UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB




XQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the Quarterly Period Ended September 30, 2004TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the Transition Period From              to




Commission File Number 0-18204





AJAY SPORTS, INC.

(Exact name of Registrant as specified in its charter)

Delaware                                                                     39-1644025

(State or other jurisdiction of                                              (I.R.S. Employer

incorporation or organization)                                  Identification Number)





37735 Enterprise Court, Suite 600

Farmington Hills, MI 48331

(Address of principal executive offices)

Registrant's telephone number, including area code: (248) 994-0553



Indicate by check mark whether the Company (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            No   X

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 by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)                                            Yes           No   X

The number of shares outstanding of the registrants common stock as of March 30, 2006 was 4,257,163.

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# Table of Contents

PART I. FINANCIAL INFORMATIONItem 1 Financial StatementsCONSOLIDATED CONDENSED BALANCE SHEETSCONSOLIDATED CONDENSED STATEMENTS OF OPERATIONSCONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWSNotes to Consolidated Financial StatementsItem 2. Management’s Discussion and Analysis or Plan of OperationsItem 3. Controls and ProceduresPART II. OTHER INFORMATIONItem 1. Legal ProceedingsItem 2. Unregistered Sales of Equity Securities and Use of ProceedsItem 3. Defaults upon Senior SecuritiesItem 4. Submission of Matters to a Vote of Security HoldersSIGNATURESRULE 15D-14(A) CERTIFICATION OF CEORULE 15D-14(A) CERTIFICATION OF COOSECTION 1350 CERTIFICATION OF CEOSECTION 1350 CERTIFICATION OF COO


PART I. FINANCIAL INFORMATION

Item 1 Financial Statements

AJAY SPORTS, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

(In thousands, except share and per share data)



|ASSETS                               |                                                                    |                             |       |                              | September 30, 2004 (Unaudited) |                           | December 31, 2003           
|------------------------------------ | ------------------------------------------------------------------ | --------------------------- | ----- | ---------------------------- | ------------------------------ | ------------------------- | ----------------------------
|Current assets                       |                                                                    |                             |       |                              |                                |                          
|                                     | Cash                                                               |                             |       |                              |                                | $                     350 |                             
|                                     | Accounts receivable, net                                           |                             |       | 685                          |                                | 486                      
|                                     | Inventories                                                        |                             |       |                              | 4                              |                           | 21                          
|                                     | Prepaid expenses and other current assets                          |                             | 222   |                              | 194                           
|                                     | Total current assets                                               |                             |       |                              | 1,261                          |                           | 943                         
|Long-term assets                     |                                                                    |                             |       |                              |                                |                          
|                                     | Fixed assets, net of depreciation                                  |                             |       | 37                           |                                | 43                       
|                                     | Intangibles, net of amortization                                   |                             |       | 6,287                        |                                | 6,362                    
|                                     | Investments in marketable securities                               |                             | 157   |                              | 103                           
|                                     | Other assets                                                       |                             |       |                              | 16                             |                           | -                           
|                                     | Total long-term assets                                             |                             |       | 6,497                        |                                | 6,508                    
|                                     | TOTAL ASSETS                                                       |                             |       |                              | $                  7,758       |                           | $                  7,451    
|                                     |                                                                    |                             |       |                              |                                |                           |                             
|LIABILITIES AND SHAREHOLDERS' EQUITY |                                                                    |                             |       |                             
|Current liabilities                  |                                                                    |                             |       |                              |                                |                          
|                                     | Accounts payable                                                   |                             |       |                              | $                       332    |                           | $                        543
|                                     | Accrued expenses and other liabilities                             |                             | 966   |                              | 613                           
|                                     | Note payable - related party                                       |                             |       | 9,147                        |                                | 8,740                    
|                                     | Note payable - bank                                                |                             |       |                              | 5,891                          |                           | 6,231                       
|                                     | Note payable - other                                               |                             |       |                              | 1,710                          |                           | 1,620                       
|                                     | Total current liabilities                                          |                             |       |                              | 18,046                         |                           | 17,747                      
|Long-term liabilities                |                                                                    |                             |       |                              |                                |                          
|                                     | Accrued expenses - non-current                                     |                             |       | 4                            |                                | 26                       
|                                     | Net liabilities of discontinued operations                         |                             | 2,523 |                              | 2,430                         
|                                     | Total long term liabilities                                        |                             |       | 2,527                        |                                | 2,456                    
|                                     | TOTAL LIABILITIES                                                  |                             |       |                              | 20,573                         |                           | 20,203                      
|Shareholders' Equity                 |                                                                    |                             |       |                              |                                |                          
|                                     | Preferred Stock- 10,000,000 shares authorized                      |                             |       |                             
|                                     | Series B,  $100 par value, 12,500 shares issued and outstanding    | 1,250                       |       | 1,250                       
|                                     | Series C, $10 par value, 208,439 shares issued and outstanding     | 2,084                       |       | 2,084                       
|                                     | Series D, $0.01 par value, 6,000,000 shares issued and outstanding | 60                          |       | 60                          
|                                     | Common stock, $0.01 par value, 100,000,000 shares                  |                             |       |                             
|                                     | authorized, 4,289,322 shares issued, 4,257,175 shares              |                             |       |                             
|                                     | outstanding and 32,147 shares in treasury                          |                             |       | 43                           |                                | 43                       
|                                     | Additional paid - in capital                                       |                             |       | 18,344                       |                                | 18,344                   
|                                     | Accumulated deficit                                                |                             |       |                              | (34,477)                       |                           | (34,453)                    
|                                     | Accumulated other comprehensive income                             |                             | (119) |                              | (80)                          
|                                     | Total shareholders' equity                                         |                             |       | (12,815)                     |                                | (12,752)                 
|                                     | TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                         | $                     7,758 |       | $                      7,451



See notes to consolidated condensed financial statements.

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AJAY SPORTS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

(Unaudited)



|                                                                  |                                                                  |        |                | For the three-month period ended September 30, |                | For the nine-month period ended September 30,
|----------------------------------------------------------------- | ---------------------------------------------------------------- | ------ | -------------- | ---------------------------------------------- | -------------- | ---------------------------------------------
|                                                                  |                                                                  |        |                | 2004                                           |                | 2003                                         
|                                                                  |                                                                  |        |                |                                                |                |                                              
|Net sales                                                         |                                                                  |        | $        1,031 |                                                | $       1,052  |                                              
|Cost of sales                                                     |                                                                  |        | 4              |                                                | -              |                                              
|Gross profit                                                      |                                                                  |        | 1,027          |                                                | 1,052          |                                              
|                                                                  |                                                                  |        |                |                                                |                |                                              
|Selling, general and administrative expense                       | 666                                                              |        | 769            |                                                | 1,809          |                                              
|Income from operations                                            |                                                                  | 361    |                | 283                                            |                | 1,079                                        
|Non-operating expenses                                            |                                                                  |        |                |                                                |                |                                              
|                                                                  | Interest expense, net                                            |        | (302)          |                                                | (258)          |                                              
|                                                                  | Depreciation and amortization                                    | (32)   |                | (28)                                           |                | (97)                                         
|                                                                  | Other income                                                     |        | 27             |                                                | 114            |                                              
|Total non-operating expenses                                      | (307)                                                            |        | (172)          |                                                | (957)          |                                              
|Income (loss) before income taxes, and minority interest          | 54                                                               |        | 111            |                                                | 122            |                                              
|Income tax benefit                                                |                                                                  | -      |                | 87                                             |                | -                                            
|Income (loss) from continuing operations before minority interest | 54                                                               |        | 24             |                                                | 122            |                                              
|Minority interest                                                 |                                                                  |        | -              |                                                | -              |                                              
|Net Income (loss) from continuing operations                      | 54                                                               |        | 24             |                                                | 122            |                                              
|Discontinued operations                                           |                                                                  |        |                |                                                |                |                                              
|                                                                  | Interest expense from discontinued                               |        |                |                                                |                |                                              
|                                                                  | furniture operations                                             |        | (51)           |                                                | (50)           |                                              
|                                                                  | Gain from settlement of discontinued accounts payable            | -      |                | -                                              |                | -                                            
|                                                                  |                                                                  |        |                | (51)                                           |                | (50)                                         
|Net Income (loss)                                                 |                                                                  | 3      |                | (26)                                           |                | (24)                                         
|Undeclared preferred dividends                                    | (85)                                                             |        | (85)           |                                                | (256)          |                                              
|Net loss available to common shareholders                         | (82)                                                             |        | (111)          |                                                | (280)          |                                              
|Net loss per common share - basic and diluted                     |                                                                  |        |                |                                                |                |                                              
|                                                                  | Loss available to common shareholders from continuing operations | (0.01) |                | (0.01)                                         |                | (0.03)                                       
|Income (loss) from discontinued operations                        | (0.01)                                                           |        | (0.01)         |                                                | (0.03)         |                                              
|Net loss available to common shareholders per common share        | $        (0.02)                                                  |        | $       (0.02) |                                                | $       (0.06) |                                              
|Weighted average common shares outstanding  basic and diluted    | 4,257                                                            |        | 4,257          |                                                | 4,257          |                                              













See notes to consolidated condensed financial statements.

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AJAY SPORTS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)





|                                                 |                                            |                                                       |       |                |                  |               | For the nine-month periods ended September  30,
|------------------------------------------------ | ------------------------------------------ | ----------------------------------------------------- | ----- | -------------- | ---------------- | ------------- | -----------------------------------------------
|                                                 |                                            |                                                       |       |                |                  |               | 2004                                           
|Operating activities:                            |                                            |                                                       |       |                |                 
|Net loss                                         |                                            |                                                       |       |                | $           (24) |               | $       (121)                                  
|Adjustments to reconcile net loss to net cash    |                                            |                                                       |       |               
|provided by operating activities                 |                                            |                                                       |       |                |                  |              
|                                                 | Minority interest in loss of subsidiary    |                                                       |       | -              |                  | 155          
|                                                 | Depreciation and amortization              |                                                       |       | 97             |                  | 84           
|                                                 | Changes in current assets and liabilities: |                                                       |       |                |                  |              
|                                                 |                                            | (Increase) decrease in accounts receivable            |       | (199)          |                  | 238          
|                                                 |                                            | (Increase) decrease in inventories                    |       |                | 17               |               | (13)                                           
|                                                 |                                            | Decrease in prepaid expenses and other current assets | (29)  |                | 149             
|                                                 |                                            | Decrease in accounts payable                          |       | (211)          |                  | (241)        
|                                                 |                                            | Increase in deferred tax benefits                     |       |                | -                |               | (11)                                           
|                                                 |                                            | Increase in accrued expenses and other liabilities    |       | 331            |                  | 250          
|                                                 |                                            | Discontinued operations net loss (income)             |       |                | 146              |               | (466)                                          
|                                                 |                                            | Increase in interest payable                          |       |                | 346              |               | 538                                            
|                                                 |                                            | Total adjustments                                     |       |                |                  | 498           |                                                
|Net cash provided by operating activities        |                                            |                                                       | 474   |                | 562             
|                                                 |                                            |                                                       |       |                |                  |               |                                                
|Financing activities                             |                                            |                                                       |       |                |                 
|                                                 |                                            | Payments of notes payable                             |       | (340)          |                  | (50)         
|                                                 |                                            | Increase in advances to affiliates                    |       |                | -                |               | (321)                                          
|Net cash used in financing activities            |                                            |                                                       | (340) |                | (371)           
|                                                 |                                            |                                                       |       |                |                  |               |                                                
|Cash flows from discontinued operations          |                                            |                                                       |       |                |                 
|                                                 |                                            | Cash used in discontinued operations                  |       |                | (26)             |               | (16)                                           
|                                                 |                                            |                                                       |       |                |                  |               |                                                
|Net Increase in cash                             |                                            |                                                       |       | 108            |                  | 175          
|Cash at the beginning of period                  |                                            |                                                       |       | 242            |                  | 55           
|Cash at the end of period                        |                                            |                                                       |       | $          350 |                  | $         230
|                                                 |                                            |                                                       |       |                |                  |               |                                                
|Supplemental disclosure of cash flow information |                                            |                                                       |       |               
|Cash paid for interest                           |                                            |                                                       |       | $          225 |                  | $         270









See notes to consolidated condensed financial statements.







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Notes to Consolidated Financial Statements

This report contains forward-looking statements including statements containing words such as believes, anticipates, expects and the like.  All statements other than statements of historical fact included in this report are forward-looking statements.  The Company believes that its expectations reflected in its forward-looking statements are reasonable, but it can give no assurance that the expectations ultimately will prove to be correct.  Important factors including, without limitation, statements relating to planned acquisitions, development of new products, the financial condition of the Company, the ability to increase distribution of the Companys products, integration of businesses the Company has acquired, disposition of any current business of the Company, a change in the Companys relationships with its bank lenders and/or unsecured lenders, could cause the Companys actual results to differ materially from those anticipated in these forward-looking statements.  The Company does not intend to update the forward-looking statements contained in this report.

1.

The Company

Ajay Sports, Inc. (the "Company) operates the franchise segment of its business through Pro Golf International, Inc., a 97% owned subsidiary, which was formed during 1999 and owns 100% of the outstanding stock of Pro Golf of America, Inc., and 78% of the stock of ProGolf.com, Inc. (ProGolf.com).  Pro Golf of America, Inc. is the franchisor of Pro Golf / Pro Golf DiscountÒ retail golf stores (Pro Golf stores).  ProGolf.com is a company formed to help drive traffic to its franchisee stores and to sell golf equipment and other golf-related and sporting goods products and services over the Internet.

Pro Golf of America, Inc. is the worlds largest franchisor of golf only retail stores, with over 120 stores in the United States, Canada, Europe and Puerto Rico, as of September 30, 2004.  Pro Golf of America, Inc. provides services to its franchisees in exchange for initial franchise, advertising, marketing fees, and ongoing royalties based on a percentage of retail sales.  The Company plans to enhance its traditional sales and distribution methods through its partially owned Internet site.  ProGolf.com has an agreement with Global Sports, Inc. (GSI) the largest sporting goods internet sales organization in the world, which inventories and sells golf on the Internet site www.progolf.com in exchange for commissions on its sales through this site.

The Company operated and subsequently closed the following wholly owned subsidiaries: Ajay Leisure Products, Inc. ("Ajay"), Leisure Life, Inc. ("Leisure Life"), Palm Springs Golf, Inc. (Palm Springs), and Prestige Golf Corporation (Prestige).

In June 2000, the Companys management elected to discontinue the businesses of Ajay, Leisure Life, Palm Springs, and Prestige due to the fact that their customers Big Box stores began purchasing their inventories directly from offshore manufacturers and suppliers, which created ongoing operating losses and negative cash flows for these companies.  These entities marketed and distributed golf clubs, golf bags, golf gloves, golf accessories, hand-pulled golf carts and casual living furniture, prior to deciding to discontinue those business operations in June 2000.

All references to the Company include Pro Golf International, Pro Golf of America, Inc., ProGolf.com, Ajay, Leisure Life, Palm Springs, and Prestige unless otherwise specified.

The Company was organized under Delaware law on August 18, 1988.  Its administrative office is located at 37735 Enterprise Court  Suite 600, Farmington Hills, MI 48331, and its telephone number is (248) 994-0553.

2.

Basis of Presentation

The accompanying unaudited condensed interim financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission.  Accordingly, certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted.  These consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Companys Annual Report on Form 10-KSB for the year ended December 31, 2003 filed with the Securities and Exchange Commission.  These consolidated condensed financial statements, in the opinion of management, include all adjustments (consisting only of normal recurring accruals) necessary for the fair presentation of the financial position, results or operations and cash flows for the periods and dates presented.  Interim operating results are not necessarily indicative of operating results for the full year.

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The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 revenue and expenses during the reporting period.  Actual results could differ materially from those estimates and assumptions.

3.

Fixed Assets

Fixed assets are stated at cost.  Depreciation is computed for financial reporting purposes using the straight-line method over the estimated useful life of the asset.

4.

Marketable Securities

The Company determines the appropriate classification of its investments at the time of purchase and reevaluates such determination at each balance sheet date.  Traded securities are carried at quoted fair market value.

5.

Allowance for Doubtful Accounts

The Company estimates an allowance for uncollectible accounts resulting from the failure of its customers to satisfy their obligations.  This estimate is based upon managements historical experience, the joint agreement of management and the collections staff, the financial condition of the customer, or immediately if a customer declares bankruptcy, with unrealized gains and losses included in earnings.

6.

Dividends

Holders of shares of Common Stock are entitled to dividends when, and if, declared by the Board of Directors out of funds legally available.  The Company has not paid any dividends on its Common Stock and intends to retain future earnings to finance the development and expansion of its business.  The Company's future dividend policy is subject to the discretion of the Board of Directors and will depend upon a number of factors, including future earnings, capital requirements, bank credit agreement restrictions and the financial condition of the Company. Holders of the Companys Series B Cumulative Convertible Preferred Stock are entitled to cumulative dividends at an annual rate of 8% based on a stated value of $100 per Series B share, or $8 per Series B share per year. Holders of the Companys Series C Cumulative Convertible Preferred Stock are entitled to cumulative dividends at an annual rate of $1.00 per share.  Due to a shortage of operating funds to run the business, dividends on both Series B and C preferred stock have not been paid since January 1997.  Until the Company has cash available for dividends, it does not anticipate declaring or paying dividends on its Series B and C preferred stock.

At September 30, 2004 and December 31, 2003, dividends in arrears on the 8% Cumulative Convertible Preferred Series B stock were $1,581,575 and $1,506,575, respectively.  Dividends on the Series C Cumulative Convertible Preferred stock were declared and paid through December 31, 1996.  At September 30, 2004 and December 31, 2003, dividends in arrears on the 10% Cumulative Convertible Preferred Series C stock were $1,907,181 and $1,750,851, respectively.  The Company has dedicated all available funds to support continuing operations of the Company until sufficient cash availability allows declaration and payment of dividends.

7.

Foreign Currency Risk

The Company conducts business globally in three currencies.  Currently, international royalty revenue accounts for approximately 5% of the Companys total revenue.  These transactions expose the Company to fluctuations in currency exchange rates relative to the United States dollar.  Historically, the Company has been favorably impacted by the effects of fluctuation in currency exchange rates.

8.

Concentrations of Credit Risk

For cash management purposes, the Company concentrates its cash holdings in at a single financial institution.  From time-to-time the balance in these accounts may exceed the federally insured limit of $100,000 by the Federal Deposit Insurance Corporation.

9.



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10.

Subsequent Events

Effective August 30, 2005 Ajay Sports, Inc. and its subsidiaries (Ajay party) announced the negotiated mutual general release of the debt owed by Ajay party to Wells Fargo Bank.  The outstanding balance of this debt was approximately $2,523,000 and $2,378,000 as of September 30, 2004 and December 31, 2003, respectively, and interest had been accruing through August 30, 2005, the date of negotiated mutual general release.  Ajay party paid $11,500 to Wells Fargo Bank, and agreed to transfer and quitclaim to Wells Fargo Bank all the rights and interests of the collateral, which included 156,719 common shares of Williams Controls, Inc. stock (WMCO), in exchange for the mutual release and discharge of all claims involving Ajay party and Wells Fargo Bank.

During 2005, Comerica Bank disposed of the collateral involving marketable securities of Williams Controls, Inc, which were pledged by the guarantor, Mr. Itin, Chaiman and CEO of the Company.  As of December 31, 2005, the total balance owed to Comerica Bank was $4.476 million, which represents the amount claimed by Comerica Bank.  The Companys management believes that such amount is overstated due to several factors that originate from the past loan history, including overcharges on interest, inflated loan fees, etc. Currently, the Company is aggressively seeking to obtain alternate financing through debt or equity.  The Companys future prosperity depends on managements success in implementing these plans.

Item 2. Managements Discussion and Analysis or Plan of Operations

The following discussion should be read in conjunction with the Consolidated Condensed Financial Statements and the related notes that appear elsewhere in the report.

Results of Operations

For the three-months ended September 30, 2004, the company had net income of $3,000, as compared to a net loss of $26,000 for the three-month period ended September 30, 2003, an improvement of 85% or $29,000.  This improvement was mainly due to the significant decrease in selling, general and administrative expenses (SG&A).

Net sales for the three-months ended September 30, 2004, slightly decreased by 2% to $1,031,000 compared to the previous three-month period in September 30, 2003.

SG&A decreased in the three-months ended September 30, 2004 by 13% to $666,000 versus the three-months ended September 30, 2003, mainly due to decreases in personnel costs, trade show expenses, advertising expenses and legal fees.

Net interest expense (continuing and discontinued operations) for the three-months ended September 30, 2004, increased by 15% to $353,000 versus the three-months ended September 30, 2003, mainly due to the cumulative interest rate charges.

For the nine-months ended September 30, 2004, the Company incurred a net loss of $24,000, as compared to a net loss of $121,000 for the nine-month period ended September 30, 2003, an improvement of 80%.  This is due to the increase in revenues from the sale of new franchise locations (franchise fees), the reduction of SG&A expenses, interest expenses, and the elimination of the minority interest in loss for this period.

Net sales for the nine-months ended September 30, 2004, improved by 12% to $2,905,000 compared to the previous nine-month period in September 30, 2003.  This increase was due to a modest increase in royalties and strong growth in franchise fees.

SG&A decreased in the nine-months ended September 30, 2004 by 13% to $1,809,000 versus the nine-months ended September 30, 2003, mainly due to significant decreases in advertising expenses, trade show expenses, legal fees, and personnel expenses.

Net interest expenses (continuing and discontinued operations) for the nine-months ended September 30, 2004, decreased by 8% to $1,033,000 versus the nine-months ended September 30, 2003, mainly due to decrease in interest rate charges.

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Liquidity

The Companys liquidity varies with the seasonality of its business, which, in turn, influences its financing requirements.  The seasonal nature of the Companys royalty revenue creates fluctuating cash flow.  The Company has relied on internally generated cash from operating activities to fund its operations and pay its debt.

The Companys primary focus for remainder of fiscal year 2004 and for fiscal year 2005 is to help its Pro Golf Discount storeowners increase sales, reduce operating costs, and become more profitable.  The Company also plans to expand the Pro Golf Franchise Network in the United States and internationally by signing new franchisees.  In addition, the Company is also planning to open a minimum of one Company owned retail store as funds become available.

Item 3. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Companys Chief Excecutive Officer and Chief Financial Officer have performed an evaluation of the Companys disclosure controls and procedures as of September 30, 2004, as those terms are defined in Rules 13a-15(e) and 15d-15(e)
of the Securities and Exchange Act of 1934 as amended (the Exchange Act), and each has concluded that such disclosure controls and procedures are effective to ensure that the information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified by the Securities and Exchange Commissions rules and regulations.

Changes in Internal Controls

There have been no changes in the Companys internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) during the quarter ended September 30, 2004 to which this report relates, that have materially affected, or are reasonably likely to affect, the Companys internal control over financial reporting.

The Companys management evaluated, with the participation of the Chief Executive Officer and Chief Operating Officer, the effectiveness of the Companys disclosure controls and procedures as of the end of the period covered by this report. The Chief Executive Officer and Chief Operatingl Officer have concluded that, to their knowledge on the basis of that evaluation, the Companys disclosure controls and procedures were effective as of the end of the period covered by this report except as to the deficiencies described below. There has been no change in the Companys internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting; however, management intends to implement the changes described below. In the past the Company has not filed on a timely basis certain of its quarterly Forms 10-QSB and annual Form 10-KSB with the Securities Exchange Commission (SEC) within the required due dates. This, under Section 404 of the Sarbanes Oxley Act, constitutes a deficiency in internal controls over financial reporting. The Company seeks to implement a short and long-term correction of these internal control deficiencies and believes it can make progress toward correction of these matters.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company is involved in various legal proceedings that are normal to its businesses.  The Company believes that none of this litigation is likely to have a material adverse effect on its financial condition or operations.

In January 2004, Ronald Silberstein, the former Chief Financial Officer of the Company, who was serving at will, was terminated from employment by the unanimous vote of the board of directors.  Mr. Silberstein is suing the Company for wrongful termination and is asking for a minimum of $25,000.  Management believes very strongly that Mr. Silbersteins claim is without merit, and has therefore denied liability and has filed a counter-suit against Mr. Silberstein.  Discovery has been completed and the case is scheduled to begin trial on July 6, 2006.



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Item 2. Unregistered Sales of Equity 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





SIGNATURES





Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



AJAY SPORTS, INC.









By:  /s/ THOMAS W. ITIN

Thomas W. Itin

Chairman and Chief Executive Officer



By:  /s/ BRIAN T. DONNELLY

Brian T. Donnelly

President and Chief Operating Officer







Date: March 30, 2006

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RULE 15D-14(A) CERTIFICATION OF CEO

I, Thomas W. Itin certify that:

|1. | I have reviewed this Quarterly Report on Form 10-QSB of Ajay Sports, Inc.;                                                                                                                                                                                                                                                             
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | Based on my knowledge, this 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 report;                             
|3. | Based on my knowledge, the financial statements, and other financial information included in this 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 report;                                                
|4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|   | (a)                                                                                                                                                                                                                                                                                                                                    
|   | (b)                                                                                                                                                                                                                                                                                                                                    
|   | (c)                                                                                                                                                                                                                                                                                                                                    
|   | (d)                                                                                                                                                                                                                                                                                                                                    
|5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):                                     
|   | (a)                                                                                                                                                                                                                                                                                                                                    
|   | (b)                                                                                                                                                                                                                                                                                                                                    

Date: March 30, 2006

|                                                               
|---------------------------------------------------------------
|/s/ Thomas W. Itin
--------------------------------------------
|Chief Executive Officer                                        

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RULE 15D-14(A) CERTIFICATION OF COO

I, Brian T. Donnelly, certify that:

|1. | I have reviewed this Quarterly Report on Form 10-QSB of Ajay Sports, Inc.;                                                                                                                                                                                                                                                             
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | Based on my knowledge, this 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 report;                             
|3. | Based on my knowledge, the financial statements, and other financial information included in this 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 report;                                                
|4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|   | (a)                                                                                                                                                                                                                                                                                                                                    
|   | (b)                                                                                                                                                                                                                                                                                                                                    
|   | (c)                                                                                                                                                                                                                                                                                                                                    
|   | (d)                                                                                                                                                                                                                                                                                                                                    
|5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):                                     
|   | (a)                                                                                                                                                                                                                                                                                                                                    
|   | (b)                                                                                                                                                                                                                                                                                                                                    

Date: March 30, 2006

|                                                                  
|------------------------------------------------------------------
|/s/ Brian T. Donnelly
--------------------------------------------
|Chief Operating Officer                                           



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SECTION 1350 CERTIFICATION OF CEO

I, Thomas W. Itin, Chief Executive Officer of Ajay Sports, Inc. (the Company), hereby certify pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code that to my knowledge:

| | 1. | The Companys Annual Report on Form 10-QSB for the quarter ended September 30, 2004, to which this statement is furnished as an exhibit (the Report), fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.                                                                                                                          

Dated: March 30, 2006

|                                       | 
|-------------------------------------- | 
|/s/Thomas W Itin                       | 
|--------------------------------       | 
|Chairman of the Board of Directors and | 
|Chief Executive Officer                | 



SECTION 1350 CERTIFICATION OF COO

I, Brian T. Donnelly, Chief Operating Officer of Ajay Sports, Inc. (the Company), hereby certify pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code that to my knowledge:

| |    |                                                                                                                                                                                                                                                                               
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | The Companys Annual Report on Form 10-QSB for the quarter ended September 30, 2004, to which this statement is furnished as an exhibit (the Report), fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
| |    |                                                                                                                                                                                                                                                                               
| | 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.                                                                                                                          

Dated: March 30, 2006

|                                          | 
|----------------------------------------- | 
|/s/ Brian T. Donnelly                     | 
|----------------------------------------- | 
|Chief Operating Officer                   |