UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549





Form 10-QSB







QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934





For the quarterly period ended March 31, 2002





Commission file number 0-18204









Ajay Sports, Inc











|Delaware                       | 39-1644025                          
|------------------------------ | ------------------------------------
|State or Other jurisdiction of | (I.R.S. Employer Identification No.)
|incorporation or organization) |                                     





32751 Middlebelt Road, Farmington Hills, MI 48334

(248) 851-5651

(Address includes the zip code, area code and telephone number of the principal executive offices)



















Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X]   No [ ]



Check whether the registrant filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by the report.

Yes [ ]   No [X]



The number of shares outstanding of the Registrants $.01 par value common stock at December 1, 2004 was 4,257,163.

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AJAY SPORTS, INC.

Table of Contents









|PART I. FINANCIAL INFORMATION                                                                                         Page                                                                                                                                 
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|Item 2. Managements Discussion and Analysis or Plan of Operations                                   7-8                                                                                                                                                   
|Item 3. Controls and Procedures                                                                                          8


PART II. OTHER INFORMATION                                                                                                   8
|Item 3. Controls and Procedures                                                                                         8


PART II. OTHER INFORMATION                                                                                                   8 
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|Exhibit Section 302 and 906 Compliance                                                                              10-11                                                                                                                                  
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PART I. FINANCIAL INFORMATION



Item 1. Financial Statements





AJAY SPORTS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(Unaudited)





|                                             |                                            |                                    | March 31,
2002 | December 31,
2001
|-------------------------------------------- | ------------------------------------------ | ---------------------------------- | -------------- | -----------------
|ASSETS                                       |                                            |                                   
|Current Assets                               |                                            |                                   
|                                             | Cash.             | $         35                       | $       107   
|                                             | Accounts receivable, net.     | 847                                | 976           
|                                             | Investment in marketable securities        | 90                                 | 102           
|                                             | Inventories.          | 1                                  | 1             
|                                             | Prepaid expenses and other current assets  | 283                                | 303           
|                                             |                                            | Total current assets. | 1,256          | 1,489            
|                                             | Fixed assets, net                          | 79                                 | 79            
|                                             | Due to affiliates..      | 40                                 | 31            
|                                             | Intangibles, net..       | 6,365                              | 6,436         
|                                             | Deferred tax benefit                       | 2,051                              | 1,892         
|                                             |                                            |                                    | $    9,791     | $     9,927      
|LIABILITIES AND SHAREHOLDERS EQUITY         |                                            |                                   
|Current liabilities                          |                                            |                                   
|                                             | Accounts payable                           | $      722                         | $       714   
|                                             | Accrued expenses and other liabilities     | 858                                | 847           
|                                             | Note payable  related party..   | 1,754                              | 1,507         
|                                             | Note payable  bank..       | 6,353                              | 6,453         
|                                             | Note payable  other                       | 1,410                              | 1,380         
|                                             |                                            | Total current liabilities          | 11,097         | 10,901           
|Long-term liabilities                        |                                            |                                   
|                                             | Accrued expenses  non-current.    | 14                                 | 14            
|                                             | Net liabilities of discontinued operations | 8,854                              | 8,741         
|Minority interest in subsidiary. | 8,868

(152)                               | 8,755

(140)                      



|Shareholders Equity |                                                                                                                              |            
|-------------------- | ---------------------------------------------------------------------------------------------------------------------------- | -----------
|                     | Preferred Stock  10,000,000 shares authorized
Series B., $.01 par value, 12,500 shares outstanding at stated cost. | 1,250      
|                     | Series C, $.01 par value, 208, 439 shares outstanding at stated cost.                                            | 2,084      
|                     | Series D, $.01 par value, 6,000,000 shares outstanding at stated cost.                                           | 60         
|                     | Common stock, $.01 par value, 100,000,000 shares authorized 4,257,163 shares outstanding.                | 43         
|                     | Additional paid-in capital                                                                                                   | 18,344     
|                     | Accumulated deficit                                                                                                          | (31,515)   
|                     | Accumulated other comprehensive income.                                                                                    | (288)      
|                     | Total shareholders equity                                                                                                   | (10,022)   
|                     | $   9,791                                                                                                                    | $     9,927



The accompanying notes are an integral part of these consolidated unaudited financial statements.

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AJAY SPORTS, INC.

CONSOLIDATED STATEMENT OF OPERATIONS

(in thousands, except share and per share data)

(Unaudited)



|                                                        |                                                                                                                 |             | Three Months Ended March 31,
|------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------- | ----------- | ----------------------------
|                                                        |                                                                                                                 |             | 2002                        
|Net sales..                 | $     463                                                                                                       | $     575  
|Cost of sales.                | 14                                                                                                              | 0          
|                                                        | Gross profit..                                                                          | 449         | 575                         
|                                                        |                                                                                                                 |             |                             
|Selling, general and administrative expense.     | 557                                                                                                             | 621        
|Operating income.                | (108)                                                                                                           | (46)       
|Non-operating expenses                                  |                                                                                                                 |            
|                                                        | Interest expense, net                                                                                           | 259         | 277                         
|                                                        | Other, net                                                                                                      | 89          | 160                         
|Total non-operating expenses                            | 348                                                                                                             | 437        
|Loss before minority interest and income taxes.    | (456)                                                                                                           | (483)      
|Minority interest in income (loss) of subsidiary.. | (12)                                                                                                            | (61)       
|Loss before income taxes..            | (444)                                                                                                           | (422)      
|Income tax benefit..              | (160)                                                                                                           | (148)      
|Net loss from continuing operations.        | (284)                                                                                                           | (274)      
|Discontinued operations                                 |                                                                                                                 |            
|                                                        | Loss on disposal of golf wholesale segment (net of income tax benefit of $54)..
Interest Expense | 0
(137)     | (140)
0                     
|                                                        | Gain from operations of furniture operations to be disposed of (net of income tax expense of $125)              | 0           | 232                         
|                                                        | Total gain from discontinued operations.............                                                          | 137         | 92                          
|Net loss.                  | $    (421)                                                                                                      | $     (182)
|                                                        |                                                                                                                 |             |                             
|                                                        |                                                                                                                 |             |                             
|                                                        |                                                                                                                 |             |                             
|                                                        |                                                                                                                 |             |                             
|                                                        |                                                                                                                 |             |                             

The accompanying notes are an integral part of these consolidated unaudited financial statements.

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AJAY SPORTS, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(in thousands)

(Unaudited)

|                                                                                |                                                                                          |             | Three Months Ended March, 31
|------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------- | ----------- | ----------------------------
|                                                                                |                                                                                          |             | 2002                        
|Cash Flows from operating activities:                                           |                                                                                          |            
|Net loss                                                                        | $   (421)                                                                                | $   (1,822)
|Adjustments to reconcile net income to net cash used in operating activities    |                                                                                          |            
|                                                                                | Depreciation and amortization                                                            | 71          | 468                         
|                                                                                | Changes in assets and liabilities                                                        |             |                             
|                                                                                | Decrease in marketable securities
Trade accounts receivable, net
Decrease in inventories | 12
129
0    | 45
479
1                    
|                                                                                | Prepaid expenses and other current assets                                                | 8           | 181                         
|                                                                                | Trade accounts payable
Deferred tax benefits                                             | 8
(159)     | (59)
(953)                  
|                                                                                | Cumulative effect of change in accounting principles
Accrued expenses                    | 11          | 1,542
60                    
|                                                                                | Net cash used in operating activities                                                    | (341)       | (58)                        
|                                                                                |                                                                                          |             |                             
|Cash flows from financing activities                                            |                                                                                          |            
|                                                                                | Net change in notes payable                                                              | 177         | (285)                       
|                                                                                | Sales of common stock in subsidiary                                                      | 0           | 1,622                       
|                                                                                | Minority interest in loss of subsidiary                                                  | (12)        | (95)                        
|                                                                                | Net cash provided by (used in) financing activities of continuing operations             | 165         | 1,242                       
|                                                                                |                                                                                          |             |                             
|Cash flows from investing activities                                            |                                                                                          |            
|                                                                                | Increase in due to affiliates                                                            | (9)         | (402)                       
|Net cash used in investing activities


Cash flows from discontinued operations | (9)                                                                                      | (402)      
|                                                                                | Cash used in operations                                                                  | 113         | (948)                       
|                                                                                |                                                                                          |             |                             
|Net increase (decrease) in cash                                                 | (72)                                                                                     | (166)      
|Cash at beginning of period                                                     | 107                                                                                      | 273        
|Cash at end of period                                                           | $      35                                                                                | $    107   
|                                                                                |                                                                                          |             |                             
|                                                                                |                                                                                          |             |                             
|                                                                                |                                                                                          |             |                             
|                                                                                |                                                                                          |             |                             
|                                                                                |                                                                                          |             |                             



The accompanying notes are an integral part of these consolidated unaudited 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.



AJAY SPORTS, INC.

Notes to consolidated condensed unaudited Financial Statements



1.

The Company



Ajay Sports, Inc. (the "Company) owns Pro Golf of America, Inc., the worlds largest franchiser of  golf only retail stores, with over 123 stores in the United States, Canada and Europe.  The Company operates the franchise segment of its business through Pro Golf International, Inc. (PGI), a majority-owned subsidiary, which was formed during 1999 and owns 100% of the outstanding stock of Pro Golf of America, Inc. (PGOA or Pro Golf) and a majority of the stock of ProGolf.com, Inc. (PG.com). PGOA is the franchiser of Pro Golf DiscountÒ retail golf stores (PGD 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.



PGOA provides services to its franchisees in exchange for initial franchise fees and ongoing royalties based on a percentage of retail sales.  The Company plans to enhance its traditional sales and distribution methods by its recently introduced Internet site, ProGolf.com.



The Company was organized under Delaware law on August 18, 1988.  Its administrative office is located at 32751 Middlebelt Road, Suite B, Farmington Hills, MI 48334, where its telephone number is (248) 851-5651.



2. Basis of Presentation



The accompanying unaudited interim financial statements have been prepared by Ajay Sports, Inc. (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-K for the year ended December 31, 2001 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.



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 on straight-line and accelerated methods 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 value, with unrealized gains and losses included in earnings.



5.  Commitments and Contingencies



In January 2004, an employee/officer of the Company, who was serving at will, was terminated from employment.  The employee/officer is suing the Company for wrongful termination and is asking for a minimum of $25,000.  Management feels the employee/officers claim is without merit and has filed a counter-suit against the former employee/officer.  The case is in the discovery state and proceeding.  During the discovery stages, management learned that this former employee/officer was directly or indirectly receiving monetary compensation for using specific vendors.  Management has required that the former employee/officer provide details of all such transactions in order to properly report such transactions.  As a result of this discovery, management has evaluated the benefit of all vendor relationships, no matter how immaterial to the operations, and upon receipt of the facts, will properly report its findings.





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



Net sales for the three months ended March 31, 2002 decreased approximately 19% as compared to the same period in the prior year.  The decrease in net sales is mainly attributable to the disposition of the Companys non-performing golf wholesale segment and the result of global softness in the economy due to the terrorism of September 11, 2001.



Selling, general and administrative expenses decreased by approximately 10% due to the aforementioned disposition of the Companys non-performing golf wholesale segment.



Cost of sales increased to approximately $14,000 for the quarter ended March 31, 2002 as the Company focused on growing its internet sales website.



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.



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 has also relied on cash generated from private placements of stock in PGI and PG.Com to fund its operations, including the further development of the website and future expansion of Pro Golf.



The Companys primary focus for 2004-2005 will be 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.



Foreign Currency Risk



The Company conducts business globally in three currencies.  Currently, international royalty revenue accounts for approximately 10% 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 effects fluctuations in currency exchange rates have favorably impacted the Company.



Concentrations of Credit Risk



For cash management purposes, the company concentrates its cash holdings in at a single financial institution.  The balance in these accounts may exceed the federally insured limit of $100,000 by the Federal Deposit Insurance Corporation in case of bank failure.



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.   Due to a shortage of operating funds to run the business, dividends 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 preferred stock.





Item 3. Controls and Procedures



Within the 90 days prior to the date of this report, the Company carried out an evaluation of the effectiveness of the design and operation of the Companys disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934).  Based upon that evaluation, management concludes that the Companys disclosure controls and procedures are effective in timely alerting them to material information required to be included in the Companys periodic filings with the Commission.  There were no significant changes in the Companys internal controls over financial reporting or in other factors that could significantly affect these internal controls subsequent to the date of their most recent evaluation.  Since there were no significant deficiencies or material weaknesses identified in the Companys internal controls, the Company did not take any corrective actions.





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, an employee/officer of the Company, who was serving at will, was terminated from employment.  The employee/officer is suing the Company for wrongful termination and is asking for a minimum of $25,000.  Management feels the employee/officers claim is without merit and has filed a counter-suit against the form employee/officer.  The case is in the discovery state and proceeding.  During the discovery stages, management learned that this former employee/officer was directly or indirectly receiving monetary compensation for using specific vendors.  Management has required that the former employee/officer provide details of all such transactions in order to properly report such transactions.  As a result of this discovery, management has evaluated the benefit of all vendor relationships, no matter how immaterial to the operations, and upon receipt of the facts, will properly report its findings.



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: December 10, 2004

















































































CERTIFICATION  PURSUANT  TO 18  USC,  SECTION  1350, AS  ADOPTED PURSUANT  TO SECTIONS  302  AND  906  OF  THE  SARBANES-OXLEY  ACT  OF  2002



In connection with the Report of Registrant on Form 10-QSB for the quarter ended March 31, 2002 (the "Report"), as filed with the Securities and Exchange Commission on the date hereof, I, Thomas W. Itin, Chief Executive Officer of the Registrant, certify to the best of my knowledge, pursuant to 18 USC 1350, as adopted pursuant to Sec.302 and promulgated as 18 USC 1350 pursuant to Sec.906 of the Sarbanes-Oxley Act of 2002, that:



A.

The Report referenced above has been read and reviewed by the undersigned.

B.

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934.

C.

The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Registrant.

D.

Based upon my knowledge, the Report referenced above does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to makes the statements made, in light of the circumstances under which such statements were made, not misleading.

E.

Based upon my knowledge, the financial statements, and other such financial information included in the Report, fairly present in all material respects the financial condition and results of operations of the Registrant as of, and for, the periods presented in the Report.

I acknowledge that the Chief Executive Officer and Chief Operating Officer:



A.

are responsible for establishing and maintaining "disclosure controls and procedures" for the Registrant;



B.

have designed such disclosure controls and procedures to ensure that material information is made known to us, particularly during the period in which the Report was being prepared;



C.

have evaluated the effectiveness of the Registrant's disclosure controls and procedures within 90 days of the date of the Report; and



D.

have presented in the Report our conclusions about the effectiveness of the disclosure controls and procedures based on the required evaluation.



E.

the Registrant (or persons fulfilling the equivalent function):



(i)

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;

(ii)

and any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer's internal controls; and



F.

have indicated in the 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 their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.







/s/ Thomas W. Itin

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

Chairman and Chief Executive Officer

Dated: December 10, 2004













CERTIFICATION  PURSUANT  TO 18  USC,  SECTION  1350, AS  ADOPTED PURSUANT  TO SECTIONS  302  AND  906  OF  THE  SARBANES-OXLEY  ACT  OF  2002



In connection with the Report of Registrant on Form 10-QSB for the quarter ended March 31, 2002 (the "Report"), as filed with the Securities and Exchange Commission on the date hereof, I, Brian T. Donnelly, President and Chief Operating Officer of the Registrant, certify to the best of my knowledge, pursuant to 18 USC 1350, as adopted pursuant to Sec.302 and promulgated as 18 USC 1350 pursuant to Sec.906 of the Sarbanes-Oxley Act of 2002, that:



A.

The Report referenced above has been read and reviewed by the undersigned.

B.

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934.

C.

The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Registrant.

D.

Based upon my knowledge, the Report referenced above does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to makes the statements made, in light of the circumstances under which such statements were made, not misleading.

E.

Based upon my knowledge, the financial statements, and other such financial information included in the Report, fairly present in all material respects the financial condition and results of operations of the Registrant as of, and for, the periods presented in the Report.

I acknowledge that the Chief Executive Officer and Chief Operating Officer:



A.

are responsible for establishing and maintaining "disclosure controls and procedures" for the Registrant;



B.

have designed such disclosure controls and procedures to ensure that material information is made known to us, particularly during the period in which the Report was being prepared;



C.

have evaluated the effectiveness of the Registrant's disclosure controls and procedures within 90 days of the date of the Report; and



D.

have presented in the Report our conclusions about the effectiveness of the disclosure controls and procedures based on the required evaluation.



E.

the Registrant (or persons fulfilling the equivalent function):



(i)

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;

(ii)

and any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer's internal controls; and



F.

have indicated in the 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 their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.







/s/ Brian T. Donnelly

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

President and Chief Operating Officer

Dated: December 10, 2004

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