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, 2006TRANSITION 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 November 20, 2006 was 28,561,175.

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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)

|ASSETS                               |                                                                                                                                                                                  |                    |       |                   | September 30, 2006
(Unaudited) |                     | December 31, 2005
|------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------ | ----- | ----------------- | ------------------------------ | ------------------- | -----------------
|Current assets                       |                                                                                                                                                                                  |                    |       |                   |                                |                    
|                                     | Cash                                                                                                                                                                             |                    |       |                   |                                | $                83 |                  
|                                     | Accounts receivable, net                                                                                                                                                         |                    |       | 509               |                                | 439                
|                                     | Prepaid expenses and other current assets                                                                                                                                        |                    | 17    |                   | 11                            
|                                     | Total current assets                                                                                                                                                             |                    |       |                   | 609                            |                     | 516              
|Long-term assets                     |                                                                                                                                                                                  |                    |       |                   |                                |                    
|                                     | Fixed assets, net of depreciation                                                                                                                                                |                    |       | 21                |                                | 18                 
|                                     | Trademarks                                                                                                                                                                       |                    |       | 6,355             |                                | 6,355              
|                                     | Other assets                                                                                                                                                                     |                    | 15    |                   | 15                            
|                                     | Total long-term assets                                                                                                                                                           |                    |       | 6,391             |                                | 6,388              
|                                     | TOTAL ASSETS                                                                                                                                                                     |                    |       |                   | $            7,000             |                     | $           6,904
|                                     |                                                                                                                                                                                  |                    |       |                   |                                |                     |                  
|LIABILITIES AND SHAREHOLDERS' EQUITY |                                                                                                                                                                                  |                    |       |                  
|Current liabilities                  |                                                                                                                                                                                  |                    |       |                   |                                |                    
|                                     | Accounts payable                                                                                                                                                                 |                    |       |                   | $                130           |                     | $            145 
|                                     | Accrued expenses and other liabilities                                                                                                                                           |                    | 2,479 |                   | 940                           
|                                     | Note payable  bank (secured)                                                                                                                                                    |                    |       |                   | 3,475                          |                     | 3,476            
|                                     | Note payable - other                                                                                                                                                             |                    |       |                   | 1,950                          |                     | 1,860            
|                                     | Total current liabilities                                                                                                                                                        |                    |       |                   | 8,034                          |                     | 6,421            
|Long-term liabilities                |                                                                                                                                                                                  |                    |       |                   |                                |                    
|                                     | Note payable - related party (secured)                                                                                                                                           |                    | 7,494 |                   | 12,200                        
|                                     | Total long-term liabilities                                                                                                                                                      |                    |       | 7,494             |                                | 12,200             
|                                     | TOTAL LIABILITIES                                                                                                                                                                |                    |       |                   | 15,528                         |                     | 18,621           
|                                     |                                                                                                                                                                                  |                    |       |                   |                                |                     |                  
|                                     | Minority interest                                                                                                                                                                |                    |       |                   |                                | 94                  |                  
|                                     |                                                                                                                                                                                  |                    |       |                   |                                |                     |                  
|Shareholders' equity                 |                                                                                                                                                                                  |                    |       |                   |                                |                    
|                                     | Preferred stock- 10,000,000 shares authorized, Series B, $100 par value, 0 and 12,500,  shares issued and outstanding, at December 31, 2005                                      | -                  |       | 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, at December 31, 2005                                                                                         | -                  |       | 60               
|                                     | Common stock, $0.01 par value, 100,000,000 shares authorized,                                                                                                                    |                    |       |                  
|                                     | 28,593,322 and 4,289,322 shares issued, 28,561,175 and 4,257,175 shares outstanding, as of September 30, 2006 and December 31, 2005, respectively; and 32,147 shares in treasury | 286                |       | 43               
|                                     | Additional paid-in capital                                                                                                                                                       |                    |       | 20,145            |                                | 18,344             
|                                     | Accumulated deficit                                                                                                                                                              |                    |       |                   | (31,137)                       |                     | (33,613)         
|                                     | Total shareholders' equity                                                                                                                                                       |                    |       | (8,622)           |                                | (11,832)           
|                                     | TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                                                                                                                       | $            7,000 |       | $           6,904



See accompanying notes to consolidated financial statements.

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AJAY SPORTS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

(Unaudited)



|                                                                                                       |                  |      |                 | For the three months ended September 30, |                  | For the nine months ended
September 30,
|------------------------------------------------------------------------------------------------------ | ---------------- | ---- | --------------- | ---------------------------------------- | ---------------- | ---------------------------------------
|                                                                                                       |                  |      |                 | 2006                                     |                  | 2005                                   
|Revenues                                                                                               |                  |      |                 |                                          |                  |                                        
|Royalties                                                                                              |                  |      |                 | $           398                          |                  | $          383                         
|Initial franchise fees                                                                                 |                  |      |                 | 55                                       |                  | 72                                     
|Marketing fund revenue                                                                                 |                  |      |                 | 26                                       |                  | 25                                     
|Merchandise sales                                                                                      |                  |      |                 | 1                                        |                  | 270                                    
|Other operating revenue                                                                                |                  |      |                 | 102                                      |                  | (56)                                   
|Total revenues                                                                                         |                  |      |                 | 582                                      |                  | 694                                    
|Cost of sales                                                                                          |                  |      | 1               |                                          | -                |                                        
|Gross margin                                                                                           |                  |      | 581             |                                          | 694              |                                        
|                                                                                                       |                  |      |                 |                                          |                  |                                        
|Selling, general and administrative expense                                                            |                  |      |                 |                                          |                  |                                        
|Wages                                                                                                  | 183              |      | 232             |                                          | 597              |                                        
|Legal fees                                                                                             | 132              |      | 46              |                                          | 212              |                                        
|Accounting fees                                                                                        | 31               |      | (5)             |                                          | 147              |                                        
|Commissions on sales                                                                                   | -                |      | -               |                                          | -                |                                        
|Bad debts                                                                                              | 3                |      | 72              |                                          | 33               |                                        
|Other selling, general & administrative expenses                                                       | 158              |      | 163             |                                          | 383              |                                        
|Total selling, general and administrative expense                                                      | 507              |      | 508             |                                          | 1,372            |                                        
|                                                                                                       |                  |      |                 |                                          |                  |                                        
|Income from operations                                                                                 |                  | 74   |                 | 186                                      |                  | 422                                    
|Non-operating income (expenses)                                                                        |                  |      |                 |                                          |                  |                                        
|Interest expense, net                                                                                  |                  |      | (242)           |                                          | (349)            |                                        
|Depreciation and amortization                                                                          |                  | (2)  |                 | 25                                       |                  | (5)                                    
|Gain on extinguishments of debts                                                                       |                  |      | 382             |                                          | -                |                                        
|Total non operating income (expenses)                                                                  |                  | 138  |                 | (324)                                    |                  | 3,830                                  
|Income (loss) from continuing operations before income taxes, minority interest and extraordinary item | 212              |      | (138)           |                                          | 4,252            |                                        
|Income taxes                                                                                           |                  |      | -               |                                          | -                |                                        
|Income (loss) from continuing operations before minority interest and extraordinary item               | 212              |      | (138)           |                                          | 4,252            |                                        
|Minority interest                                                                                      |                  |      | 6               |                                          | 10               |                                        
|Net income (loss) from continuing operations before the extraordinary item                             |                  |      |                 | 218                                      |                  | (128)                                  
|Legal contingency                                                                                      |                  |      |                 | (1,320)                                  |                  | -                                      
|Net income (loss) from continuing operations                                                           |                  |      |                 | (1,102)                                  |                  | (128)                                  
|Discontinued operations                                                                                |                  |      |                 |                                          |                  |                                        
|Gain from settlement of debts                                                                          |                  |      |                 | -                                        |                  | 2,208                                  
|Net income (loss)                                                                                      |                  |      |                 | (1,102)                                  |                  | 2,080                                  
|Undeclared preferred dividends                                                                         |                  | (52) |                 | (85)                                     |                  | (156)                                  
|Additional income available to common shareholders                                                     | -                |      | -               |                                          | 6,945            |                                        
|Net income (loss) available to common shareholders                                                     | (1,154)          |      | 1,995           |                                          | 9,742            |                                        
|Net income (loss) per common share basic and diluted                                                   |                  |      |                 |                                          |                  |                                        
|Net income (loss) from continuing operations                                                           | (0.04)           |      | (0.05)          |                                          | 0.34             |                                        
|Net income from discontinued operations                                                                | -                |      | 0.52            |                                          | -                |                                        
|Net income (loss) per common share                                                                     | $         (0.04) |      | $          0.47 |                                          | $           0.34 |                                        
|Weighted average common shares outstanding basic and diluted                                           | 28,561           |      | 4,257           |                                          | 28,561           |                                        

See accompanying notes to consolidated financial statements.





AJAY SPORTS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)





|                                                                       |                                           |                                                                  |                |                    |                    |                  | For the nine months ended September 30
|---------------------------------------------------------------------- | ----------------------------------------- | ---------------------------------------------------------------- | -------------- | ------------------ | ------------------ | ---------------- | --------------------------------------
|                                                                       |                                           |                                                                  |                |                    |                    |                  | 2006                                  
|Operating activities:                                                  |                                           |                                                                  |                |                    |                    |                 
|Net income                                                             |                                           |                                                                  |                |                    | $            2,953 |                  | $          2,028                      
|Adjustments to reconcile net income to net cash                        |                                           |                                                                  |                |                    |                   
|provided by operating activities                                       |                                           |                                                                  |                |                    |                    |                  |                                       
|                                                                       | Depreciation and amortization             |                                                                  |                | 5                  |                    | (14)             |                                       
|                                                                       | Changes in current assets and liabilities |                                                                  |                |                    |                    |                  |                                       
|                                                                       |                                           | (Increase) decrease in accounts receivable                       |                | (70)               |                    | 9                |                                       
|                                                                       |                                           | (Increase) decrease in prepaid expenses and other current assets | (6)            |                    | 57                 |                 
|                                                                       |                                           | Decrease in accounts payable                                     |                | (15)               |                    | (415)            |                                       
|                                                                       |                                           | Increase (decrease) in accrued expenses and other liabilities    |                | 219                |                    | (19)             |                                       
|                                                                       |                                           | Gain on extinguishments of debts                                 |                |                    | (4,542)            |                  | (2,208)                               
|                                                                       |                                           | Minority interest in loss of subsidiary                          |                |                    | (21)               |                  | (27)                                  
|                                                                       |                                           | Legal contingency                                                |                |                    | 1,320              |                  | -                                     
|                                                                       |                                           | Other net income                                                 |                |                    | 174                |                  | 676                                   
|                                                                       |                                           | Total adjustments                                                |                |                    |                    | (4,256)          |                                       
|Net cash provided by operating activities                              |                                           |                                                                  | 17             |                    | 87                 |                 
|                                                                       |                                           |                                                                  |                |                    |                    |                  |                                       
|Financing activities:                                                  |                                           |                                                                  |                |                    |                    |                 
|                                                                       |                                           | Repayments of notes payable                                      |                |                    | -                  |                  | (1,721)                               
|                                                                       |                                           | Proceeds from notes payable                                      |                |                    | -                  |                  | 1,721                                 
|Net cash used in financing activities                                  |                                           |                                                                  | -              |                    | -                  |                 
|                                                                       |                                           |                                                                  |                |                    |                    |                  |                                       
|Discontinued operations                                                |                                           |                                                                  |                |                    |                    |                  |                                       
|Cash used in discontinued operations                                   |                                           |                                                                  |                | -                  |                    | (10)             |                                       
|Net increase in cash                                                   |                                           |                                                                  |                | 17                 |                    | 77               |                                       
|Cash at the beginning of period                                        |                                           |                                                                  |                | 66                 |                    | 13               |                                       
|Cash at the end of period                                              |                                           |                                                                  |                | $               83 |                    | $             90 |                                       
|                                                                       |                                           |                                                                  |                |                    |                    |                  |                                       
|Supplemental disclosure of cash flow information                       |                                           |                                                                  |                |                    |                   
|Cash paid for interest                                                 |                                           |                                                                  |                | $             233  |                    | $           213  |                                       
|Non-cash financing activities                                          |                                           |                                                                  |                |                   
|                                                                       |                                           |                                                                  |                |                    |                    |                  |                                       
|Preferred stock converted into common shares                           | $             6,250                       |                                                                  | $            - |                   
|Note payable converted into common shares                              | $             3,652                       |                                                                  | $            - |                   
|Non-cash dividend as a result of induced conversion of preferred stock | $                478                      |                                                                  | $            - |                   









See accompanying notes to consolidated financial statements.







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Notes to Consolidated Condensed 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 80% 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 110 stores in the United States, Canada, Europe and Puerto Rico, as of September 30, 2006.  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.

All references to the Company include Pro Golf International, Inc., Pro Golf of America, Inc., ProGolf.com, and Ajay Sports, Inc.

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, 2005 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.

Revenue Recognition

Pro Golf of America, Inc. recognizes initial franchise fee revenue when all material services or conditions relating to the sale have been substantially performed or satisfied by the franchisor.  Royalty fees in most cases are a percentage of the franchisees monthly gross receipts, as defined in the franchise agreement.

When a franchise is purchased from Pro Golf of America, Inc., the Company agrees to perform certain services to the new franchisee.  Among the services provided by Pro Golf of America, Inc., are assistance in lease negotiation, store layout, retail sales training, custom club fitting, implementation of an accounting system, purchasing and pricing programs, and design of a customer service program.

4.

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.

5.

Trademarks

Trademarks at September 30, 2006 and December 31, 2005 consist primarily of trademarks and brand names held by Pro Golf International, Inc. and Pro Golf of America, Inc.  Trademarks are determined to be indefinite; therefore, they are not being amortized.  However, these assets are tested annually for impairment in accordance with Statement of Financial Accounting Standards No. 142 Goodwill and Other Intangible Assets, and will only be reduced if it is found to be impaired or is associated with assets sold or otherwise disposed of.  No impairment was recorded for the periods ended September 30, 2006 and 2005.

6.

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.

7.

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.

Effective January 1, 2006, holders of the Companys Series B and D cumulative convertible preferred stock agreed to forgive the dividends accrued on these series B and D stock in exchange for the conversion of such series B and D stock into shares of the Companys common stock.

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 Series C preferred stock have not been paid since December 31, 1996.  At September 30, 2006 and December 31, 2005, dividends in arrears on the 10% cumulative convertible preferred Series C stock were $2,115,620 and $1,959,290, 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.

8.

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.

9.

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.

10.

Extinguishments of related party debts

Effective January 1, 2006, the Companys Board of Directors and Thomas Itin, CEO agreed to extinguish the principal amount of one of the notes payable to Mr. Itin in the amount of $3,652,000 in exchange for 7,304,000 shares of the Companys common stock, at an exchange rate of approximately 50 cents per share.  This transaction created $3,396,000 of gain on extinguishment. In addition, $1,011,000 of interest payable was forgiven on this note during the period ended September 30, 2006.    Under this arrangement, $337,000 per quarter will be recognized as gain on extinguishment each of the next five quarters.

Effective January 1, 2006 the Companys Board of Directors and First Equity Corporation (FEC) agreed to extinguish $45,000 of interest payable on the note owed to FEC, each quarter until the entire balance is forgiven.  $135,000 was recognized as gain on extinguishment during the nine months ended September 30, 2006.  This forgiveness is contingent upon certain events during the forgiveness period, as described in the agreement.  Under this arrangement, $45,000 per quarter will be recognized as gain on extinguishment each of the next five quarters.

Total gain on extinguishment of notes payable during the nine months ended September 30, 2006 was $3,396,000.  Gain from extinguishment of interest payable during the three and nine-month periods ended September 30, 2006 was $382,000 and $1,146,000, respectively.

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11.

Changes in Capitalization

Effective January 1, 2006, holders of Series B and D cumulative convertible preferred stock agreed to convert their preferred shares into 5 million and 12 million shares of the Companys common stock, respectively. These preferred securities were convertible into 11,574 and 3,333,333 shares of common stock under the original terms.  As a result of this induced conversion, an inducement dividend was recorded for the nine months ended September 30, 2006 in the amount of $477,928, representing the difference in the fair values of the awards.  Also holders of both Series B and D preferred shares forgave the dividends in arrears on these preferred shares in the amount of $1,768,000. As of September 30, 2006 the Company had 28,561,175 shares of common stock outstanding.

12.

Subsequent events-extraordinary item

On October 6, 2006 the Company received an adverse verdict from an Oakland County jury on a wrongful discharge case brought by a former employee.  The Company strongly disagrees with numerous rulings by the trial court, as well as the jurys conclusion and verdict, which awarded the Plaintiff $850,000 in damages.  On November 8, 2006, a Final Judgment was entered by a Circuit Court Judge, who awarded $1,320,168 to the Plaintiff.  Such amount includes the jurys award, the statutory interest, court costs and attorneys fees.  A motion for new trial has been filed and is scheduled to be heard on December 06, 2006.  If
appropriate post judgment relief is not obtained, then the company intends to appeal the verdict to a higher court.

The Judgment in the amount of $1,320,168 is recorded in the consolidated balance sheet as of September 30, 2006 and the statements of operations for the period then ended, based on the guidance given by FASB 5, Accounting for legal contingencies. Management determined that such amount should be classified as an extraordinary item, due to the fact that it is unusual in nature and infrequent in occurrence.





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

Three months ended September 30, 2006 compared to three months ended September 30, 2005

For the three-month period ended September 30, 2006, the company had net loss of $1,102,000 as compared to a net income of $2,080,000 for the three-month period ended September 30, 2005.  The decrease for 2006 is mainly due to the income recognized on the extinguishments of debts in the 2005 period, and also due to the extraordinary item effect in the amount of $1,320,000 for the three months ended September 30, 2006.

Net sales for the three-month period ended September 30, 2006 decreased to $582,000 compared to $694,000 of sales for the three-month period ended September 30, 2005.  This change is mainly due to the decrease in initial franchise fees and other revenues.

Selling, general & administrative expenses (SG&A) decreased by an insignificant amount in the three-month period ended September 30, 2006 to $507,000.

Net interest expense for the three-month period ended September 30, 2006, decreased to $242,000 versus $ 349,000 for the three-month period ended September 30, 2005, mainly due to the extinguishments of some related party notes payable.

Nine months ended September 30, 2006 compared to nine months ended September 30, 2005

For the nine-month period ended September 30, 2006, the company had net income of $2,953,000 as compared to a net loss of $180,000 for the nine-month period ended September 30, 2005.  This improvement was mainly due to the gain from extinguishments of debts, significant decrease in interest expense, and a decrease in SG&A, such as wages, commissions, and bad debts.

Net sales for the nine-month period ended September 30, 2006 decreased to $1,802,000 compared to $2,438,000 of sales for the nine-month period ended September 30, 2005. This change is mainly due to the decrease in initial franchise fees and other revenues.

SG&A decreased in the nine-month period ended September 30, 2006 to $1,372,000 versus $ 1,675,000 for the nine-month period ended September 30, 2005, mainly due to decreases in personnel costs, trade show expenses, advertising expenses and legal fees.

Net interest expense for the nine-month period ended September 30, 2006, decreased to $707,000 versus $ 978,000 for the nine-month period ended September 30, 2005, mainly due to the extinguishments of some related party notes payable.

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 2006 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 Accountant have performed an evaluation of the Companys disclosure controls and procedures as of September 30, 2006, 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 partially 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.

During the nine-months ended September 30, 2006, the Company did not file on a timely basis, certain of its quarterly Form 10-QSBs and its 2005 annual Form 10-KSB with the Securities Exchange Commission (SEC) within the required due dates.  There have also been post closing audit and review adjustments in filings made by the Company during the same period.  The Companys auditor advised the Companys management and its Board of Directors that these are identified as significant deficiencies which are designated as reportable conditions and collectively, constitute a material weakness in the Companys internal controls over financial reporting under Section 404 of the Sarbanes Oxley Act.

Changes in Internal Controls

During the three months ended September 30, 2006, the Company has made the following changes to correct the weakness noted above:

The Company has engaged a part time outside accountant to help in preparation and filing of the past due financial reports with the SEC.  As the facts have shown, such step proved to be very efficient.  The Company is now current on all the SEC filings.  In addition, the Companys accounting staff is being trained in the SEC filings area, in order to assure that more than one person is capable of completing such filings on a timely basis.

There have been no other 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, 2006 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 Accountant, 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 Accountant have concluded that, to their knowledge on the basis of that evaluation, the Companys disclosure controls and procedures were partially effective as of the end of the period covered by this report.  There has been no other changes in the Companys internal control over financial reporting, other than the changes described above, that occurred during the period covered by this report that have materially affected, or that are reasonably likely to materially affect, the Companys internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

On October 6, 2006 the Company received an adverse verdict from an Oakland County jury on a wrongful discharge case brought by a former employee.  The Company strongly disagrees with numerous rulings by the trial court, as well as the jurys conclusion and verdict, which awarded the Plaintiff $850,000 in damages.  On November 8, 2006, a Final Judgment was entered by a Circuit Court Judge, who awarded $1,320,168 to the Plaintiff.  Such amount includes the jurys award, the statutory interest, court costs, and attorneys fees.  A motion for new trial has been filed and is scheduled to be heard on December 06, 2006.  If
appropriate post judgment relief is not obtained, then the company intends to appeal the verdict to a higher court.

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

Item 5. Other information

Effective January 1, 2006, the Company agreed to exchange $3,652,000 Note payable from Ajay to Thomas W. Itin for 7,304,000 shares of the Companys common stock. The Company will be permitted to write off one eighth of the interest payable in the first quarter of 2006 and in each successive quarter thereafter through December 31, 2007 provided the Company complies with certain requirements mainly related to change of control.

Effective January 1, 2006, holders of Series D cumulative convertible preferred stock accepted the Companys proposal that they convert the six million shares of Series D preferred stock to 12 million shares of the Companys common stock. Effective January 1, 2006, these holders agreed to forgive all the dividends in arrears on the Series D preferred stock which total $61,850.

Effective January 1, 2006, holders of Series B cumulative convertible preferred stock agreed to convert the 12,500 shares into 5 million shares of the Companys common stock. These holders also agreed to forgive all dividends in arrears on the Series B preferred stock, which total $1,706,575.

Effective January 1, 2006, First Equity Corporation (FEC) agreed to forgive $360,000 of interest payable accrued on the notes owed to FEC over a two year period provided that the Company complies with certain requirements mainly related to change in control.





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/ Majlinda Xhuti

Majlinda Xhuti

Chief Accountant







Date: November 20, 2006

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SECTION 302 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 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)) for the registrant and have:                                                                               
|   | (a)                                                                                                                                                                                                                                                                                                       
|   | (b)                                                                                                                                                                                                                                                                                                       
|   | (c)                                                                                                                                                                                                                                                                                                       
|5. | The registrants other certifying officer 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: November 20, 2006

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

---

SECTION 302 CERTIFICATION OF FINANCIAL OFFICER

I, Majlinda Xhuti 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 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)) for the registrant and have:                                                                               
|   | (a)                                                                                                                                                                                                                                                                                                       
|   | (b)                                                                                                                                                                                                                                                                                                       
|   | (c)                                                                                                                                                                                                                                                                                                       
|5. | The registrants other certifying officer 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: November 20, 2006

|                                                               
|---------------------------------------------------------------
|/s/ Majlinda Xhuti
--------------------------------------------
|Majlinda Xhuti
Chief Accountant                                



---

SECTION 906 CERTIFICATION OF CEO

I, Thomas W. Itin, Chief Executive Officer of Ajay Sports, Inc. (the Company), hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002, that to my knowledge:

| | 1. | The Companys Quarterly Report on Form 10-QSB for the quarter ended September 30, 2006, 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; and
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company, as of and for the period covered by the Report.                                                                 

Dated: November 20, 2006

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



SECTION 906 CERTIFICATION OF FINANCIAL OFFICER

I, Majlinda Xhuti, Chief Accountant of Ajay Sports, Inc. (the Company), hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002, that to my knowledge:

| | 1. | The Companys Quarterly Report on Form 10-QSB for the quarter ended September 30, 2006, 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; and
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company, as of and for the period covered by the Report.                                                                 

Dated: November 20, 2006

|                                          | 
|----------------------------------------- | 
|/s/  Majlinda Xhuti                       | 
|----------------------------------------- | 
|Majlinda Xhuti
Chief Accountant           |