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, 1996
                                       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 0-22230 
                                ROYAL GRIP, INC.
             (Exact name of Registrant as specified in its charter)

         Nevada                                86-0615648
(State or other jurisdiction of                (IRS Employer Identification No.)
incorporation or organization)

                      444 West Geneva, Tempe, Arizona 85282
               (Address of principal executive offices)(Zip Code)
                                 (602) 829-9000
              (Registrant's telephone number, including area code)
           Securities registered pursuant to Section 12(b) of the Act:

                                      NONE
           Securities registered pursuant to Section 12(g) of the Act:
      Title or Class                        Name of Exchange on which registered
-----------------------------               ------------------------------------
Common Stock, $.001 par value                      NASDAQ National Market System

         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]

         At March 14, 1997,  the aggregate  market value of Common Stock held by
non-affiliates of the Registrant was approximately $5,030,754.

              APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

         Indicate by check mark whether the  Registrant  has filed all documents
and reports  required to be filed by Section 12, 13, or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court. YES [ ] NO [ ]

                   (APPLICABLE ONLY TO CORPORATE REGISTRANTS)
         Indicate the number of shares  outstanding of each of the  Registrant's
classes of common equity, as of the latest practicable date: 2,740,928 shares of
Common Stock outstanding on March 14, 1997.

                      DOCUMENTS INCORPORATED BY REFERENCE:
                                      NONE
<PAGE>
                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I
<S>                       <C>                                                                       <C>
         Item 1.           Business..................................................................... 3
                           Executive Officers of the Registrant......................................... 9
         Item 2.           Property.....................................................................10
         Item 3.           Legal  Proceedings...........................................................10
         Item 4.           Submission of Matters to a Vote of
                                    Security Holders....................................................10

PART II

         Item 5.           Market for the Registrant's Common
                                    Equity Securities and Related Stockholder Matters...................11
         Item 6.           Selected Consolidated Financial Data.........................................14
         Item 7.           Management's Discussion and
                                    Analysis of Financial Condition
                                    and Results of Operations...........................................15
         Item 8.           Consolidated Financial Statements and
                                    Supplementary Data..................................................25
         Item 9.           Changes in and Disagreements
                                    with Accountants on Accounting
                                    and Financial Disclosure............................................49

PART III

         Item 10.          Directors and Executive Officers
                                    of the Registrant...................................................49
         Item 11.          Executive Compensation.......................................................50
         Item 12.          Security Ownership of Certain
                                    Beneficial Owners and Management....................................53
         Item 13.          Certain Relationships and
                                    Related Transactions................................................54

PART IV

         Item 14.          Exhibits, Consolidated Financial Statement
                                    Schedule, and Reports on Form 8-K...................................54

SIGNATURES..............................................................................................58
</TABLE>
                                        2
<PAGE>
                                     PART I

                               ITEM 1 -- BUSINESS

Introduction

         Royal Grip,  Inc. (with its  subsidiary,  collectively,  the "Company")
designs and distributes  golf club grips and designs and  manufactures  athletic
headwear.  In 1989,  the Company  introduced a rubber wrap golf grip that gained
widespread  acceptance  in the golf  industry and enabled the Company to achieve
brand name recognition.  The Company currently offers a wide variety of standard
and custom  models,  all of which feature a distinctive  feel and appearance and
lasting durability.

         The Company  believes it has  established a reputation  within the golf
industry for innovation in the design and creation of golf grips. It continually
seeks to improve these  products with design and raw material  innovations.  The
Company  has   developed   distribution   channels  to  several   thousand  club
professionals,  club repair shops, and retail golf outlets,  and has established
relationships  with  several  original  equipment  manufacturers  ("OEMs").  The
Company believes that it is a leader in the Japanese market.

         In  April  1994,  the  Company  acquired  Roxxi,  Inc.  ("Roxxi"),   an
Oklahoma-based  manufacturer and distributor of high-quality  athletic headwear,
which now operates as a wholly-owned subsidiary of the Company. Roxxi's products
are sold through the Company's  golf-related  sales force as well as Roxxi's own
distribution  channels,  and  enable  the  Company  to  offer a wider  array  of
products.

         In December  1996,  the Company  outsourced  all of its  production  of
non-cord grips to Acushnet  Rubber  Company,  Inc.  ("Acushnet").  Although this
arrangement is expected to have positive long-term implications to the Company's
cost structure and to its research and development efforts, the Company incurred
transaction  and  related  costs of  approximately  $1.4  million  in the fourth
quarter  of  1996  in  connection  with  the  transition  of  its  manufacturing
operations.  Further, Acushnet has experienced start-up delays in the production
of grips, which has adversely affected the Company's customer  relationships and
results of  operations,  has  impaired  the  Company's  ability to meet its loan
covenants  and may make it more  difficult  for the  Company to satisfy  lending
covenants in the future.  

         The Company and Acushnet have recently  renegotiated their agreement in
light  of  Acushnet's   production   difficulties.   In  connection   with  this
renegotiation  Acushnet  has  agreed to  provide  the  Company  with a credit of
$400,000 against future  purchases of grips, and additonal  credits in the event
Acushnet  fails to meet future  production  requirements.  These  credits may be
reduced  depending upon Acushnet's  production  beyond  specified levels or as a
result  of  the   cancellation  of  stock  options  granted  to  Acushnet.   The
renegotiated  agreement also provides,  among other things,  for modified future
production and purchase  requirements and for termination  rights exercisable by
Acushnet.  The Company has also recently  obtained certain  modifications of its
loan  covenants  that waive past  covenant  defaults  and are intended to better
enable the Company to satisfy such covenants in the future.

         In January 1997, the Company entered into a letter of intent to combine
with  FM  Precision  Golf   Corporation,   a  privately  held  golf  club  shaft
manufacturer based in Torrington,  Connecticut ("FM Precision"). The preliminary
terms of the combination contemplate that the stockholders of FM Precision would
acquire 65% of the  resulting  company and control the board of  directors.  The
transaction  is subject to a number of  conditions,  including the completion of
due diligence by both parties,  execution of a definitive agreement, the receipt
of an independent  fairness opinion,  the approval of the board of directors and
stockholders  of each of the  Company  and FM  Precision,  and  other  customary
conditions. None of these conditions has yet been satisfied.

         The Company was founded and is headed by Professional  Golf Association
("PGA") member and Tour professional,  Danny Edwards. Mr. Edwards is a five-time
PGA Tour winner,  three-time Collegiate All-American,  member of the 1973 United
States Walker Cup Team, and winner of the Japanese Masters.
                                       3
<PAGE>
Industry and Market Background

         Golf Grip Market. The Company's  principal business is the sale of golf
club grips. These grips are sold into the replacement market, which serves those
golfers  seeking  to  replace  grips  that  have  become  worn and  slick due to
prolonged use, as well as to OEMs, who  incorporate the Company's grips on their
newly manufactured golf clubs.

         In recent years, the Company and other grip manufacturers have begun to
educate  golfers and grip suppliers about the  performance  benefits  associated
with periodic grip  replacement.  In addition,  the availability of performance-
enhancing grip products such as those offered by the Company has  contributed to
the  growth of the  replacement  market.  The  Company  believes  its golf grips
provide golfers with a supple,  "tacky" surface that provides  enhanced feel and
control over the golf club.  The cost of regripping a standard set of golf clubs
is approximately  $70 and is relatively  modest compared to the initial purchase
price of a set of clubs.

         Acceptance  of the  Company's  products by the  replacement  market has
facilitated   its  efforts  to  market  golf  grips  to  OEMs.  Most  golf  club
manufacturers  obtain some or all of the major  components  of their golf clubs,
including  grips,  from  independent   suppliers  that  design  and  manufacture
components to the OEMs'  specifications.  The Company targets sales of its grips
to manufacturers of premium brand golf clubs who seek to improve the performance
characteristics  and the  marketability  of their clubs.  The Company works with
these  OEMs  to  create   customized  golf  grips  bearing  the   manufacturer's
distinctive logo.

         Athletic   Headwear  Market.   The  market  for  athletic  headwear  is
characterized  by a broad range of customers,  a variety of market  niches,  and
intense competition. Companies that offer athletic headwear generally compete in
one of two  principal  markets.  Some produce  headwear  designed for mass sales
through low-priced  outlets,  such as supermarkets and retail  superstores,  and
compete  almost   exclusively  on  the  basis  of  price,   while  others  offer
high-quality  products and compete on the basis of quality,  delivery  time, and
customer  service.  Within  this  latter  market  segment,  in which the Company
competes,  there are a variety of marketing  niches,  including  retail sporting
goods stores,  which  typically  consist of regional  stores that carry athletic
headwear  bearing local team logos;  large chain  sporting  goods stores,  which
generally carry a full line of professional and collegiate athletic team caps as
well as caps  bearing the logos of various  corporations  involved in the sports
industry;  college  bookstores  and  team  sales,  in  which  athletic  headwear
manufacturers  contract  with colleges and their coaches to produce caps bearing
the school  logo,  which can then be used on the field and sold in the  school's
bookstore;  team outfitters,  which supply local teams,  such as high schools or
little league teams,  with uniforms and related  sports  equipment;  resorts and
country clubs,  which often stock caps bearing their special logos or insignias;
and businesses,  which provide custom-designed caps to employees or customers to
promote the organization.

         The Company directs its headwear sales efforts  primarily to the retail
sporting goods stores,  college bookstores and team sales, team outfitters,  and
resorts and country clubs segments,  although it also addresses the business and
chain store markets.

Products and Product Features

         Golf Grips.  Many  manufacturers  produce  grips  through a compression
molding  process  in which two grip  halves  are  molded  together.  Compression
molding leaves a noticeable  seam in the grip,  which must be removed  through a
buffing or grinding process that alters the grip surface and causes it to become
slick over time. By contrast,  with the  exception of its cord grip models,  the
Company's grips are manufactured  through an injection molding process using the
Company's proprietary rubber compound.  This proprietary compound,  when used in
conjunction  with injection  molding,  produces,  in the Company's  view, a more
durable grip.  The Company  believes  that the raw materials and the  production
techniques  used in the  manufacture  of its  grips,  as well as the  innovative
designs of its grips, have made it a leader in the golf grip market.
                                       4
<PAGE>
         The Company  currently offers a wide variety of standard and customized
grips,  including its new Slot  Wrap(TM),  Royal Wrap(TM) and Slot Wrap Cord(TM)
line of grips,  which feature a new rubber  compound,  the Sandwrap(TM) and Sand
Maximum(TM) line of grips, which are designed to provide enhanced adhesion,  and
its cord line of grips, which provide greater adhesion, particularly in very wet
or humid playing conditions,  through the addition of a cotton material embedded
in the surface of the grip. The Company also offers men's and ladies' perforated
wrap, men's oversize perforated wrap, men's and junior's smooth wrap, perforated
wrap pistol putter,  fine texture  putter,  fine texture  oversize  putter,  and
Sandmax(TM)  putter  grips.  The Company  also  manufactures  and sells  certain
specialty  grips,  including the  Arthrigrip(TM),  which is designed for golfers
suffering from arthritis.  The Company designs and produces its customized grips
primarily for OEMs,  incorporating  into each one the particular  manufacturer's
distinctive logo, color scheme, and pattern. The majority of the Company's grips
bear the Royal Grip name as part of its  program to build  brand  awareness  and
customer loyalty.

         Athletic  Headwear.  The  Company  produces  four  different  styles of
athletic headwear: authentic and casual baseball caps, golf caps and visors. The
caps and visors are  typically  made of high quality wool serge or cotton twill,
although the Company does offer fabrics such as brushed giant twill,  distressed
cotton, wool plaid, washed denim, sanded cotton, wool flannel and leather suede.
The Company utilizes fine quality  materials for other structural  components of
the headwear,  including  sweatbands,  visor boards,  and covered  buttons.  The
Company's baseball caps include the authentic model, which features a six-panel,
high crown design,  as well as casual models and officials'  caps. The golf caps
feature a five-panel design. All of the Company's caps feature a comfortable fit
and durable finish,  and are offered in both fitted and adjustable styles and in
a variety of colors and logos.

         The Company utilizes  computerized  embroidering machines to design and
create logos or insignias for its headwear.  This technology enables the Company
to meet the needs and product  specifications  of all types of  customers,  from
small clubs or teams to major national  colleges.  The Company sews,  embroiders
and  assembles  its caps and  visors at its  Oklahoma  City  facility  using raw
materials from outside vendors.

Customers

         The Company  directed its initial  sales  efforts on behalf of its golf
grips to the golf pro shops,  golf club repair shops,  and retail golf equipment
stores that service the replacement grip market. In recent years,  however,  the
Company has  increased its sales to OEMs.  The Company  provides golf club grips
used on many of Cobra's  premium golf club lines,  which  accounted for 11.7% of
the  Company's  total net sales in 1996,  and all of the grips used on Odyssey's
various mens' putter models.  The Company also supplies grips to other OEMs such
as Titleist,  Bridgestone,  Henry-Griffitts,  Mizuno, Tad Moore Golf, and is the
primary vendor for Tommy Armour Golf.

         While the Company utilizes its grip sales representatives to market its
golf-related  headwear,  a  separate  sales  force  markets  its other  headwear
products  to  schools,  sporting  goods  stores,  college  bookstores  and  team
outfitters.  The Company  currently has agreements to produce  baseball caps for
several leading college baseball teams, including Arizona State University,  the
University of Oklahoma, and the University of Notre Dame.

Sales and Marketing

         Domestic  Grip Sales.  Sales of golf grips to the domestic  replacement
market represented  34.8%,  42.9%, and 39.6% of the Company's total net sales of
grips in 1996, 1995, and 1994, respectively.  While many golf grip manufacturers
sell their products to wholesale  distributors,  who in turn sell to dealers and
other representatives,  the Company uses a single-tier  distribution strategy in
which its sales  representatives  sell grips  directly to thousands of golf club
professionals  and off-course  specialty  store  operators.  The Company's sales
force, which includes 16 independent sales  representatives and 10 Company sales
representatives,  target those domestic replacement market retailers most likely
to promote the Company's grips. They introduce the Company's  products,  explain
their characteristics and performance advantages,  and obtain feedback regarding
the market's acceptance of the Company's and its competitors' products.
                                       5
<PAGE>
         The Company's independent sales  representatives,  who receive training
from  the  Company's  internal  sales  and  marketing  staff,  cover  particular
geographical  regions.  These  representatives  are permitted to sell other golf
products, but may not sell competing golf grips or caps.

          Grip  sales to OEMs  accounted  for  39.5%,  29.5%,  and  30.8% of the
Company's  total  net  sales of grips in 1996,  1995,  and  1994,  respectively,
reflecting the Company's  successful  efforts to develop customer  relationships
with  several  major club  manufacturers.  Typically,  the  Company  commences a
relationship with a club manufacturer by supplying grips for one or a few of its
product lines. Once the Company has established an ongoing relationship with the
OEM, it seeks to expand the relationship to supply grips for additional  product
lines.

         Domestic Headwear Sales. Sales of headwear accounted for 31.8%,  27.2%,
and 12.2% of total sales in 1996,  1995, and 1994 (the year in which the Company
acquired its Roxxi  subsidiary),  respectively.  The Company utilizes a separate
sales force of approximately 24 independent sales  representatives to market its
baseball-style  caps to college teams and bookstores and team outfitters,  while
marketing its  golf-related  headwear,  which bears each customer's  distinctive
colors and logo,  through  its grip  distributors,  who have  access to the golf
resort and country club market.  The Company  targets  customers  with  national
reputations and high name  recognition in order to increase market  awareness of
its products.

         International  Sales. The Company's  international sales, which consist
primarily  of sales of  grips,  accounted  for  20.8%,  22.2%,  and 26.0% of the
Company's total net sales during 1996, 1995, and 1994,  respectively.  In recent
years the  Company's  headwear  sales have  increased as a  percentage  of total
sales.  The  Company  utilizes  distributors  to sell its  products  in  foreign
markets,  including the United Kingdom,  Japan,  Sweden and Canada. In May 1996,
the Company closed its office in England,  which supplied the United Kingdom and
Western  Europe  markets,  and  converted  its  operations in those markets to a
distributorship relationship.

         Precision Japan,  the exclusive  distributor of the Company's golf club
grips and athletic headwear in Japan,  accounted for 18.9%,  21.4%, and 22.3% of
the Company's total net sales during 1996, 1995, and 1994, respectively. Through
Precision Japan, the Company has established relationships with leading Japanese
OEMs, including Bridgestone, Mizuno, and Daiwa. Precision Japan also markets the
Company's golf-related headwear.

         The Company and Precision Japan have entered into a ten-year  agreement
expiring in 2001 pursuant to which the Company granted Precision Japan exclusive
distribution rights with respect to the Company's products for Japan and certain
other  Far  Eastern  countries.  Precision  Japan has the  option to renew  this
agreement for successive  five-year terms. The agreement is terminable by either
party for cause or if they fail to agree upon  pricing  terms,  or by  Precision
Japan at any time upon six  months'  notice to the  Company.  While the  Company
currently  enjoys  a  strong  relationship  with  Precision  Japan,  the loss of
Precision  Japan  as a  distributor  of  the  Company's  products  would  have a
significant adverse effect on the Company's business.

         Advertising  and Promotion.  The Company  advertises its grips in trade
publications and national golf magazines, such as Golf World, Golf Week and Golf
Product  News.  In addition,  as  point-of-purchase  selling  aids,  the Company
distributes to its customers various  promotional  items, such as caps,  visors,
grip displays,  window stickers,  and brochures.  At the grass-roots  level, the
Company's sales representatives promote its products through a nationwide series
of consumer "Demo Days" at local golf facilities. To further increase sales, the
Company  grants  promotional  incentives  to  qualified  golf  professionals  to
encourage  them to introduce and recommend the Company's  grip products to their
customers.  The Company also provides its products to PGA Tour  professionals at
no charge by supplying  the various  repair vans that  service the  professional
tours from week to week.

         The Company  promotes its headwear  products  through its various sales
forces and by  participating  in industry trade shows. The Company believes that
its best promotional  opportunities in this area come through  supplying caps to
successful  college teams,  whose use of the Company's  headwear  influences the
choice of headwear of other  potential  customers,  such as team  outfitters and
sporting goods stores.
                                       6
<PAGE>
Manufacturing

         Golf  Grips.   On  December  21,  1996,  the  Company  entered  into  a
Manufacturing  and Supply  Agreement  (the  "Acushnet  Supply  Agreement")  with
Acushnet Rubber Company,  Inc.  ("Acushnet").  On April 4, 1997, the Company and
Acushnet  renegotiated  certain aspects of their agreement.  This agreement,  as
amended, makes Acushnet the exclusive supplier of non-cord grips to the Company,
subject to the Company's  ability to use other  suppliers in the event  Acushnet
fails to meet production  requirements,  and requires that the Company  purchase
minimum  annual  volumes  (commencing  after  January 1,  1999) at fixed  prices
specified in the contract. Acushnet is obligated to provide ongoing research and
development  with  respect  to  grip  compounds,  manufacturing  processes,  and
engineering and quality control support.

         The term of the Acushnet Supply Agreement expires on December 21, 2006,
subject  to the  Company's  right  to  extend  the  agreement  for  up to  three
additional  periods of five years each. The Acushnet Supply Agreement is subject
to termination by either party upon certain material  breaches thereof or of the
Equipment  Lease  described  below.  Upon  termination  of the  Acushnet  Supply
Agreement  by the Company  arising  out of a material  breach by  Acushnet,  the
Company may at its option repurchase any grip  manufacturing  equipment owned by
Acushnet at fair market  value.  In  addition,  the  Company may  terminate  the
Acushnet  Supply  Agreement  at any time upon written  notice,  and Acushnet may
terminate the agreement upon ten months' prior written notice given on and after
June 30, 1998, and  payment  by the  terminating  party to the other  party of a
termination  fee,  which  includes the  repurchase at  prescribed  values of the
manufacturing  equipment owned by Acushnet,  an additional fee of $2,500,000 and
other fees and commitments  relating,  among other things,  to the transition of
production operations.

         In connection with the Acushnet Supply Agreement, the Company leased to
Acushnet  the  Company's  specialized   manufacturing   equipment  used  in  the
production of its non-cord grips, pursuant to a Capital Lease Agreement dated as
of December 21, 1996 (the "Equipment  Lease").  Under the Equipment  Lease,  the
Company  granted to Acushnet an option to purchase the  Company's  manufacturing
equipment.  Further,  the  Equipment  Lease  terminates on December 31, 2006, at
which time the equipment will be transferred to Acushnet at no further cost.

         The Company believes that Acushnet is a leading manufacturer of quality
precision  molded rubber  components  and that the  manufacturing  alliance with
Acushnet  will  better  enable the  Company to focus on the  development  of its
product innovation,  marketing,  and customer service and support  capabilities.
However,  Acushnet has  experienced  start-up  delays in the production of grips
which has adversely affected the Company's customer relationships and results of
operations, has impaired the Company's ability to satisfy its loan covenants and
may make it more difficult for the Company to satisfy  lending  covenants in the
future.  The recent  amendments  to the Acushnet  Supply  Agreement  provide the
Company with a credit of $400,000 against future grip purchases,  and additional
purchase  credits in the event Acushnet fails to meet  production  requirements.
These  credits  may be  reduced  depending  upon  Acushnet's  production  beyond
specified  levels or as a result of its cancellation of stock options granted to
it by the Company.  The modified agreement also alters the future production and
purchase  requirements  of the parties.  The Company has also recently  obtained
certain  modifications  of its loan covenants that waive past covenant  defaults
and are intended to better  enable the Company to satisfy such  covenants in the
future.  The Company currently uses another third party  manufacturer to produce
its cord grips.

         All of the Company's grips are designed to Company  specifications  and
are made of its  proprietary  rubber  compound.  Other than the  Company's  cord
grips,  which are  compression  molded,  the  Company's  golf grips are produced
through  an  injection  manufacturing  process  in which a viscous  compound  is
vertically injected into a seamless cavity,  producing a finished grip that does
not require buffing or grinding.

          In the ordinary course of its manufacturing  process, the Company used
various  citrus-based,  biodegradable  solvents and paints. To date, the Company
has not experienced any material environmental compliance problems.
                                       7
<PAGE>
         Athletic  Headwear.  The Company  produces  headwear  primarily  at its
Oklahoma City facility. In 1995, the Company decided to consolidate the majority
of its Tempe and Oklahoma City  facilities  capacities in  a newly-leased 30,000
square foot  facility in  Oklahoma  City.  The  resulting  move was  targeted at
reducing  overhead  and  improving  productivity.  In  July  1996,  the  Company
subleased  approximately 11,000 square feet of space at its Tempe facility after
the consolidation of headwear production.

          Upon receiving a headwear  order,  the Company works with the customer
to design an appropriate logo or insignia,  establish a color scheme, and choose
the  appropriate  fabrics.  The Company's art  department  creates a hand- drawn
version of the logo that is computerized  through the use of a digital  scanning
device. Computerized embroidering machines utilize this computer image to stitch
the logo into the appropriate panels of the cap. Company employees then hand sew
the remaining  portions of the cap,  including the bill and the sweatband.  With
each  embroidering  machine  capable of stitching logos on several caps at once,
production time for a "run" of caps averages about 30 minutes.

Product Development

         The Company  believes  that its future  growth and success  will depend
significantly  on its ability to increase  market share with its present product
lines while concurrently developing new products and product categories. In this
regard,  the Company's  sales and other  personnel  work to conceive new product
opportunities  by  creating  prototypes  and  masters  and by  working  with the
Company's  suppliers and customers to design and produce finished products.  New
grip  products are tested  through the Company's  PGA tour  representatives  and
sales force.

         The  development  of new golf club grips is influenced by the standards
and interpretations  promulgated by the United States Golf Association ("USGA").
The  Company  believes  that it must  develop  products  that  comply with those
standards even though they apply only to USGA-sanctioned competitive events.

         The Company  tests its  headwear  products to ensure that they  conform
with Company and customer  specifications relating to size and fit. In addition,
the Company  utilizes a variety of materials,  including  sanded cotton,  washed
denim,  and leather suede, in an attempt to give each hat a distinctive look and
feel, and continues to experiment with new materials.

Competition

         The Company's  principal  competitors  in the golf grip market  include
Eaton/Golf  Pride and Lamkin Corp.,  with Eaton's Golf Pride division  currently
maintaining a majority of the total golf grip market.  These companies,  as well
as  several  other grip  manufacturers  with which the  Company  competes,  have
greater financial, marketing, and other resources than the Company. In addition,
several OEMs that do not currently  manufacture  premium quality grips could, in
light  of  their  substantial   resources,   enter  into  this  market  segment.
Competition in the grip market is intense.

         The  golf  industry  is  characterized   by  widespread   imitation  of
successful  product offerings and,  consequently,  the commercial success of the
Company's  grips has spawned  several  imitation grip products.  These imitation
grips  appear  cosmetically  similar to the  Company's  grips and are  typically
priced lower, which has attracted and may continue to attract consumers and club
manufacturers.  The Company,  however, believes that such imitation grips do not
deliver the performance and durability of the Company's grips.

         The  headwear  market  is large  and also  extremely  competitive.  The
Company's  principal  competitors in the athletic headwear market include Texace
and  Imperial in the golf cap segment and  Pro-Line,  New Era, and DeLong in the
team sports and college bookstore  markets.  Each of these companies may possess
greater financial, marketing and other resources than the Company.
                                       8
<PAGE>
Proprietary Rights

         The Company relies upon patents and trademarks to establish and protect
the Company's proprietary rights in its products and technologies. The Company's
logo and the name "Royal Grip" have been  registered as trademarks in the United
States,  Japan,  and in other foreign  countries.  In addition,  the Company has
filed trademark applications relating to the names and configurations of several
of the  Company's  products  in the  United  States  and in  foreign  countries,
including  Japan.  The Company has also obtained  design  patents on some of its
grips and  applied  for  others  that are  pending.  The  Company  protects  its
proprietary rubber compound and related  technologies as trade secrets.  Despite
the  safeguards  undertaken by the Company,  there can be no assurance  that its
proprietary rights are adequately protected or that competitors will not be able
to produce golf club grips that  successfully  imitate the Company's designs and
materials without infringing the Company's proprietary rights.

         In its  headwear  business,  the Company  licenses  the  trademarks  of
several  organizations.  It also from time to time  seeks to  trademark  various
"catch-phrases"  that can be included on or used in  connection  with its sports
apparel.

Employees

         As of March 1, 1997,  the Company  employed  151 persons on a full-time
basis and 2  persons  on a part time  basis.  In  addition,  the  Company  hires
independent  consultants  and  temporary  help  from  time to time.  Some of the
Company's  employees are highly skilled and the Company's continued success will
depend in part upon its ability to retain these employees. The Company has never
had a work stoppage,  no employees are represented by a labor organization,  and
the Company considers its employee relations to be good.

Executive Officers of the Registrant

         Set forth below is information  regarding the names,  ages,  positions,
and  offices  with  the  Company  of the  executive  officers  of  the  Company.
Information  regarding  directors of the Company is set forth in Item 10 of this
Form 10-K Report.

         Danny Edwards,  45, has been Chairman of the Board and Chief  Executive
Officer since founding the Company in 1988, and served as President from 1988 to
1994. Mr. Edwards has played on the  Professional  Golf  Association  Tour since
1975 and has won five  tournaments.  Mr.  Edwards  was a  three-time  Collegiate
All-American at Oklahoma State University and a member of the 1973 United States
Walker Cup Team.  Currently,  Mr. Edwards competes annually in three to five PGA
Tour events as well as selected regional tournaments and charity events in order
to  maintain  his high  profile  in the golf  industry.  Mr.  Edwards  is also a
principal of Danny Edwards  Profile Sports  ("Profile  Sports"),  which conducts
corporate  golf schools for  executives  throughout  the country.  Mr.  Edwards'
activities  on behalf of  Profile  Sports  occupy  approximately  12 days of his
professional  time annually and afford him an opportunity to further promote the
Company's products.

         Robert  G.J.  Burg,  II, 40,  has been the  Company's  President  since
February 1995. Mr. Burg joined the Company in January 1992 as the Regional Sales
Manager  for the  Western  Sales  Region and became the  Company's  Senior  Vice
President, Marketing, Sales, and Tour Relations in January 1992, serving in that
capacity  until  February 1995. For the five years prior to joining the Company,
Mr. Burg was  self-employed  in the sporting  goods industry as a distributor of
sporting goods products, including ski and golf equipment.

         Thomas  A.  Schneider,   37,  C.P.A.,   has  been  the  Company's  Vice
President-Finance,  since  January  1996.  Prior to  joining  the  Company,  Mr.
Schneider  served for five  years as the  Controller  of  Karsten  Manufacturing
Corp.,  the maker of Ping golf  equipment.  He has also served as  Controller of
various companies in the real estate and financial services industries.
                                       9
<PAGE>
                                ITEM 2 - PROPERTY

         The  Company's   principal   executive  offices  and  customer  service
operations  are  located  in a 51,000  square  foot  leased  facility  in Tempe,
Arizona.  The Company's lease runs through November 1998. The Company  currently
subleases  approximately  11,000  square  feet of  this  facility.  The  Company
recently signed a lease for a 30,000 square foot facility in Oklahoma City which
runs through March 2001.  The Company  believes that its  facilities are in good
condition.  Aggregate  monthly  rental  payments  for the  Company's  office and
production  facilities are approximately  $26,000.  Following the outsourcing of
its grip  manufacturing  operations to Acushnet,  the Company  intends to either
sublease or negotiate a termination of the lease for the remaining  space at its
Tempe, Arizona facility and relocate to a smaller, lower cost facility.

                           ITEM 3 - LEGAL PROCEEDINGS

         The  Company is from time to time  involved in legal  proceedings  of a
character  normally incident to its business and is not currently a party to any
material  pending  legal  proceedings,  other than ordinary  routine  litigation
incidental  to its  business.  No  assurances  can be given with  respect to the
extent of any such litigation in the future.


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

         The Company did not submit any matter to a vote of its security holders
during the fourth quarter of fiscal year 1996.
                                       10
<PAGE>
                                     PART II

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

         The Company's Common Stock has been traded on the National  Association
of Securities Dealers Automated  Quotation--National  Market System ("The Nasdaq
National  Market")  since  September  23,  1993,  under the symbol  "GRIP."  The
following  table sets forth the high and low per share sale prices of the Common
Stock  reported on The Nasdaq  National  Market for the two most  recent  fiscal
years.  The closing price of the Company's  Common Stock on The Nasdaq  National
Market on March 14,  1997,  the latest  practicable  date prior to the filing of
this Form 10-K, was $3.9375.


                                                       Range of Sale Prices
                                                       --------------------
                                                        High           Low
                                                        ----           ---
Fiscal 1996
-----------
         First Quarter...............................  $ 8 1/2        $ 5 1/4
         Second Quarter..............................  $ 8            $ 4
         Third Quarter...............................  $ 5 5/8        $ 3 1/4
         Fourth Quarter..............................  $ 4 5/8        $ 1 3/4

Fiscal 1995
-----------
         First Quarter...............................  $ 6 3/4        $ 4
         Second Quarter..............................  $ 5 1/2        $ 3 1/2
         Third Quarter...............................  $ 6 1/2        $ 3 1/4
         Fourth Quarter..............................  $ 6 3/8        $ 3 3/4

         As of March 15, 1997 there were approximately 133 stockholder  accounts
of record of the Common Stock. This figure does not reflect beneficial ownership
of shares held in nominee names.

Recent Sales of Unregistered Securities

         On December 21, 1996, the Company  granted to Acushnet stock options to
purchase  250,000 shares of the Company's Common Stock. The options were granted
as partial  consideration  for  Acushnet's  entering  into the  Acushnet  Supply
Agreement.  All of the options were  immediately  vested and  exercisable on the
date of grant.  The exercise  price of 50,000 of the options is $4.00 per share,
the closing sales price of the Company's  Common Stock on the date of grant, and
the exercise  price of the  remaining  200,000  options is $5.00 per share.  All
unexercised  options  expire on  December  21,  1999,  unless  sooner  canceled.
Acushnet is entitled to cancel  166,667 of the options and receive  compensation
therefor in the form of a reduction of the Company's purchase credits for future
grip  purchases,  unless  Acushnet is then in breach of the  agreement or unless
such cancellation will not result in a positive earnings impact for the Company.
In addition,  in the event Acushnet  terminates  the agreement  (other than as a
result of a breach by the Company) all then unexercised options will be canceled
and all profits  realized or realizable by Acushnet (plus or minus the effect of
certain tax  liabilities  or tax  benefits to  Acushnet)  related to the sale of
Common Stock  acquired  upon  exercise of options must be paid to the Company as
part of  Acushnet's  termination  fee.  Exemption  from  registration  for  this
transaction was claimed  pursuant to Section 4(2) of the Securities Act of 1933,
as  amended,  regarding  transactions  by an issuer  not  involving  any  public
offering.

         On May 14,  1996,  the  Company  granted  to  EVEREN  Securities,  Inc.
("Everen"), the Company's financial consultant, stock options to purchase 30,000
shares of the Company's  Common  Stock.  Such options were granted in connection
with an engagement  agreement  between the Company and Everen  pursuant to which
Everen agreed to provide certain financial  advisory and consulting  services to
the Company. The exercise price of the options is $6.50 per share. Of the 30,000
options granted to Everen, 3,750 options were vested and exercisable on the date
of grant,  
                                       11
<PAGE>
and an additional  3,750 options were vested (and will vest) on the first day of
each  three  month  period  commencing  July 1,  1996.  All  options  will  vest
immediately  upon a change in control of the Company.  All  unexercised  options
will  expire two years  after  vesting.  Exemption  from  registration  for this
transaction was claimed  pursuant to Section 4(2) of the Securities Act of 1933,
as  amended,  regarding  transactions  by an issuer  not  involving  any  public
offering.

         On June 19,  1996,  the  Company  granted  25,000  stock  options  to a
terminated  employee  as part of a  severance  package  for such  employee.  The
exercise  price of 12,500 of the  options  was $8.50 per share and such  options
expire on July 14, 2001. The exercise price of the remaining  12,500 options was
$12.25  per share and such  options  expire on  November  23,  2001.  All 25,000
options  were  vested  and  exercisable  on the date of  grant.  Exemption  from
registration  for this  transaction was claimed  pursuant to Section 4(2) of the
Securities  Act of 1933,  as amended,  regarding  transactions  by an issuer not
involving any public offering.

         On March 24, 1996,  the Company  granted  stock  options to purchase an
aggregate of 4,500  shares of the  Company's  Common  Stock to the  non-employee
members of the Company's Board of Directors.  Such options were granted pursuant
to the  Company's  1996  Non-Employee  Director  Stock Option  Plan.  All of the
options granted to the non-employee directors were vested and exercisable on the
date of grant and the  exercise  price of the  options is $6.375 per share.  All
options granted to the  non-employee  directors expire six years after the grant
date unless sooner terminated, forfeited or surrendered. All unexercised options
will be forfeited 90 days after the holder ceases to be a member of the Board of
Directors,  except in the event of the death or disability  of the director,  in
which case such  options  will be  exercisable  for one year after the date that
such director  ceases to be a member of the Board.  Exemption from  registration
for this  transaction was claimed pursuant to Section 4(2) of the Securities Act
of 1933,  as amended,  regarding  transactions  by an issuer not  involving  any
public offering.

Factors That May Affect Market Price of Stock

         The market price of the Company's  Common Stock prevailing from time to
time may be affected by a number of factors,  including the factors set forth in
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operation-Factors  That  May  Affect  Future  Operating  Results  and  Financial
Condition"  and other factors and  conditions  mentioned  elsewhere in this Form
10-K Report. In addition, the market price and ownership of the Company's Common
Stock are subject to the following risks and uncertainties:

No Cash Dividends
-----------------

         It is the present policy of the Company's  Board of Directors to retain
future earnings to finance the growth and development of the Company's business.
Any  future  dividends  will be at the  discretion  of the  Company's  Board  of
Directors and will depend upon the financial  condition,  capital  requirements,
earnings,  and  liquidity of the Company as well as other  factors the Company's
Board of Directors may deem relevant. Currently, the terms of the Company's loan
agreements  with its  primary  lender  prohibit  the  declaration  or payment of
dividends.

Provisions Limiting Changes in Control
--------------------------------------

         The Company's Articles of Incorporation  authorize the Company to issue
"blank  check"  preferred  stock,  the  designation,   number,   voting  powers,
preferences,  and rights of which may be fixed or  altered  from time to time by
the Board of Directors.  Accordingly,  the Board of Directors has the authority,
without   shareholder   approval,   to  issue  preferred  stock  with  dividend,
conversion,  redemption,  liquidation,  sinking fund,  voting,  and other rights
which could  adversely  affect the voting power and rights of the holders of the
Common  Stock.  Although  the  Company has no present  intention  of issuing any
shares of its  authorized  preferred  stock,  there can be no assurance that the
Company will not do so in the future.  In addition,  the  Company's  Articles of
Incorporation   prohibit  a   substantial   stockholder   of  the  Company  from
significantly  increasing  its  interest  in the stock or assets of the  Company
without the consent of the Board of Directors  and/or a  super-majority  vote of
the  stockholders  of the  Company,  prohibit  stockholders  of the Company from
calling a special  meeting,  and require  that the Board of Directors be divided
into three classes.
                                       12
<PAGE>
These  provisions  could have the effect of deterring  unsolicited  takeovers or
delaying  or  preventing  changes  in  control  or  management  of the  Company,
including  transactions in which  stockholders might otherwise receive a premium
for their shares over then-current market prices. In addition,  these provisions
may limit the ability of stockholders to approve transactions that they may deem
to be in their best interests.

Control by Current Stockholders
-------------------------------

         The  Company's  present  officers  and  directors  and certain of their
affiliates  beneficially own  approximately  38.5% of the outstanding  shares of
Common Stock of the Company (exclusive of options to purchase  additional shares
of Common Stock). In particular, Danny Edwards, the Company's Chairman and Chief
Executive Officer,  owns approximately 38.3% of the outstanding shares of Common
Stock. Such concentration of ownership gives the Company's officers,  directors,
and affiliates significant influence over the activities of the Company and over
all  matters  requiring  approval  of  the  stockholders,   including,   without
limitation,  electing or removing  members of the Company's  Board of Directors,
causing the Company to engage in transactions with affiliated entities,  causing
or  restricting  the sale or merger of the Company,  and changing the  Company's
dividend policy.

Possible Volatility of Stock Price
----------------------------------

         The Company believes that factors such as announcements of developments
related to the  Company's  business,  announcements  by  competitors,  quarterly
fluctuations in the Company's financial results, conditions in the golf grip and
athletic headwear industries,  changes in the general economy, and other factors
could cause the price of the Company's Common Stock to fluctuate  substantially.
In addition,  in recent  years the stock  market in general,  and the market for
shares of small  capitalization  stocks in particular,  have experienced extreme
price  fluctuations,  which  have  sometimes  been  unrelated  to the  operating
performance  of  affected  companies.  Such  fluctuations  could have a material
adverse effect on the market price of the Company's Common Stock.
                                       13
<PAGE>
                  ITEM 6 - SELECTED CONSOLIDATED FINANCIAL DATA

         The following  selected  consolidated  financial data should be read in
conjunction  with the Company's  Consolidated  Financial  Statements and related
Notes and with "Management's  Discussion and Analysis of Financial Condition and
Results of Operations"  included  elsewhere  herein.  The selected  consolidated
financial data presented below under the captions "Statement of Operations Data"
and  "Balance  Sheet  Data" for,  and as of the end of, each of the years in the
five-year  period  ended  December  31,  1996,  are derived  from the  Company's
consolidated  financial statements.  The consolidated financial statements as of
December 31, 1996 and 1995, and for each of the years in the  three-year  period
ended December 31, 1996, and the  independent  auditors'  reports  thereon,  are
included elsewhere herein.
<TABLE>
<CAPTION>
                                                                   Years Ended December 31,
                                                                   ------------------------
                                                   1996         1995         1994         1993          1992
                                                   ----         ----         ----         ----          ----
                                                            (in thousands except per share data)
<S>                                                <C>         <C>           <C>           <C>          <C>    
STATEMENT OF OPERATIONS DATA:
Net sales......................................    $ 16,121    $ 17,373      $13,643       $12,176      $ 9,250
Cost of goods sold.............................      12,325      12,307        8,251         6,357        5,110
                                                   --------    --------      -------       -------      -------
         Gross profit..........................       3,796       5,066        5,392         5,819        4,140
Selling, general and administrative expenses...       6,017       7,512        5,301         3,355        2,717
Loss on write-down and disposition of property
              and equipment....................         446         531           29             3           --
Manufacturing outsourcing and acquisition
costs..........................................       1,053         111           --            --           --
Loss on write-off of intangibles...............         684          --           --            --           --        
                                                   --------    --------      -------       -------      -------
         Income (loss) from operations.........      (4,404)     (3,088)          62         2,461        1,423
Interest expense...............................          52          63           47            94          236
Other income net...............................          10          19           95            38            3
                                                   --------    --------      -------       -------      -------
         Income (loss) before income taxes.....      (4,446)     (3,132)         110         2,405        1,190
Income taxes (benefit).........................          --        (359)          44           315           --
                                                   --------    --------      -------       -------      -------
         Net income (loss)(1)..................    $ (4,446)   $ (2,773)     $    66       $ 2,090      $ 1,190
                                                   ========    ========      =======       =======      =======
         Net income (loss)per share............    $  (1.63)   $  (1.01)     $   .02
                                                   ========    ========      =======    

Pro Forma Statement of Operations Data(2):
Income before income taxes as reported.........                                            $ 2,405      $ 1,190
Special executive compensation expense(2)......                                                 --          333
                                                                                           -------      -------
         Pro forma income before
                  income taxes (1)(2)..........                                            $ 2,405      $ 1,523
                                                                                           =======      =======
Pro forma net income(1)(2).....................                                            $ 1,443      $   914
                                                                                           =======      =======
Pro forma net income per share(3)..............                                            $   .67      $   .51
                                                                                           =======      =======

BALANCE SHEET DATA (at period end):
Current assets.................................    $  3,360    $  4,244      $ 5,402       $ 7,906      $ 1,352
Current liabilities(4).........................       2,195       1,808        1,546           628        2,555
Total assets...................................       8,495      11,644       14,522        12,810        4,563
Long-term obligations, less current portion....         679         161          257            78          161
Stockholders' equity ..........................       5,621       9,674       12,447        11,774        1,847
</TABLE>

(1)      Net income and pro forma net  income for 1992  include a  non-recurring
         expense of $200,000  consisting of a fee paid to a financial advisor to
         cancel an option to purchase  Common Stock of the Company.  This option
         was granted in 1990 in connection with the placement of the convertible
         debentures.

(2)      Prior to September 23, 1993 (the date of the Company's  initial  public
         offering), the Company elected to be treated as an S Corporation. As an
         S Corporation, the Company was not subject to federal (and some state)
                                       14
<PAGE>
         income taxes. The pro forma income from operations information has been
         computed  by  adjusting  the  Company's  income  from  operations,   as
         reported,  to eliminate for the year ended  December 31, 1992,  special
         executive  compensation expense in the form of a bonus in the amount of
         $333,000 paid to the Company's founder and Chief Executive Officer,  in
         lieu of an S Corporation  dividend,  relating to the Company's 1991 net
         income.  Pro forma net income  information  also reflects the provision
         for income taxes that would have been recorded had the Company been a C
         corporation  for all  periods,  assuming an  effective  tax rate of 40%
         (after giving effect to available net operating  loss carry forwards in
         1991).

(3)      Pro forma net income per share  includes  the weighted  average  shares
         outstanding, shares issued upon conversion of the Company's convertible
         debentures,  common stock equivalents,  and additional shares deemed to
         be  outstanding.   The  additional  shares  deemed  to  be  outstanding
         represent the number of shares (at an initial  public  offering  price)
         sufficient to fund an S Corporation  distribution  of $3,000,000  which
         was made out of the proceeds of the offering.  In calculating pro forma
         net  income  per  share,  interest  expense  and  amortization  of debt
         issuance  costs  net  of  tax  related  to  the  Company's  convertible
         debentures  totaling  $23,000 and  $99,000  have been added back to pro
         forma  net  income  for the years  ended  December  31,  1993 and 1992,
         respectively.

(4)      Includes  $1,272,000 at December 31, 1992, of principal  amount of, and
         accrued  interest on,  debentures that were converted into Common Stock
         immediately prior to the Company's initial public offering.

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

Introduction

         For  1996,  the  Company  recorded  a  reduction  in net sales of $1.25
million and a net loss of $4.4 million.  While the Company's headwear subsidiary
experienced  a slight  increase in sales,  sales in its grip  business  declined
primarily  due to an increase in lower  priced OEM sales and a decrease in sales
to the higher margin  replacement and Japanese markets.  Due to continued losses
in the Company's headwear subsidiary, the Company wrote off intangible assets of
$684,000 in 1996.

         In December  1996,  the Company  outsourced  all of its  production  of
non-cord  grips to  Acushnet.  Although  this  arrangement  is  expected to have
positive  long-term  implications  to the  Company's  cost  structure and to its
research and development  efforts,  the Company incurred transaction and related
costs of approximately  $1.4 million in the fourth quarter of 1996 in connection
with the  transition  of its  manufacturing  operations.  Further,  Acushnet has
experienced  start-up  delays in the  production  of grips  which has  adversely
affected the Company's  customer  relationships  and results of operations,  has
impaired the Company's  ability to meet its loan  covenants and may make it more
difficult for the Company to satisfy lending covenants in the future.

         The Company and Acushnet have renegotiated  their agreement in light of
Acushnet's  production  difficulties.  In  connection  with  this  renegotiation
Acushnet  has agreed to provide  the Company  with a credit of $400,000  against
future purchases of grips with possible additional credits in the event Acushnet
does not meet  certain  production  requirements.  The  credit may be reduced if
Acushnet  exceeds  production  requirements  during the  balance of 1997 or as a
result of the  cancellation  of certain stock options  granted to Acushnet.  The
supply  agreement  has also been  amended to, among other  things,  alter future
production  and  purchase  requirements  and provide for  voluntary  termination
rights on the part of Acushnet.  The Company has also recently  obtained certain
modifications  of its loan covenants  that waive past covenant  defaults and are
intended to better enable the Company to satisfy such covenants in the future.

         In addition to entering into the Acushnet  agreement which  establishes
fixed pricing for its grips, the Company  implemented a significant cost cutting
program in 1996 which  included  closing  its  headwear  production  facility in
Tempe,  subletting  approximately  11,000  square  feet at its  Tempe  facility,
converting its United Kingdom operations to a distributorship relationship,  and
reducing its management  staffing and  compensation as well as other general and
administrative costs.
                                        15
<PAGE>
         The Company's  ability to return to  profitability  is dependent upon a
number of factors, including the ability of Acushnet to reach appropriate levels
of  production,  effective  cost  management,  particularly  with respect to its
headwear operations, growth in sales, and competitive factors.

Results of Operations

         The following table sets forth for the periods indicated the percentage
of net  sales  represented  by each  line item in the  Company's  statements  of
operations:



<TABLE>
<CAPTION>
                                                                               Years Ended
                                                                               December 31
                                                                               -----------
                                                           1996                  1995                    1994
                                                           ----                  ----                    ----
<S>                                                       <C>                   <C>                     <C>   
Net sales.........................................        100.0%                100.0%                  100.0%
Cost of Goods Sold................................         76.5                  70.8                    60.5
                                                          -----                 -----                   ----- 
         Gross profits............................         23.5                  29.2                    39.5
Selling, general, and administrative expenses.....         37.3                  43.2                    38.9
Other operating expenses..........................         13.5                   3.8                     0.0
                                                          -----                 -----                   ----- 
         Income (loss) from operations............        (27.3)                (17.8)                    0.6
Interest expense..................................          0.3                   0.4                     0.4
Other income (expenses) net.......................          0.1                   0.1                     0.6
                                                          -----                 -----                   ----- 
         Income (loss) before income taxes........        (27.5)                (18.1)                    0.8
Income taxes (benefit)............................          0.0                  (2.1)                    0.3
                                                          -----                 -----                   ----- 
         Net income (loss)........................        (27.5)%               (16.0)%                   0.5%
                                                          =====                 =====                   ===== 
</TABLE>

 Fiscal Year Ended December 31, 1996 Versus Fiscal Year Ended December 31, 1995

         Net Sales.  Net sales for the year ended  December  31, 1996  decreased
$1.25 million, or 7.5%, to $16.1 million from $17.4 million in 1995.

         Sales of golf grips in the domestic  replacement  and Japanese  markets
decreased  by  22.7%  and  28.2%,  respectively,  compared  to 1995.  OEM  sales
increased by 15.9% compared to 1995. This increase in OEM sales is reflective of
new customer  relationships with Odyssey Golf and Tommy Armour Golf. The Company
attributes  the decrease in Japanese and  domestic  replacement  market sales to
continued  price pressure in both markets and a delay in the  introduction  of a
new line of grips featuring new designs and a new compound. As a result of these
factors,  the  percentage  of sales of golf  grips to the  domestic  replacement
market  decreased  to 34.8% of total net  sales of groups in 1996 from  42.9% in
1995, and grip sales to OEM's  increased to 39.5% of total net sales of grips in
1996 from 29.5% in 1995.

         Sales of  headwear  accounted  for  31.8% of  total  net  sales in 1996
compared to 27.2% in 1995. This increase on a percentage  basis is primarily the
result of  decreased  grip  sales and  partially  the result of an  increase  in
headwear sales in 1996 of 8.1% as compared to 1995.

         International  sales  accounted  for  20.8% of total  net  sales of the
Company in 1996, compared to 22.2% in 1995.
                                       16
<PAGE>
         Gross Profit.  Gross profit  decreased $1.3 million,  or 25.5%, to $3.8
million in 1996 from $5.1 million in 1995. As a percentage  of net sales,  gross
margin  decreased  to 23.5% in 1996 from 29.2% in the previous  year.  The major
factors  contributing  to the  decrease  in  gross  profit  were  the  increased
percentage of headwear sales (which has lower gross margins) to total sales, the
overall  decrease in grip sales which  resulted in fixed  expenses  being spread
over  fewer  units  sold and the  significant  change  in the grip  sales mix as
discussed above.  Gross profit also was affected by modifications to its pricing
policies   directed  at  maintaining   OEM  market  share  and  remaining  price
competitive in other golf grip markets.  For the first two quarters of 1996, the
Company  experienced  certain  quality  problems  and  delivery  delays  in  the
manufacturing  of headwear,  which  contributed to the decrease in gross profit.
The Company  believes it has resolved such problems  with the  consolidation  of
headwear  manufacturing  locations and changes in headwear management.  The 1995
gross profit was  negatively  impacted as a result of the start-up  costs of the
headwear  production  facility  in Tempe,  changes in sales mix to lower  margin
grips, and inventory write-offs and reserves of approximately $588,000.

         The Company expects that gross margins will improve in 1997 as a result
of improved  efficiencies in the  manufacturing  process related to the headwear
business and the  manufacturing  and supply  agreement (as amended)  between the
Company and Acushnet Rubber Company.

         Selling,  General and  Administrative  Expenses.  Selling,  general and
administrative  expenses  decreased to $6.0 million in 1996, or 20.0%, from $7.5
million  in 1995.  This  change  was  primarily  attributable  to  decreases  in
advertising  and  promotion of  $825,000,  commissions  of $122,000,  travel and
entertainment  of $62,000  and a  reduction  of  approximately  12  selling  and
administrative positions.

         Other  Operating  Expenses.  In  connection  with the  Acushnet  Supply
Agreement,  the Company recorded significant  transaction related expenses.  The
Company incurred  severance expenses of $304,000 and professional and consulting
fees of $246,000. In addition,  the Company expensed $359,000 related to options
granted to Acushnet  with vesting  upon date of grant and  expensed  $376,000 of
capitalized leasehold  improvements related to its corporate facilities which it
plans to vacate in the near term.  The  Company  also  accrued  $102,000 in rent
expense  related to the  termination  of its lease.  In early 1996,  the Company
wrote-off  approximately $100,000 of leasehold improvements upon the move of the
headwear  manufacturing  facilities in Oklahoma  City. In the fourth  quarter of
1996,  the Company  wrote-off  $684,000 of goodwill and covenants not to compete
related to the Roxxi operations as the Company determined that these intangibles
were not recoverable.  In 1995, the Company incurred a loss on the write-down of
property and equipment of $531,000  previously  used in connection  with various
discontinued grip models and other equipment not used in oprations.

         Income From Operations.  The Company reported a loss from operations of
$4.4 million in 1996  compared to a loss of $3.1 million in 1995.  This decrease
in operating  income is primarily  attributable  to the $1.4 million in expenses
associated with the Acushnet transaction,  the $684,000 loss on the write-off of
Roxxi intangibles,  and reduced sales of $1.3 million.  During 1995, the Company
incurred  $1.5  million of charges  related to the  writedown  of fixed  assets,
inventory and accounts receivable.

         Income  Taxes.  The  Company  did not record a tax benefit for the loss
generated in 1996 as  utilization  of such loss in future  periods is uncertain.
The Company has a net operating loss carryforward of approximately  $4.3 million
which will expire for federal  tax  purposes in 2014 and for state tax  purposes
generally in 2000. The difference  between the actual income tax benefit and the
reported benefit by applying the statutory income tax rate consists primarily of
a valuation  allowance  provided for the deferred tax assets  related to the net
operating  loss  carryforward  and other  deferred tax assets of $1.3 million at
December  31,  1996.  The Company  recorded an income tax benefit of $359,000 in
1995  resulting  from the  carryback of the loss  generated in 1995 to prior tax
years. 
                                       17
<PAGE>
 Fiscal Year Ended December 31, 1995 Versus Fiscal Year Ended December 31, 1994

         Net Sales.  Net sales for the year ended  December  31, 1995  increased
$3.7 million,  or 27.3%,  to $17.4 million from $13.6 million in 1994.  

         Sales of golf grips in the domestic  replacement  and Japanese  markets
increased by 13.6% and 13.8%, respectively, compared to 1994.  Sales of grips in
the OEM market  increased by .6% compared to 1994.  OEM sales  dollars grew at a
significantly  lower rate in 1995 despite the 28.7%  increase in OEM unit sales.
This  decrease in unit sales  prices to OEM's  reflects  the  implementation  of
volume  pricing  policies in 1995.  The Company  attributes  the increase in the
domestic replacement market largely to the introduction in 1995 of the Company's
new sand wrap line of grips.  As a result of these  factors,  the  percentage of
sales of golf grips to the  domestic  replacement  market  increased to 42.9% of
total net sales of grips in 1995 from 39.6% in 1994,  and grip sales to domestic
OEMs decreased to 29.5% of total net sales of grips in 1995 from 30.8% in 1994.

         International  sales  accounted  for  22.2% of total  net  sales of the
Company in 1995, compared to 26.0% in 1994. This decrease is partly attributable
to the increased  percentage of headwear sales to total sales,  as the Company's
international  sales  consist  largely  of sales  of  grips.  Sales of  headwear
accounted for 27.2% of total net sales in 1995  compared to 12.2% in 1994.  This
significant  increase on a percentage basis is partially the result of including
the Company's  headwear  operations in its results for a full year.  The Company
acquired  its  headwear  subsidiary,  Roxxi,  Inc.,  on April 8, 1994.  Sales of
headwear  increased  $3.1  million  in 1995  reflecting  this first full year of
operations, as well as the integration of the headwear sales into the grip sales
force.

         Gross Profit. Gross profit decreased $326,000, or 6.0%, to $5.1 million
in 1995 from $5.4 million in 1994.  As a percentage  of net sales,  gross margin
decreased to 29.2% in 1995 from 39.5% in the previous  year.  The major  factors
contributing  to the  decrease in gross  profit were the  start-up  costs of the
headwear production facility in Tempe, which resulted in inefficiencies  related
to the development and training of the labor force, the increased  percentage of
headwear  sales (which has lower gross  margins) to total  sales,  the effect of
sales of  economy  grips,  which also have lower  margins,  and the  significant
inventory  write-offs  and  reserves  referenced  above.  Gross  profit also was
effected by the new pricing policy  established for OEM golf grip customers,  as
well as other  modifications to its pricing policies directed at maintaining OEM
market share and improving sales in other golf grip markets.

         The Company determined to eliminate its  economy-priced  grips from its
product  line in the  fourth  quarter  of 1995  and  concentrate  on its  higher
performance grips. As a result, the Company recorded reserves as of December 31,
1995 of $188,000 related to its inventory of economy and other grips.

         The Company  also  recorded a $331,000  inventory  write-down  in 1995.
During the first quarter of 1995,  the Company sold certain  selected  inventory
items in a bartering  transaction to distribute its product  internationally  in
areas where it did not have a current  distribution  system.  In  exchange,  the
Company  received  trade  credit  rights to be used in the purchase of goods and
services  over a three  year  period.  No profit  was  recorded  on the  initial
transaction and the rights were to be amortized as they were utilized.  Although
a plan of  utilization  is being pursued by the Company,  no trade credit rights
had been used as of December 31, 1995.  Due to the  uncertainty as to the timing
and extent of the utilization of the trade credit rights, it was determined that
such trade credits should be fully reserved.  Any future use of the trade credit
rights  within the three year period will be  recorded as cost  reductions.  The
effect of these and other inventory charges,  which aggregated  $588,000,  was a
decrease in gross margins in 1995 of 3.4%.

         Selling,  General and  Administrative  Expenses.  Selling,  general and
administrative  expenses  increased to $7.5 million in 1995, or 41.7%, from $5.3
million in 1994.  This change was  attributable  to increases in advertising and
promotion of  $658,000,  commissions  of $243,000  and salaries of $949,000,  of
which approximately $210,000 was severance pay relating in part to a realignment
of management.
                                       18
<PAGE>
         Other Operating  Expenses.  In 1995, the Company incurred a loss on the
write-down  of property and  equipment  which had been used in  connection  with
various types of grips which have been discontinued by the Company.

         Income From Operations.  The Company had a loss from operations of $3.1
million  in  1995  compared  to  operating  income  of  $62,000  in  1994.  This
substantial  decrease in operating income is primarily  attributable to the $1.9
million  operating  loss at the Roxxi headwear  operation,  reflecting the costs
associated  with the start-up of the Tempe  operations,  and the $1.5 million of
one-time charges discussed above. Of these one-time charges, $1.1 million had no
cash impact in 1995 and will have no future impact.

         Income Taxes. The Company recorded an income tax benefit of $359,000 in
1995,  due to the loss  incurred in 1995,  compared to a provision of $44,000 in
1994 and $315,000 in 1993.  The Company  carried the net operating  loss back to
September 23, 1993.  Prior to this date,  the Company had elected to be taxed as
an S  Corporation  and,  therefore,  was not subject to federal (and some state)
income taxes.  The Company  recorded  deferred  income taxes of $195,000 at this
date  for  the  cumulative  temporary  differences.  After  the  effect  of  the
carryback,  the Company has a net operating loss  carryforward of  approximately
$2,991,000 which will expire for federal purposes in 2010 and for state purposes
generally in 2000. The difference  between the actual income tax benefit and the
reported  benefit  by  applying  the  statutory  income tax rate  consists  of a
valuation  allowance  provided  for the  deferred  tax asset  related to the net
operating  loss  carryforward  and other  deferred  tax  assets of  $776,000  at
December 31, 1995.  The Company has an income tax refund  receivable  related to
the carryback of $101,000 at December 31, 1995.

 Fiscal Year Ended December 31, 1994 Versus Fiscal Year Ended December 31, 1993.

         Net Sales.  Net sales for the year ended  December 31, 1994,  increased
$1.5 million,  or 12.0%,  to $13.6 million from $12.2 million in 1993.  Sales of
golf grips in the domestic  replacement  and OEM markets  increased by 13.0% and
7.8%,   respectively,   compared   to  1993.   These   percentages   represented
significantly  lower rates of growth than the Company has previously achieved in
those markets. Grip sales in the Japanese market declined by 26.9% from the 1993
total.  The  weak  Japanese  economy  in this  period,  which  has  historically
accounted for approximately  one-third of the Company's business, had an adverse
effect on sales in that market.

         The Company's 1994 sales figures were also  negatively  impacted by the
delayed  introduction  of the  Company's  new cord grip.  Expected to be in full
production  by the first quarter of 1994,  volume  shipments did not begin until
the second quarter of 1994, well into the latter part of what  historically  has
been the Company's strongest selling period.

         The  consolidated  sales  growth  was  attributable  to the  additional
revenue  provided by the Company's  Roxxi,  Inc.  subsidiary,  which the Company
acquired  during the second  quarter of 1994.  Roxxi's fourth quarter 1994 sales
increased 25% over sales in the third quarter.

         Gross Profit. Gross profit decreased $427,000, or 7.3%, to $5.4 million
in 1994 from $5.8 million in 1993.  As a percentage  of net sales,  gross margin
also decreased to 39.5% in 1994 from 47.8% in the previous year. This decline in
gross profits and gross margin was attributable to the Company's addition to its
product line of lower margin cap sales from its Roxxi, Inc.  subsidiary.  In the
fourth quarter of 1994, the Company began operations of its Tempe,  Arizona, cap
manufacturing facility.  Gross profits were adversely affected by low production
volume,  increased training and hiring costs, and other expenditures relating to
the  commencement of the new operations.  Gross margin also suffered as a result
of the  Company's  adoption of certain  new pricing  policies in its grip sales,
including a volume pricing policy for OEM customers in all markets.

         Selling,  General, and Administrative Expenses.  Selling,  general, and
administrative  expenses  increased to $5.3 million in 1994,  or 58%,  from $3.4
million in 1993. This change was attributable to increases in salaries and
                                       19
<PAGE>
related benefits of $1.1 million, professional fees of $370,000, and advertising
and promotion of $268,000. Of the total increase of $1.9 million,  $687,000 were
Roxxi expenses, some of which are included in the breakdown above.

         Income From Operations.  Income from operations  decreased $2.4 million
to  $62,000 in 1994 from $2.5  million in 1993.  This  substantial  decrease  in
operating results was primarily attributable to the losses incurred by the Roxxi
operation,  a significant  reduction in gross margins on sales to OEMs, and cost
increases  to  strengthen  the  Company's  selling and  marketing  programs.  In
addition,  large  one-time  expenditures  were  incurred  to move the  Company's
administrative   and  manufacturing   operations  to  a  new  facility  and  for
professional  fees  related  to  the  administration  and  settlement  of  legal
proceedings filed against the Company in 1993.

Liquidity and Capital Resources

         In recent  periods the  Company has  financed  its  operations  through
internally generated funds and borrowings.  The Company used $314,000 in cash to
fund operating  activities during 1996.  Although the Company  experienced a net
loss of $4.4 million in 1996,  the cash used from  operations  was only $314,000
primarily  due to the  non-cash  effect  from  the  write-off  of  property  and
equipment,  the  increase of  allowance  for  doubtful  accounts  and  inventory
reserves,  the expensing of certain stock options granted,  and depreciation and
amortization.  In 1996, the Company  received cash proceeds of $740,000 from the
sale of certain fixed assets. In 1995, operating activities produced $566,000 in
cash.  The Company  generated cash flow from  operating  activities  although it
experienced a net loss for 1995  primarily due to the effect of the property and
equipment  and  inventory  write-offs,   which  were  primarily  non-cash,   and
depreciation and amortization.

         The Company's Equipment Lease with Acushnet will provide  approximately
$450,000 in annual payments to the Company.

         At December 31, 1996, the Company had positive  working capital of $1.2
million,  down from $2.4 million at December  31, 1995.  The decrease in working
capital is  primarily  the result of expenses  incurred  related to the Acushnet
transaction and a decrease in inventory of $339,000.

         In  February  1997,  the  Company  entered  into a new  line of  credit
facility and term loan with a commercial bank. These credit  arrangements mature
on February 10, 2000 and contain net worth,  debt  service  coverage and minimum
income   requirements   and  prohibit   dividend   payments  and  limit  capital
expenditures.  At  December  31,  1996,  the  Company  was in breach of  certain
covenants in its prior line of credit,  which breaches were waived by the lender
until the Company was able to refinance  its line of credit.  Due to  Acushnet's
start-up delays in the production of grips, the Company's ability to satisfy its
new loan covenants has been  impaired,  which has caused the Company to obtain a
waiver of any breaches of such covenants and  modification  of such covenants in
the  future.  The  inability  of the  Company to meet its current or future loan
covenants could result in an  acceleration  of its  indebtedness or restrict the
Company's access to such loans, which would impair the Company's ability to fund
its  operations  unless or until the Company  secures an  alternative  source of
funding.  There can be no assurance  that the Company would be able to secure an
alternative  source  of  funding.  See  Notes 7 and 17 to Notes to  Consolidated
Financial Statements.

Impact of Recently Issued Accounting Standards

         In the first quarter of 1996, the Company adopted Financial  Accounting
Standards  Board  Statement of  Financial  Accounting  Standard  (SFAS) No. 121,
Accounting for the Impairment of Long-Lived  Assets and for Long-Lived Assets to
Be Disposed Of, which  requires  impairment  losses to be recorded on long-lived
assets used in operations  when  indicators  of  impairment  are present and the
undiscounted  cash flows estimated to be generated by those assets are less than
the  assets'  carry  amount.  SFAS No. 121 also  addresses  the  accounting  for
long-lived  assets that are  expected to be disposed  of. Due to the  historical
losses at Roxxi, the Company determined that the intangibles acquired as part of
the Roxxi acquisition were not recoverable and consequently  wrote-off  $684,000
during 1996.
                                       20
<PAGE>
         In 1996,  the Company  adopted  Financial  Accounting  Standards  Board
Statement of Financial  Accounting Standard (SFAS) No. 123, Accounting for Stock
Based  Compensation,  which  establishes a fair value method of  accounting  for
stock-based  compensation  plans and for transactions in which an entity aquires
goods or services from  non-employees in exchange for equity  instruments.  SFAS
No. 123 encourages, but does not require, companies to record compensation costs
for stock-based employee  compensation.  The Company has recorded expenses equal
to the fair value of certain stock  options  granted to  non-employees  over the
vesting period of the related options. In 1996, the Company recorded expenses of
$394,000 pursuant to SFAS No. 123.

Backlog

         Ordinarily,  because  the  Company  fills many of its orders  within 48
hours after receipt of a purchase order, backlog is insignificant. Although many
of the Company's OEM customers provide the Company with purchase orders weeks or
months  prior to the  requested  date,  these  orders are  generally  cancelable
without penalty, as is customary in the industry.

Forward Looking Statements

         This Annual  Report on Form 10-K contains  forward-looking  statements.
Additional  written  or  oral  forward-  looking  statements  may be made by the
Company from time to time in filings with the Securities and Exchange Commission
or otherwise.  The words "believe,"  "expect,"  "anticipate," and "project," and
similar expressions identify forward-looking statements,  which speak only as of
the date the statement was made. Such forward-looking  statements are within the
meaning of that term in Section 27A of the  Securities  Act of 1933, as amended,
and  Section  21E of the  Securities  Exchange  Act of 1934,  as  amended.  Such
statements may include,  but not be limited to, projections of revenues,  income
or loss, capital expenditures,  plans for future operations,  financing needs or
plans, the impact of inflation and plans relating to products or services of the
Company,  as  well  as  assumptions  relating  to  the  foregoing.  The  Company
undertakes  no  obligation  to  publicly  update or revise  any  forward-looking
statements, whether as a result of new information, future events, or otherwise.

         Forward-looking   statements  are  inherently   subject  to  risks  and
uncertainties,  some of which cannot be predicted or  quantified.  Future events
and actual results could differ materially from those set forth in, contemplated
by, or  underlying  the  forward-looking  statements.  Statements in this Annual
Report,  including the Notes to the Consolidated  Financial  Statements,  in the
Item  captioned  "Business"  and in  "Management's  Discussion  and  Analysis of
Financial Condition and Results of Operations"  describe factors,  among others,
that could  contribute  to or cause such  differences.  Additional  factors that
could cause actual  results to differ  materially  from those  expressed in such
forward-looking  statements  are  set  forth  in  "Business"  and  "Management's
Discussion and Analysis of Financial  Condition and Results of  Operations,"  in
the  Company's  Quarterly  Reports on Form 10-Q for the periods  ended March 31,
June 30, and September 30, 1996, and in the Current Reports on Form 8-K filed by
the Company in 1996, on January 6, 1997, and on February 6, 1997.
                                       21
<PAGE>
Factors That May Affect Future Operating Results and Financial Condition

         The Company's  future  operating  results and  financial  condition are
dependent on a number of factors that the Company  must  successfully  manage in
order to achieve favorable future operating results and financial condition. The
following  potential  risks and  uncertainties,  together  with those  mentioned
elsewhere  herein,  could  affect  the  Company's  future  operating  result and
financial condition.

Losses from Operations and Decline in Working Capital
-----------------------------------------------------

         The Company's  income from  operations has decreased  significantly  in
recent  years.  The Company  attributes  these  results to a variety of factors,
including a decline in overall  grip sales and an  increase in lower  margin OEM
sales as a percentage of total grip sales, delays in the introduction of certain
new grips, expenses incurred in connection with headwear production,  a one-time
charge to earnings related to a barter transaction,  expenses incurred resulting
from fixed asset, inventory and accounts receivable write-offs, the write-off of
Roxxi intangible assets, and expenses incurred in connection with the transition
of grip manufacturing to Acushnet.  Although the Company has instituted programs
to reduce expenses,  there can be no assurance that the Company will not sustain
losses in the future.  In addition,  the Company's cash and cash equivalents and
working capital have also decreased  significantly  in recent years. The Company
finances its  expenditures,  in part,  through a $1.75 million revolving line of
credit and a $700,000 term loan. The Company's access to this line of credit and
term loan may be restricted  in the event the Company  fails to satisfy  certain
debt covenants, of which there can be no assurance.  The Company recently was in
default of certain loan covenants and obtained waivers and modifications of such
covenants to better enable the Company to satisfy such  covenants in the future.
In the  event the  Company  fails to  achieve  budgeted  levels of sales,  gross
margins,  and  expenses,   it  may  require  additional  funds  to  finance  its
operations.  There can be no  assurance  that the Company will be able to obtain
these funds on terms and conditions acceptable to the Company, if at all.

Use of Third Party Suppliers
----------------------------

         The Company  currently  purchases and for an indefinite  period of time
intends to purchase its entire  supply of grips from two third party  suppliers,
including  Acushnet,  and  anticipates  that all of its grips may  eventually be
supplied by Acushnet. Acushnet has experienced start-up delays in the production
of grips which has adversely affected the Company's  customer  relationships and
results of operation,  impaired the Company's ability to satisfy loan covenants,
and may make it more difficult for the Company to satisfy  lending  covenants in
the future.  Although the Company has modified its  agreement  with Acushnet and
has  obtained  modifications  and  waivers  of  certain  of its  loan  covenants
resulting  from  Acushnet's  production  difficulties,   any  further  delay  or
disruption in the supply of grips to the Company  would have a material  adverse
impact on the Company's business and may cause the Company to be in violation of
its loan  covenants.  The Company  currently has no back-up  source of supply or
other  contingency  plans in the event the Company  encounters any disruption or
termination  in the  supply of its  grips,  and any  transition  to  alternative
suppliers or the resumption of in-house manufacturing  operations by the Company
would result in  production  delays,  the loss of sales and key  customers,  and
would  materially  and adversely  affect the Company's  financial  condition and
results of operation. Although the Company believes that it has certain remedies
available to it under its  agreement  with  Acushnet  arising out of  Acushnet's
production  delays,  there can be no assurance that the Company would be able to
successfully  pursue  such  remedies  or that  such  remedies  would  adequately
compensate  the Company for any losses  incurred by it as a result of Acushnet's
delays.

Competition
-----------

         The overall market for sports equipment and golf grips in particular is
highly  competitive.  The  principal  competitors  for the  Company's  golf grip
products  include  Eaton/Golf  Pride and Lamkin  Corp.,  with Eaton's Golf Pride
division  currently  maintaining  a majority of the total golf grip  market.  In
addition  to  its  major  golf  grip   competitors,   several  other  golf  grip
manufacturers  with whom the  Company  competes,  as well as  several  golf club
manufacturers that do not currently  manufacture  premium quality golf grips but
could enter this market segment,  have greater financial,  marketing,  and other
resources than the Company.  In addition,  the  availability of imitation,  less
                                       22
<PAGE>
costly grips  manufactured by other companies have attracted and may continue to
attract consumers and club manufacturers.

         The  athletic  headwear  industry  is  characterized  by  an  extremely
competitive and wide-open environment. Many of the Company's competitors in this
industry possess significantly greater financial, marketing, and other resources
than the Company.

Customer Concentration
----------------------

         The  Company's  sales of golf grips to OEMs  account for a  significant
percentage of the Company's total net sales. The Company currently provides golf
club grips used on many of Cobra's premium golf club lines,  which accounted for
11.7% of the  Company's  total net sales in 1996,  and all of the grips  used on
Odyssey's various mens' putter models.  The Company also supplies grips to other
OEMs such as Titleist, Bridgestone, Henry-Griffitts, Mizuno, Tad Moore Golf, and
is the primary vendor for Tommy Armour Golf. A substantial  decrease in sales to
any of the Company's  major OEM customers  would have a material  adverse impact
upon the Company's  business.  Further,  there can be no assurance that sales to
OEMs will continue to increase.

         Precision  Japan, the exclusive  Japanese  distributor of the Company's
golf grips and athletic  headwear,  accounted for a  substantial  portion of the
Company's  total net sales over the last three years.  The Company and Precision
Japan  have  entered  into a ten-year  agreement  expiring  in 2001 under  which
Precision Japan has been granted exclusive  distribution rights to the Company's
products for Japan and certain other Far Eastern countries.  Precision Japan may
renew this agreement for successive five-year terms. The agreement is terminable
by either  party for cause or if they fail to agree upon  pricing  terms,  or by
Precision  Japan at any time upon six months  notice to the  Company.  While the
Company  currently enjoys a good  relationship with Precision Japan, the loss of
Precision  Japan  as a  distributor  of  the  Company's  products  would  have a
significant adverse effect on the Company's business.

International Sales
-------------------

         A large  percentage of the Company's total net sales during 1996, 1995,
and 1994 were derived from  international  sales,  which primarily  consisted of
sales of golf club grips. The Company uses  distributors to sell its products in
foreign markets,  including the United Kingdom,  Japan, Sweden and Canada. Sales
to Precision Japan, the Company's exclusive  distributor for Japan, accounts for
the substantial percentage of the Company's international sales. Precision Japan
has begun to market the Company's athletic headwear products as well,  primarily
targeting the golf market.  However,  the Japanese  economy has been  relatively
stagnant and the Company's  Japanese sales have  decreased in recent years.  The
Company  anticipates  that  international  sales will  continue to decrease.  In
addition,  the  Company's  international  business may be affected by changes in
demand   resulting  from   fluctuations  in  currency   exchange  rates,   trade
restrictions, duties, general economic conditions and other factors. The Company
seeks  to  mitigate  its  direct  exposure  to  exchange  rate  fluctuations  by
transacting most international business in United States dollars.

Development and Introduction of New Products
--------------------------------------------

         The Company  believes  that its future  growth and success  will depend
significantly  on its  ability to  increase  its market  share with its  present
product lines while concurrently developing new products and product categories.
The Company  will be reliant to a large  extent on Acushnet  with respect to new
compounds and product  innovations.  There can be no assurance  that the Company
will be able  increase its market  share with its existing  product line or that
the Company's  alliance  with  Acushnet will result in new product  offerings or
that any new products introduced will be successful. The development of new golf
club grips is influenced by the standards and interpretations promulgated by the
United  States Golf  Association  ("USGA").  The Company  believes  that it must
develop products that comply with those standards even though they apply only to
USGA-sanctioned  competitive  events.  Although the Company believes that all of
its grips comply with USGA  standards,  there can be no  assurance  that any new
products
                                       23
<PAGE>
will receive USGA approval or that existing USGA  standards  will not be altered
in ways that adversely affect sales of the Company's products.

Seasonality; Fluctuations in Operating Results
----------------------------------------------

         Golf is generally  considered a warm weather  sport.  Accordingly,  the
Company has  historically  enjoyed its  strongest  sales in the first and second
quarters in  anticipation  of consumer  purchases  of golf  products  during the
second and third quarters, the principal selling season for golf equipment.  The
increased  sales  during  this  period  result  in a  corresponding  build up of
receivables.  Income from  operations is typically lower in the third and fourth
quarters  as fixed  operating  costs are spread  over a  generally  lower  sales
volume.  In order to minimize  the effect of  seasonality,  the  Company  builds
product inventories during the third and fourth quarters to allow the Company to
use its  production  resources more  effectively.  The timing of orders from OEM
customers and fluctuations in demand due to the sudden  popularity or decline in
popularity of specific golf clubs  manufactured by customers also may contribute
to quarterly or other periodic fluctuations.

Dependence on Discretionary, Consumer Spending
----------------------------------------------

         Sales  of  golf   equipment   historically   have  been   dependent  on
discretionary spending by consumers,  which may be adversely affected by general
economic  conditions  and the  popularity  of golf in  general.  A  decrease  in
consumer  spending  on golf  equipment  could  have  an  adverse  effect  on the
Company's business and operating results.

Protection of Proprietary Rights
--------------------------------

         The Company has obtained design patents on some of its grips,  although
it has elected not to pursue  patents  with  respect to its  proprietary  rubber
compounds and related technologies.  The Company also seeks trademark protection
in an effort to establish and protect various  proprietary  rights.  Despite the
safeguards  undertaken  by the  Company,  there  can be no  assurance  that  its
proprietary rights are adequately protected or that competitors will not be able
to  produce  products  that  successfully  imitate  the  Company's  designs  and
materials without infringing the Company's proprietary rights.

Raw Materials
-------------

         The primary  raw  material  used in the  Company's  proprietary  rubber
formula is ethylene propylene diene monomer ("EPDM"), a petroleum-based  product
that is subject  to price  fluctuations.  Prior to  entering  into the  Acushnet
Supply  Agreement,  the  Company  acquired  EPDM from only one  source.  Certain
additional  components used in the Company's products were available or supplied
by only one source and others were available from limited sources.  In the event
the  Company's  grip  suppliers  were to  experience  an unplanned  reduction or
interruption in raw material from the suppliers of such materials, the Company's
results of operations  would be adversely  affected  until  alternative  sources
could be established. Moreover, operating results could be adversely affected by
the receipt of defective  raw  materials  or products,  an increase in prices by
suppliers,  or the  inability to obtain  lower prices to respond to  competitive
pricing pressures.

Dependence on Chief Executive Officer
-------------------------------------

         The  Company's  success  depends  upon the  continued  efforts of Danny
Edwards,  the  Company's  founder,   Chairman,   Chief  Executive  Officer,  and
substantial  stockholder.  Mr. Edwards'  standing in the professional golf world
has afforded the Company exceptional  opportunities to introduce its products to
both Tour and club  professionals,  an important factor that was critical to the
Company's  early success.  Similarly,  Mr. Edwards' status as a former winner of
the Japanese Masters  tournament enabled the Company to gain an introduction to,
and increase  penetration  within, the Japanese market. The loss of Mr. Edwards'
services would have a material adverse effect upon the Company's operations. The
Company currently does not have an employment agreement with Mr. Edwards.
                                       24
<PAGE>
        ITEM 8 - CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The  Independent  Auditors'  Reports of Ernst & Young LLP and KPMG Peat
Marwick  LLP and the  Consolidated  Financial  Statements  of the  Company as of
December 31, 1996 and 1995, and for each of the years in the  three-year  period
ended December 31, 1996, follow:
                                       25
<PAGE>
                          Independent Auditors' Report



The Board of Directors and Stockholders
Royal Grip, Inc.

We have audited the accompanying consolidated balance sheets of Royal Grip, Inc.
as of December 31, 1996 and 1995,  and the related  consolidated  statements  of
operations,  stockholders'  equity, and cash flows for the years then ended. Our
audits also included the  financial  statement  schedule  listed in the Index at
Item  14(b).  These  consolidated  financial  statements  and  schedule  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these  consolidated  financial  statements  and schedule based on our
audits.

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

In our opinion, the 1996 and 1995 consolidated  financial statements referred to
above present  fairly,  in all material  respects,  the  consolidated  financial
position of Royal Grip, Inc. at December 31, 1996 and 1995, and the consolidated
results  of its  operations  and its cash  flows for the years  then  ended,  in
conformity with generally accepted accounting principles.  Also, in our opinion,
the related  financial  statement  schedule,  when considered in relation to the
basic consolidated  financial statements taken as a whole, present fairly in all
material respects the information set forth therein.

As discussed in Note 1 to the consolidated  financial statements,  on January 1,
1996, the Company adopted Statement of Financial  Accounting  Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of."

                                              /s/ Ernst & Young LLP

Phoenix, Arizona
February 14, 1997, 
except as to Notes 12 
and 17, as to which 
the date is April 11, 1997.

                                       26
<PAGE>
                          INDEPENDENT AUDITORS' REPORT



The Board of Directors and Stockholders
Royal Grip, Inc:

We  have  audited  the  accompanying   consolidated  statements  of  operations,
stockholders'  equity,  and cash  flows of Royal  Grip,  Inc.  and  subsidiaries
("Royal  Grip")  for the  year  ended  December  31,  1994.  These  consolidated
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audit.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the results of the  operations and the cash
flows of Royal Grip for the year ended  December 31, 1994,  in  conformity  with
generally accepted accounting principles.


                                        KPMG PEAT MARWICK LLP

Phoenix, Arizona
February 24, 1995
                                       27
<PAGE>
                                Royal Grip, Inc.

                           Consolidated Balance Sheets
<TABLE>
<CAPTION>
                                                                                December 31
                                                                         ----------------------------
                                                                                 1996            1995
                                                                         ------------    ------------
<S>                                                                      <C>             <C>         
Assets
Current assets:
   Cash and cash equivalents                                             $     38,099    $    413,345
   Trade accounts receivable (net of allowance for doubtful accounts of
   $549,455 in 1996 and $227,070 in 1995)                                   1,593,554       1,864,012
   Income tax refund receivable                                                  --           101,139
   Inventories, net                                                         1,381,215       1,720,296
   Prepaid expenses                                                            39,628          54,252
   Current portion of net investment in lease                                 214,506            --
   Other current assets                                                        92,929          90,576
                                                                         ------------    ------------
Total current assets                                                        3,359,931       4,243,620

   Property and equipment, net                                              1,925,056       6,258,292
   Net investment in lease, less current portion                            2,907,494            --
Intangibles, net                                                              251,554       1,083,240
Other assets                                                                   51,250          58,675
                                                                         ------------    ------------
                                                                         $  8,495,285    $ 11,643,827
                                                                         ============    ============
Liabilities and Stockholders' Equity
Current liabilities:
   Line of credit                                                        $     60,000    $       --
   Trade accounts payable                                                     829,211         900,501
   Accrued payroll and commissions                                            220,390         236,943
   Accrued expenses                                                           878,436         534,182
   Current portion of long-term debt and capital leases                       207,230         136,643
                                                                         ------------    ------------
Total current liabilities                                                   2,195,267       1,808,269

Long-term debt and capital leases, less current portion                       671,054         161,422
Other liabilities                                                               8,147            --

Commitments and contingencies

Stockholders' equity:
   Preferred stock, par value $.001 per share.  Authorized 5,000,000
         shares; none issued                                                     --              --
   Common stock, par value $.001 per share.  Authorized
         15,000,000 shares; 2,734,678 shares issued and
         outstanding in 1996 and 1995                                           2,735           2,735
   Additional paid-in capital                                              12,592,906      12,199,288
   Accumulated deficit                                                     (6,974,824)     (2,527,887)
                                                                         ------------    ------------
Total stockholders' equity                                                  5,620,817       9,674,136
                                                                         ------------    ------------
                                                                         $  8,495,285    $ 11,643,827
                                                                         ============    ============
</TABLE>
See accompanying notes.
                                       28
<PAGE>
                                Royal Grip, Inc.

                      Consolidated Statements of Operations
<TABLE>
<CAPTION>
                                                                              Year Ended December 31
                                                                    1996               1995                1994
                                                             ------------------ ------------------- ------------------
<S>                                                                 <C>                 <C>                <C>        
Net sales                                                           $16,120,617         $17,373,451        $13,643,139
Cost of goods sold                                                   12,324,745          12,307,334          8,251,258
                                                             ---------------------------------------------------------
Gross profit                                                          3,795,872           5,066,117          5,391,881
Selling, general and administrative expenses                          6,016,913           7,512,092          5,300,997
Loss on write-down and disposition of property and
   equipment                                                            446,166             530,788             28,710
Manufacturing outsourcing and acquisition costs                       1,052,900             110,754                  -
Loss on write-off of intangibles                                        684,329                   -                  -   
                                                             ---------------------------------------------------------
Income (loss) from operations                                        (4,404,436)         (3,087,517)            62,174

Other income (expense):
   Interest income                                                       11,123              25,524             83,753
   Interest expense                                                     (52,348)            (62,904)           (47,010)
   Other income (expense), net                                           (1,276)             (7,424)            10,711
                                                             ---------------------------------------------------------
Income (loss) before income tax benefit (expense)                    (4,446,937)         (3,132,321)           109,628
Income tax benefit (expense)                                                  -             359,000            (44,000)
                                                             ---------------------------------------------------------
Net income (loss)                                                   $(4,446,937)        $(2,773,321)       $    65,628
                                                             =========================================================

Net income (loss) per share                                         $     (1.63)        $     (1.01)   $           .02
                                                             =========================================================

Shares used in computation                                            2,734,678           2,734,678          2,725,229
                                                             =========================================================
</TABLE>
See accompanying notes.
                                       29
<PAGE>
                                Royal Grip, Inc.

                 Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
                                                                              Additional       Retained            Total
                                                               Common          Paid-In         Earnings        Stockholders'
                                                                Stock          Capital         (Deficit)          Equity

<S>                                                                 <C>         <C>            <C>                  <C>        
Balances at January 1, 1994                                         $2,650      $11,591,808    $    179,806         $11,774,264
   Issuance of common stock upon purchase of
         subsidiary                                                     85          607,480               -             607,565
   Net income                                                            -                -          65,628              65,628
                                                           --------------------------------------------------------------------
Balances at December 31, 1994                                        2,735       12,199,288         245,434          12,447,457
   Net loss                                                              -                -      (2,773,321)         (2,773,321)
                                                           --------------------------------------------------------------------
Balances at December 31, 1995                                        2,735       12,199,288      (2,527,887)          9,674,136
   Issuance of stock options to nonemployees                             -          393,618               -             393,618
   Net loss                                                              -                -      (4,446,937)         (4,446,937)
                                                           --------------------------------------------------------------------
Balances at December 31, 1996                                       $2,735      $12,592,906    $ (6,974,824)        $ 5,620,817
                                                           ====================================================================
</TABLE>
See accompanying notes.
                                       30
<PAGE>
                                Royal Grip, Inc.

                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                  Years Ended December 31

                                                                            1996            1995            1994
                                                                      ---------------- --------------- ---------------
<S>                                                                       <C>              <C>            <C>         
Cash flows from operating activities
Net income (loss)                                                         $ (4,446,937)    $(2,773,321)   $     65,628
Adjustments to reconcile net income (loss) to net cash provided by
   (used in) operating activities:
   Depreciation and amortization                                             1,652,981       1,948,196       1,577,890
   Allowance for doubtful accounts                                             322,385          83,010          54,417
   Loss on write-down and disposition of property and
            equipment                                                          446,166         530,788          28,710
   Loss on write-off of intangibles                                            684,329               -               -
   Inventory write-down and reserves                                           117,827         588,203               -
   Issuance of stock options to nonemployees                                   393,618               -               -
   Deferred income taxes                                                             -        (272,000)        (58,000)
Changes in operating assets and liabilities:
   Trade accounts receivable                                                   (51,927)       (572,502)       (308,385)
   Income tax refund receivable                                                101,139         349,800        (450,939)
   Inventories                                                                 221,254        (191,713)       (900,115)
   Prepaids and other current assets                                            12,271         121,126         (99,785)
   Other assets and intangibles                                                (23,561)         37,514          99,389
   Trade accounts payable and accrued expenses                                 256,411         716,762          40,084
                                                                      ---------------- --------------- ---------------
Net cash provided by (used in) operating activities                           (314,044)        565,863          48,894

Cash flows from investing activities
Purchases of property and equipment                                         (1,449,593)       (830,842)     (4,073,877)
Proceeds from sale of property and equipment                                   740,025          34,229          11,650
Payment for purchase of Roxxi, Inc., net of cash acquired                            -               -        (317,574)
                                                                      ---------------- --------------- ---------------
Net cash used in investing activities                                         (709,568)       (796,613)     (4,379,801)

Cash flows from financing activities
Proceeds from issuance of long-term debt                                       726,309          36,155               -
Repayments on long-term debt and capital leases                               (146,090)       (105,969)       (629,878)
Increase in restricted cash                                                          -               -          40,480
Increase (decrease) in revolving line of credit                                 60,000        (480,000)        300,000
Increase in other liabilities                                                    8,147               -               -
                                                                      ---------------- --------------- ---------------
Net cash provided by (used in) financing activities                            648,366        (549,814)       (289,398)
                                                                      ---------------- --------------- ---------------
Net decrease in cash and cash equivalents                                     (375,246)       (780,564)     (4,620,305)
Cash and cash equivalents at beginning of year                                 413,345       1,193,909       5,814,214
                                                                      ---------------- --------------- ---------------
Cash and cash equivalents at end of year                                  $     38,099    $    413,345   $   1,193,909
                                                                      ================ =============== ===============
</TABLE>
See accompanying notes.
                                       31
<PAGE>
                                Royal Grip, Inc.

                   Notes to Consolidated Financial Statements

                                December 31, 1996


1. Summary of Significant Accounting Policies

Description of Business

Royal Grip, Inc. (Company) designs and manufactures golf club grips and athletic
headwear.  The Company's  products are sold throughout the United States as well
as internationally,  largely Japan and the United Kingdom. During December 1996,
the Company outsourced the manufacturing of their golf club grips (see Note 12).

Principles of Consolidation

The consolidated  financial statements include the financial statements of Royal
Grip,  Inc.  and its wholly owned  subsidiaries.  All  significant  intercompany
balances and  transactions  have been  eliminated in  consolidation.  All of the
companies operate within the sports industry;  therefore, no segment information
is provided.

Use of Estimates

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

Cash Equivalents

The Company considers all highly liquid  investments with maturities at the date
of purchase of three months or less to be cash equivalents.

Inventories

Inventories are stated at the lower of weighted average cost or market.

Intangible Assets

Intangible  assets consist of trademarks,  covenants not to compete and goodwill
primarily  arising from the  acquisition  of Roxxi,  Inc.  (Roxxi) (see note 2).
Costs incurred in securing trademark rights are amortized over a 20-year period.
As part of the acquisition of Roxxi, the Company  purchased two covenants not to
compete.  Covenants not to compete are amortized on a straight-  line basis over
the contractual lives which range from two to five years. Goodwill, representing
the excess of the purchase price over the estimated fair value of the net assets
of Roxxi, is
                                       32
<PAGE>
                                Royal Grip, Inc.

             Notes to Consolidated Financial Statements (continued)


1. Summary of Significant Accounting Policies (continued)

amortized  on a  straight-line  basis over the period of expected  benefit of 15
years. Due to the historical losses of Roxxi, during the fourth quarter of 1996,
the Company assessed the recoverability of Roxxi intangibles based upon expected
future undiscounted cash flows of Roxxi and other relevant information. Based on
this evaluation,  the Company determined that the recoverability of goodwill and
covenants not to compete were  impaired,  and  consequently,  recorded a loss of
$684,329 to write-off the related assets.

Property and Equipment

Property and equipment is stated at cost or, if acquired under capital lease, at
the lower of the present  value of minimum  lease  payments or fair value at the
inception of the lease.

Depreciation  of property and equipment is provided over estimated  useful lives
of three to twelve years on the  straight-line  method.  Equipment under capital
leases and leasehold improvements are amortized on the straight-line method over
the  shorter  of the  lease  term or the  estimated  useful  life of the  asset.
Amortization of capitalized  leases is included in depreciation and amortization
expense.

Revenue Recognition

The Company  recognizes  revenues as of the date  merchandise  is shipped to its
customers.

Income Taxes

The Company  accounts for income taxes under the asset and  liability  method of
Statement of Financial  Accounting  Standards  (SFAS) No. 109,  "Accounting  for
Income Taxes."

Advertising

The Company expenses advertising as incurred.  Advertising expense for the years
ended December 31, 1996,  1995 and 1994  approximated  $621,000,  $1,446,000 and
$788,000, respectively.

Net Income (Loss) Per Share

Net income  (loss) per share is computed by  dividing  net income  (loss) by the
weighted  average  number of common shares  outstanding,  after giving effect to
dilutive stock options in 1994. Stock options were not included in 1996 and 1995
since they were antidilutive.
                                       33
<PAGE>
                                Royal Grip, Inc.

             Notes to Consolidated Financial Statements (continued)


1. Summary of Significant Accounting Policies (continued)

Stock Based Compensation

The Company  grants stock options for a fixed number of shares to employees with
an  exercise  price  equal to the fair value of the shares at the date of grant.
The Company  accounts for stock option  grants to employees in  accordance  with
Accounting  Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to
Employees" (APB 25).

The Company adopted SFAS No. 123 "Accounting  for Stock Based  Compensation"  in
1996 related to stock options granted to nonemployees. Expense equal to the fair
value of the options granted to nonemployees is recorded over the vesting period
of the  related  options.  The  adoption of SFAS No. 123 did not have a material
impact on the consolidated operations of the Company.

Long-Lived Assets

         The  Company  adopted  in  1996,  SFAS  No.  121,  "Accounting  for the
Impairment of  Long-Lived  Assets and for Long- Lived Assets to be Disposed Of,"
which  requires  impairment  losses to be recorded on long-lived  assets used in
operations when indicators of impairment are present and the  undiscounted  cash
flow  estimated  to be  generated  by these  assets  are less  than the  assets'
carrying  amounts.  SFAS No. 121 also  addresses the  accounting  for long-lived
assets  that are  expected to be disposed  of. Due to the  historical  losses at
Roxxi,  the Company  determined  that the  property and  equipment  and goodwill
acquired as part of the Roxxi  acquisition  may not be  recoverable  through the
undiscounted  cash flow of the Roxxi  operation.  The Company's  estimate of the
fair value,  less selling costs, of the property and equipment  exceeded its net
carrying value,  and  accordingly,  no loss was recorded related to the property
and equipment.  However, the Company wrote-off the goodwill and covenants not to
compete related to the Roxxi acquisiton.

Basis of Presentation

The  accompanying  consolidated  financial  statements have been prepared on the
basis that the  Company  will  continue  as a going  concern.  The  Company  has
incurred  successive losses and, in order for the Company to continue as a going
concern, the Company must achieve profitable operations in the near term. If not
successful in achieving  profitable  operations,  the Company could be placed in
default of certain  debt  covenants  which  could  accelerate  the  maturity  of
outstanding  debt balances or restrict the Company's access to the loans. In the
event the Company fails to achieve budgeted levels of sales and expenses, it may
be required to obtain  additional funds to finance its operations.  There can be
no  assurance  that the Company  will be able to obtain these funds on terms and
conditions acceptable to the Company, if at all.

Management's  plans with  respect to  achieving  profitable  operations  include
outsourcing  its golf  club  grip  manufacturing  during  1997  (see Note 12) to
Acushnet Rubber Company,  Inc.  (Acushnet) in order to decrease and fix its grip
manufacturing costs.  Acushnet has experienced start-up delays in the production
of grips,  which has adversely  affected the Company's  customer  relationships.
Accordingly,  the  Company is  experiencing  losses in early 1997  greater  than
anticipated.  The Company has entered into an agreement  with  Acushnet  whereby
Acushnet  will  reimburse the Company for amounts  which  approximate  the gross
margin on sales lost as a result of failure to produce sufficient quantities.
                                       34
<PAGE>
                                Royal Grip, Inc.

             Notes to Consolidated Financial Statements (continued)


1. Summary of Significant Accounting Policies (continued)

The  Company's  plans  also  include  cost  reductions,   improving   purchasing
arrangements,   new  product   introductions,   and  changes  to  the   headwear
manufacturing  process.  Management  has also  developed  production,  sales and
financing  plans that call for  significant  improvements  in 1997,  including a
significant  improvement  in net income (loss).  Management  believes that these
plans,  when  coupled  with  available  credit  facilities,   and  the  improved
operations subsequent to year-end will enable the Company to continue as a going
concern at least through December 31, 1997.

2. Acquisition of Roxxi

On  April  12,  1994,  the  Company   completed  its  acquisition  of  Roxxi,  a
manufacturer  of  athletic  headwear,   located  in  Oklahoma  City,   Oklahoma.
Operations  of Roxxi  from  that date have  been  included  in the  consolidated
financial statements. The purchase price was $1,250,692,  consisting of $369,877
in cash,  issuance  of 84,678  unregistered  shares of  common  stock  valued at
$607,565,  and issuance of a note  payable with a net present  value of $273,250
for a covenant not to compete. In addition,  the Company granted an option to an
employee of Roxxi to acquire  28,226  shares of common stock at the market value
on  the  closing  date.  The  acquisition  was  accounted  for  as  a  purchase.
Accordingly,  the  purchase  price was  allocated  to the  assets  acquired  and
liabilities  assumed  based  on  their  estimated  fair  values  at the  date of
acquisition determined by management estimates, as follows:

              Cash                                        $     52,303 
              Trade accounts receivable                        304,624 
              Inventories                                      325,834 
              Prepaid expenses                                  18,723 
              Property and equipment                           418,371 
              Goodwill                                         641,311 
              Covenants not to compete                         543,250 
              Other assets                                       3,841 
              Revolving line of credit                        (180,000)
              Trade accounts payable                           (74,683)
              Accrued expenses                                (308,178)
              Long-term debt                                  (474,897)
              Other liabilities                                (19,807)
                                                          ------------ 
                                                          $  1,250,692 
                                                          ============ 
                                       35
<PAGE>
                                Royal Grip, Inc.

             Notes to Consolidated Financial Statements (continued)


2. Acquisition of Roxxi (continued)

The following  financial  information  presents the unaudited pro forma combined
results of the  Company  for the year ended  December  31,  1994 as if the Roxxi
acquisition had occurred at the beginning of the period.


          Net sales                                           $14,259,000
          Net income                                               97,000
          Earnings per share                                          .04

The above pro forma  results  give effect to (1)  estimated  adjustments  to net
sales,  cost of  goods  sold,  selling,  general  and  administrative  expenses,
including  amortization of intangibles  resulting from the acquisition,  and (2)
estimated income tax effects thereon. The pro forma information presented is for
informational purposes only and is not necessarily indicative of future earnings
or of what the  earnings  actually  would  have  been had the  combination  been
consummated at the beginning of the period.

3. Intangible Assets

Intangible assets at December 31 consist of the following:

                                                 1996               1995        
                                            ------------------------------- 
                                                                            
      Goodwill                               $         -        $   641,311 
      Covenants not to compete                         -            543,250 
      Trademarks and patents                     317,958            298,522 
                                            ------------------------------- 
                                                 317,958          1,483,083 
      Less accumulated amortization              (66,404)          (399,843)
                                            ------------------------------- 
                                             $   251,554         $1,083,240 
                                            =============================== 
      

Amortization  of  intangibles  expense of  $178,343,  $220,574  and $168,377 was
recorded  in 1996,  1995 and 1994,  respectively.  During the fourth  quarter of
1996, the Company wrote off the goodwill and covenants not to compete related to
the acquisition of Roxxi aggregating $684,329.
                                       36
<PAGE>
                                Royal Grip, Inc.

             Notes to Consolidated Financial Statements (continued)


4. Inventories

Inventories consist of the following:


                                           1996               1995
                                 ------------------------------------

Finished goods                         $   849,769         $1,144,516
Work in process                            100,092            188,677
Raw materials                              476,354            575,306
                                 ------------------------------------
                                         1,426,215          1,908,499
Less reserves                             (45,000)          (188,203)
                                 ------------------------------------
                                        $1,381,215         $1,720,296
                                 ====================================

During the first  quarter of 1995,  the  Company  sold  certain  inventory  in a
bartering  transaction  in exchange  for trade  credit  rights to be used in the
purchase  of  goods  and  services  over a three  year  period.  No  profit  was
recognized  on the initial  transaction  and the rights were to be  amortized as
they were  utilized.  Due to the  uncertainty  as to the  timing  and  extent of
utilization  of the trade credit  rights,  management  recorded a write-down  in
expense  to cost of goods  sold of the  trade  credit  rights  of  approximately
$331,000 in 1995. No trade credit rights had been used as of December 31, 1996.

During the fourth quarter of 1995, management recorded approximately $188,000 in
expense  to cost of goods  sold to  reserve  for  certain  excess  and  obsolete
inventory.

5. Property and Equipment

Property and equipment consist of the following at December 31:

<TABLE>
<CAPTION>
                                                                   1996                 1995
                                                           -----------------------------------------
<S>                                                              <C>                  <C>         
Machinery and equipment                                            $  1,406,160         $  7,894,240
Furniture and fixtures and office equipment                           1,391,698            1,023,241
Transportation                                                           73,702              906,833
Leasehold improvements                                                  229,891              863,498
Embroidery tapes                                                         93,518               93,177
                                                           -----------------------------------------
                                                                      3,194,969           10,780,989
Less accumulated depreciation and amortization                      (1,269,913)          (4,522,697)
                                                           -----------------------------------------
Property and equipment, net                                        $  1,925,056         $  6,258,292
                                                           =========================================
</TABLE>
Depreciation  expense of  $1,474,638,  $1,727,622 and $1,409,513 was recorded in
1996, 1995 and 1994, respectively.
                                       37
<PAGE>
                                Royal Grip, Inc.

             Notes to Consolidated Financial Statements (continued)


6. Investment in Lease

The  Company is the lessor of certain  manufacturing  equipment  under a capital
lease  agreement  expiring in December 2006,  which  transfers  ownership of the
equipment to the lessee at the end of the lease term (see Note 12).

The Company's net investment in the direct  financing lease at December 31, 1996
consists of:


Minimum lease payments receivable                              $ 4,508,385
Unearned income                                                (1,386,385)
                                                        ------------------
                                                                 3,122,000
Less current portion                                             (214,506)
                                                        ------------------
                                                                $2,907,494
                                                        ==================

At December 31, 1996, future minimum lease payments  receivable under the direct
financing lease are as follows:


1997                                                           $   450,838
1998                                                               450,838
1999                                                               450,838
2000                                                               450,838
2001                                                               450,838
Thereafter                                                       2,254,195
                                                        ------------------
                                                                $4,508,385
                                                        ==================

7. Line of Credit, Long-Term Debt and Capital Leases

At December  31,  1996,  the Company was in default of certain  covenants on its
existing  $1,200,000  line of credit which were waived by the bank.  In February
1997, the Company refinanced the outstanding balance of $760,000 through $60,000
in advances  under a new  $1,750,000  revolving  line of credit and  $700,000 of
advances  under a new $700,000 term note  agreement with a bank. The new line of
credit and term loan require payment of monthly  interest at the bank's interest
rate (prime) plus 1.75 percent. Should the Company attain certain stipulated net
income  levels as defined in the  agreement,  the interest rate shall be payable
monthly at prime plus 1.00  percent.  The term loan requires  monthly  principal
payments  of  $12,000  beginning  March  1997.  The line of credit and term loan
mature in February 2000. The $700,000 outstanding at December 31, 1996 under the
prior line of credit,  which was due to mature in 1997, and refinanced  with the
new  term  loan,  has  been  classified  as  long-term  debt  in  the  Company's
consolidated balance sheet.
                                       38
<PAGE>
                                Royal Grip, Inc.

             Notes to Consolidated Financial Statements (continued)


7. Line of Credit, Long-Term Debt and Capital Leases (continued)

The new line of credit allows the Company to borrow an amount up to  $1,750,000,
but restricts the borrowings based on certain  receivable and inventory  levels.
As of the date of the  refinancing,  approximately  $950,000 was  available  for
borrowings  under  the  terms of its new line of  credit  based  upon  available
collateral. The line of credit and term loan are collateralized by substantially
all of the Company's assets and contain certain covenants,  the more restrictive
of which  prohibit the payment of  dividends,  limit capital  expenditures,  and
require the Company to comply with certain  financial  ratios.  The Company must
maintain a debt service coverage ratio of 1.0 to 1.0 for each quarter commencing
June 30, 1997 and 1.25 to 1.00 for each  quarter  commencing  December 31, 1997,
and  thereafter.  The  Company has a covenant to maintain a minimum net worth of
$6,300,000  at December  31,  1996,  and net worth can not decrease by more than
$300,000 for the quarter ending March 31, 1997;  increase less than $400,000 for
the quarter  ending June 30, 1997;  increase  less than $150,000 for the quarter
ending  September 30, 1996;  decrease more than $250,000 for the quarter  ending
December  31,  1997;  and  increase  less than  $300,000  for each  fiscal  year
thereafter. The Company also has net income covenants which correlate to the net
worth covenants  described  above,  and beginning in April 1997, the Company can
not have a loss in excess of  $100,000  in any one  month.  The  Company  was in
default of its net worth  covenant  at December  31, 1996 and  received a waiver
from the bank.  See Note 17 regarding the  modification  to this  covenant.  The
weighted average interest rates on short-term borrowings as of December 31, 1996
and 1995 were approximately 8.75 percent and 8.50 percent, respectively.

Long-term debt and capital leases consist of the following at December 31:


<TABLE>
<CAPTION>
                                                                                        1996              1995
                                                                                 ------------------------------------
<S>                                                                                     <C>          <C>             
Amounts payable under line of credit with a commercial bank, refinanced
   subsequent to December 31, 1996 through a term loan (see above).
                                                                                        $   700,000  $              -
Note payable to a former employee of the Company, $330,000 face value,
   discounted at a rate of 8 percent interest, payable in four annual principal
   and interest installments of $82,500, maturing April 1998.
                                                                                            155,947           225,367
Capital lease obligations, paid in full in 1996.                                                  -            50,011
Other                                                                                        22,337            22,687
                                                                                 ------------------------------------
                                                                                            878,284           298,065
Less current portion                                                                      (207,230)         (136,643)
                                                                                 ------------------------------------
                                                                                        $   671,054       $   161,422
                                                                                 ====================================
</TABLE>
                                       39
<PAGE>
                                Royal Grip, Inc.

             Notes to Consolidated Financial Statements (continued)


7. Line of Credit, Long-Term Debt and Capital Leases (continued)

At December 31, 1996, the maturities of long-term debt are as follows:


     1997                                                     $207,230
     1998                                                      222,626
     1999                                                      149,673
     2000                                                      298,211
     2001                                                          544
                                                       ---------------
                                                              $878,284
                                                       ===============

8. Income Taxes

Income tax  expense  (benefit)  consists  of the  following  for the years ended
December 31:


                                1996             1995            1994
                          -------------------------------------------------
Current:
   Federal                $           -         $  (87,000)        $102,000
   State                  -                               -               -
                          -------------------------------------------------
                          -                        (87,000)         102,000
Deferred:
   Federal                -                       (186,000)        (68,000)
   State                  -                        (86,000)          10,000
                          -------------------------------------------------
                          -                       (272,000)        (58,000)
                          -------------------------------------------------
                          $           -          $(359,000)       $  44,000
                          =================================================

Income tax expense  (benefit) differs from amounts computed by applying the U.S.
federal  income tax rate of 35 percent to income (loss) before income taxes as a
result of the following:


<TABLE>
<CAPTION>
                                                              1996              1995              1994
                                                       -----------------------------------------------------
<S>                                                          <C>               <C>                 <C>      
Computed "expected" tax expense (benefit)                    $ (1,556,000)     $(1,096,000)        $  38,000
Graduated surtax exemptions                                        44,000           31,000           (12,000)
State income taxes (benefit), net of federal benefit                    -          (57,000)            7,000
Increase in valuation allowance                                 1,270,000          776,000                 -
Non deductible goodwill amortization                              226,000           17,000                 -
Other, net                                                         16,000          (30,000)           11,000
                                                       -----------------------------------------------------
                                                             $          -      $  (359,000)        $  44,000
                                                       =====================================================
</TABLE>
                                       40
<PAGE>
                                Royal Grip, Inc.

             Notes to Consolidated Financial Statements (continued)


8. Income Taxes (continued)

The tax effects of temporary  differences that give rise to significant portions
of the  deferred  tax assets and  deferred  tax  liabilities  at December 31 are
presented below:


                                               1996              1995
                                        ------------------------------------
Deferred tax assets:
   Allowance for doubtful accounts            $    220,000      $     91,000
   Inventory obsolescence reserves                  18,000            75,000
   Amortization of covenants not to compete        184,000            99,000
   Inventory cost capitalization                    14,000            20,000
   Financial advisor fee                            47,000            55,000
   Nonemployee stock options                       172,000                 -
   Alternative minimum tax credit                        -             6,000
   Other, net                                       47,000             8,000
   Net operating loss carryforwards              1,716,000         1,196,000
                                        ------------------------------------
Gross deferred tax assets                        2,418,000         1,550,000
Valuation allowance                            (2,273,000)         (776,000)
                                        ------------------------------------
Net deferred tax assets                            145,000           774,000

Deferred tax liabilities:
   Depreciation                                  (145,000)         (774,000)
                                        ------------------------------------
Total gross deferred tax liabilities             (145,000)         (774,000)
                                        ------------------------------------
Net deferred tax assets                  $               -  $              -
                                        ====================================

The valuation allowance increased $1,497,000 and $776,000 during the years ended
December 31, 1996 and 1995, respectively.

At December  31,  1996,  the Company  had federal and state net  operating  loss
carryforwards of approximately  $4,290,000.  The federal and state net operating
loss carryforwards will begin to expire in 2010 and 2000,  respectively,  if not
utilized.
                                       41
<PAGE>
                                Royal Grip, Inc.

             Notes to Consolidated Financial Statements (continued)


9. Leases

The  Company  leases  corporate  offices,  manufacturing  facilities  and office
equipment  under  operating lease  agreements  expiring  through March 2001. The
Company is negotiating to move its corporate  facilities in 1997. Minimum annual
rental commitments under noncancelable leases are as follows:


Years ending December 31:
   1997                                            $261,558
   1998                                             245,731
   1999                                              65,472
   2000                                              65,472
   2001                                              15,000
                                         ------------------
                                                   $653,233
                                         ==================

Rental expense under operating leases totaled approximately  $312,000,  $295,000
and $328,000 for the years ended December 31, 1996, 1995 and 1994, respectively.

10. Significant Customers

Sales to the Company's exclusive Japanese distributor represented 19 percent, 21
percent and 22 percent of net sales for the years ended December 31, 1996,  1995
and 1994, respectively.  Additionally,  during 1996, 1995 and 1994, sales to one
original  equipment  manufacturer  accounted  for 12  percent,  9 percent and 12
percent of net sales, respectively.

International  sales  represented  21 percent,  22 percent and 26 percent of net
sales for the years ended December 31, 1996, 1995, and 1994, respectively.

11. Supplemental Consolidated Statements of Cash Flows Information

During 1996,  1995,  and 1994,  the Company paid  $52,348,  $62,062 and $30,592,
respectively, for interest.

As explained in Note 2, the acquisition of Roxxi was completed, in part, via the
issuance of 84,678  unregistered shares of common stock valued at $607,565 and a
note payable with a face amount of $330,000 and a net present value of $273,250.

As explained in Note 12, the Company recorded a $3,122,000  direct finance lease
receivable as a result of the leasing of certain manufacturing equipment under a
capital lease.
                                       42
<PAGE>
                                Royal Grip, Inc.

             Notes to Consolidated Financial Statements (continued)


12. Manufacturing and Supply Agreement

         On December 21, 1996,  the Company  entered  into a  Manufacturing  and
Supply Agreement  (Acushnet Supply  Agreement) with Acushnet.  On April 4, 1997,
the Company and Acushnet  renegotiated certain aspects of their agreement.  This
agreement,  as amended,  makes Acushnet the exclusive supplier of non-cord grips
to the Company,  subject to the Company's  ability to use other suppliers in the
event  Acushnet  fails to meet  production  requirements, and requires  that the
Company  purchase minimum annual volumes  (commencing  after January 1, 1999) at
fixed prices specified in the contract. Acushnet is obligated to provide ongoing
research  and  development   with  respect  to  grip  compounds,   manufacturing
processes, and engineering and quality control support.

         The term of the Acushnet Supply Agreement expires on December 21, 2006,
subject  to the  Company's  right  to  extend  the  agreement  for  up to  three
additional  periods of five years each. The Acushnet Supply Agreement is subject
to termination by either party upon certain material  breaches thereof or of the
equipment  lease  described  below.  Upon  termination  of the  Acushnet  Supply
Agreement  by the Company  arising  out of a material  breach by  Acushnet,  the
Company may at its option repurchase any grip  manufacturing  equipment owned by
Acushnet at fair market  value.  In  addition,  the  Company may  terminate  the
Acushnet  Supply  Agreement  at any time upon written  notice,  and Acushnet may
terminate the  agreement by providing  ten months'  prior written  notice on and
after June 30, 1998, and payment by the terminating  party to the other party of
a termination  fee, which  includes the  repurchase at prescribed  values of the
manufacturing  equipment owned by Acushnet,  an additional fee of $2,500,000 and
other fees and commitments  relating,  among other things,  to the transition of
production operations.

         In connection with the Acushnet Supply Agreement, the Company leased to
Acushnet  the  Company's  specialized   manufacturing   equipment  used  in  the
production of its non-cord grips, pursuant to a capital lease agreement dated as
of December 21, 1996 (Equipment  Lease).  Under the Equipment Lease, the Company
granted to Acushnet an option to purchase the Company's manufacturing equipment.
Further,  the Equipment Lease terminates on December 31, 2006, at which time the
equipment will be  transferred to Acushnet at no further cost. As a result,  the
Company has recorded a $3,122,000  direct finance lease receivable for the lease
of such  equipment  receivable  in monthly  installments  of  $37,570  including
interest at 7.8 percent and  maturing in December  2006 (see Note 6). No gain or
loss was recorded on the transaction.

         Acushnet has  experienced  start-up  delays in the  production of grips
which has adversely affected the Company's customer relationships and results of
operations, has impaired the Company's ability to satisfy its loan covenants and
may make it more difficult for the Company to satisfy  lending  covenants in the
future.  The recent  amendments  to the Acushnet  Supply  Agreement  provide the
Company with a credit of $400,000  against  future grip purchases and additional
purchase  credits in the event Acushnet fails to meet  production  requirements.
These  credits  may be  reduced  depending  upon  Acushnet's  production  beyond
specified  levels or as a result of its cancellation of stock options granted to
it by the Company.  The modified agreement also alters the future production and
purchase  requirements  of the parties.  

         As a result of the  Acushnet  Supply  Agreement,  the Company  incurred
certain  additional  expenses  during  the  fourth  quarter  of  1996  including
approximately  $304,000 in employee termination benefits,  largely paid prior to
December 31, 1996,  $246,000 of professional  and consulting  fees,  $478,000 in
projected lease termination and related leasehold improvement costs and $359,000
in  stock  option  costs  (see  Note  13).   Such  costs  are  included  in  the
manufacturing  outsourcing  costs  and loss on  write-down  and  disposition  of
property and equipment line items in the consolidated  statements of operations.
Approximately $440,000 of these related costs are unpaid at December 31, 1996.
                                       43
<PAGE>
                                Royal Grip, Inc.

             Notes to Consolidated Financial Statements (continued)


13. Stock Options

The  Company  has  elected  to  follow  APB 25 and  related  Interpretations  in
accounting  for its employee  stock options  because,  as discussed  below,  the
alternative fair value accounting  provided for under SFAS No. 123,  "Accounting
for Stock-Based Compensation," requires use of option valuation models that were
not developed for use in valuing  employee stock options.  Under APB 25, because
the exercise price of the Company's employee stock options equals or exceeds the
market  price of the  underlying  stock on the date of  grant,  no  compensation
expense is recognized.

Employee Stock Options

The Company has a Stock Option Plan (Plan),  which provided for options on up to
250,000  shares of the Company's  common stock (amended to provide up to 400,000
shares  in 1994).  These  options  are  available  for  grant  under the Plan to
employees and certain  consultants of the Company.  Under the terms of the Plan,
the exercise  price of the  incentive  stock  options must equal the fair market
value per share of the common stock on the grant date or 110 percent of the fair
market  value  if the  grantee  beneficially  owns  10  percent  or  more of the
outstanding  stock of the Company.  The options vest over varying  periods up to
three years and expire in five to eight years.

The Company has a Non-Employee Director Stock Option Plan (Director Option Plan)
with 24,000 shares of common stock reserved for issuance thereunder. Pursuant to
the terms of the Director Option Plan, each non-employee director of the Company
receives a one-time option grant of 3,000 shares. The exercise price is equal to
the fair market value on the date of grant.  The options vest over a 3-year term
and expire in five years.

In 1996,  the Board of Directors  approved an additional  Non-Employee  Director
Stock Plan (Director Stock Plan) with 30,000 shares of common stock reserved for
issuance  thereunder.  Pursuant to the terms of the  Director  Stock Plan,  each
non-employee  director of the Company  receives options to purchase 1,500 shares
of the Company's  common stock on the third day following the day upon which the
Company  releases its earning report for the previous  fiscal year. The exercise
price granted under the Director Stock Plan will be the fair market value of the
common stock on the grant date.  The options vest upon the grant date and expire
in six years.

Pro forma information  regarding net income (loss) and earnings (loss) per share
is required by SFAS 123 which also requires that the  information  be determined
as if  the  Company  has  accounted  for  its  employee  stock  options  granted
subsequent  to December  31, 1994 under the fair value  method of SFAS 123.  The
fair value for these options was estimated at the date of
                                       44
<PAGE>
                                Royal Grip, Inc.

             Notes to Consolidated Financial Statements (continued)


13. Stock Options (continued)

grant using a  Black-Scholes  option  pricing model with the following  weighted
average assumptions for 1996: risk-free interest rate of 5.17 percent,  dividend
yield of -0-  percent,  volatility  factor of the  expected  market price of the
Company's  common  stock of .552  and a  weighted-average  expected  life of the
options of four  years.  During  1995,  no  significant  employee  options  were
granted.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded  options which have no vesting  restrictions  and are fully
transferable.  In addition,  option valuation models require the input of highly
subjective  assumptions  including the expected stock price volatility.  Because
the Company's stock options have  characteristics  significantly  different from
those traded options,  and because changes in the subjective  input  assumptions
can materially  affect the fair value  estimate,  in management's  opinion,  the
existing models do not necessarily provide a reliable single measure of the fair
value of its stock options.

For purposes of pro forma  disclosures,  the estimated fair value of the options
is amortized to expense over the options vesting period. The Company's pro forma
information for the year ended December 31, 1996, follows:


Net loss, as reported                                               $4,446,937
Pro forma compensation expense for stock options:
   1996 grants                                                         294,000
                                                            ------------------
Pro forma net loss                                                  $4,740,937
                                                            ==================
Pro forma loss per share                                                 $1.73
                                                            ==================

Employee  stock options  granted in 1995 were not material to the  operations of
the Company.  Because SFAS 123 is applicable only to options granted  subsequent
to December 31, 1994,  its pro forma  effect will not be fully  reflected  until
approximately 1999.
                                       45
<PAGE>
                                Royal Grip, Inc.

             Notes to Consolidated Financial Statements (continued)


13. Stock Options (continued)

A summary  of stock  option  activity  granted  within  the  plans  and  related
information for the years ended December 31, 1996, 1995 and 1994 follows:

<TABLE>
<CAPTION>
                                                                               Options Outstanding
                                                           ------------------------------------------------------------

                                                                                                          Weighted
                                             Options                                                       Average
                                            Available                                Exercise          Exercise Price
                                            for Grant           Shares             Price Range
                                        -------------------------------------------------------------------------------
<S>                                          <C>                <C>             <C>       <C>               <C>   
Balance at December 31, 1993                   73,500            200,500         $  8.50 - $13.48
Shares reserved                               150,000                 -
Options granted                               (70,726)            70,726         $  7.31 - $12.00
Options exercised                                   -                 -
Options canceled                                6,000             (6,000)        $ 12.00 - $12.25
                                        -------------------------------------------------------------------------------
Balance at December 31, 1994                  158,774            265,226         $  8.50 - $13.48
Shares reserved                                     -                 -
Options granted                               (18,250)            18,250         $  4.00 - $12.25
Options exercised                                   -                 -
Options canceled                              103,476           (103,476)        $  7.31 - $12.25
                                        -------------------------------------------------------------------------------
Balance at December 31, 1995                  244,000            180,000         $  4.00 - $13.48            $10.13
Shares reserved                                30,000                 -
Options granted                              (405,839)           405,839         $  2.75 - $ 6.50             $3.24
Options exercised                                   -                 -
Options canceled                              219,000           (219,000)        $  5.38 - $13.48             $9.11
                                        -------------------------------------------------------------------------------
Balance at December 31, 1996                   87,161            366,839         $  2.75 - $12.00             $3.65
                                        ===============================================================================
</TABLE>

At December 31, 1996 and 1995,  options granted within the plans for 298,006 and
145,050 shares were exercisable, respectively, with exercise prices ranging from
$2.75 to $12.00 and $5.25 to $13.48, respectively. The weighted average exercise
price of exercisable  options was approximately  $3.64 at December 31, 1996. The
weighted-average  fair value of options  granted  during the year ended December
31, 1996 was  approximately  $1.18. The weighted average  remaining  contractual
life of options  outstanding at December 31, 1996 was approximately 7 years. The
Company recorded in selling,  general and administrative  expenses approximately
$35,000 in expense for options  granted within these plans and vested during the
year ended December 31, 1996.
                                       46
<PAGE>
                                Royal Grip, Inc.

             Notes to Consolidated Financial Statements (continued)


13. Stock Options (continued)

Other Stock Options

At December 31, 1996 and 1995, the Company has 58,000 and 33,000,  respectively,
outstanding options granted to certain former employees in connection with their
severance  packages at exercise prices ranging from $8.50 to $12.25 and expiring
between  2001 and  2004.  These  options  replaced  options  held by the  former
employees at their dates of termination. The original options were added back to
the reserved shares  available for grant under the Company's stock option plans.
The  exercise  price  granted was equal to the  exercise  price of the  original
option grant and was above the fair value of the Company's  stock at the date of
grant  of the  replacement  options,  therefore,  no  compensation  expense  was
recorded by the Company.  Options of 25,000 and 33,000 were  granted  during the
years ended  December  31, 1996 and 1995,  respectively.  The  weighted  average
exercise  price and fair value of those options  granted in 1996 were $12.25 and
$1.40,  respectively,  at the date of grant. The weighted average exercise price
and remaining contractual life of these outstanding options (100 percent vested)
at December 31, 1996 were $10.63 and 5 years, respectively.

During 1996, the Company granted to Acushnet 50,000 options at $4.00 and 200,000
options at $5.00 to purchase  common shares of the Company.  The options  vested
immediately and expire in 1999.  Approximately  $359,000 in expense was recorded
as manufacturing  outsourcing costs in the consolidated  statement of operations
for the year ended  December  31, 1996 to reflect the  immediate  vesting of the
granted  options.  The fair  value for these  options  was  estimated  using the
Black-Scholes   option  pricing  model  with  the  following   weighted  average
assumptions:  risk  free  interest  rate  5.17  percent,  dividend  yield of -0-
percent,  volatility factor of the expected market price of the Company's common
stock of .552 and a weighted  average expected life of three years. The weighted
average exercise price and fair value of these options at the date of grant were
$4.80 and $1.44, respectively. The weighted average exercise price and remaining
contractual  life of these options  outstanding  at December 31, 1996 were $4.80
and 3 years, respectively.

14. Related Party Transactions

During  1996 and 1995,  the Company  paid  approximately  $24,000  and  $53,000,
respectively,  in  management  consulting  and  other  fees  to a firm  and  its
affiliate,  having a member who is also a director of the Company.  In addition,
the Company paid $34,000 in 1994 to Danny  Edwards  Profile  Sports to hold golf
schools  for  employees  and  customers  of the  Company.  The  Company's  Chief
Executive Officer is a 50 percent owner of Danny Edwards Profile Sports.

15. Financial Instruments

Concentration of Credit Risk

The Company is subject to a concentration of credit risk as a result of sales to
its significant  customers  including its exclusive Japanese  distributor and an
original equipment manufacturer. To reduce its credit risk, the Company requires
letter  of  credit  agreements  from  its  Japanese  distributor.  The  original
equipment manufacturer purchased
                                       47
<PAGE>
                                Royal Grip, Inc.

             Notes to Consolidated Financial Statements (continued)


finished goods throughout the year under normal terms. Bad debt losses have been
considered in establishing allowances for doubtful accounts.

Fair Values

The  carrying  amounts  reported  in  the  balance  sheets  for  cash  and  cash
equivalents,  accounts receivable, net investment in lease, accounts payable and
long-term  debt  approximates  their fair value at December 31,  1996.  The fair
values of long-term  debt are estimated  using  discounted  cash flow  analyses,
based on the Company's current incremental  borrowing rates for similar types of
borrowing arrangements.

16. Benefit Plan

During 1995,  the Company  adopted a 401(k)  Savings Plan (401(k) Plan) covering
substantially  all employees who have completed one year of service during which
an employee must work at least 1,000 hours.  Under the terms of the 401(k) Plan,
employees  may  make  voluntary   contributions   up  to  15  percent  of  their
compensation,  subject to Internal Revenue Service limitations. The Company does
not make contributions to the Plan. The Company offers, as one of the investment
mediums to the participants, common stock of the Company and has reserved 50,000
shares for issuance under the 401(k) Plan.

17. Subsequent Events

During January 1997,  the Company  entered into a letter of intent to merge with
an  unrelated  golf  club  shaft   manufacturing   company,  FM  Precision  Golf
Corporation  (FMP). The preliminary  terms  contemplate that the shareholders of
FMP will receive 65 percent of the resulting company,  on a fully diluted basis,
and will control the board of directors.  The transaction is subject to a number
of  conditions,  including  the  completion  of due  diligence by both  parties,
execution of a definitive agreement,  and approval by the board of directors and
stockholders of each company.

Should the merger occur, the use of certain tax net operating loss carryforwards
available  to the  Company  may be  limited.  There can be no  assurances  as to
whether the merger will occur or if it occurs, the ultimate terms of the merger.

At December 31, 1996 and March 31, 1997, the Company was not in compliance  with
its quarterly net income (loss), debt service,  and net worth debt covenants and
anticipated not meeting many of its quarterly and monthly covenants during 1997.
The  Company  obtained an amended  bank  agreement  which  waived the net income
(loss),  debt  service,  and net worth  covenant  defaults  and amended the debt
agreement  whereby the net income  (loss) limits have been modified to a loss of
no more than  $1,000,000  for the quarter ending March 31, 1997 and a cumulative
loss of no more than  $1,600,000  for the quarter  ending June 30, 1997, and for
each month thereafter in 1997. The agreement  amended the net worth covenants to
correlate  with the net loss  covenants  above.  The quarterly  debt service and
monthly loss limit covenants were waived by the bank for 1997. In addition,  the
interest rate was amended to the prime rate plus 3.0 percent  effective April 1,
1997, subject to change based on the operating results of the Company.
                                       48
<PAGE>
             ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
                     ON ACCOUNTING AND FINANCIAL DISCLOSURES


   The disclosure  called for by this item has been  previously  reported in the
Company's 1995 Form 10-K Report.


                                    PART III

          ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information Concerning Directors

     Information concerning the names, ages, positions with the Company, and the
business experience of the Company's current directors,  each of whom has served
continuously since his first election, is set forth below:


Name              Age          Position                          Term Expires
----              ---          --------                          ------------
Danny Edwards     45           Chairman of the Board and             1997
                               Chief Executive Officer
Gardiner Dutton   66           Director                              1997
Barry Entous      52           Director                              1998
James W. Myers    62           Director                              1999

-------------------------

     Danny  Edwards has been Chairman of the Board and Chief  Executive  Officer
since  founding the Company in 1988,  and served as President from 1988 to 1994.
Mr. Edwards has played on the Professional  Golf Association Tour since 1975 and
has won five tournaments.  Mr. Edwards was a three-time Collegiate  All-American
at Oklahoma  State  University and a member of the 1973 United States Walker Cup
Team. Currently,  Mr. Edwards competes annually in three to five PGA Tour events
as well as selected regional tournaments and charity events in order to maintain
his high profile in the golf industry.  Mr. Edwards is also a principal of Danny
Edwards Profile Sports ("Profile Sports"), which conducts corporate golf schools
for executives  throughout  the country.  Mr.  Edwards'  activities on behalf of
Profile Sports occupy  approximately 12 days of his  professional  time annually
and afford him an opportunity to further promote the Company's products.

     Gardiner  Dutton has served as a director of the Company since August 1995.
From 1990 to 1995, Mr. Dutton served as President and Chief Executive Officer of
Bowmar  Instruments Corp., an electronics  manufacturer.  From 1980 to 1990, Mr.
Dutton served as Chairman and Chief Executive Officer of Inertia Dynamics, Inc.,
a manufacturer of lawn and garden equipment.  Mr. Dutton currently serves on the
board of directors of National Health Enhancement Systems,  Inc., a developer of
medical management software and call centers for the health care industry.

     Barry Entous has served as a director of the Company  since June 1989.  Mr.
Entous is a certified  public  accountant  and, since 1977, has been a principal
with  Entous & Entous,  Inc.,  an  independent  accounting  firm  that  provides
personal  accounting  services to Mr.  Edwards.  Mr.  Entous serves on the Audit
Committee of the Board of Directors.

     James W. Myers,  has served as a director of the Company  since April 1990.
Since January 1996,  Mr. Myers has served as President of Myers  Management  and
Capital Group, Inc., a management  consulting firm. From 1986 to 1995, Mr. Myers
was a principal of Myers Craig Vallone Francois, Inc., an investment banking and
management  advisory firm he founded in May 1986. Mr. Myers currently  serves on
the boards of directors of National Health  Enhancement  Systems,  Inc. and ILX,
Inc.
                                       49
<PAGE>
Information Concerning Executive Officers

     Information regarding executive officers of the Company is set forth at the
end of Part I of this Form 10-K Report.

Section 16(a) Beneficial Ownership Reporting Compliance

     Section  16(a) of the  Securities  Exchange  Act of 1934,  as amended  (the
"Exchange Act"), requires the Company's officers and directors,  and persons who
beneficially  own more than 10% of a registered  class of the  Company's  equity
securities,  to file  reports of  ownership  and changes in  ownership  with the
Securities and Exchange  Commission  and the National  Association of Securities
Dealers Automated  Quotation  System.  Such reports are filed on Form 3, Form 4,
and Form 5 under the Exchange  Act, as  appropriate.  Officers,  directors,  and
greater than 10% beneficial  owners are required by Exchange Act  regulations to
furnish the Company with copies of all Section 16(a) forms they file.

     Based  solely on its review of the copies of such forms  received  by it or
written  representations  from  certain  reporting  persons  that  no Form 5 was
required  for such person,  the Company  believes  that,  during the fiscal year
ended  December  31,  1996,  all  officers,  directors,  and  greater  than  10%
beneficial   owners   complied   with  the   applicable   Section  16(a)  filing
requirements.

                        ITEM 11 - EXECUTIVE COMPENSATION

     The table below sets forth information  concerning the annual and long-term
compensation  for services  rendered in all capacities to the Company during the
fiscal years ended December 31, 1996, 1995, and 1994, of those persons who were,
at December 31, 1996: (i) the chief executive  officer of the Company;  and (ii)
the other  executive  officers  of the  Company  whose  annual  salary and bonus
exceeded $100,000 (the "Named Executive Officers"):

Summary of Compensation

<TABLE>
<CAPTION>
                                                                                            Long-Term
                                                    Annual Compensation                     Compensation
                                                    -------------------                     ------------
                                                                        Other Annual          Securities
  Name and Principal                    Salary          Bonus           Compensation          Underlying
       Position            Year          ($)            ($)(1)             ($)(2)            Options(#)(3)
--------------------      ------        -----           ------            --------           -------------

<S>                       <C>        <C>                  <C>               <C>                <C>   
Danny Edwards              1996       139,108.(4)          0                 0                   85,100
Chairman of the Board      1995         250,000            0                 0                        0
of Directors and Chief     1994         250,000            0                 0                        0
Executive Officer

Robert G.J. Burg, II       1996        154,663             0                 0                  106,066
President                  1995        150,000             0                 0                        0
                           1994        120,000             0                 0                        0
</TABLE>
--------------

(1)       The amounts shown in this column represent bonuses granted pursuant to
          the Company's executive bonus program.

(2)       Other  annual  compensation  provided  to each of the Named  Executive
          Officers during the periods  presented,  including moving expenses and
          other perquisites, was less than 10% of the respective Named Executive
          Officer's total annual salary and bonus.

(3)       The amounts shown in this column represent  outstanding  stock options
          originally  granted  to  Messrs.  Edwards  and  Burg  pursuant  to the
          Company's Stock Option Plan that were repriced on November 15, 1996.

(4)       During a portion of 1996, Mr. Edwards voluntarily reduced his salary.
                                       50
<PAGE>
Option Grants in Last Fiscal Year

          The following table sets forth  information  concerning  stock options
granted to the Named Executive Officers by the Company in 1996:


<TABLE>
<CAPTION>
                                                                                                        Potential Realizable
                                                                                                          Value at Assumed
                                     Number of                                                              Annual Rates of
                                    Securities   Percent of Total                                             Stock Price
                                    Underlying   Options Granted                                           Appreciation for
                                     Options     to Employees in    Exercise or                              Option Term
                                     Granted       Fiscal Year      Base Price      Expiration
             Name                      (#)            (%)             ($/Sh)           Date               5%          10%
         ------------                 -----       -------------       ------       ------------         ------       -----
<S>                                 <C>              <C>               <C>         <C>                  <C>          <C>  
Danny Edwards(1)..............        4,714            1.6%              2.75        11/15/2001           3,582        7,920
                                     80,386           27.8%              3.03        11/15/2001          38,585      112,540
                                     ------           -----                                              ------      -------
                                     85,100           29.4%                                              42,168      120,460
                                     ======           =====                                              ======      =======
Robert G.J. Burg, II(2).......      106,066           36.6%              2.75        11/15/2004         138,947      333,047
</TABLE>

---------------------

(1)       Prior to November 15, 1996, Mr. Edwards was the holder of vested stock
          options to purchase 21,000 shares of the Company's  Common Stock at an
          exercise price of $12.25 per share, and an additional 24,000 shares at
          an exercise  price of $13.48 per share.  On November 15, 1996,  all of
          Mr. Edwards'  outstanding  stock options were canceled and the Company
          reissued to Mr.  Edwards new stock options to purchase 4,714 shares of
          the  Company's  Common  Stock at an exercise  price of $2.75 per share
          (the market price of the Company's Common Stock on the date of grant),
          and an  additional  80,386  shares at an  exercise  price of $3.03 per
          share.  All of the new stock options were fully vested and exercisable
          on the date of grant.  All unexercised  options expire on November 15,
          2001.

(2)       Prior to November  15,  1996,  Mr. Burg was the holder of vested stock
          options to purchase 37,500 shares of the Company's  Common Stock at an
          exercise  price of $8.50 per share.  On November 15, 1996,  Mr. Burg's
          outstanding options were canceled and the Company reissued to Mr. Burg
          new options to purchase  106,066 shares of the Company's  Common Stock
          at an exercise  price of $2.75 per share.  All of Mr. Burg's new stock
          options were fully vested and  exercisable  on the date of grant.  All
          unexercised new stock options will expire on November 15, 2004.

Fiscal Year End Option Values

          The following table sets forth information  concerning the fiscal year
end value of unexercised options held by the Named Executive Officers. The Named
Executive Officers did not exercise any options in 1996.


<TABLE>
<CAPTION>
                                                     Number of Securities                Value of Unexercised
                                                    Underlying Unexercised                   In-the-Money
                                                          Options at                          Options at
                                                      Fiscal Year End(#)                 Fiscal Year End($)(1)
Name                                             Exercisable    Unexercisable      Exercisable       Unexercisable
----                                             -----------    -------------      -----------       -------------
<S>                                               <C>              <C>               <C>                  <C>
Danny Edwards................................       85,100           0                 0                    0
Robert G.J. Burg, II.........................      106,066           0                 0                    0
</TABLE>
---------------------
(1)       Options are considered to be  "in-the-money"  if the fair market value
          of the underlying securities exceeds the exercise price of the options
          on a specified  date.  No values have been  reported in these  columns
          insofar  as the  exercise  price  of all  options  held  by the  Named
          Executive  Officers was equal to or greater than the closing  price of
          the Common Stock at December 31, 1996.
                                       51
<PAGE>
Compensation of Directors

          Beginning April 1, 1996, nonemployee members of the Board of Directors
were paid $750 for attendance at, or  participation  by telephone in, regular or
special Board meetings or meetings of committees of which they are members. Such
directors  are also  reimbursed  for  reasonable  travel  expenses  incurred  in
connection  with  attendance at each Board and committee  meeting.  In addition,
nonemployee  directors are eligible to receive  annual stock option grants under
the Company's 1996 Nonemployee Director Stock Plan (the "Director Plan").

          Mr. James W. Myers, an independent  director of the Company,  was paid
$1,500 in directors' fees in 1996 for his attendance at meetings of the Board of
Directors and  committees  thereof.  In addition,  Myers  Management and Capital
Group, Inc., a management consulting firm of which Mr. Myers is a principal, was
paid $24,500 in consulting  fees by the Company during 1996. The Company granted
to Mr.  Myers stock  options to purchase  1,500 shares of the  Company's  Common
Stock in 1996 pursuant to the Director Plan. Such options have an exercise price
of $6.375 per share.

          Mr. Gardiner S. Dutton,  an independent  director of the Company,  was
paid $1,500 in  directors'  fees in 1996 for his  attendance  at meetings of the
Board of Directors and  committees  thereof.  The Company  granted to Mr. Dutton
stock  options to purchase  1,500 shares of the  Company's  Common Stock in 1996
pursuant to the Director Plan. Such options have an exercise price of $6.375 per
share.

          Mr. Barry Entous,  an  independent  director of the Company,  was paid
$1,500 in directors' fees in 1996 for his attendance at meetings of the Board of
Directors  and  committees  thereof.  The Company  granted to Mr.  Entous  stock
options to purchase 1,500 shares of the Company's  Common Stock in 1996 pursuant
to the Director Plan. Such options have an exercise price of $6.375 per share.

Employment Contracts and Termination of Employment Arrangements

          The  Company was a party to an  employment  agreement  with Mr.  Danny
Edwards that expired in August 1996.  The Company  currently  has no  employment
agreements with any employees of the Company.

Compensation Committee Interlocks and Insider Participation

          Decisions relating to compensation of the Company's executive officers
are made by the independent members of the Board of Directors, none of whom have
any  interlocking  relationships  with the Company.  In 1996, the members of the
Board making such  determinations  were Messrs.  Barry  Entous,  James W. Myers,
Gardiner S. Dutton,  and Drew M. Brown,  who resigned from the Board in November
1996. All of these  directors are and were  independent  members of the Board of
Directors.
                                       52
<PAGE>
          ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                                   MANAGEMENT

          The  following   table  sets  forth  the  number  and   percentage  of
outstanding  shares of common stock,  par value $.001 per share,  of the Company
(the "Common Stock")  beneficially owned by: (i) each person who is known to the
Company to own beneficially  more than 5% of the outstanding  Common Stock; (ii)
each  director  of the  Company;  (iii) each of the  Company's  Named  Executive
Officers (as defined  above);  and (iv) all directors and executive  officers of
the Company as a group:

<TABLE>
<CAPTION>
Name and Address of Beneficial Owner                            Shares Beneficially Owned(1)     Percent Owned(1)
------------------------------------                            ----------------------------     ----------------
<S>                                                                  <C>                          <C>     
Danny Edwards(2)                                                       1,133,605                    33.8%   
Barry Entous(3)                                                            4,500                      *     
James W. Myers(3)                                                          4,500                      *     
Gardiner Dutton(5)                                                         3,500                      *     
Robert G.J. Burg, II(6)                                                  107,066                     3.2%   
DMB Property Ventures Limited Partnership(7)                             414,771                    12.4%   
Acushnet Rubber Company, Inc.                                            250,000(8)                  7.4%
All directors and executive officers as a group(9)                     1,276,171                    38.0%  
</TABLE>
-----------------                                                

*        Represents less than 1% of the outstanding Common Stock.

(1)      This information  regarding beneficial ownership of the Common Stock by
         certain  beneficial owners and management of the Company is as of March
         15, 1997.  The percent  owned  calculations  are based on the number of
         shares of Common  Stock  outstanding  on March 15,  1997,  plus,  where
         appropriate,  those shares  subject to  unexercised  options  which are
         exercisable  on March  15,  1997,  or within  60 days  thereafter.  The
         persons  named in the  table,  to the  Company's  knowledge,  have sole
         voting and sole  investment  power with respect to all shares of Common
         Stock  shown  as  beneficially  owned  by them,  subject  to  community
         property laws where  applicable  and the  information  contained in the
         footnotes hereunder. Unless  otherwise indicated, the  address for each
         person  named in  this  table is c/o Royal Grip, Inc., 444 West Geneva,
         Tempe, Arizona 85282.

(2)      The total for Mr. Edwards includes 85,100 shares subject to unexercised
         options  which are  exercisable  on March 15,  1997,  or within 60 days
         thereafter.  

(3)      The totals for Messrs. Entous and Myers include 9,000 shares subject to
         unexercised  options which are exercisable on March 15, 1997, or within
         60 days thereafter.

(5)      The total for Mr. Dutton  includes  2,500 shares subject to unexercised
         options  which are  exercisable  on March 15,  1997,  or within 60 days
         thereafter.

(6)      The total for Mr. Burg includes  106,066  shares subject to unexercised
         options  which are  exercisable  on March 15,  1997,  or within 60 days
         thereafter.

(7)      DMB  Property   Ventures  Limited   Partnership,   a  Delaware  limited
         partnership ("DMB Property Ventures") is an investment management firm.
         The address of DMB Property  Ventures is 4201 North 24th Street,  Suite
         120,  Phoenix,  Arizona  85016.  Mr. Drew M. Brown,  a principal of DMB
         Property  Ventures,  was a  member  of the  Board of  Directors  of the
         Company from April 1990 until November 1996.

(8)      The  total  for  Acushnet   Rubber   Company,   Inc.,  a  Massachusetts
         corporation  ("Acushnet"),  consists of 250,000  shares of Common Stock
         subject to unexercised options which are exercisable on March 15, 1997,
         or within 60 days  thereafter.  Such  options  were  issued to Acushnet
         pursuant to the Acushnet Supply  Agreement.  The address of Acushnet is
         744 Belleville Avenue, New Bedford, Massachusetts, 02742-6916.
                                       53
<PAGE>
(9)      The total for all directors and executive  officers as a group includes
         an aggregate of 222,666 shares subject to unexercised options which are
         exercisable on March 15, 1996, or within 60 days thereafter.


            ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Under an agreement between the Company, DMB Property Ventures,  and Mr.
Danny  Edwards,  DMB  Property  Ventures  has been granted the right to sell its
shares of Common  Stock in  conjunction  with any sale of shares of Common Stock
held by Mr. Edwards (other than into the public market). See "Security Ownership
of Certain  Beneficial  Owners and  Management."  In  addition,  pursuant to the
agreement,  the Company agreed to use its best efforts,  so long as DMB Property
Ventures  beneficially  owns at least 10% of the Company's Common Stock, to have
the  Board  of  Directors   nominate  a  designee  of  DMB  Property   Ventures,
satisfactory to the Board,  for election to the Board of Directors.  Mr. Drew M.
Brown, a principal of DMB Property Ventures, served as a director of the Company
until  November  1996.  DMB  Property  Ventures  currently  has no  nominees  or
representatives serving on the Board of Directors of the Company.

         The Company has entered into a Manufacturing  and Supply  Agreement (as
amended) with Acushnet  Rubber  Company,  Inc.,  pursuant to which Acushnet will
supply all of the Company's  non-cord  golf grips,  and the Company and Acushnet
have entered into a Capital  Lease  Agreement  pursuant to which the Company has
leased to Acushnet the equipment owned by the Company and previously used in the
Company's in-house manufacturing operations.  See "Business - Manufacturing" and
"Security Ownership of Certain Beneficial Owners and Management."

                                     PART IV

   ITEM 14 - EXHIBITS, CONSOLIDATED FINANCIAL STATEMENTS SCHEDULE, AND REPORTS
                                   ON FORM 8-K

         (a)      Consolidated Financial Statements.

             The following consolidated financial statements of Royal Grip, Inc.
are filed as part of this Form 10-K Report.
<TABLE>
<CAPTION>
                                                                                            Page or
                                                                                       Method of Filing
                                                                                       ----------------
<S>                                                                                       <C>
             Independent Auditors' Reports                                                 Page 26

             Consolidated Financial Statements and Notes thereto of                        Page 28
             Royal Grip, Inc., including Consolidated Balance Sheets
             as of December 31, 1996 and 1995, and related
             Consolidated Statements of Operations, Stockholders'
             Equity, and Cash Flows for each of the years
             in the three-year period ended December 31, 1996.
</TABLE>
     (b)          Consolidated Financial Statement Schedule.

             The following consolidated financial statement schedule is filed as
a part of this Form 10-K Report.
<TABLE>
<CAPTION>
                                                                                            Page or
                                                                                       Method of Filing
                                                                                       ----------------
<S>                                                                                     <C>
             Schedule II - Valuation and Qualifying Accounts                            Filed herewith
</TABLE>
                                       54
<PAGE>
                    All other  schedules have been omitted  because they are not
             applicable or the required information is shown in the consolidated
             financial statements or notes thereto.

     (c)          Exhibits.

     The following exhibits are filed as part of this Form 10-K Report.
<TABLE>
<CAPTION>
     Exhibit                                                                           Page of
      Number                     Description                                       Method of Filing
      ------                     -----------                                       ----------------
<S>                 <C>                                                       <C>
       3.1          Articles of Incorporation of Registrant                    Incorporated by reference to
                                                                               Exhibit 3.1 of the Company's
                                                                               Form S-1 Registration Statement
                                                                               No. 33-67256 ("S-1 #33-
                                                                               67256")

       3.2          Bylaws of Registrant                                       Incorporated by reference to
                                                                               Exhibit 3.2 of S-1 #33-67256

       4.1          Form of Certificate for Common Stock                       Incorporated by reference to
                                                                               Exhibit 4.1 of S-1 #33-67256

      10.1.1        Non-Employee Directors Stock Option Plan                   Incorporated by reference to
                                                                               Exhibit 4.1 of the Company's
                                                                               Form S-8 Registration Statement
                                                                               No. 33-69212 ("S-8 #33-
                                                                               69212")

      10.1.2        Form of Directors Stock Option Agreement                   Incorporated by reference to
                                                                               Exhibit 4.2 of S-8 #33-69212

      10.2.1        1993 Stock Option Plan                                     Incorporated by reference to
                                                                               Exhibit 4.1 of the Company's
                                                                               Form S-8 Registration Statement
                                                                               No. 33-69222 ("S-8 #33-
                                                                               69222")

      10.2.2        Form of Incentive Stock Option Agreement                   Incorporated by reference to
                                                                               Exhibit 4.3 of S-8 #33-69222

      10.2.3        Form of Nonstatutory Stock Option Agreement                Incorporated by reference to
                                                                               Exhibit 4.2 of S-8 #33-69222

       10.3         Letter Agreement between Royal Grip, DMB, Richard          Incorporated by reference to
                    Dan Edwards, Drew M. Brown, Mark N. Sklar,                 Exhibit 10.6 of S-1 #33-67256
                    Bennett Dorrance, as Trustee for the Bennett Dorrance
                    Trust, and Harold A. Poling dated August 9, 1993

       10.4         Tax Indemnification Agreement between Royal Grip,          Incorporated by reference to
                    Richard Dan Edwards, Drew M. Brown, Mark N.                Exhibit 10.7 of S-1 #33-67256
                    Sklar and Bennett Dorrance, as Trustee for the Bennett
                    Dorrance Trust, dated August 9, 1993

       10.5         Loan Agreement between Royal Grip and Biltmore             Incorporated by reference to  
                    Investors Bank in the amount of $500,000 dated July        Exhibit 10.9 of S-1  #33-67256
                    1, 1993, and Promissory Note related thereto
</TABLE>
                                       55
<PAGE>
<TABLE>
<S>                 <C>                                                        <C>
       10.6         Promissory Note between Royal Grip and Biltmore            Incorporated by reference to
                    Investors Bank in the amount of $700,000 dated July        Exhibit 10.10 of S-1 #33-67256
                    1, 1993

       10.7         Agreement between Royal Grip and Precision Japan           Incorporated by reference to
                    Ltd. dated July 12, 1991                                   Exhibit 10.11 of S-1 #33-67256

       10.8         Employment Agreement between Royal Grip and                Incorporated by reference to
                    Richard Dan Edwards dated August 9, 1993                   Exhibit 10.12 of S-1 #33-67256

       10.9         Form of Indemnity Agreement for Officers and               Incorporated by reference to
                    Directors                                                  Exhibit 10.13 of S-1 #33-67256

      10.10         Executive Compensation Plan                                Incorporated by reference to
                                                                               Exhibit 10.10 of the Company's
                                                                               1993 Form 10-K Report

      10.11         Merger Agreement by and among Royal Grip; Roxxi,           Incorporated by reference to
                    Inc., a Nevada corporation wholly-owned by Royal           Exhibit A to the Company's 
                    Grip; Roxxi, Inc., an Oklahoma corporation, and John       Current Report on Form 8-K
                    Burchfield dated as of April 8, 1994                       filed April 12, 1994

      10.12         Lease Agreement dated February 22, 1996 with HM            Incorporated by reference to
                    Real Estate L.L.C. for the Company's Oklahoma              Exhibit 10.12 of the Company's
                    City, Oklahoma facility                                    1995 Form 10-K Report.

      10.13         1996 Non-Employee Directors Stock Plan                     Incorporation by reference to
                                                                               Exhibit 10.13 of the Company's
                                                                               1995 Form 10-K Report.

      10.14         Loan Agreement with Biltmore Investors Bank in the         Incorporated by reference to
                    amount of $1.2 million, dated June 12, 1995                Exhibit 10.14 of the Company's
                                                                               1995 Form 10-K Report.

      10.15         Business Loan Agreement with Biltmore Investors            Incorporated by reference to
                    Bank, N.A. in the amount of $1.2 million, dated May        Exhibit 10.14 of the Company's
                    30, 1996                                                   Quarterly Report on Form 10-Q
                                                                               for the Quarter Ended June 30,
                                                                               1996.

      10.16         Manufacturing and Supply Agreement dated December                     Filed herewith*
                    21, 1996 with Acushnet Rubber Company, Inc.

      10.17         Amendment to Manufacturing and Supply Agreement                       Filed herewith*
                    dated April 4, 1997 with Acushnet Rubber Company

      10.18         Capital Lease Agreement dated December 21, 1996                       Filed herewith
                    with Acushnet Rubber Company Inc.

      10.19         Credit and Security Agreement dated February 10,                      Filed herewith
                    1997 with Norwest Business Credit, Inc. for revolving
                    loan in the amount of $1.7 million and term loan in the
                    amount of $700,000

      10.20         First Amendement to Credit Agreement dated April                      Filed herewith
                    11, 1997 with Norwest Business Credit, Inc.
</TABLE>
                                       56
<PAGE>
<TABLE>
<S>                 <C>                                                        <C>
        16          Letter re Change in Certifying Accountant                  Incorporated by reference to the
                                                                               Company's Current Report on
                                                                               Form 8-K, filed October 22,
                                                                               1995

       23.1         Independent Auditors' Consent (Ernst & Young LLP)                     Filed herewith

       23.2         Independent Auditors' Report on Schedule and                          Filed herewith
                    Consent (KPMG Peat Marwick LLP)

       24.1         Power of Attorney for Gardiner Dutton                                 Filed herewith
 
       24.2         Power of Attorney for Barry Entous                                    Filed herewith

       24.3         Power of Attorney for James Myers                                     Filed herewith

         27         Financial Data Schedule                                               Filed herewith
</TABLE>

*     Confidential treatment sought as to portions thereof


      (d)    Reports on Form 8-K.

             The Company did not file any Current Reports on Form 8-K during the
fourth quarter of the fiscal year ended December 31, 1996.
                                       57
<PAGE>
                                   SIGNATURES

      Pursuant  to the  requirements  of Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized, this 15th
day of April, 1997.

                                    ROYAL GRIP, INC.
                                    a Nevada corporation


                                    By:   /s/  Robert G.J. Burg, II
                                        ---------------------------------------
                                             Robert G.J. Burg, II -- President



          Pursuant to the  requirements of the Securities  Exchange Act of 1934,
this  report on Form 10-K has been  signed  below by the  following  persons  on
behalf of the registrant and in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
Name and Signature                                   Title                                 Date
------------------                                   -----                                 ----
<S>                                                  <C>                                  <C> 
     /s/ Danny Edwards                               Chairman of the Board and             April 15, 1997
---------------------------------------              Chief Executive Officer       
          Danny Edwards                              (Principal Executive Officer) 
                                                     

    /s/  Robert G.J. Burg, II                        President                             April 15, 1997
-----------------------------------------
          Robert G.J. Burg, II

    /s/  Tom Schneider                               Vice President - Finance              April 15, 1997
-----------------------------------------            (Principal Financial and
          Tom Schneider                              Accounting Officer)     
                                                     
                  *                                  Director                              April 15, 1997
----------------------------------------------
          Barry Entous

                  *                                  Director                              April 15, 1997
----------------------------------------------
          James W. Myers

                  *                                  Director                              April 15, 1997
----------------------------------------------
          Gardiner Dutton

*By:/s/    Robert G.J. Burg, II
          ---------------------------
          Robert G.J. Burg, II
          Attorney-in-Fact
</TABLE>
                                       58
<PAGE>
                                                                     Schedule II

                                ROYAL GRIP, INC.


                        Valuation and Qualifying Accounts

<TABLE>
<CAPTION>
                                                              Additions          Additions
                                           Balance at         Charged to        Charged to                        Balances at
                                          Beginning of        Costs and            Other                             End of
                                             Period            Expenses          Accounts         Deductions         Period
                                        ----------------- ------------------ ----------------- ----------------- --------------
<S>                                     <C>               <C>                <C>               <C>               <C>           
Reserves and allowances deducted 
from assets to which they apply: 

Allowances for doubtful accounts:

     Year ended December 31, 1996       $         227,070 $          322,385 $          --     $          --     $      549,455
                                        ================= ================== ================= ================= ==============
     Year ended December 31, 1995       $         144,060 $           83,010 $          --     $          --     $      227,070
                                        ================= ================== ================= ================= ==============
     Year ended December 31, 1994       $         117,936 $           54,417 $          --     $          28,293 $      144,060
                                        ================= ================== ================= ================= ==============
Inventory reserves:
     Year ended December 31, 1996       $         188,203 $          117,827 $          --     $         261,030 $       45,000
                                        ================= ================== ================= ================= ==============
     Year ended December 31, 1995       $          --     $          588,203 $          --     $         400,000 $      188,203
                                        ================= ================== ================= ================= ==============
     Year ended December 31, 1994       $          --     $           --     $          --     $          --     $       --
                                        ================= ================== ================= ================= ==============
Deferred Tax Valuation Allowance:

     Year ended December 31, 1996       $         776,000 $        1,497,000 $           --    $          --     $    2,273,000
                                        ================= ================== ================= ================= ==============
     Year ended December 31, 1995       $          --     $          776,000 $          --     $          --     $      776,000
                                        ================= ================== ================= ================= ==============
     Year ended December 31, 1994       $          --     $           --     $          --     $          --     $       --
                                        ================= ================== ================= ================= ==============
</TABLE>