United States
Securities and Exchange CommissionWashington,
D.C. 20549

Form 10-K

x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934

For the Fiscal Year Ended December 27, 2008

Or

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the transition period from _____________
to _____________

Commission File Number 0-6966

|                                                       |                          | 
|------------------------------------------------------ | ------------------------ | 
|                                                       | ESCALADE,
  INCORPORATED | 
|                                                       |                          | 
|(Exact name of registrant as specified in its charter)

|                                        |             
|--------------------------------------- | ------------
|Indiana                                 | 13-2739290  
|(State of incorporation)                | (I.R.S. EIN)
|                                        |             
|817 Maxwell Ave, Evansville, Indiana    | 47711       
|(Address of Principal Executive Office) | (Zip Code)  

812-467-4449 (Registrants
Telephone Number)

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

|                           |                                       
|-------------------------- | --------------------------------------
|Common Stock, No Par Value | The NASDAQ Stock Market LLC           
|(Title of Class)           | (Name of Exchange on Which Registered)

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

Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities
Yes o No x

Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act
Yes o No x

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting
company. See the definitions of Large accelerated filer, accelerated filer
and smaller reporting company in Rule 12b-2 of the Exchange Act.

|                                                                      |                            
|--------------------------------------------------------------------- | ---------------------------
|Large accelerated filer o                                             | Accelerated filer o        
|                                                                      |                            
|Non-accelerated filer o (do not check if a smaller reporting company) | Smaller reporting company x

Indicate by checkmark whether the registrant is a shell company (as
defined in Rule 12 b-2 of the Exchange Act).
Yes o No x

Aggregate market value of common stock held by nonaffiliates of the
registrant as of July 12, 2008 based on the closing sale price as reported on
the NASDAQ Global Market: $41,257,654

The number of shares of Registrants common stock (no par value)
outstanding as of February 20, 2009: 12,616,042

DOCUMENTS INCORPORATED BY
REFERENCE

Certain portions of the registrants Proxy Statement relating to its
annual meeting of stockholders scheduled to be held on April 24,
2009 are incorporated by reference into Part
III of this Report.

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Escalade,
Incorporated and Subsidiaries

Table of Contents

|           |                                                                                                  |  |     
|---------- | ------------------------------------------------------------------------------------------------ |  | ----
|           |                                                                                                  |  | Page
|           |                                                                                                  |  |     
|Part
  I   |                                                                                                  |  |     
|Item 1.    | Business                                                                                         |  | 3   
|Item 1A.   | Risk Factors                                                                                     |  | 6   
|Item 1B.   | Unresolved Staff Comments                                                                        |  | 14  
|Item 2.    | Properties                                                                                       |  | 15  
|Item 3.    | Legal Proceedings                                                                                |  | 15  
|Item 4.    | Submission of Matters to a Vote of Security
  Holders                                            |  | 15  
|           |                                                                                                  |  |     
|Part
  II  |                                                                                                  |  |     
|Item 5.    | Market for the Registrants Common Equity
  and Related Stockholder Matters                      |  | 16  
|Item 6.    | Selected Financial Data                                                                          |  | 19  
|Item 7.    | Managements Discussion and Analysis of
  Financial Condition and Results of Operations          |  | 19  
|Item 7A.   | Quantitative and Qualitative Disclosures
  About Market Risk                                     |  | 28  
|Item 8.    | Financial Statements and Supplementary
Data                                                      |  | 29  
|Item 9.    | Changes in and Disagreements with
  Accountants on Accounting and Financial Disclosure           |  | 29  
|Item 9A.   | Controls and Procedures                                                                          |  | 29  
|Item 9B.   | Other Information                                                                                |  | 30  
|           |                                                                                                  |  |     
|Part
  III |                                                                                                  |  |     
|Item 10.   | Directors, Executive Officers and Corporate
  Governance                                         |  | 30  
|Item 11.   | Executive Compensation                                                                           |  | 30  
|Item 12.   | Security Ownership of Certain Beneficial
  Owners and Management and Related Stockholder Matters |  | 31  
|Item 13.   | Certain Relationships and Related
  Transactions                                                 |  | 31  
|Item 14.   | Principal Accountant Fees and Services                                                           |  | 31  
|           |                                                                                                  |  |     
|Part
  IV  |                                                                                                  |  |     
|Item 15.   | Exhibits and Financial Statement
Schedules                                                       |  | 32  

2

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Part I

ITEM 1BUSINESS

General

Escalade, Incorporated (Escalade or Company) operates in two
business segments: sporting goods and office products. Escalade and its
predecessors have more than 75 years of manufacturing and selling experience in
these two industries.

The following table presents the percentages contributed to Escalades
net sales by each of its business segments:

|                |  |  |      |   |  |      |   |  |      |  
|--------------- |  |  | ---- | - |  | ---- | - |  | ---- | -
|                |  |  | 2008 |   |  | 2007 |   |  | 2006 |  
|                |  |  |      |   |  |      |   |  |      |  
|Sporting goods  |  |  | 66   | % |  | 70   | % |  | 71   | %
|Office Products |  |  | 34   | % |  | 30   | % |  | 29   | %
|                |  |  |      |   |  |      |   |  |      |  
|Total net sales |  |  | 100  | % |  | 100  | % |  | 100  | %
|                |  |  |      |   |  |      |   |  |      |  

For additional
segment information, see Note 13  Operating Segment and Geographic Information
in the consolidated financial statements.

Sporting Goods

Headquartered
in Evansville, Indiana, Escalade Sports manufactures and distributes widely recognized
brands in family game room and outdoor sporting goods products through
traditional department stores, mass merchandise retailers, and sporting goods
specific retailers. Escalade is the worlds largest producer of table tennis
tables. Some of the Companys most recognized brands include:

|                                  |  |                                     
|--------------------------------- |  | ------------------------------------
|Product
  Segment                 |  | Brand Names                         
|                                  |  |                                     
|Table Tennis                      |  | Ping-Pong®,
  STIGA®                
|Pool Tables
  and Accessories     |  | Mizerak, ,
  Mosconi,             
|Basketball
  Backboards and Goals |  | Goalrilla,
  Goaliath®, Silverback
|Game Tables
  (Hockey and Soccer) |  | Harvard
  Game®, Rhino, Atomic    
|Archery                           |  | Trophy
  Ridge®, Bear Archery®      
|Fitness                           |  | The STEP®,
  USWeight              
|Play Systems                      |  | Woodplay®,
  Oasis                 

Sears historically was one
of Escalade Sports largest customers and accounted for 18% and 19% of total consolidated
revenues in 2007 and 2006 respectively. In 2008, sales to Sears accounted for
6% of total consolidated revenues, representing a decline of 12% from 2007.
Although Escalade had been a preferred supplier of sporting goods products to
Sears for more than 30 years and had won numerous awards from Sears for
delivering outstanding products and services, the Company never had a long-term
supplier contract with Sears. In 2008, the Company was unable to negotiate
satisfactory terms for continued sales of table tennis and billiard tables,
which products represented approximately 50% of total sales to Sears in 2007.

Escalade
Sports manufactures in the U.S.A. and Mexico; and imports product from China,
where the Company employs a number of contract manufacturers.

Certain
products produced by Escalade Sports are subject to regulation by the Consumer
Product Safety Commission. The Company believes it is in full compliance with
all applicable regulations.

3

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Office Products

Operating as
Martin Yale, the office products business has a worldwide presence with
manufacturing facilities in North America and Europe. Besides the sales offices
located at each manufacturing plant, Martin Yale has sales offices in the
United Kingdom, France, Spain, China, Italy, South Africa and Sweden.

Martin Yale
products include: data shredders, paper trimmers, paper folding machines, paper
drills, collators, bursting machines, letter openers, and office related
products such as keyboard drawers and paper hole punches. Martin Yale brands
include Martin Yale, Premier®, Master, Mead Hatcher, Intimus®, and Paper
Monster®.

Martin Yale
products are sold throughout office products retailers, wholesalers and catalog
distributors. No single Martin Yale customer accounted for more than 10% of
Office Product sales during 2008.

Marketing
and Product Development

In both the
sporting goods and office product business segments, Escalade has rigorously
developed strategic plans to enhance and promote product branding. The Company
constantly evaluates the quality-to-price paradigm of its customers, and then
designs and redesigns its products to achieve the best fit. Marketing efforts
are then initiated through its retail partners in the form of advertising and
other promotion allowances. In general, the Company does not directly advertise
to end-users.

In order to
meet customer needs, each operating segment conducts its own independent
research and development efforts to design new products and enhance already
existing products. On a consolidated basis, the Company incurred research and
development costs of approximately $2.3 million, $2.3 million and $2.2 million
in 2008, 2007 and 2006, respectively.

Competition

Escalade is subject to competition with various manufacturers in each
product line produced or sold by Escalade. The Company is not aware of any
other single company that is engaged in both the same industries as Escalade or
that produces the same range of products as Escalade within such industries.
Nonetheless, competition exists for many Escalade products within both the
sporting goods and office product industries and some competitors are larger
and have substantially greater resources than the Company. Escalade believes
that its long-term success depends on its ability to strengthen its relationship
with existing customers, attract new customers and develop new products that
satisfy the quality and price requirements of sporting goods and office product
customers.

Licenses,
Trademarks and Brand Names

The Company has an agreement and contract with Sweden Table Tennis AB
for the exclusive right and license to distribute and produce table tennis
equipment under the brand name STIGA® for the United States and Canada. The
company also owns several registered trademarks and brand names including but
not limited to Ping-Pong®, Fred Bear®, Goalrillaä, The Step®, and Wood Play® which
are used in the Sporting Goods
business segment and Premier® and Intimus® which are used in the Office
Products business segment.

Backlog
and Seasonality

Sales are based primarily on standard purchase orders and in most cases
orders are shipped within the same month received. Unshipped orders at the end
of the fiscal year (backlog), were not material, and therefore not an indicator
of future results. Consumer demand for sporting goods is seasonal and driven by
holiday season demand. Over the past three years approximately 58% of sporting
goods sales came in the second half of the year. The Company expects sporting
goods sales to continue to be seasonal in the future. Demand for Office
Products has not been seasonal and is not expected to be so in the future.

4

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Employees

The number of employees at December 27, 2008 and December 29, 2007 for
each business segment were as follows:

|                |  |  |      |  |  |      | 
|--------------- |  |  | ---- |  |  | ---- | 
|                |  |  | 2008 |  |  | 2007 | 
|                |  |  |      |  |  |      | 
|Sporting Goods  |  |  |      |  |  |      | 
|USA             |  |  | 277  |  |  | 475  | 
|Mexico          |  |  | 214  |  |  | 149  | 
|                |  |  |      |  |  |      | 
|                |  |  | 491  |  |  | 624  | 
|                |  |  |      |  |  |      | 
|Office Products |  |  |      |  |  |      | 
|USA             |  |  | 106  |  |  | 111  | 
|Europe          |  |  | 134  |  |  | 115  | 
|Asia            |  |  | 8    |  |  | 14   | 
|                |  |  |      |  |  |      | 
|                |  |  | 248  |  |  | 240  | 
|                |  |  |      |  |  |      | 
|Total           |  |  | 739  |  |  | 864  | 
|                |  |  |      |  |  |      | 

The I.U.E./C.W.A. (United Electrical Communication Workers of America,
AFL-CIO) represent hourly rated employees at the Escalade Sports Evansville,
Indiana distribution center; approximately 30 employees at December 27, 2008. A
3-year labor contract was negotiated and renewed in April 2006; the new
agreement expires on April 30, 2009. Management believes it has satisfactory
relations with its employees.

Sources
of Supplies

Raw materials for Escalades various product lines consist of wood,
steel, plastics, fiberglass and packaging. Escalade relies upon suppliers in
various countries and upon various third party Asian manufacturers for certain
of its game tables and non-security paper shredders. The Company believes that
these sources will continue to provide adequate supplies as needed and that all
other materials needed for the Companys various operations are available in
adequate quantities from a variety of domestic and foreign sources.

SEC
Reports

The Companys
internet site (www.escaladeinc.com) makes available free of charge to all
interested parties the Companys annual report on Form 10-K, quarterly reports
on Form 10-Q, and current reports on Form 8-K, and all amendments to those
reports, as well as all other reports and schedules filed electronically with
the Securities and Exchange Commission (the Commission), as soon as
reasonably practicable after such material is electronically filed with or
furnished to the Commission. Interested parties may also find reports, proxy
and information statements and other information on issuers that file
electronically with the Commission at the Commissions internet site
(http://www.sec.gov).

5

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|         |             
|-------- | ------------
|ITEM 1A | RISK FACTORS

Sales declined in 2008 and could continue
to decline in 2009.

Overall sales in both sporting
goods and office products declined in 2008 due to a variety of factors,
including consumer uncertainty generated by the poor economy in the United
States and globally and lower than expected sell through on game room products
such as table tennis and billiards. Sales may further decline in 2009.
Recovering or replacing these declining or lost sales will be a significant
challenge. The Company cannot provide any assurance that it will be able to
recover or replace all or any portion of these declining or lost sales.

Sales to Escalade Sports largest customer
declined significantly in 2008 and sales to this customer will continue to
decline in 2009.

Sears historically was one
of Escalade Sports largest customers and accounted for 18% and 19% of total consolidated
revenues in 2007 and 2006 respectively. In 2008, sales to Sears accounted for
6% of total consolidated revenues, representing a decline of 12% from 2007.
Although Escalade Sports had been a preferred supplier of sporting goods
products to Sears for more than 30 years and had won numerous awards from Sears
for delivering outstanding products and services, the Company never had a
long-term supplier contract with Sears. In 2008, Escalade Sports was unable to
negotiate satisfactory terms for continued sales of table tennis and billiard
tables, which products represented approximately 50% of total sales to Sears in
2007. The Company stopped supplying those products to Sears in the second half
of 2008, and does not expect to resume sales of those products to Sears in
2009. In addition, the Company cannot provide any assurance that it will
continue to supply any other products to Sears and, therefore, sales to Sears
will decline further in 2009 and in the future. Although the Company has
achieved placement with other large mass-retail customers that will partially
offset this lost business, it cannot provide any assurance that the Company
will be able to recover or replace all or any portion of these declining or
lost sales to Sears.

Markets are highly competitive and the
Company may not continue to compete successfully.

The market for sporting
goods and office products is highly fragmented and intensely competitive.
Escalade competes with a variety of regional, national and international
manufacturers for customers, employees, products, services and other important
aspects of the business. In sporting goods, the Company has historically sold a
large percentage of our sporting goods products to mass merchandisers, and has
increasingly attempted to expand sales to specialty retail and dealer markets.
Similarly, the Company has traditionally sold office products to office
products retailers and specialty machine dealers. In addition to competition
for sales into those distribution channels, vendors also must compete in
sporting goods with large format sporting goods stores, traditional sporting
goods stores and chains, and warehouse clubs, discount stores and department
stores, and in office products with office supply superstores, computer and
electronics superstores, contract stationers, and others. Some of the current
and potential competitors are larger than Escalade and have substantially
greater financial resources that may be devoted to sourcing, promoting and
selling their products, and may discount prices more heavily than the Company
can afford.

If the Company is unable to predict or
react to changes in consumer demand, it may lose customers and sales may
decline.

Success depends in part on
the ability to anticipate and respond in a timely manner to changing consumer
demand and preferences regarding sporting goods and office products. Products
must appeal to a broad range of consumers whose preferences cannot be predicted
with certainty and are subject to change. The Company often makes commitments
to manufacture products months in advance of the proposed delivery to
customers. If Escalade misjudges the market for products, sales may decline
significantly. The Company may have to take significant inventory markdowns on
unpopular products that are overproduced and/or miss opportunities for other
products that may rise in popularity, both of which could have a negative
impact on profitability. A major shift in consumer demand away from sporting
goods or office products could also have a material adverse effect on business,
results of operations and financial condition.

6

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Business is seasonal and annual results are
dependent on the success of second half sales.

Sporting goods business is
seasonal in nature with the highest sales and operating income historically
occurring during the third and fourth fiscal quarters due largely to the
holiday selling season. In 2008, the holiday selling season was substantially
slower than in recent years and approximately 52% of sporting goods sales came
in the second half of the year. Any decrease in second half sales, whether
because of a slow holiday selling season, the general deterioration of the
economy or otherwise, could have a material adverse effect on business,
financial condition and operating results for the entire fiscal year.

Quarterly operating results are subject to
fluctuation.

Operating results have
fluctuated from quarter to quarter in the past, and the Company expects that
they will continue to do so in the future. Earnings may not continue to grow at
rates similar to the growth rates achieved in recent years and may fall short
of either a prior fiscal period or market expectations. Factors that could
cause these quarterly fluctuations include the following: international,
national and local general economic and market conditions; the size and growth
of the overall sporting goods and office products markets; intense competition
among manufacturers, marketers, distributors and sellers of products;
demographic changes; changes in consumer preferences; popularity of particular
designs, categories of products and sports; seasonal demand for products; the
size, timing and mix of purchases of products; fluctuations and difficulty in
forecasting operating results; ability to sustain, manage or forecast growth and
inventories; new product development and introduction; ability to secure and
protect trademarks, patents and other intellectual property; performance and
reliability of products; customer service; the loss of significant customers or
suppliers; dependence on distributors; business disruptions; increased costs of
freight and transportation to meet delivery deadlines; changes in business
strategy or development plans; general risks associated with doing business
outside the United States, including, without limitation: exchange rates,
import duties, tariffs, quotas and political and economic instability; changes
in government regulations; any liability and other claims asserted against the
Company; ability to attract and retain qualified personnel; and other factors
referenced or incorporated by reference in this Form 10-K and any other filings
with the Securities and Exchange Commission.

The Company is currently in default of
certain financial covenants in its Credit Agreement with JPMorgan Chase Bank,
N.A. and is in the process of restructuring the terms of the Credit Agreement.

As of the end of Escalades
2008 fiscal second, third and fourth quarters, the Company was out of
compliance with certain financial covenants (leverage ratio and debt service
ratio) set forth in our $30,000,000 credit facility (the Credit Agreement)
with JPMorgan Chase Bank, N.A. (Chase). On January 15, 2009 a letter was
received from Chase, which notified Escalade that Chase considers the Companys
failure to comply with each of the leverage ratio covenant and the debt service
covenant to be an Existing Default under the Credit Agreement. Chase is not
currently exercising its rights upon a default, but reserved its right to
exercise any and all of its rights and remedies with respect to the Existing
Defaults and has not waived any such rights and remedies.

Effective March 24, 2009 the Company entered into a commitment letter
with JP Morgan Chase Bank, N.A (Chase) that provides for a secured, senior
revolving credit facility in the maximum amount up to $50,000,000 and, through
Chases London branch, a secured, senior revolving credit facility in the
maximum amount of up to 3,000,000 Euros upon certain terms and conditions. The
new credit facility is expected to have a maturity date of May 17, 2010. A
portion of the credit facility not in excess of $3,500,000 will be available
for the issuance of commercial or standby letters of credit to be issued by
Chase. While this commitment letter does not waive the current financial
covenant defaults, it provides that such defaults will be waived upon execution
of the definitive new credit agreement documents. The Company anticipates
finalizing the new credit agreement by April 15, 2009, although there can be no
assurances that such agreement will be entered into or, if completed, that it
will be executed by that date.

7

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Operating results may be impacted by
changes in the economy that impact business and consumer spending.

In general, sales depend on
discretionary spending by consumers. A deterioration of current economic
conditions such as the deterioration experienced in both the United States and
the global economy in 2008 adversely impacted sales in 2008 and continuing
economic downturn could result in further declines in revenues and impair
growth in 2009. Severely negative economic conditions could greatly impair the
ability and willingness of consumers to buy products. Operating results are
directly impacted by the health of the North American, European and Asian
economies. Business and financial performance may be adversely affected by
current and future economic conditions, including unemployment levels, energy
costs, interest rates, recession, inflation, the impact of natural disasters
and terrorist activities, and other matters that influence business and
consumer spending.

If the national and global financial crisis
intensifies, potential disruptions in the credit markets may adversely affect
business, including the availability and cost of short-term funds for liquidity
requirements and ability to meet long-term commitments, which could adversely
affect results of operations, cash flows and financial condition.

If internal funds are not
available from operations we may be required to rely on the banking credit and
equity markets to meet financial commitments and short-term liquidity needs.
Even if the Company is able to successfully restructure the credit facility as
discussed above, disruptions in the capital and credit markets, as experienced
during 2008, could adversely affect its ability to borrow pursuant to the
Credit Agreement with Chase or to borrow from other financial institutions.
Access to funds under the Credit Agreement or pursuant to arrangements with
other financial institutions is dependent on Chases or other financial institutions
ability to meet funding commitments. Financial institutions, including Chase,
may not be able to meet their funding commitments if they experience shortages
of capital and liquidity or if they experience high volumes of borrowing
requests from other borrowers within a short period of time.

Longer term disruptions in
the capital and credit markets as a result of uncertainty, changing or
increased regulation, reduced alternatives or failures of significant financial
institutions could adversely affect access to the liquidity needed for
business. Any disruption could require the Company to take measures to conserve
cash until the markets stabilize or until alternative credit arrangements or
other funding for our business needs can be arranged. Such measures could
include deferring capital expenditures and reducing or eliminating future share
repurchases, dividend payments or other discretionary uses of cash.

The current financial crisis in the United
States and globally may have significant effects on customers and suppliers
that would result in material adverse effects on business, operating results
and stock price.

The current financial crisis
in the United States and globally and the concern that the worldwide economy
may enter into a prolonged recessionary period may materially adversely affect
customers access to capital or willingness to spend capital on products and/or
their levels of cash liquidity with which to pay for products that they will
order or have already ordered from the Company. In addition, the current
financial crisis may materially adversely affect suppliers access to capital
and liquidity with which to maintain their inventories, production levels
and/or product quality, could cause them to raise prices, lower production levels
or result in their ceasing operations. Continuing adverse economic conditions
in our markets would also likely negatively impact business, which could result
in: (1) reduced demand for products; (2) increased price competition for
products; (3) increased risk of excess or obsolete inventories; (4) increased
risk of collectability of cash from customers; (5) increased risk in potential
reserves for doubtful accounts and write-offs of accounts receivable; (6)
reduced revenues and (7) higher operating costs as a percentage of revenues.

All of the foregoing
potential consequences of the current financial crisis are difficult to
forecast and mitigate. As a consequence, operating results for a particular
period are difficult to predict, and, therefore, prior results are not
necessarily indicative of future results to be expected in future periods. Any
of the foregoing effects could have a material adverse effect on business,
results of operations and financial condition and could adversely affect stock
price.

8

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Negative economic conditions could prevent
us from accurately forecasting demand for our products which could adversely
affect our operating results or market share.

The current negative
economic conditions and market instability in the United States and globally
makes it increasingly difficult for the Company, customers and suppliers to
accurately forecast future product demand trends, which could cause the Company
to produce excess products that can increase inventory carrying costs and
result in obsolete inventory. Alternatively, this forecasting difficulty could
cause a shortage of products, or materials used in products, that could result
in an inability to satisfy demand for products and a loss of market share.

The Company may pursue strategic acquisitions,
which could have an adverse impact on our business.

The Company has grown in
part over the years, through acquisitions of complementary companies or
businesses, which have been part of the strategic plan and may continue to
pursue acquisitions in the future from time to time. Acquisitions may result in
difficulties in assimilating acquired companies, and may result in the
diversion of capital and managements attention from other business issues and
opportunities. The Company may not be able to successfully integrate operations
that it acquires, including their personnel, financial systems, distribution,
and operating procedures. If the Company fails to successfully integrate
acquisitions, business could suffer. In addition, the integration of any acquired
business, and their financial results, may adversely affect operating results.
Escalade will consider acquisitions in the future, but we currently do not have
any agreements with respect to any such acquisitions.

Growth may strain resources, which could
adversely affect business and financial performance.

Both the sporting goods and
office products businesses have grown over the past several years through
strategic acquisitions. Growth places additional demands on management and
operational systems. If the Company is not successful in continuing to support
operational and financial systems, expanding the management team and increasing
and effectively managing customers and suppliers, growth may result in
operational inefficiencies and ineffective management of the business, which
could adversely affect the business and financial performance.

Ability to expand business will be
dependent upon the availability of adequate capital.

The rate of expansion will
also depend on the availability of adequate capital, which in turn will depend
in large part on cash flow generated by the business and the availability of
equity and debt capital. Escalade can make no assurances that it will be able
to obtain equity or debt capital on acceptable terms or at all, especially
considering the current disruptions in the credit markets.

Failure to improve operational efficiency
and reduce administrative costs could have a material adverse effect on
liquidity, financial position and results of operations.

The Companys ability to
improve profit margins is largely dependent on the success of initiatives to
streamline infrastructure, improve operational efficiency and reduction of
administrative costs at every level of the Company. Failure to implement these
initiatives successfully, or the failure of such initiatives to result in
improved profitability, could have a material adverse effect on liquidity,
financial position and results of operations.

Business may be adversely affected by the
actions of and risks associated with third-party suppliers.

The raw materials that the
Company purchases for manufacturing operations and many of the products that it
sells are sourced from a wide variety of third-party suppliers. The Company
cannot control the supply, design, function or cost of many of the products
that are offered for sale and are dependent on the availability and pricing of
key materials and products. Disruptions in the availability of raw materials
used in production of these products may adversely affect sales and result in
customer dissatisfaction. In addition, global sourcing of many of the products
sold is an important factor in our financial performance. The ability to find
qualified suppliers and to access products in a timely and efficient manner is
a significant challenge, especially with respect to goods sourced outside the
United States. Political instability, the financial instability of suppliers,
merchandise quality issues, trade restrictions, tariffs, currency exchange
rates, transport capacity and costs, inflation and other factors relating to
foreign trade are beyond the Companys control.

9

---



Historically, instability in
the political and economic environments of the countries in which the Company
or its suppliers obtain products and raw materials has not had a material
adverse effect on operations. However, the Company cannot predict the effect
that future changes in economic or political conditions in such foreign
countries may have on operations. In the event of disruptions or delays in
supply due to economic or political conditions in foreign countries, such
disruptions or delays could adversely affect results of operations unless and
until alternative supply arrangements could be made. In addition, products and
materials purchased from alternative sources may be of lesser quality or more
expensive than the products and materials currently purchased abroad.

Deterioration in relationships with
suppliers or in the financial condition of suppliers could adversely affect
liquidity, financial position and results of operations.

Access to materials, parts
and supplies is dependent upon close relationships with suppliers and the
ability to purchase products from the principal suppliers on competitive terms.
The Company does not enter into long-term supply contracts with these
suppliers, and has no current plans to do so in the future. These suppliers are
not required to sell to the Company and are free to change the prices and other
terms. Any deterioration or change in the relationships with, or in the financial
condition of our significant suppliers, could have an adverse impact on the
ability to procure materials and parts necessary to produce products for sale
and distribution. If any of the significant suppliers terminated or
significantly curtailed its relationship with the Company or ceased operations,
the Company would be forced to expand relationships with other suppliers, seek
out new relationships with new suppliers or risk a loss in market share due to
diminished product offerings and availability. Any change in one or more of
these suppliers willingness or ability to continue to supply the Company with
their products could have an adverse impact on liquidity, financial position
and results of operations.

Escalade may be subject to product
liability claims and the Companys insurance may not be sufficient to cover
damages related to those claims.

The Company may be subject
to lawsuits resulting from injuries associated with the use of sporting goods
equipment and office products that it sells. The Company may incur losses
relating to these claims or the defense of these claims. There is a risk that
claims or liabilities will exceed our insurance coverage. In addition, the
Company may be unable to retain adequate liability insurance in the future. In addition,
the Company is subject to regulation by the Consumer Product Safety Commission
and similar state regulatory agencies. If the Company fails to comply with
government and industry safety standards, it may be subject to claims,
lawsuits, fines and adverse publicity that could have a material adverse effect
on our business, results of operations and financial condition.

Intellectual property rights are valuable,
and any inability to protect them could reduce the value of products.

The Company obtains patents,
trademarks and copyrights for intellectual property, which represent important
assets to the Company. If the Company fails to adequately protect intellectual
property through patents, trademarks and copyrights, our intellectual property
rights may be misappropriated by others, invalidated or challenged, and our
competitors could duplicate the Companys products or may otherwise limit any
competitive design or manufacturing advantages. The Company believes that
success is likely to depend upon continued innovation, technical expertise,
marketing skills and customer support and services rather than on legal
protection of intellectual property rights. However, the Company intends to
aggressively assert its intellectual property rights when necessary.

10

---



The Company is subject to risks associated
with laws and regulations related to health, safety and environmental
protection.

Products, and the production
and distribution of products, are subject to a variety of laws and regulations
relating to health, safety and environmental protection. Laws and regulations
relating to health, safety and environmental protection have been passed in
several jurisdictions in which the Company operates in the United States and
abroad. Although the Company does not anticipate any material adverse effects
based on the nature of operations and the thrust of such laws, there is no
assurance such existing laws or future laws will not have a material adverse
effect on business, results of operations and financial condition.

International operations expose the Company
to the unique risks inherent in foreign operations.

The Company has operations
in Mexico and Europe, and relies on Asian suppliers for various raw materials
and products. Foreign operations encounter risks similar to those faced by U.S.
operations, as well as risks inherent in foreign operations, such as local
customs and regulatory constraints, control over product quality and content,
foreign trade policies, competitive conditions, foreign currency fluctuations
and unstable political and economic conditions. The 2003 acquisition of
Schleicher & Company, International AG in Germany and the Companys
business relationships in Asia have increased our exposure to these foreign
operating risks, which could have an adverse impact on international income and
worldwide profitability.

The Company could be adversely affected by
changes in currency exchange rates and/or the value of the United States
dollar.

The Company is exposed to
risks related to the effects of changes in foreign currency exchange rates and
the value of the United States dollar. Changes in currency exchange rates and
the value of the United States dollar can have a significant impact on earnings
from international operations. While the Company carefully watches and attempts
to manage exposure to fluctuation in currency exchange rates, these types of
changes can have material adverse effects on business, results of operations
and financial condition.

Failure to improve and maintain the quality
of internal controls over financial reporting could materially and adversely
affect the ability to provide timely and accurate financial information, which
could harm the Companys reputation and share price.

Management is responsible
for establishing and maintaining adequate internal controls over financial
reporting for the Company to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
in accordance with generally accepted accounting principles. Management cannot
be certain that weaknesses and deficiencies in internal controls will not arise
or be identified or that the Company will be able to correct and maintain
adequate controls over financial processes and reporting in the future. Any
failure to maintain adequate controls or to adequately implement required new
or improved controls could harm operating results or cause failure to meet
reporting obligations in a timely and accurate manner. Ineffective internal
controls over financial reporting could also cause investors to lose confidence
in reported financial information, which could adversely affect the trading
price of the Companys common stock.

Disclosure controls and
procedures are designed to provide reasonable assurance of achieving their objectives.
However, management, including the Chief Executive Officer and Chief Financial
Officer, does not expect that disclosure controls and procedures will prevent
all errors and all fraud. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, have been detected.

11

---



Failure to
effectively implement the global integrated information system (SURGE) could
cause incorrect information or delays in getting information which could
adversely affect the performance of the Company.

The Company
began an integrated information systems evaluation process in the fourth quarter
of 2007 which resulted in the selection of Oracle as its vendor. In 2008, the
Company spent $6.6 million establishing the foundation and network for a system
wide-roll out. The project experienced some delays and the system went live in
the North American Office Products and one business entity within Sporting
Goods in the beginning of 2009. Thus far in 2009 the Company has spent an
additional $0.8 million dollars. For the remainder of 2009, the Company will
not expand the new system to the other operational business entities and the
decision of when to recommence the integrated system implementation has not
been made. There can be no assurance the Company will have the necessary funds
(estimated to be in excess of $2.0 million) or the staff to fully avail itself
of the control features inherent in the system design. Without such utility,
the Company management is faced with cumbersome and time consuming effort to
manually consolidate information. Such inefficiencies and delays could cause
sales and profit to decline and or could affect relationships with key
customers and/or suppliers.

The preparation of financial statements
requires the use of estimates that may vary from actual results.

The preparation of
consolidated financial statements in conformity with generally accepted
accounting principles in the United States and the other countries in which the
Company does business requires Management to make significant estimates that
may affect financial statements. Due to the inherent nature of making estimates,
actual results may vary substantially from such estimates, which could
materially adversely affect out business, financial condition, and results of
operations. For more information on our critical accounting estimates, please
see the Critical Accounting Estimates section of this Form 10-K.

Changes in accounting standards could
impact reported earnings and financial condition.

The accounting standard
setters, including the Financial Accounting Standards Board, the International
Accounting Standards Board, the Securities & Exchange Commission and the
Public Company Accounting Oversight Board, periodically change the financial
accounting and reporting standards that govern the preparation of our
consolidated financial statements. These changes can be hard to predict and
apply and can materially affect how the Company records and reports its
financial condition and results of operations. In some cases, the Company could
be required to apply a new or revised standard retrospectively, which may
result in the restatement of prior period financial statements.

Effective tax rate may fluctuate.

We are a multi-national,
multi-channel provider of sporting goods and office products. As a result, the
Companys effective tax rate is derived from a combination of applicable tax
rates in the various countries, states and other jurisdictions in which the
Company operates. The effective tax rate may be lower or higher than our tax
rates have been in the past due to numerous factors, including the sources of
income, any agreement with taxing authorities in various jurisdictions, the tax
filing positions taken in various jurisdictions and changes in the political
environment in the jurisdictions in which the Company operates. We base
estimates of an effective tax rate at any given point in time upon a calculated
mix of the tax rates applicable to the Company and to estimates of the amount
of business likely to be done in any given jurisdiction. The loss of one or
more agreements with taxing jurisdictions, a change in the mix of business from
year to year and from country to country, changes in rules related to
accounting for income taxes, changes in tax laws and any of the multiple
jurisdictions in which the Company operates, or adverse outcomes from tax
audits that the Company may be subject to in any of the jurisdictions in which
the Company operates, could result in an unfavorable change in the effective
tax rate which could have an adverse effect on business and results of our
operations.

The Company is currently not in compliance
with NASDAQ requirements for continued listing of common stock.

The Companys common stock
is currently not in compliance with NASDAQ rules for continued listing on the
NASDAQ Global Market and is at risk of being delisted. The Companys common stock
has not maintained a minimum $1.00 per share bid price for the prior 30
consecutive business days as required by NASDAQ Marketplace Rule 4450(a)(5).
Additionally, the Companys common stock is currently at risk of not complying
with NASDAQ Marketplace Rule 4450(a)(2) relating to continued listing on the
NASDAQ Global Market. In accordance with Marketplace Rule 4450(a), companies
must, among other requirements, maintain a market value of publicly held shares
of at least $5,000,000. Although the market value of the Companys publicly
held shares currently exceeds $5,000,000, the Company cannot provide any
assurance it we will be able to meet this requirement in the future.

12

---



However, NASDAQ has
suspended enforcement of the bid price and market value of publicly held shares
requirements through July 20, 2009. If NASDAQ had not suspended enforcement of
these requirements the Company likely would have received a notice of failure
to comply with Marketplace Rule 4450(a)(5) and would have 180 days to regain
compliance. If and when the suspension of the enforcement of the bid price or
market value requirement is lifted by NASDAQ, there is no guarantee that the
Company will be able to meet this bid price or market value of publicly held
shares requirement. This may subject the Company to the risk of being delisted
and would result in decreased liquidity of common stock.

The Company is considering the potential
for voluntary delisting of its common stock with NASDAQ if the Company remains
eligible for suspending its SEC reporting obligations under the Securities
Exchange Act of 1934, as amended.

The Company has been subject
to the periodic reporting obligations imposed by the Securities Exchange Act of
1934, as amended, since it went public in 1972. In complying with those
reporting obligations and the additional requirements imposed upon public
companies pursuant to the Sarbanes-Oxley Act of 2002, the Company incurs significant annual out-of-pocket costs.
In addition, the time and attention required of management to comply with all
such requirements is substantial. As a small public company, particularly in
light of recent economic conditions, the Company has not been able to take full
advantage of the potential benefits of being public yet must continue to satisfy
all of the requirements to remain a public company. The rules and regulations
of the SEC allow a public reporting company to suspend its public company
reporting obligations if the company has no securities listed on a national
stock exchange, has 300 or fewer stockholders of record and meets certain other
requirements. If the Company were to delist its common stock from NASDAQ,
whether voluntarily or involuntarily, the Company believes that it then would
be eligible to suspend its reporting obligations under the Securities Exchange
Act of 1934, as amended, because the Company currently has less than 300
stockholders of record. The Companys Board of Directors and management are in
the process of exploring the advantages and disadvantages to the Company and
its stockholders if the Company would no longer be a public reporting company.
No final decisions have been made in this regard, but such actions would have a
material impact on stockholders if taken.

The market price of common stock is likely
to be highly volatile as the stock market in general can be highly volatile.

The public trading of common stock is based on many
factors, which could cause fluctuation in the Companys stock price. These
factors may include, among other things:

| |   |                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | General economic and
  market conditions;                                                                                                                                                                          
| |   |                                                                                                                                                                                                                    
| |  | Actual or anticipated
  variations in quarterly operating results;                                                                                                                                                 
| |   |                                                                                                                                                                                                                    
| |  | Lack of research coverage
  by securities analysts;                                                                                                                                                                
| |   |                                                                                                                                                                                                                    
| |  | If securities analysts
  provide coverage, our inability to meet or exceed securities analysts
  estimates or expectations;                                                                                       
| |   |                                                                                                                                                                                                                    
| |  | Conditions or trends in
  our industry;                                                                                                                                                                            
| |   |                                                                                                                                                                                                                    
| |  | Changes in the market
  valuations of other companies in our industry;                                                                                                                                             
| |   |                                                                                                                                                                                                                    
| |  | Announcements by us or our
  competitors of significant acquisitions, strategic partnerships, divestitures,
  joint ventures or other strategic initiatives;                                                       
| |   |                                                                                                                                                                                                                    
| |  | Capital commitments;                                                                                                                                                                                               
| |   |                                                                                                                                                                                                                    
| |  | Additional or departures
  of key personnel;                                                                                                                                                                       
| |   |                                                                                                                                                                                                                    
| |  | Sales and repurchases of
  our common stock; and                                                                                                                                                                   
| |   |                                                                                                                                                                                                                    
| |  | The potential  delisting of the Companys common stock from NASDAQ and the
 potential to cease being a public reporting  company as discussed in the two risk
factors set forth immediately above this risk factor.

13

---



Many of these factors are
beyond the Companys control. These factors may cause the market price of the
Companys common stock to decline, regardless of operating performance.

Information security may be compromised.

Through sales and marketing
activities, the Company collects and stores certain information that customers
provide to purchase products or services or otherwise communicate and interact
with the Company. Despite instituted safeguards for the protection of such
information, we cannot be certain that all of the systems are entirely free
from vulnerability to attack. Computer hackers may attempt to penetrate the
network security and, if successful, misappropriate confidential customer or
business information. In addition, an employee, a contractor or other third
party with whom we do business may attempt to circumvent the Companys security
measures in order to obtain such information or inadvertently cause a breach
involving such information. Loss of customer or business information could
disrupt operations, damage the Companys reputation, and expose the Company to
claims from customers, financial institutions, payment card associations and
other persons, any of which could have an adverse effect on business, financial
condition and results of operations. In addition, compliance with tougher
privacy and information security laws and standards may result in significant
expense due to increased investment in technology and the development of new
operational processes.

Terrorist attacks or acts of war may
seriously harm business.

Among the chief uncertainties
facing the nation and the world and, as a result, business is the instability
and conflict in the Middle East. Obviously, no one can predict with certainty
what the overall economic impact will be as a result of these circumstances.
Terrorist attacks may cause damage or disruption to the Company, employees,
facilities and customers, which could significantly impact net sales, costs and
expenses and financial condition. The potential for future terrorist attacks,
the national and international responses to terrorist attacks, and other acts
of war and hostility may cause greater uncertainty and cause business to suffer
in ways the Company currently cannot predict.

These risks are not exhaustive.

Other sections of this Form
10-K may include additional factors which could adversely impact business and
financial performance. Moreover, the Company operates in a very competitive and
rapidly changing environment. New risk factors emerge from time to time and it
is not possible for management to predict all risk factors, nor can the Company
assess the impact of all factors on business or the extent to which any factor,
or combination of factors, may cause actual results to differ materially from
those contained in any forward-looking statements. Given these risks and
uncertainties, investors should not place undue reliance on forward-looking
statements as a prediction of actual results.

|           |                            
|---------- | ---------------------------
|ITEM
  1B | UNRESOLVED STAFF
  COMMENTS

None.

14

---



|          |           
|--------- | ----------
|ITEM
  2 | PROPERTIES

At December 27, 2008, the Company operated from the following
locations:

|                           |  |                   |  |                   |  |                                                                      
|-------------------------- |  | ----------------- |  | ----------------- |  | ---------------------------------------------------------------------
|Location                   |  | Square 
  Footage |  | Owned or
  Leased |  | Use                                                                  
|                           |  |                   |  |                   |  |                                                                      
|                           |  |                   |  |                   |  |                                                                      
|Sporting Goods             |  |                   |  |                   |  |                                                                      
|Evansville, Indiana, USA   |  | 359,000           |  | Owned             |  | Distribution;
  sales and marketing; administration                  
|Evansville, Indiana, USA   |  | 82,500            |  | Leased            |  | Warehousing                                                          
|Olney, Illinois, USA       |  | 108,500           |  | Leased            |  | Manufacturing
  and distribution                                     
|Gainesville, Florida, USA  |  | 154,000           |  | Owned             |  | Manufacturing
  and distribution                                     
|Rosarito, Mexico           |  | 66,500            |  | Owned             |  | Manufacturing
  and distribution                                     
|Rosarito, Mexico           |  | 108,200           |  | Leased            |  | Manufacturing                                                        
|Reynosa, Mexico            |  | 126,800           |  | Owned             |  | Manufacturing
  and distribution                                     
|Raleigh, N. Carolina, USA  |  | 69,800            |  | Leased            |  | Manufacturing
  and distribution                                     
|Jacksonville, Florida, USA |  | 18,000            |  | Leased            |  | Sales and
  marketing                                                
|                           |  |                   |  |                   |  |                                                                      
|Office Products            |  |                   |  |                   |  |                                                                      
|Wabash, Indiana, USA       |  | 141,000           |  | Owned             |  | Manufacturing
  and distribution; sales and marketing; administration
|Sanford, N. Carolina, USA  |  | 2,100             |  | Leased            |  | Sales and
  marketing                                                
|Markdorf, Germany          |  | 70,300            |  | Owned             |  | Manufacturing
  and distribution; sales and marketing; administration
|Paris, France              |  | 1,335             |  | Leased            |  | Distribution;
  sales and marketing                                  
|Crawley, UK                |  | 8,300             |  | Leased            |  | Sales and
  marketing                                                
|Barcelona, Spain           |  | 8,600             |  | Leased            |  | Distribution;
  sales and marketing                                  
|Johannesburg, South Africa |  | 4,800             |  | Leased            |  | Distribution;
  sales and marketing                                  

At the end of 2008, the Company did not have any idle facilities. The
Company made the decision to consolidate the Mexican production facilities into
the Rosarito, Mexico location. The Reynosa facility is on the market to be sold
and has been classified as held for sale in the Companys financial statements.
The Company believes that its facilities are in satisfactory and suitable for
their respective operations. The Company also believes that it is in compliance
with all applicable environmental regulations and is not subject to any
proceeding by any federal, state or local authorities regarding such matters.
The Company provides regular maintenance and service on its plants and
machinery as required.

|          |                  
|--------- | -----------------
|ITEM
  3 | LEGAL PROCEEDINGS

The Company is involved in litigation arising in the normal course of
its business, but the Company does not believe that the disposition or ultimate
resolution of such claims or lawsuits will have a material adverse affect on
the business or financial condition of the Company.

The Company is not aware of any probable or levied penalties against
the Company relating to the American Jobs Creation Act.

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

None.

15

---



Part II

|         |                                                                            
|-------- | ---------------------------------------------------------------------------
|ITEM  5 | MARKET FOR THE REGISTRANTS
  COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Companys common stock is traded under the symbol ESCA on the
NASDAQ Global Market. The following table sets forth, for the calendar periods
indicated, the high and low sales prices of the Common Stock as reported by the
NASDAQ Global Market (formerly the NASDAQ National Market):

|                                       |  |      |       |     |   |      | 
|-------------------------------------- |  | ---- | ----- | --- | - | ---- | 
|Prices                                 |  | High |       | Low |  
|                                       |  |      |       |     |  
|2008                                   |  |      |       |     |   |      | 
|Fourth quarter ended December 27, 2008 |  | $    | 2.54  |     | $ | 0.48 | 
|Third quarter ended October 4, 2008    |  |      | 5.40  |     |   | 2.51 | 
|Second quarter ended July 12, 2008     |  |      | 9.14  |     |   | 4.80 | 
|First quarter ended March 22, 2008     |  |      | 9.39  |     |   | 8.00 | 
|                                      
|2007                                   |  |      |       |     |   |      | 
|Fourth quarter ended December 29, 2007 |  | $    | 9.90  |     | $ | 8.78 | 
|Third quarter ended October 6, 2007    |  |      | 9.95  |     |   | 8.06 | 
|Second quarter ended July 14, 2007     |  |      | 10.01 |     |   | 8.85 | 
|First quarter ended March 24, 2007     |  |      | 10.78 |     |   | 8.98 | 

The closing market price on February 20, 2009 was $0.40 per share.

Depending on profitability and cash flows from operations, the Board of
Directors issues annual dividends. Based on the Companys 2008 performance, the
Board has not declared a dividend in 2009. Dividends issued/declared during
2008 and 2007 are as follows:

|               |                |                        
|-------------- | -------------- | -----------------------
|Record Date    | Payment Date   | Amount per Common Share
|               |                |                        
|March 9, 2007  | March 16, 2007 | $ 0.22                 
|March 14, 2008 | March 21, 2008 | $ 0.25                 
|               |                |                        

There were approximately 218 holders of record of the Companys Common
Stock at February 20, 2009. The approximate number of stockholders,
including those held by depository companies for certain beneficial owners, was
652.

16

---



SHAREHOLDER RETURN PERFORMANCE
GRAPH

Set forth below is a line
graph comparing the yearly percentage change in the cumulative total
shareholder return on the Companys common stock with that of the cumulative
total return on the NASDAQ US Stock Market Index and the NASDAQ Non-Financial
Stocks Index for the five year period ended December 27, 2008. The
following information is based on an investment of $100, on January 1,
2003, in the Companys common stock, the NASDAQ US Stock Market Index and the NASDAQ
Non-Financial Stocks Index, with dividends reinvested.

COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN

(LINE GRAPH)

|                                 |  |  |      |  |      |  |      |     |      |  |      |  |      |     |  |  |    |  | 
|-------------------------------- |  |  | ---- |  | ---- |  | ---- | --- | ---- |  | ---- |  | ---- | --- |  |  | -- |  | 
|                                 |  |  | 2003 |  | 2004 |  | 2005 |     | 2006 |  | 2007 |  | 2008 |    
|                                 |  |  |      |  |      |  |      |     |      |  |      |  |      |    
|Escalade Common Stock            |  |  | 100  |  | 79   |  |      | 70  |      |  | 65   |  |      | 57  |  |  | 5  |  | 
|NASDAQ US Stock Index            |  |  | 100  |  | 109  |  |      | 111 |      |  | 122  |  |      | 132 |  |  | 64 |  | 
|NASDAQ Non-Financial Stock Index |  |  | 100  |  | 108  |  |      | 110 |      |  | 121  |  |      | 137 |  |  | 63 |  | 

The above
performance graph does not constitute soliciting material and should not be
deemed filed or incorporated by reference into any other Company filing under
the Securities Act of 1933 or the Securities Exchange Act of 1934, except to
the extent the Company specifically incorporates the performance graph by
reference therein.

17

---



ISSUER PURCHASES OF
EQUITY SECURITIES

|                                                                             |  |                                                   |         |                                              |   |                                                                                                     |  |                                                                                                                                 |         |  |   |             | 
|---------------------------------------------------------------------------- |  | ------------------------------------------------- | ------- | -------------------------------------------- | - | --------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------- | ------- |  | - | ----------- | 
|Period                                                                       |  | (a)
  Total Number of Shares (or Units) Purchased |         | (b)
  Average Price Paid per Share (or Unit) |   | (c)
  Total Number of Shares (or Units) Purchased as Part of Publicly Announced
  Plans or Programs |  | (d)
  Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May
  Yet Be Purchased Under the Plans or Programs |        
|                                                                             |  |                                                   |         |                                              |   |                                                                                                     |  |                                                                                                                                 |        
|Shares purchases prior to 10/04/2008 under the current repurchase
  program. |  |                                                   | 982,916 |                                              | $ | 8.84                                                                                                |  |                                                                                                                                 | 982,916 |  | $ | 2,273,939   | 
|                                                                             |  |                                                   |         |                                              |   |                                                                                                     |  |                                                                                                                                 |         |  |   |             | 
|Fourth quarter purchases:                                                    |  |                                                   |         |                                              |   |                                                                                                     |  |                                                                                                                                 |         |  |   |             | 
|                                                                             |  |                                                   |         |                                              |   |                                                                                                     |  |                                                                                                                                 |         |  |   |             | 
|10/05/2008  11/01/2008                                                      |  |                                                   | None    |                                              |   | None                                                                                                |  |                                                                                                                                 | None    |  |   | No
  Change | 
|                                                                             |  |                                                   |         |                                              |   |                                                                                                     |  |                                                                                                                                 |         |  |   |             | 
|11/02/2008  11/30/2008                                                      |  |                                                   | None    |                                              |   | None                                                                                                |  |                                                                                                                                 | None    |  |   | No
  Change | 
|                                                                             |  |                                                   |         |                                              |   |                                                                                                     |  |                                                                                                                                 |         |  |   |             | 
|12/01/2008  12/27/2008                                                      |  |                                                   | None    |                                              |   | None                                                                                                |  |                                                                                                                                 | None    |  |   | No
  Change | 
|                                                                             |  |                                                   |         |                                              |   |                                                                                                     |  |                                                                                                                                 |         |  |   |             | 
|Total share purchases under the current program                              |  |                                                   | 982,916 |                                              | $ | 8.84                                                                                                |  |                                                                                                                                 | 982,916 |  | $ | 2,273,939   | 
|                                                                             |  |                                                   |         |                                              |   |                                                                                                     |  |                                                                                                                                 |         |  |   |             | 

The Company
has one stock repurchase program which was established in February 2003 by the
Board of Directors and which initially authorized management to expend up to
$3,000,000 to repurchase shares on the open market as well as in private
negotiated transactions. In each of February 2005 and 2006, August 2007 and
February 2008 the Board of Directors increased the remaining balance on this
plan to its original level of $3,000,000. The repurchase plan has no
termination date and there have been no share repurchases that were not part of
a publicly announced program.

18

---



|          |                          
|--------- | -------------------------
|ITEM
  6 | SELECTED FINANCIAL
  DATA

(In thousands, except per share data)

|                                |  |                     |         |                     |   |                     |  |                     |         |                     |   |         |  |   |         | 
|------------------------------- |  | ------------------- | ------- | ------------------- | - | ------------------- |  | ------------------- | ------- | ------------------- | - | ------- |  | - | ------- | 
|At and For Years Ended          |  | December 27,
  2008 |         | December 29,
  2007 |   | December 30,
  2006 |  | December 31,
  2005 |         | December 25,
  2004 |  
|                                |  |                     |         |                     |   |                     |  |                     |         |                     |  
|Income Statement Data           |  |                     |         |                     |   |                     |  |                     |         |                     |   |         |  |   |         | 
|Net sales                       |  |                     |         |                     |   |                     |  |                     |         |                     |   |         |  |   |         | 
|Sporting goods                  |  | $                   | 98,039  |                     | $ | 129,788             |  | $                   | 136,733 |                     | $ | 120,996 |  | $ | 141,644 | 
|Office Products                 |  |                     | 50,647  |                     |   | 55,788              |  |                     | 54,732  |                     |   | 62,319  |  |   | 76,040  | 
|Total net sales                 |  |                     | 148,686 |                     |   | 185,576             |  |                     | 191,465 |                     |   | 183,315 |  |   | 217,684 | 
|Net income (loss)               |  |                     | (7,496  | )                   |   | 9,255               |  |                     | 8,495   |                     |   | 12,916  |  |   | 8,180   | 
|Weighted-average shares         |  |                     | 12,684  |                     |   | 12,901              |  |                     | 13,012  |                     |   | 13,055  |  |   | 12,980  | 
|                                |  |                     |         |                     |   |                     |  |                     |         |                     |   |         |  |   |         | 
|Per Share Data                  |  |                     |         |                     |   |                     |  |                     |         |                     |   |         |  |   |         | 
|Basic earnings (loss) per share |  | $                   | (0.59   | )                   | $ | 0.72                |  | $                   | 0.65    |                     | $ | 0.99    |  | $ | 0.63    | 
|Cash dividends                  |  | $                   | 0.25    |                     | $ | 0.22                |  | $                   | 0.20    |                     | $ | 0.15    |  | $ | 0.12    | 
|                                |  |                     |         |                     |   |                     |  |                     |         |                     |   |         |  |   |         | 
|Balance Sheet Data              |  |                     |         |                     |   |                     |  |                     |         |                     |   |         |  |   |         | 
|Working capital                 |  |                     | 4,842   |                     |   | 31,442              |  |                     | 33,125  |                     |   | 42,350  |  |   | 36,852  | 
|Total assets                    |  |                     | 147,701 |                     |   | 152,016             |  |                     | 150,715 |                     |   | 124,860 |  |   | 134,969 | 
|Short-term bank debt            |  |                     | 46,525  |                     |   | 13,033              |  |                     | 10,336  |                     |   | 1,066   |  |   | 11,638  | 
|Long-term bank debt             |  |                     |        |                     |   | 19,135              |  |                     | 22,609  |                     |   | 18,487  |  |   | 15,542  | 
|Total stockholders equity      |  |                     | 78,790  |                     |   | 91,742              |  |                     | 85,715  |                     |   | 76,623  |  |   | 71,034  | 

Fiscal years 2005, 2006, 2007 and 2008 were adversely impacted by
lower sales to Sears, a major sporting goods customer.

Fiscal year 2007 was positively impacted by the sale of rights to
license potential future intellectual property.

Fiscal year 2006 was adversely impacted by the completion of a plan to
rationalize certain products in the Office Products business.

Fiscal year 2005 the rationalization of certain products lowered sales
in the Office Products business.

Fiscal year 2004 was negatively impacted by restructuring charges and a
goodwill impairment loss.

|          |                                                                                        
|--------- | ---------------------------------------------------------------------------------------
|ITEM
  7 | MANAGEMENTS
  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following section should be read in conjunction with Item 1:
Business; Item 1A: Risk Factors; Item 6: Selected Financial Data; and Item 8:
Financial Statements and Supplementary Data.

Forward-Looking
Statements

This report contains
forward-looking statements relating to present or future trends or factors that
are subject to risks and uncertainties. These risks include, but are not
limited to, the impact of competitive products and pricing, product demand and
market acceptance, new product development, the continuation and development of
key customer and supplier relationships, Escalades ability to control costs,
general economic conditions, fluctuation in operating results, changes in the securities
market, Escalades ability to obtain financing and to maintain compliance with
the terms of such financing and other risks detailed from time to time in
Escalades filings with the Securities and Exchange Commission. Escalades
future financial performance could differ materially from the expectations of
management contained herein. Escalade undertakes no obligation to release
revisions to these forward-looking statements after the date of this report.

19

---



Overview

Escalade,
Incorporated (Escalade or Company) manufactures and distributes products
for two industries: Sporting Goods and Office Products. Within these industries
the Company has successfully built a market presence in niche markets. This
strategy is heavily dependent on expanding the customer base, barriers to
entry, brand recognition and excellent customer service. A key strategic
advantage is the Companys established relationships with major customers that
allow the Company to bring new products to the market in a cost effective
manner while maintaining a diversified product line and wide customer base. In
addition to strategic customer relations, the Company has substantial
manufacturing and import experience that enable it to be a low cost supplier.

A majority of
the Companys products are in markets that are experiencing low growth rates.
Where the Company enjoys a commanding market position, such as table tennis
tables in the Sporting Goods segment and paper folding machines in the Office
Products segment, revenue growth is expected to be roughly equal to general
growth/decline in the economy. However, in markets that are fragmented and
where the Company is not the dominant leader, such as archery in the Sporting
Goods segment and data security shredders in the Office Products segment, the
Company anticipates growth. To enhance internal growth, the Company has a
strategy of acquiring companies or product lines that complement or expand the
Companys product lines. A key objective is the acquisition of product lines
with barriers to entry that the Company can take to market through its
established distribution channels or through new market channels. Significant
synergies are achieved through assimilation of acquired product lines into the existing
company structure. Management believes that key indicators in measuring the
success of this strategy are revenue growth, earnings growth and the expansion
of channels of distribution. The following table sets forth the percentage
growth in revenues and net income over the past three years:

|                |  |        |   |      |      |      |  |       |   | 
|--------------- |  | ------ | - | ---- | ---- | ---- |  | ----- | - | 
|                |  | 2008   |   | 2007 |      | 2006 | 
|                |  |        |   |      |      |      | 
|                |  |        |   |      |      |      |  |       |   | 
|Net revenue     |  |        |   |      |      |      |  |       |   | 
|Sporting Goods  |  | -24.5  | % |      | -5.1 | %    |  | 13.0  | % | 
|Office Products |  | -9.2   | % |      | 1.9  | %    |  | -12.2 | % | 
|Total           |  | -19.9  | % |      | -3.1 | %    |  | 4.4   | % | 
|                |  |        |   |      |      |      |  |       |   | 
|Net Income      |  | -181.0 | % |      | 9.0  | %    |  | -34.2 | % | 

Results of Operations

The following
schedule sets forth certain consolidated statement of income data as a
percentage of net revenue for the periods indicated:

|                                               |  |       |   |      |       |      |  |       |   | 
|---------------------------------------------- |  | ----- | - | ---- | ----- | ---- |  | ----- | - | 
|                                               |  | 2008  |   | 2007 |       | 2006 | 
|                                               |  |       |   |      |       |      | 
|Net revenue                                    |  | 100.0 | % |      | 100.0 | %    |  | 100.0 | % | 
|Cost of
  products sold                        |  | 75.4  | % |      | 70.8  | %    |  | 72.0  | % | 
|                                               |  |       |   |      |       |      |  |       |   | 
|Gross margin                                   |  | 24.6  | % |      | 29.2  | %    |  | 28.0  | % | 
|Selling,
  administrative and general expenses |  | 26.8  | % |      | 20.8  | %    |  | 20.6  | % | 
|Impairment
  of assets                         |  | 1.8   | % |      | 0.0   | %    |  | 0.0   | % | 
|Amortization                                   |  | 1.5   | % |      | 1.4   | %    |  | 1.2   | % | 
|                                               |  |       |   |      |       |      |  |       |   | 
|Operating income (loss)                        |  | -5.5  | % |      | 7.0   | %    |  | 6.2   | % | 
|                                               |  |       |   |      |       |      |  |       |   | 

Consolidated Revenue
and Gross Margin

Continued
sales declines to mass market retail customers in the Sporting Goods business
resulted in an overall decline of 24% in consolidated net revenues for 2008
compared to 2007. These declines in the mass market retail channel offset gains
in the specialty retail and dealer channels. Revenues from the Office Products
business decreased 9% in 2008 compared to 2007 due principally to changes in
foreign exchange rates.

20

---



The overall
gross margin in 2008 decreased in comparison to 2007 due to a combination of
factors. Excess manufacturing capacity in the Sporting Goods business resulted
in significant unfavorable manufacturing overhead variances. To remedy this,
the Company has initiated a plan to reduce the number of manufacturing
facilities. The first step in this process, closing the Evansville, Indiana
factory has been completed and the Company has begun the second step which
involves consolidating the Companys Mexican operations into one facility. The
company ceased manufacturing operations in its Reynosa, Mexico facility on
February 27, 2009 and will consolidate all Mexican operations into the Rosarito,
Mexico facility. Other factors that negatively impacted gross margins include
rising raw material prices (steel, particleboard and plastic resins); increased
cost of goods imported from China, and the weak U.S. dollar. The Company has
initiated efforts to mitigate these cost increases by raising selling prices.
However, these actions will have a delayed effect due to the timing of customer
catalog pricing and sales contracts.

Consolidated
Selling, General and Administrative Expenses

Consolidated
selling, general and administrative expenses (SG&A) were $ 39.9 million
in 2008 compared to $38.5 million in 2007, an increase of $1.4 or 3.6%. In
2008, sales were much less than plan during the second half of the year, thus
the ratio of fixed SG&A cost on declining sales base coupled with the
one-time cost of $1.5 million associated with severance pay and the closing of
two manufacturing plants in 2008 resulted in SG&A expenses as a percent of
sales to be significantly greater than the prior year (26.8% versus 20.8%). To
offset the SG&A increase, the Company implemented many costs saving
initiatives including the reduction of staff by 20%, the voluntary reduction of
officer and director salaries by 10% and other cost saving initiatives whose
full result will not be felt until 2009. Additionally the reduction in SG&A
costs in the Sporting Goods business is associated with the lack of a profit
improvement bonus accrual based on the Companys lack of profitability.
SG&A cost in the Office Products division remained relatively stable with a
reduction in profit improvement bonus accrual offset by an increase in currency
exchange in Europe. The increase in corporate administration costs is primarily
attributed to computer software support for a new ERP system, employee relocation
costs and stock options, offset by lower staff and salaries cited above.

Other Income

Other income
decreased in 2008 compared to 2007 as a result of losses on the sale and
impairment of securities totaling ($1.4) million in 2008 compared with a $1.5
million gain from the one-time sale of rights to license potential future
intellectual property in 2007.

Provision
for Income Taxes

The effective income
tax rate in 2008 was higher relative to 2007 primarily due to taxation on
repatriated earnings from the Companys foreign operations. Excluding the
effects of this repatriation, the effective tax rate for 2008 would have been
29.6% compared to 29.6% and 25.9% in 2007 and 2006, respectively. The Company
expects future effective tax rates to approximate the effective tax rate
achieved in 2008 excluding the effect of repatriated earnings.

Sporting Goods

Net sales,
operating income (loss), and net income (loss) for the Sporting Goods business
segment for the three years ended December 27, 2008 were as follows:

|                          |  |      |        |      |   |         |  |   |         | 
|------------------------- |  | ---- | ------ | ---- | - | ------- |  | - | ------- | 
|In Thousands              |  | 2008 |        | 2007 |   | 2006    | 
|                          |  |      |        |      |   |         | 
|                          |  |      |        |      |   |         |  |   |         | 
|Net Revenue               |  | $    | 98,039 |      | $ | 129,788 |  | $ | 136,733 | 
|Operating
  income (loss) |  |      | (6,250 | )    |   | 7,745   |  |   | 7,835   | 
|Net income
  (loss)       |  |      | (5,428 | )    |   | 5,341   |  |   | 3,562   | 

Net revenue
declined 24% in 2008 compared to 2007. Sales to the Companys mass market
retail customers declined roughly 33% in 2008 compared to 2007 and reflect two
factors: a general slowdown in the US economy which is adversely affecting mass
retailers in general and a continued industry wide decline in consumer demand
for gametables.

21

---



The
Company continues to aggressively pursue opportunities with its mass market
retail customers, but sales to this channel are expected to continue to
decline. To counteract this trend, the Company continues to pursue a strategy
of expanding certain product offerings and distribution through specialty
retailers and dealers. Sales to these channels now comprise 45% of total
revenues compared to 38% last year. Growth anticipated in the specialty retail
and distributor channels are not expected to completely overcome expected
significant declines in mass market retail channels, including diminished sales
to Sears. Consequently the Company anticipates total 2009 sales for the
Sporting Goods segment to be down from 2008.

Sales in 2007
were lower than 2006 due primarily to a reduction in sales to the mass market.

The gross
margin ratio in 2008 decreased compared to 2007 due to continued pricing
pressures from mass market retailers, higher material prices, factory
absorption variances and product mix. As a result, operating income (loss) as a
percentage of net revenue decreased to -6.4% in 2008 compared to 5.9% in 2007.
Management anticipates operating income to increase in 2009 as 2008 personnel
reductions and facility consolidations are realized.

Net income for
2008 decreased from 2007 due primarily to the one-time sale of rights to
license potential future intellectual property, variances incurred in
operations with the sales level decline, higher material prices and change in
product mix.

Office Products

Net sales,
operating income, and net income for the Office Products business segment for
the three years ended December 27, 2008 were as follows:

|                   |  |      |        |      |   |        |  |   |        | 
|------------------ |  | ---- | ------ | ---- | - | ------ |  | - | ------ | 
|In Thousands       |  | 2008 |        | 2007 |   | 2006   | 
|                   |  |      |        |      |   |        |  |   |        | 
|                   |  |      |        |      |   |        |  |   |        | 
|Net Sales          |  | $    | 50,647 |      | $ | 55,788 |  | $ | 54,732 | 
|Operating
  income |  |      | 3,930  |      |   | 8,809  |  |   | 8,131  | 
|Net income         |  |      | 1,835  |      |   | 5,617  |  |   | 5,095  | 

Sales in the
Office Products business decreased 9.2% in 2008 compared to 2007 primarily due
to lower sales to office supply mass-retailers in the U.S. which are being
negatively impacted by the worsening economy and a slowdown in European sales
due to slowing economy in Germany, France and Spain. Management anticipates
further declines in sales to office product retailers as the global economy
continues to decline. However, new product launches and an expanding presence
in machine dealers is expected to lessen the impact of these declines.

Excluding the
effect of changing foreign exchange rates, 2007 sales were essentially
unchanged from 2006.

Profitability
in the Office Products segment decreased in 2008 as evidenced by the ratio of
operating income to net sales which decreased from 15.8% in 2007, to 7.8% in
2008. The primary reasons for this decline in profitability are raw material
price and freight increases, foreign exchange rate fluctuations, under absorbed
factory variances due to low sales and changes in product mix. Management
anticipates operating income to increase in 2009 due to price increases, new
product launches, realization of 2008 personnel reductions and a focus on the
machine dealer channel which carries a higher gross margin.

Financial Condition and Liquidity

The current
ratio, a basic measure of liquidity (current assets divided by current
liabilities), decreased to 1.1 times in 2008 from 1.8 times in 2007. Total
accounts receivable and inventories are down at the end of 2008 as a direct
result of a lower sales volume.

The Companys
use of cash was principally caused by the loss of business from mass retailers
relative to the deteriorating economic conditions coupled with the rising cost
of raw materials, freight and fixed costs associated with excess capacity.
During the year, the Company authorized and paid a $3.2 million dividend and
invested $6.6 million dollar capital expenditure to invest in its IT system for
the future. Other significant uses of cash included $2.9 million in plant
equipment, $0.5 million in acquisitions, repurchase of stock of $0.9 million,
net proceeds received from
the sale of investments of $1.5 million and proceeds from the exercise of stock
options of $0.3 million and other miscellaneous items net. The result of the
convergence of all these factors was a need by year-end to utilize $14.4
million in additional borrowings which moved total bank debt as a percent of
stockholders equity from 35% in 2007 to 59% in 2008.

22

---



In 2009, the
Company expects to spend approximately $2.5 million in capital expenditures.
This reduction of capital expenditures, coupled with other actions discussed
below, is expected to strengthen its financial condition and liquidity.

The Companys
working capital requirements are primarily funded through cash flows from
operations and revolving credit agreements with its bank. During 2008 the
Companys maximum borrowings under its primary revolving credit lines totaled
$54.8 compared to $52.4 million in 2007. The overall effective interest rate in
2008 was 4.1% which was lower than the effective rate of 6.7% in 2007. As
discussed in Part I, Item 1A  Risk Factors, the Company was out of compliance with certain
financial covenants in its Credit Agreement with JPMorgan Chase Bank, N.A. as
of the end of 2008.

The Company has a long
standing relationship with its lender and has diligently worked to extend its credit
facility into 2010 and to establish financial covenants that can be met. The
Company has taken significant actions to preserve cash, increase liquidity and
position it to operate in very difficult economic conditions. Specifically, the
Company has consolidated three manufacturing plants into one thus eliminating
the burdens of excess capacity that negatively affected 2008. It has increased
prices, reduced head counts, reduced officer and director salaries, and
implemented other overall expense savings. As a result, the Company expects to
be positioned to lower its bank debt in 2009. The Company operates in an
industry which has been adversely affected by the current economic conditions.
The Company is currently operating under a forbearance letter with its primary
lender; however as, disclosed previously, a commitment letter has been received
from this lender to provide the Company with sufficient borrowing needs through
May 17, 2010.

As a result of the external
economic conditions, the Company experienced significant losses in the latter
half of fiscal year 2008 and has been out of compliance with its loan covenants
since the end of the second quarter, 2008. In response to the challenging
economic environment, management began implementing a series of cost reduction
measures during the third and fourth quarters of fiscal year 2008.

The Company expects its
sales levels for fiscal year 2009 to be substantially lower than 2008. To help
mitigate the declining sales expected to occur during fiscal year 2009,
management will continue to implement several cost reduction measures. The
Company believes that cash generated from its projected 2009 operations, the
potential sale of its Reynosa facility, income tax refunds and the commitment
of borrowings from its primary lender will provide it with sufficient cash
flows for its operations.

It is possible that if the
current economic conditions continue to deteriorate, this could have further
adverse effects on the Companys ability to operate profitably during fiscal
year 2009. To the extent that occurs, management intends to continue to make
cost reductions and to continue realigning its infrastructure in an effort to
match the Companys overhead and cost structure with the sales level dictated
by current market conditions. Although not currently planned, realization of
assets in other than the ordinary course of business in order to meet liquidity
needs could incur losses not reflected in these financial statements.

New Accounting Pronouncements

Refer to Note 1 to the
consolidated financial statements under the sub-heading New Accounting
Pronouncements beginning on page 43.

Off Balance Sheet Financing Arrangements

The Company
has no financing arrangements that are not recorded on the Companys balance
sheet.

23

---



Contractual Obligations

The following schedule summarizes the Companys contractual obligations
as of December 27, 2008:

|                                                        |  |                        |        |                  |   |            |  |             |       |                   |   |     |  |   |    | 
|------------------------------------------------------- |  | ---------------------- | ------ | ---------------- | - | ---------- |  | ----------- | ----- | ----------------- | - | --- |  | - | -- | 
|Amounts in
  thousands                                  |  | Payments Due by Period |       
|                                                        |  |                        |       
|Contractual
  Obligations                               |  | Total                  |        | Less than 1 year |   | 1 3 years |  | 3  5 years |       | More than 5 years |  
|                                                        |  |                        |        |                  |   |            |  |             |       |                   |  
|                                                        |  |                        |        |                  |   |            |  |             |       |                   |   |     |  |   |    | 
|Debt                                                    |  | $                      | 46,525 |                  | $ | 46,525     |  | $           |      |                   | $ |    |  | $ |   | 
|Future interest payments (1)                            |  |                        | 1,954  |                  |   | 1,954      |  |             |      |                   |   |    |  |   |   | 
|Operating Leases                                        |  |                        | 2,732  |                  |   | 1,204      |  |             | 1,490 |                   |   | 38  |  |   |   | 
|Minimum payments under royalty and license
  agreements |  |                        | 2,200  |                  |   | 580        |  |             | 780   |                   |   | 840 |  |   | -- | 
|                                                        |  |                        |        |                  |   |            |  |             |       |                   |   |     |  |   |    | 
|Total                                                   |  | $                      | 53,411 |                  | $ | 50,263     |  | $           | 2,270 |                   | $ | 878 |  | $ |   | 
|                                                        |  |                        |        |                  |   |            |  |             |       |                   |   |     |  |   |    | 

Notes:

(1) Assumes
that the Company will not increase borrowings under its long-term credit agreements
and that the effective interest rate experienced in 2008 (4.1 %) will continue
for the life of the agreements.

Critical Accounting Estimates

The methods, estimates and judgments used in applying the Companys
accounting policies have a significant impact on the results reported in its
financial statements. Some of these accounting policies require difficult and
subjective judgments, often as a result of the need to make estimates of
matters that are inherently uncertain. The most critical accounting estimates
are described below and in the Notes to the Consolidated Financial Statements.

Product WarrantyThe Company
provides limited warranties on certain of its products, for varying periods.
Generally, the warranty periods range from 90 days to one year. However, some
products carry extended warranties of seven-year, ten-year, and lifetime
warranties. The Company records an accrued liability and expense for estimated
future warranty claims based upon historical experience and managements
estimate of the level of future claims. Changes in the estimated amounts
recognized in prior years are recorded as an adjustment to the accrued
liability and expensed in the current year. To the extent there are product
defects in current products that are unknown to management and do not fall
within historical defect rates, the product warranty reserve could be
understated and the Company could be required to accrue additional product
warranty costs thus negatively affecting gross margin.

Inventory Valuation ReservesThe Company
evaluates inventory for obsolescence and excess quantities based on demand
forecasts based on specified time frames, usually one year. The demand forecast
is based on historical usage, sales forecasts and current as well as
anticipated market conditions. All amounts in excess of the demand forecast are
deemed to be potentially excess or obsolete and a reserve is established based
on the anticipated net realizable value. To the extent that demand forecasts
are greater than actual demand and the Company fails to reduce manufacturing
output accordingly, the Company could be required to record additional
inventory reserves which would have a negative impact on gross margin.

Allowance for Doubtful AccountsThe Company
provides an allowance for doubtful accounts based upon a review of outstanding
receivables, historical collection information and existing economic
conditions. Accounts receivable are ordinarily due between 30 and 60 days after
the issuance of the invoice. Accounts are considered delinquent when more than
90 days past due. Delinquent receivables are reserved or written off based on
individual credit evaluation and specific circumstances
of the customer. To the extent that actual bad debt losses exceed the allowance
recorded by the Company, additional reserves would be required which would
increase selling, general and administrative costs.

24

---



Advertising SubsidiesThe Company
enters agreements with certain retailers to pay for direct advertising programs
and/or provide in-store display units. These agreements are not based on
retailer purchase volumes and do not obligate the retailer to continue carrying
the Companys products in future years. The Company determines the value of the
advertising services based on its own research and history of providing such
services. The Company expenses these costs in the period in which they are
incurred as a selling expense.

CO-OP AdvertisingThe Company
offers co-operative advertising allowances to certain retailers to encourage
product promotions. These agreements are typically based on a percentage of
retailer purchases up to a maximum allowance and the Company is never directly
involved with the media provider. The Company accrues the estimated cost of
these programs based on the sales volume of the retailer and historical trends.
As costs are accrued they are recorded as a reduction in sales. To the extent
that actual co-operative advertising costs exceed the Companys estimates,
additional co-operative advertising allowances would be required which would
reduce net revenues.

Volume RebatesThe Company
has various rebate programs with certain retailers that are based on purchase
volume. Typically these programs are based on achieving specified sales volumes
and the rebate is calculated as a percentage of purchases. Based on the terms
of the agreement, purchase levels and historical trends the Company accrues the
estimated cost of these programs and records the same as a reduction in sales.
To the extent that actual rebate program costs exceed the Companys estimates,
additional rebate program allowances would be required which would reduce net
revenues.

Catalog AllowancesA number of
large office supply dealers operate through catalogs distributed to businesses
throughout the country. Product content is decided by the dealer each time a
new catalog is issued; typically once a year. Catalog allowances are required
by the dealer as an inducement to include the Companys products. The allowance
is based on a fixed cost per page and/or a percentage of purchases by the
dealer. The fixed portion of the allowance is often paid when the catalog is
distributed and is recognized when incurred and the variable portion is accrued
based on dealer purchases and historical trends. Catalog allowances are
recorded as a reduction in sales. To the extent that actual catalog costs
exceed the estimated costs associated with variable agreement provisions,
additional catalog allowances would be required which would negatively impact
net revenues.

Impairment of GoodwillThe Company
annually tests for impairment of goodwill in accordance with SFAS No. 142
Goodwill and Other Intangible Assets. The Company engaged a valuation expert
to assist them with their evaluation of the fair value of three separate
reporting units, discussed below. The fair values were compared to their
carrying value as of the year end. The first phase, of the goodwill impairment
test requires that the fair value of the applicable reporting unit be compared
with its recorded value. The Company establishes fair value by using a
combination of a market approach and discounted cash flow approach. The
discounted cash flow was determined by calculating the present value of the
expected future cash flows of the reporting unit. The Company uses assumptions
about expected future operating performance in determining estimates of those
cash flows, which may differ from actual cash flows. If the recorded value of
net assets of a reporting unit is less than the fair value calculated by the
discounted cash flow analysis, management performs a phase two analysis which
allocates the fair value of the reporting unit calculated in phase one to the
specific tangible and intangible assets and liabilities of the reporting unit,
which results in an implied fair value of goodwill. Goodwill is reduced by any
shortfall of implied goodwill to its current carrying value.

The Company
has three reporting units that require separate goodwill impairment analysis.
Those reporting units are Escalade Sports (domestic sporting goods manufacturing),
Martin Yale North America (domestic office products manufacturing) and Martin
Yale Europe (international office products manufacturing). Significant
assumptions used in each of the reporting units goodwill impairment testing are
as follows:

25

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Escalade
Sports  The discount rate used in the 2008 discounted cash flow calculation
was 11.5% compared to 6% for 2007. The higher discount rate was used based on
advice from the outside valuation expert hired by the Company to assist in the
valuation effort. Projected revenues for 2009 and beyond reflected the
Companys best view of the current global economic situation, the status of new
products and product improvements, and the projected cost of raw materials
along with any other factors deemed material in projecting future outcomes. The
Company used a combination of discounted cash flow and market approach giving
equal weight to both methods in determining the fair value of the Escalade
Sports reporting unit.

Martin Yale
North America  The discount rate used in the 2008 discounted cash flow
calculation was 10% compared to 6% for 2007. The higher discount rate was used
based on advice from the outside valuation expert hired by the Company to
assist in the valuation effort. Projected revenues for 2009 and beyond
reflected the Companys best view of the current global economic situation, the
status of new products and product improvements, and the projected cost of raw
materials along with any other factors deemed material in projecting future
outcomes. The Company used a combination of discounted cash flow and market
approach giving equal weight to both methods in determining the fair value of
the Martin Yale North America reporting unit.

Martin Yale
North America  The discount rate used in the 2008 discounted cash flow
calculation was 10% compared to 6% for 2007. The higher discount rate was used
based on advice from the outside valuation expert hired by the Company to
assist in the valuation effort. Projected revenues for 2009 and beyond
reflected the Companys best view of the current global economic situation, the
status of new products and product improvements, and the projected cost of raw
materials along with any other factors deemed material in projecting future
outcomes. The Company used a discounted cash flow as it was determined that
comparable market data was not available to compute a market approach value for
Martin Yale Europe reporting unit.

Long Lived AssetsThe company
evaluates the recoverability of certain long-lived assets whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. Estimates of future cash flows used to test recoverability of
long-lived assets include separately identifiable undiscounted cash flows
expected to arise from the use and eventual disposition of the assets. Where
estimated future cash flows are less than the carrying value of the assets,
impairment losses are recognized based on the amount by which the carrying
value exceeds the fair value of the assets. The fair value of certain assets
was determined based on the held for use classification at year end. The
Company may incur additional impairment charges or losses on divestitures of
these assets being classified as held for sale.

During 2008,
the Companys Sporting Goods segment recognized an impairment loss of $2.6
million related to an asset held for sale. During 2008, the Company made the
decision to consolidate Mexican operations into their Rosarito, Mexico
facility. Production at the Reynosa, Mexico facility ceased at the end of
February 2009. The Reynosa facility and certain pieces of equipment are
currently on the market to be sold. The Company has held various discussions
and negotiations and has considered purchase offers from third parties in
determining the current market value in order to calculate the impairment loss.

Equity Method InvestmentsThe Company has minority equity positions in companies
strategically related to the Companys business, but does not have control over
these companies. The accounting method employed is dependent on the level of
ownership and degree of influence the Company can exert on operations. Where
the equity interest is less than 20% and the degree of influence is not
significant, the cost method of accounting is employed. Where the equity
interest is greater than 20% but not more than 50%, the equity method of
accounting is utilized. Under the equity method, the Companys proportionate
share of net income (loss) is recorded in other income on the consolidated
statements of operations. The proportionate share of net income was $1,054
thousand, $1,354 thousand and $1,290 thousand in 2008, 2007 and 2006,
respectively. Total cash dividends received from these equity investments
amounted to $49 thousand, $39 thousand, and $434 thousand in 2008, 2007 and
2006, respectively. The Company considers whether the fair values of any of its
equity investments have declined below their carrying value whenever adverse
events or changes in circumstances indicate that recorded values may not be recoverable.
If the Company considered any such decline to be other than temporary (based on
various factors, including historical financial results, product
development
activities and overall health of the investments industry), a write-down is
recorded to estimated fair value. The Company tested for impairment of the
major component in this asset category. The Company uses assumptions about
expected future operating performance in determining estimates of those cash
flows, which may differ from actual cash flows. If the recorded values of these
assets are not recoverable, based on this discounted cash flow analysis,
management will adjust the recorded values to fair value. The Company
determined that there was no impairment indicated for the years ended December
27, 2008 or December 29, 2007.

26

---



Effect of Inflation

The Company
cannot accurately determine the precise effects of inflation; however, there
were some increases in sales and costs due to inflation in 2008. The Company
attempts to pass on increased costs and expenses through price increases when
necessary. The Company is working on reducing expenses; improving manufacturing
technologies; and redesigning products to keep these costs under control.

Capital Expenditures

As of December
27, 2008, the Company had no material commitments for capital expenditures.
However, in the first quarter of 2008, the Company initiated a project to
implement a global integrated information system. In 2008, the Company spent
$6.6 million related to this project. The Company went live with the install at
its North American Office Products business entity and one division of the
Sporting Goods business entity. Through February, 2009, the Company has spent
an additional $0.8 million relative to the install at each of these entities.
At this point, the Company has suspended further implementation until it has
had sufficient time to evaluate the results of what has been installed. When
the decision is made to recommence the install schedule, the Company believes
it will need to spend an additional $2.0 million to complete the hardware and
software system integration.

27

---



|          |                                                           
|--------- | ----------------------------------------------------------
|ITEM 7A  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to
financial market risks, including changes in currency exchange rates, interest
rates and marketable equity security prices. The Company attempts to minimize
these risks through regular operating and financing activities and, when
considered appropriate, through the use of derivative financial instruments. During
fiscal 2008, the only derivative in use was an interest rate swap agreement,
which was settled during the second quarter of 2008. The Company does not
purchase, hold or sell derivative financial instruments for trading or
speculative purposes.

Interest RatesThe Companys exposure to
market-rate risk for changes in interest rates relates primarily to its
revolving variable rate bank debt which is based on both U.S. prime and LIBOR
interest rates. A hypothetical 1% or 100 basis point change in interest rates
would not have a significant effect on our consolidated financial position or
results of operation.

Foreign CurrencyThe Company conducts
business in various countries around the world and is therefore subject to
risks associated with fluctuating foreign exchange rates. Approximately 17% of
consolidated revenue is derived from sales outside of the U.S. This revenue is
generated from the operations of the Companys subsidiaries in their respective
countries and surrounding geographic areas and is primarily denominated in each
subsidiarys local functional currency. These subsidiaries incur most of their
expenses (other than inter-company expenses) in their local functional currency
and include the Euro, Great Britain Pound Sterling, Mexican Peso and Chinese
Yuan.

The geographic areas outside
the United States in which the Company operates are generally not considered to
be highly inflationary. Nonetheless, the Companys foreign operations are
sensitive to fluctuations in currency exchange rates arising from, among other
things, certain inter-company transactions that are denominated in currencies
other than the respective functional currency. Operating results as well as
assets and liabilities are also subject to the effect of foreign currency
translation when the operating results, assets and liabilities of our foreign
subsidiaries are translated into U.S. dollars in our consolidated financial
statements. The unrealized effect of foreign currency translation in 2008
resulted in a $2.3 million loss that
was recorded in stockholders equity as other comprehensive income (loss),
compared to a $2.3 million gain in 2007 and a $2.4 million gain in 2006.
At December 27, 2008, a hypothetical change of 10% in foreign currency
exchange rates would cause a $2.3 million change to stockholders equity
on our consolidated balance sheet and a $50,000 change to net income in
our consolidated statement of operations.

The Company and its
subsidiaries conduct substantially all their business in their respective
functional currencies to avoid the effects of cross-border transactions. To
protect against reductions in value and the volatility of future cash flows
caused by changes in currency exchange rates, the Company carefully considers
the use of transaction and balance sheet hedging programs such as matching
assets and liabilities in the same currency. Such programs reduce, but do not
entirely eliminate, the impact of currency exchange rate changes. The Company
has evaluated the use of currency exchange hedging financial instruments but
has determined that they would not use such instruments under the current
circumstances. Historical trends in currency exchanges indicate that it is
reasonably possible that adverse changes in exchange rates of 20% for the Euro
could be experienced in the near term. A hypothetical adverse change of 20%
would have resulted in a decline of 3.6% in net revenues and a 1.3% increase in
net loss.

Marketable SecuritiesAn adverse
movement of equity market prices has impacted the Companys long-term marketable
equity securities available for sale that are included in investments on the
consolidated balance sheets and resulted in an other than temporary impairment
adjustment of $.9 million during 2008. At December 27, 2008 the aggregate fair
market value of long-term marketable equity securities available for sale was
$1.2 million. Due to the unpredictable nature of the equity market the Company
has not employed any hedge programs relative to these investments.

28

---



|         |                                            
|-------- | -------------------------------------------
|ITEM 8  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial
statements and supplementary data required by Item 8 are set forth in Part IV,
Item 15.

|         |                                                                                       
|-------- | --------------------------------------------------------------------------------------
|ITEM 9  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
  FINANCIAL DISCLOSURE

None.

|          |                        
|--------- | -----------------------
|ITEM 9A  | CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and
Procedures

Escalade
maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the Companys Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified
in the SECs rules and forms, and that such information is accumulated and
communicated to the Companys management, including its Chief Executive Officer
and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure based closely on the definition of disclosure
controls and procedures in Rule 13a-14(c). In designing and evaluating the
disclosure controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and
management necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures. Also, the
Company has investments in certain unconsolidated entities. As the Company does
not control or manage these entities, its disclosure controls and procedures
with respect to such entities are necessarily substantially more limited than
those it maintains with respect to its consolidated subsidiaries.

The Company
carried out an evaluation, under the supervision and with the participation of
the Companys management, including the Companys Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of
the Companys disclosure controls and procedures as of the end of the period
covered by this report. Based on the foregoing, the Companys Chief Executive
Officer and Chief Financial Officer concluded that the Companys disclosure
controls and procedures were effective.

Managements Report on Internal Control over
Financial Reporting

Escalades
management is responsible for establishing and maintaining adequate internal
control over financial reporting for the Company. Escalades internal control
system was designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. Internal
control over financial reporting of the Company includes those policies and
procedures that:

(1)
pertain to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions of the Company;

(2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of management and
directors of the Company; and

(3)
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Companys assets that could
have a material effect on the Companys financial statements.

29

---



All internal
control systems, no matter how well designed, have inherent limitations,
including the possibility of human error or circumvention through collusion or
improper overriding of controls. Therefore, even those internal control systems
determined to be effective can provide only reasonable assurance with respect
to financial statement preparation. Further, because of changes in conditions,
the effectiveness of internal control may vary over time.

The management
of Escalade assessed the effectiveness of the Companys internal control over
financial reporting as of December 27, 2008. In making its assessment of
internal control over financial reporting, management used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal
Control  Integrated Framework and implemented a process to monitor
and assess both the design and operating effectiveness of the Companys
internal controls. Based on this assessment, management believes that, as of
December 27, 2008, the Companys internal control over financial reporting was
effective.

This annual
report on Form 10-K does not include an attestation report of the Companys
registered public accounting firm regarding internal control over financial
reporting. Managements report regarding internal control over financial
reporting was not subject to attestation by the Companys registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit the Company to provide only managements report in this
annual report on Form 10-K. In addition, this report by management regarding
internal control over financial reporting is specifically not incorporated by
reference into this annual report on Form 10-K or into any other filing by the
Company under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended.

/s/ Robert J. Keller, Chief Executive
Officer           /s/ Deborah
J. Meinert, Chief Financial Officer

Changes in Internal Control over Financial
Reporting

Management of
the Company has evaluated, with the participation of the Companys Chief
Executive Officer and Chief Financial Officer, changes in the Companys
internal controls over financial reporting (as defined in Rule 13a-15(f) and
15d-15(f) of the Exchange Act) during the fourth quarter of 2008. In connection
with such evaluation, there have been no changes to the Companys internal
control over financial reporting that occurred since the beginning of the
Companys fourth quarter of 2008 that have materially affected, or are
reasonably likely to materially affect, the Companys internal control over
financial reporting.

|          |                  
|--------- | -----------------
|ITEM 9B  | OTHER INFORMATION

None.

Part III

|          |                                                       
|--------- | ------------------------------------------------------
|ITEM 10  | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information
required under this item with respect to Directors and Executive Officers is
contained in the registrants Proxy Statement relating to its annual meeting of
stockholders scheduled to be held on April 24, 2009 under the captions Certain
Beneficial Owners, Election of Directors, Executive Officers of the
Registrant, Board of Directors, Its Committees, Meetings and Functions, and
Beneficial Ownership Reporting Compliance and is incorporated herein by
reference.

|         |                       
|-------- | ----------------------
|ITEM 11 | EXECUTIVE COMPENSATION

Information
required under this item is contained in the registrants Proxy Statement
relating to its annual meeting of stockholders scheduled to be held on April
24, 2009 under the captions Compensation Discussion and Analysis,
 Compensation Committee Interlocks and
Insider Participation, Compensation Committee Report and Executive
Compensation and is incorporated herein by reference, except that the information
required by Item 407(e)(5) of Regulation S-K which appears under the caption
Report of Compensation Committee is specifically not incorporated by
reference into this Form 10-K or into any other filing by the registrant under
the Securities Act of 1933 or the Securities Exchange Act of 1934.

30

---



|         |                                                                                                 
|-------- | ------------------------------------------------------------------------------------------------
|ITEM 12 | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
  RELATED STOCKHOLDER MATTERS

Except for the
information required by Item 201(d) of Regulation S-K, which is included below,
information required by this item is contained in the registrants proxy
statement relating to its annual meeting of stockholders scheduled to be held
on April 24, 2009 under the captions Certain Beneficial Owners and Election
of Directors and is incorporated herein by reference.

Equity Compensation Plan Information

|                                                             |  |                                                                                                   |         |                                                                                    |   |                                                                     |  |  |         | 
|------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------- | ------- | ---------------------------------------------------------------------------------- | - | ------------------------------------------------------------------- |  |  | ------- | 
|Plan Category                                                |  | Number
  of
  Securities to be Issued Upon Exercise of Outstanding Options, Warrants and
  Rights |         | Weighted-Average
  Exercise Price 
  of Outstanding Options, Warrants
  and Rights |   | Number
  of
  Securities Remaining 
  Available for Future Issuance | 
|                                                             |  |                                                                                                   |         |                                                                                    |   |                                                                     | 
|                                                             |  |                                                                                                   |         |                                                                                    |   |                                                                     |  |  |         | 
|Equity compensation plans approved by
  security holders (1) |  |                                                                                                   | 390,867 |                                                                                    | $ | 13.92                                                               |  |  | 974,767 | 
|Equity compensation plans not approved by
  security holders |  |                                                                                                   |        |                                                                                    |   |                                                                    |  |  |        | 
|                                                             |  |                                                                                                   |         |                                                                                    |   |                                                                     |  |  |         | 
|Total                                                        |  |                                                                                                   | 390,867 |                                                                                    |   |                                                                     |  |  | 974,767 | 
|                                                             |  |                                                                                                   |         |                                                                                    |   |                                                                     |  |  |         | 

(1) These
plans include the Companys 1997 Incentive Stock Option Plan, the 1997 Director
Stock Option Plan, the Escalade, Incorporated 2007 Incentive Plan and a special
grant of 10,000 options to Directors approved at the 2006 annual shareholders
meeting.

|         |                                               
|-------- | ----------------------------------------------
|ITEM 13 | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The
information required by Item 407(a) of Regulation S-K is contained in the
registrants proxy statement relating to its annual meeting of stockholders to
be held on April 24, 2009 under the captions Election of Directors and Board
of Directors, Its Committees, Meetings and Functions and is incorporated
herein by reference. The information required by Item 404 of Regulation S-K is:
None.

|          |                                       
|--------- | --------------------------------------
|ITEM 14  | PRINCIPAL ACCOUNTING FEES AND SERVICES

The
information required by this item is contained in the registrants proxy
statement relating to its annual meeting of stockholders scheduled to be held
on April 24, 2009 under the caption Principal Accounting Firm Fees and is
incorporated herein by reference.

31

---



Part IV

|         |                                        
|-------- | ---------------------------------------
|ITEM 15 | EXHIBITS, FINANCIAL STATEMENT SCHEDULES

|    |                                           |                                                                                                                                                                                                               
|--- | ----------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(A) | Documents filed as a part of this report:
|    |                                          
|    | (1)                                       | Financial Statements                                                                                                                                                                                          
|    |                                           | Report of Independent Registered Public
  Accounting Firm                                                                                                                                                     
|    |                                           | Consolidated financial statements of
  Escalade, Incorporated and subsidiaries:                                                                                                                               
|    |                                           | Consolidated balance sheetsDecember 27,
  2008 and December 29, 2007                                                                                                                                         
|    |                                           | Consolidated statements of
  operationsfiscal years ended December 27, 2008, December 29, 2007, and
  December 30, 2006                                                                                      
|    |                                           | Consolidated statements of stockholders
  equityfiscal years ended December 27, 2008, December 29, 2007, and December
  30, 2006                                                                            
|    |                                           | Consolidated statements of cash
  flowsfiscal years ended December 27, 2008, December 29, 2007, and December
  30, 2006                                                                                      
|    |                                           | Notes to consolidated financial
statements                                                                                                                                                                    
|    |                                           |                                                                                                                                                                                                               
|    |                                           | All other schedules are omitted because of the absence of conditions
  under which they are required or because the required information is given in
  the consolidated financial statements or notes thereto.

|    |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | Exhibits |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | 3.1      | Articles of
  incorporation of Escalade, Incorporated (a)                                                                                                                                                                                                                                                                                                                                                                                                            
|    |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | 3.2      | By-Laws of
  Escalade, Incorporated (a)                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | 4.1      | Form of
  Escalade, Incorporateds common stock certificate (a)                                                                                                                                                                                                                                                                                                                                                                                                      
|    |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | 10.1     | Licensing
  agreement between Sweden Table Tennis AB and Indian Industries, Inc. dated
  January 1, 1995 (d)                                                                                                                                                                                                                                                                                                                                                         
|    |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | 10.2     | Amended and
  Restated Credit Agreement dated October 24, 2001 between Escalade,
  Incorporated and Bank One, Indiana, N.A. dated August 29, 2002 (g)                                                                                                                                                                                                                                                                                                                
|    |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | 10.3     | First
  Amendment to Amended and Restated Credit Agreement dated October 24, 2001
  between Escalade, Incorporated and Bank One, Indiana, N.A. dated August 29,
  2002 (h)                                                                                                                                                                                                                                                                                           
|    |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | 10.4     | Third Amendment to amend
  and restate the credit agreement between Escalade, Incorporated and Bank One,
  N.A. The effective date is June 1, 2003 (i)                                                                                                                                                                                                                                                                                                               
|    |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | 10.5     | Credit Agreement dated as
  of September 5, 2003 by and between Indian-Martin, Inc. and Bank One,
  National Association (excluding exhibits and schedules not deemed to be
  material). The effective date is September 7, 2003 (j)                                                                                                                                                                                                                                 
|    |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | 10.6     | Revolving Note dated as of
  September 5, 2003 in principal amount of $45,000,000, executed by
  Indian-Martin, Inc. in favor of Bank One, National Association (j)                                                                                                                                                                                                                                                                                                  
|    |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | 10.7     | Pledge Agreement dated as
  of September 5, 2003 by and between Indian-Martin, Inc. and Bank One,
  National Association (j)                                                                                                                                                                                                                                                                                                                                         
|    |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | 10.8     | Collateral Assignment and
  Security Agreement dated as of September 5, 2003 by and between
  Indian-Martin, Inc. and Bank One, National Association (j)                                                                                                                                                                                                                                                                                                             
|    |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | 10.9     | Receivables Purchase
  Agreement dated as of September 5, 2003 by and between Indian-Martin, Inc.
  and Indian-Martin AG (j)                                                                                                                                                                                                                                                                                                                                         
|    |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | 10.10    | Receivables Purchase
  Agreement dated as of September 5, 2003 by and between Indian-Martin, Inc.
  and Indian Industries, Inc. Substantially similar Receivables Purchase
  Agreements were also entered into by Indian-Martin, Inc. and each of
  Escalade, Incorporateds other domestic operating subsidiaries, Harvard
  Sports, Inc., Martin Yale Industries, Inc., Master Products Manufacturing
  Company, Inc., U.S. Weight, Inc. and Bear Archery, Inc. (j)
|    |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | 10.11    | Services Agreement dated
  as of September 5, 2003 by and between Indian-Martin, Inc. and Martin Yale
  Industries, Inc. Substantially similar Services Agreements were also entered
  into by Indian-Martin, Inc. and each of Escalade, Incorporateds other
  domestic operating subsidiaries, Harvard Sports, Inc., Indian Industries,
  Inc., Master Products Manufacturing Company, Inc., U.S. Weight, Inc. and Bear
  Archery, Inc. (j)                        
|    |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | 10.12    | Escalade Subordination
  Agreement dated as of September 5, 2003 between Escalade, Incorporated and
  Bank One, National Association (j)                                                                                                                                                                                                                                                                                                                             
|    |          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | 10.13    | Offset Waiver Agreement
  dated as of September 5, 2003 between Escalade, Incorporated, Bank One,
  National Association, Indian-Martin, Inc., Harvard Sports, Inc., Indian
  Industries, Inc., Martin Yale Industries, Inc., Master Products Manufacturing
  Company, Inc., U.S. Weight, Inc. and Bear Archery, Inc. (j)                                                                                                                                            

32

---



|    |                                               |                                                                                                                                                                                                                                                                   
|--- | --------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | 10.14                                         | Loan
  Agreement dated September 1, 1998 between Martin Yale Industries, Inc. and
  City of Wabash, Indiana (f)                                                                                                                                                   
|    |                                               |                                                                                                                                                                                                                                                                   
|    | 10.15                                         | Trust
  Indenture between the City of Wabash, Indiana and Bank One Trust Company, NA
  as Trustee dated September 1, 1998 relating to the Adjustable Rate Economic
  Development Revenue Refunding Bonds, Series 1998 (Martin Yale Industries,
  Inc. Project) (f)
|    |                                               |                                                                                                                                                                                                                                                                   
|    | 10.16                                         | First
  Amendment to Credit Agreement dated September 5, 2003 by and between
  Indian-Martin, Inc. and Bank One, National Association, a national banking
  association. The Effective date of the Amendment was July 15, 2004. (k)                               
|    |                                               |                                                                                                                                                                                                                                                                   
|    | 10.17                                         | Fourth
  amendment to amended and restated credit agreement dated June 1, 2003 by and
  between Escalade, Incorporated and Bank One, N.A. a national banking
  association. The Effective date of amendment was July 15, 2004. (l)                                
|    |                                               |                                                                                                                                                                                                                                                                   
|    | 10.18                                         | Euro
  revolving note dated July 15, 2004, in principal amount of 2,500,000,
  executed by Escalade, Incorporated in favor of Bank One, N.A., London branch.
  (l)                                                                                               
|    |                                               |                                                                                                                                                                                                                                                                   
|    | 10.19                                         | Uncommitted
  overdraft facility not to exceed 1.0 million Euro and 500 thousand pounds
  sterling between Escalade, Incorporated and Bank One, N.A., London branch.
  (l)                                                                                        
|    |                                               |                                                                                                                                                                                                                                                                   
|    | 10.20                                         | Sixth
  Amendment to Amended and Restated Credit Agreement effective October 24, 2001
  by and between Escalade, Incorporated and JPMorgan Chase Bank, NA. The
  effective date of the Amendment was May 19, 2006. (n)                                            
|    |                                               |                                                                                                                                                                                                                                                                   
|    | 10.21                                         | Seventh
  Amendment to Amended and Restated Credit Agreement effective October 24, 2001
  by and between Escalade, Incorporated and JPMorgan Chase Bank, NA. The
  effective date of the Amendment was July 1, 2006. (n)                                          
|    |                                               |                                                                                                                                                                                                                                                                   
|    | 10.22                                         | Promissory
  Note between Escalade, Incorporated and JPMorgan Chase Bank, NA. Dated July
  1, 2006. (n)                                                                                                                                                           
|    |                                               |                                                                                                                                                                                                                                                                   
|    | 10.23                                         | Second
  Amendment to Credit Agreement dated September 5, 2003 by and between
  Indian-Martin, Inc. and JPMorgan Chase Bank, NA. The effective date of the
  Amendment was July 1, 2006. (n)                                                                      
|    |                                               |                                                                                                                                                                                                                                                                   
|    | 10.24                                         | Promissory
  Note between Indian-Martin, Inc. and JPMorgan Chase Bank, NA. Dated July 1,
  2006. (n)                                                                                                                                                              
|    |                                               |                                                                                                                                                                                                                                                                   
|    | 10.25                                         | Eighth
  Amendment to Amended and Restated Credit Agreement effective October 24, 2001
  by and between Escalade, Incorporated and JPMorgan Chase Bank, NA. The
  effective date of the Amendment was May 17, 2007. (p)                                           
|    |                                               |                                                                                                                                                                                                                                                                   
|    | 10.26                                         | Promissory
  note between Escalade, Incorporated and JPMorgan Chase Bank, NA dated May 17,
  2007. (p)                                                                                                                                                            
|    |                                               |                                                                                                                                                                                                                                                                   
|    | 10.27                                         | Promissory
  note between Escalade, Incorporated and JPMorgan Chase Bank, NA dated May 17,
  2007. (p)                                                                                                                                                            
|    |                                               |                                                                                                                                                                                                                                                                   
|(4) | Executive Compensation Plans and Arrangements
|    |                                               |                                                                                                                                                                                                                                                                   
|    | 10.25                                         | The Harvard
  Sports/Indian Industries, Inc. 401(k) Plan as amended and merged in 1993 (c)                                                                                                                                                                        
|    |                                               |                                                                                                                                                                                                                                                                   
|    | 10.26                                         | Martin Yale
  Industries, Inc. 401(k) Retirement Plan as amended in 1993 (c)                                                                                                                                                                                      
|    |                                               |                                                                                                                                                                                                                                                                   
|    | 10.27                                         | Incentive
  Compensation Plan for Escalade, Incorporated and its subsidiaries (a)                                                                                                                                                                                 
|    |                                               |                                                                                                                                                                                                                                                                   
|    | 10.28                                         | Example of
  contributory deferred compensation agreement between Escalade, Incorporated
  and certain management employees allowing for deferral of compensation (a)                                                                                             
|    |                                               |                                                                                                                                                                                                                                                                   
|    | 10.29                                         | 1997
  Director Stock Compensation and Option Plan (e)                                                                                                                                                                                                            
|    |                                               |                                                                                                                                                                                                                                                                   
|    | 10.30                                         | 1997
  Incentive Stock Option Plan (e)                                                                                                                                                                                                                            
|    |                                               |                                                                                                                                                                                                                                                                   
|    | 10.31                                         | 1997
  Director Stock Compensation and Option Plan Certificate (m)                                                                                                                                                                                                
|    |                                               |                                                                                                                                                                                                                                                                   
|    | 10.32                                         | 1997
  Incentive Stock Option Plan Certificate (m)                                                                                                                                                                                                                
|    |                                               |                                                                                                                                                                                                                                                                   
|    | 10.33                                         | Agreement
  dated April 19, 2006 by and between Charles William Reed and Escalade,
  Incorporated (Management Contract) (n)                                                                                                                                       
|    |                                               |                                                                                                                                                                                                                                                                   
|    | 10.34                                         | Relocation
  and retention agreement dated July 24, 2006 by and between Escalade,
  Incorporated and Terry Frandsen. (Management Contract) (o)                                                                                                                    
|    |                                               |                                                                                                                                                                                                                                                                   
|    | 10.35                                         | Escalade,
  Incorporated 2007 Incentive Plan, incorporated by reference herein from Annex
  1 to the Registrants 2007 Definitive Proxy Statement. (p)                                                                                                            
|    |                                               |                                                                                                                                                                                                                                                                   
|    | 10.36                                         | Employment
  offer letter dated July 23, 2007 between Robert Keller and Escalade, Inc. (q)                                                                                                                                                                        
|    |                                               |                                                                                                                                                                                                                                                                   
|    | 10.37                                         | Form of
  Restricted Stock Unit Agreement utilized in Restricted Stock Unit grants
  pursuant to the Escalade Incorporated 2007 Incentive Plan. (r)                                                                                                               
|    |                                               |                                                                                                                                                                                                                                                                   
|    | 10.38                                         | Escalade,
  Incorporated schedule of Directors Compensation                                                                                                                                                                                                       
|    |                                               |                                                                                                                                                                                                                                                                   
|    | 10.39                                         | Escalade,
  Incorporated schedule of Executive Officers Compensation                                                                                                                                                                                              
|    |                                               |                                                                                                                                                                                                                                                                   
|    | 10.40                                         | Ninth
  Amendment to Amended and Restricted Credit Agreement effective October 24.
  2001 by and between Escalade, Incorporated and JPMorgan Chase Bank, N.A.
  dated May 31, 2008 (s)                                                                            

33

---



| |       |                                                                                                                                                                                     
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.41 | Fourth
  Amendment to Amended and Restated Credit Agreement effective September 5,
  2003 by and between Indian-Martin, Inc. and JPMorgan Chase Bank, N.A. dated
  May 31, 2008. (s)
| |       |                                                                                                                                                                                     
| | 21    | Subsidiaries
  of the Registrant                                                                                                                                                    
| |       |                                                                                                                                                                                     
| | 23.1  | Consent of
  BKD, LLP                                                                                                                                                               
| |       |                                                                                                                                                                                     
| | 23.2  | Consent of FALK & Co GmbH                                                                                                                                                           
| |       |                                                                                                                                                                                     
| | 31.1  | Chief
  Executive Officer Rule 13a-14(a)/15d-14(a) Certification                                                                                                                    
| |       |                                                                                                                                                                                     
| | 31.2  | Chief
  Financial Officer Rule 13a-14(a)/15d-14(a) Certification                                                                                                                    
| |       |                                                                                                                                                                                     
| | 32.1  | Chief
  Executive Officer Section 1350 Certification                                                                                                                                
| |       |                                                                                                                                                                                     
| | 32.2  | Chief
  Financial Officer Section 1350 Certification                                                                                                                                

| |     |                                                                                       
| | --- | --------------------------------------------------------------------------------------
| | (a) | Incorporated
  by reference from the Companys 20007 First Quarter Report on Form 10-Q
| |     |                                                                                       
| | (b) | Intentionally
  not used                                                              
| |     |                                                                                       
| | (c) | Incorporated
  by reference from the Companys 1993 Annual Report on Form 10-K        
| |     |                                                                                       
| | (d) | Incorporated
  by reference from the Companys 1995 Annual Report on Form 10-K        
| |     |                                                                                       
| | (e) | Incorporated
  by reference from the Companys 1997 Proxy Statement                   
| |     |                                                                                       
| | (f) | Incorporated
  by reference from the Companys 1998 Third Quarter Report on Form 10-Q 
| |     |                                                                                       
| | (g) | Incorporated
  by reference from the Companys 2001 Third Quarter Report on Form 10-Q 
| |     |                                                                                       
| | (h) | Incorporated
  by reference from the Companys 2002 Third Quarter Report on Form 10-Q 
| |     |                                                                                       
| | (i) | Incorporated
  by reference from the Companys 2003 Second Quarter Report on Form 10-Q
| |     |                                                                                       
| | (j) | Incorporated
  by reference from the Companys 2003 Third Quarter Report on Form 10-Q 
| |     |                                                                                       
| | (k) | Incorporated
  by reference from the Companys 2004 Second Quarter Report on Form 10-Q
| |     |                                                                                       
| | (l) | Incorporated
  by reference from the Companys 2004 Third Quarter Report on Form 10-Q 
| |     |                                                                                       
| | (m) | Incorporated
  by reference from the Companys 2004 Annual Report on Form 10-K        
| |     |                                                                                       
| | (n) | Incorporated
  by reference from the Companys 2006 Second Quarter Report on Form 10-Q
| |     |                                                                                       
| | (o) | Incorporated
  by reference from the Companys 2006 Third Quarter Report on Form 10-Q 
| |     |                                                                                       
| | (p) | Incorporated
  by reference from the Companys 2007 Second Quarter Report on Form 10-Q
| |     |                                                                                       
| | (q) | Incorporated
  by reference from the Companys 2007 Third Quarter Report on Form 10-Q 
| |     |                                                                                       
| | (r) | Incorporated
  by reference from the Companys Form 8-K filed on February 29, 2008    
| |     |                                                                                       
| | (s) | Incorporated
  by reference from the Companys Form 8-K filed on June 5, 2008         

34

---



Escalade,
Incorporated and Subsidiaries

Index to Financial Statements

The following
consolidated financial statements of the Registrant and its subsidiaries and
Independent Accountants Reports are submitted herewith:

|                                                                                                                                  |  |     
|--------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                                  |  | Page
|                                                                                                                                  |  |     
|Reports of
  Independent Registered Public Accounting Firms                                                                       |  | 36  
|                                                                                                                                  |  |     
|Consolidated financial
  statements of Escalade, Incorporated and subsidiaries:                                                   |  |     
|                                                                                                                                  |  |     
|Consolidated
  balance sheetsDecember 27, 2008 and December 29, 2007                                                             |  | 38  
|                                                                                                                                  |  |     
|Consolidated
  statements of operationsfiscal years ended December 27, 2008, December 29,
  2007 and December 30, 2006           |  | 39  
|                                                                                                                                  |  |     
|Consolidated
  statements of stockholders equityfiscal years ended December 27, 2008,
  December 29, 2007 and December 30, 2006 |  | 40  
|                                                                                                                                 
|Consolidated
  statements of cash flowsfiscal years ended December 27, 2008, December 29,
  2007 and December 30, 2006           |  | 41  
|                                                                                                                                  |  |     
|Notes to
  consolidated financial statements                                                                                      |  | 42  

35

---



(BKD LOGO)

Reports of
Independent Registered Public Accounting Firms

Audit
Committee, Board of Directors and Stockholders
Escalade, Incorporated
Evansville, Indiana

We have
audited the accompanying consolidated balance sheets of Escalade, Incorporated
(Company) as of December 27, 2008, and December 29, 2007, and the related
consolidated statements of operations, stockholders equity and cash flows for
each of the years in the three-year period ended December 27, 2008. The
Companys management is responsible for these financial statements. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the 2008, 2007 and 2006 consolidated financial
statements of Martin Yale International, GmbH, a wholly owned subsidiary, which
consolidated statements reflect total assets of $20,074, $22,944 and $28,391
and net sales of $26,991, $30,943 and $24,378 (dollars in thousands) for 2008,
2007 and 2006, respectively, included in the related consolidated financial
statement amounts as of and for the years ended December 27, 2008, December 29,
2007, and December 30, 2006. Those consolidated statements were audited by
other accountants, whose reports have been furnished to us and our opinion,
insofar as it relates to the amounts included for Martin Yale International,
GmbH, is based solely on the reports of the other accountants.

Our audits
also included auditing the adjustments to convert the financial statements of
Martin Yale International, GmbH into accounting principles generally accepted
in the United States of America for purposes of consolidation.

We conducted
our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting for 2008. Our 2008 audit of the consolidated financial
statements included consideration of internal control over financial reporting
as a basis for designing auditing procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Companys internal control over financial reporting.
Accordingly, we express no such opinion. Our audits also included examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management and evaluating the overall financial statement presentation.
We believe that our audits and the reports of the other accountants provide a
reasonable basis for our opinion.

In our
opinion, based on our audits and the reports of the other accountants, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of December 27,
2008, and December 29, 2007, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 27, 2008,
in conformity with accounting principles generally accepted in the United
States of America.

|                    | 
|------------------- | 
|/s/ BKD, LLP        | 
|                    | 
|Evansville, Indiana | 
|March 27, 2009      | 

36

---



FALK & Co

Reports
of Independent Registered Public Accounting Firms

To the Stockholders and
Board of Directors of 
Martin Yale International GmbH, 
Markdorf/Germany

We have audited the
accompanying balance sheet of Martin Yale International GmbH, Markdorf/Germany
(the Company) as of December 31, 2008 and December 31, 2007 and the related
statement of income for each of the three years in the period ended December
31, 2008. The financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
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 audit provides a reasonable basis for our opinion.

In our opinion, based on our
audit, the financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of December 31,
2008 and December 31, 2007 and the result of its operations for each of the
three years in the period ended December 31, 2008, in conformity with
accounting principles generally accepted in Germany.

|                                | 
|------------------------------- | 
|/s/ FALK & Co GmbH              | 
|                                | 
|Wirtschaftsprüfungsgesellschaft | 
|Steuerberatungsgesellschaft     | 

Heidelberg/Germany, 
March 27, 2009

37

---



ESCALADE,
INCORPORATED AND SUBSIDIARIESConsolidated Balance Sheets

|                                                                          |  |                     |         |                     |   |         | 
|------------------------------------------------------------------------- |  | ------------------- | ------- | ------------------- | - | ------- | 
|All Amounts in Thousands Except Share
  Information                       |  | December 27,
  2008 |         | December 29,
  2007 |  
|                                                                          |  |                     |         |                     |  
|                                                                          |  |                     |         |                     |   |         | 
|Assets                                                                    |  |                     |         |                     |   |         | 
|Current assets                                                            |  |                     |         |                     |   |         | 
|Cash and cash equivalents                                                 |  | $                   | 3,617   |                     | $ | 2,808   | 
|Receivables, less allowances of $1,114 and
  $1,087                       |  |                     | 27,178  |                     |   | 30,639  | 
|Inventories                                                               |  |                     | 29,860  |                     |   | 32,541  | 
|Prepaid expenses                                                          |  |                     | 1,254   |                     |   | 2,551   | 
|Assets held for sale                                                      |  |                     | 3,325   |                     |   |         | 
|Deferred income tax benefit                                               |  |                     | 2,015   |                     |   | 1,399   | 
|Prepaid income tax                                                        |  |                     | 5,327   |                     |   | 860     | 
|                                                                          |  |                     |         |                     |   |         | 
|Total current assets                                                      |  |                     | 72,576  |                     |   | 70,798  | 
|                                                                          |  |                     |         |                     |   |         | 
|Property, plant and equipment, net                                        |  |                     | 20,209  |                     |   | 20,391  | 
|Intangible assets                                                         |  |                     | 19,153  |                     |   | 21,012  | 
|Goodwill                                                                  |  |                     | 25,811  |                     |   | 25,803  | 
|Investments                                                               |  |                     | 8,129   |                     |   | 12,473  | 
|Interest rate swap                                                        |  |                     |        |                     |   | 54      | 
|Deferred income tax benefit                                               |  |                     | 723     |                     |   |        | 
|Other assets                                                              |  |                     | 1,100   |                     |   | 1,485   | 
|                                                                          |  |                     |         |                     |   |         | 
|Total assets                                                              |  | $                   | 147,701 |                     | $ | 152,016 | 
|                                                                          |  |                     |         |                     |   |         | 
|                                                                          |  |                     |         |                     |   |         | 
|Liabilities and Stockholders Equity                                      |  |                     |         |                     |   |         | 
|Current liabilities                                                       |  |                     |         |                     |   |         | 
|Notes payablebank                                                        |  |                     | 46,525  |                     |   | 13,033  | 
|Trade accounts payable                                                    |  |                     | 3,272   |                     |   | 2,938   | 
|Accrued liabilities                                                       |  |                     | 16,698  |                     |   | 23,216  | 
|Income tax payable                                                        |  |                     | 1,239   |                     |   | 169     | 
|                                                                          |  |                     |         |                     |   |         | 
|Total current liabilities                                                 |  |                     | 67,734  |                     |   | 39,356  | 
|                                                                          |  |                     |         |                     |   |         | 
|Long-term debt                                                            |  |                     |        |                     |   | 19,135  | 
|Other non-current income tax liability                                    |  |                     |        |                     |   | 118     | 
|Deferred income tax liability                                             |  |                     |        |                     |   | 589     | 
|Deferred compensation                                                     |  |                     | 1,177   |                     |   | 1,076   | 
|                                                                          |  |                     |         |                     |   |         | 
|Total liabilities                                                         |  |                     | 68,911  |                     |   | 60,274  | 
|                                                                          |  |                     |         |                     |   |         | 
|Commitments and contingencies                                             |  |                     |        |                     |   |        | 
|                                                                          |  |                     |         |                     |   |         | 
|Stockholders equity                                                      |  |                     |         |                     |   |         | 
|Preferred stock                                                           |  |                     |         |                     |   |         | 
|Authorized: 1,000,000 shares, no par value,
  none issued                 |  |                     |         |                     |   |         | 
|Common stock                                                              |  |                     |         |                     |   |         | 
|Authorized: 30,000,000 shares, no par
value                               |  |                     |         |                     |   |         | 
|Issued and outstanding: 2008 12,616,042
  shares, 200712,673,149 shares |  |                     | 12,616  |                     |   | 12,673  | 
|                                                                          |  |                     |         |                     |   |         | 
|Retained earnings                                                         |  |                     | 63,050  |                     |   | 73,246  | 
|Accumulated other comprehensive income                                    |  |                     | 3,124   |                     |   | 5,823   | 
|                                                                          |  |                     |         |                     |   |         | 
|Total stockholders equity                                                |  |                     | 78,790  |                     |   | 91,742  | 
|                                                                          |  |                     |         |                     |   |         | 
|Total liabilities and stockholders
equity                                |  | $                   | 147,701 |                     | $ | 152,016 | 
|                                                                          |  |                     |         |                     |   |         | 

See notes to
consolidated financial statements.

38

---



ESCALADE,
INCORPORATED AND SUBSIDIARIESConsolidated Statements of Operations

|                                                 |  |                     |         |                     |   |                     |   |   |         |  
|------------------------------------------------ |  | ------------------- | ------- | ------------------- | - | ------------------- | - | - | ------- | -
|                                                 |  | Years Ended         |        
|                                                 |  |                     |        
|All Amounts in Thousands Except Per Share
  Data |  | December 27,
  2008 |         | December 29,
  2007 |   | December 30,
  2006 |  
|                                                 |  |                     |         |                     |   |                     |  
|                                                 |  |                     |         |                     |   |                     |  
|Net Sales                                        |  | $                   | 148,686 |                     | $ | 185,576             |   | $ | 191,465 |  
|                                                 |  |                     |         |                     |   |                     |   |   |         |  
|Costs, Expenses and Other
  Income               |  |                     |         |                     |   |                     |   |   |         |  
|Cost of products sold                            |  |                     | 112,138 |                     |   | 131,389             |   |   | 137,821 |  
|Selling, administrative and general
  expenses   |  |                     | 39,883  |                     |   | 38,462              |   |   | 39,466  |  
|Long-lived asset impairment charges              |  |                     | 2,623   |                     |   |                    |   |   |        |  
|Amortization                                     |  |                     | 2,163   |                     |   | 2,657               |   |   | 2,343   |  
|                                                 |  |                     |         |                     |   |                     |   |   |         |  
|                                                 |  |                     |         |                     |   |                     |   |   |         |  
|Operating Income (Loss)                          |  |                     | (8,121  | )                   |   | 13,068              |   |   | 11,835  |  
|                                                 |  |                     |         |                     |   |                     |   |   |         |  
|Interest expense                                 |  |                     | (2,025  | )                   |   | (2,837              | ) |   | (2,637  | )
|Other income (expense)                           |  |                     | (34     | )                   |   | 3,991               |   |   | 2,263   |  
|                                                 |  |                     |         |                     |   |                     |   |   |         |  
|                                                 |  |                     |         |                     |   |                     |   |   |         |  
|Income (Loss) Before Income
  Taxes (Benefit)    |  |                     | (10,180 | )                   |   | 14,222              |   |   | 11,461  |  
|                                                 |  |                     |         |                     |   |                     |   |   |         |  
|Provision (Benefit) for Income
  Taxes           |  |                     | (2,684  | )                   |   | 4,967               |   |   | 2,966   |  
|                                                 |  |                     |         |                     |   |                     |   |   |         |  
|                                                 |  |                     |         |                     |   |                     |   |   |         |  
|Net Income (Loss)                                |  | $                   | (7,496  | )                   | $ | 9,255               |   | $ | 8,495   |  
|                                                 |  |                     |         |                     |   |                     |   |   |         |  
|                                                 |  |                     |         |                     |   |                     |   |   |         |  
|Earnings (Loss) Per Share Data                   |  |                     |         |                     |   |                     |   |   |         |  
|Basic earnings (loss) per share                  |  | $                   | (0.59   | )                   | $ | 0.72                |   | $ | 0.65    |  
|                                                 |  |                     |         |                     |   |                     |   |   |         |  
|Diluted earnings (loss) per share                |  | $                   | (0.59   | )                   | $ | 0.72                |   | $ | 0.65    |  
|                                                 |  |                     |         |                     |   |                     |   |   |         |  

See notes to
consolidated financial statements.

39

---



Escalade,
Incorporated and SubsidiariesConsolidated Statements of Stockholders Equity

|                                                                                  |  |                |        |                  |   |                                     |   |       |        |   |   |        |   |   |         |  
|--------------------------------------------------------------------------------- |  | -------------- | ------ | ---------------- | - | ----------------------------------- | - | ----- | ------ | - | - | ------ | - | - | ------- | -
|                                                                                  |  |                |        |                  |   | AccumulatedOtherComprehensiveIncome |   |       |       
|                                                                                  |  |                |        | RetainedEarnings |   |                                     |   |      
|                                                                                  |  | Common
  Stock |        |                  |   |                                     |  
|All Amounts
  in Thousands                                                        |  | Shares         |        | Amount           |   |                                     |   | Total |       
|                                                                                  |  |                |        |                  |   |                                     |   |       |        |   |  
|                                                                                  |  |                |        |                  |   |                                     |   |       |        |   |  
|Balances at January 1, 2006                                                       |  |                | 12,947 |                  | $ | 12,947                              |   | $     | 62,726 |   | $ | 950    |   | $ | 76,623  |  
|                                                                                  |  |                |        |                  |   |                                     |   |       |        |   |   |        |   |   |         |  
|Comprehensive income                                                              |  |                |        |                  |   |                                     |   |       |        |   |   |        |   |   |         |  
|Net income                                                                        |  |                |        |                  |   |                                     |   |       | 8,495  |   |   |        |   |   | 8,495   |  
|Unrealized gain on securities, net of tax                                         |  |                |        |                  |   |                                     |   |       |        |   |   | 278    |   |   | 278     |  
|Realization of previously unrealized gains on
securities, net of tax              |  |                |        |                  |   |                                     |   |       |        |   |   | (189   | ) |   | (189    | )
|Foreign currency translation adjustment                                           |  |                |        |                  |   |                                     |   |       |        |   |   | 2,405  |   |   | 2,405   |  
|Unrealized gain on interest rate swap agreement,
net of tax                       |  |                |        |                  |   |                                     |   |       |        |   |   | 38     |   |   | 38      |  
|                                                                                  |  |                |        |                  |   |                                     |   |       |        |   |   |        |   |   |         |  
|Total comprehensive income                                                        |  |                |        |                  |   |                                     |   |       |        |   |   |        |   |   | 11,027  |  
|                                                                                  |  |                |        |                  |   |                                     |   |       |        |   |   |        |   |   |         |  
|Expense of stock options                                                          |  |                |        |                  |   |                                     |   |       | 588    |   |   |        |   |   | 588     |  
|Exercise of stock options                                                         |  |                | 226    |                  |   | 226                                 |   |       | 1,238  |   |   |        |   |   | 1,464   |  
|Dividend paid                                                                     |  |                |        |                  |   |                                     |   |       | (2,604 | ) |   |        |   |   | (2,604  | )
|Stock issued under the director stock option
plan                                 |  |                | 10     |                  |   | 10                                  |   |       | 131    |   |   |        |   |   | 141     |  
|Purchase of stock                                                                 |  |                | (144   | )                |   | (144                                | ) |       | (1,380 | ) |   |        |   |   | (1,524  | )
|                                                                                  |  |                |        |                  |   |                                     |   |       |        |   |   |        |   |   |         |  
|                                                                                  |  |                |        |                  |   |                                     |   |       |        |   |   |        |   |   |         |  
|Balances at December 30, 2006                                                     |  |                | 13,039 |                  |   | 13,039                              |   |       | 69,194 |   |   | 3,482  |   |   | 85,715  |  
|                                                                                  |  |                |        |                  |   |                                     |   |       |        |   |   |        |   |   |         |  
|Comprehensive income                                                              |  |                |        |                  |   |                                     |   |       |        |   |   |        |   |   |         |  
|Net income                                                                        |  |                |        |                  |   |                                     |   |       | 9,255  |   |   |        |   |   | 9,255   |  
|Unrealized gain on securities, net of tax                                         |  |                |        |                  |   |                                     |   |       |        |   |   | 128    |   |   | 128     |  
|Foreign currency translation adjustment                                           |  |                |        |                  |   |                                     |   |       |        |   |   | 2,333  |   |   | 2,333   |  
|Unrealized loss on interest rate swap agreement,
net of tax                       |  |                |        |                  |   |                                     |   |       |        |   |   | (120   | ) |   | (120    | )
|                                                                                  |  |                |        |                  |   |                                     |   |       |        |   |   |        |   |   |         |  
|Total comprehensive income                                                        |  |                |        |                  |   |                                     |   |       |        |   |   |        |   |   | 11,596  |  
|                                                                                  |  |                |        |                  |   |                                     |   |       |        |   |   |        |   |   |         |  
|Adjustment to initially apply FASB Interpretation
No. 48                          |  |                |        |                  |   |                                     |   |       | (265   | ) |   |        |   |   | (265    | )
|Expense of stock options                                                          |  |                |        |                  |   |                                     |   |       | 680    |   |   |        |   |   | 680     |  
|Exercise of stock options                                                         |  |                | 18     |                  |   | 18                                  |   |       | 122    |   |   |        |   |   | 140     |  
|Dividend paid                                                                     |  |                |        |                  |   |                                     |   |       | (2,866 | ) |   |        |   |   | (2,866  | )
|Stock issued to directors as compensation                                         |  |                | 15     |                  |   | 15                                  |   |       | 128    |   |   |        |   |   | 143     |  
|Purchase of stock                                                                 |  |                | (399   | )                |   | (399                                | ) |       | (3,002 | ) |   |        |   |   | (3,401  | )
|                                                                                  |  |                |        |                  |   |                                     |   |       |        |   |   |        |   |   |         |  
|                                                                                  |  |                |        |                  |   |                                     |   |       |        |   |   |        |   |   |         |  
|Balances at December 29, 2007                                                     |  |                | 12,673 |                  |   | 12,673                              |   |       | 73,246 |   |   | 5,823  |   |   | 91,742  |  
|                                                                                  |  |                |        |                  |   |                                     |   |       |        |   |   |        |   |   |         |  
|Comprehensive income (loss)                                                       |  |                |        |                  |   |                                     |   |       |        |   |   |        |   |   |         |  
|Net income (loss)                                                                 |  |                |        |                  |   |                                     |   |       | (7,496 | ) |   |        |   |   | (7,496  | )
|Foreign currency translation adjustment                                           |  |                |        |                  |   |                                     |   |       |        |   |   | (2,344 | ) |   | (2,344  | )
|Unrealized loss on interest rate swap agreement,
net of tax                       |  |                |        |                  |   |                                     |   |       |        |   |   | (35    | ) |   | (35     | )
|Realization of previously unrealized gains and
losses on securities,
  net of tax |  |                |        |                  |   |                                     |   |       |        |   |   | (320   | ) |   | (320    | )
|                                                                                  |  |                |        |                  |   |                                     |   |       |        |   |   |        |   |   |         |  
|Total comprehensive income (loss)                                                 |  |                |        |                  |   |                                     |   |       |        |   |   |        |   |   | (10,195 | )
|                                                                                  |  |                |        |                  |   |                                     |   |       |        |   |   |        |   |   |         |  
|Expense of stock options                                                          |  |                |        |                  |   |                                     |   |       | 910    |   |   |        |   |   | 910     |  
|Exercise of stock options                                                         |  |                | 45     |                  |   | 45                                  |   |       | 268    |   |   |        |   |   | 313     |  
|Dividend paid                                                                     |  |                |        |                  |   |                                     |   |       | (3,174 | ) |   |        |   |   | (3,174  | )
|Stock issued to directors as compensation                                         |  |                | 10     |                  |   | 10                                  |   |       | 104    |   |   |        |   |   | 114     |  
|Purchase of stock                                                                 |  |                | (112   | )                |   | (112                                | ) |       | (808   | ) |   |        |   |   | (920    | )
|                                                                                  |  |                |        |                  |   |                                     |   |       |        |   |   |        |   |   |         |  
|                                                                                  |  |                |        |                  |   |                                     |   |       |        |   |   |        |   |   |         |  
|Balances at December 27, 2008                                                     |  |                | 12,616 |                  | $ | 12,616                              |   | $     | 63,050 |   | $ | 3,124  |   | $ | 78,790  |  
|                                                                                  |  |                |        |                  |   |                                     |   |       |        |   |   |        |   |   |         |  

See notes to
consolidated financial statements.

40

---



Escalade,
Incorporated and SubsidiariesConsolidated Statements of Cash Flows(All Amounts in Thousands)

|                                                                                   |  |                     |         |                      |   |                     |   |   |         |  
|---------------------------------------------------------------------------------- |  | ------------------- | ------- | -------------------- | - | ------------------- | - | - | ------- | -
|Years Ended                                                                        |  | December 27,
  2008 |         | December 29, 
  2007 |   | December 30,
  2006 |  
|                                                                                   |  |                     |         |                      |   |                     |  
|                                                                                   |  |                     |         |                      |   |                     |  
|Operating Activities                                                               |  |                     |         |                      |   |                     |   |   |         |  
|Net income (loss)                                                                  |  | $                   | (7,496  | )                    | $ | 9,255               |   | $ | 8,495   |  
|Adjustments to reconcile net income to net
  cash provided by operating activities |  |                     |         |                      |   |                     |   |   |         |  
|Depreciation and amortization                                                      |  |                     | 5,539   |                      |   | 6,044               |   |   | 5,649   |  
|Long-lived asset impairment charges                                                |  |                     | 2,623   |                      |   |                    |   |   |        |  
|Available for sale securities impairment
  charges                                 |  |                     | 884     |                      |   |                    |   |   |        |  
|Provision for doubtful accounts                                                    |  |                     | 525     |                      |   | 509                 |   |   | 116     |  
|Stock option expense                                                               |  |                     | 910     |                      |   | 680                 |   |   | 588     |  
|Deferred income taxes                                                              |  |                     | (1,488  | )                    |   | 284                 |   |   | 436     |  
|Provision for deferred compensation                                                |  |                     | 101     |                      |   | 92                  |   |   | 108     |  
|Deferred compensation paid                                                         |  |                     |        |                      |   | (62                 | ) |   | (411    | )
|(Gain) loss on disposals of assets                                                 |  |                     | 731     |                      |   | (57                 | ) |   | (98     | )
|                                                                                   |  |                     |         |                      |   |                     |   |   |         |  
|Changes in                                                                         |  |                     |         |                      |   |                     |   |   |         |  
|Accounts receivable                                                                |  |                     | 3,028   |                      |   | 3,258               |   |   | 1,663   |  
|Inventories                                                                        |  |                     | 2,639   |                      |   | 1,091               |   |   | 5,543   |  
|Prepaids                                                                           |  |                     | (1,715  | )                    |   | (1,207              | ) |   | (86     | )
|Other assets                                                                       |  |                     | 2,450   |                      |   | (1,036              | ) |   | (807    | )
|Income tax payable                                                                 |  |                     | (4,225  | )                    |   | 1,106               |   |   | (1,836  | )
|Accounts payable and accrued expenses                                              |  |                     | (6,418  | )                    |   | (5,646              | ) |   | 539     |  
|                                                                                   |  |                     |         |                      |   |                     |   |   |         |  
|Net cash provided by (used in)operating
activities                                 |  |                     | (1,912  | )                    |   | 14,311              |   |   | 19,899  |  
|                                                                                   |  |                     |         |                      |   |                     |   |   |         |  
|                                                                                   |  |                     |         |                      |   |                     |   |   |         |  
|Investing Activities                                                               |  |                     |         |                      |   |                     |   |   |         |  
|Change in cash surrender value, net of
  loans and premiums                        |  |                     |        |                      |   | 12                  |   |   | (43     | )
|Purchase of property and equipment                                                 |  |                     | (9,484  | )                    |   | (2,387              | ) |   | (2,683  | )
|Purchase of long-term investments                                                  |  |                     |        |                      |   |                    |   |   | (192    | )
|Acquisitions, net of cash acquired                                                 |  |                     | (467    | )                    |   | (4,177              | ) |   | (28,759 | )
|Proceeds from sale of property and
  equipment                                     |  |                     | 33      |                      |   | 200                 |   |   | 142     |  
|Retirement of life insurance policies                                              |  |                     |        |                      |   | 294                 |   |   | 1,036   |  
|Proceeds from sale of investments                                                  |  |                     | 1,501   |                      |   |                    |   |   | 952     |  
|                                                                                   |  |                     |         |                      |   |                     |   |   |         |  
|Net cash used by investing activities                                              |  |                     | (8,417  | )                    |   | (6,058              | ) |   | (29,547 | )
|                                                                                   |  |                     |         |                      |   |                     |   |   |         |  
|                                                                                   |  |                     |         |                      |   |                     |   |   |         |  
|Financing Activities                                                               |  |                     |         |                      |   |                     |   |   |         |  
|Net increase (decrease) in notes
  payablebank                                    |  |                     | 33,491  |                      |   | (777                | ) |   | 12,898  |  
|Proceeds from exercise of stock options                                            |  |                     | 313     |                      |   | 140                 |   |   | 1,464   |  
|Reduction of long-term debt                                                        |  |                     | (19,135 | )                    |   |                    |   |   |        |  
|Purchase of stock                                                                  |  |                     | (920    | )                    |   | (3,401              | ) |   | (1,524  | )
|Cash dividend paid                                                                 |  |                     | (3,174  | )                    |   | (2,866              | ) |   | (2,604  | )
|Directors compensation                                                             |  |                     | 114     |                      |   | 143                 |   |   | 141     |  
|                                                                                   |  |                     |         |                      |   |                     |   |   |         |  
|Net cash provided by (used in) financing
activities                                |  |                     | 10,689  |                      |   | (6,761              | ) |   | 10,375  |  
|                                                                                   |  |                     |         |                      |   |                     |   |   |         |  
|Effect of Exchange Rate Changes on Cash and
  Cash Equivalents                     |  |                     | 449     |                      |   | (2,513              | ) |   | 85      |  
|                                                                                   |  |                     |         |                      |   |                     |   |   |         |  
|Increase (Decrease) in Cash and Cash
  Equivalents                                 |  |                     | 809     |                      |   | (1,021              | ) |   | 812     |  
|Cash and Cash Equivalents, Beginning of
  Year                                     |  |                     | 2,808   |                      |   | 3,829               |   |   | 3,017   |  
|                                                                                   |  |                     |         |                      |   |                     |   |   |         |  
|                                                                                  
|Cash and Cash Equivalents, End of Year                                             |  | $                   | 3,617   |                      | $ | 2,808               |   | $ | 3,829   |  
|                                                                                   |  |                     |         |                      |   |                     |   |   |         |  
|                                                                                  
|Supplemental Cash Flows Information                                                |  |                     |         |                      |   |                     |   |   |         |  
|                                                                                   |  |                     |         |                      |   |                     |   |   |         |  
|Interest paid                                                                      |  | $                   | 2,024   |                      | $ | 2,831               |   | $ | 2,630   |  
|Income taxes paid                                                                  |  | $                   | 2,167   |                      | $ | 3,324               |   | $ | 2,512   |  

See notes to
consolidated financial statements.

41

---



Escalade,
Incorporated and SubsidiariesNotes to Consolidated Financial Statements

Note 1  Nature of Operations and Summary of
Significant Accounting Policies

Nature
of OperationsEscalade, Incorporated and its wholly owned
subsidiaries (the Company) are engaged in the manufacture and sale of
sporting goods and office products. The Company is headquartered in Evansville,
Indiana and has manufacturing facilities in the United States of America,
Mexico and Germany. The Company sells products to customers throughout the
world.

Principles
of ConsolidationThe consolidated financial statements include the accounts of Escalade,
Incorporated and its wholly-owned subsidiaries. All material inter-company
accounts and transactions have been eliminated.

Basis
of PresentationThe consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America.
The books and records of Subsidiaries located in foreign countries are
maintained according to generally accepted accounting principles in those
countries. Upon consolidation the Company evaluates the differences in
accounting principles and determines whether adjustments are necessary to
convert the foreign financial statements to the accounting principles upon
which the consolidated financial statements are based. As a result of this
evaluation no material adjustments were identified.

Fiscal
Year EndThe Companys fiscal year is a 52 or 53 week period ending on the last
Saturday in December. Fiscal 2008, 2007 and 2006 were 52 weeks long ending on
December 27, 2008, December 29, 2007 and December 30, 2006, respectively.

Cash and Cash EquivalentsHighly liquid financial instruments with insignificant interest rate
risk and with original maturities of three months or less are classified as
cash and cash equivalents.

Accounts
ReceivableRevenue from the sale of the Companys products is recognized as
products are shipped to customers and accounts receivable are stated at the
amount billed to customers. Interest and late charges billed to customers are
not material and because collection is uncertain, are not recognized until
collected and are therefore not included in accounts receivable. The Company
does not offer the right of return on any of its sales and the Company does not
engage in consignment or contingency sales. The Company provides an allowance
for doubtful accounts which is described in Note 2  Certain Significant
Estimates.

InventoriesInventory cost is computed on a currently adjusted standard cost basis
(which approximates actual cost on a current average or first-in, first-out
basis). Work in process and finished goods inventory are determined to be
saleable based on a demand forecast within a specific time horizon, generally
one year or less. Inventory in excess of saleable amounts is reserved, and the
remaining inventory is valued at the lower cost or market. This inventory
valuation reserve totaled $3.9 million and $3.6 million at fiscal year-end 2008
and 2007, respectively. Inventories, net of the valuation reserve, at fiscal
year-ends were as follows:

|                |  |      |        |      |   |        | 
|--------------- |  | ---- | ------ | ---- | - | ------ | 
|In Thousands    |  | 2008 |        | 2007 |  
|                |  |      |        |      |  
|                |  |      |        |      |  
|Raw materials   |  | $    | 9,540  |      | $ | 9,188  | 
|Work in process |  |      | 4,506  |      |   | 7,032  | 
|Finished goods  |  |      | 15,814 |      |   | 16,321 | 
|                |  |      |        |      |   |        | 
|                |  | $    | 29,860 |      | $ | 32,541 | 
|                |  |      |        |      |   |        | 

42

---



Escalade,
Incorporated and SubsidiariesNotes to Consolidated Financial Statements

Property, Plant and EquipmentProperty,
plant and equipment are recorded at cost. Depreciation and amortization are
computed for financial reporting purposes principally using the straight-line
method over the following estimated useful lives: buildings, 20-30 years;
leasehold improvements, term of the lease; machinery and equipment, 5-15 years;
and tooling, dies and molds, 2-4 years. Property, plant and equipment consist
of the following:

|                                            |  |      |         |      |   |         |  
|------------------------------------------- |  | ---- | ------- | ---- | - | ------- | -
|In Thousands                                |  | 2008 |         | 2007 |  
|                                            |  |      |         |      |  
|                                            |  |      |         |      |  
|Land                                        |  | $    | 2,457   |      | $ | 2,902   |  
|Buildings and leasehold
  improvements      |  |      | 15,635  |      |   | 20,784  |  
|Machinery and equipment                     |  |      | 38,882  |      |   | 33,912  |  
|                                            |  |      |         |      |   |         |  
|Total cost                                  |  |      | 56,974  |      |   | 57,598  |  
|Accumulated depreciation and
  amortization |  |      | (36,765 | )    |   | (37,207 | )
|                                            |  |      |         |      |   |         |  
|                                            |  | $    | 20,209  |      | $ | 20,391  |  
|                                            |  |      |         |      |   |         |  

The Company evaluates the recoverability of certain long-lived assets
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. Estimates of future cash flows used to test
recoverability of long-lived assets include separately identifiable
undiscounted cash flows expected to arise from the use and eventual disposition
of the assets. Where estimated future cash flows are less than the carrying
value of the assets, impairment losses are recognized based on the amount by
which the carrying value exceeds the fair value of the assets. The fair value
of the assets was determined based on the held for use classification. The
Company may incur significant impairment charges or losses on divestitures upon
these assets being classified as held for sale. During 2008 the Companys
Sporting Goods segment recognized an impairment loss of $2.6 million related to
the Reynosa, Mexico facility and equipment. This loss is included in the long
lived asset impairment charges line of the statement of operations.

InvestmentsInvestments are composed of the following:

|                                                    |  |      |       |      |   |        | 
|--------------------------------------------------- |  | ---- | ----- | ---- | - | ------ | 
|In Thousands                                        |  | 2008 |       | 2007 |  
|                                                    |  |      |       |      |  
|                                                    |  |      |       |      |  
|Marketable equity securities
  available for sale   |  | $    | 1,209 |      | $ | 4,496  | 
|Non-marketable equity
  investments (equity method) |  |      | 6,920 |      |   | 7,977  | 
|                                                    |  |      |       |      |   |        | 
|                                                    |  | $    | 8,129 |      | $ | 12,473 | 
|                                                    |  |      |       |      |   |        | 

Marketable Equity Securities Available for
Sale. This consists of marketable equity securities
recorded at fair value. The unrealized gains and losses, net of tax, are
reported in accumulated other comprehensive income. When the fair value of an
available for sale security is less than its amortized cost for an extended
period, the Company considers whether there is an other-than-temporary
impairment in the value of the security. If based on that analysis, an
other-than-temporary impairment exists, the cost basis of the security is
written down to the then current fair value, and the unrealized loss is
transferred from accumulated other comprehensive loss as an immediate reduction
in current earnings (as if the loss had been realized in the period of
other-than-temporary impairment). During the current year, the Company
recognized an other-than-temporary-impairment loss in the amount of $884
thousand on its available for sale securities. This loss is included as a
component of Other Income (Expense).

Summarized
financial data for these securities at fiscal year-end were as follows:

|                              |  |      |       |      |   |       | 
|----------------------------- |  | ---- | ----- | ---- | - | ----- | 
|In Thousands                  |  | 2008 |       | 2007 |  
|                              |  |      |       |      |  
|                             
|Cost basis                    |  | $    | 1,209 |      | $ | 4,119 | 
|Unrealized gain               |  |      |      |      |   | 377   | 
|                              |  |      |       |      |   |       | 
|Approximate fair market value |  | $    | 1,209 |      | $ | 4,496 | 
|                              |  |      |       |      |   |       | 

43

---



Escalade,
Incorporated and Subsidiaries
Notes to Consolidated Financial Statements

Non-Marketable Equity
InvestmentsThe Company
has minority equity positions in
companies strategically related to the Companys business, but does not have
control over these companies. The accounting method employed is dependent on
the level of ownership and degree of influence the Company can exert on
operations. Where the equity interest is less than 20% and the degree of
influence is not significant, the cost method of accounting is employed. Where
the equity interest is greater than 20% but not more than 50%, the equity
method of accounting is utilized. Under the equity method, the Companys
proportionate share of net income (loss) is recorded in other income on the consolidated
statement of income. The proportionate share of net income was $1,054 thousand,
$1,354 thousand and $1,290 thousand in 2008, 2007 and 2006, respectively. Total
cash dividends received from these equity investments amounted to $49 thousand,
$39 thousand, and $434 thousand in 2008, 2007 and 2006, respectively. The
Company considers whether the fair values of any of its equity investments have
declined below their carrying value whenever adverse events or changes in
circumstances indicate that recorded values may not be recoverable. If the
Company considered any such decline to be other than temporary (based on
various factors, including historical financial results, product development
activities and overall health of the investments industry), a write-down is
recorded to estimated fair value. There was no impairment loss recognized on
equity method investments in 2008, 2007 or 2006.

Goodwill and Intangible AssetsGoodwill represents
the excess of the purchase price over fair value of net tangible and
identifiable intangible assets of acquired businesses. Intangible assets
consist of patents, consulting agreements, non-compete agreements, customer
lists, and trademarks. Goodwill and trademarks are deemed to have indefinite
lives and are not amortized, but are subject to impairment testing annually in
accordance with Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and
Other Intangible Assets. Other intangible assets compute
amortization using the straight-line method over the following lives:
consulting agreements, the life of the agreement; non-compete agreements, the
lesser of the term or 5 years; and patents, the lesser of the remaining life or
5 to 8 years. No impairment has been recognized on goodwill or intangible
assets for the years ending December 27, 2008, December 29, 2007 or December
30, 2006.

Employee Incentive
PlanDuring 2007, the
Company replaced two stock-based compensation plans with a new incentive plan
more fully explained in Note 10. The Company accounts for this plan
under the recognition and measurement principles of Statements of Financial
Accounting. Standards (SFAS) No. 123R,
Share-Based Payment.

Foreign Currency TranslationThe functional
currency for the foreign operations of Escalade is the local currency. The
translation of foreign currencies into U.S. dollars is performed for balance
sheet accounts using exchange rates in effect at the balance sheet dates and
for revenue and expense accounts using a weighted average exchange rate during
the year. The gains or losses resulting from the translation are included in Accumulated Other Comprehensive Incomein
the Consolidated Statements of Stockholders
Equity and are excluded from net income (loss). Gains or losses
resulting from foreign currency transactions are included in selling, general and administrative expense in the Consolidated
Statements of
Operations and were insignificant in fiscal years 2008, 2007, and 2006.

Cost of Products SoldCost of products sold are comprised of those costs
directly associated with or allocated to the products sold and include
materials, labor and factory overhead.

44

---



Escalade,
Incorporated and Subsidiaries
Notes to Consolidated Financial Statements

Other Income (Expense)The components of Other Income (Expense) are as follows:

|                                                                                    |  |      |       |      |   |       |  |   |       | 
|----------------------------------------------------------------------------------- |  | ---- | ----- | ---- | - | ----- |  | - | ----- | 
|In Thousands                                                                        |  | 2008 |       | 2007 |   | 2006  | 
|                                                                                   
|                                                                                   
|Income from
  non-marketable equity investments accounted for on the equity method  |  | $    | 1,054 |      | $ | 1,354 |  | $ | 1,290 | 
|Dividend and
  interest income from marketable equity securities available for sale |  |      | 264   |      |   | 390   |  |   | 193   | 
|Gain (loss) on
  sale of marketable equity securities available for sale            |  |      | (505  | )    |   |      |  |   | 315   | 
|Royalty income
  from patents                                                       |  |      | 127   |      |   | 639   |  |   | 456   | 
|Gain on sale of
  rights to license future potential intellectual property          |  |      |      |      |   | 1,500 |  |   |      | 
|Impairment write-down
  on marketable securities available for sale                 |  |      | (884  | )    |   |      |  |   |      | 
|Other                                                                               |  |      | (90   | )    |   | 108   |  |   | 9     | 
|                                                                                    |  |      |       |      |   |       |  |   |       | 
|                                                                                    |  | $    | (34   | )    | $ | 3,991 |  | $ | 2,263 | 
|                                                                                    |  |      |       |      |   |       |  |   |       | 

Income TaxesIncome tax in the
consolidated statement of income includes deferred income tax provisions or
benefits for all significant temporary differences in recognizing income and
expenses for financial reporting and income tax purposes. A valuation allowance
is established if it is more likely than not that a deferred tax asset will not
be realized.

Research and DevelopmentResearch and
development costs are charged to expense as incurred. Research and development
costs incurred during 2008, 2007 and 2006 were approximately $2,324 thousand,
$2,330 thousand, and $2,170 thousand, respectively.

ReclassificationsCertain
reclassifications have been made to prior year financial statements to conform
to the current year financial statement presentation. These reclassifications
had no effect on net earnings.

New Accounting PronouncementsIn
September 2006, the FASB issued Statement of Financial Accounting
Standards No. 157, Fair Value Measurements (Statement No. 157)
which defines fair value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements. Statement No. 157
applies to other accounting pronouncements that require or permit fair value
measurements and, accordingly, does not require any new fair value
measurements. Statement No. 157 is effective for fiscal years beginning
after November 15, 2007 for financial assets and liabilities, as well as
for any other assets and liabilities that are carried at fair value on a
recurring basis, and should be applied prospectively. The adoption of the
provisions of Statement No. 157 related to financial assets and liabilities
and other assets and liabilities that are carried at fair value on a recurring
basis did not materially impact the Companys consolidated financial position
and results of operations. The FASB provided for a one-year deferral of the
provisions of Statement No. 157 for non-financial assets and liabilities
that are recognized or disclosed at fair value in the consolidated financial
statements on a non-recurring basis. There was no impact on the Companys
financial statements as a result of adopting the provisions of Statement No.
157 for non-financial assets and liabilities that are recognized or disclosed
on a non-recurring basis.

In December 2007, the
FASB issued Statement of Financial Accounting Standards No. 141 (revised
2007), Business Combinations (Statement No. 141(R)). Statement
No. 141(R) changes the requirements for an acquirers recognition and
measurement of the assets acquired and the liabilities assumed in a business
combination. Statement No. 141(R) is effective for annual periods
beginning after December 15, 2008 and should be applied prospectively for
all business combinations entered into after the date of adoption.

45

---



Escalade,
Incorporated and Subsidiaries
Notes to Consolidated Financial Statements

In December 2007, the
FASB issued Statement of Financial Accounting Standards No. 160,
Noncontrolling Interests in Consolidated Financial Statements  an amendment
of ARB No. 51 (Statement No. 160). Statement No. 160 requires
(i) that noncontrolling (minority) interests be reported as a
component of shareholders equity, (ii) that net income attributable to
the parent and to the noncontrolling interest be separately identified in the
consolidated statement of operations, (iii) that changes in a parents
ownership interest while the parent retains its controlling interest be
accounted for as equity transactions, (iv) that any retained
noncontrolling equity investment upon the deconsolidation of a subsidiary be
initially measured at fair value, and (v) that sufficient disclosures are
provided that clearly identify and distinguish between the interests of the parent
and the interests of the noncontrolling owners. Statement No. 160 is
effective for annual periods beginning after December 15, 2008 and should
be applied prospectively. However, the presentation and disclosure requirements
of the statement shall be applied retrospectively for all periods presented.
The adoption of the provisions of Statement No. 160 is not anticipated to
materially impact the Companys consolidated financial position and results of
operations.

In March 2008, the FASB
issued SFAS 161, Disclosures About Derivative Instruments and Hedging
Activities  an amendment of FASB Statement No. 133 (SFAS 161). SFAS 161
requires enhanced disclosures about the use of derivative instruments, the
accounting for derivatives, and how derivatives impact financial statements to
enable investors to better understand their effects on a Companys financial
position, financial performance and cash flows. These requirements include the
disclosure of the fair values of derivative instruments and their gains and
losses in a tabular format. SFAS 161 is effective for the Company on December
28, 2008. As SFAS 161 only requires enhanced disclosures, this standard will
only impact notes to the consolidated financial statements.

In April 2008, the FASB
issued FSP FAS 142-3, Determination of the Useful Life of Intangible Assets
(FSP FAS 142-3). FAS 142-3 amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life
of a recognized intangible asset under SFAS 142, in order to improve the
consistency between the useful life of a recognized intangible asset under SFAS
142 and the period of expected cash flows used to measure the fair value of the
asset under SFAS 141(R) and other GAAP. FSP FAS 142-3 is effective
prospectively for the Company for intangible assets acquired or renewed after
December 28, 2008. The effect of adopting FSP FAS 142-3 will depend on the
nature of intangible assets acquired after the effective date.

In June 2008, the FASB
issued FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities (FSP EITF 03-6-1). EITF
03-6-1 states that unvested share-based payment awards that contain
nonforfeitable rights to dividends or dividend equivalents (whether paid or
unpaid) are participating securities and shall be included in the computation
of earnings per share pursuant to the two-class method. FSP EITF 03-6-1 is
effective for the Company on December 28, 2008. The adoption of FSP EITF 03-6-1
is not anticipated to have impact on the consolidated financial statements.

Note 2 
Certain Significant Estimates

The preparation of consolidated
financial statements in conformity with GAAP requires management to make
estimates and assumptions. These estimates and assumptions affect the reported
amounts of assets and liabilities; the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements; and the
reported amounts of revenues and expenses during the reporting period. These
estimates and judgments are evaluated on an ongoing basis and are based on
experience; current and expected future conditions; third party evaluations;
and various other assumptions believed reasonable under the circumstances. The
results of these estimates form the basis for making judgments about the
carrying values of assets and liabilities as well as identifying and assessing
the accounting treatment with respect to commitments and liabilities. Actual
results may differ from the estimates and assumptions used in the financial
statements and related notes.

46

---



Escalade,
Incorporated and Subsidiaries
Notes to Consolidated Financial Statements

Listed below are certain
significant estimates and assumptions related to the preparation of the
consolidated financial statements:

Product WarrantyThe Company provides limited
warranties on certain of its products, for varying periods. Generally, the
warranty periods range from 90 days to one year. However, some products carry
extended warranties of seven-year, ten-year, and lifetime warranties. The
Company records an accrued liability and reduction in sales for estimated
future warranty claims based upon historical experience and managements
estimate of the level of future claims. Changes in the estimated amounts
recognized in prior years are recorded as an adjustment to the accrued
liability and sales in the current year. A reconciliation of the liability is
as follows:

|                    |  |      |       |      |   |       |   |   |       |  
|------------------- |  | ---- | ----- | ---- | - | ----- | - | - | ----- | -
|In Thousands        |  | 2008 |       | 2007 |   | 2006  |  
|                   
|                    |  |      |       |      |   |       |   |   |       |  
|Beginning
  balance |  | $    | 1,208 |      | $ | 1,141 |   | $ | 1,043 |  
|Additions           |  |      | 113   |      |   | 621   |   |   | 560   |  
|Deductions          |  |      | (425  | )    |   | (554  | ) |   | (462  | )
|                    |  |      |       |      |   |       |   |   |       |  
|Ending balance      |  | $    | 896   |      | $ | 1,208 |   | $ | 1,141 |  
|                    |  |      |       |      |   |       |   |   |       |  

Inventory Valuation ReservesThe Company evaluates
inventory for obsolescence and excess quantities based on demand forecasts
based on specified time frames; usually one year. The demand forecast is based
on historical usage, sales forecasts and current as well as anticipated market
conditions. All amounts in excess of the demand forecast are deemed to be
excess or obsolete and a reserve is established based on the anticipated net
realizable value. A reconciliation of the reserve is as follows:

|                    |  |      |        |      |   |       |   |   |        |  
|------------------- |  | ---- | ------ | ---- | - | ----- | - | - | ------ | -
|In Thousands        |  | 2008 |        | 2007 |   | 2006  |  
|                   
|                    |  |      |        |      |   |       |   |   |        |  
|Beginning
  balance |  | $    | 3,573  |      | $ | 2,668 |   | $ | 3,867  |  
|Additions           |  |      | 1,786  |      |   | 1,418 |   |   | 669    |  
|Deductions          |  |      | (1,416 | )    |   | (513  | ) |   | (1,868 | )
|                    |  |      |        |      |   |       |   |   |        |  
|Ending balance      |  | $    | 3,943  |      | $ | 3,573 |   | $ | 2,668  |  
|                    |  |      |        |      |   |       |   |   |        |  

Allowance for Doubtful AccountsThe Company provides
an allowance for doubtful accounts based upon a review of outstanding
receivables, historical collection information and existing economic
conditions. Accounts receivable are ordinarily due between 30 and 60 days after
the issuance of the invoice. Accounts are considered delinquent when more than
90 days past due. Delinquent receivables are reserved or written off based on
individual credit evaluation and specific circumstances of the customer. A
reconciliation of the allowance is as follows:

|                    |  |      |       |      |   |       |   |   |       |  
|------------------- |  | ---- | ----- | ---- | - | ----- | - | - | ----- | -
|In Thousands        |  | 2008 |       | 2007 |   | 2006  |  
|                   
|                    |  |      |       |      |   |       |   |   |       |  
|Beginning
  balance |  | $    | 1,087 |      | $ | 1,559 |   | $ | 1,544 |  
|Additions           |  |      | 525   |      |   | 509   |   |   | 116   |  
|Deductions          |  |      | (498  | )    |   | (981  | ) |   | (101  | )
|                    |  |      |       |      |   |       |   |   |       |  
|Ending balance      |  | $    | 1,114 |      | $ | 1,087 |   | $ | 1,559 |  
|                    |  |      |       |      |   |       |   |   |       |  

Advertising SubsidiesThe Company enters agreements with certain retailers to
pay for direct advertising programs and/or provide in-store display units.
These agreements are not based on retailer purchase volumes and do not obligate
the retailer to continue carrying the Companys products. The Company
determines the value of the advertising services based on its own research and
history of providing such services. The Company expenses these costs in the
period in which they are incurred as a selling expense. A reconciliation of the liability is as follows:

47

---



Escalade,
Incorporated and Subsidiaries
Notes to Consolidated Financial Statements

|                    |  |      |        |      |   |        |   |   |        |  
|------------------- |  | ---- | ------ | ---- | - | ------ | - | - | ------ | -
|In Thousands        |  | 2008 |        | 2007 |   | 2006   |  
|                   
|                    |  |      |        |      |   |        |   |   |        |  
|Beginning
  balance |  | $    | 1,508  |      | $ | 1,246  |   | $ | 991    |  
|Additions           |  |      | 498    |      |   | 1,458  |   |   | 1,828  |  
|Deductions          |  |      | (1,502 | )    |   | (1,196 | ) |   | (1,573 | )
|                    |  |      |        |      |   |        |   |   |        |  
|Ending balance      |  | $    | 504    |      | $ | 1,508  |   | $ | 1,246  |  
|                    |  |      |        |      |   |        |   |   |        |  

CO-OP AdvertisingThe Company offers co-operative advertising allowances to
certain retailers to encourage product promotions. These agreements are
typically based on a percentage of retailer purchases up to a maximum allowance
and the Company is never directly involved with the media provider. The Company
accrues the estimated cost of these programs based on the sales volume of the
retailer and historical trends. As costs are accrued they are recorded as a
reduction in sales. A reconciliation of the
liability is as follows:

|                    |  |      |        |      |   |        |   |   |        |  
|------------------- |  | ---- | ------ | ---- | - | ------ | - | - | ------ | -
|In Thousands        |  | 2008 |        | 2007 |   | 2006   |  
|                   
|                    |  |      |        |      |   |        |   |   |        |  
|Beginning
  balance |  | $    | 3,323  |      | $ | 3,622  |   | $ | 2,794  |  
|Additions           |  |      | 2,999  |      |   | 4,070  |   |   | 4,484  |  
|Deductions          |  |      | (3,674 | )    |   | (4,369 | ) |   | (3,656 | )
|                    |  |      |        |      |   |        |   |   |        |  
|Ending balance      |  | $    | 2,648  |      | $ | 3,323  |   | $ | 3,622  |  
|                    |  |      |        |      |   |        |   |   |        |  

Volume RebatesThe Company has various rebate programs with its
retailers that are based on purchase volume. Typically these programs are based
on achieving specified sales volumes and the rebate is calculated as a
percentage of purchases. Based on the terms of the agreement, purchase levels
and historical trends the Company accrues the cost of these programs and
records the same as a reduction in sales. A
reconciliation of the liability is as follows:

|                    |  |      |        |      |   |        |   |   |        |  
|------------------- |  | ---- | ------ | ---- | - | ------ | - | - | ------ | -
|In Thousands        |  | 2008 |        | 2007 |   | 2006   |  
|                   
|                    |  |      |        |      |   |        |   |   |        |  
|Beginning
  balance |  | $    | 862    |      | $ | 1,612  |   | $ | 1,503  |  
|Additions           |  |      | 1,673  |      |   | 1,913  |   |   | 2,044  |  
|Deductions          |  |      | (1,596 | )    |   | (2,663 | ) |   | (1,935 | )
|                    |  |      |        |      |   |        |   |   |        |  
|Ending balance      |  | $    | 939    |      | $ | 862    |   | $ | 1,612  |  
|                    |  |      |        |      |   |        |   |   |        |  

Catalog AllowancesA number of large office supply dealers operate through
catalogs distributed to businesses throughout the country. Product content is
decided by the dealer each time a new catalog is issued; typically once a year.
Catalog allowances are required by the dealer as an inducement to include the
Companys products. The allowance is based on a fixed cost per page and/or a
percentage of purchases by the dealer. The fixed portion of the allowance is
often paid when the catalog is distributed and is recognized in the period
incurred and the variable portion is accrued based on dealer purchases and
historical trends. Catalog allowances are recorded as a reduction in sales. A reconciliation of the liability is as
follows:

|                    |  |      |        |      |   |        |   |   |        |  
|------------------- |  | ---- | ------ | ---- | - | ------ | - | - | ------ | -
|In Thousands        |  | 2008 |        | 2007 |   | 2006   |  
|                   
|                    |  |      |        |      |   |        |   |   |        |  
|Beginning
  balance |  | $    | 449    |      | $ | 697    |   | $ | 1,040  |  
|Additions           |  |      | 1,274  |      |   | 1,427  |   |   | 1,444  |  
|Deductions          |  |      | (1,191 | )    |   | (1,675 | ) |   | (1,787 | )
|                    |  |      |        |      |   |        |   |   |        |  
|Ending balance      |  | $    | 532    |      | $ | 449    |   | $ | 697    |  
|                    |  |      |        |      |   |        |   |   |        |  

48

---



Escalade,
Incorporated and Subsidiaries
Notes to Consolidated Financial Statements

Note 3 
Accrued Liabilities

Accrued liabilities consist of the following:

|                                         |  |      |        |      |   |        | 
|---------------------------------------- |  | ---- | ------ | ---- | - | ------ | 
|In Thousands                             |  | 2008 |        | 2007 |  
|                                        
|                                         |  |      |        |      |   |        | 
|Employee compensation                    |  | $    | 4,587  |      | $ | 8,589  | 
|Customer related allowances and accruals |  |      | 6,807  |      |   | 9,425  | 
|Other accrued items                      |  |      | 5,304  |      |   | 5,202  | 
|                                         |  |      |        |      |   |        | 
|                                         |  | $    | 16,698 |      | $ | 23,216 | 
|                                         |  |      |        |      |   |        | 

Note 4 
Operating Leases

The Company leases warehouse and
office space under non-cancelable operating leases that expire at various dates
through 2012. Terms of the leases, including renewals, taxes, utilities, and
maintenance, vary by lease. Total rental expense included in the results of
operations relating to all leases was $1,735 thousand, $1,817 thousand, and
$2,181 thousand in 2008, 2007, and 2006, respectively.

At December 27, 2008, minimum
rental payments under non-cancelable leases with terms of more than one year
were as follows:

|             |  |        |       | 
|------------ |  | ------ | ----- | 
|In Thousands |  | Amount |      
|            
|             |  |        |       | 
|2009         |  | $      | 1,204 | 
|2010         |  |        | 939   | 
|2011         |  |        | 551   | 
|2012         |  |        | 38    | 
|             |  |        |       | 
|             |  | $      | 2,732 | 
|             |  |        |       | 

Note 5 
Acquired Intangible Assets and Goodwill

The carrying basis and accumulated amortization of
recognized intangible assets are summarized in the following table:

|                         |  |                           |        |                            |   |                           |  |                            |        |  |   |        | 
|------------------------ |  | ------------------------- | ------ | -------------------------- | - | ------------------------- |  | -------------------------- | ------ |  | - | ------ | 
|                         |  | 2008                      |        | 2007                       |  
|                         |  |                          
|In Thousands             |  | Gross
  Carrying
  Amount |        | Accumulated
  Amortization |   | Gross
  Carrying
  Amount |  | Accumulated
  Amortization |       
|                        
|                         |  |                           |        |                            |   |                           |  |                            |        |  |   |        | 
|Patents                  |  | $                         | 22,369 |                            | $ | 9,230                     |  | $                          | 22,369 |  | $ | 7,264  | 
|Consulting
  agreements  |  |                           | 976    |                            |   | 976                       |  |                            | 976    |  |   | 976    | 
|Non-compete
  agreements |  |                           | 2,197  |                            |   | 1,938                     |  |                            | 2,197  |  |   | 1,858  | 
|Customer list            |  |                           | 1,931  |                            |   | 1,231                     |  |                            | 1,589  |  |   | 1,161  | 
|Trademarks               |  |                           | 5,177  |                            |   | 122                       |  |                            | 5,262  |  |   | 122    | 
|                         |  |                           |        |                            |   |                           |  |                            |        |  |   |        | 
|                         |  | $                         | 32,650 |                            | $ | 13,497                    |  | $                          | 32,393 |  | $ | 11,381 | 
|                         |  |                           |        |                            |   |                           |  |                            |        |  |   |        | 

49

---



Escalade,
Incorporated and Subsidiaries
Notes to Consolidated Financial Statements

Amortization expense was $2,163 thousand, $2,869
thousand and $2,471 thousand for 2008, 2007 and 2006, respectively.

Estimated future amortization expense for each
reporting segment is summarized in the following table:

|                |  |      |       |      |   |       |  |      |       |      |   |            |  |   |       |  |   |       | 
|--------------- |  | ---- | ----- | ---- | - | ----- |  | ---- | ----- | ---- | - | ---------- |  | - | ----- |  | - | ----- | 
|In Thousands    |  | 2009 |       | 2010 |   | 2011  |  | 2012 |       | 2013 |   | Thereafter | 
|               
|                |  |      |       |      |   |       |  |      |       |      |   |            |  |   |       |  |   |       | 
|Sporting Goods  |  | $    | 2,422 |      | $ | 1,771 |  | $    | 1,728 |      | $ | 1,713      |  | $ | 1,688 |  | $ | 4,196 | 
|Office Products |  |      | 324   |      |   | 79    |  |      | 79    |      |   | 79         |  |   | 19    |  |   |      | 
|                |  |      |       |      |   |       |  |      |       |      |   |            |  |   |       |  |   |       | 
|                |  | $    | 2,746 |      | $ | 1,850 |  | $    | 1,807 |      | $ | 1,792      |  | $ | 1,707 |  | $ | 4,196 | 
|                |  |      |       |      |   |       |  |      |       |      |   |            |  |   |       |  |   |       | 

The changes in the carrying amount of goodwill were:

|                                          |  |                |        |                 |   |        |   |   |        |  
|----------------------------------------- |  | -------------- | ------ | --------------- | - | ------ | - | - | ------ | -
|In Thousands                              |  | Sporting Goods |        | Office Products |   | Total  |  
|                                         
|                                          |  |                |        |                 |   |        |   |   |        |  
|Balance at
  December 30, 2006            |  | $              | 12,017 |                 | $ | 13,010 |   | $ | 25,027 |  
|Purchase price
  adjustment               |  |                |       |                 |   | (134   | ) |   | (134   | )
|Foreign currency
  translation adjustment |  |                |       |                 |   | 910    |   |   | 910    |  
|                                          |  |                |        |                 |   |        |   |   |        |  
|Balance at
  December 29, 2007            |  |                | 12,017 |                 |   | 13,786 |   |   | 25,803 |  
|Acquisitions                              |  |                |       |                 |   | 374    |   |   | 374    |  
|Foreign currency
  translation adjustment |  |                |       |                 |   | (366   | ) |   | (366   | )
|                                          |  |                |        |                 |   |        |   |   |        |  
|Balance at
  December 27, 2008            |  | $              | 12,017 |                 | $ | 13,794 |   | $ | 25,811 |  
|                                          |  |                |        |                 |   |        |   |   |        |  

Note 6 
Borrowings

Short-Term DebtShort-term debt at
fiscal year-ends was as follows:

|                           |  |      |        |      |   |        | 
|-------------------------- |  | ---- | ------ | ---- | - | ------ | 
|In Thousands               |  | 2008 |        | 2007 |  
|                          
|                           |  |      |        |      |   |        | 
|Revolving line
  of credit |  | $    | 12,618 |      | $ | 13,033 | 
|                           |  |      |        |      |   |        | 

The Companys wholly owned
subsidiary, Indian-Martin, Inc., has a revolving line of credit under which it
can borrow funds from time to time to purchase eligible accounts receivable
from the Companys operating subsidiaries which accounts are and will be
pledged to secure those borrowings. At December 27, 2008, this line of credit
aggregated $30 million but was limited to $26 million by the underlying
accounts receivable balances pledged as security collateral. At the Companys
option, borrowings can be made under the banks prime interest rate minus 1.25%
or LIBOR plus 1.38%. During 2008 and 2007, weighted average daily borrowings
under this line were $18,160 thousand and $15,795 thousand with effective interest
rates of 3.9% and 6.9%, respectively.

On June 2, 2008, the Companys
wholly owned subsidiary, Indian-Martin, Inc. executed an amendment to its
revolving term agreement revising the schedule of available funds to $30
million as of June 1, 2008. All other terms and conditions of the agreement
were unchanged.

50

---



Escalade,
Incorporated and Subsidiaries
Notes to Consolidated Financial Statements

Long-Term DebtLong-term debt at
fiscal year-ends was as follows:

|                                                                                                                                                                                                                                                                                                                                                                                                           |  |      |         |      |   |        | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | ------ | 
|In Thousands                                                                                                                                                                                                                                                                                                                                                                                               |  | 2008 |         | 2007 |  
|                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                           |  |      |         |      |   |        | 
|Revolving term loan of $30,000, the amount
  available under this revolving term loan is reduced by $5,000 annually
  starting May 31, 2009, with the balance due May 31, 2012. The loan bears an
  interest rate of prime minus .375%, or 2.50%, at December 27, 2008,
  unsecured.                                                                                                                       |  | $    | 28,397  |      | $ | 13,504 | 
|                                                                                                                                                                                                                                                                                                                                                                                                           |  |      |         |      |   |        | 
|Revolving term loan of Euro 3,000 (approximately
  $4,216 US Dollars), the balance is due May 31, 2012 and bears an interest
  rate of EURIBOR plus 1.50%, or 4.90% at December 27, 2008, unsecured                                                                                                                                                                                                        |  |      | 2,810   |      |   | 2,931  | 
|                                                                                                                                                                                                                                                                                                                                                                                                           |  |      |         |      |   |        | 
|Mortgage payable (Wabash, Indiana Adjustable
  Rate Economic Development Revenue Refunding Bonds), annual installments are
  optional, interest varies with short-term rates and is adjustable weekly
  based on market conditions, maximum rate is 10.00%, rate at December 27, 2008
  is 2.3%, due September 2028, secured by plant facility, machinery and
  equipment, and a stand-by letter of credit |  |      | 2,700   |      |   | 2,700  | 
|                                                                                                                                                                                                                                                                                                                                                                                                           |  |      |         |      |   |        | 
|                                                                                                                                                                                                                                                                                                                                                                                                           |  |      |         |      |   |        | 
|                                                                                                                                                                                                                                                                                                                                                                                                           |  |      | 33,907  |      |   | 19,135 | 
|Portion classified as notes payable - bank                                                                                                                                                                                                                                                                                                                                                                 |  |      | (33,907 | )    |   |       | 
|                                                                                                                                                                                                                                                                                                                                                                                                           |  |      |         |      |   |        | 
|                                                                                                                                                                                                                                                                                                                                                                                                           |  | $    |        |      | $ | 19,135 | 
|                                                                                                                                                                                                                                                                                                                                                                                                           |  |      |         |      |   |        | 

On June 2, 2008, the Company executed
an amendment to the revolving term agreement effectively maintaining the amount
of available funds at $30 million by delaying the commencement of the annual $5
million step down until May 31, 2009. All other terms and conditions of the
agreement were substantially unchanged. The Companys revolving term loan and
revolving term loan of Euro are provided by JP Morgan Chase Bank, N.A. (Chase)
and Chases London Branch, respectively.

As discussed in Part I, Item 2
under Financial Condition and Liquidity and in Part II, Item 3, the Company is
out of compliance with two financial covenants in its bank credit facility as
of the end of the second, third and fourth quarters of fiscal 2008. As noted
below, the Company has received a commitment letter from Chase, however Chase
has not waived the financial covenant violations, and as a result, all amounts
due under the credit facility have been classified as short-term.

On March 24, 2009 the Company
signed a commitment letter with JP Morgan Chase Bank, N.A (Chase) for a
revolving credit facility in the maximum amount up to $50,000,000 and through
Chase London Branch, as senior secured revolving credit facility in the maximum
amount of up to 3,000,000 Euro upon certain terms and conditions. The credit
facility has a maturity date of May 17, 2010. A portion of the credit facility
not in excess of $3,500,000 will be available for the issuance of commercial or
standby letters of credit to be issued by Chase. While this agreement did not
waive the current debt financial covenant violations, it did agree that upon
execution of the credit agreement, Chase would waive the financial covenant
defaults. The Company anticipates finalizing the new credit agreement by April
15, 2009.

Interest Rate Swap
AgreementIn May 2003, the Company entered into an interest rate
swap agreement having a notional amount of $10 million and a maturity date of
May 19, 2008. This swap agreement was designated as a cash flow hedge, and
effectively converted a portion of the Companys variable rate debt to fixed
rate debt with a weighted average interest rate of 5.08%. During 2008, the
Company recorded an after tax loss of $35 thousand in Other Comprehensive
Income (Loss) relating to this interest rate swap agreement. There was no
impact on net income due to ineffectiveness. The interest rate swap agreement,
which matured May 19, 2008, was not renewed.

51

---



Escalade,
Incorporated and Subsidiaries
Notes to Consolidated Financial Statements

Note 7 
Earnings Per Share

The shares used in the computation of the Companys
basic and diluted earnings per common share are as follows:

|                                                                |  |      |        |      |  |        |  |  |        | 
|--------------------------------------------------------------- |  | ---- | ------ | ---- |  | ------ |  |  | ------ | 
|In Thousands                                                    |  | 2008 |        | 2007 |  | 2006   | 
|                                                               
|                                                                |  |      |        |      |  |        |  |  |        | 
|Weighted average
  common shares outstanding.                   |  |      | 12,637 |      |  | 12,901 |  |  | 13,012 | 
|Dilutive effect
  of stock options                              |  |      | 47     |      |  | 14     |  |  | 32     | 
|                                                                |  |      |        |      |  |        |  |  |        | 
|Weighted average
  common shares outstanding, assuming dilution |  |      | 12,684 |      |  | 12,915 |  |  | 13,044 | 
|                                                                |  |      |        |      |  |        |  |  |        | 
|                                                                |  |      |        |      |  |        |  |  |        | 
|Number of
  anti-dilutive stock options                         |  |      | 391    |      |  | 395    |  |  | 470    | 

Weighted average common shares outstanding, assuming
dilution, includes the incremental shares that would be issued upon the assumed
exercise of stock options outstanding.

Note 8 
Employee Benefit Plans

The Company has an employee
profit-sharing salary reduction plan, pursuant to the provisions of Section
401(k) of the Internal Revenue Code, for non-union employees. The Companys
contribution is a matching percentage of the employee contribution as
determined by the Board of Directors annually. The Companys expense for the
plan was $542 thousand, $527 thousand and $579 thousand for 2008, 2007 and
2006, respectively.

Note 9 
Deferred Compensation Plan

In October 1985, the Board of
Directors approved the adoption of a Contributory Deferred Compensation Plan
pursuant to which some recipients of incentive compensation could elect to
defer receipt thereof. For each dollar of deferred compensation, the Company
provided a 75% matching amount. All deferrals allowed under this plan have been
made and amounts deferred earn interest at the rate of 9%. Plan balances are
not intended to be recognized for tax purposes until receipt. Participants have
no vested rights in deferred amounts credited to their accounts and are general
creditors of the Company until such amounts are actually paid.

Note 10
 Stock Compensation Plans

In April 2007, Shareholders
approved the Escalade, Incorporated 2007 Incentive Plan (2007 Inventive
Plan), which is an incentive plan for key employees, directors and consultants
with various equity-based incentives as described in the plan document. The
2007 Incentive Plan is a replacement for the 1997 Incentive Stock Option Plan and
the 1997 Director Stock Compensation and Option Plan which expired at the end
of April 2007. All options issued and outstanding under the expired plans will
remain in effect until exercised, expired or forfeited.

The 2007 Incentive Plan is
administered by the Board of Directors or a committee thereof, which is
authorized to determine, among other things, the key employees, directors or
consultants who will receive awards under the plan, the amount and type of
award, exercise prices or performance criteria, if applicable, and vesting
schedules. Subject to various restrictions contained in the plan document, the
total number of shares of common stock which may be issued pursuant to awards
under the Plan may not exceed 1,086,422 shares.

52

---



Escalade,
Incorporated and Subsidiaries
Notes to Consolidated Financial Statements

Restricted Stock UnitsIn 2008 and 2007,
the Company granted restricted stock units to certain officers and directors of
the Company at fair market value on the date of grant. The restricted stock
units granted to employees of the Company vest over three to four years and are
dependent on certain market criteria. The restricted stock units granted to
directors vest immediately or within two years. All restricted stock units are
payable in shares of the Companys common stock upon vesting, subject to the
deferral election arrangement, and are subject to forfeiture if on the vesting
date the employee is not employed or the director no longer holds a position
with the Company.

During 2008 and 2007, the
Company issued 138,500 and 137,250, respectively restricted stock units to
employees and 34,206 and 12,442, respectively restricted stock units to
directors. The following table presents a summary of non-vested restricted
stock units granted to employees and directors as of December 27, 2008, and
changes during the year ended December 27, 2008:

|                                                           |  |                  |         |                                          |   |      | 
|---------------------------------------------------------- |  | ---------------- | ------- | ---------------------------------------- | - | ---- | 
|                                                           |  | Number of Shares |         | Weighted-Average Grant
  Date Fair Value |  
|                                                           |  |                  |         |                                          |  
|                                                           |  |                  |         |                                          |   |      | 
|Non-vested restricted stock units as of December 29, 2007  |  |                  | 144,692 |                                          | $ | 5.75 | 
|Granted                                                    |  |                  | 172,706 |                                          | $ | 5.78 | 
|Vested                                                     |  |                  | (39,148 | )                                        | $ | 5.77 | 
|Forfeited                                                  |  |                  | (37,125 | )                                        | $ | 5.78 | 
|                                                           |  |                  |         |                                          |   |      | 
|Non-vested restricted stock units as of December 27, 2008  |  |                  | 241,125 |                                          | $ | 5.76 | 
|                                                           |  |                  |         |                                          |   |      | 
|                                                           |  |                  |         |                                          |   |      | 
|Vested but unsettled                                       |  |                  | 31,648  |                                          |   |      | 
|                                                           |  |                  |         |                                          |   |     
|Outstanding restricted stock units as of December 27, 2008 |  |                  | 272,773 |                                          |   |      | 
|                                                           |  |                  |         |                                          |   |     

When vesting is dependent on
certain market criteria, the fair value of restricted stock units is determined
by the use of Monte Carlo techniques. The market price of the Companys stock
on the grant date is used to value restricted stock units where vesting is not
contingent on market criteria. In 2008 and 2007, the Company recognized $496
and $200 thousand, respectively in compensation expense related to restricted
stock units and as of December 27, 2008 and December 29, 2007, there was $814
and $632 thousand, respectively of unrecognized compensation expense related to
restricted stock units.

Stock OptionsBeginning January 1, 2006, the Company adopted the fair
value recognition provisions of Statement of Financial Accounting Standards
(SFAS) No. 123R, Share-Based Payment.Accordingly, after January 1, 2006, the
Company began expensing the fair value of stock options granted, modified,
repurchased or cancelled. Total compensation expense recorded in the statement
of operations for 2008, 2007 and 2006 relating to stock options was $414, $480
and $588 thousand, respectively. The recognized tax benefit related thereto was
$0, $31 and $55 thousand for 2008, 2007 and 2006, respectively.

The following table summarizes
option activity for each of the three years ended 2008:

|     |  |                           |         |                          |  |         |  |             |        |  |  |        | 
|---- |  | ------------------------- | ------- | ------------------------ |  | ------- |  | ----------- | ------ |  |  | ------ | 
|     |  | Incentive
  Stock Options |         | Director
  Stock Options | 
|     |  | Granted                   |         | Outstanding              |  | Granted |  | Outstanding |       
|    
|     |  |                           |         |                          |  |         |  |             |        |  |  |        | 
|2008 |  |                           |        |                          |  | 366,500 |  |             |       |  |  | 24,367 | 
|2007 |  |                           |        |                          |  | 417,850 |  |             | 6,524  |  |  | 28,493 | 
|2006 |  |                           | 197,500 |                          |  | 520,695 |  |             | 15,076 |  |  | 23,891 | 

53

---



Escalade, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements

The fair value of each option grant award is estimated on the grant
date using the Black-Scholes-Merton option valuation model using the following
assumptions:

|                                                              |      |         |        
|------------------------------------------------------------- | ---- | ------- | -------
|                                                              | 2008 | 2007    | 2006   
|                                                              |      |         |        
|                                                              |      |         |        
|Risk-free
  interest rates                                    |     | 4.35%   | 4.35%  
|Dividend
  yields                                             |     | 2.26%   | 1.81%  
|Volatility
  factors of expected market price of common stock |     | 42.6%   | 51.3%  
|Weighted
  average expected life of the options               |     | 3 years | 4 years

The following table summarizes stock option transactions for the three
years ended 2008:

|                                                                 |  |        |         |                |   |               |  |                |         |        |   |                |  |   |          |   |   |                | 
|---------------------------------------------------------------- |  | ------ | ------- | -------------- | - | ------------- |  | -------------- | ------- | ------ | - | -------------- |  | - | -------- | - | - | -------------- | 
|                                                                 |  | 2008   |         | 2007           |   | 2006          | 
|                                                                 |  |        |         |                |   |               | 
|                                                                 |  | Shares |         | Option
  Price |   | Shares        |  | Option
  Price |         | Shares |   | Option
  Price | 
|                                                                 |  |        |         |                |   |               |  |                |         |        |   |                | 
|                                                                 |  |        |         |                |   |               |  |                |         |        |   |                |  |   |          |   |   |                | 
|Outstanding at beginning of
  year                               |  |        | 446,343 |                | $ | 6.99 to 19.21 |  |                | 544,586 |        | $ | 6.99 to 19.21  |  |   | 730,569  |   | $ | 6.99 to 19.21  | 
|Issued during year                                               |  |        |        |                |   |              |  |                | 6,524   |        | $ | 9.35           |  |   | 212,576  |   | $ | 11.08 to 11.26 | 
|Canceled or expired                                              |  |        | (10,726 | )              |   |               |  |                | (86,422 | )      |   |                |  |   | (172,550 | ) |   |                | 
|Exercised during year                                            |  |        | (44,750 | )              | $ | 6.99 to  9.03 |  |                | (18,345 | )      | $ | 6.99 to  9.03  |  |   | (226,009 | ) | $ | 3.60 to 6.99   | 
|                                                                 |  |        |         |                |   |               |  |                |         |        |   |                |  |   |          |   |   |                | 
|Outstanding at end of year                                       |  |        | 390,867 |                | $ | 6.99 to 19.21 |  |                | 446,343 |        | $ | 6.99 to 19.21  |  |   | 544,586  |   | $ | 6.99 to 19.21  | 
|                                                                 |  |        |         |                |   |               |  |                |         |        |   |                |  |   |          |   |   |                | 
|Exercisable at end of year                                       |  |        | 314,117 |                |   |               |  |                | 307,694 |        |   |                |  |   | 222,885  |   |   |                | 
|                                                                 |  |        |         |                |   |               |  |                |         |        |   |                |  |   |          |   |   |                | 
|Weighted-average fair value of
  options granted during the year |  | $      |        |                |   |               |  | $              | 2.70    |        |   |                |  | $ | 4.32     |   |   |                | 
|                                                                 |  |        |         |                |   |               |  |                |         |        |   |                |  |   |          |   |   |                | 

The following
table summarizes information about stock options outstanding at December 27,
2008:

|                           |  |                     |         |                                                 |  |                                   |  |                    |       |                                   |  |         |  |   |       | 
|-------------------------- |  | ------------------- | ------- | ----------------------------------------------- |  | --------------------------------- |  | ------------------ | ----- | --------------------------------- |  | ------- |  | - | ----- | 
|                           |  | Options Outstanding |         | Options Exercisable                             | 
|                           |  |                     |         |                                                 | 
|Range of
  Exercise Prices |  | Number of
  Shares  |         | Weighted-Average
  Remaining
  Contractual Life |  | Weighted-Average
  Exercise Price |  | Number of
  Shares |       | Weighted-Average
  Exercise Price | 
|                           |  |                     |         |                                                 |  |                                   |  |                    |       |                                   | 
|                           |  |                     |         |                                                 |  |                                   |  |                    |       |                                   |  |         |  |   |       | 
|$6.99 - $11.26             |  |                     | 147,100 |                                                 |  | 2.2 years                         |  | $                  | 11.02 |                                   |  | 96,850  |  | $ | 10.99 | 
|$13.40  $19.21            |  |                     | 243,767 |                                                 |  | 0.8 years                         |  | $                  | 15.67 |                                   |  | 217,267 |  | $ | 15.95 | 
|                           |  |                     |         |                                                 |  |                                   |  |                    |       |                                   |  |         |  |   |       | 
|                           |  |                     | 390,867 |                                                 |  |                                   |  |                    |       |                                   |  | 314,117 |  |   |       | 
|                           |  |                     |         |                                                 |  |                                   |  |                    |       |                                   |  |         |  |   |       | 

54

---



Escalade, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements

Note 11  Other Comprehensive Income (Loss)

The components
of other comprehensive income (loss) and related tax effects were as follows:

|                                                                                                                                                       |  |      |        |      |   |       |   |   |       |  
|------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ------ | ---- | - | ----- | - | - | ----- | -
|In Thousands                                                                                                                                           |  | 2008 |        | 2007 |   | 2006  |  
|                                                                                                                                                       |  |      |        |      |   |       |  
|                                                                                                                                                       |  |      |        |      |   |       |   |   |       |  
|Change in net unrealized value of
  available-for-sale investments net of tax of $0, $(85), and $(185), in 2008,
  2007 and 2006, respectively         |  | $    |       |      | $ | 128   |   | $ | 278   |  
|Realization of previously unrealized gains
  on available-for-sale investments net of tax of $210, $0, and $126 in 2008,
  2007 and 2006, respectively |  |      | (320   | )    |   |      |   |   | (189  | )
|Change in foreign currency translation
  adjustment                                                                                                    |  |      | (2,344 | )    |   | 2,333 |   |   | 2,405 |  
|Change in unrealized gain (loss) on
  interest rate swap agreement net of tax of $23, $78, and $(25), in 2008, 2007
  and 2006, respectively           |  |      | (35    | )    |   | (120  | ) |   | 38    |  
|                                                                                                                                                       |  |      |        |      |   |       |   |   |       |  
|                                                                                                                                                       |  | $    | (2,699 | )    | $ | 2,341 |   | $ | 2,532 |  
|                                                                                                                                                       |  |      |        |      |   |       |   |   |       |  

The components
of accumulated other comprehensive income, net of tax, were as follows:

|                                                     |  |      |       |      |   |       |  |   |       | 
|---------------------------------------------------- |  | ---- | ----- | ---- | - | ----- |  | - | ----- | 
|In Thousands                                         |  | 2008 |       | 2007 |   | 2006  | 
|                                                     |  |      |       |      |   |       | 
|                                                     |  |      |       |      |   |       |  |   |       | 
|Accumulated gain on available for sale
  investments |  | $    |      |      | $ | 320   |  | $ | 192   | 
|Foreign currency translation adjustment              |  |      | 3,124 |      |   | 5,468 |  |   | 3,135 | 
|Unrealized gain on interest rate swap
  agreement    |  |      |      |      |   | 35    |  |   | 155   | 
|                                                     |  |      |       |      |   |       |  |   |       | 
|                                                     |  | $    | 3,124 |      | $ | 5,823 |  | $ | 3,482 | 
|                                                     |  |      |       |      |   |       |  |   |       | 

55

---



Escalade, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements

Note 12  Provision for Taxes

Income before
taxes and the provision for taxes consisted of the following:

|                               |  |      |         |      |   |        |  |   |        | 
|------------------------------ |  | ---- | ------- | ---- | - | ------ |  | - | ------ | 
|In Thousands                   |  | 2008 |         | 2007 |   | 2006   | 
|                               |  |      |         |      |   |        | 
|                               |  |      |         |      |   |        |  |   |        | 
|Income (loss) before taxes:    |  |      |         |      |   |        |  |   |        | 
|United States of America (USA) |  | $    | (10,106 | )    | $ | 10,482 |  | $ | 8,874  | 
|Non USA                        |  |      | (74     | )    |   | 3,740  |  |   | 2,587  | 
|                               |  |      |         |      |   |        |  |   |        | 
|                               |  | $    | (10,180 | )    | $ | 14,222 |  | $ | 11,461 | 
|                               |  |      |         |      |   |        |  |   |        | 
|Provision for taxes:           |  |      |         |      |   |        |  |   |        | 
|Current                        |  |      |         |      |   |        |  |   |        | 
|Federal                        |  | $    | (2,575  | )    | $ | 3,745  |  | $ | 2,000  | 
|State                          |  |      | 804     |      |   | 428    |  |   | 482    | 
|International                  |  |      | 575     |      |   | 510    |  |   | 48     | 
|                               |  |      |         |      |   |        |  |   |        | 
|                               |  |      | (1,196  | )    |   | 4,683  |  |   | 2,530  | 
|                               |  |      |         |      |   |        |  |   |        | 
|Deferred                       |  |      |         |      |   |        |  |   |        | 
|Federal                        |  |      | (774    | )    |   | 112    |  |   | 186    | 
|State                          |  |      | (714    | )    |   | 30     |  |   | 108    | 
|International                  |  |      |        |      |   | 142    |  |   | 142    | 
|                               |  |      |         |      |   |        |  |   |        | 
|                               |  |      | (1,488  | )    |   | 284    |  |   | 436    | 
|                               |  |      |         |      |   |        |  |   |        | 
|                               |  | $    | (2,684  | )    | $ | 4,967  |  | $ | 2,966  | 
|                               |  |      |         |      |   |        |  |   |        | 

The Company
has not provided for USA deferred taxes or foreign withholding taxes on
undistributed earnings for non-USA subsidiaries where the Company intends to
reinvest these earnings indefinitely in operations outside the USA.

The provision
for income taxes was computed based on financial statement income. A
reconciliation of the provision for income taxes to the amount computed using
the statutory rate follows:

|                                                                                       |  |      |        |      |   |       |   |   |       |  
|-------------------------------------------------------------------------------------- |  | ---- | ------ | ---- | - | ----- | - | - | ----- | -
|In Thousands                                                                           |  | 2008 |        | 2007 |   | 2006  |  
|                                                                                       |  |      |        |      |   |       |  
|                                                                                       |  |      |        |      |   |       |   |   |       |  
|Income tax at statutory rate                                                           |  | $    | (3,461 | )    | $ | 4,835 |   | $ | 3,897 |  
|Increase (decrease) in income
  tax resulting from                                     |  |      |        |      |   |       |   |   |       |  
|Permanent differences (investment income,
  dividends, and captive insurance earnings) |  |      | 117    |      |   | (79   | ) |   | (79   | )
|State tax expense, net of federal effect                                               |  |      | (125   | )    |   | 302   |   |   | 390   |  
|Effect of foreign tax rates                                                            |  |      | 391    |      |   | (620  | ) |   | (689  | )
|Research credit                                                                        |  |      |       |      |   | (60   | ) |   | (120  | )
|Foreign income repatriation (Section 956
  inclusion)                                  |  |      |       |      |   | 1,035 |   |   |      |  
|Valuation allowance                                                                    |  |      | 187    |      |   |      |   |   |      |  
|FIN 48 reserve                                                                         |  |      | 582    |      |   |      |   |   |      |  
|Other                                                                                  |  |      | (375   | )    |   | (446  | ) |   | (433  | )
|                                                                                       |  |      |        |      |   |       |   |   |       |  
|Recorded provision for income taxes                                                    |  | $    | (2,684 | )    | $ | 4,967 |   | $ | 2,966 |  
|                                                                                       |  |      |        |      |   |       |   |   |       |  

56

---



Escalade, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements

In accordance with FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes  an
interpretation of FASB Statement No. 109 (FIN 48), which became effective
for the Company on December 31, 2006 the Company has recorded the following
changes in liabilities recorded for uncertain tax positions:

|                                         |  |      |     |      |   |     |  
|---------------------------------------- |  | ---- | --- | ---- | - | --- | -
|In Thousands                             |  | 2008 |     | 2007 |  
|                                         |  |      |     |      |  
|                                         |  |      |     |      |  
|Balance, beginning of year               |  | $    | 118 |      | $ | 164 |  
|Additions for current year tax positions |  |      | 863 |      |   | 6   |  
|Additions for prior year tax positions   |  |      |    |      |   |    |  
|Settlements                              |  |      |    |      |   |    |  
|Reductions Settlements                   |  |      |    |      |   |    |  
|Reductions for prior year tax positions  |  |      | (27 | )    |   | (52 | )
|                                         |  |      |     |      |   |     |  
|Balance, end of year                     |  | $    | 954 |      | $ | 118 |  
|                                         |  |      |     |      |   |     |  

Interest
costs and penalties related to income taxes are classified as interest expense
and selling, general and administrative costs, respectively in the Companys
financial statements. The Company and its subsidiaries file income tax returns
in the U.S. federal jurisdiction, and multiple state and foreign jurisdictions.
The Company is subject to future examinations by federal tax authorities for
all years after 2005 and state and other tax authorities for all years after
2004.

The
components of the net deferred tax assets are as follows:

|                                                         |  |      |        |      |   |        |  
|-------------------------------------------------------- |  | ---- | ------ | ---- | - | ------ | -
|In Thousands                                             |  | 2008 |        | 2007 |  
|                                                         |  |      |        |      |  
|                                                         |  |      |        |      |  
|Assets                                                   |  |      |        |      |   |        |  
|Employee benefits                                        |  | $    | 99     |      | $ | 243    |  
|Valuation reserves                                       |  |      | 2,261  |      |   | 1,261  |  
|Deferred compensation                                    |  |      | 464    |      |   | 424    |  
|Property and equipment                                   |  |      | 1,559  |      |   | 689    |  
|Stock based compensation                                 |  |      | 274    |      |   | 85     |  
|Net operating loss carry forward                         |  |      | 1,446  |      |   | 1,220  |  
|                                                         |  |      |        |      |   |        |  
|Total assets                                             |  |      | 6,103  |      |   | 3,922  |  
|                                                         |  |      |        |      |   |        |  
|                                                         |  |      |        |      |   |        |  
|Liabilities                                              |  |      |        |      |   |        |  
|Unrealized gain on sale of securities
available-for-sale |  |      |       |      |   | (208   | )
|Unrealized equity investment income                      |  |      | (902   | )    |   | (1,010 | )
|Unrealized gain on interest rate swap
agreement          |  |      |       |      |   | (19    | )
|Goodwill and intangible assets                           |  |      | (1,162 | )    |   | (761   | )
|                                                         |  |      |        |      |   |        |  
|Total liabilities                                        |  |      | (2,064 | )    |   | (1,998 | )
|                                                         |  |      |        |      |   |        |  
|                                                         |  |      |        |      |   |        |  
|Valuation Allowance                                      |  |      |        |      |   |        |  
|Beginning balance                                        |  |      | (1,114 | )    |   | (1,211 | )
|(Increase) decrease during period                        |  |      | (187   | )    |   | 97     |  
|                                                         |  |      |        |      |   |        |  
|Ending balance                                           |  |      | (1,301 | )    |   | (1,114 | )
|                                                         |  |      |        |      |   |        |  
|                                                         |  | $    | 2,738  |      | $ | 810    |  
|                                                         |  |      |        |      |   |        |  

Deferred tax assets are
included in the consolidated balance sheets as follows:

|                                                  |  |      |       |      |   |       |  
|------------------------------------------------- |  | ---- | ----- | ---- | - | ----- | -
|In Thousands                                      |  | 2008 |       | 2007 |  
|                                                  |  |      |       |      |  
|                                                  |  |      |       |      |  
|Deferred income tax asset - current               |  | $    | 2,015 |      | $ | 1,399 |  
|Deferred income tax asset (liability) 
long-term |  |      | 723   |      |   | (589  | )
|                                                  |  |      |       |      |   |       |  
|                                                  |  | $    | 2,738 |      | $ | 810   |  
|                                                  |  |      |       |      |   |       |  

57

---



Escalade, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements

The
Company has a US federal unused net operating loss carry-forward of
approximately $270 thousand and state unused net operating losses of
approximately $24,214 thousand of which an estimated $23,196 thousand has been
reserved as the Company does not expect to be able to utilize it. All operating
loss carry-forwards expire in various amounts through 2021.

58

---



Escalade, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements

Note 13 Operating Segment
and Geographic Information

The following table presents
certain operating segment
information.

|                                                    |  |      |         |      |  |         |   |  |         |  
|--------------------------------------------------- |  | ---- | ------- | ---- |  | ------- | - |  | ------- | -
|In Thousands                                        |  | 2008 |         | 2007 |  | 2006    |  
|                                                    |  |      |         |      |  |         |  
|                                                    |  |      |         |      |  |         |   |  |         |  
|Sporting Goods                                      |  |      |         |      |  |         |   |  |         |  
|Net revenue                                         |  |      | 98,039  |      |  | 129,788 |   |  | 136,733 |  
|Operating income (loss)                             |  |      | (6,250  | )    |  | 7,745   |   |  | 7,835   |  
|Interest expense                                    |  |      | 1,568   |      |  | 1,355   |   |  | 2,775   |  
|Provision (benefit) for taxes                       |  |      | (3,054  | )    |  | 3,005   |   |  | 1,975   |  
|Net income (loss)                                   |  |      | (5,428  | )    |  | 5,341   |   |  | 3,562   |  
|Identifiable assets                                 |  |      | 78,593  |      |  | 87,634  |   |  | 88,209  |  
|Non-marketable equity
  investments (equity method) |  |      |        |      |  |        |   |  |        |  
|Depreciation &
  amortization                       |  |      | 3,784   |      |  | 4,264   |   |  | 3,985   |  
|Capital expenditures                                |  |      | 2,261   |      |  | 1,325   |   |  | 1,843   |  
|                                                    |  |      |         |      |  |         |   |  |         |  
|Office Products                                     |  |      |         |      |  |         |   |  |         |  
|Net revenue                                         |  |      | 50,647  |      |  | 55,788  |   |  | 54,732  |  
|Operating income                                    |  |      | 3,930   |      |  | 8,809   |   |  | 8,131   |  
|Interest expense                                    |  |      | (256    | )    |  | 185     |   |  | 613     |  
|Provision for taxes                                 |  |      | 2,037   |      |  | 2,810   |   |  | 2,423   |  
|Net income                                          |  |      | 1,835   |      |  | 5,617   |   |  | 5,095   |  
|Identifiable assets                                 |  |      | 44,306  |      |  | 47,623  |   |  | 46,778  |  
|Non-marketable equity
  investments (equity method) |  |      | 336     |      |  | 772     |   |  | 712     |  
|Depreciation & amortization                         |  |      | 1,755   |      |  | 1,780   |   |  | 1,664   |  
|Capital expenditures                                |  |      | 582     |      |  | 1,062   |   |  | 840     |  
|                                                    |  |      |         |      |  |         |   |  |         |  
|All Other                                           |  |      |         |      |  |         |   |  |         |  
|Net revenue                                         |  |      |        |      |  |        |   |  |        |  
|Operating income (loss)                             |  |      | (5,801  | )    |  | (3,486  | ) |  | (4,131  | )
|Interest expense                                    |  |      | 713     |      |  | 1,297   |   |  | (751    | )
|Provision (benefit) for taxes                       |  |      | (1,667  | )    |  | (848    | ) |  | (1,432  | )
|Net income (loss)                                   |  |      | (3,903  | )    |  | (1,703  | ) |  | (162    | )
|Identifiable assets                                 |  |      | 24,802  |      |  | 16,759  |   |  | 15,728  |  
|Non-marketable equity
  investments (equity method) |  |      | 6,584   |      |  | 7,205   |   |  | 5,456   |  
|Depreciation & amortization                         |  |      |        |      |  |        |   |  |        |  
|Capital expenditures                                |  |      | 6,641   |      |  |        |   |  |        |  
|                                                    |  |      |         |      |  |         |   |  |         |  
|Total                                               |  |      |         |      |  |         |   |  |         |  
|Net Revenue                                         |  |      | 148,686 |      |  | 185,576 |   |  | 191,465 |  
|Operating income (loss)                             |  |      | (8,121  | )    |  | 13,068  |   |  | 11,835  |  
|Interest expense                                    |  |      | 2,025   |      |  | 2,837   |   |  | 2,637   |  
|Provision (benefit) for taxes                       |  |      | (2,684  | )    |  | 4,967   |   |  | 2,966   |  
|Net income (loss)                                   |  |      | (7,496  | )    |  | 9,255   |   |  | 8,495   |  
|Identifiable assets                                 |  |      | 147,701 |      |  | 152,016 |   |  | 150,715 |  
|Non-marketable equity
  investments (equity method) |  |      | 6,920   |      |  | 7,977   |   |  | 6,168   |  
|Depreciation & amortization                         |  |      | 5,539   |      |  | 6,044   |   |  | 5,649   |  
|Capital expenditures                                |  |      | 9,484   |      |  | 2,387   |   |  | 2,683   |  

Each operating segment is individually managed and
has separate financial results that are reviewed by the Companys management.
Each segment contains closely
related products that are unique to the particular segment. There were no changes to the composition of segments in
2008. The accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies.

The sporting goods segment consists of home entertainment products such
as pool tables and accessories; table tennis tables and accessories; soccer and
hockey tables; archery equipment and accessories; basketball goals; and
fitness, arcade and darting products. Customers include retailers, dealers and
wholesalers located throughout the United States and Europe.

The office product segment consists of office machinery used in the
office and graphic arts environment. Products include data shredders; folding
machines; and paper trimmers and cutters. Customers include large office
product retailers, office machine dealers, and office supply catalogs.

59

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The all other segment
consists of general and administrative expenses not specifically related to the
operating business segments and includes investment income from equity
investments.

Interest expense is
allocated to operating segments based on working capital usage and the
provision for taxes is allocated based on a combined federal and state
statutory rate of 36% adjusted for actual taxes on foreign income. Permanent
tax adjustments and timing differences are included in the all other segment.

Identifiable assets are principally those assets used in each segment.
The assets in the all other segment are principally cash and cash equivalents;
deferred tax assets; marketable equity securities; and investments.

The Company has one customer in the sporting goods segment who accounted
for 6%, 18% and 19% of consolidated total revenues in 2008, 2007 and 2006,
respectively. No other customers accounted for 10% or more of consolidated
revenues. Within the sporting goods segment this customer accounted for 9%, 26%
and 30% of total revenues.

As of December 27, 2008, approximately 30 employees of the Companys
labor force were covered by a collective bargaining agreement that expires
April 30, 2009.

Raw materials
for Escalades various product lines consist of wood, particleboard, slate,
standard grades of steel, steel tubing, plastic, vinyl, steel cables,
fiberglass and packaging. Escalade relies upon suppliers in Europe and Brazil
for its requirement of billiard balls and slate utilized in the production of
home pool tables and upon various Asian manufacturers for certain of its table
tennis needs and other items. Escalade sources some of its game table product
line in China.

Revenues by
geographic region/country were as follows:

|              |  |      |         |      |   |         |  |   |         | 
|------------- |  | ---- | ------- | ---- | - | ------- |  | - | ------- | 
|In Thousands  |  | 2008 |         | 2007 |   | 2006    | 
|              |  |      |         |      |   |         | 
|              |  |      |         |      |   |         |  |   |         | 
|North America |  | $    | 122,530 |      | $ | 157,148 |  | $ | 162,207 | 
|Europe        |  |      | 19,566  |      |   | 22,540  |  |   | 18,220  | 
|Other         |  |      | 6,590   |      |   | 5,888   |  |   | 11,038  | 
|              |  |      |         |      |   |         |  |   |         | 
|              |  | $    | 148,686 |      | $ | 185,576 |  | $ | 191,465 | 
|              |  |      |         |      |   |         |  |   |         | 

Revenues are
attributed to country based on location of customer and are for continuing
operations.

Identified
assets by geographic region/country were as follows:

|                |  |      |         |      |   |         |  |   |         | 
|--------------- |  | ---- | ------- | ---- | - | ------- |  | - | ------- | 
|In Thousands    |  | 2008 |         | 2007 |   | 2006    | 
|                |  |      |         |      |   |         | 
|                |  |      |         |      |   |         |  |   |         | 
|North
  America |  | $    | 119,417 |      | $ | 121,791 |  | $ | 122,325 | 
|Europe          |  |      | 28,284  |      |   | 30,225  |  |   | 28,390  | 
|                |  |      |         |      |   |         |  |   |         | 
|                |  | $    | 147,701 |      | $ | 152,016 |  | $ | 150,715 | 
|                |  |      |         |      |   |         |  |   |         | 

60

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Escalade, Incorporated and SubsidiariesNotes to Consolidated Financial Statements

Note 14  Summary of Quarterly Results

|                                                  |  |   |          |   |   |         |   |   |           |   |   |             |  
|------------------------------------------------- |  | - | -------- | - | - | ------- | - | - | --------- | - | - | ----------- | -
|In
  thousands, except per share data (unaudited) |  |   | March 22 |   |   | July 12 |   |   | October 4 |   |   | December 27 |  
|                                                  |  |   |          |   |   |         |   |   |           |   |   |             |  
|                                                 
|2008                                              |  |   |          |   |   |         |   |   |           |   |   |             |  
|Net sales                                         |  | $ | 29,166   |   | $ | 45,796  |   | $ | 40,797    |   | $ | 32,927      |  
|Operating income (loss)                           |  |   | (1,056   | ) |   | (789    | ) |   | 82        |   |   | (6,358      | )
|Net (loss)                                        |  |   | (848     | ) |   | (704    | ) |   | (1,365    | ) |   | (4,579      | )
|Basic earnings per share                          |  | $ | (0.07    | ) | $ | (0.06   | ) | $ | (0.11     | ) | $ | (0.35       | )

|                                                |  |   |          |  |   |         |  |   |           |  |   |             | 
|----------------------------------------------- |  | - | -------- |  | - | ------- |  | - | --------- |  | - | ----------- | 
|In thousands, except per share data (unaudited) |  |   | March 24 |  |   | July 14 |  |   | October 6 |  |   | December 29 | 
|                                                |  |   |          |  |   |         |  |   |           |  |   |             | 
|                                                |  |   |          |  |   |         |  |   |           |  |   |             | 
|2007                                            |  |   |          |  |   |         |  |   |           |  |   |             | 
|Net sales                                       |  | $ | 33,467   |  | $ | 50,530  |  | $ | 60,687    |  | $ | 40,892      | 
|Operating
  income                              |  |   | 1,847    |  |   | 3,780   |  |   | 5,812     |  |   | 1,629       | 
|Net income                                      |  |   | 1,097    |  |   | 2,435   |  |   | 3,131     |  |   | 2,592       | 
|Basic
  earnings per share                      |  | $ | 0.08     |  | $ | 0.19    |  | $ | 0.24      |  | $ | 0.20        | 
|                                                |  |   |          |  |   |         |  |   |           |  |   |             | 

Note 15  Acquisitions

All of the
Companys acquisitions have been accounted for using the purchase method of
accounting.

2008

In March 2008,
the Company acquired the remaining 50% stock shares of Action Group, which is a
dealer of office supplies in South Africa. The total price of $125 thousand was
paid in cash using the Companys revolving credit lines and was composed of customer
lists and goodwill.

In June 2008,
the Company acquired 100% of the stock shares of Safe Tech Sweden AB, which is
a distributor of office supplies. The total price of $342 thousand was paid in
cash using the Companys revolving credit lines and was composed of customer
lists, goodwill and other assets.

2007

In February
2007, the Company purchased substantially all of the assets of Trophy Ridge,
LLC, which manufactures and sells premium archery accessories under the Trophy
Ridge brand name. The Trophy Ridge brand name has significant appeal in the
sports enthusiast market place and will be used to further expand distribution
of the Companys archery accessory products. The Trophy Ridge operation has
been relocated and consolidated into the Companys existing archery operations
in the Gainesville, Florida plant. The operating results of Trophy Ridge will
be included in the Sporting Goods segment results from the date of acquisition.
The purchase price of $3.8 million was paid in cash. The estimated fair market
value of the assets acquired as of the date of acquisition is as follows:

|                              |  |   |        | 
|----------------------------- |  | - | ------ | 
|(Amounts in thousands)        |  |   | Amount | 
|                              |  |   |        | 
|Current
  assets              |  | $ | 1,083  | 
|Property,
  plant & equipment |  |   | 170    | 
|Other assets                  |  |   | 125    | 
|Patents
  & Trademarks        |  |   | 2,419  | 
|Net assets acquired           |  | $ | 3,797  | 

61

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Escalade, Incorporated and SubsidiariesNotes to Consolidated Financial Statements

In December
2007, the Company purchased substantially all of the assets of Piston Point,
Inc. which distributed a unique broadhead arrow point. The piston point arrow
head will be sold through the Companys Sporting Goods business. The total
price of $512 thousand was paid in cash using the Companys revolving credit
lines and was primarily composed of patents related to the piston point arrow
head.

2006

In February
2006, the Company purchased substantially all of the assets of Family
Industries, Inc., which manufactures and sells premium quality residential
playground systems made from stained redwood under the WoodPlay brand. The
operating results from this acquisition have been included in the Sporting
Goods business segment results since the date of acquisition. The total price
paid, which was paid in cash using the Companys revolving credit lines,
exceeded the estimated fair market value of the net assets acquired resulting
in $4.8 million in Goodwill. The Goodwill recorded will be deductible for
income tax purposes. The estimated fair market value of the assets acquired and
liabilities assumed as of the date of acquisition are as follows:

|                              |  |   |        |  
|----------------------------- |  | - | ------ | -
|(All amounts in thousands)    |  |   | Amount |  
|                              |  |   |        |  
|Current
  assets              |  | $ | 2,865  |  
|Property,
  plant & equipment |  |   | 50     |  
|Other assets                  |  |   | 112    |  
|Goodwill                      |  |   | 4,767  |  
|Total assets
  acquired       |  |   | 7,794  |  
|                              |  |   |        |  
|Current
  liabilities         |  |   | (654   | )
|                              |  |   |        |  
|Net assets
  acquired         |  | $ | 7,140  |  
|                              |  |   |        |  

In April 2006,
the Company acquired all of the outstanding stock of Desmar Seguridad Y
Archivo, S.L. (Desmar), a distributor of office products located in
Barcelona, Spain. The Company acquired Desmar to solidify its presence in
Spain. The operating results from this acquisition have been included in the
Office Products business segment results since the acquisition date and the
Company intends to operate this acquisition as a wholly owned distributor from
its existing location. The total purchase price of EUR 1.9 million ($2.4
million) was paid in cash and financed through the Companys current Euro debt
facilities. The purchase price exceeded the estimated fair market value of the
assets acquired resulting in Goodwill of $2.2 million. The Goodwill recorded
will not be deductible for income tax purposes. The estimated fair market value
of the assets acquired and liabilities assumed as of the date of acquisition
are as follows:

|                              |  |   |        |  
|----------------------------- |  | - | ------ | -
|(All amounts in thousands)    |  |   | Amount |  
|                              |  |   |        |  
|Current
  assets              |  | $ | 1,383  |  
|Property,
  plant & equipment |  |   | 177    |  
|Other assets                  |  |   | 493    |  
|Goodwill                      |  |   | 2,238  |  
|                              |  |   |        |  
|Total assets
  acquired       |  |   | 4,291  |  
|                              |  |   |        |  
|Current
  liabilities         |  |   | (1,913 | )
|Net assets
  acquired         |  | $ | 2,378  |  
|                              |  |   |        |  

62

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Escalade, Incorporated and SubsidiariesNotes to Consolidated Financial Statements

In May 2006,
the Company acquired substantially all of the assets of Carolina Archery
Products which manufactures and distributes archery accessories. This
acquisition expands the Companys product offerings in archery accessories
and provides the Company with valuable technology rights that will be used to
enhance its competitive position in the market place. The operating results
from this acquisition have been included in the Sporting Goods business segment
results since the date of acquisition. The total purchase price of $18.9
million was paid in cash and financed through the Companys current debt
facilities. The estimated fair market value of the assets acquired and
liabilities assumed as of the date of acquisition are as follows:

|                              |  |        |        | 
|----------------------------- |  | ------ | ------ | 
|(All amounts in thousands)    |  | Amount |       
|                              |  |        |        | 
|Current
  assets              |  | $      | 3,358  | 
|Property,
  plant & equipment |  |        | 67     | 
|Patent &
  other intangibles  |  |        | 15,447 | 
|                              |  |        |        | 
|Net assets
  acquired         |  | $      | 18,872 | 
|                              |  |        |        | 

The following
table presents unaudited pro forma financial information as if the Carolina
Archery acquisition described above had occurred at the beginning of the
respective periods:

|                                                              |  |                   |         |  
|------------------------------------------------------------- |  | ----------------- | ------- | -
|(In Thousands Except Per Share Amounts)                       |  | Year ended        |        
|                                                              |  | December 30, 2006 |        
|                                                              |  |                   |         |  
|                                                              |  |                   |         |  
|Net revenue:                                                  |  |                   |         |  
|Net revenue excluding Carolina Archery
  Products acquisition |  | $                 | 183,426 |  
|Net revenue of Carolina Archery Products                      |  |                   | 10,491  |  
|Consolidation adjustment                                      |  |                   |        |  
|                                                              |  |                   |         |  
|Pro forma net revenues                                        |  | $                 | 193,917 |  
|                                                              |  |                   |         |  
|                                                              |  |                   |         |  
|Net income:                                                   |  |                   |         |  
|Net income excluding Carolina Archery
  Products acquisition  |  | $                 | 7,679   |  
|Net income of Carolina Archery Products                       |  |                   | 2,558   |  
|Consolidation adjustment                                      |  |                   | (940    | )
|                                                              |  |                   |         |  
|Pro forma net income                                          |  | $                 | 9,297   |  
|                                                              |  |                   |         |  
|                                                              |  |                   |         |  
|Basic
  earning per share:                                    |  |                   |         |  
|Excluding Carolina Archery Products
acquisition               |  | $                 | 0.59    |  
|Carolina Archery Products                                     |  |                   | 0.20    |  
|Consolidation adjustment                                      |  |                   | (0.07   | )
|                                                              |  |                   |         |  
|Pro forma basic earnings per share                            |  | $                 | 0.72    |  
|                                                              |  |                   |         |  

The
consolidation adjustment in the above tables reflects the amortization of
patents and other intangible assets over the expected economic lives.

|                                        | 
|--------------------------------------- | 
|Note 16  Commitments and Contingencies

The Company
has obtained a letter of credit for the benefit of a certain mortgage holder.
At December 29, 2007, the balance of the letter of credit was $2,734 thousand.
It is to be used in the event of a default in either interest or principal
payments.

63

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Escalade, Incorporated and SubsidiariesNotes to Consolidated Financial Statements

The Company is
involved in litigation arising in the normal course of its business. The
Company does not believe that the disposition or ultimate resolution of
existing claims or lawsuits will have a material adverse effect on the business
or financial condition of the Company.

The Company
has entered into various agreements whereby it is required to make royalty and
license payments. At December 27, 2008, the Company had future estimated
minimum non-cancelable royalty and license payments as follows:

|             |  |        |       | 
|------------ |  | ------ | ----- | 
|In Thousands |  | Amount |      
|             |  |        |      
|             |  |        |       | 
|2009         |  | $      | 580   | 
|2010         |  |        | 390   | 
|2011         |  |        | 390   | 
|2012         |  |        | 490   | 
|2013         |  |        | 350   | 
|             |  |        |       | 
|             |  | $      | 2,200 | 
|             |  |        |       | 

|                                               | 
|---------------------------------------------- | 
|Note 17  Fair Values of Financial Instruments

Effective
December 30, 2007, the Company adopted Statement of Financial Accounting
Standards No. 157, Fair Value Measurements
(FAS 157). FAS 157 defines fair value, establishes a framework for measuring
fair value and expands disclosures about fair value measurements. FAS 157 has
been applied prospectively as of the beginning of the year.

FAS 157
defines fair value as the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants
at the measurement date. FAS 157 also establishes a fair value hierarchy which
requires an entity to maximize the use of observable inputs and minimize the
use of unobservable inputs when measuring fair value. The standard describes
three levels of inputs that may be used to measure fair value:

| |         |                                                                                                                                                                                                                                                                                                                     
| | ------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Level 1 | Quoted
  prices in active markets for identical assets or liabilities                                                                                                                                                                                                                                               
| |         |                                                                                                                                                                                                                                                                                                                     
| | Level 2 | Observable
  inputs other than Level 1 prices, such as quoted prices for similar assets or
  liabilities; quoted prices in active markets that are not active; or other
  inputs that are observable or can be corroborated by observable market data
  for substantially the full term of the assets or liabilities
| |         |                                                                                                                                                                                                                                                                                                                     
| | Level 3 | Unobservable
  inputs that are supported by little or no market activity and that are
  significant to the fair value of the assets or liabilities                                                                                                                                                                  

Following is a
description of the valuation methodologies used for instruments measured at
fair value on a recurring basis and recognized in the accompanying balance
sheet, as well as the general classification of such instruments pursuant to
the valuation hierarchy.

Available-for-sale
Securities

Where quoted
market prices are available in an active market, securities are classified
within Level 1 of the valuation hierarchy. Level 1 securities include exchange
traded equities. If quoted market prices are not available, then fair values
are estimated by using pricing models, quoted prices of securities with similar
characteristics or discounted cash flows.

64

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Escalade, Incorporated and SubsidiariesNotes to Consolidated Financial Statements

The following
table presents the fair value measurements of assets and liabilities recognized
in the accompanying balance sheet measured at fair value on a recurring basis
and the level within the FAS 157 fair value hierarchy in which the fair value
measurements fall at December 27, 2008:

|                                |  |                               |       |                                                                |   |                                               |  |                                           |  |  |   |  | 
|------------------------------- |  | ----------------------------- | ----- | -------------------------------------------------------------- | - | --------------------------------------------- |  | ----------------------------------------- |  |  | - |  | 
|                                |  | Fair Value Measurements Using |      
|                                |  |                               |      
|                                |  | Fair Value                    |       | Quoted Prices in
Active Markets
for Identical
Assets
(Level 1) |   | Significant
Other
Observable
Inputs
(Level 2) |  | Significant
Unobservable
Inputs
(Level 3) | 
|                                |  |                               |       |                                                                |   |                                               |  |                                           | 
|                                |  |                               |       |                                                                |   |                                               |  |                                           |  |  |   |  | 
|Available-for-sale
  securities |  | $                             | 1,209 |                                                                | $ | 1,209                                         |  | $                                         |  |  | $ |  | 

The following
methods were used to estimate the fair value of all other financial instruments
not recognized in the accompanying balance sheets.

Cash and Cash
Equivalents

Fair values of
cash and cash equivalents approximate cost due to the short period of time to
maturity.

Notes Payable
and Long-term Debt

As of December
27, 2008, the Company does not have debt classified as long-term. The Company
believes the carrying value of short-term debt adequately reflects the fair value
of these instruments.

The following table presents estimated fair values of the
Companys financial instruments in accordance with FAS 107 not previously
disclosed at December 27, 2008 and December 29, 2007.

|                                                         |  |                 |        |            |   |                 |  |            |        |  |   |        | 
|-------------------------------------------------------- |  | --------------- | ------ | ---------- | - | --------------- |  | ---------- | ------ |  | - | ------ | 
|                                                         |  | 2008            |        | 2007       |  
|                                                         |  |                 |        |            |  
|                                                         |  | Carrying
Amount |        | Fair Value |   | Carrying
Amount |  | Fair Value |       
|                                                         |  |                 |        |            |   |                 |  |            |       
|                                                         |  |                 |        |            |   |                 |  |            |        |  |   |        | 
|Financial assets Cash and cash
equivalents               |  | $               | 3,617  |            | $ | 3,617           |  | $          | 2,808  |  | $ | 2,808  | 
|Available-for-sale securities                            |  | $               | 1,209  |            | $ | 1,209           |  | $          | 4,496  |  | $ | 4,496  | 
|                                                         |  |                 |        |            |   |                 |  |            |        |  |   |        | 
|Financial liabilities Note payable and
  Short-term debt |  | $               | 46,525 |            | $ | 46,525          |  | $          | 32,160 |  | $ | 32,160 | 

65

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Escalade, Incorporated and SubsidiariesNotes to Consolidated Financial Statements

|                                                                            | 
|--------------------------------------------------------------------------- | 
|Note
  18  Managements
  Plan With Respect to Current Economic Conditions

The Company operates in an industry which has
been adversely affected by the current economic conditions. The Company has
been out of compliance with its loan covenants since the end of the second
quarter, 2008 and is currently operating under a forbearance letter with its
primary lender; however an irrevocable commitment letter was received on March
20, 2009 from this lender to provide the Company with sufficient borrowing
needs through May 17, 2010. The Company has agreed to the terms of the commitment
letter and intends to finalize the debt facility on or before April 15, 2009.

As a result of the external economic conditions, the Company experienced
significant losses in the latter half of fiscal year 2008 and expects its sales
levels for fiscal year 2009 to be substantially lower than 2008. In response to
the challenging economic environment, management began implementing a series of
cost reduction measures during the third and fourth quarters of fiscal year
2008. Specifically, the Company is in the process of consolidating three of its
Sporting Goods production facilities into one location, reducing its personnel
costs by eliminating unnecessary positions and reducing certain salaries and
benefits and freezing all wages and the hiring of additional personnel. The
Company is also considering how to reduce or eliminate the costs of being a
public Company. The Company will continue to evaluate its product mix and
pricing structure and will make adjustments as necessary to reduce or eliminate
low margin products.

The Company believes that cash generated from its
projected 2009 operations, the potential sale of its Reynosa facility, income
tax refunds and the irrevocable commitment of borrowings from its primary
lender will provide it with sufficient cash flows for its operations.

66

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Signatures

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

ESCALADE,
INCORPORATED

|                                        |                 
|--------------------------------------- | ----------------
|By:                                     |                 
|                                        |                 
|/s/ Robert.
  Keller                    | March 27,
  2009
|Robert J.
  Keller                      |                 
|President
  and Chief Executive Officer |                 

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

|                              |  |                                      |  |                 
|----------------------------- |  | ------------------------------------ |  | ----------------
|/s/ Robert
  E. Griffin       |  | Chairman and
  Director              |  | March 27,
  2009
|Robert E.
  Griffin           |  |                                      |  |                 
|                              |  |                                      |  |                 
|/s/ Blaine
  E. Matthews, Jr. |  | Director                             |  | March 27,
  2009
|Blaine E.
  Matthews, Jr.     |  |                                      |  |                 
|                              |  |                                      |  |                 
|/s/ Edward
  E. Williams      |  | Director                             |  | March 27,
  2009
|Edward E.
  Williams          |  |                                      |  |                 
|                              |  |                                      |  |                 
|/s/ Richard
  D. White        |  | Director                             |  | March 27,
  2009
|Richard D.
  White            |  |                                      |  |                 
|                              |  |                                      |  |                 
|/s/ George
  Savitsky         |  | Director                             |  | March 27,
  2009
|George
  Savitsky             |  |                                      |  |                 
|                              |  |                                      |  |                 
|/s/ Richard
  Baalmann        |  | Director                             |  | March 27,
  2009
|Richard
  Baalmann            |  |                                      |  |                 
|                              |  |                                      |  |                 
|/s/ Robert
  J. Keller        |  | President
  and Chief Executive      |  | March 27,
  2009
|Robert J.
  Keller            |  | Officer
  (Principal Executive       |  |                 
|                              |  | Officer)                             |  |                 
|                              |  |                                      |  |                 
|/s/ Deborah
  J. Meinert      |  | Vice
  President and Chief Financial |  | March 27,
  2009
|Deborah J.
  Meinert          |  | Officer
  (Principal Financial and   |  |                 
|                              |  | Accounting
  Officer)                |  |                 

67

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