RENAISSANCE GOLF PRODUCTS INC, 10KSB40/A, 1997-08-19

RENAISSANCE GOLF PRODUCTS INC
10KSB40/A, 1997-08-19
SPORTING & ATHLETIC GOODS, NEC

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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FORM 10-KSB/A
AMENDMENT NO. 1

(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, 1996

( ) 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)

5812 Machine Drive,
Huntington Beach, California 92649
(Address of Principal Executive Office) (Zip Code)

Registrant's telephone number, including area code (714) 897-8213

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

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
-----
Revenues of the registrant for the fiscal year ended December 31, 1996 were
$2,403,414.

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The aggregate market value of the Common Stock held by non-affiliates of
the registrant on March 31, 1997 was approximately $3,443,780, based upon the
average of the bid and asked prices of the Common Stock, as reported by the
National Quotation Bureau Incorporated.

The number of shares of the Common Stock of the registrant outstanding as
of March 31, 1997 was 9,898,663.

Transitional Small Business Disclosure Format (check one):

Yes No X
-------- -------

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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

THE COMPANY

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-Registered
Trademark- 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-Registered Trademark- 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-Registered Trademark- 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, headwear,
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-Registered Trademark- trademark in the Licensed Territory with the
exception of headwear and towels, which are marketed on a non-exclusive basis in
the Licensed Territory.

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 NASD OTC Electronic
Bulletin Board under the symbols "FGLF" and "FGLF-W," respectively.

In October 1996, the Company offered for sale in a private placement (the
"Financing") up to a maximum of 100 units at an issue price of $25,000 per unit
(the "Units"), each Unit consisting of (i) a Convertible Subordinated Debenture
due November 1, 2001 in the principal amount of $12,500 bearing interest,
payable

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quarterly in arrears on March 31, June 30, September 30 and December 31 of each
year commencing on June 30, 1997, at the rate of 10% per annum for the first 24
months and bearing interest thereafter at the prime rate charged by the
Company's bank plus four points (the "Debenture"); and (ii) 62,500 shares of
common stock, par value $.001 (the "Unit Shares"), at a price of $.20 per share
for a total of $12,500 for the Unit Shares. The Debenture is convertible at any
time from issuance prior to maturity at the rate of $.50 per share and is
redeemable by the Company at any time after the closing price of the Company's
common stock equals or exceeds $1.50 per share for 20 consecutive trading days.
No trading market is expected to develop for the Debentures and the Unit Shares
will not be freely tradable unless subsequently registered with the SEC or an
exemption from the registration requirements of the Securities Act is available.

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.
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 obtained to provide working capital for the Company was
appointed as the Chairman of the Board of Directors.

The Company's offices are located at 5812 Machine Drive, Huntington Beach,
California 92649 and its telephone number is (714) 897-8213.

BUSINESS STRATEGY

In 1996, the Company was unable to fill orders because of a lack of working
capital. With the recent infusion of capital into the Company as a result of the
Financing, the Company has been able to secure the Fila License, repay debts,
and reposition itself to manufacture its products in 1997 through purchase order
financing. The Company has also determined to re-focus 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. The areas of renewed marketing emphasis
and their intended order of attention by the Company are as follows (i) golf
bags and accessories generally; (ii) women's bags, clubs and accessories; (iii)
men's clubs and accessories; and (iv) junior's bags, clubs and accessories.
Although the Company intends to modify its marketing emphasis, it will continue
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 represent persons 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-Registered
Trademark- trademark. Management of the Company also believes because of the
high-fashion image associated with the Fila-Registered Trademark- 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-Registered Trademark- trademark. The
Company markets its product lines through a network of qualified sales
representatives and distributors. Some of the elements of this strategy
include:

-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; and (vi) utilizing distinct design
criteria for men's and women's products.

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-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-Registered Trademark- 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 the
Fila-Registered Trademark- 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-Registered Trademark- 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.

PRODUCTS

The Company currently offers a variety of golf products including golf
clubs, bags, balls, gloves, headwear, headcovers, travel covers, umbrellas, and
towels. All golf products are distinguished by the Fila-Registered Trademark-
name and logo, unique styling, innovative design and high-quality workmanship.
The Fila-Registered Trademark- brand provides a name the 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.

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/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 models
include the following:

LITE CARRY AND LITE STAND golf bags are offered in five color combinations
with a suggested retail price range of $115.00 to $125.00.

BIELLA SERIES golf bags for both men and women come in seven color
combinations. This series has historically been the Company's best seller
and is offered at a suggested retail of $170.00.

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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 Renaissance Series.
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 five color combinations for men and five color
combinations for women with a suggested retail of $180.00.

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 $220.00.

-IRONS. 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. Irons, priced from $400 to $1,000 for a set
of eight clubs, include the following:

LATITUDE-Registered Trademark- IRONS were developed in 1994 using several
patented design technologies including patented shank proof hosel and
forward face progression, progressive weight transfer, patented dual skid
sole design, computer designed "bull nose," extended perimeter weighting,
and frequency matched graphite shafts.

FO2 IRONS are mid-size and constructed of investment cast 17-4 stainless
steel. They feature a blended parallel cavity back placing weight high in
the toe and low in the heel. Additional features include: radius sole,
beveled leading edge, thin top line, "U" groove scorelines, frequency
matched 3.5 torque graphite shafts or frequency matched Dynalite gold steel
shafts, and cobalt finish. The Company believes the design and weighting of
this iron promotes easier, longer shots on long irons and a close
dispersion pattern on the short irons.

928 SERIES IRONS for men and women are mid-size irons which were introduced
in 1995 to satisfy consumer demand for a mid-priced club carrying a premium
brand name. The 928 series offers a 4-way roll sole which the Company
believes reduces the effect of "fat" shots experienced by the average
golfer and enhances shot making in uneven lies. The 928 series offers
high-toe and low-heel perimeter weighting and progressive offset.

MEDALLION SERIES (IRONS AND WOODS, 3 X 8), are available in investment cast
4-31 stainless steel, cavity back design with a medallion. Three oversized
models make up the irons and include: F-100, Lady Modello and F-15. The
woods are available in 17-4 stainless steel featuring mid-size heads and
perimeter weighting. Three mid-size wood models match the model names for
the irons as listed above.

-WOODS. Several models of woods, ranging in price from $200 to $700 for a
set of three clubs, have been produced to complement the marketing of sets of
irons. The current models for 1997 include Latitude mid-size woods (mens, womens
and seniors), 928 Series mid-size woods (mens and womens, right-hand only),
Medallion Series mid-size woods (men's, womens and seniors), and F02 Series
oversize woods (men's, womens and seniors).

Other products include various utility wedges, putters, and accessories.
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 products.

MARKET SEGMENTS

-WOMENS 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

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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.

The Company currently offers three club styles for the woman golfer. The
Modello and "928" models designed for the beginning, occasional or recreational
golfer, and the FO2 model is designed for the more advanced golfer. Each of
these models has been designed specifically for women.

The Company also offers a complete line of golf bags for the women. Fashion
and coloration are strong considerations in the design of these bags.

-MEN'S PRODUCTS. The Company currently offers two styles of clubs designed
for men. The Company's, "928" is designed for the newer golfer providing a
quality product at a reasonable price. The 928 irons and metal woods are offered
in both steel and graphite shaft configurations. The F02 model is a mid-sized
iron designed with the lower handicapper in mind. The Company offers the F02 in
a variety of flexes in both steel and graphite shafts. The Company will continue
to produce a series of utility clubs, which include wedges and putters. All of
the Company's products for men can be purchased with a shaft designed for the
senior golfer.

-JUNIOR PRODUCTS. The Company is introducing equipment for children and
teenage golfers. The Company intends to offer 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 to include a 3-wood, 3-iron, 5-iron, 7-iron, 9 iron, mid-wedge or sand
wedge, and a putter. In addition, both sets will include a bag that is smaller
in size and lighter in weight than standard Company bags to accommodate the
junior golfer. The Company's junior sets will feature Latitude model irons with
their game-improvement design. The Latitude offers two rails on the sole which
assists in getting the ball airborne from imperfect lies with a face forward
progression on the club face which eliminates "shank" shots.

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,
womens, and public course markets. The sporting good retail market segment
already has an acute awareness of the Fila-Registered Trademark- 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-Registered Trademark-
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

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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 28% in 1996, 30% in 1995, 22% in 1994, 31%
in 1993, and 48% in 1992 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.

DESIGN AND PRODUCT DEVELOPMENT

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 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.

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-Registered Trademark- 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 headwear 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, 1996, 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. Future minimum annual royalties

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are as follows: 1997, $400,000; 1998, $500,000; 1999, $600,000; 2000, and
$700,000. During the renewal period, minimum annual royalties are as follows:
2001, $800,000; 2002, $900,000; and 2003 through 2005, $1,000,000.

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-Registered
Trademark- 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/or 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.

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.

JAPANESE SUBLICENSE

Prior to granting the license to the Company to use the Fila-Registered
Trademark- trademark, Fila Sport granted an exclusive license covering Japan to
Kanebo, Ltd. ("Kanebo") to use the trademark in connection with the manufacture
and sale of certain items including golf bags, headcovers, and gloves, but not
including golf clubs or balls. Consequently, the Original License granted by
Fila Sport to the Company limited the use of the trademark in Japan to golf
clubs and golf balls. The Company subsequently entered into a sublicensing
agreement with Kanebo giving the Company a non-exclusive right to sell golf
bags, headcovers, and gloves in Japan. The sublicensing agreement was
terminated as of June 30, 1996 upon the termination of the Company's Original
License agreement with Fila Sport. As of December 31, 1996, the Company was not
in compliance with certain terms of the sublicense agreement and had accrued
royalties due to Kanebo in the amount of $118,355. The Company is currently
negotiating an informal resolution of the payment balance and timing of payments
related to the Japanese sublicense.

LICENSE AGREEMENT FOR LATITUDE IRONS

The Company had a licensing agreement with a third party for the sale of
Latitude golf club heads whereby the Company was obligated to pay a $2.00
royalty for each club head sold. 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 the agreement. Total accrued royalties related to such
agreement amounted to $18,241 at December 31, 1996. The Company is currently
negotiating an informal resolution of the payment balance, timing of payments,
and the form of a continuing agreement.

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PGA OF EUROPE LICENSE

In June 1993, the Company entered into a license agreement with the PGA of
Europe pursuant to which the Company was granted the exclusive, world-wide 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. The PGA of Europe license was granted for an initial period
expiring March 31, 1996, subject to a three-year extension at the Company's
option, at which time the royalty amount would be re-negotiated. 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 L30,000
(approximately $51,000 at current exchange rates). The PGA of Europe license
expired on March 31, 1996 and the Company has no intentions of renewing this
agreement. Total accrued royalties related to such agreement amounted to
$47,550 as of December 31, 1996. The Company is currently negotiating an
informal resolution of the payment balance and timing of payments related
thereto.

TRADEMARKS AND OTHER INTELLECTUAL PROPERTY RIGHTS

Although the Company has not filed for any patents, it will seek to protect
its intellectual property, such as product designs, manufacturing processes, new
product research, concepts, and trademarks. These rights may be protected, in
some cases, through the acquisition of licenses for utility and design patents,
trademark registrations, the maintenance of trade secrets, the development of
trade dress, and, when necessary and appropriate, litigation against those who
are, in the Company's opinion, unfairly competing. The Company has instituted
stringent procedures to maintain the secrecy of its confidential business
information, which it believes give the Company competitive advantages. These
procedures include "need to know" criteria for dissemination of information and
written confidentiality agreements from visitors and employees. Suppliers, when
engaged in joint research projects, are required to enter into additional
confidentiality and non-circumvention agreements.

The Company utilizes the Fila-Registered Trademark- trademark pursuant to a
license from Fila Sport. See " - Fila License." The United States Patent and
Trademark Office (the "PTO") has registered the various Fila-Registered
Trademark- trademarks to Fila Sport. The Company has obtained trademarks for
Powerspoon-Registered Trademark-, Taggart-Registered Trademark-,
Latitude-Registered Trademark-, Integrator-Registered Trademark-,
Thunderhawk-Registered Trademark-, Scalpel-Registered Trademark-,
Nessie-Registered Trademark-, Stiletto-TM-, Knife-TM-, and 928-Registered
Trademark-, and will apply to the PTO for trademark protection for other marks
it anticipates using in connection with its products.

SEASONALITY

Golf is generally regarded as a warm-weather sport and sales of golf
equipment by the Company have historically been strongest during the second
calendar quarter. Although the Company's business has generally followed this
trend, the Company anticipates that the timing of the introduction of new
products may mitigate the adverse impact of sales seasonality. No assurances
can be given, however, that the Company will be able to successfully introduce
new products to offset the impact of sales seasonality.

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.

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

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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-Registered Trademark- 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.

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.

EMPLOYEES

As of March 31, 1997, the Company employed 15 employees, including six
salaried employees on a full-time basis who are considered executive personnel,
six salaried full-time employees in administrative, supervisory, and clerical
positions, one part-time employee, and two production workers who are paid on an
hourly basis. 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 12,000 square feet of office,
manufacturing, and warehouse space located at 5812 Machine Drive, Huntington
Beach, California 92649. The lease provides for rent of $76,260 per year and
expired November 14, 1995. The lessor and the Company have agreed to an
extension of the lease, at the same base rent, on a month-to-month basis with a
90 day notice of termination. The Company leased an additional 6,250 square
feet of space at 5781 Machine Drive, Huntington Beach, California, for $36,000
per year and which lease expired in January 1996.

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.

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

No matters were submitted to a vote by security holders in 1996. At its
1997 annual stockholders meeting the Company's Board of Directors anticipates
recommending a 4:1 reverse stock split for approval by the stockholders whereby
each four shares of common stock would be combined into one share. If approved,
all of the outstanding shares of common stock would be subject to the reverse
stock split, including the Unit Shares issued through the 1996 Financing. If
all of the Financing Unit Shares offered are issued, as a consequence of the
reverse stock split, the 6,250,000 Unit Shares would be combined into 1,562,500
shares and the 5,461,163 shares outstanding as of October 31, 1996 would be
combined into 1,365,291 shares. After the completion of the Financing, the new
investors obtained a total of approximately 53.4% of the total outstanding stock
of the Company, leaving prior stock holders an aggregate interest in the Company
of 46.6%. However, as part of the plan to attract the new investors to the
Company, convertible debentures were issued to the new investors as part of the
Financing and stock options were granted to those persons and entities
facilitating a change in the focus of the Company to promote viability.
Assuming the conversion of all debentures and full exercise of stock options,
the new investors will hold approximately 72.3% of the total outstanding stock
and the prior stock holders approximately 27.7%. Additionally, the convertible
debentures and stock options granted in conjunction with the Financing are not
subject to price adjustment under any circumstances including a reverse stock
split; accordingly, if the proposal to go before the stockholders to approve a
4:1 reverse split passes, the new investors in the Financing and stock option
holders will hold approximately 87.5% of the outstanding stock of the Company
and the existing stockholders prior to the Financing will hold approximately
12.5% on a fully diluted basis. The Company cannot predict whether the
stockholders will vote to approve the proposal for the reverse stock split or
predict the impact of the reverse stock split on the price of the shares in the
market.

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
November 3, 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 Company's securities are
currently traded on the OTC Bulletin Board market.

The following table sets forth, for the period from November 17, 1993
through December 31, 1996, the high and low bid and asked quotations for the
Common Stock during the two most recent fiscal years as reported by the National
Quotation Bureau Incorporated from November 4, 1995 to December 31, 1996 and the
NASDAQ Small Cap Market prior to November 4, 1995. The prices represent
quotations between dealers, without adjustment for retail mark up, mark down or
commission, and do not necessarily represent actual transactions.

BID ASKED*
------------- -------------
HIGH LOW HIGH LOW
1996

1st Quarter 1/4 3/16
2nd Quarter 7/32 1/8
3rd Quarter 9/16 1/8
4th Quarter 3/8 7/32

1995

1st Quarter 1 7/16 7/8 1 1/2 1
2nd Quarter 1 1/4 7/16 1 5/16 11/16
3rd Quarter 3/4 1/2 7/8 5/8
4th Quarter 1/2 1/4 5/8 9/32
*not provided by National Quotation Bureau Incorporated for 1996.

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<PAGE>

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 March 31,
1997, the approximate number of record holders of the Company's Common Stock was
207.

In October 1996, the Company offered in conjunction with the Financing plan
up to a maximum of 100 units at an issue price of $25,000 per unit, each unit
consisting of (i) a Debenture due November 1, 2001 in the principal amount of
$12,500 bearing interest, payable quarterly in arrears on March 31, June 30,
September 30 and December 31 of each year commencing on June 30, 1997, at the
rate of 10% per annum for the first 24 months and bearing interest thereafter at
the prime rate charged by the Company's bank plus four points; and (ii) 62,500
Unit Shares, at a price of $.20 per share for a total of $12,500 for the Unit
Shares. The Debenture is convertible at any time from issuance prior to
maturity at the rate of $.50 per share and is redeemable by the Company at any
time after the closing price of the Company's common stock equals or exceeds
$1.50 per share for 20 consecutive trading days. No trading market is expected
to develop for the Debentures and the Unit Shares will not be freely tradable
unless subsequently registered with the SEC or an exemption from the
registration requirements of the Securities Act is available. The Units,
Debentures, and Unit Shares have not been registered under the Securities and
Exchange Act of 1933 or any state securities act. As a result of the conversion
right, existing stockholders could be substantially diluted if the debentures
are converted.

REVERSE STOCK SPLIT

The Company's Board of Directors anticipates recommending a 4:1 reverse
stock split for approval by the stockholders whereby each four shares of common
stock would be combined into one share. See "Item 4."

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS

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

GENERAL

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-Registered Trademark- trademark and logo
under license from Fila Sport S.p.A. of Biella, Italy, a subsidiary of Fila
Holding, S.p.A. The Fila-Registered Trademark- 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-Registered Trademark- 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.

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RESULTS OF OPERATIONS

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.

Cost of sales decreased from $3,852,000 for the year ended December 31,
1995 to $2,167,000 for the comparable period in 1996, a decrease of $1,685,000
or 44%. The gross profit margin decreased from 23% for the year ended December
31, 1995 to 10% for the comparable period in 1996. This decrease is 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 the last
fiscal year 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 increased to a net expense of $364,000 for
the year ended December 31, 1996 as compared to a net expense of $342,000 for
the same period in 1995. This net increase 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 and an increase of $112,000 in inventory write-downs ($321,000 for
the year ended December 31, 1996 as compared to $209,000 for the same period in
1995.)

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%.

COMPARISON OF THE YEAR ENDED DECEMBER 31, 1995 TO THE YEAR ENDED DECEMBER
31, 1994. Net sales for the year ended December 31, 1995 decreased 13% to
$5,007,000 compared to $5,762,000 for the year ended December 31, 1994. The
decrease was due to decreased sales of Latitude-Registered Trademark- irons and
a shortage of working capital to fund inventory purchase requirements, mainly
related to the increased demand for golf bags. Net sales of Latitude-Registered
Trademark- irons decreased as a percentage of total net sales from 31% for the
year ended December 31, 1994 to 6% for the comparable period in 1995. Sales of
golf bags and accessories increased 14% in the year ended December 31, 1995 as
compared to the comparable period in 1994. Sales of bags and accessories have
increased as a percentage of net sales from 32% for the year ended December 31,
1994 to 42% for the comparable period in 1995. For the year ended December
31, 1995, international sales increased 16% and domestic sales decreased 22% as
compared to the same period in 1994.

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<PAGE>

Cost of sales increased from $3,456,000 for the year ended December 31,
1994 to $3,852,000 for the comparable period in 1995, an increase of $396,000 or
11%. The gross profit margin decreased from 40% for the year ended December 31,
1994 to 23% for the comparable period in 1995. This decrease is due primarily
to lower margins and greater discounts given on certain product lines and lower
margins on international sales, both of which represented a higher percentage of
the sales mix in 1995 as compared to 1994.

Selling, general and administrative costs were $3,332,000 for the year
ended December 31, 1995 compared to $5,726,000 for the comparable period in
1994, a decrease of $2,394,000 or 42%. The decrease resulted primarily from
lower sales and marketing expenses ($1,734,000 for the year ended December 31,
1995 as compared to $3,613,000 for the same period in 1994), 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 ($406,000 for the year ended December 31, 1995 as
compared to $530,000 for the same period in 1994), mainly consisting of
insurance, office expense, and telephone expenses; a decrease in salaries and
staff costs ($678,000 for the year ended December 31, 1995 as compared to
$816,000 for the same period in 1994); a decrease in professional costs
($157,000 for the year ended December 31, 1995 as compared to $439,000 for the
same period in 1994), mainly consisting of consulting and legal expenses.

Other income and expense items increased to a net expense of $342,000 for
the year ended December 31, 1995 as compared to a net expense of $126,000 for
the same period in 1994 as a result of increased debt in 1995 and the result of
inventory write downs increasing from $100,000 to $209,000 for 1994 and 1995
respectively.

Selling, general and administrative costs decreased, as a percentage of
sales, from 99% for the year ended December 31, 1994 to 67% for the comparable
period in 1995. The Company experienced a net loss of $2,520,000 for the year
ended December 31, 1995 compared to $3,547,000 for the comparable period in
1994, a decrease of $1,027,000 or 29%.

PLAN OF OPERATION - LIQUIDITY AND CAPITAL RESOURCES

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 1996 and 1995 was $1,000,000 and
$323,000, respectively. Working capital at the end of 1996 and 1995 was
$(502,000) and ($11,774), respectively. Cash and cash equivalents at December
31, 1996 were $276,000 compared to $97,000 at December 31, 1995. Inventories,
net of reserves at December 31, 1996 were $349,000 compared to $946,000 at
December 31, 1995, a decrease of $597,000. Also, accounts receivable decreased
$591,000 from $734,000 at December 31, 1995 to $143,000 at December 31, 1996.
Notes payable for $921,000 were outstanding at December 31, 1996. Accounts
payable and accrued liabilities increased by $138,000 from December 31, 1995 to
December 31, 1996. Accrued royalties decreased by $403,000 from December 31,
1995 to December 31, 1996.

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 exercisable at $2.50 per share for a period of 18
months. The Company raised $25,000 before the offering was terminated.
Presently 25,000 shares of preferred stock remains outstanding as a result of
the 1995 offering. All warrants have expired.

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<PAGE>

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) 62,500 Unit Shares at a price of $.20 per share for
a total of $12,500 for the Unit Shares. The Debenture is convertible at any
time from issuance prior to maturity at the rate of $.50 per share and is
redeemable by the Company at any time after the closing price of the Company's
Common Stock equals or exceeds $1.50 per share for 20 consecutive trading days.

The Financing has resulted in the infusion of $1,775,000 from the time of
the Financing to March 31, 1997. The Financing has 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 Company's
management believes that the proceeds provided by the Financing and through the
loan will permit the Company to experience a positive cash flow sufficient to
purchase inventory and increase sales. As a result, management believes the
capital infusion and the increased sales levels will provide working capital
sufficient for the Company to continue operations for the next year; although,
additional capital will be needed to implement all of management's marketing
strategies over time.

Throughout the Company's operating history, net losses have caused
significant cash flow problems, particularly during the last two years. At
December 31, 1994, the Company had cash and cash equivalents of $1,060,380. At
December 31, 1995 and December 31, 1996, the Company's available cash and
equivalents totaled $92,927 and $276,012 respectively. Although the proceeds
from this Financing are anticipated to enable the Company to generate positive
cash flow in 1997, there can be no assurance that it will. Although the
proceeds of this Financing and cash flow from operations are anticipated to be
sufficient from operations in 1997, 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 Financing, 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.

In January 1997, the Company entered into a line of credit agreement with a
bank in which the Company can borrow up to $400,000 in connection with the
letter of credit established in accordance with the Fila Sport License
Agreement. The line bears interest at the bank's prime rate plus 1.5% and is
collateralized by essentially all of the Company's assets and is guaranteed by
the Chairman of the Board of Directors. The Company established a letter of
credit with an accredited bank in the amount of $400,000. The letter of credit
is secured by the line of credit. The line of credit and letter of credit
expire January 31, 1998.

The Company and the Company's Chairman of the Board of Directors jointly
entered into a loan and security agreement with a lender on March 31, 1997 which
will provide the Company up to the maximum aggregate principal amount of the
lesser of $1,000,000, and 50% of the aggregate of all open customer purchase
orders. 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 open customer purchase orders. The revolving promissory note
executed pursuant to this agreement bears an interest rate of 12% and expires
December 31, 1997. Amounts outstanding under the Agreement are collateralized
by the Company's inventory and open customer purchase orders. As of March 31,
1997, the Company's total open customer purchase orders were approximately
$980,000 and no amounts had been borrowed.

Effective March 21, 1997, the Company borrowed $225,000 from a stockholder.
The borrowing bears interest at a rate of 1% per month. The Company anticipates
repaying the total amount of the loan plus accrued interest from the proceeds of
the renewing loan and security agreement recently obtained by the Company.

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As of the fiscal year end, the Company had accrued liabilities of $118,355,
$18,241, and $47,550 for license agreements that have been terminated. The
Company is currently negotiating the amounts due and the payment terms.
Management has been negotiating to pay the $118,355 over the next 18 to 24
months from operating cash and believes such an agreement will be reached.
Management also believes it will obtain a total release of the two smaller
obligations due through current negotiations.

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.

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

On May 2, 1995, the Audit Committee of the Board of Directors of the
Company approved and appointed the firm of Corbin & Wertz as its independent
accountants for the fiscal year ending December 31, 1995 to replace Deloitte &
Touche LLP (the "Accountant"). The Accountant was dismissed on May 2, 1995. At
the time of the dismissal, no disagreements existed with the Accountant.

During the Company's two most recent fiscal years there were no
disagreements with the Accountant on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure.
During the Company's two most recent fiscal years there were no "reportable
events," as the term is defined in Regulation S-K, Section 229.304(a)(1). The
Accountant's independent auditor's report dated March 14, 1995 on the Company's
financial statements as of and for the years ended December 31, 1994 and 1993,
contained an explanatory paragraph about there being conditions which raise
substantial doubt about the Company's ability to continue as a going concern.

Prior to the engagement of Corbin & Wertz, neither the Company nor anyone
on the Company's behalf consulted Corbin & Wertz regarding either the
application of accounting principles to a specific transaction, either completed
or proposed; or the type of audit opinion that might be rendered on the
Company's financial statements; or any matter that was the subject of a
disagreement with the former accountant or a reportable event.

15
<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.

DIRECTORS AND EXECUTIVE OFFICERS

The names, ages and positions of the Company's Directors and executive
officers as of March 31, 1997 are listed below:

<TABLE>
<CAPTION>
<S> <C> <C> <C>
NAME AGE POSITION WITH THE COMPANY FIRST ELECTED
John B. Hewlett 44 Chairman of the Board, Director 1996
Miles T. Doody 69 Vice Chairman 1993
Kenneth W. Craig 42 President, Chief Executive Officer, Director 1996
James T. Doody 45 Chief Operating Officer, Executive Vice President 1993
Janet R. Gardner 54 Vice President - Administration 1993
Mont E. Warren 35 Vice President, Chief Financial Officer 1993
Dennis L. Crockett 45 Director 1996
Wade M. Mitchell 32 Director 1996
Bruce H. Haglund 45 Secretary 1994
</TABLE>

JOHN B. HEWLETT has served as Chairman of the Board of the Company since
October 1996. 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. Miles T. Doody is the father of James T. Doody.

KENNETH W. CRAIG has served as President and as a Director of the Company
since October 1996 and as Chief Executive Officer since January 1997. 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

16
<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.

JAMES T. DOODY has served as Executive Vice President of the Company since
January 1993 and as Chief Operating Officer since January 1997. He was a
Director from January 1994 to December 1994 and served as the Company's Vice
President-Sales from July 1991 to January 1993. From 1983 through July 1991,
Mr. Doody was employed by Bullet/Cougar Golf Company, where he served eventually
as National Sales Manager. From 1981 to 1983, Mr. Doody was employed by Sounder
Golf Company as Western Regional Sales Manager. He started his career in the
golf industry in 1970 when he joined the P.G.A. Victor staff in the custom club
development department. Mr. Doody's involvement in golf-related marketing began
in 1971 when he began an apprenticeship as a golf pro in the PGA professional
program, training to manage retail golf programs, and he eventually managed
three major retail golf shops. James T. Doody is the son of Miles T. Doody.

JANET R. GARDNER has been Vice President - Administration of the Company
since January 1993, and since 1990 has served as Officer Manager and Executive
Assistant, responsible for all personnel matters, advertising, and office
procedures. From 1980 through 1990, Ms. Gardner was employed by Bullet/Cougar
Golf Company, where she served as Office Manager for the National Sales Office.
Prior to her employment with Bullet/Cougar Golf Company, Ms. Gardner was
employed by the Bally Corporation, Holiday Health Spas Financial Services, as
Communications Manager.

MONT E. WARREN has served as Vice President and 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. He is a graduate of Brigham
Young University in Provo, Utah.

WADE M. MITCHELL has been a Director since October 1996. 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.

17
<PAGE>

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 and the Secretary of Metalclad Corporation, public companies whose
stock is traded on the NASDAQ Small Cap Market. He is a graduate of the
University of Utah College of Law.

LIMITATION OF LIABILITY OF DIRECTORS

Pursuant to the Delaware General Corporation Law, the Company's Articles of
Incorporation exclude personal liability for its Directors for monetary damages
based upon any violation of their fiduciary duties as Directors, except as to
liability for any breach of the duty of loyalty, acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law, or
any transaction from which a Director receives an improper personal benefit.
This exclusion of liability does not limit any right which a Director may have
to be indemnified and does not affect any Director's liability under federal or
applicable state securities laws. The Company has agreed to indemnify its
directors against expenses, judgments, and amounts paid in settlement in
connection with any claim against a Director if he acted in good faith and in a
manner he believed to be in the best interests of the Company.

BOARD OF DIRECTORS COMMITTEES AND COMPENSATION

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 legal principles, it is not involved in
day-to-day operating details. Members of the Board 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,
Dennis L. Crockett, Kenneth W. Craig and Wade M. Mitchell as directors to serve
until the annual meeting of the Company.

The Board held five meetings in 1996 with an average attendance of over
75%. All directors attended more than 75% of the meetings held during their
tenures as directors. Board members are not presently compensated, but are
reimbursed for their expenses associated with attending Board and Committee
meetings.

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
Committees did not meet in 1996.

The Finance Committee has been 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 has been 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.

18
<PAGE>

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.

ITEM 10. EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION

The Company's compensation programs are designed to link executives'
compensation to the performance of the Company. The annual salary paid to
executives over the past three years reflect fixed amounts that are deemed
competitive for executives with comparable ability and experience in the
industry. Additionally, because of cash flow issues for the Company, executives
have not received increases in salary for two years, and in some instances,
executives have taken a salary cut.

The Company believes that providing stock options to executive helps
reinforce their alignment of interests with the stockholders. Accordingly, as a
part of the recent Financing, executive officers were awarded stock options
based upon performance over the next three years.

The compensation paid to Mr. M. Doody, the highest paid executive during
the past four years, is summarized in the compensation table below:

<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION

NAME AND YEAR SALARY BONUS OTHER AWARDS PAYOUTS
PRINCIPAL ($) ($) ANNUAL
POSITION COMP. RESTRICT OPTIONS LTIP ALL
STOCK SARS(#) PAYOUTS ($) OTHER (1)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996 75,000 -0- -0- -0- 360,000(2) -0- -0-
1995 121,000 -0- -0- -0- -0- -0- -0-
Miles T. Doody 1994 150,000 19,800 -0- -0- -0- -0- -0-
CEO 1993 150,000 1,100 30,300 36,000 -0- 160,000 -0-

</TABLE>

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

(1) The remuneration described in the table does not include the cost to the
Company of benefits furnished to the named executive officer, including premiums
for health insurance and other personal benefits provided to such individual
that are extended to all employees of the Company in connection with their
employment. The value of such benefits cannot be precisely determined; however,
the executive officer named above did not receive other compensation in excess
of the lesser of $50,000 or 10% of such officers' cash compensation. Salary for
Mr. M. Doody for 1991 and 1992 in the aggregate amount of $30,300 was deferred
to 1993.

(2) In conjunction with the Financing Mr. M. Doody agreed to forfeit a stock
option for 160,000 common stock shares at $4.00 per share granted in 1993 and to
convert a short-term $50,000 note of the Company to a promissory note due June
30, 1999 and bearing interest at 10%, in exchange for a stock option for 360,000
common stock shares at $.50 per share.

The Company entered into three-year employment agreements in January 1993
with Miles T. Doody, James T. Doody, Janet R. Gardner, and Mont E. Warren, its
executive officers. The agreements provide for minimum base salaries of
$150,000 for Mr. M. Doody, $80,000 for Mr. J. Doody, $39,500 for Ms. Gardner,
and $55,000 for Mr. Warren. In connection with their employment agreements,
each of the executive officers also received shares of Common Stock of the
Company as part of their compensation. In January 1994, the Company agreed to
extend these contracts through December 31, 1997. Miles T. Doody agreed to
reduce his compensation to $75,000 per year commencing on July 31, 1996.

19
<PAGE>

In October 1996, the Company agreed orally to employ Kenneth W. Craig as
President of the Company. The agreement provides for compensation at the rate
of $4,000 per month plus 1% of annual revenues attributable to sale of
Fila-Registered Trademark- trademarked products. The employment agreement
expires on December 31, 1999, subject to one-year renewals at the option of the
Company on each anniversary of the employment agreement. Further, the Company
agreed to grant Mr. Craig non-qualified stock options to purchase 600,000 shares
at a price of $.50 per share. A total of 300,000 of the options vest upon the
sale of the 100 Units offered hereby and the balance of the options are to vest
upon the earlier of achieving certain performance goals or ratably over ten
years. The performance goals are that the Company achieves sales of
Fila-Registered Trademark- trademarked products in the amount of $5,000,000 in
1997, $8,000,000 in 1998, and $10,000,000 in 1999. The options are exercisable
until December 31, 2006.

STOCK OPTION PLAN

On July 13, 1993, the Board of Directors of the Company adopted the 1993
Stock Option Plan (the "Plan") which was approved by the stockholders on the
same day. The Plan is intended to provide incentive to key employees and
Directors of, and key consultants, vendors, customers, and others expected to
provide significant services to, the Company, to encourage proprietary interest
in the Company, to encourage such key employees to remain in the employ of the
Company and its subsidiaries, to attract new employees with outstanding
qualifications, and to afford additional incentive to consultants, vendors,
customers, and others to increase their efforts in providing significant
services to the Company. The Company has reserved 600,000 shares of Common
Stock for issuance under the Plan. The Plan provides that incentive stock
options ("Incentive Stock Options") may be granted to full-time employees (who
may also be Directors) and nonstatutory stock options ("Nonstatutory Stock
Options") may be granted to non-employee Directors and consultants from time to
time on a discretionary basis by the Board or the Committee. The Plan also
provides for the grant of Nonstatutory Stock Options to outside members of the
Board of Directors on a "formula award" basis as provided in Rule 16b-3 of the
Securities Exchange Act of 1934 ("Rule 16b-3"). As of the date of this filing,
Incentive Stock Options are outstanding for the purchase of 240,000 shares at
$4.00 per share pursuant to the Plan, all of which are vested, to the following
executive officers: James T. Doody (120,000 options), Mont W. Warren (60,000
options), and Janet R. Gardner (60,000 options). These options expire in July
1998. At the present average market share price, none of the Incentive Stock
Options are "in the money."

The Plan provides for administration by the Board in compliance with Rule
16b-3, or by a Committee (the "Committee") appointed by the Board, which
Committee shall be constituted to permit the Plan to comply with Rule 16b-3, and
which shall consist of not less than two members, each of whom has not
participated in the Plan by way of receipt of any discretionary grant of an
option (Incentive Stock Options and Nonstatutory Stock Options are together
hereinafter referred to as "Option" or "Options", unless the context otherwise
requires), and who will not so participate while serving as a member of the
Committee, and each of whom has not participated under any other plan or have
received options of the Company during the year preceding adoption of the Plan
by the stockholders (other than pursuant to a formula award grant under the
Plan). A member of the Board or a Committee member shall in no event
participate in any determination related to Options held by or to be granted on
a discretionary basis to such Board or Committee member.

The aggregate number of shares of the Company's authorized but unissued
Common Stock which may be issued upon exercise of Options under the Plan may not
exceed 600,000 shares. If any unexercised option, or any portion thereof, for
any reason expires or is terminated, do not vest or are not delivered, the
unexercised or unvested shares allocable to such Option may again be made
subject to any Award.

Options must be evidenced by written stock option agreements in such form
as the Committee may from time to time determine. Each Option must state the
number of shares to which it pertains and must provide for the adjustment
thereof if the outstanding shares of Common Stock are exchanged for cash or a
different number or kind of shares or securities of the Company, or if the
outstanding shares of the Common Stock are increased, decreased, exchanged for,
or otherwise changed, or if additional shares or new or different shares or
securities are distributed with respect to the outstanding shares of the Common
Stock, through a reorganization or merger in which the Company is the surviving
entity or through a combination, consolidation, recapitalization,
reclassification, stock split, stock dividend, reverse stock split, stock
consolidation or other capital change or adjustment. In addition, the Board or
the Committee may grant such additional rights in the foregoing circumstances as
the Board or the Committee deems to

20
<PAGE>

be in the best interests of any participant and the Company in order to preserve
for the participant the benefits of the Award.

The exercise price in the case of any Incentive Stock Option must not be
less than the fair market value on the date of grant and, in the case of any
Option granted to an optionee who owns more than 10% of the total combined
voting power of all classes of outstanding stock of the Company, must not be
less than 110% of the fair market value on the date of grant. The exercise
price, in the case of any Nonstatutory Stock Option, must not be less than 85%
of the fair market value on the date of grant.

The purchase price is payable in full in United States dollars upon the
exercise of the Option; provided, however, that if the applicable Option
agreement so provides, the purchase price may be paid (i) by the surrender of
shares in good form for transfer, owned by the participant and having a fair
market value on the date of exercise equal to the purchase price, or in any
combination of cash and shares, as long as the sum of the cash so paid and the
fair market value of the shares so surrendered equals the purchase price; (ii)
by cancellation of indebtedness owed by the Company to the participant; (iii)
with a full recourse promissory note executed by the participant; or (iv) any
combination of the foregoing. The interest rate and other terms and conditions
of such note must be determined by the Board or the Committee. The Board or
Committee may require that the participant pledge his shares of Common Stock to
the Company for the purpose of securing the payment of such note, in which event
the stock certificate(s) representing such shares may not be released to the
participant until such note has been paid in full.

Each Option must state the time or times which all or part thereof becomes
exercisable. No Option may be exercised after the expiration of 10 years from
the date it was granted, and no Option granted to an optionee who owns more than
10% of the total combined voting power of all classes of outstanding stock of
the Company may be exercised after the expiration of five years from the date it
was granted. During the lifetime of a participant in the Plan, his Options may
be exercisable only by him and shall not be assignable or transferable. If a
participant dies while Options are exercisable, they may be exercised, subject
to the condition that no option shall be exercisable after the expiration of 10
years from the date granted and to the extent the right to exercise the Option
accrued at any time within three months after the death of the participant, by
the executors or administrators of the deceased participant or by persons who
acquired the option directly from the deceased option holder by bequest or
inheritance.

Within the limitations of the Plan, the Board or Committee may modify,
extend or renew outstanding Options or accept the cancellation of outstanding
Options (to the extent not previously exercised) for the granting of new Options
in substitution therefor. No modification of an Option may, without the consent
of the participant, alter or impair any rights or obligations under any Option
previously granted.

In the case of Incentive Stock Options granted under the Plan, the
aggregate fair market value (determined as of the date of the grant thereof) of
the shares with respect to which Incentive Stock Options become exercisable by
any participant for the first time during any calendar year (under the Plan and
all other plans maintained by the Company) may not exceed $100,000. The Board
or Committee may, however, with the participant's consent, authorize an
amendment to the Incentive Stock Option which renders it a Nonstatutory Stock
Option.

The stock option agreements authorized under the Plan may contain such
other provisions not inconsistent with the terms of the Plan (including, without
limitation, restrictions upon the exercise of the Options) as the Board or the
Committee deems advisable.

COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT

Section 16 (a) of the Securities Exchange Act 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 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.

21
<PAGE>

OPTION GRANTS IN 1996

The following table reflects the non-qualified options granted to the Chief
Executive Officer in 1996.

OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS

NAME NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARs
UNDERLYING GRANTED TO
OPTIONS/SARs EMPLOYEES IN EXERCISE OR BASE
GRANTED (#) FISCAL YEAR PRICE ($/SHARE) EXPIRATION DATE

Miles T. Doody 360,000 100% $0.50 12/31/06

Mr. Doody's grant of options was a part of a total of 5,477,000
non-qualified stock options the Company agreed to grant in 1996 (the "1996 Stock
Options"), all of which are exercisable at a price of $.50 or $1.00 per share
and expire on December 31, 2006.

In connection with the Financing, the Company by vote of the Board of
Directors, which did not require a vote of the stockholders, agreed to grant a
total of 5,477,000 non-qualified stock options in October 1996 (the "1996
Options"), all of which are exercisable at a price of $.50 or $1.00 per Share
and expire on December 31, 2006. The shares issuable upon exercise of the 1996
Options are not subject to adjustment in the event of a reverse stock split.
Certain of the options granted vested upon the sale of all 100 Units offered
through the Financing including the following: (i) Pine Valley, Ltd., an
affiliate of Mr. Hewlett, and Culley W. Davis, a consultant to the Company, were
each granted options to purchase 400,000 shares at a price of $.50 per Share;
(ii) Granite Hollow Insurance Agency, LLC, an affiliate of Mr. Hewlett, was
granted options to purchase 1,000,000 shares at a price of $.50 per Share; (iii)
Dennis L. Crockett was granted options to purchase 100,000 shares at a price of
$.50 per Share; (iv) Michael B. Orr and J. Arthur Wright, former directors of
the Company who have never been compensated for their service as directors, were
each granted options to purchase 50,000 shares at a price of $.50 per Share; (v)
Miles T. Doody was granted options to purchase 360,000 shares at a price of $.50
per Share in consideration for his waiver of rights to purchase 160,000 options
previously granted and his agreement to reduce his salary to $75,000 per year;
(vi) Bruce H. Haglund, Secretary and general counsel to the Company, received
750,000 options at a price of $.50 per Share in consideration for his agreement
to convert $150,000 of legal fees for a long-term promissory note due June 30,
1999, and he agreed to waive his rights to 50,000 options previously granted.

The Company agreed to grant Mr. Craig 1996 Options to purchase 600,000
shares at a price of $.50 per share. A total of 300,000 of the options vested
and the balance of his options vest upon the earlier of achieving certain
performance goals or after ten years. The remaining options granted are to vest
upon the earlier of achieving certain performance goals, or, ten years. The
performance goals are that the Company achieves sales of Fila-Registered
Trademark--trademarked products in the amount of $5,000,000 in 1997, $8,000,000
in 1998, and $10,000,000 in 1999. Current employees of the Company were granted
an aggregate of 417,000 1996 Options. James T. Doody received 225,000 of the
417,000 options. Mont E. Warren received 150,000 of the options, and Janet
Gardner received 9,000 of the options.

The Board also granted Mr. Hewlett 1,000,000 1996 Options exercisable at
the price of $1.00 per Share at any time until their expiration 10 years from
the date of grant in connection with his services in 1996 as a Director of the
Company, for providing marketing contacts and expertise to help effectuate the
Company's plan to re-focus its business strategy and marketing efforts, and in
consideration for the $400,000 royalty line of credit and his personal guarantee
of the Company's credit arrangements.

The Board granted Wade B. Mitchell 200,000 of the 1996 Options exercisable
at the price of $.50 per Share at any time until their expiration 10 years from
the date of grant and 150,000 of the 1996 Options exercisable at the price of
$1.00 per Share at any time until their expiration 10 years from the date of
grant. The options were granted to Mr. Mitchell for his services in 1996 as a
Director of the Company and for providing services to implement the Company's
re-focused business strategy and marketing efforts.

22
<PAGE>

The 1996 Options granted were granted by the Board of Directors and such
grants did not require a vote of the stockholders. The shares issuable upon
exercise of the 1996 Options including those specifically discussed in this
section are not subject to adjustment in the event of a reverse stock split. A
summary of the options granted in conjunction with the Financing follows:

OPTIONS GRANTED PURSUANT TO THE FINANCING

NAME OF RECIPIENT RELATIONSHIP NUMBER VESTING EXERCISE CONSIDERATION
----------------- ------------ OF SHARES DATE PRICE -------------
--------- ------- --------
<S> <C> <C> <C> <C> <C>
John B. Hewlett Chairman 1,000,000 12/31/96 $1.00 (4)
Granite Hollow Consultant (1) 1,000,000 12/31/96 $0.50 (4)
Pine Valley, Ltd. Consultant (1) 400,000 12/31/96 $0.50 (4)
Dennis L. Crockett Director 100,000 12/31/96 $0.50 (5)
Culley W. Davis Consultant 400,000 12/31/96 $0.50 (6)
Michael B. Orr Director (2) 50,000 12/31/96 $0.50 (7)
J. Arthur Wright Director (2) 50,000 12/31/96 $0.50 (7)
Miles T. Doody Director 360,000 12/31/96 $0.50 (8)
Kenneth W. Craig Director 300,000 12/31/96 $0.50 (9)
300,000 (3) $0.50 (9)
Bruce H. Haglund Officer 750,000 12/31/96 $0.50 (10)
Wade B. Mitchell Director 200,000 12/31/96 $0.50 (11)
150,000 12/31/96 $1.00 (11)
Other Employees 417,000 (3) $0.50 (12)

Total Options Granted 5,477,000
</TABLE>

- -------------------
(1) An affiliate of John B. Hewlett.
(2) Resigned in conjunction with the Financing in October 1996.
(3) Options are to vest upon the earlier of achieving certain performance goals
or ratably over 10 years. The performance goals are that the Company
achieves sales of $5,000,000 in 1997, $8,000,000 in 1998, and $10,000,000
in 1999.
(4) Mr. Hewlett was granted options for serving as a Director of the Company,
for providing marketing contacts and expertise to help effectuate the
Company's plan to re-focus its business strategy and marketing efforts
through his affiliated companies, and in consideration for the $400,000
royalty line of credit and his personal guarantee of the Company's credit
arrangements including a $1,000,000 line of credit and additional
short-term lines of credit in amounts exceeding $1,000,000.
(5) Mr. Crockett was granted options for serving as a Director of the Company
and for providing consulting services to help effectuate the Company's
re-focused business strategy.
(6) Mr. Davis was granted options for providing consulting services related to
organizing and effectuating the Financing plan.
(7) Messrs. Orr and Wright, who were never been compensated for their years of
service as Directors, were each granted options as compensation for their
past services to the Company.
(8) Mr. Doody agreed to waive his rights to purchase 160,000 options previously
granted and to reduce his salary to $75,000 per year.
(9) Mr. Craig was granted options for providing consulting services related to
organizing and effectuating the Financing plan, for providing services as
the Company's President and as a Director, and for guiding the Company to
the achievement of certain performance goals.
(10) Mr. Haglund agreed to convert $150,000 of legal fees for a long-term
promissory note due June 30, 1999, and he agreed to waive his rights to
50,000 options previously granted.
(11) Mr. Mitchell was granted options for his services in 1996 as a Director of
the Company and for providing services to implement the Company's
re-focused business strategy and marketing efforts.

23
<PAGE>

(12) Current employees of the Company were granted an aggregate of 417,000 1996
Options. Current management including James T. Doody received 225,000 of
the 417,000 options, Mont E. Warren received 150,000 of the options, and
Janet Gardner received 9,000 of the options.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

PRINCIPAL STOCKHOLDERS

The following table sets forth information concerning the beneficial
ownership of the Company's Shares as of March 31, 1997 for (i) each current
Director and each nominee for Director (ii) each officer of the Company, (iii)
all persons known by the Company to beneficially own more than 5% of the
outstanding Shares of the Company's Shares, and (iv) all officers and Directors
of the Company as a group.

<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
NAME AND ADDRESS OF BENEFICIALLY OWNED PERCENT OF TOTAL BENEFICIALLY OWNED PERCENT OF TOTAL
BENEFICIAL OWNER(1) BEFORE SPLIT(2) BEFORE SPLIT (3) AFTER SPLIT AFTERSPLIT (4)
- ------------------- --------------- ---------------- ----------- --------------
<S> <C> <C> <C> <C>
John B. Hewlett 2,575,000 (5) 20.9% 2,481,250 50.4%

Bruce H. Haglund 757,000 (6) 7.1% 751,750 23.3%

Kenneth W. Craig 300,000 (7) 2.9% 300,000 10.8%

Dennis L. Crockett 625,000 (8) 6.2% 343,750 12.6%

Miles T. Doody 449,375 (9) 4.4% 382,343 13.5%

James T. Doody 165,250 (10) 1.6% 131,313 5.6%

Mont E. Warren 97,250 (11) 1.0% 69,313 2.7%

Janet R. Gardner 96,375 (12) 1.0% 69,094 2.7%

Wade M. Mitchell 350,000 (13) 3.4% 350,000 12.4%

All officers and Directors 5,415,250 (14) 37.1% 4,878,813 68.0%
as a group (nine persons)

Unaffiliated 10,758,413 (15) 93.0% 3,870,853 93.3%
Stockholders
</TABLE>
- -------------
(1) Unless otherwise noted, the Company believes that all Shares are
beneficially owned and that all persons named in the table or family
members have sole voting and investment power with respect to all Shares
owned by them. Unless otherwise indicated, the address of each Stockholder
is 5812 Machine Drive, Huntington Beach, California 92649.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date hereof upon the
exercise of warrants or options. Each beneficial owner's percentage
ownership is determined by assuming that options or warrants that are held
by such person (but not those held by any other person) and which are
exercisable within 60 days from the date hereof have been exercised.
(3) Assumes 9,898,663 Shares outstanding plus, for each individual, any
securities that specific person has the right to acquire upon exercise of
presently exercisable stock options and conversion of debenture shares
before giving effect to the proposed 4 to 1 Reverse Split. Options,
warrants, or conversion rights held by persons other than the specific
individual for whom an ownership interest percentage is being calculated
are not considered in calculating that specific individual's ownership
interest percentage.
(4) Assumes 2,474,666 Shares outstanding that will be outstanding upon approval
and completion of the proposed 4 to 1 Reverse Split, plus, for each
individual, any securities that specific person has the right to

24
<PAGE>

acquire upon exercise of presently exercisable stock options and conversion
of debenture shares. Options held by each beneficial owner or group listed
are not subject to adjustment upon approval of the Reverse Split;
accordingly, each beneficial owner or group will hold a greater ownership
interest relative to the total Shares outstanding. Options, warrants, or
conversion rights held by persons other than the specific individual for
whom an ownership interest percentage is being calculated are not
considered in calculating that specific individual's ownership interest
percentage.
(5) Represents 1,400,000 Shares issuable to Mr. Hewlett, and affiliates which
he controls, upon the exercise of stock options to be issued upon
completion of the Financing at a price of $0.50 per Share, 1,000,000 Shares
issuable upon the exercise of presently exercisable stock options at a
price of $1.00 per Share and 50,000 Debenture Conversion Shares issued as a
result of his investment in the Financing. Mr. Hewlett's address is 2919
East Granite Hollow Street, Sandy, Utah 84092.
(6) Includes 750,000 Shares issuable upon the exercise of presently exercisable
stock options and stock options to be issued upon completion of the
Financing at a price of $0.50 per Share. Mr. Haglund's address is 2010
Main Street, Suite 400, Irvine, California 92660.
(7) Includes 300,000 Shares issuable upon the exercise of presently exercisable
stock options and stock options to be issued upon completion of the
Financing at a price of $0.50 per Share.
(8) Includes 100,000 Shares issuable upon the exercise of presently exercisable
stock options and stock options to be issued upon completion of the
Financing at a price of $0.50 per Share and 150,000 Debenture Conversion
Shares issued as a result of his investment in the Financing. Mr.
Crockett's address is 7050 Union Park Center, Suite 600, Midvale, Utah
84047.
(9) Includes 360,000 Shares issuable upon the exercise of presently exercisable
stock options at a price of $0.50 per Share.
(10) Includes 120,000 Shares issuable upon the exercise of presently exercisable
incentive stock options at a price of $4.00 per Share.
(11) Includes 60,000 Shares issuable upon the exercise of presently exercisable
incentive stock options at a price of $4.00 per Share.
(12) Includes 60,000 Shares issuable upon the exercise of presently exercisable
incentive stock options at a price of $4.00 per Share.
(13) Represents 200,000 Shares issuable to Mr. Mitchell upon the exercise of
stock options to be issued upon completion of the Financing at a price of
$0.50 per Share and 150,000 Shares issuable upon the exercise of presently
exercisable stock options at a price of $1.00 per Share. Mr. Mitchell's
address is 2919 East Granite Hollow Street, Sandy, Utah 84092.
(14) Includes 4,500,000 Shares issuable upon the exercise of stock options and
200,000 Debenture Conversion Shares.
(15) Unaffiliated Stockholders includes all stockholders not otherwise listed in
the chart. Total shares include 100,000 options held by former directors
who are no longer affiliated with the Company and 1,575,000 Debenture
Conversion Shares. The percentage assumes no conversion of shares or
exercise of options held by any person or entity other than the 100,000
option shares and 1,575,000 Debenture Conversion Shares referenced in this
footnote 15.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During the first quarter of 1997, John B. Hewlett, Chairman of the Board of
Directors, agreed to letter of credit to Fila Sport S.p.A. in the amount of
$400,000 to insure compliance with the Company's revised license agreement for
the Fila trademark. Additionally, the Company and Mr. Hewlett jointly entered
into a loan and security agreement and promissory note with a lender on March
31, 1997 which will provide the Company up to a maximum of $1,000,000 to fund
open customer purchase orders.

During 1996, Miles T. Doody advanced a total of $50,000 to the Company to
enable the Company to pay various expenses during the year. In October 1996,
the Company agreed to convert the $50,000 advance into a promissory note bearing
interest at 10% and due on June 30, 1999.

In October 1996, the Company agreed with Bruce H. Haglund, Secretary and
general counsel to the Company, to convert up to $150,000 of accrued legal fees
into a promissory note bearing interest at 10% and due on

25
<PAGE>

June 30, 1999. The Company also agreed to grant Mr. Haglund non-qualified stock
options to purchase 750,000 Shares at a price of $0.50 per Share. The options
vest upon the completion of the Financing and are exercisable until December 31,
2006. Mr. Haglund's billings for legal fees to the Company for the fiscal year
ended December 31, 1996 totaled approximately $63,000 and accrued legal fees at
December 31, 1996 approximately $150,000.

In October 1996, the Company agreed to pay an affiliate of John B. Hewlett
a consulting fee for services to the Company of $250,000 payable as follows:
$50,000 on January 1, 1997, $100,000 on January 1, 1988, and $100,000 on January
1, 1999. Further, the Company agreed to grant an affiliate of Mr. Hewlett
non-qualified stock options to purchase 400,000 Shares at a price of $0.50 per
Share. The options vest upon the completion of the Financing and are exercisable
until December 31, 2006. The consulting services performed by the affiliate of
Mr. Hewlett involved providing marketing contacts and expertise to help
effectuate the Company's plan to re-focus its business strategy and marketing
efforts to place greater emphasis on market niches which have not been
productive in the past and could likely be expanded.

The Company granted Wade B. Mitchell 200,000 1996 Options exercisable at
the price of $.50 per share any time until their expiration 10 years from the
date of grant and 150,000 1996 Options exercisable at the price of $1.00 per
share anytime until their expiration 10 years from the date of grant. The
options were granted to Mr. Mitchell for his services in 1996 as a Director of
the Company and for providing services to implement the Company's re-focused
business strategy and marketing efforts. The shares issuable upon exercise of
these 1996 Options are not subject to adjustment in the event of a reverse stock
split.

In October 1996, the Company entered into an oral agreement with Kenneth W.
Craig to serve as President of the Company for three years. It is anticipated
that the formal agreement will be executed in 1997. The employment agreement
will provide for a minimum base salary of $48,000 per annum plus a quarterly
incentive compensation bonus equal to 1% of the adjusted gross sales of the
Company for various product lines. Further, the Company agreed to grant Mr.
Craig non-qualified stock options to purchase 600,000 Shares at a price of $0.50
per Share. A total of 300,000 of the options vest upon the completion of the
Financing and 300,000 vest upon the earlier of achieving certain performance
goals or ratably over ten years. The performance goals are that the Company
achieves sales of $5,000,000 in 1997, $8,000,000 in 1998, and $10,000,000 in
1999. The options are exercisable until December 31, 2006.

A summary of the 1996 options granted in conjunction with the financing are
summarized in the "options Granted Pursuant to the Financing" above.

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

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)

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

26
<PAGE>

4.2 Form of Class B Warrant Agreement and Certificate(1)

4.3 Form of Class C Warrant Agreement and Certificate(1)

4.4 Form of Underwriters' Warrants(1)

4.5 Form of Common Stock Certificate(1)

4.6 Form of Class F Warrant Agreement and Certificate(2)

4.7 Form of Class G Warrant Agreement and Certificate(2)

4.8 Form of Debenture

10.1 Employment Agreement between the Company and Miles T. Doody dated January
1, 1993(1)

10.2 Employment Agreement between the Company and James T. Doody dated January
1, 1993(1)

10.3 Employment Agreement between the Company and Mont E. Warren dated January
19, 1993(1)

10.4 Employment Agreement between the Company and Janet R. Gardner dated
January 19, 1993(1)

10.5 Facilities Lease between the Company and Joe Byron and Pat Byron dated
September 11, 1990(1)

10.6 License Agreement between the Company and Fila Sport, S.p.A. dated
October 18, 1990(1)

10.7 1993 Stock Option Plan, Incentive Stock Option Agreement and Nonstatutory
Stock Option Agreement(1)

10.8 Agreement between the Professional Golfers' Associations of Europe
Limited and the Company dated June 7, 1993(1)

10.9 Agreement between Kanebo, Ltd. and the Company dated April 11, 1993(1)

10.10 Lease between the Company and Saint Enterprises dated November 22,
1993(2)

10.11 Purchase and Sale Agreement between the Company and Fidelity Funding of
California, Inc. dated March 13, 1995(2)

10.12 License Agreement between the Company and Fila sport, S.p.A. dated
October 1, 1996

10.13 Amendment to Employment Agreement between the Company and Miles T. Doody
dated October 30, 1996

10.14 Loan and Security Agreement between the Company, John B. Hewlett and AKA
Charitable Remainder Unit Trust Number 2

10.15 Revolving Promissory Note between the Company, John B. Hewlett and AKA
Charitable Remainder Unit Trust Number 2

10.16 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 2

10.17 Non-qualified Stock Option Agreement and Promissory Note for Bruce H.
Haglund

10.18 Non-qualified Stock Option Agreement for Kenneth W. Craig

27
<PAGE>

10.19 Non-qualified Stock Option Agreement for Janet Gardner

10.20 Non-qualified Stock Option Agreement for Michael B. Orr

10.21 Non-qualified Stock Option Agreement and Promissory Note for Miles T.
Doody

10.22 Non-qualified Stock Option Agreement for James T. Doody

10.23 Non-qualified Stock Option Agreement for Pine Valley Ltd.

10.24 Non-qualified Stock Option Agreement for Mont E. Warren

10.25 Non-qualified Stock Option Agreement for J. Arthur Wright

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

10.27 Non-qualified Stock Option Agreement for Wade M. Mitchell

10.28 Non-qualified Stock Option Agreement for Granite Hollow Insurance Agency

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 10KSB for the year ended
December 31, 1995.

(b) Reports on Form 8-K.

None.

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 Huntington Beach, State of California, on the 19th
day of August 1997.

By: /s/Ken W. Craig
------------------------
Ken W. Craig, Chief Executive Officer, President

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 August 19, 1997
- -----------------------
John B. Hewlett

/s/Miles T. Doody Vice Chairman, Director August 19, 1997
- -----------------------
Miles T. Doody

/s/Wade Mitchell Director August 19, 1997
- -----------------------
Wade Mitchell

/s/Dennis Crockett Director August 19, 1997
- -----------------------
Dennis Crockett

Chief Executive Officer,
/s/Ken W. Craig President, Director August 19, 1997
- ----------------------- (Principal Executive Officer)
Ken W. Craig

Vice President, Chief
Financial Officer,
/s/Mont E. Warren (Principal Accounting Officer) August 19, 1997
- -----------------------
Mont E. Warren

29
<PAGE>

EXHIBIT INDEX

The following exhibits are being filed with this Annual Report on Form
10-KSB:

EXHIBIT SEQUENTIALLY
NUMBER NUMBERED
PAGE

4.8 Form of Debenture -

10.12 License Agreement between the Company and Fila sport,
S.p.A. dated October 1, 1996 -

10.13 Amendment to Employment Agreement between the Company
and Miles T. Doody dated October 30, 1996 -

10.14 Loan and Security Agreement between the Company,
John B. Hewlett and AKA Charitable Remainder Unit
Trust Number 2 -

10.15 Revolving Promissory Note between the Company,
John B. Hewlett and AKA Charitable Remainder Unit
Trust Number 2 -

10.16 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 2 -

10.17 Non-qualified Stock Option Agreement and Promissory
Note for Bruce H. Haglund -

10.18 Non-qualified Stock Option Agreement for
Kenneth W. Craig -

10.19 Non-qualified Stock Option Agreement for
Janet Gardner -

10.20 Non-qualified Stock Option Agreement for
Michael B. Orr -

10.21 Non-qualified Stock Option Agreement and
Promissory Note for Miles T. Doody -

10.22 Non-qualified Stock Option Agreement for
James T. Doody -

10.23 Non-qualified Stock Option Agreement for
Pine Valley Ltd. -

10.24 Non-qualified Stock Option Agreement for
Mont E. Warren -

10.25 Non-qualified Stock Option Agreement for
J. Arthur Wright -

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

10.27 Non-qualified Stock Option Agreement for
Wade M. Mitchell -

10.28 Non-qualified Stock Option Agreement for
Granite Hollow Insurance Agency -

10.29 Escrow Agreement of Principal Optionholders -

23.1 Independent Auditors' Consent - Corbin & Wertz -

30
<PAGE>

RENAISSANCE GOLF PRODUCTS, INC.

FINANCIAL STATEMENTS

For The Years Ended December 31, 1996 and 1995

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, 1996, 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, 1996, 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.

CORBIN & WERTZ

Irvine, California
February 20, 1997, except as
to Note 14, which is as of
April 11, 1997

F-1

<PAGE>

RENAISSANCE GOLF PRODUCTS, INC.

BALANCE SHEET

December 31, 1996

ASSETS

Current assets:
Cash and cash equivalents $ 276,012
Accounts receivable, net of allowance for
doubtful accounts of $90,000 142,539
Inventories, net 348,640
Prepaid expenses and other current assets 10,315
-----------
Total current assets 777,506

Property and equipment, net 49,207

Other assets 21,143
-----------

$ 847,856
-----------
-----------

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
Current portion of long-term debt $ 52,935
Accounts payable 321,294
Accrued liabilities 453,332
Accrued royalties 184,146
Deferred revenue 267,723
-----------
Total current liabilities 1,279,430

Notes payable, less current portion 920,500
-----------

Total liabilities 2,199,930
-----------

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, 20,000,000
shares authorized; 5,461,163 shares issued
and outstanding 5,461
Common stock subscribed, 3,812,500 shares 762,500
Additional paid-in capital 11,758,741
Accumulated deficit (13,878,779)
-----------
Total stockholders' deficit (1,352,074)
-----------

$ 847,856
-----------
-----------

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, 1996 and 1995

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

Net sales $ 2,403,414 $ 5,007,347

Cost of sales 2,166,947 3,851,915
------------ ------------

Gross profit 236,467 1,155,432

Selling, general and administrative
expenses 2,424,791 3,332,278
------------ ------------

Operating loss (2,188,324) (2,176,846)

Other income (expense):
Interest income 1,114 6,609
Interest expense (43,747) (139,597)
Inventory write-downs (321,000) (209,000)
------------ ------------

Total other income (expense) (363,633) (341,988)
------------ ------------

Loss before provision for income taxes
and extraordinary item (2,551,957) (2,518,834)

Provision for income taxes (800) (800)
------------ ------------

Loss before extraordinary item (2,552,757) (2,519,634)

Extraordinary gain from forgiveness
of debt (net of income taxes of $0) 11,325 ---
------------ ------------

Net loss $ (2,541,432) $ (2,519,634)
------------ ------------
------------ ------------

Net loss per common share $ (0.44) $ (0.46)
------------ ------------
------------ ------------

Weighed average common shares
outstanding 5,834,221 5,447,471
------------ ------------
------------ ------------

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, 1996 and 1995

Preferred Stock Common Stock Common Stock Subscribed
--------------------- ------------------- -----------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 --- $ --- 5,415,163 $ 5,415 --- $ ---

Issuance of common stock for
consulting services --- --- 46,000 46 --- ---

Issuance of Series A preferred
stock 250 3 --- -- --- ---

Net loss --- --- --- --- --- ---
---------- ---------- ---------- ---------- ---------- ----------

Balance, December 31, 1995 250 3 5,461,163 5,461 --- ---

Common stock subscribed,
3,812,500 shares --- --- --- --- 3,812,500 762,500

Issuance of stock options --- --- --- --- --- ---

Net loss --- --- --- --- ---
---------- ---------- ---------- ---------- ---------- ----------

Balance, December 31, 1996 250 $ 3 5,461,163 $ 5,461 3,812,500 $ 762,500
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------

Additional Total
Paid-in Accumulated Stockholders'
Capital Deficit Equity (Deficit)
------- ------- ---------------
<S> <C> <C> <C>
Balance, January 1, 1995 $ 11,367,789 $ (8,817,713) $ 2,555,491

Issuance of common stock for
consulting services 45,954 --- 46,000

Issuance of Series A preferred
stock 24,998 --- 25,001

Net loss --- (2,519,634) (2,519,634)
---------- ---------- ----------

Balance, December 31, 1995 11,438,741 (11,337,347) 106,858

Common stock subscribed,
3,812,500 shares --- --- 762,500

Issuance of stock options 320,000 320,000

Net loss --- (2,541,432) (2,541,432)
---------- ---------- ----------

Balance, December 31, 1996 $ 11,758,741 $(13,878,779) $(1,352,074)
---------- ---------- ----------
---------- ---------- ----------

See accompanying independent auditors' report
and notes to financial statements
F-4

</TABLE>

<PAGE>

RENAISSANCE GOLF PRODUCTS, INC.

STATEMENTS OF CASH FLOWS

For The Years Ended December 31, 1996 and 1995

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

Cash flows from operating activities:
Net loss $(2,541,432) $(2,519,634)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 82,636 112,590
Change in allowance for doubtful accounts (110,000) 140,000
Change in allowance for inventory
obsolescence 321,000 209,000
Consulting expense related to
stock issuance --- 46,000
Loss (gain) on sale of property and
equipment 689 (1,057)
Loss on write-down of impaired assets 177,861 ---
Loss on write-off of intangible asset 6,925 ---
Gain on forgiveness of debt (11,325) ---
Expense recorded in connection with
non-employee options 278,000 ---
Changes in operating assets and
liabilities:
Accounts receivable 701,827 193,536
Inventories 276,415 973,215
Prepaid expenses and other current
assets 34,891 8,365
Other assets 1,799 2,201
Accounts payable and accrued
liabilities 138,108 (142,118)
Accrued royalties (403,356) 433,447
Deferred revenue 46,095 221,628
---------- ----------

Net cash used in operating activities (999,867) (322,827)
---------- ----------

Cash flows from investing activities:
Proceeds from sale of property and
equipment --- 2,814
Purchases of property and equipment --- (24,731)
Increase in intangible assets --- (2,351)
---------- ----------

Net cash used in investing activities --- (24,268)
---------- ----------

Continued

F-5

<PAGE>

RENAISSANCE GOLF PRODUCTS, INC.

STATEMENTS OF CASH FLOWS - CONTINUED

For The Years Ended December 31, 1996 and 1995

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

Cash flows from financing activities:
Net payments on lines of credit (287,901) (617,099)
Payments on long-term debt (108,147) (24,260)
Proceeds from issuance of long-term
debt to an officer of the Company 50,000 ---
Proceeds from issuance of subordinated
convertible debentures 762,500 ---
Proceeds from issuance of common
stock subscriptions 762,500 ---
Proceeds from issuance of preferred
stock --- 25,001
---------- ----------

Net cash provided by (used in) financing
activities 1,178,952 (616,358)
---------- ----------

Net change in cash and cash equivalents 179,085 (963,453)

Cash and cash equivalents, beginning
of year 96,927 1,060,380
---------- ----------

Cash and cash equivalents, end of
year $ 276,012 $ 96,927
---------- ----------
---------- ----------

Supplemental disclosures of cash flow
information -
Cash paid during the year for:
Interest $ 27,199 $ 131,668
---------- ----------
---------- ----------
Income taxes $ 800 $ 800
---------- ----------
---------- ----------

Supplemental schedules of non-cash investing
and financing activities:

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 Year Ended December 31, 1996 and 1995

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, 1996. These matters 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, and ultimately to attain profitable operations.
Management's plans to address these matters are as follows:

- - Obtain additional financing through third party investors (see Notes 10 and
14);

- - Utilize a revolving loan to borrow against open purchase orders to fund
sales growth (see Note 14);

- - 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 Notes 10 and 14 and the revolving loan as discussed in
Note 14 will enable the Company to fund operations through the end of fiscal
1997, 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, 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.

CONCENTRATIONS OF CREDIT RISK

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

Continued

F-7

<PAGE>

RENAISSANCE GOLF PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

For The Year Ended December 31, 1996 and 1995

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

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 11% and 15% of net sales for the years ended December
31, 1996 and 1995, respectively. As of December 31, 1996, the Company had
accounts receivable from three customers which represented 42%, 24% and 19%,
respectively, of net accounts receivable.

Four vendors accounted for 22%, 20%, 11% and 10% of inventory purchases for the
year ended December 31, 1996, respectively, and two vendors accounted for 22%
and 14% of inventory purchases for the year ended December 31, 1995,
respectively. No other vendor accounted for 10% or more of inventory purchases
for these periods. As of December 31, 1996, the Company had accounts payable to
two vendors which represented 19% and 13% 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 $678,738 (28.2%) and
$1,478,380 (29.5%) for the years ended December 31, 1996 and 1995, 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.

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, long-term debt and accounts payable. The
carrying amounts of the Company's financial instruments generally approximate
their fair values at December 31, 1996. The fair market value of financial
instruments classified as current assets or liabilities approximate carrying
value due to the short-term maturity of the instruments. The fair value of the
Company's long-term debt is not practicable to obtain as market comparables are
not available for such debt (see Note 5).

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.

Continued

F-8
<PAGE>

RENAISSANCE GOLF PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

For The Year Ended December 31, 1996 and 1995

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

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 $321,000 and $209,000 for the years ended December 31, 1996 and
1995, 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, 1996 and 1995 amounted to $82,636 and $91,711, respectively,
of which $25,500 and $22,633, 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.

Management of the Company assesses the recoverability of property and equipment
by determining whether the depreciation of such assets over their remaining
lives can be recovered through projected undiscounted cash flows. 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. During
fiscal 1996, management identified the impairment of certain property and
equipment which has resulted in a loss of $177,861, which was charged to
selling, general and administrative expenses in the accompanying 1996 statement
of operations. There was no impairment of property and equipment identified
during fiscal 1995.

REVENUE RECOGNITION

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

Continued

F-9
<PAGE>

RENAISSANCE GOLF PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

For The Year Ended December 31, 1996 and 1995

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

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, 1996 and 1995 was $33,686 and $554,853, respectively.

WARRANTY COSTS

Warranty expense for the years ended December 31, 1996 and 1995 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, 1996 and 1995.

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.

Business and foreign tax credits are accounted for as a reduction of income tax
expense in the years they are available for use under the flow-through method.

NET LOSS PER COMMON SHARE

Net loss per common share is computed based on the weighted average number of
common shares outstanding during the years presented. Common equivalent shares
from stock options and warrants are excluded from the computation as their
effect would be antidilutive for both periods presented.

RECLASSIFICATIONS

Certain amounts in the 1995 financial statements have been reclassified to
conform to the 1996 presentation.

Continued

F-10

<PAGE>

RENAISSANCE GOLF PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

For The Year Ended December 31, 1996 and 1995

NOTE 2 - INVENTORIES

Inventories consist of the following at December 31, 1996:

Component parts $ 709,873
Finished goods - clubs 316,748
Finished goods - bags and accessories 52,019
----------
1,078,640

Less inventory reserve (730,000)
----------

$ 348,640
----------
----------

NOTE 3 - PROPERTY AND EQUIPMENT

Property and equipment consist of the following at December 31, 1996:

Manufacturing equipment and tooling $ 162,270
Office furniture and equipment 47,382
Computer equipment and software 124,193
Trade show equipment and product displays 219,168
Automotive equipment 6,942
Leasehold improvements 32,884
---------
592,839
Less accumulated depreciation
and amortization (543,632)
---------

$ 49,207
---------
---------

NOTE 4 - LINES OF CREDIT

In December 1993, the Company entered into a line of credit agreement with a
bank whereby the Company could borrow up to $950,000. The amount of letters of
credit outstanding under the line at any one time could not exceed $450,000.
The line bore interest at 1.25% above the bank's reference rate and was
collateralized by a certificate of deposit held by the Company. The line
expired in February 1995, at which time it was repaid in full with proceeds from
the certificate of deposit.

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.

Subsequent to December 31, 1996, the Company entered into a new line of credit
agreement (see Note 14).

Continued

F-11
<PAGE>

RENAISSANCE GOLF PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

For The Year Ended December 31, 1996 and 1995

NOTE 5 - LONG-TERM DEBT

Notes payable at December 31, 1996 consist of the following:

Note payable to a distributor, bearing interest at 10% per
annum, due December 31, 1995, secured by certain assets of
the Company. Partially forgiven and remaining balance
repaid subsequent to December 31, 1996 (see Note 14). $ 52,935

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

Subordinated convertible debentures, bearing interest at
10% per annum for the first twenty-four (24) months and
then at the Company's bank's prime plus 4% (12.25% at
December 31, 1996), interest payable quarterly commencing
June 30, 1997, all accrued interest and principal due
November 1, 2001; secured by substantially all of the
Company's assets, subordinate to all other debt. 762,500
----------
1,015,435
Discount on long-term debt (42,000)
----------
973,435
Less: current maturities (52,935)
----------

$ 920,500
----------
----------

Annual maturities of long-term debt, excluding the expected accretion of the
discount on long-term debt, are as follows:

Years Ending
DECEMBER 31,

1997 $ 52,935
1998 ---
1999 200,000
2000 ---
2001 762,500
----------

$1,015,435
----------
----------

The subordinated convertible debentures were issued in connection with a private
placement memorandum (see Note 10). The debentures are convertible at any time
from issuance prior to maturity at the rate of $0.50 per share and are
redeemable by the Company at any time after the closing price of the Company's
common stock equals or exceeds $1.50 per share for 20 consecutive trading days.

Total interest expense incurred in connection with related party debt was $7,674
for the year ended December 31, 1996.

Continued

F-12

<PAGE>

RENAISSANCE GOLF PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

For The Year Ended December 31, 1996 and 1995

NOTE 6 - DEFERRED REVENUE

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. Royalty revenue recognized under this agreement was $48,179 and
$133,343 for the years ended December 31, 1996 and 1995, respectively.
Deferred revenues in connection with this arrangement amounted to $267,723 at
December 31, 1996. See Note 14.

NOTE 7 - COMMITMENTS AND CONTINGENCIES

OPERATING LEASES

The Company leases its office and warehouse facilities on a month-to-month
basis with a 90-day notice of termination 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,
------------
1997 $ 8,129
1998 2,010
1999 2,010
2000 2,010
2001 1,842
-----------
$ 16,001
-----------
-----------

Rent expense totaled approximately $91,000 and $112,000 for the years ended
December 31, 1996 and 1995, respectively. It is expected that expiring
leases would be renewed in the ordinary course of business.

Continued

F-13

<PAGE>

RENAISSANCE GOLF PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

For The Year Ended December 31, 1996 and 1995

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 these agreements was $429,167 and
$450,000 for the years ended December 31, 1996 and 1995, respectively. There
were no royalties due to FILA at December 31, 1996.

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:

1997 $ 400,000
1998 500,000
1999 600,000
2000 700,000
-------------
$ 2,200,000
-------------
-------------

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%

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:

1997 $ 5,000,000
1998 6,250,000
1999 7,500,000
Each year thereafter 8,333,000

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.

Continued
F-14

<PAGE>

RENAISSANCE GOLF PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

For The Year Ended December 31, 1996 and 1995

NOTE 7 - COMMITMENTS AND CONTINGENCIES, CONTINUED

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 (see Note 14). 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.

- - 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 of December 31, 1996, the Company was not in compliance with the FILA
licensing agreement as it relates to the establishment of a letter of credit.
The letter of credit was established subsequent to December 31, 1996 (see
Note 14).

Continued
F-15

<PAGE>

RENAISSANCE GOLF PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

For The Year Ended December 31, 1996 and 1995

NOTE 7 - COMMITMENTS AND CONTINGENCIES, CONTINUED

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
$26,766 and $74,079 for the years ended December 31, 1996 and 1995,
respectively. Accrued royalties related to the sublicense agreement totaled
$118,355 at December 31, 1996.

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.
Total accrued royalties related to such agreement amounted to $18,241 at
December 31, 1996. Amounts paid to the third party in 1996 and 1995 under
this license agreement was $0 and $17,917, respectively.

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
L30,000 (approximately $51,000 at current exchange rates). Royalty expense
in connection with this license agreement was $11,648 and $47,640 for the
years ended December 31, 1996 and 1995, respectively. Total accrued
royalties due amounted to $47,550 at December 31, 1996. The PGA of Europe
license expired on March 31, 1996.

LICENSE AGREEMENT FOR CONVERTIBLE GOLF BAGS

The Company has an exclusive agreement with a third party for the manufacture
and sale of certain golf bags. The Company is obligated to pay a $5.00 per
bag royalty on domestic sales and a $3.00 per bag royalty on foreign sales of
licensed golf bags. The Company shall pay a monthly minimum royalty of $3,000
on or before the first of each month. The initial term of the agreement
expires March 1, 1998, and is extendible at the option of the Company through
March 1, 1999 provided certain performance requirements have been met.
Thereafter, the Company shall have a non-exclusive license for a period of
ten (10) years from October 1, 1996 unless sooner terminated. Royalty
expense in connection with this license agreement was $9,000 for the year
ended December 31, 1996. There were no accrued royalties as of December 31,
1996.

Continued
F-16

<PAGE>

RENAISSANCE GOLF PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

For The Year Ended December 31, 1996 and 1995

NOTE 7 - COMMITMENTS AND CONTINGENCIES, CONTINUED

EMPLOYMENT AGREEMENTS

In January 1993, the Company entered into employment agreements with certain
officers which call for minimum base salaries per year for a three-year
period. In January 1994, the Company agreed to extend these agreements
through December 31, 1997. Minimum payments required under these agreements
in the aggregate total $249,500 for 1997.

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).

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 $400,000, the minimum royalty for fiscal 1996. This letter of credit was
established subsequent to year end. See Note 14.

In connection with the purchase of inventory from an overseas vendor, the
Company was required to establish a letter of credit on the vendor's behalf.
The letter of credit is secured by a corresponding cash balance maintained by
the Company at the issuing bank which is used to pay the vendor. At December
31, 1996, the Company had $87,515 outstanding pursuant to this letter of
credit.

LITIGATION

During 1995, a dispute arose between the Company and an outside consultant
related to services provided by the consultant to the Company. The
consultant tendered back to the Company certain out-of-the-money warrants
(see Note 9).

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 working capital and accumulated deficit as of
December 31, 1996.

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 600,000 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.

Continued
F-17

<PAGE>

RENAISSANCE GOLF PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

For The Year Ended December 31, 1996 and 1995

NOTE 8 - STOCK OPTIONS, CONTINUED

In July 1993, incentive stock options were granted to certain officers and
directors for the purchase of 400,000 shares of the Company's common stock at
$4.00 per share. Of these options, 160,000 were canceled in October 1996.
The options are fully vested as of December 31, 1996, 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 25,500 shares of the
Company's common stock at $3.25 per share. Of these options, 15,500 vested on
issuance and 10,000 were to vest based on the golfers achieving certain
performance goals. These 15,500 options expire at various dates from December
31, 1997 through December 31, 1998. No non-statutory stock options expired
during the year ended December 31, 1996.

In June 1994, incentive stock options were granted outside of the 1993 Plan
to certain employees for the purchase of 38,500 shares of the Company's
common stock at $2.50 per share. These options vest ratably on October 15,
1994, 1995 and 1996 and expire June 14, 1999, or upon termination of
employment. Of these options, 10,001 were canceled during fiscal 1995. No
incentive stock options expired during the year ended December 31, 1996.

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 441,000 shares of the Company's common stock at prices ranging from $1.00
to $2.50 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, 100,000 of such options expired and
46,000 of such options were exercised. During the year ended December 31,
1996, non-statutory stock options totaling 245,000 expired and 50,000 were
canceled.

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 200,000 shares of the Company's common
stock at $1.00 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 are assumed to be vested
as of December 31, 1996 as a result of the successful completion of the
private placement memorandum as discussed in Notes 5 and 10. These options
are not subject to adjustment in the event of a split of the Company's stock.
Because the Company anticipated a 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 $203,000 in
connection with the issuance of these options. An additional $14,000 of
expense will be recorded during each year ending December 31, 1997 and 1998
in connection therewith. An additional 1,050,000 options were ranted 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

Continued
F-18

<PAGE>

RENAISSANCE GOLF PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

For The Year Ended December 31, 1996 and 1995

NOTE 8 - STOCK OPTIONS, CONTINUED

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 (reflected as a discount in Note 5), which will be amortized
over the life of the related debt.

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 Notes 5 and 10. These options are not subject to
adjustment in the event of a split of the Company's stock. Because the
Company anticipated a 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.

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 are not subject to
adjustment in the event of a split of the Company's stock. Because the
Company anticipates a 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 in connection with the
issuance of these options.

A summary of stock option activity for 1996 and 1995 follows:

1993 Plan Outside Plan Price
--------- ------------ -----
Balance at January 1, 1995 400,000 64,000 $2.50-4.00

Granted 200,000 441,000 1.00-2.50
Expired/canceled -- (120,001) 1.00-3.25
Exercised -- (46,000) 1.00
-------- --------- ----------
Balance at December 31, 1995 600,000 338,999 1.00-4.00

Granted -- 5,477,000 0.50-1.00
Expired/canceled (360,000) (295,000) 1.00-4.00
Exercised -- -- --
-------- --------- ----------
Balance at December 31, 1996 240,000 5,520,999 $0.50-4.00
-------- --------- ----------
-------- --------- ----------
Exercisable at December 31, 1996 240,000 4,803,999 $0.50-4.00
-------- --------- ----------
-------- --------- ----------

Continued
F-19

<PAGE>

RENAISSANCE GOLF PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

For The Year Ended December 31, 1996 and 1995

NOTE 8 - STOCK OPTIONS, CONTINUED

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 $.50 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 40.0%; 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.

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.

1996 1995
------------- -------------
Net loss:
As reported $ (2,541,432) $ (2,519,634)
Pro forma $ (2,700,773) $ (2,519,634)

Net loss per share:
As reported $ (0.44) $ (0.46)
Pro forma $ (0.46) $ (0.46)

NOTE 9 - STOCK WARRANTS

The Company is authorized to issue Class A, B, C, D, E, F and G warrants.
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 $6.50 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.

- - Class B warrants entitle the holder to purchase one share of common stock
at a price of $4.00 per share. The warrants are exercisable for three
years beginning one year from the date of issuance.

- - Class C warrants entitle the holder to purchase one share of common stock
for $8.50 per share. The warrants are exercisable beginning January 1,
1995 for two years unless extended by the Board of Directors.

Continued
F-20

<PAGE>

RENAISSANCE GOLF PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

For The Year Ended December 31, 1996 and 1995

NOTE 9 - STOCK WARRANTS, CONTINUED

- - Class D warrants entitle the holder to purchase one share of common stock
for $4.50 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 $5.50 per share. The warrants are exercisable for one year from the
date of issuance.

- - Class F warrants entitle the holder to purchase one share of common stock
for $3.50 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 $2.50 per share. The warrants are exercisable for 18 months from the
date of issuance.

In connection with the offering of convertible debentures, bridge financing
arrangements and the initial public offering completed prior to 1995, the
Company issued 2,509,250 warrants with exercise prices of $3.50 to $8.50
which expire between November 15, 1996 and November 15, 1998.

During 1995, in connection with a private placement memorandum, the Company
issued 1,250 Class G warrants. All of these warrants expired as of October
6, 1996.

In connection with a legal settlement in 1995 (see Note 7), 5,000 Class B
warrants and 10,000 Class C warrants issued prior to 1995 were tendered to
the Company and canceled. These warrants have been deducted from the summary
of warrants detailed below.

During 1996, 844,250 Class B warrants expired. These warrants have been
deducted from the summary of warrants detailed below.

A summary of the Company's warrants outstanding as of December 31, 1996
follows:

Class Outstanding Exercise Price Expiration Date
----- ----------- -------------- ---------------

A 1,400,000 $6.50 November 15, 1998
B -- $4.00 --
C 240,000 $8.50 January 1, 1997
D -- $4.50 --
E -- $5.50 --
F 10,000 $3.50 December 31, 1997
G -- $2.50 --

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 50 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.

Continued
F-21

<PAGE>

RENAISSANCE GOLF PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

For The Year Ended December 31, 1996 and 1995

NOTE 10 - STOCKHOLDER'S DEFICIT, CONTINUED

During 1995, the Company issued 46,000 shares of common stock at $1.00 per
share in connection with the exercise of non-statutory stock options (see
Note 8).

In October 1996, the Company issued a private placement memorandum offering
100 units at $25,000 per unit, each unit consisting of 62,500 shares of
common stock and a subordinated convertible debenture with a face value of
$12,500 (see Note 5). As of December 31, 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 (see Note 5).

NOTE 11 - PROVISION FOR INCOME TAXES

The provision for income taxes for the years ended December 31, 1996 and 1995
consists of the following:

Current Deferred Total
------- -------- -----
Year ended December 31, 1996:
U.S. Federal $ -- $ -- $ --
State and local 800 -- 800
----- ----- -----
$ 800 $ -- $ 800
----- ----- -----
----- ----- -----

Year ended December 31, 1995:
U.S. Federal $ -- $ -- $ --
State and local 800 -- 800
----- ----- -----
$ 800 $ -- $ 800
----- ----- -----
----- ----- -----

Income tax expense was $800 for each of the years ended December 31, 1996 and
1995, 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:

1996 1995
----------- -----------
Computed "expected" benefit $ (864,087) $ (856,404)
Increase (reduction) in income taxes
resulting from:
Change in valuation allowance for
deferred tax assets 1,041,364 1,081,000
Non-deductible expenses 52,635 18,261
Change in deferred tax assets (233,489) (242,585)
Other 3,849 --
State taxes, net of benefit 528 528
---------- ----------
$ 800 $ 800
---------- ----------
---------- ----------

Continued
F-22

<PAGE>

RENAISSANCE GOLF PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

For The Year Ended December 31, 1996 and 1995

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, 1996 are presented below:

Deferred tax assets:
Accounts receivable, principally due to
allowance for doubtful accounts $ 36,124
Inventories, principally due to allowance
for obsolete inventory 331,350
Compensated absences, principally due to
accrual for financial reporting
purposes 6,960
Property, primarily due to differences
in depreciation methods 71,390
Compensation expense relating to options
granted to employees and consultants not
currently deductible 109,000
State taxes, net of benefit 272
Net operating loss carryforwards 3,761,268
-----------
Total gross deferred tax assets 4,316,364
Less valuation allowance (4,316,364)
-----------
Net deferred tax assets $ --
-----------
-----------

The valuation allowance for deferred tax assets as of January 1, 1996 was
$3,275,000. The net change in the total valuation allowance for the year
ended December 31, 1996 was an increase of $1,041,364.

At December 31, 1996, the Company had net operating loss carryforwards of
approximately $10,147,000 and $5,072,000 available to offset future taxable
Federal and state income, respectively. The carryforward amounts expire in
varying amounts between 1998 and 2011.

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.

NOTE 12 - EXTRAORDINARY ITEM - GAIN ON FORGIVENESS OF DEBT

During 1996, the Company entered into several agreements with vendors to
settle amounts payable to such vendors for less than the face amount. As a
result, the Company recognized an aggregate gain of $11,325.

NOTE 13 - RELATED PARTY TRANSACTIONS

During the years ended December 31, 1996 and 1995, sales to an affiliate were
$38,720 and $364,179, respectively. There were no amounts due from this
affiliate as of December 31, 1996.

Continued
F-23

<PAGE>

RENAISSANCE GOLF PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS - CONTINUED

For The Year Ended December 31, 1996 and 1995

NOTE 14 - SUBSEQUENT EVENTS

Subsequent to December 31, 1996, the following events occurred:

- - The Company entered into a settlement agreement relating to a note due
and payable as of December 31, 1996 (see Note 5). Under the financing
arrangement, the Company owed a total of $81,877 in accrued interest and
principal. The distributor accepted $71,139 in full satisfaction of the
balance due resulting in a gain of $10,738 which will be recognized during
1997. The Company made the final payment on February 11, 1997.

- - The Company entered into an agreement with a third party regarding
certain prepaid royalties (see Note 6). The third party released the
Company from any obligation to repay the prepaid royalties and required no
additional services from the Company. The result will be a gain of
$267,723 which will be recognized during fiscal 1997.

- - The Company sold the additional 12 units under the ongoing private
placement memorandum (see Note 10), thus raising an additional $150,000
relating to the sale of stock and an equivalent amount in the form of
subordinated convertible debentures. The Company's Board of Directors
elected to extend the offering to May 15, 1997.

- - The Company entered into a line of credit agreement with a bank in which
the Company can borrow up to $400,000 in connection with the letter of
credit established in accordance with the FILA license agreement (see
below). The line bears interest at the bank's prime rate plus 1.5% and is
collateralized by essentially all of the Company's assets and is guaranteed
by the Chairman of the Board of Directors. The line expires 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 is secured by the line of credit discussed above. The letter of
credit expires January 31, 1998.

- - The Company and the Company's chairman of the Board of Directors jointly
entered into a loan and security agreement (the "Agreement") with a lender
on March 31, 1997 which will provide up to a maximum of $1,000,000 to fund
open purchase orders. The revolving promissory note executed pursuant to
the Agreement bears an interest rate of 12% and expires December 31, 1997.
Amounts outstanding under the Agreement will be collateralized by the
Company's inventory and open purchase orders, as defined.

- - Effective March 31, 1997, the Company borrowed $225,000 from a
stockholder. The borrowing bears interest at a rate of 1% per month.

F-24

<PAGE>

ESCROW AGREEMENT

THIS ESCROW AGREEMENT is entered into as of the 1st day of June 1997 by
and among RENAISSANCE GOLF PRODUCTS, INC., a Delaware corporation (the
"Company"), the principal optionholders of the Company listed on Attachment
"A" (collectively referred to as the "Optionholders"), and Bruce H. Haglund
as Escrow Agent (the "Escrow Agent"), with reference to the following facts:

A. The Company's Board of Directors is recommending a 4:1 reverse
stock split (the "Reverse Split") for approval by the stockholders whereby
each four shares of Common Stock of the Company would be combined into one
share of Common Stock. If approved, all of the issued and outstanding shares
of Common Stock would be subject to the Reverse Split, including the shares
of Common Stock issued through the 1996 Confidential Offering Memorandum (
the "Financing"). Debenture conversion right prices, conversion prices for
options granted pursuant to options granted in 1996 ("1996 Options"), and
shares of Common Stock issuable upon conversion of the Debentures and 1996
Options are not subject to adjustment in the event of the Reverse Split.

B. In conjunction with 1996 Options grants to the new Directors,
executives, and any parties including the Optionholders, the Optionholders
agreed to enter into this Escrow Agreement effective in the event of approval
of the Reverse Split. Pursuant to this Escrow Agreement, each Optionholder
will place his 1996 Options granted in conjunction with the Financing, but
excluding-performance based options (the "Escrow Options") into an escrow
(the "Escrow") with Bruce H. Haglund, the Secretary of the Company, to hold
the Escrow Options during the terms of the Optionholder Agreement, subject to
certain restrictions.

C. The Optionholders and the Company are willing to enter into this
Escrow Agreement and have agreed to be bound by the terms and conditions
contained herein, and Escrow Agent is willing to enter into this Escrow
Agreement and to serve as Escrow Agent in accordance with the terms contained
herein.

NOW, THEREFORE, the parties hereto agree as follows:

1. ESTABLISHMENT OF ESCROW.

1.1 Simultaneously with the execution of this Escrow Agreement,
each of the Optionholders shall deposit with Escrow Agent documentation
evidencing the number of Escrow Options set forth opposite such
Optionholder's name on Attachment "A" hereto, such documentation to evidence
in the aggregate 4,660,000 Escrow Options. Such documentation shall be
registered in the name of each Optionholder and shall have stock powers
attached thereto duly executed by the respective Optionholders in blank.

1.2 The Optionholders and the Company hereby undertake to deliver
or cause to be delivered directly to Escrow Agent certificates representing
such number of additional securities of the Company as the Optionholders
shall be entitled to receive with respect to those Escrow Options held in
escrow hereby by virtue of any stock split, stock dividend, recapitalization,
reclassification, merger, consolidation, option exercise or similar
transaction. Certificates representing such additional options or shares
shall be directly deposited with Escrow Agent, together with stock powers
pertaining thereto duly executed by each of the Optionholders in black, and
shall be subject to the Escrow Agreement, and all calculations made hereunder
shall be adjusted accordingly. The Escrow Options and shares identified
pursuant to Sections 1(a) and (b) shall hereinafter collectively be referred
to and constitute the "Escrow Options."

Page 1 of Six
<PAGE>

1.3 Escrow Agent is hereby authorized to instruct the Company's
transfer agent to deliver any Escrow Options to Escrow Agent.

2. SATISFACTION OF ESCROW.

2.1 As soon as practicable after each quarter, Escrow Agent shall
request a report from the stock transfer agent concerning the sales prices
reported on the Nasdaq over-the-counter Bulletin Board of the Company's
common stock during the preceding quarter.

2.2 Upon receipt of the report from the stock transfer agent,
Escrow Agent shall furnish copies thereof to each of the Optionholders and
the Company.

2.3 Escrow Agent shall be bound by the following with respect to
its duty to release the Escrow Options:

2.3.1 Escrow Options shall be released from the Escrow
only after the post-reverse-stock split closing price exceeds $1.50 per share
for 60 consecutive trading days (the "Initial Release Date").

2.3.2 After the initial Release Date, the aggregate number
of shares issued upon the exercise of the Escrow Options released from the
Escrow in any month shall not exceed the greater of 5% of the total Escrow
Options issued upon the exercise of Escrow Options or 25% of the previous
month's total trading volume of the Company's shares of Common Stock.

2.3.3 All Escrow Options shall be subject to release from
the Escrow after the earlier of the 60th consecutive trading day that the
post-stock split closing price exceeds $5.00 per share or December 31, 2000
(the "Final Release Date").

2.3.4 In the event the Initial Release Date has not
occurred within two years of the establishment of the Escrow, the Company by
a majority vote of the directors may permit modification of this Escrow
Agreement.

3. RIGHTS REGARDING ESCROW OPTIONS.

During the pendency of this Escrow Agreement, the Optionholders
shall retain full voting rights and full dividend rights with respect to the
Escrow Options, but shall possess no right to tender or otherwise transfer
the Escrow Options and if instructions on tender or other transfer thereof
are received by Escrow Agent, Escrow Agent shall promptly notify the Company
but shall not take any other action with respect thereto.

4. ADDITIONAL PROVISIONS RELATING TO ESCROW AGENT.

4.1 Escrow Agent's duties hereunder may be altered, amended, modified
or revoked only by a writing signed by all of the parties hereto.

4.2 Escrow Agent is hereby expressly authorized to disregard any
and all warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are
hereby expressly authorized to comply with and obey orders, judgments or
decrees of any court. In case Escrow Agent obeys or complies with any such
order, judgment or decree, Escrow Agent shall not be liable to any of the
parties hereto or to any other person, firm or corporation by reason of such
compliance, notwithstanding any such order, judgment or decree being
subsequently reversed, modified, annulled, set aside, vacated or found to
have been entered without jurisdiction.

Page 2 of Six
<PAGE>

4.3 Escrow Agent shall not be liable in any respect on account of
the identity, authority or rights of the parties executing or delivering or
purporting to execute or deliver this Agreement or any documents or papers
deposited or called for hereunder.

4.4 Escrow Agent shall have no duties or responsibilities except
as expressly provided in this Escrow Agreement and shall neither be obligated
to recognize nor have any liability or responsibility arising under any other
agreement to which Escrow Agent is not a party, even through reference
thereto may be made herein.

4.5 Escrow Agent shall be entitled to employ such legal counsel
and other experts as it may deem necessary properly to advise Escrow Agent in
connection with its obligations hereunder, may rely upon the advice of such
counsel and may pay such counsel reasonable compensation therefor.

4.6 If Escrow Agent reasonably requires other or further
instruments in connection with this Escrow Agreement or obligations in
respect hereto, the necessary parties hereto shall join in furnishing such
instruments.

4.7 It is understood and agreed that should any dispute arise with
respect to the instructions given Escrow Agent hereunder, Escrow Agent is
authorized and directed to retain in its possession, without liability to
anyone, all or any part of the Escrow Options until such dispute shall have
been settled either by mutual written agreement of the parties concerned or
by a final order, decree or judgment of a court of competent jurisdiction
after the time for appeal has expired and no appeal has been perfected, but
Escrow Agent shall be under no duty whatsoever to institute or defend any
such proceedings.

4.8 All reasonable costs, fees and disbursements incurred by
Escrow Agent in connection with the performance of its duties hereunder shall
be borne by the Company.

4.9 Escrow Agent shall be obligated only for the performance of
such duties as are specifically set forth herein and may rely and shall be
protected in relying or refraining from acting on any instrument reasonably
believed by Escrow Agent to be genuine and to have been signed or presented
by the proper party or parties.

4.10 Escrow Agent shall not be liable or responsible for any act he
may do or omit to do in the exercise of reasonable care, and the Company
shall indemnify Escrow Agent for, and hold him harmless against, any loss,
liability, or expense incurred without negligence or bad faith on the part of
Escrow Agent arising out of or in connection with his acceptance of, or the
performance of his obligations under, this Escrow Agreement.

4.11 Upon Escrow Agent's release of all Escrow Options herein, in
accordance with the provisions of this Escrow Agreement, Escrow Agent shall be
discharged from all further obligations hereunder.

4.12 Optionholders, each on its or his own behalf (i) waives any
conflict of interest which Bruce H. Haglund may have as a result of his acting
as Escrow Agent hereunder; (ii) acknowledges hereby that they have been urged to
review this Escrow Agreement with independent counsel; (iii) waives its or his
rights to independent counsel in connection with the actions to be taken
hereunder by Bruce H. Haglund as Escrow Agent; and (iv) approves the appointment
of Bruce H. Haglund as Escrow Agent hereunder.

Page 3 of Six
<PAGE>

5. NON-TRANSFERABILITY.

This Agreement shall not be transferable or assignable by any party, nor
shall any party's interest herein be transferred or assigned by operation of
law, and any assignment or attempted assignment, transfer, mortgage,
hypothecation, or pledge of this Agreement or its interest herein by any
party, shall be null and void.

6. NOTICES.

All notices, requests, demands and other communications provided for by
this Agreement shall be in writing and (unless otherwise specifically
provided herein) shall be deemed to have been given at the time when mailed
in any general or branch United States Post Office, enclosed in a registered
or certified postpaid envelope, addressed to the Optionholders in care of the
Company at its then current business address.

7. PARTIAL INVALIDITY.

If any provision in this Agreement is held by a court of competent
jurisdiction to be invalid, void, or unenforceable the remaining provisions
shall nevertheless continue in full force and effect without being impaired
or invalidated in any way.

8. ATTORNEY'S FEES.

If any action in law or equity, including an action for declaratory
relief, is brought to enforce or interpret the provisions of this Agreement,
the prevailing party shall be entitled to reasonable attorney's fees and
costs, which may be set by the court in the same action or in a separate
action brought for that purpose, in addition to any other relief to which
that party may be entitled.

9. APPLICABLE LAW AND FORUM.

This Agreement and any matter connected with the performance thereof
shall be construed, interpreted, applied and governed in all respects in
accordance with the laws of the State of California, and California shall be
the exclusive jurisdiction for any dispute, claim or action arising hereunder
or related hereto.

10. BINDING NATURE.

This Agreement shall inure to the benefit of and be binding upon the
parties and their respective predecessors, representatives, successors,
related or affiliated business entities, heirs, and assigns.

11. WAIVER.

No waiver of any of the provision of this Agreement shall be deemed, or
shall constitute a waiver of any other provision, whether or not similar, nor
shall any waiver constitute a continuing waiver. No waiver shall be binding
unless executed in writing by the party making the waiver.

Page 4 of Six
<PAGE>

IN WITNESS WHEREOF, the parties have executed this Agreement as of
June 1, 1997.

RENAISSANCE GOLF PRODUCTS, INC.

By:
--------------------------------------
Kenneth W. Craig

- -----------------------------------------
JOHN B. HEWLETT, INDIVIDUALLY AND FOR
GRANITE HOLLOW INSURANCE AGENCY AND PINE VALLEY LLC.

- -----------------------------------------
KENNETH W. CRAIG

- -----------------------------------------
CULLEY W. DAVIS

- -----------------------------------------
MILES T. DOODY

- -----------------------------------------
BRUCE H. HAGLUND

- -----------------------------------------
WADE M. MITCHELL

- -----------------------------------------
DENNIS L. CROCKETT

Page 5 of Six
<PAGE>

ATTACHMENT "A"

NUMBER VESTING EXERCISE
NAME OF OPTIONHOLDER OF OPTIONS DATE PRICE
-------------------- ---------- ---- -----

John B. Hewlett 1,000,000 12/31/96 $1.00
Granite Hollow 1,000,000 12/31/96 $0.50
Pine Valley, Ltd. 400,000 12/31/96 $0.50
Dennis L. Crockett 100,000 12/31/96 $0.50
Culley W. Davis 400,000 12/31/96 $0.50
Miles T. Doody 360,000 12/31/96 $0.50
Kenneth W. Craig 300,000 12/31/96 $0.50
Bruce H. Haglund 750,000 12/31/96 $0.50
Wade B. Mitchell 200,000 12/31/96 $0.50
150,000 12/31/96 $1.00

Total Options 4,660,000

Page 6 of Six