<PAGE>


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                   ------------------------------------------
                                   FORM 10-KSB

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

                  FOR THE FISCAL YEAR ENDING DECEMBER 31, 2001

                         Commission File Number: 0-28707

                               CARBITE GOLF, INC.

                 (Name of Small Business Issuer in its charter)

British Columbia, Canada                                              33-0770893
(State or other jurisdiction                                    (I.R.S. Employer
of incorporation or organization)                            Identification No.)

                             9985 HUENNEKENS STREET
                               SAN DIEGO, CA 92121
                    (Address of principal executive offices)
                    Issuer's telephone number (858) 625-0065

           SECURITIES REGISTERED UNDER SECTION 12(b) OF THE ACT: None
              SECURITIES REGISTERED UNDER SECTION 12(g) OF THE ACT:
                           Common Stock, No Par Value

Check whether Registrant (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 ____.
                                                             ---

Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B
is not contained in this form, and no disclosure will 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-KSB or any amendment to
this Form 10-KSB. [X]

Registrant's revenues for the year ending December 31, 2001 were $10,266,325.

The aggregate market value of the common stock held by nonaffiliates of
Registrant at April 11, 2002 was approximately $1,113,700 based on the closing
price for the common stock on the Canadian Venture Exchange of $.25 Canadian and
a conversion rate of .629 US dollars for one Canadian dollar. At April 11,
2002, 7,074,752 shares of Registrant's common stock were outstanding.

<PAGE>

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

         Carbite Golf, Inc., through its wholly-owned subsidiary Carbite, Inc.,
develops, manufactures, and sells golf equipment. Our primary products are
putters and wedges sold under the "Carbite" brand, both of which incorporate our
patent-protected technology. We also sell iron and wood sets under the name
"Daiwa." We market and sell our products principally through wholesale sales to
on-course and off-course golf retail shops and selected sporting goods
retailers. We also make some sales directly to consumers through television
infomercials, direct mail, telemarketing and the internet.

         The Company was incorporated in 1985 in British Columbia, Canada and
has been publicly traded on the Canadian Venture Exchange (previously Vancouver
Stock Exchange) since 1986, and on the NASDAQ OTC Bulletin Board since December,
2001. Carbite, Inc., our wholly-owned subsidiary, is a California corporation
which we acquired in 1997.

Proprietary Technology Applied to Golf Clubs

         Our patented metallurgy technology gives us the ability to produce
products which we believe have demonstrable benefits over competing products.

         Dual Density. Our technology enables us to join different types of
         ------------
metals with different densities into one club head with most of the weight in
the heel and toe. In our putters, for example, we combine highly dense tungsten
at the extreme heel and toe with lightweight aluminum in the center section. Our
patented process creates a molecular bonding of these materials into an
integrated structure so the heel and toe pieces become a functional part of the
club head. The net effect of this extreme heel-toe weighting is a bigger sweet
spot; the performance impact is that off-center hits will perform better.

         High Friction Inserts. Our insert technology permits the molecular
         ---------------------
bonding of tungsten carbide and diamond particles into a bronze face plate to
form a durable roughened striking surface. On wedges, this insert improves the
ability of all players to spin the ball and to control their shots. On putters,
this insert increases feel and creates a truer roll.

Strategy

         In June 2000, we set out to re-position the company away from direct
response and away from products outside our core competence of putters and
wedges. To do that, we discontinued telemarketing sales programs of non-core
products (irons, woods, and utility products) which had accounted for
substantial, but unprofitable sales in 2000. By the beginning of 2001, we were
positioned with two focused product lines - Carbite branded putters and wedges
and a full line of products under the Daiwa license - and one primary trade
channel - wholesale distribution to U.S. retail.

                                       2

<PAGE>

Products

         Our product line extends to all levels of play (from beginners to
professionals) and a broad range of retail price points. The following table
sets forth the contribution to net sales attributable to our product groups for
the periods indicated:

                  Year Ended December 31, 2001     Year Ended December 31, 2000
                  ----------------------------     ----------------------------


Putters            $ 6,608,951     64.4%              $11,230,090     79.3%
Wedges             $   525,566      5.1%              $ 1,260,766      8.9%
Daiwa              $ 1,651,332     16.1%                  623,000      4.3%
Other              $ 1,480,476     14.4%              $ 1,047,000      7.5%
Net Sales          $10,266,325      100%              $14,160,976      100%


         Carbite Putters and Wedges. Our primary business is Carbite branded
         --------------------------
premium putters and wedges sold through traditional retail distribution. These
products incorporate our patented technology, especially "Polar Balancing" and
the "Brass Balls" insert, marketed as "The Short Game Solution." In 2001 our
putter line included three series - The Cap series (18 models), the Z series (10
models), and the D series (11 models), offered at retail prices from $99-$129.
Our 2001 wedge line included four modes of our Polar Balanced wedge, first
introduced in 2000.

         Daiwa. We offer a high quality margin-based strategy for the full
         -----
product line business through Team Daiwa products under our license with Daiwa.
We do not seek to compete directly with the big players with huge marketing
resources, but to offer this product as quality with good margins at retail. The
Daiwa full product line business has grown from $0 in 1999 to $623,000 in 2000
to $1.6 million in 2001.

         Special Makeups. We have the ability to inexpensively source quality
         ---------------
equipment which we will offer to large customers and national buying groups.
This special makeup strategy will add incremental sales with reduced inventory
expense and risk.

         Technology Licensing. Our patented technology can be licensed to
         --------------------
generate further incremental income with no direct overhead. Previous licenses
for wedge inserts and other technology have generated nearly $1,000,000 in
licensing-related revenues, 1995 - 1999. Our most recent license to Wilson
Sporting Goods for a new weight-centered golf ball will generate royalty revenue
to us for each ball sold by Wilson which uses the technology. In 2002, that
technology is the centerpiece of Wilson's ball marketing strategy.

         Specialty Products. The Sergio Garcia Putterball, the Power Ti-Pod, and
         ------------------
the Carbite TT-1 ball, which incorporates the technology licensed to Wilson,
diversify our product offering and increase our sales opportunities.

                                       3

<PAGE>

Product Design and Development

         The development of new products and the enhancement of current product
lines is necessary for our growth and success. Our research and development
expenses for 2001 and 2000 were $616,021 and $636,944, respectively. We intend
to continue to invest in R&D and product development in the future.

Sales and Marketing

         Beginning in mid-2000, the Company began to reposition the customer mix
away from heavy concentration in consumer direct sales and other non-traditional
wholesale distribution toward a traditional domestic wholesale mix of off-course
specialty, green grass, and general sporting goods.

         Retail. We sell primarily to U.S. retailers, handled by a national
         ------
network of 34 independent sales representatives supported by our executive
office and an inside sales team in San Diego. Our products are carried by the
majority of Off-Course Golf Specialty accounts. Our Green Grass penetration is
below 10%, but in 2001 we implemented a plan to build that business with better
reps, more in-house support, and sales programs specifically tailored to meet
the needs of green grass. All but two General Sporting Goods multi-store chains
carry Carbite.

         International. We sell our products outside the United States through
         -------------
independent distributors. The primary foreign market is Japan but we also sell
to Korea, United Kingdom, Germany, Sweden, Puerto Rico, Malaysia, and the
Philippines. International sales account for approximately 7% of sales.

         Internet. We maintain web sites at carbitegolf.com, putterball.com, and
         --------
teamdaiwa.com, which serve as an on-line catalog and investor relations
vehicles. The Carbite site provides a description of the product line, our
technology story, background and history of the Company, and a shopping cart
feature through which consumers and dealers can buy product. The internet
remains an exciting vehicle to introduce and educate consumers to the products
and the technology. All our print and TV ads have a component to direct
consumers to our website.

         Carbite Marketing. In 2001, Carbite's overall marketing theme was
         -----------------
"Carbite-The Short Game Solution", showcasing our two primary technologies-Polar
Balancing and the "Brass Balls" insert. In 2001 we re-positioned our marketing
away from the direct sales model of the past toward a more traditional brand
education and information model. We employ a diverse and cost-effective
combination of public relations, trade shows, promotion, print advertising, TV
advertising, printed sales materials, and in-store point-of-purchase materials.
We rely primarily on sales and marketing vehicles with a predictable ability to
educate consumers, create demand, drive consumers to retail, and help retailers
close the sale. As such, we generally avoid traditional image advertising.


         Daiwa Marketing. The Daiwa marketing strategy is a cost-effective and
         ---------------
careful one designed to educate the consumer to the presence of the product line
and its attributes. We are leveraging current Daiwa brand awareness, not
spending marketing dollars to build a brand.

         Customer Service Support. We maintain an in-house customer service
         ------------------------
department for both wholesale and direct consumer trade and a 24-hour
7-day-a-week telemarketing company answers customer calls generated by any
infomercials.

         Infomercials. We have successfully used television infomercials to
         ------------
launch new products. The ViperBite in 1995, the Gyroseven utility wood in 1997,
and the Polar Balanced Putter in 1998 were all introduced through infomercials.
We believe that good infomercials can enhance consumer awareness of products,
make immediate sales, and expand the retail customer base, In March 2001, we
completed and began airing on a very limited basis a new infomercial, Winning
Golf with Fuzzy Zoeller, featuring Carbite putters and wedges as the "Short Game
Solution."

         Direct Response. By the beginning of 2001, the Company had rolled back
         ---------------
 nearly all of its Direct Response programs in order to concentrate on
 traditional wholesale distribution. We will maintain limited Direct Sales
 programs through our website, consumer shows, and inter-net programs that will
 also build brand awareness.

         Product Endorsements. In August, 1999, we entered into a five-year
         --------------------
 Endorsement Agreement with professional golfer Fuzzy Zoeller whereby Zoeller
 will play, endorse, and assist in the development of Carbite products
 worldwide. We also have short-term arrangements with a limited number of other
 players on other tours.

          Our total advertising and marketing related expenses were
approximately $1.6 million and $3.1 million for 2001 and 2000.

                                       4

<PAGE>

Manufacturing, Assembly and Raw Materials

         The principal components of our golf clubs (club heads, shafts and
grips) are manufactured by outside suppliers and shipped to us for assembly. The
suppliers are selected based on the quality of the finished products, materials,
dependability and pricing. All club heads are designed by us and we provide the
manufacturers with detailed specifications. They are inspected prior to shipment
by a quality control inspector employed by us in Taiwan.

         All assembly operations, including painting, stenciling and the
application of trade dress, are completed at our facility in San Diego,
California. All components are inspected upon arrival from the suppliers and are
assembled under the supervision of a full-time quality control inspector who
conducts numerous visual inspections at various points along the assembly
process.

Dependence on Major Customers

         During 2001 and 2000, no customer accounted for more than 10% of net
sales revenue.

Intellectual Property

         We are the owner, by way of assignment by Chester Shira, of eight U.S.
registered patents which give the Company the exclusive right to produce golf
clubs incorporating the proprietary powder metallurgy processes set forth in
them. Eight additional patent applications are pending, but have not been
issued. Under a Royalty Agreement dated March 1, 1993, the Company pays Mr.
Shira a royalty of $.50 per club using the initial four patents which were
assigned in March, 1993. The eight patents are: No. 4,768,787 (issued 9/6/88);
No. 4,992,236 (issued 2/12/91); No. 5,062,638 (issued 1/5/91); No. 5,094,810
(issued 3/10/92); No. 5,217,227 (issued 6/8/93); No. 5,669,825 (issued 9/23/97);
No. 5,755,626 (issued 5/26/98) and No. 6,027,010 (issued 2/23/00).

         We sell most of our products under the Carbite brand name.  We own the
following U.S. registered trademarks: "Carbite;" "Check Mate;" "Multi Density;"
"Dual Density;" and "Diatanium." The "Carbite" mark is also registered in Japan
and Germany.

         We also have the licensed right to use the names "Daiwa" and "Team
Daiwa" on golf products sold in the U.S. and the trademark and patent rights to
the "Putterball" and the "Power Ti-Pod."

                                        5

<PAGE>

Employees

         As of December 31, 2001, we had 65 full-time employees, including 28 in
product assembly and shipping, 19 in sales and marketing, and 18 in management,
finance and administration. The employees are not represented by a union, and we
consider our relations with employees to be satisfactory.

ITEM 2.  DESCRIPTION OF PROPERTY

         In February 2000, we relocated to a new facility located at 9985
Huennekens Street, San Diego, California. The facility includes approximately
26,000 square feet of office, warehouse, manufacturing and research and
development space. The base rent is $20,185 per month and our lease runs through
February, 2004.

ITEM 3.  LEGAL PROCEEDINGS

         None.

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

         No matters were submitted to the shareholders during the Fourth Quarter
of 2001.

                                       6

<PAGE>

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Common Stock Market

         Our common stock trades on the Canadian Venture Exchange, Canada.
Following a 1:4 share consolidation which took effect October 14, 2001, the
symbol was changed from CAB to CGT. As of December 14, 2001, we were also listed
on the OTC Bulletin Board under the symbol CGTFF. The following table sets forth
for the periods indicated the high and low closing prices in Canadian dollars
for the common stock provided by the Canadian Venture Exchange.

             Fiscal Year 2001                   High         Low
             ----------------                   ----         ---
             First Quarter                   $  .88       $  .48
             Second Quarter                     .72          .48
             Third Quarter                      .84          .20
             Fourth Quarter                     .50          .20

             Fiscal Year 2000                   High         Low
             ----------------                   ----         ---
             First Quarter                   $ 2.84       $ 1.88
             Second Quarter                    2.08         1.40
             Third Quarter                     1.60          .88
             Fourth Quarter                    1.48          .40


All stock prices listed above have been retroactively restated as if the 1:4
reverse split had always been in effect.  All per share and share amounts
throughout have also been adjusted, unless otherwise noted.

         We have authorized capital stock of 50,000,000 shares of common stock,
no par value.

         As of April 11, 2002, there were 7,074,751 shares of Common Stock
issued and outstanding, held of record by approximately 1,100 persons and an
additional 572,530 options and 141,039 warrants outstanding.

         We have not paid or declared any cash dividends on shares of our common
stock and do not anticipate paying any cash dividends in the foreseeable future.
We currently intend to retain any future earnings for use in the operation and
growth of our business.

                                       7

<PAGE>

Common Stock

         The holders of Common Stock are entitled to one vote for each share on
all matters submitted to a vote of the shareholders and are entitled to receive
such dividends, if any, as may be declared by the Board of Directors from time
to time out of legally available funds. Upon liquidation, dissolution or winding
up of the Company, the holders of Common Stock are entitled to share in all
assets of the Company that are legally available for distribution. The holders
of Common Stock have no preemptive, subscription, redemption or conversion
rights.

         At its Annual General Meeting on June 14, 2001, the shareholders of the
Company authorized the Board of Directors to approve a reverse stock split of
both the authorized and issued share capital of the Company using a ratio of
1:4. That consolidation became effective October 14, 2001. The revenue stock
split has been applied retroactively in the Company's Consolidated Financial
Statement and all share and per share information in this annual report is on a
post split basis.

Stock Transfer Agent

         The Company's transfer agent and registrar is Pacific Corporate Trust
Company, 625 Howe Street, Vancouver, British Columbia, Canada V6C 3B8.

Treasury Stock

         In September 2000, the Board of Directors authorized the Company to
repurchase up to 250,000 shares of its common stock subject to market conditions
and buying opportunities. During 2000, the Company purchased 14,500 shares of
our common stock on the open market at a total cost of $9,950.00 Canadian
dollars. These shares were cancelled as of October 11, 2001. No shares were
repurchased in 2001.

Recent Sales Of Unregistered Securities

         During the Fourth Quarter of 2001, the Company sold or issued the
unregistered securities listed below. All other such sales during 2001 have
previously been included in a Quarterly Form 10-QSB.

         On December 14, 2001, we issued 212,425 shares of common stock to Fuzzy
Zoeller Productions in connection with our Endorsement Agreement dated March 15,
2000 and in consideration for $150,000 US payable in 212,425 common shares at an
average deemed price of $1.09 Canadian per share. No underwriters were used in
this transaction and we relied upon the exceptions provided by Section 4(2)
and/or Regulation D of the Securities Act.

                                       8

<PAGE>

ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATION

         The following Management's Discussion and Analysis of Financial
Condition and Results of Operations addresses our financial performance for the
fiscal years ended December 31, 2001 and 2000, and should be read in conjunction
with our detailed consolidated financial statements and related notes appearing
elsewhere in this Form 10-KSB.

         Carbite Golf Inc.'s net sales are derived from sales of golf equipment
to on-course and off-course golf shops, selected sporting goods retailers,
international distributors and direct sales to consumers. Net sales are
accounted for on an accrual basis for all wholesale sales and on a cash basis
for direct consumer sales.

         Carbite Golf Inc. does not manufacture the components for its golf
clubs, relying instead on component suppliers. Costs of the clubs consist
primarily of component parts, including the head, shaft and grip. Cost of goods
sold also includes labor and facilities costs in connection with the inspection,
testing and assembly of component parts at our facility in San Diego,
California. Operating expenses are composed primarily of selling and marketing
expenses, general and administrative expenses, and research and development
expenses. Selling and marketing expenses include advertising, marketing,
salaries and commissions.

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

         The following table sets forth the operating results expressed as a
percentage of net sales for the periods indicated.

                        Statement of Operations (Year Ended December 31)



<TABLE>
<CAPTION>
                                           2001                       2000
<S>                                   <C>               <C>        <C>              <C>

Net Sales                             $10,266,325       100.0%     $14,160,976      100.0%

Cost of goods sold                      7,080,824        69.0%       8,434,114       59.6%

Gross profit                            3,185,501        71.0%       5,726,862       40.4%

Operating expenses                      6,179,540        60.2%       9,315,970       65.8%

Net operating loss                     (2,994,039)      (29.2%)     (3,589,108)     (25.3%)

Other Income (Expense)                 (1,640,586)      (16.0%)        202,758        1.4%

Loss before income taxes               (4,634,625)      (45.1%)     (3,386,350)     (23.9%)

Income taxes                              235,932         2.3%        (268,247)       1.9%

Loss                                   (4,870,557)      (47.4%)     (3,118,103)     (22.0%)
</TABLE>

                                       9

<PAGE>

RESULTS OF OPERATIONS
---------------------

         NET SALES. Net consolidated sales for the year ending December 31, 2001
were $10,266,325 versus $14,160,976 for 2000, a decline of $3,894,651 or 27.5%.
Overall sales results were hurt by production delays in the Cap Series putters
introduced in January 2001 but not fully shipping until July 2001 and continued
weakness in sales of the Polar Balanced Wedge. Sales were also impacted by our
termination in August 2000 of direct marketing programs. Although the direct
marketing programs added to top line sales during 2000, they were terminated
because they were not profitable.

         The terrorist attacks of September 11 also had a clear chilling effect
on our business in the Fourth Quarter, exacerbating the usual seasonality we
experience in November and December. Nearly $2 million of our $3.0 million
operating loss for the year was attributable to the Fourth Quarter.

         2001 sales were impacted in general by a radical re-positioning of our
product line and sales and distribution strategy. In June 2000, we set out to
re-position the company away from direct response marketing and products outside
our core competence of putters and wedges. To do that, we discontinued
telemarketing sales programs of non-core products (irons, woods, and utility
products) which had accounted for nearly $4 million in sales in 2000. These
programs had delivered top line sales, but proved unprofitable after high
commissions and returns. In the short term, their termination hurt sales results
in real dollars and comparative to prior years. But, in the long term their
termination removed unprofitable sales and was consistent with our revised
market strategy. In 2001, sales from direct programs were $433,000, mostly in
the First Quarter, versus $4.6 million in 2000.

         By the beginning of 2001, we were positioned with two focused product
lines - Carbite branded putters and wedges and a full line of products under the
Daiwa license - and one primary trade channel - wholesale distribution to U.S.
retail. On the Carbite side, our results were disappointing. We had some sales
inefficiencies in the product line as we brought in new products to upgrade
and replace putters that had been in the product line for over 3 years. The
inefficiencies related to delayed deliveries and production of the new Cap
Series. Wholesale putter sales were down 31% from 2000, wholesale wedge sales
down 43% from 2000. Sales of our Daiwa full line products were up substantially
to $1.6 million in 2001 versus $623,000 in 2000. In 2001, Daiwa wholesale sales
were 16% of total sales versus 3% in 2000. Sales of the Putterball training aid
were $741,181 in 2001 versus $262,148 in 2000.

         In 2001, we also saw a reduction in royalty income to $17,589 compared
to $43,189 in 2000.

         COST OF GOODS SOLD AND GROSS MARGIN. Gross margins declined in 2001 to
31.0% compared to 40.4% for 2000. This decline was the result of: lower margins
on closeout sales, particularly Polar Balance wedges; increased sales to
international accounts ($970,000) and mass merchants ($1.3 million) with reduced

                                       10

<PAGE>

margins; inventory obsolescence reserve at year end of $202,164; the continuing
liquidation of returned product from discontinued telemarketing programs;
continuing sales price pressures on our Z putters which were entering their
fourth year in the market; and lower margins on some of our Daiwa product as we
sought to build market share in our second year of distribution.

         OPERATING EXPENSES. Operating expenses for 2001 were $6,179,540 versus
$9,315,970 for 2000, a reduction of 33.7%. As a percentage of sales, Operating
Expenses were 60.2% in 2001 versus 65.8% in 2000. The primary components of
Operating Expenses, Sales and Marketing, G&A, and R&D are detailed below.

         SALES AND MARKETING EXPENSE. Sales and Marketing expenses for 2001 were
$3,335,002 compared to $6,047,402 for 2000, a reduction of 44.9%. As a
percentage of sales, they were 32.5% in 2001 versus 42.7% in 2000. These
reductions were a result of lower variable selling expenses on reduced sales
volume, reduced staff, and substantially reduced media costs as we de-emphasized
the role of the infomercial in our marketing.

         GENERAL AND ADMINISTRATIVE EXPENSE. G&A expenses in 2001 were
$1,772,078 compared to $2,063,979 in 2000, a reduction of 14.1%. As a percentage
of sales, G & A increased to 17.3% in 2001 versus 14.6% in 2000. G&A savings
were principally the result of reduced salary expenses, reduced Bad Debt
expense, and general overhead reductions.

         RESEARCH AND DEVELOPMENT. R&D expenses in 2001 were $616,021 compared
to $636,944 in 2000, a decrease of 3.3%. As a percentage of sales, R&D expenses
were 6.0% in 2001 versus 4.5% in 2000. These expenses related primarily to
salaries and product testing.

         INTEREST EXPENSE. Interest expense included in general and
administrative expenses on the financial statements in 2001 was $234,000 versus
$97,517 in 2000. This increase was primarily a result of increased borrowing in
the form of a $650,000 loan and a Credit Facility for product purchases provided
by Inabata which was drawn as high as $1,350,000 during 2001 and had a balance
due at year end of $1,010,905.

         GOODWILL WRITE-DOWN. At year end 2001, we wrote off all the remaining
goodwill from our acquisition of Carbite, Inc in 1997. That resulted in a
one-time non-cash charge of $1,642,814 under Canadian GAAP. However, under U.S.
GAAP, the goodwill write down was $1,911,114. Since all the goodwill has been
written off under both Canadian and U.S. GAAP, there is no longer a difference
in the written-down carrying value of goodwill.

         INCOME TAXES. For 2001, the Company has recorded an income tax
provision of $235,932. This provision mainly relates to the write off of current
and long term future tax assets as the likelihood of realization of these future
tax assets is unlikely.

                                       11

<PAGE>

         CAPITAL EXPENDITURES. Capital expenditures in 2001 were $303,176
compared to $293,130 in 2000. The capital expenditures relate to purchases of
office equipment, machinery and equipment, trade show booths, and product
tooling costs.

         DEFERRED COSTS Deferred costs incurred by the company in 2001 amounted
to $205,051 and were capitalized under Canadian GAAP. These relate to the
completion of the Fuzzy Zoeller infomercial that we aired only sporadically in
2001. $138,000 of amortization relating to these deferred cost was expensed in
2001. Under U.S. GAAP, all deferred costs are expensed as incurred and as a
result no amortization of deferred costs would be recorded.

Bad Debts and Credit Risk

         For the year ending December 31, 2001, we incurred bad debt expense of
$241,758, approximately 2.4% of net sales for the year, compared to $471,645 or
3.3% of sales in 2000. Bad debt expense includes a reserve at year end of
$300,000 (2000 - $175,000). We take all reasonable steps to perform ongoing
credit evaluations of our customers and to impose credit holds as appropriate,
but any substantial downturn in the retail golf market or the economy generally
could result in unanticipated delinquent accounts of our customers. This would
negatively impact operations by increasing bad debt expense and would reduce
liquidity by reducing cash collections from accounts receivable.

Liquidity and Capital Resources

         We have historically financed our business through cash flow from
operations and the private placement of equity and/or debt securities,
supplemented from time to time with short-term borrowings from commercial
lenders.

         We have the following sources of commercial credit:

          .       Bank Line of Credit. We have a Line of Credit with U.S.
                  National Bank in San Diego (previously Scripps Bank) which was
                  extended on September 24, 2001 for a four-month period through
                  January 15, 2002, with a limit of $500,000. On April 12, 2002,
                  U.S. National Bank extended that line of credit through July
                  15, 2002. The extension agreement requires the company to
                  reduce the amount outstanding to $450,000 from $490,000 at
                  year end. The line of credit continues to bear interest at
                  bank prime rate plus 2% and the company is required to make
                  monthly principal payments of $10,000 commencing May 15, 2002.

         .        Equipment loan with U.S. National Bank which had an
                  outstanding balance at December 31, 2001 of $12,687.

         .        $50,000 line of credit from Wells Fargo Bank which had an
                  outstanding balance on December 31, 2001 of $41,857.

                                       12

<PAGE>

         .     $650,000 loan from Inabata America Corporation. This is covered
               by a one-year renewable note dated March 23, 2001 with interest
               at 11% per annum. The loan is secured by the assets of the
               Company subject only to a first lien from the U.S. National Bank.
               We also agreed to pay Inabata a royalty on Putterball sales in
               Asia of $1 per unit (nominal sales in 2001) and offered Inabata a
               right of first refusal to manufacture components for the Company
               in Asia. At December 31, 2001, the $650,000 principal was
               outstanding. On March 22, 2002, Inabata agreed to extend this
               loan for 30 days on the condition that the Company make a minimum
               principal payment of $100,000 on the Inabata Credit Facility
               before the thirty days extension deadline.

         .     Credit Facility for Product Purchases (LC and DP). The Company
               purchases some components from overseas vendors through a secured
               Credit Facility provided by Inabata America Corporation. At
               December 31, 2001, we had $1,010,905 principal and interest
               outstanding on that Credit Facility, all of which was due and
               payable at December 31, 2001.

         .     Included in accounts payable is accrued interest of $94,595 as at
               December 31, 2001 on the above Inabata indebtedness.


     Net cash used by operating activities for the year ended December 31, 2001
was $1,444,831 compared to $935,018 for the year ended December 31, 2000. The
Company had cash on hand at December 31, 2001 of $126,023, compared to $381,110
as at December 31, 2000. Cash flows from operations was impacted by reduced
accounts receivable collections and reductions in accounts payable balances
offset in part by the reduced inventory position at year end. Non cash outlays
for depreciation and amortization increased by $18,662 and non-cash working
capital balances relating to operations decreased by $633,700 versus 2000. In
addition, there was a $1,642,804 non-cash write-down of goodwill at December 31,
2001.

     Cash used by investing activities was $579,265 in 2001 versus $536,601 in
2000. The cash used in 2001 was attributable to $205,051 for an infomercial,
$74,806 in patent and trademark costs, and $303,176 in capital assets, including
machinery, tooling, furniture, and computer equipment. Capital assets were
disposed in the year for total proceeds of $3,768.

     Net cash provided by financing activities was $1,769,809 in 2001 versus
$1,192,000 in 2000. The cash provided in 2001 was composed of $250,000 from an
equity private placement and increased borrowings of $1,537,941, which was
mainly from Inabata America Corporation. $18,132 was repaid on the equipment
loan with U.S. National Bank in the year.

                                       13

<PAGE>

         Accounts receivable, net of $300,000 allowance for doubtful accounts,
at year end 2001 was $1,195,209 versus $1,092,455 in 2000, an increase of 9%.
This increase in accounts receivable was due in part to the granting of extended
terms into early 2002 for many accounts impacted by slow or no sales
post-September 11. Customers were granted an extra 30 to 90 days extension on
the payment of their accounts determined on an account by account basis.

         Inventory at year end 2001 was $2,460,134 versus $3,169,908 in 2000.
This decrease was the result of our close out programs that removed old
inventory and improved inventory management and purchasing procedures. Inventory
reduction was also impacted by extending credit terms for customers at year end
to facilitate greater movement.

         To sustain and continue operations, the company will require $1-2
million in equity and/or debt financing. If we are unable to (i) extend the U.S.
National Bank line of credit of $450,000 beyond July 15, 2002, (ii) reach
agreement with Inabata on repayment of the $1,010,905 due on the credit facility
at year end; and (iii) secure extensions of the Inabata loan beyond April 23,
2002, we will also need to repay and/or refinance each of these arrangements
listed above. Senior management is scheduled to meet with Inabata management in
Tokyo at the end of April. We are also actively investigating additional
financing arrangements and have implemented internal programs designed to
increase profitability and hence improve internal cash flow.

Critical Accounting Pronouncements

          The Company's discussion and analysis of its financial condition and
 results of operations, including the discussion on liquidity and capital
 resources, are based on its consolidated financial statements that have been
 prepared in accordance with Canadian generally accepted accounting principles
 and include a reconciliation note to U.S. generally accepted accounting
 principles. The preparation of these financial statements requires that
 management make estimates and judgments that affect reported amounts of assets,
 liabilities, revenues and expenses, and related disclosure of contingent assets
 and liabilities. On an ongoing basis, management reevaluates its estimates and
 judgments, particularly those related to the valuation of inventory, valuation
 of goodwill, and nature of deferred costs. Management bases its estimates and
 judgments on historical experience, contractual arrangements and commitments
 and on various other assumptions that it believes are reasonable in the
 circumstances. Changes in these estimates and judgments will impact the amounts
 recognized in the consolidated financial statements, and the impact may be
 material.

          Management believes the following critical accounting policies require
 more significant estimates and judgments in the preparation of the consolidated
 financial statements.

          The consolidated financial statements have been prepared on the going
 concern basis, which assumes the realization of assets and liquidation of
 liabilities in the normal course of operations. If the Company were not to
 continue as a going concern it would likely not be able to realize on its
 assets at values comparable to the carrying value or the fair value estimates
 reflected in the balances set out in the presentation of the consolidated
 financial statements. As described elsewhere in this Form 10-KSB, at December 3
 1, 2001 the Company's operations have primarily been financed through debt or
 equity financing as the company has experienced continuing negative cash flows
 from operations. The current bank loan and line of credit facilities are either
 past due or in excess of their original limit. The company's ability to sustain
 and continue operations will be dependent on the continuing support of
 creditors and investors, in particular the renewal and extensions on the line
 of credit and loan facilities. If the Company is not able to generate
 sufficient positive cash flow to satisfy its liabilities as they come due, the
 assets and liabilities may have to be restated at liquidation values which may
 be materially less than their carrying values.

         Inventory of finished goods are carried at the lower of average cost
and net realizable value. In estimating net realizable value, management
evaluates the inventory turnover and sales trends of its finished goods on a
product line basis, The net realizable value of its finished goods can be
impacted by changes in general economic conditions, market preferences and the
introduction of new or enhanced technologies as well as changes in the
company's need to liquidate inventory. These changes could render the company's
products less marketable and as a result impact the net realizable value and
reserve for inventory obsolescence of finished goods.

         Accounts receivable are carried net of an allowance for amounts not
considered recoverable. Managements reviews accounts receivable on an account by
an account basis to determine any specific allowances required. The allowance
also includes an estimate of unidentified losses which are determined based on
general market conditions and is recorded as a general provision against
accounts receivable as a whole. Changes in economic factors could negatively
impact our customers and the recoverability of accounts receivable.

Recent Accounting Pronouncements

         On June 29, 2001, the FASB approved for issuance Statement of Financial
Accounting Standards (SFAS) No. 141 "Business Combinations" ("SFAS 141") and
SFAS No. 142, "Goodwill and other Intangible Assets" ("SFAS 142"). SFAS 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. As a result, the
pooling-of-interests method will be prohibited. SFAS 142 changes the accounting
for goodwill from an amortization method to an impairment-only approach. Thus,
amortization of goodwill, including goodwill recorded in past business
combinations, will cease upon adoption of this statement, which for Carbite Golf
Inc. will be January 1, 2002. Management believes the adoption of SFAS No. 141
and 142 will not have a material effect on the Company's financial position or
results of operations as all goodwill has been written off as at December 31,
2001.

         In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), which addresses
financial reporting and accounting for the impairment of disposal of long-lived
assets. The statement supercedes SFAS 121, and the accounting and reporting
provisions APB 30, for the disposal of a segment of a business. The provisions
of SFAS 144 are required to be adopted by Carbite Golf Inc. effective January 1,
2002.

                                       14

<PAGE>

         Management believes the adoption of SFAS No. 144 will not have a
         material effect on the company's financial position or results of
         operations.

Risk Factors That May Affect Future Results and Financial Condition

         The Company's operations and financial results are subject to numerous
risks, many of which are beyond the Company's control, including:

         Dependence on Polar Balanced Putters

         During 2001 and 2000, approximately 64% and 79% of our net sales were
derived from sales of the Polar Balanced Putter line. Such sales are expected to
account for a substantial portion of our net sales for some time. A decline in
demand for, or average selling prices of, the Polar Balanced Putter would have a
material adverse effect on our business.

         Our continued growth and success depend, therefore, on our ability to
successfully develop and introduce new products accepted in the marketplace.
Historically, a large portion of new golf club technologies and designs have
been rejected by consumers. No assurance can be given that new products we are
developing now or will develop in the future will meet with market acceptance.
In addition, our competitors are always working on new products. Accordingly,
our operating results could fluctuate as a result of the amount, timing and
market acceptance of new product introductions by us and our competitors.

         Our Clubs Must Comply With USGA Regulations

         The design of new golf clubs is greatly influenced by the rules and
interpretations of the U.S. Golf Association ("USGA"). Although the golf
equipment standards established by the USGA generally apply only to competitive
events sanctioned by that organization, we believe it is critical that new clubs
comply with USGA standards. No assurance can be given that any new products will
receive USGA approval or that existing USGA standards will not be altered in
ways that adversely affect the sales of our products.

                                       15

<PAGE>

         We Need to Develop and Protect Proprietary Technology

         Our ability to compete effectively in the golf club market will depend,
in part, on our ability to maintain the proprietary nature of our technologies
and products. We own, by way of assignment from Chester Shira, eight U.S.
patents which are incorporated in some of our products. These patents may,
however, have limited commercial value or may lack sufficient breadth to
adequately protect the aspects of our products to which the patents relate. The
Company's U.S. patent rights do not preclude competitors from developing or
marketing products similar to our products in international markets.

         There can be no assurance that competitors, many with greater resources
than us, will not apply for and obtain patents that will prevent, limit or
interfere with our ability to make and sell our products.

         We are Dependent on Continued Growth in The Golf Industry

         Our financial performance is dependent in large part upon the current
and anticipated market demand for golf equipment. During 1998 and early 1999,
the golf equipment industry experienced periods of oversupply. There can be no
assurance that such growth will return and that the slowdown will not continue.
A reduced rate of growth in the demand for golf equipment due, for example, to
competitive factors, technological change or otherwise, may materially adversely
affect the markets for the Company's products.

         We are a Small Player in a Highly Competitive Industry

         The market for golf clubs is highly competitive. Our competitors
include a number of established companies, most of which have greater financial
and other resources. We could, therefore, face substantial competition from
existing or new competitors that introduce and successfully promote golf clubs
that achieve market acceptance. There can be no assurance that our marketing
strategy will not be emulated by others, thereby diluting our message or forcing
us to adopt a new marketing strategy. Such competition could result in
significant price erosion or increased promotional expenditures, either of which
could have a material adverse effect on the business. There can be no assurance
that we will be able to compete successfully against current and future sources
of competition.

         We are in a Seasonal Business Dependent on Discretionary Consumer
         Spending

         Golf generally is regarded as a warm weather sport and sales of golf
equipment historically have been strongest during the second and third quarters,
weakest during the fourth quarter. Sales of golf clubs are dependent on
discretionary consumer spending and, as such, may be affected by general
economic conditions. A decrease in consumer spending generally or in golf
spending specifically could result in decreased spending on golf equipment,
which could have a material adverse effect on our business. Because

                                       16

<PAGE>

most operating expenses are relatively fixed in the short term, we may be unable
to adjust spending sufficiently in a timely manner to compensate for any
unexpected sales shortfall. If technological advances by competitors or other
competitive factors require us to invest significantly greater resources than
anticipated in research and development or sales and marketing efforts, our
business could be materially adversely affected. Accordingly, we believe that
period- to-period comparisons of results of operations should not be relied upon
as an indication of future performance. The results of any quarter are not
indicative of results to be expected for a full fiscal year.

         We Will Need Future Capital And Additional Financing

         We are in the process of pursuing additional financing through equity
placements and/or additional financing and re-financing of existing
indebtedness. There is no assurance that our efforts will be successful.
Adequate funds, whether through additional equity financing, debt financing or
other sources may not be available when needed or on acceptable terms, or may
result in further dilution to existing shareholders. If we cannot obtain
sufficient financing we may need to curtail or cease our operating activities
significantly. Our December 31, 2001 consolidated financial statements includes
a continuing operations note and our auditor's report includes additional
comments for U.S. readers. This additional note and auditors report addresses
disclosure requirements on our ability to continue as a going concern due to the
recurring operating losses, negative cash flows from operating activities, and
requirements for additional funding. The consolidated financial statements do
not reflect any adjustments that might result from the outcome of this
uncertainty.

         We Must be Able to Manage Growth

         To compete effectively and manage future growth, if any, we will be
required to continue to implement and improve our operational, financial and
management information systems, procedures and controls on a timely basis and to
expend, train, motivate and manage our workforce. There can be no assurance that
our personnel, systems, procedures and controls will be adequate to support its
existing or future operations. Any failure to implement and improve our
financial and management systems or to expand, train, motivate or manage
employees could have a material adverse effect on the business.

         We are Dependent on Key Personnel

         Our success depends upon the performance of our senior management team.
There is strong competition for qualified personnel in the golf club industry,
and the inability to continue to attract, retain and motivate other key
personnel could adversely affect our business.

                                       17

<PAGE>

         We Review Possible Acquisitions, But They Can be Risky

         We regularly review possible acquisition opportunities and may make
future acquisitions of complementary services, technologies, product designs or
businesses in the future. There can be no assurance that future acquisitions, if
any, will be completed or that, if completed, any such acquisition will be
effectively assimilated into our business. Acquisitions involve numerous risks,
including, among others, loss of key personnel of the acquired company, the
difficulty associated with assimilating the personnel and operations of the
acquired company, the potential disruption of our ongoing business, the
maintenance of uniform standards, controls, procedures and policies, and the
impairment of our reputation and relationships with employees and customers. In
addition, any future acquisitions could result in the issuance of additional
dilutive equity securities, the incurrence of debt or contingent liabilities,
and amortization expenses related to goodwill and other intangible assets, any
of which could have a material adverse effect on our business.

         Outstanding Options and Warrants May Dilute Ownership

         As of April 11, 2002, there were outstanding options to purchase an
aggregate of 572,530 shares of common stock and outstanding warrants to purchase
an aggregate of 141,039 shares of common stock. The exercise of such outstanding
options and warrants would dilute the percentage ownership of our stock, and any
sales in the public market of common stock underlying such stock options could
adversely affect prevailing market prices for the common stock. Moreover, the
terms upon which we would be able to obtain additional equity capital could be
adversely affected by the existence of such options or warrants.

         We Sell to Customers who May Present Unknown Credit Risks

         We primarily sell our products to golf equipment retailers and
distributors, and directly to customers via infomercials and direct response
programs. We perform ongoing credit evaluations of our customers' financial
condition and generally require no collateral from these customers. Accordingly,
there can be no assurance that our results of operations or cash flows will not
be adversely impacted by the failure of our customers to meet their obligations.

         We Must Keep Up With Technological Changes

         The manufacture and design of golf clubs has undergone significant
changes with respect to design and materials in recent years. The introduction
of new or enhanced technologies or designs by competitors could render our
products less marketable. Our ability to compete successfully will depend to a
large degree on our ability to innovate and respond to changes and advances in
its industry.

                                       18

<PAGE>

         We Face The Risk of Technical Problems or Product Defects

         There is no assurance, despite testing and quality assurance efforts,
that technical problems or product defects will not be found, resulting in loss
of or delay in market acceptance and sales, diversion of development resources,
injury to our reputation or increased service and support costs, any of which
could have a material adverse effect on the Company's business. Moreover, there
is no assurance that we will not experience difficulties that could delay or
prevent the development and introduction of products and services, that new or
enhanced products and services will meet with market acceptance, or that
advancements by competitors will not erode our position or render our products
and services obsolete.

         We Depend on a Limited Number of Component Suppliers

         We assemble all of our Carbite branded clubs at the San Diego facility.
We do not manufacture the components required to assemble the golf clubs. We are
dependent on a limited number of suppliers and do not have written supply
agreements with any of them. Three suppliers for heads, all based in the Far
East; three suppliers for shafts, two based in the Far East; and three suppliers
for grips, one based in the Far East. Therefore, our success will depend on
maintaining our relationships with existing suppliers and developing
relationships with new suppliers.

         We plan our orders to manufacturers based upon the forecasted demand
for our products. Actual demand may be more or less than the forecasted demand.
Since our overseas club head vendors generally require at least 45-60 days lead
times to produce heads after a purchase order is placed, and since shipments
from these vendors average 20-25 days, our ability to quickly expand our
manufacturing capacity for new products is limited. If we are unable to produce
sufficient quantities of new products in time to fulfill actual demand, it could
limit our sales and adversely affect our financial performance. If actual demand
is less than forecasted, we could have excess inventories and related
obsolescent charges that could adversely affect financial performance.

         We Rely on Independent Domestic Sales Representatives

         Sales of our products are dependent, in part, on a nationwide network
of independent sales representatives. While we believe that our relationships
with sales representatives and customers are satisfactory, there can be no
assurance that we will be able to maintain such relationships. Although we work
closely with our sales representatives, we cannot directly control such
representatives' sales and marketing activities. There can be no assurance that
these representatives will effectively manage the sale of our products or that
our selling efforts will prove effective.

                                       19

<PAGE>

         We Rely on Foreign Distributors for International Sales

         During 2001 and 2000, sales to international customers accounted for
approximately 7% and 22% of our net sales. We rely on foreign distributors to
market and sell our products outside the United States. Although we work closely
with our foreign distributors, we cannot directly control such distributors'
sales and marketing activities and, accordingly, cannot manage our product sales
in foreign markets. Our foreign distributors may also distribute, either on
behalf of themselves or other golf club equipment manufacturers, other product
lines, including product lines that may be competitive with ours. Additionally,
our international sales may be disrupted or adversely affected by events beyond
our control, including currency fluctuations and political or regulatory
changes.

                                       20

<PAGE>

         Forward-Looking Statements
         --------------------------

         This Form 10-KSB contains "Forward-looking statements" about our plans,
strategies, objectives, expectations, intentions, anticipated growth, and
possible acquisitions. Other statements that are not historical facts may also
be forward-looking statements. When used in this report, the words "expects,"
"anticipates," "intends," "plans," "believes," "seeks," "estimates," and similar
expressions are generally intended to identify forward-looking statements. These
statements are only predictions and actual results could differ materially.
Factors that might cause such a difference are discussed throughout this Form
10-KSB including the section "Risk Factors" on pages 16 to 21. Any
forward-looking statement speaks only as of the date we made the statements.

ITEM  7.   FINANCIAL STATEMENTS

                          INDEX TO FINANCIAL STATEMENTS
                                                                            Page
                                                                            ----
Auditors' Report of KPMG LLP, Chartered Accountants .............            23

Comments by Auditor for U.S. Readers on Canada-U.S. Reporting
         Difference .............................................            24

Consolidated Balance Sheets as of December 31, 2001 and 2000 ....            25

Consolidated Statement of Operations and Deficit for the years
         ended December 31, 2001 and 2000 .......................            26

Consolidated Statement on Cash Flows for the years ended
         December 31, 2001 and 2000 .............................            27

Notes to Consolidated Financial Statements ......................            28

                                       21

<PAGE>

                        Consolidated Financial Statements
                        (Expressed in U.S. Dollars)

                        CARBITE GOLF INC.

                        Years ended December 31, 2001 and 2000

                                       22

<PAGE>

[LOGO]

KPMG LLP
Chartered Accountants                                   Telephone (604) 854-2200
32575 Simon Avenue                                      Telefax (604) 853-2756
Abbotsford BC V2T 4W6                                   www.kpmg.ca
Canada

AUDITORS' REPORT

To the Shareholders of

Carbite Golf Inc.

We have audited the consolidated balance sheets of Carbite Golf Inc. as at
December 31, 2001 and 2000 and the consolidated statements of operations and
deficit and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing
standards and United States generally accepted auditing standards. Those
standards require that we plan and perform an audit to obtain reasonable
assurance 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.

In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2001
and 2000 and the results of its operations and its cash flows for the years then
ended in accordance with Canadian generally accepted accounting principles.


/s/ KPMG LLP

Chartered Accountants

Abbotsford, Canada

March 20, 2002, except for Note 17(c) which is as of April 12, 2002


[LOGO]    KPMG LLP, a Canadian owned limited liability partnership established
          under the laws of Ontario, is a memeber firm of KPMG International, a
          Swiss association

                                       23

<PAGE>

[LOGO]

KPMG LLP
Chartered Accountants
32575 Simon Avenue                                      Telephone (604) 854-2200
Abbotsford BC V2T 4W6                                   Telefax (604) 853-2756
Canada                                                  www.kpmg.ca

Comments by Auditor for U.S. Readers on Canada-U.S. Reporting Difference

In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that may cast substantial doubt
on the company's ability to continue as a going concern, such as those described
in Note 1 to the financial statements. Our report to the shareholders dated
March 20, 2002, except for Note 17(c) which is as of April 12, 2002 is expressed
in accordance with Canadian reporting standards which do not permit a reference
to such events and conditions in the auditor's report when these are adequately
disclosed in the financial statements.


/s/ KPMG LLP

Abbotsford, Canada

March 20, 2002, except for Note 17(c) which is as of April 12, 2002


[LOGO]    KPMG LLP, a Canadian owned limited liability partnership established
          under the laws of Ontario, is a memeber firm of KPMG International, a
          Swiss association

                                       24

<PAGE>

CARBITE GOLF INC.
Consolidated Balance Sheets
(Expressed in U.S. Dollars)

December 31, 2001 and 2000

<TABLE>
<CAPTION>
================================================================================================================
                                                                                     2001                 2000
----------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>                 <C>
Assets

Current assets:
     Cash and cash equivalents                                             $      126,823       $      381,110
     Accounts receivable, net of allowance of $300,000
       (2000 - $175,000)                                                        1,195,209            1,092,455
     Inventory (Note 3)                                                         2,460,134            3,169,908
     Income taxes recoverable                                                           -              168,933
     Prepaid expenses                                                             213,118              127,643
     Future tax assets (Note 10)                                                        -              188,000
----------------------------------------------------------------------------------------------------------------
                                                                                3,995,284            5,128,049
Future tax assets (Note 10)                                                             -               42,000
Capital assets (Note 4)                                                           803,872              728,264
Patents and trademarks, net of accumulated amortization of
   $137,098 (2000 - $107,975)                                                     154,129              108,446
Deferred costs, net of accumulated amortization of $1,038,135
   (2000 - $900,032)                                                              359,068              292,120
Goodwill, net of accumulated amortization and write-downs
   of $2,899,804 (2000 - $967,000) (Note 5)                                             -            1,932,804
----------------------------------------------------------------------------------------------------------------

                                                                           $    5,312,353       $    8,231,683
================================================================================================================

Liabilities and Shareholders' Equity

Current liabilities:
     Bank loan and line of credit facilities (Note 6)                      $    2,193,591       $      655,650
     Accounts payable and accrued liabilities                                   1,662,486            1,606,068
     Current portion of long-term debt                                             12,687               15,319
----------------------------------------------------------------------------------------------------------------
                                                                                3,868,764            2,277,037
Long-term debt (Note 7)                                                                 -               15,500
Endorsement agreement payable (Note 14(b))                                         62,500               87,500
Shareholders' equity:
     Share capital (Note 8)                                                    12,035,462           11,635,462
     Deficit                                                                  (10,654,373)          (5,783,816)
----------------------------------------------------------------------------------------------------------------
                                                                                1,381,089            5,851,646
----------------------------------------------------------------------------------------------------------------
                                                                           $    5,312,353       $    8,231,683
================================================================================================================
</TABLE>

Continuing operations (Note 1)
Commitments (Note 14)
Subsequent events (Note 17)

See accompanying notes to consolidated financial statements.

                                       25

<PAGE>

CARBITE GOLF INC.
Consolidated Statements of Operations and Deficit
(Expressed in U.S. Dollars)

Years ended December 31, 2001 and 2000

<TABLE>
<CAPTION>
================================================================================================================
                                                                                     2001                 2000
----------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                  <C>
Net sales                                                                 $    10,266,325     $     14,160,976
Cost of sales                                                                   7,080,824            8,434,114
----------------------------------------------------------------------------------------------------------------
Gross margin                                                                    3,185,501            5,726,862

Operating expenses:
     Selling                                                                    3,335,002            6,047,402
     Research and development                                                     616,021              636,944
     General and administrative                                                 1,772,076            2,063,979
     Amortization of deferred costs                                               138,103              167,137
     Amortization of goodwill, patents and trademarks                             319,123              311,642
     Settlement of contract dispute (Note 15)                                           -               90,000
     Foreign exchange gain                                                           (785)              (1,134)
     -----------------------------------------------------------------------------------------------------------
                                                                                6,179,540            9,315,970
----------------------------------------------------------------------------------------------------------------

Loss from operations                                                           (2,994,039)          (3,589,108)

Other income (expense):
     Write-down of goodwill (Note 5)                                           (1,642,804)                   -
     Commission revenue                                                                 -              176,427
     Gain on disposal of capital assets                                             1,625                    -
     Interest and other                                                               593               26,331
     -----------------------------------------------------------------------------------------------------------
                                                                               (1,640,586)             202,758
----------------------------------------------------------------------------------------------------------------

Loss before income taxes                                                       (4,634,625)          (3,386,350)

Income tax provision (Note 10):

     Current                                                                        5,932             (181,247)
     Future                                                                       230,000              (87,000)
     -----------------------------------------------------------------------------------------------------------
                                                                                  235,932             (268,247)
----------------------------------------------------------------------------------------------------------------

Loss                                                                           (4,870,557)          (3,118,103)

Deficit, beginning of year                                                     (5,783,816)          (2,665,713)
----------------------------------------------------------------------------------------------------------------

Deficit, end of year                                                      $   (10,654,373)    $     (5,783,816)
----------------------------------------------------------------------------------------------------------------


Loss per share, basic and diluted (Notes 12 and 8(c))                     $        (0.73)     $         (0.52)
================================================================================================================
</TABLE>

See accompanying notes to financial statements.

                                       26

<PAGE>

CARBITE GOLF INC.
Consolidated Statements of Cash Flows
(Expressed in U.S. Dollars)

Years ended December 31, 2001 and 2000

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
                                                                              2001                 2000
-------------------------------------------------------------------------------------------------------
<S>                                                                 <C>                  <C>
Cash provided by (used in):

Operations:
     Loss                                                           $   (4,870,557)      $   (3,118,103)
     Items not affecting cash:
         Depreciation                                                      225,425              185,210
         Future income tax                                                 230,000              (87,000)
         Amortization                                                      457,226              478,779
         Gain on disposal of capital assets                                 (1,625)                   -
         Finder's fee paid with common shares                                    -               25,000
         Selling expense paid or payable with common shares                125,000              200,500
         Write-down of goodwill                                          1,642,804                    -
     Change in non-cash operating working capital:
         Accounts receivable                                              (102,754)           1,276,408
         Inventory                                                         709,774             (487,123)
         Income taxes recoverable                                          168,933             (396,805)
         Prepaid expenses                                                  (85,475)             157,998
         Accounts payable and accrued liabilities                           56,418              830,118
-------------------------------------------------------------------------------------------------------
                                                                        (1,444,831)            (935,018)

Investing:
     Deferred costs incurred                                              (205,051)            (204,375)
     Patent and trademark costs incurred                                   (74,806)             (39,096)
     Purchase of capital assets                                           (303,176)            (293,130)
     Proceeds on disposal of capital assets                                  3,768                    -
-------------------------------------------------------------------------------------------------------
                                                                          (579,265)            (536,601)

Financing:
     Issuance of common shares, net of reacquisitions                      250,000              741,541
     Repayments on long-term debt                                          (18,132)             (13,206)
     Increase in bank loan (net)                                         1,537,941              463,725
-------------------------------------------------------------------------------------------------------
                                                                         1,769,809            1,192,000
-------------------------------------------------------------------------------------------------------

Decrease in cash during the year                                          (254,287)            (279,559)

Cash and cash equivalents, beginning of year                               381,110              660,669
-------------------------------------------------------------------------------------------------------

Cash and cash equivalents, end of year                              $      126,823       $      381,110
-------------------------------------------------------------------------------------------------------

Supplementary cash flow information:
     Interest paid                                                  $      136,330       $       52,116
     Income taxes paid                                                           -              204,769

Non-cash financing/investing activities:
     Shares issued for services                                     $      150,000       $      138,000
     Shares issued for assets                                                    -              301,200
-------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.

                                       27

<PAGE>

CARBITE GOLF INC.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars unless otherwise noted)

Years ended December 31, 2001 and 2000

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

1.   Continuing operations:

     The Company is incorporated under the laws of British Columbia, Canada and
     was continued into the Yukon Territory, Canada on October 22, 2001. The
     company's primary business activity is the development and sales of a
     proprietary brand of golf clubs and other golf products which represents a
     single operating segment. The Company's operations are located in San
     Diego, California, U.S.A.

     These financial statements have been prepared on the going concern basis
     which, in part, assumes that the Company will be able to generate
     sufficient positive cash flow to satisfy its liabilities as they come due.
     The ability to achieve sufficient cash flow is dependent upon the return to
     profitable operations and the continuing support of creditors and
     investors. If sufficient positive cash flow cannot be generated, the assets
     and liabilities may have to be restated at liquidation values which may be
     materially less than their carrying values.

     The Company has positive working capital, but has experienced continued
     negative cash flows from operations. Operations have primarily been
     financed through debt or equity financing. The current bank loan and a line
     of credit facilities are either past due or in excess of their original
     limit. The lenders for the loan and line of credit have not formally
     renewed or called the loans. Management has negotiated loan extensions,
     plans to request further extensions, and has arranged a prepayment of
     royalty fee income to address cash flow requirements (see Note 17). With
     the assistance of the Board of Directors, the company is actively pursuing
     additional financing through additional debt and/or equity and has
     implemented internal programs to improve cash flow.

2.   Significant accounting policies:

     (a)  Basis of presentation:

          The consolidated financial statements are prepared in accordance
          Canadian generally accepted accounting principles which conform in all
          material respects with accounting principles generally accepted in the
          United States, except as disclosed in Note 13.

          The consolidated financial statements include the accounts of the
          Company and the following subsidiaries:

          ----------------------------------------------------------------------
          Subsidiary                                        Percentage ownership
          ----------------------------------------------------------------------

          Carbite, Inc.                                                     100%
          AGS Acquisition Corp.                                             100%

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


     (b)  Cash and cash equivalents:

          Cash and cash equivalents include all cash balances and highly liquid
          investments with a maturity date of three months or less at the time
          of acquisition.

                                       28

<PAGE>

2.   Significant accounting policies (continued):

     (c)  Inventory:

          Raw materials inventory is stated at the lower of cost on a first-in,
          first-out basis, and replacement cost. Finished goods inventory is
          stated at the lower of average cost and net realizable value.

     (d)  Deferred costs:

          Deferred costs are related to the development and promotion of the
          products of Carbite, Inc. The costs are being amortized on a
          straight-line basis over a maximum five year period, depending on the
          nature of the costs.

     (e)  Capital assets:

          Capital assets are recorded at cost. Depreciation has been provided
          over the estimated useful lives of the assets using the straight-line
          method at the following annual rates:

               Leasehold improvements                                   25%
               Manufacturing equipment                                  20%
               Office and computer equipment                            14%
               Trade show displays                                      14%

     (f)  Goodwill:

          Goodwill, representing the excess of cost over net assets of
          subsidiaries acquired and certain intangible assets purchased, is
          amortized using the straight-line method over ten years. The Company
          assesses the continuing value of goodwill each year by considering
          current operating results, trends, and prospects and measures
          impairment when the estimated undiscounted future cash flows are less
          than the carrying value of the asset. In the year of an impairment in
          value, the goodwill will be reduced by a charge to earnings.

     (g)  Patents and trademarks:

          Patents and trademarks represent all costs incurred to obtain these
          intangible assets. The patents and trademarks are amortized using the
          straight-line method over ten years. The Company assesses the
          continuing value of patents and trademarks each year by considering
          operating results, trends, and prospects and measures impairment when
          the estimated undiscounted future cash flows are less than the
          carrying value of the asset. In the year of an impairment in value,
          the patents will be reduced by a charge to earnings.

                                       29

<PAGE>

2.   Significant accounting policies (continued):

     (h)  Share option plan:

          The Company maintains a share option plan under which the Board of
          Directors, subject to shareholder approval, may grant options to
          acquire common shares to its directors, officers, employees and
          consultants. Under Canadian generally accepted accounting principles,
          no compensation expense is recognized for this plan when share options
          are issued. Any consideration received upon the exercise of share
          options is credited to share capital. Options are non-assignable,
          non-transferable, and except in certain specified circumstances,
          terminate 30 days after the optionee ceases to be employed or
          associated with the Company.

     (i)  Foreign currency translation:

          The Company has adopted the United States dollar as its reporting
          currency, which is also its functional currency. The Company and its
          subsidiaries are considered to be integrated operations and the
          accounts are translated using the temporal method. Under this method,
          monetary assets and liabilities are translated at the rates of
          exchange in effect at the balance sheet date; non-monetary assets at
          historical rates and revenue and expense items at the average rates
          for the period other than depreciation and amortization which are
          translated at the same rates of exchange as the related assets. The
          net effect of the foreign currency translation is included in current
          operations.

     (j)  Revenue recognition:

          Revenue is recognized on shipment of finished goods which is when
          title passes. Accordingly, the Company sells products FOB shipping
          point. Upon shipment the Company does not have significant remaining
          obligations related to products sold.

     (k)  Income taxes:

          The Company uses the asset and liability method of accounting for
          income taxes. Under this method, future tax assets and liabilities are
          recognized for the future tax consequences attributable to differences
          between the financial statement carrying amounts of existing assets
          and liabilities and their respective tax bases and loss carryforwards.
          Future tax assets and liabilities are measured using enacted or
          substantively enacted tax rates expected to apply to taxable income in
          the years in which those temporary differences are expected to be
          recovered or settled. The effect on future tax assets and liabilities
          of a change in tax rates is recognized in income in the period that
          includes the substantive enactment date. To the extent it is not
          considered to be more likely than not that a future income tax asset
          will be realized, a valuation allowance is provided.

     (l)  Use of estimates:

          These financial statements have been prepared in accordance with
          Canadian generally accepted accounting principles which require
          management to make estimates and assumptions that affect the reported
          amounts of assets and liabilities and disclosure of contingent assets
          and liabilities at the date of the financial statements and the
          reported amounts of revenues and expenses during the reporting period.
          Actual results could differ from those estimates.

                                       30

<PAGE>

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

3.   Inventory:

<TABLE>
<CAPTION>
     ------------------------------------------------------------------------------------------------
                                                                          2001                 2000
     ------------------------------------------------------------------------------------------------
     <S>                                                        <C>                  <C>
     Raw materials                                              $    1,438,201       $    2,115,495
     Finished goods                                                  1,021,933            1,054,413
     ------------------------------------------------------------------------------------------------

                                                                $    2,460,134       $    3,169,908
     ================================================================================================
</TABLE>

4.   Capital assets:

<TABLE>
<CAPTION>
     ------------------------------------------------------------------------------------------------
                                                                      2001                2000
     ------------------------------------------------------------------------------------------------
     <S>                                                        <C>                  <C>
     Leasehold improvements                                     $       73,199       $       73,199
     Manufacturing equipment                                           968,542              795,103
     Office and computer equipment                                     453,779              421,524
     Trade show displays                                                94,714                    -
     ------------------------------------------------------------------------------------------------
                                                                     1,590,234            1,289,826
     Accumulated depreciation                                          786,362              561,562
     ------------------------------------------------------------------------------------------------

                                                                $      803,872       $      728,264
     ================================================================================================
</TABLE>

5.   Impairment of goodwill:

     Carbite performed an assessment of the carrying values of goodwill based on
     current operating trends and expected future cash flows, and as a result,
     recorded a goodwill write-down of $1,642,804.

     The write-down was related to the goodwill associated with the acquisitions
     of Carbite Inc., AGS Acquisition Corp. and Printer Graphics Ltd. and
     resulted from continued under performance by the Company.

6.   Bank loan and line of credit facilities:

<TABLE>
<CAPTION>
     -------------------------------------------------------------------------------------------
                                                                     2001                2000
     -------------------------------------------------------------------------------------------
     <S>                                                        <C>                  <C>
     U.S. National Bank operating line of credit (i)            $       490,829      $  655,650

     Wells Fargo operating line of credit, unsecured (ii)                41,857               -

     Inabata America Corporation loan, payable in
       monthly instalments of interest only at 11%
       per annum, due March 23, 2002, secured (iii)                     650,000               -

     Inabata America Corporation line of credit (iv)                  1,010,905               -
     -------------------------------------------------------------------------------------------
                                                                $     2,193,591      $  655,650
     ===========================================================================================
</TABLE>

                                       31

<PAGE>

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

6.   Bank loan and line of credit facilities (continued):

     (i)   The U.S. National Bank operating line of credit has a maximum limit
           of $500,000 (2000 - $700,000) and matures January 15, 2002. The
           operating line bears interest at bank prime rate plus 2% (2000 - bank
           prime rate plus 1%) per annum. The U.S. National Bank loan (Note 7)
           and operating line of credit are secured by assignment of
           inventories, accounts receivable, equipment and assignment of
           insurance proceeds. As of the audit report date, the operating line
           of credit has not been formally renewed. The operating line continues
           to be in place at existing terms. The lender has the discretion to
           further reduce or eliminate the Company's line of credit, but has
           made no decision at this time.

     (ii)  The Wells Fargo operating line of credit bears interest at 11.75% per
           annum and has a maximum limit of $50,000.

     (iii) The loan and the line of credit described in (iv) are secured by a
           security interest over all of Carbite's assets, subject only to a
           first lien from the U.S. National Bank. The lender has granted the
           Company a 30 day extension on the loan due March 23, 2002.

     (iv)  The Inabata operating line of credit bears interest at 1% per month.
           The operating line of credit has a maximum limit of $500,000 and
           automatically renews on an annual basis unless either party notifies
           the other before sixty days before the respective anniversary date
           (April 1).

           Any increases to the line of credit over the maximum are at the
           lender's sole and unlimited discretion and payment can be requested
           on demand.

7.   Long-term debt:

<TABLE>
<CAPTION>
     ---------------------------------------------------------------------------------------------------
                                                                              2001               2000
     ---------------------------------------------------------------------------------------------------
     <S>                                                                   <C>              <C>
     U.S. National Bank loan, payable in monthly instalments of
       $1,501 including interest at bank prime rate plus 1.75% per
       annum, due November 2002, secured - see Note 6                      $   12,687       $    30,819

     Current portion                                                           12,687            15,319
     ---------------------------------------------------------------------------------------------------

                                                                           $        -       $    15,500
     ===================================================================================================
</TABLE>

                                       32

<PAGE>

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

8.  Share capital:

    Authorized (Note 8(c)):

       50,000,000 Common shares with no par value

    Issued:

<TABLE>
<CAPTION>
     -----------------------------------------------------------------------------------------------------------
                                                                                 Number
                                                                                of shares             Amount
     -----------------------------------------------------------------------------------------------------------
     <S>                                                                        <C>            <C>
     Balance, December 31, 1999                                                 5,606,621      $  10,454,721

     Shares reacquired on open market                                             (14,500)            (6,569)

     Issued in 2000:
         For cash                                                                 488,158            748,110
         For services   -  Finder's fee                                            25,000             25,000
                        -  Endorsement agreements (Note 14(b)(i))                  73,889            113,000
         For purchase of assets (i)                                               198,158            301,200
     -----------------------------------------------------------------------------------------------------------

     Balance, December 31, 2000                                                 6,377,326         11,635,462

     Issued in 2001:
         For cash                                                                 485,000            250,000
         For services   -  Endorsement agreements (Note 14(b)(i))                 212,425            150,000

     -----------------------------------------------------------------------------------------------------------
     Balance, December 31, 2001                                                 7,074,751      $  12,035,462
     ===========================================================================================================
</TABLE>

   (i) On May 15, 2000, the Company acquired certain assets of a manufacturer
       and distributor of golf products in exchange for 198,158 common shares.
       The exchange was based on the market value of the Company's common
       shares at the date of purchase of the assets. The shares are subject to
       a one year hold period required by the regulatory authorities.

                                       33

<PAGE>

8.  Share capital (continued):

    a) Share options:

<TABLE>
<CAPTION>
    ----------------------------------------------------------------------------------------------
                                                                                        Weighted
                                                                Number             average price
                                                            of options                 (CAD $'s)
    ----------------------------------------------------------------------------------------------
    <S>                                                     <C>                    <C>
       Balance, December 31, 1999                              736,060                     $2.16

            Granted                                            220,000                      1.68
            Granted                                             55,000                      1.48
            Cancelled/expired                                 (279,625)                     2.64

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

       Balance, December 31, 2000                              731,435                      1.76

            Granted                                                  -                         -
            Cancelled                                         (158,905)                     2.93
    ----------------------------------------------------------------------------------------------

       Balance, December 31, 2001                              572,530                     $1.23
    ----------------------------------------------------------------------------------------------
</TABLE>

       The following share options were outstanding and exercisable at
       December 31, 2001:

<TABLE>
<CAPTION>
    ----------------------------------------------------------------------------------------------
                                             Number           Exercise
                                          of shares              price               Expiry date
    ----------------------------------------------------------------------------------------------
                                                               (CAD $)
       <S>                                <C>                 <C>              <C>
       Directors                             41,155               1.68           October 1, 2002
       Employees                             15,875               1.68           October 1, 2002
       Former Director                      151,750               0.04             March 1, 2003
       Employees and Directors               62,500               1.68          November 3, 2003
       Employee                              12,500               1.68             June 25, 2004
       Employees and Director                33,750               1.68         December 31, 2004
       Directors                             35,000               1.48            April 18, 2005
       Employee                              75,000               1.68           August 15, 2007
       Directors                            145,000               1.68           August 15, 2007
--------------------------------------------------------------------------------------------------

                                            572,530
--------------------------------------------------------------------------------------------------
</TABLE>

         No compensation resulted from the granting of these options as the
         options were granted having exercise prices based on the market value
         of the Company's common shares at the date of grant.

         In April 2001, the Company received regulatory approval to re-price
         165,780 outstanding share options from CAD $2.40 to a reduced exercise
         price of CAD $1.68.

                                       34

<PAGE>

8.  Share capital (continued):
    (b) Share purchase warrants:

        ------------------------------------------------------------------------
                                                                       Weighted
                                                    Number              average
                                                 of shares      price (CAD $'s)
        ------------------------------------------------------------------------

        Balance, December 31, 1999
          and 2000                                 294,164               $ 2.29
        Expired                                    (28,125)                2.08
                                                  (125,000)                2.20
        ------------------------------------------------------------------------

        Balance, December 31, 2001                 141,039               $ 2.41
        ========================================================================

        The following share purchase warrants were outstanding at December 31,
        2001:

        ------------------------------------------------------------------------
                                     Number       Exercise
                                  of shares          price          Expiry date
        ------------------------------------------------------------------------
                                                    (CAD$)
        Warrants                     75,000           2.60         May 31, 2002
        Warrants                     66,039           2.20        June 12, 2002
        ------------------------------------------------------------------------

                                    141,039
        ========================================================================

    (c) Authorized:

        Following a special resolution of shareholders passed on June 14, 2001,
        the authorized share capital of Carbite Golf Inc. was altered by
        consolidating all of the 50,000,000 common shares without par value,
        every four of such shares being consolidated into one share. Subsequent
        to the consolidation, the authorized capital of Carbite Golf Inc. was
        increased back to 50,000,000 common shares without par value. Carbite
        Golf Inc. began trading on a consolidated bases on October 12, 2001.

        All current and comparative share, price per share, and loss per share
        figures have been retroactively restated as if the 1:4 reverse split
        had always been in effect.

                                       35

<PAGE>

9.   Segmented information:

     Revenue and long-lived assets relating to foreign and domestic operations
     based on the location of the customer are as follows:

     ---------------------------------------------------------------------------
                                                      2001              2000
     ---------------------------------------------------------------------------

     Net sales:
         United States                            $  9,551,430      $ 11,071,939
         Japan                                         223,171         2,528,870
         Other                                         491,724           560,167
     ---------------------------------------------------------------------------
                                                  $ 10,266,325      $ 14,160,976
     ---------------------------------------------------------------------------

     Capital assets:
         United States                            $    722,058      $    665,858
         Taiwan                                         81,814            62,406
     ---------------------------------------------------------------------------

                                                  $    803,872      $    728,264
     ---------------------------------------------------------------------------

     There are no major customers representing 10% or more of total sales.

10.  Income taxes:

     The Company's provision (recovery) for income taxes differs from the
     amounts computed by applying the combined U.S. federal and state income tax
     rate of 43% for the following reasons:

<TABLE>
<CAPTION>
     --------------------------------------------------------------------------------------------------------
                                                                                 2001                2000
     --------------------------------------------------------------------------------------------------------
     <S>                                                                    <C>                 <C>
     Income tax recovery at the statutory rate                              $ (1,992,889)       $ (1,456,130)
     Increase in valuation allowance for net future tax assets                 1,136,753             738,041
     Adjustment for Canadian losses expired and exchange translation              74,209              76,066
     Adjustment for U.S. state losses that do not carry forward                  100,588              98,387
     Adjustment for U.S. federal losses reduced by state taxes                    41,821              53,122
     Amortization and write-down of non-deductible goodwill                      831,106             124,700
     Prior years' tax adjustments                                                      -              29,644
     Non-deductible expenses and other                                            44,344              67,923
     --------------------------------------------------------------------------------------------------------

     Actual tax provision (recovery)                                        $    235,932        $   (268,247)
     --------------------------------------------------------------------------------------------------------
</TABLE>

                                       36

<PAGE>

10.  Income taxes (continued):

     The tax effects of temporary differences that give rise to a significant
     portion of the future tax assets and future tax liabilities at December 31,
     2001 and 2000 are presented as follows:

<TABLE>
<CAPTION>
     ===========================================================================================
                                                                           2001            2000
     -------------------------------------------------------------------------------------------
<S>                                                                 <C>             <C>
     Future income tax assets:
         Accounts receivable and inventory                          $   274,000     $   188,000
         Net operating losses carried forward                         2,392,956       1,558,941
         Unclaimed Canadian research and development expenditures       127,963         135,925
         ---------------------------------------------------------------------------------------
                                                                      2,794,919       1,882,866

         Less: valuation allowance                                   (2,751,819)     (1,615,066)
         ---------------------------------------------------------------------------------------
         Net future income tax assets                                    43,100         267,800

     Future income tax liability:
         Capital assets and patents                                     (43,100)        (37,800)

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

     Net future income taxes                                        $         -     $   230,000
     ===========================================================================================
</TABLE>

     In assessing the realizability of future tax assets, management considers
     whether it is more likely than not that some portion or all of the future
     tax assets will not be realized. The ultimate realization of future tax
     assets is dependent upon the generation of future taxable income during the
     periods in which those temporary differences become deductible. Management
     considers the scheduled reversal of future tax liabilities, projected
     future taxable income, and tax planning strategies in making this
     assessment. The amount of the future tax asset considered realizable could
     change materially in the near term based on future taxable income during
     the carryforward period. At December 31, 2001 and 2000, a valuation
     allowance has been recognized to offset all net future tax assets arising
     in Canada as the Company's operations are substantially all outside of
     Canada (see Note 9) and the realization of these net assets is unlikely.

     The Company has unclaimed research and development expenditures of
     approximately CAD $474,000 which can be deducted for income tax purposes in
     Canada in future years at the Company's discretion.

     The Company has losses for tax purposes of approximately CAD $2,522,000
     which are available to offset future years' taxable income in Canada
     expiring between 2002 and 2008.

                                       37

<PAGE>

10.  Income taxes (continued):

     The Company has losses for tax purposes, both federal and state, which are
     available to offset future years' taxable income in the United States,
     expiring as follows:
<TABLE>
<CAPTION>
     ==================================================================================
                                                                 Loss for        Expiry
                                                             tax purposes         dates
     ----------------------------------------------------------------------------------
<S>                                                          <C>              <C>
     Federal                                                 $  4,565,346     2020-2021
     California                                                 2,752,618     2010-2011
     ==================================================================================
</TABLE>

11.  Related party transactions:

     The following amounts were charged by directors and officers of the
Company:

<TABLE>
<CAPTION>
     ==================================================================================
                                                                     2001          2000
     ----------------------------------------------------------------------------------
<S>                                                           <C>           <C>
     Management salaries paid to directors                    $   241,976   $   339,455
     Royalties paid to a director                                  20,330        64,473
     Wages and fees paid to present and former officers           132,134       117,877

     ==================================================================================
</TABLE>

     These transactions occurred in the normal course of operations and are
     measured at the exchange amount, which is the amount of the consideration
     established and agreed to by the related parties.

12.  Loss per share:

     The loss per share figures are calculated using the weighted average
     monthly number of shares outstanding during the respective fiscal years,
     which was 6,702,962 in 2001 and 5,954,832 in 2000. The effect of the
     exercise of share options and share purchase warrants outstanding is
     antidilutive in 2001 and 2000.

     All current and comparative figures have been retroactively restated as if
     the 1:4 reverse split had always been in effect.

                                       38

<PAGE>

13.  Differences between generally accepted accounting principles in Canada and
     the United States:

     The consolidated financial statements have been prepared in accordance with
     accounting principles generally accepted in Canada (Canadian GAAP) which
     differ in certain respects from those principles and practices that the
     Company would have followed had its consolidated financial statements been
     prepared in accordance with accounting principles and practices generally
     accepted in the United States (U.S. GAAP).

     Had the Company followed U.S. GAAP, the deferred cost and goodwill section
     of the balance sheet contained within the consolidated financial statements
     would have been reported as follows:

<TABLE>
<CAPTION>
     =========================================================================================
                                                   2001                          2000
                                        -------------------------     ------------------------
                                          Canadian           U.S.       Canadian          U.S.
                                              GAAP           GAAP           GAAP          GAAP
     -----------------------------------------------------------------------------------------
<S>                                     <C>           <C>             <C>           <C>
     Deferred costs (Note 13(a))        $  359,068    $         -     $  292,120    $        -
     Goodwill (Notes 13(c) and (d))              -              -      1,932,804     2,248,454
     =========================================================================================
</TABLE>

     Had the Company followed U.S. GAAP, the shareholders' equity section of the
     balance sheet contained within the consolidated financial statements would
     have been reported as follows:

<TABLE>
<CAPTION>
     =========================================================================================
                                                   2001                          2000
                                        -------------------------     ------------------------
                                          Canadian           U.S.       Canadian          U.S.
                                              GAAP           GAAP           GAAP          GAAP
     -----------------------------------------------------------------------------------------
<S>                                     <C>           <C>             <C>          <C>
     Shareholders' equity:
         Share capital                 $12,035,462    $12,035,462    $11,635,462   $11,635,462
         Additional paid-in
           capital (Note 13(d))                  -        668,174              -       668,174
         Deficit (Note 13(a))          (10,654,373)   (11,681,615)    (5,783,816)   (6,428,461)
     -----------------------------------------------------------------------------------------

                                       $ 1,381,089    $ 1,022,021    $ 5,851,646   $ 5,875,175
     =========================================================================================
</TABLE>

     Had the Company followed U.S. GAAP, the statement of operations contained
     within the consolidated financial statements would have been reported as
     follows:

<TABLE>
<CAPTION>
     =========================================================================================
                                                                            2001          2000
     -----------------------------------------------------------------------------------------
<S>                                                                  <C>           <C>
     Loss from operations under Canadian GAAP                        $(2,994,039)  $(3,589,108)
     Reversal of amortization of deferred costs (Note 13(a))             138,103       167,137
     Deferred costs incurred (Note 13(a))                               (205,051)     (204,375)
     Writedown of goodwill (Note 13(c))                               (1,911,104)            -
     Additional goodwill amortized (Note 13(d))                          (47,350)      (47,350)
     -----------------------------------------------------------------------------------------

     Loss from operations under U.S. GAAP                            $(5,019,441)  $(3,673,696)
     =========================================================================================
</TABLE>

                                       39

<PAGE>

13.  Differences between generally accepted accounting principles in Canada and
     the United States (continued):

<TABLE>
<CAPTION>
     ---------------------------------------------------------------------------------------------
                                                                            2001              2000
     ---------------------------------------------------------------------------------------------
     <S>                                                             <C>               <C>
     Loss under Canadian GAAP                                        $(4,870,557)      $(3,118,103)
     Amortization of deferred costs (Note 13(a))                         138,103           167,137
     Deferred costs incurred (Note 13(a))                               (205,051)         (204,375)
     Write-down of additional goodwill (Note 13(c))                     (268,300)                -
     Additional goodwill amortized (Note 13(c))                          (47,350)          (47,350
     ---------------------------------------------------------------------------------------------

     Loss under U.S. GAAP, being comprehensive loss
       under U.S. GAAP                                               $(5,253,155)      $(3,202,691)
     =============================================================================================

     Loss per share under U.S. GAAP - basic and diluted              $     (0.78)      $     (0.54)
     =============================================================================================
</TABLE>

     Had the Company followed U.S. GAAP, the statements of cash flows contained
     within the consolidated financial statements would have been reported as
     follows:

<TABLE>
<CAPTION>
     ---------------------------------------------------------------------------------------------
                                                                            2001              2000
     ---------------------------------------------------------------------------------------------
     <S>                                                             <C>               <C>
     Cash used in operating activities under Canadian GAAP           $(1,444,831)      $  (935,018)
     Deferred costs incurred (Note 13(a))                               (205,051)         (204,375)
     ---------------------------------------------------------------------------------------------

     Cash used in operating activities under U.S. GAAP               $(1,649,882)      $(1,139,393)
     =============================================================================================

     Cash used in investing activities under Canadian GAAP           $  (579,265)      $  (536,601)
     Deferred costs incurred (Note 13(a))                                205,051           204,375
     ---------------------------------------------------------------------------------------------

     Cash used in investing activities under U.S. GAAP               $  (374,214)      $  (332,226)
     =============================================================================================
</TABLE>

     (a) Deferred costs:

         Under U.S. GAAP, the expenditures that were deferred and amortized
         under Canadian GAAP would have been expensed in the year incurred
         against operations and accordingly, there would be no amortization of
         deferred costs.

     (b) Recent accounting pronouncements:

         (i)  In June 1998, the Financial Accounting Standards Board ("FASB")
              issued Statement of financial Accounting Standards No. 133
              "Accounting for Derivative Instruments and Hedging Activities"
              ("SFAS 133"). SFAS 133 establishes accounting and reporting
              standards requiring that every derivative instrument be recorded
              on the balance sheet as either an asset or liability measured at
              its fair value. SFAS 133, as recently amended, is effective for
              fiscal years beginning after June 15, 2001. To date, the Company
              has not entered into derivative instruments. The adoption of SFAS
              133 effective January 1, 2001 did not have a material effect on
              the Company's financial position or results of operations.

                                       40

<PAGE>

13.  Differences between generally accepted accounting principles in Canada and
     the United States (continued):

     (b) Recent accounting pronouncements (continued):

         (ii)   On June 29, 2001, the FASB approved for issuance Statement of
                Financial Accounting Standards (SFAS) No. 141 "Business
                Combinations" ("SFAS 141") and SFAS No. 142, "Goodwill and other
                Intangible Assets" ("SFAS 142"). SFAS 141 requires that the
                purchase method of accounting be used for all business
                combinations initiated after June 30, 2001. As a result, the
                pooling-of-interests method will be prohibited. SFAS 142 changes
                the accounting for goodwill from an amortization method to an
                impairment-only approach. Thus, amortization of goodwill,
                including goodwill recorded in past business combinations, will
                cease upon adoption of this statement, which for Carbite Golf
                Inc. will be January 1, 2002.

                Management believes the adoption of SFAS No. 141 and 142 will
                not have a material effect on the Company's financial position
                or results of operations as all goodwill has been written off at
                December 31, 2001.

         (iii)  In October 2001, the FASB issued SFAS No. 144, "Accounting for
                the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"),
                which addresses financial reporting and accounting for the
                impairment of disposal of long-lived assets. The statement
                supercedes SFAS 121, and the accounting and reporting provisions
                APB 30, for the disposal of a segment of a business. The
                provisions of SFAS 144 are required to be adopted by Carbite
                Golf Inc. effective January 1, 2002.

                Management believes the adoption of SFAS No. 144 will not have a
                material effect on the company's financial position or results
                of operations.

     (c) Impairment in goodwill and other intangibles:

                As described in Notes 2(f) and 2(g), the Company measures
                impairment for Canadian GAAP purposes by the excess of carrying
                values over the undiscounted estimated future cash flows. For

                U.S. GAAP purposes, the impairment calculation is made by
                reference to discounted future cash flows. There is no
                difference in the amount of the written-down carrying value to
                December 31, 2001, under a discounted or undiscounted cash flow
                method. However, under U.S. GAAP, goodwill, net of amortization
                would have been $268,300 more than under Canadian GAAP. This
                additional goodwill would also be impaired and written off under
                U.S. GAAP. As at December 31, 2001 there is no longer a
                difference in the carrying value of goodwill.

                Under U.S. GAAP, the entire writedown of goodwill of $1,911,104
                would be included in loss from operations.

                                       41

<PAGE>

13.  Differences between generally accepted accounting principles in Canada and
     the United States (continued):

     (d) Compensation expense:

         (i)    Under U.S. GAAP, the estimated fair value of 151,750 fully
                vested options issued in exchange for fully vested options as
                part of the Carbite Inc. acquisition in a prior year would be
                recorded as additional cost of the acquisition. The estimated
                fair value of the options of $473,500 would have been recorded
                as additional goodwill and additional paid-in capital. This
                additional goodwill would be amortized over a period of ten
                years consistent with the amortization period recorded under
                Canadian GAAP. The remaining additional goodwill would be
                written down in 2001 under U.S. GAAP.

         (ii)   During 2001, the Company repriced certain options previously
                issued (Note 8(a)). Under U.S. GAAP, the options would be
                accounted for as variable plan awards. In addition, a one time
                compensation expense would arise under FAS 123 (see (iii)
                below). Variable plan awards are awards for which the price of
                the award is not determinable until after the date of grant. The
                repricing of the options deems the options to be variable
                awards. Under variable award accounting, compensation expense is
                accrued at each measurement date for increases or decreases in
                the quoted market value of the shares covered by the grant but
                shall not be adjusted below zero on a cumulative basis. As the
                Company's stock price at December 31, 2001 was below the
                repriced amount of the options, no additional compensation
                expense is recorded for the repriced options.

         (iii)  For U.S. GAAP purposes, the Company has elected under Statement
                of Financial Accounting Standards No. 123, "Accounting for
                Stock-based Compensation" ("SFAS 123") to continue to apply the
                intrinsic value based method of accounting for stock-based
                compensation to employees under APB 25, "Accounting for Stock
                Issued to Employees". Under the intrinsic value method, stock
                compensation is the excess, if any, of the quoted market value
                of the stock at the date of grant over the amount the optionee
                must pay to acquire the stock. No additional compensation
                expense was recognized under APB 25 for the years ended December
                31, 2001 and 2000.

                                       42

<PAGE>

13.  Differences between generally accepted accounting principles in Canada and
     the United States (continued):

     (d) Compensation expense (continued):

              The Company follows the disclosure provisions of FAS 123. Had
              compensation cost been determined based on fair value at the grant
              date for options to employees consistent with the measurement
              provision of FAS 123, net loss and loss per share would have been:

<TABLE>
<CAPTION>
              ---------------------------------------------------------------------------------
                                                                          2001             2000
              ---------------------------------------------------------------------------------
              <S>                                                  <C>              <C>
              Loss as reported under U.S. GAAP                     $(5,253,155)     $(3,202,691)
              Additional compensation for fair value of
                options issued or repriced                              (6,572)        (153,926)
              ---------------------------------------------------------------------------------

              Pro forma loss under U.S. GAAP                       $(5,259,727)     $(3,356,617)
              =================================================================================

              Pro forma loss per share under U.S. GAAP             $     (0.78)     $     (0.56)
              =================================================================================
</TABLE>

              The following weighted average assumptions were used to estimate
              the fair value of options granted:

<TABLE>
<CAPTION>
              ---------------------------------------------------------------------------------
                                                                          2001             2000
              ---------------------------------------------------------------------------------
              <S>                                                         <C>            <C>
              Risk-free interest rate                                        -              4.0%
              Dividend yield rate                                            -              0.0%
              Price volatility                                               -            134.0%
              Weighted average expected life of options                      -           1 year

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

              The weighted average fair value of the options granted in 2000
              was $0.56. No options were granted in 2001.

         (iv) The total additional paid in capital that would be recorded under
              U.S. GAAP is as follows:

<TABLE>
              <S>                                                                           <C>
              ---------------------------------------------------------------------------------
              Fair value of options (i)                                             $   473,500
              Options repriced in prior years                                           121,374
              Compensation expense on options issued
                as part of exclusive distribution contract                               73,300

              ---------------------------------------------------------------------------------
                                                                                    $   668,174
              =================================================================================
</TABLE>

                                       43

<PAGE>

14.  Commitments:

     (a) Royalty agreement:

         The Company has a royalty agreement with one of the directors, which
         pays a fixed fee per club for certain clubs sold in exchange for the
         exclusive assignment of certain patents made by the director.

     (b) Endorsement agreements:

         (i)  In August, 1999, the Company signed a six year endorsement
              agreement, which gives the Company unlimited worldwide use of the
              endorser's name and likeness in promotions for the Company and its
              products. The endorser also agrees to publicly use Carbite
              products while competing at PGA events, and participate in
              promotional activities the Company arranges.

              As consideration, the Company agreed to pay the endorser $138,000
              in cash and shares for the six month period of the contract ending
              February, 2000. In addition, the Company agreed to pay the
              following annual amounts thereafter:

              ------------------------------------------------------------------
                                                       Dollar value        Total
              Contract year ended              Cash       of shares    agreement
              ------------------------------------------------------------------

              February 2001               $ 200,000    $    100,000    $ 300,000
              February 2002                 200,000         100,000      300,000
              February 2003                 275,000         225,000      500,000
              February 2004                 300,000         250,000      550,000
              February 2005                 325,000         250,000      575,000

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

              The contract can be terminated at the discretion of the Company at
              any future date as certain sales figures were not met in calendar
              year 2001 by the Company. For accounting purposes, the Company
              recognizes as a charge against income the proportionate
              consideration owing for services rendered in the fiscal year.

         (ii) In January 2001, the Company signed a two year endorsement
              agreement, which gives the Company use of the endorser's name and
              likeness in promoting of the Putterball Training aid. The
              promotional endorsement is limited only to the Putterball product.
              As consideration, the Company agreed to pay the endorser $25,000
              in cash and a seven and one-half percent royalty of the net sales
              of Putterballs. In fiscal 2002, the Company will be granting the
              Licensor the option to purchase 6,250 shares of Carbite's common
              stock at the exercise price of $1.20 with an expiry date of
              January 26, 2006.

                                       44

<PAGE>

14.  Commitments (continued):

     (c) Trademark license and distribution agreements:

         In September 1999, the Company entered into two agreements with Daiwa
         Seiko ("Daiwa") of Japan:

         (i)  A Trademark License Agreement which permits the Company to use the
              Daiwa name and other trademarks of Daiwa on golf products in the
              United States and Canada. The term is five years with an option
              for an additional five-year term. The Company is obligated to pay
              a royalty of 6% of the Company's FOB purchase price on all
              products sold under the license. The agreement is subject to
              termination upon certain events, including failure to meet certain
              minimum royalty amounts ($75,000 in Year 1, $225,000 in Year 2,
              $250,000 in Year 3, $375,000 in Year 4 and $450,000 in Year 5).

         ii)  A Distribution Agreement which designates the Company as the
              exclusive distributor of Daiwa golf products in the United States
              and Canada for a term of five years with an option to renew for an
              additional five years. The agreement is subject to termination
              upon certain events, including the failure for two consecutive
              years to undertake to meet certain minimum purchase obligations,
              which begin at $1.75 million for the first year of the agreement
              and escalate substantially each year thereafter. The Company has
              granted Daiwa share purchase warrants, exercisable through May 31,
              2002, to buy 75,000 shares of the Company's common stock at CAD
              $2.60 per share. The Company must also pay 10% of Daiwa net sales
              for advertising and promotion of Daiwa products in the United
              States.

     (d) Lease commitment:

         During fiscal 2000, the Company signed a four year lease agreement
         expiring February 29, 2004 on the rental of its premises. The Company
         is required to make the base rent payments as outlined below plus its
         share of common area operating expenses.

                 =======================================================
                 Year                                      Lease Payment
                 -------------------------------------------------------

                 2001                                         $  289,340
                 2002                                            302,884
                 2003                                            313,310
                 2004                                             52,510
                 =======================================================

15.  Settlement of contract dispute:

     In fiscal 2000, the Company terminated an agreement for telemarketing
     services from a particular vendor. In settlement of the termination, the
     Company agreed to pay the vendor $90,000.

                                       45

<PAGE>

16.  Fair value of financial instruments:

     The Company's financial instruments include accounts receivable, accounts
     payable, accrued liabilities, bank loans and line of credit facilities. The
     carrying amounts approximate fair values due to the immediate or short-term
     maturity of these financial instruments.

17.  Subsequent events:

     (a) In March 2002, the Company amended its license agreement with Wilson
         Sporting Goods Company. Wilson Sporting Goods Company advanced the
         Company $375,000 on royalties due in 2002 or later under its license
         agreement in return for a paid up royalty credit of $500,000 to be
         applied against future royalties due under the agreement.

     (b) Inabata America Corporation granted the Company a 30 day extension on
         the $650,000 loan that was due March 23, 2002. Management anticipates
         further extensions or repayment of the loan through private placement
         funds.

     (c) On April 12, 2002, U.S. National Bank extended the company's line of
         credit through July 15, 2002. The extension agreement requires the
         company to immediately reduce the amount outstanding to $450,000 from
         $490,000 at year end. The line of credit continues to bear interest at
         bank prime rate plus 2% and the company is required to make monthly
         principal payments of $10,000 commencing May 15, 2002.

18.  Reclassification:

     Certain of the prior years' figures have been reclassified to conform to
     the presentation adopted in the current year.

ITEM  8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

There were no changes in or disagreements with accountants on accounting and
financial disclosure.

                                       46

<PAGE>

                                    PART III

ITEM 9.    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

         As of December 31, 2001, the directors and executive officers of the
Company were as follows:

Name                     Age     Position
----                     ---     --------

Ballard Smith             55     Director and Chairman of the Board
Chester S. Shira          73     Director of R&D and Director
John R. Pierandozzi       47     President, Chief Executive Officer and Director
Andrew W. Robertson       52     Executive Vice President, COO, and Secretary
Stanley R. Sopczyk        66     Vice President, Operations
David Nairne              47     Director
David Williams            59     Director
Russell Lewis             43     Director

         Chester S. Shira is the founder of our wholly-owned subsidiary,
Carbite, Inc., and has been its Chairman of the Board since 1988. From 1988 to
1994 he also served as President and Chief Executive Officer of Carbite, Inc.
Mr. Shira has been Chairman of the Board and Director of R & D for the Company
since 1997. Mr. Shira spent 11 years managing all aspects of welding, forging
and metal finishing development for North American Rockwell and four years with
Lincoln Electric Company, working in the areas of application engineering and
process controls. He has over 40 years experience as a metallurgist and welding
engineer. Mr. Shira has a BA from Ohio State University, and is a registered
professional metallurgical engineer in California and Ohio.

         John R. Pierandozzi, President and CEO since May 2000, joined the
Company in 1998 as a consultant after 18 years in golf and golf-related
businesses as a course developer, manufacturer, and retailer. From 1997 - 1998,
he was a New Products/Research and Development consultant to Adams Golf. From
1994 - 1997, he was the President of Evolution Golf Company. He is a graduate of
the University of Southern California.

         Andrew W. Robertson, Executive Vice President, COO, and Secretary,
since May, 2000. Prior to joining the Company, he had been in the private
practice of law since 1974 and was a partner with the firm of Lillick McHose &
Charles and Pillsbury Madison & Sutro. He was the Executive Vice President of
California Pro USA Corp, an in-line skate manufacturer, from 1991 - 1994. He was
Chairman of the 1979 Los Angeles Open at Riviera CC. He is a graduate of Brown
University and UCLA Law School.

                                       47

<PAGE>

         Stanley R. Sopczyk, Vice President Operations, joined the Company in
1998. He was previously the Vice President and COO for Taylor Made Golf and Vice
President of the Golf Division of CoastCast Corporation, the world's largest
manufacturer of golf heads.

         David Nairne was appointed as a director in 1996.  Mr. Nairne is
President of Cedaridge Development and Management LTD, a private company in real
estate based in Vancouver, Canada. Prior to joining Cedaridge, Mr. Nairne was
Vice President of Communities Southwest in Irvine, California from August, 1993
to November, 1995. Mr. Nairne received his Bachelor of Commerce degree in 1977
and his Bachelor of Laws degree in 1978.

         Ballard Smith was appointed as a director in June, 2000. He was
President of the San Diego Padres Baseball Club from 1979 - 1987 and a member of
Major League Baseball's Executive Committee from 1981 - 1985. He served on the
Board of McDonald's Corporation for 14 years and was Chairman of Sun Mountain
Broadcasting from 1985 - 1997.

         David Williams was appointed as a director in February, 2000. He has
been the President of Roxborough Holdings in Toronto, Canada since 1977. He is
also a director of Pico Holdings, Ltd., Metro One Telecommunications, and
Radiant Energy Corporation.

         Russell Lewis was appointed a director in December, 2001. Mr. Lewis is
the President and CEO of Rhino Linings USA, a privately-held company based in
San Diego, which he founded in 1988. Rhino Linings is the world leader in
sprayed-on polyurethane truck bed linings.

         We have a currently effective directors and officers liability
insurance policy.

ITEM 10.   EXECUTIVE COMPENSATION.

         The following table shows the compensation paid by the Company to its
Chief Executive Officer and all other executive officers of the Company whose
annual salary and bonus exceeded $100,000 for the years indicated (collectively
"Named Executive Officers.")

                                       48

<PAGE>

<TABLE>
<CAPTION>
                                             Summary Compensation Table

                                                                                                      Long Term
                                                                                                    Compensation
                                                                   Annual Compensation/(2)/           Awards
                                                       -------------------------------------          ------

                                                                                                     Securities
                                                                                   Other Annual      Underlying       All other
                                                            Salary       Bonus     Compensation     Options/SAR's    Compensation
Name and Principal Position                         Year     ($)          ($)            ($)/(1)/         ($)           ($)
---------------------------                                 ------       -----      -------------   -----------      ------------
<S>                                                 <C>     <C>          <C>       <C>              <C>              <C>
Chester S. Shira, Director of R&D and Director       2001   111,797                    20,330
                                                     2000   140,000         -0-        64,473
                                                     1999   140,000      25,000       174,637

John R. Pierandozzi, President and CEO/(4)/          2001   127,659
(5/22/00 - present)                                  2000    97,156
                                                     1999       -0-
                                                                                                      500,000

Andrew W. Robertson, Executive Vice President        2001   107,692
                                                     2000    71,076
                                                     1999       -0-
</TABLE>

___________________
(1)        Represents royalties paid to Mr. Shira pursuant to a Royalty
           Agreement dated March 1, 1993 between the Company and Mr. Shira and
           pursuant to an arrangement with the Company whereby he received 1/3
           of certain royalties received from licensee KZ Golf.

(2)        The compensation described in this table does not include certain
           perks and other personal benefits received by the Named Executive
           Officers, the value of which does not exceed the lesser of $50,000 or
           10% of the Named Executive Officers total annual salary and bonus.

Option Grants in Last Fiscal Year

           The following table sets forth information concerning stock option
grants made to the Chief Executive Officer and each of the other Named Executive
Officers for the fiscal year ended December 31, 2001:

<TABLE>
<CAPTION>
                                            Option/SAR Grants in Last Fiscal Year

                                                                     Individual Grants
                                      ------------------------------------------------

                          Number of          % of Total
                         Securities         Options/SAR's
                         Underlying           Granted to
                        Options/SAR's         Employees           Exercise or
 Name                     Granted (#)       in Fiscal Year      Base Price ($/Sh)      Expiration Date
 ----                   -------------       --------------      -----------------      ---------------
 <S>                    <C>                 <C>                 <C>                    <C>
 None

</TABLE>

Option Exercise and Holdings

           The following table sets forth information concerning option
exercises and option holdings for the year ended December 31, 2001, with respect
to Chief Executive Officer and the Named Executive Officers:

                                       49

<PAGE>

<TABLE>
<CAPTION>
                                                           Aggregate Option/SAR Exercises in Last Fiscal Year
                                                                         and Fiscal Year End Option/SAR Values
                                                         -----------------------------------------------------
                                              Value Realized       Number of Unexercised               Value of Unexercised
                               Shares         Market Price at        Options/SAR's at               In-The-Money Options/SAR's
                             Acquired on       Exercise less             Fiscal Year End           at Fiscal Year End ($U.S.)/(1)/
                                                                  ----------------------------    ---------------------------------
Name                         Excercise (#)    Exercise Price      Exercisable    Unexercisable    Exeercisable      Unexercisable
----                         -------------    --------------      ----------------------------    ---------------------------------
                                               ($US)
                                               -----
<S>                          <C>              <C>                 <C>            <C>              <C>               <C>
                                                                                                         -0-              ---
Chester S. Shira                   ---               ---              59,905            ---


John R. Pierandozzi                                                                                      -0-
                                                                     137,000         25,000                               ---


Andrew W. Robertson                                                   88,875         15,000
</TABLE>

Compensation of Directors

         We reimburse directors for expenses in connection with attending Board
and Committee meetings, but do not pay them for serving as Directors.

Employment Agreements

         During 2001, the Company had Employment Agreements with three Senior
Managers - Stanley Sopczyk, V.P., Operations, one year agreement at salary of
$100,000 for the period July 1, 2001 through June 30, 2002; Andrew W. Robertson,
Executive Vice President, sixteen month agreement for the period August 15, 2000
through December 31, 2001 at an annual salary of $90,000 which increased to
$100,000 at February 15, 2001; and John Pierandozzi, President and CEO, sixteen
month agreement for the period August 15, 2000 through December 31, 2001 at an
annual salary of $110,000 which was later increased by the Board of Directors to
$125,000 per year retroactive to the start date of the agreement, but to be paid
only if the cash resources of the Company were adequate.

         In January 2002, the Company entered into new agreements with Messrs.
Pierandozzi and Robertson, each for one year terms January 1, 2002 thru December
31, 2002, at salaries of $125,000 and $110,000 respectively.

ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

COMMON STOCK - CERTAIN BENEFICIAL OWNERS

         The following are the only persons known to us to own beneficially, as
of March 25, 2002, five percent (5%) or more of the outstanding shares of our
common stock:

<TABLE>
<CAPTION>
                                                                   Shares Beneficially Owned
Name and Address of Beneficial Owner/(1)/                         Number              Percentage/(2)/
---------------------------------------                           ------------------------------
<S>                                                               <C>                 <C>
Chester S. Shira/(3)/                                              1,098,323            15.5%
Ballard Smith/(4)/                                                   464,868            6.62%
David Williams/(5)/                                                  395,000             5.6%
Russell Lewis                                                        687,500             9.7%
</TABLE>

_____________
(1)      Unless otherwise indicated, the address of each person is in care of
         the Company at 9985 Huennekens Street, San Diego, California 92121.
         Beneficial ownership is determined in accordance with the rules of the
         Securities and Exchange Commission and generally includes voting or
         investment power with respect to securities. Shares of Common Stock
         subject to options, warrants or convertible securities that are
         currently exercisable, or exercisable within 60 days of April 11, 2002
         are deemed outstanding for computing the percentage of the person
         holding such options, warrants or convertible securities but are not
         deemed outstanding for computing the percentage owned by any other
         shareholder listed. Except as indicated by footnote and subject to
         community property laws where applicable, the persons named in the
         table have sole

                                       50

<PAGE>

               voting and investment power with respect to all shares of Common
               Stock shares as beneficially owned by them.

      (2)      Percentage ownership is based on 7,074,752 shares outstanding as
               of April 11, 2002.

      (3)      Includes 59,905 shares which Mr. Shira has the right to acquire
               upon exercise of outstanding options, all of which were
               exercisable as of April 11, 2002.

      (4)      Includes 395,526 shares held by BCS Properties, Ltd, a
               partnership of which Mr. Smith is a principal; 49,342 shares
               which BCS Properties, Ltd. has the right to acquire upon the
               exercise of stock warrants, all of which were exercisable as of
               April 11, 2002; and 20,000 shares which Mr. Smith has the right
               to acquire upon exercise of outstanding options, all of which
               were exercisable as of April 11, 2002.

      (5)      Includes 20,000 shares which Mr. Williams has the right to
               acquire upon exercise of outstanding options, all of which were
               exercisable as of April 11, 2002.

      COMMON STOCK - MANAGEMENT

               The following table sets forth information known to us regarding
      the beneficial ownership of our common stock, as of April 11, 2002 by
      each of the Company's directors, each Named Executive Officer, and all
      directors and executive officers as a group.


                                                      Shares Beneficially Owned
      Name and Address of Beneficial Owner/(1)/       Number     Percentage/(2)/
      -----------------------------------------       --------------------------
      Chester S. Shira/(3)/ ......................       1,098,323      15.5%
      John R. Pierrandozzi/(4)/ ..................         137,500       1.9%
      David Nairne/(5)/ ..........................          79,892       1.1%
      Ballard Smith/(6)/ ........................          464,868       6.6%
      David Williams/(7)/ ........................         395,000       5.6%
      William Wilson/(8)/ ........................          80,987       1.1%
      Russell Lewis ..............................         687,500       9.7%
      Andrew W. Robertson/(9)/ ...................          92,650       1.3%
      All directors and executive officers
      as a group .................................       2,349,220        33%
      ________________
     (1)       Unless otherwise indicated, the address of each person is in care
               of the Company at 9985 Huennekens Street, San Diego, California
               92121. Beneficial ownership is determined in accordance with the
               rules of the Securities and Exchange Commission and generally
               includes voting or investment power with respect to securities.
               Shares of Common Stock subject to options, warrants or
               convertible securities that are currently exercisable, or
               exercisable within 60 days of April 11, 2002 are deemed
               outstanding for computing the percentage of the person holding
               such options, warrants or convertible securities but are not
               deemed outstanding for computing the percentage owned by any
               other shareholder listed. Except as indicated by footnote and
               subject to community property laws where applicable, the persons
               named in the table have sole voting and investment power with
               respect to all shares of Common Stock shares as beneficially
               owned by them.

      (2)      Percentage ownership is based on 7,074,751 shares outstanding as
               of April 11, 2002.

      (3)      Includes 59,905 shares which Mr. Shira has the right to acquire
               upon exercise of outstanding options, all of which were
               exercisable as of April 11, 2002.

      (4)      Includes 137,500 shares which Mr. Pierandozzi has the right to
               acquire upon exercise of outstanding options, 112,500 of which
               were exercisable as of April 11, 2002. The remaining 25,000 vest
               and become exercisable on August 15, 2002.

      (5)      Includes 20,000 shares which Mr. Nairne has the right to acquire
               upon exercise of outstanding options, all of which were
               exercisable as of April 11, 2002.

                                       51

<PAGE>

      (6)      Includes 395,526 shares held by BCS Properties, Ltd, a
               partnership of which Mr. Smith is a principal; 49,342 shares
               which BCS Properties, Ltd. has the right to acquire upon the
               exercise of stock warrants, all of which were exercisable as of
               April 11, 2002; and 20,000 shares which Mr. Smith has the right
               to acquire upon exercise of outstanding options, all of which
               were exercisable as of April 11, 2002.

      (7)      Includes 200,000 shares which Mr. Williams has the right to
               acquire upon exercise of outstanding options, all of which were
               exercisable as of April 11, 2002.

      (8)      Includes 16,447 shares which Mr. Wilson has the right to acquire
               upon the exercise of stock warrants, all of which were
               exercisable as of April 11, 2002.

      (9)      Includes 88,875 shares which Mr. Robertson has the right to
               assign upon exercise of outstanding options, 73,875 of which were
               exercisable as of April 11, 2002. The remaining 15,000 vest and
               become exercisable on August 15, 2002.

      ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

               Pursuant to a Royalty Agreement dated March 1, 1993, we pay
      royalties to Chester S. Shira, Director of Research and Development and
      Chairman of the Board. The Royalty Agreement provides for a royalty of
      $.50 per club on clubs employing any of the inventions set forth in the
      four patents assigned to us by Mr. Shira in March, 1993. The term of the
      Agreement is coextensive with the life of each of the four patents. All
      royalty payments are current. For 2001 and 2000, we paid Mr. Shira a total
      of $20,330 and $64,473 in connection with the 1993 Royalty Agreement.

               We have also paid Mr. Shira royalties in connection with licenses
      of other patents owned by the Company to certain third parties. In 2001,
      we paid Mr. Shira $11,300 as one-third of all royalties we received in
      2001 from KZ Golf in connection with our License Agreement with KZ Golf
      dated October 28, 1998.

      ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

          (a)  Exhibits

      * 2.1    Agreement and Plan of Merger between Carbite, Inc., Carbite Golf,
               Inc. and Carbite Acquisition Corp. dated June 6, 1996

      * 2.2    Agreement between Advanced Golf Systems, Inc. and Carbite Golf,
               Inc. dated September 24, 1996

      * 3.1    Amended and Restated Articles of Incorporation and Bylaws of the
               Company

      * 4.1    Specimen Common Stock Certificate

                                       52

<PAGE>

      * 4.2    Form of Warrant

      *10.1    Royalty Agreement between Carbite, Inc. and C. S. Shira dated
               March 1, 1993

      *10.2    Employment Agreement between the Company and Chester S. Shira
               dated September 3, 1997

      *10.3    Employment Agreement between the Company and Michael A.
               Spacciapolli dated September 3, 1997

      *10.4    License Agreement between Carbite Golf Company and Taylor Made
               Golf dated January 1, 1995 and Amendment dated March 4, 1997

      *10.5    License Agreement between Carbite, Inc. and K Z Golf, Inc. dated
               October 28, 1998

      *10.6    Endorsement Agreement between Carbite Golf, Inc., Carbite, Inc.
               and Fuzzy Zoeller Productions, Inc. dated August 20 ,1999

      *10.7    Agreement and Plan of Merger between Carbite, Inc., Carbite Golf,
               Inc. and Carbite Acquisition Corp. dated June 6, 1996

      *10.8    Agreement between Advanced Golf Systems, Inc. and Carbite Golf,
               Inc. dated September 24, 1996

      *10.9    Loan Agreement dated April 13, 1998 between the Company and James
               A. and Susan V. Henderson as Co-Trustees of the Henderson Living
               Trust

      *10.10   Lease Agreement dated January 6, 1998 between Carbite, Inc. and
               Nancy Ridge Technology Center, LLC relating to the facilities at
               6330 Nancy Ridge Road, San Diego, CA 92121

      *10.11   Form of Stock Option Agreement

      *10.12   Employee Confidentiality and Invention Agreement

      *10.13   Commercial Security Agreement between Carbite, Inc. and Scripps
               Bank dated May 15, 1999

      *10.14   Trademark License Agreement between Carbite Golf, Inc. and Daiwa
               Seiko, Inc. dated September 16, 1999

      *10.15   Exclusive Distribution Agreement between Carbite Golf, Inc. and
               Daiwa Seiko, Inc. dated September 16, 1999

                                       53

<PAGE>

      *  10.16 Lease Agreement between Manufacturers Life Insurance and Carbite,
               Inc. dated October 29, 1999 relating to facilities at 9985
               Huennekens Street, San Diego, CA  92121

      *  10.17 Amended and Restated Endorsement Agreement with Fuzzy Zoeller
               Productions dated as of March 15, 2000 (incorporate by reference
               from Amendment No. 1 to Form 10-SB dated February 28, 2001)

      *  10.18 Asset Purchase Agreement Between Carbite Golf and Carizma Golf
               dated May 15, 2000

      *  10.19 Loan Agreement with Inabata America Corporation dated March 23,
               2001

      * 10.20  Employment Agreement between Carbite, Inc. and John R.
               Pierandozzi dated August 15, 2001

      * 10.21  Employment Agreement between Carbite, Inc. and Andrew W.
               Robertson dated August 15, 2001

      *   Previously filed and incorporated herein by reference

      **  Filed herewith

           (b) No reports on Form 8-K was filed during 2000.

      SIGNATURES

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

                                                           CARBITE GOLF, INC.

      Date:       April 15, 2002                    By:  /s/ John R. Pierandozzi
                                                         -----------------------
                                                         John R. Pierandozzi
                                                         Chief Executive Officer
                                                         Principal Financial and
                                                         Accounting Officer

                                       54

<PAGE>

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

      Signature                            Title                     Date

      /s/ Chester S. Shira                Director                  4/15/02
      ---------------------------
      Chester S. Shira

      /s/ David Nairne                    Director                  4/15/02
      ----------------
      David Nairne

      /s/ David Williams                  Director                  4/15/02
      ---------------------------
      David Williams

      /s/ Ballard Smith                   Director                  4/15/02
      ---------------------------
      Ballard Smith

      /s/ William Wilson                  Director                  4/15/02
      ---------------------------
      William Wilson

      /s/ Russell Lewis                   Director                  4/15/02
      ------------------
      Russell Lewis

                                       55