<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-K

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

December 31, 1996                                                33-19107
---------------------------                             ---------------------
(For the fiscal year ended)                             (Commission File No.)

                                LBO CAPITAL CORP.
             (Exact name of Registrant as specified in its charter)

Colorado                                                        38-2780733     
---------------------------------------------    ------------------------------
(State or other jurisdiction of organization)   (I.R.S. Employer Identification
                                                                        Number)

7001 Orchard Lake Road, Suite 424
West Bloomfield, MI                                               48322      
----------------------------------------                       ------------
(Address of principal executive offices)                       (Zip Code)

               Registrant's telephone number, including area code:
                                 (810) 851-5651

          Securities registered pursuant to Section 12 (b) of the Act:

                                      None

          Securities registered pursuant to Section 12 (g) of the Act:

                         Common Stock, $.0001 Par Value
                         ------------------------------
                                (Title of Class)

     Indicate  by check mark  whether the  Registrant  (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the  Securities  Exchange Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
Registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 Days: Yes X No

     As of December  31,  1996, a total of  12,100,000  shares of common  stock,
$.0001 par value,  were outstanding and the aggregate market value of the voting
stock held by nonaffiliates of the Registrant was  approximately  $230,611 based
on the average of the bid and asked  prices on that date ($ .055) as reported by
The National Quotation Bureau, Inc.

<PAGE>

                                LBO CAPITAL CORP.
                                    FORM 10-K

                                     PART 1
ITEM 1.           BUSINESS

General
-------
     LBO Capital Corp.  (the  "Registrant")  was organized under the laws of the
State of Colorado on October 8, 1987.  The  Registrant  was formed  based on the
belief of its management that there are business  opportunities that, for one or
more reasons, are available for acquisition by the Registrant.
 
     On March 15, 1988, the Registrant  completed a public offering of 3,000,000
Units, each Unit consisting of one share of its common stock, one Callable Class
A Warrant,  one Callable Class B Warrant and one Callable  Class C Warrant.  The
Warrants  are  detachable  from the Units and may be  traded  separately  in the
over-the-counter  market.  Each Class A Warrant  entitles the holder  thereof to
purchase  at a price of  $0.50,  one  share of  Common  Stock at any time  until
February 26, 1989. Each Class B Warrant  entitled the holder thereof to purchase
at a price of $0.75 one share of Common Stock at any time until August 26, 1989.
Each Class C Warrant  entitled  the holder  thereof  to  purchase  at a price of
$1.00,  one share of Common  Stock at any time  until  February  26,  1990.  The
expiration  dates of these warrants were  subsequently  extended by the Board of
Directors to expire on various dates, the latest being July 25, 1997. A Form 8-K
was filed on June 20, 1996 reporting this extension. The Registrant received net
proceeds of approximately $474,300 after payment of all costs of the offering.

     Since its inception,  the  Registrant  has directed its  activities  toward
evaluating  potential  business  opportunities  with the goal of  acquiring  and
continuing  one or more business  opportunities.  The  Registrant may acquire an
existing   business   which   may  be  a   corporation,   partnership   or  sole
proprietorship.  One form which such a business  combination might take would be
an  exchange  of the  Registrant's  stock  for stock of the  acquired  business.
However,  the  Registrant may exchange its common stock to acquire the assets of
this entity, or may purchase a percentage of the entity outright.

     The  Registrant has evaluated and attempted to acquire a number of entities
to date.


<PAGE>

ACQUISITION OF ASSETS
---------------------
Ajay Sports, Inc.
-----------------
     On April 3, 1989 LBO  acquired  an  aggregate  of  1,880,000  shares of the
restricted common stock of Ajay Sports,  Inc. ("Ajay") for a total cash purchase
price of $182,000.

     In  1991,  the  Registrant  pledged  400,000  shares  of  Ajay to a bank as
collateral  for  $300,000  in loans to  Hendricks.  On July 1,  1991,  this bank
declared the loan in default and foreclosed on the shares.

     The  1,480,000 and 200,000  warrants  owned by the  Registrant  represented
6.00% of the total  shares of Ajay common stock  outstanding  as of December 31,
1996 and December 31, 1995. The decrease is the result of new shares issued.

     Ajay's Common Stock ("AJAY"),  Units ("AJAYU") and Warrants  ("AJAYW") have
been  traded  over-the-counter  since  1989  and are  reported  by the  National
Quotation Service.  The following table sets forth the range of high and low bid
quotes for the common stock:

 
                               BID                             ASK           
                              -----                            -----           
                         HI            LOW                HI           LOW
1996                  -------       -------            ------        ------ 
-----
First Quarter         $  .72        $  .38             $  .75        $  .44
Second Quarter        $  .69        $  .38             $  .75        $  .44
Third Quarter         $  .44        $  .31             $  .50        $  .38
Fourth Quarter        $  .38        $  .25             $  .44        $  .28


     On June 10, 1993,  Thomas W. Itin,  President  and Chairman of the Board of
Directors  of the  Registrant,  was elected to the  positions of Chairman of the
Board of Directors and Chief Executive  Officer of Ajay Sports,  Inc. It is felt
that the direct intervention by the Registrant's  management into the operations
of Ajay will have a positive  effect on the Ajay  earnings  and the value of the
Ajay stock held by the Registrant.

     Business Ajay Sports, Inc., through its operating subsidiaries Ajay Leisure
Products,  Inc.,  Palm  Springs  Golf  and  Leisure  Life,  Inc.,  is a  leading
manufacturer and distributor of golf bags, clubs, carts,  accessories and casual
living furniture throughout the United States.

<PAGE>

Enercorp, Inc.  
--------------
     On November 21, 1994, the Registrant bought 2,667 shares of Enercorp,  Inc.
for $8,702.  During 1996,  the  Registrant  bought 12,674  additional  shares of
Enercorp, Inc. for $39,694.

     Enercorp,  Inc.  is a business  development  company  under the  Investment
Company Act of 1940, as amended.

Competition
-----------
     The Registrant expects to encounter substantial  competition in its efforts
to locate  businesses for  acquisition.  The primary  competition  for desirable
business  acquisitions is expected to come from other small companies  organized
and funded  for  purposes  similar  to the  Registrant,  small  venture  capital
partnerships and corporations,  small business investment  companies and wealthy
individuals.  Should  the  Registrant  elect to  engage  in a  leveraged  buyout
acquisition,  competition may also be anticipated from investment bankers.  Many
of  these  entities  have  significantly   greater  experience,   resources  and
managerial  capabilities  than  the  Registrant  and are  therefore  in a better
position than the Registrant to obtain access to businesses.

Employees
---------
As of December 31, 1996, the Registrant had no employees.

ITEM 2.  PROPERTIES

     The   Registrant   currently   uses  office  space   provided  by  Acrodyne
Corporation,  a company  whose  Chairman  and  President  is also  Chairman  and
President of the  Registrant.  The space is used for purposes of  administration
and  development.  While the  Registrant  does not pay any  rent,  it does pay a
monthly fee of $150 for the direct operating  expenses.  The Registrant believes
its current facilities are sufficient for its present business activity.


ITEM 3.  LEGAL PROCEEDINGS

     The  Registrant  is not a  present  party  to any  material  pending  legal
proceedings and no such proceedings were known as of the filing date.


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

     No matter was submitted to a vote of the Registrant's  shareholders  during
the fiscal year ended December 31, 1996.


<PAGE>

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Common Stock
------------
     The principal  market on which the  Registrant's  common stock,  $.0001 par
value, on traded is the over-the-counter market.

     Prices  for the Common  Stock  have been  reported  in the  National  Daily
Quotation Service "Pink Sheets" published by the National Quotation Bureau since
March 15, 1988.  The range of the bid and ask  quotations  for the  Registrant's
Common Stock during the quarters ended on the dates listed below is as follows:

                                   Bid*                          Ask*         
                                  -----                         -----
                              HI          LOW              HI           LOW
                            -------       -----           -------      -------
1995
----- 
First Quarter               $  .03          $  .02           $  .08    $  .06
Second Quarter              $  .03          $  .02           $  .08    $  .06
Third Quarter               $  .03          $  .03           $  .08    $  .08
Fourth Quarter              $  .03          $  .03           $  .08    $  .08

1996
----- 
First Quarter               $  .03          $  .03           $  .08    $  .07
Second Quarter              $  .03          $  .03           $  .08    $  .06
Third Quarter               $  .03          $  .03           $  .08    $  .08
Fourth Quarter              $  .03          $  .03           $  .08    $  .08

     On December 31, 1996,  the bid reported for the Common Stock was $ .03* and
the ask price was $.08*.

     As of December 31, 1996, the number of record  holders of the  Registrant's
Common  Stock  was  1,030.  This  figure  excludes  an  undetermined  number  of
shareholders whose shares are held in "street" or "nominee" name.

     The  Registrant  has never paid a dividend with respect to its Common Stock
and does not intend to pay a dividend in the foreseeable future.

Units
-----
     Prices for the Units have been  reported in the  National  Daily  Quotation
Service "Pink Sheets" published by the National Quotation Bureau since March 15,
1988. The range of the bid and ask quotations for the Registrant's  Units during
the quarters ended on the dates listed below is as follows:
<PAGE>
 
                                         Bid*                   Ask*       
                                        -----                  ------          
                                   HI        LOW            HI          LOW  
1995                           -------      -------     --------       -------  
---- 
First Quarter                  $  .03        $  .02     $   .08          $  .06
Second Quarter                 $  .03        $  .02     $   .08          $  .06
Third Quarter                  $  .03        $  .03     $   .08          $  .08
Fourth Quarter                 $  .03        $  .03     $   .08          $  .08

1996
----
First Quarter                  $  .03        $  .03     $   .08          $  .07
Second Quarter                 $  .03        $  .03     $   .08          $  .06
Third Quarter                  $  .03        $  .03     $   .08          $  .08
Fourth Quarter                 $  .03        $  .03     $   .08          $  .08

     Each Unit  consists  of one share of the  Registrant's  Common  Stock,  one
Callable Class A Warrant,  one Callable Class B Warrant and one Callable Class C
Warrant.
 
     On December  31,  1996,  the bid and the ask prices  reported for the Units
were $ .03* and $ .08*, respectively.

Warrants
--------
     No ask or bid quotations  were reported by the National  Quotation  Bureau,
Inc. since December, 1989.

     *Prices are inter-dealer  quotations as reported by the National  Quotation
Bureau,  Inc.,  New York,  New York,  without  adjustment  for  retail  mark-up,
mark-down or commission and may not necessarily represent actual transactions.


ITEM 6.  SELECTED FINANCIAL DATA

<TABLE> 
<CAPTION>
                                                                               December 31

                                       1996              1995            1994           1993              1992
                                    ----------       ---------       ----------   -----------      -----------
<S>                                 <C>             <C>              <C>           <C>             <C>    

Working Capital                     $(498,352)       $(427,094)      $(397,542)     $(353,982)      $(238,364)
Cash                                        78               78            811          11,912             577
Marketable Securities                   28,765            8,000                0             0               0
Notes Receivable                             0                0                0             0               0
Investments in
  operating companies                        0                0                0             0               0
Total Assets                            28,843            8,251            15,887       44,364          62,551
Total Liabilities                      527,195          435,345          407,106       375,570         282,780
Shareholders' Equity                 (498,352)        (427,094)        (391,219)     (331,206)       (220,229)



<PAGE>

                                                                               December 31

                                       1996              1995             1994          1993             1992      
                                     ----------       ---------       ----------   -----------      -----------

Total Operating Revenue                     $0               $0               $0            $0              $0
Total Operating  Exp.                   52,328           35,173           60,014       110,976          96,914
Net income (loss) before
   equity loss of affiliate           (52,328)         (35,173)         (60,014)     (110,976)        (96,914)
Equity in net loss of
   affiliated company                        0                0                0             0               0
Net income (loss)                     (52,328)         (35,173)          (60,014)    (110,976)        (96,914)
Net Income (loss)
  per common share                     (  .00)          (  .00)             (.00)         (.01)          (.01)

</TABLE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
         RESULTS OF OPERATIONS

Liquidity and Capital Resources
--------------------------------
     Working  capital at December  31, 1996 was  decreased  by $71,258  from the
period ended December 31, 1995.  This was mainly caused by a net loss of $52,328
and a decrease of $18,930 in the market value of securities available for sale.
 
     On  December  2,  1996,  the  Registrant  had a  change  in  its  borrowing
arrangements.  The Registrant  borrowed  $325,790 from Dearborn Wheels,  Inc. to
repay a note  payable to Michigan  National  Bank.  The loan is at prime plus 2%
interest and is secured by all the intangible assets of the Registrant.

 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The Financial  Statements  required to be furnished  hereunder are attached
hereto under Item 14.

     Supplementary Financial Schedules for which provision is made in applicable
Regulations of the Securities and Exchange Commission,  have been omitted or the
required  information  is not required  under the related  instructions,  or the
information is presented in the Financial Statements and Notes thereto.


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
         FINANCIAL DISCLOSURE

                  None


                                     
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Identification of Directors and Executive Officers

     The following table sets forth the name, address,  age and position of each
officer and  director of the  Registrant:  
<TABLE>
<CAPTION>
<S>                          <C>                    <C>                        <C>   

                                                                                Term
Name and Address              Age                    Position                   as Director
--------------------------   ----------              -------------------        -----------

Thomas W. Itin                      62               President and              Since
7001 Orchard Lake Rd.                                Chairman of the            Inception
West Bloomfield, MI  48322                           Board of Directors

Anthony B. Cashen                   60               Secretary,                 Since
RD 2 Box 203                                         Treasurer and              Inception
Ghent, NY 12075                                      Director

Robert W. Schwartz                  52               Director                   Since
120 DeFreest Drive                                                              March 28, 1991
Troy, NY  12180                                                               
</TABLE>

     All  directors of the  Registrant  will hold office until their  successors
have been elected and  qualified or until their death,  resignation  or removal.
The bylaws of the  Registrant  provide that the number on the Board of Directors
shall be determined by resolution of the Board of Directors.

     The  officers of the  Registrant  are elected at the annual  meeting of the
Board of  Directors  and hold  office  until  their  successors  are  chosen and
qualified or until their death, resignation or removal.

     The Registrant is subject to Section 13(a) of the  Securities  Exchange Act
of 1934 and is  therefore  not  required to  identify  or  disclose  information
concerning its significant employees.

     There are no family relationships  between any director,  executive officer
or person  nominated  or  chosen  by the  Registrant  to  become a  director  or
executive   officer.   Below  is  a  summary   description  of  educational  and
professional   background  of  each  executive   officer  and  director  of  the
Registrant.

     Thomas W. Itin.  Mr. Itin has served as the Chairman  and  President of the
Board of Directors of the Registrant  since  inception.  Since 1967 Mr. Itin has
also served as the  Chairman of the Board and  President  of TWI  International,
Inc., West Bloomfield, Michigan, a firm engaged in providing consulting services
for  mergers,   acquisitions,   financial  structuring,  new  ventures,  private
investments, joint ventures, asset management,  export/import, training seminars
and executive and professional  searches.  Mr. Itin is Chairman of the Board and
President  of  Acrodyne  Corporation.  Mr. Itin also is Chairman of the Board of
Directors  of Ajay  Sports,  Inc.  and  Chairman of the Board of  Directors  and
President of Williams Controls, Inc., both of which are publicly held companies.
Mr.  Itin was a  co-founder  of RDM  Sports  Group,  Inc.  (previously  known as
Roadmaster  Industries,  Inc.) in 1987 and  served as a  Director  thereof  from
October 1987 until June 1993.  From December  1987 until October 1993,  Mr. Itin
was an Officer and Director of CompuSonics Video Corporation.  Mr. Itin received
a BS degree from Cornell  University  in 1957 at which time he also attended the
Graduate  School of  Business.  He  received  his  M.B.A.  in 1959 from New York
University, New York.

                                  
<PAGE>

     Anthony B. Cashen.  Mr.  Cashen has served as the  Registrant's  Secretary,
Treasurer and Director since inception.  He is director of Ajay Sports,  Inc., a
publicly held  corporation.  He also currently is a Managing  Partner in Lamalie
Amrop,  International,  a management consulting and executive recruiting firm in
New York City. Prior to his joining Lamalie  (formerly  Flanagan & Webster),  he
was President and owner of Elliot Hardwood,  an integrated  lumber  manufacturer
located in upstate  New York.  Previously,  Mr.  Cashen had been an officer  and
Principal of the investment firms of A.G. Becker,  Inc. and Donaldson,  Lufkin &
Jenrette,  Inc.  He  serves  as  Director  of  PW  Communications  and  Immucell
Corporation,  both of which  are  publicly-held  companies.  Mr.  Cashen is also
President of the Sagamore Institute.  Mr. Cashen has an M.B.A. from the Graduate
School of Management (1958) and a B.S. degree from Cornell University.

     Robert W.  Schwartz Mr.  Schwartz has served as Director of the  Registrant
since March 28, 1991. Since 1985 he has been Chairman and President of Schwartz,
Gordon, Heslin & Associates, Inc., a management and financial consulting firm in
Troy,  New York.  From 1987 until 1991 he was a Director and Vice  President and
Treasurer of ESARCO International,  Inc., a publicly held company which licenses
and markets  all-terrain  trucks.  Previously  Mr.  Schwartz was  President  and
Director of  Winsources,  Inc., a telephone  equipment  supplier,  President and
Director of Cordian  Corporation  of Latham,  New York,  a  telephone  equipment
manufacturer, and Vice President of Finance of Garden Way Manufacturing Company,
Inc., a manufacturer of rototillers and outdoor equipment. Mr. Schwartz received
a B.S. degree in industrial and labor relations from Cornell  University and did
graduate work at State University of New York at Albany.



<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

     The Registrant  reimburses  its directors for expenses  incurred by them in
connection  with  business  performed  on  the  Registrant's  behalf,  including
expenses incurred in attending meetings. In addition, directors receive a fee of
$250 for each Board of Directors meeting attended.  No such  reimbursements were
made for the period from January 1, 1990 to December 31, 1996. While none of the
officers   received  any  salary,   such  individuals  are  reimbursed  for  all
accountable expenses incurred on behalf of the Registrant.

     See Item 13 - Certain Business Relationships and Related Transactions under
Acrodyne Corporation for additional information.

     The  Registrant  has no defined  benefit and actuarial  plan  providing for
payments to employees  upon  retirement.  The  Registrant  also has no plans for
awarding stock options.  No other compensation was paid to officers or directors
of the Registrant from January 1, 1990 to December 31, 1996.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table contains  information as of March 31, 1997 with respect
to beneficial ownership of the Registrant's Common stock by each person known by
the Registrant to be the beneficial owner of more than five percent thereof,  by
the  executive  officers and  directors of the  Registrant  and by all executive
officers and directors of the Registrant as a group:

                                      Common Stock
                                      Beneficially                    Percent
                                      Owned (1)                       of Class
                                      ------------------              ---------
Thomas W. Itin                        7,407,073 (2)(3)(4)               54.9%

Anthony B. Cashen                       400,000 (4)                      3.3%

Robert W. Schwartz                      100,000 (4)                       .8%

Officers and Directors                7,907,073 (3)                     59.0%
as a group (3 persons)


James T. Emerson                        695,000                          5.7%
221 E. Colonial Drive
Orlando, FL  60605

                                       
<PAGE>
 
     (1) Without giving effect to the exercise of outstanding Warrants except as
noted in footnote 4 below.

     (2) These shares are held of record by entities of which Mr. Itin is either
a principal or a beneficiary.

     (3)  Includes  300,000  shares held by Mr.  Itin's  wife,  Shirley B. Itin,
either as beneficiary  or custodian,  of which Mr. Itin disclaims any beneficial
ownership.

     (4) These shares include warrants granted on June 3, 1992 expiring December
4, 1997, to purchase one share of common stock per warrant for $.04.  (Thomas W.
Itin, 1,000,000, Anthony B. Cashen, 200,000, Robert W. Schwartz, 100,000)


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Transactions with Management and Others.
----------------------------------------
     None of the  Registrant's  officers and directors devote their full time to
the Registrant's  affairs and such persons may be affiliated with other business
entities and  enterprises,  some of which may be formed for similar  purposes as
the  Registrant  and thus be in direct  competition  with the  Registrant.  Such
activities  may result in such persons  being  exposed to conflicts of interests
from time to time.  The  Registrant  has adopted no conflict of interest  policy
with respect to such  transactions.  However,  the officers and directors of the
Registrant  recognize their fiduciary obligation to treat the Registrant and its
shareholders fairly in any such future activities.

Certain Business Relationships.
-------------------------------
     In the Registrant's  last full fiscal year the Registrant made payments for
property and services in excess of five percent of the Registrant's consolidated
gross  revenues to  Acrodyne,  a company  whose  Chairman,  President  and major
stockholder  of the  Registrant.  The Board of Directors of the  Registrant  has
reviewed  and  approved  the use of Acrodyne  and has  determined  that the fees
charged the  Registrant by Acrodyne are as favorable as could be incurred by any
other independent,  third party business consultant.  It is anticipated that the
Registrant will continue to utilize Acrodyne in the future.  The total sum which
the Registrant paid Acrodyne for the year ended December 31, 1996 was $5,138 for
the above mentioned consulting services and out-of-pocket travel expenses, staff
time spent for accounting,  record keeping,  and utilities,  but did not include
fees for services of the Chairman.



<PAGE>

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K

(a) (1) Financial Statements

     The Financial Statements are listed in the "Index to Financial  Statements"
filed as part of this Annual Report, on page F-2.

(a) (2) Financial Statement Schedules

     Supplementary Financial Schedules for which provision is made in applicable
Regulations of the Securities and Exchange Commission,  have been omitted or the
required  information  is not required  under the related  instructions,  or the
information is presented in the Financial Statements and Notes thereto.

     Pursuant to the  provisions of Rule 3-09 of Regulation  S-X, the Registrant
is required to file separate  audited  financial  statements of its equity basis
investee,  Ajay Sports, Inc. ("Ajay").  Ajay's audited financial  statements for
December 31, 1996 are filed within this report.

(a) (3)  Exhibits

     The  Articles  of   Incorporation   and  By-Laws  of  the  Corporation  are
incorporated  by reference to the  Registrant's  Registration  Statement on Form
S-18, effective December 16, 1987.

(b)      Reports on Form 8-K.

     A Form 8-K was  filed on June  20,  1996  regarding  the  extension  of the
expiration  date of the  Registrant's  warrants  from July 25,  1996 to July 25,
1997. A Form 8-K was filed on December 2, 1996 to extend the exercise  period of
the  Registrant's  warrants  issued to its  directors  from  December 4, 1996 to
December 4, 1997.

 


                               
<PAGE>

                                   SIGNATURES



     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized.


                                                   LBO CAPITAL CORP.
                                                   (Registrant)




                                               By:  s\Thomas W. Itin 
                                                  ------------------------
                                                   Thomas W. Itin,
                                                   President

                                               By:  s\Frances Bucholz
                                                  -------------------------    
                                                   Frances Bucholz,CPA,
                                                   Controller

Date:  April 14, 1997


     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities indicated on the (date)

Signature                                            Title                     
---------------------                    ------------------------------

s\Thomas W. Itin                         Chairman of the Board of Directors,
--------------------- 
Thomas W. Itin                           Chief Executive Officer and President


s\Anthony B. Cashen                      Secretary, Treasurer and Director
---------------------
Anthony B. Cashen


s\Robert W. Schwartz                     Director
---------------------
Robert W. Schwartz

<PAGE>
                                LBO CAPITAL CORP.







                                TABLE OF CONTENTS
                               -------------------   
                                                                          Page
                                                                       ---------
Independent Auditor's Report                                         

Financial Statements:

   Balance Sheets  ......................................................  F2

   Statements of Operations .............................................  F3

   Statements of Changes in Stockholders' Deficit .......................  F4

   Statements of Cash Flows .............................................  F5

Notes to Consolidated Financial Statements ..........................  F6-F10




<PAGE>







                          INDEPENDENT AUDITOR'S REPORT


Board of Directors
LBO Capital Corp.

     We have audited the accompanying  balance sheets of LBO Capital Corp. as of
December 31, 1996 and 1995, and the related statements of operations, changes in
stockholders'  deficit,  and cash flows for the years ended  December  31, 1996,
1995  and  1994.  These  financial  statements  are  the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.

     We conducted  our audits in accordance  with  generally  accepted  auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing  the  account  principles  used  and  significant  estimates  made  by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion,  the financial statements referred to above present fairly,
in all material  respects,  the  financial  position of LBO Capital  Corp. as of
December 31, 1996 and 1995 and the results of its  operations and its cash flows
for the  years  ended  December  31,  1996,  1995  and 1994 in  conformity  with
generally accepted accounting principles.




                                  
Hirsch & Silberstein, P.C.

Farmington Hills,  Michigan
March 25, 1997


                                       F1



                                       
<PAGE>

                                LBO CAPITAL CORP.
                                 BALANCE SHEETS
                        As of December 31, 1996 and 1995

ASSETS                                              1996                1995
                                              -------------       -------------

Current Assets
 Cash and Equivalents                         $         78        $        78
 Marketable Securities - Available for Sale         28,765              8,000
 Prepaid Expenses                                      -0-                173
                                              -------------       -------------

 Total Current Assets                               28,843              8,251

Equipment, Net of Accumulated Depreciation
  of $8,639 and $81,395 at December 31, 1996
  and 1995 respectively                                -0-                -0-

Other Assets
  Investments                                          -0-                -0-
                                              -------------       -------------

             Total Assets                    $      28,843        $     8,251
                                              =============       =============

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities
  Accounts Payable                           $       3,703        $     4,414
  Accounts Payable - Related Entities                  960              2,620
  Notes Payable - Other                            501,791             99,801
  Notes Payable - Bank                                 -0-            325,000
  Accrued Expenses and Taxes                        20,741              3,510
                                              --------------       ------------

   Total Current Liabilities                       527,195            435,345


Stockholders' Deficit
   Common Stock, $.0001 Par Value
     Authorized 100,000,000 Shares:
     Issued and Outstanding 12,100,000
     in 1996 and 1995                                1,210              1,210
   Additional Paid-In Capital                      623,094            623,094
   Unrealized (Loss) on Available for Sale
      Securities                                   (19,632)              (702)
   Accumulated Deficit                          (1,103,024)        (1,050,696)
                                              ---------------      ------------

   Total Stockholders' Deficit                    (498,352)          (427,094)
                                              ---------------      ------------

   Total Liabilities and Stockholders' Deficit      28,843              8,251
                                              ===============      ============


                     The accompanying notes are an integral
                        part of this financial statement

                                       F2


                                       
<PAGE>
                                LBO CAPITAL CORP.
                            STATEMENTS OF OPERATIONS
              For the Years Ended December 31, 1996, 1995, and 1994



                                           1996           1995          1994
                                      -------------   ------------  ------------

Revenues                             $          -0-   $        -0- $        -0-
                                      -------------   ------------  ------------

Expenses
  Professional Services                       3,351        (15,834)      12,730
  Management Fees                             3,410          4,780        6,537
  Depreciation and Amortization                 -0-          6,323       16,453
  Interest Expenses                          44,651         38,629       29,133
  Other Expenses                                916          1,275        1,286
  (Gain) on Disposal of Fixed Assets            -0-            -0-       (6,125)
                                      -------------   ------------  ------------

    Total Expenses                           52,328         35,173       60,014
                                      -------------   ------------  ------------

Loss before Income Taxes                    (52,328)       (35,173)     (60,014)

Income Tax Expense                              -0-            -0-          -0-

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

Net Loss                             $      (52,328)  $    (35,173) $   (60,014)
                                      =============    ============  ===========

Net Loss Per Share                   $        (0.00)  $      (0.00) $     (0.00)
                                      =============    ============  ===========

Weighted Average Number of               12,100,000     12,100,000   12,100,000
  Common Shares Outstanding           =============    ============  ===========
       




                     The accompanying notes are an integral
                        part of this financial statement

                                       F3

    
<PAGE>
<TABLE>
<CAPTION>


                                                                  LBO CAPITAL CORP.
                                                                  STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
                                                              For the Years Ended December 31, 1996, 1995, and 1994

                                                                                           Unrealized
                                                                                           (Loss) on
                                                            Additional                     Available              Total
                                     Common Stock           Paid-In         Accumulated    For Sale           Stockholders'
                                 Shares       Amount        Capital         Deficit        Securities            Deficit
                                 ----------   --------      -----------     ------------   ------------      --------------
<S>                             <C>           <C>          <C>              <C>            <C>               <C>


Balances at
       December 31, 1993          12,100,000     1,210        623,094         (955,509)            -0-            (331,205)

Net Loss for the Year
       Ended December 31, 1994          -0-         -0-            -0-         (60,014)            -0-             (60,014)
                                 ------------    --------   -----------     ------------      ---------          ----------         
Balances at
       December 31, 1994          12,100,000   $  1,210   $   623,094    $  (1,015,523)      $     -0-          $ (391,219)
                                 
Net Loss for the Year
       Ended December 31, 1995          -0-          -0-          -0-          (35,173)           (702)            (35,875)
                                 ------------    --------   -----------     ------------      ---------          ----------        
Balances at
       December 31, 1995           12,100,000  $   1,210   $   623,094   $  (1,050,696)      $    (702)         $ (427,094)

Net Loss for the Year
       Ended December 31, 1996            -0-         -0-          -0-         (52,328)        (18,930)             (71,258)
                                 ------------    ---------   -----------    -----------       ---------          ----------        
Balances at
       December 31, 1996           12,100,000  $    1,210   $  623,094   $  (1,103,024)      $ (19,632)         $ (498,352)
                                 ============    ==========  ===========    ===========       =========          ==========








                                                                      The accompanying notes are an integral
                                                                         part of this financial statement

                                                                                        F4
</TABLE>


<PAGE>
                                LBO CAPITAL CORP.
                            STATEMENTS OF CASH FLOWS
              For the Years Ended December 31, 1996, 1995, and 1994

<TABLE>
<CAPTION>

                                                1996                 1995            1994
                                            -------------      -------------     ------------
<S>                                        <C>                 <C>               <C>         


Cash Flow From Operating Activities
  Net Loss                                 $    (52,328)      $     (35,173)    $     (60,014)
                                            -------------      -------------      ------------                                     
  Adjustment to Reconcile Net Loss to
   Net Cash Provided by (Used For)
   Operating Activities
    Depreciation and Amortization                    -0-              6,323             16,453
    Accounts Receivable - Other                      -0-                 -0-             9,625
    Prepaid Expenses and Deposits                   173                (122)                -0-
  (Decrease) Increase In:
    Accounts Payable                              (2,371)           (29,849)             2,908
    Accrued Expenses and Taxes                    17,231            (18,660)            22,642
                                            -------------      -------------      ------------                                   
        Total Adjustments                         15,033            (42,308)            51,628
                                            -------------      -------------      ------------                                     

        Net Cash Used For Operations             (37,295)           (77,481)            (8,386)
                                            -------------      -------------      ------------                                    

Cash Used For Investing Activities
 Purchase of Marketable Securities               (39,695)                -0-            (8,702)
                                            -------------      -------------      ------------                                   

        Net Cash Used For
          Investing Activities                   (39,695)                -0-            (8,702)
                                            -------------      -------------      ------------                                

Cash Provided by (Used For)  Financing 
  Activities
 Payments on Notes - Related                         -0-             (5,953)          (343,647)
 Payments  on Notes -  Bank                     (325,000)                -0-          (342,066)
 Payments  on Notes - Other                          -0-           (242,299)                -0-
 Proceeds from Notes - Other                     401,990                 -0-           342,100
 Proceeds from Notes - Related                       -0-                 -0-           349,600
 Proceeds from Notes - Bank                          -0-            325,000                 -0-
                                            -------------      -------------      ------------                                 

        Net Cash Provided By (Used For)
          Financing Activities                    76,990             76,748              5,987
                                            -------------      -------------      ------------                                  

Decrease in Cash and Equivalents                       0               (733)           (11,101)

Cash and Equivalents at Beginning of Year             78                811             11,912
                                            -------------      -------------      ------------                                    

Cash and Equivalents at End of Year        $          78      $          78     $          811
                                            =============      =============      ============= 

</TABLE>

                     The accompanying notes are an integral
                        part of this financial statement

                                       F5


                                       
<PAGE>

                                LBO CAPITAL CORP.
                          NOTES TO FINANCIAL STATEMENTS
                        December 31, 1996, 1995 and 1994
                        --------------------------------

Note 1. Summary of Significant Accounting Policies

       Organization and Business

          LBO Capital Corp. (the "Company") was  incorporated on October 8, 1987
     under  the  laws of the  State of  Colorado.  The  Company  is  engaged  in
     evaluating and investing in other companies.  The Company was considered to
     be in the development stage in 1987 and began operations on March 15, 1988.

       Cash Equivalents

          The Company considers all highly liquid investments with a maturity of
     three months or less cash equivalents.

       Equipment and Depreciation

          Equipment is stated at cost.  Depreciation  is computed for  financial
     reporting  purposes on a  straight-line  basis over an estimated  life of 5
     years. Depreciation expense for the years ended December 31, 1996, 1995 and
     1994 was $0,  $6,323 and $16,453  respectively.  At December 31, 1995,  the
     remaining  computer equipment that was previously leased to an investee was
     determined to be obsolete and written off the books of the Company.

       Income Taxes

          At December 31, 1996,  the Company has a net operating  loss available
     for  carryforward  totaling  approximately  $845,329.  The  operating  loss
     carryforward  expires in various  amounts  by the year ended  December  31,
     2011.


                                       F6
<PAGE>

       Net Loss Per Share

          Net  loss  per  share  is  computed  using  weighted   average  shares
     outstanding  without  giving  effect to the common stock  warrants,  as the
     effect would be antidilutive.

Note 2. Marketable Securities

          The Company's marketable securities available for sale are recorded at
     fair market value.

                                                Market Value                  
                                  --------------------------------------------
                                  Investment       Per Share         Aggregate
         1996
         ----
         Enercorp, Inc.            $ 48,397          $ 1.875          $ 28,765

         1995
         ----
         Enercorp, Inc.            $  8,702          $ 1.875          $  8,000



Note 3.  Receivables

         Other

          In June  1994,  the  Registrant  received  payment  from an  insurance
     company  for the  theft of  computer  equipment  in 1991 in the  amount  of
     $15,750, which resulted in a $6,125 gain on disposal of fixed assets.

Note 4. Investments

          On April 3, 1989,  the Company  acquired  an  aggregate  of  1,880,000
     restricted common shares of Ajay Sports, Inc. ("Ajay") for a total purchase
     price of $182,000.  As a result of recording  the  Company's  equity in net
     losses of Ajay, the carrying  value of this  investment is zero at December
     31, 1996 and 1995. The Company also obtained 200,000 stock warrants of Ajay
     at that time.  Each  warrant  enables the Company to purchase  one share of
     Ajay common stock at $2.40 and was subsequently  reduced to $.34 per share.
     These warrants expire June 13, 1999.

                                       F7
<PAGE>

          In  March  1991,  the  Company  pledged  400,000  shares  of its  Ajay
     investment as security for bank loans to an acquisition candidate. On June,
     1, 1991,  the bank  declared  the loan in  default  and  foreclosed  on the
     shares.


          All of the Ajay shares are pledged as security for a note payable (see
     note 5).

          The stock of Ajay is traded  over-the-counter  and is  reported by the
     National  Quotation  Service.  The following  table sets forth the range of
     high and low bid and ask quotations.


                              BID                            ASK         
                       ------------------            -----------------------
                        HI          LOW                HI           LOW  
                       -------    -------            -------       ---------
1996
----
First Quarter          $  .72     $  .38            $  .75           $  .44
Second Quarter         $  .69     $  .38            $  .75           $  .44
Third Quarter          $  .44     $  .31            $  .50           $  .38
Fourth Quarter         $  .38     $  .25            $  .44           $  .28

Note 5. Notes Payable - Other

     During 1996, the Company borrowed  $401,990 from Dearborn Wheels,  Inc. The
proceeds  were used to repay a note to the bank (see note 6) and to meet current
operating needs.

     This note bears  interest of prime plus 2%,  matures on May 24, 1997 and is
secured by all the assets of the Company.




Note 6. Note Payable - Bank

     On December 2, 1996, the Company  borrowed  $325,790 from Dearborn  Wheels,
Inc. to repay Michigan National Bank (see note 5).

                                       F8
<PAGE>

Note 7. Capital Stock

     The Company  completed a public  offering on March 15, 1988  consisting  of
3,000,000  units at $.20 each.  Each unit  consisted  of one common  share,  one
callable  class A common stock  purchase  warrant,,  one callable Class B common
stock purchase  warrant and one callable Class C common stock purchase  warrant.
Each Class A warrant entitles the warrant holder to purchase one share of common
stock for $.50, each Class B warrant entitles the warrant holder to purchase one
share of common stock for $.75, and each Class C common stock  purchase  warrant
entitles the warrant holder to purchase one share of common for $1.00. The Class
A, B and C warrants were  originally  exercisable  within  twelve,  eighteen and
twenty-four months respectively,  from February 26, 1988. All warrants have been
extended  until July 25, 1997.  As of December  31,  1996,  no warrants had been
exercised. The Company has the right to call any or all warrants at a redemption
price of $.0001 per warrant.

     On June 3, 1992 the Company  issued  3,000,000  shares of its common stock,
valued at $.04 per share  (fair  market  value on that  date,  per the  National
Quotation Bureau,  Inc.), to an officer and director in exchange for a reduction
of $120,000 in a note to a related company.

     The  Company  granted  to its  directors  a total  of  1,300,000  warrants,
expiring  December 4, 1997. Each warrant enables the owner to purchase one share
of common stock for $.04 per share.

Note 8.  Management Fees

     The Company does not employ any  personnel.  Per a management fee agreement
with Acrodyne Corporation, a related entity, the Company pays direct labor costs
plus overhead for management services rendered.


                                       F9
                                       
<PAGE>

Note 9.  Cash Flows Disclosure

     Interest and income taxes paid for the years ended December 31, 1996,  1995
and 1994 were as follows:

                    1996                       1995                      1994   
                 ---------                 ---------                -----------

Interest         $ 27,420                  $  57,878               $     6,374
                  ========                  ========                ===========
Income Taxes     $    -0-                  $     -0-               $       -0-
                  ========                  ========                ===========

                                      F10
<PAGE>






                           INDEPENDENT AUDITOR'S REPORT







Board of Directors
Ajay Sports, Inc. and Subsidiaries


      We have  audited  the  accompanying  consolidated  balance  sheets of Ajay
Sports,  Inc. and Subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of operations,  stockholders' equity, and cash flows for
each of the three years in the period  ended  December  31,  1996.  We have also
audited the related  consolidated  financial  statement  schedules listed in the
index in Item 14 of this  Form 10-K for each of the  three  years in the  period
ended December 31, 1996.  These  financial  statements  and financial  statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial  statements and financial  statement
schedules based on our audits.

      Those  standards  require  that we plan and  perform  the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the financial statements and financial statement schedules
referred to above  present  fairly,  in all  material  respects,  the  financial
position of Ajay Sports, Inc. and Subsidiaries as of December 31, 1996 and 1995,
and the results of their  operations  and their cash flows for each of the three
years in the  period  ended  December  31,  1996 in  conformity  with  generally
accepted accounting principles.






\s\Hirsch & Silberstein, P. C.
Hirsch & Silberstein, P.C.

Farmington Hills, Michigan
April 14, 1997



<PAGE>

                       AJAY SPORTS, INC. AND SUBSIDIARIES
                           Consolidated Balance Sheets
                        as of December 31, 1996 and 1995
                      (in thousands, except share amounts)

                                                      December 31, December 31,
                                                         1996         1995
                                                      -----------  -----------
ASSETS

Current assets:
    Cash                                            $         64 $        362
    Accounts receivable, net of allowance
      of $140 and $287, respectively                       5,274        5,196
    Inventories                                            7,957        8,909
    Prepaid expenses and other                               362          365
    Deferred tax benefit                                     363          102
                                                      -----------  -----------

         Total current assets                             14,020       14,934

Fixed assets, net                                          1,822        1,888
Other assets                                                 320          236
Deferred tax benefit                                         756          106
Goodwill                                                   1,709        1,322
                                                      -----------  -----------

         Total assets                               $     18,627 $     18,486
                                                      ===========  ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Notes payable to affiliates                     $        885 $         -0- 
    Notes payable to banks                                 6,104        5,793
    Current portion of capital lease                           9            6
    Accounts payable                                       3,107        2,181
    Accrued expenses                                         567          631
                                                      -----------  -----------

         Total current liabilities                        10,672        8,611

Notes payable - long term                                  5,213        5,111

Stockholders' equity:
  Preferred stock - 10,000,000 shares authorized
   Series B, $0.01 par value, 12,500
     shares outstanding at liquidation value               1,250        1,250
   Series C, $10.00 par value, 296,170
     and 313,790 shares outstanding at 
     stated value, respectively                            2,962        3,138
   Common stock, $0.01 par value, 100,000,000 
     shares authorized, 23,274,039 and 
     23,337,746 shares outstanding, respectively             233          234
     Additional paid-in capital                            9,313        9,123
     Accumulated deficit                                 (11,016)      (8,981)
                                                      -----------  -----------

         Total stockholders' equity                        2,742        4,764
                                                      -----------  -----------

Total liabilities and stockholders' equity          $     18,627 $     18,486 
                                                      ===========  ===========



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

                                        F-2

<PAGE>
                       AJAY SPORTS, INC. AND SUBSIDIARIES
                      Consolidated Statements of Operations
              for the years ended December 31, 1996, 1995 and 1994
                    (in thousands, except per share amounts)

                                                        Year Ended
                                         --------------------------------------
                                         December 31,  December 31, December 31,
                                            1996         1995          1994
                                           -----------   ----------   ----------
Operating data:
    Net sales                            $    24,341  $    18,728  $     12,899
    Cost of sales                             20,759       15,291        12,291
                                          -----------   ----------   -----------
      Gross profit                             3,582        3,437           608
    Selling, general and
     administrative expenses                   5,067        3,247         2,747
                                          -----------   ----------   -----------

    Operating income (loss)                   (1,485)         190        (2,139)
                                          -----------   ----------   -----------

Nonoperating income (expense):
    Interest expense - net                    (1,103)        (801)         (614)
    Gain (loss) on disposition of investment      -0-          -0-          (38)
    Other, net                                   (38)         (41)         (289)
                                          -----------   ----------   -----------

                                              (1,141)        (842)         (941)
                                          -----------   ----------   -----------

Income (loss) before income taxes             (2,626)        (652)       (3,080)

Income tax expense (benefit)                    (893)        (208)           -0-
                                          -----------   ----------   -----------

Net loss                                $     (1,733) $      (444) $     (3,080)
                                          ===========   ==========   ===========

Net loss per share                      $       (0.09) $     (0.03) $     (0.27)
                                           ===========   ==========  ===========

Weighted average common and common stock
    equivalent shares outstanding              23,242       22,722       12,218
                                           ===========   ==========  ===========






















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

                                      F-3
<PAGE>



<TABLE>
<CAPTION>
                                       AJAY SPORTS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996, 1995 and 1994
                               (in thousands, except shares)

<S>                               <C>     <C>      <C>         <C>      <C>       <C>       <C>
                                                                                             
                                  Preferred Stock      Common Stock     Add'l                    Total
                                  ---------------   ------------------  Paid-In    Accum     Stockholders'
                                  Shares  Amount    Shares     Amount   Capital   (Deficit)     Equity
                                  ------- ------    --------    ------  ---------- -------     ------------
Balance at January 1, 1994        29,500  $ 2,950   8,824,773   $ 88    $ 4,246  $ (5,321)    $  1,963    
Common stock issued to fund
  acquisition                        -         -    1,500,000     15        685       -            700

Common stock issued in lieu of
  wages to officer                   -         -      150,000      2         50       -             52
Preferred stock converted into
  common stock                   (17,000)  (1,700)  5,000,040     50      1,650       -              -

Common stock issued to
  affiliate to reduce debt           -         -    4,117,647     41      1,359       -          1,400

Common stock sold to affiliate-      -         -    2,941,177     29        971       -          1,000

Net loss                             -         -        -        -        -      (3,080)        (3,080)
                                  -------   ------ ---------- ------ ---------- -------       ---------
Balances at December 31,1994      12,500    1,250  22,533,637    225      8,961  (8,401)          2,035

Common stock issued to ESOP          -         -       12,000     -           4      -                4

Stock issued to fund acquisition     -         -      895,054      9        572      -              581
 
Common stock issued to affiliate
  for acquisition services           -         -      100,000      1         37      -               38

Common stock issued in lieu of
  wages to officer                   -         -       34,000      1          9      -               10

Preferred stock public offering  325,000    3,250         -        -       (386)     -            2,864

Preferred stock converted into
  common stock                   (11,210)    (112)    163,055      2        110      -                            -

Common shares received as
  an acquisition cost adjustment    -          -     (400,000)    (4)      (184)     -           (188)

Dividends                           -          -          -        -        -      (136)         (136)

Net loss                            -          -          -        -        -      (444)         (444)
                                -------     ------ ---------- ------ ----------  -------  ------------
Balances at December 31, 1995    326,290    4,388  23,337,746    234      9,123  (8,981)        4,764

Common shares received as an
  acquisition incentive adjustent   -          -     (350,000)    (3)         4     -              -

Preferred stock converted into
  common stock                   (17,620)    (176)    256,293      2        174     -              -

Stock option exercise               -          -       30,000      -         12     -              12

Dividends                           -          -          -        -        -      (301)         (301)

Net loss                            -          -          -        -        -    (1,733)       (1,733)
                                -------    ------  ----------  ----- ---------- -------  ------------
Balances at December 31, 1996    308,670   $4,212  23,274,039  $ 233  $   9,313 $(11,015    $    2,742   
                                 =======   ======  ========== ====== ========== =======   ============
<FN>

    The accompanying notes are an integral part of the consolidated financial statements
</FN>
</TABLE>
                                        
                                       F-4

                                       
<PAGE>
                       AJAY SPORTS, INC. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
              for the years ended December 31, 1996, 1995 and 1994
                                 (in thousands)
<TABLE>
<CAPTION>
<S>                                                      <C>         <C>       <C>

                                                               1996      1995       1994
                                                           ---------  --------   --------
Cash flows from operating activities:       

    Net loss                                            $   (1,733)$    (444) $  (3,080)
    Adjustments to reconcile to net cash flows
     from operating activities: 
    Loss on sale of assets                                        6        -0-       162
    Depreciation and amortization                               366       219        129
    Stock issued to officer and employees                        -0-       -0-        52
    (Increase) decrease in accounts receivable, net             (78)   (3,496)       299
    (Increase) decrease in inventories                          952    (3,123)     1,662
    (Increase) in deferred tax benefits                        (911)     (208)        -0-
    (Increase) decrease in prepaid expenses                       3      (154)      (112)
    (Increase) decrease in other assets                         (84)      (66)        22
    Increase (decrease) in accounts payable                     945       852     (1,530)
    Increase (decrease) in accrued expenses                     (64)      141         18
    (Decrease) in due to affiliates                              -0-       -0-      (240)
                                                           ---------  --------   --------

      Net cash provided by (used in) operating activities      (598)   (6,279)    (2,618)
                                                           ---------  --------   --------

Cash flows from investing activities:

    Acquisitions of property plant and equipment               (276)     (787)      (115)
    Goodwill associated with acquisitions                      (387)   (1,329)        -0-
    Proceeds from sale of equipment                              -0-        5          4
    Disposal of equipment                                       (29)       -0-        -0-
    Proceeds from sale of investment                             -0-       -0-        86
                                                           ---------  --------   --------

      Net cash (used in) investing activities                  (692)   (2,111)       (25)
                                                           ---------  --------   --------

Cash flows from financing activities:
    Cash acquired in acquisitions                                -0-       -0-         2
    Proceeds from issuance of notes payable to affiliates       885        -0-     6,770
    Net increase (decrease) in bank notes payable               396    10,777     (5,026)
    Payments on notes payable - affiliate                        -0-   (5,369)        -0-
    Dividends paid                                             (301)      (58)        -0-
    Proceeds from preferred stock offering,
       net of related costs                                      -0-    2,864         -0-
    Stock issued in acquisitions                                 -0-      433         -0-
    Proceeds from private placements, net of related costs       -0-       -0-     1,000
    Stock options exercised                                      12        -0-        -0-
                                                           ---------  --------   --------

      Net cash provided by financing activities                 992     8,647      2,746
                                                           --------  --------   --------

Net increase (decrease) in cash                                (298)      257        103

Cash at beginning of period                                     362       105          2
                                                          ---------  --------    --------

Cash at end of period                                    $       64  $    362  $     105
                                                           =========  ========   ========
    

</TABLE>

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

                                       F -5

                                       
<PAGE>

                      AJAY SPORTS, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





1.    SIGNIFICANT ACCOUNTING POLICIES

     BASIS OF PRESENTATION - The consolidated  financial  statements include the
     accounts of Ajay Sports,  Inc.  ("Sports") and its  wholly-owned  operating
     company subsidiaries,  Ajay Leisure Products, Inc. ("Ajay"),  Leisure Life,
     Inc.   ("Leisure"),   and  Palm  Springs  Golf,  Inc.   ("Palm   Springs"),
     collectively referred to herein as the "Company". The inventories and fixed
     assets purchased from Korex Corporation on October 2, 1995 have been merged
     with Ajay Leisure Products, Inc. All significant  intercompany balances and
     transactions have been eliminated.

     INVENTORIES  -  Inventories  are stated at the lower of cost or market with
     cost determined using the first-in, first-out method.

     FIXED  ASSETS  -  Fixed  assets  are  stated  at  cost,  less   accumulated
     depreciation  of $864,000  and  $545,000  as of December  31, 1996 and 1995
     respectively.  Fixed assets of the Company  consist  primarily of machinery
     and equipment,  office equipment, and a building.  Depreciation is computed
     using the  straight-line  method  over the  estimated  useful  lives of the
     assets, which range from four to thirty-nine years.

     GOODWILL  -  The  Company  has  recorded   goodwill  as  a  result  of  the
     acquisitions  of Palm Springs and Korex.  The  goodwill is being  amortized
     over forty years.  Amortization expense related to the goodwill was $35,732
     for the year ended December 31, 1996.

     OTHER ASSETS - Other  assets at December  31, 1996  consists of patents and
     trademarks  held and applied for by Leisure Life and Palm Springs (See Note
     8c) and a receivable  from Korex at Ajay Leisure.  Other assets at December
     31, 1995 consists of patents and trademarks held and applied for by Leisure
     Life and Palm Springs.

     PRODUCT  LIABILITY  AND  WARRANTY  COSTS - Product  liability  exposure  is
     insured with insurance  premiums provided during the year. Product warranty
     costs are based on  experience  and  attempt  to match  such costs with the
     related product sales.

     REVENUE  RECOGNITION  - The  Company  recognizes  revenue  when  goods  are
     shipped.

     INCOME TAXES - Effective  January 1, 1992, the Company adopted Statement of
     Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.
     Under  SFAS No.  109,  deferred  income  taxes are  recognized  for the tax
     consequences  of  temporary  differences  between the  financial  statement
     carrying  amounts  and the tax bases of  existing  assets and  liabilities,
     using enacted statutory rates applicable to future years.








<PAGE>






                      AJAY SPORTS, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued




2.    RELATED PARTY TRANSACTIONS

      The Company's related parties include the following:

      Roadmaster Industries,  Inc.  ("Roadmaster") - Prior to June 1989, all the
      Company's  common  stock was owned by  Roadmaster  and the  companies  had
      common  investors.  Roadmaster owned all of the Company's  preferred stock
      prior to the consummation of the Exchange  Agreement  (described in Note 2
      (a) ).

      Equitex,  Inc.  ("Equitex")  - Prior to the  consummation  of the Exchange
      Agreement,  Equitex owned 189,000 shares of the Company's common stock and
      1,100,000  warrants to purchase  additional  common  stock.  Additionally,
      prior to and at the time of executing the Exchange Agreement, the chairman
      of Roadmaster was the president of Equitex.

      First  Equity  Corporation  ("First  Equity") - First Equity is owned by a
      family member of the president,  chief executive officer,  and chairman of
      the Company.

      TICO - TICO is  controlled  by the Company's  president,  chief  executive
      officer, and chairman.

      Acrodyne Profit Sharing Trust -  ("Acrodyne")  is a profit sharing trust.
      The Company's  president,  chief executive officer and chairman is trustee
      and beneficiary of the trust.  The trust acquired  1,176,471 common shares
      on October 3, 1994.

      Enercorp, Inc. - ("Enercorp") is a business development company engaged in
      the  business of  investing  in and  providing  managerial  assistance  to
      developing  companies.  The Company's president,  chief executive officer,
      chairman and principal  shareholder  is a major  shareholder  in Enercorp.
      Enercorp  acquired  1,764,706  common  shares on October 3, 1994.  In 1995
      Enercorp  acquired  2,000  shares of  series C  preferred  stock.  In 1995
      Enercorp  also  received  100,000  shares  of common  stock  for  services
      rendered in connection with the Palm Springs acquisition.

     Williams Controls,  Inc. - ("Williams") - Williams has the same chairman as
     the Company, which individual is a major shareholder of each company.

      (a)   Exchange Agreement

            During  1993,  the  Company  entered  into  an  agreement,   whereby
            Roadmaster and Equitex agreed to  substantially  divest of all their
            interest in the Company by transferring to TICO all of the Company's
            outstanding  common  stock  purchase  warrants  held  by  them,  the
            $217,000  principal  amount note payable to  Roadmaster,  the 29,500
            shares of the Company's Series A 8% Cumulative Convertible Preferred
            Stock and all Roadmaster's  outstanding accounts receivable due from
            the Company.


<PAGE>







            Additionally,  Roadmaster  agreed to transfer to TICO all  marketing
            and  distribution  rights for golf  products in Canada,  all tooling
            exclusively  associated  with the  manufacture of  hand-pulled  golf
            carts,  the "Ajay" name and agreed to grant TICO a 10 year exclusive
            license for the use of the "Ajay" trademark and trade name.

            The Company  and TICO agreed to obtain the release and  satisfaction
            in full of any and all  obligation,  guarantees  and  collateral  of
            Equitex under the  revolving  credit  facility,  described in Note 6
            including the release of 1,000,000 shares of Roadmaster common stock
            owned by Equitex and pledged to a bank as collateral.  The Company's
            president and TICO further  agreed to transfer to Roadmaster all the
            Roadmaster  common stock  purchase  warrants  held by the  Company's
            president along with TICO's payment of $200,000 to Roadmaster.

            Based  upon  completion  of  the  Exchange  Agreement  in  1994  and
            refinancing  of debt  obligations,  the  Board of  Directors  of the
            Company  approved a plan to, at the  option of TICO or its  assigns,
            convert  the  value of  instruments  transferred  to TICO  under the
            Exchange Agreement, in whole or in part, into Preferred Stock, which
            could be  converted  to Common  Stock of the Company at a price $.34
            per share.  On October  3, 1994 the  Company  created a new class of
            Series B 8% Cumulative  Convertible  Preferred Stock and allowed for
            its exchange, on a share-for-share  basis, with the Company's Series
            A Preferred  Stock. On that same day, TICO notified the Company that
            it wished to exchange the 29,500 shares of Series A Preferred  Stock
            for 29,500 shares of the newly issued Series B Preferred  Stock,  as
            was permitted  under the  Certificate of  Designations of Rights and
            Preferences of the Series B Preferred  Stock. On that same day, TICO
            notified the Company that it wished to convert  17,000 shares of its
            Series B Preferred Stock for 5,040,000 shares of the Common Stock of
            the Company, as the Series B Preferred Stock allows for a conversion
            rate of 1 share of Series B Preferred Stock for 294.12 shares of the
            Company's Common Stock.

      (b)   Other

            In  1994,  Equitex  earned  a fee  of  $40,000  as a  result  of the
            extension of the revolving credit facility with the bank. As part of
            the Exchange  Agreement this amount was transferred to TICO and paid
            in June, 1994.

            First Equity established a letter of credit on behalf of the Company
            in December, 1993, which was amended during 1994, totaling $271,200.
            This letter was  established  to purchase  inventory.  In  addition,
            First Equity  advanced the Company  $250,000  during  January,  1994
            which was repaid in June, 1994.

            The Company has agreed to pay Williams 0.5% per annum of the
            outstanding U. S. Bank revolving loan balances on a quarterly basis
            in consideration for providing its guarantee of



<PAGE>







            the revolving loan. This fee was $60,411 for the year ended December
            31, 1996 and $18,083 for the year ended December 31, 1995.

            The  Company's  interest  expense for  Williams was $448,000 for the
            year ended December 31, 1995.

            In 1995 the Company issued  Enercorp  100,000 shares of common stock
            for  services   rendered  in   connection   with  the  Palm  Springs
            acquisition.

            During 1996 the Company borrowed from affiliated  parties by issuing
            subordinated notes. As of 12/31/96, the Company owed $885,000 to the
            following affiliated parties:

                      First Equity Corporation, Joseph Giuffre (Former Chairman
of Palm Springs), Tony                                   Cashen (Company
Director), Enercorp, Clarence Yahn (Company Director).


3.    INVENTORIES

            Inventories consist of the following (in thousands):

                                      December 31,
                                      1996    1995

         Raw materials             $4,153   $4,608
         Work-in-progress             995    1,014
         Finished goods             2,809    3,287
                                    -----   ------

                  Total            $7,957   $8,909
                                    =====    =====


4.  INVESTMENT IN AND ADVANCES TO AFFILIATES

         A former  officer  of the  Company  is an  officer  of  MacGregor,  and
    MacGregor  and the  Company  have  common  investors.  During the year ended
    December 31, 1994 the Company sold its remaining 125,106 shares of MacGregor
    for $69,000, resulting in a loss of $38,000.

5.  DEBT

         On April 14,  1994 the Company  was  advised by Bank  America  that the
    Second Amended  Restated Loan and Security  Agreement  ("Credit  Agreement")
    between Bank America and Ajay had been  purchased by  Roadmaster.  On May 5,
    1994 Ajay paid Roadmaster in full all outstanding  obligations due under its
    Credit  Agreement  and entered  into a Loan and  Security  Agreement  ("Loan
    Agreement")  with  Williams  for a term loan of up to  $7,000,000.  The Loan
    Agreement required


<PAGE>

    monthly interest only payments at the prime rate of First Interstate Bank of
    Oregon plus 2%, was  originally  scheduled to expire on November 4, 1994 and
    was extended to May 5, 1995.  The terms and conditions of the Loan Agreement
    were substantially the same as the prior Credit Agreement with Bank America,
    except that the Loan Agreement was a term loan.

          The Williams loan was paid on July 25, 1995,  when the Company entered
     into a Revolving Loan Agreement with United States  National Bank of Oregon
     ("U.  S.  Bank")  for a credit  facility  of up to  $8,500,000.  All of the
     Company's  subsidiaries  and  Williams  guaranteed  payment of this  credit
     facility and the Company and its  subsidiaries  pledged their inventory and
     receivables as collateral. The Revolving Loan is evidenced by demand notes,
     requires  monthly  interest  only  payments at the prime rate of U. S. Bank
     (currently  8.50% as of March 26,  1997) and will be  reviewed  on June 30,
     1997. On October 2, 1995 the Company and U. S. Bank agreed to modifications
     to the  Revolving  Loan  Agreement  increasing  the  credit  facility  from
     $8,500,000  to  $13,500,000.  The  Company  was  permitted  to borrow up to
     $8,500,000 against 80% of eligible accounts  receivable and 50% of eligible
     inventory and up to an additional  $5,000,000 through its 2-year bulge loan
     facility.  The increased  facility provided the Company the funds necessary
     to acquire  certain assets of both Korex  Corporation and Palm Springs Golf
     Company, Inc. in early October, 1995. The Company is required to maintain a
     minimum  tangible net worth of $2,500,000  and a debt leverage ratio of not
     greater than 6.0 to 1. The adverse  operating  results of Palm Springs Golf
     subsequent to its  acquisition has used  approximately  $2.0 million of the
     Company's liquidity.  This resulted in U. S. Bank advising the Company that
     the Company was in  noncompliance  with  certain  covenants  under its loan
     agreement  and the bank  restricted  the funds  available to Ajay under the
     agreement.  Ajay operated  until  February 12, 1997 on a revolver  limit of
     $8.5  million.  On February  12, 1997 U. S. Bank reduced the line to a $7.0
     million  maximum  facility.  The Company has continued to make all interest
     payments on time and has operated within the limit amounts contained in the
     old and new  facility  lines.  This  caused the Company to rely on extended
     credit terms from its venders and additional funds from affiliated parties.
     On April 14,  1997 U. S. Bank  agreed to waive  the  existing  default  and
     restructure the line to its former $8.5 million limit although  requiring a
     $500,000 term loan payment in June, less favorable  formula borrowing rates
     and an increased interest rate. The restructured facility will terminate by
     June 30, 1997.

          The Company has worked with banks and other  lending  institutions  in
     seeking  sufficient  asset based financing to cover its needs through 1998.
     The Company  believes that it will be able to put new financing in place by
     June 30, 1997.

 
          The  Company  has  agreed  to  pay  Williams  0.5%  per  annum  of the
     outstanding  Revolving Loan balance on a quarterly  basis in  consideration
     for  providing its guarantee of the  Revolving  Loan.  Guarantee  fees paid
     Williams were $60,411 in 1996 and $18,083 in 1995.




<PAGE>







         The Company's U. S. Bank borrowings consisted of the following:

                                                  December 31,
                                            1996                 1995
    Revolving credit facility:
      Balance                        $11,103,844                 $10,792,706
      Interest rate                         8.25%                       8.25%
      Unused amount of facility       $2,396,156                 $ 2,707,294
      Average amount outstanding
        during the period             11,059,660                 $ 9,758,991
Weighted average interest
        rate                                8.25%                       8.72%
      Maximum amount outstanding
        during the period             13,481,108                 $10,936,687


         Outstanding commercial letters of credit totaled approximately $322,000
    and $717,000 at December 31, 1996 and 1995 respectively.

         Other 12/31/96  borrowings  consist of $885,000 from affiliated parties
    and a $195,609 real estate loan.

         Debt payments are as scheduled (in thousands):

                        1997             $16,580
                        1998                  22
                        1999                  22
                        2000                  22
                        2001                 172
                        2002 and thereafter    -

         The seasonal nature of the Company's sales creates  fluctuating demands
    on  its  cash  flow,  due  to  the  temporary  build-up  of  inventories  in
    anticipation  of, and  receivables  subsequent to, the peak seasonal  period
    which  historically  has been from  February  through May of each year.  The
    Company has relied and  continues  to rely heavily on its  revolving  credit
    facility for its working capital requirements.

6.  INCOME TAXES

         As  discussed  in Note 2,  the  Company  adopted  SFAS  No.  109 at the
    beginning of 1992. There was no cumulative  effect of this accounting change
    and its adoption had no impact on 1992 net income.




<PAGE>







         The actual  income tax expense  (benefit)  differs  from the  statutory
    income tax expense (benefit) as follows (in thousands):

                                        Year   Ended   December 31,

                                          1996      1995       1994
                                         -----     ------    ------
    Statutory tax expense
      (benefit) at 34%                  $ (893)    $(208)   $(1,047)
    Utilization of net
      operating loss
      carry forward                          -         -          -
    Loss producing no current
      tax benefit                          896        208      1,047
                                         -----      -----    -------
                                      $    -      $    -     $     -
                                      ========    =======   =========


    The components of the net deferred tax  asset/liability  were as follows (in
    thousands):

                                                    December 31,
                                                  1996       1995
    Deferred tax asset,
     principally accrued
     expenses, reserves
     and loss carry forwards                      $ 3,274    $2,339
    Deferred tax liability,
      principally depreciation and amortization      (107)     (83)
    Valuation allowance                            (2,048)  (2,048)
                                                   ------    ------
   Net                                           $  1,119  $   208
                                                   ======   =======

            The Company has assessed its past earnings history and trends, sales
    backlog,  budgeted  sales,  and expiration  dates of  carryforwards  and has
    determined  that it is more  likely than not that  $987,000 of deferred  tax
    assets will be realized.  The remaining valuation allowance of $2,048,000 is
    maintained on deferred tax assets which the Company has not determined to be
    more likely than not  realizable at this time.  The Company will continue to
    review this valuation allowance on a quarterly basis and make adjustments as
    appropriate.

            The Company had net  operating  loss carry  forwards for Federal tax
    purposes of  approximately  $8,501,000 at December 31, 1996, which expire in
    varying  amounts  in the years  2006  through  2011.  Operating  loss  carry
    forwards  totaling  $304,000,  $4,735,000,  $1,244,000  and  $1,752,000  are
    available to offset future state  taxable  income of Sports,  Ajay,  Leisure
    Life and Palm Springs  respectively,  which expire in varying amounts in the
    years 2006 through 2011.  Future  changes in ownership as defined by section
    382 of the Internal  Revenue  Code,  could limit the amount of net operating
    loss carryforwards used in any one year.


<PAGE>







7.  STOCKHOLDERS' EQUITY

    (a)     Preferred Stock

                  On October 3, 1994 the Company created a new class of Series B
            8%  Cumulative  Convertible  Preferred  Stock  and  allowed  for its
            exchange,  on a  share-for-share  basis, with the Company's Series A
            Preferred Stock. On that same day, TICO notified the Company that it
            wished to exchange the 29,500 shares of Series A Preferred Stock for
            29,500 shares of the newly issued Series B Preferred  Stock,  as was
            permitted  under the  Certificate  of  Designations  of  Rights  and
            Preferences of the Series B Preferred  Stock. On that same day, TICO
            notified the Company that it wished to convert  17,000 shares of its
            Series B Preferred Stock for 5,040,000 shares of the Common Stock of
            the Company, as the Series B Preferred Stock allows for a conversion
            rate of 1 share of Series B Preferred Stock for 294.12 shares of the
            Company's Common Stock.

                  Cumulative  dividends  are  payable on the Series C  Preferred
            Stock at any time  through  December  31,  1997 at an annual rate of
            $1.00 per share.  The Warrants are redeemable by the Company at $0.5
            per Warrant under certain  conditions.  The terms of these  Warrants
            are  identical to the Company's  publicly-held  Warrants to purchase
            Common Stock.  The Company used the $2.8 million of net proceeds for
            inventory and accounts  receivable  financing and to acquire certain
            assets of Korex and Palm Springs.

                  On July 26, 1995 the Company's Registration Statement filed in
            connection  with an  offering  of  325,000  shares  of  Series C 10%
            cumulative  Convertible  Preferred  Stock and 325,000  Warrants  was
            declared effective. The Series C Preferred Stock is convertible into
            shares of the Company's  Common Stock based on a value of $10.00 for
            each Preferred share and $.6875 for the Common.

                  Dividends on the Series C 10% Cumulative Convertible Preferred
            Stock  have  been paid  through  the  fourth  quarter  of 1996.  The
            dividend  for the first  quarter  ended  March 31, 1997 has not been
            declared.  The Company has dedicated all available  funds to support
            continuing operations of the Company until a new loan facility is in
            place.

    (b)     Stock issued to officers

                  The Company  has a stock  incentive  plan for  officers of the
            Company, under which up to 150,000 shares of the Company's stock may
            be granted  annually.  In 1994, the Company issued 150,000 shares of
            common stock to an officer in lieu of  compensation  and in 1995 the
            Company issued 34,000 shares.  No stock was issued to officers under
            this plan in 1996.





<PAGE>







    (c)     Stock Issued for Acquisitions

                  On  August  1,  1994  the  Company  reached  an  agreement  in
            principle to acquire the  outstanding  common stock of Leisure Life,
            Inc. In exchange for acquiring all the common stock of Leisure Life,
            the  Company  issued  1,500,000  shares of its  common  stock to the
            owners of Leisure  Life,  with  400,000 of those shares being issued
            subject to  certain  performance  requirements  being met by Leisure
            Life.

                  In November  1995 the former  owner of Leisure  Life  returned
            400,000  shares of stock to the Company  and in March 1996  returned
            200,000  shares due to not achieving  performance  requirements.  An
            additional 150,000 1996 performance  incentive shares held in escrow
            since March 1996 were returned to the Company in April 1997.

    (d)     Warrants and Options

                  A summary of  activity  related  to  warrants  and  options to
            purchase Company common stock is as follows:
                                            Warrants and           Price
         Options        Per  Share
            Balance, January 1, 1994           2,885,970    $ .34 - 1.00
            Expired                             (450,000)     .80 - 1.00
            Reissued                             200,000      .34         (i)
            Reissued                              94,500      .34         (ii)
            Issued to Williams                16,274,754      .34 - 1.00 (iii)
            Exercised by Williams             (4,117,647)     .34         (iv)
            Issued to Directors                   10,000      .44          (v)
            Issued to Employees                  840,000      .40  - .80  (vi)
                                             -----------
            Balance, December 31, 1994        15,737,577      .34 - 1.00

            Issued to employees                  295,000      .625 - .6875(vii)
            Williams options adjusted         (1,046,234)     .50 - 1.00 (viii)

            Issued - public offering             373,750      1.00        (ix)
            Issued to Directors                   10,000       .66         (x)
                                           -------------
            Balance, December 31, 1995        15,370,093      .34 - 1.00

            Exercised by Employees               (30,000)     .40
            Issued to Directors                   10,000      .625         (xi)
            Issued to Employees                  700,000      .40         (xii)
            Issued for Acquisition               800,000      .75 - .90  (xiii)
            Expired                             (242,500)     .80 - 1.00
                                             -----------

            Balance, December 31, 1996        16,607,593    $ .34 - 1.00



          (I) Warrants originally issued to Roadmaster in 1990. Transferred to
                Acrodyne under the Exchange Agreement, expired and reissued.

         (ii) Warrants originally issued to Equitex in connection with the
                Company's private placement. Transferred to Acrodyne,
                expired and reissued.

        (iii) Warrants issued to Williams as consideration for loans to
                Ajay Leisure as part of a joint venture implementation 
                agreement dated May 1994.

         (iv) Exercised and applied proceeds ($1,400,000) against debt.

          (v) Director stock options of which 6,667 have vested.

         (vi) Employee stock options of which 786,250 shares have vested.

        (vii) Employee stock options of which 147,500 shares have vested.

       (viii) Warrants returned by Williams as consideration for early
               loan payoff.

         (ix) Public offering of 7/26/95.

          (x) Director stock options of which 3,333 have vested.

         (xi) Director stock options of which none have vested.

        (xii) Employee stock options of which none have vested.

       (xiii) Issued to former  shareholders  of Palm Springs Golf Company,
               Inc., a business acquired by the Company in October 1995.

    (e)  Private Placements

            In  1994,  the  Company  issued  to  related  parties,  via  private
      placement,  2,941,177  shares of common  stock and  received  proceeds  of
      $1,000,000.  The Company also issued 4,117,647 shares of common stock to a
      related party in exchange for a reduction of debt totaling $1,400,000.

8.  MAJOR CUSTOMERS

         The Company  operates in two lines of  business,  the  manufacture  and
    distribution  of  sports  equipment  and  outdoor  leisure  furniture.   The
    Company's  customers are principally in the retail sales market. The Company
    performs ongoing credit evaluations of its customers'  financial  conditions
    and does not generally require collateral.



<PAGE>







         Sales to customers  which represent over 10% of the Company's net sales
    are as follows:

                         Year  ended  December 31,
      Customer             1996      1995       1994
         A                  29%       36%        41%
         B                  14%        *          *

      * Amounts are less than 10% of net sales.

9.    BUSINESS SEGMENT REPORTING

         The  relative   contributions  to  net  sales,   operating  profit  and
      identifiable  assets of the Company's  two industry  segments for the year
      ended December 31, 1996 are as follows (in thousands):

                                Furniture      Golf  Corporate  Consolidated
                                ---------    ------- ---------  ------------  
      Sales                       $2,701     $21,640        -      $24,341
      Operating profit/(loss)       (193)       (806)    (486)      (1,485)
      Assets                       2,512      15,983        -       18,495
      Depreciation/Amortization       98         268        -          366
      Capital Expenditures            63         213        -          276

10.   SPALDING LICENSE AGREEMENT

         Ajay has a license  from  Spalding  Sports  Worldwide  to  utilize  the
      Spalding  trademark in conjunction  with the sale and distribution of golf
      bags,  golf  gloves,  hand  pulled  golf  carts  and  certain  other  golf
      accessories in the United States. As consideration for this license,  Ajay
      is required to pay  royalties to Spalding  based on a percentage of sales,
      subject to annual  minimums of $500,000  for the year ended June 30, 1995,
      and $550,000 for the years ended June 30, 1996 through June 30, 1998.  The
      current agreement expires June 30, 1998. Other conditions of the agreement
      require  the  Company  to  expend  2% of  sales  under  the  agreement  on
      advertising and related costs,  with 1% remitted to Spalding.  The Company
      must also maintain a current ratio of 1.0 to 1.0. Approximately 52% of the
      Company's 1996 and 53% of 1995 sales were Spalding products.

         Royalty expense due Spalding was $480,000,  $484,000,  and $494,000 for
      the years ended December 31, 1996, 1995 and 1994, respectively.

11.   LEASES

         Future aggregate minimum lease payments under  noncancelable  operating
      leases  with  initial  or  remaining  terms in  excess  of one year are as
      follows (in thousands):




<PAGE>







                  1997                        $    703
                  1998                             550
                  1999                             527
                  2000                             499
                  2001                             298
                  2002 and thereafter              145
                                               -------
                                                $2,722


            Total rental expense (in thousands)  under operating  leases (net of
      sublease rental income from an affiliate of $8, $13 and $8,  respectively)
      was $504,  $627, and $556 for the years ended December 31, 1996,  1995 and
      1994, respectively.

12.   NET  (LOSS) PER COMMON SHARE

            Earnings or loss per share has been  computed by dividing net income
      or loss, after reduction for preferred stock dividends in 1996 ($301,000),
      in 1995 ($136,000) and 1994  ($202,000) by the weighted  average number of
      common shares outstanding. No exercise of warrants outstanding was assumed
      in  1996,  1995,  or  1994,  since  any  exercise  of  warrants  would  be
      antidilutive.

13.   SUPPLEMENTAL CASH FLOW INFORMATION

            Cash paid for interest was  $1,098,819,  $762,157,  and $607,000 for
      the years ended December 31, 1996, 1995 and 1994, respectively.

      Non cash financing and investing transactions were as follows:

             During  1994,  150,000  shares of the  Company's  common stock were
            issued to an officer of the Company in lieu of wages.

             In  exchange  for  acquiring  in 1994  all of the  common  stock of
            Leisure Life, Inc. the Company issued 1,500,000 shares of its common
            stock to the owner of Leisure  Life.  In  November,  1995 the former
            owner of Leisure Life  surrendered  400,000  shares of the Company's
            common stock and in March,  1996  surrendered  200,000 shares of the
            Company's common stock due to unmet performance requirements.

             During 1994,  4,117,647  shares of the Company's  common stock were
            issued  to a  related  party in  exchange  for a  reduction  in debt
            totaling $1,400,000.

             In 1995 11,210  preferred  stock shares were converted into 163,055
            shares of common stock.


<PAGE>







             During 1995 the Company issued common stock as follows:

                  Issued to                                       Shares
                  ---------                                      ------- 
                  Employees                                       12,000
                  Fund acquisitions                              895,054
                  Affiliate in lieu of payment for services      100,000
                  Officer in lieu of bonus                        34,000

             During 1996, 17,620  preferred  stock shares were  converted  into
            256,293 shares of common stock.

            In 1996 an  employee  exercised  options to acquire  30,000  common
            shares.

14.   CONTINGENCIES

            The  Company is subject  to certain  claims in the normal  course of
      business which management intends to vigorously  contest.  The outcomes of
      these  claims are not  expected to have a material  adverse  affect on the
      Company's consolidated financial position or results of operations.




<PAGE>





                                                                 Schedule VIII


                      AJAY SPORTS, INC. AND SUBSIDIARIES
                       Valuation and Qualifying Accounts
                 Years ended December 31, 1996, 1995, and 1994
                            (Amounts in Thousands)




                                 Balance    Charged to                 Balance
                                beginning   costs and    Deductions     at end
                                 expenses    expenses    (describe)   of period

Reserve for Product Warranty:

   Year ended:

     December 31, 1996              $136       $203        $254   (1)    $  85
     December 31, 1995               139        198         201            136
     December 31, 1994               112        276         249            139


Allowance for Doubtful Receivables:

   Year ended:

     December 31, 1996               $287       $ 91        $238  (2)     $140
     December 31, 1995                101        330         144           287
     December 31, 1994                230         62         191           101


Reserve for Inventory Obsolescence:

   Year ended:

     December 31, 1996               $384       $498        $391           $491
     December 31, 1995                430        378         424            384
     December 31, 1994                160        430         160            430


Notes:

(1)  Represents amounts paid for product warranty claims.

(2)  Represents amounts charged off as uncollectible.




<PAGE>







                                                                EXHIBIT   21.0





                               LISTING OF SUBSIDIARIES





               SUBSIDIARIES                           STATE OF INCORPORATION
               ------------                           ---------------------- 
               Ajay Leisure Products, Inc.               Delaware

               Leisure Life, Inc.                        Tennessee

               Palm Springs Golf, Inc.                   Colorado



<PAGE>








                                                                   EXHIBIT 23.0




                          INDEPENDENT   AUDITORS'   CONSENT


     We consent to the incorporation by reference in the Registration Statements
     of Ajay  Sports,  Inc.  and  Subsidiaries  on  Form  S-3  Registration  No.
     333-11365  and Form S-8 of our report  dated April 14,  1997,  appearing in
     this Annual Report on Form 10-K of Ajay Sports,  Inc. and  Subsidiaries for
     the year ended December 31, 1996.





\s\Hirsch & Silberstein, P.C.
----------------------------
Hirsch & Silberstein, P.C.
April 14, 1997



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