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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB
                  Annual Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

For the Fiscal Year Ended December 31, 1998
Commission File Number: 0-29014

                              TEARDROP GOLF COMPANY
                 (Name of Small Business Issuer in its Charter)

          Delaware                                           57-1056600
          --------                                           ----------
(State or Other Jurisdiction of                            (IRS Employer
 incorporation or organization)                         Identification No.)

1080 Lousons Road
Union, New Jersey                                          07083
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(Address of principal executive offices)                  (Zip Code)

       Registrant's telephone number, including area code: (908) 688-4445

  Securities registered pursuant to Section 12(b) of the Exchange Act of 1934:

                                      
   Title of Class                     Name of each exchange on which registered:
        None                          None
--------------------                  ------------------------------------------

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

                          Common Stock, $.01 par value
                          ----------------------------
                                (Title of Class)

                          ----------------------------
                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act 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 Regulations S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in a definitive proxy or
information statement incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |X|

The Registrant's revenues for its most recent fiscal year were $60,715,000

State the aggregate market value of the voting stock held by non-affiliates of
the registrant. (The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock as of a specified date within 60 days prior to the date of filing.)

                        $18,471,275 as of March 26, 1999

Number of shares of common stock outstanding as of March 26, 1999:  5,179,890

Transitional Small Business Disclosure Format: Yes |_| No |X|
PORTIONS OF THE FOLLOWING DOCUMENTS HAVE BEEN INCORPORATED BY REFERENCE INTO
THIS ANNUAL REPORT ON FORM 10-KSB: Portions of the Proxy Statement for the
Registrant's 1999 Annual Meeting of Stockholders to be filed prior to April 30,
1999 are incorporated by reference in Part III

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                                     PART I

Item 1. Description of Business

General

      TearDrop Golf Company (the "Company" or "TearDrop") designs, develops and
markets throughout the world high-quality, premium price golf clubs, including
(a) its TearDrop line of putters; (b) its Tommy Armour Golf Company ("Tommy
Armour" or "Armour") line of irons and woods; (c) its Ram Golf Corporation
("Ram" or "RAM") line of irons, woods, and wedges; and (d) its Zebra putters.
The TearDrop, Armour and Ram lines of product are used by professional golfers
on the Professional Golf Association ("PGA") Tour, the Senior PGA Tour, the
Ladies PGA Tour and the Nike Tour. In addition, the Company operates a
professional developmental golf tour for aspiring PGA Tour players.

      The Company completed an initial public offering of its common stock, par
value $.01 per share ("Common Stock"), and warrants to purchase Common Stock in
December 1996. In January 1997, the Company commenced its extensive marketing
and advertising campaign. The Company has produced and aired numerous television
commercials and infomercials and has sponsored a variety of features on the Golf
Channel at various times on a weekly basis. The Company also advertises in the
major golf publications. Finally, the Company has enlisted over 30 golf
professionals, including 22 players on the PGA tour, to promotional agreements,
including Fred Couples, Steve Jones, Tom Watson, Tommy Tolles, Tommy Armour III,
Bradley Hughes, Omar Uresti, Tom Byrum, Paul Goydos and Jan Stephenson.

      In October 1997, the Company acquired the assets of Pro Golf Promotions,
LLC. With the acquisition, TearDrop acquired the former Powerbilt Golf Tour, a
professional development tour for aspiring PGA Tour players. The tour was
immediately renamed "The TearDrop Professional Golf Tour."

      In November 1997, the Company acquired the assets of the Tommy Armour Golf
Company from U.S. Industries, Inc. for Common Stock, preferred stock and cash
valued at approximately $22.4 million. With the acquisition, the Company
expanded its operations to include a full line of golf clubs and golf equipment.

      In December 1997, the Company acquired the assets of the Ram Golf
Corporation for Common Stock and cash and the assumption of certain liabilities
with a value of approximately $4.0 million. With the acquisition of the Ram
assets, the Company's product line was expanded to include Ram irons, woods,
wedges and Zebra putters.

Products

TearDrop Putter

      The TearDrop putter was first introduced in 1993 and has been redesigned
several times since. The Company currently manufactures and markets 20 putter
models. The Company's TearDrop putters are manufactured with the Company's
exclusive ROLL-FACE(TM) technology, distinguishing them from most other putters,
which have a standard flat face. The Company has filed multifaceted U.S. and
foreign patent applications covering different aspects of its technology. The
Company believes that with a standard flat faced putter, if a golfer positions
his hands forward, he will tend to hit the ball down into the green, causing it
to bounce as it rolls forward. This bounce tends to alter the true trajectory of
the 


                                      -2-
<PAGE>

ball rolling towards the cup. With the same standard flat faced putter, if the
golfer positions his hands backward, he will tend to impart too much loft on the
ball, causing it to bounce as it begins to roll, also affecting its true
trajectory. In both cases, the problem is especially pronounced on long putts,
when the ball is struck hard. The TearDrop putter, however, is designed to
strike the ball slightly below the center of the ball regardless of hand
position, which reduces skidding and produces true roll sooner, resulting in
superior control of distance and line.

      Each of the TearDrop putter models incorporates ROLL-FACE(TM) technology
into different putter designs to accommodate golfers' varying tastes,
preferences and habits. The Company's Zebra line of putters also features
ROLL-FACE(TM) technology. The original TearDrop design was invented by one of
the Company's founders and further developed by its current Research and
Development department. The designs for the subsequent models were developed by
the Company with assistance and input from its touring professionals, its
component manufacturers and independent design consultants. The Company does not
have any agreements with golf club designers, but believes that with the
acquisition of Tommy Armour's research and development organization, new designs
will be developed that further improve its putters featuring ROLL-FACE(TM)
technology.

Armour Products

      Armour golf clubs are designed, manufactured and marketed to be the
highest quality equipment available to the serious golfer, combining traditional
design with modern technology.

845s Irons

      The Company currently manufactures and markets, as its primary premium
line of golf clubs, the Armour 845s irons. Originally introduced in 1987, the
845s Silver Scot irons are one of the most well known irons in modern golf
history, and have generally been familiar and respected among consumers and
retailers. Capitalizing on the history and success of the 845s Silver Scot, the
Company has introduced four new contemporary versions of the 845s Silver Scot:
the 845s Oversize, 845s Reduced Offset Oversize, 845s Titanium and 845s Women's
Titanium.

845s Silver Scots

      Armour continues to offer the original 845s Silver Scot. The Company
believes that the clean, square, and simple shape of the Silver Scot iron is
attractive to players. The 845s are cavity balanced, in which the center of
gravity is located precisely in the middle of each clubface throughout the set.
With both perimeter weighting and progressive offset, the 845s Silver Scot is
intended to create increased stability.

845s Oversize

      The 845s product line features the original 845s classic shape combined
with oversize technology for irons. The 845s Oversize is intended to provide the
performance, playability and proven technological benefits demanded by better
players. Oversize technology is intended to offer golfers an enlarged sweetspot
and improved clubhead stability on off-center hits. The 845s Oversize maintains
the traditional blade shaping and appealing lines inspired by the original 845s
Silver Scot. Along with cavity balance and perimeter weighting, the 845s
oversize iron is intended to help golfers realize increased forgiveness and
stability on their golf shots.


                                      -3-
<PAGE>

845s Reduced Offset Oversize

      The 845s Reduced Offset Oversize provides all of the features of the 845s
Oversize iron, but with less offset. The reduced offset iron is intended to
offer more traditional appearance in the playing position and improved shot
workability for better golfers.

845s Titanium Face

      To capitalize on the superior benefits of titanium, Armour has developed
the 845s titanium face insert irons, an oversized stainless steel clubhead with
a titanium face insert. The 845s titanium is designed to take advantage of the
lightweight properties of titanium in the face insert, coupled with the more
dense stainless steel in the perimeter of the iron so that forgiveness and
stability of the club may be increased. Armour's 845s titanium face irons have a
complete stainless steel body and a titanium insert. Some other titanium face
insert irons have only a stainless steel frame with a titanium insert which may
create negative vibration and an imprecise insert fit. In addition, the 845s
titanium face insert is only as long as the scorelines of the club, enabling
more dense stainless steel in the perimeter of the iron intended to provide
increased forgiveness.

845s Women's Titanium

      The 845s women's titanium irons have been specially designed to fit the
physiology and swing characteristics of women golfers, incorporating, among
other attributes, forgiveness, lighter weight and increased playability. The
contoured sole has been cut away for easier shots from the rough. The irons are
cavity balanced to provide a large and consistent sweetspot located in the
center of each iron. The titanium face allows maximum perimeter weighting,
increasing forgiveness and distance on off-center toe and heel shots.

845s Junior Set

      To appeal to the growing junior market, Armour offers an 845s junior set.
Targeted to the 10-14 year-old age group, the set features four irons, a putter
and a driver. The package includes a nylon carry bag and a fur headcover.

845s Titanium Face Woods

      To compliment the 845s iron sets, Armour offers the 845s titanium face
woods. The oversize wood has been designed with a lighter weight titanium face
insert, intended to accentuate perimeter weighting and stability. 845s woods are
available in a driver, 3-wood, 5-wood and 7-wood with G Force 3.3 Tour Series
graphite shafts.


                                      -4-
<PAGE>

845s Women's Titanium Face Woods

      The 845 women's titanium face woods are stainless steel woods designed
especially for women which feature a titanium insert for lighter overall weight,
in addition to increased forgiveness. The progressive offset is intended to help
get the ball airborne and cures slicing tendencies. The unique low-profile
design and rail technology positions the center of gravity low, appropriate for
playability from any lie or turf conditions. Women's 845s woods are available in
driver, 3-wood, 5-wood, 7-wood and 9-wood.

RAM(R) Products

      RAM manufacturers and markets a complete line of high end, quality golf
clubs, including irons, wedges and woods. In addition, it markets a line of golf
accessories including golf bags, golf gloves, head covers and caps.

RAM Irons

      The Company offers three different RAM iron club models, the Tour Grind(R)
Forged irons, the FX(R) TI-SERT irons, and the FX(R) Oversize Stainless Steel
irons.

      The Tour Grind, TG-898's, are precision forged in carbon steel producing
superior feel, feedback and consistency. The clean, thin top line and weighted
muscle-back weighted blade has a concave sculptured sole with square tour
grooves, intended to provide greater control, workability and feel for golfers.
Offered in Rifle(R) steel shafts by FM Precision Golf, each shaft is frequency
matched, intended to provide consistent feel from club to club. An equally
welcome addition is Golf Pride's(R) Tour Velvet(R) high traction buffed rubber
grip.

      The FX TI-SERT irons feature a forged titanium face with a deep cavity
design. This combination of substance and sculpting is intended to create a soft
feel while delivering maximum accuracy. The oversize head has a larger sweetspot
to forgive off-center hits. The perimeter weighting and progressive offset are
intended to provide better ball flight and trajectory control on the longest
irons. FX TI-SERT irons are available with either the TempoWeight(TM) graphite
shafts or TempoWeight steel shafts.

      The FX Oversize Stainless Steel irons are offered to mid and high handicap
golfers in an economical price range. The FX Oversize irons provide 20% more
hitting surface than standard size irons. The wider sweetspot,
precision-balanced head and full cavity-surround weighting are intended to
permit easier and more accurate play.


                                      -5-
<PAGE>

RAM Wedges

      The Company has reintroduced the RAM Golf Tour Grind forged wedges.
Produced from original forgings in 10-30 carbon steel for greater feel and
feedback, RAM's Tour Grind wedges are designed to offer a broad range of angles
in standard or special wedges to give a player the right choice to hit any type
of lob or finesse shot from almost any turf lie. Provided in Rifle steel shafts
by FM Precision Golf, the shafts are intended to dampen vibration and transfer
energy at impact resembling the sensation of graphite, but the control of steel.

      The RAM FX Stainless Steel wedge selection is offered in a full range of
50 degree to 64 degree wedge angles. With the RAM FX Scoring Series steel shaft
and RAM Wedge Wrap grip, FX Stainless Steel wedges offer control and play
quality.

RAM Woods

      The Company offers two models of Ram woods, the CONCEPT(TM) Low Profile
Woods and the FX Oversize Stainless Steel Woods. The RAM CONCEPT Low Profile
woods feature a shallow-face, a low-center of gravity and four-way cambered sole
to add loft to the club for higher trajectory and a softer landing on the green.
The specially engineered low profile head shape is intended to provide maximum
distance from tight lies while maintaining exceptional accuracy and consistently
straighter shots. Available in 13-, 15-, 18-, and 23-degree lofts, the CONCEPT
woods come with the RAM Wrap(TM) grip for outstanding grip traction, feel and
durability around the exclusive TempoWeight graphite shaft.

      The FX Oversize Stainless Steel Woods add 25% to the club's hitting
surface. An anti-slice face and larger sweetspot are intended to forgive
off-center hits. With a shallower face depth and lower center of gravity, FX
Oversize woods have been designed with generous dimensions to provide more
distance and performance. Available in RAM's TempoWeight graphite shafts, FX
Oversize woods come in 1-, 3-, 5-, and 7-woods.

Walter Genuin Shoes

      In August 1998, the Company acquired the exclusive distribution rights of
Walter Genuin Shoes ("Genuin") for the United States and Canada. Genuin
manufactures 95 different models of men's and women's shoes, available in a wide
range of styles, colors and materials, both for casual wear and for playing
golf.

      Under the distribution agreement, the Company has agreed that as a
condition to exclusivity, it will make minimum royalty payments on the purchase
of Genuin products.

      Genuin shoes are all handcrafted in Italy with the finest materials by
master shoemakers. In addition to traditional craftsmanship, Genuin also
attempts to add technological edges. For example, Genuin uses Gore-Tex(R) lining
in certain of its golf shoes.

      The retail prices for Genuin shoes range from $350 to $2,000 per pair, and
are typically sold in upscale establishments.

TearDrop Professional Golf Tour

      The Company conducts approximately 44 golf events over each twelve month
period, primarily in the southeast region of the United States, from Florida to
Virginia under the name of The TearDrop Professional Golf Tour. Nearly 1,000
professional golfers are expected to compete on this tour in 1999 


                                      -6-
<PAGE>

for total prize money exceeding $4.0 million. Tournaments are held mid-week, in
two-day, three-day and four-day formats.

      The tour is intended by the Company to serve as a method of introducing
TearDrop, Armour and Ram products to future professional golfers. Studies show
that brand usage at an early stage is instrumental in creating long-term brand
loyalty. While some TearDrop Tour players graduate to the PGA Tour, others
return to their home course pro-shops as golf professionals where they may have
influence over purchasing and inventory. The TearDrop Tour provides the Company
and its sales representatives with direct access to these pro-shops. In
addition, the Tour, from time-to-time, conducts Monday/Club Pro Only events
exclusively for club professionals.

Sales and Marketing

      Advertising and Promotion. During 1999, the Company is increasing its
marketing efforts with The Golf Channel. All of the Company's equipment lines,
including Armour, RAM, and TearDrop and Zebra putters, will have significant
advertising time on The Golf Channel programming. The "TearDrop Putt of the
Week," a regular and popular feature during "Golf Central," will continue to air
throughout the year. The Company has entered into a two-year agreement with the
Golf Channel providing for approximately $1.5 million and $1.55 million in
advertising commitments during each of 1999 and 2000, respectively. The Company
will also advertise extensively on network and cable television on PGA and golf
related television productions. In the United States, the Company concentrates
its print advertising in golf magazines such as Golf Magazine, Golf Digest, Golf
World, GolfWeek and Golf Tips. The Company currently has $5.0 million of
commitments for media advertising primarily on television through 1999. This
amount does not cover all of the Company's advertising commitments for 1999 and
may increase during the remainder of 1999. The Company has also devoted
substantial capital to the production and airing of a new infomercial. The
Company anticipates that it will continue to devote substantial capital to
advertising and marketing during the next year.

      In addition to the traditional image advertising, the advertising campaign
will include a major Direct Response, 30-minute informercial schedule, featuring
the TearDrop Zebra Putter. The infomercial stars Fred Couples and Steve Jones,
and is hosted by Bill McAtee. The Company intends to air the infomercial on
various network and cable stations, in addition to The Golf Channel. The Company
has committed in excess of $3.0 million in production and media spending to the
campaign. It also expects to air a short form 60-second version of the
infomercial that will air primarily on The Golf Channel.

      On January 1, 1999, the Company entered into a 2-year agreement with The
Golf Channel for its TearDrop Tour division. The Golf Channel will produce
"Inside the TearDrop Tour `99," a 30-minute feature show that will air 96 times
per year on The Golf Channel. The show will include highlights from events,
player profiles, statistics, analysis, and golf instruction. Each of the 16
original airings will replay five times. In addition, The Golf Channel has
agreed to air the TearDrop Tour's four major events live or on tape delay.

      In addition, the Company promotes its product line with touring
professional endorsements, such as Fred Couples, Steve Jones, Tom Watson and
Tommy Tolles, pursuant to which the Company has committed to pay a minimum of
approximately $4.2 million in 1999.

      During 1998 and 1997, the Company derived approximately $15.1 million
(25.1%) and $3.6 million (37.4%), respectively of its sales from Sam's Clubs.
The loss of sales to Sam's Clubs would have a material adverse effect on the
Company's business and results of operations.

      Nationwide Distribution Network. The Company markets its products through
Company-owned sales representatives to on-course golf pro shops, off-course
specialty golf shops, and upscale sporting good stores. The Company employs
approximately 50 persons in its domestic sales division who are responsible for
all TearDrop Golf Company brands, including Armour, Ram, TearDrop and Zebra.

      Internationally, the Company has an operations and sales force in Canada
and the United Kingdom and utilizes independent distributors in other major golf
countries. Sales of products to 


                                      -7-
<PAGE>

international customers were approximately 10% of the Company's total sales on a
combined basis during 1998 as compared to 17% on a pro forma combined basis
during 1997.

      The Company's domestic sales division focuses on building and managing
strong relationships with key customers on managing the field marketing effort
and account merchandising of the Company's products within the local territory.

      Endorsements. The Company believes that the endorsement of its products by
touring professional golfers is an important feature of its overall marketing
effort. A group of touring professionals, including Tom Watson, a former
Masters, British Open and United States Open Champion, Fred Couples, a former
Masters Champion, Steve Jones, a former United States Open Champion, Bradley
Hughes, a former Australian Masters Champion, Tommy Tolles, Tommy Armour III,
Paul Goydos, Tom Byrum, Omar Uresti, Jan Stephenson and other professionals
currently use or endorse the Company's products. The agreements with the
Company's professionals generally are for one to three year terms and provide
for certain payments by the Company to the touring professionals in
consideration for their using the Company's products and bonuses based on
tournament performance. The Company has also granted options to purchase Common
Stock of the Company and may grant additional options in lieu of or in addition
to such performance bonuses. Certain of these options can be exchanged for
$100,000 and $75,000 in the years ending December 31, 1999 and 2000,
respectively. The Company's obligation under endorsement agreements in place at
March 15, 1999 provides for the payment of a minimum of approximately $4.2
million through December 31, 1999. The Company has instituted a "Player Pool"
program, under which the Company will provide rewards on a weekly basis to
professional players who win tournaments using the Company's golf clubs.

      Product Warranties. The Company supports its golf clubs with a lifetime
quality guaranty, entitling the purchaser to return the clubs for repair or
replacement. The Company has not experienced a material level of product
warranty claims.

      Assembly. The Company assembles all of its products for its markets at its
95,000 square foot office, manufacturing and warehouse facility in Morton Grove,
Illinois. Stainless steel and titanium aluminum clubheads are cast, forged or
milled by outside suppliers utilizing, in some cases, Company-owned tooling and
are inspected on-site by Company representatives. Production personnel receive
and review incoming components, such as steel and graphite shafts and grips,
most of which are supplied to the proprietary specifications of the Company. All
assembly operations, including painting, stenciling and the application of all
trade dress, are completed at the Morton Grove facility, which include finishing
and warehousing facilities, from which finished clubs are shipped. The Company
performs numerous visual and machine inspections at various points along the
assembly process, intended to detect any non-conforming clubs or subassemblies.

      The Company relies on a limited number of suppliers for materials and
clubheads. The Company's putter clubhead manufacturers are located in the United
States. The Company's iron and driver head manufacturers are located in the Far
East. While management believes that alternative sources of supply either exist
or could be developed, in the event that it should lose its present sources of
supply for these materials and components, or experience delays in receiving
delivery from such sources, the Company would sustain at least temporary
shortages of materials and components, which could have a material adverse
effect on the Company's operating results.


                                      -8-
<PAGE>

New Club Development

      The Company's product development effort is directed by individuals
consisting of a cross-functional selection of marketing, sales, tour and
operations. Input is also obtained from vendors, PGA tour players, and larger
key accounts at strategic times to review possible product introductions.

      The product development approach focuses on developing new designs, new
technologies, and new methods of manufacturing. The new product development team
strives to achieve the highest consumer values for the Company's products by
optimizing performance and providing uniqueness through extensive engineering.

Competition

      The Company competes in the premium-priced segment of the golf club
manufacturing industry. The market for premium-priced golf clubs is highly
competitive and a number of established companies compete in this market, many
of which have substantially greater financial and other resources than the
Company. The Company's competitors are well known and recognizable names in the
marketplace and include Callaway, Ping, Taylor-Made, Titleist, Cobra, Mizuno and
other recognizable names in the golf industry, many of which are more well known
than the Company and its products. Several of these competitors, including
Callaway and Fortune Brands, which owns Taylor Made and Titleist, have
substantially greater financial and other resources than the Company and have
substantially greater market share. The Company also competes with numerous
smaller, specialized companies that may compete effectively on a regional basis.

      The golf club industry is generally characterized by rapid and widespread
imitation of popular golf club designs pioneered by new or existing competitors.
Occasionally, new market entrants may develop innovative club designs which meet
with acceptance from golf club purchasers, leading to unanticipated changes in
consumer preferences. Many purchasers of premium-priced game-improvement clubs
desire golf clubs that feature the latest technological innovations and cosmetic
designs and their purchasing decisions are often the result of highly subjective
preferences which can be influenced by many factors, including, among others,
advertising, media and product endorsement. The Company could therefore face
substantial competition from existing or new competitors that introduce and
successfully promote golf clubs perceived to offer performance advantages and
greater aesthetic appeal. The Company faces competition on the basis of price,
reputation and qualitative distinctions among available products. In addition,
there are several manufacturers that do not currently compete with the Company
that could pose significant competition if there were to enter the market of
premium-priced high-quality clubs.

Regulatory Matters

      The design of new golf clubs is greatly influenced by rules and
interpretations of the United States Golf Association ("USGA"). Although the
golf equipment standards established by the USGA generally apply only to
competitive events sanctioned by that organization, it has become critical for
designers of new clubs to assure compliance with USGA standards. To the extent
that the Company's clubs are ruled ineligible by the USGA standards,
professional golfers, including the Company's paid touring professional golfers,
will be unable to use the clubs and even non-professional golfers will likely be
unwilling to purchase them. The Company believes that its putters all comply
with USGA standards. No assurance can be given that any new products will
receive USGA approval or that existing USGA standards will not be altered in
ways that adversely affect the sales of the Company's products.


                                      -9-
<PAGE>

      The Company's facilities are subject to numerous federal, state and local
laws and regulations designed to protect the environment from waste emissions
and hazardous substances. The Company is also subject to the Federal
Occupational Safety and Health Act and other laws and regulations affecting the
safety and health of employees in the production areas of its facilities. The
Company believes it is in compliance in all material respects with all
applicable environmental and occupational safety regulations.

Employees

      At December 31, 1998, the Company had 246 full-time employees engaged in
manufacturing and assembly, sales support and in management and administration.

Proprietary Rights

      The Company relies on a combination of patents, trademark and trade secret
protection to establish and protect the proprietary rights it has in its
products. The Company owns a variety of trademarks protecting its rights to the
TearDrop, Tommy Armour, Ram and Zebra names and marks. No assurances can be
given that any of such proprietary rights will protect the Company from
competitive practices of others.

                                  RISK FACTORS

      An investment in shares of Common Stock involves a high degree of risk and
should not be made by persons who cannot afford the loss of their entire
investment. Prospective investors, prior to making an investment decision,
should consider carefully, in addition to the other information contained in
this Report on Form 10-KSB and the documents and filings incorporated by
reference into this Report (including the financial statements and notes
thereto), the following factors. This Report contains, in addition to historical
information, forward-looking statements that involve risks and uncertainties.
The Company's actual results could differ materially. Factors that could cause
or contribute to such differences include but are not limited to, those
discussed below, as well as those discussed elsewhere in this Report.

      Limited Operating History; History of Losses; Accumulated Deficit.
Although the businesses of Tommy Armour and Ram have established names and
reputations, the Company has a relatively short operating history. It commenced
operations in August 1992, shipped its first products in 1993 and commenced
substantial sales activities in 1994. Although the Company had net sales of
approximately $60.7 million during the year ended December 31, 1998, the Company
had losses of approximately $6.1 million for the year ended December 31, 1998.
At December 31, 1998, the Company had an accumulated deficit of approximately
$17.6 million and $11.4 million for the year ended December 31, 1997. In
addition, of the Company's sales during 1998, $13.1 million or approximately
21.6%, represented primarily sales of Armour products that were discontinued and
will not be marketed on a substantial basis in the future. No assurance can be
given that the Company will not continue to incur losses in the future. See
Financial Statements and "Management's Discussion and Analysis or Plan of
Operation."

      Working Capital Deficiency; Need for Additional Capital; Qualified Report
of Independent Auditors. Since its inception, the Company's internally generated
cash flow has not been sufficient to finance its operations. The Company has
experienced severe working capital shortfalls in the past, which have restricted
the Company's ability to conduct its business. The Company has been primarily
dependent upon bank debt and sales of its equity securities and other financing
in order to maintain its operations. As of December 31, 1998, the Company had a
working capital deficiency of approximately $4.4 million, primarily as a result
of the classification of the Company's $20.9 million credit facility as a
current liability since it terminates and is repayable in November 1999. As a
result, the Company's independent auditor has noted in its report that these
conditions, among others, raise substantial doubt about the Company's ability to
continue as a going concern. Nevertheless, to the extent that the Company were
to refinance its Credit Facility, such that it did not terminate during 1999, of
which there can be no assurance, and as a result the Credit Facility were to be
classified as long term debt, the Company would no longer have a working capital
deficiency. The Company's expenditures and 


                                      -10-
<PAGE>

commitments for advertising and marketing have been and continue to be
substantial and the Company must continue to incur such costs in order to
continue to increase consumer awareness of its products. If the Company's sales
do not increase substantially to cover its expenditures, it will be required to
limit its advertising expenditures and expansion plans or seek additional
financing in order to continue operations. The inability to obtain additional
financing when needed would have a material adverse effect on the Company's
liquidity, and, as a result, the Company could be required to significantly
reduce or suspend its operations, seek a merger partner or sell some or all of
its assets. There can be no assurance that any additional financing will be
available to the Company on acceptable terms, if at all, when required by the
Company. See Financial Statements and "Management's Discussion and Analysis or
Plan of Operation."

      Substantial Indebtedness and Repayment Obligations, Subordination. The
Company has borrowed substantial amounts of money to finance the acquisitions of
Tommy Armour and Ram and to fund its continuing operations. The Company had
total liabilities of approximately $34.3 million at December 31, 1998, all of
which are classified as current. As of March 26, 1999, approximately $25.4
million is payable to First Union National Bank, successor by merger to
CoreStates Bank, N.A. ("First Union" or the "Bank") pursuant to the Company's
revolving line of credit which terminates on November 10, 1999. Interest expense
under the Company's Credit Facility could continue to be substantial in the
future. The revolving line of credit is secured by substantially all of the
assets of the Company and the Company's facility in Morton Grove, Illinois. The
Loan Agreement with the Bank also provides that the Company meet certain
financial covenants. At December 31, 1998, the Company was in violation of such
covenants and has obtained waivers from First Union with respect thereto. No
assurance can be given that the Company will maintain compliance with the
covenants in the future. Because the Credit Facility terminates in November
1999, the Company will be required to refinance the obligation with the Bank or
to identify alternative financing to satisfy its repayment obligation and to
continue its operations. There can be no assurance that any such alternative
funding sources will be available on a commercially reasonable basis if at all.
If it is unsuccessful in so identifying such financing, the Company may be
required to cease operations. The Loan Agreement with the Bank also contains
provisions which restrict certain activities of the Company, including the sales
of assets, the declaration of dividends and also provides for various other
restrictive covenants, including the continuing participation of Rudy A.
Slucker, the Chairman of the Board of Directors, in his current management
position. See Financial Statements and "Management's Discussion and Analysis or
Plan of Operation."

      Dependence on Key Personnel; Limited Industry Experience. The Company
believes its success will depend to a significant extent on the efforts and
abilities of certain of its senior management, particularly those of its
President, Chief Executive Officer and Chairman of the Board, Rudy A. Slucker.
The Company maintains "key person" life insurance in the amount of $1,000,000 on
the life of Mr. Slucker under which the Company is the sole beneficiary.
Although the Company has entered into an employment agreement with Mr. Slucker
which expires on December 31, 1999, the loss of Mr. Slucker or other key
management, marketing or technical employees could have a material adverse
effect on the Company's operating results and financial condition. Management
has only a limited history in the golf club industry. There is strong
competition for qualified personnel in the golf club industry, and the loss of
key personnel or an inability on the Company's part to attract, retain and
motivate key personnel could adversely affect the Company's business, operating
results and financial condition. There can be no assurance that the Company will
be able to retain its existing key personnel or attract additional qualified
personnel.


                                      -11-
<PAGE>

      Dependence upon Endorsements. As an integral part of its marketing
strategy, the Company seeks to obtain endorsements of its clubs from touring
professionals. Typically, the Company's agreements with its endorsing
professionals provide for the use of the professionals' names in connection with
the marketing of the Company's clubs and the use of the clubs by such
professionals in tournament play. The effect of a particular professional's
endorsement on the successful marketing of the Company's clubs, and the
heightening of awareness of the Company's brand name, is directly related to the
success of such professional in tournament play. However, the amount of
remuneration required to be paid or provided by the Company under a typical
endorsement agreement is not substantially dependent on the tournament success
of such professional. Accordingly, if the Company's endorsing professionals do
not have substantial tour victories, the Company likely will receive less
exposure, yet would still be required to pay endorsement fees. The Company has
entered into endorsement agreements with over 30 touring professionals which
generally are for one to three year terms and provide for certain payments by
the Company to the touring professionals in consideration for their using the
Company's equipment and bonuses based on tournament performance. The Company's
obligation under endorsement agreements in place at March 15, 1999 provides for
the payment of a minimum of approximately $4.2 million through December 31,
1999. In order to succeed with its marketing strategy, the Company intends to
continue to enter into endorsement agreements with additional professional
golfers. The inability of the Company to maintain its relationships with its
existing endorsing professionals, to enter into endorsement agreements with
additional professional golfers, or the failure of the Company's endorsing
professionals to achieve tournament success, would diminish the effectiveness of
the Company's marketing strategy and may result in declining sales.

      Risks Associated with Management of Growth, Implementation of Growth
Strategy and Potential Inability To Successfully Integrate Acquisitions. The
successful implementation of the Company's expansion strategy will be dependent
on, among other things, consumer acceptance of the Company's new lines of golf
products; the reduction of Company costs; the Company's ability to develop and
introduce new products to consumers and the marketplace; the Company's ability
to enter into endorsement agreements with successful professional golfers; the
Company's ability to identify potential acquisition prospects; the establishment
of additional distribution arrangements; the hiring and retaining of additional
marketing, creative and other personnel; and the successful management of such
growth (including monitoring operations, controlling costs and maintaining
effective quality, inventory and service controls). As the Company continues to
grow, there will be additional demands on the Company's financial, technical and
administrative resources. The failure to maintain and improve such resources or
the occurrence of unexpected difficulties relating to the Company's expansion
strategy, could have a material adverse effect on the Company's business,
prospects, results of operations or financial condition. There can be no
assurance that the Company will be able to implement successfully its business
strategy or otherwise expand its operations. The complete integration and
consolidation into the Company of the product lines acquired upon the
acquisition of the assets of Tommy Armour and Ram as well as any future
corporate acquisitions and new product licensing arrangements will require
substantial management, financial and other resources, and could pose
significant pressure on the financial condition and operating results of the
Company. There can be no assurance that the Company's resources will be
sufficient to accomplish such integration, or that the Company will not
experience difficulties with customers, personnel or others. In addition,
although the Company believes that its acquisition and licensing arrangements
will enhance its competitive position and business prospects, there can be no
assurance that such benefits will be realized or that the combination of the
Company with other companies will be successful. Although the Company regularly
evaluates possible acquisition opportunities, the Company is not a party to any
agreements, commitments, arrangements or 


                                      -12-
<PAGE>

understanding with respect to any such acquisition and there can be no assurance
that any such acquisitions will be effected.

      Dependence on Major Customers. The Company's sales to its five largest
customers represented approximately 35% of its sales in fiscal 1998. Sales to
the Company's top customer, Sam's Clubs, accounted for approximately 25% of the
Company's sales in fiscal 1998. The Company anticipates that sales to its top
five customers will continue to account for a significant percentage of its
sales. The Company has no long term commitments or contracts with any of its
customers. The loss or decreased sales from one or more of these customers would
have a material adverse effect on the Company's business, prospects, results of
operations or financial condition. Furthermore, the inability of any of the
Company's customers to satisfy any of their obligations to the Company at any
time or on a timely basis could have a material adverse effect on the business,
prospects, results of operations or financial condition of the Company.

      Dependence on Limited Number of Component Suppliers. The Company assembles
all of its clubs at its Morton Grove, Illinois facility. The Company does not
manufacture the components required to assemble its golf clubs. The Company
relies on a limited number of suppliers for club heads, shafts and grips. The
Company does not have written supply agreements with any of its current
suppliers. Therefore, the Company's success will be dependent on maintaining its
relationships with existing suppliers and developing relationships with new
suppliers. Any significant delay or disruption in the supply of components from
the Company's suppliers or any diminution of quality resulting from such
supplier's insufficient controls or inadequate component testing, would have a
material adverse effect on the Company's business, operating results and
financial condition. Further, given the highly seasonal nature of the golf
equipment industry, such adverse effect would be exacerbated should any supply
delay or quality problem occur immediately prior to or during any six month
period ending June 30 (the period during which sales of golf equipment generally
are expected to be the highest). See Financial Statements and "Management's
Discussion and Analysis or Plan of Operation."

      Consumer Preferences and Industry Trends. The golf industry is
characterized by the frequent introduction of new products and services, and is
subject to changing consumer preferences and industry trends, which may
adversely affect the Company's ability to plan for future design, development
and marketing of its products and services. The Company's success will depend on
the Company's ability to anticipate and respond to these and other factors
affecting the industry. Moreover, if a downturn occurs in the economy, the
leisure industry, including the golf industry, may be particularly vulnerable.
There can be no assurance that the Company will be able to anticipate and
respond quickly and effectively to changing consumer preferences and industry
trends or that competitors will not develop and commercialize new products that
render the Company's products and services obsolete or less marketable.

      International Sales; Reliance on Limited Number of Foreign Distributors.
During the year ended December 31, 1998 sales to international customers
accounted for approximately 10.0% of the Company's net sales. The Company has
operations in Canada and the United Kingdom from which sales in those countries
and parts of Europe are conducted. The Company also engages foreign distributors
to market and sell the Company's products in other countries. Although the
Company works closely with its foreign distributors, the Company cannot directly
control such distributors' sales and marketing activities and, accordingly,
cannot manage the Company's product sales in these foreign markets in which such
distributors operate. The Company's foreign distributors may also distribute,
either on behalf of themselves or other golf club manufacturers, other product
lines, including product lines that may be competitive with those of the
Company. There can be no assurance that these distributors will 


                                      -13-
<PAGE>

effectively manage the sale of the Company's products worldwide or that their
marketing efforts will prove effective. Additionally, the Company's
international sales may be disrupted or adversely affected by events beyond the
Company's control, including currency fluctuations and political or regulatory
changes.

      New Products; USGA Regulation. The Company believes that the introduction
of innovative technologies and club designs will be crucial to its future
success. New models and basic design changes are frequently introduced into the
golf club market but are often met with consumer rejection. Although the Company
has achieved certain successes in the introduction of its golf putters, no
assurance can be given that the Company will be able to continue to design and
manufacture golf clubs that meet with market acceptance. In addition, prior
successful designs may be rendered obsolete within a relatively short period of
time as new products are introduced into the market. There can be no assurance
that the Company will be able to continue to design innovative products that can
achieve market acceptance.

      The design of new golf clubs is also greatly influenced by rules and
interpretations of the USGA. Although the golf equipment standards established
by the USGA generally apply only to competitive events sanctioned by that
organization, it has become critical for designers of new clubs to assure
compliance with USGA standards. To the extent that the Company's clubs are ruled
ineligible under USGA standards, even non-professional golfers will likely be
unwilling to purchase them. No assurance can be given that any new products will
receive USGA approval or that existing USGA standards will not be revised in
ways that adversely affect the sales of the Company's products.

      Management of Growth. The Company's ability to manage its growth
effectively will require it to hire additional management personnel to improve
its operational, financial and management information systems, to accurately
forecast sales demand and calibrate manufacturing to such demand, to control its
overhead, to manage its advertising and marketing programs in conjunction with
actual demand, and to attract, train, motivate and manage its employees
effectively. If the Company's management is unable to manage growth effectively,
the Company's operating results and financial condition will be adversely
affected.

      Seasonal Business; Quarterly Fluctuations. Golf is primarily a warm
weather sport. The purchasing decisions of most customers are typically made in
the fall and a vast majority of sales are expected to occur during the first six
months of the year. In addition, quarterly results may vary from year to year
due to the timing of new product introductions, orders and sales, advertising
expenditures, promotional periods and shipments. Accordingly, comparisons of
quarterly information of the Company's results of operations may not be
indicative of the Company's overall annual performance. In addition, because of
the acquisitions completed by the Company at the end of 1997, comparisons by the
Company of its operations in the future to the operations during periods prior
to the acquisitions will be particularly difficult. See Financial Statements and
"Management's Discussion and Analysis or Plan of Operation."

      Susceptibility to General Economic Conditions. Sales of golf equipment
have historically been dependent on discretionary consumer spending. As a
result, the Company's revenues will be subject to fluctuations based upon
general economic conditions in the United States and in the foreign countries
where the Company sells its products. If there is a general economic downturn or
recession in the United States or in foreign countries in which the Company
markets its clubs, general consumer spending on golf equipment could be expected
to decline, which would have a material adverse effect on the Company's
business, operating results and financial condition.


                                      -14-
<PAGE>

      Uncertainty of Proprietary Rights; Expense of Intellectual Property
Litigation. The Company relies on a combination of patents, trademarks and trade
secret protection to establish and protect the proprietary rights it has in its
products. The ability of the Company's competitors to acquire technologies or
other proprietary rights equivalent or superior to those of the Company or the
inability of the Company to enforce its proprietary rights would have a material
adverse effect on the Company's operating results and financial condition. There
can be no assurance that the Company's competitors will not independently
develop or acquire patented or other proprietary technologies that are
substantially equivalent or superior to those of the Company. There also can be
no assurance that the measures adopted by the Company to protect its proprietary
rights will be adequate to do so or that the Company's products do not infringe
on third party intellectual property rights, including patents. Intellectual
property matters are frequently litigated on allegations that third-party
proprietary rights have been infringed. The Company may have to defend against
such lawsuits, which could be expensive and time-consuming.

      Extremely Competitive Industry. The market for high quality,
premium-priced golf clubs is highly competitive and includes a number of
well-established companies that have more readily recognizable brand names and a
larger, more widely known corps of endorsing golf professionals, as well as
greater market access and financial resources than the Company. Many purchasers
of premium clubs desire golf clubs that feature the most recent technology,
innovative designs and recognized brand names. Additionally, purchases are often
made based upon highly subjective decisions that may be influenced by numerous
factors, many of which are out of the Company's control. Golfers' subjective
preferences are subject to rapid and unanticipated changes. As a result, the
Company will face substantial competition from existing and new companies that
market golf clubs which are perceived to enhance performance, are visually
appealing or appeal to other consumer preferences. In addition, the golf club
industry is dominated by a small number of very large corporations such as
Callaway, Fortune Brands, which owns Titleist and Cobra, and Taylor Made, that
have substantial shares of the market and substantially greater financial and
other resources than the Company. Further, the golf club industry is subject to
rapid and widespread imitation of golf club designs which, notwithstanding the
existence of any proprietary rights, could further hamper the Company's ability
to compete. The Company faces competition on the basis of price, reputation and
qualitative distinctions among available products. There can be no assurance as
to the market acceptance of the Company's golf clubs in relation to its
competition.

      Control of the Company by Officers and Directors. The Company's officers
and directors beneficially own in excess of approximately 23% of the outstanding
shares of the Company's Common Stock. As a result, such persons, acting
together, have the ability to exercise significant influence over all matters
requiring stockholder approval. The concentration of ownership could delay or
prevent a change in control of the Company.

      Potential Limited Trading Market; Possible Volatility of Stock Price;
Potential Effects of "Penny Stock" Rules. Although the Common Stock is quoted on
the Nasdaq SmallCap Market ("Nasdaq"), in order to continue such quotation, the
Company must satisfy certain maintenance criteria. The failure to meet these
maintenance criteria may result in the Common Stock no longer being eligible for
quotation on Nasdaq and trading, if any, of the Common Stock would thereafter be
conducted in the non-Nasdaq over-the-counter market. As a result of such
delisting, an investor may find it more difficult to dispose of or to obtain
accurate quotations as to the market value of the Company's Common Stock. In
addition, if the Common Stock was to become delisted from trading on Nasdaq and
the trading price of the Common Stock was less than $5.00 per share, trading in
the Common Stock would also be subject to the requirements of certain rules
promulgated under the Securities Exchange Act of 1934, as amended (the 


                                      -15-
<PAGE>

"Exchange Act"), which require additional disclosure by broker-dealers in
connection with any trades involving a stock defined as a penny stock
(generally, any non-Nasdaq equity security that has a market price of less than
$5.00 per share, subject to certain exceptions). Such rules require the
delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith, and impose
various sales practice requirements on broker-dealers who sell penny stocks to
persons other than established customers and accredited investors (generally
institutions). For these types of transactions, the broker-dealer must make a
special suitability determination for the purchaser and must have received the
purchaser's written consent to the transaction prior to sale. The additional
burdens imposed upon broker-dealers by such requirements may discourage them
from effecting transactions in the Common Stock, which could severely limit the
liquidity of the Common Stock and the ability to sell the Common Stock in the
secondary market.

      In the absence of an active trading market, purchasers of the Common Stock
may experience substantial difficulty in selling their shares. The trading price
of the Company's Common Stock is expected to be subject to significant
fluctuations in response to variations in quarterly operating results, changes
in analysts' earnings estimates, announcements of technological innovations by
the Company or its competitors, general conditions in the golf club industry and
other factors. In addition, the stock market is subject to price and volume
fluctuations that affect the market prices for companies and that are often
unrelated to operating performance.

      Shares Eligible for Future Sale; Effect of Outstanding Options and
Potential Issuances of Bonus Shares. Sales of the Company's Common Stock in the
public market could adversely affect the market price of the Common Stock. As of
the date hereof, there are outstanding options to purchase an aggregate of
1,294,048 shares of Common Stock at per share exercise prices ranging from $2.06
to $11.81. The Company has reserved 450,000 shares for issuance under the 1996
Employee Stock Option Plan, has granted options to acquire 500,000 shares of
Common Stock (and an additional 1,250,000 shares, subject to shareholder
approval, of which 1,000,000 shares will be subject to the Company achieving
certain earnings or stock price targets) to Rudy A. Slucker, the Chairman of the
Board, President and Chief Executive Officer of the Company and has granted
options to purchase up to an aggregate of 92,500 shares of Common Stock to
touring golf professionals who perform consulting and promotional services for
the Company. Under the promotional agreements with the Company's golf
professionals, the Company may be required to grant additional stock options if
the professional satisfies certain conditions such as winning a golf tournament.
If the Company's professionals win a large number of tournaments, the number of
additional options granted could be substantial. The exercise of such
outstanding options would dilute the then-existing stockholders' percentage
ownership of the Company's Common Stock, and any sales in the public market of
Common Stock underlying such stock options could adversely affect prevailing
market prices for the Common Stock. Moreover, the terms upon which the Company
would be able to obtain additional equity capital could be adversely affected
since the holders of such securities can be expected to exercise them at a time
when the Company would, in all likelihood, be able to obtain any needed capital
on terms more favorable to the Company than those provided in such stock
options.

      Bonus Shares and Bonus Payments to the Company's Chairman. The Company's
employment agreement with Rudy A. Slucker, its Chairman, President and Chief
Executive Officer provides that Mr. Slucker is entitled to receive a bonus equal
to 10% of the Company's pre-tax net income starting with the year ending
December 31, 1998. The bonus was payable to the extent of 50% of such amount in
cash and the remaining 50% in the form of Common Stock of the Company. The
issuance of these additional shares could also have an adverse effect on the
liquidity of the Company's Common Stock.


                                      -16-
<PAGE>

      Potential Adverse Effects of Preferred Stock Issuance. The Board of
Directors has the authority, without further stockholder approval, to issue up
to 1,000,000 shares of preferred stock, in one or more series, and to fix the
number of shares and the rights, preferences and privileges of any such series.
The issuance of preferred stock by the Board of Directors could affect the
rights of the holders of the Common Stock. For example, such an issuance could
result in a class of securities outstanding that would have dividend,
liquidation, or other rights superior to those of the Common Stock or could make
a takeover of the Company or the removal of management of the Company more
difficult. The Board of Directors does not currently intend to issue any shares
of preferred stock in the foreseeable future.

      No Dividends. The Company has never declared or paid dividends on its
Common Stock and currently does not intend to pay dividends in the foreseeable
future. The payment of dividends in the future will be at the discretion of the
Board of Directors. The Company, Tommy Armour, Ram and First Union are parties
to an Agreement whereby the payment of dividends and redemption payment are
restricted under certain circumstances including (i) where the Company has
failed to make payments or otherwise failed to comply with covenants in, or an
Event of Default has occurred under, the loan agreement (except where such
breach, failure or Event of Default is cured by the Company or waived by the
Bank), (ii) where the Bank accelerates the indebtedness, or (iii) where there
occurs an insolvency event.

Item 2.

Description of Property

      The Company owns 95,000 square feet of office, manufacturing and warehouse
and distribution space in Morton Grove, Illinois. The Company conducts its
assembly, warehouse and distribution activities from these facilities. The
Company occupies 20,000 square feet of office and warehouse space in Union, NJ,
under a five-year lease agreement between the Company and Dolo Realty which
terminates in August, 2002. The aggregate minimum rental payments under the
lease for the years ending December 31, 1999 and 2000 are $76,666 and $80,000,
respectively. During the latter part of 1997 and the first quarter of 1998, the
Company conducted its TearDrop putter assembly, warehouse and distribution
activities from this location as well as its corporate headquarters activities.
Upon the acquisition of Tommy Armour in November 1997, the Company transferred
its putter assembly, warehouse and distribution activities to the Morton Grove,
Illinois location. As a result, the Union, New Jersey location is used solely
for corporate activities. The Company has subleased a portion of the Union, New
Jersey location and continues to maintain its corporate headquarters at that
location.

      The Company also uses an outside warehouse for storage of larger, bulk
inventory items such as golf bags. The arrangement with the warehouse is
month-to-month and the rental and storage charges are directly related to the
amount of inventory being stored each month.

Item 3. Legal Proceedings.

      The Company has been named, among others, as a defendant in a lawsuit
entitled Izett Manufacturing, Inc. v. RAM Golf Corporation, Laser Golf
Corporation, TearDrop Golf Company and TearDrop RAM Golf Company, case number 98
CV 858, in which the plaintiff was initially seeking damages of $11.5 million.
During the course of litigation, the initial demand has been significantly
diminished. The Company believes that the lawsuit is without merit and is
defending it vigorously. Accordingly, no reserve has been established for this
legal matter.


                                      -17-
<PAGE>

      The Company was also named as a defendant in a lawsuit entitled Laser Golf
Corporation and James R. Hansberger v. TearDrop RAM Golf Company and TearDrop
Golf Company, case number 98 CH 08433, in the Illinois State Court of Cook
County, Illinois, in which the plaintiff alleged breach of contract. On March 2,
1999, the parties reached a mutually agreeable settlement and the case has been
dismissed without prejudice.

      The Company has filed a complaint against Laser Golf Corporation entitled
TearDrop Golf Company v. Laser Golf Corporation and James R. Hansberger, case
number 98 C 5592, in the United States District Court for the Northern District
of Illinois, Eastern Division, alleging trademark and trade dress infringement.
This case was also settled on March 2, 1999, in which defendants agreed to be
permanently enjoined from using the Company's trademarks and trade dress.

      In March 1999, the Company received a formal notice demanding arbitration
from Pro Golf Promotions, LLC, Cal Rogers and Dara O'Neill in connection with
certain disputes between such parties and the Company relating to the purchase
by the Company from such parties of the TearDrop Professional Golf Tour. Such
parties are seeking certain money damages and the issuance of up to 65,000
shares of Common Stock related to alleged incentive obligations for 1998 and up
to 65,000 shares of Common Stock related to such obligations for 1999. The
Company believes that such parties are not entitled to the issuance of such
shares or to money damages and intends to vigorously defend such claim.

Item 4. Submission of Matters to a Vote of Security Holders.

      None.

                                     PART II

Item 5. Market for Common Equity and Related Stockholder Matters.

      Market Information: Since the effective date of the Company's registration
statement on December 19, 1996, the Company's Common Stock has been traded on
the Nasdaq SmallCap Market under the symbol "TDRP." The Company's Redeemable
Common Stock Purchase Warrants were traded on the Nasdaq SmallCap Market under
the symbol "TDRPW" from the effective date of the Company's registration
statement on December 19, 1996 to May 1998. In May 1998, the Company notified
all registered holders of its Warrants of the Company's intention to redeem such
warrants in June 1998 for $.01. Each Warrant entitled the holder thereof to
purchase one share of the Company's Common Stock at a price of $5.50 per share.
Pursuant to that notification, substantially 100% of the Warrants were exercised
by the holders and the Company issued 1,541,700 shares of its Common Stock in
exchange for $8.3 million.

      The following table shows the range of closing bid prices for all quarters
that the Company's securities have been publicly traded. These amounts, which
have rounded to the nearest eighth, represent quotations between dealers and do
not include retail mark-ups, mark-downs or commissions, and may not represent
actual transactions.


                                      -18-
<PAGE>

               Common Stock
               Quarter Ended                  High          Low
               -------------                  ----          ---
               December 31, 1996              $5.750       $4.750

               March 31, 1997                 $6.250       $3.938
               June 30, 1997                  $4.500       $2.375
               September 30, 1997             $5.688       $2.063
               December 31, 1997              $7.438       $4.250

               March 31, 1998                 $6.875       $5.625
               June 30, 1998                  $14.063      $6.750
               September 30, 1998             $10.063      $4.938
               December 31, 1998              $6.938       $4.125

      Holders: As of March 22, 1999, there were in excess of 1,800 beneficial
holders of Common Stock of the Company.

      Dividends: The Company has never declared or paid dividends on its Common
Stock and does not intend to pay dividends in the foreseeable future. The
payment of dividends by the Company is restricted pursuant to the Loan Agreement
with First Union. See "Item 1 - Description of Business Acquisition of Tommy
Armour Golf Company" and "Item 6 - Management's Discussion and Analysis or Plan
of Operation-Capital Resources and Liquidity."

Item 6. Management's Discussion and Analysis or Plan of Operation.

      Overview

      The Company designs, develops, manufactures and markets throughout the
world high-quality, premium priced golf clubs based on its proprietary
technologies, including (a) its TearDrop line of putters; (b) its Armour line of
irons and woods; (c) its Ram line of irons, woods and wedges; and (d) its Zebra
putters. The Company's lines of products are used by golfers throughout the
world, including professional golfers on the PGA Tour, the Senior PGA Tour, the
Ladies PGA Tour and the Nike Tour. In addition, the Company operates a
professional developmental golf tour for aspiring PGA Tour players and is the
sole United States distributor for Walter Genuin shoes.

      The Company introduced its first product, the TearDrop putter, in 1993 and
commenced significant marketing and sales activities in 1994. The Company
completed an initial public offering of its common stock in December 1996. In
January 1997, the Company commenced a substantial television and print
advertising campaign. The costs to produce and air the infomercial and
television commercials were substantial and resulted in losses as the Company
continued to roll out its advertising campaign in the first three quarters of
1997.

      In the fourth quarter of 1997, the Company completed three acquisitions:

      (a) In October, the Company acquired the assets of Pro Golf Promotions,
LLC, a professional developmental tour for aspiring PGA Tour players, for 50,000
shares of the Company's common stock. The tour was immediately renamed "The
TearDrop Professional Golf Tour".


                                      -19-
<PAGE>

      (b) In November, the Company acquired substantially all of the assets of
the Tommy Armour Golf Company ("Armour") from U.S. Industries, Inc. for Common
Stock, preferred stock and cash valued at approximately $22.4 million.

      (c) In December, the Company acquired certain assets and assumed certain
liabilities of the Ram Golf Corporation ("Ram") for common stock and cash with a
value of approximately $4.0 million.

      Neither Armour nor Ram were profitable in 1997 or 1996 and both businesses
had substantial declines in sales from 1996 to 1997. Armour incurred losses of
$19.1 million and $399,000 with sales of $32.0 million and $56.2 million for its
fiscal years ended September 30, 1997 and 1996, respectively, and Ram incurred
losses of $4.1 million and $307,000 with sales of $14.0 million and $19.4
million for the years ended December 31, 1997 and 1996, respectively.

      Since the acquisitions were completed, the Company has devoted substantial
efforts to reduce costs, eliminate unprofitable product lines, and focus on
marketing of high quality products. However, there can be no assurance that the
Company will be able to operate the combined enterprises successfully or reverse
the history of losses that each of the Company, Ram and Armour have incurred in
the past.

      The Company believes that an important element for increasing awareness
and demand for its golf clubs is the building of a corps of touring professional
golfers that will endorse, use and win with the Company's clubs. Accordingly, as
an integral part of its marketing strategy, the Company continually seeks to
obtain professional endorsements of its clubs. The Company has entered into
endorsement agreements, of up to three years, with professional players
principally on the PGA Tour which provide for base payments in consideration of
the use of the professionals' names in connection with the marketing of the
Company's clubs and the use of the clubs by such professionals in tournament
play. In addition, bonus payments that could be substantial may be made based
upon tournament performance, standings on the official money list, and being
named to the Ryder Cup or President Cup teams. The Company has granted stock
options to certain of its endorsing professionals and intends to continue to do
so in the future. During 1998, the Company recorded compensation expense of
$200,000 in connection with the grant of such options on the date of grant. The
effect of a particular professional's endorsement on the successful marketing of
the Company's clubs, and the heightening of awareness of the Company's name, may
be directly related to the success of such professional in tournament play. The
Company, however, will be required to compensate a professional whether or not
he or she is successful. For 1999, the Company has entered into endorsement
agreements which will require the payment of a minimum of approximately $4.2
million should each of the professionals use and endorse the Company's products
as provided in the agreements. In addition, the Company anticipates that it will
devote substantial capital to advertising and marketing during the next year.

      The Company has also made substantial expenditures and commitments for
advertising and marketing and must continue to incur such costs in order to
continue to increase consumer awareness of its products. During 1999, the
Company will incur substantial expenses for television, print advertising, for
its program with the Golf Channel and in connection with its infomercial, among
other things. There can be no assurance that the expansive advertising and
marketing will result in increased sales for the Company.

      The Company has incurred substantial indebtedness in financing the
acquisition of Armour and Ram and in financing its expansion and operations. At
December 31, 1998, the Company had $34.3 million in liabilities, approximately
$20.9 million of which was payable to First Union. The credit facility with
First Union will reduce to $25.0 million at June 30, 1999 and terminates on
November 10, 1999. The Company will therefore be required to either refinance
the credit facility or identify alternative financing. As of December 31, 1998,
the Company had a working capital deficiency of approximately $4.4 million,
primarily as a result of the classification of the Company's $20.9 million
credit facility as a current liability since it terminates and is repayable in
November 1999. As a result, the Company's independent auditor has noted in its
report that these conditions, among others, raise substantial doubt about the
Company's ability to continue as a going concern. Nevertheless, to the extent
that the Company were to refinance its Credit Facility, such that it did not
terminate during 1998, of which there can be no assurance, and as a result the
Credit Facility were to be reclassified as long term debt, the Company would no
longer have a working capital deficiency.


                                      -20-
<PAGE>

      The Company maintains an in-house research and development and design
department. In addition, the Company works closely with component manufacturers,
independent design consultants and the Company's endorsing golf professionals in
the design and development of new products and product improvements. The ability
of the Company to introduce new products or product improvements is directly
related to the efforts and success of this research and development effort.

      The Company does not manufacture the components required to assemble its
golf clubs, relying instead on a number of component suppliers, both domestic
and foreign. The Company's success in assembling its products will be dependent,
in part, on maintaining its relationships with its existing suppliers and
developing relationships with new suppliers.

      The Company believes that there are readily available alternative sources
for each of the components comprising its clubs, although there can be no
assurance of this. Any significant delay or disruption in the supply of
components from the Company's suppliers or any quality problems with the
supplier's components would delay the Company's delivery of finished products
and adversely affect current sales and could adversely affect future sales
potential if customers lose faith in the Company's ability to deliver a
high-quality product on a timely basis. Further, given the highly seasonal
nature of the golf equipment industry, such adverse effect would be exacerbated
should any such supply delay or quality problem occur immediately prior to or
during the six-month period ending June 30 (the period during which sales of
golf equipment have historically been the highest).

      Results of Operations

      Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

      In the final two months of 1997, the Company acquired the businesses of
Tommy Armour and Ram. Since the operations of those businesses are included for
the entire year of 1998 and, in the case of Tommy Armour, for approximately 50
days, and, in the case of Ram, for one day, in 1997, all comparisons are
affected by the inclusion of those businesses in 1998.

      The following table compares certain reported financial information as
well as pro forma financial information, as if both Tommy Armour and Ram had
been included from January 1, 1997::

<TABLE>
<CAPTION>
                           Results as Reported
              (dollar amounts in $000's in the table only)         Pro Forma Results
               ------------------------------------------  -------------------------------
                 1998         1997       Change  % change     1997      Change    % change
<S>            <C>         <C>         <C>         <C>     <C>         <C>           <C> 
Net sales      $ 60,715    $  9,624    $ 51,091    530.8   $ 48,795    $ 11,920      24.4
Gross profit     24,287       2,081      22,206   1067.1     13,433      10,854      80.9
SG&A             28,836      11,106      17,730    159.6     53,704     (24,868)    (46.3)
Loss from
operations       (4,549)     (9,025)      4,476     49.6    (40,271)     35,722      88.7
Interest          1,595         124       1,471   1186.3      2,625      (1,030)    (39.2)
Net loss         (6,144)     (9,149)      3,005     32.8    (42,896)     36,752      85.7
</TABLE>

      The significant increases in sales, gross profit, and selling, general and
administrative expense from 1997 to 1998 are a result of Tommy Armour and Ram
being included for the entire year of 1998. Tommy Armour was included in 1997
from November 7 and Ram from December 30, the dates of their respective
acquisitions by the Company.


                                      -21-
<PAGE>

      Gross profit, as a percentage of net sales, increased from 21.6% in 1997
to 40.0% in 1998. This increase is attributed to, among other things, the sale
of discontinued inventory in 1997 of Armour products at a gross profit
percentage of approximately 2.8%.

      Selling, general and administrative expense, as a percentage of sales,
decreased from 115.4% in 1997 to 47.5% in 1998. In 1997, the Company invested
heavily in infomercial and advertising production and airtime costs in order to
increase awareness of its product line. During 1998, the Company continued
extensive advertising and marketing, incurring approximately $7,523,000 in
advertising costs during 1998. In addition, general and administrative expense
due to the addition of Armour, with sales of low gross margin product (see
previous paragraph) tended to increase the percentage of selling, general and
administrative expense to sales.

      Interest expense, net, increased from $124,000 in 1997 to $1,595,000 in
1998 and as a percentage of sales from 1.3% in 1997 to 2.6% in 1998. In
connection with the acquisition of Armour and Ram and to provide working capital
to manage its business, the Company obtained a line of credit, initially for
$18,000,000, which was later increased to $25,000,000.

      As a result of the increase in sales and gross profit, offset by the
increase in selling, general and administrative expense and interest expense,
net loss decreased from $9,149,000 in 1997 to $6,144,000 in 1998.

      Year Ended December 31, 1998 Compared to Pro Forma Year Ended December 31,
1997

      Sales for 1998 were $60,715,000 compared to pro forma sales of $48,795,000
in 1997, an increase of $11,920,000 or 24.4%. Included in the pro forma sales of
1997 are $32.0 million of Armour sales, all of which were product introduced and
subsequently discontinued in 1997, and $14.0 million of Ram sales, approximately
$10 million of which was product lines, not continued into 1998. Included in
1998 are sales of discontinued product lines of approximately $13.0 million.
Therefore, on continuing product lines, sales in 1997 were approximately $7.0
million compared to approximately $48.0 million in 1998.

      Gross profit in 1998 was $24,287,000 or 40.0% of sales compared to pro
forma gross profit of $13,433,000 or 27.5% of sales in 1997. In 1997, due to the
discontinuation of the Armour product line and the resulting sale at reduced
prices, the gross profit percentage of Armour sales was approximately 16.7%.
Since Armour's net sales accounted for approximately two-thirds of the combined
pro forma sales, Armour's gross profit percentage had a significant impact on
the pro forma gross profit percentage.

      Selling, general and administrative expense in 1998 was $28,836,000 or
47.5% of net sales, compared to pro forma $53,704,000 or 110.1% of net sales in
1997. In 1997, Armour introduced a new line of golf clubs, which was not
accepted in the marketplace. Armour incurred significant marketing, promotion
and advertising expenses in the introduction of this product and, as a result,
Armour's selling, general and administrative expenses were 110.5% of its sales
in 1997. Ram's sales in 1997 were declining from prior years, but selling,
general and administrative expenses remained constant, and as a result, were
73.1% of Ram's sales in 1997. TearDrop's selling, general and administrative
expense in 1997 was 276% of sales. Subsequent to the initial public offering in
December 1996, the Company commenced an extensive marketing and advertising to
introduce and broaden market awareness of the TearDrop putter.

      Upon completion of the acquisitions of Armour and Ram, the Company
undertook to consolidate operations, eliminate overlapping and duplicate staff
and facilities and reduce overall selling, general and 


                                      -22-
<PAGE>

administrative expense. As a result of the increase in sales of non-discontinued
products, the decrease in sales of discontinued products and the resulting lower
than expected gross profit percentages, as well as the decrease in selling,
general and administrative expenses in 1998 as compared to 1997, pro forma loss
from operations decreased from $40,271,000 in 1997 to $4,549,000 in 1998, a
decrease of 88.7% in the operating loss.

      Interest expense in 1998 was $1,595,000 compared to pro forma interest of
$2,625,000 in 1997. In 1997, Armour was charged approximately $2.2 million in
interest by its parent company for intercompany advances. In addition, for pro
forma purposes, interest charges have been assumed for the entire year of 1997
for cash borrowed to finance the acquisitions of Armour and Ram.

      For all of the reasons discussed above, net loss for 1998 was $6,144,000
compared to a pro forma net loss of $42,896,000 for 1997, a decrease of
$36,752,000 or 85.7%.

      Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

      The Company had sales of $9,624,000 for the year ended December 31, 1997
compared to sales of $847,000 for the year ended December 31, 1996, an increase
of $8,777,000 or approximately 1036%. Sales from the TearDrop putter line were
$2,815,000 in 1997 compared to $847,000 in 1996, an increase of 232%, which
reflects the effects of the advertising campaign initiated in 1997 following the
initial public offering and the resulting acceptance of the TearDrop putter in
the marketplace. Sales of Armour products, following the acquisition in November
1997, were $6,809,000, which represented primarily products that have been
discontinued and will not be marketed on a substantial basis in the future.

      Cost of sales were $7,543,000 (78.4% of sales) for the year ended December
31, 1997, compared to $407,000 (48.1% of sales) for the year ended December 31,
1996, an increase of $7,136,000. The increase in cost of sales as a percentage
of sales reflected the high cost of the Armour products that were sold during
December, generally for reduced prices. Gross margins on the TearDrop line of
products increased from 52% in 1996 to 69% in 1997. The increase in gross
margins was a result of a higher average selling price which lowered unit cost
per product sold. Gross margins on the Armour line of products were 2.8%
reflecting the attempt to reduce discontinued inventory at lower prices
following the acquisition.

      Selling, general and administrative expenses were $11,106,000 for the year
ended December 31, 1997 or 115.4% of sales, compared to $1,176,000 for the year
ended December 31, 1996 or 139% of sales, an increase of $9,930,000. Of this
increase, $3,222,000 was attributable to selling, general and administrative
expense of the Armour operations from the date of acquisition. In addition, in
1997, the Company invested heavily in infomercial and advertising production and
airtime costs in order to increase awareness of its product line. Also, because
of the growth of the Company, additional sales, marketing, finance and
administrative personnel were hired in the latter part of 1996 and in 1997. The
Company also incurred expenses in moving its operating facilities in August 1997
from South Carolina to New Jersey. Selling, general and administrative expenses
also includes $438,000 representing compensation expense representing the
difference between the exercise price and the fair value of stock options to
purchase 250,000 shares of Common Stock granted to Rudy Slucker, the Company's
Chairman, President and Chief Executive Officer, in December 1997.

      Interest expense, net of interest income, was $124,000 for the year ended
December 31, 1997 compared to $174,000 for the year ended December 31, 1996. For
1997, the expense reflects the interest on the line of credit necessary to
effect the Armour and Ram acquisitions, net of income from investment 


                                      -23-
<PAGE>

during the year, of funds obtained from the initial public offering. For 1996,
the expense reflects interest on loans, principally from stockholders, until the
initial public offering was completed.

      As a result of the increased expenses and costs related to the growth of
the Company and the expansion through acquisition, the Company experienced a net
loss of $9,149,000, or $4.10 per common share, for the year ended December 31,
1997 compared to a net loss of $910,000 or $1.15 per common share, for the year
ended December 31, 1996.

      Liquidity and Capital Resources

      As of December 31, 1998, the Company had a working capital deficiency of
approximately $4.4 million, primarily as a result of the classification of the
Company's $20.9 million credit facility as a current liability since it
terminates and is repayable in November 1999. As a result, the Company's
independent auditor has noted in its report that these conditions, among others,
raise substantial doubt about the Company's ability to continue as a going
concern. The Company had total stockholder's equity of $7,434,000.

      Pursuant to a Loan and Security Agreement, as amended (the "Loan
Agreement"), between the Company and First Union, First Union has provided a
$30.0 million revolving credit facility (the "Credit Facility"), a portion of
which was used by the Company to finance the acquisition of the assets of Armour
and Ram and is currently being utilized by the Company's to satisfy its working
capital and general corporate expenditures. The Credit Facility terminates on
November 10, 1999 and must be repaid by such date. The Company currently does
not have the resources to repay the entire Credit Facility and will be required
to either refinance the Credit Facility with First Union or identify an
alternative source of financing prior to such date. The Company has had
discussions with certain institutions but currently has no agreements with any
alternative source of financing and no assurance can be given that any such
arrangements can be achieved on terms that are acceptable to the Company. The
Company drew down $10.0 million under the Credit Facility to fund the cash
payment for Armour and $2,668,009 under the Credit Facility to fund the cash
payment for Ram. Funds extended pursuant to the Credit Facility accrue interest
at the prime rate minus 1/2% or LIBOR plus 2% per annum. The Credit Facility
will be reduced to $25.0 million commencing June 30, 1999. The Credit Facility
is secured by the Company's facility in Morton Grove, Illinois, and
substantially all of the assets of the Company, including the assets acquired in
connection with the acquisitions of Armour and Ram. The Loan Agreement contains
restrictions on certain of the Company's activities, including, but not limited
to, the payment of dividends, redemption of securities and the sale of assets
outside the ordinary course of the Company's business. The Loan Agreement also
provides that the Company meet certain financial covenants. At December 31,
1998, the Company was in violation of such covenants and has obtained waivers
from First Union with respect thereto. No assurance can be given that the
Company will maintain compliance with the covenants in the future.

      On March 10, 1999, Rudy Slucker, the Chairman, President and Chief
Executive Officer of the Company, loaned the Company $500,000, repayable on
demand, once the Company has reached certain reduced levels of indebtedness
under the Credit Facility with First Union. In March 1998, the Company repaid a
loan to the Company's Chief Executive Officer in the amount of $400,000.
Interest expense on all shareholder loans aggregated approximately $8,000 and
$32,000 for the years ended December 31, 1998 and 1997, respectively.

      The Company's credit terms range from 30 days to 90 days, depending on the
type of account. Cash needs are highest in the first quarter of the year, as
inventories are being purchased and, while product is being shipped to
customers, the cash receipts from those sales are still up to 90 days away. In
addition, a significant financial commitment is made for advertising during the
first quarter of the year.


                                      -24-
<PAGE>

      The Company currently has $5.0 million of commitments for media
advertising primarily on television through 1999. This amount does not cover all
of the Company's advertising commitments for 1999 and may increase during the
remainder of 1999. The Company has also entered into a two year agreement with
the Golf Channel, providing for expenditures of approximately $1.5 million and
$1.55 during 1999 and 2000, respectively. In addition, the Company has entered
into endorsement agreements with golf professionals which will require the
payment of a minimum of approximately $4.2 million in 1999. The Company has also
devoted substantial significant capital to the production and airing of a new
infomercial. The Company anticipates that it will continue to devote substantial
capital to advertising and marketing during the next year.

      The Company does not have any significant capital expansion plans at the
present time and any capital expenditures will be financed from internally
generated funds. There can be no assurance, however, that the current line of
credit is sufficient to allow the Company to meet its needs, particularly if
sales do not increase or if the Company encounters operational difficulties.

      The statements of cash flows for the Company for the years ended December
31, 1998 and 1997 is summarized below:

                                                    1998           1997

        Net cash used by operating activities   $ 8,115,000   $  7,092,000
        Net cash used in investing activities       190,000     14,448,000
        Net cash provided by financing
        activities                                8,625,000     17,313,000

      In connection with the acquisition of assets of Armour, the Company issued
100,000 shares of Series A Preferred Stock. On June 24, 1999, 70,000 shares of
the Series A Preferred Stock were converted by the holder thereof into 933,333
shares of Common Stock. Simultaneously with such conversion, the Company
redeemed the remaining 30,000 outstanding shares of Series A Preferred Stock for
$3,000,000.

      At December 31, 1998, the Company had goodwill and intangible assets,
primarily related to the acquisition of the assets of Armour and Ram of
approximately $7,143,000. During 1998, the Company recognized amortization
expense of approximately $513,000. The Company will continue to amortize this
goodwill and intangible assets.

      From March through June 1998, 138,785 shares of Common Stock of the
Company were purchased by the administrator of the Company's 401(k) plan (the
"Plan") on behalf of certain employees of the Company at prices generally
ranging from $6.81 to $14.125. It appears that the provisions of the Securities
Act of 1933, as amended, relating to the registration of securities may not have
been fully complied with in connection with the offer or sale of these
securities. Accordingly, the Company offered to repurchase these securities from
the relevant employee 401(k) accounts for their purchase price for cash, plus
interest from the date of purchase. The Company commenced the offer on July 16,
1998 and the offer terminated on August 15, 1998. Employees holding the shares
of Common Stock accepted the offer and the Company will be required to pay
approximately $1.1 million to satisfy acceptances of offers by its employees.
The Company intends to satisfy such obligations by offering to such employees
additional shares of Common Stock of the Company having a net value after
consideration of shares that might not be repurchased equal to the obligation
(approximately $400,000) which the Company anticipates could result in the
issuance of up to an additional 80,000 shares of Common Stock.


                                      -25-
<PAGE>

      Year 2000 Modifications

      The Company relies on both information technology ("IT") and non-IT
computer systems in its operations. The mission-critical IT systems include the
Company's operating and accounting systems, such as IT software applications
that allow the Company to maintain inventory and customer information and to
communicate with its suppliers and customers. The non-IT systems are primarily
telecommunications systems and other building systems, such as security systems,
lighting, fire and safety systems.

      In 1997, the Company began to address the year 2000 problem. The issue is
one in which computer systems may recognize the designation "00" as 1900 when it
means 2000, resulting in system failure or miscalculations. The Company has
assigned its Manager of Information Systems to coordinate and implement measures
designed to prevent disruption in its business operations related to the year
2000 problem. The Company has completed the remediation of its mission-critical
IT applications software in December 1998 and intends to complete an end-to-end
test of its IT systems by July 1999. The Company is assessing the effect of the
year 2000 problem on its non-IT systems and intends to replace non-IT systems as
necessary to become year 2000 ready by July 1999. Additionally, the Company is
working with its customers and its suppliers to determine whether the year 2000
problem will have an adverse effect on the Company's relationships with them.

      During 1999, the Company anticipates it will spend approximately $165,000
above normal operating costs in order to comply with year 2000 issues funded
through regular operations.

      There can be no assurance that year 2000 remediation by the Company or
third parties will be properly and timely completed and a failure to do so could
have a material adverse effect on the Company's financial condition. The Company
cannot predict the actual effects to it of the year 2000 issue, which depends on
numerous uncertainties such as: (1) whether major third parties address this
issue properly and timely, and (2) whether broad-based or systemic economic
failures may occur. The Company is currently unaware of any events, trends, or
conditions regarding this issue that may have a material effect on the Company's
results of operations, liquidity, and financial condition. If the year 2000
issue is not resolved by December 31, 1999, the Company's results of operations
or financial condition could be materially adversely affected.

      The Company is developing contingency plans to address the risks created
by the year 2000 problem. These plans include procuring alternative suppliers,
when available, when the Company is able to conclude that an existing supplier
will not be year 2000 ready. The Company is scheduled to complete these
contingency plans by July 1999.

      Seasonality

      The purchasing decisions of most customers are typically made in the
autumn and a vast majority of sales are expected to occur during the first six
months of the year. In addition, quarterly results may vary from year to year
due to the timing of new product introductions, orders and sales, advertising
expenditures, promotional periods and shipments. Accordingly, comparisons of
quarterly information of the Company's results of operations may not be
indicative of the Company's overall annual performance.

      Forward Looking Statements

      When used in this and in future filings by the Company with the Securities
and Exchange Commission ("the Commission"), in the Company's press releases and
in oral statements made with the approval of an authorized executive officer of
the Company, the words or phrases "will likely result," "expects," "plans,"
`will continue," "is anticipated," "estimated", "project" or "outlook" or
similar expressions (including confirmations by an authorized executive officer
of the Company of any such expressions made by a third party with respect to the
Company) are intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. The Company
wishes to caution readers not to place undue reliance on any such
forward-looking statements, each of which speak only as of the date made. Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from historical earnings and those presently
anticipated or projected. Such risks and other aspects of the Company's business
and operations are described in "Risk Factors" herein.. The Company has no
obligation to publicly release the result of any revisions which may be made to
any forward-looking statements to reflect anticipated or unanticipated events or
circumstances occurring after the date of such statements.


                                      -26-
<PAGE>

Item 7. Financial Statements.

      The Financial Statements required by this item appear under the caption
"Index to Financial Statements" and are included elsewhere herein commencing on
page F-1.

Item 8. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure and Control Persons; Compliance

      Effective February 27, 1998 (the "Effective Date of Dismissal"),
Rothstein, Kass & Company, P.C. ("Rothstein Kass") ceased serving as the
Company's accountants. The report of Rothstein Kass on the Company's financial
statements as of December 31, 1995 was initially qualified as to uncertainty
regarding the Company's ability to continue as a going concern. In reissuing
such report in connection with the December 31, 1996 audit, the qualification
was removed and the report contained no adverse opinion or disclaimer of
opinion, nor was it qualified or modified as to uncertainty, audit scope or
accounting principles. The decision to change accountants was ratified by the
Audit Committee of the Company's Board of Directors. During the two most recent
fiscal years prior to the Effective Date of Dismissal and all subsequent interim
periods preceding the date hereof, there were no disagreements between the
Company and Rothstein Kass on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Rothstein Kass, would have
caused Rothstein Kass to make reference to the subject matter of disagreement in
connection with Rothstein Kass's reports.

      Effective February 27, 1998 (the "Effective Date of Engagement"), the
Company engaged Ernst & Young LLP ("E&Y") as its principal accountants. During
the two most recent fiscal years prior to the Effective Date of Engagement and
all subsequent interim periods preceding the date hereof, the Company has not
consulted E&Y regarding any matters or events as set forth in Item 304(a)(2) of
Regulation S-K.

                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
        With Section 16(a) of the Exchange Act.

      Incorporated by reference to the Company's Proxy Statement for Annual
Meeting to Stockholders to be filed with the Securities and Exchange Commission
within 120 days after the close of the fiscal year ended December 31, 1998.

Item 10. Executive Compensation.

Director Compensation

      Incorporated by reference to the Company's Proxy Statement for Annual
Meeting to Stockholders to be filed with the Securities and Exchange Commission
within 120 days after the close of the fiscal year ended December 31, 1998.


                                      -27-
<PAGE>

Executive Compensation

      Incorporated by reference to the Company's Proxy Statement for Annual
Meeting to Stockholders to be filed with the Securities and Exchange Commission
within 120 days after the close of the fiscal year ended December 31, 1998.

Item 11. Security Ownership of Certain Beneficial Owners and Management.

      Incorporated by reference to the Company's Proxy Statement for Annual
Meeting to Stockholders to be filed with the Securities and Exchange Commission
within 120 days after the close of the fiscal year ended December 31, 1998.

Item 12. Certain Relationships and Related Transactions.

      Incorporated by reference to the Company's Proxy Statement for Annual
Meeting to Stockholders to be filed with the Securities and Exchange Commission
within 120 days after the close of the fiscal year ended December 31, 1998.

Item 13. Exhibits, List and Reports on Form 8-K.

      (a)         Exhibits.

Exhibit No.       Description
-----------       -----------

3.1 H             Certificate of Incorporation
3.2 H             Certificate of Merger
3.3 H             Agreement and Plan of Merger dated October 21, 1996 between
                  the Company and TearDrop Putter Corporation, a South Carolina
                  Corporation
3.4 H             By-Laws
10.25 +           Asset Purchase Agreement dated as of October 31, 1997 among
                  Tommy Armour Golf Company, USI Canada, Inc., Tommy Armour Golf
                  (Scotland) Ltd., USI American Holdings, Inc., TearDrop
                  Acquisition Corp. and TearDrop Golf Company
10.26 +           Registration Agreement dated as of October 31, 1997 between
                  TearDrop Golf Company and Tommy Armour Golf Company
10.27 +           Loan and Security Agreement dated as of November 10, 1997
                  among TearDrop Golf Company, TearDrop Acquisition Corp. and
                  CoreStates Bank, N.A.
10.27(a) *        First Amendment to Loan and Security Agreement dated as of
                  January 9, 1998 among TearDrop Golf Company, Tommy Armour Golf
                  Company, TearDrop Ram Golf Company and CoreStates Bank, N.A.
10.28 *           Asset Purchase Agreement dated as of December 23, 1997 among
                  TearDrop Golf Company, TearDrop Ram Golf Company, Ram Golf
                  Corporation and Ram Golf UK, Ltd.
10.29 *           Registration Agreement dated as of December 29, 1997 between
                  TearDrop Golf Company and Ram Golf Corporation
10.30 *           Warrant dated December 29, 1997 made by TearDrop Golf Company
                  in favor of Ram Golf Corporation
10.31 >           Settlement Agreement dated March 31, 1998 among TA Liquidation
                  Corp., formerly known as Tommy Armour Golf Company, Tommy
                  Armour Golf (Scotland) Ltd., and USI Canada, Inc.; USI
                  American Holdings, Inc., and Tommy Armour Golf Company,


                                      -28-
<PAGE>

                  formerly known as TearDrop Acquisition Corp., and TearDrop
                  Golf Company
10.32             Amendment and Joinder Agreement effective as of September 30, 
                  1998 among TearDrop Golf Company, Tommy Armour Golf Company,
                  TearDrop Ram Golf Company, TearDrop Acquisition Corp. and
                  First Union National Bank
10.33             Amendment to Loan and Security Agreement dated as of February
                  24, 1999 among TearDrop Golf Company, Tommy Armour Golf
                  Company, TearDrop Ram Golf Company, TearDrop Acquisition Corp.
                  and First Union National Bank
10.34             Third Amendment to Loan and Security Agreement dated as of
                  March 8, 1999 among TearDrop Golf Company, Tommy Armour Golf
                  Company, Ram Golf Corporation, TearDrop Acquisition Corp. and
                  First Union National Bank
16 ^              Letter from Rothstein, Kass & Company, P.C. to the Commission
                  dated March 2, 1998
21                Subsidiaries
23                Consent of Ernst & Young LLP
27                Financial Data Schedule

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

      H Previously filed with the Securities and Exchange Commission as
an Exhibit to the Company's Registration Statement on Form SB-2 (File
No.333-14647) and incorporated herein by reference.

      * Previously filed with the Securities and Exchange Commission as an
Exhibit to the Company's Current Report on Form 8-K filed on January 13, 1998
and incorporated herein by reference.

      ^ Previously filed with the Securities and Exchange Commission as an
Exhibit to the Company's Current Report on Form 8-K filed on March 4, 1998 and
incorporated herein by reference.

      > Previously filed with the Securities and Exchange Commission as an
Exhibit to the Company's Annual Report on Form 10-KSB filed on April 7, 1998 and
incorporated herein by reference.

      (b) During the last quarter of the period covered by this report and up to
March 30, 1999, the Company filed the following Current Reports on Form 8-K:

      1.    Current Report on Form 8-K filed on September 4, 1998 to report the
            signing of a non-binding letter of intent between the Company and
            Lynx Golf, Inc., which has subsequently been terminated.

      2.    Current Report on Form 8-K filed on March 16, 1999 to report
            preliminary financial results from the fiscal year ended December
            31, 1998.
 

                                      -29-
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
TearDrop Golf Company

We have audited the accompanying consolidated balance sheet of TearDrop Golf
Company as of December 31, 1998 and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the two years in the
period then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of TearDrop Golf
Company at December 31, 1998 and the consolidated results of its operations and
its cash flows for each of the two years in the period then ended, in conformity
with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that TearDrop
Golf Company will continue as a going concern. As more fully described in Note
6, The Company has a working capital deficiency and recurring operating losses.
In addition, the Company has not complied with certain covenants of loan
agreements with banks. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 6. The 1998 financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.


                                                    /s/ Ernst & Young LLP

Chicago, Illinois
March 31, 1999,
except for third paragraph of Note 6, as to which the date is
April 14, 1999


                                       F-1
<PAGE>

                              TearDrop Golf Company
                           Consolidated Balance Sheet
                                December 31, 1998
       (All dollar amounts, except share and per share amounts, in $000's)

                                     ASSETS

<TABLE>
CURRENT ASSETS:
<S>                                                                    <C>       <C>
  Cash                                                                 $    373
  Accounts receivable less allowance for returns and
    doubtful accounts of $1,860                                          10,114
  Inventories                                                            19,026
  Other current assets                                                      362
                                                                       --------
    Total current assets                                                         $ 29,875

PROPERTY AND EQUIPMENT, less accumulated
  depreciation                                                                      4,729

GOODWILL AND INTANGIBLE ASSETS, less accumulated
  amortization of $543                                                              7,143
                                                                                 --------
                                                                                 $ 41,747
                                                                                 ========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable                                                     $  7,216
  Accrued liabilities                                                     6,188
  Note payable                                                           20,909
                                                                       --------
    Total current liabilities                                                    $ 34,313

STOCKHOLDERS' EQUITY:

  Preferred stock $.01 par value, authorized 1,000,000 shares,
    issued and outstanding none
  Common stock, $.01 par value, authorized
    10,000,000 shares, issued and 5,179,890 outstanding
    shares                                                                   52
  Capital in excess of par value                                         25,186
  Accumulated other comprehensive income                                   (229)
  Accumulated deficit                                                   (17,575)
                                                                       --------
    Total stockholders' equity                                                      7,434
                                                                                 --------
                                                                                 $ 41,747
                                                                                 ========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      F-2
<PAGE>

                              TearDrop Golf Company
               Consolidated Statements of Operations 
                 For the Years Ended December 31, 1998 and 1997
      (All dollar amounts, except share and per share amounts, in $000's)

                                                      Years Ended December 31
                                                     --------------------------
                                                         1998            1997
                                                     -----------    -----------

Net sales                                            $    60,715    $     9,624
Cost of sales                                             36,428          7,543
                                                     -----------    -----------
Gross profit                                              24,287          2,081

Selling, general and
  administrative expenses                                 28,836         11,106
                                                     -----------    -----------
Income (loss) from operations                             (4,549)        (9,025)
Interest (expense) income, net                            (1,595)          (124)
                                                     -----------    -----------
Income (loss) before income taxes                         (6,144)        (9,149)
Income tax (expense)                                          --             --
                                                     -----------    -----------
Net loss                                             $    (6,144)   $    (9,149)
                                                     ===========    ===========
Preferred dividends                                          137             --
                                                     -----------    -----------
Loss attributable to common shareholders             $    (6,281)   $    (9,149)
                                                     ===========    ===========

Net loss per common share - basic and diluted        $     (1.58)   $     (4.10)
                                                     ===========    ===========
Weighted average number of
  common shares outstanding - basic and diluted        3,982,382      2,230,397
                                                     ===========    ===========

          See accompanying notes to consolidated financial statements.


                                      F-3
<PAGE>

                              TearDrop Golf Company
          Consolidated Statements of Stockholders' Equity (Deficiency)
                 For the Years Ended December 31, 1998 and 1997
      (All dollar amounts, except share and per share amounts, in $000's)

<TABLE>
<CAPTION>
                                                                                  Accumulated                             
                                                                     Capital in      Other                      
                                                 Common Stock        Excess of   Comprehensive    Accumulated    
                                              Shares       Amount    Par Value       Income         Deficit       Total
                                             ---------   ---------   ----------  -------------    -----------   ---------
<S>                                          <C>         <C>         <C>          <C>            <C>            <C>      
Balance January 1, 1997                      2,000,000   $      20   $   5,701                   ($  2,282)     $   3,439
                                                                                                                
Comprehensive income:                                                                                           
 Net income                                                                                         (9,149)        (9,149)
 Currency translation adjustment                                                        (25)                          (25)
                                                                                                                ---------
Comprehensive income                                                                                               (9,174)
                                                                                                                ---------
Sales of common stock                          242,500           2         842                                        844
Shares of stock and warrants issued for                                                                         
   companies acquired                          412,357           5       2,416                                      2,421
Options issued to an officer, consultants,                                                                      
   and other non-employees                                                 675                                        675
                                             ---------   ---------   ---------    ---------      ---------      ---------
Balance December 31, 1997                    2,654,857          27       9,634          (25)       (11,431)        (1,795)
                                                                                                                
Comprehensive income:                                                                                           
  Net income                                                                                        (6,144)        (6,144)
  Currency translation adjustment                                                      (204)                         (204)
                                                                                                                ---------
Comprehensive income                                                                                               (6,348)
                                                                                                                ---------
                                                                                                                
Conversion of preferred stock to                                                                                
  common stock                                 933,333           9       6,991                                      7,000
Exercise of common stock options                50,000           1         199                                        200
Redemption of common stock warrants          1,541,700          15       8,299                                      8,314
Options issued to non-employees                                            200                                        200
Preferred dividends paid                                                  (137)                                      (137)
                                             ---------   ---------   ---------    ---------      ---------      ---------
Balance December 31, 1998                    5,179,890   $      52   $  25,186    ($    229)     ($ 17,575)     $   7,434
                                             =========   =========   =========    =========      =========      =========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      F-4
<PAGE>

                              TearDrop Golf Company
                      Consolidated Statements of Cash Flows
                 For the Years Ended December 31, 1998 and 1997
      (All dollar amounts, except share and per share amounts, in $000's)

<TABLE>
<CAPTION>
                                                                                   Years
                                                                            Ended December 31
                                                                          --------------------
                                                                             1998        1997
                                                                          --------    --------
<S>                                                                       <C>         <C>      
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                                         $ (6,144)   $ (9,149)
Adjustments to reconcile net income (loss) to net
 cash used in operating activities:
  Depreciation and amortization                                              1,116         160
  Provision for doubtful accounts                                              801         143
  Compensation expense related to option grants                                            438
  Common stock and options issued for services                                 200         237
Changes in operating assets and liabilities:
  (Increase) in accounts receivable                                         (3,568)     (1,687)
  (Increase) decrease in inventories                                           (20)      1,811
  (Increase) decrease in other current assets                                 (330)        411
  Increase (decrease) in accounts payable and other current liabilities       (170)        544
                                                                          --------    --------
NET CASH USED IN OPERATING ACTIVITIES                                       (8,115)     (7,092)
                                                                          --------    --------

CASH FLOWS FROM INVESTING ACTIVITIES

   Acquisitions:
    Tommy Armour Golf, net of cash acquired of $72                                     (11,528)
    Ram Golf Corporation                                                                (2,668)
   Purchases of property and equipment                                        (190)       (252)
                                                                          --------    --------
NET CASH USED IN INVESTING ACTIVITIES                                         (190)    (14,448)
                                                                          --------    --------

CASH FLOWS FROM FINANCING ACTIVITIES:
 Net borrowings under financing agreements                                   3,648      17,201
 Repayment of note payable                                                                (300)
 Repayment of stockholders notes                                              (400)       (432)
 Proceeds from issuance of common stock                                                    844
 Proceeds from exercise of common stock options                                200            
 Proceeds from redemption of common stock warrants                           8,314            
 Redemption of preferred stock                                              (3,000)           
 Preferred dividends                                                          (137)           
                                                                          --------    --------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                    8,625      17,313
                                                                          --------    --------

EFFECT OF EXCHANGE RATE CHANGES ON CASH                                       (204)        (25)
                                                                          --------    --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                           116      (4,252)
CASH AND CASH EQUIVALENTS:
 Beginning of year                                                             257       4,509
                                                                          --------    --------
 End of year                                                              $    373    $    257
                                                                          ========    ========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      F-5
<PAGE>

                              TearDrop Golf Company

                   Notes to Consolidated Financial Statements
      (All dollar amounts, except share and per share amounts, in $000's)

1. ORGANIZATION AND NATURE OF OPERATIONS

The TearDrop Golf Company ("TearDrop" and/or the "Company") was incorporated
under the laws of Delaware in September 1996. In December 1996, the Company
completed its initial public offering for the sale of 1,250,000 shares of common
stock at $4.50 per share and 1,437,500 redeemable common stock purchase warrants
at $ .10 per warrant (See Note 9).

The Company and its subsidiaries manufacture and market golf clubs, including
putters, irons, drivers and wedges throughout the world and operate a
professional golf tour in the United States.

In October 1997, the Company acquired the assets of Pro Golf Promotions, LLC; in
November 1997, the Company acquired the assets and assumed certain liabilities
of the Tommy Armour Golf Company ("Armour"); and in December 1997, the Company
acquired certain assets and assumed certain liabilities of the Ram Golf
Corporation ("Ram") (See Note 7).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation - The consolidated balance sheet contains the accounts of
TearDrop Golf Company and its wholly-owned subsidiaries. The related statements
of operations and cash flow contain the operations of TearDrop for each period
and the operations of its wholly-owned subsidiaries from their dates of
acquisition. All significant inter-company accounts have been eliminated in
consolidation.

Inventories - Inventories are stated at the lower of cost, on a first-in,
first-out method, or market.

Property and Equipment - Property and equipment is stated at cost less
accumulated depreciation and amortization. The Company provides for depreciation
and amortization for operations acquired after 1996 principally using the
straight-line method. The company uses the double declining balance method for
assets acquired prior to 1997. There is no significant difference between the
two methods for either 1997 or 1998. Estimated useful lives, for each method,
are as follows:

                    Asset                         Estimated Useful Lives

            Building and Improvements                 10 to 40 years
            Machinery and equipment                    5 to 10 years
            Office furniture and equipment             5 years

Goodwill and Other Intangible Assets - Goodwill relates to the excess of fair
value over the cost of net assets acquired. Other intangible assets include
patents and trademarks, which relate to costs associated with obtaining patents
and trademarks within and outside the United States. All goodwill and
intangibles are amortized on a straight-line basis over 15 years.


                                      F-6
<PAGE>

                              TearDrop Golf Company

                   Notes to Consolidated Financial Statements
      (All dollar amounts, except share and per share amounts, in $000's)

Impairment of Long-Lived Assets - The Company periodically assesses the
recoverability of the carrying amounts of long-lived assets, including
intangible assets. A loss is recognized when expected undiscounted future cash
flows are less than the carrying amount of the asset. The impairment loss is the
difference by which the carrying amount exceeds its fair value.

Revenue Recognition - The Company recognizes revenue from sales of product when
title to the product has passed, which is generally the date product is shipped.

Advertising Costs - The Company expenses production costs of advertising and
promotions the first date the advertisements take place. Advertising costs
included in selling, general and administrative expenses for the years ended
December 31, 1998 and 1997 were approximately $7,523 and $4,058, respectively.

Research and Development Expense - The Company expenses research and development
costs as incurred. Research and development expenses included in selling,
general and administrative expenses for the years ended December 31, 1998 and
1997 were approximately $572 and $105, respectively.

Foreign Currency Translation - The functional currency for the Company's foreign
subsidiaries is the applicable local currency. Assets and liabilities of foreign
subsidiaries are translated at the exchange rates in effect at the balance sheet
dates, while revenue, expenses and cash flows are translated at average exchange
rates for the period.

Income Taxes - Deferred income tax assets and liabilities are computed annually
for differences between financial reporting and tax bases of assets and
liabilities, if any, that will result in taxable or deductible amounts in the
future, based on enacted tax laws and rates applicable to the periods in which
the differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce the deferred income tax assets to the
amount expected to be realized.

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. Management believes that its
estimates are reasonable and proper, however, actual results could differ from
those estimates.

Net Income or Loss Per Common Share - Net loss per common share is computed
based on net loss applicable to common shareholders, divided by the weighted
average number of common shares outstanding in each period.

The weighted average includes shares issued within one year of the Company's
initial public offering with an issue price less than the price of the initial
public offering, which are assumed to be outstanding the entire period.

Due to the operating loss in each period presented, the effect of all
outstanding options and warrants is antidilutive. Therefore, they have been
excluded from the Company's computation of net loss per share.

Stock Options - The Company accounts for stock options in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and includes proforma information in Note 10, as permitted by
Statement of Financial Accounting Standards ("SFAS") No. 123 Accounting for
Stock Based Compensation. Accordingly, there is no compensation expense to the
Company when 


                                      F-7
<PAGE>

                              TearDrop Golf Company

                   Notes to Consolidated Financial Statements
      (All dollar amounts, except share and per share amounts, in $000's)

stock options are granted to employees at prices equal to the fair market value
at the date of grant. Proceeds from exercises of stock options and the
associated income tax benefits are credited to stockholders' equity when
received. Stock options granted to professional golfers result in compensation
expense equal to the fair value of the options on the date of grant using an
option pricing model in accordance with SFAS No. 123.

Recently Adopted Accounting Principles - In June 1997, The Financial Accounting
Standards Board (FASB) issued Statement # 130, Reporting Comprehensive Income.
This Statement establishes standards for reporting and display of comprehensive
income and its components as a separate component of equity in the financial
statements. The Company has adopted this Statement as of December 31, 1998.

In February 1998, the FASB issued Statement # 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits. This Statement standardizes the
disclosure requirements for pensions and postretirement benefits and requires
additional information on changes in the benefit obligation and fair value of
plan assets, while eliminating certain disclosures no longer deemed useful. The
Company has adopted this Statement as of December 31, 1998 (See Note 12).

3. INVENTORIES

Inventories at December 31, 1998 consist of the following:

                   Raw materials                 $    9,071
                   Finished goods                     9,955
                                                 ----------
                                                 $   19,026
                                                  

4. PROPERTY AND EQUIPMENT

Property and equipment at December 31, 1998 consist of the following:

                   Land                          $   1,730
                   Building and improvements         1,389
                   Machinery and equipment           1,540
                   Office furniture and
                    equipment                          856
                                                 ---------
                                                     5,515
                   Less, accumulated
                    depreciation and
                    amortization                       786
                                                 ---------
                                                 $   4,729


                                      F-8
<PAGE>

                              TearDrop Golf Company

                   Notes to Consolidated Financial Statements
      (All dollar amounts, except share and per share amounts, in $000's)

5. GOODWILL AND INTANGIBLE ASSETS

Goodwill and intangible assets consist principally of the excess of cost over
fair value of net assets purchased in connection with the acquisitions
consummated during 1997 (See Note 7). During the year ended December 31, 1998,
certain preacquisition contingencies were resolved resulting in an increase in
goodwill of approximately $2,367. Other intangibles are the cost of those
patents and trademarks developed by the Company. Goodwill and all other
intangibles are being amortized over 15 years. During the years ended December
31, 1998 and 1997, amortization expense was $513 and $30, respectively.

6. NOTE PAYABLE 

During 1997, the Company obtained a line of credit with First Union National
Bank, successor by merger to CoreStates Bank, N.A. (the "Bank"), initially for
$18,000, later increased to $25,000, collateralized by a security interest in
all the assets of the Company. The line bears interest on the outstanding
principal amount, at the option of the Company, of either the Bank's prime
lending rate less .5% or LIBOR plus 2%. The line matures on November 10, 1999.
The loan agreement provides for, among other things, that the Company meet
certain financial covenants. At December 31, 1998 the Company was in violation
of such covenants.

As of December 31, 1998, there was $20,909 outstanding under the line of credit.
Interest expense for the years ended December 31, 1998 and 1997 was $1,570 and
$149, respectively.

In March 1999, the line was increased to $30,000 through June 30, 1999 and will
be reduced to $25,000 thereafter through maturity. At March 31, 1999, the
Company was also in violation of the financial covenants. The Bank has issued
waivers for December 31, 1998 and March 31, 1999 and has established new
covenants through maturity. The line matures on November 10, 1999. Due to the
recurring operating losses and the commitments the Company has with professional
golfers and others (see Note 14), there is substantial doubt that the Company
will be able to repay the line at maturity. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. The 1998
financial statements do not include any adjustments that might result from the
outcome of this uncertainty. The Company is in the process of renegotiating its
borrowing arrangement and is seeking alternate sources of financing.

In 1996, the Company issued a note to the Company's Chief Executive Officer for
$400, which bore interest at 8% was repaid in 1998. Interest expense related to
the note amounted to $8 and $32 for the years ended December 31, 1998 and 1997
respectively. In March 1999, the Company's Chief Executive Officer loaned the
Company $500 bearing interest at 8% due upon demand, once the Company has
reached certain reduced levels of indebtedness under the credit facility with
First Union.

7. ACQUISITIONS

During 1997, the Company made the following acquisitions:

      a.    In October 1997, the Company acquired the assets of Pro Golf
            Promotions, LLC for 50,000 shares of the Company's common stock
            (valued at $225) and an option to purchase 25,000 additional shares
            of the Company's common stock at $4.50 per share, exercisable for a
            period of three years from the date of grant (valued at $80). In
            addition, up to 50,000 additional shares of common stock may be
            issued depending on the results of operations of Pro Golf
            Promotions, now called The TearDrop Tour, in the years 1998 and
            1999. If such shares are issued, the fair value of such shares will
            be recorded as an adjustment to purchase price. For 1998, no such
            shares were issued.

      b.    On November 10, 1997, the Company completed the acquisition of the
            assets and liabilities of the Tommy Armour Golf Company in exchange
            for $11,600 cash, 175,000 shares of the Company's common stock
            (valued at $788), and 100,000 shares of the Company's Series A
            Convertible Preferred Stock (valued at $10,000).


                                       F-9
<PAGE>

                              TearDrop Golf Company

                   Notes to Consolidated Financial Statements
      (All dollar amounts, except share and per share amounts, in $000's)

      c.    On December 30, 1997, the Company acquired certain assets and
            liabilities of the Ram Golf Corporation in exchange for $2,668 cash,
            187,357 shares of the Company's common stock (valued at $1,241), and
            a warrant to purchase 50,000 shares of the Company's common stock at
            a price of $6.625 (valued at $88), expiring December 29, 2002. The
            final purchase price was determined in March, 1999 with no further
            shares being issued.

All three acquisitions were accounted for using the purchase method of
accounting. The operations of each company acquired have been included in the
Company's Consolidated Statement of Operations from the respective dates of
acquisitions. The purchase price was allocated to the assets and liabilities
based on their estimated fair value as of the dates of acquisition. The
allocation was based on preliminary estimates which was adjusted in 1998.

The following table reflects the unaudited condensed pro-forma information for
the year ended December 31, 1997, as if each of the above companies had been
acquired on January 1, 1997:

                   Net sales                                  $ 48,795 
                   Loss from operations                        (40,271) 
                   Net loss                                    (42,896) 
                   Loss per common share - basic and diluted    (16.44)

8. SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK

In connection with the acquisition of Armour, 100,000 shares of Series A
Redeemable Convertible Preferred Stock were issued.

During 1998, the Company redeemed 30,000 shares at a cost of $3,000 and the
remaining 70,000 shares were converted into 933,333 shares of the Company's
common stock. In that connection, the excess of the par value of the preferred
stock converted over the par value of the common stock issued, $6,991, was
credited to Capital in Excess of Par Value (See Note 9).

9. STOCKHOLDERS' EQUITY

During 1997, the Company issued shares of its common stock, as follows:

      a.    On January 24, 1997, 187,500 shares were sold at $4.50 per share and
            187,500 redeemable common stock purchase warrants were sold at $ .10
            per warrant, as the Company's underwriters exercised their
            over-allotment option in connection with the Company's initial
            public offering in December 1996;

      b.    On May 16, 1997, the Company issued 5,000 shares in connection with
            an endorsement contract with a professional golfer. The fair value
            of such shares, 


                                      F-10
<PAGE>

                              TearDrop Golf Company

                   Notes to Consolidated Financial Statements
      (All dollar amounts, except share and per share amounts, in $000's)

            determined using the Black-Scholes option pricing model, is included
            in selling, general and administrative expense.

      c.    On August 16, 1997, the Company issued 50,000 shares to a consultant
            of the company for $.01 per share, an option to purchase an
            additional 100,000 shares (amended in 1998 to 50,000 shares) at a
            price of $4.00 per share, exercisable from January 18, 1998 to
            August 18, 1999. The fair value of such shares and options,
            determined using the Black-Scholes option pricing model, are
            included in selling, general and administrative expense.

      d.    In connection with the acquisitions described in more detail in Note
            7, the Company issued a total of 412,357 shares, warrants to
            purchase 50,000 shares at a price of $6.625, which expire on
            December 29, 2002, and options to purchase 25,000 shares at a price
            of $4.50 per share, and has agreed to issue up to 50,000 additional
            shares, such issuance being dependent on the performance of the
            acquired operations in the years 1998 and 1999. In March, 1999,
            12,500 shares were issued under that agreement.

During 1998, the Company issued additional common shares, as follows:

      a.    50,000 shares in connection with the exercise of a stock option (see
            Note 10).

      b.    933,333 shares in connection with the conversion of 70,000 shares of
            Series A Redeemable, Convertible Preferred Stock (see Note 8).

      c.    1,541,700 shares in connection with the redemption of common stock
            purchase warrants.

      From March through June 1998, 138,785 shares of Common Stock of the
Company were purchased by the administrator of the Company's 401(k) plan (the
"Plan") on behalf of certain employees of the Company at prices generally
ranging from $6.81 to $14.125. It appears that the provisions of the Securities
Act of 1933, as amended, relating to the registration of securities may not have
been fully complied with in connection with the offer or sale of these
securities. Accordingly, the Company offered to repurchase these securities from
the relevant employee 401(k) accounts for their purchase price for cash, plus
interest from the date of purchase. The Company commenced the offer on July 16,
1998 and the offer terminated on August 15, 1998. Employees holding the shares
of Common Stock accepted the offer and the Company will be required to pay
approximately $1.1 million to satisfy acceptances of offers by its employees.
The Company intends to satisfy such obligations by offering to such employees
additional shares of Common Stock of the Company having a net value after
consideration of shares that might not be repurchased equal to the obligation
(approximately $400,000) which the Company anticipates could result in the
issuance of up to an additional 80,000 shares of Common Stock.

10. STOCK OPTIONS

The Company has adopted the TearDrop Golf Company Stock Option Plan ("Plan")
providing for the issuance of up to 200,000 shares of common stock for incentive
stock options ("ISO's") and non-qualified stock options ("NQSO's"). The exercise
price of an ISO or NQSO will not be less than 100% of the fair market value of
the Company's common stock at the date of grant. The exercise price of an ISO
granted to an employee owning greater than 10% of the Company's common stock
will not be less 


                                      F-11
<PAGE>

                              TearDrop Golf Company

                   Notes to Consolidated Financial Statements
      (All dollar amounts, except share and per share amounts, in $000's)

than 110% of the fair market value of the Company's common stock at the date of
the grant and will have a maximum term of five years.

The Company granted, in 1997, various ISO's to employees to purchase up to
357,600 shares of common stock at prices ranging from $2.50 to $6.88 per share,
and in 1998, various ISO's to employees to purchase up to 259,700 shares at
prices ranging from $5.25 to $8.00. The options vest ratably over three years
and expire five years from the date of grant.

On December 6, 1997, the Company granted options (outside the Plan) to the
Company's CEO to acquire 250,000 shares of the Company's common stock at $4.625
per share, vesting six months from the date of grant and expiring in 10 years.
The Company recorded compensation expense in 1997 of $438, representing the
difference between the exercise price and the fair value of the stock on the
date of the grant.

The Company has reserved 250,000 shares of common stock (outside the Plan) to be
issued to touring golf professionals based upon their performance. In 1997,
options to purchase 29,100 shares of common stock had been granted to touring
professionals at $4.75 per share, exercisable immediately and expiring five
years from date of grant. During 1998, the Company granted additional options to
touring professionals to purchase up to 55,448 shares of common stock at prices
ranging from $4.75 per share to $11.813 per share, exercisable immediately and
expiring five years from the date of grant. Of those options granted in 1998,
options to purchase 19,000 shares at $4.75 contained a provision allowing the
grantee to sell the option back to the Company at the end of the first year for
$150. All of the grantees exercised their right under this provision and the
purchase price to the Company is included in compensation expense.

The Company has recorded compensation expense of $200 and $97 in 1998 and 1997,
respectively, which includes the fair value of the options on the date of grant
and the cost of the options purchased by the Company.

In December 1998, the Board of Directors approved the grant of an option to
purchase up to 1,250,000 shares of common stock to the President and Chief
Executive Officer of the Company, subject to shareholder approval. The options
would be exercisable immediately, as to 250,000 shares, and the remainder upon
attainment of certain earnings or share price levels of the Company's common
stock. The option will expire 10 years from date of grant.

The following table summarizes the activity for stock options during 1997 and
1998 including the weighted average exercise price:


                                      F-12
<PAGE>

                                          Under the Plan        Outside the Plan
                                         Shares     Price      Shares      Price

Outstanding January 1, 1997                  -0-               388,200     $5.45
Granted during 1997                      375,600     $6.00     416,100      4.48
Options exercised                            -0-                   -0-          
Options expired or canceled                7,200      4.75         -0-          

Outstanding December 31, 1997            368,400      6.03     804,300      4.95

Granted during 1998                      259,700      5.40      55,448      5.51
Options exercised                            -0-                50,000      4.00
Options expired or canceled               74,800      6.62      69,000      4.21
                                         -------               -------
Outstanding December 31, 1998            553,300     $5.65     740,748     $4.63

The following table summarizes information concerning outstanding options at
December 31, 1998:

     Range of               Options      Remaining Life      Currently
     Exercise Price         Outstanding     In Years       Exercisable

       $2.50 -  $3.00            19,500        2.6               6,500
       $4.50 -  $5.00           825,300        6.1             756,300
       $5.25 -  $5.81           244,967        7.1               8,567
       $6.00 -  $8.00           200,169        3.1              67,402
     Over $8.00                   4,112        4.4               4,112
                             ----------                       --------
             -  Totals        1,294,048                        842,881

Pro forma net loss and net loss per share, determined as if the Company had
accounted for its employee stock options under the fair value method of SFAS No.
123 are as follows:

                                                     1998        1997

          Net loss:
                As reported                      $   6,144   $   9,149
                Pro forma                            7,454       9,529

          Loss per share, basic and diluted:
                As reported                      $    1.58   $    4.10
                Pro forma                             1.87        4.27

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1997 and 1998, as follows:

                                                            1998       1997

      Fair value of options granted with exercise price
            Above market at date of grant                 $  0.00   $  2.15
            At market at date of grant                       3.49      3.40
            Below market at date of grant                    5.16      5.15

      Expected stock price volatility                          85%      114%
      Expected dividend yield                                   0%        0%
      Risk free interest rate                                5.36%     5.71%
      Expected life of options                             5 years   4 years


                                      F-13
<PAGE>

                              TearDrop Golf Company

                   Notes to Consolidated Financial Statements
      (All dollar amounts, except share and per share amounts, in $000's)

11. MAJOR CUSTOMERS, SUPPLIERS AND EXPORT SALES

During the years ended December 31, 1998 and 1997, the Company derived
approximately $15,160 (25.1%) and $3,600 (37.4%), respectively, of its net sales
from one customer.

During the years ended December 31, 1998 and 1997, approximately 10% and 5%,
respectively, of the Company's net sales were export sales.

During the years ended December 31, 1998 and 1997, the Company purchased
approximately $4,885 and $732, respectively, from one supplier.

12. EMPLOYEE BENEFIT PLANS

Armour, acquired in November 1997, had a defined benefit pension plan covering
substantially all of its U.S. employees and a 401(k) defined contribution plan.
Under the pension plan, benefits were based primarily on years of credited
service and compensation as defined under the respective plan provisions.

The Company has suspended the pension plan and frozen benefits to those vested
participants at the date of the transfer of the plan and its assets from
Armour's previous parent to the Company.

Assumptions used in the accounting for the Armour defined benefit plan, for its
fiscal year ended September 30, 1998, were as follows:

            Weighted average discount rate                  7.5%
            Rate of increase in compensation levels         4.5%
            Expected long-term rate of return on assets     9.0%

The following table sets forth the plan's change in the benefit obligation for
the year ended December 31, 1998:

            Benefit obligation at beginning of the year           $3,670
            Service cost                                             512 
            Interest cost                                            298
            Actuarial loss                                           (64)
            Curtailment gain                                      (1,115)
            Benefits paid                                           (112)
                                                                  ------
            Benefit obligation at end of the year                 $3,189

The following table sets forth the plan's assets for the year ended December 31,
1998:

            Fair value of assets at beginning of year             $2,990
            Actual return on plan assets                             242
            Benefits paid                                           (112)
                                                                  ------
            Fair value of assets at end of year                   $3,120

The following table sets forth the plan's funded status at December 31, 1998:

            Funded status of plan                                 $   69
            Unrecognized prior actuarial gain                         20
                                                                  ------
            Accrued pension liability recognized in balance       
              sheet                                               $   89

Net periodic pension cost for 1998 includes the following components:

            Service cost-benefit earned during the period         $  512
            Interest cost on projected benefit obligation            298
            Expected return on plan assets                          (331)
                                                                  ------
            Net periodic pensions costs                           $  479


                                      F-14
<PAGE>

                              TearDrop Golf Company

                   Notes to Consolidated Financial Statements
      (All dollar amounts, except share and per share amounts, in $000's)

Under the Company's 401(k) plan, all U.S. employees are eligible to contribute
up to 10% of their compensation. Matching contributions are made by the Company
at the discretion of the Board of Directors. The Company made no matching
contributions to the 401(k) plan during the years ended December 31, 1998 or
1997.

Pension and other employee benefits of the Company's foreign subsidiaries are
primarily provided by government sponsored plans and are being accrued currently
over the period of active employment. The costs of such plans are not
significant.

13. INCOME TAXES

There were no provisions for income taxes during the years ended December 31,
1998 and 1997, due to net operating losses incurred during those periods. The
reconciliation of the income tax benefit computed at the federal statutory rate
of 34% and the provision for income taxes, is as follows:

                                                               1998        1997

Income tax benefit computed at statutory rate                (34.0%)     (34.0%)
State income tax benefit at statutory rate,
  net of federal tax benefit                                  (4.8%)      (4.7%)
Other permanent differences                                   (0.4%)        -- 
Valuation allowance against net deferred
 tax asset                                                    39.2%       38.7%
                                                             ------      ------
Provision for income taxes                                    - 0 -       - 0 -

There was no current income tax expense for the years ended December 31, 1998
and 1997, due to the Company incurring net operating losses for tax purposes
during each of those two years. No deferred taxes have been reflected in the
consolidated statements of operations because the Company has fully reserved the
tax benefit of net deductible temporary differences and operating loss carry
forwards due to the fact that the likelihood of realization of the tax benefits
cannot be established. The Company did not pay any income taxes during the years
ended December 31, 1998 and 1997.

Deferred tax assets (liabilities) are as follows:
 
                                                         1998             1997

Net operating loss carryforwards                      $  7,115         $  3,018
Allowance for doubtful accounts                            551              663
Accrued expenses                                         1,371            1,058
Restructuring reserves                                   1,053            3,715
Other                                                    1,156              110
                                                      --------         --------
                                                        11,246            8,564
Valuation allowance                                    (11,246)          (8,564)
                                                      --------         --------

Net deferred taxes                                    $      0         $      0

At December 31, 1998, the Company has cumulative net operating loss carry
forwards expiring between 2011 and 2013 for U.S. federal income tax purposes of
approximately $18,724. Net operating loss carry forwards are also available for
state income tax purposes.


                                      F-15
<PAGE>

                              TearDrop Golf Company

                   Notes to Consolidated Financial Statements
      (All dollar amounts, except share and per share amounts, in $000's)

14. COMMITMENTS AND CONTINGENCIES

The Company has entered into endorsement agreements with touring golf
professionals for periods up to three years. The agreements typically provide
for a base compensation and bonuses based upon, among other things, tournament
performances, standings on the official money list and earning spots on Ryder or
President Cup teams. Minimum compensation requirements for the years ending
December 31, 1999, 2000 and 2001 are approximately $4,200, $3,100 and $1,900,
respectively. Additionally, the Company has agreed to issue options to purchase
55,000, 46,000 and 16,000 shares of common stock in connection with these
agreements for the years ending December 31, 1999, 2000 and 2001, respectively.
Of the options to be issued under these agreements, 14,000 to be granted in 1999
and 9,000 to be granted in 2000, could be exchanged for $100,000 and $75,000,
respectively.

The Company has obligations with respect to media placement, primarily for
television advertising which requires the Company to spend no less than $5,000,
which amounts could increase over the remainder of the year.

In November 1996, the Company entered into a three-year employment agreement
with its President and Chief Executive Officer commencing December 19, 1996. The
agreement, as amended, provides for annual compensation of $250 for the year
ending December 31, 1999, and performance bonuses, as defined. No bonuses were
earned in 1998.

The Company has been named, among others, as a defendant in a lawsuit in which
the plaintiff initially sought damages of $12,000. That demand has been
significantly diminished. The Company believes the lawsuit is without merit and
is defending it vigorously. Accordingly, no reserve has been established in this
connection.

The Company has entered into a two year advertising agreement for the years 1999
and 2000 for which the Company has committed to spend approximately $1,500 in
1999 and $1,551 in 2000.

15. SEGMENT INFORMATION

In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," which was adopted by the Company in 1998.
SFAS requires companies to report financial and descriptive information about
its reportable operating segments, including segment profit or loss, certain
specific revenue and expense items, and segment assets, as well as information
about the revenues derived from the Company's products and services, the
countries in which the Company earns revenues and holds assets, and major
customers. This statement also requires companies that have a single reportable
segment to disclose information about products and services, information about
geographic areas, and information about major customers. This statement requires
the use of the management approach to determine the information to be reported.
The management approach is based on the way management organizes the enterprise
to assess performance and make operating decisions regarding the allocation of
resources.

It is management's opinion that the Company, at this time, has only one
reportable segment, and that segment is the manufacture, marketing and
distribution of golf clubs. The Company distributes from its manufacturing and
distribution facility in Morton Grove, Illinois to all areas of the world where
golf is played.

The following discussion sets forth the required disclosure regarding single
segment information:


                                      F-16
<PAGE>

The Company operates as a single reportable segment in the United States with
1998 sales of $60.7 million, of which $54.3 million were sales in the United
States and $6.4 million were sales outside of the United States. The Company
sells its products in the United States through its own sales force to
approximately 1,500 national accounts (such as national cataloguers, sporting
goods retail chain stores, etc.) and over 10,000 green grass accounts (golf
course pro shops), who in turn sell directly to the end user. The Company sells
its products outside of the United States through sales offices in Canada and
the United Kingdom, and through distributors in other countries.


                                      F-17
<PAGE>

                                   SIGNATURES

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

                                          TEARDROP GOLF COMPANY


Dated:  April 15, 1999                    /s/ Rudy A. Slucker
                                          --------------------------------------
                                          Rudy A. Slucker
                                          President and Chief Executive
                                          Officer
                                          (Principal Executive Officer)

      In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.

Dated:  April 15, 1999                    /s/ Rudy A. Slucker
                                          --------------------------------------
                                          Rudy A. Slucker
                                          Director


Dated:  April 15, 1999                    /s/ Joseph A. Cioni
                                          --------------------------------------
                                          Joseph A. Cioni
                                          Chief Financial Officer
                                          (Principal Financial and Accounting
                                          Officer)


Dated:  April 15, 1999                    /s/ Fred K. Hochman
                                          --------------------------------------
                                          Fred K. Hochman
                                          Director


Dated:  April 15, 1999                    /s/ Leslie E. Goodman
                                          --------------------------------------
                                          Leslie E. Goodman
                                          Director


Dated:  April 15, 1999                    /s/ Jeffrey Baker
                                          --------------------------------------
                                          Jeffrey Baker
                                          Director

Dated:  April __, 1999                    
                                          --------------------------------------
                                          Bruce H. Nagel
                                          Director