

The credit facility was secured by substantially all of the Company's assets.
The credit facility contains various covenants that require the Company, among
other things, to meet certain objectives with respect to net worth, an "earnings
before income taxes" test as defined in the credit facility and capital
expenditures limitations. As of December 26, 1998, the Company was not in
compliance with the "earnings before income taxes" test or the Tangible Net
Worth test, and accordingly, all long-term debt balances were classified as
current. In 1999, Foothill issued a letter of default under Section 2.5 of the
loan agreement as a result of continued over advance of obligations owing in
excess of advance limitations set forth in the loan. The Company incurred a
default interest rate of 5.5% above the Lender's Reference Rate on outstanding
balances and 5.5% above the Lenders Reference Rate on outstanding letters of
credit, as required by the loan agreement from the date of default to the date
of retirement.

9. CAPITAL LEASE OBLIGATIONS

Substantially all of the Company's capital lease obligations were
related to the snowboard operations. K2 assumed the snowboard-related
obligations during the purchase that occurred on March 26, 1999, therefore, such
obligations have been netted against the assets of discontinued operations in
the accompanying Consolidated Balance Sheet.

Other capital lease obligations of the Company at December 26, 1998
were $13,000.

10. COMMITMENTS AND CONTINGENCIES

The Company is obligated under a single operating lease for office
space at $983 per month through September 2000.

LEGAL MATTERS

The Company is party to various legal matters which if settled
unfavorably to the Company in the aggregate would have a material effect on the
Company's financial position and results of operations. While the Company
believes it has a reasonable basis in these cases and intends to vigorously
defend itself, the Company cannot estimate the probable outcome, and no
assurance can be given that the Company will be successful. The most significant
legal matter is as follows:

In the spring of 1999, the Company entered into a Letter of Intent with
Empire of Carolina, Inc. for the sale of the Company. Empire of Carolina claims
rights to a breakage fee of $500,000 and costs under the Letter of Intent with
the Company. The Company believes the Letter of Intent was terminated without
obligation on the Company's part for the payment of a fee or reimbursement of
any costs.

11. SHAREHOLDERS' EQUITY

STOCK OPTION PLANS

In 1990, the Company adopted a stock option plan (the "Plan") for
selected executives, employees and directors and reserved 490,000 shares of
common stock for issuance under the Plan. In 1995, the Plan was amended to
increase the number of shares of common stock under the Plan to 1,102,500. The
Plan was again amended by the Board of Directors in 1997 to change the name of
the Plan, add certain additional types of equity grants, provide for
acceleration of vesting on certain changes in control or sale of substantially
all of the Company's assets and a number of immaterial changes to update,
modernize and reorganize the Plan, which amendment was also approved by the
Company's shareholders. The Plan permits the granting of options for terms not
to exceed ten years from the date of grant. The options generally vest ratably
over a four-year period and are exercisable subject to terms established in the
Plan

45
<PAGE>

document. The exercise price of the options granted under the Plan must be
equal to or greater than the fair market value of the shares on the date of
grant for incentive stock options and not less than 85 percent of the fair
market value for nonqualified stock options. The exercise price of the options
granted by the Company has generally been equal to or greater than fair market
value at the date of grant. Fair market value for periods prior to the Company's
initial public offering were determined by the Board of Directors without an
independent valuation. Information regarding the Plan is shown below:

<TABLE>
<CAPTION>
Weighted
Number Average Aggregate
of Shares Exercise Price Price
------------------- ---------------- -----------------
<S> <C> <C> <C>
Options outstanding at January 1, 1997 565,724 $ $5.30 $ 2,999,000
Options granted 83,750 3.90 326,000
Options reissued 90,500 9.20 833,000
Options lapsed/cancelled (183,300) 8.57 (1,570,000)
Options exercised (12,250) 3.27 (40,000)
------------------- ---------------- -----------------
Options outstanding at December 27, 1997 544,424 4.68 2,548,000
Options granted 116,250 1.33 154,600
Options lapsed/canceled (261,676) 4.57 (1,194,600)
------------------- ---------------- -----------------
Options outstanding at December 26, 1998 398,998 3.78 1,508,000
Options granted 280,000 0.25 70,000
Options lapsed/canceled (128,550) 4.41 (566,819)
------------------- ---------------- -----------------
Options outstanding at January 1, 2000 550,448 $ $1.84 $ $1,011,181
=================== ================ =================
</TABLE>

In August 1995, certain employees exercised their stock options in
exchange for notes receivable. The notes bore interest at 10 percent per annum
and were due and payable August 1, 1997. However, the shareholders were unable
to satisfy the notes as they became due. Accordingly, the December 26, 1998
financial statements reflect a $94,000 forgiveness of such notes as a component
of discontinued operations.

In 1995, the shareholders approved the Stock Option Plan for
Non-Employee Directors (the "Directors Plan"), which plan reserved 122,500
shares of the Company's common stock for future grants to eligible Directors (as
defined in the Directors Plan). Options granted pursuant to the Directors Plan
reduced the number of underlying shares available under the Plan on a one-to-one
basis. The Directors Plan provided for an annual grant of 2,450 shares of common
stock to each eligible Director immediately following each annual meeting of
shareholders commencing with the 1996 annual meeting. Grants were made at the
fair market value of the common stock on the date of grant and were fully vested
after six months. The Directors Plan was discontinued in October 1999.

In October 1999, the Board of Directors adopted the Morrow Snowboards,
Inc. 1999 Stock Option Plan for Non-Employee Directors. This plan provides for
the issuance of up to 300,000 shares of the Company's common stock to existing
directors and, in the case of extra service or duties, to past directors. Unless
otherwise provided in the option grant, the options vest over the year following
the date of grant and expire after the later of (i) five years after the date of
grant or (ii) five years after termination as a director. Fully-vested options
to purchase 210,000 shares of stock at an exercise price of $0.25 per share were
issued during 1999.

STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123

During 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123), which defines a fair value based method of accounting
for employee stock options and similar equity instruments, and encourages all

46
<PAGE>

entities to adopt that method of accounting for all of their employee stock
compensation plans. However, it also allows an entity to continue to measure
compensation costs for those plans using the method of accounting prescribed by
APB 25. Entities electing to remain with the accounting in APB 25 must make pro
forma disclosures of net income and earnings per share, as if the fair value
based method of accounting defined in SFAS 123 had been adopted.

The Company has elected to account for its stock-based compensation
plans under APB 25; however, the Company has computed, for pro forma disclosure
purposes, the value of all options granted during 1999, 1998 and 1997 using the
Black-Scholes option pricing model, using the following weighted average
assumptions for grants for the years ended:

<TABLE>
<CAPTION>
January 1, 2000 December 26, 1998 December 27, 1997
--------------- ----------------- -----------------
<S> <C> <C> <C>
Risk-free interest rate 5.7% 5.3% 6.0%
Expected dividend yield 0.0% 0.0% 0.0%
Expected lives (years) 6.0 6.0 6.0
Expected volatility 53.8% 99.1% 64.3%
</TABLE>

Using the Black-Scholes methodology, the total value of options granted
during 1999, 1998 and 1997 was $34,000, $114,000 and $752,000, respectively,
which would be amortized on a pro forma basis over the vesting period of the
options (typically four years). The weighted average fair value per share of
options granted during 1999, 1998 and 1997 was $0.14, $0.98 and $4.32,
respectively.

If the Company had accounted for its stock-based compensation plans in
accordance with SFAS 123, the Company's net loss and net loss per share would
approximate the pro forma disclosures below, for the years ended January 1,
2000, December 26, 1998 and December 27, 1997 (in thousands except per share
data):

<TABLE>
<CAPTION>
January 1, 2000 December 26, 1998 December 27, 1997
-------------------------------------------------------------------------------------------
As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma
------------------------------ ---------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Net loss $(3,650) $(3,893) $(14,588) $(14,898) $(7,020) $(7,366)
Net loss per share:
Basic $ (0.57) $ (0.61) $ (2.36) $ (2.41) $ (1.24) $ (1.35)
Diluted $ (0.57) $ (0.61) $ (2.36) $ (2.41) $ (1.24) $ (1.35)
</TABLE>

The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior to January
1, 1995, and additional awards are anticipated in future years. The following
table summarizes information about stock options outstanding at January 1, 2000:

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------- ----------------------------------
Number of
Weighted Shares Weighted
Number of Average Weighted Exercisable Average
Shares Remaining Average at Exercise
Range of Exercise Outstanding at Contractual Exercise Price January 1, Price per
Price per Share January 1, 2000 Life (Years) per Share 2000 Share
- ------------------- ---------------- ----------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 0.01 - $5.00 495,648 5.9 $1.34 484,382 $1.38
$ 5.01 - $10.00 9,450 6.7 $6.41 9,450 $6.41
$10.01 -$12.00 45,350 5.9 $6.25 45,050 $6.29
---------------- ----------------- --------------- --------------- ---------------
Total/Average 550,448 5.9 $1.84 538,882 $1.87
================ ================= =============== =============== ===============
</TABLE>

Total options exercisable at January 1, 2000, December 26, 1998 and
December 27, 1997, were 538,882, 275,648, and 360,827, respectively, at a
weighted average exercise price per share of $1.87, $4.38, and $4.19,
respectively.

47
<PAGE>

STOCK WARRANTS

The Company, from time to time, has issued stock warrants as payment
for fees, interest and services rendered. At January 1, 2000, December 26, 1998
and December 27, 1997, the Company had outstanding warrants to purchase 34,300,
34,300 and 58,801 shares of common stock, respectively. The warrants are
exercisable at a weighted average exercise price per share of $2.45. Warrants
are valued at the excess of the fair value of the common stock over the exercise
price at the date of the grant. Any excess of the fair value over the exercise
price of the common stock at the date of grant is recognized as a capital
contribution to warrants outstanding and corresponding expense. In 1999 and
1998, no warrants to purchase common stock were exercised. During 1997, warrants
to purchase 4,900 shares of common stock were exercised at a weighted average
exercise price of $2.45. During 1998, 24,501 warrants lapsed and none were
granted. During 1999 and 1997, no warrants were granted or lapsed.

CANCELLATION AND REISSUANCE OF STOCK OPTIONS

In February 1997, the Company canceled and reissued certain options
granted to employees during 1996 under the 1990 Stock Option Plan as amended.
The options canceled were to purchase 90,500 shares of common stock at a
weighted average exercise price of $11.41 per share. The option prices for the
reissued options were at or above market value of the stock at the date the
options were issued, therefore no compensation expense has been recognized.

REPURCHASE OF COMMON STOCK

On December 18, 1996, the Board of Directors passed a resolution to
repurchase and retire up to 300,000 shares of the Company's outstanding common
stock. During 1999 and 1998, there were no shares repurchased. During 1997,
92,583 shares of common stock were repurchased and retired.

12. RELATED PARTY TRANSACTIONS

During 1995, related party notes for $110,000 bearing interest at 10
percent per annum were issued in exchange for employee stock options. During
1998, these notes, with a balance remaining of $94,000, were forgiven, as the
shareholders were unable to satisfy the notes as they became due.

The Company, pursuant to an agreement, retained Pacific Crest
Securities, Inc. ("Pacific Crest") to act as its investment banking
representatives in connection with the Westbeach acquisition in 1997. A former
director of the Company, who was a director at the time of acquisition, is also
an officer and director of Pacific Crest. In connection with this agreement, the
Company paid Pacific Crest fees and expenses of approximately $113,000. The
Company believes that the agreement with Pacific Crest was on terms comparable
to those in the market place.

During 1999, 1998 and 1997, the Company purchased certain manufacturing
tooling and supplies from Morrow Aircraft Corporation ("MAC"), a company owned
by shareholders of the Company, including a shareholder who is also a Company
director. The Company recorded $-0-, $72,000 and $105,000 of manufacturing
expenses and capitalized $47,000, $245,000 and $448,000 for tooling related to
these transactions, respectively. All such purchases were related to the
discontinued snowboard operations. The Company believes that the agreement with
MAC was on terms comparable to those in the market place.

Capitol Bay Management, Inc. ("CBM") purchased 3,000,000 shares of the
Company's common stock at a price of $.25 per share during l999. Subsequent to
the purchases of the stock, one of the owners of CBM became a director of the
Company. The Company believes that such purchases were made at fair market value
for the common stock.

48
<PAGE>

13. INCOME TAXES

The provisions for income taxes consist of taxes currently due plus
deferred taxes for the net change in items with different bases for financial
and income tax reporting purposes. The items with different bases are primarily
fixed assets, allowance for doubtful accounts, accrued liabilities for
discontinued operations, employee vacation, and inventory and warranty reserves.
The deferred tax assets and liabilities represent the future tax consequences of
those differences, which will either be deductible or taxable when the assets
and liabilities are recovered or settled, using enacted marginal income tax
rates in effect when the differences are expected to reverse. Deferred tax
assets are recognized for operating losses and tax credits that are available to
offset future federal income taxes. Net deferred taxes consist of the following
tax effects relating to temporary differences and carryforwards:

<TABLE>
<CAPTION>
January 1, December 26,
2000 1998
------------------- ----------------------
(in thousands)
<S> <C> <C>
Deferred Tax Assets:
Accrued expenses and reserves $ 494 $ 3,043
Depreciation 145 -
Net operating loss and tax credit carryforwards 8,827 5,716
------------------- ----------------------
Gross deferred tax assets 9,466 8,759
Less valuation allowance (9.466) (8,129)
------------------- ----------------------
Net deferred tax asset 630
Deferred Tax Liabilities:
Depreciation and amortization (630)
------------------- ----------------------
Net deferred tax assets (liability) $ - $ -
=================== ======================
</TABLE>

At January 1, 2000 and December 26, 1998, the Company had an estimated
federal net operating loss carryforward of approximately $22,636,000 and
$14,585,000, respectively, expiring through 2019 (Note 19). For the years ended
January 1, 2000 and December 26, 1998, the Company increased its valuation
allowance $1,337,000 and $5,141,000, respectively. A valuation allowance has
been established due to the uncertainty of realizing deferred tax assets (Note
19).

The components of income tax (benefit) expense for both continuing and
discontinued operations are as follows (in thousands):

<TABLE>
<CAPTION>
Years Ended
------------------------------------------------------------
January 1, December 26, December 26,
2000 1998 1997
---------------- ----------------- ----------------
<S> <C> <C> <C>
(Benefit) expense for income taxes:
Current:
Federal $ - $ - $ (275)
Foreign - 30 -
---------------- ----------------- ----------------
Total - 30 (275)
Deferred (1,337) (5,171) (2,842)
Valuation allowance 1,337 5,141 2,988
---------------- ----------------- ----------------
Total benefit for income taxes $ - $ - $ (129)
================ ================= ================

Tax benefit recorded in:

Continuing operations $ - $ - $ -
Discontinued operations $ - $ - $ (129)
</TABLE>

A reconciliation of the income tax at the federal statutory income tax
rate to the income tax benefit as reported is as follows:

49
<PAGE>

<TABLE>
<CAPTION>
Years Ended
-----------------------------------------------------------
January 1, December 26, December 26,
2000 1998 1997
-------------------- ----------------- -------------------
<S> <C> <C> <C>
Benefit computed at statutory rates (34.0)% (34.0)% (34.0)%
State taxes, net of federal benefit (4.4) (4.4) (4.4)
Change in valuation allowance 38.4 35.2 41.8
Other - 3.2 (5.2)
-------------------- ----------------- -------------------
Income tax benefit as reported -% - % (1.8)%
==================== ================= ===================
</TABLE>

14. CASH FLOW ACTIVITIES

Cash flow activities are as follows (in thousands):

<TABLE>
<CAPTION>
Years Ended
---------------------------------------------------------
January 1, December 26, December 27,
2000 1998 1997
-------------- ------------------- ----------------
<S> <C> <C> <C>
Supplemental disclosure:
Cash paid for interest $ 100 $ 483 $ 80
Cash paid for income taxes - 54 440
Noncash transactions:
Assets acquired under capital lease - - 182
</TABLE>

In 1997, the Company purchased all of the outstanding securities of Westbeach
Snowboard Canada Ltd. for cash and common stock of $4,356,000. In conjunction
with the acquisition, liabilities were assumed as follows (in thousands):

<TABLE>
<S> <C>
Fair value of assets acquired, including goodwill $ 9,241
Cash paid for the securities, including expenses (2,676)
Common stock issued for the securities (1,680)
Cash received from Westbeach (122)
--------

Liabilities assumed $ 4,763
=======
</TABLE>

15. CONCENTRATION OF CREDIT RISK

Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of temporary cash investments,
short-term investments and trade receivables. The Company places its temporary
cash investments and short term investments with high quality financial
institutions.

16. EMPLOYEE SAVINGS PLAN

The company created an employee savings (the "Savings Plan") plan on
July 1, 1996, under the provisions of Section 401(k) of the Internal Revenue
Code. The Savings Plan covered substantially all full-time employees. The
Company's matching contributions took two forms; a basic matching contribution
of 30 percent of employee contributions, and a discretionary supplemental
matching contribution based upon parameters set by management on an annual
basis.

The Company terminated the Savings Plan in December 1999. Participants
are fully vested in their 401(k) contributions and matching contribution
accounts. Company matching contributions in 1999, 1998 and 1997 were $11,372,
$27,000 and $36,000, respectively.

50
<PAGE>

17. SEGMENT AND GEOGRAPHIC REPORTING

Under Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" (SFAS 131), public
companies are required to disclose certain information about the enterprise's
reportable segments. No continuing reportable segments existed for the years
ended January 1, 2000, December 26, 1998 and December 27, 1997.

18. DISCONTINUED OPERATIONS

On March 26, 1999, the Company sold all of its right, title and
interest in and to the "Morrow" and "Morrow Snowboards" names and the other
trademarks, trade names and service marks to K2 Acquisitions, Inc. ("K2"). In
addition, K2 purchased all of the machinery, equipment and tooling used for
manufacture of snowboards and bindings; rights to the machinery, equipment and
tooling that is leased by the Company; all of the Company's snowboard inventory
for the 1999/2000 season; purchase orders reflecting sales orders received and
accepted by the Company prior to the date of sale; trademark licensing agreement
and international distribution agreement and all of the Company's rights,
claims, credits, causes of action or rights of set-off against third parties
relating to the assets. In consideration of the sale, conveyance, assignment,
transfer and delivery of the assets, the Company was paid $3.2 million.

On November 12, 1999, Westbeach sold substantially all its assets,
including its remaining two retail stores in Vancouver and Whistler, British
Columbia, and its apparel line, together with the Westbeach trademarks, to
Westbeach Sports, Inc., a British Columbia corporation, not affiliated with
either the Company or Westbeach. The purchase price for the assets sold was
$2,680,000. The sale was pursuant to an Asset Purchase Agreement that contained
certain representations and warranties by Westbeach to the buyer and
indemnification of the Buyer by Westbeach in certain events for certain
liabilities or any inaccuracies in such representations and warranties. The sale
price is subject to adjustment, based on the final inventory and accounts
receivable counts, and there was a $100,000 holdback to fund certain
adjustments.

As a result of these transactions, the net book value of the assets
purchased and liabilities assumed at January 1, 2000 and December 26, 1998, have
been shown as net current and non-current assets of discontinued operations in
the Consolidated Balance Sheets, and include the following (in thousands):

51
<PAGE>

<TABLE>
<CAPTION>
January 1, December 26,
2000 1998
------------------ -----------------
<S> <C> <C>
Accounts receivable, net $ 1,504 $ 4,843
Inventory 70 4,169
Prepaid expense - 596
Other assets 758 119
Current capital lease obligations - (99)
Accrued liabilities (179)
------------------ -----------------
Net current assets of discontinued operations 2,332 9,449
------------------ -----------------
Equipment, fixtures, and other assets (net of
accumulated depreciation and reserve for
write-downs of $218 and $6,461) 72 2,178
Goodwill, net - 3,926
Other non-current assets, net - 208
Long-term capital lease - (139)
------------------ -----------------
Net non-current assets of discontinued
operations 72 6,173
------------------ -----------------
Total net assets of discontinued operations $ 2,404 $ 15,622
================== =================
</TABLE>

Operating results of the snowboard and apparel operations for 1999,
1998 and 1997 are shown separately in the consolidated statements of operations
as income (loss) from discontinued operations, net of tax. The net loss on the
sale of snowboard operations has been reflected in the 1998 consolidated
statement of operations as loss from discontinuance of snowboard operations as
has the accrued operating loss of the snowboard segment for the period from
year-end to the date of the sale. The net loss on the sale of the apparel
operations has been reflected in the 1999 consolidated statement of operations
as loss from discontinuance of apparel operations as has the accrued operating
loss of the apparel segment for the period from year-end to the date of the
sale. The discontinued operating results include an allocation of consolidated
net interest expense based on net assets. The net interest expense allocated was
$96,000, $671,000 and $87,000 in l999, l998 and 1997, respectively. Sales of
discontinued snowboard operations of $86,000, $15,991,000 and $18,443,000 in
1999, 1998 and 1997, respectively, were excluded from revenues in the
consolidated statements of operations. Sales of discontinued apparel operations
of $9,022,000, $9,428,000 and $1,810,000 in 1999, 1998 and 1997, respectively,
were excluded from revenues in the consolidated statement of operations. The
consolidated statements of cash flows have not been restated to reflect
discontinued operations presentation.

19. SUBSEQUENT EVENTS

INTERNATIONAL DISPLAYWORKS, INC. ACQUISITION

On January 31, 2000, the Company acquired 100% of the outstanding
shares of International DisplayWorks, Inc., ("IDW") a Delaware corporation,
headquartered in Rocklin, California.

IDW, after the acquisition of the companies described below, is engaged
in the design, manufacturing and worldwide distribution of liquid crystal
displays (LCDs), modules and assemblies for major OEM applications in
telecommunications, automotive, industrial, medical and consumer products. The
acquisition was accomplished by the issuance of 2,680,000 shares of Morrow's
Common Stock to the IDW shareholders in exchange for their common stock and will
be accounted for by the purchase method of accounting.

52
<PAGE>

Concurrently, IDW through its wholly owned subsidiary, International
DisplayWorks (Hong Kong) Ltd. ("IDWHK"), acquired 100% of the shares of MULCD
Microelectronics Company Ltd. ("MULCD") and Vikay Shenzhen Technology
Development Company, Ltd. ("VKSTD"). MULCD and VKSTD are engaged in the
manufacturing and assembly of LCDs and modules in Peoples Republic of China.
MULCD and VKSTD manufacture LCDs and assemblies for the USA, Europe and Far East
markets. The acquisition, which will be accounted for as a purchase, required an
initial payment of $4.2 million with the balance due in two installments:
$600,000, due on May 1, 2000, and $3.945 million, due May 31, 2000.

Estimated and unaudited combined financial information for IDW, IDWHK,
MULCD and VKSTD for the year ended December 31, 1999 is as follows (in
thousands):

<TABLE>
<S> <C>
Total assets $ 24,319
Net sales $ 24,147
Net loss $ (1,042)
</TABLE>
Due to the discontinuation of its snowboard and apparel operations and
the purchase of the companies described above, the Company does not meet the
continuity of operations requirements of Internal Revenue Code Section 382.
Accordingly, $22,636,000 in net operating losses described in Note 13 will not
be available to offset future Federal income taxes, if any.

COMMON STOCK SALE

Subsequent to year end, the Company completed a private placement to
accredited investors for $4,350,000, or $.75 per share, through the issuance of
5,800,000 common shares. A registered broker/dealer owned by a stockholder and
member of the Company's Board of Directors was compensated $522,000 and issued
warrants to purchase 580,000 shares of common stock at $.75 per share, as
placement agent and lead broker for the offering.

53
<PAGE>

SCHEDULE II

MORROW SNOWBOARDS, INC. AND SUBSIDIARIES
DBA GRANITE BAY TECHNOLOGIES
SUPPLEMENTAL SCHEDULE
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)

AS OF AND FOR THE YEARS ENDED
JANUARY 1, 2000, DECEMBER 26, 1998 AND DECEMBER 27, 1997

THE FOLLOWING SCHEDULE HAS NOT BEEN RESTATED TO CONFORM
TO DISCONTINUED OPERATIONS PRESENTATION:

<TABLE>
<CAPTION>
Balance at Charged to Balance
Beginning Costs and at End
Description of Period Expenses Deductions* of Period
- ----------------------------------------------- -------------- --------------- ---------------- -------------

<S> <C> <C> <C> <C>
DECEMBER 27, 1997

Allowances deducted from asset accounts:
Allowance for doubtful accounts $ 134 $ 960 $ (435) $ 659
Obsolete inventory allowance 136 888 (489) 535

DECEMBER 26, 1998

Allowances deducted from asset accounts:
Allowance for doubtful accounts $ 659 $ 550 $ (143) $ 1,066
Obsolete inventory allowance 535 2,806 (549) 2,792

JANUARY 1, 2000

Allowances deducted from asset accounts:
Allowance for doubtful accounts $ 1,066 $ 220 $ (280) $ 1,006
Obsolete inventory allowance 2,792 - (2,750) 42
</TABLE>

*Balances written off, net of recoveries

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

On January 14, 2000 and as previously reported in a Current Report on
Form 8-k for January 14, 2000 and filed with the SEC on January 24, 2000 ("Form
8-k re Auditors"), Arthur Andersen, LLP ("Arthur Andersen") resigned as outside
auditors for Morrow Snowboards, Inc. (the "Company"). The Company's Board of
Directors, at a previously scheduled Board meeting on January 14, 2000, accepted
Arthur Andersen's resignation and appointed the accounting firm of Perry-Smith
LLP ("Perry-Smith") of Sacramento, California, as the Company's new outside
auditors, subject to shareholder ratification of such appointment at the
Company's next annual or, if called prior thereto, special shareholders'
meeting. Due to the reduction in the Company's manufacturing and distribution
activities, as well as the Company's expected future operations, the Board had
determined that it did not need outside auditors with the resources and breadth
of operations of Arthur Andersen and, based on a review of several accounting
firms, selected Perry-Smith which has public company and international auditing
experience.

54
<PAGE>

Arthur Andersen had included a "going concern" qualification in its
audit report on the financial statements for the Company's two fiscal years
ended December 27, 1997 and December 26, 1998, but did not in either of the
financial statements include an adverse opinion or a disclaimer of opinion or a
qualification or modification as to uncertainty, audit scope or accounting
principles. During the two most recent fiscal years and any subsequent interim
period preceding Arthur Andersen's resignation, there were no disagreements
between the Company and the former auditors on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure which, if not resolved to the satisfaction of the former auditors,
would have caused Arthur Andersen to make a reference to the subject matter of
the disagreement in connection with its audit reports in such financial
statements.

Prior to engaging Perry-Smith, the Company consulted with Perry-Smith
as to its qualifications, experience and ability to audit the Company's
financial statements. The Company and Perry-Smith did not have any substantive
discussions regarding the application of accounting principles to a specified
transaction, either complete or proposed, or the type of audit opinion that
might be rendered on the registrant's financial statements and there are no
reports nor written or oral advice provided by the new accountants, other than
the expected costs of audits and accounting services and the accountants'
experience, provided in deciding to retain Perry-Smith. Further, as noted, there
was no matter that was the subject of a disagreement as described in Item
304(a)(1)(iv) of Regulation S-K, promulgated by the Securities and Exchange
Commission.

Prior to Arthur Andersen's resignation, Arthur Andersen did not express
a difference of opinion regarding any events listed in Item 304(a)(2)(v)(A)
through (D) of Regulation S-K. Perry-Smith is expected to audit the Company's
financial statements as of and for the period ended January 1, 2000 and December
30, 2000. Prior to filing with the SEC, the Company provided a copy of the Form
8-K re Auditors, as later filed, to both Arthur Andersen and Perry-Smith,
requesting in the case of Arthur Andersen that Arthur Andersen furnish the
Company with a letter addressed to the SEC stating whether is agrees with the
statements made by the registrant in response to Item 304(a) of Regulation S-K
herein. A copy of Arthur Andersen's letter evidencing no objection to the
Company's responses in such Form 8-k was filed as an exhibit to that Form 8-k.
The Company requested that Perry-Smith review that filing and indicated the
Company would file any letter with the SEC submitted by Perry-Smith that
contained any new information, any clarification of the Company's expression of
its views herein, or the respects in which Perry-Smith did not agree with the
statements made by the Company in such Form 8-k in response to Item 304(a) of
Regulation S-K. Perry-Smith advised the Company that it had reviewed the filing
and had no basis on which to submit a letter addressed to the SEC in response to
Item 304 of Regulation S-K.

55
<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS

On May 7, 1999, the Company reduced the size of its Board from seven
(7) to four (4) directors. Effective October 12, 1999, two of the directors,
Erik Krieger and Maurice Bickert resigned. Also effective October 12, 1999,
three new directors were added to the Board setting the Board size at five (5)
directors. Set forth below is information on the current directors of the
Company:

WILLIAM H. HEDDEN (age 45) from 1992 to present, has served as
President and Chief Executive Officer of Consolidated Adjusting Inc.
(construction insurance adjusting). From 1985 to 1992, Mr. Hedden served as
Director of Burlingame Bancorp and its subsidiary, Burlingame Bank & Trust Co.
From 1984 to 1984, Mr. Hedden served as Chairman of the Board of Bayhill Service
Corporation, a mortgage banking subsidiary of Delta Federal Savings & Loan. From
1983 to 1987, Mr. Hedden served as Chairman of the Board and majority
shareholder of Delta Federal Savings & Loan. Mr. Hedden has a Juris Doctor
degree from Hastings College of the Law, San Francisco (1979), and a BA degree
from Stanford University, Palo Alto, California (1975). He has been a director
of the Company since October 1999.

STEPHEN C. KIRCHER (age 46) Mr. Kircher has been Chairman of the Board
of Directors of the Company since February 2000 and a Director since October
1999. He has been a director of IDW since its formation in June 1999. Since
1993, he has served as President & Chief Executive Officer and is majority owner
of Capitol Bay Group, Inc. (holding company), and as President & Chief Executive
Officer of Capitol Bay Securities, Inc. (securities and investment banking), and
Capitol Bay Management, Inc. (investment company), both Capitol Bay Securities,
Inc. and Capitol Bay Management, Inc. being wholly-owned subsidiaries of Capitol
Bay Group, Inc. Prior to 1993, Mr. Kircher formed and managed Spinner
Corporation, which engaged in leveraged buyouts of troubled companies. Mr.
Kircher has extensive experience as a principal in equity private placements,
sale and leaseback financing, multiple forms of debt financing, and initial
public offerings. Mr. Kircher began his career with Dean Witter in 1975 before
joining Bateman, Eichler, Hill & Richards, a regional investment banking firm in
1978. Mr. Kircher has a BA degree from the University of California, San Diego.
Mr. Kircher has been Chairman of the Board of Directors of the Company since
February 2000.

THOMAS J. MANZ (age 50) since 1993 has been owner of TJM Enterprises, a
real estate development, brokerage and financial services sole proprietorship.
From 1984 to 1993, Mr. Manz was responsible for the renovation, expansion and
management of Southgate Shopping Center, a 439,000 square-foot shopping center
in Sacramento, California, as well as several other ventures in the real estate
industry including property management, construction, real estate sales, and
commercial landscaping. Mr. Manz is presently Chairman of the Board of Roseville
First National Bank and has served as a Director of that bank since 1991. Mr.
Manz has also served as a Director of Pacific Coast Bankers Bank since 1997. Mr.
Manz received a Bachelor of Science degree from Iowa State University in 1971.
He has been a director of the Company since October 1999.

RAY E. MORROW, JR. (age 55) has served as a director of the Company
since the Company's inception in October 1989. Mr. Morrow served as Chairman of
the Board of the Company from June 1990 until January 1998 and as Chief
Executive Officer of the Company from the Company's inception until May 1995.
From January 1995 to April 1995, he served as President of the Company. In
August 1996, Mr. Morrow founded Morrow Aircraft Corporation, a proposed
manufacturer of aircraft incorporating composite materials technology, and has
served as a director and Chairman of the Board of

56
<PAGE>

Directors since that company's inception. In March 1982, Mr. Morrow founded
II Morrow, Inc., served as its Chairman of the Board and Chief Executive
Officer until its acquisition by United Parcel Service ("UPS") in 1986, and
continued as Chief Executive Officer until 1987. Mr. Morrow was a founder and
currently serves as a director of American Blimp Corporation, a manufacturer
of airships used worldwide for advertising and surveillance. Mr. Morrow was a
director of Lightship America, Inc., which leased airships for commercial
advertising purposes and was acquired by American Blimp Corporation in
December 1996.

P. BLAIR MULLIN (age 46) has served as a director of IDW since February
2000. Mr. Mullin has served as Chairman of the Board of Granite Bay from April
1999 to February 2000 and as a Director of Granite Bay since October 1998. Mr.
Mullin has also served as Granite Bay's President since May 1998 and as Chief
Financial Officer since Granite Bay's acquisition of Westbeach Snowboard Canada
Ltd. ("Westbeach") in November 1997. In addition, he has served as Treasurer and
Secretary of Granite Bay since January 1998. Mr. Mullin served as President and
Chief Executive Officer of Westbeach from July 1995 to November 1997, and, as
Chief Executive Officer of Westbeach Canada, ULC, from May 1998 to present. Mr.
Mullin was responsible for the sale of the snowboard manufacturing assets and
the snowboard apparel trademarks in 1999. From 1992 to 1995, Mr. Mullin was a
private business consultant, serving companies in distress situations. From 1988
to 1992, Mr. Mullin served as Chief Financial Officer of Bradbury International
Equities Ltd., a holding company, and as General Manager of Padovano Foods,
Inc., a food processing company, from 1990 to 1992. From 1982 to 1988, Mr.
Mullin managed loan portfolios with banks in Toronto and Calgary, Canada, and
Houston, Texas. Mr. Mullin received an MBA from the University of Western
Ontario in 1982 and a Bachelor of Arts (Economics) degree from Wilfrid Laurier
University in 1975.

EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES

Set forth below is information on the executive officers of the
Company:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------

<S> <C> <C>
Stephen C. Kircher(1) 46 Chairman of the Board

P. Blair Mullin(1) 46 President, Chief Financial
Officer, Treasurer and
Secretary
</TABLE>

(1)For information regarding Messrs. Kircher and Mullin, see "Item 10.
Directors," above.

IDW'S OFFICERS AND BOARD OF DIRECTORS.

PRINCIPAL EXECUTIVE OFFICERS

ANTHONY G. GENOVESE, PRESIDENT AND CEO (age 57) founded IDW in June
1999 to purchase the shares of MULCD and VKSTD. IDW operated MULCD and VKSTD
under a management contract with Vikay Industrial, (Singapore) Limited (Vikay),
MULCD's and VKSTD's parent company, from August 1, 1999 through the acquisition
of the PRC Companies on February 1, 2000. From 1997 to 1999, Mr. Genovese was
President, joint member of the Office of the Chief Executive and member of Board
of Directors of Vikay. Vikay entered Judicial Management, a form of bankruptcy
proceeding in Singapore, in December 1997. Mr. Genovese was selected for this
position by the Judicial Managers of Vikay. Vikay is a public company listed on
the SESDAQ exchange in Singapore. In 1986, Mr. Genovese founded VGI, a joint
venture company, with Vikay to market Vikay LCDs and to help Vikay enter the

57
<PAGE>

LCD module business in the United States. He introduced custom products to
major companies as ADEMCO, GE, Honeywell, Schlumberger, AT&T, Milton Bradley,
Lifescan and White-Rogers. In 1992, VGI became a subsidiary of Vikay, Vikay
America, Inc., and Mr. Genovese continued as President and CEO of Vikay
America from 1992 to 1997.

From 1976 to 1985, Mr. Genovese served as General Manager of PCI
Displays (Singapore) Pte. Limited, a subsidiary of Printed Circuit International
("PCI"), Sunnyvale, California. PCI is a manufacturer of printed circuit boards
and other electronics. During this period, he pioneered the use of LCDs in
automobiles from after-market to OEM with Renault and Ford and headed up R&D in
the improvement of chip-on-board technology that was pioneered by PCI. From 1972
to 1976, Mr. Genovese served as an R&D Engineer at Beckman Instruments to
develop proprietary LCD technologies. He produced the first reliable twisted
nematic LCDs that were used in the digital watches by Gruen and Timex and
supervised all LCD R&D activities at Beckman, including production processes for
the first TN displays, many of which are still industry standards.

Mr. Genovese started his professional career in 1966 as a research
physicist at the R&D Division of North American Aviation (now Rockwell
International) in Display Systems Research and later in Advanced Technology. He
wrote part of the proposal for the displays and controls for the B-1 bomber that
won a $4 billion contract from General Dynamics. He worked on the team that
developed the first liquid crystal display for consumer applications and the
first LCD calculator in 1969. Mr. Genovese received a BS in Physics from
Manhattan College in 1964, an MS in Physics & Mathematics from NYU & Courant
Institute of Mathematical Sciences in 1966, attended USC for 18 graduate credits
towards Master Degree in Systems Management in 1975 and 1976. He also instructed
at UCLA Extension from 1987 to 1998 in an LCD Technology seminar.

ALAN LEFKO, CHIEF FINANCIAL OFFICER (age 52) joined IDW as of February
2000. From July 1999 to January 2000, Mr. Lefko was the Chief Financial Officer
of The Original Bungee Company (Bungee) in Oxnard, California, a manufacturer
and distributor of stretch cord and webbing products. Mr. Lefko was responsible
for the reorganization of Bungee's financing structure, establishment of an
asset based lending program and implementation of cost accounting systems and
controls.

From 1989 to 1999, Mr. Lefko served as Chief Financial Officer and
Controller of Micrologic, a manufacturer and distributor of Global Positioning
Systems and Vikay America, Inc., a subsidiary of Vikay Industrial (Singapore)
Limited, based in Chatsworth, California.

From 1979 to 1989, Mr. Lefko served as President of a 1,000 room
residential living complex for seniors and was Corporate Controller of
Huntington Health Services, Inc. a public health care provider. Mr. Lefko has a
BA degree in Business Administration and Accounting from California State
University, Northridge, California.

BEN TANG, VICE PRESIDENT, FAR EAST OPERATIONS (age 53) was one of the
founders of the predecessor company to Vikay. Mr. Tang was responsible for
Vikay's original China assembly operation. Mr. Tang joined Mr. Genovese while
Vikay was under judicial management to help operate the PRC Companies. From 1997
to 1999, he acted as a consultant to Vikay and the Stoval Company, Singapore, a
manufacturer of smart cards (cash cards for phone services) and, during the same
period was involved in consulting and investing in a number of technologies and
technology companies through Ben Tang & Associates, Singapore, a wholly owned
consulting firm. From 1996 to 1997, Mr. Tang was Acting Managing Director and
later Director of Finance for Printed Circuits International (Singapore) Pte.
LTD. ("PCIs"), with responsibility for running a printed circuit board plant for
PCIs. From 1993 to 1996, he was Business Development Director for Pacifica Can
Manufacturing, Singapore, a manufacturer of metal cans. Mr. Tang has been
involved with the electronics industry, including the LCD industry, for

58
<PAGE>

most of the past 30 years. Mr. Tang did undergraduate work in Physics and
holds a degree in Accounting and was an auditor at Ernst & Young.

BOARD OF DIRECTORS

STEPHEN C. KIRCHER (age 46) has served as a director of IDW since
formation in June 1999. See discussion under "Item 10. Director," above for
additional information regarding Mr. Kircher.

P. BLAIR MULLIN (age 46) has served as a director of IDW since February
2000. See "Directors" above for additional information regarding Mr. Mullin, see
"Item 10. Directors," above.

ANTHONY G. GENOVESE, see discussion above under "IDW-Executive Officers."

The Company expects to expand the IDW Board of Directors to up to five
directors and is currently evaluating further additions to the Board.

BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended (the
Exchange Act), requires the Company's executive officers, directors and persons
who own 10% of the Common Stock to file with the Securities and Exchange
Commission (the SEC) initial reports of beneficial ownership on Form 3 and
reports of changes in beneficial ownership of Common Stock and other equity
securities of the Company on Forms 4 and 5. Reporting persons are required by
SEC regulations to furnish the Company with copies of all Section 16(a) reports
they file. To the Company's knowledge, based solely on reviewing copies of such
reports furnished to the Company and written representations from reporting
persons, all Section 16(a) reports due during or with respect to fiscal 1999
were filed on a timely basis.

Item 11. EXECUTIVE COMPENSATION

COMPENSATION SUMMARY

The following table sets forth certain information regarding the
compensation paid in the last three fiscal years to P. Blair Mullin, the current
President and Chief Financial Officer of the Company, and to David E. Calapp,
the former Chief Executive Officer of the Company, for services rendered in all
capacities to the Company. Messrs. Mullin and Calapp are referred to herein as
the "Named Executive Officers." No other executive officer of the Company was
paid compensation in excess of $100,000 in the 1999 fiscal year.

SUMMARY COMPENSATION TABLE

Long-Term Compensation
--------------------------------------
Annual Salary Securities
Name and -------------------------------------- Underlying Other
Principal Position Year ($) Bonus Options (#) Compensation
- ---------------------------------- ------ -------------- ----------- ------------------ -----------------
<S> <C> <C> <C> <C> <C>
David E. Calapp (1) 1999 $ $ - - $
Chairman of the Board, Chief 1998 131,651 - - 1,000
Executive Officer and President 1997 157,692 - 50,000 (2) -

P. Blair Mullin (4)
Chairman of the Board, 1999 121,774 - 70,000 117 (5)
President, Chief Financial 1998 118,218 - 50,000 (3) 2,402 (6)
Officer and Secretary 1997 - - - -
</TABLE>

59
<PAGE>

(1) David E. Calapp resigned as an officer and director of the Company
effective May 18, 1998. Mr. Calapp served as the Company's Chief Executive
Officer from August 20, 1996 and as President from November 1996. He also
served as Chairman of the Board from January 1998 until his resignation.

(2) Replaced an option granted August 20, 1996 for 50,000 shares, which option
was cancelled.

(3) 20,000 options granted November 12, 1997 and 25,000 options granted June 1,
1998 were cancelled.

(4) P. Blair Mullin was appointed President of the Company effective May 18,
1998. He is also serving as Chief Financial Officer and Secretary/Treasurer
of the Company and served as Chairman of the Board from April 1, 1999 to
February 2000.

(5) Represents medical insurance reimbursement.

(6) Represents reimbursement of moving expenses.

GRANT OF STOCK OPTIONS

The following table sets forth certain information regarding options
granted to the Named Executive Officers during the fiscal year ended January 1,
2000.

Options Grants in Fiscal 1999
Individual Grants
-----------------------------------------------------------
Potential Realizable
Value of Assured
Number of Percent of Total Rates of Stock Price
Shares Options Appreciation for
Underlying Granted to Options Term
Option Employees in Price Expiration ----------------------
Name Grants (#) Fiscal Year ($/Share) Date 5% 10%
- ------------------- ------------- ------------------ ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
P. Blair Mullin 70,000 100% $ 0.25 10/12/09 $ 10,708 $ 26,986
</TABLE>

EXERCISE OF STOCK OPTIONS AND YEAR-END VALUES

The following table sets forth certain information regarding options of the
Named Executive Officers outstanding at fiscal 1999 year-end:

<TABLE>
<CAPTION>
Shares Number of Securities Value of Unexercised
Acquired Underlying Unexercised In-the-Money
on Value Options/Warrants at Options/Warrants at
Exercise Realized January 1, 2000 January 1, 2000 (1)
(#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---------------------- ----------- ----------- -------------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
P. Blair Mullin 0 0 120,000 0 $ 61,875 N/A

David E. Calapp 0 0 0 0 N/A N/A
</TABLE>

(1) Calculated based on the difference between the option exercise price and
closing price of the Common Stock on January 1, 2000 ($1.00 per share).

60
<PAGE>

PERFORMANCE GRAPH

The following graph compares the cumulative total return to holders of
the Company's Common Stock with the cumulative total return of the Nasdaq US
Stock Market, the Standard & Poor's Small Cap Index and the Standard & Poor's
Consumer Index for the period beginning December 14, 1995, the first trading day
of the Common Stock, and ending February 29, 2000.

[GRAPH]

The following table assumes $100 invested in Morrow Snowboards, Inc.
Common Stock, the Nasdaq US Stock Market, the Standard & Poor's Small Cap Index
and the Standard & Poor's Consumer Index, with all dividends reinvested. Stock
price shown above for the Common Stock is historical and not necessarily
indicative of future price performance.

------------------------------------------------------------------------------
S&P Industrial
Morrow NASDAQ Small Cap S&P Consumer
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
14-Dec-95 $ 100.00 $ 100.00 $ 100.00 $ 100.00
31-Mar-96 78.85 106.09 106.56 103.40
30-Jun-96 80.77 114.14 111.84 109.08
30-Sep-96 90.38 118.18 115.14 111.18
31-Dec-96 50.96 124.35 121.40 116.11
31-Mar-97 36.54 117.68 114.39 121.05
30-Jun-97 36.54 138.90 134.80 142.72
30-Sep-97 27.88 162.37 156.30 145.27
31-Dec-97 18.27 151.26 151.17 156.75
31-Mar-98 12.50 176.82 167.59 179.50
30-Jun-98 10.10 182.50 147.19 191.53
30-Sep-98 9.14 163.15 113.48 171.07
31-Dec-98 6.25 211.20 134.67 208.20
31-Mar-99 2.88 237.09 121.03 212.91
30-Jun-99 0.38 258.73 154.81 211.25
30-Sept-99 0.48 264.51 147.03 189.01
31-Dec-99 7.69 391.96 165.05 206.72
29-Feb-00 32.69 452.39 181.15 184.47
</TABLE>

<PAGE>

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

The executive compensation policies and programs developed by the
Company are designed to retain and motivate executive officers and to ensure
that their interests are aligned with the interests of the Company's
shareholders. The Company's policy is to offer competitive compensation
opportunities for its employees based on a combination of factors, including
Company growth, corporate performance and the individual's personal contribution
to the business.

The Company's compensation programs are implemented by the Compensation
Committee of the Board of Directors and consist of base salary, annual
incentives and long-term incentives. The Company's President recommends to the
Compensation Committee annual salary adjustments and incentive grants for the
Company's executive officers other than himself. All members of the Board of
Directors participate in the deliberations concerning executive compensation.
Executive officers who are also directors do not participate in decisions
affecting their own compensation.

BASE SALARY

In reaching a determination concerning fiscal 1999 executive officer
base salaries, the Compensation Committee considered the recommendations of the
President, which were based in part on a review of competitive compensation
information published by the National Executive Compensation Survey and
information provided by independent compensation consultants. In making
recommendations, the President compared the Company to a selected group of
companies of similar size and business niche, specifically the sporting goods
retail market and manufacturing, and considered compensation only for executives
with similar job descriptions. Compensation recommendations were targeted to
fall at the mid-point of the comparative group.

In addition to the President's recommendations, the Compensation
Committee considered its own assessment of the individual performances of each
executive officer and its own subjective assessment of the Company's overall
financial performance. There is no fixed relationship between base salary and
corporate performance or between base salary and the competitive range of
salaries that may be offered by competitive companies. The Compensation
Committee members considered their business judgment in light of their
experience to be an important factor in establishing executive compensation.

ANNUAL INCENTIVES

On an annual basis, the Compensation Committee considers the grant of
annual incentive bonuses to each executive officer. Incentive bonuses are
discretionary and are determined subjectively, with the Compensation Committee
taking into consideration the individual's performance, contribution and
accomplishments during the past fiscal year and the Company's financial
performance. Neither the decision to award a bonus, nor the specific size of the
incentive bonus, is based on any specific measure of corporate performance. In
fiscal 1999, no incentive bonuses were awarded to any executive officer.

STOCK INCENTIVE COMPENSATION

The Board of Directors believes that stock ownership by executive
officers and key employees provides valuable incentives for those persons to
benefit as the Company's Common Stock price increases, and that stock
option-based incentive compensation arrangements help align the interests of
executives, employees and shareholders. To facilitate these objectives, the
Board of Directors has granted stock options to executives and key employees
through the Company's Employee Equity Incentive Plan (formerly, the 1990 Amended
and Restated Stock Option Plan) (the "Plan"), approved by the shareholders in
1991. The Plan was amended by the Board of Directors in 1995 to increase the
number of shares

62
<PAGE>

available under the Plan to 1,102,500, which amendment was approved by the
Company's shareholders. The Plan was again amended by the Board of Directors
in 1997 to change the name of the Plan, add certain additional types of
equity grants, provide for acceleration of vesting on certain changes in
control or sale of substantially all the Company's assets and a number of
immaterial changes to update, modernize and reorganize the Plan, which
amendment was also approved by the Company's shareholders. Effective October
12, 1999, the Board of Directors adopted the Morrow Snowboards, Inc. 1999
Stock Option Plan for Non-Employee Directors (the "Plan"). The Plan provides
for the issuance of up to 300,000 shares of the Company's Common Stock (as
presently constituted) to existing directors and, in the case of extra
service or duties, to prior directors. Options may be awarded in such
amounts, at such times, at such exercise prices and on such other terms as
the Board of Directors determines, subject to any limitations in the Plan.
Unless otherwise designated, options vest uniformly over the year following
the date of grant. The options, subject to earlier termination under the Plan
or option grant, expire after the later of (i) five years after the date of
grant or (ii) five years after termination as a director. The Board issued
fully-vested options for 210,000 shares to nine persons who were directors
over the past year, all at an exercise price of $0.25 per share.

Pursuant to the Plan, in fiscal 1999 the following options to purchase
the Company's Common Stock were granted to executive officers under the Plan at
a price believed to equal or exceed the fair market value at the date of grant:

Name of Executive Officer No. of Shares Price Date of Grant
------------------------- ------------- ------ -------------
<S> <C> <C> <C>
P. Blair Mullin 70,000 $ 0.25 10/12/99
</TABLE>

In determining the number of options granted to executive officers and
key employees, the Board of Directors considered the person's opportunity to
affect the share price of the Company's Common Stock, the level of the person's
performance based on past performance, future contribution to the Company and
the anticipated incentive effect of the number of options granted.

The Board of Directors believes that the policies and plans described
above provide competitive levels of compensation and effectively link executives
and shareholder interests. Moreover, the Board of Directors believes such
policies and plans are consistent with the long-term investment objectives
appropriate to the business in which the Company is engaged.

BOARD OF DIRECTORS

William H. Hedden Ray E. Morrow
Stephen C. Kircher P. Blair Mullin
Thomas J. Manz

COMPENSATION OF DIRECTORS

The Company previously paid its directors $750 per month for services rendered
in all capacities as a Board member, including attending committee meetings.
Such payments were suspended effective September 1998. Currently, members of the
Board of Directors do not receive any salary or other cash payments for service
as a director. They are reimbursed for reasonable travel, meal and lodging
expenses in connection with attending Board of Director meetings. Additionally,
the Board may grant stock options to its members for service as directors.
During the fiscal year ended January 1, 2000, stock options covering 170,000
shares of the Company's Common Stock were awarded to the President and past
members of the Board of Directors who had served during some portion of calendar
year 1999.

63
<PAGE>

Those options were granted an exercise price of $.25 per share. The following
table sets forth the number of shares of the Company's Common Stock covered
by stock options granted to current non-management directors during the
fiscal year ended January 1, 2000 at exercise prices of $.25 per share:

<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON
NAME OF DIRECTOR STOCK COVERED BY STOCK OPTIONS
---------------- ------------------------------
<S> <C>
William H. Hedden 30,000
Stephen C. Kircher 50,000
Thomas J. Manz 30,000
Ray E. Morrow, Jr. 20,000
</TABLE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the
beneficial ownership, as of March 31, 2000, of the Common Stock by (i) each
person known by the Company to own beneficially more than 5% of the Common
Stock, (ii) each Named Executive Officer, (iii) each director and director
nominee of the Company and (iv) all directors and executive officers as a group.
Except as otherwise noted, the Company believes the persons listed below, based
on information furnished by those persons, have sole investment and voting power
with respect to the Common Stock owned by them. The mailing address of each
person listed below is the Company's principal executive office.

Shares Beneficially
Name Owned(1) Percent of Class(2)
- --------------------------------------------------------- --------------------------- ------------------------
<S> <C> <C>
5% SHAREHOLDERS
- ---------------
Stephen C. Kircher
2600 Pringle Road, S.E.
Salem, OR 97302 --(3) --(3)

Capitol Bay Securities, Inc. ("CBS") / Capitol Bay
Group, Inc. ("CBG")
2424 Professional Drive
Roseville, CA 95661 1,112,892(4) 6.10%

DIRECTORS
- ---------
Stephen C. Kircher
2424 Professional Drive
Roseville, CA 95661 4,187,892(5) 22.87%

William H. Hedden
2600 Pringle Road, S.E.
Salem, OR 97302 55,000(6) *

Thomas J. Manz
2600 Pringle Road, S.E.
Salem, OR 97302 177,000(6) *

Ray E. Morrow, Jr.
2600 Pringle Road, S.E.
Salem, OR 97302 135,674(7) *
</TABLE>

<PAGE>

Shares Beneficially
Name Owned(1) Percent of Class(2)
- --------------------------------------------------------- --------------------------- ------------------------
<S> <C> <C>
P. Blair Mullin
2600 Pringle Road, S.E.
Salem, OR 97302 149,797(8) *

EXECUTIVE OFFICERS
- ------------------
Anthony Genovese, Chief Executive Officer of IDW
7965 Haley Drive
Granite Bay, CA 95746 1,340,000(9) 7.59%
All directors and executive officers as a group (six
persons) 6,045,363(10) 32.49%
</TABLE>

- -------------------
* Does not exceed 1% of the class.

(1) "Beneficial Ownership" is defined pursuant to Rule 13d-3 of the Exchange
Act, and generally means any person who directly or indirectly has or
shares voting or investment power with respect to a security. A person
shall be deemed to be the beneficial owner of a security if that person has
the right to acquire beneficial ownership of the security within 60 days,
including, but not limited to, any right to acquire the security through
the exercise of any option or warrant or through the conversion of a
security. Any securities not outstanding that are subject to options or
warrants shall be deemed to be outstanding for the purpose of computing the
percentage of outstanding securities of the class owned by that person, but
shall not be deemed to be outstanding for the purpose of computing the
percentage of the class owned by any other person.

(2) Based on 17,656,556 shares of the Company's Common Stock outstanding at
March 31, 2000, plus that number of shares subject to options exercisable
within 60 days of March 31,2000 owned by each individual or group of
individuals. CBS is a wholly-owned subsidiary of CBG and CBG is
wholly-owned by Mr. Kircher, each of which disclaims any beneficial
ownership of the aggregate 1,112,892 shares and options, except to the
extent of pecuniary interest therein.

(3) Share ownership of Mr. Kircher, a 5% shareholder, is reported under
"Directors," below.

(4) This includes 319,992 shares held by CBS in its name, 212,900 shares held
in inventory for client accounts and with respect to which CBS or its
employees may have voting or investment discretion, or both ("Managed
Accounts") and options to purchase 580,000 shares. CBS disclaims beneficial
ownership of the shares held in the Managed Accounts. All options are
exercisable within 60 days after March 31, 2000. CBS is a wholly-owned
subsidiary of CBG which is wholly owned by Mr. Kircher, each of which
disclaims any beneficial ownership of the aggregate 1,112,892 shares and
options held by CBS, except to the extent of any pecuniary interest
therein. These securities are also reported under the securities held by
Stephen C. Kircher.

(5) Includes 2,000,000 shares held in Mr. Kircher's name, options to purchase
75,000 shares of Common Stock in Mr. Kircher's name, 1,000,000 shares over
which Mr. Kircher has certain voting rights through an irrevocable proxy,
options for 580,000 shares held by CBS, 319,992 shares held by CBS and
212,900 shares of Common Stock held in inventory for client accounts with
respect to which CBS or its employees may have voting or investment
discretion. All options are exercisable within 60 days after March 31,
2000.

(6) Includes 55,000 shares subject to options exercisable within 60 days after
March 31, 2000.

(7) Includes 55,000 shares subject to options exercisable within 60 days after
March 31, 1999. Excludes an aggregate 104,149 shares beneficially owned by
Mr. Morrow's wife, Sharon R. Morrow, of which shares Mr. Morrow disclaims
beneficial ownership and 1,430 shares beneficially owned by his grandson,
of which shares Mr. Morrow disclaims beneficial ownership.

65
<PAGE>

(8) Includes 9,797 shares and 140,000 shares subject to options exercisable
within 60 days after March 31, 2000.

(9) Includes 670,000 shares held in joint tenancy with Mr. Genovese's wife,
Sharon Genovese, and 670,000 shares held by an individual retirement
account for Anthony Genovese by Delaware trust, which 670,000 shares may be
deemed to be beneficially owned by Mr. Genovese.

(10) Includes 5,085,363 shares and options for 960,000 shares exercisable within
60 days after March 31, 2000.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In August 1995, in connection with each exercising options for 61,250
shares of Common Stock, Neil E. Morrow and Robert J. Morrow, both officers of
the Company until March 26, 1999, each executed a promissory note in the
principal amount of $55,000 in payment of the exercise price for those shares
(collectively, the "Option Notes"). Neil Morrow had made principal payments of
$16,500 and Robert Morrow had made no principal payments under the Option Notes.
The Option Notes were due in full on August 1, 1998. Such Option Notes were
forgiven by the Company on December 26, 1998.

From October 1996 through May 1999, the Company purchased manufacturing
tooling and supplies ("tooling") from Morrow Aircraft Corporation, a company in
which Ray E. Morrow, Jr., a Company director, is a shareholder. Those purchases
were through a series of separate independent purchase orders. Purchases for
fiscal 1999 through January 1, 2000 totaled approximately $47,000 compared to
$317,000 in 1998 and $553,000 in 1997. A forklift was also traded to Morrow
Aircraft Corporation in relief of invoices owed for a value of $5,000. The
Company believes the tooling was acquired on terms as favorable or better than
available from other vendors. Additionally, the Company believes it was
receiving its tooling in a more timely fashion and with the devotion of less
Company resources to ensuring the tooling complied with the Company's bid and
specification requirements.

Stephen C. Kircher is a director of the Company. He has been the
controlling shareholder for Capitol Bay Group, Inc., a financial services
company that has two wholly owned subsidiaries, Capitol Bay Securities, Inc. and
Capitol Bay Management, Inc. Prior to Mr. Kircher becoming a director, Capitol
Bay Management, Inc. ("CBM"), pursuant to an assignment and acceptance among
CBM, the Company and certain other parties, acquired the Company's credit
facility from Foothill Capital Corporation on May 7, 1999. At that time, the
amount owing under the credit facility was $217,722, which amount was increased
to $451,055, reflecting a reduced Termination Fee (as defined in the credit
facility) of $100,000 and an unpaid closing fee of $133,333. In July 1999, CBM
advanced a further $48,945 for a total amount advanced of $500,000. As part of
that transaction, CBM received an option to acquire through cancellation of such
debt two million shares of the Company's Common Stock for $500,000 ($0.25 per
share) which option was exercised in October 1999.

In July 1999, the Company agreed to sell one million shares of its
Common Stock to CBM for $.25 per share which option was exercised on October 9,
1999. Mr. Kircher became a director on October 12, 1999.

66
<PAGE>

PART IV

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

(a) The following documents are filed as part of this report:

1. Financial Statements (see Item 8.)

- Report of Independent Public Accountants (Perry-Smith
LLP)
- Report of Independent Public Accountants (Arthur
Andersen LLP)
- Consolidated Balance Sheets - January 1, 2000 and
December 26, 1998
- Consolidated Statements of Operations - Years Ended
January 1, 2000, December 26, 1998 and December 27,
1997
- Consolidated Statements of Shareholders' Equity -
Years Ended January 1, 2000, December 26, 1998 and
December 27, 1997
- Consolidated Statements of Cash Flows - Years Ended
January 1, 2000, December 26, 1998 and December 27,
1997
- Notes to Consolidated Financial Statements

2. Financial Statement Schedules

- Schedule II - Valuation and Qualifying Accounts
(accounts not required or not material have been
omitted)

3. Exhibits

See Exhibit Index.

(b) Reports on Form 8-K

The following reports on Form 8-K were filed during the last
quarter of the period covered by this report:

<TABLE>
<CAPTION>
Date of Report Item Reported
-------------- -------------

<S> <C>
9/30/99 Change in control; change in directors; adoption of
Non-Employee Director Stock Option Plan

10/15/99 Current Report

11/5/99 Sale of substantially all of the assets of
subsidiary, Westbeach Canada, ULC asset sale

11/12/99 Update regarding Westbeach Canada, ULC asset sale;
proposed use of proceeds

11/15/99 Current Report

11/29/99 Purchase of shares of Globalgate e-Commerce, Inc.
Preferred Stock

12/10/99 Current Report
</TABLE>

67
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Salem, State of Oregon, on April 24, 2000.

MORROW SNOWBOARDS, INC.

By: /s/ P. BLAIR MULLIN
----------------------------
P. Blair Mullin
President (1)
(Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons in the capacities
indicated on April 24, 2000.

<S> <C>
/s/ P. BLAIR MULLIN President
- ---------------------------------- (principal executive officer)
P. Blair Mullin

/s/ P. BLAIR MULLIN Chief Financial Officer
- ---------------------------------- (principal financial officer
P. Blair Mullin and principal accounting
officer)

/s/ STEPHEN C. KIRCHER Chairman and Director
- ----------------------------------
Stephen C. Kircher

/s/ WILLIAM H. HEDDEN Director
- ----------------------------------
William H. Hedden

/s/ THOMAS J. MANZ Director
- ----------------------------------
Thomas J. Manz

/s/ RAY E. MORROW, JR. Director
- ----------------------------------
Ray E. Morrow, Jr.

</TABLE>

(1) No Chief Executive Officer is appointed. Under the Company's Bylaws, if no
Chief Executive Officer is appointed, the President acts in such capacity and
has the authority of a Chief Executive Officer.

<PAGE>

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

--------------------------
EXHIBITS

FILED WITH THE

ANNUAL REPORT ON

FORM 10-K

FOR THE FISCAL YEAR ENDED JANUARY 1, 2000

UNDER

THE SECURITIES EXCHANGE ACT OF 1934

------------------------
MORROW SNOWBOARDS, INC.

<PAGE>

EXHIBIT INDEX

EXHIBIT NO. DESCRIPTION
----------- -----------
3.1 Amended and Restated Articles of Incorporation (Note 1)
3.2 Amended and Restated Bylaws (Note 1)
4 Registration Rights Agreement dated April 20, 1994 among the
Registrant and the investors named therein (Note 1)
4.2 Securities Purchase Agreement dated October 31, 1997 among the
Registrant, Morrow, LLC, Morrow Snowboards ULC, Westbeach
Snowboard Canada Ltd. and the security holders of Westbeach
Snowboard Canada Ltd. listed therein (Note 4)
10.1 Lease and Option Agreement among PR Investors Limited Liability
Company, the Registrant, Ray E. Morrow, Jr. and Sharon Morrow
dated July 25, 1994, as amended by Amendment to Lease and Option
Agreement dated August 1, 1995 (Note 1)
10.2 Forms of Warrant (Note 1)
10.3 Employment Agreement between Ray E. Morrow, Jr. and the
Registrant dated April 20, 1994, as amended (Notes 1 & 2)
10.4 Noncompete Agreement between Ray E. Morrow, Jr. and Nicollett
Limited Partners Partnership dated April 20, 1994 (Note 1)
10.5 Assignment Agreement by and among the Registrant, Nicollett
Limited Partners, James V. Zaccaro, Gregory M. Eide, Dennis R.
Shelton and Erik J. Krieger dated December 19, 1995 (Note 3)
10.6 Morrow Snowboards, Inc. Employee Equity Incentive Plan as amended
and restated February 13, 1997 (Note 2)
10.7 Form of Nonqualified Stock Option Agreement (Notes 1 & 2)
10.8 Form of Incentive Stock Option Agreement (Notes 1 & 2)
10.9 Manufacturing Agreement between the Registrant and Plasticos
Duramas, S.A., dated July 20, 1995 (Note 1)
10.10 Form of Sales Representative Agreement (Note 1)
10.11 Letter Agreements between the Registrant and Pacific Crest
Securities Inc. dated February 22, 1994, January 27, 1995, August
4, 1995 and October 4, 1995 (Note 1)
10.12 Form of Indemnification Agreement (Notes 1 & 2)
10.13 Stock Option Plan for Non-Employee Directors (Notes 1 & 2)
10.14 Purchase and Sales Agreement dated February 29, 1996 (Note 3)
10.15 Securities Purchase Agreement dated October 31, 1997 among the
Registrant, Morrow, LLC, Morrow Snowboards ULC, Westbeach
Snowboard Canada Ltd. and the Security holders of Westbeach
Snowboard Canada Ltd. listed therein (Note 4)
10.16 Loan and Security Agreement dated as of May 7, 1998 among the
Registrant and Westbeach Snowboard U.S. A., Inc., as Borrower,
and Foothill Capital Corporation as Lender (as assigned to
Capitol Bay Management, Inc.) (Note 7).
10.17 Guarantee and Postponement of Claim by Morrow Westbeach Canada
ULC in favor of Foothill Capital Corporation dated as of May 7,
1998 (as assigned to Capitol Bay Management, Inc.)
10.18 Intellectual Property and Security Agreement dated as of May 7,
1998, between Morrow Snowboards, Inc. and Foothill Capital
Corporation (as assigned to Capitol Bay Management, Inc.)
10.19 General Security Agreement dated as of May 7, 1998, between
Morrow Westbeach Canada ULC and Foothill Capital Corporation (as
assigned to Capitol Bay Management, Inc.)
10.20 Security Agreement-Stock Pledge dated as of May 7, 1998, between
Morrow Snowboards, Inc. and Foothill Capital Corporation (as
assigned to Capitol Management, Inc.)
10.21 Assignment and Acknowledgement Agreement dated May 7, 1999,
between Capitol Bay Management, Inc. and Foothill Capital
Corporation, the Registrant and Westbeach Snowboard U.S.A. Inc.
10.22 Apparel Design and Manufacturing Agreement dated December 31,
1996, between the Registrant and Marmot Mountain Ltd. (Note 5)

<PAGE>

10.23 "Terms of Instrument - Part 2", dated April 1, 1994, as amended
by "Terms of Instrument Part 2", Modification Agreement, dated
October 17, 1997, between Westbeach Snowboard Canada Ltd. (now
Morrow Westbeach Canada ULC) and Western IMMO Holdings Inc. (Note
6)
10.24 International Distribution Agreement dated as of January 1,
1998, between the Registrant and K.K. Morrow Japan (Note 6).
10.25 Acquisition Agreement dated as of March 26, 1999, by and between
K2 Acquisitions, Inc. and the Registrant (Note 8).
10.26 Memorandum of Understanding between Capitol Bay Management, Inc.
and the Company (Note 9)
10.27 Payment Agreement effective June 17, 1999 among Morrow
Snowboards, Inc., certain Petitioning Creditors named therein and
Robert K. Morrow, Inc., a Disbursing Agent for the Petitioning
Creditors (Note 10).
10.28 Promissory Note dated August 25, 1999, given by Morrow
Snowboards, Inc. to Dennis and Carol Pekkola (Note 11).
10.29 Trust Deed dated August 25, 1999, given by Morrow Snowboards,
Inc. to Robert Smejkel, as Trustee, with Dennis and Carol Pekkola
as beneficiaries (Note 11).
10.30 Subordination Agreement dated August 25, 1999, among Morrow
Snowboards, Inc., Robert K. Morrow, as Escrow Agent for certain
creditors of the Company and the Pekkolas (Note 11).
10.31 Morrow Snowboards, Inc. 1999 Stock Option Plan for Non-Employee
Directors (Note 12).
10.32 Asset Purchase Agreement dated as of November 12, 1999, among
Westbeach Canada ULC and Westbeach Sports Inc. (Note 13).
10.33 General Assignment dated as of November 12, 1999, among
Westbeach Canada ULC and Westbeach Sports Inc. (Note 13).
10.34 Assignment of Lease and Consent among Westbeach Canada ULC,
Westbeach Sports Inc. and Western Immo Holdings, Inc. dated as of
November 12, 1999 (Note 13).
10.35 Assignment of Lease and Consent among Westbeach Canada ULC,
Westbeach Sports Inc. and Welf Arne Von Dehn dated as of November
12, 1999 (Note 13).
10.36 Bill of Sale between Westbeach Canada ULC and Westbeach Sports
Inc. dated as of November 12, 1999 (Note 13).
10.37 Letter from Arthur Andersen, LLP dated January 24, 2000 (Note
14).
10.38 Placement Agent Agreement dated January 13, 2000, between Morrow
Snowboards, Inc. and Capitol Bay Securities, Inc (Note 15).
10.39 Securities Purchase Agreement effective as of January 31, 2000,
among Morrow Snowboards, Inc. and the Sellers (Note 16).
10.40 Sale and Purchase Agreement February 1, 2000 among Vikay
Industrial (Hong Kong) Ltd. And International DisplayWorks, Inc.
(Note 16).
10.41 Supplemental Deed and Charge dated February 1, 2000, between
International DisplayWorks (Hong Kong) Ltd. And International
DisplayWorks, Inc., as Chargors, and Vikay Industrial Ltd. (in
Judicial Management) and Viday Industrial (Hong Kong) Ltd. as
Chargees (Note 16).
21 Subsidiaries of the Registrant
27 Financial Data Schedule

(1) INCORPORATED HEREIN BY REFERENCE FROM THE COMPANY'S REGISTRATION STATEMENT
ON FORM S-1 (FILE NO. 33-97800).
(2) MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT.
(3) INCORPORATED HEREIN BY REFERENCE FROM THE COMPANY'S 1995 ANNUAL REPORT ON
FORM 10-K (FILE NO. 0-27002).
(4) INCORPORATED BY REFERENCE FROM THE COMPANY'S CURRENT REPORT ON FORM 8-K
DATED OCTOBER 31, 1997 (FILE NO. 0-27002).
(5) INCORPORATED BY REFERENCE FROM THE COMPANY'S CURRENT REPORT ON FORM 8-K
DATED NOVEMBER 11,1997 (FILE NO. 0-27002).
(6) INCORPORATED BY REFERENCE FROM THE COMPANY'S 1997 ANNUAL REPORT ON FORM 10-K
(FILE NO. 0-27002).
(7) INCORPORATED BY REFERENCE FROM THE COMPANY'S CURRENT REPORT ON FORM 8-K
DATED MAY 8, 1998 (FILE NO. 0-27002).
(8) INCORPORATED BY REFERENCE FROM THE COMPANY'S CURRENT REPORT ON FORM 8-K
DATED MARCH 26, 1999 (FILE NO. 0-27002).
(9) INCORPORATED BY REFERENCE FROM THE COMPANY'S CURRENT REPORT ON FORM 8-K
DATED APRIL 27, 1999 (FILE NO. 0-27002).

<PAGE>

(10) INCORPORATED BY REFERENCE FROM THE COMPANY'S CURRENT REPORT ON FORM 8-K
DATED JUNE 28, 1999 (FILE NO. 0-27002).
(11) INCORPORATED BY REFERENCE FROM THE COMPANY'S CURRENT REPORT ON FORM 8-K
DATED AUGUST 25, 1999 (FILE NO. 0-27002).
(12) INCORPORATED BY REFERENCE FROM THE COMPANY'S CURRENT REPORT ON FORM 8-K
DATED SEPTEMBER 30, 1999 (FILE NO. 0-27002).
(13) INCORPORATED BY REFERENCE FROM THE COMPANY'S CURRENT REPORT ON
FORM 8-K DATED NOVEMBER 12, 1999 (FILE NO. 0-27002).
(14) INCORPORATED BY REFERENCE FROM THE COMPANY'S CURRENT REPORT ON FORM 8-K
DATED JANUARY 14, 2000(FILE NO. 0-27002).
(15) INCORPORATED BY REFERENCE FROM THE COMPANY'S CURRENT REPORT ON FORM 8-K
DATED JANUARY 31, 2000 (FILE NO. 0-27002).
(16) INCORPORATED BY REFERENCE FROM THE COMPANY'S CURRENT REPORT ON FORM 8-K
DATED JANUARY 31, 2000 (FILE NO. 0-27002).

<PAGE>

EXHIBIT 21

MORROW SNOWBOARDS, INC.

SUBSIDIARIES OF THE REGISTRANT

- Morrow International, Inc.

- Morrow Westbeach Canada ULC
and subsidiaries:
Westbeach Snowboards USA, Inc.
Westbeach Snowboard GMBH
Westbeach Snowboard (UK) Limited

<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> DEC-27-1998
<PERIOD-END> JAN-01-2000
<CASH> 1,930
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,443
<PP&E> 3,061
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,576
<CURRENT-LIABILITIES> 3,973
<BONDS> 0
0
0
<COMMON> 27,866
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,576
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 347
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27
<INCOME-PRETAX> (374)
<INCOME-TAX> 0
<INCOME-CONTINUING> (374)
<DISCONTINUED> (3,276)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,650)
<EPS-BASIC> (.57)
<EPS-DILUTED> (.57)

</TABLE>