MACGREGOR SPORTS & FITNESS INC, 10KSB/A, 1996-07-03

MACGREGOR SPORTS & FITNESS INC
10KSB/A, 1996-07-03
MISC DURABLE GOODS

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<PAGE> 1
FORM 10-KSB/A

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
for the fiscal year ended July 31, 1995, or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934 (NO FEE REQUIRED)

Commission File Number 0-19817

MACGREGOR SPORTS AND FITNESS, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
MINNESOTA 41-1652566
(State or other jurisdiction of incorporation) (IRS Employer Identification No.)

8100 WHITE HORSE ROAD, GREENVILLE, SOUTH CAROLINA 29611
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (864) 294-5230
</TABLE>

<TABLE>
<S> <C>
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON SHARES, PAR VALUE $.02 PER SHARE, AND
WARRANTS TO PURCHASE COMMON SHARES
</TABLE>

Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file
such report(s) and (2) has been subject to such filing requirements for the
past 90 days.
YES [X] NO [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to the Form 10-KSB [___].

The issuer's revenues for the fiscal year ended July 31, 1995 were $518,971

The aggregate market value of the voting stock held by non-affiliates computed
by reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of a specified date within the past 60 days.
(See definition of affiliates in Rule 12b-2 of the Exchange Act).

As of November 20, 1995, there were 8,249,423 outstanding Common Shares, par
value $.02 per share of the Registrant.

Documents Incorporated by Reference: NONE.

<PAGE> 2

PART 1

ITEM 1. DESCRIPTION OF BUSINESS

GENERAL

MacGregor Sports and Fitness, Inc. (the "Registrant"), a Minnesota Corporation,
through its wholly owned subsidiaries, MacGregor Sports Products, Inc., a
Delaware Corporation ("MacGregor"); and Carolina Team Sports, Inc. ("CTS"); is
in the business of marketing and distributing through its exclusive
distributor, Roadmaster Corporation (an affiliate of the Registrant)
("Roadmaster"), a broad range of sports, recreational and fitness products
under the MacGregor trademark. CTS is no longer in business as described
below. The MacGregor trademark, first used circa 1870, is not only one of the
oldest names in the sporting goods industry, but also one of the most widely
recognized names. All references to the Registrant shall include MacGregor
unless otherwise specified.

In December 1994, the Company entered into a letter of potential interest with
an affiliate. Under the terms of the letter, as amended in November 1995, the
Company will grant the affiliate an option to extend the existing distribution
agreement (Note 1) for two additional five-year periods with increased minimum
royalty requirements. In addition, the Company will grant the affiliate an
option to acquire all of its interests in and to the MacGregor trademark and
other related trademarks and rights (the "MacGregor Rights") for a cash payment
of $675,000 plus a three-year note representing the then existing present
value of the remaining minimum payments under the distribution agreement,
including all extensions. Management and the affiliate believe that the
foregoing structure recognizes a value for the MacGregor rights at an amount in
excess of $4,100,000. In response to the November 1995 amendment to the letter
of interest, the Company has reduced the carrying amount of its intangible
assets at July 31, 1995 by $500,000. Management intends to use the proceeds of
the distribution agreement and sale, should it occur, to pay current
obligations and investigate mergers, acquisitions and other potential
investment opportunities.

In December 1993, management elected to restructure CTS. The restructure
included the novation of a government contract effective December 1, 1993, the
elimination of the team division sales organization and support staff and the
closure of a team sports operation in Spartanburg, South Carolina. These
actions were taken to reduce costs and minimize usage of working capital.

In conjunction with the restructure, approximately $175,000 of inventory and
$50,000 of book value of fixed assets were sold to an unrelated third party for
$208,000. The proceeds were used to reduce the Branch Bank & Trust's (BB&T)
revolving line of credit from $569,000 to $400,000, and to repay certain trade
accounts payable.

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<PAGE> 3

In May 1995, CTS did not renew its retail lease, ceased operations, and is
currently selling its remaining inventory. Its furniture and equipment was
sold for a loss of approximately $19,000.

On October 7, 1993, MacGregor entered into a 5-year exclusive distributorship
agreement with Roadmaster. Roadmaster paid the Registrant $1,631,000 for all
the inventory and accounts receivables and certain fixed assets of MacGregor.
The proceeds were used to pay off the revolving loan with Security Pacific
Business Credit ("SPBC"), commissions due to its independent sales agents,
certain notes of the Registrant to certain shareholders, and legal and
accounting bills. The remainder of the proceeds were used to pay certain
accounts payable of MacGregor. Additionally, the agreement requires Roadmaster
to pay a quarterly percentage-based royalty on net sales with minimum
cumulative royalties over the term of the agreement. The agreement grants
Roadmaster the exclusive rights to distribute MacGregor products worldwide,
excluding the Western Pacific Region and certain non-retail channels of trade
in the U.S., Canada and Mexico.

Roadmaster, through its independent representatives and key account managers,
sells its and MacGregor's products to retail sporting goods stores and large
retailers such as discount stores, department stores and other mass merchant
outlets.

Among the products on which Roadmaster has the right to use the MacGregor
trademark are baseballs, softballs, bats, gloves, protective equipment, various
accessories, basketballs, footballs, soccer balls, volleyballs, playground
balls, hockey equipment, juvenile products, bicycles and fitness equipment.

The Registrant retained the rights to market products in Australia, New Zealand
and Japan which are contingent upon meeting certain goals. If these goals are
not met, Roadmaster would obtain the marketing rights to these territories.

The Registrant's income from the Roadmaster royalty during the fiscal years
ended July 31, 1994 and 1995 amounted to approximately $166,000 and $247,000,
respectively, based on the minimum royalty required by the agreement. In
addition, Roadmaster has made advances of future minimum royalty payments to
MacGregor to enable MacGregor to meet certain financial obligations.

Prior to October 7, 1993, MacGregor's product line was being marketed in North
America, South America, and Europe under an exclusive sales agent agreement
with KSG, Inc. ("KSG"). In conjunction with acquiring the Roadmaster
agreement, the Registrant terminated an agreement with KSG, and as a condition
of the termination issued 185,640 shares of its common stock to KSG and
recognized $140,000 of expense.

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<PAGE> 4

In February 1992, the Registrant sold certain trademark rights to be used in
team sports institutional channels. Sports Supply Group of Dallas, Texas
("SSG"), paid $1,500,000 for the use of the MacGregor brand in such channels.
Proceeds from the sale were used to reduce the Registrant's term debt.

On May 9, 1991, the Registrant acquired from MacGregor Sports, Inc. ("MSI")
certain assets, including accounts receivable, inventory, minor or other
trademarks, general intangibles, securities and other miscellaneous assets (but
specifically excluding real estate, machinery and equipment). MSI had filed
for protection from creditors under Chapter 11 of the United States Bankruptcy
Code.

Also in 1991, MacMark, the owner of the trademarks under which the
Registrant's products are sold, and Equilink, a MacMark licensee, entered into
new license agreements with MacGregor. The new license agreements, replaced
and expanded upon the licenses pursuant to which MSI had used the MacGregor
trademark. The MacMark license provides for the grant of the exclusive right
to use the MacGregor trademarks, in connection with various articles used in
certain sports, including baseball/softball, basketball, soccer, football,
volleyball, certain types of exercise equipment, hockey, lawn and garden games,
and miscellaneous racquet sports royalty free (see MacGregor trademark).

In connection with the Equilink license, the Registrant has the right to the
MacGregor trademark for bicycles and all other forms of exercise and fitness
products not covered by the MacMark license. This license required a minimum
of royalty of $40,000 the first year, adjusted annually for changes in the
consumer price index. The Registrant has relied upon the advance payments
from Roadmaster to provide the funds to meet this obligation.

The Registrant's executive offices are located at 8100 White Horse Road,
Greenville, South Carolina 29611 and its telephone number is (803) 294-5230.

DEVELOPMENT OF BUSINESS

Prior to December 30, 1991, the Registrant had been known as Vida Ventures,
Ltd. ("Vida"), a company that was organized under Minnesota law in November,
1989.

Beginning in 1991, Equitex, Inc. ("Equitex"), a business development company
and a principal shareholder of the Registrant, had advanced funds to
MacGregor, in amounts, as of the current date totaling $1,252,020. In April
1995, Equitex converted $1,000,000 of these advances into 1,000 shares of the
Registrant's newly created Class C (Class C) Convertible Preferred Stock. The
Class C stock is not redeemable and has no voting rights. The Class C stock
has a liquidation preference of $1,000 per share, a dividend preference of $70
per share and, commencing May 1, 1996, is convertible into the Registrant's
common stock at the lesser of $1.00 per share or 80% of the average market
price for the Registrant's common stock at the time of conversion.

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<PAGE> 5

In connection with the May 9, 1991 lending arrangements, MacGregor issued to
SPBC five-year warrants for the purchase of the Class B (non-voting) Common
Stock in an amount equal to five percent (5%) of the outstanding common stock.
The Registrant and SPBC entered into a supplemental agreement providing that
such warrants would entitle SPBC to purchase 237,575 Class B (non-voting)
common shares of the Registrant.

PRODUCTS, SALES AND MARKETING

MacGregor retail branded products are currently being marketed by Roadmaster
under its five-year exclusive distributor agreement. Roadmaster distributes
the MacGregor product to major retail chains including mass merchants through
independent representatives. The products marketed by Roadmaster include
baseballs, softballs, bats, gloves, basketballs, footballs, soccer balls,
volleyballs, playground balls and juvenile products. Additionally, SSG is
distributing through catalogs and telemarketing all of the above products as
well as many types of gym and other sports equipment used in the institutional
channels of distribution. This equipment includes field hockey equipment,
tennis nets and racquets, baseball and umpire protective equipment and soccer
goals and nets.

SUBLICENSING AND THIRD-PARTY MARKETING

On December 7, 1992, MacGregor executed a perpetual sublicense agreement and a
marketing agreement through June 30, 1994 with 2 Bi 2, Inc. of St. Louis,
Missouri, a distributor of a patented unique two-wheel drive bicycle. The
Registrant received a non-refundable royalty prepayment of $200,000 and the
sublicense agreement provides for a continuing 3% royalty on net sales of the
products licensed. Additionally, the Registrant received $100,000 for
marketing services to be provided through June 30, 1994. In June 1994, the
Company became aware that 2 Bi 2, Inc. abandoned this line of business and
became defunct and, consequently defaulted on its obligations under the
agreement. Accordingly, the Registrant recognized approximately $282,000 of
other royalty income for the year ended July 31, 1994.

MANUFACTURING AND SUPPLIERS

Roadmaster, through its five-year exclusive retail distributorship agreement
sources from independent suppliers the products it sells. Additionally, SSG
through its institutional license agreement sources the product it sells from
independent suppliers. MacGregor retains the right to inspect all products to
ensure they meet standards acceptable to MacGregor.

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<PAGE> 6

THE MACGREGOR TRADEMARK

The Registrant believes that brand recognition is important in the marketing of
sporting goods. Roadmaster and SSG are dependent on MacGregor's two licenses
to use the trademark for sourcing, importing, advertising and sale of
MacGregor's products. The licenses grant the exclusive right, to use the
MacGregor trademark worldwide, in perpetuity, subject to certain conditions.

Conditions for the continuation of the licenses include MacGregor's maintaining
a ratio of current asset to current liabilities of 1.2 to 1, on a quarterly
basis. For the purposes of the licenses, current assets and current
liabilities are calculated so that revolving loan debt secured in whole or in
part by current assets is classified as a current liability, and term loan debt
is not classified as a current liability. At July 31, 1995, the Company was
not in compliance with certain financial covenants. However, Equitex, Inc. (a
shareholder of the Company) has committed to the Company, if necessary for the
continuation of the Company's licenses, to provide or cause to be provided such
current assets as may be needed. Other conditions of the licenses include
furnishing Equilink and MacMark with financial statements, records showing the
number and dates of sale of all licensed articles sold or otherwise
transferred, and notifying them of changes in ownership or management.
However, as described below in "Management's Discussion and Analysis" (Item 6),
certain shareholders of the Registrant have agreed to assist the Registrant in
curing any default in the agreements should the licensor declare default.
Consequently, management does not believe that this license will be terminated
by the licensor.

COMPETITION

MacGregor's brand of products competes with the brands of numerous other
companies in the marketing and distribution of sporting goods, some which may
have greater capital available to them than the Registrant or Roadmaster, and
some of which may manufacture the products they market and distribute. There
can be no assurance that the MacGregor products can compete effectively. These
competitors include manufacturers of sporting goods, such as Wilson Sporting
Goods Company, Spalding Sports Worldwide, Inc., and Rawlings Sporting Goods
Company.

Competition in the channels of distribution in which Roadmaster markets
MacGregor products is fierce, and is based on price, quality, service and brand
recognition. Roadmaster products do not directly compete with MacGregor
products.

EMPLOYEE

The Registrant has 1 full-time employee. The Registrant's employee is not
represented by a union, and the Registrant believes its relations with its
employee to be good.

6
<PAGE> 7

ITEM 2. DESCRIPTION OF PROPERTY

The Registrant and CTS lease office space in Greenville, South Carolina. The
five-year lease terminates in 1998 and the monthly base rent is $5,833. CTS
previously had a retail store lease which expired in May 1995.

ITEM 3. LEGAL PROCEEDINGS

THE Registrant has been named in an action filed in the Supreme Court of the
State of New York alleging personal injury from a batting helmet allegedly sold
by the Company. The claimed defect is that the helmet did not include a face
mask and that the plaintiff was injured when he was struck in the face with a
baseball. The complaint seeks damages of $5 million. The Company has referred
the complaint to its insurer for the relative period, and believes (a) that the
claim is covered by insurance in its entirety, subject to relevant deductibles,
which would not be material to the Company's financial position; and (b) that
the likelihood of loss is remote. An answer has been filed denying the
allegations of the complaint relevant to the Company based on the Company's
belief that it neither manufactured, sourced nor distributed the product which
is the subject of the suit. No amounts have been accrued in the financial
statements with respect to the referenced action.

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

No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended July 31, 1995.

7
<PAGE> 8

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SECURITY STOCK MATTERS

Common Shares and Warrants of the Registrant are traded in the
over-the-counter market and have been quoted on the NASDAQ Small Cap Market
since April 14, 1992 under the symbols MACG (Common Shares), and MACGW
(Warrants).

The following table sets forth the quarterly high and low bid information for
the Common Stock for the periods indicated. These market quotations reflect
the inter-dealer prices without retail markup, markdown or commissions and may
not represent actual transactions. The Registrant has extended the expiration
date of the warrants to October 31, 1996 and they have an exercise price of
$1.00.

<TABLE>
<CAPTION>
COMMON SHARES
-------------
HIGH BID LOW BID
-------- -------
<S> <C> <C>
1992
- ----
Third calendar quarter 2-3/8 1-5/8
Fourth calendar quarter 2 1-3/4

1993
- ----
First calendar quarter 1-5/8 7/8
Second calendar quarter 1-3/8 3/4
Third calendar quarter 1-1/2 1-5/16
Fourth calendar quarter 1-5/8 1

1994
- ----
First calendar quarter 1-3/16 1/2
Second calendar quarter 5/8 13/32
Third calendar quarter 3/4 11/32
Fourth calendar quarter 13/16 21/32

1995
- ----
First calendar quarter 1-1/16 20/32
Second calendar quarter 1 23/32
Third calendar quarter 1 9/16 3/4
</TABLE>

8
<PAGE> 9

As of October 31, 1995, there were issued and outstanding 8,249,423 Common
Shares, which were held of record by 112 persons. Record ownership includes
nominees who hold equity securities of the Registrant for multiple beneficial
owners. The Registrant also has outstanding 800,000 publicly registered
Warrants, 216,400 warrants that were issued to eleven accredited investors in a
private placement and 120,000 warrants held by the underwriter in the
Registrant's initial public offering.

To date, the Registrant has not paid any cash dividends on its securities. The
Registrant currently intends to retain any earnings for use in its operation
and does not anticipate paying cash dividends in the foreseeable future. The
Company does not have any contractual restrictions to declare dividends.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS

Due to the distributorship agreement with Roadmaster and the Company's future
plans, it is anticipated that the reported financial information indicated
herein will not be indicative of future operating results.

The independent auditor's report on the MacGregor's financial statements
for the year ended July 31, 1995, included a "going concern" explanatory
paragraph, which means that the auditors have expressed substantial doubt about
the MacGregor's ability to continue as a going concern. Management's plans in
regard to the factors which prompted the explanatory paragraph are discussed in
Note 2 to the MacGregor's July 31, 1995 financial statements.

Revenues were significantly less in fiscal year ended July 31, 1995 compared
with July 31, 1994 as management reacted to the changing institutional sporting
goods market. As more and more sporting goods manufacturers and distributors
sell direct to the institutional accounts, those accounts no longer require
sporting goods dealers such as CTS. In December 1993, CTS eliminated its team
division sales organization and novated a government contract. During the
fourth quarter of the current fiscal year, management took actions to curtail
its retail operations.

RESULTS OF OPERATIONS

The Registrant's sales were $518,971 and $2,237,601 for the fiscal years
ended July 31, 1995 and 1994, respectively which were mostly derived from CTS.
The decline in revenues was attributable to the December 1993 decision to
eliminate its unprofitable team sales division and a novation of a government
contract. The revenues in fiscal year July 31, 1994 attributed to such
activities were 1,022,148 and 212,791, respectively.

Gross profits were $72,500 and $365,403 or 14.0% and 16.3% of sales for the
fiscal years ended July 31, 1995 and 1994, respectively.

Royalty income decreased to $246,664 from $447,332 in year ended July 31, 1995
compared with July 31, 1994. During 1994, the Registrant received
non-recurring royalties of approximately $282,000 (see Note 11 to the financial
statements). In 1994, the Registrant earned royalties under its distribution
agreement with Roadmaster of $165,000 which increased by approximately $82,000
to $247,000 in 1995.

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<PAGE> 10

General and administrative expenses decreased to $517,246 in the year ended
July 31, 1995 from $1,758,205 in 1994. The decrease is directly attributable
to the Company's curtailment of CTS activities during 1994 and continuing into
1995. During the year ended July 31, 1995, as further discussed under
LIQUIDITY AND CAPITAL RESOURCES, the Company wrote down its trademark and
license agreement by $500,000. Also, during the fiscal year ended July 31, 1994
charges of $281,710 were incurred for the write-off of goodwill, and $148,689
for the write-down of trademarks.

The Registrant experienced net losses of $1,145,000 and $1,855,267 for the
fiscal years ended July 31, 1995 and 1994, respectively.

LIQUIDITY AND CAPITAL RESOURCES

At July 31, 1995, the Company's current liabilities exceeded its current assets
by approximately $2,167,000. As discussed in Note 1 to the financial
statement, MacGregor has entered into a distribution agreement with Roadmaster.
Under the terms of the distribution agreement, the Company will receive
royalties from Roadmaster Corporation, including certain cumulative minimum
royalties throughout the term of the agreement. Through July 31, 1995,
Roadmaster has paid 1994 and 1995 minimum royalties totaling approximately
$412,000 and has advanced approximately $64,000 against future royalties.
$300,000 of the proceeds were used to terminate the Company's license with
MacGregor Golf Company in exchange for its releasing the Company from future
minimum royalties of $395,000 and $520,000 for the twelve months ended
February 1995 and 1996 respectively. Additionally, proceeds were used to pay
quarterly minimum license payments to Equilink under its license agreement
and certain trade liabilities of the Company. In connection with the
Roadmaster distribution agreement, the Company has established and implemented
a program whereby the selling, general and administrative expenses related to
the former distribution operations of MSP have been substantially eliminated.

10
<PAGE> 11
In August through October 1995, MacGregor sold 308,000 shares of its
stock at an average price of $.59 for proceeds of $181,000, pursuant to prior
agreements as follows: Ralph Grills Family Ltd. Partnership, Wayne R.
Mills and Bruce Reichert. The average price reflects a modest discount from the
then prevailing market price in light of the restricted nature of the shares.
MacGregor also received $50,000 from a shareholder in exchange for a 10% note.
The total proceeds of $231,000 were used to pay certain liabilities of
MacGregor, as well as MacGregor's obligation under its license from Equilink.

In February 1994, the Company issued 344,000 shares of Common Stock to BB&T
Bank of Greenville, CTS' lender to collateralize $175,000 of BB&T's then
outstanding $400,000 line of credit to CTS. In October 1995, BB&T required
the Company to cause the shares to be purchased by Equitex's designee at a price
of $.50 per share. The proceeds of $172,000 reduced the BB&T indebtedness. In
October 1995, the Company agreed to issue 228,677 shares of its Common Stock to
CTS, and CTS pledged these shares to the bank as colleteral for its remaining
indebtedness. The shares are to be returned to the Company when the
indebtedness is paid in full. If the bank determines to foreclose on the
shares, the Company will be required to either register the shares at its
expense, or cause the shares to be purchased by Equitex, Inc. or its designee at
$1.00 per share.

It is possible that cash flow from MacGregor's royalties will not provide
sufficient cash flow to the Company to pay for its operating and other expenses
during fiscal 1996. A prepayment of the minimum royalty payments due from
Roadmaster for the remainder of calendar year 1995 in the amount of $116,420
has been received in fiscal 1995 to enable MacGregor to pay certain current
obligations.

Management is actively investigating various merger possibilities and other
business combinations, whereby a privately-held issuer may desire to merge his
business into a public company, such as MacGregor. Management has held
discussions with an unaffiliated private company, as a potential merger
candidate, but there can be no assurance that any such transaction can be
accomplished on reasonable terms. Furthermore, such reorganizations are
subject to regulation, and will only be accomplished in compliance with all
applicable federal and state securities regulations.

Additionally, if unanticipated factors arise that would cause the cash flow of
the Company to fall short of needed levels, or if the Company is unable to
complete the sale of the MacGregor rights under the terms of the letter of
potential interest, management has developed alternative plans to continue
operations. These plans include:

A. Equitex, Inc. (a shareholder of the Company) providing financing, or
causing financing to be provided, of any expenses of the Company. The
Company would assign its rights to future Roadmaster Corporation royalty
streams to Equitex, Inc. to the extent that such expenses were so funded
by Equitex, Inc.

B. Investigating receiving a prepayment of a portion of the 1996 minimum
royalty due from Roadmaster.

C. Investigating additional merger possibilities.

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<PAGE> 12

D. Investigating increases in ownership equity to provide funds to meet
current obligations.

E. Investigating the sale of MacGregor rights to other parties.

Management believes that these plans would be adequate and will enable the
Company to effectively continue its operations.

The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards ("SFAS") No. 119, "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments." SFAS No. 119 is
effective for fiscal years ending after December 15, 1995, for entities with
less than $150 million in total assets, and addresses disclosure requirements
for derivative financial instruments. As the Company currently does not hold
any derivative financial instruments, management does not believe that the
Company's financial position or results of operations will be materially
affected by the implementation of SFAS No. 119.

The Registrant's business and operations have not been materially affected by
inflation.

Item 7. FINANCIAL STATEMENTS

FINANCIAL STATEMENTS OF THE REGISTRANT

Report of Gelfond Hochstadt Pangburn & Co., independent auditors, regarding the
financial statements of the Registrant for the years ended July 31, 1995 and
1994.

Consolidated Balance Sheet, July 31, 1995.

Consolidated Statements of Operations, years ended July 31, 1995 and 1994.

Consolidated Statements of Changes in Shareholders' Equity, years ended July
31, 1995 and 1994.

Consolidated Statements of Cash Flows, years ended July 31, 1995 and 1994.

Notes to Consolidated Financial Statements

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

None.

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PART III

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

Directors of the Registrant hold office until their successors have been
elected and qualified or until their death, resignation or removal.

<TABLE>
<CAPTION>
POSITION PRINCIPAL OCCUPATION
NAME AGE WITH REGISTRANT OR EMPLOYMENT
- ------------------- --- -------------------------- --------------------------------------
<S> <C> <C> <C>

Henry Fong 59 Chairman of the Board, President, Chief Executive Officer,
Director and Director of
Roadmaster Industries,

Michael S. Casazza 45 President, Chief Executive President and Chief Executive Officer,
Officer and Director California Pro Sports, Inc.

Robert C. Engelstad 63 Director Chief Executive Officer of Pet Food
Warehouse, Inc.

David C. Johnston 62 Director Retired tax partner,
Arthur Andersen & Co.

Michael C. Brandt 45 Director Business Management &
Marketing Consultant

Barry S. Hollander 38 Chief Financial Officer Treasurer and Chief Financial Officer
</TABLE>

HENRY FONG. Mr. Fong, a founder and promoter of the entity that merged with
and into the Company on December 30, 1991, served as its Chairman of the Board
of Directors and Treasurer from February 1991, until the merger, at which time
he was elected Chairman of the Board and Secretary of the Company. From July
1989 until September 1990, he served as a Director of MacGregor Sports, Inc.,
the wholly owned operating subsidiary of MacGregor Sporting Goods Corporation,
which on February 15, 1991, filed for protection under Chapter 11 of the United
States Bankruptcy Code. Mr. Fong has been the President, a Director and
controlling shareholder of Equitex, Inc., a Denver-based business development
company, since January 1983. He has been the President, Chief Executive
Officer and a Director of Roadmaster Industries, Inc., since 1987. Equitex and
Roadmaster are subject to SEC reporting requirements.

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<PAGE> 14

In August 1994, Mr. Fong, resolved a pending matter administratively with the
Securities and Exchange Commission. The sole alleged violation occurred over
seven years ago when Mr. Fong did not obtain technical approval from the
Commission for two transactions in certain securities that Equitex, Inc., a
business development company under the Investment Company Act of 1940, owned in
an invested company. Without admitting or denying any violation, Mr. Fong
agreed to cease and desist from committing or causing a violation of Section
57(a) (1) and (4) of the Investment Act. Mr. Fong also agreed that while he is
associated with Equitex, Inc., he will obtain legal advice before he buys or
sells securities in a company with which he is associated or affiliated. Mr.
Fong has returned the profit made on the transaction, $73,775 plus interest.

MICHAEL S. CASAZZA. Mr. Casazza has been President, Chief Executive Officer
and a Director of the Registrant since the date of the merger, December 30,
1991. From February 1991 to December 30, 1991, he was President, Secretary and
Director of MacGregor. From November 1990 to May 1991, Mr. Casazza served as
President of Ajay Leisure Products, Inc., a wholly owned subsidiary of Ajay
Sports, Inc., a principal shareholder of the Registrant. During November and
December 1990, Mr. Casazza also served as a Consultant to MacGregor Sporting
Goods, Inc. From 1988 to 1990, Mr. Casazza was Vice President/General Manager,
Golf Division for Wilson Sporting Goods Company. Prior to that he held various
positions with Dunlop Slazenger Corporation, including President of its Racquet
Sports Division and National Sales Manager of its Golf Division. Mr. Casazza
has also been President and Chief Executive Officer of California Pro Sports,
Inc., a distributor of in-line skates, since April 1993.

ROBERT C. ENGELSTAD. Prior to the merger, Mr. Engelstad was President of Vida
Ventures, Ltd., from its inception until December 30, 1991. Mr. Engelstad has
been CEO of Pet Food Warehouse, Inc., a Minnesota-based chain of retail pet
products superstores, since January 1, 1992. From January 1989 until December
1990, he was President of VersaLink, Inc., a computer hardware and software
company located in Edina, Minnesota. From 1980, to 1988, Mr. Engelstad was a
50% owner and President or Chairman of Rosco Manufacturing Company, a road
construction equipment manufacturing company. He was President of Morton Pet
Food Company, a pet food manufacturer from 1978 to 1980. Prior to 1978, he was
a partner in the Minneapolis office of Arthur Andersen & Company, a certified
public accounting firm. Mr. Engelstad is Chairman of the Board of Acquire II,
Incorporated, the publicly held parent corporation of Pet Food Warehouse. He
is a founder and promoter of the Company.

MICHAEL C. BRANDT. Mr. Brandt is currently a Business Management and Marketing
Consultant. He was the President and Chief Executive Officer of Mario
Fernandez, Inc., the Fountainhead Corporation and Fernandez Limited Editions,
affiliated companies located in Edina, Minnesota, in the business of creating,
selling, marketing and distributing fine art and related products, from
September 1989 until July 1990. From September 1985 until September 1989, Mr.
Brandt was a Business Management and Marketing Consultant, whose clients have
included the Carlson Companies, Jacobs Management, Concorde Marketing, Insty
Prints, Inc., Edina Realty, Inc., Kauffman/Steward and ArtCo, Inc.

14
<PAGE> 15

From 1974 to 1985, Mr. Brandt was the President and Owner of Brandt/Stewart
Advertising, Inc. Representative clients at that advertising agency included
Anheuser-Busch (Budweiser), B. Dalton (Pickwick Books), Dayton-Hudson,
Branden's, International Multifoods, Pizza Hut, Ralston Purina, Honeywell and
others. He received a B.A. in marketing and journalism from the University of
Minnesota.

DAVID C. JOHNSTON. Mr. Johnston has served as a Director of the Company since
its inception in November 1989. Mr. Johnston, a founder and promoter of the
Company, served as its Chairman of the Board and Secretary from November 17,
1989 (inception) until December 30, 1991. Mr. Johnston is a retired tax
partner with Arthur Andersen & Company, Certified Public Accountants. Mr.
Johnston began his association with Arthur Andersen in 1957, and was admitted
to the partnership in the Minneapolis office in 1970. In 1979 and 1980, he
served as Vice President of Administration of Byerly's, Inc., a regional group
of retail stores. From 1981 until his retirement in 1988, he served as tax
partner to Arthur Andersen & Company in its Salt Lake City Office.

BARRY S. HOLLANDER. Mr. Hollander has been Vice President of Operations of
MacGregor since May, 1991, and has continued in that capacity following the
merger. Since January 1993, Mr. Hollander has been Chief Financial Officer of
MacGregor. From August 1989 until May 1991, Mr. Hollander was employed in
various positions with MSI, including Chief Financial Officer, Vice President
of Athletic Products Division and General Manager. From 1986 to 1989, Mr.
Hollander held various positions with MacGregor Sporting Goods, Inc., including
Accounting Manager and Chief Financial Officer of its Athletic Products
Division. He has been a Certified Public Accountant since 1984. Mr. Hollander
is also the Chief Financial Officer of California Pro, Inc., a distributor of
in-line skates, since April 1993.

FILINGS UNDER THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's officers and directors, and persons who owns more than ten percent
of a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than ten percent shareholders are required by
certain regulations to furnish the Company with copies of all Section 16(a)
forms they file.

Based solely on its review of the copies of such forms received by it, the
Company believes that during the Company's fiscal year ended July 31, 1994, all
filing requirements applicable to its officers and directors and greater than
10% beneficial owners are in compliance.

15
<PAGE> 16
ITEM 10. EXECUTIVE COMPENSATION

GENERAL INFORMATION

Executive compensation is determined by the Board of Directors. The following
is compensation paid or to be paid by the Company for services rendered during
the fiscal year ended July 31, 1995, for (i) The Chief Executive Officer. No
other Executive Officer of the Registrant received total compensation in excess
of $100,000.

SUMMARY COMPENSATION TABLE

Long Term Compensation
----------------------
Annual Compensation Awards Payouts
-------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)

Other
Name Annual Restricted
and Compen- Stock LTIP All Other
Principal Salary Bonus sation Award(s) Options/ Payouts Compensa-
Position Year $ $ $ $ SARs (#) $ tion ($)
- ----------- ---- ------ ----- ----------- ----------- --------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>

Michael S.
Casazza,
CEO 1995 None
1994 48,000
1993 134,000
</TABLE>

EXECUTIVE COMPENSATION PLANS

During the fiscal year ended July 31, 1995, the Executive Officers of the
Company had no retirement, pension, profit sharing, insurance or medical
reimbursement plans other than insurance and medical benefits available
generally to full-time employees of the Company. The Company does have a Stock
Option Plan for its key employees.

In the year ended July 31, 1995, there were no options granted.

There were no fees or other compensation paid to directors. There was no
repricing of any options.

16
<PAGE> 17

AGGREGATED OPTION/SAR EXERCISES IN
LAST FISCAL YEAR AND
FISCAL YEAR END OPTION/SAR VALUES

NUMBER OF UNEXERCISED
SHARES ACQUIRED VALUE OPTIONS/SARS AT FY END (#)
NAME ON EXERCISE REALIZED ($) EXERCISABLE/UNEXERCISABLE (1)
---- --------------- ------------ -----------------------------
<S> <C> <C> <C>
Michael S. Casazza -0- -0- 50,000

</TABLE>

(1) The unexercised options are not in-the-money.

EMPLOYMENT AGREEMENTS

The Company currently does not have any employment agreements.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of October 31, 1995, the ownership of the
Company's Common Shares by each person or entity known by the Company to be the
beneficial owner of more than five percent (5%) of the Company's issued and
outstanding Common Shares by each Director and by all Officers and Directors of
the Company as a group:

NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE
- ----------------------- ---------------- ----------

Henry Fong (1) (2)
7315 E. Peakview Avenue
Englewood, CO 80111 1,835,780 22.3%

Equitex, Inc. (1) (3)
7315 E. Peakview Avenue
Englewood, CO 80111 1,279,046 15.5%

Michael S. Casazza (4)
139 Sun Meadow Road
Greer, SC 29650 108,800 1.3%

Barry S. Hollander
109 Brook Bend Court
Mauldin, SC 29662 100,000 1.2%

17
<PAGE> 18

NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE
---------------------------- ---------------- -------------

Robert C. Engelstad
265 Lindawood Lane
Wayzata, Minnesota 55391 200,000 2.4%

David C. Johnston
787 Northpoint Drive
Salt Lake City, Utah 84102 250,000 3.0%

Michael C. Brandt
2222 Oakland Road
Minnetonka, Minnesota 55305 87,500 1.1%

Roadmaster Corporation (6)
Post Office Box 344
Olney, Illinois 62450 556,734 6.7%

All Officers and Directors 2,582,080 31.3%
as a group (6 persons) (1)

(1) Mr. Fong, who owns no shares in his own name, may be, through his
control of certain entities, as described below, deemed to be a beneficial
owner of shares held by such entities. The shares of such entities are,
therefore, duplicated in the table above.

(2) Henry Fong is President and a Director of Equitex, Inc. and President and
Chairman of Roadmaster Industries, Inc. The shares of such entities may
be deemed to be beneficially owned by Mr. Fong. Roadmaster Industries,
Inc., directly or indirectly through its subsidiary Roadmaster
Corporation, owns 446,734 Common Shares and has been pledged an additional
110,000 shares by Ajay Sports, Inc.

(3) In addition to Roadmaster Industries, Inc. and Ajay Sports, Inc., other
portfolio companies of Equitex, Inc. own a total of 53,946 Common Shares
of the Company. Equitex disclaims direct and indirect beneficial
ownership of all such shares.

(4) Such shares are held of record by Gail Casazza, the wife of Mr. Casazza,
as to which Mr. Casazza shares investment and voting power. Includes
options to purchase 50,000 shares of common stock at $2.238 per share.

(5) Represents options to purchase 100,000 shares of common stock at $1.00 per
share.

(6) Of such shares, 446,734 are held of record. Roadmaster Corporation has
entered into an agreement with Ajay Sports, Inc. wherein an additional
110,000 shares have been pledged by Ajay Sports, Inc.

18
<PAGE> 19

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Henry Fong is President, Chairman of the Board and indirectly a controlling
shareholder of Roadmaster Industries, Inc., a manufacturer of junior products,
bicycles and fitness equipment. Edward Shake is President of Roadmaster
Corporation, the wholly owned operating subsidiary of Roadmaster Industries,
Inc. In October 1993, the Company entered into a distribution agreement with
Roadmaster as further described in Item 1.

In order for MacGregor to have met certain obligations it received from
Roadmaster an advance of minimum royalties due through December 1995.

Henry Fong is a Principal Owner, Director and President of Equitex, Inc., to
which the Company is obligated, under certain circumstances, to pay certain
management fees under an agreement with the Company's former principal lender,
Security Pacific Business Credit. In addition, Equitex has advanced the
Company $1,252,020. In April 1995, Equitex has converted $1,000,000 of this
amount into 1,000 shares of the Registrant's newly created Class C Convertible
Preferred Stock. The Company has entered into an understanding with Equitex
under which the Company will repay in full the remaining principal balance and
interest on its obligations to Equitex subsequent to July 31, 1995.

Equitex has also committed to the Company if necessary for the continuation of
the Company's licenses, to provide or cause to be provided such current assets
as may be need.

See Management's Discussion of Analysis for a discussion of certain proposed
and consummated related transactions.

(remainder of page left blank intentionally)

19
<PAGE> 20

PART IV

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) 1. EXHIBITS

Exhibits filed as part of this Report are listed in the Exhibit
Index, which follows the Signature page.

(b) REPORTS ON FORM 8-K

No reports on Form 8-K were filed during the last quarter of the
fiscal year ended July 31, 1995, the period covered by this report
on Form 10-KSB.

20
<PAGE> 21

SIGNATURES

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

MACGREGOR SPORTS AND FITNESS, INC.

Dated: November 30, 1995 By: /s/ MICHAEL S. CASAZZA
------------------------------------
Michael S. Casazza
President, Chief Executive Officer
(Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dated indicated.

<TABLE>
<CAPTION>
NAME TITLE DATE
- ---- ----- ----
<S> <C> <C>
/s/ MICHAEL S. CASAZZA President, Chief Executive Officer November 21, 1995
- --------------------------- (Principal Executive Officer) and Director
Michael S. Casazza

/s/ BARRY S. HOLLANDER Chief Financial Officer (Principal November 21, 1995
- --------------------------- Financial and Principal Accounting Officer)
Barry S. Hollander

/s/ HENRY FONG Chairman of the Board of Directors November 21, 1995
- --------------------------- and Secretary
Henry Fong

ROBERT C. ENGELSTAND Director November 21, 1995
- ---------------------------
Robert C. Engelstad

DAVID C. JOHNSTON Director November 21, 1995
- ---------------------------
David C. Johnston

/s/ MICHAEL C. BRANDT Director November 21, 1995
- ---------------------------
Michael C. Brandt

</TABLE>

The above represents a majority of the members of the Board of Directors.

<PAGE> 22
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
YEARS ENDED JULY 31, 1995 AND 1994

CONTENTS

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

Consolidated financial statements:

Balance sheet F-2
Statements of operations F-3
Statements of shareholders' equity F-4
Statements of cash flows F-5

Notes to consolidated financial statements F-7
</TABLE>

<PAGE> 23
INDEPENDENT AUDITORS' REPORT

Board of Directors
MacGregor Sports and Fitness, Inc.
Greenville, South Carolina

We have audited the accompanying consolidated balance sheet of MacGregor Sports
and Fitness, Inc. and subsidiaries as of July 31, 1995, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the years in the two-year period ended July 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of MacGregor Sports
and Fitness, Inc. and subsidiaries as of July 31, 1995, and the results of their
operations and their cash flows for each of the years in the two-year period
ended July 31, 1995, 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 2 to
the consolidated financial statements, the Company has suffered recurring net
losses, and at July 31, 1995 its current liabilities exceed its current assets.
These factors raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regard to these matters are also
described in Note 2. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

Gelfond Hochstadt Pangburn & Co.

Denver, Colorado
November 30, 1995

F-1
<PAGE> 24
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JULY 31, 1995

<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash $ 2,846
Trade receivables, net of allowance for doubtful
accounts of $4,000 1,329
Inventories 6,450
-------------
Total current assets 10,625
-------------

Furniture and equipment 8,414
Less accumulated depreciation 6,723
-------------

1,691
-------------

Trademarks and license agreements, net of
accumulated amortization of $1,099,612
(Notes 1, 2, and 4) 4,272,492
-------------

$ 4,284,808
=============

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Lines of credit (Note 5) $ 380,677
Notes payable, shareholders (Note 6) 91,306
Current portion of long-tem debt, shareholder (Note 6) 27,000
Investment fees payable to related party (Note 10) 281,500
Accrued interest and other, related parties (Note 10) 379,180
Accounts payable and accrued expenses 953,013
Deferred royalty revenue 64,477
-------------

Total current liabilities 2,177,153
-------------

Long-term debt, shareholder (Note 6) 225,020
-------------

Commitments (Notes 4, 7, 10, and 11)

Class A 10% mandatory redeemable convertible preferred stock,
liquidation preference $610,000 plus unpaid dividends,
if and when declared; 610 shares issued and
outstanding (Note 7) 610,000
-------------

Shareholders' equity (Note 7):
Class C convertible preferred stock, liquidation
preference $1,000,000 plus dividend preference
of $70 per share per year, issued and
outstanding 1,000 shares 1,000,000
Common stock, par value $.02; authorized 25,000,000
shares, issued and outstanding 8,249,423 shares 164,988
Additional paid-in capital 7,397,429
Warrants 3,588
Deficit (7,293,370)
-------------

1,272,635
-------------

$ 4,284,808
=============

</TABLE>

See notes to consolidated financial statements.

F-2

<PAGE> 25
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED JULY 31, 1995 AND 1994

<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Sales $ 518,971 $ 2,237,601
Cost of Sales (446,471) (1,872,198)
-------------- ----------------
Gross profit 72,500 365,403
-------------- ----------------
Royalty Income:
Related party 246,664 165,548
Other 281,784
-------------- ----------------

246,664 447,332
-------------- ----------------
Operating expenses:
General and administrative 517,246 1,758,205
Depreciation and amortization 281,411 349,736
Write off of goodwill (Note 8) 281,710
Write down of trademark costs (Note 2) 500,000 148,689
-------------- ----------------

1,298,657 2,538,340
-------------- ----------------

Operating loss (979,493) (1,725,605)
-------------- ----------------
Other income (expense):
Interest expense:
Related parties (36,204) (113,276)
Other (112,650) (51,585)
Other (16,456) 35,199
-------------- ----------------

(165,310) (129,662)
-------------- ----------------

Net loss $ (1,144,803) $ (1,855,267)
============== ================

Loss per common share $ (.14) $ (.26)
============== ================

Weighted average number of common shares 8,169,622 7,376,483
============== ================
</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE> 26
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

YEARS ENDED JULY 31, 1995 AND 1994

<TABLE>
<CAPTION>
Additional
Class C preferred Stock Common stock paid-in
Shares Amount Shares Amount capital
------ ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C>
Balances,
August 1, 1993 6,857,283 $ 137,146 $ 6,709,271

Common stock
issued in connection with
the termination of marketing
agreement (Note 9) 185,640 3,713 136,287

Common stock
issued in conversion of 385,000
shares of Class B preferred
stock (Note 7) 385,000 7,700 377,300

Common stock
issued as collateral for line
of credit (Note 5) 344,000 6,880 (6,880)
---------- ---------------- --------------
Net loss

Balances,
July 31, 1994 7,771,923 $ 155,439 $ 7,215,978

Common stock
issued in conversion of
accounts payable (Note 7) 477,500 9,549 181,451

Class C preferred stock
issued in conversion of notes
payable,shareholder (Note 7) 1,000 $ 1,000,000

Net loss
---------- -------------- ---------- ---------------- ---------------

Balances,
July 31, 1995 1,000 $ 1,000,000 8,249,423 $ 164,988 $ 7,397,429
========== ============== ========== ================ ===============

Warrants Deficit Total
-------- ------- -----
<S> <C> <C> <C>
Balances,
August 1, 1993 $ 3,588 $ (4,293,300) $ 2,556,705

Common stock
issued in connection with
the termination of marketing
agreement (Note 9) 140,000

Common stock
issued in conversion of 385,000
shares of Class B preferred
stock (Note 7) 385,000

Common stock
issued as collateral for line
of credit (Note 5)

Net loss (1,855,267) (1,855,267)
----------- ------------- ----------------
Balances,
July 31, 1994 $ 3,588 $ (6,148,567) $ 1,226,438

Common stock
issued in conversion of
accounts payable (Note 7) 191,000

Class C preferred stock
issued in conversion of notes
payable,shareholder (Note 7) 1,000,000

Net loss (1,144,803) (1,144,803)
----------- ------------- ----------------
Balances,
July 31, 1995 $ 3,588 $ (7,293,370) $ 1,272,635
=========== ============= ================
</TABLE>

See notes to consolidated financial statements.

F-4

<PAGE> 27
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED JULY 31, 1995 AND 1994

<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,144,803) $ (1,855,267)
-------------- --------------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Proceeds from distribution agreement (Note 1) 1,626,523
Proceeds from sale of certain CTS assets (Note 8) 150,000
Write off of trademark license costs (Note 2) 500,000 148,689
Write off of goodwill (Note 8) 281,710
Marketing expense incurred on issuance of common
stock (Note 9) 140,000
Depreciation and amortization 281,411 349,737
Write off of obsolete inventory 17,440
Loss on sale of furniture and equipment 19,374 22,250
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivables 16,458 1,129,502
Inventories 247,568 402,809
Prepaid expenses 17,680 83,824
(Increase) decrease in liabilities:
Accounts payable and accrued expenses 101,041 (941,646)
Deferred royalty revenue (101,953) (112,514)
-------------- --------------
Total adjustments 1,099,019 3,280,884
-------------- --------------

Net cash provided by (used in) operating activities (45,784) 1,425,617
-------------- --------------

Cash flows from investing activities:
Purchase of property and equipment (2,000)
Sale of furniture and equipment 12,056
Proceeds from sale of property and
equipment in connection with
distribution agreement (Note 1) 4,477
Proceeds from sale of certain CTS
equipment (Note 8). 58,000

-------------- --------------
Net cash provided by (used in) investing activities 12,056 60,477
-------------- --------------

Cash flows from financing activities:
Increase (decrease) in bank overdraft (17,474) 15,152
Net payments under revolving credit arrangement (13,073) (1,102,895)
Proceeds from issuance of notes payable 31,383 27,000
Principal payments of notes payable $ $ (389,613)
-------------- --------------

Net cash provided by (used in) financing activities $ 836 $ (1,450,356)
-------------- --------------
</TABLE>

(Continued)

F-5

<PAGE> 28
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED JULY 31, 1995 AND 1994

<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Increase (decrease) in cash $ (32,892) $ 35,738

Cash, beginning of period 35,738
------------- ------------
Cash, end of period $ 2,846 $ 35,738
------------- ------------

Supplemental disclosure of cash flow information:
Cash paid for interest $ 36,833 $ 78,627
============= ============

Supplemental disclosure of noncash investing and financing activities:
During 1994, the Company issued 344,017 shares of common stock to its lender
as additional collateral for its revolving credit arrangement. In addition,
the Company converted 385,000 shares of its Class B redeemable convertible
preferred stock to 385,000 shares of common stock.

During 1995, accounts payable of $191,000 were converted to 477,500 shares of
common stock (Note 7) and $1,000,000 of notes payable, shareholder were
converted to 1,000 shares of Class C preferred stock (Note 6).

</TABLE>

See notes to consolidated financial statements.

F-6

<PAGE> 29
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995 AND 1994

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES:

BUSINESS OF THE COMPANY AND PRINCIPLES OF CONSOLIDATION:

MacGregor Sports and Fitness, Inc. (the "Company" or "MSF"), through
its wholly-owned subsidiary, MacGregor Sports Products, Inc.
("MSP") owns the worldwide rights to the use of the MacGregor name
(Note 4) and markets and distributes a broad range of sports,
recreational, and fitness products under its distribution agreement
with Roadmaster Corporation. Carolina Team Sports, Inc. ("CTS") is
also a wholly-owned subsidiary. Significant intercompany balances and
transactions have been eliminated.

ORGANIZATION AND MERGER:

The Company was formed on December 31, 1991 through a merger between
Vida Ventures, Ltd. ("Vida") and Sports Acquisition Corporation
("SAC"). SAC was formed in February 1991, and on May 9, 1991, it
acquired certain assets of MacGregor Sporting Goods, Inc. ("MSI"). The
primary assets acquired were worldwide rights to use the MacGregor name
on sporting, recreational, and fitness products.

INVENTORIES:

Inventories consist of sports, recreational, and fitness
products held for resale, and are stated at the lower of cost or
market. Cost is determined using the first-in, first-out (FIFO)
method.

FURNITURE, EQUIPMENT, AND DEPRECIATION:

Furniture and equipment are recorded at cost. The assets are
depreciated over their estimated useful lives of five to seven years
using the straight-line method.

TRADEMARKS AND LICENSE AGREEMENTS:
Trademark and license agreements relate to costs incurred in
acquiring use of the MacGregor trademark (the "MacGregor Rights")
(Note 4) and are being amortized using the straight-line method over
25 years.

F-7
<PAGE> 30
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995 AND 1994

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)

INTANGIBLE ASSETS (CONTINUED):

The Company periodically evaluates the carrying amount of its
intangible assets. The Company determined that the net realizable
value of the MacGregor license agreements at July 31, 1994 was less
than the carrying amount and the difference of $148,689 was charged to
operations. As further discussed in Note 2, at July 31, 1995, the
Company determined that the carrying value of its intangible assets
should be reduced by an additional $500,000. During the year ended
July 31, 1994, the Company also determined that goodwill related to the
acquisition of Carolina Team Sports, Inc. had been impaired and
$281,710 was charged to operations (Note 8). At July 31, 1995, no
remaining goodwill is included in the financial statements.

DISTRIBUTION AGREEMENT:

Effective October 7, 1993, the Company entered into an
agreement with Roadmaster Corporation ("RMC") whereby RMC acquired the
exclusive rights to distribute MacGregor products, subject to certain
worldwide territorial limitations and restrictions set forth in the
Company's other licensing agreements. The agreement continues for a
period of five years, with an option to renew for an additional five
year term with a minimum annual royalty. The agreement provides that
RMC will pay the Company on a quarterly basis percentage-based
royalties on net revenues generated from sales of the MacGregor
products with minimum cumulative royalties. The agreement pertains
only to distribution of MacGregor products. RMC did not acquire the
MacGregor Rights. The chairman of the Company's Board of Directors, is
also the president and chairman of the board, and indirectly a
controlling shareholder of RMC's parent company. RMC is also a
shareholder of the Company.

Under the agreement, the Company received cash of approximately
$1,631,000 in exchange for all of the accounts receivable, inventory
and certain equipment with book values of $427,000, $623,000, and
$30,000, respectively, resulting in a $551,000 write off of the
carrying value of the MacGregor license costs (Note 2). The purchase
price included payment of the revolving line of credit in the amount
of $440,000 (note 5), payment in the amount of $276,000 to satisfy
commissions owed to and to settle the exclusive representation
agreement with a company which had been marketing the Company's
products, $186,000 for the reduction of certain notes payable, and
$729,000 for the reduction of certain accounts payable and accrued
expenses.

F-8

<PAGE> 31
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995 AND 1994

2. RESULTS OF OPERATIONS, LETTER OF POTENTIAL INTEREST TO ACQUIRE LICENSE
RIGHTS AND MANAGEMENT'S PLANS:

The accompanying consolidated financial statements have been prepared
on a going concern basis, which contemplates continuity of operations,
and the realization of assets and liquidation of liabilities in the
ordinary course of business. The Company incurred net losses of
approximately $1,145,000 and $1,855,000 for the years ended July 31,
1995 and 1994, respectively. Further, at July 31, 1995, the
Company's current liabilities exceeded its current assets by
approximately $2,167,000. Therefore, the continuity of operations and
realization of assets and liquidation of liabilities is subject to
uncertainty. However, management believes that the going concern basis
is appropriate based on the events and plans described below.

In December 1994, the Company entered into a letter of
potential interest with an affiliate. Under the terms of the letter, as
amended in November 1995, the Company will grant the affiliate an
option to extend the existing distribution agreement (Note 1) for two
additional five-year periods with increased mimimum royalty
requirements. In addition, the Company will grant the affiliate an
option to acquire all of its interests in and to the MacGregor
trademark and other related trademarks and rights (the "MacGregor
Rights") for a cash payment of $675,000 plus a three-year note
representing the then existing present value of the remaining minimum
payments under the distribution agreement, including all extensions.
Management and the affiliate believe that the foregoing structure
recognizes a value for the MacGregor rights at an amount in excess of
$4,200,000. In response to the November 1995 amendment to the letter
of interest, the Company has reduced the carrying amount of its
intangible assets at July 31, 1995 by $500,000. Management intends to
use the proceeds of the distribution agreement and sale, should it
occur, to pay current obligations and investigate mergers, acquisitions
and other potential investment opportunities.

Management believes that the proceeds from the extended royalty
agreement, and sale of the MacGregor Rights, should it occur, when
considered with the curtailment of CTS operations discussed in Note 8
will enable the Company to meet its current obligations and continue
operations. If unanticipated factors arise that would cause the cash
flow of the Company to fall short of needed levels, or if the Company
is unable to complete the sale of the MacGregor Rights under the terms
of the letter of potential interest, management has developed
alternative plans to continue operations. These plans include:

F-9

<PAGE> 32
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED JULY 31, 1995 AND 1994

2. RESULTS OF OPERATIONS, LETTER OF POTENTIAL INTEREST TO ACQUIRE LICENSE
RIGHTS AND MANAGEMENT'S PLANS (CONTINUED):

a. Equitex, Inc. (a principal shareholder of the Company) providing
financing, or causing financing to be provided, of any
expenses of the Company. The Company would assign its rights to
future Roadmaster Corporation royalty streams to Equitex,
Inc. (Equitex) to the extent that such expenses were so funded
by Equitex.

b. Investigating merger possibilities.

c. Investigating increases in ownership equity to provide funds to
meet current obligations.

d. Investigating the sale of the MacGregor Rights to other
parties.

Management believes that these plans would be adequate and will enable
the Company to effectively continue its operations.

3. INCOME TAXES:

Effective August 1, 1993, SFAS No. 109, "Accounting for Income
Taxes," was adopted. SFAS No. 109 requires a company to recognize
deferred tax liabilities and assets for the expected future tax
consequences of events that have been recognized in a company's
financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between
the financial statement carrying amounts and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse.

F-10
<PAGE> 33
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995 AND 1994

3. INCOME TAXES (CONTINUED):

The following is a summary of the Company's deferred tax assets at July
31, 1995:

<TABLE>
<S> <C>
Deferred royalties $ 22,000
Operating loss carry forward 1,703,000
Other 10,000
Less valuation allowance (1,735,000)
-----------
$
===========
</TABLE>

At July 31, 1995, the Company has available, operating loss
carryforwards of approximately $5,000,000 which may be utilized to
offset future taxable income through 2010.

A reconciliation of the statutory federal income tax rate to the
Company's effective income tax rate is as follows:

<TABLE>
<CAPTION>
July 31,
1995 1994
---- ----
<S> <C> <C>
Statutory income tax (benefit) (34%) (34%)
State taxes (4%) (4%)
Non-deductible amortization 12% 5%
Deferred tax benefit not recognized 26% 33%
---- ----

==== ====
</TABLE>

F-11
<PAGE> 34
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995 AND 1994

4. MACGREGOR TRADEMARK AND LICENSE AGREEMENTS:

In connection with the acquisition of assets from MSI, the Company acquired
the worldwide rights to the use of the MacGregor name. Conditions for the
continuation of the licenses include MSP maintaining a ratio of current
assets to current liabilities of 1.2 to 1, on a quarterly basis. The
Company was not in compliance with this condition at July 31, 1995, and has
not received a waiver of the noncompliance at July 31, 1995. If necessary
for the continuation of the Company's licenses, Equitex has agreed to
provide or cause to be provided such current assets as may be needed. For
the purpose of computing the ratio, current assets and current liabilities
are calculated so that revolving loan debt secured in whole or in part by
current assets is classified as a current liability. Other conditions
include furnishing the Licensors with financial statements, notifying the
Licensors of changes in ownership or management of the Company, and
attaining certain levels of sales of licensed products.

5. LINES OF CREDIT.

At July 31, 1995, CTS had two lines of credit with maximum borrowing limits
of $225,000 and $175,000. At July 31, 1995, $380,677 was outstanding under
the lines. Interest is at the bank's prime rate plus 0.5 percent (9.75% at
July 31, 1995). In February 1994, the Company issued 344,000 shares of its
common stock to CTS, and CTS pledged these shares to the bank as additional
collateral for the lines. The shares were issued to and held by CTS, who
pledged the shares of stock to the bank for its loan outstanding at that time
of $175,000. The shares were valued at $.50 per share, which was within the
range of the market value of MacGregor shares at that time. In October 1995,
BB&T required the Company to cause 344,000 shares of its common stock to be
purchased by Equitex's designee at $.50 per share. The proceeds of $172,000
reduced the BB&T indebtedness. Also in October, the Company agreed to issue
228,677 shares of its common stock to CTS, and CTS agreed to pledge these
shares to the bank as collateral for its remaining indebtedness.

F-12
<PAGE> 35
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995 AND 1994

6. NOTES PAYABLE AND LONG-TERM DEBT:

The Company was indebted to certain shareholders in the amount of $91,306 at
July 31, 1995. The notes are unsecured, bear interest at the prime rate plus
2 percent (10.75% at July 31, 1995) or 10%, and are due on demand.

Notes payable, shareholder, represents promissory notes to Equitex. The
notes are unsecured and bear interest at 2 percent above the prime rate
(10.75% at July 31, 1995). During the year ended July 31, 1995, $1,000,000
of notes were converted into 1,000 shares of the Company's Class C
convertible preferred stock (Note 7). At July 31, 1995, $27,000 of the
notes are due on demand and the balance of $225,020 are due in August 1996.

7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY:

CLASS A REDEEMABLE CONVERTIBLE PREFERRED STOCK:

In May 1991, the Company issued 610 shares of Class A convertible preferred
stock. The stock has a liquidation preference of $1,000 per share and a
dividend preference of $100 per share per year, payable monthly if and when
dividends are declared, and then accumulate to the extent the Company does
not pay monthly dividends. Each share of Class A preferred stock is
convertible into 272 shares of common stock. To the extent that the Company
has adequate cash flow available, it can redeem the Class A convertible
preferred stock in increments of 25 percent of the number of shares of
Class A convertible preferred shares initially outstanding from time to
time. If the Company completes a public offering of at least $4,000,000,
the Class A convertible preferred stock will be redeemed at a rate of 25
percent per month for four months, commencing with the month that the
public offering is completed. The Company has no current plans to complete
a public offering and has not redeemed any of the Class A convertible
preferred stock.

F-13
<PAGE> 36
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995 AND 1994

7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY (CONTINUED):

CLASS B REDEEMABLE CONVERTIBLE PREFERRED STOCK:

During the year ended July 31, 1994, the Company's 385,000 shares of $1.00
per share liquidation preference, Class B redeemable convertible preferred
stock were converted to 385,000 shares of the Company's common stock.

CLASS C CONVERTIBLE PREFERRED STOCK:

Equitex, a principal shareholder of the Company, converted $1,000,000 of
indebtedness into 1,000 shares of the Company's Class A convertible
preferred stock during 1995 (Note 6). The Class C convertible preferred
stock is not redeemable and has no voting rights. The Class C convertible
preferred stock has a liquidation preference of $1,000 per share, a dividend
preference of $70 per share per year, if and when declared, and (commencing
May 1, 1996) is convertible into common stock at the lesser of $1.00 per
share or 80% of the average market price for the Company's common stock at
the time of conversion. The Company has the option of paying the dividends
by issuing shares of the Company's common stock at a value equal to 80%
of the average market price.

STOCK OPTION PLAN:

Effective December 2, 1991, the Company established a Stock Option Plan for
employees, directors, and key consultants. The Company reserved 750,000
shares of common stock for issuance under the plan. The plan contains
provisions for both an incentive ("ISOP") as well as a nonstatutory stock
option plan, with options expiring ten years from the date of grant. No more
than one-half of the maximum number of shares authorized under the plan may
be reserved for issuance upon exercise of nonstatutory stock options. The
ISOP provides that options will be granted at an exercise price no less than
the fair market value of the Company's stock on the date of grant. The
aggregate fair market value of the shares subject to exercise for the first
time by any optionee during any calendar year may not exceed $100,000.
Directors and key consultants who are not employees of the Company are not
eligible to participate in the ISOP. As of July 31, 1995, 150,000 options
had been granted under the ISOP.

Prior to August 1, 1993, options to purchase 150,000 shares of common stock
had been granted under the ISOP and are available for exercise. The exercise
price of options to purchase 50,000 shares of common stock is $2.2375 per
share and to purchase 100,000 shares of common stock is $1.00 per share.
During the years ended July 31, 1995 and 1994, no options were granted,
exercised or cancelled under the ISOP. The non-statutory plan provides that
options may be granted at exercise prices no less than 85 percent of the
fair market value of the Company's stock on the date of grant. As of July
31, 1995, no options have been granted under the non-statutory plan.

F-14
<PAGE> 37
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995 AND 1994

7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY (CONTINUED)

WARRANTS AND OTHER OPTIONS:

In connection with the asset purchase of May 9, 1991, SAC, a privately owned
company prior to its merger with Vida, issued the financial institution
which provided the Company's revolving and term notes, a warrant
allowing the institution to purchase 237,575 shares of non-voting common
stock at a price of $.0735 per share. The exercise price of the warrant at
the date of issue in 1991 equaled or exceeded fair market value of the
Company's common stock at that date. The warrant expires May 9, 2001. At
July 31, 1995, no warrants had been exercised.

At December 31, 1991, the Company issued warrants to purchase up to 75,000
shares of the Company's common stock at $2.25 per share. The warrants,
issued as compensation for having introduced the management to SAC to the
management of Vida, are fully exercisable on the date of the grant, and
expire on December 29, 1996. At July 31, 1995, no warrants had been
exercised.

As of July 31, 1995, the Company has outstanding for public sale 800,000
warrants, with each warrant entitling the holder thereof the right to
purchase one common share at an exercise price of $1.00 for a period of 24
months through October 31, 1997. The Company may call the warrants for
redemption at a price of $.05 per warrant upon 30 days prior written notice
at any time. At July 31, 1995, no warrants had been exercised.

In connection with a public offering, completed in October 1990, the Company
issued and sold to the underwriter, for $100, warrants to purchase an
aggregate of 120,000 common shares. Underwriters' warrants for 80,000
shares are exercisable through November 18, 1995, at an initial exercise
price of 107 percent of the public offering price per Unit which consisted
of one share of common stock and one redeemable warrant. Underwriters'
warrants for 40,000 shares are exercisable for two years through November
18, 1995, at $6.00 per share. The common shares issued upon exercise of the
underwriter's warrants will not be freely tradeable upon issuance, but may
become tradeable upon registration at the demand of the holders thereof.

F-15
<PAGE> 38
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995 AND 1994

7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
(CONTINUED):

WARRANTS AND OTHER OPTIONS (CONTINUED):

During 1993 and 1992, the Company entered into note and warrant
purchase agreements, primarily with certain of its shareholders,
whereby the Company received proceeds of $536,000 upon the issuance of
$536,000 of 10 percent promissory notes and 154,800 detachable
warrants. The notes were paid during the years ended July 31, 1995 and
1994. The warrants are exercisable at $2.00 per warrant to acquire one
share of common stock over a five-year period expiring July 1997. The
Company allocated $3,488 of the total proceeds to the warrants. At
July 31, 1995, no warrants had been exercised.

CONVERSION OF ACCOUNTS PAYABLE TO COMMON STOCK:

In September 1994, $191,000 of accounts payable with third parties were
converted at the per share market price to 477,500 shares of the
Company's Common Stock.

OTHER COMMON STOCK ISSUANCES:

In August through October 1995, the Company sold an additional 308,000
shares of its common stock at an average price of $.59 for proceeds of
$181,000. Additionally, a shareholder purchased a $50,000 note with 10%
interest. The proceeds of $231,000 were used to pay certain liabilities
of the Company, as well as the Company's obligation under its license
from Equilink.

8. CAROLINA TEAM SPORTS, INC.:

In 1992, the Company acquired the net assets of CTS. CTS was a regional
sporting goods dealership servicing Georgia, North and South Carolina,
as well as governmental agencies throughout the United States and
Europe.

F-16
<PAGE> 39
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995 AND 1994

8. CAROLINA TEAM SPORTS, INC. (CONTINUED):

During the years ended July 31, 1995 and 1994, CTS realized declining gross
profits and incurred operating losses. In response to the losses, during
fiscal 1994, management reorganized the operations of CTS, terminated its
governmental agency contracts and certain other sales contracts that were
unprofitable, and sold certain equipment and inventory to an unrelated
third party for $208,000 resulting in a loss of approximately $22,000.
Management determined that the goodwill of CTS, arising from the
acquisition, was permanently impaired and during the year ended July 31,
1994, operations were charged with approximately $282,000 for the
elimination of the goodwill. During the year ended July 31, 1995, the
Company ceased operations of CTS, its remaining retail sporting goods
dealership was closed, and its furniture and equipment was sold for a loss
of approximately $19,000.

9. TERMINATION OF MARKETING AGREEMENT:

Prior to October 1993, the Company's products were being marketed under an
agreement with a third party. For these services, the Company paid
agreed-upon commissions and agreed to grant, through 1996 based upon the
third party attaining certain sales goals, options to purchase up to 309,400
shares of the Company's common stock. In October 1993, in conjunction with
acquiring the Roadmaster agreement the marketing and option agreements were
terminated in exchange for 185,640, shares of the Company's common stock.
The Company recognized $140,000 of expense upon the issuance of common
stock.

10. RELATED PARTIES:

During the year ended July 31, 1994, the Company incurred approximately
$25,000 of expenses for certain administrative services performed for the
Company by Equitex.

Prior to August 1, 1992, the Company entered into an agreement with Equitex
to pay Equitex an investment banking fee for services provided to the
Company in securing its credit facilities. The total amount due of
$281,500 is payable when the Company has available funds. The Company
entered into a management agreement effective May 9, 1991, with the Company
to pay Equitex a fee of $10,000 per month for a period of twenty-four
months. The management fee will be payable, and $30,000 shall accumulate
or accrue, when the Company achieves net income of $60,000 in any
three-month period. Because the Company has never achieved net income of
$60,000 in any three-month period, no amounts have been accrued under the
agreement.

F-17
<PAGE> 40
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995 AND 1994

10. RELATED PARTIES (CONTINUED):

Accrued interest and other payables, related parties, consists of
approximately $314,947 of accrued interest due under the shareholder notes
payable and approximately $64,232 due to Equitex and other related parties
for reimbursement of general and administrative expenses paid by those
parties on behalf of the Company. Expenses incurred by related entities on
behalf of the Company were approximately $56,800 in 1995 and $7,500 in 1994.

11. COMMITMENTS:

OTHER LICENSE AGREEMENTS:

In May 1992, MSP entered into a licensing agreement which granted to the
licensor royalties in consideration of granting MSP the right for the
manufacture, purchase for resale, and distribution of golf gloves and pull
carts under the MacGregor name. Royalty expense of approximately $173,000
was incurred during the year ended July 31, 1994. During 1994, the license
agreement was terminated.

On December 7, 1992, the Company executed a perpetual sublicense agreement
and a marketing agreement through June 30, 1994 with a distributor of a
patented two-wheel drive bicycle. The Company received a non-refundable
royalty prepayment of $200,000 and $100,000 for marketing services through
June 30, 1994. Accordingly, the Company recorded the $300,000 received as a
deferred liability, and amortized the marketing agreement into income.
During 1994, the Company believed the sublicensee committed breaches of the
sublicense which would constitute a termination or grounds for termination
of the sublicense. The sublicensee, to the best of the Company's knowledge,
has ceased attempting to distribute the licensed product and accordingly,
the Company has recorded the balance of the unamortized non-refundable
royalty prepayment and the unamortized portion of the marketing agreement
into income. Revenues of approximately $282,000 were recorded for the year
ended July 31, 1994.

F-18
<PAGE> 41
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1995 AND 1994

11. COMMITMENTS (CONTINUED):

OTHER LICENSE AGREEMENTS (CONTINUED):

In June 1994, the Company paid $300,000 to terminate the Company's license
with MacGregor Golf Company in exchange for its releasing the Company from
future minimum royalties of $395,000 and $520,000 for the twelve months
ended February 1995 and 1996, respectively.

OPERATING LEASES:

The Company leases office and warehouse space under an operating lease
expiring May 1998. Total rent expense was approximately $35,352 and $128,700
for the years ended July 31, 1995 and 1994, respectively. Future minimum
rental payments are as follows:

<TABLE>
<CAPTION>
YEAR ENDING
JULY 31,
-----------
<S> <C>
1996 $ 70,000
1997 70,000
1998 46,667
1999
--------
$186,667
========
</TABLE>

12. MAJOR CUSTOMERS AND EXPORT SALES:

During the years ended July 31, 1995 and 1994, no single customer accounted
for more than 10% of sales, and there were no significant export sales.

13. LOSS PER SHARE:
Loss per share is computed based on the weighted average number of
shares actually outstanding. Outstanding warrants, options and convertible
preferred stock are not considered in the calculations as they would
decrease loss per share.

F-19

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-1-1994
<PERIOD-END> JUL-31-1995
<CASH> 2,846
<SECURITIES> 0
<RECEIVABLES> 1,329
<ALLOWANCES> 4,000
<INVENTORY> 6,450
<CURRENT-ASSETS> 10,625
<PP&E> 1,691
<DEPRECIATION> 6,723
<TOTAL-ASSETS> 4,284,808
<CURRENT-LIABILITIES> 2,177,153
<BONDS> 0
610,000
1,000,000
<COMMON> 164,988
<OTHER-SE> 272,635
<TOTAL-LIABILITY-AND-EQUITY> 4,284,808
<SALES> 518,971
<TOTAL-REVENUES> 765,635
<CGS> 446,471
<TOTAL-COSTS> 1,298,657
<OTHER-EXPENSES> 165,310
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 148,854
<INCOME-PRETAX> (1,144,803)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,144,803)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,184,803)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)

</TABLE>