10-Q 1 e-9417.txt QUARTERLY REPORT FOR THE QTR ENDED 11/30/2002 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark one) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended November 30, 2002 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from __________ to _________. Commission File Number: 0-22889 ROYAL PRECISION, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware 06-1453896 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 535 Migeon Avenue, Torrington, Connecticut 06790 (Address of Current Principal Executive Offices) (Current Zip code) (860) 489-9254 (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: Title of each class Outstanding at January 10, 2003 ------------------- ------------------------------- Common Stock, par value $0.001 12,718,877 Shares ITEM 1. FINANCIAL STATEMENTS. ROYAL PRECISION, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands, except share data) NOVEMBER 30, MAY 31, 2002 2002 -------- -------- ASSETS (unaudited) (unaudited) Current assets Cash $ 271 $ 6 Accounts receivable, net of allowance for doubtful accounts of $171 and $194 at November 30, 2002 and May 31, 2002, respectively 4,300 3,518 Inventories 3,546 4,363 Other current assets 540 387 -------- -------- Total current assets 8,657 8,274 Property, plant and equipment, net 5,212 5,543 Goodwill, net 1,250 1,250 Other assets 88 101 -------- -------- Total assets $ 15,207 $ 15,168 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 2,444 $ 2,197 Accrued salaries and benefits 554 520 Accrued pension liability 266 364 Accrued restructuring costs 186 376 Accrued environmental costs 179 212 Other accrued expenses 579 422 Current portion of long-term debt 6,458 1,272 -------- -------- Total current liabilities 10,666 5,363 Long-term debt, less the current portion 1,512 5,808 Subordinated debt -- 425 -------- -------- Total liabilities 12,178 11,596 Commitments and Contingencies STOCKHOLDERS' EQUITY Preferred stock, $0.001 par value; 1,000,000 shares authorized; no shares issued -- -- Common stock, $0.001 par value; 15,000,000 shares authorized (increased from 10,000,000 on September 25, 2001); 12,718,877 and 10,954,597 shares issued and outstanding at November 30, 2002 and May 31, 2002, respectively 13 11 Additional paid-in capital 17,402 16,562 Accumulated deficit (14,304) (12,919) Accumulated other comprehensive loss (82) (82) -------- -------- Total stockholders' equity 3,029 3,572 -------- -------- Total liabilities and stockholders' equity $ 15,207 $ 15,168 ======== ======== The accompanying notes are an integral part of these condensed consolidated financial statements. ROYAL PRECISION, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (dollars in thousands, except share data)

~~AUGUST~~THREE 31MONTHS ENDED SIX MONTHS ENDED -------------------------- -------------------------- NOVEMBER 30, ~~MAY~~NOVEMBER 3130, NOVEMBER 30, NOVEMBER 30, 2002 2001 2002 2001 ----------- ----------- ----------- ----------- (unaudited) (unaudited) ~~ASSETS~~(unaudited) ~~Current~~(unaudited) ~~assets~~Net ~~Cash~~Sales $Golf ~~106~~club shafts $ 64,783 ~~Accounts~~$ ~~receivable~~3,786 ~~net of allowance for doubtful accounts of~~ $ ~~199~~8,162 ~~and~~ $ ~~194~~9,644 atGolf ~~August~~club ~~31,~~grips ~~2002~~728 ~~and~~689 ~~May 31~~1,893 ~~2002~~1,496 ~~respectively~~----------- ~~2,609~~----------- ~~3,518~~----------- ~~Inventories~~----------- 35,~~616~~511 4,~~363~~475 ~~Other~~10,055 ~~current~~11,140 ~~assets~~----------- ~~709~~----------- ~~387~~ ----------- ----------- ~~Total~~Cost ~~current~~of ~~assets~~sales 7Golf club shafts 4,~~040~~314 83,~~274~~237 ~~Property~~7,565 ~~plant~~7,859 ~~and~~Golf ~~equipment,~~club ~~net~~grips ~~5,384~~563 5575 1,~~543~~385 ~~Goodwill~~1,259 ~~net~~----------- 1----------- ----------- ----------- 4,~~250~~877 13,~~250~~812 ~~Other~~8,950 ~~assets~~9,118 88----------- ~~101~~----------- ----------- ----------- ~~Total~~Gross ~~assets~~profit $634 13663 1,~~762~~105 $2,022 15Selling,~~168~~ ~~========~~general ~~========~~and ~~LIABILITIES~~administrative ~~AND~~expenses, ~~STOCKHOLDERS'~~including ~~EQUITY~~restructuring ~~Current~~costs ~~liabilities~~of ~~Accounts~~$887,000 ~~payable~~during $the three months ended November 31, 2001 1,~~907~~096 $2,254 2,~~197~~041 ~~Accrued~~4,039 ~~salaries~~----------- ~~and~~----------- ~~benefits~~----------- ~~379~~----------- ~~520~~Operating ~~Accrued~~loss ~~pension~~(462) ~~liability~~(1,591) ~~391~~(936) ~~364~~(2,017) ~~Accrued~~Other ~~restructuring~~(income) ~~costs~~expense ~~240~~Interest ~~376~~expense ~~Accrued~~127 ~~environmental~~213 ~~costs~~293 ~~179~~383 ~~212~~ Other ~~accrued~~(income) ~~expenses~~expense ~~408~~118 ~~422~~(13) ~~Current~~156 ~~portion~~(57) of----------- ~~long~~-~~term~~---------- ~~debt 4,851 1,272~~ ----------- ----------- ~~Total~~Loss ~~current~~before ~~liabilities~~provision 8for income taxes (707) (1,~~355~~791) 5(1,~~363~~385) ~~Long-term debt~~(2,343) ~~less~~Provision ~~the~~for ~~current~~income ~~portion~~taxes ~~1,672~~-- ~~5,808~~-- ~~Subordinated~~-- ~~debt~~806 ----------- ~~425~~----------- ----------- ----------- ~~Total~~Loss ~~liabilities~~before ~~10,027~~cumulative ~~11,596~~effect ~~Commitments~~of ~~and~~change ~~Contingencies~~in ~~STOCKHOLDERS'~~accounting ~~EQUITY~~principle ~~Preferred~~(707) ~~stock~~(1,791) ~~$0.001 par value;~~ (1,~~000~~385) (3,~~000~~149) ~~shares~~Cumulative ~~authorized;~~effect noof ~~shares~~change ~~issued~~in accounting principle -- -- ~~Common~~-- ~~stock~~5,937 ~~$0.001~~----------- ~~par~~----------- ~~value;~~----------- ~~15,000,000~~----------- ~~shares~~Net ~~authorized~~loss $ (~~increased~~707) ~~from~~$ 10(1,~~000,000~~791) on$ ~~September 25~~(1, ~~2001~~385); ~~12,718,877~~$ ~~and 10~~(9,~~954,597~~086) ~~shares~~=========== ~~issued~~=========== ~~and~~=========== ~~outstanding~~=========== atBasic ~~August~~and ~~31,~~diluted ~~2002~~loss ~~and~~per ~~May~~share ~~31,~~Loss ~~2002,~~before ~~respectively~~cumulative 13effect 11of ~~Additional~~change ~~paid-~~in ~~capital~~accounting ~~16,330~~principle ~~15,491~~$ ~~Accumulated~~(0.06) ~~deficit~~$ (~~12,526~~0.32) $ (0.11~~,848~~) ~~Accumulated~~$ ~~other~~(0.55) ~~comprehensive~~Cumulative ~~loss~~effect ~~(82)~~of change in accounting principle -- -- -- (821.05) ----------- ----------- ~~Total stockholders' equity 3,735 3,572~~ ----------- ----------- ~~Total~~Net ~~liabilities~~loss ~~and~~$ ~~stockholders'~~(0.06) ~~equity~~$ (0.32) $ ~~13,762~~(0.11) $ 15(1.60) =========== =========== =========== =========== Common shares used to compute per share information Basic 12,~~168~~719 5,682 12,044 5,682 =========== =========== =========== =========== Diluted 12,719 5,682 12,044 5,682 =========== =========== =========== ===========

The accompanying notes are an integral part of these condensed consolidated financial statements. ROYAL PRECISION, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)

~~THREE~~SIX MONTHS ENDED --------------------------- ~~AUGUST~~NOVEMBER 3130, ~~AUGUST~~NOVEMBER 3130, 2002 2001 ----------- ----------- (unaudited) (unaudited) ~~Net~~OPERATING ~~Sales~~ACTIVITIES ~~Golf~~Net ~~club~~loss ~~shafts~~ $ 3(1,~~379~~385) $ 5(9,~~858~~086) ~~Golf~~Adjustments ~~club~~to ~~grips~~reconcile ~~1,165~~net ~~807~~loss ~~---------~~to ~~---------~~net ~~4,544~~cash ~~6,665~~provided ~~---------~~by ~~---------~~operating ~~Cost~~activities: ofDepreciation ~~sales~~and ~~Golf~~amortization ~~club~~402 ~~shafts~~427 ~~3,251~~Increase ~~4,622~~in ~~Golf~~valuation ~~club~~allowance ~~grips~~for ~~822~~deferred ~~684~~income tax assets -- 806 Accretion of discount on subordinated debt --~~-----~~ 35 Impairment of goodwill --~~-------~~ ~~4,073~~ 5,~~306~~937 Stock based compensation --~~-------~~ 23 Amortization of deferred debt cost 117 --~~-------~~ ~~Gross~~Loss ~~profit~~on ~~471~~impairment 1or sale of equipment 13 7 Change in operating assets and liabilities: Accounts receivable,~~359~~ ~~Selling~~net (782) 2,576 ~~general~~Inventories 817 (179) Other assets 145 65 Accounts payable and ~~administrative~~accrued expenses ~~945~~132 ~~1,785~~578 ---------- ---------- ~~Operating~~Net ~~loss~~cash (~~474~~used) provided by operating activities (~~426~~541) 1,189 ---------- ---------- ~~Other~~INVESTING ~~(income)~~ACTIVITIES ~~expense~~Purchases ~~Interest~~of ~~expense~~machinery ~~166~~and ~~170~~equipment ~~Other~~(84) (~~income~~317) ~~expense~~Proceeds 38from ~~(44)~~sale of machinery and equipment -- 22 ---------- ---------- ~~204~~Net ~~126~~cash ~~Loss~~used ~~before~~by ~~provision~~investing ~~for~~activities ~~income taxes~~ (~~678~~84) (~~552~~295) ~~Provision for income taxes~~ -- ~~806~~ --------- ---------- ~~Loss~~FINANCING ~~before~~ACTIVITIES ~~cumulative~~Borrowings ~~effect~~(repayments) under lines-of-credit, ~~change~~net in1,211 ~~accounting principle~~ (~~678) (~~1,~~358~~473) ~~Cumulative~~Proceeds ~~effect~~from issuance of ~~change~~subordinated indebt ~~accounting~~and ~~principle~~warrant -- 51,~~937~~000 Repayments of long-term debt (321) (430) ---------- ---------- Net ~~loss~~cash $provided (~~678~~used) $by ~~(7,295)~~financing ~~=========~~activities ~~=========~~890 ~~Basic~~(903) ~~and~~---------- ~~diluted~~---------- ~~loss~~Change ~~per share Loss before cumulative effect of change~~ in ~~accounting~~cash ~~principle~~265 $ (~~0.06~~9) $Cash ~~(0.24)~~at ~~Cumulative~~beginning ~~effect~~ of ~~change~~period in6 ~~accounting~~33 ~~principle~~ -- ~~(1.04)~~ --------- ---------- ~~Net~~Cash ~~loss~~at end of period $ ~~(0.06)~~271 $ ~~(1.28)~~24 ========== ========== ~~Common~~SUPPLEMENTAL ~~shares~~DISCLOSURE ~~used~~OF toCASH ~~compute~~FLOW ~~per~~INFORMATION ~~share~~Cash ~~information~~paid ~~Basic~~during ~~11,376~~the ~~5,682~~period ~~=========~~for: ~~=========~~Interest ~~Diluted~~$ ~~11,376~~293 ~~5,682~~$ 398 ========== ==========

The accompanying notes are an integral part of these condensed consolidated financial statements. ROYAL PRECISION, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND BUSINESS ORGANIZATION The accompanying condensed consolidated financial statements include Royal Precision, Inc. ("RP"), a holding company, and its three wholly-owned operating subsidiaries: FM Precision Golf Manufacturing Corp. ("FM"), FM Precision Golf Sales Corp. ("FMP Sales") and Royal Grip, Inc. ("RG"), (collectively the "Company"). In addition, RG has a wholly owned subsidiary, Royal Grip Headwear Company. RP acquired RG on August 29, 1997 (the "RG Acquisition"). BUSINESS The Company designs, manufactures and distributes steel golf club shafts and designs and distributes golf club grips and graphite golf club shafts for sale to original equipment manufacturers ("OEMs") and to distributors and retailers for use in the replacement market. The Company's products are sold throughout the United States as well as Japan, China, Australia, Europe and Canada. 2. BASIS OF PRESENTATION The condensed consolidated financial statements of Royal Precision, Inc. and subsidiaries presented herein have been prepared pursuant to the rules of the Securities and Exchange Commission for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by accounting principles generally accepted in the United States of America. These condensed consolidated financial statements should be read in conjunction with the Company's consolidated financial statements and notes thereto for the fiscal year ended May 31, 2002 included in the Company's Annual Report on Form 10-K and amended on Form 10-K/A. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of only normal recurring adjustments, necessary to present fairly the condensed consolidated financial position, results of operations and cash flows of the Company. Quarterly operating results are not necessarily indicative of the results that would be expected for the full year. The condensed consolidated balance sheet as of May 31, 2002 has been derived from the audited financial statements at that date, but does not include all of the information and disclosures required for complete financial statements. 3. RECENT ACCOUNTING PRONOUNCEMENTS In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" which was effective for the Company's year beginning June 1, 2002. SFAS 144 supersedes the guidance under SFAS 121 with respect to accounting for impairment of long-lived assets as well as changing the presentation and accounting for certain operations that may be discontinued by an entity. The impact of adopting SFAS 144 was not significant to the Company's financial statements. 4. RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform to the current year's presentation. 5. EARNINGS (LOSS) PER SHARE Basic earnings (loss) per share are based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings (loss) per share considers, in addition to the above, the dilutive effect of common share equivalents during the period. Common share equivalents represent dilutive stock options and warrants using the "treasury stock" method and convertible debt securities using the "if converted" method, if the potential common shares are not anti-dilutive. 5. EARNINGS (LOSS) PER SHARE (CONTINUED) Loss per share amounts for the three and six-month periods ended November 30, 2002 and 2001 were not affected by outstanding options, warrants and convertible debt securities because their effect was anti-dilutive. The number of shares used in computing (loss) per share amounts are as follows (in thousands):

THREE MONTHS ENDED SIX MONTHS ENDED -------------------------- ~~AUGUST 31, AUGUST 31, 2002 2001~~ ----------- ----------- (unaudited) (unaudited) OPERATING ACTIVITIES Net loss $ (678) $(7,295) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 202 213 Increase in valuation allowance for deferred income tax assets --- ~~806~~NOVEMBER ~~Impairment~~30, ofNOVEMBER ~~goodwill -- 5~~30,~~937~~ ~~Deferred~~NOVEMBER ~~debt cost 17 -- Loss on impairment or sale of machinery and equipment 6 13 Change in operating assets and liabilities: Accounts receivable~~30, ~~net~~NOVEMBER ~~909 3~~30,~~086~~ ~~Inventories~~2002 ~~747~~2001 ~~109~~2002 ~~Other~~2001 ~~assets 74 82 Accounts payable and accrued expenses (571) (31)~~ ------- ---- --- ~~Net cash provided by operating activities 706 2,920~~ -------- ------- ~~INVESTING ACTIVITIES Purchases of machinery and equipment (49) (188) Proceeds from sale of machinery and equipment~~ -- 13 -- ----- ------- ~~Net~~Basic: ~~cash~~Average ~~used~~common byshares ~~investing~~outstanding ~~activities~~12,719 ~~(49)~~5,682 ~~(175)~~12,044 ~~-------~~5,682 ~~-------~~Diluted: ~~FINANCING~~Dilutive ~~ACTIVITIES~~effect ~~Repayments under lines-~~of~~-credit,~~ ~~net~~stock ~~(396)~~options ~~(2,480)~~and ~~Repayments~~warrants of-- ~~long~~-~~term~~- ~~debt~~-- ~~(161)~~-- ~~(238)~~ ------- ---- --- ~~Net cash used by financing activities (557) (2,718)~~ -------- ------- ~~Change in cash 100 27 Cash at beginning of period 6 33~~ ---- --- -------- ~~Cash~~Average atcommon ~~end~~shares ofoutstanding ~~period~~12,719 $5,682 ~~106~~12,044 $5,682 60 =========== =========== ~~SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 170 $ 167~~ =========== ===========

6. INVENTORIES Inventories, net of valuation allowances, consisted of the following (in thousands): NOVEMBER 30, MAY 31, 2002 2002 ------ ------ Raw materials $ 381 $ 315 Work-in-process 1,147 940 Finished goods 2,018 3,108 ------ ------ $3,546 $4,363 ====== ====== 7. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following (in thousands): NOVEMBER 30, MAY 31, 2002 2002 ----------- ----------- Land $ 123 $ 123 Furniture, fixtures and office equipment 599 599 Building and improvements 912 912 Machinery and equipment 5,624 5,624 Equipment held for sale 105 117 Construction in progress 709 626 ----------- ----------- 8,072 8,001 Accumulated depreciation (2,860) (2,458) ----------- ----------- $ 5,212 $ 5,543 =========== =========== Depreciation expense for the six months ended November 30, 2002 and 2001 was $402,000 and $427,000, respectively. 8. BANK BORROWING ARRANGEMENTS On August 9, 2002, the Company refinanced its bank debt. In connection therewith, the Company executed an Amended and Restated Credit and Security Agreement (the Agreement). The Agreement includes lines-of credit 8. BANK BORROWING ARRANGEMENTS (CONTINUED) and term loans. The lines-of-credit are subject to renewal in July 2003. The Company has a right to extend the maturity date through July 2004 provided certain requirements are met. The term loans mature in September 2004. The effects of the refinancing have been retroactively applied to May 31, 2002. Long-term debt consists of the following (in thousands): NOVEMBER 30, MAY 31, 2002 2002 ----------- ----------- Lines-of-credit $ 5,816 $ 4,605 Term loans 2,154 2,475 ----------- ----------- 7,970 7,080 Current portion 6,458 1,272 ----------- ----------- Total long-term debt $ 1,512 $ 5,808 =========== =========== Scheduled annual maturities of debt for the years ending May 31, 2003 and 2004 are $6,458,000 and $1,512,000, respectively. Under the Agreement, a maximum of $6,500,000 may be borrowed under the lines-of-credit using a formula based on accounts receivable, inventories and letters of credit. Amounts borrowed under the lines-of-credit bear interest at rates ranging from prime to prime plus 3.00%. The term loans bear interest at rates ranging from prime plus 3.25% to prime plus 3.75%. Substantially all assets are pledged as collateral for borrowings under the Agreement. The Agreement also provides for certain financial covenants relating to the amounts of net losses and net assets. In connection with the Agreement certain stockholders were required to provide letters of credit by the lender. The fair value of $400,000 for providing these letters of credit has been recorded as a contribution to capital with a corresponding charge to deferred debt costs. The deferred debt costs are being amortized over the term of the related debt. 9. SUBORDINATED DEBT During the fiscal year ended May 31, 2002, the Company issued to The Johnston Family Charitable Foundation ("Johnston Foundation"), a related party entity, a subordinated promissory note (the "Subordinated Note") for $1,250,000 and a warrant to purchase up to 300,000 shares of common stock at $0.25 per share. An estimated fair value of $322,000 was assigned to the warrant which is exercisable over a ten year period. Additionally, in the event of default by the Company on the Subordinated Note, the Johnston Foundation had an option to convert the Subordinated Note into Company common stock at an exchange ratio of $0.25 per share with respect to any outstanding principal and accrued interest that was not repaid in full. Subsequently, during the remainder of the fiscal year ended May 31, 2002, the Johnston Foundation exercised warrants to purchase 147,808 shares of common stock for $37,000. In February 2002, the Company was not in compliance with certain financial bank loan covenants that resulted in the Company defaulting on the Subordinated Note. As a result of this default and in connection with the April 10, 2002 amendment to its bank credit facilities the bank required that as a condition to the execution by the bank of the amendments, the Johnston Foundation convert the Subordinated Note and the outstanding interest accrued through March 31, 2002 into Company common stock. On April 10, 2002, the Johnston Foundation converted the Subordinated Note and accrued interest thereon of $28,493 into 5,113,972 shares of Company common stock. In connection therewith, additional interest expense of $1,071,000 was recognized, including $928,000 applicable to the contingent beneficial conversion feature of the Subordinated Note and $143,000 of unamortized discount associated with the detached warrant in accordance with EITF 98-5, ACCOUNTING FOR CONVERTIBLE SECURITIES WITH BENEFICIAL CONVERSION FEATURES OR CONTINGENTLY ADJUSTABLE CONVERSION RATIOS and EITF 00-27, APPLICATION OF ISSUE 98-5 TO CERTAIN CONVERTIBLE INSTRUMENTS. Also, during the fiscal year ended May 31, 2002 the Company completed a private placement of subordinated promissory notes (the Additional Subordinated Notes) in the aggregate amount of $425,000 with certain members of the board of directors of the Company or such individuals' affiliated entities. These notes 9. SUBORDINED DEBT (CONTINUED) bore interest at 13% and were due in full on October 26, 2002 and were subordinate to both the FMP and RG bank credit facilities. The holders of the Additional Subordinated Notes also received warrants to purchase an aggregate of 102,000 shares of Company common stock at a price of $0.25 per share. The warrants may be exercised for a ten-year period. Additionally, the holders of the Additional Subordinated Notes have options to convert these notes into Company common stock at an exchange ratio of $0.25 per share. Using the Black Scholes option-pricing model warrants granted to the holders of the Additional Subordinated Notes were deemed to have no value. On February 28, 2002, the commitment date of the Additional Subordinated Notes, the Company's common Stock had a fair value of $0.20 per share, as such, the conversion feature was also deemed to have no value. In connection with the August 9, 2002 refinancing, the Additional Subordinated Notes of $425,000 and accrued interest of $16,070 were converted into 1,764,280 shares of common stock. Accordingly, the Additional Subordinated Notes have been classified as long-term debt as of May 31, 2002. 10. INFORMATION ON SEGMENTS The Company has two reportable segments: golf club shafts and golf club grips. The accounting policies of the segments are the same as those described in the summary of significant accounting policies in the Annual Report on Form 10-K for the fiscal year ended May 31, 2002. The Company evaluates the performance of these segments based on segment operating income or loss and cash flows. The Company allocates certain administrative expenses to segments. Selected segment information follows (in thousands):

(A) "Unallocated" for the three and six- month periods ended November 30, 2001 includes costs associated with a corporate restructuring and accretion of debt which are not allocated to the operating segments. 11. ENVIRONMENTAL MATTERS In May 1996, the Company acquired substantially all the assets of the golf club shaft manufacturing business of Brunswick Corporation (NYSE: BC) (the "Brunswick Acquisition"). Included in the acquired assets were land, buildings and equipment at the Company's Torrington, Connecticut manufacturing facility (the "FMP plant"). In conjunction with the Brunswick Acquisition, Brunswick Corporation ("Brunswick") agreed to indemnify the Company from potential liability arising from certain environmental matters and to remediate certain environmental conditions which existed at the FMP plant on the date of acquisition. Brunswick has engaged an environmental consulting firm to perform testing at the FMP plant and is in the process of developing a plan of remediation. The Company has engaged an environmental consulting firm to assist in the development of the plan of remediation. Failure of Brunswick to fulfill its obligations under the asset purchase contract could have a material adverse effect on the Company's financial condition and results of operations. Prior to the Brunswick Acquisition, the FMP plant was listed in the U.S. Environmental Protection Agency's ("EPA") Comprehensive Environmental Response, Compensation and Liability Information System ("CERCLIS"). A contractor for the EPA performed an assessment of the FMP plant. A report has been issued setting out the results of that assessment. Pursuant to the Brunswick Acquisition agreement, Brunswick has an obligation under the Connecticut Transfer Act (the "Act") to remediate any environmental issues that fall within the scope of the Act. The Company believes that the environmental issues identified would fall within the scope of the Act or other provisions of the acquisition agreement that would require them to be addressed by Brunswick. There is not sufficient information at this time to determine what action, if any, the EPA may pursue and what effect, if any, it may have on the Company's financial condition and results of operations. In October 2000, the Company received a notice of violation ("NOV") from the State of Connecticut Department of Environmental Protection ("DEP") alleging that various effluent discharge samples were in violation of authorized limits under an existing permit for the discharge of treated wastewater from the FMP plant to the Naugatuck River. The Company submitted its response to the NOV in December 2000 and received drafts of a consent order from the DEP in April 2001 and October 2001. Terms of the draft consent order include, among other things, that the Company pay a civil penalty of approximately $225,000, submit to various compliance audits, and complete a feasibility study to determine if the discharge of treated wastewater from the FMP plant can be diverted from the Naugatuck River. A provision was recorded for the proposed civil penalty during the fiscal year ended May 31, 2001. However, management believes it is possible that the proposed civil penalty may be reduced when the final consent order is executed. Environmental costs, net of recoveries, related to the various matters discussed above totaled $0 and $15,000, during the three-month periods ended November 30, 2002 and 2001, respectively, and $0 and $45,000, during the six-month periods ended November 30, 2002 and 2001, respectively. 12. VALUATION ALLOWANCE ON DEFERRED TAX ASSETS As of May 31, 2001, the Company had recorded deferred income tax assets of $806,000, net of a valuation allowance of $1,745,000. Due to the loss recognized during the three months ended August 31, 2001 and the then expected losses to be incurred during the fiscal year ending May 31, 2002, including corporate restructuring charges, management concluded that it would be unlikely that the Company would generate taxable income during the fiscal year ending May 31, 2002. Therefore, the valuation allowance was increased to fully offset the recorded deferred income tax assets based on the more likely than not criteria for realizability of deferred income tax assets established in SFAS 109. This increase in the valuation allowance is reflected as a provision for income taxes of $806,000 during the six-month period ended November 30, 2001 in the accompanying condensed consolidated statement of operations. 13. GOODWILL IMPAIRMENT In connection with adopting SFAS No. 142, "Goodwill and Other Intangible Assets" during the fiscal quarter ended August 31, 2001, the Company tested its unamortized previously recognized goodwill for impairment. An impairment was recorded of $5,937,000, which is reflected as the cumulative effect of change in accounting principle in the accompanying condensed consolidated statement of operations for the six months ended November 30, 2001. There was no income tax effect of this change in accounting principle. 14. CORPORATE RESTRUCTURING In September 2001, the Company's board of directors approved a restructuring plan designed to streamline operations and reduce expenses. The restructuring was completed during the fiscal year ended May 31, 2002. The restructuring included staff reductions and a decrease in operating expenses resulting from the consolidation of the corporate headquarters leased in Scottsdale, Arizona to the manufacturing facility which the Company owns in Torrington, Connecticut. During the fiscal year ended May 31, 2002, the Company recorded a restructuring charge of approximately $1,313,000 for various costs as shown below. Of these costs, $887,000 were recognized through November 30, 2001 and the balance of $462,000 recognized subsequently through May 31, 2002. Of the amount expensed, $1,290,000 represents cash costs, of which $1,104,000 has been paid through November 30, 2002 ($914,000 paid through May 31, 2002). Employee severance $ 752,000 Lease obligation 347,000 Employee hiring and relocation costs 166,000 Other 48,000 ---------- $1,313,000 ========== The employment of approximately 25 individuals who performed administrative, sales, marketing, customer service and accounting functions at the Company's corporate headquarters in Scottsdale, Arizona was terminated as a result of the restructuring. The affected employees received severance benefits of approximately $649,000 and $103,000 in fiscal years 2002 and 2003, respectively. The lease term of the Company's former corporate headquarters in Scottsdale, Arizona continues through May 2004. The Company's monthly rent, net of sub-leases, is approximately $17,000 through December 2002, and reduced to approximately $8,000 for the remaining term of the lease. The aggregate rental obligation over the remaining term of the lease as of November 30, 2002 is approximately $410,000. The Company had accrued the estimated expense associated with this lease of $347,000 as part of the restructuring. Of this amount $186,000 remained unpaid as of November 30, 2002 ($273,000 as of May 31, 2002). ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. FORWARD-LOOKING STATEMENTS -- This Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are often characterized by the terms "may," "believes," "projects," "expects," or "anticipates," and do not reflect historical facts. Such statements include, but are not limited to, statements concerning the Company's future results from operations; the adequacy of existing capital resources and credit lines; the ability to modify the terms of existing credit facilities and to obtain additional financing; anticipated future customer orders; anticipated future capital expenditures; anticipated costs of environmental matters at the Company's manufacturing facility and expectations regarding future environmental reports; and the Company's ability to generate sufficient cash flow from operations to repay indebtedness and fund operations. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Forward-looking statements are based on the current beliefs and expectations of the Company's management and are subject to significant risks, uncertainties and other factors, which may cause actual results, performance, or achievements of the Company to be materially different from those expressed or implied by such forward-looking statements. Factors that could affect the Company's results and cause them to be materially different from those contained in the forward-looking statements include: uncertainties relating to general economic conditions; the Company's dependence on discretionary consumer spending; the Company's dependence on demand from original equipment manufacturers ("OEMs"); the Company's dependence on international sales; the cost and availability of raw materials; the timeliness and market acceptance of the Company's new product introductions; the competitive environment in which the Company operates; seasonality of sales, which results in fluctuations in operating results; the Company's ability to protect its intellectual property rights; the Company's reliance on third party suppliers; changes in the financial markets relating to the Company's capital structure and cost of capital; increased costs related to environmental regulations and/or the failure of third parties to fulfill their indemnification and remediation obligations to the Company; work stoppages or slowdowns; the Company's ability to successfully launch new products; the willingness of the Company's lenders to modify the terms of existing credit facilities and other factors that management is currently unable to identify or quantify, but may arise or become known in the future. A discussion of these and other factors that could cause the Company's results to differ materially from those described in the forward-looking statements can be found in Exhibit 99.1 of the Company's Annual Report on Form 10-K for the year ended May 31, 2002, as amended. OVERVIEW -- The Company designs, manufactures and distributes steel golf club shafts and designs and distributes golf club grips and graphite golf club shafts for sale to OEMs and to distributors and retailers for use in the replacement market. The Company's products are sold throughout the United States as well as internationally, primarily in Japan, Australia, China, Europe and Canada. The Company principally operates in the golf equipment industry which has historically been seasonal in nature with consumer demand for product being the strongest during the spring and summer months. Operating results may be affected by certain accounting estimates. The most significant accounting estimates in the financial statements relate to asset valuation allowances (slow moving and obsolete inventories, accounts receivable, deferred income tax assets, property plant and equipment and goodwill) and accruals for restructuring and environmental costs. Management critically evaluates the Company's estimates to establish its reserves and needed accruals. To the extent these estimates change, net income will be affected in the period these changes are determined. THREE MONTHS ENDED NOVEMBER 30, 2002 COMPARED TO THE THREE MONTHS ENDED NOVEMBER 30, 2001 -- NET SALES. Net sales for the three months ended November 30, 2002 were $5,511,000, an increase of $1,036,000 or 23% from net sales of $4,475,000 during the corresponding period in 2001. Net sales of golf club shafts increased by $997,000 or 26% and net sales of golf club grips increased by $39,000 or 6%. The Company has experienced an overall increase in sales which management attributes to successful sales and marketing efforts. COST OF SALES. Cost of goods sold for the three months ended November 30, 2002 was $4,877,000, an increase of $1,065,000 or 28% from cost of goods sold of $3,812,000 during the corresponding period in 2001 primarily as a result of lower total net sales. The cost of golf club shafts sales increased by $1,077,000 or 33% and the cost of golf club grips sales decreased by $12,000 or 2%. The increase in the cost golf club shafts sales resulted from a greater quantity of shafts sold. The decrease in the cost of golf club grip sales is the result of reduced material costs. GROSS PROFIT. Gross profit for the three months ended November 30, 2002 was $634,000, a decrease of $29,000 or 4% under gross profit of $663,000 during the corresponding period in 2001. Gross profit from sales of golf club shafts decreased by $80,000 or 15% to $469,000. Expressed as a percentage of sales, the gross profit from sales of golf club shafts decreased from 15% to 10%. Gross profit during the three months ended November 30, 2002 was negatively impacted by lower average selling prices as compared to the corresponding 2001 period. Gross profit from sales of golf club grips increased by $51,000 or 45% to $165,000. Expressed as a percentage of sales, the gross profit from sales of golf club grips increased from 17% to 23% due to reduced material costs. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses for the three months ended November 30, 2002 were $1,096,000, a decrease of $1,158,000 or 51% from selling, general and administrative expenses of $2,254,000 during the corresponding period in 2001. This decrease is primarily due to the inclusion of $887,000 in restructuring costs in the three months ended November 30, 2001 and reduced spending on sales and marketing activities of $96,000 during the three-month period ended November 30, 2002, compared to last year. INTEREST EXPENSE. Interest expense for the three months ended November 30, 2002 was $127,000, a decrease of $86,000 or 40% from interest expense of $213,000 during the corresponding period in 2001. The decrease is attributable to lower borrowings on the Company's lines of credit and by a decline in the prime interest rate and the rate charged by the Company's lender. OTHER (INCOME) AND EXPENSE. Other (income) and expense for the three months ended November 30, 2002 and 2001 were $118,000 and $(13,000), respectively. The three-month period ended November 30, 2002 is principally comprised of amortization of debt cost of $100,000, while the income for the three months ended November 30, 2001 is principally royalties earned on sales of headwear products which royalty provisions expired during this time period. SIX MONTHS ENDED NOVEMBER 30, 2002 COMPARED TO THE SIX MONTHS ENDED NOVEMBER 30, 2001 -- NET SALES. Net sales for the six months ended November 30, 2002 were $10,055,000, a decrease of $1,085,000 or 10% from net sales of $11,140,000 during the corresponding period in 2001. Net sales of golf club shafts decreased by $1,482,000 or 15% and net sales of golf club grips increased by $397,000 or 27%. The Company has experienced an overall decline in sales and a shift in the mix of products sold which management attributes to the softening economy and a lower demand for high-end sports and leisure consumer products. This is offset by an increase in overall sales during the second quarter of fiscal year 2003 as compared to the corresponding quarter in fiscal year 2002, which management attributes to successful sales and marketing efforts. This change in product mix has negatively impacted the Company's average selling prices and profit margins. COST OF SALES. Cost of goods sold for the six months ended November 30, 2002 was $8,950,000, a decrease of $168,000 or 2% from cost of goods sold of $9,118,000 during the corresponding period in 2001 primarily as a result of lower total net sales. The cost of golf club shafts sales decreased by $294,000 or 4% and the cost of golf club grips sales increased by $126,000 or 10%. Reduced production needs at the Company's manufacturing facility during the first quarter ended August 31, 2002 compared to the corresponding period last year resulted in fixed manufacturing costs being spread over a decreased number of units and a higher unit cost for the shafts manufactured. GROSS PROFIT. Gross profit for the six months ended November 30, 2002 was $1,105,000, a decrease of $917,000 or 45% under gross profit of $2,022,000 during the corresponding period in 2001. Gross profit from sales of golf club shafts decreased by $1,188,000 or 67% to $597,000. Expressed as a percentage of sales, the gross profit from sales of golf club shafts decreased from 19% to 7%. Gross profit during the six months ended November 30, 2002 was negatively impacted by a change in the mix of products sold and a reduction in manufacturing output as compared to the corresponding 2001 period. Gross profit from sales of golf club grips increased by $271,000 or 114% to $508,000. Expressed as a percentage of sales, the gross profit from sales of golf club grips increased from 16% to 27% due to reduced unit cost. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses for the six months ended November 30, 2002 were $2,041,000, a decrease of $1,998,000 or 49% from selling, general and administrative expenses of $4,039,000 during the corresponding period in 2001. This decrease is primarily due to the inclusion of $887,000 in restructuring costs in the six months ended November 30, 2001 and reduced spending on television and print advertising costs of $440,000 during the three-month period ended November 30, 2002 compared to last year. INTEREST EXPENSE. Interest expense for the six months ended November 30, 2002 was $293,000, a decrease of $90,000 or 23% from interest expense of $383,000 during the corresponding period in 2001. The decrease is attributable to lower borrowings on the Company's lines of credit and by a decline in the prime interest rate and the rate charged by the Company's lender. OTHER (INCOME) AND EXPENSE. Other (income) and expense for the six months ended November 30, 2002 and 2001 were $156,000 and $(57,000), respectively. The six-month period ended November 30, 2002 is principally comprised of amortization of debt cost of $117,000, while the income for the six months ended November 30, 2001 is principally royalties earned on sales of headwear products which royalty provisions expired during this time period. PROVISION FOR INCOME TAXES. Income tax provisions of $0 and $806,000 were recorded during the six months ended November 30, 2002 and 2001, respectively. As of May 31, 2001, the Company had recorded deferred tax assets of $800,000, net of a valuation allowance of $1,700,000. Due to the loss recognized during the fiscal year ending May 31, 2002, the valuation allowance was increased to fully offset the recorded deferred tax assets based on the more likely than not criteria for realizability of deferred tax assets established in SFAS 109. No adjustments to the valuation allowance on deferred tax assets were recorded during the six-month period ended November 30, 2002. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE. As discussed in Note 13 to the condensed consolidated financial statements, the Company adopted SFAS No. 142 effective June 1, 2001. In accordance with the transitional guidance of SFAS No. 142, the Company's previously recognized goodwill was tested for impairment under the newly established guidelines. A charge in the amount of $5,937,000 was recorded for the calculated impairment, which is reflected as the cumulative effect of change in accounting principle in the accompanying condensed consolidated statement of operations for the six months ended November 30, 2001. LIQUIDITY AND CAPITAL RESOURCES -- At November 30, 2002, the Company had negative working capital of $2,011,000 and a current ratio of 0.8 to 1 as compared to positive working capital of $2,911,000 and a current ratio of 1.5 to 1 at May 31, 2002. This decline in working capital is primarily a result of the line of credit becoming current. The lines of credit are subject to renewal in July 2003. The Company has the right to extend the maturity date through August 2004 provided certain requirements are met, including an extended letter of credit from certain stockholders. As of August 16, 2002, the Company refinanced its bank debt. The effects of the refinancing have been retroactively applied to May 31, 2002. The interest rates on the refinanced debt are 1% to 4% lower than the prior rates. Prior to the August 2002 refinancing, the Company was not in compliance with certain financial covenants, but was successful in obtaining the necessary waivers and amendments in August 2001, February 2002 and May 2002, to remedy such defaults. Although the Company believes it will be in compliance with the covenants under the refinancing, there can be no assurance that the Company would be able to obtain any necessary waivers or amendments upon the occurrence of any future incidence of noncompliance with loan covenants. As such, any instance of noncompliance could have a material adverse effect on the Company's financial condition. The Company's bank credit facility includes two lines of credit and two term loans. The outstanding principal balance of the term loans at November 30, 2002 was $2,154,000. The term loans are due in monthly principal installments of $53,517 until August 2004 with a final principal payment of $1,030,150 at their maturity in September 2004. The term loans bear interest at rates ranging from prime plus 3.25% to prime plus 3.75%. The outstanding balance on the lines of credit at November 30, 2002 was $5,816,000; the lines of credit are subject to renewal in July 2003. The Company has a right to extend the maturity date through July 2004 provided certain requirements are met. Amounts borrowed under the lines of credit bear interest at rates ranging from prime to prime plus 3.0%. During fiscal year 2002, the Company issued to The Johnston Family Charitable Foundation ("Johnston Foundation"), a related party entity, a subordinated promissory note (the "Subordinated Note") for $1,250,000 and warrants to purchase up to 300,000 shares of common stock. Subsequently, the Johnston Foundation exercised a portion of the warrants to purchase 147,808 shares of common stock and converted the $1,250,000 Subordinated Note and accrued interest into 5,113,972 shares of common stock. See Note 9 to the condensed consolidated financial statements contained herein. Also, during fiscal year 2002, the Company issued additional subordinated promissory notes (the "Additional Subordinated Notes") of $425,000 to certain members of the board of directors of the Company or such individuals' affiliated entities. The holders of the Additional Subordinated Notes also received warrants to purchase 102,000 shares of common stock. In connection with the August 9, 2002 refinancing, the Additional Subordinated Notes and accrued interest of $16,070 were converted into 1,764,280 shares of common stock. Accordingly, the Additional Subordinated Notes have been classified as long-term debt as of May 31, 2002. See Note 9 to the condensed consolidated financial statements contained herein. The Company believes that its existing lines-of-credit are sufficient to fund the planned operating needs for its business through the July 2003 renewal period of its current lines-of credit, assuming that management's expectations regarding results of operations are realized. The Company also believes that it will be able to renew its existing lines-of-credit during the July 2003 renewal period assuming that either management's expectations regarding results of operations are realized so as to yield additional cash, the Company's needs for cash in addition to cash generated by operations are reduced or certain stockholders choose to extend their letters of credit as provided for in the current lending agreement. If these developments are not realized, the Company will be required to obtain additional capital. There can be no assurance that the Company will be able to do so. Failure to do so will have a material adverse effect on the Company's financial condition. The Company has noted a recent trend that the Company's customers have expressed an uncharacteristic reluctance to commit to sales on any more than a short-term basis. The Company believes that this is due to the uncertainties in the economy. Failure to obtain the Company's expected sales levels will have a material adverse effect on the Company's financial condition. Existing lines of credit enable the Company to borrow a maximum of $6,500,000 using a formula based on accounts receivable, inventories and letters of credit. Major stockholders, Richard P. Johnston and Christopher A. Johnston, provided the letters of credit. Those stockholders are not obligated to extend their letters of credit beyond August 9, 2003 and there can be no assurance that they will elect to do so. During the six month period ended November 30, 2002, net cash used by operating activities was $541,000. This included a net loss of $1,385,000 for the six months ended November 30, 2002 and an increase in net accounts receivable of $782,000 which was off-set by a reduction in inventory levels of $817,000. Net cash used in investing activities for the six-month period ended November 30, 2002 was $84,000 and was used for the purchase of machinery and equipment. Net cash provided in financing activities for the six-month period ended November 30, 2002 was $890,000 and was the result of the net borrowings on lines-of-credit of $1,211,000 and repayments of term debt of $321,000. ENVIRONMENTAL MATTERS -- For a discussion of relevant environmental issues, please refer to Note 11 to the condensed consolidated financial statements contained herein. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Sales of the Company's products outside the United States are denominated in U.S. dollars. The Company does not participate in any market risk sensitive financial instruments or other financial and commodity instruments and holds no investments. The Company's primary market risk continues to relate to its variable rate debt obligations, which are described in Note 8 to the condensed consolidated financial statements. ITEM 4. CONTROLS AND PROCEDURES As of a date within 90 days prior to the date of the filing of this Quarterly Report on Form 10-Q, the Company's Chief Executive Officer and Chief Financial Officer had reviewed and evaluated the effectiveness of the Company's disclosure controls and procedures, which included inquiries made to certain other of its employees. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company's current disclosure controls and procedures are effective and sufficient to ensure that the Company record, process, summarize and report information required to be disclosed in the Company's periodic Exchange Act reports. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the date of the evaluation by the Chief Executive Officer and Chief Financial Officer. The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. None. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 5. OTHER INFORMATION. As previously reported, on August 30, 2002, the Company received a revised offer from Royal Associates, Inc. ("RA") for the acquisition of those shares of common stock of the Company owned by public stockholders (excluding stockholders who are stockholders of RA, persons associated with RA and certain other stockholders designated by RA) pursuant to which a wholly-owned subsidiary of RA would be merged with and into the Company, in a cash-out merger in which the public stockholders of the Company would receive a price of $0.10 per share in cash. On September 12, 2002, the Company, RA and a wholly-owned subsidiary of RA entered into an Agreement and Plan of Merger. The transaction remains subject to approval of the Company's stockholders which is anticipated to occur on February 4, 2003. On January 2, 2003, the Company, RA and other filing persons filed a Definitive Schedule 13E-3 Transaction Statement and the Issuer filed its Schedule 14C revised Definitive Information Statement with the Securities and Exchange Commission. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. (3) Certificate of Incorporation and Bylaws Exhibit 3.1. Second Amended and Restated Certificate of Incorporation of Royal Precision, Inc. (as filed with the Secretary of State of Delaware on February 5, 2002) (incorporated by reference to Exhibit 3.1 to the Company's Form 8-K dated January 28, 2002). Exhibit 3.2. Amended and Restated Bylaws of Royal Precision, Inc. (incorporated by reference to Exhibit 3.2 to the Company's Form 8-K dated January 28, 2002). (4) Instruments Defining the Rights of Security Holders Exhibit 4. 1. See Articles FOUR, FIVE and SEVEN of the Amended and Restated Certificate of Incorporation at Exhibit 3.1. Exhibit 4.2. See Article I, Sections 2.1 and 2.2 of Article II and Sections 7.3 and 7.10 of Article VII of the Bylaws of Royal Precision, Inc. at Exhibit 3.2. Exhibit 4.3. See Section 7.5 of the Amended and Restated Credit and Security Agreement dated as of August 9, 2002 among FM Precision Golf Manufacturing Corp. and FM Precision Golf Sales Corp. and Wells Fargo Business Credit, Inc. Exhibit 4.4. See Section 7.5 of the Second Amended and Restated Credit and Security Agreement dated August 9, 2002 among Royal Grip, Inc., Royal Grip Headwear Company and Wells Fargo Business Credit, Inc. (b) Reports on Form 8-K. Reports on Form 8-K were filed by the Registrant as follows: (i) Report dated September 12, 2002, in response to Item 9, Regulation FD Disclosure, announcing that the Company had entered into an Agreement and Plan of Merger with Royal Associates, Inc. (ii) Report dated October 11, 2002, in response to Item 9, Regulation FD Disclosure, reporting that the certification of the chief executive officer and chief financial officer accompanied the Company's Form 10-Q for the quarter ended August 31, 2002. (iii) Report dated December 6, 2002, in response to Item 9, Regulation FD Disclosure, reporting that the certification of the chief executive officer and chief financial officer accompanied the Company's Amendment No. 2 to Annual Report on Form 10-K for the fiscal year ended May 31, 2002. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: January 13, 2003 ROYAL PRECISION, INC. (the "Registrant") By /s/ John C. Lauchnor ------------------------------------- John C. Lauchnor, President and Chief Executive Officer (Principal Executive Officer) By /s/ Frank W. Mertes ------------------------------------- Frank W. Mertes, Vice President - Finance (Principal Financial Officer and Principal Accounting Officer) CERTIFICATIONS I, John C. Lauchnor, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Royal Precision, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: January 13, 2003 /s/ John C. Lauchnor ---------------------------------------- John C. Lauchnor, President, Chief Executive Officer I, Frank W. Mertes, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Royal Precision, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: January 13, 2003 /s/ Frank W. Mertes ---------------------------------------- Frank Mertes, Vice President - Finance, Chief Financial Officer EXHIBIT INDEX PAGE IN SEQUENTIALLY EXHIBIT NUMBERED COPY 3.1 Second Amended and Restated Certificate of * Incorporation of Royal Precision, Inc. (as filed with the Secretary of State of Delaware on February 5, 2002) (incorporated by reference to Exhibit 3.1 to the Company's Form 8-K dated January 28, 2002. 3.2 Amended and Restated Bylaws of Royal Precision, Inc. * (incorporated by reference to Exhibit 3.2 to the Company's Form 8-K dated January 28, 2002) 4.1 See Articles FOUR, FIVE and SEVEN of the Amended and * Restated Certificate of Incorporation of the registrant at Exhibit 3.1. 4.2 See Article I, Sections 2.1 and 2.2 of Article II and * Sections 7.3 and 7.10 of Article VII of the Bylaws of Royal Precision, Inc. (incorporated by reference to Exhibit 3.2 to the Form S-4). 4.3 See Section 7.5 of the Amended and Restated Credit and * Security Agreement dated as of August 9, 2002 among FM Precision Golf Manufacturing Corp. and FM Precision Golf Sales Corp. and Wells Fargo Business Credit, Inc. (incorporated by reference to Exhibit 10.63 to the Company's Form 10-K for the year ended May 31, 2002). 4.4 See Section 7.5 of the Second Amended and Restated * Credit and Security Agreement dated August 9, 2002 among Royal Grip, Inc., Royal Grip Headwear Company and Wells Fargo Business Credit, Inc. (incorporated by reference to Exhibit 10.64 to the Company's Form 10-K for the year ended May 31, 2002. * Incorporated by reference.

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