<PAGE>   1

                       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 December 31, 1997
                                       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 0-21632

                              ELLETT BROTHERS, INC.
             (Exact name of Registrant as specified in its charter)

SOUTH CAROLINA                                            57-0957069
(State or other jurisdiction of                           (I.R.S. Employer
incorporation or organization)                            Identification Number)


267 COLUMBIA AVENUE, CHAPIN, SOUTH CAROLINA               29036
(Address of principal executive offices)                  (Zip Code)

       Registrant's telephone number, including area code: (803) 345-3751

           Securities registered pursuant to section 12(b) of the Act:
                                      NONE

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

                           COMMON STOCK (no par value)

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 amendment to this
Form 10-K. [x]

As of February 28, 1998 there were 5,120,918 shares of common stock of the
Registrant outstanding, and the aggregate market value of the shares of common
stock held by nonaffiliated shareholders (based upon the closing price for the
stock on the Nasdaq National Market on February 28, 1998) was $31,365,623.


                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement in connection with the Registrant's
1998 Annual Meeting of Shareholders to be held May 27, 1998 are incorporated by
reference into Part III of this report.


                                  Page 1 of 27


<PAGE>   2

ADVISORY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain of the statements contained in PART I, Item 1 (Business) and in PART II,
Item 7 (Management's Discussion and Analysis of Financial Condition and Results
of Operations) that are not historical facts are forward-looking statements
subject to the safe harbor created by the Private Securities Litigation Reform
Act of 1995. The Company cautions readers of this Annual Report on Form 10-K
that such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from those expressed
or implied by such forward-looking statements. Although the Company's management
believes that their expectations of future performance are based on reasonable
assumptions within the bounds of their knowledge of their business and
operations, there can be no assurance that actual results will not differ
materially from their expectations. Factors which could cause actual results to
differ from expectations include, among other things, reductions in, or lack of
growth of, firearm sales; potential negative effects of existing and future gun
control legislation on consumer demand for firearms; the potential negative
impact on gross margins from shifts in the Company's product mix toward lower
margin products; seasonal fluctuations in the Company's business; competition
from national, regional and local distributors and various manufacturers who
sell products directly to the Company's customer base; competition from sporting
goods mass merchandisers or "superstores" which sell in competition with the
Company's primary customer base; exposure to product liability lawsuits; the
challenges and uncertainties in the implementation of the Company's expansion
and development strategies; the Company's dependence on key personnel; and other
factors described in this report and in other reports filed by the Company with
the Securities and Exchange Commission.

PART I

ITEM 1.    BUSINESS
                                   BACKGROUND
GENERAL

Ellett Brothers, Inc. and subsidiaries (the "Company") is a nationwide marketer
and supplier of natural outdoor sporting goods products. The Company markets and
distributes a broad line of products and accessories for hunting and shooting
sports, marine, camping, archery, and other related outdoor activities. The
Company's product line, which contains over 60,000 stock-keeping units (SKU's),
includes firearms, ammunition, marine electronics, small engine replacement
parts, electric trolling motors, binoculars, cutlery, archery equipment, leather
goods, flashlights, tents, lanterns, sportsmen's gifts, camping accessories,
decorative boxes, licensed nostalgia items, and a variety of other natural
outdoor sporting goods products. During fiscal years 1997, 1996, and 1995,
revenues from sales of firearms and ammunition comprised approximately 49.8%,
49.2%, and 50.8%, respectively, of the Company's revenues. The Company features
such recognized brand names as Remington, Ruger, Winchester, Daisy, Rocky Shoes
and Boots, LaCrosse, Motorguide, Coleman, Rubbermaid, Swiss Army, Bear Archery,
and Nikon. The Company's mailing address is 267 Columbia Avenue, Chapin, South
Carolina, 29036, and its telephone number is (803) 345-3751.

In late 1988, the Company began broadening its product line from primarily
hunting and shooting goods to include marine accessories. The Company's marine
accessories business has proven to be a natural extension of Ellett Brothers'
traditional sporting goods business, with sales increasing from $2.6 million in
1989 to almost $21.0 million in 1997. In 1994, Ellett formed a new sales group
to specifically target archery retailers. The archery group has shown continued
growth since its inception.

During 1995, Ellett Brothers, Inc. ("Ellett") implemented its acquisition
strategy by acquiring assets of entities with products that complement Ellett's
existing product line as well as opening the possibility of new markets or
channels of distribution. As a result, substantially all of the assets of Evans
Sports, Inc. ("Evans") and Vintage Editions, Inc. ("Vintage") were acquired in
April and September 1995, respectively. Evans is a manufacturer of outdoor
sporting accessories and wooden nostalgia boxes. Vintage is a manufacturer of
specialty licensed nostalgia products. While their products are similar in
nature, they are very distinct in quality and marketing approaches. The Company
expects to continue to seek expansion of the wood products of both companies to
provide additional sales to both current and new customers. All of the newly
acquired assets of Evans and Vintage were transferred to wholly-owned
subsidiaries that were incorporated in the state of South Carolina at the time
of each respective purchase. The subsidiaries were also purchased to further add
to the growth of the Company, by providing increased sales and gross profit as
well as new channels of distribution.

Also in August 1995, Ellett purchased the accounts receivable and inventory of
Safesport Manufacturing Company ("Safesport"), an importer and marketer of
outdoor leisure products, specializing in camping accessories and cutlery items.
In June 1997, executive management and the Board of Directors concluded that the
ongoing operation of the Safesport subsidiary was not in the best interest of
the Company and began liquidation. The liquidation process was substantially
completed in the fourth quarter (see Note 4 to the financial statements).

                                  Page 2 of 27
<PAGE>   3

                             DESCRIPTION OF BUSINESS

MARKETING

The Company currently sells to over 23,800 active customer accounts (defined as
customers who have made a purchase from the Company within the last twelve
months), the majority of which are independent natural outdoor sporting goods
retailers (as opposed to mass merchandisers). The Company's largest customer was
responsible for approximately 2.4% of 1997 sales, and sales to the Company's ten
largest customers represented approximately 6.7% of 1997 sales. The Company
seeks to expand its existing customer base further through the identification of
new or alternative channels for its product lines. Distribution channels
targeted by the Company include specialty pro shop retailers of archery
products, industry organization groups and larger sporting goods stores.

Ellett Brothers' customer base in its traditional distribution business is
organized into individual business units. Each sales associate, after ten weeks
of intensive training, is promoted to manager of an individual business unit
serving a designated customer base. Each business unit manager participates in
the development of an annual profit plan, receives monthly profit and loss
statements, and is accountable for the performance of the business unit.
Business unit managers continually update each customer's file with product,
sales and other customer-specific information to tailor the Company's services
to better suit the customer's needs. Customers regularly contact their personal
business unit manager to obtain current information regarding compatible
products and accessories, product warranties, and product availability.

The Company believes this organizational structure is unique in its industry
because the business unit managers are incentivized to develop strong one-on-one
relationships with their customers and to enhance their sales, marketing, and
management skills. The Company believes this enhances the overall productivity
of each business unit.

Ellett Brothers' commitment to ongoing training and professional development of
its business unit managers is a key feature of the organization. Ellett Brothers
trains each business unit manager to be a constant source of products, as well
as the product information source for that business unit's customers. Management
believes this teleservicing approach is unique to Ellett. Each business unit
manager receives 500 hours of training in the manager's first year and
approximately 200 hours of training each year thereafter. Prior to any customer
contact, each business unit manager must successfully complete an intensive 10
week training, testing, and analysis process, which addresses product knowledge
and a broad range of selling skills. Every business unit manager begins each day
with a training meeting designed to build on earlier training and provide
updates on Company direction, product promotions, and new marketing
opportunities. In addition, periodic career enhancement classes provide in-depth
training on a wide range of topics.

Because of Ellett Brothers' business unit approach and state-of-the-art
telecommunications technology, we do not need an outside sales force in our
traditional distribution business. Ellett's business unit approach, combined
with our teleservicing, enables us to communicate frequently with our entire
customer base, providing timely updates on market developments, new products,
promotions, and order status. In 1997, Ellett Brothers averaged approximately
5,000 outbound customer contacts and 3,700 inbound customer contacts daily, with
a collective total of over 420 hours of telephone time daily. Ellett believes
that it is capable of contacting its entire customer base in two days rather
than the weeks typically required by a traditional field sales force.

Evans and Vintage rely on an inside marketing staff as well as independent sales
representatives. The products of the subsidiaries are also cross-marketed to
traditional Ellett customers by Ellett's sales associates to help generate
additional sales for the subsidiaries.

A key part of Ellett Brothers' marketing strategy is the production of complete
annual product catalogs, as well as frequent promotional mini-catalogs. Annual
catalogs are produced for each of our major product groups, including hunting
and shooting sports products, archery products, marine accessories, Evans'
products, and Vintage's products. The hunting and shooting, archery, and marine
catalogs are produced in two separate formats. The Ellett version is designed to
be used at a retail sales counter by store employees as a reference tool and
sales guide. Ellett also sells catalogs to its customer base with the retail
store's name on the front cover, which the retailers generally give to their
best customers. Management believes that through this process our catalogs are
found in the hands of the most active consumers in the marketplace. In 1997,
Ellett distributed over 113,000 copies of our annual catalogs.

In 1997, Ellett's distribution business produced over 42 different mini-catalogs
(periodic promotional flyers) with 44% of our sales being from items featured in
these mini-catalogs. These promotional, business-to-business mail order vehicles
are designed to focus our customers and business unit managers on a narrow range
of products, including special values, new products, and upcoming seasonal items
for a short period of time. In 1997, we issued mini-catalogs for our hunting and
shooting sports products, archery products, and marine accessory products.

                                  Page 3 of 27
<PAGE>   4

DISTRIBUTION

Ellett's ability to ship orders in a timely fashion is an important element in
maintaining successful customer relationships. Our distribution centers pride
themselves on generally having customer orders ready for shipment within six
business hours of the receipt of an order, resulting in virtually no backlog of
orders. Consequently, Ellett serves as a "just-in-time" inventory supplier to
many of our distribution business customers. Our electronic inventory management
system enables us to manage over 60,000 stock keeping units, minimizing
out-of-stock situations and provides what we believe to be one of the highest
fulfillment rates in our industry.

The Company utilizes United Parcel Service for delivery services to the majority
of its customers, while a few customers pick up merchandise. The use of UPS has
allowed the Company to avoid the substantial fixed costs associated with
regional warehouse locations and a fleet of trucks. Following the 1997 UPS
strike, management reviewed this relationship and believes the benefits exceed
the risks of any future strike.

PURCHASING AND SUPPLIERS

The Company currently purchases products from approximately 900 manufacturers
and other suppliers. The Company's four largest suppliers accounted for
approximately 26.9%, 30.2%, and 26.6% of the Company's purchases during 1997,
1996, and 1995, respectively. Management believes that the Company's size,
reputation, prompt payment history, and overall knowledge of independent
sporting goods retailers have contributed to strong relationships with its
suppliers. The majority of the suppliers provide advertising allowances to the
Company to assist in the promotion and sale of their products, via the catalogs
and mini-catalogs, while many are actively involved in on-site promotion efforts
at Ellett Brothers.

Ellett Brothers' purchasing associates play a key role in merchandising. They
are responsible for the initial buying decisions, including selection and
pricing, and coordination of supplier promotional efforts. All distribution
products are evaluated on a 2 to 3 week cycle and must perform to guidelines
established by the Company. Raw materials for the manufacturing and assembly
operations are evaluated as each major purchase cycle is encountered. Purchasing
associates are regularly involved in reviewing new products or current product
performance for the addition or discontinuance of items.

COMPETITION

The industry in which Ellett competes is extremely competitive. The principal
methods of competition within the natural outdoor sporting goods distribution
industry include purchasing convenience, customer service, inventory selection,
price, and rapid customer order turnaround. Ellett believes that it
differentiates itself by its strategies of servicing each customer through that
customer's own personal business unit manager, providing customers with ongoing
product and market information, after-the-sale follow-up, carrying one of the
most extensive selections of inventory in its various product categories, and
having customer orders generally ready for shipment within six business hours of
the order being received by a business unit manager.

Ellett's customer base consists almost exclusively of independent sporting goods
retailers located across the United States. Ellett competes with other national
distributors, various regional and local distributors and various manufacturers
who sell certain products directly to these retailers. Ellett has identified
approximately 60 distributors, of whom approximately six are national in scope,
competing in the hunting and shooting sports, camping and archery products and
outdoor accessories markets, and has identified approximately 50 other
distributors competing in the marine accessories markets. Certain of these
competitors may have substantially greater financial resources, larger sales and
support staffs and greater purchasing power than Ellett. Ellett's ability to
compete successfully depends on factors both within and outside its control,
including its ability, if necessary, to support reductions in selling prices
through reductions in operating expenses, the timing and success of product
introductions, access to high demand products, successful inventory management,
suitable product quality, reliability and price, and general economic
conditions. Ellett also indirectly competes with sporting goods mass
merchandisers or "superstores", to which Ellett generally does not sell, but
which generally sell in competition with the Ellett's primary customer base of
independent sporting goods retailers.

Although Ellett shares customers with its subsidiaries, competition in the
markets of the subsidiaries differs from Ellett's traditional distribution
business. Management believes Evans and Vintage hold the majority of the market
for nostalgic and licensed decorative boxes, with a few smaller companies
competing for market share. Evans' customer base is dominated by mass
merchandisers and Vintage's sales are predominately through specialty catalogs
and gift shops. The main competitive factor for Evans and Vintage is being able
to produce a product timely and at a price level commensurate to the quality of
the item.

GOVERNMENT REGULATION AND LICENSES

In recent years, an increasing amount and variety of legislation aimed at
eliminating or limiting the production, sale, possession, ownership and use of
certain kinds of firearms has been introduced in the United States Congress and
in various state legislatures, and the Company expects that such legislation
will continue to be introduced in the future. In addition, certain states and
other local governments have already adopted, or are currently considering the
adoption of, laws aimed at the control of firearm

                                  Page 4 of 27
<PAGE>   5

possession and ownership by the public. In 1994, the Brady Bill, which imposes
up to a five-day waiting period for a background check for purchasers of
handguns, became effective. In May 1994, the federal government banned the
importation of firearms and ammunition from China, including three types of
firearms and related ammunition sold by the Company, and the September 1994
Crime Bill imposed a ban on the production and importation, but not the sale of,
19 types of firearms (including copycat versions), six of which are sold by the
Company, as well as large capacity magazines. Such legislation, however, still
allows the Company to continue to sell these products. There can be no assurance
that existing and future gun control legislation will not have a substantial
negative impact on consumer demand for firearms and result in a material adverse
effect on the Company's financial condition and results of operations.

The Company is also subject to a variety of federal, state and local laws and
regulations relating to, among other things, advertising, the sale and handling
of firearms, the offering and extension of credit and workplace and product
safety, including various regulations concerning the storage of gunpowder.
Certain governmental licenses and permits are also necessary in connection with
the Company's operations. In particular, as with any seller of firearms, the
Company is required to maintain a federal firearms license that imposes various
restrictions and conditions on the Company's operations, including a requirement
that the Company resell firearms and ammunition only to federally licensed
firearms dealers. In addition, all exports of firearms and ammunition require
federal government licenses in advance of shipment. In the event that the
Company should be determined to be in violation of any applicable regulations,
licenses or permits, the Company could become subject to cease and desist
orders, injunctions, civil fines and other penalties. Any such penalties could
have a material adverse effect on the Company's business and results of
operations.

SEASONALITY

Historically, the Company's business has been seasonal. The sales of hunting and
shooting sports products, as well as camping, archery, and outdoor accessories,
usually increase in the third quarter of each year, and peak early in the fourth
quarter. Sales of marine accessories usually increase in the first quarter of
each year, then peak midway through the second quarter and continue at similar
levels through the first half of the third quarter. Operations of the
subsidiaries have been seasonal, producing significantly higher sales and gross
profit during the third and fourth quarters, with losses in the first and second
quarters. The Company's quarterly operating results also may be affected by a
wide variety of factors, such as legislative and regulatory changes, competitive
pressures, and general economic conditions.

ASSOCIATES

The Company views all of its personnel as associates of the Company, rather than
merely as employees. As of February 28, 1998, the Company employed approximately
410 associates, none of whom was a member of an industry trade union or
collective bargaining unit. Part-time workers (primarily clerical and
distribution) are also utilized over the course of the year as needed to assist
the Company during periods of peak sales.

COMPANY TRADENAMES AND TRADEMARKS

The Company utilizes several trade names, trademarks and service marks in the
course of its business, including, among others, the Ellett Brothers(R), Ellett
Brothers As Big As All Outdoors(R), and As Big As All Outdoors(R) trademarks.
Although the Company's operations are not dependent upon any single trade name
or trademark, other than the Ellett Brothers trademark, the Company considers
its various trademarks and trade names to be valuable to its business.


ITEM 2.    PROPERTIES

The Company's operations are carried out at five separate locations. The
following table sets forth certain information regarding each of these
facilities:

<TABLE>
<CAPTION>
                                                  Approximate
                                               Aggregate Usable
                                                  Square Feet             Status
                                               ---------------------------------
<S>                                                 <C>                   <C>
             Chapin, South Carolina                 190,000                Owned
             Chapin, South Carolina                  40,000                Owned
             Newberry, South Carolina               140,000                Owned
             Houston, Missouri                       62,000               Leased
             Taylorsville, North Carolina            30,000               Leased
</TABLE>

                                  Page 5 of 27
<PAGE>   6

The Company's headquarters is housed in the 190,000 square foot, two-story
office and warehouse facility located on 12 acres of land owned by the Company.
The second floor of this facility, approximately 40,000 square feet, encompasses
the Company's teleservicing sales and administrative departments, including a
complete media workshop as well as a video and photography studio. Both of the
Chapin, South Carolina facilities serve as collateral under the Company's
industrial revenue refunding bonds. See Note 10 to the Financial Statements. The
Newberry facility, located on 16.4 acres of land owned by the Company, includes
34,000 square feet of warehouse space added in February 1996.


ITEM 3.    LEGAL PROCEEDINGS

The Company is not involved in any material legal proceedings. See Note 15 to
the Financial Statements.


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

No matters were submitted to a vote of shareholders of Ellett Brothers, Inc.
during the fourth quarter of fiscal year 1997.




                                  Page 6 of 27
<PAGE>   7

PART II

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

The common stock of Ellett Brothers, Inc. is traded on the Nasdaq National
Market System under the symbol ELET. As of March 11, 1998, the Company had a
total of approximately 1,273 shareholders. Of this total there were 73
shareholders of record and approximately 1,200 nominee holders.

The following table sets forth the quarterly high and low sale prices per share
for the common stock as reported on the Nasdaq National Market and dividends on
common stock.

<TABLE>
<CAPTION>
Quarter Ended:                High                 Low                  Dividend
--------------------------------------------------------------------------------
<S>                           <C>                  <C>                  <C>
March 31, 1996                $ 8.25               $ 5.50               $ 0.02
June 30, 1996                   7.38                 5.38                 0.02
September 30, 1996              6.50                 5.00                 0.02
December 31, 1996               5.63                 4.50                 0.02
March 31, 1997                  5.63                 4.38                 0.02
June 30, 1997                   5.38                 4.13                 0.02
September 30, 1997              6.38                 4.88                 0.02
December 31, 1997               6.25                 5.13                 0.02
</TABLE>

The Company did not sell any equity securities during the fiscal year ended
December 31, 1997 which were not registered under the Securities Act of 1933.

ITEM 6.    SELECTED FINANCIAL DATA(1)(6)

<TABLE>
<CAPTION>
                                                      1997             1996              1995             1994              1993
--------------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>              <C>               <C>              <C>               <C>
Sales                                          $   152,500      $   147,666       $   150,411      $   160,187       $   118,652
Income (loss) before income taxes                   (1,353)           2,673             7,384            9,722             5,404
Net income (loss)(2)(6)                               (815)           1,687             4,634            6,156             3,415

Earnings (loss) per share(2)(3)(6)                   (0.16)            0.33              0.89             1.29              0.78
Dividends paid per share(4)                           0.08             0.08              0.08             0.18              0.00
Weighted average number of
  Shares outstanding(3)                              5,148            5,135             5,230            4,783             4,380

Working capital                                     48,140           55,029            50,512           45,678            31,949
Total assets                                        63,614           73,688            70,275           61,236            46,690
Long-term debt obligations                          33,187           38,472            33,533           30,089            28,773
Shareholders' equity                                23,336           24,637            24,548           20,332             7,507

Other data:
Number of business units at year end                   139              145               160              151               134
Number of customers served during year(5)           23,800           25,890            25,737           20,228            18,197
</TABLE>

(1)Prior to June 9, 1993, Ellett Brothers operated as the outdoor sporting
   goods division of Ellett Brothers Limited Partnership. For comparison
   purposes, amounts prior to June 9, 1993 reflect the operations of that
   division of Ellett Brothers Limited Partnership and thereafter the operations
   of Ellett Brothers, Inc. Pro forma provisions for income taxes have been made
   at the corporate statutory rates for periods prior to June 9, 1993.

(2)For comparison purposes, net income for the year ended December 31, 1993
   excludes a one-time, non-cash charge of $622, related to income taxes, or
   $0.14 per share, upon the conversion from a partnership to a corporation.

(3)Earnings per share and weighted average common shares outstanding were
   computed based on an assumed 4,000 pro forma shares outstanding prior to the
   conversion from a partnership to a corporation in June 1993, and actual
   shares outstanding thereafter.

(4)Includes quarterly dividends at $0.02 per share paid in March, June,
   September and December 1997, 1996, 1995, and 1994, and a special dividend at
   $0.10 per share paid in March 1994.

(5)Due to the potential for errors in elimination of mutual customers between
   subsidiaries, the numbers for 1997, 1996, and 1995 are approximations.
   Management feels that any differences are insignificant.

(6)In June 1997, executive management and the Board of Directors concluded that
   ongoing operation of the Safesport Manufacturing Company subsidiary was not
   in the best interest of the Company and began liquidation of this subsidiary.
   The liquidation was substantially concluded by December 31, 1997 with a net
   after tax impact of $2,276 ($0.44 per share).

                                  Page 7 of 27
<PAGE>   8

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

1997 COMPARED TO 1996

Sales for the year ended December 31, 1997 were $152.5 million, as compared to
$147.7 million in 1996, an increase of $4.8 million or 3.2%. Excluding the
impact of Safesport from the two years, sales for 1997 would have been $144.4
million, as compared to $141.4 million in 1996, an increase of $3.0 million or
2.1%. During 1997, sales of hunting and shooting sports products declined 0.4%
when compared to 1996 sales. Also during 1997, sales of camping, archery and
outdoor accessories increased by 0.6% when compared to 1996 sales. The marine
accessory group showed continued growth, with an 8.6% increase when compared to
1996 sales. The 1997 results for the distribution operations were generally
favorable, with the exception of the impact of the UPS strike in the third
quarter. Our best estimate is that the strike reduced sales by $2.8 million.
Management believes, except for the impact of the UPS strike, that retail sales
corresponding to all areas of the Company's business improved slightly in 1997.
Management also believes that, while the overall industry appears to be
experiencing limited sales growth, the consolidation taking place at the retail
and distribution levels continues to provide opportunities for market growth.

Sales in 1997 from the remaining subsidiaries, Evans Sports and Vintage
Editions, were $7.9 million, as compared to $6.5 million in 1996, an increase of
$1.4 million or 21.8%. The improvement was brought about by new product
introductions and increased market penetration.

Gross profit was $23.1 million for the year ended December 31, 1997, as compared
to $27.0 million in 1996, a decrease of $3.9 million or 14.3%. As a percentage
of sales, gross profit was 15.2% in 1997, as compared to 18.3% in 1996. The
decline in gross profit as a percentage of sales was almost entirely due to the
impact of the liquidation of the Safesport inventory in the third and fourth
quarters. Excluding the impact of Safesport from the two years, gross profit for
1997 would have been $25.3 million, on 17.5% of sales, as compared to $25.0
million, or 17.7% of sales, in 1996. The remaining decline resulted from
competitive pressures within the traditional distribution business. While
management is taking steps to reduce the decline in gross profit as a percentage
of sales, it expects the competitive pricing pressures to continue in the
future, potentially affecting gross profit as a percentage of sales for the
Company.

Selling, general, and administrative expenses in 1997 were $21.8 million (14.3%
of sales), as compared to $21.4 million (14.5% of sales) in 1996, an increase of
$0.4 million or 1.7%. Increased expenses were incurred as a result of planned
increase in costs incurred with the computer equipment and information system
upgrades, catalog and mini-catalog production, and personnel costs. Excluding
the impacts of Safesport, selling, general, and administrative expenses for 1997
were $19.5 million, as compared to $18.7 million in 1996. However, certain fixed
expenses previously allocated to Safesport, primarily depreciation and interest
expenses totaling approximately $435,000, will continue into future years.

Interest expense in both 1997 and 1996 was $3.3 million (2.2% of sales). The
benefit from reduced borrowings due to lower inventories, primarily resulting
from the Safesport liquidation, was offset by higher interest rates.

Income tax benefit in 1997 was $538,000, as compared to a $1.0 million expense
in 1996. The effective rate for 1997 was 39.8%, as compared to 36.9% for 1996.
The difference in rates is primarily the result of the impact of the Safesport
liquidation on the deferred tax calculation.

1996 COMPARED TO 1995

Sales for the year ended December 31, 1996 were $147.7 million, as compared to
$150.4 million in 1995, a decrease of $2.7 million or 1.8%. Included in these
amounts were sales from Ellett's subsidiaries, Evans Sports, Vintage Editions
and Safesport, of $12.8 million and $9.1 million for the years ended December
31, 1996 and 1995, respectively. During 1996, sales of hunting and shooting
sports products declined 5.9% when compared to 1995 sales. Also during 1996,
sales of camping, archery and outdoor accessories declined by 6.1% when compared
to 1995 sales. The marine accessory group showed continued growth with a 5.1%
increase when compared to 1995 sales. Management believes the weak consumer
demand in 1995 and 1996 led retailers in the hunting and shooting sports markets
to reduce their inventory levels and subsequently purchase inventory on a "Just
in Time" basis. Retailers were reluctant to purchase inventory ahead of the
typical fall hunting seasons, even with the incentives of extended terms and
additional discounts, which contributed to small sales increases in the third
and fourth quarters in hunting and shooting sports products. Retailers also
reduced their purchases of accessories related to the hunting and shooting
sports products which contributed to the decline in the camping, archery and
outdoor accessories sales.

                                  Page 8 of 27
<PAGE>   9

Gross profit was $27.0 million for the year ended December 31, 1996, as compared
to $28.7 million in 1995, a decrease of $1.7 million or 5.8%. As a percentage of
sales, gross profit was 18.3% in 1996, as compared to 19.1% in 1995. The decline
in gross profit as a percentage of sales was mainly due to lowering sales prices
to remain competitive and stimulate sales within the traditional distribution
business. The subsidiaries were affected by unfavorable manufacturing variances
which led to a 5.1% decline in gross profit as a percentage of sales. Management
expects the competitive pricing pressures to continue in the future, affecting
gross profit for the Company.

Selling, general and administrative expenses in 1996 were $21.4 million (14.5%
of sales), as compared to $18.7 million (12.5% of sales) in 1995, an increase of
$2.7 million or 14.3%. Increased expenses were incurred as a result of operating
the subsidiaries for a full year as compared to a partial year in 1995,
relocation of one subsidiary from Denver, Colorado to Newberry, South Carolina,
increased costs incurred with the computer equipment and information system
upgrades, increased costs of catalog and mini-catalog production and
compensation expense recorded for the stock awards to certain officers. Expenses
that decreased were directly related to the decrease in sales and profits, such
as sales and management bonuses and telephone expense.

Interest expense in 1996 was $3.3 million (2.2% of sales), as compared to $3.1
million (2.1% of sales) in 1995, an increase of $177,000 or 5.7%. The benefit of
lower interest rates in 1996 was more than offset by increased borrowings to
operate the subsidiaries and fund the increase in working capital.

Income tax expense in 1996 was $1.0 million, as compared to $2.8 million in
1995. The effective rate for 1996 was 36.9%, as compared to 37.2% for 1995.

SEASONALITY AND QUARTERLY INFORMATION

Historically the Company's business has been seasonal. The sales of hunting and
shooting sports products, as well as camping, archery and outdoor accessories,
usually increase in the third quarter of each year and peak early in the fourth
quarter. Sales of marine accessories usually increase in the first quarter of
each year, then peak midway through the second quarter and continue at similar
levels through the first half of the third quarter. Operations of the
subsidiaries acquired during 1995 have been seasonal, producing significantly
higher sales and gross profit during the third and fourth quarters, with losses
in the first and second quarters. The Company's quarterly operating results may
also be affected by a wide variety of factors, such as legislative and
regulatory changes, competitive pressures, and general economic conditions.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of liquidity are results of operations and
borrowings under its revolving credit facility. Pursuant to its operating
strategy, the Company maintains minimal cash balances and is substantially
dependent on, among other things, the availability of adequate working capital
financing to support inventories and accounts receivable.

Net cash provided by operating activities was $7.4 million during the year ended
December 31, 1997, as compared to net cash used by operating activities of $2.1
million in 1996. The increase in net cash provided in operating activities in
1997 was mainly due to the decrease in inventories, partially resulting from the
liquidation of Safesport, combined with decreases in prepaid expenses. This was
offset by decreases in trade payables and other liabilities.

Net cash used in investing activities was $1.2 million during the year ended
December 31, 1997, as compared to $1.4 million in 1996. The net cash used in
investing activities was mainly due to the purchase of computer equipment and
information system upgrades.

Net cash used by financing activities was $5.9 million during the year ended
December 31, 1997, as compared to $3.3 million net cash provided in 1996. The
Company used the additional cash provided by operations in 1997 to decrease
borrowings under its revolving credit facility by $4.7 million. The Company also
used a portion of the net cash provided by operating activities to make
principal payments on long-term debt, to repurchase common stock, and to pay
dividends.

Working capital requirements for the Company's traditional distribution business
have historically been somewhat seasonal in nature. Accounts receivable have
generally increased in the first quarter primarily because of the customary
industry practice during the first quarter of each year to offer customers
extended payment terms for purchases of certain products, thereby extending the
payment due dates for a portion of its sales into the third and fourth quarters
of the year. Accounts receivable have generally increased further early in the
third quarter as additional 60 to 90 day extended terms have been offered to
stimulate sales in advance of the Company's highest volume quarters. Accounts
receivable usually decrease in the fourth quarter as payments are received on
prior quarters' sales and a larger percentage of current sales are made with
shorter payment terms. Inventory generally builds during the first two quarters
and peaks in the third quarter to support the higher sales volumes of the third
and fourth quarters.

                                  Page 9 of 27
<PAGE>   10

Working capital requirements have been seasonal for the subsidiaries.
Inventories have increased during the first half of the year to accommodate the
sales in the third and fourth quarters. Accounts receivable have declined to
their lowest point in the second quarter just before the sales increase in the
second half of the year.

During the year ended December 31, 1997, the Company continued the efforts to
upgrade its computer equipment and information systems with expenditures of $1.2
million. The total cost of the computer upgrades, including 1996, 1997, and 1998
expenditures, is expected to be approximately $3.0 million, of which
approximately $1.1 million is planned for 1998. These system upgrades will be
year 2000 compliant.

Principal maturities on the Company's industrial revenue refunding bonds for
1998, 1999, and 2000 will be $517,000, $567,000, and $617,000, respectively. The
annual interest charges, at the fixed rate of 7.5%, will be $606,000, $568,000,
and $525,000, for 1998, 1999, and 2000, respectively (see Note 10 to the
financial statements).

Management believes that cash generated from operations, and available under the
Company's revolving credit facility, will be sufficient to finance its
operations, expected working capital needs, capital expenditures, debt service
requirements, and business acquisitions during 1998 and for the foreseeable
future.

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Pursuant to Securities and Exchange Commission Release 33-7386 (January 31,
1997), the disclosure requirement contemplated by Item 305 of Regulation S-K in
response to this Item 7A is not currently mandated for the Company.

The net loss for 1997 was $815,000, or $0.16 per share, as compared to net
income of $1.7 million, or $0.33 per share, in 1996. The loss for 1997 includes
$2.3 million ($0.44 per share) of one-time losses from the closing of Safesport,
excluding which net income for 1997 would have been $1.5 million, or $0.29 per
share. Excluding all impacts of Safesport operations from 1997 and 1996, net
income would have been $2.3 million in 1997, as compared to $2.5 million in
1996.


                                 Page 10 of 27
<PAGE>   11

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

(A) FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS (in thousands)
<TABLE>
<CAPTION>
                                                                                              December 31,
----------------------------------------------------------------------------------------------------------------
ASSETS                                                                                   1997               1996
----------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>                 <C>
Current assets:
     Cash and cash equivalents                                                     $      395          $     139
     Accounts receivable, less allowance for doubtful accounts of $769
         and $750 at December 31, 1997 and 1996, respectively                          19,201             19,716
     Other accounts receivable                                                          1,820              1,218
     Inventories                                                                       31,535             39,756
     Prepaid expenses                                                                   1,488              3,727
     Deferred income tax asset                                                            534                591
----------------------------------------------------------------------------------------------------------------
              Total current assets                                                     54,973             65,147
----------------------------------------------------------------------------------------------------------------
Property, plant and equipment, at cost, less
     accumulated depreciation and amortization                                          6,703              6,190
Other assets:
     Intangible assets, at cost, less accumulated amortization                          1,936              2,262
     Other assets                                                                           2                 89
----------------------------------------------------------------------------------------------------------------
              Total other assets                                                        1,938              2,351
----------------------------------------------------------------------------------------------------------------
                                                                                   $   63,614          $  73,688
================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
----------------------------------------------------------------------------------------------------------------
Current liabilities:
     Accounts payable, trade                                                       $    4,424          $   7,909
     Accrued expenses                                                                   1,884              1,696
     Current portion of long-term debt                                                    525                513
----------------------------------------------------------------------------------------------------------------
              Total current liabilities                                                 6,833             10,118
----------------------------------------------------------------------------------------------------------------
Revolving credit facility                                                              26,788             31,515
Long-term debt                                                                          6,399              6,957
Deferred income tax liability                                                             258                461
Commitments and Contingencies (see Note 11 and 15)
Shareholders' equity:
     Preferred stock, no par value (5,000 shares authorized,
         no shares issued or outstanding)                                                   -                  -
     Common stock, no par value (20,000 shares authorized, 5,121
         and 5,065 shares issued and outstanding as of December 31,
         1997 and 1996, respectively)                                                  12,833             12,550
     Unearned compensation                                                               (177)              (250)
     Unrealized gain on IRB reserve                                                        21                  -
     Subscription receivable                                                             (452)                 -
     Retained earnings                                                                 11,111             12,337
----------------------------------------------------------------------------------------------------------------
              Total shareholders' equity                                               23,336             24,637
----------------------------------------------------------------------------------------------------------------
                                                                                   $   63,614          $  73,688
================================================================================================================
</TABLE>

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


                                 Page 11 of 27
<PAGE>   12

CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)
<TABLE>
<CAPTION>
                                                                                 For the year ended December 31
---------------------------------------------------------------------------------------------------------------------
                                                                            1997              1996               1995
---------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>                <C>                <C>
Sales                                                              $     152,500      $    147,666       $    150,411
Cost of goods sold                                                       129,372           120,683            121,756
---------------------------------------------------------------------------------------------------------------------
              Gross profit                                                23,128            26,983             28,655

Selling, general and administrative expenses                              21,785            21,420             18,744
---------------------------------------------------------------------------------------------------------------------
              Income from operations                                       1,343             5,563              9,911
---------------------------------------------------------------------------------------------------------------------
Other income (expenses)
     Interest income                                                         454               444                431
     Interest expense                                                     (3,297)           (3,289)            (3,112)
     Other income (expense)                                                  147               (45)               154
---------------------------------------------------------------------------------------------------------------------
                                                                          (2,696)           (2,890)            (2,527)
---------------------------------------------------------------------------------------------------------------------
              Income (loss) before income taxes                           (1,353)            2,673              7,384

Income tax expense (benefit)                                                (538)              986              2,750
---------------------------------------------------------------------------------------------------------------------
Net income (loss)                                                  $        (815)     $      1,687       $      4,634
=====================================================================================================================
Basic and diluted earnings (loss) per common share                 $       (0.16)     $       0.33       $       0.89
=====================================================================================================================
Weighted average shares outstanding                                        5,148             5,135              5,230
=====================================================================================================================

</TABLE>






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



                                 Page 12 of 27
<PAGE>   13

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands)

<TABLE>
<CAPTION>
                                                                               Unrealized
                                                                                 Gain on
                                               Common       Unearned         Available for    Subscription     Retained
                                                Stock     Compensation      Sale Securities    Receivable      Earnings      Total
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>           <C>              <C>                <C>           <C>         <C>
Shareholders' equity at December 31, 1994     $ 13,487      $        -       $         -        $       -     $   6,845   $  20,332
Net income                                           -               -                 -                -         4,634       4,634
Dividends paid, $0.08 per share                      -               -                 -                -          (418)       (418)
-----------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity at December 31, 1995       13,487               -                 -                -        11,061      24,548
Net income                                           -               -                 -                -         1,687       1,687
Dividends paid, $0.08 per share                      -               -                 -                -          (411)       (411)
Repurchase of 223 shares of common stock        (1,277)              -                 -                -             -      (1,277)
Issuance of 58 shares of common stock
     to executive officers                         340            (340)                -                -             -           -
Amortization of unearned compensation                -              90                 -                -             -          90
-----------------------------------------------------------------------------------------------------------------------------------
Shareholders equity at December 31, 1996        12,550            (250)                -                -        12,337      24,637
Net income (loss)                                    -               -                 -                -          (815)       (815)
Dividends paid, $0.08 per share                      -               -                 -                -          (411)       (411)
Repurchase of 56 shares of common stock           (276)              -                 -                -             -        (276)
Issuance of 112 shares of common stock
     to executive officers                         559             (84)                -             (452)            -          23
Amortization of unearned compensation                -             157                 -                -             -         157
IRB Reserve                                          -               -                21                -             -          21
-----------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity at December 31, 1997     $ 12,833      $     (177)      $        21        $    (452)    $  11,111   $  23,336
===================================================================================================================================
</TABLE>





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



                                 Page 13 of 27
<PAGE>   14

CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
<TABLE>
<CAPTION>
                                                                                               For the year ended December 31,
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                           1997             1996             1995
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>             <C>              <C>
Cash flows from operating activities:
     Net income (loss)                                                                 $    (815)      $     1,687      $    4,634
     Adjustments to reconcile net income (loss) to net cash provided
         by (used in) operating activities:
              Depreciation and amortization                                                  973               901             686
              Deferred income taxes                                                         (146)             (303)           (157)
              Provision for loss on accounts receivable                                    1,568               933             905
              Amortization of unearned compensation                                          157                90               -
              Other                                                                            7               (17)              -
              Changes in assets and liabilities:
                  Accounts receivable                                                     (1,655)           (2,224)         (1,586)
                  Inventories                                                              8,221            (1,304)         (2,965)
                  Prepaid expenses                                                         2,239               213            (281)
                  Accounts payable, trade                                                 (3,485)           (1,125)            529
                  Accrued expenses                                                           188              (949)            198
                  Other assets                                                               162               (13)            (17)
----------------------------------------------------------------------------------------------------------------------------------
                      Net cash provided by (used in) operating activities                  7,414            (2,111)          1,946
----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
     Purchase of property and equipment                                                   (1,257)           (1,332)           (887)
     Purchase of intangibles and other assets                                                  -              (121)              -
     Proceeds from sale of property and equipment                                             15                40               -
     Proceeds from sale of intangibles                                                         -                25               -
     Business acquisitions (see Note 3)                                                        -                 -          (3,971)
     Change in industrial revenue refunding bond reserve                                       -                23            (140)
----------------------------------------------------------------------------------------------------------------------------------
                      Net cash used in investing activities                               (1,242)           (1,365)         (4,998)
----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
     Gross borrowings on revolving credit facility                                       151,592           154,200         155,314
     Gross repayments on revolving credit facility                                      (156,332)         (148,764)       (151,363)
     Principal payments on long-term debt                                                   (467)             (416)           (133)
     Principal payments on capital lease obligations                                         (45)              (42)            (23)
     Net proceeds from sale of common stock                                                   23                 -               -
     Repurchase of common stock                                                             (276)           (1,277)              -
     Dividends to shareholders                                                              (411)             (411)           (418)
----------------------------------------------------------------------------------------------------------------------------------
                      Net cash provided by (used in) financing activities                 (5,916)            3,290           3,377
----------------------------------------------------------------------------------------------------------------------------------
                      Net increase (decrease) in cash and cash equivalents                   256              (186)            325
Cash and cash equivalents:
     Beginning of year                                                                 $     139       $       325      $        -
----------------------------------------------------------------------------------------------------------------------------------
End of year                                                                            $     395       $       139      $      325
==================================================================================================================================
Cash payments for interest                                                             $   3,339       $     3,246      $    3,050
==================================================================================================================================
Cash payments for income taxes                                                         $     438       $     1,297      $    3,056
==================================================================================================================================
Non-cash financing activity: lease liability assumed                                   $       -       $        -       $      118
==================================================================================================================================
</TABLE>



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



                                 Page 14 of 27
<PAGE>   15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

1.     BASIS OF PRESENTATION

Ellett Brothers, Inc. is principally a supplier of goods and customer services
to independent retailers who serve the natural outdoor sporting goods market,
primarily in the United States. Ellett Brothers' products are diversified among
a wide variety of outdoor sporting goods equipment including a wide selection of
styles and brand names. During 1995, Ellett Brothers also acquired substantially
all of the assets of two entities ("the Acquired Businesses") and certain assets
of an importer and marketer (see Note 3) whose products complemented Ellett
Brothers' existing operations. The assets of each entity were transferred to
separate wholly-owned subsidiaries. In 1997, the assets of the importer and
marketer were liquidated and its operations were terminated (see Note 4).

2.     SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries (see Note 3). Significant intercompany accounts
and transactions have been eliminated in consolidation.

Use of estimates

The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Cash and cash equivalents

The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.

Revenue recognition

The Company recognizes revenue from product sales at the time of shipment.

Inventories

Inventories, consisting principally of purchased goods held for resale, are
stated at the lower of cost or market, with cost determined under the first-in,
first-out (FIFO) method.

Credit risk

The Company performs ongoing evaluations of its customers and generally does not
require collateral. An allowance for doubtful accounts is provided in an amount
equal to the estimated collection losses. At December 31, 1997 and 1996 prepaid
expenses included prepayments in the amounts of $548 and $2,553, respectively,
on future purchases of inventory from certain suppliers for which the Company
will receive favorable discounts.

Advertising costs

The Company has elected to expense all advertising costs as incurred or the
first time advertising takes place, with the exception of direct response
advertising, which is capitalized and amortized over the period of its expected
future benefit. At December 31, 1997 and 1996, the Company did not have any
significant amounts capitalized as direct response advertising. The Company
incurred total advertising expenditures of $735, $808, and $357 during the years
ended December 31, 1997, 1996, and 1995, respectively.

Property, plant and equipment

Property, plant and equipment are depreciated or amortized using the
straight-line method over the estimated useful lives of the respective assets
which range as follows:

         Description                                                 Years
         -------------------------------------------------------------------
         Buildings and improvements                                  25 - 39
         Furniture, fixtures and equipment                            3 - 10

Expenditures for repairs and maintenance are charged to expense as incurred. The
costs of major renewals and betterments are capitalized and depreciated over
their estimated useful lives. The cost and related accumulated depreciation of
property, plant and equipment are removed from the accounts upon disposition and
any resulting gain or loss is reflected in results of operations.

                                 Page 15 of 27
<PAGE>   16

Intangible assets

Intangible assets principally represent the amount by which costs of acquired
net assets exceeded their related fair value ("goodwill") and costs of acquired
non-compete agreements. The carrying value of goodwill is reviewed periodically,
and if the facts and circumstances suggests that it is impaired, the impairment
will be accounted for in accordance with FASB Statement No. 121, "Accounting for
Impairment of Long-Lived Assets". The non-compete agreements are being amortized
over the original terms of the agreements. Intangible assets are amortized using
the following methods and estimated useful lives.
<TABLE>
<CAPTION>
         Description                       Method                      Years
         -------------------------------------------------------------------
        <S>                                <C>                         <C>
         Deferred financing costs          Effective interest            20
         Licenses and trademarks           Straight-line               5 - 20
         Goodwill                          Straight-line                 10
         Non-compete agreements            Straight-line                 10
</TABLE>

Fair values of financial instruments

The Company owns certain debt securities held on deposit with the trustee for
payment of interest and principal on the IRB bond (see Note 10). Market values
of bond issues outstanding are based on quotes received from securities dealers
or the present value of principal and interest payments at the current market
rates. The revolving credit facility is carried at current value which
approximates the fair market value.

Income taxes

Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts expected to be realized.

Stock based compensation

The Company grants stock options for a fixed number of shares to employees with
an exercise price equal to the fair value of the shares at the date of the
grant. On January 1, 1996 the Company adopted Statement of Financial Accounting
Standards No. 123, Accounting for Stock Based Compensation (SFAS No. 123). As
permitted by SFAS No. 123, the Company has chosen to continue to apply APB
Opinion No. 25 Accounting for Stock Issued to Employees' (APB 25) and related
interpretations in accounting for its stock based compensation. No options have
been granted since the disclosure provisions of SFAS No. 123 were adopted by the
Company.

Earnings per common share

In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." SFAS No.
128 is designed to improve the earnings per share information provided in
financial statements by simplifying the prior computational guidelines, revising
the disclosure requirements, and increasing comparability of earnings per share
data on an international basis. This pronouncement, which became effective for
periods ending after December 15, 1997, requires the restatement of earnings per
share data for all periods presented in the form of basic earnings per share and
diluted earnings per share. Although the Company had options outstanding during
portions of the three years ended December 31, 1997, they have an antidilutive
effect on earnings per share for each year. As such, the earnings per share
calculations previously reported by the Company equal basic and diluted earnings
per share calculated under the provisions of SFAS No. 128. Basic and diluted
earnings per share for the years ended December 31, 1997, 1996, and 1995 is
earnings divided by the weighted average shares outstanding.

Investment securities

The Company accounts for investment securities in accordance with Statement of
Financial Accounting Standard No. 115 (SFAS No. 115), "Accounting for Certain
Investments in Debt and Equity Securities." This statement requires investment
securities to be classified into three types:

(a)      Securities Held to Maturity - Debt securities that the Company has the
         positive intent and ability to hold to maturity are reported at
         amortized cost.

(b)      Trading Securities - Debt and equity securities that are bought and
         held principally for the purpose of selling in the near term are
         reported at fair value, with unrealized gains and losses included in
         earnings.

(c)      Securities Available for Sale - Debt and equity securities not
         classified as either securities held to maturity or trading securities
         are reported at fair value, with unrealized gains and losses reported
         as a separate component of shareholders' equity.

The classification of securities is generally determined at the date of
purchase. Gains and losses on sales of investment securities, computed based on
the specific identification method, are included in other income at the time of
sale.

                                 Page 16 of 27
<PAGE>   17

New Accounting Pronouncements

During 1997, the Financial Accounting Standards Board issued two new Statements
of Financial Accounting Standards (SFAS), No. 130, "Reporting of Comprehensive
Income" and No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 130 establishes standards of reporting and displaying
comprehensive income and its components. SFAS No. 131 establishes guidelines in
reporting information about operating segments in annual financial statements
and requires selected information about operating segments. It also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. Both of these standards will be effective for the Company's
1998 fiscal year. These pronouncements are not expected to have a material
impact on the Company's financial statements.

Reclassifications

Certain amounts in the 1996 and 1995 financial statements have been reclassified
to conform to the 1997 presentation with no effect on previously reported net
earnings or retained earnings.

3.     ACQUISITIONS AND CONSOLIDATION

From April to September 1995, the Company purchased substantially all of the
assets of two specialty manufacturers of sporting accessories and nostalgia
products, and substantially all the accounts receivable and inventory of an
importer and marketer of outdoor leisure products. The Company paid $7,077 in
cash for the Acquired Businesses and these assets, which was the sum of the net
amounts due after acquiring $9,091 of assets (primarily accounts receivable,
inventory and intangible assets) and assuming $2,014 in liabilities (primarily
trade payables, accrued expenses and a $500 liability for relocation costs of
acquired inventory). The assets of each entity were transferred to separate,
wholly-owned subsidiaries, and the acquisitions were accounted for using the
purchase method of accounting, with the excess of the prices paid over the
estimated fair value of the assets acquired being recorded as goodwill. The
goodwill and non-compete agreements arising from these transactions (see Note 7)
are being amortized over 10 years. The results of operations for these entities
are included in the statements of operations from the dates of acquisition.

The following information presents the unaudited pro forma results of operations
for the Company as if the acquisitions described above had occurred on January
1, 1995.

<TABLE>
<CAPTION>
                                    For the year ended December 31, 1995
                                                             (unaudited)
------------------------------------------------------------------------
            <S>                                               <C>
            Pro forma sales                                   $  157,153
            Pro forma net income                              $    3,437
            Pro forma earnings per share                      $      .66
</TABLE>

The objective of the pro forma information is to show what the effects on the
Company's sales, net income and earnings per share might have been had the
transactions described above occurred on January 1, 1995. However, the pro forma
results of operations are not necessarily indicative of the results of
operations the Company would have experienced had such transactions occurred on
such date or of results which may occur in the future.

4.   CLOSING OF SUBSIDIARY OPERATION

In June 1997, executive management and the Board of Directors concluded that
ongoing operation of the Safesport Manufacturing Company subsidiary was not in
the best interest of the Company, and began liquidation of this subsidiary. The
liquidation was substantially concluded by the end of 1997. An after tax reserve
of $2,725, or $0.53 per share, was established as of June 30 for the purpose of
this liquidation. The reserve was reviewed as of September 30, 1997 and adjusted
to reflect the liquidation efforts through that point. The reserves were
adjusted to the values noted below, resulting in $208 of net income for the
three months ended September 30, 1997. As of December 31, 1997, the liquidation
was substantially concluded and the reserves were adjusted to zero, resulting in
$241 of net income for the three months ended December 31, 1997. The reserve was
composed of the following components as of June 30, 1997 and as of September 30,
1997.

<TABLE>
<CAPTION>
                                        June 30, 1997       September 30, 1997
       -----------------------------------------------------------------------
<S>                                         <C>                     <C>
       Inventory Reserve                    $ 3,548                 $ 1,246
       Accounts Receivable Reserve              207                     580
       Accrued Expenses                         255                      10
       Current Tax Benefit                   (1,285)                   (688)
       ---------------------------------------------------------------------
           Total Reserve                    $ 2,725                 $ 1,148
</TABLE>

                                 Page 17 of 27
<PAGE>   18

5.     INVENTORIES

Inventories consisted of the following at December 31:
<TABLE>
<CAPTION>
                                                                     1997                          1996
                  -------------------------------------------------------------------------------------
                  <S>                                           <C>                           <C>
                  Finished goods                                $  30,406                     $  38,283
                  Raw materials                                       885                         1,096
                  Work in progress                                    244                           377
                  -------------------------------------------------------------------------------------
                                                                $  31,535                     $  39,756
</TABLE>

6.     PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
                                                                    1997                           1996
                  -------------------------------------------------------------------------------------
                  <S>                                           <C>                           <C>
                  Land                                          $    216                      $     216
                  Buildings and improvements                       6,751                          6,751
                  Furniture, fixtures and equipment                6,428                          5,202
                  -------------------------------------------------------------------------------------
                                                                  13,395                         12,169
                  Less accumulated depreciation
                       and amortization                            6,692                          5,979
                  -------------------------------------------------------------------------------------
                                                                $  6,703                      $   6,190
</TABLE>

7.     INTANGIBLE ASSETS

Intangible assets consisted of the following at December 31:
<TABLE>
<CAPTION>
                                                                    1997                           1996
                  -------------------------------------------------------------------------------------
                  <S>                                           <C>                           <C>
                  Deferred financing costs                      $    336                      $     336
                  Licenses                                           203                            282
                  Goodwill                                           528                            528
                  Non-compete agreements                           1,700                          1,700
                  -------------------------------------------------------------------------------------
                                                                   2,767                          2,846
                  Less accumulated amortization                      831                            584
                  -------------------------------------------------------------------------------------
                                                                $  1,936                      $   2,262
</TABLE>

8.      INVESTMENT SECURITIES

The amortized cost and estimated market value of investment securities at
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
                                           Gross            Gross             Gross          Estimated
                                         Amortized       Unrealized        Unrealized         Market
                                           Cost             Gains            Losses            Value
------------------------------------------------------------------------------------------------------
<S>                                     <C>                <C>               <C>              <C>
Available for Sale: Bond Reserve        $   1,147          $     25          $   (4)          $  1,168
</TABLE>

9.      REVOLVING CREDIT FACILITY

In 1994, the Company entered into a revolving credit facility (the "Agreement")
with an affiliate of First Union National Bank of North Carolina, N.A. The
Agreement is collateralized by substantially all of the Company's assets other
than real estate. The initial term of the Agreement was for three years ending
in June 1997. The Agreement was amended in September 1997 to extend the term to
September 30, 2001. Effective August 1, 1996, borrowings under the Agreement
bear interest at a rate equal to, at the Company's option, prime rate plus .375%
or 2.25% above the 30 or 90 day LIBOR rate. Combinations of these rates can be
used for the various loans which comprise the total facility outstanding
balance. The interest rates of the facility are subject to change based on
changes in the Company's leverage ratio and net income. At December 31, 1997,
the interest rate was 8.22%.

The Agreement provides the Company with a revolving line of credit and letters
of credit. The revolving line of credit provides loans of up to 70% of the
eligible inventories and up to 85% of eligible receivables. The maximum amount
that can be outstanding at any time under the Agreement is $40,000.

The Agreement contains various restrictions which, among other things, limit
capital expenditures and limit cash dividends. The Agreement also requires the
Company to meet various minimum financial covenants.


                                 Page 18 of 27
<PAGE>   19

10.    LONG-TERM DEBT

Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
                                                                                                          1997            1996
       -----------------------------------------------------------------------------------------------------------------------
<S>                                                                                                  <C>             <C>
       Industrial Revenue Refunding Bonds, Series 1988 ("IRB") collateralized by
           real estate. Interest at 7.5% and 10.6% at December 31, 1997 and
           1996, respectively, due to bond holders semi-annually is required to
           be deposited with the Trustee monthly in an amount equal to one-sixth
           of the next interest payment. The Company also pays one-twelfth of
           the next principal payment (by way of annual maturity or annual
           mandatory sinking fund redemption) to the Trustee monthly
           in addition to the interest.                                                              $   8,084       $   8,550

       Industrial revenue refunding bond reserve on deposit with the Trustee                            (1,168)         (1,133)

       Capital lease agreement collateralized by computer equipment. Lease was
           assumed with the purchase of the Acquired Businesses during 1995. The
           original cost of the equipment was $138 and the lease required a
           total of 42 monthly payments of $4                                                                8              53
       -----------------------------------------------------------------------------------------------------------------------
                                                                                                         6,924           7,470
       Less, current portion                                                                              (525)           (513)
       ------------------------------------------------------------------------------------------------------------------------
                                                                                                     $   6,399       $   6,957
</TABLE>

Under the terms of the IRB, the Company is required to maintain a reserve fund
with a fair market value in the amount of $1,050 on deposit with the Trustee.
The Company may, depending upon market value fluctuations of the bonds held in
the reserve fund, be required to make payments to bring the fund up to the
$1,050. If for any reason, the reserve fund is in excess of the required amount,
such excess may be used to reduce required sinking fund payments. Reserve fund
balances may also be used toward the redemption of the outstanding IRB
obligations. In September 1997, the agreement was amended to reduce the interest
rate from 10.65% to 7.5%, and to eliminate the ability for early redemption.

The fair market value of the IRB at December 31, 1997 and 1996 was approximately
$8,084 and $9,600, respectively.

Principal maturities and sinking fund requirements for long-term debt at
December 31, 1997 are as follows:

<TABLE>
<CAPTION>
          For year ending December 31,
          <S>                                                    <C>
          1998                                                   $    517
          1999                                                        567
          2000                                                        617
          2001                                                        667
          2002                                                        716
          Thereafter                                                3,832
          ---------------------------------------------------------------
                                                                 $  6,916
          ===============================================================
</TABLE>

Under the bond agreement, as amended, annual cash dividends are limited to 60%
of annual net income (adjusted for non-cash charges), a required minimum fixed
charge ratio of 1.25:1 (adjusted for non-cash charges), a required minimum
current ratio of 1.17:1, and a required minimum shareholders' equity level (as
defined) of $6,000 at December 31, 1996 and thereafter.

Principal and interest payments related to the capital lease are due in the
amount of $8 for the year ended December 31, 1998.

11.    OPERATING LEASES

The Company entered into three significant leases for computer equipment in
conjunction with the first phase of an information system upgrade. The Company
incurred $279, $169, and $0 in rental expenses related to these leases in 1997,
1996, and 1995, respectively.

The future minimum lease payments as of December 31, 1997 are as follows:

          For the year ending December 31,
          ---------------------------------------------------------------
          1998                                                     $  279
          1999                                                        109
          ---------------------------------------------------------------
                                                                   $  388

                                 Page 19 of 27
<PAGE>   20

12.    COMMON AND PREFERRED STOCK

The Company is authorized to issue 20,000 shares of no-par-value common stock.
At December 31, 1996 and 1995, the Company had 112 and 142 outstanding options,
respectively, all of which are fully vested. The options had an exercise price
of $7.00 per share which equaled the closing market price on the date of grant.
The options were scheduled to expire in 2003. In January 1997, these options
were cancelled and, in exchange, the Company issued 112 shares of common stock
to two executives of the Company for $475. The market value of these shares on
the measurement date was $559. The shares carry restrictions over their
transferability which will be lifted over a two year period ending in January
1999. The difference between the market value and the price at which the shares
were sold to the executives is reflected as unearned compensation and is being
amortized over the two year period. In connection with the issuance of these
shares, the Company received promissory notes totaling $452, which has been
classified at December 31, 1997 as offset to shareholders' equity, and $23 in
cash from the executives. Balances due under the promissory notes, which bear
interest at 5.6%, payable semi-annually, become due on a pro-rata basis as the
shares are sold by the executives.

The Company reacquired 100, 93, and 30 shares of its common stock in April, July
and September of 1996, respectively, and reacquired 46 and 10 shares in June and
December of 1997, and recorded it using the cost method of accounting for
treasury stock. During 1996, the Company awarded 58 shares of restricted common
stock to two executives of the Company. The restrictions are scheduled to be
released pro-rata over a three to four year period, based on certain criteria.
The stock awards were valued at the market price per share at the time of each
award, and unearned compensation was recorded in equity. Compensation expense
will be recognized as the awards vest over the three to four year period.

Additionally, the Board of Directors of the Company is authorized to issue, at
its discretion, up to 5,000 shares of preferred stock in one or more series with
the number of shares, designation, relative rights and preferences, and
limitations to be determined by resolution of the Board of Directors. However,
no share of stock of any class shall be subject to preemptive rights or have
cumulative voting provisions.

13.    INCOME TAXES

Income tax expense (benefit) consisted of the following:
<TABLE>
<CAPTION>
                                                                      For the year ended December 31,
                  ----------------------------------------------------------------------------------------
                                                                 1997            1996                1995
                  ----------------------------------------------------------------------------------------
                  <S>                                          <C>              <C>               <C>
                  Current:
                  Federal                                      $   (573)        $ 1,186           $  2,648
                  State                                             181             103                259
                  ----------------------------------------------------------------------------------------
                                                                   (392)          1,289              2,907
                  ----------------------------------------------------------------------------------------
                  Deferred:
                  Federal                                           103            (278)              (156)
                  State                                            (249)            (25)                (1)
                  ----------------------------------------------------------------------------------------
                                                                   (146)           (303)              (157)
                  ----------------------------------------------------------------------------------------
                                                               $   (538)        $   986           $  2,750
                  ========================================================================================
</TABLE>

Components of the net deferred income tax liability (asset) were as follows:
<TABLE>
<CAPTION>
                                                                              As of December 31,
                  ----------------------------------------------------------------------------------------
                                                                   1997                               1996
                  ----------------------------------------------------------------------------------------
                  <S>                                          <C>                                <C>
                  Depreciation and amortization                $    448                           $    415
                  Bad debt expense                                 (246)                              (225)
                  Inventory capitalization                         (343)                              (355)
                  State net operating loss                         (169)                                 -
                  Other                                              34                                 35
                  ----------------------------------------------------------------------------------------
                  Total                                        $   (276)                          $   (130)
                  ========================================================================================
</TABLE>

Income tax expense varied from statutory federal income taxes as follows:
<TABLE>
<CAPTION>
                                                                         For the year ended December 31,
                  ----------------------------------------------------------------------------------------
                                                                       1997          1996             1995
                  ----------------------------------------------------------------------------------------
                  <S>                                              <C>            <C>             <C>
                  Income taxes at 34% statutory federal rate       $   (460)      $   909         $  2,511
                  State income taxes, net of federal tax benefit        (45)           52              172
                  Other                                                 (33)           25               67
                  ----------------------------------------------------------------------------------------
                  Income tax expense                               $   (538)      $   986         $  2,750
</TABLE>

The Company had approximately $5,125 of state net operating loss carryforwards
at December 31, 1997. These carryforwards will expire in 2002 through 2012, if
not utilized.

                                 Page 20 of 27
<PAGE>   21

14.    EMPLOYEE BENEFIT PLAN

The Company has a 401(k) defined contribution plan (the "Plan") covering
substantially all full-time employees who meet certain age and length of service
requirements. Participants are eligible to contribute up to 20% of their annual
compensation, not to exceed legal limits, and the Company, at its discretion,
makes matching contributions to the Plan. Participants vest immediately in their
contributions and after three years in the Company's contributions. The Company
incurred expenses related to the Plan of $67, $49 and $42 for the years ended
December 31, 1997, 1996, and 1995, respectively.

15.    CONTINGENCY

The Company is currently a defendant in certain product liability lawsuits that
arose in the normal course of business. It is the opinion of management that the
Company has meritorious defenses and the disposition of these matters will not
have a material adverse effect on the consolidated financial position, results
of operations or liquidity of the Company.

16.    QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following table of supplementary financial information presents selected
unaudited quarterly results of the Company's operations over the last eight
quarters:

<TABLE>
<CAPTION>
                                                   1996                                               1997
----------------------------------------------------------------------------------------------------------------------------------
                                First       Second       Third       Fourth        First       Second        Third       Fourth
                               Quarter     Quarter      Quarter      Quarter      Quarter      Quarter      Quarter     Quarter
----------------------------------------------------------------------------------------------------------------------------------
<S>                           <C>          <C>         <C>          <C>          <C>          <C>          <C>          <C>
Sales                         $ 36,722     $ 32,372    $ 38,857     $ 39,715     $ 36,801     $ 34,671     $ 41,326     $ 39,702
Gross profit                     6,527        6,594       7,024        6,838        6,343        2,677        6,842        7,266
Selling, general,
     and administrative          5,519        5,250       5,537        5,114        5,149        5,802        5,421        5,413
Income (loss) from
     operations                  1,008        1,344       1,487        1,724        1,194       (3,125)       1,421        1,853
Net income (loss)                  348          365         406          568          392       (2,626)         465          954
Basic and diluted earnings
     (loss) per share             0.07         0.07        0.08         0.11         0.08        (0.51)        0.09         0.19
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>



REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
Ellett Brothers, Inc.

         We have audited the accompanying consolidated balance sheets of Ellett
Brothers, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. We have
also audited Schedule II - Valuation and Qualifying Accounts. These financial
statements and the financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and the 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 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Ellett
Brothers, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.



COOPERS & LYBRAND, L.L.P.
Raleigh, North Carolina
February 12, 1998




                                 Page 21 of 27
<PAGE>   22

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

None.

PART III

Information called for by Part III (Items 10, 11, 12 and 13) of this report on
Form 10-K has been omitted as the Company intends to file with the Securities
and Exchange Commission not later than April 30, 1998, a definitive proxy
statement pursuant to Regulation 14A promulgated under the Securities Exchange
Act of 1934. Such information will be set forth in such Proxy Statement and is
incorporated herein by reference.

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by the Item is incorporated by reference from the
section of the Company's Proxy Statement relating to the Annual Meeting of
Shareholders to be held May 27, 1998, under the caption "DIRECTORS AND EXECUTIVE
OFFICERS".

ITEM 11.   EXECUTIVE COMPENSATION

The information required by this Item is incorporated by reference from those
sections of the Company's Proxy Statement relating to the Annual Meeting of
Shareholders to be held May 27, 1998 under the captions "EXECUTIVE
COMPENSATION", "COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION" AND
"PERFORMANCE GRAPH."

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item is incorporated by reference from the
section of the Company's Proxy Statement relating to the Annual Meeting of
Shareholders to be held May 27, 1998 under the caption "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item is incorporated by reference from the
section of the Company's Proxy Statement relating to the Annual Meeting of
Shareholders to be held May 27, 1998 under the caption "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS."



                                 Page 22 of 27
<PAGE>   23

PART IV

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

(a) The following documents are filed as part of this Form 10-K:

         1.  Financial Statements: See Item 8 of this report on Form 10-K.

         2.  Financial Statement Schedules:

                  Schedule II - Valuation and Qualifying Accounts - Page 24

         All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions, or are inapplicable, or the required information
is disclosed elsewhere, and therefore, have been omitted.

         3.  Exhibits: The Exhibits listed on the accompanying Index to Exhibits
             on pages 26 and 27 are filed as part of this report.


(b) There were no reports filed on Form 8-K for the quarter ended December 31,
1997.



                                 Page 23 of 27
<PAGE>   24

                              ELLETT BROTHERS, INC.

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

               FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 & 1995

                                 (In Thousands)





<TABLE>
<CAPTION>
                                                         Balance at      Charged to       Charged to                      Balance at
                                                         Beginning          Cost/           Other                             End
                             Description                 of Period        Expenses         Accounts       Deductions       of Period
                             -----------                 ----------      ----------       ----------      ----------      ----------
    <S>                                                  <C>             <C>              <C>             <C>             <C>
    1997
                 Allowance for Doubtful Accounts           $  750          $1,568           $  899(B)       $2,448(A)       $  769
                                                           ======          ======           ======          ======          ======

                 Allowance for Obsolete Inventory          $  500(D)       $3,745(E)        $    -          $3,548          $  697
                                                           ======          ======           ======          ======          ======


    1996
                 Allowance for Doubtful Accounts           $  712          $  933           $1,471(B)       $2,366(A)       $  750
                                                           ======          ======           ======          ======          ======

                 Allowance for Obsolete Inventory          $  500(D)       $    -(E)        $    -          $    -          $  500
                                                           ======          ======           ======          ======          ======


    1995
                 Allowance for Doubtful Accounts           $  521          $  905           $1,645(C)       $2,359(A)       $  712
                                                           ======          ======           ======          ======          ======

                 Allowance for Obsolete Inventory          $  250(D)       $    -(E)        $  250(F)       $    -          $  500
                                                           ======          ======           ======          ======          ======

</TABLE>
--------------

The information above is provided in support of the financial statements as
further described in Note 2 to the financial statements.

(A)      Represents actual write-off of uncollectable accounts.

(B)      Recoveries.

(C)      Represents $1,305 of recoveries and $340 of reserves established at the
         acquisition of the Acquired Businesses and purchased accounts
         receivable of another entity.

(D)      The Company maintains a general reserve for excess or obsolete
         inventory and for lower of cost or market adjustments. As part of the
         Company's inventory management, slow moving items are identified and
         prices are reduced until the items are liquidated. These sales are part
         of sales and cost of sales.

(E)      Reflected as cost of sales. See Note D above.

(F)      Represents reserves established at acquisition of the Acquired
         Businesses and purchased inventory of another entity.


                                 Page 24 of 27
<PAGE>   25

                                   SIGNATURES

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

ELLETT BROTHERS, INC.
(Registrant)


Date: March 31, 1998                   By: /s/ Joseph F. Murray, Jr.
                                           ---------------------------
                                           Joseph F. Murray, Jr.
                                           President and Chief Executive Officer


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


<TABLE>
<CAPTION>
            Signature                                             Title                                      Date
--------------------------------                --------------------------------------                   --------------
<S>                                             <C>                                                      <C>
/s/ Robert D. Gorham, Jr.                                Chairman of the Board                           March 31, 1998
--------------------------------
Robert D. Gorham, Jr.


/s/ Joseph F. Murray, Jr.                               Director, President and                          March 31, 1998
--------------------------------                        Chief Executive Officer
Joseph F. Murray, Jr.


/s/ Richard M. Eddinger                           Vice President of Finance, Treasurer                   March 31, 1998
--------------------------------                      and Chief Financial Officer
Richard M. Eddinger


/s/ E. Wayne Gibson                               Director, Chairman of the Executive                    March 31, 1998
--------------------------------                        Committee and Secretary
E. Wayne Gibson


/s/ William H. Batchelor                                        Director                                 March 31, 1998
--------------------------------
William H. Batchelor


/s/ Charles V. Ricks                                            Director                                 March 31, 1998
--------------------------------
Charles V. Ricks


/s/ William H. Stanley                                          Director                                 March 31, 1998
--------------------------------
William H. Stanley

</TABLE>


                                 Page 25 of 27
<PAGE>   26

                                INDEX TO EXHIBITS

Exhibit
Number                            Description
-------                           -----------

3(a)        Articles of Incorporation of the Corporation. Incorporated
            by reference to Exhibit 3(a) filed as part of the
            Corporation's Registration Statement on Form S-1 (File No.
            33-61490).

3(b)        Bylaws of the Corporation. Incorporated by reference to
            Exhibit 3(b) filed as part of the Corporation's
            Registration Statement on Form S-1 (File No. 33-61490).

4(a)        Specimen Stock Certificate for the Common Stock of the
            Corporation. Incorporated by reference to Exhibit 4(a)
            filed as part of the Corporation's Registration Statement
            on Form S-1 (File No. 33-61490).

4(b)        Loan Agreement between Lexington County, South Carolina and
            Ellett Brothers Limited Partnership dated as of November 1,
            1988. Incorporated by reference to Exhibit 4(c) filed as
            part of the Corporation's Registration Statement on Form
            S-1 (File No. 33-61490).

4(c)        Promissory Note of Ellett Brothers Limited Partnership to
            Lexington County, South Carolina dated December 1, 1988.
            Incorporated by reference to Exhibit 4(d) filed as part of
            the Corporation's Registration Statement on Form S-1 (File
            No. 33-61490).

4(d)        Trust Indenture between Lexington County, South Carolina
            and Ellett Brothers Limited Partnership dated as of
            November 1, 1988. Incorporated by reference to Exhibit 4(e)
            filed as part of the Corporation's Registration Statement
            on Form S-1 (File No. 33-61490).

4(e)        Mortgage and Security Agreement between Ellett Brothers
            Limited Partnership and Citizens and Southern Trust Company
            (South Carolina), National Association, dated as of
            November 1, 1988. Incorporated by reference to Exhibit 4(f)
            filed as part of the Corporation's Registration Statement
            on Form S-1 (File No. 33-61490).

4(f)        Form of Amendment dated June 3, 1992 between Ellett
            Brothers Limited Partnership, NationsBank, Allstate
            Municipal Income Opportunities Trust and Allstate Municipal
            Income Trust II relating to the Loan Agreement filed as
            Exhibit 4(b). Incorporated by reference to Exhibit 4(i)
            filed as part of the Corporation's Annual Report on Form
            10-K for the year ended December 31, 1993.

4(g)        Form of Letter Agreement dated July 29, 1992 among Allstate
            Municipal Income Opportunities Trust, Allstate Municipal
            Income Trust II, Ellett Brothers Limited Partnership,
            NationsBank and Lexington County relating to the Loan
            Agreement filed as Exhibit 4(b). Incorporated by reference
            to Exhibit 4(j) filed as part of the Corporation's Annual
            Report on Form 10-K for the year ended December 31, 1993.

4(h)        Letter dated February 23, 1993 of Allstate Municipal Income
            Opportunities Trust and Allstate Municipal Income Trust II
            to Ellett Brothers Limited Partnership relating to the Loan
            Agreement filed as Exhibit 4(b). Incorporated by reference
            to Exhibit 4(k) filed as part of the Corporation's
            Registration Statement on Form S-1 (File No. 33-61490).

4(i)        Form of Assignment and Assumption Agreement dated June 9,
            1993 between Ellett Brothers Limited Partnership and Ellett
            Brothers, Inc. relating to the Loan Agreement filed as
            Exhibit 4 (b). Incorporated by reference to Exhibit 4(l)
            filed as part of the Corporation's Annual Report on Form
            10-K for the year ended December 31, 1993.

4(j)        First Amendatory Loan Agreement between Lexington County,
            South Carolina, the Corporation and The Bank of New York
            dated as of September 12, 1997.

4(k)        First Supplemental Trust Indenture between Lexington
            County, South Carolina, the Corporation and The Bank of New
            York dated as of September 12, 1997.

4(l)        Mortgage Modification Agreement between the corporation and
            The Bank of New York dated as of September 12, 1997.

4(m)        Modification of Note between the Corporation and The Bank of New
            York dated as of September 12, 1997.

                                 Page 26 of 27
<PAGE>   27

                                INDEX TO EXHIBITS
                                   (continued)


Exhibit
Number                            Description
-------                           -----------

10(a)       Financing and Security Agreement dated June 10, 1994
            between First Union Commercial Corporation and the
            Corporation. Incorporated by reference to Exhibit 10(d)
            filed as part of the Corporation's quarterly report on Form
            10-Q for the quarter ended June 30, 1994.

10(b)       Amendment dated April 21, 1995 to the Financing and
            Security Agreement filed as exhibit 10(a). Incorporated by
            reference to Exhibit 10(e) filed as part of the
            Corporation's Annual Report on Form 10-K for the year ended
            December 31, 1995.

10(c)       Amendment dated December 23, 1996 to the Financing and Security
            Agreement filed as Exhibit 10(a). Incorporated by reference to
            Exhibit 10(f) filed as part of the Corporation's Annual Report
            on Form 10-K for the year ended December 31, 1996.

10(d)       Amendment dated March 31, 1997 to the Financing and Security
            Agreement filed as Exhibit 10(a).

10(e)       Amendment dated September 26, 1997 to the Financing and Security
            Agreement filed as Exhibit 10(a).

10(f)       Amendment dated December 30, 1997 to the Financing and Security
            Agreement filed as Exhibit 10(a).

21          Subsidiaries of the Registrant.

27          Financial data schedule.




                                 Page 27 of 27