SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended January 31, 1998
OR

[_] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the transition period from __________ to ________

Commission file number 0-19540

GLOBAL MOTORSPORT GROUP, INC.
(Exact name of Registrant as specified in its charter)

Delaware 94-1716138
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)

16100 Jacqueline Court
Morgan Hill, California 95037
(Address of Principal Executive Offices, including Zip Code)
Registrant's telephone number, including area code: (408) 778-0500

Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange
Title of each class on which registered
------------------- -------------------
None None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.001 par value
(Title and Class)

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 Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [x]

The aggregate market value of voting stock held by non-affiliates of the
Registrant, as of April 24, 1998, was approximately $48,260,000 (based upon the
closing price for shares of the Registrant's Common Stock as reported by the
Nasdaq National Market for the last trading date prior to that date). Shares of
Common Stock held by each officer, director and holder of 5% or more of the
outstanding Common Stock have been excluded in that such persons may be deemed
to be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.

On April 24, 1998, approximately 5,161,136 shares of the Company's Common Stock,
$.001 par value, were outstanding.

Documents Incorporated By Reference
-----------------------------------
None.

PART I

ITEM 1. BUSINESS

GENERAL

This Annual Report on Form 10-K contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Actual results and the
timing of certain events could differ materially from those projected in the
forward-looking statements as a result of a number of important factors. For a
discussion of important factors that could affect the Company's results, please
refer to the section entitled "Factors That May Affect Future Results" and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained elsewhere herein. This Form 10-K includes trademarks of
companies other than the Company, including "Harley-Davidson" which is a
registered trademark of Harley-Davidson, Inc.

Global Motorsport Group, Inc. (the "Company" or "Global") is the largest
independent supplier of aftermarket parts and accessories for Harley-Davidson
motorcycles. Global's organization includes Custom Chrome, Inc. ("Custom
Chrome"), an aftermarket supplier of Harley Davidson motorcycle parts and
accessories located in Morgan Hill, California; Chrome Specialties, Inc.
("Chrome Specialties"), an aftermarket supplier of Harley Davidson motorcycle
parts and accessories located in Fort Worth, Texas; Custom Chrome, Far East
("CCFE"), a product development, engineering, tooling management and warehouse
of proprietary products for Global, located in Taiwan; Custom Chrome Europe,
Inc. ("CCE"), a distribution company located in Germany that specializes in
aftermarket accessories for Harley Davidson motorcycles and other "cruiser"
motorcycles, and Custom Chrome Manufacturing, Inc. dba Santee Industries
("CCM"), a manufacturer of frames and exhaust systems and other aftermarket
components for Harley Davidson motorcycles, located in Sylmar, California. The
Company distributes its own products, many of which are offered under registered
trademark brand names such as, RevTech, Premium, Dyno Power and C. C. Rider,
Motor Factory, Spare Parts, Jammer Cycle Products, Texas Saddles and Dallas
Leather, as well as products offered by other recognized manufacturers, such as
Dunlop, Champion, Hastings, Accel, S&S, Crane and Russell. The Company has an
integrated approach to the design, manufacture, importing, marketing and
distribution of many of its products. The Company currently offers approximately
15,000 products primarily to approximately 4,700 dealers through its two main
operating divisions, Custom Chrome and Chrome Specialties. The Company has
experienced significant growth in net sales over the last three fiscal years,
however the Company has experienced reduced overall gross margins the past two
years primarily as a result of increased price competition in the marketplace
and because an increasing proportion of the new products being offered by the
Company were non-exclusive domestically produced products which generally carry
lower gross margins than the Company's proprietary and non-U.S. sourced
products. The Company's marketing approach includes its Custom Chrome and Chrome
Specialities catalogs, a national telemarketing program, participation in and
sponsorship of industry trade shows and advertising in magazines focused on the
Harley-Davidson motorcycle market.

In September 1997, the Company completed the purchase (the "Purchase") of
substantially all of the assets and the assumption of certain liabilities of
Chrome Specialties for approximately $38.5 million. The Company funded the
Purchase through a bank financing with a syndicate of banks led by Bank of
America National Trust and Savings Association. The Company presently operates
its Chrome Specialities operations as a distinct operating subsidiary from its
Custom Chrome operations in order to have broader market appeal and diversity of
its branded product lines.

MOTORCYCLE PARTS AND ACCESSORIES INDUSTRY

According to information made public by Harley-Davidson, approximately 132,000
new Harley-Davidson motorcycles were sold in calendar 1997, with approximately
96,000 sold in the United States and 36,000 sold abroad. Based upon state motor
vehicle registrations and sales by the Company of parts and accessories for
older

model motorcycles, the Company believes that there are in excess of 1,000,000
Harley-Davidson motorcycles currently in use worldwide and further believes that
fewer Harley-Davidson motorcycles go out of use each year than are manufactured.
According to information made public by Harley-Davidson, new registrations of
Harley-Davidson motorcycles and Harley-Davidson's market share (based on new
registrations) in the North American heavyweight (engine displacements in excess
of 651cc) class was over 46% in each of the last three years and was 48.3% in
1997. Harley-Davidson motorcycles emphasize traditional styling, design
simplicity, durability, ease of service and adaptability to accessories. The
suggested retail prices of Harley-Davidson motorcycles range from approximately
$5,000 to $20,000.

During its useful life, which the Company estimates (based upon sales of parts
and accessories for older model motorcycles) often exceeds 30 years, a Harley-
Davidson motorcycle may be resold a number of times. According to information
made public by Harley-Davidson, the typical Harley-Davidson owner is a male in
his mid-forties with a household annual income of approximately $68,000 who
purchases a motorcycle for recreational rather than transportation purposes.

The parts and accessories market includes product sales to owners of both new
and used Harley-Davidson motorcycles. The market for Harley-Davidson motorcycle
parts and accessories has grown rapidly in recent years. The Company believes
this growth is a result of many factors, including (i) the popularity of Harley-
Davidson motorcycles, (ii) the design of Harley-Davidson motorcycles
incorporating visible and easily accessible parts making such motorcycles
readily adaptable to accessories, (iii) the desire of Harley-Davidson owners to
customize their motorcycles, (iv) the purchasing power of Harley-Davidson owners
and (v) the relatively higher resale value of Harley-Davidson motorcycles as
compared to other heavyweight motorcycles. Parts and accessories for Harley-
Davidson motorcycles are generally sold to motorcycle owners by either
franchised Harley-Davidson dealerships, by independent dealers or by retail mail
order dealers. These dealers are usually small, locally owned retailers that
lack significant financial or marketing resources and are operated by people who
are themselves Harley-Davidson enthusiasts. These dealers generally carry a
relatively small inventory of replacement parts and accessories and are
dependent upon quick delivery and a high level of service from suppliers of
parts and accessories. In order to successfully service these dealers and
develop customer loyalty, the Company believes that a successful supplier must
quickly respond to market trends with high-quality parts and accessories,
including customized parts and accessories, and provide rapid delivery of a
broad line of products.

"Custom Chrome," "RevTech," "Bullskins," "Tour Ease," "Premium," "C.C. Rider,"
"Dyno Power," "Motor Factory," "Dallas Leathers," "Jammer Cycle Products,"
"Highway One," "Spare Parts" and "Texas Saddles" are registered trademarks of
the Company.

BUSINESS STRATEGY

Since its inception, the Company's business strategy has been to sell a wide
range of value-priced to premium-priced high-quality aftermarket Harley-Davidson
parts and accessories, including the Company's proprietary and brand name
products, to retail dealers. The Company seeks to increase market penetration by
providing a wider selection of products supported by strategically located
warehouses to ensure rapid distribution of parts and accessories. The Company
seeks opportunities for growth by developing new products and identifying
general product line opportunities to meet changing market demands. The
following are the key elements in this strategy:

Responsiveness to Dealer Needs. The Company seeks to achieve a high level of
service in all aspects of its business, from identifying customer demand for new
products to providing rapid delivery of existing products. To reduce
distribution time and increase customer service, the Company maintains
distribution facilities in Harrisburg, Pennsylvania, Visalia, California,
Louisville, Kentucky, and Jacksonville, Florida for its Custom Chrome products
and a distribution facility in Dallas, Texas for its Chrome Specialities
products in order to ensure product availability and distribution efficiency.
The Company services its customers by providing various product promotions,
technical support, and joint merchandising and marketing programs. The Company
strives to remain

close to its customers through its computerized telemarketing system and field
sales support representatives. In addition, it leverages its sales road
representatives to improve its direct contact with the Company's customers.

Sales and Marketing Techniques. The Company supports its extensive Custom
Chrome and Chrome Specialities catalogs with an in-house telemarketing and sales
department, sales support representatives who visit customers in various regions
throughout the United States, a technical support staff, extensive trade and
consumer advertising and trade show and consumer event attendance. In addition,
the Company provides flexible financing arrangements for dealers during the
winter months and discount programs for dealers that meet certain purchase
volumes.

Development and Sale of Proprietary Products. Under Custom Chrome, the Company
maintains extensive control over the entire process of designing, manufacturing,
importing and distributing proprietary products ("Proprietary Products"). By
designing many of its own products and closely monitoring the manufacturing
process, the Company can ensure that its Proprietary Products are manufactured
to its specifications with quality materials, and believes its Proprietary
Products equal or exceed the original equipment quality standards. In addition,
because of its control over the design and manufacture of products, Custom
Chrome is generally better able to control manufacturing costs and ensure timely
sales of its products. The Company identifies new product opportunities and
designs products to implement technical innovations and to respond to changing
consumer preferences. The Company is involved in all major consumer events in
the United States for Harley-Davidson motorcycles so that the Company quickly
identify new product trends. In addition, by having an experienced internal
product development staff, as well as flexible manufacturing arrangements, the
Company is often able to move new product ideas from the design stage to volume
production in three to six months. Ideas for new products arise through a
variety of sources, including CCI's in-house engineering staff, dealers,
suppliers and consumers. New product ideas are evaluated on a weekly basis by a
product evaluation committee comprised of members of the engineering,
manufacturing, sales, finance and marketing staffs. In determining whether to
produce an individual part or a line of related parts or products, Custom Chrome
evaluates each product concept based on its estimated market demand, cost and
profitability. The Company added approximately 500 Proprietary Products to the
Custom Chrome line during the last fiscal year. The Company currently employs a
product development staff of 34 persons, and the Company's product development
expenditures in the fiscal years ended January 31, 1996, 1997 and 1998 were
approximately $1,652,000, $1,723,000, and $1,407,000, respectively. The Company
designs products to fit a wide range of Harley-Davidson models and years to
reduce the risk of product obsolescence. The Company's Proprietary Product
strategy is intended to capture premium margins for its Proprietary Products
which are only available through Custom Chrome. Such Proprietary Products are
not widely available from any other source, which allows the Company to obtain
higher margins than may be available on products for which it acts solely as a
distributor. During the fiscal year ended January 31, 1998, approximately 20% of
net sales were represented by sales of Proprietary Products, all of which are
offered under Custom Chrome brand names.

The Company's Diversity of Brand Name Products. The Company believes it
carries the largest selection of brand name products of any independent
distributor serving the parts and accessories aftermarket for Harley-Davidson
motorcycles. The Company has several brand names under which it markets both
Proprietary Products and private labels nonproprietary products supplied by
third parties ("Private Labeled Products"), through both its Custom Chrome
division and its Chrome Specialities division. Because of the large volume of
products handled by the Company and its long-standing relationships with its
suppliers, the Company believes it is often able to obtain these products at
favorable prices and terms, and often receives preference in gaining access to
products that may be in short supply. The Company's Proprietary Products and
Private Labeled Products (together, "Brand Name Products") constituted a
majority of the Company's net sales during each of the last three fiscal years.
The Company's brand names are used to promote market awareness and to identify
particular products with specific features or performance characteristics. The
Brand Name Products sold by the Custom Chrome division include the following:

. "RevTech" identifies products designed to enhance the performance of
Harley-Davidson motorcycles, such as carburetors, cylinder heads, ignition
systems, exhaust systems, oil pumps and cams. Each RevTech product is
designed to be a "bolt on" replacement of the original part in order to
provide maximum performance without the need for special tools.

. "Premium" denotes products offered by Custom Chrome that it believes equal
or exceed the quality standards of Harley-Davidson's original equipment
parts but are generally available at lower prices. This product line
includes many essential maintenance products, such as air and oil filters,
spark plugs, gaskets, batteries, starters, pistons and piston rings. This
line also includes parts no longer manufactured by Harley-Davidson but for
which a market still exists.

. "C.C. Rider," which stands for "Custom Chrome Rider," is the brand name for
a line of high quality, large-volume, maintenance and replacement
products. These products include chains, tire tubes and oil filters.

. "Dyno Power" is the Company's brand name for its complete line of exhaust
systems, mufflers and related accessories. Many of these products are
manufactured to the Company's own design and are often "style" oriented.

. "Tour Ease" represents the Company's product line that addresses the long-
distance touring market. Designed for the long-distance rider and passenger
with an emphasis on comfort, convenience and style, these products include
backrests, windshields and luggage racks.

. "Bullskins" is Custom Chrome's brand name for its leather apparel product
line. This name represents a high-quality and durable line of leather
jackets, chaps, vests and tops with distinctive styles for men and women.

In addition, the Company markets and sells a number of products, such as
fenders, gas tanks and ignition parts, under the Custom Chrome name, which
indicates to consumers that the product has been manufactured to the Company's
quality standards. Because the Company believes product packaging is an
important aspect of its products, the Company distributes many of its Brand Name
Products in distinctive, colorful packaging, designed to build brand name
recognition and to identify the product as being supplied by Custom Chrome
regardless of the manufacturing source. The Company often packages its parts
and accessories in kits which include all components needed for installation.

The Brand Name Products sold by the Chrome Specialties division include the
following:

. "Motor Factory" identifies products which are made in the U.S.A.

. "Premium Leathers" identifies products and clothing made in the U.S.A.

. "Jammer Cycle Products" identifies custom motorcycle parts.

. "Donnie Smith Design Signature Series" identifies exclusive custom
motorcycle parts.

. "Spare Parts" identifies quality imported motorcycle parts.

. "Texas Saddles" identifies premium grade leather bags.

. "Highway One" identifies imported budget leather goods.

Sales of Other Recognized Third Party Brand Name Products. Because the
Company believes that offering a wide range of products to its customers is
important to its business strategy, the Company also sells a number of products
from third party selected aftermarket manufacturers such as Champion spark
plugs, Dunlop tires, Crane cams, Accel electrical parts and Russell braided
lines and tubing under the manufacturer's brand name. Because the Company is
the largest independent distributor in the aftermarket for Harley-Davidson
motorcycles, it often plays an important role in these manufacturers' efforts to
distribute its parts and accessories to Harley-Davidson enthusiasts. As such
and because of the volume of product that the Company can rapidly provide to its
customers, the Company believes that it is often able to obtain favorable prices
and terms from these third party manufacturers. Although the margins are not as
high on these third party products as the Company's Brand Name Products, the
Company aggressively markets and sells these products so that it may provide a
broad range of parts to its customers and complement its Propriety Products and
Brand Name Products. During each of the last three fiscal years, approximately
38% of net sales were represented by sales of other recognized third party brand
name products.

Product Categories. The Company's Products are presented, for each of the
Custom Chrome catalog and the Chrome Specialties catalog by product category.
The Company offers products in the following categories through its Custom
Chrome catalog:

=================================================================================================================
Representatives Brand Names
-------------------------------------------------------------------------
Product Categories Company Brands Other Companies' Brands
- -----------------------------------------------------------------------------------------------------------------

Apparel and leather accessories Chrome Gear, Pony Express, Ace Leather, Hatch Gloves
Custom Chrome
- -----------------------------------------------------------------------------------------------------------------
Brakes, handlebars and controls Premium, C.C. Rider, Custom Chrome, Accel, Barnett, K&N, Russell,
RevTech, Mirage, Inferno GMA
- -----------------------------------------------------------------------------------------------------------------
Carburetors and intake parts RevTech, Premium, Custom Chrome Zenith, Mikuni, K&N
- -----------------------------------------------------------------------------------------------------------------
Chassis and footpegs RevTech, Premium, Tour Ease, Custom Progressive Suspension, Kuryakyn,
Chrome, Mirage, Inferno, Santee Pro One
- -----------------------------------------------------------------------------------------------------------------
Chemicals, hardware and tools RevTech, C. C. Rider, Custom Chrome PJ1, Colony
- -----------------------------------------------------------------------------------------------------------------
Drive lines (clutches, chains, etc.) Premium, C.C. Rider, RevTech, Custom Barnett, Diamond, R. K. Chain
Chrome
- -----------------------------------------------------------------------------------------------------------------
Electrical parts and accessories RevTech, Premium, C. C. Rider, Accel, Champion, Morris, Crane
Custom Chrome Spyke, Dynatek
- -----------------------------------------------------------------------------------------------------------------
Engine products RevTech, Premium, Custom Chrome Accel, Crane, Delkron, Hastings,
Manley, S.T.D., Edelbrock
- -----------------------------------------------------------------------------------------------------------------
Exhaust products DynoPower, Custom Chrome, RevTech White Bros., Supertrapp
- -----------------------------------------------------------------------------------------------------------------
Gaskets and seals Premium, RevTech, Custom Chrome Jim's Machining, Accel
- -----------------------------------------------------------------------------------------------------------------
General parts and accessories Premium, C. C. Rider, Custom Chrome National Cycle, Arlen Ness, Clymer
- -----------------------------------------------------------------------------------------------------------------
Lighting products Custom Chrome, Inferno, Mirage Candle Power, Kuryakyn
- -----------------------------------------------------------------------------------------------------------------
Seats Custom Chrome Corbin, LePera
- -----------------------------------------------------------------------------------------------------------------
Gas and oil tanks and accessories Custom Chrome, Mirage, Inferno, Lockhart, Russell, Pingel
RevTech, C.C. Rider, Santee
- -----------------------------------------------------------------------------------------------------------------
Tires and wheels RevTech, C. C. Rider, Custom Chrome, Avon, Cheng-Shin, Continental,
Premium Dunlop
- -----------------------------------------------------------------------------------------------------------------
Transmissions RevTech, Premium, Custom Chrome Andrews, S.T.D., Delkron
=================================================================================================================

The Company offers products in the following categories through its Chrome
Specialities catalog:

Apparel and leather accessories Dallas Leather, Highway One, Texas Ace, Hatch, Wolftrax, Linx, Day
Saddles, Chrome Specialties Rider
- ---------------------------------------------------------------------------------------------------------------
Brakes, handlebars and controls Motor Factory, Spare Parts, Jammer, GMA, Russell, Accel, Barnett
Chrome Specialties
- ---------------------------------------------------------------------------------------------------------------

Carburetors and intake parts Motor Factory, Spare Parts, Jammer, Mikens, Accel, S&S
Chrome Specialties
- ---------------------------------------------------------------------------------------------------------------
Chassis and footpegs Motor Factory, Spare Parts, Jammer, Progressive Suspension, Pro
Chrome Specialties One, KuryAkyn
- ---------------------------------------------------------------------------------------------------------------
Chemicals, hardware and tools Motor Factory, Chrome Specialties Gardner-Westcott
- ---------------------------------------------------------------------------------------------------------------
Drive lines (clutches, chains, etc.) Motor Factory, Spare Parts, Jammer, Barnett, Diamond
Chrome Specialties
- ---------------------------------------------------------------------------------------------------------------
Electrical parts and accessories Motor Factory, Spare Parts, Chrome Accel, Crane, Morris, West
Specialties Company., Longrider, Split Fire
- ---------------------------------------------------------------------------------------------------------------
Engine products Motor Factory, Spare Parts, Chrome S&S, Jim's Machining
Specialties
- ---------------------------------------------------------------------------------------------------------------
Exhaust products Motor Factory, Spare Parts, Jammer, SuperTrapp, White Brothers
Signature Series, Chrome Specialties
- ---------------------------------------------------------------------------------------------------------------
Gaskets and seals Motor Factory, Chrome Specialties Jim's Machining, Accel
- ---------------------------------------------------------------------------------------------------------------
General parts and accessories Jammer, Spare Parts, Signature JAAG, National Cycle, Clymer,
Series, Chrome Specialties Dakota Digital
- ---------------------------------------------------------------------------------------------------------------
Lighting products Jammer, Spare Parts, Chrome Candlepower, KuryAkyn
Specialties
- ---------------------------------------------------------------------------------------------------------------
Seats Motor Factory, Jammer, Chrome LePera, Rude Leather
Specialties
- ---------------------------------------------------------------------------------------------------------------
Gas and oil tanks and accessories Motor Factory, Jammer, Spare Parts, Russell, Pingel, Lockhart
Chrome Specialties
- ---------------------------------------------------------------------------------------------------------------
Tires and wheels Motor Factory, Jammer, Spare Parts, Cheng Shin, Avon, Carriage
Chrome Specialties Works, Dunlop
- ---------------------------------------------------------------------------------------------------------------
Transmissions Jammer, Motor Factory, Chrome Andrews, S.T.D., Delkron, Jim's
Specialties Machining
- ---------------------------------------------------------------------------------------------------------------

The suggested retail prices of the Company's products range from about $1.00
for a gasket to approximately $4,900.00 for a rolling chassis kit. During the
fiscal year ended January 31, 1998 no single product accounted for greater than
1.0% of total net sales.

MANUFACTURING AND SOURCES OF SUPPLY

The Company designs many of its own products, manufactures certain of its
products, and outsources manufacturing of other of its products.

The Company's manufacturing strategy for its Proprietary Products is to
closely control the entire process from product design through volume
production. The Company has extensive internal design capabilities but relies
almost exclusively upon unaffiliated contract manufacturers in the United States
and internationally, principally in the Far East. The Company qualifies each
contract manufacturer and works closely with the manufacturer to help assure the
timely delivery of high-quality, low-cost products that meet Custom Chrome's
specifications. By predominantly using outside manufacturers for its
internally-designed products, the Company seeks to minimize capital expenditures
and inventory costs while maintaining flexibility in response to changing
production costs and market demands. The Company also usually retains ownership
of the tooling used to produce a proprietary part and can remove the tooling
from the manufacturer's plant after a production run in order to assure that
such products will not be manufactured for other suppliers. Although Custom
Chrome has in the past, and intends in the future, to enforce vigorously the
exclusive use of its tooling, there can be no assurance that these measures will
be successful.

Once the Company makes the initial determination to proceed with a new
Proprietary Product, the product development staff prepares a prototype. After
testing, refinement and approval by the product evaluation committee, the final
product is drawn, specifications prepared and analyzed, and a development
package is produced primarily for production by outside contract manufacturers.
Tooling for a production run is then produced by the selected manufacturer,
typically at the Company's expense. A pilot run of the product is manufactured
and subjected to testing and qualification by the Company's product development
engineers to assure that the Company's standards for quality, structural
integrity and finish are maintained. After a product has been qualified, volume
production is undertaken. The Company typically moves a new idea from the
design stage to volume production in three to six months. The Company's design
staff strives to understand the needs and preferences of consumers based on a
combination of its own extensive experience and frequent input from dealers,
Harley-Davidson enthusiasts and others regarding new products or improvements to
existing products. The Company's seeks to remain close to its dealers and
consumers through participation in industry trade shows, consumer events and its
own in-house trade show in order to anticipate new trends and introduce
innovative parts and accessories in advance of its competitors. As a result,
the Company believes it is well positioned to introduce new products that are
responsive to the needs of its dealers and consumers.

The Company employs the services of various independent representatives, the
most significant of which is Zodiac Enterprises Ltd. ("Zodiac"), to expedite the
activities of its foreign manufacturers and to act as a purchasing agent for the
Company. The Company has been doing business with Zodiac since 1984. Under the
terms of the agreement between Zodiac and the Company, Zodiac is an agent for
the Company to purchase products in Taiwan and to manufacture products in
Taiwan. The agreement provides that Zodiac will supply the Company with
products that meet certain specifications designated by the Company and, when
necessary, provide the tooling that is necessary to manufacture such products.
The Company's agreement with Zodiac is renewed annually, and can be terminated
by the Company at any time on 90 days notice and by either party 90 days prior
to the end of each annual period. Products purchased through Zodiac represented
18%, 11%, and 9% of the Company's net sales in the fiscal years ended January
31, 1996, 1997 and 1998, respectively. If Zodiac's services were discontinued
for any reason, the Company believes it could replace such services in a timely
manner by its own capabilities and using other trading companies. In many
cases, the Company would expect to continue using the same manufacturer. There
can be no assurance, however, that it would not experience temporary supply
delays.

Chrome Specialties' foreign product sourcing has been also substantially from
Taiwan where it employs the services of a trading company, Harness, Inc.
("Harness") to expedite its product purchase from numerous local manufacturing
sources. As a result of the acquisition of Chrome Specialties, the Company has
chosen Chrome Specialties traditional Taiwan based trading company as its main
source of for both Chrome Specialties and Custom Chrome Products imported from
Taiwan. As a result, it is anticipated that the Company expects to increase its
product, sourcing from, and accordingly, its reliance upon Harness in the
future. If the services of Harness trading company were discontinued for any
reason the Company believes it could replace such services in an timely manner
by its own capabilities and using other trading companies. In addition, Chrome
Specialities sources manufactured products from Mexico.

Although the Company, in certain instances, has chosen to purchase its entire
supply of certain products from a single manufacturer, the Company does not
regard any single manufacturer as essential to its operations. The Company did
not purchase products representing more than 2.0% of its total sales from any
single manufacturer during the fiscal years ended January 31, 1996, 1997 or
1998. As to products for which there is a single supplier, the Company has, in
many cases, pre-qualified an acceptable alternative source and believes that
such an alternative source could commence delivery of volume production
quantities within several months. In certain cases, the Company also seeks to
mitigate the potential adverse consequences of sole sources by maintaining
adequate levels of finished goods inventory in stock and in transit.
Nonetheless, the loss of a single source supplier or a major trading company
relationship could have short-term adverse effects on operations.

A substantial number of the Company's products are manufactured in Taiwan,
South Korea and Japan. The Company maintains a purchasing office in Tainan,
Taiwan to develop relationships with Taiwanese manufacturers to provide new
sources of production and supply of the Company's products. In addition, the
Company sources manufactured Chrome Specialties products from Mexico.
Consequently, the availability and cost of products manufactured overseas could
be adversely affected if political or economic conditions in these countries
were to deteriorate. In

addition, although the prices for the products purchased by the Company are
stated in United States dollars, because the prices often are not determined
until the manufacturing process is completed, the Company bears risk with
respect to changes in exchange rates. The cost of products could also be
affected by the tariff structure imposed on imports or other trade policies of
the United States or other governments, which could adversely affect operations.
The Company attempts to minimize this risk by maintaining a pricing policy with
its dealers that allows the Company to change its prices at any time. In
certain circumstances, the Company also contracts to purchase foreign currencies
at fixed prices in the future for major foreign currency exposures. In
addition, because the Company has relationships with United States
manufacturers, the Company believes that it is capable of obtaining many of the
products presently sourced overseas from domestic sources. In this manner, the
Company believes that it can also reduce its exposure to currency fluctuations
and other risks of manufacturing in a foreign country. See also "Additional
Factors That May Affect Future Results - Dependence on Third Party and Foreign
Manufacturing Relationships; Taiwanese Political Volatility."

The Company currently purchases products from more than 800
supplier/manufacturers worldwide. Although the Company uses independent
representatives to supervise and coordinate the activities of many overseas
manufacturers, the Company maintains direct working relationships with its
significant manufacturers and regularly monitors their performance.

The Company acquires its products on a purchase order basis. As is common in
the industry, the Company experiences short-term inventory shortages with
respect to a limited number of products. However, the Company has generally
experienced no material difficulties in obtaining adequate quantities of most
products from its manufacturers. The Company not experienced any product
liability claims in the past that have had a material adverse effect on its
business. The Company generally provides only limited warranties on its
products and relies upon the manufacturers' warranties whenever possible.

PRODUCT DISTRIBUTION

Product availability and rapid delivery are critical considerations for
dealers who purchase the Company's products because most dealers do not carry
substantial inventories. Based on the shipment requirements of most of its
customers, the Company believes that if a dealer cannot provide an item to the
consumer within days, the dealer runs a substantial risk of losing the sale.
Typically, the Company ships products the same day an order is received.

The Company's Custom Chrome products are presently distributed from one of
five facilities, including its headquarters located in Morgan Hill, California
or one of four regional distribution facilities located in Visalia, California
(to serve the West), Louisville, Kentucky (to serve the Midwest), Harrisburg,
Pennsylvania (to serve the East), and Jacksonville, Florida (to serve the
South). The Louisville facility was opened in August 1988 and expanded in 1996,
the Harrisburg facility was opened in March 1992, the Visalia facility was
opened in October 1994, and the Jacksonville facility was opened in June 1997.
These facilities were opened to reduce shipping costs and to shorten delivery
times to the Company's customers.

The Company has implemented a real-time computer tracking system which
interacts between the Company's five Custom Chrome warehouses to help move
products from an initial purchase order through manufacturing, delivery to the
most appropriate warehouse and, finally, sale and delivery to the Company's
customer. The Company continues to focus on optimizing the placement of products
among its facilities in order to streamline the delivery process. In May 1997
the Company opened a distribution facility in Dallas, Texas which it closed at
the end of the last fiscal year after the purchase of Chrome Specialties. The
Company's Chrome Specialties products are presently distributed from its 100,000
square foot distribution facility and headquarters for Chrome Specialties in
Forth Worth, Texas. To distribute its Chrome Specialities products, the Company
employs numerous ground and air service shipment programs to ensure timely
shipment of its Chrome Specialties Products to its dealers. The Company plans to
integrate its distribution channels in the future so that both the Company's
Custom Chrome products and Chrome Specialties products are distributed via one
network.

MARKETING, SALES AND CUSTOMERS

The Company's customers consist primarily of approximately 3,460 independent
dealers and 600 Harley-Davidson franchised dealers throughout the United States
and approximately 640 independent and Harley Davidson dealers outside the United
States. Motorcycle dealers generally stock those parts and accessories most
commonly used by their customers, which include standard maintenance and repair
parts and supplies such as oil, tires and batteries. The Company relies upon a
number of marketing techniques designed to encourage dealers to order the
Company's Brand Name Products and to prompt retail consumers to request the
Company's Brand Name Products from their dealers.

Catalogs. The most important of the Company's marketing techniques are its
annual Custom Chrome and Chrome Specialties product catalogs. These catalogs
contain a large amount of technical information concerning the compatibility of
the Company's parts and accessories with various models of Harley-Davidson
motorcycles and tips on how the parts and accessories should be installed and
maintained. The catalogs are an important marketing tool for dealers because it
allows dealers to sell products to their customers which the dealers do not
include in their inventories or of which customers might not otherwise be aware.
The Company also sells its catalogs to both dealers and retail consumers to
establish a greater presence in its market. The Company believes that direct
distribution of its catalogs to consumers has stimulated demand for the
Company's products. In addition to its annual Custom Chrome catalog, the
Company also distributes seasonal Custom Chrome catalogs to announce new
products and to promote selected products.

Telemarketing and Support. The Company supports its catalog with a
computerized telemarketing program which consists of both placing and receiving
calls to and from dealers to promote products and take orders. When an order is
taken, the computer allows the Company to provide the dealer with current
information on pricing and product availability. The Company telemarketing
sales representatives receive extensive initial and on-going training in the
technical aspects of the Company's products and have access to technical
information via the Company's computer network. The Company's sales
representatives also have quick access to the Company's technical service,
engineering and customer service staffs. Such technical information helps the
Company's dealers to better serve the retail consumer and helps strengthen the
Company's dealer relationships. The Company believes that this customer service
and support is essential to the successful marketing of its products.

Advertising, Trade Shows and Product Flyers. The Company also relies on
advertisements in motorcycle industry, enthusiast and trade magazines and the
Company's annual in-house trade show. In addition, the Company attends all
major trade shows and other consumer events for Harley-Davidson enthusiasts such
as the Black Hills Motorcycle Rally, a popular annual event held in Sturgis,
South Dakota. The Company also publishes a bi-weekly "Dealer's Edge" sales
flyer, which is sent to dealers and provides advice on advertising and
information about parts and accessories for Harley-Davidson motorcycles and a
monthly supplement called the "Cutting Edge" which deals with new products
available from the Company. In addition, the Company has sought to more closely
coordinate promotions with new product releases to help stimulate demand for
these products.

Dealer Programs. The Company rewards dealers making higher purchases of the
Company's products through its Dealer VIP programs. Under these programs,
dealers achieving agreed-upon purchase levels are granted additional discounts
beyond the Company's standard pricing schedules.

Fall/Winter Programs. During the fall and winter, the Company's sales tend to
decrease as compared with other periods of the year. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
below. The Company has increased sales in the fall and winter by several
techniques, including issuing holiday catalogs that supplement the annual
catalog and promoting apparel and other gift-type products during the Christmas
season; allowing certain customers to purchase the Company's products during
these months and defer payment until the following spring under the Company's
"Spring Dating" program; and conducting an annual, in-house trade show in the
Fall of each year which is generally attended both by the Company's major
customers and suppliers.

Electronic Ordering and Software Assistance. The Company has a marketing
program under which participating dealers can link-up through their personal
computers with the Company's order-entry and warehousing system. This system
allows more efficient and rapid shipment of products to customers and provides a
stronger link between the Company and its customers.

The Company's sales and marketing force consists of a Vice President of Sales
and a Vice President of Marketing who oversee 95 personnel. The majority of
these personnel are in the computerized telemarketing program. The remainder
are field representatives, electronic art technicians, in-house retail sales
representatives and new dealer development personnel.

The Company's products are sold primarily to about 4,060 independent and
Harley - Davidson dealers throughout the United States and to approximately 640
independent and Harley Davidson dealers in Canada, Europe, Australia, New
Zealand and the Far East. International sales accounted for approximately 20%,
19%, and 17% of the Company's net sales in the fiscal years ended January 31,
1996, 1997 and 1998, respectively. No single customer, domestic or
international, accounted for more than 2.0% of the Company's total net sales in
the fiscal years ended January 31, 1996, 1997 or 1998. Although many of the
Company's customers are small businesses with limited capital, the Company has
not historically experienced significant losses due to uncollectible trade
receivables.

COMPETITION

The market for the Company's products is highly competitive. Key competitive
factors in the Company's industry include speed and cost of product delivery,
product availability, customer service and product quality, breadth of product
line, proprietary nature of products, name brand recognition and price.
Although many of the Company's competitors are smaller, independent distributors
which the Company believes have fewer financial, marketing and technical
resources than the Company, the proximity of the distributor to a particular
dealer and the availability of unique products can be a competitive advantage.
Accordingly, even small local distributors may be able to compete effectively
against larger distributors such as the Company. In addition, other
distributors may offer similar or lower quality products at prices below those
offered by the Company, appealing to the price- sensitive segment of the market.
While the Company believes its prices are competitive and often lower than those
of other distributors, the Company also attempts to build a reputation for
selling quality products supported by strong customer service. The Company also
competes with Harley-Davidson in the sale of parts and accessories to Harley-
Davidson franchised dealers. There can be no assurance that the Company will be
able to compete successfully in the future with these smaller distributors or
Harley-Davidson.

PATENTS, TRADEMARKS, COPYRIGHTS, TRADE SECRETS AND LICENSES

The Company has numerous United States and international patents, trademarks
and copyrights, and has applied for additional United States and international
patents, trademarks and copyrights, in connection with certain of its products.
Although these types of intellectual property protection may have value, the
Company believes that other factors, such as product innovations, are of more
significance in the Company's industry. The Company attempts to avoid
infringing patents of others by monitoring on a regular basis patents issued
with respect to motorcycle parts and accessories. The Company has obtained
license rights in connection with the development and marketing of certain of
its products. These agreements generally require the Company to pay a royalty
to the licensor based on product sales.

The Company believes that its Proprietary Products provide it with a key
competitive advantage, but patent protection generally cannot be obtained for
most of these products. The Company attempts to minimize unauthorized copying
of these products by a variety of methods, including the ability to remove
tooling after a production run. The Company also believes that its annual
catalogs, which are copyrighted, provides an important competitive advantage and
the Company intends to vigorously protect its copyrights with respect to the
catalogs. However, there can be no assurance that unauthorized copying of the
Company's catalogs will not occur.

From time to time, the Company and Harley-Davidson have had disputes regarding
alleged infringement of certain of each other's trademarks and patents. In
1989, litigation occurred between the companies, primarily concerning certain
trademark matters. This litigation was settled in 1990. However, there can be
no assurance that other disputes, including those which could lead to litigation
regarding trademarks, patents or other matters, will not occur in the future
between the Company and Harley-Davidson.

EMPLOYEES

As of January 31, 1998, the Company employed 497 permanent employees,
including 135 in sales and marketing, 267 in operations, 34 in product
development and 61 in administrative and management positions. In addition, the
Company utilizes the services of 72 temporary workers contracted through an
agency. The Company's ability to attract and retain qualified personnel is
essential to the Company's continued success. None of the Company's employees is
represented by collective bargaining agreements, nor has the Company ever
experienced a work stoppage. The Company believes its employee relations are
good.

ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS

The Company desires to take advantage of certain provisions of the Private
Securities Litigation Reform Act of 1995, enacted in December 1995 (the "Reform
Act") that provide a "safe harbor" for forward-looking statements made by or on
behalf of the Company. The Company hereby cautions shareholders, prospective
investors in the Company and other readers that the following important factors,
among others, in some cases have affected, and in the future could affect, the
Company's stock price or cause the Company's actual results to differ materially
from those expressed in any forward-looking statements made by or on behalf of
the Company.

DEPENDENCE ON, AND COMPETITION WITH, HARLEY-DAVIDSON

The Company is the largest independent supplier of aftermarket parts and
accessories for Harley-Davidson motorcycles. The Company's past success has
depended, and the Company's future growth depends, in large part on the
popularity of Harley-Davidson motorcycles and the continued success of Harley-
Davidson in maintaining a significant market share for motorcycle sales and the
number of units sold in the heavyweight class. In particular, the Company's
continued growth in earnings is in large part dependent upon continuing demand
for Harley-Davidson motorcycles and upon Harley-Davidson's ability to meet such
demand. As competition in the heavyweight cruiser class of motorcycles also
increase, the market for new Harley-Davidson motorcycles may decline, or if the
popularity of existing Harley-Davidson motorcycles were to decline, the
Company's business, including earnings, could be materially adversely affected.

In addition, it appears that the Company's stock price has in the past and may
in the future be affected by fluctuations in the price of Harley-Davidson's
stock. Adverse results in any of Harley-Davidson's businesses, including its
non-motorcycle businesses, could adversely affect the price of Harley-Davidson's
stock, which could, in turn, adversely affect the Company's stock price. See
"Business - Motorcycle Parts and Accessories Industry."

The Company also competes with Harley-Davidson in the sale of parts and
accessories for both new and used Harley-Davidson motorcycles to Harley-
Davidson's franchised dealers, most of which are also customers of the Company.
Harley-Davidson has substantially greater financial, marketing, manufacturing
and technical resources than the Company. There can be no assurance that the
Company will be able to compete effectively with Harley-Davidson in the future.

From time to time, the Company and Harley-Davidson have had disputes regarding
alleged infringement of certain of each other's trademarks and patents, and
certain litigation related thereto was settled in 1990. There can be assurance
that other disputes, including those which could lead to litigation regarding
trademarks, patents or other matters, will not occur in the future between the
Company and Harley-Davidson.

COMPETITION WITH OTHERS

The market for the Company's products is highly competitive. Key competitive
factors in the parts and accessories aftermarket for Harley-Davidson motorcycles
include the ability to promptly fill orders from inventory, the range of unique
products offered and the speed and cost of product delivery. The Company's
competitors include independent distributors ranging in size from small to
large, and the proximity of any distributor to a particular dealer and the
availability of unique products is often a competitive advantage. Accordingly,
even small local distributors may be able to compete effectively against the
Company. In addition, the Company competes with Harley-Davidson in the sales of
parts and accessories to Harley-Davidson franchised dealers. There can be no
assurance that the Company will be able to compete successfully in the future
with small distributors or with Harley-Davidson. See also "Business-
Competition" above.

In 1995, the Federal Trade Commission (the "FTC") voted to dissolve a 1954
consent decree against Harley-Davidson which, among other things, had prohibited
Harley-Davidson from imposing exclusive dealing requirements upon its dealers.
This consent decree was lifted pursuant to the FTC's "sunset" policy which
presumes that decrees which are more than 20 years old should be eliminated. In
response to extensive public comments to the FTC urging that it keep this
consent decree in force, Harley-Davidson reported that it had no plans to change
its dealer agreements in order to require exclusive dealings. However, there
can be no assurance that Harley-Davidson will not impose such exclusive dealing
requirements upon its dealers who now purchase parts and accessories from the
Company; nor can there be any assurance that, if Harley-Davidson decided to
impose such requirements upon its dealers, that a legal challenge to prevent
such an action would be successful. If Harley-Davidson is successful in
imposing exclusive dealing requirements on its dealers, such requirements could
have a material adverse effect on the Company's business.

DEPENDENCE ON KEY PERSONNEL

The Company's success depends, in part, upon the continued performance of
Joseph Piazza who serves as President and Chief Executive Officer, and other key
executives, including James J. Kelly, Jr. (Executive Vice President, Finance),
R. Steven Fisk (Senior Vice President, Purchasing, Operations and Product
Development), Dennis Navarra (Vice President, Administration), Joseph Piazza,
Jr. (Vice President, Sales), Frederick Saunders (Vice President, Marketing) and
Gustav Kuelbs (President, Chrome Specialties, Inc.). In addition, the Company's
success also depends in part on the continued performance of certain other key
employees. Although incentives exist for these individuals to remain with the
Company, the loss of the services of any one of them could have a material
adverse effect on the business of the Company. In addition, recent litigation
against the Company has strained the Company's management resources and there
can be no assurance that such developments will not have a material adverse
effect on the Company. See "Item 3 -Legal Proceedings".

SEASONALITY AND WEATHER

The Company's net sales for its last two quarters of any particular fiscal
year are generally lower than the net sales for the first two quarters of such
year. This decrease in net sales is due to a lower number of orders by dealers
in anticipation of, and during, the cold weather months, during which motorcycle
riding decreases relative to the warm weather months. In particular, the
Company's operating results may be negatively affected by adverse weather
conditions, especially in the Spring and Summer months. Any such decrease has a
significant impact on the Company's quarterly earnings during the last two
quarters of its fiscal year because certain operating expenses remain relatively
constant throughout the year. The Company seeks to mitigate this seasonality
through various promotional efforts and incentives, but no assurance can be
given that such seasonality will not have a material adverse affect on the
Company's revenues and earnings during this period. See "Management Discussion
and Analysis of Financial Condition and Results of Operations" below.

DEPENDENCE ON THIRD PARTY AND FOREIGN MANUFACTURING RELATIONSHIPS; TAIWANESE
POLITICAL VOLATILITY

A significant portion of the Company's products are purchased from third party
manufacturers, often through independent trading companies. Although the
Company believes it has close working relationships with its trading companies
and most of its suppliers, the Company does not have long-term arrangements with
these parties, and therefore, cannot be assured that products will be delivered
on a timely basis or on terms favorable to the Company in the future. In
addition, any disruption in the Company's trading company or manufacturing
relationships could result in supply delays. Many of the Company's suppliers
are located in Asia, and, therefore, the Company is subject to certain risks
associated with dealing with foreign suppliers, including currency exchange
fluctuations, trade restrictions and changes in tariff and freight rates any of
which could materially and adversely affect the Company. Moreover, many of the
Company's suppliers are located in Taiwan and the Company's relationships with
such suppliers are subject to disruption in the event of remaining volatility
in, or a worsening of, Taiwan's political and military relationship with the
People's Republic of China.

A substantial number of the Company's products are manufactured in Taiwan,
South Korea, Japan and Mexico. Consequently, the availability and cost of
products manufactured overseas could be adversely affected if political or
economic conditions in these countries were to deteriorate. In addition,
although the prices for the products purchased by the Company are stated in
United States dollars, because the prices often are not determined until the
manufacturing process is completed, the Company bears risk with respect to
changes in exchange rates. The cost of products could also be affected by the
tariff structure imposed on imports or other trade policies of the United States
or other governments, which could adversely affect operations. The Company
attempts to minimize this risk by maintaining a pricing policy with its dealers
that allows the Company to change its prices at any time. In certain
circumstances, the Company also contracts to purchase foreign currencies at
fixed prices in the future for major foreign currency exposures. In addition,
because the Company has relationships with United States manufacturers, the
Company believes that it is capable of obtaining many of the products presently
sourced overseas from domestic sources. In this manner, the Company believes
that it can also reduce its exposure to currency fluctuations and other risks of
manufacturing in a foreign country.

MANAGEMENT OF GROWTH

The Company's success depends in part on its ability to manage growth, both
domestically and internationally. Such growth will require the Company to
enhance its operational, management information and financial control systems.
In addition, continued growth will require the Company to increase the personnel
in its sales, marketing and customer support departments. If the Company is
unable to successfully enhance its systems or to hire a sufficient number of
employees with the appropriate levels of experience in a timely manner, the
Company's business, financial condition and results of operations could be
materially and adversely affected.

INTERNATIONAL OPERATIONS

In the fiscal years ended 1996, 1997 and 1998, international sales accounted
for 20%, 19%, and 17%, respectively, of the Company's total net sales. The
Company expects that international sales will continue to represent a
significant portion of its net sales in the future. The Company's results of
operations may be adversely affected by fluctuations in exchange rates,
difficulties in collecting accounts receivable, tariffs and difficulties in
obtaining export licenses. Moreover, the Company's international sales may be
adversely affected by lower sales levels that typically occur during the summer
months in Europe and other parts of the world. International sales and
operations are also subject to risks such as the imposition of governmental
controls, political instability, trade restrictions and changes in regulatory
requirements, difficulties in staffing and managing international operations,
generally longer payment cycles and potential insolvency of international
dealers. There can be no assurance that these factors will not have a material
adverse effect on the Company's future international sales and, consequently, on
the Company's business, financial condition and results of operations.

COMPLIANCE WITH ENVIRONMENTAL LAWS

Both federal and state authorities have various environmental control
requirements relating to air, water and noise pollution that affect the business
operations of the Company. The Company endeavors to ensure that all its
facilities comply with applicable environmental requirements, there can be no
assurance that its operations do not violate such requirements or that any steps
taken by the Company to remediate any former noncompliance with such
requirements would not have a material effect on the Company's operations.

As is typical of similar manufacturing operations, the Company utilized a
chrome-plating and polishing process, was subject to a variety of laws and
regulations relating to environmental matters. During the year ended January 31,
1994 the Company discontinued in-house chrome plating of its products, which is
environmentally hazardous, and currently subcontracts such work to outside
vendors. The Company endeavors to ensure that all its facilities comply with
applicable environmental regulations and standards. Compliance with such
standards has not, to date, had a material adverse effect on the Company's
capital expenditures, earnings or competitive position and no material capital
expenditures are anticipated for the remainder of this fiscal year. Although the
Company believes it is in compliance with all applicable environmental
requirements, there can be no assurance that this operation did not violate such
requirements or that compliance or non-compliance with any environmental
requirements would not have a material adverse effect on the Company's
operations.

EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS

The Board of Directors has the authority to issue up to 1,000,000 shares of
undesignated Preferred Stock and to determine the rights, preferences,
privileges and restrictions of such shares without further vote or action by the
Company's stockholders. The rights of the holders of Common Stock will be
subject to, and may be adversely effected by, the rights of the holders of any
Preferred Stock that may be issued in the future. The issuance, or possible
issuance, of Preferred Stock could have the effect of making it more difficult
for third parties to acquire a majority of the outstanding voting stock of the
Company. In addition, on November 13, 1996, the Board of Directors approved a
Preferred Shares Rights plan and subsequently issued preferred share rights to
the company's stockholders (the "Rights"). The rights plan, as well as certain
provisions of the Company's Amended and Restated Certificate of Incorporation
and Bylaws and of Delaware law, could delay or make difficult a merger, tender
offer or proxy contest involving the Company.

As of the date hereof, there is pending an unsolicited tender offer for all of
the Company's shares by Golden Cycle, L.L.C. for $18.00 per share, which,
regardless of outcome, could have a material adverse effect on the Company. See
"Item 3 - Legal Proceedings" below.

POSSIBLE VOLATILITY OF STOCK PRICE

The Company's stock price may be subject to significant volatility,
particularly on a quarterly basis. Any shortfall in revenue or earnings from
levels expected or projected by securities analysts or others could have an
immediate and significant adverse effect on the trading price of the Company's
common stock in any given period. Additionally, the Company may not learn of, or
be able to confirm, revenue or earnings shortfalls until late in the fiscal
quarter or following the end of the quarter, which could result in an even more
immediate and adverse effect on the trading of the Company's common stock.

RELIANCE UPON THIRD PARTIES

is necessary to manufacture such products. The Company's agreement with Zodiac
is renewed annually, and can be terminated by the Company at any time on 90 days
notice and by either party 90 days prior to the end of each annual period.
Products purchased through Zodiac represented 18%, 11%, and 9% of the Company's
net sales in the fiscal years ended January 31, 1996, 1997 and 1998,
respectively. Chrome Specialties foreign product sourceing has been also
substantially from Taiwan where it employs the services of a trading company,
Harness, Inc. ("Harness") to expedite its product purchase from numerous local
manufacturing sources. As a result of the acquisition of Chrome Specialties, the
Company has chosen Harness as its main source for both Chrome Specialties and
Custom Chrome Products imported from Taiwan. As a result, it is anticipated that
the Company expects to increase its product sourcing from, and accordingly, its
reliance upon Harness in the future. In addition, Chrome Specialities sources
manufactured products from Mexico. If Zodiac's or Harness's services were
discontinued for any reason, the Company believes it could replace such services
in a timely manner by its own capabilities and using other trading companies. In
many cases, the Company would expect to continue using the same manufacturers.
There can be no assurance, however, that it would not experience temporary
supply delays.

IMPACT OF THE YEAR 2000 ISSUE

The year 2000 issue results from computer programs written using a two digit
date field rather than four to define the applicable year. The Company's current
main computer program utilizing a two digit date field may recognize a date
using "00" as the year 1900 rather than the year 2000. This could potentially
result in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in other similar normal business activities. The
Company is in the process of installing a new computer software system which
will increase operational and financial efficiencies and information analysis.
The new enterprise system recognizes dates beyond December 31, 1999 and
addresses the substantial position of the Year 2000 Issue as it impacts the
Company. The cost of this project, as it relates to the year 2000 issue, is not
expected to have a material effect on the operations of the Company and will be
funded through operating cash flows.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

ITEM 2. PROPERTIES

PROPERTIES

The Company owns and leases the properties set forth below subject to the
particular loan agreements and leases for each particular location:

OWNED PROPERTIES

LOCATION SQUARE FOOTAGE USE
---------------- ----------------------- ---------------

Morgan Hill, CA 120,000 Headquarters

Louisville, KY 163,000 Distribution facility

LEASED PROPERTIES

LOCATION SQUARE FOOTAGE USE
---------------- ----------------------- -----------------

Fort Worth, TX 100,000 Headquarters and
distribution facility
(Chrome Specialties)

Harrisburg, PA 87,500 Distribution facility

Jacksonville, FL 60,600 Distribution facility

Visalia, CA 100,800 Distribution facility

Sylmar, CA 38,400 Manufacturing facility

Tainan, Taiwan 20,000 Procurement office and
warehouse

Bad Kreuznach, 25,000 Headquarters and
Germany distribution facility (Tom's
GmbH)

In addition, the Company holds the lease on a 60,000 square foot facility in
Coppell, Texas which the Company is currently attempting to sublet.

ITEM 3. LEGAL PROCEEDINGS

On March 23, 1998 the Company received a written proposal from Golden Cycle,
L.L.C. ("Golden") for a business combination between Golden and the Company in
which Golden proposed that the Company's shareholders would receive cash
consideration of $18.00 per share. Shortly thereafter Golden commenced a tender
offer for all the issued and outstanding shares of the Company for $18.00 per
share. In addition, Golden commenced a proxy solicitation to remove the current
Board of Directors and replace them with Directors selected by Golden. Golden
and a number of third parties have filed lawsuits in connection with the
abovementioned tender offer and proxy solicitation.

Delaware State Inspection Litigation

On March 25, 1998, Golden, by and through its agent Cede and Company, served
on the Company a demand for production of the Company's stockholder list and
inspection of a wide range of books and records of the Company (the "Demand
Letter"). On April 1, 1998, the Company responded by letter stating that the
Company could not ascertain from the Demand letter whether a "proper purpose"
under Delaware General Corporation Law (s) 220 had been stated and requested
clarification. On April 2, 1998, Golden Cycle initiated proceedings in Delaware
Chancery Court ("Chancery Court") seeking production of a stockholder list and
equitable relief in the form of an order allowing inspection. Golden also sought
expedited treatment of the entire matter. On April 3, 1998, the Chancery Court
bifurcated the proceedings and ordered discovery on an expedited basis. On April
14, 1998, the Chancery Court ordered the Company to provide Golden Cycle with a
stockholder list, and that list was provided to Golden Cycle on April 15, 1998.
With respect to Golden Cycle's request for books and records other than a
stockholder list, the Chancery Court set the matter for trial on May 22, 1998.

Delaware State Fiduciary Duty Litigation

On April 7, 1998, Golden filed a complaint in Chancery Court against the
Company and each member of its board alleging interference with corporate
franchise, breach of fiduciary duty and fraud. The action alleges various
actions or inactions relating to Golden's consent solicitation and tender offer
and seeks, inter alia, redemption of the Rights, injunctive relief and
unspecified damages. On April 14, 1998 the Chancery Court scheduled a hearing to
consider Golden Cycle's request for preliminary injunction relief to be held on
May 8, 1998.

California Federal Litigation

On April 2, 1998, the Company filed suit in the United States District Court
for the Northern District of California alleging, inter alia, that Golden
violated the Securities Exchange Act of 1934 by filing false and misleading
materials with regard to Golden's consent solicitation and that Golden's
submission pursuant to Section 13 of the Exchange Act was also false and
misleading. The Complaint seeks, inter alia, to enjoin the solicitation of
written consents pursuant to Golden's solicitation materials.

Delaware Federal Litigation

On April 6, 1998, Golden filed suit against the Company and each member of the
Board alleging that the Board set the record date for the written consent
solicitation in contravention of the rules promulgated under the Exchange Act.
The Compliant seeks, inter alia, a declaration that March 30, 1998 is
ineffective as a record date for Golden's written consent solicitation. On April
22, 1998, the Company filed its answer to the complaint, in which it denied
allegations that the record date for Golden Cycle's consent solicitation was set
in contravention of the Exchange Act, or any of the rules and regulations
promulgated thereunder.

Delaware Class Action

On March 26, 1998, the Great Neck Capital Appreciation Investment Partnership,
L.P. ("Great Neck") filed a class action complaint in the Delaware Chancery
Court on behalf of the Company's stockholders against the Company, each of the
members of the Company's Board of Directors, and Ignatius J. Panzica, alleging
that each of the defendants breached their fiduciary duties to the Company's
stockholders by failing adequately to consider Golden's March 23, 1998 offer to
purchase the Company, or to negotiate with Golden and/or other potential
acquirors. On March 30, 1998, after Golden filed preliminary consent
solicitation materials with the Securities and Exchange Commission, a second
class action complaint was filed in the Delaware Chancery Court by Ralph Bonito,
on behalf of the Ralph Bonito IRA and Company stockholders, against the same
defendants. The complaint filed by Mr. Bonito is virtually identical to the
complaint previously filed by Great Neck. Both

complaints seek mandatory injunctive relief compelling the Company and the Board
of Directors to take all steps necessary to arrange for the sale of the Company
to the highest bidder.

Internal Revenue Service Matters

In March 1996 the Company received a Notice of Deficiency from the Internal
Revenue Service (IRS) arising out of an examination of its income tax returns
for the years ended January 31, 1992, 1993 and 1994. The Notice asserted that
the Company had underpaid its income taxes in those years by approximately $4.3
million due to the IRS disallowance of deductions primarily for compensation
related issues. Based on the advice of outside tax counsel, the Company has
petitioned the U.S. Tax Court for a redetermination of these alleged
deficiencies citing numerous errors in the IRS's allegations. In addition, the
Company has asserted that it is due additional tax deductions totaling at least
$3.1 million in the tax periods which were examined. While the outcome of this
matter cannot be predicted with certainty, management believes, based on their
review and the opinion of outside experts, that any liability resulting from
this proceeding is not reasonably likely to have a material effect on the
Company's liquidity, financial condition or results of operations. In February
1997 the Company received a Notice of Personal Assessment related to the same
compensation related issues in its tax returns for the years ended January 31,
1995 and 1996. In March 1998, the Company was notified by the IRS that it had
revised its position with respect to the matters contained in the Notice of
Proposed Assessment and would not be issuing an assessment for the years ended
January 31, 1995 and 1996.

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

(a) The Annual Meeting of Stockholders was held on November 5, 1997.

(b) The following five directors were elected at the meeting to serve
until the next Annual Meeting and until their successors are elected
and qualified:

Ignatius J. Panzica*
James J. Kelly, Jr.
Lionel M. Allen
Joseph F. Keenan
Joseph Piazza

* Mr. Panzica resigned from the Board in November 1997.

For Withheld

(1) Election of directors:

Ignatius J. Panzica 4,084,910 547,336

James J. Kelly, Jr. 4,085,916 547,330

Lionel M. Allen 4,085,031 547,215

Joseph F. Keenan 4,084,706 547,540

Joseph Piazza 4,085,031 547,215

For Against Abstain Broker Non-
Votes

(2) Proposal to approve the 2,292,156 1,301,503 19,216 1,019,371
Company's 1997 Stock Plan and to
reserve 500,000 shares of
Common Stock for issuance
thereunder.

For Against Abstain Broker Non-
Votes

(3) Proposal to approve the 2,846,438 845,757 21,121 918,930
Company's 1997 Director Option
plan and to reserve 50,000 shares
of Common Stock for issuance
thereunder.

For Against Abstain Broker Non-
Votes

(3) Proposal to ratify KPMG Peat 4,604,145 15,755 12,346
Marwick LLP as the Company's
independent public accountants for
the fiscal year ending January 31,
1998.

The foregoing matters are described in detail in the Company's definitive proxy
statement dated September 17, 1997, for the Annual Meeting of Stockholders held
on November 5, 1997.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

PART II

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

The Company's Common Stock is traded over-the-counter on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") National
Market ("NNM") under the symbol CSTM. The following table sets forth the range
of high and low closing sales prices, as reported on the NASDAQ National Market
for the last two fiscal years.

Price Range of
Common Stock
-------------------
High Low
--------- --------

Year ended January 31, 1998
First Quarter............................ $ 13.75 $11.50
Second Quarter........................... $ 17.00 $15.00
Third Quarter............................ $ 16.50 $13.00
Fourth Quarter........................... $ 13.25 $11.00
Year ended January 31, 1997
First Quarter............................ $ 27.50 $24.00
Second Quarter........................... $ 27.88 $22.00
Third Quarter............................ $ 22.63 $16.25
Fourth Quarter........................... $ 21.375 $18.25

On April 24, 1998, the Company had 268 holders of record of its Common Stock
and approximately 5,161,136 shares outstanding.

In connection with the acquisition of Chrome Specialties, the Company entered
into a $73.5 million credit agreement which (i) provided funding for the
acquisition price for Chrome Specialties, Inc. (ii) provided funding to retire
$15,000,000 of Senior Secured Notes and (iii) provided the Company additional
working capital borrowing ability. Borrowings under the new credit facility bear
interest at the Interbank Borrowing Rate plus 1.75%. The rate reduces as the
Company reduces as the Company reduces the initial debt level. In addition the
Company has fixed the rate for two-thirds of the borrowing be means of a swap
transaction. The financing agreement requires the Company to achieve or maintain
certain financial results or ratios, and restricts the Company's ability to pay
dividends, repurchase common stock, make further acquisitions and effect certain
other transaction without the bank's consent.

The Company currently plans to retain all of its earnings to support the
development and expansion of its business and has no present intention of paying
any cash dividends on the Common Stock in the foreseeable future. However, the
Board of Directors of the Company will review the dividend policy periodically
to determine whether the declaration of cash dividends is appropriate.

ITEM 6. SELECTED FINANCIAL DATA

The following table presents selected consolidated financial data of the
Company. This historical data should be read in conjunction with the attached
Consolidated Financial Statements and the related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing in Item 7 of this Form 10-K.

Year Ended
January 31,
--------------------------------------------------
1998 1997 1996 1995 1994(1)
--------- ---------- -------- -------- --------
(In thousands, except per share data)

CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Sales, net......................................... $122,725 $108,557 $93,906 $74,904 $67,252
Gross profit....................................... 45,009 43,723 39,127 31,571 28,669
Operating income................................... 7,361 14,961 13,953 11,341 10,007
Income before income taxes, and
cumulative effect of a change in
accounting principle............................... 4,397 13,046 12,316 10,640 9,180
Income before cumulative effect of a
change in accounting principle............... 2,283 7,872 7,921 6,416 5,508
Net income......................................... $ 2,283 $ 7,872 $ 7,921 $ 6,416 $ 7,108
======== ======== ======= ======= =======
Income per share before cumulative
effect of a change in accounting
principle
Basic........................................... $ 0.45 $ 1.49 $ 1.57 $ 1.28 $ 1.13
======== ========= ======= ======= =======
Diluted......................................... $ 0.44 $ 1.48 $ 1.52 $ 1.27 $ 1.10
======== ========= ======= ======= =======
Net income per share
Basic........................................... $ 0.45 $ 1.49 $ 1.57 $ 1.28 $ 1.46
======== ======== ======= ======= =======
Diluted......................................... $ 0.44 $ 1.48 $ 1.52 $ 1.27 $ 1.42
======== ======== ======= ======= =======
Shares used in per share calculation
Basic........................................... 5,094 5,272 5,048 5,001 4,855
======== ======== ======= ======= =======
Diluted......................................... 5,233 5,327 5,209 5,052 5,006
======== ========= ======= ======= =======

January 31,
--------------------------------------------------
1998 1997 1996 1995 1994(1)
--------- ---------- -------- -------- --------

CONSOLIDATED BALANCE
SHEET DATA:
Working capital.................................... $ 58,898 $52,791 $45,710 $39,286 $18,826
Total assets....................................... $142,082 91,497 89,712 64,337 47,264
Long-term debt..................................... $ 52,302 16,154 19,489 19,476 4,752

(1) Net income for the year ended January 31, 1994 includes a credit of
$1,600,000 related to an accounting change for income taxes.

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

The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto included in this Report. In addition,
the Company desires to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995. Specifically, the Company
wishes to alert readers that the factors set forth in "Additional Factors That
May Affect Future Results" in Item 1 of Part I of this Report, as well as other
factors, have in the past and could in the future affect the Company's actual
results and could cause the Company's results for future quarters to differ
materially from those expressed in any forward looking statements made by or on
behalf of the Company.

Seasonality Results of Operations

Global Motorsport Group, Inc.'s net sales for its first two quarters of any
particular fiscal year, are generally greater than the net sales for the balance
of the year. This increase in net sales is due to a greater number of shippable
orders placed by dealers in anticipation of, and during, the warm-weather
months, which are the peak of the motorcycle riding season. Because the
Company's markets are influenced by seasonal weather conditions, net sales
generally decrease during the last two quarters of the fiscal year. This
decrease has a significant impact on the Company's quarterly operating income
during the last two quarters of the year because certain operating expenses
remain relatively constant throughout the year. The Company attempts to
mitigate this seasonality through various promotional efforts and incentives
during the last two quarters.

Year ended January 31, 1998 compared to year ended January 31, 1997

Sales, net increased 13.1% to $122,725,000 for the year ended January 31,
1998 from $108,557,000 for the year ended January 31, 1997. The growth in
product shipments in the year was primarily due to the acquisition of the
operations of Chrome Specialties, Inc. in September 1997 which contributed $11.3
million in net sales during the period ended January 31, 1998. The remaining
$2.8 million in sales growth was the result of sales to customers who initiated
business with the Company in the last one or two years particularly in the
western region of the United States. Sales growth due to price increases was not
material. Sales growth in the Company's core operations was lower in the current
year when compared to sales growth from prior years primarily due to delays in
the receipt of products imported from the Far East (primarily Taiwan). These
delays resulted from compliance deficiencies noted by the U.S. Customs Service
regarding the Company's products, which delayed the release to the Company's
distribution centers. These delays resulted in higher than anticipated back
orders for products which were out of stock. In addition, the Company's main
service provider for shipment to customers, United Parcel Service, experienced a
3 1/2 week labor stoppage in August by its ground delivery personnel, which
significantly reduced sales and increased shipping costs for the Company. Other
factors in the year ended January 31, 1998 which resulted in lower sales growth
than recent experience were lower sales in export markets, primarily Germany,
one less sales day in the year when compared to last year and generally poor
leisure motorcycling weather throughout the Eastern United States and Europe in
the Spring and early Summer of 1997.

Management has taken steps to correct deficiencies in product labeling and
other areas regarding the lack of compliance with U.S. Customs Service
guidelines. In early December, these steps have improved the flow of imported
products to delays which are close to historical experience. Continued steps
will be taken in cooperation and consultation with the Customs Service and
outside experts to attempt to bring the Company's imports to a level of
compliance which will eliminate future delays.

Gross profit increased 2.9% to $45,009,000 for the year ended January 31,
1998 from $43,723,000 for the year ended last year. The increase over the prior
year was entirely the result of the inclusion of the operations of Chrome
Specialties in September 1997 which accounted for a $4.1 increase in gross
profit. The decrease in growth profit in the core business as compared with last
year was the result of lower sales of foreign sourced and higher margin product,
resulting from the aforementioned delays in customs clearance. In addition, to
the customs clearance

problems, gross margin as a percentage of sales was lower in the current period
when compared to last year as a result of sales discounts and sales price
decreases responding to price competition from smaller distributors and direct
selling manufacturers in non-proprietary product lines and a general shift in
product sales mix to lower margin domestically produced products away from
higher margin foreign produced products.

As a result, gross margin as a percentage of sales was 36.7% for the year
ended January 31, 1998, as compared with 40.3% in the prior year. Management
continues to see price competition from smaller distributors and direct selling
manufacturers in non-proprietary product lines as continuing trends in the
market. Management is reviewing its product introduction guidelines with
respect to minimum gross margins to counter the past two years shift in product
mix to lower margin domestically produced products.

Selling, general and administrative expenses increase 22.5% to $33,114,000
for the year ended January 31, 1998 from $27,039,000 in last fiscal year. The
increase in such expenses was the result of (i) the consolidation of the
operations of Chrome Specialties, Inc. in September 1997 which added $2.9
million in selling, general and administrative expenses, (ii) provisions for the
closure of the Custom Chrome, Inc. Dallas - Fort Worth distribution facility of
approximately $620,000, (iii) higher distribution facility costs as the result
of new distribution facility openings during the year in Dallas - Fort Worth,
Texas and Jacksonville, Florida of $450,000, (iv) higher compensation costs as a
result of additional sales staff required for the Company's expanded field sales
representative program and (v) higher legal costs incurred primarily as a result
of litigation with the U.S. Internal Revenue Service of $533,000. Selling,
general and administrative expenses were 27.0% of sales in the year ended
January 31, 1998 as compared with 24.9% of sales in the last fiscal year.

In the year ended January 31, 1998 the Company established a provision for
benefits related to an employment agreement with the Company's past Chairman,
President and Chief Executive Officer who was terminated on November 5, 1997
which provided for a bonus ranging from 3 to 5% of operating earnings before
non-recurring charges. This 1989 agreement terminates when $6,093,000 has been
paid. The charge to earnings in January 1998 was $3.1 million which was the
balance remaining to be paid under the agreement.

Product development expense decreased 18.3% to $1,407,000 for the year ended
January 31, 1998 when compared to the same for the last fiscal year. These
expenses as a percentage of sales were 1.2% in the current year as compared with
1.6% in the same period last year. The decrease in product development expenses
as a percentage of sales was primarily due to the acquisition of Chrome
Specialties Inc. which does not have a product development department. Despite
the decrease in product development expenses the Company continues to be
committed to the introduction of new proprietary products.

Interest expenses increased $1,049,000 for the year ended January 31, 1998
compared to last fiscal year. The increase was due to higher bank borrowings in
September 1997 through year end to finance the acquisition of the net assets of
Chrome Specialties, Inc.

The Company's effective consolidated income tax rate was 48.1% for the year
ended January 31, 1998 as compared with 39.7% for the last fiscal year. The
higher effective consolidated income tax rate in the current year was the result
of the effect of non-deductible amortization in the tax calculation.

Year ended January 31, 1997 compared to year ended January 31, 1996

Net sales increased 15.6% to $108,557,000 for the year ended January 31, 1997
from $93,906,000 for the year ended January 31, 1996. This percentage increase
compares to the prior year increase of 25.4% for the same period last year over
net sales for the year ended January 31, 1995. Sales growth was the result of
higher shipment levels to a broad base of customers in the United States. Sales
growth to customers in the Eastern and Central United States was lower than the
Company average primarily as a result of poor weather conditions in the first
six months of the fiscal year. In addition, sales growth in overseas markets
was significantly lower than the Company average, which management believes was
attributable to the high value of the U. S. dollar and poor economic conditions
in large

markets such as Germany and Japan. Sales growth slowed in each succeeding
quarter of the fiscal year. Management believes the slowing sales growth rate
throughout the year was a result of slowing general market conditions which have
continued into the new fiscal year and not a loss of market share to
competitors.

Gross profit increased 11.7% to $43,723,000 for the year ended January 31,
1997 from $39,127,000 for the same period of last year. The increase over the
prior year comparable amount was principally a result of higher shipment levels
in the current year. Gross profit as a percentage of sales was 40.3% for the
year ended January 31, 1997 compared with 41.7% last year. The decrease in
gross profit as a percentage of sales for the current year, compared with last
year, is the result of sales discounts and sales price decreases responding to
price competition from smaller competitors. In addition, a large number of new
parts sold were purchased from domestic manufacturers which carry lower gross
margins than foreign produced products. As a result the overall percentage of
sales of proprietary and foreign produced products, which traditionally have
earned a higher than average gross margin, decreased and the overall percentage
of sales and products manufactured by domestic manufacturers increased.
Management continues to see these trends in the marketplace.

Selling general and administrative expenses increased 15% to $27,039,000 for
the year ended January 31, 1997 from $23,522,000 in the last fiscal year. The
increase over the prior year comparable amount was principally a result of
higher compensation costs related to staff additions and higher advertising and
promotion costs. These expenses as a percentage of sales were 24.9% for the
year ended January 31, 1997 as compared to 25.0% for last year.

Product development expenses increased 4.3% to $1,723,000 from $1,652,000 in
the last fiscal year. These expenses were 1.6% as a percentage of sales for the
year ended January 31, 997 as compared with 1.8% for the same period last year.
The increase in product development expenses in absolute amount resulted from
higher compensation costs and the Company's continued focus on developing and
introducing new proprietary products. Product development expenses were
relatively consistent as a percentage of sales.

Interest expense increased 17% to $1,915,000 for the year ended January 31,
1997 from $1,637,000 in the last fiscal year. The increase in interest expense
was principally due to higher average short-term borrowings to support the
Company's higher inventory levels.

The Company's effective income tax rate was 39.7% for the year ended January
31, 1997 as compared with 35.7% for last fiscal year. The reduced interest rate
in the prior fiscal year was principally due to the recognition of state income
tax refunds from prior years as a result of filing amended tax returns with
revised income allocation bases and tax benefits resulting from the Company's
employment of a certain class of labor at its Louisville, Kentucky warehouse.

Liquidity and Capital Resources

On September 16, 1997 the Company completed the acquisition of substantially
all the assets and assumed certain liabilities of Chrome Specialties. Chrome
Specialties was a privately held, independent, wholesale distributor of
aftermarket parts and accessories for Harley Davidson motorcycles which operates
from its 100,000 sq. ft. warehouse and headquarters in Fort Worth, Texas.

In connection with the acquisition of Chrome Specialties, the Company entered
into a $73.5 million credit agreement which (i) provided funding for the
acquisition price for Chrome Specialties, Inc., (ii) provided funding to
retire$15,000,000 of Senior Secured Notes and (iii) provided the Company
additional working capital borrowing ability. Borrowings under the new credit
facility bear interest at the Bank's Base Rate or the London Interbank Borrowing
Rate plus 1.75%. The agreement provides that the interest rate reduces as the
Company reduced the initial debt level. In addition the Company has fixed the
rate for two-thirds of the borrowing by means of a swap transaction. The
financing agreement requires the Company to achieve or maintain certain
financial results or ratios, and restricts the Company's ability to pay
dividends, repurchase common stock, make further acquisitions and effect certain
other transactions without the bank's consent. For the period for September,
16, 1997 to January 31, 1998 the Company was not in compliance with a number of
its covenants under the credit agreement. The syndicate of Banks, provided

waivers for these violations in return for a fee and certain modifications of
the agreement. There can be no assurance that the Company will be able to
maintain such compliance. Any failure to comply with these or other
requirements of the bank agreement could have a material adverse effect on the
Company's liquidity, business and results of operations.

Net cash provided by operating activities in the year ended January 31, 1998
was $4,412,000 compared with $9,523,000 in the prior year. In the year ended
January 31, 1998, the Company made capital expenditures for equipment necessary
for two new distribution centers and tooling for new products. The Company also
expended $3,488,000 for the repurchase of 276,000 shares of the Company's common
stock on the open market. The Company believes that cash flow from operations
and funds from the working capital line of credit will be adequate to meet its
capital and cash requirements at least through the next 12 months.

IMPACT OF THE YEAR 2000 ISSUE

The year 2000 issue results from computer programs written using a two digit
date field rather than four to define the applicable year. The Company's
current main computer program utilizing a two digit date field may recognize a
date using "00" as the year 1900 rather than the year 2000. This could
potentially result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in other similar normal business
activities. The Company is in the process of installing a new computer software
system which will increase operational and financial efficiencies and
information analysis. The new enterprise system recognizes dates beyond
December 31, 1999 and addresses the substantial position of the Year 2000 Issue
as it impacts the Company. The cost of this project, as it relates to the year
2000 issue, is not expected to have a material effect on the operations of the
Company and will be funded through operating cash flows.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1997, SFAS No. 130, Reporting Comprehensive Income was issued. SFAS
No. 10 requires disclosure of all components of comprehensive income on an
annual and interim basis. Comprehensive income includes all changes in equity
during a reporting period, except those resulting from investments by owners and
distributions to owners. SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997. The Company will adopt this statement for its year
ending January 31, 1999 and does not anticipate this statement will have a
significant impact on its financial condition or results of operations.

In July 1997, SFAS No. 131, Disclosures About Segments of an Enterprise and
Related Information was issued. SFAS No. 131 requires certain financial and
supplementary information to be disclosed on an annual and interim basis for
each reportable segment of an enterprise. SFAS No. 131 is effective for fiscal
year beginning after December 15, 1997. Unless impracticable, companies would
be required to restate prior period information upon adoption. The Company will
adopt this statement for its year ending January 31, 1999 and does not
anticipate this statement will have a significant impact on its financial
condition of results of operations.

ITEM 8. FINANCIAL STATEMENT AND SUPPLEMENTARY DATA

See item 14(a) for an index to the consolidated financial statements and
supplementary financial information which are attached hereto.

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

None.

PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Set forth below is information regarding the present directors and executive
officers of the Company and their respective ages and positions:

NAME POSITION(S) WITH THE COMPANY AGE
- ---------------------------- ----------------------------------------------------- ----------

Joseph Piazza............... President and Chief Executive Officer 62
James J. Kelly, Jr.......... Director; Executive Vice President, Finance; Chief 47
Financial Officer; Secretary
Lionel M. Allan............. Director 54
Joseph F. Keenan............ Chairman 56
R. Steven Fisk.............. Senior Vice President, Purchasing, Product 47
Development and Operations
Dennis B. Navarra........... Vice President, Administration and Assistant Secretary 43
Joseph P. Piazza, Jr........ Vice President, Sales 32
Frederick Saunders, Jr...... Vice President, Marketing 46
Frances Jimenez-Mora........ Vice President, Human Resources 41

JOSEPH PIAZZA has served as President and Chief Executive Officer since
November 5, 1997 and as a Director of the Company since April 1996. From 1989
until October 1992, Mr. Piazza served as Executive Vice President of Lacy
Diversified industries, a privately-owned holding company, which owns Rocky
Cycle Company, a motorcycle parts and accessory distribution company. From 1975
to 1986, Mr. Piazza served as President and Chief Executive Officer of Rocky
Cycle Company.

JAMES J. KELLY, JR. has served as Executive Vice President, Finance of the
Company since November 1995, Vice President, Finance and Chief Financial Officer
of the Company since March 1992, Secretary of the Company since June 1992 and as
a Director of the Company since July 1993. Prior to joining the Company in
March 1992, Mr. Kelly served as Vice President, Finance and Chief Finance
Officer of Canadian Marconi Company for eight years. Mr. Kelly is a member of
the American Institute of Certified Public Accountants, the California Society
of Certified Public Accountants and the Financial Executives Institute.

LIONEL M. ALLAN has served as a director of the Company since June 1994. For
more than five years, Mr. Allan has been President of Allan Advisors, Inc., a
board and legal consulting firm. Mr. Allan is a director and past Chairman of
the Board of KTEH Public Television Channel 54, in San Jose, California, a
director of Accom, Inc., a digital video systems company, and a director of
Catalyst Semiconductor, Inc., a semiconductor company.

JOSEPH F. KEENAN has served as Chairman of the Company since November 5, 1997
and as a Director of the Company since July 1993. Mr. Keenan is currently in
private law practice in San Francisco, California. Mr. Keenan served as
President and Chief Executive Officer of Data East U.S.A. Inc., a privately
owned manufacturer of coin operated and home video electronic games, from 1989
to 1992. Previously, he was a principal of Wilkes Bashford Ltd., a specialty
retailer of clothing and accessories in Northern California. Mr. Keenan has also
held the positions of President and Chief Executive Officer at Pizza Time
Theater, Inc. and Atari, Inc.

R. STEVEN FISK has served as Senior Vice President, Purchasing, Product
Development and Operations since November 1995. Mr. Fisk joined the Company as
Director of Purchasing in January 1986. In 1988, Mr. Fisk received additional
responsibilities in the area of product development. Prior to joining the
Company, Mr. Fisk spent 10 years in Taiwan managing the operations of Zodiac
Enterprises Ltd., one of the Company's significant vendors.

DENNIS B. NAVARRA has served as Vice President, Administration since November
1995. Before that, he served as Director of Administration since June 1991.
Before that, he served in various senior management positions since joining the
Company in May 1984. Mr. Navarra has also served as Assistant Secretary since
August 1989. Prior to joining the Company, Mr. Navarra was employed as a senior
auditor with KPMG Peat Marwick LLP.

JOSEPH P. PIAZZA, JR. has been with the Company since February, 1998. Prior to
joining the Company, Mr. Piazza Jr. served as General Manager for Helmet House
in Calabasas Hills, California from 1996 to 1998 and was Regional Sales/Branch
Manager for Tucker Rocky Distributing from 1992 to 1996. He holds a B.A. in
Business Economics from the University of California, Santa Barbara and is
currently pursuing a Masters of Business Administration Degree from Pepperdine
University.

FREDERICK SAUNDERS, JR. has been with the company since 1995. Mr. Saunders
joined the Company in 1995 as Associate Director of Marketing and Sales. Mr.
Saunders was promoted to Director of Marketing and Sales in July 1997 and to
Vice President, Marketing in February 1998. Prior to joining the Company, Mr.
Saunders was employed from 1979 to 1995 as Director, Corporate Marketing, for
Tab Products Co. in Palo Alto. Mr. Saunders holds a B.S. in Marketing from rider
College, College of Architecture, University of Maryland.

FRANCES JIMENEZ-MORA joined the Company in September, 1997 as Director, Human
Resources and was promoted to Vice President, Human Resources in February 1998.
Prior to joining the Company, Ms. Jimenez-Mora was employed as Regional Human
Resources Manager for Modine Aftermarket Holdings, for five years. She holds a
B.A. in English from California State University, Stanislaus.

Except for Joseph Piazza and Joseph Piazza Jr., there are no family
relationships among executive officers or Directors of the Company.

BOARD MEETINGS AND COMMITTEES

The Board of Directors held a total of six (6) meetings and acted by written
consent three (3) times during the year ended January 31, 1998. The Company has
an Audit Committee and a Compensation Committee of the Board of Directors. Each
director attended at least 75% of the aggregate number of meetings of the Board
of Directors and of the Committees on which such directors served and that were
held during the period that such individual was a member of the Board of
Directors.

The Audit Committee is primarily responsible for approving the services
performed by the Company's independent auditors and reviewing reports of the
Company's external auditors regarding the Company's accounting practices and
systems of internal accounting controls. This Committee currently consists of
Messrs. Allan and Keenan. The Audit Committee held two (2) meetings during the
year ended January 31, 1998.

The Compensation Committee reviews and approves the Company's general
compensation policies, establishes the compensation levels for the Company's
executive officers and is responsible for administration of the Company's Stock
Option Plans. This Committee currently consists of Messrs. Keenan and Allan.
The Compensation Committee held two (2) meetings and acted by written consent
six (6) times during the year ended January 31, 1998.

REMUNERATION

The Company currently pays all non-employee Board members a fee of $6,250 for
each full fiscal quarter that they serve as a Board member and pays its non-
employee Chairman of the Board $12,500 for each full fiscal quarter that such
person serves.

The Company's Director Option Plan (the "Director Plan") includes an automatic
option grant program under which each individual who first becomes a non-
employee Board member will receive, at the time of his or her initial election
or appointment to the Board, an automatic option grant to purchase 2,500 shares
of Common Stock at an exercise price per share equal to 100% of the fair market
value per share on the grant date. In addition, at each Annual Stockholders
Meeting (the "Meeting"), each individual who is to continue to serve as a non-
employee Board member after the Meeting will receive an additional option grant
to purchase 2,500 shares of Common Stock. Options granted thereunder will become
exercisable for 25% of the option shares upon the optionee's completion of one
year of Board service measured from the grant date and will become exercisable
for the balance of the option shares in 36 equal and successive monthly
installments upon the optionee's completion of each additional month of Board
service thereafter. In the event of a merger of the Company or the sale of
substantially all of the assets of the Company, each option may be assumed or an
equivalent option substituted for by the successor corporation. If an option is
assumed or substituted for by the successor corporation, it shall continue to
vest as provided in the Director Plan. However, if a non-employee director's
status as a director of the Company or the successor corporation, as applicable,
is terminated other than upon a voluntary resignation by the non-employee
director, each option granted to such non-employee director shall become fully
vested and exercisable. If the successor corporation does not agree to assume or
substitute for the option, each option shall become fully vested and exercisable
for a period of thirty days from the date the Board notifies the optionee of the
option's full exercisability, after which period the option shall terminate. To
date, each of Mr. Keenan and Mr. Allan has received an option for 2,500 shares
pursuant to the Director Plan.

ITEM 11. EXECUTIVE COMPENSATION

SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION

The following table sets forth the compensation earned for each of the last
three fiscal years by (i) the Company's Chief Executive Officer, (ii) the
Company's executive officers at January 31, 1998 whose compensation for the year
ended January 31, 1998 was at least $100,000 and (iii) the Company's former
Chief Executive Officer.

Long Term
Annual Compensation Compensation
------------------------- ------------
Year Securities
Ended Underlying All Other
January 31, Salary($)/(1)/ Bonus($) Options(#) Compensation
---------- -------------- --------- ------------ ------------

Joseph Piazza.................. 1998 150,000/(2)/ 50,000 100,000 500/(3)/
President and Chief 1997 -- -- -- --
Executive Officer 1996 -- -- -- --

James J. Kelly, Jr............. 1998 136,258 -- 35,000 500/(3)/
Director, Executive 1997 134,189 293/(4)/ 32,250 500/(3)/
Vice President, Finance 1996 131,005 4,551/(4)/ 32,250 500/(3)/
Secretary

R. Steven Fisk................. 1998 103,255 -- 35,000 500/(3)/
Senior Vice President 1997 95,742 -- 32,250 500/(3)/
Purchasing, Product 1996 91,212 -- 27,250 500/(3)/
Development and Operations...

Daniel Stern /(5)/............. 1998 101,738 -- 35,000 500/(3)/
Senior Vice President 1997 98,902 -- 32,250 500/(3)/
Sales and Marketing 1996 94,520 -- 27,250 500/(3)/

Ignatius J. Panzica............ 1998 270,780 407,000 110,000 500/(3)/
Former Chairman of the 1997 328,038 653,910 100,000 500/(3)/
Board, President and Chief 1996 337,550 614,805 100,000 500/(3)/
Executive Officer /(6)/

__________________
/(1)/ Includes (i) salary deferral contributions made by the executive officer
to the Company's 401(k) Plan and (ii) compensation for accrued vacation
time not taken.

/(2)/ Includes $75,000 paid to Mr. Piazza for consulting services rendered to
the Company's German Subsidiary, Tom's Motorcycle Products. Mr. Piazza's
annual salary is $300,000.

/(3)/ Represents matching contributions made by the Company on behalf of such
executive officers to the Company's 401(k) Plan.

/(4)/ Represents forgiveness of interest accrued during calendar year 1996 and
1997 on a loan made to Mr. Kelly to the Company in June 1994. The loan was
repaid in full during the year ended January 31, 1997.

/(5)/ Mr. Stern resigned from the Company on April 1, 1998.

/(6)/ Mr. Panzica's employment was terminated by the Company on November 5,
1997.

OPTION GRANTS

The following table provides information with respect to the stock option
grants made during the fiscal year ended January 31, 1998 to the Company's
executive officers named in the Summary Compensation Table above. No stock
appreciation rights were granted to these individuals during such fiscal year.

OPTION GRANTS IN LAST FISCAL YEAR

Potential Realizable
Value at Assumed
Annual
Rate of Stock
Price Appreciation
Individual Grants for Option Term
----------------------------------------- -----------------------------
% of Total
Options Exercise
Granted to or Base
Options Employees in Price/(1)/ Expiration
Name Granted(#) Fiscal Year ($/sh) Date 5% ($)/(2)/ 10 % ($)/(2)/
- -------------------- ------------- ------------- ---------- ---------- ----------- ---------------

Joseph Piazza........ 100,000/(3)/ 13.4% $12.00 01/14/08 $ 754,673 $ 1,912,491
James J. Kelly, Jr... 35,000/(4)/ 4.7% $11.75 04/01/07 $ 258,633 $ 655,427
R. Steven Fisk...... 35,000/(4)/ 4.7% $11.75 04/01/07 $ 258,633 $ 655,427
Daniel Stern......... 35,000/(4)/ 4.7% $11.75 04/01/07 $ 258,633 $ 655,427
Ignatius J. Panzica 110,000/(5)/ 14.8% $11.75 -- -- --

_____________________________
/(1)/ The exercise price may be paid in cash, in shares of Common Stock valued
at fair market value on the exercise date or through a cashless exercise
procedure involving a same-day sale of the purchased shares. The Company
may also finance the option exercise by loaning the optionee sufficient
funds to pay the exercise price for the purchased shares and the federal
and state income tax liability incurred by the optionee in connection with
such exercise.

/(2)/ The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by the Securities and Exchange Commission. There is no
assurance provided to any executive officer or any other holder of the
Company's securities that the actual stock price appreciation over the 10-
year option term will be at the assumed 5% and 10% levels or at any other
defined level. Unless the market price of the Common Stock appreciates
over the option term, no value will be realized from the option grants
made to the executive officer.

/(3)/ Such option will become exercisable for 100% of the option shares
immediately.

/(4)/ Such option will become exercisable for 25% of the option shares upon the
optionee's completion of one year of service with the Company, measured
from the April 1, 1997 grant date, and will become exercisable for the
balance of the shares in 36 equal and successive monthly installments upon
the optionee's completion of each additional month of service thereafter.
However, the option will become immediately exercisable for all the option
shares in the event the Company is acquired by a merger or asset sale,
unless the option is assumed or replaced by the acquiring entity. The
Compensation Committee also has the authority to provide for the automatic
acceleration of such option in the event there is a hostile take-over of
the Company, whether by successful tender offer for more than 50% of the
Company's outstanding voting securities or contested election of Board
membership. The option has a maximum term of 10 years, subject to earlier
termination in the event of the optionee's cessation of employment with
the Company.

/(5)/ All such options lapsed three months after Mr. Panzica ceased to be a
service provider to the Company in November 1997.

OPTION EXERCISED AND HOLDINGS

The table below sets forth information concerning the exercise of options
during the fiscal year ended January 31, 1998 and unexercised options held as of
the end of such year by the Company's executive officers named in the Summary
Compensation Table. No stock appreciation rights were exercised during such
fiscal year or outstanding as of the end of that fiscal year.

AGGREGATED OPTION EXERCISED IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

Value of
Aggregate Numbe r of Unexercised
Shares Value Unexercised Options at In-the-Money
Acquired On Realized/(1)/ FY-End (#) Options at FY-End/(2)/
Name Exercise (#) $ Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------ ------------- ------------------------- -------------------------

Joseph Piazza......... -- -- 101,926/3074 $ 50,000/0
James J. Kelly, Jr.... -- -- 59,997/68,360 $44,983/$51,270
R. Steven Fisk........ -- -- 39,985/66,485 $$29,989/49,864
Daniel Stern.......... 34,900 $146,527 8,129/66,485 $ 6,097/$49,864
Ignatius J. Panzica(3) -- -- -- --

_________________________

/(1)/ Value Realized is equal to the market price of the purchased shares at the
time the option is exercised, less the aggregate exercised price paid for
such shares. Value Realized does not take into account the federal and
state income taxes payable by the individual in connection with the option
exercise or the subsequent sale of the shares.

/(2)/ Market price at fiscal year end ($12.50) less exercise price. For purposes
of this calculation, the fiscal year end market price of the shares is
deemed to be the closing sale price of the Company's Common Stock as
reported on the National Association of Securities Dealers Automated
Quotations System on Wednesday, January 31, 1998.

/(3)/ Mr. Panzica's options lapsed three months after Mr. Panzica ceased to be a
service provider to the Company in November 1997.

EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENT

Ignatius J. Panzica entered into an employment agreement with the Company in
August 1989 in connection with the acquisition of the Company by Custom Chrome
Holdings, Inc. This agreement was subsequently amended in September 1991 in
connection with the initial public offering of the Company's Common Stock and
was further amended in February 1994. Pursuant to the 1994 amendment agreement,
Mr. Panzica was entitled to a minimum level of annual base salary, which as a
result of periodic increases authorized by the Compensation Committee was at
$300,000 until Mr. Panzica's termination as an employee of the Company on
November 5, 1997. In addition, Mr. Panzica was to be paid an annual bonus based
upon the Company's operating income for each fiscal year. Under the bonus
formula, Mr. Panzica earned an aggregate bonus each year equal to 3% of
operating income up to $5,400,000, 4% of operating income between $5,400,000 and
$8,000,000 and 5% of operating income in excess of $8,000,000. Operating income
is defined as the consolidated net income of the Company and its subsidiaries,
as reflected in the Company's audited financial statements, but adjusted to
exclude extraordinary gains or losses and to add back nonrecurring charges,
interest on long-term debt, income taxes and amortization associated with the
1989 acquisition. On November 5, 1997, Mr. Panzica was terminated as an officer
and employee of the Company. The Company recorded a provision for $3,127,000 in
January 1998 to account for the sums payable pursuant to the agreement.

James J. Kelly, Jr. entered into an at-will employment agreement with the
Company in March 1992, when he first joined the Company as Chief Financial
Officer. Pursuant to that agreement, Mr. Kelly is entitled to minimum level of
annual base salary, which as a result of periodic increases authorized by the
Compensation Committee is at $175,000 effective November 1, 1997, plus a bonus
of up to 20% of his base salary awarded in the sole discretion of the
Compensation Committee.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

The members of the Board of Directors, the executive officers of the Company
and persons who hold more than ten percent (10%) of the Company's outstanding
Common Stock are subject to the reporting requirements of Section 16(a) of the
Securities Exchange Act of 1934, which requires such individuals to file reports
with respect to their ownership of and transactions in the Company's securities.
Officers, directors and greater than ten percent (10%) stockholders are required
to furnish the Company with copies of all such reports they file.

Based upon the copies of those reports furnished to the Company and written
representations that no other reports were required to be filed, the Company
believes that all reporting requirements under Section 16(a) for the year ended
January 31, 1997 were met in a timely manner by each executive officer, Board
member and greater than ten percent (10%) stockholders.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of the Compensation Committee are Joseph Keenan and Lionel M.
Allan. Neither Mr. Keenan nor Mr. Allan was at any time during the year ended
January 31, 1998 or at any other time an officer or employee of the Company.

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

[REMAINDER OF PAGE INTENTIONALLY BLANK]

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information known to the Company with
respect to the beneficial ownership of the Company's Common Stock as of April
24, 1998 by (i) all persons who are beneficial owners of five percent or more of
the Company's Common Stock, (ii) each director, (iii) each executive officer of
the Company named in the Summary Compensation Table in Item 11 above, and (iv)
all current directors and executive officers as a group. Except as otherwise
indicated, the Company believes that the beneficial owners of the Common Stock
listed below, based on information furnished by such owners, have sole
investment and voting power with respect to such shares, subject to community
property laws where applicable. On April 24, 1998, approximately 5,161,136
shares of the Company's Common Stock were outstanding.

Percent of Shares
--------------------------------
Shares
Beneficially Beneficially
Name and Address of Beneficial Owner** Owned Owned
- ------------------------------------------------- -------------- ---------------

Golden Cycle, L.L.C. (1)
4025 Crooked Hill Road
Harrisburg, PA 17110........................... 528,700 10.24%

FMR Corp. (2)
82 Devonshire Street
Boston, MA 02109............................... 526,100 10.19%

State of Wisconsin Investment Board (3)
121 E. Wilson Street
Madison, WI 53702.............................. 470,300 9.11%

Heartland Advisors, Inc. (4)
790 North Milwaukee Street
Milwaukee, WI 53202............................ 452,000 8.76%

Investment Counselors of Maryland, Inc. (5)
803 Cathedral Street
Baltimore, MD 21201-5297....................... 257,900 5.00%

Joseph Piazza (6)................................ 112,447 2.18%

James J. Kelly, Jr. (7).......................... 83,300 1.61%

R. Steven Fisk (8).............................. 73,167 1.42%

Lionel M. Allan (9).............................. 39,561 *

Joseph F. Keenan (10)............................ 31,207 *

Ignatius J. Panzica(11).......................... - -

All current directors and executive officers as
a group (9 persons).............................. 557,562 10.80%

____________________________
* Less than one percent (1%)
** Addresses are c/o the Company, unless otherwise set forth.
(1) Based on Schedule 13D dated March 23, 1998, filed by Golden Cycle, L.L.C.
(2) Based on schedule 13G dated February 14, 1998, filed by FMR Corp. ("FMR").
Represents shares beneficially owned by Fidelity Management & Research
Company, a wholly-owned subsidiary of FMR, as a result of its serving as
an investment advisor to various investment accounts.
(3) Based on Schedule 13G/A dated January 20, 1998, filed by the State of
Wisconsin Investment Board.
(4) Based on Schedule 13G, dated January 23 1998 filed by Heartland Advisors,
Inc.
(5) Based on Schedule 13G, dated March 19, 1998 filed by Investment Counselors
of Maryland, Inc.
(6) Includes 112,447 shares issuable upon the exercise of options which are
currently exercisable or which will become exercisable within 60 days
after April 24, 1997.
(7) Includes 79,403 shares issuable upon the exercise of options which are
currently exercisable or which will become exercisable within 60 days
after April 24, 1998.
(8) Includes 58,473 shares issuable upon exercise of options which are
currently exercisable or which will become exercisable with 60 days after
April 24, 1997.
(9) Represents 39,561 shares issuable upon the exercise of options which are
currently exercisable or which will become exercisable within 60 days
after April 24, 1998.
(10) Includes 28,707 shares issuable upon the exercise of options which are
currently exercisable or which will become exercisable within 60 days
after April 24, 1998.
(11) The information set forth for Mr. Panzica is based solely upon information
provided to the Company by the Company's transfer agent on May 6, 1998.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Beginning in February 1997 Joseph Piazza served as a consultant to the Company
to oversee the operations of its German Subsidiary, Tom's Motorcycle Parts and
Accessories GmbH. For his services Mr. Piazza was paid $10,000 per month in
consulting fees plus reimbursement of his living expenses. Such consulting fees
totaled $75,000 in the year ended January 31, 1998.

Lionel M. Allan served as a legal consultant for the Company during the fiscal
year ended January 31, 1998. For his services Mr. Allan received fees of $5,000
per month through October 31, 1997 and $6,750 per month from November 1, 1997
through January 31, 1998. In addition he received a $1,000 per month office
allowance. Such fees and office allowance totaled $77,250 for the year ended
January 31, 1998.

In January, 1998 the Company hired Joseph Piazza, Jr., the son of the
President and Chief Executive Officer, as Director of Outside Sales. In
February, 1998 he was named Vice President, Sales. From 1996 to 1998, Mr. Piazza
served as General Manager for Helmet House in Calabasas Hills, CA, a distributor
of motorcycle helmets. From 1992 to 1996 he served as a Regional Sales and
Branch manager for Tucker Rocky Distributing, a distributor of motorcycle and
other leisure motorsport parts and accessories. Mr. Piazza Jr.'s annual salary
is $100,000.

The Company provides coverage under its group medical plan for both of the
Company's non-employee directors, Lionel M. Allan and Joseph F. Keenan, at a
cost of approximately $700 per month per director.

See Item 10--Directors and Executive Offers of the Registrant--Remuneration.

PART IV

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

(A) 1. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page
----

The following Consolidated Financial Statements of Global Motorsport
Group, Inc. and its subsidiaries are filed as part of this report on Form
10-K:

Independent Auditors' Report F-1

Consolidated Balance Sheets - January 31, 1998 and 1997 F-2

Consolidated Statements of Operations - Years ended January
31, 1998, 1997 and 1996 F-3

Consolidated Statements of Shareholders' Equity - Years ended
January 31,1998, 1997 and 1996 F-4

Consolidated Statements of Cash Flows - Years ended January
31, 1998, 1997 and 1996 F-5

Notes to Consolidated Financial Statements F-6 - F-15

2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULES

Schedule II - Valuation and Qualifying Accounts II-16

All other schedules have been omitted because the matter or conditions
are not present or the information required to be set forth therein is
included in the Consolidated Financial Statements hereto.

(B) REPORTS ON FORM 8-K

Global Motorsport Group, Inc. filed a Form 8-K Current Report on
September 19, 1997 regarding the Acquisition of the net assets of
Chrome Specialties, Inc.

Exhibit
Number Exhibit
- --------------

3.1(1) Certificate of Incorporation of Custom Chrome, Inc.

3.2(3) Restated Certificate of Incorporation of Custom Chrome, Inc.

3.3(1) Bylaws, as amended.

3.4(1) Form of Amendment to Bylaws.

4.1 Reference is made to Exhibit 3.1.

4.2 Reference is made to Exhibit 3.2.

4.3 Reference is made to Exhibit 3.3.

10.1(1) Custom Chrome, Inc. 1991 Stock Option Plan (the "Stock Option Plan").

10.2(1) Form of Stock Option Agreement for granting stock options under
the Stock Option Plan.

10.3(2) Custom Chrome, Inc. 1991 Stock Option Plan, as restated on March
2, 992 (the "Restated Stock Option Plan").

10.4(2) Form of Notice of Grant of Stock Option (the "Notice of Grant")
and Stock Option Agreement, attached as Exhibit A to the Notice
of Grant, for granting stock options under the Restated Stock
Option Plan.

10.5(2) Form of Non-Statutory Stock Option Agreement for automatic option
grants made under the Restated Stock Option Plan.

10.6(1) Form of Employment or Association Agreement for Assignment of
Inventions and Confidentiality of Company Information.

10.7(1) Form of Director's Indemnification Agreement.

10.8(1) Long-Term Incentive Compensation Agreement between Custom Chrome
Holdings, Inc. and Ignatius J. Panzica dated August 23, 1989.

10.9(1) Management Bonus and Non-competition Agreement between Custom
Chrome, Inc. and Ignatius J. Panzica dated August 23, 1989.

10.10(1) Exclusive Manufacturing and Royalty Agreement between Custom
Chrome, Inc. and Zodiac Enterprises, Ltd. dated March 7, 1987.

10.11(1) Amendment Agreement to Exclusive Manufacturing and Royalty
Agreement between Custom Chrome, Inc. and Zodiac Enterprises,
Ltd. dated August 1991.

10.12(1) Employment Agreement between Custom Chrome, Inc. and Ignatius J.
Panzica dated September 19, 1991.

10.13(1) Amendment between Ignatius J. Panzica and Custom Chrome, Inc.
dated September 19, 1991, to Subscription and Stockholders
Agreement between Custom Chrome, Inc. and the Investors therein
August 23, 1989.

10.14(3) Form of Master Lease Agreement between Custom Chrome, Inc. and
BancBoston Leasing Inc.

10.15(3) Installment Sale Agreement between Custom Chrome, Inc. and
Hewlett-Packard Company dated February 1992 and related
documents.

10.16(5) Lease agreement between Custom Chrome, Inc. and Central Storage &
Transfer Company. dated December 17, 1991.

10.17(4) Line of Credit Agreement between the Company and Bank of America
N. T. & S. A.

10.18(6) Lease between the Company and Allen Chrome Partners, dated April
14, 1994.

10.19(6) Lease between the Company and H.L.M. Properties dated February
18, 1994.

10.20(8) 1995 Stock Option Plan and form of stock option agreement.

10.21(9) Custom Chrome, Inc. 1996 Employee Stock Purchase Plan.

10.22(10) Asset Acquisition Agreement among Custom Chrome, Inc., CSI
Acquisition Corporation, Chrome Specialties, Inc. and the
Shareholders of Chrome Specialties, Inc.

10.23* Amendment to Employment Agreement between Custom Chrome, Inc. and
Ignatius J. Panzica dated September 19, 1991, dated February
1994.

10.24* Credit Agreement dated September 16, 1997 among Global Motorsport
Group, Inc. and CSI Acquisition Sub., Inc., Bank of America NT
and SA, as Agent and Letter of Credit Issuing Bank and the other
financial institutions party hereto.

22.1* Subsidiaries of the Company.

23.1* Consent of Independent Auditors

24.1* Power of Attorney. Reference is made to page 38 of this Report.

27* Financial Data Schedule
________________________________

(1) Incorporated by reference from an exhibit filed with the Company's
Registration Statement on Form S-1 (File No. 33-42875) declared effective
by the Securities and Exchange Commission on November 5, 1991.

(2) Incorporated by reference from an exhibit filed with the Company's
Registration Statement on Form S-8 (File No. 33-47223) filed with the
Securities and Exchange Commission on April 15, 1992.

(3) Incorporated by reference from an exhibit filed with the Company's Annual
Report on Form 10-K (File No. 0-19540) filed with the Securities and
Exchange Commission on April 30, 1992.

(4) Incorporated by reference from an exhibit filed with the Company's
Registration Statement on Form S-3 (File No. 33-65112) declared effective
by the Securities and Exchange Commission on July 22, 1993.

(5) Incorporated by reference from an exhibit filed with the Company's Annual
Report on Form 10-K (File No. 0-19540) filed with the Securities and
Exchange Commission on April 30, 1993.

(6) Incorporated by reference from an exhibit filed with the Company's Annual
Report on Form 10-K (File No. 0-19540) filed with the Securities and
Exchange Commission on April 28, 1994.

(7) Incorporated by reference from an exhibit filed with the Company's Annual
Report on Form 10-K (File No. 0-19540) filed with the Securities and
Exchange Commission on April 28, 1995.

(8) Incorporated by reference from an exhibit filed with the Company's
Registration Statement of Form S-8 (File No. 33-80095) filed with the
Securities and Exchange Commission on December 6, 1995.

(9) Incorporated by reference from an exhibit filed with the Company's
Registration Statement on Form S-8 (File No. 333-12891) declared effective
by the Securities & Exchange Commission on September 27, 1996.

(10) Incorporated by reference from an exhibit filed with the Company's report
on Form 8-K filed with the Securities and Exchange Commission on September,
1997.

* Filed herewith

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934, REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN MORGAN HILL, CALIFORNIA ON
THIS 7/th/ DAY OF MAY, 1998.

GLOBAL MOTORSPORT GROUP, INC.

By /s/ Joseph Piazza
----------------------------------------
Joseph Piazza
President and
Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Joseph Piazza and James J. Kelly, Jr. and each of
them, as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Report on Form
10-K, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED:

Name Title Date
- ---- ----- ----

/s/ Joseph F. Keenan Chairman May 7, 1998
- -----------------------
(Joseph F. Keenan)

/s/ Joseph Piazza President and Chief Executive Officer May 7, 1998
- -----------------------
(Joseph Piazza)

/s/ James J. Kelly, Jr. Executive Vice President, Finance and May 7, 1998
- -------------------------
(James J. Kelly, Jr.) Chief Financial Officer and Director
(Principal Financial and Accounting
Officer)

/s/ Lionel M. Allan Director May 7, 1998
- --------------------
(Lionel M. Allan)

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
Global Motorsport Group, Inc.

We have audited the consolidated financial statements of Global Motorsport
Group, Inc. (the Company) and subsidiaries, as listed in Item 14(a). In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule as listed in Item 14(a). These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures 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 Global
Motorsport Group, Inc. and subsidiaries as of January 31, 1998, and 1997, and
the results of their operations and their cash flows for each of the years in
the three-year period ended January 31, 1998, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.

KPMG PEAT MARWICK LLP

Mountain View, California
March 20, 1998

F-1

GLOBAL MOTORSPORT GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

January 31,
1998 1997
------ ------

ASSETS

Current assets:
Cash and cash equivalents.................... $ 1,432 $ 40
Accounts receivable, net..................... 12,958 11,349
Merchandise inventories...................... 66,338 49,522
Deferred income taxes........................ 3,079 1,334
Prepaid income taxes......................... 1,926 2,378
Deposits and prepaid expenses................ 2,614 2,851
-------- -------

Total current assets 88,347 67,474

Property and equipment, net................... 18,408 15,802
Other assets.................................. 35,327 8,221
-------- -------

$142,082 $91,497
======== =======

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Current maturities of long-term debt and
capital lease obligations................... $ 4,176 $ 3,293
Bank borrowings.............................. 13,741 4,878
Accounts payable............................. 6,757 4,600
Accrued expenses and other liabilities....... 4,775 1,912
-------- -------

Total current liabilities 29,449 14,683

Long-term debt and capital lease obligations.. 52,302 16,154
Deferred income taxes......................... 988 817

Shareholders' equity:
Common stock, $.001 par value; 20,000,000
shares authorized; 5,358,312 and 5,082,312
shares issued and outstanding as of
January 31, 1998 and 5,290,189 issued and
outstanding as of January 31, 1997.......... 5 5
Additional paid-in capital................... 28,977 31,760
Retained earnings............................ 30,361 28,078
-------- -------

Total shareholders' equity 59,343 59,843

Commitments and contingencies
-------- -------
$142,082 $91,497
======== =======

See accompanying notes to consolidated financial statements.

F-2

GLOBAL MOTORSPORT GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Year ended January 31,
----------------------------------
1998 1997 1996
---- ---- ----

Sales, net................................................. $122,725 $108,557 $93,906
Cost of sales.............................................. 77,716 64,834 54,779
-------- -------- -------

Gross profit............................................ 45,009 43,723 39,127

Operating expenses:
Selling, general & administrative....................... 33,114 27,039 23,522
Provision for benefits related to employment agreement.. 3,127 -- --
Product development..................................... 1,407 1,723 1,652
-------- -------- -------

37,648 28,762 25,174
-------- -------- -------

Operating income........................................ 7,361 14,961 13,953

Interest expense........................................... 2,964 1,915 1,637
-------- -------- -------

Income before income taxes.............................. 4,397 13,046 12,316

Income taxes............................................... 2,114 5,174 4,395
-------- -------- -------

Net income $ 2,283 $ 7,872 $ 7,921
======== ======== =======

Net income per share (basic)............................... $ 0.45 $ 1.49 $ 1.57
======= ======= =======
Net income per share (diluted)............................. $ 0.44 $ 1.48 $ 1.52
======= ======= =======

Shares used in per share calculation
Basic................................................... 5,094 5,272 5,048
Diluted................................................. 5,233 5,327 5,209

See accompanying notes to consolidated financial statements.

F-3

GLOBAL MOTORSPORT GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)

Additional
Common Stock paid-in Retained
---------------
Shares Amount capital earnings Total
------------------------------------------------

Balance as of January 31, 1995.. 5,001 $ 5 $26,283 $12,285 $38,573

Exercise of stock options....... 89 -- 1,478 -- 1,478

Net income...................... -- -- -- 7,921 7,921
----- ------ ------- ------- -------

Balance as of January 31, 1996.. 5,090 $ 5 $27,761 $20,206 $47,972
----- ------ ------- ------- -------

Exercise of stock options....... 200 -- 3,999 -- 3,999

Net income...................... -- -- -- 7,872 7,872
----- ------ ------- ------- -------

Balance as of January 31, 1997.. 5,290 $ 5 $31,760 $28,078 $59,843
----- ------ ------- ------- -------

Exercise of stock options....... 68 -- 705 -- 705

Repurchase of common stock...... (276) -- (3,488) -- (3,488)

Net income...................... -- -- -- 2,283 2,283
----- ------ ------- ------- -------

Balance as of January 31, 1998.. 5,082 $ 5 $28,977 $30,361 $59,343
===== ------ ------- ------- -------

See accompanying notes to consolidated financial statements.

F-4

GLOBAL MOTORSPORT GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

Year ended
January 31,
-------------------------------------
1998 1997 1996
---- ---- ----

Cash flows from operating activities:
Net income......................................................... $ 2,283 $ 7,872 $ 7,921
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization..................................... 3,087 1,896 1,612
Deferred income taxes............................................. (1,575) 1,031 (749)
Changes in items affecting operations:
Accounts receivable.............................................. 1,409 (1,820) (1,221)
Merchandise inventories.......................................... (6,572) 1,643 (26,923)
Deposits and prepaid expenses.................................... 932 (956) (2,021)
Accounts payable, accrued expenses and
other liabilities................................................ 4,848 (143) 1,589
-------- ------- --------
Net cash provided (used) by operating activities............... 4,412 9,523 (19,792)
-------- ------- --------

Cash flows from investing activities:
Purchase of intangible assets in connection with acquisition...... (26,889) -- --
Purchase of equipment in connection with acquisition.............. (770) -- --
Purchase of net assets in connection with acquisition............. (13,333) -- --
Acquisition costs................................................. (1,147) -- --
Additions to property and equipment............................... (3,992) (3,601) (4,659)
-------- ------- --------

Net cash used by investing activities.......................... (46,131) (3,601) (4,659)
-------- ------- --------

Cash flows from financing activities:
Bank borrowings, net.............................................. 8,863 (9,888) 14,366
Issuance of long-term debt........................................ 53,500 375 276
Repayment of long-term debt and capital
lease obligations................................................ (16,469) (680) (314)
Repurchase of common stock........................................ (3,488) -- --
Issuance of common stock.......................................... 705 3,999 1,478
-------- ------- --------

Net cash provided (used) by financing activities............... 43,111 (6,194) 15,806
-------- ------- --------

Net change in cash and cash equivalents........................ 1,392 (272) (8,645)

Cash and cash equivalents at beginning of year.................... 40 312 8,957
-------- ------- --------

Cash and cash equivalents at end of year.......................... $ 1,432 $ 40 $ 312
======== ======= ========

Supplemental disclosures:

Cash paid during the year:

Interest....................................................... $ 3,009 $ 2,110 $ 1,758
======== ======= ========

Income taxes................................................... $ 3,370 $ 4,493 $ 5,148
======== ======= ========

Noncash investing and financing activities:

Equipment acquired under capital leases........................ $ -- $ 375 $ --
======== ======= ========

See accompanying notes to consolidated financial statements.

F-5

GLOBAL MOTORSPORT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Global Motorsport Group, Inc., formerly Custom Chrome, Inc., (the Company)
is engaged in the development, manufacture, and wholesale distribution of
aftermarket parts and accessories for Harley-Davidson motorcycles.

The accompanying consolidated financial statements include the Company and
its wholly owned subsidiaries. All intercompany transactions have been
eliminated.

(a) Cash and cash equivalents

The Company considers all highly liquid investments with original
maturities of 3 months or less to be cash equivalents.

(b) Revenue Recognition

The Company recognizes revenue when products are shipped. Export sales
represented 17%, 19%,and 20%, of net sales for the years ended January
31, 1998, 1997 and 1996, respectively.

Merchandise inventories are stated at the lower of first-in, first-out
cost or market. The Company continually evaluates and adjusts the
overhead components of inventory, as necessary.

(d) Advertising

The Company expenses the costs of advertising the first time the
advertising takes place except for direct response advertising which
is capitalized and amortized over periods not exceeding one year.

(e) Property and Equipment

Property and equipment are stated at cost less accumulated
depreciation. Assets under capital leases are stated at the present
value of minimum lease payments at the inception of the lease.
Depreciation is provided over the estimated useful lives of the
respective assets, generally 5 to 30 years, on a straight-line basis.
Amortization of assets under capital leases and leasehold improvements
is calculated using the straight line method over the lesser of the
estimated useful life of the asset or the term of the respective
leases.

(f) Other Assets

Other assets consist primarily of goodwill arising from the
application of purchase accounting. Goodwill is amortized on a
straight-line basis over its estimated useful lives which range from
25 to 40 years. Management assesses the carrying value of other assets
annually by reference to the operating performance and projected
future cash flows.

(g) Impairment of Long-Lived Assets

The Company periodically reviews its long-lived assets and certain
identifiable intangibles for impairment. If events or changes indicate
that the carrying amount of an asset may not be recoverable, the
Company will reduce the amount of the asset determined not to be
recoverable.

(h) Income Taxes

Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carry
forwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.

F-6

(i) Per Share Data

Effective for the year ended January 31, 1998, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings
Per Share (EPS). This statement requires that presentation of both
primary and diluted EPS be shown on the face of the income statement.
Basic EPS excludes dilution and is computed by dividing net income
available to common stockholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS includes
dilution and net income per share is computed using the weighted
average number of common and dilutive common equivalent shares
outstanding during the period. Common equivalent shares include the
effect of the exercise of stock options. All prior period EPS have
been restated. The adoption of this new accounting standard did not
have a material effect on the Company's reported EPS amounts.

(j) Stock Option and Stock Purchase Plan Accounting

Prior to February 1, 1996, the Company accounted for its stock option
plans in accordance with Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, together with its
related interpretations. As such, compensation expense would be
recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. On February 1, 1996 the
Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 123, Accounting for Stock-Based Compensation, which permits the
Company to recognize as expense over the vesting period the fair value
of all stock-based awards on the date of grant. Alternatively, SFAS
No. 123 allows the Company to continue to apply the provisions of APB
Opinion No. 25 and provide pro forma net income and pro forma net
income per share disclosures for stock option grants and stock
purchase plan purchases made in 1996 and future years as if the fair-
value-based method defined in SFAS No. 123 was applied. The Company
has elected to continue to apply the provisions of APB Opinion No. 25
and provide the pro forma disclosure provisions of SFAS No. 123.

(k) Treasury Stock

Treasury stock is reported at par value and constructively retired.
The excess of fair value over par value is first charged to paid-in-
capital, if any, and then to retained earnings.

(l) Use of Estimates

Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and
the disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.

(2) CHROME SPECIALTIES, INC. ACQUISITION

On September 16, 1997, the Company acquired substantially all the assets
and assumed certain liabilities of Chrome Specialties, Inc. ("CSI") for
$38.5 million. CSI is based in Dallas, Texas, and is engaged in the
wholesale distribution of aftermarket parts and accessories for Harley
Davidson motorcycles. The acquisition was accounted for using the purchase
method of accounting and, accordingly, the results of operations of CSI
subsequent to the acquisition date have been included in the Company's
consolidated financial statements.

The excess of the purchase price over the fair value of assets acquired is
being amortized on a straight line basis over 25 years.

The following unaudited pro forma financial information presents the
combined of operations of the Company and CSI as if the acquisition had
occurred as of the beginning of 1998 and 1997, after giving effect to
certain expenses, increased interest on debt, and related income tax
effects. The pro forma financial information does not necessarily reflect
the results of operations that would have occurred had the Company and CSI
constituted a single entity during such periods.

F-7

Year ended January 31,
1998 1997
---- ----
(in thousands)

Net sales.................................... $146,694 $142,378

Net income................................... $ 2,681 $ 8,378

Net income per share, basic.................. $0.53 $1.59

Net income per share, diluted................ $0.51 $1.57

(3) ACCOUNTS RECEIVABLE

January 31,
1998 1997
---- ----
(in thousands)

Trade accounts receivable.................... $ 13,667 $ 11,852
Less allowance for doubtful accounts......... 709 503
-------- --------
$ 12,958 $ 11,349
======== ========

(4) PROPERTY AND EQUIPMENT

January 31,
1998 1997
---- ----
(in thousands)

Trade accounts receivable.................... $ 13,830 $ 11,852
Land......................................... $ 1,402 $ 1,402
Buildings and improvements................... 10,182 9,764
Machinery and equipment...................... 15,585 11,357
Vehicles..................................... 1,268 1,255
-------- --------
28,710 23,778
Less accumulated depreciation............... 10,302 7,976
-------- --------
$ 18,408 $ 15,802
======== ========

(5) OTHER ASSETS

January 31,
1998 1997
---- ----
(in thousands)

Goodwill..................................... $ 35,923 $ 9,679
Other........................................ 2,037 282
-------- --------
37,960 9,961
Less accumulated amortization............... 2,633 1,740
-------- --------
$ 35,327 $ 8,221
======== ========

(6) BANK BORROWINGS

The Company has a $53.5 million term loan and a $20 million line of credit,
with its bank. The loan and line of credit are secured by the assets of the
Company and the loan expires in August 2002. Borrowings bear interest,
payable monthly, at a floating rate which at present is LIBOR plus 1.75%.
In addition the Company has converted a portion of the term loan into a
fixed rate debt utilizing swaps which have interest rates on the various
tranches ranging from 8.13% to 8.24%.

The credit agreement covering the working capital line contains covenants,
including the maintenance of a minimum current ratio, indebtedness to
earnings ratio, pricing leverage ratio, as well as cash flow and
profitability requirement. As of January 31, 1998, the Company was in
compliance with such covenants or had received waivers from the lender with
respect to non-compliance.

F-8

As of January 31, 1998, the Company was contingently liable for issued and
open letters of credit to foreign vendors aggregating approximately
$11,000. In order to hedge future commitments, the Company enters into
contracts with its bank to buy foreign currencies at fixed forward exchange
rates. As of January 31, 1998 there were $2,200,000 foreign currency
contracts outstanding.

(7) ACCRUED EXPENSES AND OTHER LIABILITIES

January 31,
----------
1998 1997
---- ----
(in thousands)

Payroll-related expenses....................................... $ 3,725 $ 1,086
Other.......................................................... 1,050 826
-------- -------
$ 4,775 $ 1,912
======== =======

(8) LONG-TERM DEBT

January 31,
----------
1998 1997
---- ----
(in thousands)

7.47% to 8.24% term loan due in quarterly installments ranging
from $975,000 in the fiscal year ended January 31, 1999 to
$2,050,000 in the fiscal quarter ending July 31, 2002. Final
installment of $25,000,000 due August 31, 2002................. $53,500 --

8.01% senior secured notes, retired in 1998.................... -- $15,000

7.31% mortgage loan, payable in semi-annual
installments of $100,153 through June 2011..................... 2,704 2,904

10.625% mortgage loan, retired in 1998......................... -- 1,217

Capital lease obligations and other............................ 274 326
------- -------

Long-term debt................................................. 56,478 19,447
Less current maturities........................................ 4,176 3,293
------- -------

Long-term debt, excluding current maturities................... $52,302 $16,154
======= =======

The aggregate maturities of long-term debt for the years subsequent to
January 31, 1999 are as follows: 2000, $6,250,000; 2001, $7,050,000; 2002,
$7,950,000; 2003, $29,348,000; thereafter $1,704,000.

(9) FAIR VALUE OF FINANCIAL INSTRUMENTS

Except for long term debt, the amounts recorded for financial instruments
in the Company's consolidated financial statements approximate fair value
as defined in Financial Accounting Standards Board Statement No. 107. The
fair value of long term debt is estimated by discounting the future cash
flows of each instrument at rates currently offered to the Company for debt
instruments of comparable maturities by the Company's bankers. At January
31, 1998 and 1997 the fair value of long term debt exceeded the amounts
recorded in the Company's consolidated financial statements by
approximately $1,073,000 and $390,000, respectively.

(10) INCOME TAXES

Income tax expense consists of: Current Deferred Total
------- -------- -------
(in thousands)

Year ended January 31, 1998
Federal $ 3,074 $(1,290) $ 1,784
State and local 614 (284) 330
------- ------- -------
$ 3,688 $(1,574) $ 2,114
======= ======= =======

F-9

Year ended January 31, 1997
Federal........................ $ 3,412 $ 803 $ 4,215
State and local................ 731 228 959
------- ------- -------
$ 4,143 $ 1,031 $ 5,174
======= ======= =======
Year ended January 31, 1996:
Federal........................ $ 4,631 $ (520) $ 4,111
State and local................ 513 (229) 284
------- ------- -------
$ 5,144 $ (749) $ 4,395
======= ======= =======

Included in current income tax expense for the years ended January 31, 1997
and 1996, is the effect of compensation expense for tax purposes in excess
of amounts reported for financial statement purposes of $709,000, and
369,000, respectively.

Income tax expense for the years ended January 31, 1998, 1997, and 1996,
differed from the amounts computed by applying the Federal income tax rate
of 35% to pretax income as a result of the following:

1998 1997 1996
------- ------- -------
(in thousands)

Computed "expected" tax expense..................... $1,539 $4,566 $4,311

Increase (reduction) in income taxes resulting
from:

State and local taxes, net of federal tax benefit.. 214 636 158
Amortization of goodwill........................... 93 104 96
Effect of graduated income tax rate................ (87) (100) (100)
Effect of foreign net operating loss carryforward.. -- (101) --
Other, net......................................... 355 69 (70)
------ ------ ------
$2,114 $5,174 $4,395
====== ====== ======

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as
follows:

January 31
----------------
(in thousands)
Deferred tax assets: 1998 1997
---- ----

Accounts receivable, principally due to
allowance for doubtful accounts...................................... $ 362 $ 209
Inventories, principally due to additional costs inventoried for tax
purposes in excess of amounts for financial reporting purposes 1,143 513
Bonuses and compensated absences, principally due to accrual
for financial reporting purposes.................................... 1,441 337
State income taxes.................................................... 128 171
Accrued liabilities and other deferred assets......................... 18 11
Foreign net operating loss carryforwards.............................. 105 105
State enterprise zone credit carry forwards........................... 37 37
------- ------

Total deferred tax assets.............................................. 3,234 1,383
------- ------

Deferred tax liabilities:
Plant and equipment, principally due to differences in depreciation... (857) (668)
State income taxes.................................................... (198) (198)
Goodwill, principally due to differences in amortization period....... (88) --
------- ------
Total deferred tax liabilities......................................... (1,143) (866)
------- ------

Net deferred tax assets................................................ $ 2,091 $ 517
======= ======

Based on the Company's historical operating earnings, management believes
it is more likely than not that the Company will realize the benefit of the
deferred income tax asset recorded, and accordingly, has established no
valuation allowance. Certain factors beyond management's control can affect
future levels of taxable income, and therefore, no assurances can be given
that sufficient taxable income will be generated to fully realize recorded
tax benefits.

F-10

In March 1996 the Company received a Notice of Deficiency from the Internal
Revenue Service (IRS) arising out of an examination of its income tax
returns for the years ended January 31, 1992, 1993 and 1994. The Notice
asserted that the Company had underpaid its income taxes in those years by
approximately $4.3 million due to the IRS disallowance of deductions
primarily for compensation related issues. Based on the advice of outside
tax counsel, the Company has petitioned the U.S. Tax Court for a
redetermination of these alleged deficiencies citing numerous errors in the
IRS's allegations. In addition, the Company has asserted that it is due
additional tax deductions totaling at least $3.1 million in the tax periods
which were examined. While the outcome of this matter cannot be predicted
with certainty, management believes, based on their review and the opinion
of outside experts, that any liability resulting from this proceeding is
not reasonably likely to have a material effect on the Company's liquidity,
financial condition or results of operations. In February 1997 the Company
received a Notice of Personal Assessment related to the same compensation
related issues in its tax returns for the years ended January 31, 1995 and
1996. In March 1998, the Company was notified by the IRS that it had
revised its position with respect to the matters contained in the Notice of
Proposed Assessment and would not be issuing an assessment for the years
ended January 31, 1995 and 1996.

(11) SHAREHOLDERS' EQUITY

(a) Common Stock

The Company has reserved an aggregate of 1,576,000 shares of common
stock for issuance under its 1991, 1995, and 1997 Stock Option Plans.
Under these plans, the Company may issue options to purchase shares of
common stock to eligible employees, officers, directors, independent
contractors and consultants at prices determined by the Board of
Directors on the grant date. Options can be granted for terms of up to
ten years and vesting will be set by the Board of Directors.

Details of stock option activity under these plans are as follows:

Weighted- Weighted- Weighted-average
average average Options Fair Value of
Options Exercise Grant Date Exercisable Options Granted
Outstanding Price Fair Value* at Year End During Year
----------- --------- ----------- ----------- -----------------

January 31, 1996....................... 756,159 17.596 247,956 $7.692
======= ======
Granted.......................... 360,365 18.367 $7.312
======
Exercised........................ (199,804) 16.369
Canceled or expired.............. (53,490) 19.625
-----------

January 31, 1997...................... 863,230 18.076 328,613 $7.312
======= ======
Granted.......................... 1,976,939 12.00 $3,427
======
Exercised........................ (67,604) 11.742
Canceled or expired.............. (1,726,872) 15.019
-----------

January 31, 1998...................... 1,045,693 12.009 207,020 $3.427
=========== ======= ======

Shares available for future grant..... 110,000
===========

* Fair value assumptions:
BLACK-SCHOLES OPTION-PRICING MODEL

Weighted-
average Average Dividend
Risk Free Rate Expected Life Volatility Yield
--------------- ------------- ----------- ------

1996..................... 6.79% 3.00 50% 0%
1997..................... 6.31% 3.00 50% 0%
1998 -- Granted......... 6.97% 3.00 50% 0%
-- Repriced........ 6.49% 3.00 50% 0%

F-11

The following table summarizes information about the Company's stock
options outstanding at January 31, 1998:

Options Outstanding Options Exercisable
--------------------------------------------- -----------------------------------
Weighted-
Number average Weighted- Number Weighted-
Outstanding Remaining average Exercisable average
at 1/31/98 Contractual Life Exercise Price at 1/31/98 Exercise Price
----------- ---------------- -------------- ------------------- --------------

$10.00............. 3,248 4.39 $10.000 3,248 $10.000
$11.75 - $16.00.... 1,024,445 9.44 11.850 194,681 11.75
$18.00 - $26.00.... 18,000 7.91 21.690 9,091 22.14
--------- -------
$10.00 - $26.00.... 1,045,693 9.39 $12.010 207,020 $ 12.18
========= =======

The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan")
was adopted by the Board of Directors and approved by the Company's
shareholders in September, 1996. A total of 150,000 shares of common
stock are reserved for issuance under the Purchase Plan. The Purchase
Plan is administered by the Board of Directors. The Purchase Plan
permits eligible employees, as defined, to purchase common stock
through payroll deductions, which may not exceed 15% of the employee's
base compensation. No employee may purchase more than $25,000 worth of
stock in any calendar year. The price of shares purchased under the
Purchase Plan is 85% of the lower of the fair market value of the
common stock on (i) the first day of the offering period; or (ii) the
last day of the offering period. Employees may end their participation
in the offering at any time during the offering period, and
participation ends automatically on termination of employment with the
Company. In March 1998 and 1997 employees purchased 8,015 and 8,280
shares, respectively under this plan.

The Company applies APB Opinion No. 25 in accounting for its various
stock option plans and Employee Stock Purchase Plan (the "stock
plans"). Accordingly, no compensation cost has been recognized for the
stock plans. However, if the Company had determined compensation costs
pursuant to SFAS No. 123 for its stock plans, the Company's net income
and net income per share would have been reduced to the pro forma
amounts indicated below for the years noted:

1998 1997 1996
---- ---- ----

Net income.................... As reported $2,283 $7,872 $7,921
====== ====== ======
Pro forma $1,275 $7,132 $7,484
====== ====== ======

Net income per share, basic... As reported $ 0.45 $ 1.49 $ 1.57
====== ====== ======
Pro forma $ 0.25 $ 1.35 $ 1.48
====== ====== ======

Net income per share, diluted. As reported $ 0.44 $ 1.48 $ 1.52
====== ====== ======
Pro forma $ 0.24 $ 1.34 $ 1.44
====== ====== ======

Pro forma net income reflects only options granted in 1996 through
1998. Therefore the full impact of calculating compensation cost for
the Company's stock option plans under SFAS No. 123 is not reflected
in the pro forma net income amounts presented above as compensation
cost is reflected over a stock options' vesting period and
compensation cost for options granted prior to February 1, 1995 is not
considered.

In October 1996 the Board of Directors authorized the repurchase of up
to the 300,000 common shares of the Company in the open market. In
April and May of 1997 the Company repurchased 276,000 common shares
for $3,488,000.

(b) Preferred Stock

The Company has the authority to issue up to 1,000,000 shares of
preferred stock in one or more series and to fix the rights,
preferences, privileges and restrictions of the shares, including
dividend rights, voting rights, terms of redemption and liquidation
preferences. There are no shares of preferred stock outstanding.

F-12

In November 1996 the Board of Directors declared a dividend
distribution on November 13, 1996 of one Preferred Shares Purchase
Right on each outstanding share of the Company's Common Stock. Each
Right will entitle stockholders to buy 1/1000th share of the Company's
Series A Participating Preferred Stock at an exercise price of $80.00.
The Board of Directors has initially reserved 100,000 shares for
issuance upon exercise of the Rights. The Rights will become
exercisable following the tenth day after a person or group announces
acquisition of 15% or more of the Company's Common Stock or announces
commencement of a tender offer the consummation of which would result
in ownership by the person or group of 15% or more of the Common
Stock. The Company will be entitled to redeem the Rights at $.01 per
Right at any time on or before the tenth day following acquisition by
a person or group of 15% or more of the Company's Common Stock.

If, prior to redemption of the Rights, a person or group acquires 15%
or more of the Company's Common Stock, each Right not owned by a
holder of 15% or more of the Common Stock will entitle its holder to
purchase, at the Right's then current exercise price, that number of
shares of Common Stock of the Company (or, in certain circumstances as
determined by the Board, cash, other property or other securities)
having a market value at that time of twice the Right's exercise
price. If, after the tenth day following acquisition by a person or
group of 15% or more of the Company's Common Stock, the Company sells
more than 50% of its assets or earning power or is acquired in a
merger or other business combination transaction, the acquiring person
must assume the obligations under the Rights and the Rights will
become exercisable to acquire Common Stock of the acquiring person at
the discounted price. At any time after an event triggering
exercisability of the Rights at a discounted price and prior to the
acquisition by the acquiring person of 50% or more of the outstanding
Common Stock, the Board of Directors of the Company may exchange the
Rights (other than those owned by the acquiring person or its
affiliates) for Common Stock of the Company at an exchange ratio of
one share of Common Stock per Right.

(12) COMMITMENTS AND CONTINGENCIES

(a) Bonus Agreements

The Company has an agreement with the past Chairman, President and
Chief Executive Officer, who was terminated as an employee on November
5, 1997, which provides for a bonus ranging from 3 to 5% of operating
income, as adjusted. The agreement terminates when $6,093,000 has been
paid or the officer voluntarily resigns or is terminated for cause. As
of January 31, 1998, $3,127,000 has been accrued under this agreement
for potential future payments.

The Company also has a bonus agreement with a consultant which
provides for annual payments based upon defined operating results up
to a limit of $2,031,000. As of January 31, 1998, $1,421,000 remains
to be paid or accrued under this agreement.

Both of these agreements provide for a lump-sum payment, less amounts
already paid, in the event that the Company sells all or substantially
all of its assets.

(b) Operating Leases

The Company leases certain facilities and equipment under
noncancelable operating leases. Certain facilities leases include
renewal options and rent escalation clauses to reflect changes in
price indices, real estate taxes and maintenance costs. Future minimum
lease payments are as follows:

Year ending January 31, (in thousands)
----------------------- --------------

1999.............................. $1,834
2000.............................. 1,701
2001.............................. 1,392
2002.............................. 1,260
2003.............................. 416
Thereafter........................ 2,190
------
Total minimum lease commitments... $8,793
======

F-13

Rental expense under operating leases for the years ended January 31,
1998, 1997 and 1996 was $1,836,000, $1,150,000 and $1,183,000,
respectively.

The Company is involved in potential claims or legal actions arising
in the ordinary course of business. In the opinion of management, the
ultimate resolution of these matters will not have a material adverse
effect on the Company's financial position or results of operations.

(13) NUMBER OF SHARES PER SHARE COMPUTATION

There was no adjustment to net income for purposes of computing net income
per share. The following table reconciles the number of shares used in the
basic net income per share computation and the number of shares used in the
diluted net income per share computation:

January 31,
-----------

1998 1997 1996
---- ---- ----
(in thousands)

Basic:
Weighted average common shares used
in computing basic net income
per share................................... 5,094 5,272 5,048

Diluted:
Weighted average common shares
outstanding................................. 5,094 5,272 5,048
Diluted options outstanding................. 139 55 161
----- ----- -----

Shares used in computing diluted net
income per share............................ 5,233 5,327 5,209
===== ===== =====

Options to purchase shares of common stock were outstanding during each of
the three fiscal years ended January 31, 1998, 1997, and 1996 which were
not included in the computation of diluted net income (loss) per share
because the options' exercise price's were greater than the average market
price of the common shares. Excluded shares for each year are as follows:

Excluded Exercise
Options Price
-------- ---------------

Year ended January 31,

1998 18,000 $18.00 - $26.00
1997 133,500 $22.50 - $26.00
1996 7,500 $ 26.00

Common stock in the amount of 71,409 shares was issued in the quarter
following the fiscal year end under the Company's stock options plans.

F-14

(14) UNAUDITED QUARTERLY FINANCIAL DATA

1998
----
Three months ended
------------------
(in thousands)

April 30 July 31 October 31 January 31
-------- ------- ---------- ----------

Sales, net........................... $31,707 $32,297 $30,450 $28,270
------- ------- ------- -------
Gross profit......................... 11,166 12,333 10,952 9,888
------- ------- ------- -------
Operating income/(loss).............. 4,306 4,642 962 (2,550)
------- ------- ------- -------
Net income/(loss).................... $ 2,343 $ 2,524 $ 82 $(2,667)
------- ------- ------- -------
Basic net income (loss) per share.... $ 0.45 $ 0.50 $ 0.20 $ (0.53)
------- ------- ------- -------
Diluted net income (loss) per share.. $ 0.45 $ 0.49 $ 0.02 $ (0.52)
======= ======= ======= =======

1997
----
Three months ended
------------------
(in thousands)

April 30 July 31 October 31 January 31
-------- ------- ---------- ----------

Sales, net........................... $30,627 $30,357 $26,193 $21,380
------- ------- ------- -------
Gross profit......................... 11,612 12,224 10,454 8,053
------- ------- ------- -------
Operating income..................... 5,668 5,021 3,104 1,168
------- ------- ------- -------
Net income........................... $ 3,008 $ 2,776 $ 1,574 $ 514
------- ------- ------- -------
Basic net income per share........... $ 0.59 $ 0.54 $ 0.30 $ 0.10
------- ------- ------- -------
Diluted net income per share......... $ 0.58 $ 0.52 $ 0.30 $ 0.10
======= ======= ======= =======

(15) SUBSEQUENT EVENT

On March 23, 1998 the Company received a written proposal from Golden
Cycle, L.L.C. ("Golden") for a business combination between Golden and the
Company in which Golden Cycle proposed that the Company's shareholders
would receive cash consideration of $18.00 per share. Shortly thereafter
Golden Cycle commenced a tender offer for all the issued and outstanding
shares of the Company for $18.00 per share. In addition Golden Cycle
commenced a consent solicitation to remove the current Board of Directors
and replace them with Directors selected by Golden Cycle. Golden Cycle and
a number of third parties have filed lawsuits in connection with the
abovementioned tender offer and consent solicitation. The Company has
retained investment and legal advisors to advise it in connection with the
tender offer, consent solicitation and lawsuits as well as to explore
other acquisition proposals and other alternatives.

F-15

SCHEDULE II

GLOBAL MOTORSPORT GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)

Balance Additions Balance
at Charged to at
Beginning Costs & End of
of Period Expenses Deductions Period
--------- ---------- ---------- ------

Year ended January 31, 1996
Allowance for doubtful
accounts................................ $ 275 $ 75 $ 70 (1) $ 280
====== ====== ======== =======

Accumulated amortization of
other assets............................ $1,164 $ 283 $ --- $ 1,447
====== ====== ======== =======

Year ended January 31, 1997
Allowance for doubtful
accounts................................ $ 280 $ 260 $ 37 (1) $ 503
====== ====== ======== =======

Accumulated amortization of
other assets............................ $1,447 $ 293 $ --- $ 1,740
====== ====== ======== =======

Year ended January 31, 1998
Allowance for doubtful
accounts................................ $ 503 $ 894 $ 688 (1) $ 709
====== ====== ======== =======

Accumulated amortization of
other assets............................ $1,740 $ 893 $ --- $ 2,633
====== ====== ======== =======

___________________________

(1) Specific accounts written off.

II-16.