<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, 1999

                                       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 29, 2000 there were 4,316,518 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 29, 2000) was $31,024,973.


                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement in connection with the Registrant's
2000 Annual Meeting of Shareholders to be held May 17, 2000 are incorporated by
reference into Part III of this report.

                                  Page 1 of 29
<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 marine 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 1999,
1998, and 1997, revenues from sales of firearms and ammunition comprised
approximately 52.6%, 50.7%, and 49.8%, 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, Leupold, Easton, Simmons, Federal, and Eureka. 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'
("Ellett") traditional sporting goods business, with sales increasing from $2.6
million in 1989 to $26.8 million in 1999. In 1994, Ellett formed a new sales
group to specifically target archery retailers. The archery group has shown
continued growth since its inception, reaching $8.8 million in sales in 1999.

During 1995, Ellett implemented its acquisition strategy by acquiring assets of
entities with products that complement Ellett's existing product lines 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 assets of Evans and Vintage were
transferred at the time of each respective purchase to wholly-owned subsidiaries
that were incorporated in the State of South Carolina.

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 by the fourth quarter of 1997 (see Note 5 to the financial statements
in Item 8, Part II which is incorporated herein by reference).

On October 8, 1999, the Company purchased the assets of Archery Center
International, Inc. (ACI) of Monroe, Michigan. ACI is a distributor of archery
products. The Company expects to grow their archery products business by
offering additional product lines to existing customers. At the time of
purchase, all of the assets were transferred to a wholly owned subsidiary that
was incorporated in the State of South Carolina.



                                  Page 2 of 29
<PAGE>   3

                             DESCRIPTION OF BUSINESS


MARKETING

The Company currently sells to more than 20,000 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 1.9% of 1999 sales, and sales to the
Company's ten largest customers represented approximately 4.8% of 1999 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's 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 managers 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's commitment to ongoing training and professional development of its
business unit managers is a key feature of the organization. Ellett trains each
business unit manager to be a constant source of product information 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 and
management 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's 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 1999, Ellett averaged approximately 4,700
outbound customer contacts and 4,000 inbound customer contacts daily, with a
collective total of 400 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's 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 1999, we
distributed over 97,000 copies of our annual catalogs.

In 1999, Ellett's distribution business produced 40 different mini-catalogs
(periodic promotional flyers) for our hunting and shooting sports products,
archery products, and marine accessory products with 35% 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.


                                  Page 3 of 29
<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 determined that the benefits
exceed the risks of any future strike.

PURCHASING AND SUPPLIERS

The Company currently purchases products from approximately 1,000 manufacturers
and other suppliers. The Company's four largest suppliers accounted for
approximately 28.2%, 27.7%, and 26.9% of the Company's purchases during 1999,
1998, and 1997, 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.

Ellett's 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 for its distribution business 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 our distribution business shares customers with our 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. ACI is a distribution business similar to our archery group. It
competes with other archery distributors as well as national distributors,
various regional and local distributors. ACI will enable the Company to offer a
broader product line and provide an additional distribution point.



                                  Page 4 of 29
<PAGE>   5

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 possession and ownership by
the public. 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, results of operations, and cash flows.

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, financial condition,
results of operations, and cash flows.

ASSOCIATES

The Company views all of its personnel as associates of the Company, rather than
merely as employees. As of February 29, 2000, the Company employed approximately
425 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:

                                                  Approximate
                                               Aggregate Usable
                                                  Square Feet             Status
                                               ---------------------------------
             Chapin, South Carolina                 190,000                Owned
             Newberry, South Carolina               140,000                Owned
             Houston, Missouri                       62,000               Leased
             Taylorsville, North Carolina            30,000               Leased
             Monroe, Michigan                        18,000               Leased

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 11 to the Financial Statements in
Item 8, Part II which is incorporated herein by reference. 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

See Note 17 to the Financial Statements in Item 8, Part II which is incorporated
herein by reference.



                                  Page 5 of 29
<PAGE>   6

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 1999.

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 6, 2000, the Company had a
total of approximately 65 shareholders of record. Certain of these shareholders
of record hold shares in nominee name for other beneficial owners.

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.

Quarter Ended:           High            Low         Dividend
-------------------------------------------------------------
March 31, 1998          $ 6.500        $ 5.500        $ 0.02
June 30, 1998             6.250          4.440          0.02
September 30, 1998        5.125          3.250          0.02
December 31, 1998         4.875          3.563          0.02
March 31, 1999            5.500          4.250          0.04
June 30, 1999             8.000          3.375          0.04
September 30, 1999        8.375          4.000          0.04
December 31, 1999         6.875          4.750          0.04

The Company did not sell any equity securities during the fiscal year ended
December 31, 1999 which were not registered under the Securities Act of 1933.

ITEM 6.    SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
(in thousands except per share and other data)     1999           1998         1997(3)         1996           1995
---------------------------------------------------------------------------------------------------------------------
<S>                                               <C>            <C>           <C>            <C>            <C>
Sales                                             $168,056       $147,130      $152,500       $147,666       $150,411
Income (loss) before income taxes                    5,612          4,750        (1,353)         2,673          7,384
Net income (loss)                                    3,575          3,012          (815)         1,687          4,634
Basic and diluted earnings (loss) per share           0.83           0.61         (0.16)          0.33           0.89
Dividends paid per share(1)                           0.16           0.08          0.08           0.08           0.08
Weighted average number of
     shares outstanding                              4,313          4,955         5,148          5,135          5,230
Working capital                                     50,894         46,538        48,140         55,029         50,512
Total assets                                        72,926         64,769        63,614         73,688         70,275
Long-term debt obligations                          35,596         32,297        33,187         38,472         33,533
Shareholders' equity                                26,093         22,932        23,336         24,637         24,548
Other data:
Number of business units at year end                   126            127           139            145            160
Number of customers served during year(2)           20,065         20,677        23,800         25,890         25,737
</TABLE>

(1)      Includes quarterly dividends at $0.04 per share paid in March, June,
         September and December 1999, $0.02 per share paid in March, June,
         September and December 1998, 1997, 1996, and 1995.

(2)      Due to the potential for errors in elimination of mutual customers
         between subsidiaries, the numbers for 1999, 1998, 1997, 1996, and 1995
         are approximations. Management feels that any differences are
         insignificant.

(3)      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 loss of $2,276
         ($0.44 per share).


                                  Page 6 of 29
<PAGE>   7

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

1999 COMPARED TO 1998

Sales for the year ended December 31, 1999 were $168.1 million as compared to
$147.1 million in 1998, an increase of $21.0 million or 14.2%. Total sales in
our distribution business were up 14.2% in 1999 as compared to 1998. Sales of
our hunting and shooting sports products led the way with an increase of 16.1%
in 1999, as compared to 1998. The marine accessory products increased 12.1%, and
sales of our camping, archery and outdoor accessories increased by 11.1%, as
compared to 1998.

Sales from our subsidiaries in 1999, which includes our acquisition of ACI, were
$7.0 million, as compared to $6.1 million, an increase of $900,000 or 14.3%.
Excluding ACI, sales were down 4.5% in 1999 compared to 1998, mainly due to a
cancellation of a large sale to a major account.

Gross profit for the year ended December 31, 1999 was $30.5 million (18.2% of
sales) as compared to $26.4 million (18.0% of sales) in 1998. This increase was
primarily achieved in our distribution business with hunting and shooting sports
products accounting for the largest part of the increase.

Selling, general and administrative expenses in 1999 were $22.7 million (13.5%
of sales) as compared to $19.7 million (13.4% of sales), an increase of 15.1%.
Excluding ACI, expenses were up 13.3%. This increase was primarily due to
one-time expenses associated with the Year 2000 remediation work, increased
costs associated with our associates' health insurance program, and freight
costs.

Interest expense for the year ended December 31, 1999 was $2.7 million (1.6% of
sales) as compared to $2.5 million (1.7% of sales) in 1998. The increase was
mainly related to the ACI transaction along with higher borrowings.

Income tax expense in 1999 was $2.0 million as compared to $1.7 million in 1998.
The effective tax rate was 36.3% in 1999 as compared to 36.6% in 1998.

Net income for 1999 was $3.6 million, or $0.83 per basic and diluted share, as
compared to $3.0 million, or $0.61 per basic and diluted share, in 1998.


1998 COMPARED TO 1997

Sales for the year ended December 31, 1998 were $147.1 million as compared to
$144.4 million in 1997, excluding the sales from the liquidation of Safesport
Manufacturing Company in 1997, an increase of $2.7 million or 1.9%. Including
Safesport in the 1997 total, sales were $152.5 million. Total sales in our
distribution business were up 3.3% in 1998 as compared to 1997. The marine
accessory products led the way with a 14.5% increase when compared to 1997,
while sales of our camping, archery and outdoor accessories increased by 8.2%.
Although sales of our hunting and shooting sports products declined 1.3% in 1998
as compared to 1997, this decline occurred in the first half of the year, as our
sales were up 4.8% over 1997 in the second half of the year.

Sales from our subsidiaries in 1998, excluding Safesport, were $6.1 million, as
compared to $7.9 million, a decrease of $1.8 million or 22.8%. Sales to our
major accounts did not materialize as expected, especially in the fourth
quarter, resulting in the decline in sales.

Gross profit for the year ended December 31, 1998 was $26.4 million (18.0% of
sales) as compared to $25.3 million (17.5% of sales), excluding Safesport from
last year's results. Efforts to increase gross profit in 1998 as a percentage of
sales in our distribution operations were successful in all four quarters.
Including Safesport in 1997, total gross profit was $23.1 million (15.2% of
sales).

Selling, general and administrative expenses in 1998 were $19.7 million (13.4%
of sales) as compared to $19.5 million (13.5% of sales), excluding Safesport
from last year's results, an increase of 1.0%. Recoveries in our bad debt
expense along with collections of Safesport receivables previously written off
in 1997 contributed to a lower total expense as a percentage of sales. Including
Safesport, selling, general and administrative expenses were $21.8 million
(14.3% of sales) in 1997.

Interest expense for the year ended December 31, 1998 was $2.5 million (1.7% of
sales) as compared to $3.3 million (2.2% of sales) in 1997.

Income tax expense in 1998 was $1.7 million as compared to $1.3 million in 1997,
excluding Safesport. The effective tax rate was 36.6% in 1998 as compared to
36.5% in 1997. Including Safesport in 1997, the income tax benefit was $538,000,
which was an effective tax rate of 39.8%.

Net income for 1998 was $3.0 million, or $0.61 per basic and diluted share, as
compared to $2.3 million, or $0.44 per basic and diluted share, in 1997,
excluding the impact of Safesport from the 1997 amounts. Including Safesport in
1997, the net loss for 1997 was $815,000, or $0.16 per basic and diluted share.


                                  Page 7 of 29
<PAGE>   8

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 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 cash flows from 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 $2.7 million during the year ended
December 31, 1999, as compared to $5.9 million in 1998. In 1999 cash provided
from net income and non-cash items was used for additional inventories. In
addition, accounts receivable increased as a result of increased fourth quarter
sales over the prior year. Cash provided from operating activities in 1998
resulted mainly from net income earned along with an increase in accounts
payable.

Net cash used in investing activities was $5.2 million during the year ended
December 31, 1999, as compared to $1.6 million in 1998. The increase in net cash
used in investing activities was mainly due to the purchase of computer
equipment and the new information system. In addition, $2.3 million was utilized
in the purchase of the assets of ACI.

Net cash provided by financing activities was $2.6 million during the year ended
December 31, 1999, as compared to net cash used of $4.5 million in 1998. In
1999, the net cash provided was from increased net borrowings of $3.9 million
used primarily for the ACI acquisition offset by dividends of $700,000 and long
term debt reduction of $600,000. In 1998, the net cash used was primarily for
the repurchase of common stock of $3.2 million, along with dividends of
$400,000, long term debt reduction of $500,000, and repayments of the revolver
of $300,000.

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.

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

Principal maturities on the Company's industrial revenue refunding bonds for
2000, 2001, and 2002 will be $617,000, $667,000, and $716,000, respectively. The
annual interest charges, at the fixed rate of 7.5%, will be $525,000, $479,000,
and $429,000 for 2000, 2001, and 2002, respectively (see Note 11 to the
Financial Statements in Item 8, Part II which is incorporated herein by
reference).

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 2000 and for the foreseeable
future.


YEAR 2000

The Company devoted resources throughout its business operations to minimize the
risk of potential disruption from the Year 2000 ("Y2K") problem. In late 1996,
the Company determined that its operating system would not be Y2K compliant and
made a decision to purchase new operating software (purchasing, distribution,
and financial) to run its business. In connection with this decision, new
hardware was purchased that moved the Company from a mainframe to a
client/server environment. The installation of the new system began in the third
quarter of 1999 with the final conversion in January 2000. The Company had made
the decision in the third quarter to remediate its existing systems to run its
operations that would not be converted by January 1, 2000. The Company spent
over $350,000 for this remediation.


                                  Page 8 of 29
<PAGE>   9

The cost of the system upgrades, which includes hardware and software, since
inception through completion, is expected to be approximately $5.5 million,
which includes $2.3 million incurred in 1999.

The Company successfully transitioned into the year 2000 with no issues. All
operating systems worked at the start of the new year and no problems have been
encountered with vendors or customers. To date, the Company's operating systems
are working with no Y2K issues.

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's exposure to market risk for a change in interest rates relates
solely to its debt under its revolving credit facility ($30.3 million at
December 31, 1999). The Company does not currently use derivative financial
instruments.

Approximately $5.9 million of the Company's debt at December 31, 1999 was
subject to fixed interest rates and principal payments. This debt is comprised
of the Company's long-term debt under its industrial revenue refunding bonds
which carry an interest rate of 7.5%.

The Company is exposed to changes in interest rates primarily as a result of its
debt in a revolving credit facility ("Facility") used to maintain liquidity and
fund the Company's business operations. Pursuant to the Company's operating
strategies, it maintains minimal cash balances and is substantially dependent
on, among other things, the availability of adequate working capital financing
to support inventories and accounts receivables. The Facility provides the
Company with a revolving line of credit and letters of credit. The maximum
amount that can be outstanding at anytime is $45.0 million. The term of the
Facility expires on September 30, 2001. Borrowings under the Facility bear
interest at a rate equal to, at the Company's option, prime rate plus 0.375% or
1.75% above the 30 or 90 day LIBOR rate. Combinations of these rates can be used
for the various loans that comprise the total outstanding balance under the
Facility. 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, 1999,
the interest rate was 8.23% (see Note 10 to the Financial Statements in Item 8,
Part II which is incorporated herein by reference). The definitive extent of the
Company's interest rate risk under the Facility is not quantifiable or
predictable because of the variability of future interest rates and business
financing requirements.

The Company's long-term debt has a fair value, based upon current interest
rates, of approximately $37.0 million at December 31, 1999 ($33.9 million at
December 31, 1998). Fair value will vary as interest rates change. The following
table presents the aggregate maturities and historical cost amounts of the fixed
debt principal and interest rates by maturity dates at December 31, 1999:

              Maturity Date        Fixed Rate Debt        Interest Rate
            -------------------------------------------------------------
                   2000              $    617,000              7.5%
                   2001                   667,000              7.5%
                   2002                   716,000              7.5%
                   2003                   767,000              7.5%
                   2004                   817,000              7.5%
                Thereafter              2,302,000              7.5%
            -------------------------------------------------------------
                                     $  5,886,000              7.5%


                                  Page 9 of 29
<PAGE>   10

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

(A) FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS (in thousands)                                                    December 31,
---------------------------------------------------------------------------------------------------------------------
Assets                                                                                   1999               1998
---------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>                 <C>
Current assets:
     Cash and cash equivalents                                                     $      346          $     183
     Accounts receivable, less allowance for doubtful accounts of $634
         and $605 at December 31, 1999 and 1998, respectively                          21,777             20,066
     Other accounts receivable                                                          1,109              1,716
     Inventories                                                                       36,061             32,140
     Prepaid expenses                                                                   1,154                948
     Deferred income tax asset                                                            834                440
---------------------------------------------------------------------------------------------------------------------
              Total current assets                                                     61,281             55,493
---------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, at cost, less
     accumulated depreciation and amortization                                          9,352              7,567
Other assets:
     Intangible assets, at cost, less accumulated amortization                          2,292              1,682
     Other assets                                                                           1                 27
---------------------------------------------------------------------------------------------------------------------
              Total other assets                                                        2,293              1,709
---------------------------------------------------------------------------------------------------------------------
                                                                                   $   72,926          $  64,769
=====================================================================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:
     Accounts payable, trade                                                       $    7,891          $   7,149
     Accrued expenses                                                                   1,780              1,239
     Income tax payable                                                                    99                  -
     Current portion of long-term debt                                                    617                567
---------------------------------------------------------------------------------------------------------------------
              Total current liabilities                                                10,387              8,955
---------------------------------------------------------------------------------------------------------------------
Revolving credit facility                                                              30,327             26,461
Long-term debt                                                                          5,269              5,836
Deferred income tax liability and other                                                   850                585
Commitments and contingencies (see Notes 12 and 17) 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, 4,317
         and 4,297 shares issued and outstanding as of December 31,
         1999 and 1998, respectively)                                                   9,652              9,559
     Common stock subscribed                                                              317                 93
     Unearned compensation                                                                (12)
(55)
     Subscription receivable                                                             (465)              (423)
     Retained earnings                                                                 16,608             13,716
     Accumulated other comprehensive income (loss)                                         (7)                42
---------------------------------------------------------------------------------------------------------------------
              Total shareholders' equity                                               26,093             22,932
---------------------------------------------------------------------------------------------------------------------
                                                                                   $   72,926          $  64,769
=====================================================================================================================
</TABLE>

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


                                 Page 10 of 29
<PAGE>   11

CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)

<TABLE>
                                                                                 For the year ended December 31,
-----------------------------------------------------------------------------------------------------------------------
                                                                            1999              1998               1997
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>                <C>                <C>
Sales                                                              $     168,056      $    147,130       $    152,500
Cost of goods sold                                                       137,529           120,685            129,372
-----------------------------------------------------------------------------------------------------------------------
              Gross profit                                                30,527            26,445             23,128
Selling, general and administrative expenses                              22,673            19,706             21,785
-----------------------------------------------------------------------------------------------------------------------
              Income from operations                                       7,854             6,739              1,343
-----------------------------------------------------------------------------------------------------------------------
Other income (expenses):
     Interest income                                                         445               481                454
     Interest expense                                                     (2,674)           (2,497)            (3,297)
     Other income (expense)                                                  (13)               27                147
-----------------------------------------------------------------------------------------------------------------------
              Total other expense, net                                    (2,242)           (1,989)            (2,696)
-----------------------------------------------------------------------------------------------------------------------
              Income (loss) before income taxes                            5,612             4,750             (1,353)
Income tax expense (benefit)                                               2,037             1,738               (538)
-----------------------------------------------------------------------------------------------------------------------
Net income (loss)                                                  $       3,575      $      3,012       $       (815)
=======================================================================================================================
Basic and diluted earnings (loss) per common share                 $        0.83      $       0.61       $      (0.16)
=======================================================================================================================
Weighted average shares outstanding                                        4,313             4,955              5,148
=======================================================================================================================
</TABLE>

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


                                 Page 11 of 29
<PAGE>   12

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands, except per share
data)

<TABLE>
<CAPTION>
                                                                                                          Accumulated
                                       Common                                                                Other
                           Common      Stock        Unearned     Subscription  Retained   Comprehensive  Comprehensive
                            Stock    Subscribed   Compensation    Receivable   Earnings   Income (Loss)  Income (Loss)    Total
----------------------------------------------------------------------------------------------------------------------------------
<S>                       <C>          <C>          <C>              <C>       <C>           <C>           <C>            <C>
Shareholders' equity at
  12/31/96                $12,550      $            $   (250)        $    -    $12,337                     $     -        $24,637
Comprehensive loss:
     Net loss                   -           -              -              -       (815)      $   (815)           -           (815)
     Change in unrealized
     gain on available
     for sale
     securities in the
     IRB reserve                -           -              -              -          -             21           21             21
                                                                                             --------
Comprehensive loss                                                                           $   (794)
                                                                                             ========
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
------------------------------------------------------------------------------------------              --------------------------
Shareholders' equity at
   12/31/97                12,833           -           (177)          (452)    11,111                          21         23,336
Comprehensive income:
     Net income                 -           -              -              -      3,012       $  3,012            -          3,012
     Change in unrealized
     gain on available
     for sale securities
     in the IRB reserve         -           -              -              -          -             21           21             21
                                                                                             --------
Comprehensive income                                                                         $  3,033
                                                                                             ========
Dividends paid, $0.08 per
     share                      -           -              -              -       (407)                          -           (407)
Repurchase of 824 shares
     of common stock       (3,274)          -              -             64          -                           -          (3,210)
Issuance of 20 shares of
     common stock to an
     executive officer          -          93              -              -          -                           -             93
Interest on subscription
     receivable                 -           -              -            (35)         -                           -            (35)
Amortization of unearned
     compensation               -           -            122              -          -                           -            122
------------------------------------------------------------------------------------------              --------------------------
Shareholders' equity at
  12/31/98                  9,559          93            (55)          (423)    13,716                          42         22,932
Comprehensive income:
     Net income                 -           -              -              -      3,575       $  3,575            -          3,575
     Change in unrealized
     gain on available
     for sale
     securities in the
     IRB reserve                -           -              -              -          -            (49)         (49)           (49)
                                                                                             --------
Comprehensive income                                                                         $  3,526
                                                                                             ========
Dividends paid, $0.16 per
     share                      -           -              -              -       (683)                          -           (683)
Issuance of 20 shares of
     common stock to an
     executive officer         93         (93)             -              -          -                           -              -
Issuance of 40 shares of
     common stock to an
     executive officer          -         275              -              -          -                           -            275
Issuance of 10 shares of
     common stock to an
     executive officer          -          42              -            (42)         -                           -              -
Amortization of unearned
     compensation               -           -             43              -          -                           -             43
------------------------------------------------------------------------------------------              --------------------------
Shareholders' equity at
  12/31/99                $ 9,652      $  317       $    (12)        $ (465)   $16,608                     $    (7)       $26,093
------------------------------------------------------------------------------------------              --------------------------
</TABLE>


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


                                 Page 12 of 29
<PAGE>   13

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)                                    For the year ended December 31,
------------------------------------------------------------------------------------------------------------------------------
                                                                                    1999             1998             1997
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>             <C>             <C>
Cash flows from operating activities:
     Net income (loss)                                                           $   3,575       $   3,012       $    (815)
     Adjustments to reconcile net income (loss) to net cash provided by
         operating activities:
              Depreciation and amortization                                          1,054             983             973
              Deferred income taxes                                                   (434)            421            (146)
              Provision for loss on accounts receivable                                576             374           1,568
              Amortization of unearned compensation                                     43             122             157
              Stock award to executive officer                                         275              93              --
              Loss (gain) on sale of property and equipment                            (15)             --               7
              Changes in operating assets and liabilities (net of impact of
              acquisition):
                  Receivables                                                       (1,680)         (1,135)         (1,655)
                  Inventories                                                       (2,195)           (605)          8,221
                  Prepaid expenses                                                    (193)            540           2,239
                  Accounts payable, trade                                              742           2,725          (3,485)
                  Accrued expenses                                                     541            (645)            188
                  Income tax payable                                                    99              --              --
                  Other                                                                331             (25)            162
--------------------------------------------------------------------------------------------------------------------------
                      Net cash provided by operating activities                      2,719           5,860           7,414
--------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
     Purchase of property and equipment                                             (2,561)         (1,596)         (1,257)
     Purchase of intangibles and other assets                                         (471)             --              --
     Proceeds from sale of property and equipment                                      140               3              15
     Purchase of assets in business acquisition                                     (2,281)             --              --
--------------------------------------------------------------------------------------------------------------------------
                      Net cash used in investing activities                         (5,173)         (1,593)         (1,242)
--------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
     Gross borrowings on revolving credit facility                                 174,158         150,304         151,592
     Gross repayments on revolving credit facility                                (170,292)       (150,606)       (156,332)
     Principal payments on long-term debt                                             (566)           (517)           (467)
     Principal payments on capital lease obligations                                    --              (8)            (45)
     (Increase) decrease in subscription receivable                                     --             (35)             23
     Repurchase of common stock                                                         --          (3,210)           (276)
     Dividends to shareholders                                                        (683)           (407)           (411)
--------------------------------------------------------------------------------------------------------------------------
                      Net cash provided by (used in) financing activities            2,617          (4,479)         (5,916)
--------------------------------------------------------------------------------------------------------------------------
                      Net increase (decrease) in cash and cash equivalents             163            (212)            256
Cash and cash equivalents:
     Beginning of year                                                           $     183       $     395       $     139
--------------------------------------------------------------------------------------------------------------------------

     End of year                                                                 $     346       $     183       $     395
==========================================================================================================================
Cash payments for interest                                                       $   2,656       $   2,491       $   3,339
==========================================================================================================================
Cash payments for income taxes                                                   $   2,372       $   1,080       $     438
==========================================================================================================================
</TABLE>

Supplemental disclosure of non-cash investing and financing activities:

o        The change in net unrealized gain (loss) on investment securities
         available for sale was ($49) and $21 for the years ended December 31,
         1999 and 1998, respectively.

o        During 1999, the Company issued $93 of common stock to an executive
         officer from common stock subscribed.

o        During 1999, the Company agreed to issue $42 of common stock to an
         executive officer in exchange for a subscription receivable.

o        During 1998, the Company repurchased 16 shares of common stock from an
         executive officer in exchange for the forgiveness of a $64 subscription
         receivable.


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


                                 Page 13 of 29
<PAGE>   14

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

1.     BASIS OF PRESENTATION

Ellett Brothers, Inc. (the Company) 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. The Company's products
are diversified among a wide variety of outdoor sporting goods equipment
including a wide selection of styles and brand names. In addition, the Company
operates three wholly-owned subsidiaries. One subsidiary is a manufacturer of
outdoor sporting accessories and wooden nostalgia boxes. Another subsidiary
manufactures specialty licensed nostalgic products, and the other subsidiary
distributes archery products.

2.     SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. 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, 1999 and 1998 prepaid
expenses included prepayments in the amounts of $400 and $257, 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, 1999 and 1998, the Company did not have any
significant amounts capitalized as direct response advertising. The Company
incurred total advertising expenditures of $536, $587, and $735 during the years
ended December 31, 1999, 1998, and 1997, 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.

The Company reviews long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable, in accordance with the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." Accordingly,
when indicators of impairment are present, the Company evaluates the carrying
value of property, plant and equipment, and intangibles, in relation to
operating performance.


                                 Page 14 of 29
<PAGE>   15

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 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.

           Description                       Method                   Years
           ------------------------------------------------------------------
           Deferred financing costs          Effective interest         20
           Licenses and trademarks           Straight-line            5 - 20
           Goodwill                          Straight-line            10 - 15
           Non-compete agreements            Straight-line            5 - 10

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 11). 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 continues to account for stock-based compensation using the
intrinsic value method prescribed in APB Opinion No. 25, "Accounting for Stock
Issued to Employees." Compensation costs for stock options, if any, are measured
as the excess of the quoted market price of the Company's stock at the date of
the grant over the amount an associate must pay to acquire the stock.

SFAS No. 123, "Accounting for Stock-Based Compensation", established accounting
and disclosure requirements using a fair value-based method of accounting for
stock-based employee compensation plans. The Company has elected to continue its
current method of accounting as described above, and has adopted the disclosure
requirements of SFAS No. 123.

Earnings per common share

Although the Company had options outstanding during portions of the three years
ended December 31, 1999, they have an antidilutive effect on earnings per share
for each year. As such, basic and diluted earnings (loss) per share for the
years ended December 31, 1999, 1998, and 1997 are net income (loss) divided by
the weighted average shares outstanding.

Investment securities

The Company accounts for investment securities in accordance with 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 (expense) at
the time of sale.

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. SFAS No. 133 is effective for financial statements for all
fiscal quarters of all fiscal years beginning after June 15, 2000, as deferred
by SFAS No. 137. The Company intends to adopt SFAS No. 133; however, management
anticipates that SFAS No. 133 is not expected to have a material impact on the
Company's consolidated financial position, results of operations, or cash flows
due to the Company's limited use of derivative instruments.



                                 Page 15 of 29
<PAGE>   16

3.     COMPREHENSIVE INCOME

Comprehensive income includes net income and all other changes to the Company's
equity, with the exception of transactions with shareholders ("other
comprehensive income"). The Company's only components of other comprehensive
income relate to unrealized gains and losses on available for sale securities.

4.     ACQUISITION

In October of 1999, the Company purchased the assets of Archery Center
International, Inc. (ACI) located in Monroe, Michigan. ACI is a leading
distributor in the archery industry. The Company paid $2,281 in cash for these
assets. The purchase price exceeded the book value of ACI's assets by $420. The
purchase price was allocated as follows:

                   Inventory                             $1,726
                   Prepaid expenses                          13
                   Property, plant and equipment            122
                   Goodwill                                 420
                                                         ------
                                                         $2,281
                                                         ======

The assets of ACI were placed into a separate, wholly-owned subsidiary, and the
acquisition was accounted for using the purchase method of accounting, with the
excess of the purchase price over the estimated fair value of the assets
acquired being recorded as goodwill. The goodwill arising from this transaction
is being amortized on a straight-line basis over a period of 15 years.

In addition to the purchase agreement, the Company entered into a non-compete
agreement with the former owner of ACI. The Company has agreed to pay the former
owner specified sums of money over each of the next five years for the
non-compete agreement. The Company has recorded the non-compete agreement and
the deferred compensation liability at the present value of future cash flows
with the non-compete amortized on a straight-line basis and the liability
amortized using the effective interest method over a period of five years. At
December 31, 1999, the balances for the non-compete agreement and the deferred
compensation liability were $350 and $355, respectively. The non-compete
agreement has been recorded in intangible assets and has an accumulated
amortization balance of $17 at December 31, 1999. The deferred compensation
liability has a long-term portion of $305 and a current portion of $50 which has
been included in accrued expenses.

The results of operations for ACI are included in the income statement only from
the time of the acquisition through December 31, 1999. If ACI had been acquired
at the beginning of the year, the Company would have reported sales of $176,852,
$155,522, and $160,338, and net income (loss) of $3,617, $3,060, and ($772) for
each of the years ended December 31, 1999, 1998, and 1997, respectively.


5.     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.

                                         June 30, 1997      September 30, 1997
          --------------------------------------------------------------------
          Inventory reserve                  $ 3,548                $ 1,246
          Accounts receivable reserve            207                    580
          Accrued expenses                       255                     10
          Current tax benefit                 (1,285)                  (688)
          --------------------------------------------------------------------
              Net reserve                   $  2,725               $  1,148
          --------------------------------------------------------------------


6.     INVENTORIES

       Inventories consisted of the following at December 31:

                                        1999                   1998
         -------------------------------------------------------------
         Finished goods            $  34,686              $  31,112
         Raw materials                 1,048                    881
         Work in progress                327                    147
         -------------------------------------------------------------
                                   $  36,061              $  32,140
         -------------------------------------------------------------


                                 Page 16 of 29
<PAGE>   17

7.     PROPERTY, PLANT AND EQUIPMENT

       Property, plant and equipment consisted of the following at December 31:

                                                          1999        1998
                  -----------------------------------------------------------
                  Land                                $    201     $     216
                  Buildings and improvements             6,554         6,751
                  Furniture, fixtures and equipment     10,697         8,021
                  -----------------------------------------------------------
                                                        17,452        14,988
                  Less accumulated depreciation
                       and amortization                  8,100         7,421
                  -----------------------------------------------------------
                                                      $  9,352     $   7,567
                  -----------------------------------------------------------

8.     INTANGIBLE ASSETS

       Intangible assets consisted of the following at December 31:

                                                      1999            1998
                  ---------------------------------------------------------
                  Deferred financing costs        $    336       $     336
                  Licenses                             244             203
                  Goodwill                           1,028             528
                  Non-compete agreements             2,050           1,700
                  ---------------------------------------------------------
                                                     3,658           2,767
                  Less accumulated amortization      1,366           1,085
                  ---------------------------------------------------------
                                                  $  2,292       $   1,682
                  ---------------------------------------------------------

9.     INVESTMENT SECURITIES

       The amortized cost and estimated market value of investment securities at
December 31, 1999 and 1998 are as follows:

<TABLE>
<CAPTION>
                                                   Gross         Gross         Gross      Estimated
                                                 Amortized    Unrealized    Unrealized     Market
Year                                               Cost          Gains        Losses        Value
----------------------------------------------------------------------------------------------------
<S>     <C>                                     <C>             <C>           <C>       <C>
1999    Available for Sale: Bond Reserve        $   1,121       $     11      $  (18)   $      1,114
1998    Available for Sale: Bond Reserve        $   1,122       $     43      $   (1)   $      1,164
</TABLE>


10.    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, 1999 borrowings under the Agreement bear
interest at a rate equal to, at the Company's option, prime rate plus .375% or
1.75% above the 30 or 90 day LIBOR rate. On October 8, 1999 the Agreement was
amended to include ACI and to increase the maximum amount of the borrowings to
$45 million for a 120 day period, at which time the maximum borrowings revert to
$40 million. 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, 1999, the interest rate was 8.23%.

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, subject to the aforementioned 120 day
period, under the Agreement is $45 million. At December 31, 1999 the Company had
$12.6 million available under the Agreement.

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 17 of 29
<PAGE>   18

11.    LONG-TERM DEBT

       Long-term debt consisted of the following at December 31:

<TABLE>
<CAPTION>
                                                                                              1999         1998
----------------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>          <C>
Industrial Revenue Refunding Bonds, Series 1988 ("IRB") collateralized
    by real estate. The fixed interest of 7.5% 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. The
    bonds are due September, 2008.                                                       $   7,000    $   7,567

Industrial revenue refunding bond reserve on deposit with the Trustee                       (1,114)      (1,164)
----------------------------------------------------------------------------------------------------------------

                                                                                             5,886        6,403
Less, current portion                                                                         (617)        (567)
----------------------------------------------------------------------------------------------------------------
                                                                                         $   5,269    $   5,836
---------------------------------------------------------------------------------------------------------------
</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, 1999 and 1998 was approximately
$6,735 and $7,486, respectively.

Principal maturities and sinking fund requirements for long-term debt at
December 31, 1999 are as follows:

                  For year ending December 31,
                  2000                                    $     617
                  2001                                          667
                  2002                                          716
                  2003                                          767
                  2004                                          817
                  Thereafter                                  2,302
                  -------------------------------------------------
                                                           $  5,886
                  =================================================

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.

12.    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 $229, $279, and $279 in rental expenses related to these leases in
1999, 1998, and 1997, respectively. The future minimum lease payments related to
these leases as of December 31, 1999 are $40 for the year ending December 31,
2000.

The Company's subsidiaries lease the manufacturing and office space under
non-cancelable operating leases. These leases expire through 2005. The Company
has the right to cancel these leases with a 90 day notice beginning in 1998 for
one lease and in 2000 for the other.

Rent expense under these subsidiaries leases approximated $149, $125, and $125
in the years ended December 31, 1999, 1998, and 1997, respectively. The
following is a summary of the future rental payments as of December 31, 1999:

                  For the year ending December 31,
                  -----------------------------------------------
                  2000                                  $   415
                  2001                                      415
                  2002                                      276
                  2003                                      233
                  2004                                      226
                  Thereafter                                467
                  -----------------------------------------------
                                                        $ 2,032
                  ===============================================



                                 Page 18 of 29
<PAGE>   19

13.    COMMON AND PREFERRED STOCK

In January 1997, the Company issued 112 shares of common stock for total
consideration of $475 ($452 in promissory notes and $23 of cash) to two
executives of the Company in exchange for the cancellation of 112 fully vested
and outstanding options of the officers with an exercise price of $7.00 per
share. The promissory notes bear interest at 5.6%, payable semi-annually, and
become due on a pro-rata basis as the shares are sold by the executives. The
shares carried restrictions over their transferability which were lifted over a
two-year period ending January 1999. The market value of the common stock at the
date of the transaction was $559. 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 June
of 1998, the Company reacquired 34 shares from one of the former executives and
recorded it using the cost method of accounting for treasury stock.

During 1998, the Company awarded 20 shares to an executive officer when the
market value of these shares was $93. During 1999, the Company awarded 40 shares
to an executive officer when the market value of these shares was $275.
Compensation expense was recognized at the time of these awards and
shareholders' equity reflects the stock subscribed in 1999. In 1999, the Company
also issued to an executive officer an option to purchase up to 10 shares of the
Company's common stock at 85% of the market price of the stock at the grant
date. The Company recognized compensation expense of $7 related to this
discount.

The Company reacquired 46 and 10 shares in June and December of 1997,
respectively; and reacquired 142, 448, and 200 shares of its common stock in
September, October, and December of 1998, respectively. The Company recorded
these acquisitions using the cost method of accounting for treasury stock.

The Company is authorized to issue 20,000 shares of no-par-value common stock.
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.


14.    STOCK COMPENSATION PLANS

The Company has two stock option plans that provide for the granting of up to
500 options to associates. The options granted are normally at an exercise price
equal to the fair value of the shares at the date of the grant. During 1998,
under the stock option program (the "Plan"), one executive was granted an option
to acquire 50 shares of common stock at $10 per share, and 50 shares of stock at
$15 per share. The options expire five years from the date granted. In 1999,
under the Plan, one executive was granted and exercised an option to acquire 10
shares of common stock at an exercise price of $4.25 per share.

A summary of the status of the Plan as of December 31, 1999 and 1998 and changes
during the years then ended is presented below:

<TABLE>
<CAPTION>
                                                       1999                               1998
                                         ---------------------------------  ---------------------------------
                                                       Weighted Average                   Weighted Average
                                           Shares       Exercise Price        Shares       Exercise Price
                                         ----------- ---------------------  ----------- ---------------------
<S>                                           <C>            <C>                 <C>          <C>
     Outstanding at beginning of year         100            $ 12.50               -          $    -
     Granted                                   10               4.25             100              12.50
     Exercised                                (10)              4.25               -               -
                                         ----------- ---------------------  ----------- ---------------------
     Outstanding at end of year               100            $ 12.50             100            $ 12.50
                                         ----------- ---------------------  ----------- ---------------------
     Options exercisable                      100            $ 12.50             100            $ 12.50
                                         ----------- ---------------------  ----------- ---------------------
</TABLE>

The following table summarizes information about the Plan's stock options at
December 31, 1999:

<TABLE>
<CAPTION>
                                                Options Outstanding                                  Options Exercisable
                            ------------------------------------------------------------- ---------------------------------------
                                   Number         Weighted Average                         Number Exercisable
                              Outstanding at         Remaining        Weighted Average        and Vested at      Weighted Average
 Range of Exercise Prices         12/31/99        Contractual Life     Exercise Price           12/31/99          Exercise Price
--------------------------- ------------------------------------------------------------- ---------------------------------------
<S>                                 <C>                 <C>               <C>                      <C>                <C>
        $10 - $15                   100                 3.50              $ 12.50                  100                $ 12.50
</TABLE>

Had compensation cost been recognized based on the fair value of the options at
the grant dates for awards under the Plan consistent with the method of SFAS No.
123, the Company's net income would have been decreased to the pro forma amount
of $2,976 and earnings per share would have been $0.60 for the year ended
December 31, 1998. Since all options granted in 1998 were fully vested at
December 31, 1998, there would be no impact on 1999 earnings.


                                 Page 19 of 29
<PAGE>   20

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants. The weighted average fair value of options granted
during the year ended December 31, 1998 was approximately $0.37.

                                                                1999
                                                               ------
                     Dividend yield                             2.00%
                     Expected volatility                       36.72%
                     Risk-free interest rate                    5.40%
                     Expected lives, in years                       5

At December 31, 1999 the Company had 400 shares reserved for future grants of
stock options.


15.    INCOME TAXES

       Income tax expense (benefit) consisted of the following:

<TABLE>
<CAPTION>
                                                                           For the year ended December 31,
                  -----------------------------------------------------------------------------------------
                                                                     1999            1998             1997
                  -----------------------------------------------------------------------------------------
<S>                                                              <C>               <C>            <C>
                  Current:
                       Federal                                   $  2,350          $1,273         $   (573)
                       State                                          121              44              181
                  -----------------------------------------------------------------------------------------
                                                                    2,471           1,317             (392)
                  -----------------------------------------------------------------------------------------
                  Deferred:
                       Federal                                       (396)            342              103
                       State                                          (38)             79             (249)
                  -----------------------------------------------------------------------------------------
                                                                     (434)            421             (146)
                  -----------------------------------------------------------------------------------------
                                                                 $  2,037          $1,738         $   (538)
                  =========================================================================================
</TABLE>

       Components of the net deferred income tax liability (asset) were as
follows:

<TABLE>
<CAPTION>
                                                                                        As of December 31,
                  ----------------------------------------------------------------------------------------
                                                                     1999                             1998
                  ----------------------------------------------------------------------------------------
<S>                                                              <C>                              <C>
                  Depreciation and amortization                  $    545                         $    538
                  Bad debt expense                                   (230)                            (217)
                  Inventory capitalization                           (416)                            (212)
                  State net operating loss                              -                               (6)
                  Other                                              (188)                              42
                  ----------------------------------------------------------------------------------------
                  Total                                          $   (289)                        $    145
                  ========================================================================================
</TABLE>

       Income tax expense varied from statutory federal income taxes as follows:

<TABLE>
<CAPTION>
                                                                           For the year ended December 31,
                  -----------------------------------------------------------------------------------------
                                                                     1999            1998             1997
                  -----------------------------------------------------------------------------------------
<S>                                                              <C>               <C>            <C>
                  Income taxes at 34% statutory federal rate     $  1,908          $1,615         $   (460)
                  State income taxes, net of federal tax benefit       10              81              (45)
                  Other                                               119              42              (33)
                  -----------------------------------------------------------------------------------------
                  Income tax expense (benefit)                   $  2,037          $1,738         $   (538)
                  =========================================================================================
</TABLE>

The Company had approximately $797 of state net operating loss carryforwards at
December 31, 1999. These carryforwards will expire in 2002 through 2013, if not
utilized.


16.    EMPLOYEE BENEFIT PLAN

The Company has a 401(k) defined contribution plan (the "Plan") covering
substantially all full-time associates 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 $131, $84,
and $67 for the years ended December 31, 1999, 1998, and 1997, respectively.



                                 Page 20 of 29
<PAGE>   21

17.    CONTINGENCY

The Company is a party to litigation in connection with the distribution of its
inventory. Over the past eighteen months, twenty-nine cities and/or counties and
one advocacy group have filed lawsuits against the firearms industry as a whole.
These lawsuits list numerous manufacturers and distributors as defendants in the
claims. To date, three of the thirty suits have been dismissed, as the judges
have found the complaints "without standing" under the laws of their respective
states. The Company was named in four of these remaining twenty-seven suits. The
Company and all distributors were dismissed from one of these lawsuits (the
Hamilton-Cargill lawsuit) in the first quarter of 1999. For the remaining
defendants, this case is under appeal. Pending the appeal, there are three
remaining industry-wide cases in which the Company is named. Although the
outcome cannot be predicted, 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.


18.    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>
                                                      1998                                              1999
------------------------------- ------------------------------------------------- -----------------------------------------------
                                   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                            $ 34,032     $ 31,856    $ 39,625    $ 41,617     $ 38,946    $ 38,319    $ 45,931    $ 44,860
Gross profit                        5,906        5,748       7,227       7,564        6,748       6,850       8,428       8,501
Selling, general,
     and administrative             4,795        4,554       5,206       5,151        5,293       5,271       5,817       6,292
Income from
     operations                     1,111        1,194       2,021       2,413        1,455       1,579       2,611       2,209
Net income                            451          500         884       1,177          678         687       1,302         908
Basic and diluted earnings
     per share                       0.09         0.10        0.17        0.26         0.16        0.16        0.30        0.21
------------------------------- ------------ ----------- ----------- ------------ ----------- ----------- ----------- -----------
</TABLE>

19.    Business Segment Information

The Company's reportable segments are business units that offer different
products and have separate management teams and infrastructures. The business
units have been aggregated into two reportable segments. These segments are:
Hunting, Shooting, Camping, Archery & Outdoor Products ("HS&A") and Marine
Products. The "Other" segment includes the Company's other operations. For the
year ended December 31, 1997, the "Other" segment information included the
Safesport operation.

The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates performance
based upon operating income of the business units.

The following table presents information about reported segments for the years
ended December 31 (in millions):

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
                           1999             HS&A           MARINE           OTHER            TOTAL
---------------------------------------------------------------------------------------------------------
<S>                                        <C>             <C>             <C>               <C>
Sales                                      $ 135.5         $   26.8        $    5.8          $ 168.1
Operating income                               5.6              2.1              .2              7.9
Identifiable segment assets                   48.8              6.8             2.2             57.8
Capital expenditures                           2.4               .1              .1              2.6
Depreciation                                    .5               .1              .1               .7
---------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------
                           1998             HS&A           MARINE           OTHER            TOTAL
---------------------------------------------------------------------------------------------------------
Sales                                      $ 117.1         $   23.9        $    6.1          $ 147.1
Operating income                               4.4              1.7              .6              6.7
Identifiable segment assets                   43.8              6.5             2.0             52.3
Capital expenditures                           1.6               .0              .0              1.6
Depreciation                                    .5               .1              .1               .7
---------------------------------------------------------------------------------------------------------
</TABLE>


                                 Page 21 of 29
<PAGE>   22

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
                           1997                                 HS&A           MARINE          OTHER           TOTAL
---------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>             <C>             <C>             <C>
Sales                                                          $ 115.5         $   21.0        $  16.0         $ 152.5
Operating income (loss)                                            3.8              1.3           (3.8)            1.3
Identifiable segment assets                                       41.0              6.7            3.2            50.9
Capital expenditures                                               1.2               .0             .1             1.3
Depreciation                                                        .5               .1             .1              .7
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

A reconciliation of total segment operating income to total consolidated income
before taxes for the years ended December 31 (in millions) as follows:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
                                                                   1999                  1998                  1997
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>                    <C>                 <C>
Operating income                                                $   7.9                $   6.7             $   1.3
Interest income and other income, net                                .4                     .5                  .6
Interest expense                                                   (2.7)                  (2.5)               (3.3)
-----------------------------------------------------------------------------------------------------------------------------
Income (loss) before taxes                                      $   5.6                $   4.7             $  (1.4)
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

A reconciliation of identifiable segment assets to total assets for the year
ended December 31 (in millions) is as follows:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                                                  1999                  1998                  1997
----------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>                    <C>                 <C>
Identifiable segment assets                                    $  57.8                $  52.3             $  50.9
Other corporate assets                                            15.1                   12.5                12.7
----------------------------------------------------------------------------------------------------------------------------
      Total assets                                             $  72.9                $  64.8             $  63.6
----------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                 Page 22 of 29
<PAGE>   23

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
Ellett Brothers, Inc.

In our opinion, the consolidated balance sheets and the related consolidated
statements of operations, of shareholders' equity and of cash flows present
fairly, in all material respects, the financial position of Ellett Brothers,
Inc. and subsidiaries at December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. In addition, in our opinion, the financial statement
schedule listed in the index appearing under item 14(a)(2) on page 26, presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.



PricewaterhouseCoopers, LLP

Charlotte, North Carolina
February 11, 2000


                                 Page 23 of 29
<PAGE>   24

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 29, 2000, 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 17, 2000, 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 17, 2000 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 17, 2000 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 17, 2000 under the caption "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS."



                                 Page 24 of 29
<PAGE>   25

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 26

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
28 and 29 are filed as part of this report.

(b) There were no reports filed on Form 8-K for the quarter ended December 31,
1999.


                                 Page 25 of 29
<PAGE>   26

                              ELLETT BROTHERS, INC.

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

               FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, & 1997

                                 (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>
  1999
                 Allowance for Doubtful Accounts        $  605          $  576           $  614 (B)      $1,161 (A)      $  634
                                                        ======          ======           ======          ======          ======

                 Allowance for Obsolete Inventory       $  569 (C)      $   -(D)         $    -          $   34          $  535
                                                        ======          =====            ======          ======          ======


  1998
                 Allowance for Doubtful Accounts        $  769          $  374           $  750 (B)      $1,288 (A)      $  605
                                                        ======          ======           ======          ======          ======

                 Allowance for Obsolete Inventory       $  697 (C)      $   -(D)         $    -          $  128          $  569
                                                        ======          =====            ======          ======          ======


  1997
                 Allowance for Doubtful Accounts        $  750          $1,568           $  899 (B)      $2,448 (A)      $  769
                                                        ======          ======           ======          ======          ======

                 Allowance for Obsolete Inventory       $  500 (C)      $3,745(D)        $    -          $3,548          $  697
                                                        ======          ======           ======          ======          ======
</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)      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.

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


                                 Page 26 of 29
<PAGE>   27

                                   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 30, 2000                   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 30, 2000
--------------------------------
Robert D. Gorham, Jr.


/s/ Joseph F. Murray, Jr.                     Director, President and           March 30, 2000
--------------------------------              Chief Executive Officer
Joseph F. Murray, Jr.


/s/ George E. Loney                           Chief Financial Officer           March 30, 2000
--------------------------------
George E. Loney


/s/ E. Wayne Gibson                     Director, Chairman of the Executive     March 30, 2000
--------------------------------              Committee and Secretary
E. Wayne Gibson


/s/ William H. Batchelor                              Director                  March 30, 2000
--------------------------------
William H. Batchelor


/s/ Charles V. Ricks                                  Director                  March 30, 2000
--------------------------------
Charles V. Ricks


/s/ William H. Stanley                                Director                  March 30, 2000
--------------------------------
William H. Stanley
</TABLE>


                                 Page 27 of 29
<PAGE>   28

                                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).

       3(c)       Amendment dated April 5, 1999 to the Bylaws of the Corporation
                  filed as Exhibit 3(b).

       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. 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, 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. Incorporated by reference to Exhibit
                  4(k) filed as part of the Corporation's Annual Report on Form
                  10-K for the year ended December 31, 1997.

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

       4(m)       Modification of Note between the Corporation and The Bank of
                  New York dated as of September 12, 1997. Incorporated by
                  reference to Exhibit 4(m) filed as part of the Corporation's
                  Annual Report on Form 10-K for the year ended December 31,
                  1997.



                                 Page 28 of 29
<PAGE>   29

                                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). Incorporated by reference to
                  Exhibit 10(d) filed as part of the Corporation's Annual Report
                  on Form 10-K for the year ended December 31, 1997.

       10(e)      Amendment dated September 26, 1997 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,
                  1997.

       10(f)      Amendment dated December 30, 1997 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,
                  1997.

       10(g)      Amendment dated December 31, 1998 to the Financing and
                  Security Agreement filed as Exhibit 10(a). Incorporated by
                  reference to Exhibit 10(g) filed as part of the Corporation's
                  Annual Report on Form 10-K for the year ended December 31,
                  1998.

       10(h)      Amendment dated July 30, 1999 to the Financing and Security
                  Agreement filed as Exhibit 10(a).

       10(i)      Amendment dated October 8, 1999 to the Financing and Security
                  Agreement filed as Exhibit 10(a).

       10(j)      Amendment dated October 8, 1999 to the Financing and Security
                  Agreement filed as Exhibit 10(a).

       21         Subsidiaries of the Registrant. Incorporated by reference to
                  Exhibit 21 filed as part of the Corporation's Annual Report on
                  Form 10-K for the year ended December 31, 1997.

       27         Financial data schedule.



                                 Page 29 of 29