<PAGE>
 
                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549
                                        
        _______________________________________________________________
                                  FORM 10-KSB
(Mark One)

(X)         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
                           EXCHANGE ACT OF 1934  [FEE REQUIRED]

                  For the fiscal year ended December 31, 1997
                                        
                                       OR
                                        
()       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                                EXCHANGE ACT OF 1934

                 For transition period from ___________ to ____________

                         Commission File Number 1-12532

                        RENAISSANCE GOLF PRODUCTS, INC.
                 (Name of Small Business issuer in its charter)

                DELAWARE                                 86-0664849
      (State or other jurisdiction of       (I.R.S. Employer Identification No.)
       incorporation or organization)

 
   12187 SOUTH BUSINESS PARK DRIVE, SUITE 100,
                   Draper, Utah                                 84020
     (Address of Principal Executive Office)                 (Zip Code)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (801) 501-0200
                                        
                               _________________

          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

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

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

                        COMMON STOCK -- $.001 PAR VALUE
                                (Title of Class)

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

         Check if there is no disclosure of delinquent filers pursuant to Item
405 of Regulation S-K contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-KSB. X
            ---
<PAGE>
 
                                    PART I

  All statements, other than statements of historical fact, included in this
Form 10-KSB, including without limitation the statements under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business," are, or may be deemed to be, "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934 (the
"Exchange Act").  Such forward-looking statements involve assumptions, known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of Renaissance Golf Products, Inc. (the
"Company") to be materially different from any future results, performance, or
achievements expressed or implied by such forward-looking statements contained
in this Form 10-KSB.  Such potential risks and uncertainties include, without
limitation, competitive pricing and other pressures from other golf equipment
manufacturers, economic conditions generally and in the Company's primary
markets, consumer spending patterns, perceived quality and value of the
Company's products, availability of capital, cost of labor (foreign and
domestic), cost of raw materials, occupancy costs, and other risk factors
detailed herein and in other of the Company's filings with the Securities and
Exchange Commission.  The forward-looking statements are made as of the date of
this Form 10-KSB and the Company assumes no obligation to update the forward-
looking statements or to update the reasons actual results could differ from
those projected in such forward-looking statements.  Therefore, readers are
cautioned not to place undue reliance on these forward-looking statements.

 
ITEM 1.  BUSINESS

Overview

  The Company designs, develops, assembles, and distributes high-quality golf
products and golf accessories in North and South America, Europe, the Middle
East, and Africa (the "Licensed Territory") utilizing the Fila trademark and
logo under license from Fila Sport S.p.A. of Biella, Italy ("Fila Sport"), a
subsidiary of Fila Holding, S.p.A.  The Fila brand name is recognized worldwide
and is associated with high-quality, high-performance products with a high-
fashion design concept.  Fila Sport has cultivated this image for its athletic
footwear, active sportswear, and leisure and casual wear, and the Company
capitalizes on the worldwide identification with other products bearing the Fila
trademark.  The Company believes that the technical and design specifications of
its products support the high-quality, high-performance, high-fashion concept
fostered by Fila Sport.

  The Company's products include golf clubs, bags, balls, gloves, head wear,
headcovers, travel covers, umbrellas, and towels.  The Company offers full lines
of both men's and women's woods and irons.  The Company also sells putters,
wedges, utility woods, and oversized woods. Golf club components are
manufactured by independent suppliers, primarily in the United States and the
Far East, and are assembled and distributed by the Company.  Other golf products
are manufactured by suppliers and distributed by the Company.  The Company's
products, distinguished by their appearance and quality of workmanship, command
premium prices but are competitive in price with other premium-quality golf
products. The Company has the exclusive right to market golf products bearing
the Fila trademark in the Licensed Territory with the exception of head wear and
towels, which are marketed on a non-exclusive basis in the Licensed Territory.

  The Company has also recently acquired the assets of two companies; The Ball
Marketing Company LLC. ("BMC"), and the World Golf Federation ("WGF").  With the
acquisition of BMC and WGF, the Company intends to launch into the golf ball and
golf tour markets.  Through the business acquired from WGF, the Company will
market and conduct golf tour events throughout the country.  WGF has developed a
handicapping system for golf which assists in leveling the playing field for
golfers of all handicaps.  WGF, now knows as the "Fila World Golf Tour," is
dedicated to fostering honesty and integrity within the game of golf.  Marketing
of golf tour events occurs principally through word-of-mouth.  Participants
invite friends and golfing acquaintances to participate in tour events.
Individuals pay monthly dues which entitle them to play in tour events.  As tour
participants bring in other players, such participants become entitled to
receive a distributor's commission for new tour registrants.  Each tour event
utilizes the Company's proprietary handicapping system to determine event
winners who receive cash, prizes, or both.

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  In conjunction with the Fila World Golf Tour, the Company, through the
acquisition of BMC's assets, is positioned to market golf balls at its tour
events.  The line of "World Tour" golf balls are USGA approved and available
exclusively through the Company.  Network marketing provides the primary means
of distribution for the World Tour balls.  Interested individuals are encouraged
to become independent distributors of the golf balls.  The Company provides a
number of programs whereby participants can subscribe to receive golf balls each
month on an auto-ship basis.  The Company believes the businesses of BMC and WGF
can be effectively combined to create a novel marketing vehicle in the golfing
industry to increase golf tournament participation and to distribute golf balls
and other golfing products.

  The Company was originally incorporated in Arizona in July 1990 and commenced
sales in January 1991.  In September 1993, the Company was reincorporated in
Delaware.  In November 1993, the Company completed an initial public offering
(the "Offering") of 1,400,000 shares of its Common  Stock and 1,400,000 Class A
Common  Stock Purchase Warrants ("Class A Warrants").  See "Description of
Securities."  The Company's Common  Stock and Class A Warrants were included on
the National Association of Securities Dealers Automated Quotation System
("NASDAQ") Small Cap market until November 1995 when the Company failed to meet
minimum requirements to remain on NASDAQ.  Since November 1995, the Company's
securities have been traded on the OTC Electronic Bulletin Board under the
symbols "FGLF" and "FGLF-W," respectively.

  In October 1996, the Company, through a private placement (the "Financing"),
offered up to a maximum of 100 "Units" at an issue price of $25,000 per Unit,
each Unit consisted of a convertible Debenture; and 15,625 Unit Shares at a
price of $.80 per share for a total of $12,500 for the Unit Shares.  The Unit
Shares were ultimately subject to a 4:1 reverse stock split ("Reverse Split"),
approved by the stockholders at the annual meeting of stockholders held on
October 24, 1997 and effectuated on November 12, 1997.  The Debentures were
ultimately converted pursuant to their conversion provision on December 15, 1997
at the rate of $.50 per share after the closing price of the Company's Common
Stock exceeded $1.50 per share for 20 consecutive trading days.

  In conjunction with the Financing, the Company experienced a change of control
which included the Company appointing a new Chairman of the Board, and the Board
of Directors acting to fill two vacancies created by the resignations of Michael
B. Orr and J. Arthur Wright, and two other existing vacancies, by electing John
B. Hewlett, Kenneth W. Craig, Dennis L. Crockett, and Wade M. Mitchell as
Directors to serve until the 1997 annual meeting of stockholders.  All of these
appointed Directors were re-elected at the October 1997 stockholders meeting.
John B. Hewlett, who was primarily responsible for bringing the new capital into
the Company through the Financing, provided a $400,000 line of credit to secure
future minimum royalties to Fila Sport, and personally guaranteed a $1,000,000
revolving loan agreement and subsequently a $5,000,000 revolving loan
agreement, obtained to provide working capital for the Company was appointed as
the Chairman of the Board of Directors.

  Mr. Hewlett, who maintains his principal place of business at 2919 East
Granite Hollow Street, Sandy, Utah 84092, is President of Hewlett Financial
Corporation which engages primarily in strategic asset, insurance, and tax
planning for individuals and businesses.

  All 100 Units offered through the Financing were subscribed, which resulted in
a capital investment to the Company of nearly $2,500,000.  The change of control
facilitated attracting new investors and securing new lines of credit totaling
an additional $1,900,000.  This $4,400,000 increase in capital available to the
Company through mid-1997 enabled the Company to continue operations.  At the
time of the Financing, the Company was insolvent, struggling to remain viable,
and had severely decreasing sales due to a lack of working capital.  All of the
new capital invested in the Company resulted directly and indirectly from the
personal efforts of Mr. Hewlett, the new members of the Board of Directors, and
the contacts of Mr. Hewlett's affiliated companies.  If capital had not been
raised from the outside investors, the Company would likely have been forced to
discontinue operations and liquidate its remaining assets.

  Before pursuing the Financing, the Board considered various options to keep
the Company operating, including the possibility of private and public
financings; however, the previous Board was unsuccessful in its attempts to
raise capital due to the poor financial condition of the Company.  The 

                                       2
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Company received limited financing from Mr. Doody, the Chief Executive Officer
at the time, but was able to obtain only small amounts of capital for short-term
purposes.

  Recognizing the limitations on the Company's ability to raise capital through
a public or private financing because of the Company insolvency and the pending
termination of the Company's license agreement with Fila Sport, the Company's
Board of Directors determined it would explore financing alternatives to restore
the Company to viability before winding down its operations.  After nearly one
year of unsuccessful searching for new funding for the Company, the Board was
introduced to John B. Hewlett by the Secretary of the Company, Bruce H. Haglund.
After the introduction, Mr. Hewlett evaluated the Company's financial condition
and requirements, including the conditions to reinstate the license agreement
with Fila Sport, and proposed the structure of the Financing for Board approval.
The percentage of ownership required by Mr. Hewlett for an offering to new
investors, post-Financing and post-Reverse Split, were determined through
negotiations with Mr. Hewlett and the Board.  In the negotiations, the parties
agreed on the percentages for existing stockholders, post-Financing, while
providing sufficient ownership for potential investors to attract their
investment into the insolvent Company which needed to immediately repay past due
royalties to Fila Sport to continue its business.

  The change of control which occurred as part of the Financing upon Board
approval, provided the investors introduced to the Company by Mr. Hewlett with
the level of confidence in management necessary to secure new investment
proceeds.  The reconstituted Board planned to decrease the number of outstanding
shares and thereby increase the Company's stock price as part of a long-term
plan to qualify the Company's stock for trading on the Nasdaq Small Cap Market,
one criterion of which requires a minimum bid price of $4.00 per share.  In
order to increase the bid price, the Board resolved to propose the 4:1 Reverse
Split after the additional investment brought in through the Financing was in
place.

  A bid price of $4.00 per share is only one of the entry standards the Company
must meet in order to regain the right to have its stock traded on the Nasdaq
Small Cap Market. The Company will also need to meet other entry standards to
have its stock listed on the Small Cap Market, including having (i) 300
stockholders, (ii) three market makers, (iii) $4,000,000 in net tangible assets,
or a $50,000,000 market capitalization, or $750,000 in net income, (iv) a Public
Float of at least 1,000,000 shares having a market value of at least $5,000,000,
and (v) at least a one-year operating history or a $50,000,000 market
capitalization. The 4:1 Reverse Split approved by the stockholders and
effectuated in November 1997, has served to help increase the stock price bid to
the $4.00 per share range in recent trading.

  Since the time of the Financing, the Company has entered into a series of
Loan and Credit Agreements with the AKA Charitable Remainder Unitrust #1. The
first line of credit was for a maximum amount of up to $1,000,000, and the
second line of credit provides for the Company to draw the maximum aggregate
principal amount of the lesser of $5,000,000, or 80% of the Company's current 
assets. The Company was not in compliance with one condition of the Loan and 
Credit Agreement on December 31, 1997 by having drawn on the credit line beyond 
80% of the Company's current assets. In the event the Company is not able to 
comply with this condition within 10 days of receiving written notice from the 
Lender, the maturity date on the borrowings could be accelerated. Such
acceleration could have a materially adverse effect on the Company's operations.
The Company have not received written notice and believes it could comply upon
receipt of such notice.


  In addition to the credit lines secured by the Company last year, a private
placement of the Company's shares of Common  Stock was recently undertaken on
March 2, 1998 to raise up to $2,400,000.  The Company intends to close the
offering at the end of April 1998.  To date a total of approximately 430,000
units have been subscribed for a total of $1,300,000 raised.  Through the
private placement the Company offered for sale up to a maximum of 550,000 units,
with an over-allotment of 250,000 units, each unit consisting of one share of
its Common  Stock, par value $.001 per share, and a warrant to purchase one
share of Common  Stock.  The purchase price was $3.00 per unit.  The Company
offered a minimum of 5,000 units per investor.  The Warrants are immediately
exercisable and transferable separately from the shares of Common  Stock. Each
Warrant entitles its holder to purchase one share of Common  Stock at an
exercise price of $5.00 per share, subject to adjustment in certain events.  The
Warrants may be exercised at any time and from time to time until December 31,
2002.  The Company has the right to redeem the Warrants at $0.01 per Warrant
upon not less than 30 days' notice if the 

                                       3
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Closing Price of the Common Stock for a period of 20 consecutive trading days,
ending not earlier than 10 days prior to the date of such redemption notice,
equals or exceeds $7.00 per share, subject to adjustment in certain events.

  During April 1998, the Company extended an offer to the holders of the 
Company's Class A Warrants (the "Warrants") to modify the terms of such 
warrants. The Company issued 1,400,000 Warrants in connection with its initial 
public offering in November 1993. The initial exercise  price of $6.50 per share
and the number of Warrants were subject to adjustment on certain events, 
including stock splits and the issuance of securities by the Company at prices 
less than the exercise price. Based on required adjustments, the exercise price 
at December 31, 1997 and the date of this report were $10.62 and $9.68, 
respectively. The adjusted number of Warrants outstanding at December 31, 1997 
and the date of the report were 852,060 and 941,843, respectively.

  The Warrants are also redeemable by the Company for $.01 per Warrant if the 
Company's Common Stock trades at a price in excess of $9.00 for 10-consecutive 
trading days, subject to the holders' rights to exercise their Warrants during 
the 10-day period following the redemption notice.

  The Company's offer to modify the terms of the Warrants included an agreement 
to reduce the exercise price of the Warrants from $9.61 to $5.50 per share and 
waive the adjustments of the number of Warrants on the condition that the 
Warrant holders agree to reduce the redemption price from $9.00 to $7.00 and 
waive further price adjustments. The November 15, 1988 expiration date has not 
been changed.

  In conjunction with the change of control and recent financing activities, the
Company moved its offices from Huntington Beach, California, to 12187 South
Business Park Drive, Suite 100, Draper, Utah 84020, during the first quarter of
1998. The move has enabled the corporate and warehousing offices to be
consolidated in proximity to the Directors and Officers of the Company.

BUSINESS STRATEGY

  In 1996, the Company was unable to fill orders because of a lack of working
capital. With the infusion of capital as a result of the private placements and
loans, the Company was able to secure the Fila License, repay debts, and
reposition itself to manufacture its products in 1998 through purchase order
financing. During 1997, the Company determined to re-focus its business strategy
and marketing efforts to place greater emphasis on market niches which had been
the most consistently productive for the Company and which were the most closely
aligned with Fila Sport's interests and marketing emphasis--high-fashion design
and value. The areas of renewed marketing emphasis within the golf industry and
the order of attention were as follows: (i) golf bags and accessories; (ii)
men's bags, clubs, and accessories; (iii) women's clubs and accessories; and
(iv) junior's bags, clubs, and accessories. The Company determined to take its
product lines into the mass merchandise channels in addition to the golf
specialty shops which were historically the Company's focus.

  During 1997, the Company successfully re-focused it attention on product lines
and entered the mass merchandise market.  The Company intends to continue its
renewed focus while continuing with its general business strategy of providing
unique, innovative, quality products which utilize and promote the Fila Sport
image.

  Management of the Company, based on its evaluation of various studies of the
golf industry, believes that golfers are individuals whose education and mean
annual income are above average, that the number of golfers and golf-related
spending is increasing, that a significant portion of the golfing public has
sufficient disposable income to be able to afford golf products such as those
sold by the Company, and that such individuals are attracted to quality products
and brands such as the products sold bearing the Fila trademark.  Management of
the Company also believes because of the high-fashion image associated with the
Fila brand name and the design of the Company's products, the Company is
positioned to capture a measurable percentage of the women's market.

  The Company concentrates its business strategy on developing and manufacturing
innovative, technically-superior golf equipment and bags identified as premium
products by the Fila trademark.  The Company markets its product lines through a
network of qualified sales representatives and distributors in golf specialty
shops and more recently in mass merchandise retail outlets.  Some of the
elements of the Company's marketing strategy include:

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  .Product Innovation.  The Company designs and markets golf equipment intended
to appeal to both average and skilled golfers by approaching the design function
with a focus on (i) the fundamental objectives a particular product is intended
to perform; (ii) innovations that enable the equipment to work for the golfer in
better accomplishing the tasks for which the equipment is intended; (iii)
examination of successful equipment approaches from the past and present; (iv)
advances in materials and components that enhance the equipment's performance;
(v) consumer demand for product; (vi) utilizing distinct design criteria for
men's and women's products, and (vii) affordability in mass merchandise
products.

  .Manufacturing Quality.  The Company believes that the best approach to
customer service is to deliver a superior product.  The Company has experienced
minimal returns of its products because of its attention to the manufacture,
assembly, and shipment of its products.  The Company maintains close working
relationships with its suppliers to achieve and maintain the quality of its
products by (i) carefully selecting suppliers with whom management has had
successful relationships in the past and working closely with new vendors on a
limited basis before committing to expanded relationships; (ii) involving the
suppliers in the product development process; (iii) periodically inspecting and
evaluating the manufacturing process on-site; (iv) developing specialized
techniques that help to ensure the efficient utilization of the high-quality raw
materials that are used to manufacture the Company's products; and (v)
performing extensive testing, inspection, and quality control checks during the
manufacturing and assembly process.

  .Utilizing and Promoting the Fila Image.  Because of the success of Fila Sport
in developing a worldwide, premium brand franchise in its athletic footwear,
active sportswear, and leisure and casual wear, the Company was able to have its
products immediately identified with a high-quality, high-performance, high-
fashion image.  Identification with the Fila Sport image has enabled the Company
to command the premium prices that management believes the quality of its
products justifies.  The Company is working to enhance this image by advertising
and promoting its products and sponsoring events.  The Company believes that it
has successfully extended, and will further extend, the Fila brand name into the
golf industry and that Fila Sport and the Company continue to foster a closer
working relationship to the mutual advantage of both parties.

  .Protection of Proprietary Rights.  As the licensee of Fila Sport, the Company
aggressively seeks to protect the mutual interests of the Company and Fila Sport
in the value of the Fila trademark.  The Company believes that its golf club
designs, manufacturing processes, and trade names represent valuable
intellectual property rights.  The Company will seek to protect its proprietary
interests in licenses, trademarks, trade secrets, trade dress, patents (if any
are obtained), and other intellectual property rights.

  Company management has determined that its recent move into the mass
merchandise retail provides the Company with a distribution network that will
permit, not only the distribution of golf products, but also general fitness
related products.  Entry into the general fitness products market will permit
the Company to begin moving beyond marketing only products bearing the Fila
brand name.

  In an initial effort to distribute general fitness equipment, the Company
entered into an exclusive agreement with Stilson & Stilson ("Stilson"), a direct
marketing production company, to distribute a product called the "ABDoer"
throughout the world.  Stilson, which most notably produced programming for the
"Healthrider" personal fitness machine, has produced a 22 minute infomercial
presenting the ABDoer.  Through the agreement with Stilson, the Company will
provide direct response order fulfillment and establish retail distribution for
the product.  Many fitness products have been successfully introduced and sold
directly to the market through the airing of infomercials.  Retail sales
distribution then follows.  The Company through its established distribution
contacts, has successfully built a fitness distribution network to move the
ABDoer into the retail market; although, the date for Stilson's general release
of the ABDoer infomercial has not yet been set.  Small scale market tests
indicate the ABDoer should perform well in the market place; however, the
Company can provide no assurance of the widespread release of the infomercial,
the level of direct sales, or the level of sales through retail outlets.

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  As innovative marketing has become a primary focus of the Company, management
has been actively pursuing new marketing avenues and new products.  The
acquisition of BMC and WGF's assets and businesses represent a new marketing
approach being seized upon by the Company.  Historically golf balls have been
marketed using expensive professional golfer endorsements and industry specific
advertising.  The businesses of BMC and WGF combined, provide the Company with
the opportunity to market tournament play, golf balls, and other products by
word-of-mouth through golfers as independent network distributors on and off the
golf course.  Funds which the Company would typically spend on endorsements and
advertising to market products, provide the means for the Company to pay
commissions to independent distributors for their marketing efforts while
keeping the price of products competitive with highly endorsed and advertised
products.  The Fila Golf Tour also provides the Company with a cost-effective
marketing vehicle to have the Fila name seen on golf courses throughout the
country to help raise the awareness of the Fila brand name in the golf industry.

GOLF PRODUCTS

  The Company currently offers a variety of golf products including golf clubs,
bags, balls, gloves, head wear, headcovers, travel covers, umbrellas, and
towels.  All golf products are distinguished by the Fila name and logo, unique
styling, innovative design and high-quality workmanship.  The Fila brand
provides a name the sports industry associates with fashion, high-quality, and
active participation.  The Company believes this combination appeals to the
quality conscious consumer, as well as the golf enthusiast.  During 1997, the
Company continued to market its professional line through specialty shops and
began to market its mass merchandise line through mass retailers.

  The Company has been successful in the past designing fresh and innovative
product which has created demand far exceeding the Company's ability to deliver
because of a lack of working capital.  With the recent capital infusions, the
Company anticipates having the ability to meet more of the existing demand for
its products.

  .Golf Bags.  The Company believes its golf bags complement the current core
business and marketing efforts of Fila Sport and are a demand item strongly
associated with the fashion and function design concept of Fila Sport.  The
Company's golf bags are technically innovative and fashion oriented.  Golf bag
models feature full-length club dividers, fur lined tops, four to seven pocket
configurations, deluxe harnesses with padded slings, bottom assist handles,
hidden umbrella wells, towel clips, and matching rain hoods.

  The Company  will continue to design and manufacture an in-depth line of
fashionable yet functional golf bags.  The Company's bag line includes a
selection from light weight golf bags to cart size golf bags.  The 1997 and 1998
models include the following:

          Professional Series:

     Lite Carry and Lite Stand golf bags are offered in five color combinations
     with a suggested retail price range of $125.00 to $130.00.

     Allegra golf bags for women come in five color combinations and feature
     fur-lined, graphite-safe top and three full length dividers with a
     suggested retail price of $155.00.

     Biella Series golf bags for men come in eight color combinations. This
     series has historically been the Company's best seller and is offered at a
     suggested retail of $190.00.

     Biella II Series 8 1/2" model features men's and women's styles in cordura
     and textured nylon fabric, solid core construction, with a hidden valuables
     pouch.  This bag is a modified version of the Biella model with a hidden
     shoe pocket, a very popular feature of the Company's bags.  The suggested
     retail price is $205.00.

     Renaissance Series bags  have a very stylish design featuring a built-in
     shoe pocket that keeps golf shoes separate from the clothing pocket. This
     series is offered in seven color combinations for men and five color
     combinations for women with a suggested retail of $180.00.

                                       6
<PAGE>
 
     M.D. Series is a men's bag in 720-D nylon fabric offering oversize pockets
     to keep shoes and clothing separate. The Suggested retail price is $240.00.


          Mass Merchandise Series:

     C Series and Lite Stand golf bags are offered in five color combinations
     with a suggested retail price range of $78.00 to $128.00.

     Tour Series golf bags for both men and women come in six color combinations
     with a suggested retail price of $139.00.

     Divider model features men's and women's styles in fade and water resistant
     polyester fabric, one full-length garment compartment, and one oversized
     utility pocket.  The suggested retail price is $129.00.

     MD Deluxe bags  have a very stylish design featuring a solid core
     construction, a heavy weave cordura fabric, and a built-in shoe pocket that
     keeps golf shoes separate from the clothing pocket. This series is offered
     in three color combinations with a suggested retail of $166.00.

     .Clubs  Many of the Company's lines of golf clubs include innovations and
refinements developed by management and independent equipment designers, from
whom the Company obtains licenses. Clubs, priced from $340 to $1,500 for a set
of eleven clubs, include the following:

          Professional Series:

     F-2000 Titanium Drivers made with varying degrees of loft are constructed
     from cast 6AL4V titanium.  Three flexes of shafts are available with the
     drivers and the Four Plus fairway wood.

     Men's Tour Oversize Irons are investment cast 4-31 stainless steel and
     feature a progressive offset, cavity back radiused sole, and a beveled
     leading edge.  The irons are available in steel and graphite shafts.
     Retail pricing for irons is $850.00 for steel and $1,120.00 for graphite,
     and for woods is  $240.00 and $375.00 for steel and graphite receptively.

     Men's Avatar Oversize Irons and Woods feature woods made from investment
     cast 15-5 and 17-4 stainless steel and irons made from investment cast 4-31
     stainless steel.  The irons are constructed with a modified sole design
     which promote smooth take-a-ways and greater playability from the fairway
     and rough.  Retail pricing for irons is $480.00 for steel and $680.00 for
     graphite, and for woods is  $240.00 and $375.00 for steel and graphite
     respectively.

     Men's Oversize Irons and Woods feature woods made from investment cast 15-5
     and 17-4 stainless steel and irons made from investment cast 4-31 stainless
     steel.  The irons are constructed with optimum perimeter weighting for a
     larger sweet spot and progressive offset U-grooves for more consistent ball
     control.  Retail pricing for irons is $440.00 for steel and $656.00 for
     graphite, and for woods is  $234.00 and $360.00 for steel and graphite
     receptively.

     Ladies Oversize Irons and Woods feature woods made from investment cast 15-
     5 and 17-4 stainless steel and irons made from investment cast 4-31
     stainless steel.  The irons are constructed with optimum perimeter
     weighting for a larger sweet spot and progressive offset U-grooves for more
     consistent ball control.  Retail pricing for irons is $440.00 for steel and
     $656.00 for graphite, and for woods is  $234.00 and $360.00 for steel and
     graphite respectively.

     Ladies Milano Irons and Woods feature woods constructed from composition
     alloy and irons from cast Z-alloy.  Retail pricing for irons is $330.00 for
     steel and $450.00 for graphite, and for woods is  $150.00 and $210.00 for
     steel and graphite respectively.

                                       7
<PAGE>
 
          Mass Merchandise Series:

     F-100 Oversize for men, recently introduced, include three woods and eight
     irons. The oversize woods are manufactured from titanium alloy for maximum
     impact response and feature perimeter weighting and an expanded sweet spot.
     The oversize irons are investment cast with 4-31 stainless steel with a
     cavity-back design.  Shafts are available in steel and graphite.  The
     suggested retail price is $499.00.

     Volt for men, introduced in 1997, include three woods and eight irons.  The
     woods are manufactured from titanium alloy for maximum impact response.
     The oversize irons are investment cast with 4-31 stainless steel.  Shafts
     are available in steel and graphite.  The suggested retail price is
     $549.00.

     Lady Modello, introduced in 1997, include three woods and eight irons. The
     oversize woods are manufactured from 17-4 stainless steel and feature
     perimeter weighting and an expanded sweet spot.  The oversize irons are
     investment cast with 4-31 stainless steel with a cavity-back design.
     Shafts are available in steel and graphite.  The suggested retail price is
     $549.00.

     Lady Volt, introduced in 1997, include three woods and eight irons.  The
     set features oversized TI Matrix metal woods.  The oversize irons are
     investment cast with 17-4 stainless steel.  Shafts are available in steel
     and graphite.  The suggested retail price is $499.00.

     Junior Series feature four to seven clubs and a lightweight nylon golf bag.
     The suggested retail price is from $129.00 to $179.00.

   .Golf Balls.   With the acquisition of BMC, the Company intends to move more
aggressively into the golf ball market.  Historically the golf ball market has
been dominated by companies with substantial marketing budgets utilizing
professional golfer endorsements and mass advertising to raise consumer
awareness and sell product.  The Company believes it can effectively capture a
portion of the golf ball market through a grass roots campaign to market and
sell golf balls.  This marketing effort will take place at the grass roots on
golf courses across the country in conjunction with the Fila World Golf Tour.
Although the Company believes its efforts to market golf balls will be
successful, it can provide no assurance that it will be able to successfully
enter the golf ball market.

   .Tournaments.  Dedicated to honesty and integrity in the game of golf, the
Company through its acquisition of WGF offers golfers an opportunity to
participate in tournaments on a level playing field through the use of the
Company's proprietary handicapping system.  The Company believes its tour will
experience increasing participation as golfers are exposed to the tournaments
through fellow golfers who enjoy honest competition with an opportunity to win
prizes and money.  The tour represents a new line of product for the Company to
market and sell, while at the same time providing the Company with "on-course"
advertising of the Fila name.  Management believes the Fila Golf Tour will enjoy
financial success; however, the Company can provide no assurance that the
concept will be accepted by a sufficient number of golfers or be run efficiently
enough to be a financial success.

   .Tournaments Division.  During 1997, the Company began to actively pursue the
professional tournament market to supply tournament officials and volunteers
with apparel and other accessory needs.  Through an agreement with Fila U.S.A.,
the official licensee of Fila Sport to use the Fila trademark and logo on
fitness apparel, the Company can offer Fila clothing and footwear, along with
its hats and accessories, to tournament personnel.  As a provider of apparel to
tournaments, the Company in most cases can offer its products for sale at the
golf course during the tournament.  The Company believes that tournament
involvement can greatly increase the recognizability of the Fila name in the
golf industry.

   Other golf products include various utility wedges, putters, and a variety of
accessory packs. Accessories include travel covers, headcovers, umbrellas, golf
gloves, caps, visors, and straw golf hats.  Through constant research and
development and market planning, the Company plans to continually develop new
products and enhance existing product lines.

                                       8
<PAGE>
 
FITNESS PRODUCTS

   In addition to its traditional golf product lines bearing the Fila brand
trademark, the Company has recently acted to move into the distribution of
general fitness equipment.  The ABDoer represents the Company's first attempt to
utilize its existing distribution network to sell general fitness products.  The
ABDoer is a abdominal exercise machine which when used properly, in conjunction
with a proper diet, can effectively reduce fat and increase muscle in the
abdominal area of the body.  Stilson, a direct marketing production company,
plans to release the ABDoer infomercial into the national market place during
the current year.  The Company has signed an exclusive agreement to perform
order fulfillment functions for Stilson and to distribute the product through
the retail market.  Management believes the ABDoer product will be successfully
sold into the market place, but the Company can provide no assurance that
Stilson will release the infomercial on a national basis or that the ABDoer will
be accepted by consumers.

MARKET SEGMENTS
 
   .Men's Golf Products.  By offering a full line of clubs suited for men of all
playing abilities, the Company anticipates capturing a growing percentage of the
men's market segment.

   .Women's Golf Products. One of the Company's ongoing objectives is to address
the growing women's market by offering distinct product lines designed for them.
The women's lines are designed so that the graphics and coloration of the clubs
are coordinated in every respect, including the color of the shafts, shaft
designs, and paint fill on the club heads.  Exclusive programs for the women's
market include a full package of coordinated bag, headcovers, and equipment in
various color categories focusing on fashion and function.  Market research has
led the Company to believe that women want products that are (i) manufactured
with the same detail, playability, and consideration for performance as men's
products; (ii) value priced; and (iii) fashionable and attractive to women and
readily display the fact that the product was made for the women such as color
and product coordination to look good on the course.

   .Junior Golf Products.  The Company introduced equipment for children and
teenage golfers during 1997 to capture a portion of this growing market segment.
The Company offers junior sets consisting of a 5-wood, 4-iron, 6-iron, 8-iron,
pitching wedge, and putter, designed for the five to nine year old, and a
package suited in weight and length for the ten to 13 year olds including a 3-
wood, 3-iron, 5-iron, 7-iron, 9 iron, mid-wedge or sand wedge, and a putter.
Both sets include a bag that is smaller in size and lighter in weight than
standard golf bags to accommodate the junior golfer.

   .Golf Tournament Market.   The Company believes tournament players represent
a market segment made up primarily of men who enjoy honest competition and an
opportunity to win prizes and money.  This market segment represents a highly
qualified target market for golf products where the Company intends to advertise
its name and sell golf ball and other golf products.  The Company hopes to bring
all market segments men, women, and junior golfers into this specific segment
through participation in Fila World Golf Tour events.

   .General Fitness Products.  In addition to traditional golf industry market
segments, the Company has entered into the vast fitness products industry with
the ABDoer product.  Success with the ABDoer product will help solidify the
Company's general fitness market segment accessible through its current and
recently expanded lines of distribution.  The Company is now in position to
continue to feed additional and varied fitness products to the general fitness
market.  Management believes the general fitness industry may provide the
Company with a substantial additional source of revenues beyond its golf
products bearing the Fila brand name; although, the Company can provide no
assurance that it will be able to successfully enter the fitness market.

MARKETING AND DISTRIBUTION STRATEGY

   Along with the renewed marketing emphasis, the Company's historical focus on
sales to retail outlets located at golf courses and golf retail shops
specializing in golf products is being redirected to include the retail sporting
goods market.  The addition of the retail sporting goods market as a target will
allow the Company to better serve customers in the rapidly expending youth,
women's, and public 

                                       9
<PAGE>
 
course markets. The sporting goods retail market segment already has an acute
awareness of the Fila brand because of clothing and shoe sales. The Company will
continue to produce and supply specialty accounts with a product line of
superior quality, fashion, and technology designed to maintain the image of the
Fila brand in these prestige accounts.

   .Domestic Market.  The Company targets golf shops, pro shops, various
specialty shops, and the golf departments of mass merchants for the sale of its
products. Distribution in the domestic market is coordinated through
manufacturer's representative firms and independent sales representatives who
are assigned individual territories and compensated with a commission of 2% to
10% at the time of shipment.  The existing territories cover all of the major
golf markets in the United States. The performance of these manufacturer's
representative firms and independent sales representatives is regularly reviewed
and those that do not perform at an acceptable level are replaced. Generally,
the Company appoints manufacturer representative firms and independent sales
representatives that do not carry product lines which directly compete with the
product lines offered by the Company; although, some exceptions are made based
on individual representatives and their related territory.

   In addition to independent representation, telemarketing representatives call
on and work jointly with the independent representatives in expanding the
customer base and increasing volume.  Management of the Company is also involved
directly in specific accounts, either individually or in coordination with the
independent representatives if the situation so merits.

   .International Market.  Distributors are responsible for market penetration
in their respective countries.  Distributors are sold company product at U.S.
wholesale prices at a specified discount.  This discount is designed to allow
foreign distributors to sell product at competitive pricing.  Foreign
distributors advertise, promote, and are responsible for their own accounts
receivable.  The Company anticipates that certain product lines will continue to
be designed specifically for introduction into foreign markets.  Approximately
2% in 1997, 28% in 1996, 30% in 1995, 22% in 1994 and 31% in 1993 of the
Company's sales have resulted from international distribution. However, because
the Company no longer is marketing in Asia and Australia, it is anticipated that
the domestic market will account for a higher percentage of the Company's sales.
Quotas are given the first year and sales levels are monitored to judge
distributor performance and to evaluate the potential of the territory.  Second
year minimum sales requirements are determined by the Company after evaluating
the first year's operating results. Advertising of the Company's products
outside the United States is typically handled by distributors of the products
within their particular territory.

   .Direct Marketing.  With the additional of the ABDoer, the Company has
entered the direct marketing industry.  Initially, the Company will rely on
Stilson to prepare and distribute direct marketing productions, and the Company
will perform order fulfillment for products ordered through Stilson's direct
marketing efforts and pursue retail sales.

   .Network Marketing.  The Company has entered the network marketing industry
through its recent acquisition of BMC and WGT.  Network marketing consists of
establishing a network of individuals through word-of-mouth who have an interest
in becoming independent distributors for a company's products.  The distributors
are then paid a sales commission on products they sell and products sold by
other individuals who sign on with the company to become independent
distributors through the efforts of the initial individual distributor (a
"downline").  Commissions are paid to distributors for up to nine levels of
distributors in a downline.  The Company believes it can effectively market
tournament participation, golf balls, and other related products through a
network marketing structure by providing a high quality product at a price which
is competitive with traditional outlets.  The Company will be able to pay
commissions to independent sales representatives from the profit margin built
into products which traditional companies pay out in advertising and endorsement
expenses.

DESIGN AND PRODUCT DEVELOPMENT

   .Golf Products.  The Company attempts to foster the development of innovative
golf club and golf bag designs and believes that its efforts have resulted in
the development of a complete product line of high-quality golf products.  The
Company's management and staff perform substantially all of the research and
development activities of the Company and conduct regular product development

                                       10
<PAGE>
 
meetings to discuss market openings and niches, potential benefits of equipment
concepts, production feasibility, and potential market acceptance. The Company
also utilizes consultants to assist in the development of equipment design and
obtains licenses to commercialize the designs of independent golf club
designers. The Company believes this collaborative style, which includes members
of the executive management of the Company from all phases of the Company's
operations, enhances the Company's ability to manufacture innovative, premium
products while keeping research and development costs to a minimum.
Historically, research and development costs have not been material.

     When a new golf club idea is determined to merit further development, the
Company works with independent equipment designers and tool makers to create
soft shell tooling, initiate samples, and manufacture test models. New equipment
is then tested extensively to determine the trajectory, distance, dispersion,
and roll characteristics, as well as the optimum loft and lie. Upon completion
of testing, the Company proceeds to manufacture the final tooling required for
mass production of the equipment. Extensive weight checking is performed to
confirm that the tooling produces equipment within acceptable tolerance ranges.
The design and development of new equipment is accomplished with reference to
the rules and interpretations of the USGA and in coordination with USGA staff to
insure that the Company's products comply with the standards established by the
USGA for its sponsored events.

     .Fitness Products.  In January 1998, the Company entered into a consulting
agreement with Stilson & Stilson, a producer of direct response television
promotions for fitness equipment, whereby the Company acquired the exclusive
right to sell Stilson's "ABDoer" fitness product within the United States and
throughout the world.  The Company intends to further expand into the fitness
products industry through relationships such as that with Stilson to take
advantage of the Company's existing lines of distribution while relying on
outside innovators to provide the Company with product.

     .Golf Ball Marketing.  The Company through its recent acquisition of BMC
has an exclusive agreement Cayman Golf, a golf ball manufacturer, to market and
distribute its golf balls. Cayman currently produces four types of golf balls,
including an innovative 4-piece golf ball, all of which appear on the United
States Golf Association's and St. Andrew's approved golf ball lists. The Company
intends to utilize the expertise of Cayman to supply new and innovative golf
ball products to the Company for distribution.

FILA LICENSE

     In November 1990, the Company entered into a license agreement (the
"Original License") with Fila Sport pursuant to which Fila Sport granted the
Company the right to design, manufacture, and market certain golf-related
products under the Fila brand name. The initial term of the agreement originally
expired December 31, 1995, but had been extended by Fila Sport to December 31,
2000. The agreement was terminated on June 30, 1996 because the Company was in
default under the agreement. In October 1996, the Company entered into a new
license agreement with Fila Sport (the "License Agreement") which provides that
the Company has the exclusive right to manufacture golf clubs, balls,
headcovers, travel covers, gloves, bags, and umbrellas for sale in North and
South America, Europe, the Middle East, and Africa. The Company has a non-
exclusive right to market golf head wear and towels in the Territory. The terms
of the License Agreement do not limit Fila Sport from manufacturing and
marketing articles for active sport, such as jackets, women's tops, sweaters,
all styles of hats, all styles of towels, sports bags, some of which items may
compete with the Company's products. The initial term of the License Agreement
extends through December 31, 2000 with an option to renew the license for an
additional five-year period. The License Agreement also required that the
Company pay to Fila Sport $675,000 in past due royalties on or before November
21, 1996. As of December 31, 1997, all past due royalties to Fila Sport were
paid in full.

     In consideration for the trademark license, the Company pays Fila Sport a
royalty on net sales.  The royalty is 6% of annual net sales up to $7,500,000,
5.5% of annual net sales from $7,500,000 up to $15,000,000, and 5% of annual net
sales in excess of $15,000,000. Annual minimum royalties are due and payable in
installments of 25% of the annual minimum on the 15th day prior to the end of
each calendar quarter. Royalties of $400,000 were paid during 1997.  Future
minimum annual royalties are as follows: $500,000 in 1998; $600,000 in 1999; and
$700,000 in 2000. During the renewal period, minimum annual 

                                       11
<PAGE>
 
royalties are as follows: $800,000 in 2001; $900,000 in 2002; and $1,000,000 in
each year from 2003 through 2005.

     The Company is required to obtain an irrevocable letter of credit in favor
of Fila Sport each year equal to the amount of the applicable minimum royalty.
The license is terminable by Fila Sport if, among other things, the Company
fails to meet its obligations under the License Agreement, fails to meet certain
agreed upon product introduction dates in the Licensed Territory, fails to
maintain product liability insurance, or fails to properly utilize the
trademark. The Company also is required to expend in each year for the duration
of the License Agreement an amount equal to 5% of net sales on advertising the
Company's products and 3% of net sales on promotions.

     The License Agreement also requires the submission to Fila Sport of
quarterly royalty reports, sample advertising, sample products, price lists, and
an annual marketing and advertising plan. New product design plans and
prototypes must also be submitted to Fila Sport for approval prior to marketing
Fila Sport has the right to withhold approval of marketing approaches or
products if it determines that such new product or promotion would reflect
adversely on Fila Sport or impair the quality or image of the Fila trademark.

     The License Agreement may be terminated by Fila Sport in whole, or in part,
upon the occurrence of certain events, including the following: failure to
perform or any material breach of the obligations under the agreement where
there is no remedy within 30 days of the receipt of written notice of intent to
terminate the License Agreement; failure to make timely royalty payments, use
best efforts to meet established product introduction dates, maintain required
levels of product liability insurance, or meet established guidelines for
quality control; failure to meet advertising, promotional, and sales targets
within a country included in the Territory; and sale or disposal of
substantially all of the Company's business or assets to a third party, transfer
of control of the company to a third party, or the cessation of the Company's
relationship with Miles T. Doody.

     Further, Fila Sport may terminate the License Agreement if the Company's
financial condition becomes unstable, as evidenced by, among other matters,
insolvency or the Company's inability to pay its debts as they become due.
Currently, the Company is not on notice to cure any breach under the License
Agreement. The Company is currently not in compliance with the letter of credit 
provision of the License Agreement.  In the event the Company is not able to 
come into compliance within 30 days of receiving written notice from Fila Sport,
the License Agreement could be terminated.  Such termination would have a 
materially adverse effect on the Company's operations.  The Company is not 
currently on notice of non-compliance and believes it could comply within the 
notice period.

     There can be no assurance that the Company will be able to obtain a
sufficient level of sales to meet the licensing fee requirements or to achieve
profit margins necessary to enable the Company to operate profitably.  The loss
of the license would have a material adverse effect on the Company's operations.

EXCLUSIVE GOLF BALL AGREEMENT

     An exclusive agreement with Cayman to purchase golf balls requires the
Company to initially purchase $210,000 in inventory and rights and place orders
for a minimum of 5,000 balls per month thereafter. Although the Company believes
it will be able to maintain the minimum order through the current year, the
Company can provide no assurance that such levels will be able to be maintained.
The loss of the exclusive arrangement with Cayman could have a material adverse
effect on the Company's ability to enter the golf ball market and its ongoing
operations.

COMPETITION

     The golf products business is intensely competitive and the Company
competes with numerous companies providing similar products. The Company
believes that there are over 50 companies manufacturing and marketing golf
equipment which each have annual golf equipment sales in excess of $1,000,000.
The Company also believes that the 10 largest golf equipment manufacturers
account for a substantial majority of wholesale golf equipment sales. Most of
the Company's competitors have substantially greater capital resources, depth of
management, and brand name identification in the golf business than the Company.
In addition, there are several golf equipment manufacturers not currently
producing premium quality products which could affect sales if they did so.

                                       12
<PAGE>
 
     A company's ability to compete is in part dependent upon its ability to
satisfy various subjective requirements of golfers, including the look and
"feel" of the equipment and its level of acceptance among professional and other
golfers.  Equipment designs and concepts developed by one manufacturer which
gain popularity have been widely imitated by other manufacturers.  The
subjective preferences of consumers  may also be subject to rapid and
unanticipated changes.  There can be no assurances as to the Company's ability
to achieve or maintain market acceptance sufficient to enable the Company to
operate profitably.  A decline in the size of the golf equipment market, whether
from a decrease in the popularity of particular equipment or otherwise, could
have a material adverse effect on the Company's business.

MANUFACTURE AND ASSEMBLY

     The components of the Company's golf clubs, primarily club heads, shafts,
and grips, are manufactured by suppliers in the United States and the Far East.
Suppliers are carefully selected and continuously evaluated by the Company on
the basis of the quality of raw materials utilized, quality of the workmanship,
and attention to quality control. The Company works closely with its suppliers
in the development of golf clubs and tooling to maintain the high standards of
quality consistent with management's commitment for the Company's product line
and with the image associated with the Fila trademark. Although the Company's
operating history is short, management of the Company has had long-term
relationships with its independent vendors. The Company believes that its
relationships with suppliers are excellent; however, there are numerous
suppliers of high-quality components and management believes that the loss of a
supplier may result in production delays, but would not have a material adverse
impact on the Company's long-term business.

     The Company assembles its golf clubs at its facility in Huntington Beach,
California.  During the assembly process, the equipment is spot checked and
tested extensively to assure a quality product.  Completed inventory is also
stored at the Company's facility prior to shipment.  Bags, gloves, and other
golf accessories sold by the Company are manufactured by independent vendors,
primarily in the Far East.  Products are either shipped to the Company's
facilities or drop shipped directly to distributors in the case of international
sales.  The Company anticipates that some of its club lines will continue to be
manufactured and assembled in the Far East in an effort to reduce certain
expenses while maintaining a high-quality product.  In addition, the Company
anticipates the development of a subcontracting relationship to assemble clubs
in Southern California.

     The Company intends to continue to use Cayman for golf balls for the
foreseeable future in an effort to maintain low production costs.  Management
believes the relationship with Cayman is good, but the loss of the existing
manufacturer could result in substantial delays in receiving golf balls, but
would not have a material adverse impact on the Company's overall business.

WARRANTY

     The Company currently supports all of its golf clubs with a five year
warranty to the original consumer against any defects in workmanship or
material, provided that the product has not been subject to abuse or alteration.
Golf bags are covered by a limited warranty covering manufacturing defects only.
The Company has experienced minimal problems with respect to its products and
the warranty granted.

YEAR 2000 MATTERS

     The inability of computers, software, and other equipment utilizing
microprocessors to recognize and properly process date fields containing a two
digit year reference such as "00" for the year 2000 is commonly referred to as
the Year 2000 issue.  Any of the Company's computer programs that utilize two
digit years may recognize "00" as the year 1900 rather than the year 2000.  Such
recognition problems could cause disruptions of operations, including the
inability to process transactions, send invoices, or engage in similar essential
business activities.

     The Company has identified all significant applications that will require
modification to address the Year 2000 issue.  Internal and external resources
are being used to make the required modifications and test Company systems for
the year 2000.  The modifications process of all significant 

                                       13
<PAGE>
 
applications is substantially complete, and the Company intends to complete
modifications and conduct testing by the end of 1998.

     The Company is also communicating with third party vendors to determine
their compliance with the Year 2000 issue. The Company can provide no assurance
that the systems of third parties will be in compliance by the turn of the
century. The inability of the Company to complete modifications and the failure
of third party vendors to complete compliance with the Year 2000 issue, or both,
could have a material adverse effect on the Company's ability to perform
essential business tasks which could have a material adverse effect on the
Company's business.

EMPLOYEES

     As of December 31, 1997, the Company employed 20 employees, including five
salaried employees on a full-time basis who are considered executive personnel,
13 salaried full-time employees in administrative, supervisory, and clerical
positions, two part-time employee.  None of the Company's employees are covered
by a collective bargaining agreement, the Company has never experienced a work
stoppage, and the Company considers its labor relations to be excellent.


ITEM 2.  DESCRIPTION OF PROPERTY

     The Company currently occupies approximately 15,000 square feet of office,
manufacturing, and warehouse space located at 12187 South Business Park Drive,
Suite 100, Draper, Utah 84020.  The lease provides for rent of $94,636.00 per
year and expires in January 2000.  The Company leases an additional 12,000
square feet of space at 5812 Machine Drive, Huntington Beach, California, for
$6,355.00 per month. The lease is month to month.

ITEM 3.  LEGAL PROCEEDINGS

     There are no material pending legal proceedings, and the Company is not
aware of any threatened legal proceedings to which the Company may be a party.


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

REVERSE STOCK SPLIT

     During the fourth quarter of 1997, the Company held its Annual Meeting of
Stockholders on Friday, October 24, 1997 at the Willow Creek Country Club,
located at 8300 South, 2700 East, Sandy, Utah at 11:00 a.m. local time.
Stockholders were asked to vote on five Items as follows: 1) election of
Directors, 2) 4 for 1 Reverse Split, 3) an increase in the authorized number of
shares, 4) appointment of auditors, and 5) adjournment, if necessary. The
results of the various items voted upon are summarized as follows:

     Proposal 1: Election

<TABLE> 
<CAPTION> 
                                                 Total For        Abstain 
                                                 ---------        ------- 
                  <S>                            <C>              <C>     
                  JOHN B HEWLETT                 7,805,438         29,836 
                  KENNETH W. CRAIG               7,805,438         29,836  
                  MILES T. DOODY                 7,075,688        759,586  
                  DENNIS L. CROCKETT             7,805,438         29,836  
                  WADE M. MITCHELL               7,764,188         71,986  
</TABLE> 
 
     Each of the sitting Directors of the Company were re-elected at the
 Stockholders Meeting.
 
     Proposal 2: 4 for 1 Reverse Split
 
<TABLE> 
<CAPTION> 
                  Total For             Against               Abstain
                  <S>                   <C>                   <C>      
                  7,645,593             108,161               81,520
</TABLE>

                                       14
<PAGE>
 
     The Board of Directors of the Company adopted the resolution recommending
the Reverse Split of one Share for every four Shares of outstanding common stock
without amending the Company's Certificate of Incorporation to reduce the number
of authorized Shares or to modify the par value of the Shares. A reverse stock
split is the opposite of a conventional stock split. Instead of a corporation
splitting its outstanding shares to provide for more shares outstanding, the
corporation consolidates its outstanding stock into a lesser number of shares.
Upon the stockholder approval, the Reverse Split took effect on November 12,
1997. A total of 5,461,163 shares outstanding as of October 31, 1997 were
combined into 1,365,291 shares.

     The Board considered the proposed Reverse Split to be in the best interest
of all stockholders based upon its belief that if the Company will benefit by
having its stock traded on the Nasdaq Small Cap Market within the next several
years, and upon the Board's belief the valuation of the Company will increase
and permit the Company to attract additional new capital into the Company at a
higher stock price. Effective November 3, 1995, the Company's stock was delisted
from the Nasdaq Small Cap Market, on which it had been traded since November 12,
1993, for failure to meet the minimum bid price and capital and surplus
requirements. Although the Board of Directors has determined that it would be
advantageous to the Company and its Stockholders to again have the Shares listed
on the Nasdaq Small Cap Market, the Shares cannot be so listed unless the
Company re-qualifies for listing. Re-qualification will require the Company to
meet all of the current listing standards which include, in substantial part
that the Company have, (i) shares with a bid price of over $4.00 per share, (ii)
300 stockholders, (iii) three market makers, (iv) $4,000,000 in net tangible
assets, or a $50,000,000 market capitalization, or $750,000 in net income, (v) a
public float of at least 1,000,000 shares having a market value of at least
$5,000,000, and (vi) at least a one year operating history or a $50,000,000
market capitalization.

     The Company's Shares are currently traded in the over-the-counter market on
the OTC Electronic Bulletin Board. Accordingly, an investor may find it more
difficult to dispose of, or to obtain accurate quotations as to the market value
of, the Shares than if the Shares were listed on a national securities exchange
or the Nasdaq Small Cap Market.

     Proposal 3: Increase Authorized Shares

<TABLE> 
<CAPTION> 
                  Total For             Against        Abstain
                  <S>                   <C>            <C> 
                  7,755,518             73,856         5,900
</TABLE> 

     During 1997, the Board of Directors recommended approving an increase in
the authorized number of Shares of the Company. The Company's Certificate of
Incorporation authorized 20,150,000 Shares. As of July 31, 1997, there were
10,961,250 issued and outstanding Shares. Of the unissued Shares, a total of
approximately 9,000,000 were reserved for issuance upon completion of the
Financing, the conversion of the Debentures, and the exercise of options for the
purchase of Shares pursuant to the Company's various stock option plans and
other stock option agreements. Consequently, the Company had few additional
Shares available for issuance as currently authorized under the Certificate of
Incorporation, as amended. The Company proposed to increase its authorized
Shares to 40,150,000, which would then be available for issuance from time to
time, for such purposes and such consideration, and on such terms, as the Board
of Directors may approve.

     The Board of Directors believed that it was in the best interest of the
Company to increase the number of authorized Shares to 40,150,000 during 1997 in
light of the limited availability of Shares. The stockholders approved an
amendment of paragraph 4 of the Company's Certificate of Incorporation, as
previously amended, to read in full as follows:

     4.   The total number of shares of stock which the Corporation
     shall have authority to issue is 40,150,000 of which stock
     40,000,000 shares of the par value of $.001 each, amounting in
     the aggregate to $40,000.00 shall be common stock and of which
     150,000 shares of the par value of $.01 each, amounting in the
     aggregate to $1,500 shall be Preferred Stock.

                                       15
<PAGE>
 
     Proposal 4:  Corbin & Wertz as Company Auditor

<TABLE> 
<CAPTION> 
                  Total For             Against        Abstain
                  <S>                   <C>            <C> 
                  7,816,521             15,553         3,200
</TABLE> 

     Corbin & Wertz were again approved as the auditors for the Company for
1997.

     Proposal 5:  Adjournment

     A vote was not necessary on adjournment.


                                    PART II
                                        
ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     From November 12, 1993 to November 2, 1995, the Company's Common  Stock was
quoted on the Nasdaq  Small Cap Market under the symbol "FGLF."  Effective
February 24, 1995, the Company's securities were delisted from the Nasdaq Small
Cap Market based on a failure to comply with a minimum bid price of $1.00, and
failure to  maintain capital and surplus of $2,000,000.  The Company's request
for the grant of an exception to the minimum bid price requirement was denied by
the NASD Listing Qualifications Committee.

     The following table sets forth, for the period from January 1996 to March
1998, the high and low bid quotations for the Common Stock during the three most
recent fiscal years as reported by the OTC Bulletin Board from November 4, 1995,
to the date of this Annual Report, and the NASDAQ Small Cap Market prior to
November 4, 1995. The prices represent quotations between dealers, without
adjustment for retail markup, mark down or commission, and do not necessarily
represent actual transactions. The table also sets forth the Common Stock price
for the same period with an adjustment to reflect what the price may have
effectively been after giving effect to the 1997 4:1 Reverse Split.

COMMON STOCK PRICE ACTUAL AND ADJUSTED

<TABLE>
<CAPTION>
                         Before Split            After Split(1)
                         ------------            --------------
                      High          Low       High            Low
                      ----          ---       ----            ---   
<S>                  <C>           <C>        <C>            <C>
   1998
   ----         
1st Quarter              -             -      4.687          2.937     
                                                                   
   1997                                                            
   ----                                                            
1st Quarter          .6562         .2813      2.625          1.248 
2nd Quarter          .5313         .2813      2.125          1.124 
3rd Quarter           .656           .25      2.624           1.00 
4th Quarter              -             -      4.375           1.50 
                                                                   
   1996                                                            
   ----                                                            
1st Quarter            .25         .1875       1.00            .75 
2nd Quarter          .5385         .1250      2.154            .50 
3rd Quarter          .5625         .1250       2.25            .50 
4th Quarter          .3750         .2187       1.50           8.75  
</TABLE>

______________________
(1) Prices represent the pre-Reverse Split price quote multiplied by four for
    periods before the third quarter of 1997 during which quarter the price as
    quoted on the Bulletin Board began reflecting the Reverse Split. The figures
    do not take any other factors into account in determining the stock price.

     The Company has not paid any cash dividends on its Common  Stock since its
incorporation and anticipates that, for the foreseeable future, earnings, if
any, will continue to be retained for use in its business.  As of December 31,
1997, the approximate number of record holders of the Company's Common  Stock
was 255.

                                       16
<PAGE>
 
ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS

OVERVIEW AND COMPANY BACKGROUND

     The following discussion and analysis should be read in conjunction with
the Financial Statements and Notes thereto appearing elsewhere in this report.

     The Company designs, develops, assembles, and distributes high-quality golf
products and golf accessories in North and South America, Europe, the Middle
East, and Africa utilizing the Fila trademark and logo under license from Fila
Sport S.p.A. of Biella, Italy, a subsidiary of Fila Holding, S.p.A.  The Fila
brand name is recognized worldwide and is associated with high-quality, high-
performance products with a high-fashion design concept.  Fila Sport has
cultivated this image for its athletic footwear, active sportswear, and leisure
and casual wear, and the Company capitalizes on the worldwide identification
with other products bearing the Fila trademark.  The Company believes that the
technical and design specifications of its products support the high-quality,
high-performance, high-fashion concept fostered by Fila Sport.

     The Company's products include golf clubs, bags, balls, gloves, head wear,
headcovers, travel covers, umbrellas, and towels. The Company offers full lines
of both men's and women's woods and irons. The Company also sells putters,
wedges, utility woods, and oversized woods. Golf club components are
manufactured by independent suppliers, primarily in the United States and the
Far East, and are assembled and distributed by the Company. Other golf products
are manufactured by suppliers and distributed by the Company. The Company's
products, distinguished by their appearance and quality of workmanship, command
premium prices but are competitive in price with other premium-quality golf
products. The Company has the exclusive right to market golf products bearing
the Fila trademark in the Licensed Territory with the exception of head wear and
towels, which are marketed on a non-exclusive basis in the Licensed Territory.

     The Company has also recently acquired the assets of BMC and WGF.  With the
acquisition of BMC and WGF, the Company intends to launch into the golf ball and
golf tour markets.  Through the business acquired from WGF, the Company will
market and conduct golf tour events throughout the country.  WGF has developed a
handicapping system for golf which assists in leveling the playing field for
golfers of all handicaps.  WGF, now known as the "Fila World Golf Tour," is
dedicated to fostering honesty and integrity within the game of golf.  Marketing
of golf tour events occurs principally through word-of-mouth.  Participants
invite friends and golfing acquaintances to participate in tour events.
Individuals pay monthly dues which entitle them to play in tour events.  As tour
participants bring in other players, such participants become entitled to
receive a distributor's commission for new tour registrants.  Each tour event
utilizes the Company's proprietary handicapping system to determine event
winners who receive cash, prizes, or both.

     In conjunction with the Fila World Golf Tour, the Company through the
acquisition of BMC's assets is positioned to market golf balls at its tour
events.  The line of "World Tour" golf balls are USGA approved and available
exclusively through the Company.  Network marketing provides the means of
primary distribution for the World Tour balls.  Interested individuals are
encouraged to become independent distributors of the golf balls.  The Company
provides a number of programs whereby participants can subscribe to receive golf
balls each month on a auto-ship basis.  The Company believes the businesses of
BMC and WGF can be effectively combined to create a novel marketing vehicle in
the golfing industry to increase golf tournament participation and to distribute
golf balls and other golfing products.

RESULTS OF OPERATIONS

     The Company's successful efforts to raise funding for working capital needs
and move into the mass merchandise retail market during 1997 resulted in
substantial sales increases over 1996. The Company anticipates that that the
trend of increasing sales will continue during 1998. The Company believes the
mass retail market will continue to provide the best opportunity for the Company
to enjoy sales growth; accordingly, continued and increased efforts are being
made to expand into this market

                                       17
<PAGE>
 
place. Management also believes the Company will benefit from continued efforts
to focus on and find new marketing avenues for existing products and new
products to distribute through existing and expanded distribution lines.

     The Company's expansion has required additional access to working capital. 
To help fund growth, the Company has entered into a series Loan and Credit 
Agreements with the AKA Charitable Remainder Unitrust #1. The first line of 
credit was for a maximum amount of up to $1,000,000, and the second line of 
credit, currently being utilized by the Company, provides for the Company to 
draw the maximum aggregate principal amount of the lesser of $5,000,000, or 80% 
of the Company's current assets. As of December 31, 1997, the Company had 
borrowed $3,764,000 on this credit line. The Company was not in compliance with 
one condition of the Loan and Credit Agreement on December 31, 1997 by having 
drawn on the credit line beyond 80% of the Company's current assets. In the
event the Company is not able to comply with this condition within 10 days of
receiving written notice from the Lender, the maturity date on the borrowings
could be accelerated. Such acceleration could have a materially adverse effect
on the Company's operations. The Company has not received written notice and
believes it could comply upon receipt of such notice.

     As a result of the Company's current and ongoing capital requirements, the 
Company's auditors, Cobin & Wertz, has issued a going concern opinion in 
conjunction with its annual audit. The Company's Management believes current 
sales growth and capital raising activities will provide adequate working 
capital to fund operations through the current year and into next year.

     Comparison of Year Ended December 31, 1997 to the Year ended December 31,
1996.  Net sales for the year ended December 31, 1997 were $5,375,000 compared
to $2,403,000 for the comparable period in 1996, an increase of $2,972,000 or 
124%. This increase is attributable to the Company's re-focused business
strategy and improved working capital. The Company has re-focused its business
strategy and marketing efforts to place greater emphasis on market niches which
have been the most consistently productive since the Company's inception and
which are the most closely aligned with Fila Sport's interests and marketing
emphasis; high-fashion design and value.

     Cost of sales increased from $2,488,000 for the year ended December 31,
1996 to $4,822,000 for the comparable period in 1997, an increase of $2,334,000 
or 94%. The gross profit margin increased from (4)% during 1996 to 10% for
the comparable period in 1997. The increase in cost of sales and increase in
gross profit margin is due primarily to the increased sales volume during the 
year.

     Selling, general, and administrative costs were $2,392,000, during 1997
compared to $2,425,000 for the comparable period in 1996, a decrease of $33,000
or 1%. The Company receives lower margins on mass retail sales than on specialty
shop sales due to the reciprocal increase in volume traditionally enjoyed on
mass retail accounts. This decrease in selling, general, and administrative
costs, while increasing sales by 124%, is due mainly to the continuing efforts
of the company to reduce operating expenses throughout the restructuring
process.

     The Company experienced a net loss of $1,845,000 during 1997 compared to a 
net loss of $2,541,000 for the comparable period in 1996, a decrease in losses
of $696,000. The increase in sales volume, particularly to mass retailers during
1997, accounts for the decrease in losses.

     The Company's inventory increased substantially from $340,000 at December
31, 1996 to $758,000 at December 31, 1997 as a result of the Company having
sufficient working capital from newly invested capital and borrowed funds to
fund operations and meet inventory purchase requirements.

     Virtually all of the line item financial changes which occurred during 1997
resulted from the Company's expansion into the mass merchandise market which 
resulted in increased sales and related cost of sales. The Company intends to
continue to focus on new markets and product lines to increase sales and
revenues during 1998.
 
     Comparison of the Year Ended December 31, 1996 to the Year ended December
31, 1995.  Net sales for the year ended December 31, 1996 decreased 52% to
$2,403,000 compared to $5,007,000 for the year ended December 31, 1995.  The
decrease was due primarily to a shortage of working capital to fund inventory
purchase requirements.

     Management believes golf bags represent a product segment which supports
the major market lines of Fila Sport.  Management plans to focus on the
continued strength of the bag and accessory line while continuing to pursue the
club market and product innovation.  The Company's business is seasonal in
nature.  Therefore, operating results for one or more quarters may not be
indicative of future trends or operating results for the full fiscal year.

                                       18
<PAGE>
 
     Cost of sales decreased from $4,061,000 for the year ended December 31,
1995 to $2,488,000 for the comparable period in 1996, a decrease of $1,573,000
or 39%.  The gross profit margin decreased from 19% for the year ended December
31, 1995 to 4% for the comparable period in 1996.  This decrease was due
primarily to lower margins and discounts given on certain product lines.  In
addition, lower margins can be attributed to an increased in the reserve for
obsolete inventory to $730,000 as of December 31, 1996 as compared to $409,000
for the comparable period in 1995.

     Variations in the selling, general, and administrative costs during 1996
resulted from depleted working capital.  The Company cut its operating expenses
in an effort to maintain operations until capital could be obtained to fund
continuing operations.  Additionally, the Company's lower sales volume resulted
in lower expenses, such as commissions, which are directly related to sales
levels.

     Selling, general, and administrative costs were $2,425,000 for the year
ended December 31, 1996 compared to $3,332,000 for the comparable period in
1995, a decrease of $907,000 or 27%.  The decrease resulted primarily from lower
sales and marketing expenses ($656,000 for the year ended December 31, 1996 as
compared to $1,734,000 for the same period in 1995), mainly consisting of
advertising, athletic endorsements, demo program, outbound freight expenses,
sales promotion, tour promotion, and sales commissions; a decrease in finance
and administrative expenses ($263,000 for the year ended December 31, 1996 as
compared to $406,000 for the same period in 1995), mainly consisting of
insurance, office expense, and telephone expenses; a decrease in salaries and
staff costs ($520,000 for the year ended December 31, 1996 as compared to
$678,000 for the same period in 1995.)   These decreases were offset by an
increase in professional costs ($627,000 for the year ended December 31, 1996 as
compared to $157,000 for the same period in 1995), mainly consisting of
consulting expense. In addition, the Company expensed $178,000 related to a
write-down of impaired assets.

     Other income and expense items decreased to a net expense of $43,000 for
the year ended December 31, 1996 as compared to a net expense of $133,000 for
the same period in 1995.  This net decrease resulted primarily from a decrease
of $96,000 in interest expense ($44,000 for the year ended December 31, 1996 as
compared to $140,000 for the same period in 1995), as a result of decreased
debt in 1996.
 
     The Company experienced a net loss of $2,541,000 for the year ended
December 31, 1996 compared to $2,520,000 for the comparable period in 1995, an
increase of $21,000 or 1%.
 
PLAN OF OPERATION - LIQUIDITY AND CAPITAL RESOURCES

     Since the time of the Financing, the Company has entered into a series of
credit lines with the AKA Charitable Remainder Unitrust #1.  The first line of
credit was for a maximum amount of up to $1,000,000 and the second line of
credit, still being utilized by the Company, is for a maximum amount of up to
$5,000,000.  The lines of credit have provided the Company with an indispensable
cash resource to utilize as the Company has come back from insolvency.  Each
line of credit bearing interest at 12%, has been made possible through the
personal guaranty of the credit line by John B. Hewlett, the Company's Chairman
of the Board and Chief Executive Officer.  John B. Hewlett's financial support
and vision for the Company combined with marketing appeal of the Fila brand name
have salvaged the Company.

     In addition to the credit lines secured by the Company last year, a private
placement of the Company's shares of Common Stock was recently undertaken on
March 2, 1998 to raise up to $2,400,000. The Company intends to close the
offering at the end of April 1998. To date a total of approximately 430,000
units have been subscribed for a total of $1,300,000 raised. Through the private
placement the Company offered for sale up to a maximum of 550,000 Units, each
Unit consisting of one share of its Common Stock, par value $.001 per share, and
a warrant to purchase one share of Common Stock. The purchase price was $3.00
per Unit. The Company offered a minimum of 5,000 Units per investor. The
Warrants are immediately exercisable and transferable separately from the shares
of Common Stock. Each Warrant entitles its holder to purchase one share of
Common Stock at an exercise price of $5.00 per share, subject to adjustment in
certain events. The Warrants may be exercised at any time and from time to time
until December 31, 2002. The Company has the right to redeem the Warrants at
$0.01 per Warrant upon not less than 30 days' notice if the Closing Price of the
Common Stock for a period of 20 consecutive Trading Days, ending not earlier
than

                                       19
<PAGE>
 
10 days prior to the date of such redemption notice, equals or exceeds $7.00 per
share, subject to adjustment in certain events.

  During April 1998, the Company extended an offer to the holders of the 
Company's Class A Warrants (the "Warrants") to modify the terms of such 
warrants. The Company issued 1,400,000 Warrants in connection with its initial 
public offering in November 1993. The initial exercise  price of $6.50 per share
and the number of Warrants were subject to adjustment on certain events, 
including stock splits and the issuance of securities by the Company at prices 
less than the exercise price. Based on required adjustments, the exercise price 
at December 31, 1997 and the date of this report were $10.62 and $9.68, 
respectively. The adjusted number of Warrants outstanding at December 31, 1997 
and the date of the report were 852,060 and 941,843, respectively.

  The Warrants are also redeemable by the Company for $.01 per Warrant if the 
Company's Common Stock trades at a price in excess of $9.00 for 10-consecutive 
trading days, subject to the holders' rights to exercise their Warrants during 
the 10-day period following the redemption notice.

  The Company's offer to modify the terms of the Warrants included an agreement 
to reduce the exercise price of the Warrants from $9.61 to $5.50 per share and 
waive the adjustments of the number of Warrants on the condition that the 
Warrant holders agree to reduce the redemption price from $9.00 to $7.00 and 
waive further price adjustments. The November 15, 1988 expiration date has not 
been changed.

     The Company's cash from operations is generated by sales of golf products
to distributors at wholesale prices.  Sales to domestic accounts are typically
due 30 to 90 days after shipment while sales to international distributors are
paid by letter of credit facilities or by wire transfer upon shipment.

     Net cash used in operating activities for 1997, 1996, and 1995 was
$4,738,000, $1,000,000 and $323,000, respectively. Working capital at the end of
1997, 1996, and 1995 was $(810,000), $(502,000) and ($12,000), respectively.
Cash and cash equivalents at December 31, 1997 were $776,000 compared to
$276,000 at December 31, 1996. Inventories, net of reserves at December 31, 1997
were $758,000 compared to $349,000 at December 31, 1996, an increase of
$409,000. Also, accounts receivable increased $844,000 from $143,000 at December
31, 1996 to $987,000 at December 31, 1997. Notes payable for $425,000 were
outstanding at December 31, 1997. Accounts payable and accrued liabilities
decreased by $200,000 from December 31, 1996 to December 31, 1997. Accrued
royalties decreased by $66,000 from December 31, 1996 to December 31, 1997.

     The Company strives to maintain a sufficient inventory of golf club
components, bags, and accessories to fulfill orders.  Generally, the Company
does not maintain a substantial finished product inventory.  Management believes
that all of the golf club components and other products manufactured for the
Company by suppliers are readily available from a variety of sources.

     In November 1993, the Company issued 1,400,000 units consisting of one
share of Common  Stock and one Common  Stock Purchase Warrant at $5.50 per unit,
realizing net proceeds of $6,318,000 from the Offering.  Approximately $977,000
of the proceeds of the Offering were utilized to repay the outstanding short-
term borrowing and accrued interest thereon.

     In January 1995, the Company undertook a private offering to sell between 
one and 15,000 units consisting of one share of preferred stock and five Common
Stock purchase warrants. The Company raised $25,000 before the offering was
terminated. 

     In March 1995 the Company obtained a $1,000,000 borrowing facility with a
national asset-based lender to assist in funding its domestic and international
operations.  The availability of this line was contingent upon the Company's
amount of eligible accounts receivable.  This asset-based lending agreement was
terminated as of June 4, 1996.

     In October 1996, the Company, through the Financing, offered up to a
maximum of 100 Units at an issue price of $25,000 per Unit, each Unit consisting
of (i) a Debenture; and (ii) 15,625 Unit Shares at a price of $0.80 per share
for a total of $12,500 for the Unit Shares.  The Debentures were converted into

                                       20
<PAGE>
 
Common Stock on December 15, 1997 at the rate of $0.50 per share after the
closing price of the Company's Common Stock exceeded $1.50 per share for 20
consecutive trading days.
 
     The Financing resulted in the infusion of approximately $2,500,000 into the
Company.  The Financing permitted the Company to pay off accrued royalties to
Fila Sport and certain other outstanding liabilities, while also adding to
working capital.  Additionally, the infusion of capital resulted in the Company
being able to obtain a revolving loan from a private trust of up to $1,000,000
based upon open customer sales orders.  The proceeds provided by the Financing
and the loan permitted the Company to experience a positive cash flow sufficient
to purchase inventory and increase sales.

     The Company and the Company's Chairman of the Board of Directors jointly
entered into a loan and security agreement with a lender on October 29, 1997 to
provide the Company the maximum aggregate principal amount of the lesser of
$5,000,000, or 80% of the Company's current assets.  The amount outstanding on
the loan and revolving promissory note is adjusted upward or downward on a
monthly basis, throughout the term of the note, based on total current assets,
which for purposes of the agreement mean cash, accounts receivable aged less
than 90 days, and inventory.  The revolving promissory note executed pursuant to
this agreement bears an interest rate of 12% and expires December 31, 1999.  As
further consideration for this loan and security agreement, warrants to purchase
400,000 shares of the Company's Common  Stock were issued which are exercisable
200,000 at $1.50; 100,000 at $2.00; and 100,000 at $3.00 and which expire
December 31, 2002.  Amounts outstanding under the agreement are collateralized
by the Company's inventory, open orders, accounts, and other assets of the
Company.  As of December 31, 1997, the Company had borrowed      on this
revolving promissory note.

     During 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock-Based Compensation," which defines a fair value based method of
accounting for stock-based compensation. However, SFAS 123 allows an entity to
continue to measure compensation cost related to stock and stock options issued
to employees using the intrinsic method of accounting prescribed by Accounting
Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to
Employees." Entities electing to remain with the accounting method of APB 25
must make pro forma disclosures of net income and earnings per share, as if the
fair value method of accounting defined in SFAS 123 had been applied. The
Company has elected to account for its stock-based compensation to employees
under APB 25.

     In February 1997, FASB issued SFAS No. 128, "Earning Per Share" ("EPS").
SFAS No. 128 requires dual presentation of basic EPS and diluted EPS on the face
of all income statements issued after December 15, 1997 for all entities with
complex capital structures. Basic EPS is computed as net income divided by the
weighted average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur from common shares issuable
through stock options, warrants, and other convertible securities. There was no
effect on EPS upon the adoption of the provisions of SFAS No. 128 for all years
presented. Loss per common share has been computed on the weighted average
number of common and equivalent shares outstanding. Basic and diluted net loss
per share are approximately the same.

     In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
and SFAS No. 131, Disclosures about Segments of an Enterprise and Related 
Information.  SFAS No. 130 requires that an enterprise report, by major 
components and as a single total, the change in its net assets during the period
from nonowner sources; and SFAS No. 131 establishes annual and interim reporting
standards for an enterprise's operating segments and related disclosures about 
its products, services, geographic areas, and major customers.  Adoption of 
these statements will not impact the Company's financial position, results of 
operations, or cash flows and any effect will be limited to the form and content
of its disclosures.  Both statements are effective for fiscal years beginning 
after December 15, 1997, with earlier application permitted.

ITEM 7.  FINANCIAL STATEMENTS

     The financial statements listed in the accompanying Index to Financial
Statements are attached hereto and filed as a part of this Report under Item 13.


ITEM 8.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT

     During the Company's two most recent fiscal years there has been no
change in accountant and there were no disagreements with the Accountant on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure.

                                       21
<PAGE>
 
                                   PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
          PERSONS; COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT

COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT

     Section 16 (a) of the Securities Exchange Act of 1934 requires the
Company's officers, directors, and persons who own more than 10% of a registered
class of the Company's equity securities to file reports of ownership and
changes in ownership with the Securities and Exchange Commission (the "SEC"),
NASDAQ, and the Boston Stock Exchange. Officers, directors, and greater than 10%
beneficial owners are required by SEC regulation to furnish the Company with
copies of all Section 16 (a) forms they file. The Company believes that all
filing requirements applicable to its officers, directors, and greater than 10%
beneficial owners were complied with.

EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES

     The names, ages and positions of the Company's Directors and executive
officers as of January 1, 1998 are listed below:

<TABLE>
<CAPTION>
 
NAME                     AGE         POSITION WITH THE COMPANY                     FIRST ELECTED
<S>                      <C>         <C>                                           <C>          
John B. Hewlett          45          Chairman of the Board, CEO, Director                  1996 
Miles T. Doody           70          Vice Chairman                                         1993 
Kenneth W. Craig         43          Vice President of Product Design                      1996 
Ralph W. Rasmussen       52          Director                                              1998 
Mont E. Warren           36          Vice President, Chief Financial Officer               1993 
Dennis L. Crockett       46          Director                                              1996 
Wade M. Mitchell         33          Vice President of Finance, Director                   1996 
Kurt A. Moore            40          Executive Vice President                              1997 
Bruce H. Haglund         46          Secretary                                             1994 
Edward B. Paulsen        34          Assistant Secretary                                   1997  
</TABLE>

     John B. Hewlett has served as Chairman of the Board of the Company since
October 1996 and as Chief Executive Officer since September 1997.  Mr. Hewlett
is President of Hewlett Financial Corporation.  He has 22 years of experience in
the insurance field, specializing in sales and long and short-term planning.
From 1985 to the present, Mr. Hewlett has been a nationally recognized
consultant and seminar leader on closely held business succession and financial
planning.  He is a member of the Million Dollar Round Table, Court of the Table,
and one of three Top of the Table members in the Intermountain West with career
insurance sales approaching $640,000,000.  Mr. Hewlett is a member of the
National Basketball Association Utah Jazz 100 Club and Advisory Board.

     Miles T. Doody served as Chief Executive Officer of the Company from
January 1993 through December 1996, served as President from 1990 to 1996, and
currently serves as Vice Chairman and a Director. From 1986 to 1990, Mr. Doody
operated a golf industry consulting service, advising such companies as Callaway
Golf and Bullet/Cougar Golf Company. From 1971 through 1986, Mr. Doody was
employed with Lynx Precision Golf Company, where he was involved in specific
club designs, various manufacturing procedures, and set-up, and where he served
eventually as General Manager and Executive Vice President. Mr. Doody negotiated
the acquisition by Lynx of Lilly Dache, a leading leisure sportswear company,
whereupon he became the General Manager of Lilly Dache, working with overseas
and domestic soft goods suppliers. From 1967 to 1971, Mr. Doody was employed by
P.G.A. Golf Co., serving as National Accounts Executive and National Sales
Manager.

     Kenneth W. Craig has served as either President or Vice President of
Product Design since October 1996 and served as a Director from October 1996 to
January 1998. Mr. Craig has been a private investor since June 1993. He began
his career as an attorney in Houston, Texas and practiced law from 1980 to 1989,
specializing in contracts, tax, mergers, and acquisitions. In the early 1980's,
he participated in the growth of Telecommunications Specialist Inc. ("TSI"), a
telephone system rental company which became the largest distributor for TIE
Communications ("TIE"). In 1987, he founded TIE National Rental Company, Inc.
("TNR") to prove a pilot program for TIE's national telephone rental 

                                       22
<PAGE>
 
system. In 1991, he sold his interest in TNR to TIE to pursue the acquisition of
Centel Business Systems ("Centel") by the Williams Companies. Upon the
acquisition, Centel became Wiltel Communications Systems, Inc. and Mr. Craig
serves as President of the Finance/Marketing Divisions until May 1993. Mr. Craig
has also been actively involved in golfing in various capacities including coach
of the University of Mississippi golf team and as a buyer, director, and
president of numerous golf and country clubs. He is a graduate of Stetson
University and the University of Mississippi School of Law.

     Ralph W. Rasmussen Jr. has served as a Director of the Company since
January 1998. Mr. Rasmussen graduated from Brigham Young University with a
Bachelor of Science degree in 1969 and a law degree in 1989. From 1969 to 1986,
he provided accounting and business management services for several large
farming operations in southern Idaho. From 1989 to 1996, Mr. Rasmussen practiced
law with the firm of Bradford and Brady in Provo, Utah. In September 1996, Mr.
Rasmussen sold his law practice and began working full time for one of his
clients, the Alan Ashton family and their businesses.

     Mont E. Warren has served as Chief Financial Officer of the Company since
January 1993 and as the Company's Controller since February 1991.  In December
1987, Mr. Warren began his PGA apprenticeship at Desert Highlands Golf Club in
Scottsdale, Arizona where he served as assistant Golf Professional through
October 1990.  From 1986 to 1987, Mr. Warren was employed by American Capital
Financial Services where he eventually served as a District Manager.  Mr. Warren
is also the President and a member of the Board of Directors of Villavante
Maintenance Corporation.  Mr. Warren obtained a B. S. degree in Accounting from
Brigham Young University in 1986.

     Dennis L. Crockett has been a Director of the Company since October 1996.
He is co-founder and Chief Operations Officer of Broadcast International, Inc.,
a communications firm specializing in the delivery of business information via
satellite, FM wireless and cable television technologies, which recently merged
with Data Broadcasting Corporation. Further, Mr. Crockett co-founded the Instore
Satellite Network, one of the nation's largest private satellite communications
networks providing private audio, video, voice, and data broadcasts to retail
clients including Safeway Stores, Osco/Savon Drug, Lucky Stores, and RE/MAX
Reality. Mr. Crockett is a nationally published composer, arranger, vocalist,
and keyboardist as well as a respected musical producer of both record, radio,
and television entertainment. Mr. Crockett attended Brigham Young University in
Provo, Utah.

     Wade M. Mitchell has been a Director since October 1996 and Vice President
of Finance since October 1997. He has been employed as a business consultant
through Mitchell & Associates, a professional corporation specializing in
mergers, acquisitions, and corporate turn-arounds since 1989. Mitchell &
Associates is owned and controlled by Mr. Mitchell. From 1993 to 1995, he was a
special consultant and member of the Board of Directors of Environmental
Safeguards, Inc., of Springville, Utah, and a member of the Board of Directors
of National Fuel & Energy, Inc., a wholly-owned subsidiary of Environmental
Safeguards, Inc. From 1991 to 1993, he was the Chief Operating Officer for Enpak
Surgical Products, Inc., Salt Lake City, Utah. During 1989, he was a marketing
consultant for Novations Group, Inc., Provo, Utah, and from 1985 to 1988, he was
the Director of Marketing for Great Wave Software, Inc., Scotts Valley,
California. Mr. Mitchell also serves as a director of Mitchell's Nursery &
Gifts, Inc., a member of the advisory board of GT Travel, Inc., and, a director
of Paradise Optical, Park City, Utah. Mr. Mitchell graduated from Brigham Young
University in April 1988 with a B.S. degree in science, and received an MBA
degree from Brigham Young University's Marriott School of Management in April
1990.

     Kurt A. Moore has served as the Executive Vice President since September
1997. Mr. Moore worked with Carbon Fiber Products ("CFP"), a publicly traded
company, as a sales manager from 1983 to 1993, and as the company's President
from 1993 to 1995. He also served as a director for CFP from 1992 to 1995.
During 1996, Mr. Moore worked as a mortgage loan officer with Zions Bank and
Bank of Utah. Mr. Moore attended Weber State University from 1975 to 1979, where
he was a marketing major.

     Bruce H. Haglund has served as Secretary of the Company since January 1994.
Since April 1994, Mr. Haglund has been a partner in the law firm of Gibson,
Haglund & Johnson.  From February 1991 to April 1994, Mr. Haglund was a
principal in the law firm of Phillips, Haglund, Haddan & Jeffers.  From 1984 to
February 1991, he was a partner in the law firm of Gibson & Haglund.  Mr.
Haglund is also the Secretary and a member of the Board of Directors of GB Foods
Corporation, a public company whose 

                                       23
<PAGE>
 
stock is traded on the NASDAQ Small Cap Market. He is a graduate of the
University of Utah College of Law.

     Edward B. Paulsen has served as Assistant Secretary of the Company since
October 1997.  Since February 1996, Mr. Paulsen has been an associate with the
law firm of Gibson, Haglund & Johnson.  From April 1995 to February 1996, Mr.
Paulsen was an associate with the law firm of Taylor, Ennenga, Adams & Lowe in
Salt Lake City, Utah, and from August 1996 to March 1995 he was as associate
with the law firm of Chapman, Fuller & Bollard in Irvine, California.  Mr.
Paulsen received a B.S. degree in accounting from Brigham Young University and a
J.D. degree from the University of Utah College of Law.

BOARD OF DIRECTORS

     The Board of Directors has the responsibility for establishing broad
corporate policies and for overseeing the overall performance of the Company.
However, in accordance with corporate governance principles, the Board is not
involved in day-to-day operating details. Members of the Board of Directors are
kept informed of the Company's business through discussions with the Chairman
and other officers, by reviewing analyses and reports sent to them, and by
participating in Board and committee meetings.

     In October 1996, Michael B. Orr and J. Arthur Wright resigned as Directors
of the Company to permit new Directors to be appointed in conjunction with the
Financing and a restructuring of the Board. The Board acted to fill these two
vacancies and two other vacancies on the Board by electing John B. Hewlett,
Kenneth W. Craig, Dennis L. Crockett, and Wade M. Mitchell as Directors to serve
until the next Annual Meeting of the Company. All directors were subsequently 
re-elected at the October 1997 stockholders meeting.

     All Directors attended more than 75% of the Meetings held during their
tenures as Directors.

COMMITTEES OF THE BOARD

     In November 1996, the Board of Directors established a number of
committees, including a Finance Committee, an Audit Committee, and a
Compensation Committee, each of which is briefly described below.

     The Finance Committee was established to oversee Company expenditures and
approve contracts entered into by the Company.  The committee must, by majority
vote, approve all contracts and negotiated debt obligations on behalf of the
Company whereby the obligation of the Company will exceed $2,500.  The committee
consists of two outside Directors, John B. Hewlett and Wade M. Mitchell, one
employee Director, Kenneth W. Craig, and Mont Warren, the Company's Chief
Financial Officer as an ex officio member.

     The Audit Committee was established to meet with management to consider the
adequacy of the internal controls and the objectivity of financial reporting;
the committee meets with the independent auditors and with appropriate Company
financial personnel about these matters.  The committee recommends to the Board
of Directors the appointment of the independent auditors, subject to
ratification by the Stockholders at the Annual Meeting.  Both the internal
auditors and the independent auditors periodically meet alone with the committee
and always have unrestricted access to the committee.  The committee consists of
two non-employee, Directors Dennis L. Crockett and Wade B. Mitchell, one
employee Director, Kenneth W. Craig, and Mont Warren, the Company's Chief
Financial Officer as an ex officio member.

     The Compensation Committee negotiates employment contracts, recommends to
the Board of Directors compensation for officers, Directors, and employees, and
administers management incentive compensation plans, including stock option
plans. The committee consists of two non-employee Directors, John B. Hewlett and
Dennis L. Crockett, one employee Director Miles T. Doody, and Bruce H. Haglund,
Secretary and General Counsel to the Company, as an ex officio member, having no
vote.

                                       24
<PAGE>
 
COMPENSATION OF DIRECTORS

     The Company's policy is not to pay cash compensation to directors who are
employees or consultants of the Company for their services as directors, but
reimburses reasonable out-of-pocket expenses of directors for attendance at
meetings.

LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS

     The Company's Certificate of Incorporation limits the liability of
directors to the maximum extent permitted by Delaware law. Delaware law provides
that directors of a corporation will not be personally liable for monetary
damages for breach of their fiduciary duties as directors, except liability for
(i) any breach of their duty of loyalty to the corporation or its stockholders,
(ii) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) unlawful payments of dividends or unlawful
stock repurchases or redemptions, or (iv) any transaction from which the
director derived an improper personal benefit. Such limitation of liability does
not apply to liabilities arising under the federal securities laws and does not
affect the availability of equitable remedies such as injunctive relief or
rescission.

     The Company's Bylaws provide that the Company shall indemnify its directors
and executive officers and may indemnify its other officers and employees and
other agents to the fullest extent permitted by law. The Company believes that
indemnification under its Bylaws covers at least negligence and gross negligence
on the part of indemnified parties. The Company's Bylaws also permit it to
secure insurance on behalf of any officer, director, employee, or other reagent
for any liability arising out of his or her actions in such capacity, regardless
of whether the Bylaws permit such indemnification.

     The Company has entered into agreements to indemnify its directors and
officers, in addition to the indemnification provided for in the Company's
Bylaws. These agreements, among other things, indemnify the Company's directors
and executive officers for certain expenses (including attorneys' fees),
judgments, fines, and settlement amounts incurred by any such person in any
action or proceeding, including any action by or in the right of the Company,
arising out of such person's services as a director or executive officer of the
Company, any subsidiary of the Company or any other Company or enterprise to
which the person provides services at the request of the Company.

     At present, there is no pending litigation or proceeding involving any
director, officer, employee, or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding that might result in a claim for such indemnification.


ITEM 10.  EXECUTIVE COMPENSATION

     The Company incorporates herein by reference the information concerning
security ownership of certain beneficial owners and management contained in the
1998 Proxy Statement.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The Company incorporates herein by reference the information concerning
security ownership of certain beneficial owners and management contained in the
1998 Proxy Statement.

ITEM  12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The Company incorporates herein by reference the information concerning
security ownership of certain beneficial owners and management contained in the
1998 Proxy Statement.

                                       25
<PAGE>
 
ITEM  13. EXHIBITS AND REPORTS ON FORM 8-K

(a)  The following documents are filed as part of this report on Form 10-KSB:

     1.  Financial Statements for the periods ended December 31, 1996 And 1997:

            Independent Auditors' Reports
            Balance Sheet
            Statements of Operations
            Statements of Stockholders' Equity
            Statements of Cash Flows
            Notes to Financial Statements

     2.  Exhibits
 
     The following exhibits are being filed with this Annual Report on Form
10-KSB and/or are incorporated by reference therein in accordance with the
designated footnote references:

3.1   Certificate of Incorporation, Restated Certificate of Incorporation and
      Bylaws of the Company(1)

3.2   1997 Amendment to the Certificate of Incorporation

4.1   Form of Class A Warrant Agreement and Certificate(1)

4.2   Form of Amendment to Class A Warrant Agreement

4.3   Form of Underwriters' Warrants(1)

4.4   Form of Common Stock Certificate(1)

4.5   Form of Warrant for 1998 Warrants

10.1  Purchase and Sale Agreement between the Company and Fidelity Funding of
      California, Inc. dated March 13, 1995(2)
 
10.2  License Agreement between the Company and Fila sport, S.p.A. dated October
      1, 1996(3)

10.3  Loan and Security Agreement between the Company, John B. Hewlett and AKA
      Charitable Remainder Unit Trust Number 1(3)

10.4  Revolving Promissory Note between the Company, John B. Hewlett and AKA
      Charitable Remainder Unit Trust Number 1(3)

10.5  UCC-1 filings for the state of Utah and California related to the Loan and
      Security Agreement between the Company, John B. Hewlett, and AKA
      Charitable Remainder Unit Trust Number 1(3)

10.6  Loan and Security Agreement dated October 29, 1997 between the Company,
      John B. Hewlett, and AKA Charitable Remainder Unit Trust Number 1
 
10.7  Revolving Promissory Note dated October 29, 1997 between the Company, John
      B. Hewlett, and AKA Charitable Remainder Unit Trust Number 1
 
10.8  UCC-1 filings for the states of Utah and California related to the Loan
      and Security Agreement dated October 29, 1997 between the Company, John B.
      Hewlett and AKA Charitable Remainder Unit Trust Number 1

                                       26
<PAGE>
 
10.9   Registration Rights Agreement dated October 29, 1997 between the Company,
       John B. Hewlett, and AKA Charitable Remainder Unit Trust Number 1
 
10.10  Warrant Agreement dated October 29, 1997 between the Company, John B.
       Hewlett, and AKA Charitable Remainder Unit Trust Number 1

10.40  Warrant Certificate for the AKA Charitable Remainder Unit Trust Number 1
       at $1.50 per share

10.12  Warrant Certificate for the AKA Charitable Remainder Unit Trust Number 1
       at $2.00 per share

10.13  Warrant Certificate for the AKA Charitable Remainder Unit Trust Number 1
       at $3.00 per share

10.14  Non-qualified Stock Option Agreement and Promissory Note for Bruce H.
       Haglund(3)

10.15  Non-qualified Stock Option Agreement for Kenneth W. Craig(3)

10.16  Non-qualified Stock Option Agreement and Promissory Note for Miles T.
       Doody(3)

10.17  Non-qualified Stock Option Agreement for James T. Doody(3)

10.18  Non-qualified Stock Option Agreement for Pine Valley Ltd.(3)

10.19  Non-qualified Stock Option Agreement for Mont E. Warren(3)

10.20  Non-qualified Stock Option Agreement for John B. Hewlett(3)

10.21  Non-qualified Stock Option Agreement for John B. Hewlett

10.22  Non-qualified Stock Option Agreement for Wade M. Mitchell(3)

10.23  Non-qualified Stock Option Agreement for Granite Hollow Insurance
       Agency(3)

10.24  Non-qualified Stock Option Agreement dated November 27, 1997 for Bruce H.
       Haglund(4)

10.25  Non-qualified Stock Option Agreement dated November 27, 1997 for Kenneth
       W. Craig(4)

10.26  Non-qualified Stock Option Agreement dated November 27, 1997 for John B.
       Hewlett(4)

10.27  Non-qualified Stock Option Agreement dated November 27, 1997 for Wade M.
       Mitchell(4)

10.28  Non-qualified Stock Option Agreement dated November 27, 1997 for Kurt A.
       Moore(4)

10.29  Non-qualified Stock Option Agreement dated September 15, 1997 for Kurt A.
       Moore

10.37  Non-qualified Stock Option Agreement dated September 15, 1997 for Edward
       B. Paulsen

10.31  Form S-8 for the registration of 500,000 shares of common stock issuable
       upon conversion of 500,000   options granted to officers of the Company
       during 1997(4)

10.32  Lease between the Company and Ortho Development Corp. dated January 1,
       1998

10.33  Asset Purchase Agreement between the Company and The Ball Marketing
       Company, LLC

10.34  Non-Compete and Non-Disclosure Agreement between the Company and The Ball
       Marketing Company, LLC and its Principals

                                       27
<PAGE>
 
10.35  Asset Purchase Agreement between the Company and World Golf Federation,
       Inc.

10.36  Non-Compete and Non-Disclosure Agreement between the Company and World
       Golf Federation, Inc. and its Principals

10.37  Exclusive Agreement between the Company and Stilson & Stilson

23.1   Independent Auditors' Consent - Corbin & Wertz

_________________ 
(1)    Filed with the Company's Registration Statement on Form SB-2 dated
       November 12, 1993 and incorporated by reference.

(2)    Filed with the Company's Annual Report on Form 10-KSB for the year ended
       December 31, 1995.

(3)    Filed with the Company's Annual Report on Form 10-KSB for the year ended
       December 31, 1996.

(4)    Filed with the Company's S-8 on February 11, 1998.

(b)    Reports on Form 8-K.

       Change of Principal Business Office filed on February 11, 1998.

                                       28
<PAGE>
 
                                  SIGNATURES
                                        
     In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Draper, State of Utah, on the 15th day of April 1998.


                              By:  /s/John B. Hewlett                 
                                   ----------------------------------------
                                   John B. Hewlett, Chief Executive Officer 
   

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

     SIGNATURE                     TITLE                         DATE
 
/s/ John B. Hewlett         Chairman of the Board            April 15, 1998
-------------------         Chief Executive Officer      
John B. Hewlett             (Principal Executive Officer) 
                     

/s/ Miles T. Doody          Vice Chairman, Director          April 15, 1998
------------------  
Miles T. Doody


/s/ Wade Mitchell           Director                         April 15, 1998
-----------------                                    
Wade Mitchell


/s/ Dennis Crockett         Director                         April 15, 1998
-------------------  
Dennis Crockett


/s/ Kenneth W. Craig        Vice President, Director         April 15, 1998
--------------------    
Kenneth W. Craig


/s/ Ralph Rasmussen         Director                         April 15, 1998
-------------------  
Ralph Rasmussen


                            Vice President, Chief
                            Financial Officer,
/s/ Mont E. Warren          (Principal Accounting Officer)   April 15, 1998
------------------                                                       
Mont E. Warren

                                       29
<PAGE>
 



                        RENAISSANCE GOLF PRODUCTS, INC.

                             FINANCIAL STATEMENTS

                For The Years Ended December 31, 1997 and 1996

                                     with

                     INDEPENDENT AUDITORS' REPORT THEREON



<PAGE>
 
                          INDEPENDENT AUDITORS' REPORT
                          ----------------------------



Board of Directors
Renaissance Golf Products, Inc.

We have audited the accompanying balance sheet of Renaissance Golf Products,
Inc. (the "Company") as of December 31, 1997, and the related statements of
operations, stockholders' equity (deficit) and cash flows for each of the years
in the two-year period then ended.  These financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Renaissance Golf Products, Inc.
as of December 31, 1997, and the results of its operations and its cash flows
for each of the years in the two-year period then ended in conformity with
generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that
Renaissance Golf Products, Inc. will continue as a going concern.  As discussed
in Note 1 to the financial statements, certain conditions raise substantial
doubt about the Company's ability to continue as a going concern.  Management's
plans concerning these matters are also discussed in Note 1.  The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.



                                            /s/  CORBIN & WERTZ

Irvine, California
February 20, 1998, except as to Note 12,
 which is as of April 1, 1998
<PAGE>
 
                        RENAISSANCE GOLF PRODUCTS, INC.

                                 BALANCE SHEET

                               December 31, 1997

                                     ASSETS
<TABLE>
<CAPTION>
 
<S>                                                    <C>
Current assets:
 Cash and cash equivalents                                       $  775,854
 Accounts receivable, net of allowance for doubtful
  accounts of $397,971                                              987,321
 Inventories, net                                                   757,957
 Deposits made on inventory                                       1,167,026
 Prepaid expenses and other current assets                           57,510
                                                                 ----------
     Total current assets                                         3,745,668
 
Property and equipment, net                                          53,586
 
Other assets                                                         34,199
                                                                 ----------
 
                                                                 $3,833,453
                                                                 ==========
</TABLE>
                     LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
 
Current liabilities:
<S>                                                            <C> 
 Revolving line of credit, net of discount                     $  3,637,487
 Current portion of notes payable                                   225,000
 Accounts payable                                                   460,226
 Accrued liabilities                                                114,673
 Accrued royalties                                                  118,355
                                                               ------------
     Total current liabilities                                    4,555,741
                                                              
Notes payable, less current portion                                 200,000
                                                               ------------
                                                              
     Total liabilities                                            4,755,741
                                                               ------------
                                                              
Commitments and contingencies                                 
                                                              
Stockholders' deficit:                                        
 Preferred stock, $.01 par value, 150,000 shares authorized;  
  250 shares issued and outstanding                                       3
 Common stock, $.001 par value, 40,000,000 shares             
  authorized; 4,613,662 shares issued and outstanding                 4,614
 Common stock subscribed, 1,496,276 shares                            1,496
 Additional paid-in capital                                      14,795,509
 Accumulated deficit                                            (15,723,910)
                                                               ------------
     Total stockholders' deficit                                   (922,288)
                                                               ------------
                                                              
                                                               $  3,833,453
                                                               ============
</TABLE> 

                 See accompanying independent auditors' report
                       and notes to financial statements

                                      F-2
<PAGE>
 
                        RENAISSANCE GOLF PRODUCTS, INC.

                           STATEMENTS OF OPERATIONS

                For The Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>

                                                    1997          1996
                                                -----------   ----------- 
<S>                                             <C>           <C>
Net sales                                       $ 5,375,160   $ 2,403,414
 
Cost of sales                                     4,821,704     2,487,947
                                                -----------   -----------
 
Gross profit (loss)                                 553,456       (84,533)
 
Selling, general and administrative expenses      2,391,659     2,424,791
                                                -----------   -----------
 
Operating loss                                   (1,838,203)   (2,509,324)
 
Other income (expense):
   Interest income                                    8,111         1,114
   Interest expense                                (332,467)      (43,747)
                                                -----------   -----------
 
         Total other income (expense)              (324,356)      (42,633)
                                                -----------   -----------
 
Loss before provision for income taxes and
 extraordinary item                              (2,162,559)   (2,551,957)
 
Provision for income taxes                             (800)         (800)
                                                -----------   -----------
 
Loss before extraordinary item                   (2,163,359)   (2,552,757)
 
Extraordinary gain from forgiveness of debt
 (net of income taxes of $0)                        318,228        11,325
                                                -----------   -----------
 
Net loss                                        $(1,845,131)  $(2,541,432)
                                                ===========   ===========
 
Net loss per common share                             $(.65)       $(1.75)
                                                ===========   ===========
 
Weighed average common shares outstanding         2,855,538     1,454,547
                                                ===========   ===========
</TABLE>
                 See accompanying independent auditors' report
                       and notes to financial statements

                                      F-3
<PAGE>
 
                        RENAISSANCE GOLF PRODUCTS, INC.

                 STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

                For The Years Ended December 31, 1997 and 1996

<TABLE>
<CAPTION>
                                                                                                    
                             PREFERRED STOCK      COMMON STOCK    COMMON STOCK SUBSCRIBED  ADDITIONAL                  TOTAL
                            -----------------   ----------------  ------------------------  PAID-IN     ACCUMULATED  STOCKHOLDERS'
                             SHARES   AMOUNT    SHARES   AMOUNT      SHARES      AMOUNT     CAPITAL      DEFICIT    EQUITY (DEFICIT)
                            -------- --------  --------- -------  ----------   ----------- ----------- ------------ ---------------
<S>                         <C>      <C>       <C>       <C>      <C>          <C>         <C>         <C>          <C>
Balance, January 1, 1996       250  $ 3        1,365,291  $1,365         -     $     -     $11,442,837 $(11,337,347) $   106,858
                                                                                                      
Common stock subscribed                                                                               
  for cash                       -    -               -        -    953,125        953         761,547            -      762,500
                                                                                                      
Issuance of stock options        -    -               -        -          -          -         320,000            -      320,000
                                                                                                      
Net loss                         -    -               -        -          -          -               -   (2,541,432)  (2,541,432)
                               ---  ---       ---------   ------   --------     ------      ----------   ----------   ----------
                                                                                                      
Balance, December 31, 1996     250    3       1,365,291    1,365    953,125        953      12,524,384  (13,878,779)  (1,352,074)
                                                                                                      
Issuance of common stock,                                                                             
  previously subscribed          -    -         953,125      953   (953,125)      (953)              -            -            -
                                                                                                      
Issuance of common stock                                                                              
  for cash                       -    -         703,125      703          -          -         561,797            -      562,500
                                                                                                      
Issuance of common stock upon                                                                         
  conversion of debt             -    -       1,607,816    1,608          -          -         802,300            -      803,908
                                                                                                      
Common stock subscribed upon                                                                          
  conversion of debt             -    -               -        -  1,096,276      1,096         547,038            -      548,134
                                                                                                      
Common stock subscribed upon                                                                          
  exercise of stock options      -    -               -        -    400,000        400         199,600            -      200,000
                                                                                                      
Issuance of stock options and                                                                         
  warrants                       -    -               -        -          -          -         160,375            -      160,375
                                                                                                      
Fractional share adjustment as a                                                                      
  result of reverse split        -    -         (15,695)     (15)         -          -              15            -            -
                                                                                                      
Net loss                         -    -               -        -          -          -               -   (1,845,131)  (1,845,131)
                               ---  ---       ---------   ------   --------     ------      ----------   ----------- -----------
                                                                                                      
Balance, December 31, 1997     250  $ 3       4,613,662   $4,614  1,496,276     $1,496     $14,795,509 $(15,723,910) $  (922,288)
                               ===  ===       =========   ======  =========     ======     =========== ============= ===========
 
</TABLE>
                 See accompanying independent auditors' report
                       and notes to financial statements

                                      F-4
<PAGE>
 
                        RENAISSANCE GOLF PRODUCTS, INC.

                           STATEMENTS OF CASH FLOWS

                For The Years Ended December 31, 1997 and 1996

<TABLE>
<CAPTION>
                                              1997          1996
                                          -----------   ------------
<S>                                       <C>           <C>
Cash flows from operating activities:
 Net loss                                 $(1,845,131)  $(2,541,432)
 Adjustments to reconcile net loss to
  net cash used
  in operating activities:
   Depreciation and amortization               28,081        82,636
   Provision for doubtful accounts            307,971      (110,000)
   Provision for allowance for                177,000       321,000
    inventory obsolescence
   Loss (gain) on sale of property and              -           689
    equipment
   Loss on write-down of impaired assets            -       177,861
   Loss on write-off of intangible asset            -         6,925
   Gain on forgiveness of debt               (318,228)      (11,325)
   Expense recorded in connection with
    non-employee options                       23,375       278,000
   Expense recorded in connection with         52,538             -
    discount amortization
   Changes in operating assets and
    liabilities:
     Accounts receivable                   (1,152,753)      701,827
     Inventories                             (586,317)      276,415
     Deposits on Inventory                 (1,167,026)            -
     Prepaid expenses and other current       (47,195)       34,891
      assets
     Other assets                             (13,056)        1,799
     Accounts payable and accrued            (130,971)      138,108
      liabilities
     Accrued royalties                        (65,791)     (403,356)
     Deferred revenue                               -        46,095
                                          -----------   -----------
 
 Net cash used in operating activities     (4,737,503)     (999,867)
                                          -----------   -----------
 
Cash flows from investing activities:
 Purchases of property and equipment          (32,460)            -
                                          -----------   -----------
 
Cash flows from financing activities:
 Net proceeds on lines of credit            3,763,949      (287,901)
 Net payments on long-term debt               (44,144)     (108,147)
 Proceeds from issuance of long-term
  debt to an officer
  of the Company                              225,000        50,000
 Proceeds from issuance of subordinated
  convertible
  debentures                                  562,500       762,500
 Proceeds from issuance of common stock       562,500             -
  for cash
 Proceeds from issuance of common stock             -       762,500
  subscriptions
 Proceeds from exercise of stock options      200,000             -
                                          -----------   -----------
 
 Net cash provided by financing             5,269,805     1,178,952
  activities                              -----------   -----------
</TABLE> 
Continued

                                      F-5
<PAGE>
 
                        RENAISSANCE GOLF PRODUCTS, INC.

                      STATEMENTS OF CASH FLOWS - CONTINUED

                For The Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION> 
                                                         1997      1996
                                                       --------  -------- 
<S>                                                    <C>       <C>
Net change in cash and cash equivalents                 499,842   179,085
 
Cash and cash equivalents, beginning of year            276,012    96,927
                                                       --------  --------
 
Cash and cash equivalents, end of year                 $775,854  $276,012
                                                       ========  ========
 
Supplemental disclosures of cash flow information -
 Cash paid during the year for:
   Interest                                            $227,857  $ 27,199
                                                       ========  ========
   Income taxes                                        $    800  $    800
                                                       ========  ========
 
</TABLE>
Supplemental schedules of non-cash investing and
financing activities:

  During fiscal 1997, the Company converted $1,325,000 of convertible debt and
  $27,042 of related accrued interest into common stock and common stock
  subscribed.  During 1997, $8,791 of notes payable, $41,714 of accounts payable
  and $267, 723 of accrued royalties were forgiven.

  During fiscal 1996, the Company converted $150,000 of accounts payable into a
  note payable.

  During fiscal 1996, the Company reclassed $8,418 of principal due on a note
  payable to accrued interest.











                 See accompanying independent auditors' report
                       and notes to financial statements

                                      F-6
<PAGE>
 
                        RENAISSANCE GOLF PRODUCTS, INC.

                         NOTES TO FINANCIAL STATEMENTS

                For The Years Ended December 31, 1997 and 1996

 
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------

Nature of Operations
--------------------

Renaissance Golf Products, Inc. (the "Company") assembles and distributes golf
clubs and accessories.  The Company's products are sold domestically and
internationally under a license agreement with FILA Sport S.p.A. ("FILA").

Basis of Presentation
---------------------

The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business.  The Company has suffered
substantial recurring losses from operations and has a stockholders' deficit at
December 31, 1997.  These matters, among others, raise substantial doubt about
the Company's ability to continue as a going concern.  The financial statements
do not include any adjustments that might be necessary should the Company be
unable to continue as a going concern.  The Company's continuation as a going
concern is dependent on its ability to generate sufficient cash flow to meet its
obligations on a timely basis, to obtain additional debt and/or equity financing
as may be required, to satisfy its debt and license covenants (see Notes 4 and
7) and ultimately to attain profitable operations.  Management's plans to
address these matters are as follows:

 .    Obtain additional financing through third party investors (see Note 12);

 .    Utilize its revolving loan to borrow to fund sales growth (see Note 4);

 .    Focus current marketing strategy on strength of bag and accessory product
     lines;

 .    Increase the marketing efforts of the ladies product lines;

 .    Refocus on historically profitable product lines; and

 .    Continue restructuring the operations of the Company.

Management of the Company believes that the proceeds from the additional
financing as discussed in Note 12 and the revolving loan as discussed in Note 4
will enable the Company to fund operations through the end of fiscal 1998,
although there can be no assurance that it will.  The Company will likely
require additional capital for future development and the marketing of existing
and future product lines.  In the event the Company cannot fund operations
through sales after the initial infusion of capital from the aforementioned
sources, resolve its current debt and license covenant violations, and if the
Company is unable to secure additional financing in the future, its ability to
pursue its business strategy, its financial position, and its results of
operations for future periods may be adversely impacted.

                                      F-7
<PAGE>
 
                        RENAISSANCE GOLF PRODUCTS, INC.

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED

                For The Years Ended December 31, 1997 and 1996

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
--------------------------------------------------------------

Concentrations of Credit Risk
-----------------------------

On occasion, the Company maintains cash balances at certain financial
institutions in excess of amounts insured by Federal agencies.

The accounts receivable are from a diverse customer base.  The Company provides
credit in the normal course of business to customers throughout the United
States and foreign markets.  Accounts deemed uncollectible have been charged
against the allowance.  The Company does not obtain collateral with which to
secure its accounts receivable.  The Company performs ongoing credit evaluations
on its customers and maintains reserves for potential credit losses based on
experience and any unusual circumstances that may affect the ability of its
customers to meet their obligations.

One customer accounted for  14% and 11% of net sales for the years ended
December 31, 1997 and 1996, respectively.  As of December 31, 1997, the Company
had accounts receivable from two customers which represented  51% and 22%,
respectively, of net accounts receivable.

Four vendors accounted for 19%, 17%, 15% and 14% of inventory purchases for the
year ended December 31, 1997, respectively, and four vendors accounted for 22%,
20%, 11% and 10% of inventory purchases for the year ended December 31, 1996,
respectively. No other vendor accounted for 10% or more of inventory purchases
for these periods.  As of December 31, 1997, the Company had accounts payable to
one vendor which represented 25% of accounts payable.  The Company believes that
it could purchase such inventory from other vendors without a material adverse
effect to the Company.

The Company had sales to foreign markets of approximately $103,000 (2%) and
$679,000 (28%) for the years ended December 31, 1997 and 1996, respectively.

Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------

The preparation of financial statements in conformity with generally accepted
accounting principles requires 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 reported periods.
Significant estimates made by the Company's management include, but are not
limited to, allowances for trade receivables and the net realizable value of
inventories.  Actual results could materially differ from those estimates.

                                      F-8
<PAGE>
 
                        RENAISSANCE GOLF PRODUCTS, INC.

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED

                For The Years Ended December 31, 1997 and 1996

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
--------------------------------------------------------------

Fair Value of Financial Instruments
-----------------------------------

The Company has financial instruments whereby the fair market value of the
financial instruments could be different than that recorded on a historical
basis.  The Company's financial instruments consist of its cash and cash
equivalents, accounts receivable, revolving line of credit, notes payable and
accounts payable.  The carrying amounts of the Company's financial instruments
generally approximate their fair values at December 31, 1997.

Cash Equivalents
----------------

For the purpose of the statements of cash flows, the Company considers cash
equivalents to be highly liquid investments with remaining maturities when
purchased of three months or less.

Inventories
-----------

Inventories are stated at the lower of cost or market, and consist primarily of
golf clubs, golf bags, golf accessories and related components.  Cost is
determined on the first-in, first-out method.  Cost includes materials, direct
labor and an allocable portion of direct and indirect manufacturing overhead
based on estimates derived from historical trends and experience factors.
Market is determined by comparison with recent purchases or net realizable
value.

Management evaluates the net realizable value of its inventories on a quarterly
basis based on its forecasted sales, current backlog, anticipated demand and
existing competition and provides a reserve accordingly.  The Company increased
its reserves by $177,000 and $321,000 for the years ended December 31, 1997 and
1996, respectively, based upon the Company's evaluations performed during those
periods of the net realizable value of its inventories.  Should an adverse
change in the attributes which affect the carrying value of its inventories
become known to management, management may consider alternative uses of the
inventories or dispose of such inventories in such a manner to minimize the risk
of financial loss to the Company.

Property and Equipment
----------------------

Property and equipment are recorded at cost and are depreciated using the
straight-line method over the estimated useful lives of the related assets,
ranging from five to seven years.  Leasehold improvements are amortized over the
lesser of the estimated useful lives of the improvements or the related lease
term.  Depreciation expense relating to property and equipment for the years
ended December 31, 1997 and 1996 amounted to $28,081 and $82,636, respectively,
of which $6,549 and $25,500, respectively, is included in cost of sales in the
accompanying statements of operations.

Maintenance and repairs are charged to expense as incurred.  Renewals and
improvements of a major nature are capitalized.  Gains or losses are recognized
upon sale or disposal of assets.

                                      F-9
<PAGE>
 
                        RENAISSANCE GOLF PRODUCTS, INC.

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED

                For The Years Ended December 31, 1997 and 1996

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
--------------------------------------------------------------

Management of the Company assesses the impairment of property and equipment by
comparing the future undiscounted net cash flows (without interest charges) from
the use and ultimate disposition of such assets with their carrying amounts.
The amount of impairment, if any, is measured based on fair value and is charged
to operations in the period in which such impairment is determined by
management. There was no impairment of property and equipment identified during
fiscal 1997.  In fiscal 1996, management identified the impairment of certain
property and equipment which resulted in a loss of $177,861, which was charged
to selling, general and administrative expenses in the accompanying 1996
statement of operations.

Revenue Recognition
-------------------

Revenues on product sales are recognized upon shipment of the merchandise.

Stock-Based Compensation
------------------------

During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation," which defines a fair value based method of accounting for stock-
based compensation.  However, SFAS 123 allows an entity to continue to measure
compensation cost related to stock and stock options issued to employees using
the intrinsic method of accounting prescribed by Accounting Principles Board
Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees."  Entities
electing to remain with the accounting method of APB 25 must make pro forma
disclosures of net income and earnings per share, as if the fair value method of
accounting defined in SFAS 123 had been applied.  The Company has elected to
account for its stock-based compensation to employees under APB 25.

Advertising
-----------

The Company expenses advertising costs as incurred.  Advertising expense for the
years ended December 31, 1997 and 1996 was $224,282 and $33,686, respectively.

Warranty Costs
--------------

Warranty expense for the years ended December 31, 1997 and 1996 was not
significant.

Research and Development Expense
--------------------------------

Research and development costs are expensed as incurred and were not material
for either of the years ended December 31, 1997 and 1996.

                                      F-10
<PAGE>
 
                        RENAISSANCE GOLF PRODUCTS, INC.

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED

                For The Years Ended December 31, 1997 and 1996

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
--------------------------------------------------------------

Income Taxes
------------

The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109").  Under
SFAS 109, the asset and liability method is used in accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based on
differences between the financial reporting and the tax basis of assets and
liabilities and are measured using enacted tax rates and laws that will be in
effect when the differences are expected to reverse.  Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized.

Limitations on Dividends
------------------------

Pursuant to state laws, the Company is currently restricted, and may be
restricted for the foreseeable future, from making dividends to its stockholders
as a result of its accumulated deficit as of December 31, 1997.

Loss Per Common Share
---------------------

In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards  No. 128 ("SFAS No.128"), "Earnings
Per Share" ("EPS").  SFAS No. 128 requires dual presentation of basic EPS and
diluted EPS on the face of all income statements issued after December 15, 1997
for all entities with complex capital structures.  Basic EPS is computed as net
income divided by the weighted average number of common shares outstanding for
the period.  Diluted EPS reflects the potential dilution that could occur from
common shares issuable through stock options, warrants and other convertible
securities.  There was no effect on EPS upon the adoption of the provisions of
SFAS No. 128 for all years presented.  Loss per common share has been computed
on the weighted average number of common and equivalent shares outstanding.
Basic and diluted net loss per share are approximately the same.

New Accounting Pronouncements
-----------------------------

In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income, and
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information.  SFAS No. 130 requires that an enterprise report, by major
components and as a single total, the change in its net assets during the period
from nonowner sources; and SFAS No. 131 establishes annual and interim reporting
standards for an enterprise's operating segments and related disclosures about
its products, services, geographic areas and major customers.  Adoption of these
statements will not impact the Company's financial position, results of
operations or cash flows and any effect will be limited to the form and content
of its disclosures.  Both statements are effective for fiscal years beginning
after December 15, 1997, with earlier application permitted.

                                      F-11
<PAGE>
 
                        RENAISSANCE GOLF PRODUCTS, INC.

                   NOTES TO FINANCIAL STATEMENTS-CONTINUED

                For The Years Ended December 31, 1997 and 1996

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
--------------------------------------------------------------

Reverse Stock Split and Change in Authorized Shares
---------------------------------------------------

During November 1997, the Company effected a 4:1 reverse stock split.  All share
information has been adjusted to reflect the reverse stock split for both
periods presented.  The Company, during 1997, also amended its articles of
incorporation to change its total authorized shares to 40,150,000 from
20,150,000.

Reclassifications
-----------------

Certain amounts in the 1996 financial statements have been reclassified to
conform to the 1997 presentation.

NOTE 2 - INVENTORIES
--------------------

Inventories consist of the following at December 31, 1997:
<TABLE>
<CAPTION>
 
<S>                                                          <C>
     Component parts                                         $  639,265
     Finished goods - clubs                                     385,337
     Finished goods - bags and accessories                      546,851
     Consigned inventories                                       93,504
                                                             ----------
                                                              1,664,957
                                                          
     Less inventory reserve                                    (907,000)
                                                             ----------
                                                          
                                                             $  757,957
                                                             ==========
</TABLE> 
 
As of December 31, 1997, the Company has made cash deposits on inventory to be
received in 1998 totaling $1,167,026.
 
NOTE 3 - PROPERTY AND EQUIPMENT
-------------------------------
 
Property and equipment consists of the following at December 31, 1997:
 
     Manufacturing equipment and tooling                     $   62,963
     Office furniture and equipment                              47,382
     Computer equipment and software                            139,873
     Automotive equipment                                         6,942
     Leasehold improvements                                      32,884
                                                             ----------
                                                                290,044
                                              
     Less accumulated depreciation                             (236,458)
                                                             ----------
                                              
                                                             $   53,586
                                                             ==========

                                      F-12
<PAGE>
 
                        RENAISSANCE GOLF PRODUCTS, INC.

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED

                For The Years Ended December 31, 1997 and 1996

NOTE 4 - LINES OF CREDIT
--------------------------------------------------------------------------------

In February 1995, the Company entered into a line of credit agreement with a
bank whereby the Company could borrow up to $300,000 for working capital and/or
letters of credit.  The line bore  interest at the prime rate, as defined, and
expired in April 1996.  The line was collateralized by certificates of deposit
purchased by the Company from the bank.

In March 1995, the Company executed an agreement with a financial institution to
borrow funds based on eligible accounts receivable, as defined, up to the lesser
of $1,000,000 or 80% of eligible accounts receivable.  The financial institution
had full recourse against the Company for any of the receivables which were
deemed uncollectible.  The line of credit bore interest at the prime rate, as
defined, plus 2.5%.  Advances were collateralized by substantially all of the
Company's assets.  The agreement was terminated on June 4, 1996.

In January 1997, the Company entered into a line of credit agreement with a bank
in which the Company could borrow up to $400,000 in connection with the a letter
of credit established in accordance with the FILA license agreement (see below).
The line bore interest at the bank's prime rate plus 1.5% and was collateralized
by essentially all of the Company's assets and was guaranteed by the Chairman of
the Board of Directors.  The line expired January 31, 1998.

In connection with the FILA license, the Company established a letter of credit
with an accredited bank in the amount of $400,000.  The letter of credit was
secured by the line of credit discussed above.  The letter of credit expired
January 31, 1998.

The FILA license agreement requires that a letter of credit is maintained
annually in the amount of the minimum royalty payments outlined therein.
Subsequent to year end, the Company had not received the letter of credit for
the 1998 minimum royalty payments thereby placing them in default of the FILA
Agreement (see Note 7).

The Company and the Company's Chairman of the Board of Directors jointly entered
into a loan and security agreement with a lender on October 29, 1997 to provide
the Company the maximum aggregate principal amount of the lesser of $5,000,000,
or 80% of the Company's current assets.  The amount outstanding on the loan and
revolving promissory note is adjusted upward or downward on a monthly basis,
throughout the term of the note, based on total current assets, which for
purposes of the agreement mean cash, accounts receivable aged less than 90 days,
and inventory.  The revolving promissory note executed pursuant to this
agreement bears an interest rate of 12% and expires December 31, 1999.  As
further consideration for this loan and security agreement, warrants to purchase
400,000 shares of the Company's common stock were issued to the lender (see Note
9).   Amounts outstanding under the agreement are collateralized by the
Company's inventory, open orders, accounts, and other assets of the Company.  As
of December 31, 1997, the Company had borrowed $3,763,949 on this revolving
promissory note.  The revolving credit line is shown net of the discount of
$126,462 as discussed in Note 9.  The line provides for

                                      F-13
<PAGE>
 
                        RENAISSANCE GOLF PRODUCTS, INC.

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED

                For The Years Ended December 31, 1997 and 1996

NOTE 4 - LINES OF CREDIT, CONTINUED
-----------------------------------

various warranties, covenants and restrictions and other financial and non-
financial matters requiring compliance on a continuing basis.  Default on any
warranty, covenant or restriction could effect the lender's commitment to lend,
and if not waived or corrected, could accelerate the maturity of any borrowings
outstanding under the line.  As of December 31, 1997, the Company was in default
of certain warranties, covenants and restrictions, including the borrowing of
funds substantially in excess of qualifying collateral.

NOTE 5 - LONG-TERM DEBT
-----------------------

Notes payable at December 31, 1997 consist of the following:
<TABLE>
<CAPTION>
 
<S>                                                                                <C>
Unsecured note payable to an officer of the Company, bearing interest at 
 10% per annum, all unpaid interest and principal due June 30, 1999                $  50,000
 
Unsecured note payable to a vendor/related party bearing interest at 10% 
 per annum, all unpaid interest and principal due June 30, 1999.                     150,000
 
Unsecured note payable to a stockholder bearing interest at 12% per annum,
 all unpaid interest and principal due June 30, 1998.                                225,000
                                                                                   ---------
                                                                                     425,000
 
Less: current maturities                                                            (225,000)
                                                                                   ---------
 
                                                                                   $ 200,000
                                                                                   =========
</TABLE>
Annual maturities of long-term debt are as follows:
<TABLE> 
<CAPTION> 
        YEARS ENDING
         DECEMBER 31,
        -------------
       <S>                                         <C>
            1998                                   $ 225,000
            1999                                     200,000
            2000                                           -
            2001                                           -
            2002                                           -
                                                    --------
                                                    $425,000
                                                    ========
</TABLE> 
Total interest expense incurred in connection with the related party debt was
$35,750 and $7,674 for the year ended December 31, 1997 and 1996, respectively.

                                      F-14
<PAGE>
 
                        RENAISSANCE GOLF PRODUCTS, INC.

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED

                For The Years Ended December 31, 1997 and 1996

NOTE 6 - EXTRAORDINARY GAINS ON FORGIVENESS OF DEBT
---------------------------------------------------

During 1995, the Company entered into a royalty agreement with a Japanese
distributor who designs clubs for Asian markets and distributes using the FILA
name and trademark.  Royalties due to the Company related to such agreement are
9% on sales of bags, head covers and gloves designed and distributed by the
Japanese distributor.  In connection with the royalty agreement, the distributor
agreed to prepay $280,048 which will be credited against future royalty payments
due to the Company from the distributor.  During fiscal 1996, the distributor
advanced the Company additional amounts of $94,274.    In fiscal 1997, the third
party released the Company from any obligation to repay the prepaid royalties
and required no additional services from the Company.  The Company recorded an
extraordinary gain on forgiveness of debt in the amount of $267,723 in the 1997
statement of operations related thereto.

In addition, during 1997 and 1996, certain other vendors forgave certain
payables.  The Company recorded $50,505 and $11,325 as extraordinary gains on
forgiveness of debt for the years ended December 31, 1997 and 1996,
respectively.

NOTE 7 - COMMITMENTS AND CONTINGENCIES
--------------------------------------

Operating Leases
----------------

The Company leases its office and certain equipment under several non-cancelable
lease agreements accounted for as operating leases expiring through November
2001.  Real estate taxes, insurance and maintenance expenses are obligations of
the Company.

Minimum rental payments under non-cancelable operating leases on certain
equipment are as follows:

           YEARS ENDING
           DECEMBER 31,
              1998             $103,542
              1999              103,542
              2000                2,772
              2001                1,842
                               --------
                           
                               $211,698
                               ========

Rent expense totaled approximately $98,000 and $91,000 for the years ended
December 31, 1997 and 1996, respectively.  It is expected that expiring leases
will be renewed in the ordinary course of business.

                                      F-15
<PAGE>
 
                        RENAISSANCE GOLF PRODUCTS, INC.

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED

                For The Years Ended December 31, 1997 and 1996

NOTE 7 - COMMITMENTS AND CONTINGENCIES, CONTINUED
-------------------------------------------------

Royalty and Licensing Agreements
--------------------------------

FILA License
------------

The Company had an exclusive licensing agreement with FILA to use the FILA name
and trademark for the Company's golf clubs, bags and various other golf
accessories for sale in the United States, Japan and certain other countries.
The initial term of the agreement originally expired December 31, 1995, but had
been extended by FILA to December 31, 2000.  The agreement was terminated on
June 30, 1996, as the Company was in default of the obligations under the
agreement.  In October 1996, the Company entered into a new licensing agreement
which granted the Company the exclusive license to use the FILA name and
trademark for hard products, as defined, for sale in the United States and
foreign countries, excluding Asia and a non-exclusive license to use the FILA
name and trademark for soft products, as defined, for sale in the United States
and foreign countries, excluding Asia.  The new license agreement expires
December 31, 2000 and can be renewed for an additional five-year period provided
that the Company is not in default of any obligation under the agreement.  The
FILA licensing agreement was not impacted by the change of control as a result
of the equity transactions discussed in Notes 8 through 10.  Royalty expense
under this agreement was $400,000 and $429,167 for the years ended December 31,
1997 and 1996, respectively.  There were no royalties due to FILA at December
31, 1997.

The terms of the revised licensing agreement include, among others, the
following:

Minimum royalty payments during the remainder of the initial term are as
follows:
<TABLE>
<CAPTION>
 
<S>                 <C>
            1998    $  500,000
            1999       600,000
            2000       700,000
                    ----------
 
                    $1,800,000
                    ==========
</TABLE>
Percentage royalty payments are due if such amounts exceed the minimum royalty
payments and are based on annual sales as follows:

     Sales up to $7,500,000                  6.0%
     Sales from $7,500,001 to $15,000,000    5.5%
     Sales over $15,000,000                  5.0%

                                      F-16
<PAGE>
 
                        RENAISSANCE GOLF PRODUCTS, INC.

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED

                For The Years Ended December 31, 1997 and 1996

NOTE 7 - COMMITMENTS AND CONTINGENCIES, CONTINUED
-------------------------------------------------

FILA can terminate the license if the Company does not have annual sales of
licensed product equal to or exceeding the following amounts for the respective
years:
<TABLE>
<CAPTION>
 
<S>                 <C>
            1998    $6,250,000
            1999     7,500,000
            2000     8,333,333
</TABLE>

The Company must expend annually not less than five percent of net sales for
advertising and not less than three percent of net sales for promotions.  The
Company was not in compliance with this covenant for the year ended December 31,
1997.

The Company shall not offer discounts on current products greater than twenty-
five percent (25%) without first obtaining approval from FILA.  The Company
shall not sell discontinued product lines at a discount exceeding fifty percent
(50%).

The Company must establish an irrevocable letter of credit for the minimum
annual royalty for each contract year which shall be renewed annually for the
minimum annual royalty for each subsequent contract year.   The Company has not
renewed its letter of credit that expired January 31, 1998 and, therefore, is
not in compliance with this covenant as of the issuance of these financial
statements.  The Company shall pay one fourth ( 1/4) of the minimum annual
royalty to FILA fifteen (15) days prior to the end of each quarter.  If the
Company fails to make the required payment, FILA may draw the required payment
amount from the letter of credit on the last day of the quarter.

The Company must submit a prototype of each product, as defined, for FILA's
approval prior to the manufacture, distribution or sale of such product.  The
Company must submit to FILA for approval the Company's price lists and a
description of any plans to offer discounted prices (to eliminate overstock or
otherwise).

FILA may terminate the agreement in whole, or in part, upon the occurrence of
certain events, including the following:

 .    Failure to perform or otherwise materially breach any of the obligations
     under the agreement and there is no remedy within 30 days of the receipt of
     written notice of intent to terminate the agreement from FILA.

 .    Failure to make timely royalty payments, use best efforts to meet
     established product introduction dates, maintain required levels of product
     liability insurance or meet established guidelines for quality control.

 .    Failure to meet advertising, promotional and/or sales targets within a
     country included in the territory, as defined.

                                      F-17
<PAGE>
 
                        RENAISSANCE GOLF PRODUCTS, INC.

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED

                For The Years Ended December 31, 1997 and 1996

NOTE 7 - COMMITMENTS AND CONTINGENCIES, CONTINUED
-------------------------------------------------

 .    Sale or disposal of substantially all of the Company's business or assets
     to a third party or transfer of control of the Company to a third party or
     the cessation of an employment relationship with Miles Doody.

Further, FILA may terminate the license agreement if the Company's financial
condition becomes unstable, as evidenced by, among other matters, insolvency or
the Company's inability to pay its debts as they become due.

As discussed above, the Company is currently not in compliance with certain of
its covenants pursuant to the FILA license.  FILA currently has the right to
terminate the agreement.  The loss of the license would have a material adverse
effect on the Company's operations. These financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

Japanese Sublicense
-------------------

FILA granted an exclusive licensing agreement to Kanebo, Ltd. ("Kanebo")
covering Japan, prior to granting the Company its licensing agreement.  This
licensing agreement gave Kanebo an exclusive right and license to use FILA
trademarks in connection with the manufacture and sale of certain items
including golf bags, head covers and gloves sold in Japan, but not including
golf clubs or balls.  Accordingly, the Company entered into a sublicensing
agreement with Kanebo giving the Company a non-exclusive right to sell golf
bags, head covers and gloves in Japan.  The sublicensing agreement was
terminated as of June 30, 1996 upon the termination of the Company's license
agreement with FILA.  Royalty expense in connection with this sublicense was
zero and $26,766 for the years ended December 31, 1997 and 1996, respectively.
Past due royalties related to the sublicense agreement totaled $118,355 at
December 31, 1997.

License Agreement for Latitude Irons
------------------------------------

The Company had a licensing agreement with a third party for the sale of certain
golf club heads.  The Company was obligated to pay a $2.00 royalty on sales of
licensed club heads.  The term of the agreement was an initial period of three
years ending on October 31, 1996, which was extendible at the option of the
Company in one year increments.  The Company did not exercise its option to
renew therefore, the agreement expired on October 31, 1996.  The third party has
released the Company from any obligations and requires no additional services
from the Company.

PGA of Europe License
---------------------

The Company had a license agreement with the PGA of Europe in which the Company
was granted the exclusive, worldwide right to use the PGA of Europe trademark
and logo on all printed material and equipment related to golf clubs, putters,
golf bags, and certain other related golf accessories.  In consideration for the
license grant, the Company agreed to pay a royalty to the PGA of Europe equal to
5% of the net sales price of products bearing the PGA of Europe trademark sold
by the Company, with a minimum annual royalty of (Pounds)30,000 (approximately
$49,500 at current exchange rates).   Royalty expense in connection with this
license agreement was $11,648 for the year ended December 31, 1996. The PGA of
Europe license expired on March 31, 1996.

                                      F-18
<PAGE>
 
                        RENAISSANCE GOLF PRODUCTS, INC.

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED

                For The Years Ended December 31, 1997 and 1996

NOTE 7 - COMMITMENTS AND CONTINGENCIES, CONTINUED
-------------------------------------------------

Employment Agreement
--------------------

In October 1996, the Company entered into an employment agreement with a certain
officer which calls for a base salary of $48,000 and a commission equal to one
percent (1%) of adjusted gross sales, as defined, for a three-year period with a
one-year renewal option.  In addition, the agreement provided for the issuance
of stock options (see Note 8).  During 1997, the employment agreement was
verbally amended to delete the commission provisions.

Letters of Credit
-----------------

In connection with the FILA license discussed above, the Company is required to
establish a letter of credit with an accredited Italian bank in the amount of
$500,000, the minimum royalty for fiscal 1998.  As of the date of this report,
the Company has not established the required letter of credit and is in
violation of the provisions of the FILA license agreement.

NOTE 8 - STOCK OPTIONS
----------------------

In July 1993, the Board of Directors adopted, and the stockholders approved, the
1993 Omnibus Stock Option Plan ("1993 Plan") which is intended to provide
incentives to key employees, directors, consultants and others.  Pursuant to the
1993 Plan, up to 150,000 shares may be granted on a discretionary basis by the
Board of Directors in the form of incentive stock options for full-time
employees and directors and non-statutory stock options for non-employees.

In July 1993, incentive stock options were granted to certain officers and
directors for the purchase of 100,000 shares of the Company's common stock at
$16.00 per share.  Of these options, 40,000 were canceled in October 1996.  The
remaining 60,000 options are fully vested as of December 31, 1997, and expire
July 12, 1998, or upon termination of employment.

In January 1994, non-statutory stock options were granted outside of the 1993
Plan to professional golfers for the purchase of 6,375 shares of the Company's
common stock at $13.00 per share.  Of these options, 3,875 vested on issuance
and 2,500 were to vest based on the golfers achieving certain performance goals
(the 2,500 were canceled).  The remaining 3,875 options expire at various dates
from January 1, 1998 through January 1, 1999.  No non-statutory stock options
expired during the year ended December 31, 1997.

                                      F-19
<PAGE>
 
                        RENAISSANCE GOLF PRODUCTS, INC.

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED

                For The Years Ended December 31, 1997 and 1996

NOTE 8 - STOCK OPTIONS, CONTINUED
---------------------------------

In June 1994, incentive stock options were granted outside of the 1993 Plan to
certain employees for the purchase of 9,625 shares of the Company's common stock
at $10.00 per share.  These options vested ratably on October 15, 1994, 1995 and
1996 and expire June 14, 1999, or upon termination of employment.  Of these
options, 2,500 were canceled during fiscal 1995 and 6,250 expired during 1997.

In May 1995, non-statutory stock options were granted outside of the 1993 Plan
for various consulting services provided to the Company for the purchase of
110,250 shares of the Company's common stock at prices ranging from $4.00 to
$10.00 per share, the estimated fair market value (or greater) of the Company's
common stock at the date of grant.  These options expire at various dates from
December 31, 1995 to March 31, 2000 and vested immediately.  During the year
ended December 31, 1995, 25,000 of such options expired and 11,500 of such
options were exercised.  During the year ended December 31, 1996, non-statutory
stock options totaling 61,250 expired and 12,500 were canceled.  None of these
non-statutory stock options were outstanding as of December 31, 1996.

In August 1995, non-statutory stock options were granted to non-employee members
of the Company's Board of Directors for services rendered during 1995 and
previous years for the purchase of 50,000 shares of the Company's common stock
at $4.00 per share, the estimated fair market value of the Company's stock at
the date of grant.  These options expired on December 31, 1996.

In October 1996, non-statutory stock options were granted outside of the 1993
Plan to non-employee members of the Company's Board of Directors and various
consultants for services provided to the Company for the purchase of 1,700,000
shares of the Company's common stock at $0.50 per share.  These options expire
on December 31, 2006.  These options were assumed to be vested as of December
31, 1996 as a result of the successful completion of the private placement
memorandum as discussed in Note 10.  These options were not subject to
adjustment as a result of the split of the Company's stock.  Because the Company
anticipated the 4:1 reverse stock split, the fair market value of the Company's
common stock was assumed to be $0.50 per share, the trading price of the
Company's common stock ($.125) prior to the private placement discussions, times
four.  The Company expensed $14,000 and $203,000 during the years ended December
31, 1997 and 1996, respectively, in connection with the issuance of these
options.  An additional $14,000 of expense will be recorded during the year
ending December 31, 1998 in connection therewith.  During 1997, 400,000 of such
options were exercised for cash.  An additional 1,050,000 options were granted
to non-employees in connection with the 1996 private placement.  Because the
private placement consisted of 50% debt and 50% equity, one-half of the
1,050,000 options were attached to the debt piece and an original issue discount
was recorded. Accordingly, the Company recorded $42,000 of debt issuance costs,
which was being amortized over the life of the related debt.  Because the debt
was converted to equity during 1997, the $42,000 was amortized in its entirety
to interest expense during 1997.

                                      F-20
<PAGE>
 
                        RENAISSANCE GOLF PRODUCTS, INC.

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED

                For The Years Ended December 31, 1997 and 1996

NOTE 8 - STOCK OPTIONS, CONTINUED
---------------------------------

In October 1996, incentive stock options were granted outside of the 1993 Plan
to certain officers and key employees for the purchase of 1,377,000 shares of
the Company's common stock at $0.50 per share.  Of these options, 717,000 vest
upon the earlier of achieving certain performance goals or ratably over ten
years and 660,000 were assumed to be vested as of December 31, 1996 as a result
of the successful completion of the private placement memorandum as discussed in
Note 10.  These options were not subject to adjustment as a result of the split
of the Company's stock.  Because the Company anticipated the 4:1 reverse stock
split, the fair market value of the Company's common stock was assumed to be
$0.50 per share, the trading price of the Company's common stock ($.125) prior
to the private placement discussions, times four.  These options expire on
December 31, 2006.  During 1997, 6,000 of such options were canceled.

In October 1996, the Company granted to a director an option to acquire 200,000
shares of common stock at an exercise price of $0.50 per share and an option to
acquire 150,000 shares of common stock at an exercise price of $1.00 per share
in connection with the director's services performed in 1996.  The Company also
granted to another director an option to acquire 1,000,000 shares of common
stock at an exercise price of $1.00 per share in connection with the director's
services performed in 1996.  The options vested immediately and expire December
31, 2006.  These options were not subject to adjustment as a result of the split
of the Company's stock.  Because the Company anticipated the 4:1 reverse stock
split, the fair market value of the Company's common stock was assumed to be
$.50 per share, the trading price of the Company's common stock ($.125) prior to
the private placement discussions, times four.  The Company expensed $75,000
during 1996 in connection with the issuance of these options.

In September 1997, the Company granted non-qualified options outside of the 1993
Plan to acquire 281,000 shares of common stock at $1.25 per share to employees
of the Company and 18,750 shares of  common stock at $1.25 per share to non-
employees of the Company.  Of the employee options, 195,000 vest upon the
earlier of achieving certain performance goals or ratably over ten years, 56,000
vested immediately, and 30,000 vest ratably over a three-year period.  The non-
employee options vested immediately.  None of these options were subject to
adjustment as a result of the split of the Company's stock.  Because the Company
anticipated the 4:1 reverse stock split, the fair market value of the Company's
common stock was assumed to be $1.25 per share, the trading price of the
Company's common stock ($0.3125) at the date of grant, times four.  The
aforementioned options expire September 15, 2007.  The Company recorded $9,375
in consulting expense during 1997 as a result of the issuance of the non-
employee options.

In October 1997, the Company granted non-qualified options outside of the 1993
Plan to acquire 500,000 shares of common stock at $3.00 per share to employees
of the Company.  None of these options were subject to adjustment as a result of
the split of the Company's stock.  Because the Company anticipated the 4:1
reverse stock split, the fair market value of the Company's common stock was
assumed to be $2.63 per share, the trading price of the Company's common stock
($0.65625) at the date of grant, times four.  The aforementioned options all
vested immediately and expire October 27, 2007.

                                      F-21
<PAGE>
 
                        RENAISSANCE GOLF PRODUCTS, INC.

                    NOTES TO FINANCIAL STATEMENTS-CONTINUED

                For The Years Ended December 31, 1997 and 1996

NOTE 8 - STOCK OPTIONS, CONTINUED
---------------------------------

A summary of stock option activity for 1997 and 1996 follows:

<TABLE>
<CAPTION>
                                          1993 PLAN          OUTSIDE PLAN           PRICE
                                       ----------------    ----------------    -----------------
<S>                                    <C>                  <C>                 <C>
Balance at January 1, 1996                  150,000              84,750           $4.00-16.00
                                                                               
Granted                                           -           5,477,000              .50-1.00
Expired/canceled                            (90,000)            (73,750)           4.00-16.00
Exercised                                         -                   -                     -
                                            -------           ---------           -----------
                                                                               
Balance at December 31, 1996                 60,000           5,488,000             .50-16.00
                                                                               
Granted                                           -             799,750             1.25-3.00
Expired/canceled                                  -             (12,250)            .50-10.00
Exercised                                         -            (400,000)                  .50
                                            -------           ---------           -----------
                                                                               
Balance at December 31, 1997                 60,000           5,875,500           $ .50-16.00
                                            =======           =========           ===========
 
Exercisable at December 31, 1997             60,000           5,010,600           $ .50-16.00
                                            =======           =========           ===========
</TABLE>
Pro Forma Stock Option Information
----------------------------------

Pro forma information regarding net income (loss) is required by SFAS 123 and
has been determined as if the Company had accounted for its employee stock
options under the fair value method pursuant to SFAS 123, rather than the method
pursuant to APB 25 as discussed herein.  The fair value for these options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following assumptions: stock price, as determined by the Board of Directors,
of between $.50 and $2.63 per share; a risk-free interest rate of 6.5%; dividend
yields of 0.0%; volatility factors of the expected market price of the Company's
common stock of between 40.0% and 72.0%; and expected term of two and one-half
years.

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

                                      F-22
<PAGE>
 
                        RENAISSANCE GOLF PRODUCTS, INC.

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED

                For The Years Ended December 31, 1997 and 1996

NOTE 8 - STOCK OPTIONS, CONTINUED
---------------------------------

For purposes of pro forma disclosure, the estimated fair value of the options is
amortized to expense over the options' vesting period.  The Company's pro forma
information follows.

<TABLE>
<CAPTION>
                           1997          1996
                        -----------   -----------
<S>                     <C>           <C>
 Net loss:
     As reported        $(1,845,131)  $(2,541,432)
     Pro forma          $(2,459,507)  $(2,647,032)
 
 Net loss per share:
     As reported        $     (0.65)  $     (1.75)
     Pro forma          $     (0.86)  $     (1.82)
 
</TABLE>
NOTE 9 - STOCK WARRANTS
-----------------------

The Company is authorized to issue Class A, B, C, D, E, F and G warrants. In
connection with the offering of convertible debentures, bridge financing
arrangements and the initial public offering completed prior to 1995, the
Company issued warrants which expire between November 15, 1996 and November 15,
1998.  The only warrants that remain outstanding as of December 31, 1997 are the
Class A as discussed below.   The terms of the warrants are summarized as
follows:

 .    Class A warrants entitle the holder to purchase one share of common stock
     at a price of $10.70 (as adjusted) per share. The warrants are exercisable
     for five years from the date of issuance and may be redeemed by the Company
     at $.01 per warrant if the closing bid price of the common stock exceeds
     $9.00 for 10 consecutive trading days.  As of December 31, 1997, 852,060
     (as adjusted) Class A warrants are outstanding which expire November 15,
     1998.

 .    Class B warrants entitle the holder to purchase one share of common stock
     at a price of $16.00 per share.  The warrants are exercisable for three
     years beginning one year from the date of issuance.  During 1996, 211,063
     Class B warrants expired.

 .    Class C warrants entitle the holder to purchase one share of common stock
     for $34.00 per share.  The warrants are exercisable beginning January 1,
     1995 for two years unless extended by the Board of Directors.

 .    Class D warrants entitle the holder to purchase one share of common stock
     for $18.00 per share.  The warrants are exercisable for one year from the
     date of issuance.

 .    Class E warrants entitle the holder to purchase one share of common stock
     for $22.00 per share.  The warrants are exercisable for one year from the
     date of issuance.

                                      F-23
<PAGE>
 
                        RENAISSANCE GOLF PRODUCTS, INC.

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED

                For The Years Ended December 31, 1997 and 1996

NOTE 9 - STOCK WARRANTS, CONTINUED
----------------------------------

 .    Class F warrants entitle the holder to purchase one share of common stock
     for $14.00 per share.  The warrants are exercisable from the date of
     issuance and expire December 31, 1997.

 .    Class G warrants were issued with a private placement memorandum in January
     1995 and entitle the holder to purchase one share of common stock for
     $10.00 per share.  The warrants are exercisable for 18 months from the date
     of issuance.  During 1995, in connection with a private placement
     memorandum, the Company issued 313 Class G warrants.  All of these warrants
     expired as of October 6, 1996.

During 1997, the Company granted 400,000 warrants to acquire shares of the
Company's common stock at exercise prices ranging from $1.50 to $3.00 to a
lender (see Note 5).  The warrants are not subject to adjustment as a result of
the split of the Company's stock.  Because the Company anticipated the 4:1
reverse stock split, the fair market value of the Company's common stock was
assumed to be $2.63 per share, the trading price of the Company's common stock
($0.65625) at the date of grant, times four.  The warrants expire December 31,
2002, are immediately exercisable and carry piggy-back registration rights.  The
Company recorded an original issue discount of $137,000 as a result of the
issuance of these warrants which will be amortized over the twenty-six month
life of the debt.  During 1997, approximately $11,000 of the discount was
amortized to interest expense.

NOTE 10 - STOCKHOLDER'S DEFICIT
-------------------------------

In January 1995, the Company issued a private placement memorandum offering
15,000 units at $100 per unit, each unit consisting of one share of Series A
preferred stock and five Class G warrants.  Each share of the Series A preferred
stock is convertible into 12.5 shares of common stock.  The offering originally
terminated on April 30, 1995, but was extended by the Company through December
31, 1995.  A total of 250 units were sold for proceeds totaling $25,001.

In October 1996, the Company issued a private placement memorandum offering 100
units at $25,000 per unit, each unit consisting of 15,625 shares of common stock
and a subordinated convertible debenture with a face value of $12,500.  During
1996, the Company had sold 61 units and raised $762,500 from the private
placement memorandum offering relating to the sale of common stock.  An
equivalent amount was raised in the form of subordinated convertible debentures.
During 1997, the Company sold the remaining units, plus an additional 6 units,
for proceeds totaling $562,500 and an equivalent amount of subordinated
convertible debentures.  On December 15, 1997, the debt, plus accrued interest,
totaling $1,352,042, was converted into 2,704,092 shares of common stock.  As of
December 31, 1997, 1,096,276 of such shares were not yet issued and have been
reflected as subscribed in the accompanying 1997 statement of stockholders'
equity (deficit).

                                      F-24
<PAGE>
 
                        RENAISSANCE GOLF PRODUCTS, INC.

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED

                For The Years Ended December 31, 1997 and 1996

NOTE 11 - PROVISION FOR INCOME TAXES
------------------------------------

The provision for income taxes for the years ended December 31, 1997 and 1996
consists of the following:

<TABLE>
<CAPTION>
                                                  CURRENT                DEFERRED                TOTAL
                                              ----------------       ---------------       ----------------
Year ended December 31, 1997:
<S>                                            <C>                     <C>                   <C>
        U.S. Federal                           $             -          $         -           $          -
        State and local                                    800                    -                     800
                                              ----------------       ---------------        ---------------
                                               $           800          $         -           $         800
                                              ================       ===============        ===============
 
Year ended December 31, 1996:
        U.S. Federal                           $             -          $         -           $           -
        State and local                                    800                    -                     800
                                              ----------------       ---------------        ---------------
                                              $            800         $          -           $         800
                                              ================       ===============        =============== 
</TABLE>
Income tax expense was $800 for each of the years ended December 31, 1997 and
1996, and differed from the amounts computed by applying the U.S. Federal income
tax rate of 34 percent to loss from operations before provision for income taxes
and extraordinary item as a result of the following:

<TABLE>
<CAPTION>
                                                              1997                        1996
                                                          -----------                 -----------
<S>                                                       <C>                        <C>
Computed "expected" benefit                               $  (735,270)                $  (867,665)
Increase (reduction) in income taxes resulting from
 Change in valuation allowance for deferred tax assets        728,559                   1,041,364
 Non-deductible expenses                                        2,590                      52,635
 Change in deferred tax assets                                  4,393                    (229,911)
 Other                                                              -                       3,849
 State taxes, net of benefit                                      528                         528 
                                                          -----------                 -----------
 
                                                           $      800                 $       800
                                                           ==========                 ===========
</TABLE>

                                      F-25
<PAGE>
 
                        RENAISSANCE GOLF PRODUCTS, INC.

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED

                For The Years Ended December 31, 1997 and 1996

NOTE 11 - PROVISION FOR INCOME TAXES, CONTINUED
-----------------------------------------------

The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets at December 31, 1997 are presented below:
<TABLE>
<CAPTION>
 
Deferred tax assets:
<S>                                                                           <C>
  Accounts receivable, principally due to allowance for doubtful accounts     $   158,530
  Inventories, principally due to allowance for obsolete inventory                361,243
  Compensated absences, principally due to accrual for financial reporting
    purposes                                                                            -
  Property, primarily due to differences in depreciation methods                    1,610
  Compensation expense relating to options granted to employees and
    consultants not currently deductible                                          115,484
  State taxes, net of benefit                                                         272
  Other                                                                            22,735
  Net operating loss carryforwards                                              4,385,049
                                                                              -----------
 
     Total gross deferred tax assets                                            5,044,923
 
     Less valuation allowance                                                  (5,044,923)
                                                                              -----------
 
     Net deferred tax assets                                                  $         -
                                                                              ===========
 
</TABLE>

The valuation allowance for deferred tax assets as of January 1, 1997 was
$4,316,364.  The net change in the total valuation allowance for the year ended
December 31, 1997 was an increase of $728,559.

At December 31, 1997, the Company had net operating loss carryforwards of
approximately $11,878,289 and $5,937,733 available to offset future taxable
Federal and state income, respectively.  The Company's utilization of California
state operating loss carryforwards is unlikely due to the Company's move to Utah
in early 1998.  The carryforward amounts expire in varying amounts between 1998
and 2012.

Due to the change in ownership provisions of the Tax Reform Act of 1986, net
operating loss carryforwards for Federal income tax reporting purposes are
subject to annual limitations.  Should a change in ownership occur, net
operating loss carryforwards may be limited as to use in future years.

                                      F-26
<PAGE>
 
                        RENAISSANCE GOLF PRODUCTS, INC.

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED

                For The Years Ended December 31, 1997 and 1996


NOTE 12 - SUBSEQUENT EVENTS
---------------------------

Consulting Agreement
--------------------

In January 1998, the Company entered into a consulting agreement with a producer
of direct response television promotions for fitness equipment, whereby the
Company acquired the exclusive right to sell a fitness product within the United
States and throughout the world.  The consulting arrangement calls for the
Company to pay commissions of up to 8% of net sales, as defined, related to
sales of a certain product line.

Private Placement
-----------------

Effective March 2, 1998, the Company initiated a private placement offering of
up to 550,000 units with an over-allotment provision of up to an additional
250,000 units.  Each unit consists of one share of the Company's common stock
and a warrant to acquire one share of the Company's common stock at an exercise
price of $5.00 per share.  The offering price per unit is $3.00.  The warrants
are exercisable at any time until December 31, 2002 and are subject to
redemption by the Company at $.01 per warrant if the Company's common stock
trades for a period of 20 consecutive days at or above $7.00 per share.  As of
March 31, 1998, the Company had raised $900,000 upon the sale or subscription of
300,000 units (300,000 shares of common stock at $3.00 per share and 300,000
warrants).  An additional $390,000 (130,000 units) had been subscribed for as of
April 15, 1998 (unaudited).

Employee Stock Options
----------------------

On March 17, 1998, the Board of Directors granted an employee 500,000 options at
an exercise price of $4.25 for the employee's efforts during the past year in
securing adequate financing for the Company to permit ongoing operations and
efforts in guiding the growth of the Company.  The options are exercisable at
any time on or before March 17, 2008 and are not subject to price adjustment.

Rights Agreement
----------------

On March 27, 1998, the Company entered into an agreement to purchase certain
golf ball inventory and exclusive rights to sell a line of golf balls in
exchange for a payment of $210,000.  The Company must buy a minimum number of
golf balls per month to maintain its rights.

Business Acquisitions
---------------------

The World Golf Federation, Inc.

Effective April 1, 1998, the Company entered into an asset purchase agreement
(the "Agreement") with The World Golf Federation, Inc. ("WGFI").  Pursuant to
the Agreement, the Company will acquire certain assets, properties and rights,
as defined, of WGFI in exchange for the issuance by the Company of 175,000
shares of its common stock and contingent consideration in the form of 50,000
additional shares and 50,000 options (with an exercise price of $5.00 per share)
based upon achievement of certain revenue milestones, as defined.

                                      F-27
<PAGE>
 
                        RENAISSANCE GOLF PRODUCTS, INC.

                   NOTES TO FINANCIAL STATEMENTS--CONTINUED

                For The Years Ended December 31, 1997 and 1996


NOTE 12 - SUBSEQUENT EVENTS, CONTINUED
--------------------------------------

The Ball Marketing Co. L.L.C.

Effective April 1, 1998, the Company entered into an asset purchase agreement
(the "Agreement") with The Ball Marketing Co. L.L.C. ("BMC").  Pursuant to the
Agreement, the Company will acquire certain assets, properties and rights, as
defined, of BMC in exchange for the issuance by the Company of 75,000 shares of
its common stock and contingent consideration in the form of 50,000 additional
shares and 50,000 options (with an exercise price of $5.00 per share) based upon
achievement of certain revenue milestones, as defined.

Class A Warrants
----------------

On April 3, 1998, the Company sent notice to the existing Class A warrantholders
that for each warrantholder who agrees to amend their warrant agreement to
provide for a redemption price of $7.00 per share, down from $9.00 per share,
and waive any further price adjustments to the warrant, the Company will reduce
the warrant exercise price to $5.50 per share.  Other than as agreed, no other
modifications to the warrant agreement will be made and the expiration date will
remain November 15, 1998.

                                      F-28