<TABLE>
<CAPTION>

                           AJAY SPORTS, INC. AND SUBSIDIARIES
                              Consolidated Balance Sheets
                            as of December 31, 1999 and 1998
                          (in thousands, except share amounts)


                                                           December 31,          December 31,
ASSETS                                                        1999                  1998
<S>                                                       <C>                   <C>
                                                           -----------           -----------
Current assets:
    Cash                                                 $        101          $          6
    Marketable  securities - available for sale                   348                   396
    Accounts receivable, net of allowance of $558 and $95,
       respectively                                             3,247                 1,889
    Inventories                                                 3,969                 5,680
    Prepaid expenses and other                                  1,179                   485
                                                           -----------           -----------
          Total current assets                                  8,844                 8,456

Fixed assets, net                                               1,693                 1,708
Other assets                                                    7,037                   179
Deferred tax benefit                                            6,582                 1,119
Goodwill                                                        1,577                 1,621
                                                           -----------           -----------
          Total assets                                   $     25,733          $     13,083
                                                           ===========           ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Current portion of long term debt                    $        995          $        199
    Accounts payable                                            5,043                 2,225
    Accrued expenses                                            1,099                   380
                                                           -----------           -----------
          Total current liabilities                             7,137                 2,804

Notes payable to affiliates  -  long term                       2,087                 1,587
Notes payable to banks - long term                             13,886                 5,951
Notes payable - long term                                       2,070                     -
Commitments and contingencies                                       -                     -
                                                           -----------           -----------
                                                               25,180                10,342
                                                           -----------           -----------

Minority interest in subsidiary                                    24                     -
                                                           -----------           -----------

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, $0.01 par value, 217,939 and
          264,177 shares outstanding, respectively,
           at stated value                                      2,179                 2,642
       Series D, $0.01 par value, 6,000,000 shares                 60                    60
    Common stock, $0.01 par value, 100,000,000 shares
       authorized, 4,091,091 and 3,956,815 shares
        outstanding, respectively                                  41                    40
    Additional paid-in capital                                 15,500                14,762
    Accumulated deficit                                       (18,470)              (16,006)
    Accumulated other comprehensive income                        (31)                   (7)
                                                           -----------           -----------
          Total stockholders' equity                              529                 2,741
                                                           -----------           -----------

          Total liabilities and stockholders' equity     $     25,733          $     13,083
                                                           ===========           ===========

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

                                                  F-2

</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                        AJAY SPORTS, INC. AND SUBSIDIARIES
                      Consolidated Statements of Operations
              for the years ended December 31, 1999, 1998 and 1997
                    (in thousands, except per share amounts)

                                                            Year Ended

                                            --------------------------------------------
                                            December 31,     December 31,     December 31,
                                              1999             1998             1997
<S>                                         <C>              <C>              <C>
                                            ----------       ----------       ----------
Operating data:
    Net sales                             $    14,340      $    22,925      $    30,330
    Cost of sales                              12,790           19,477           26,585
                                            ----------       ----------       ----------
       Gross profit                             1,550            3,448            3,745
    Selling, general and administrative
    expenses                                    4,866            3,868            5,837
                                            ----------       ----------       ----------

    Operating (loss)                           (3,316)            (420)          (2,092)
                                            ----------       ----------       ----------

Nonoperating income (expense):
    Interest expense                           (1,625)          (1,139)          (1,280)
    Other, net                                    638               84             (144)
                                            ----------       ----------       ----------

    Total non operating expense                  (987)          (1,055)          (1,424)
                                            ----------       ----------       ----------

(Loss) before minority interest and
income taxes                                   (4,303)          (1,475)          (3,516)

Minority interest in (loss) of subsidiary           6                -                -
                                            ----------       ----------       ----------

(Loss) before income taxes                     (4,297)          (1,475)          (3,516)

Income tax (benefit)                           (1,833)               -                -
                                            ----------       ----------       ----------

Net (loss)                                $    (2,464)      $   (1,475)      $   (3,516)
                                            ==========       ==========       ==========

Basic and diluted earnings per share  (a) $     (0.70)     $     (0.47)      $    (1.01)
                                            ==========       ==========       ==========

Weighted average common shares
    outstanding  (b)                            4,013            3,909            3,879
                                            ==========       ==========       ==========


     Net loss as reported above                (2,464)          (1,475)          (3,516)
     Undeclared cumulative preferred dividends   (341)            (380)            (396)
                                            ----------       ----------       ----------

     Loss applicable to common stock      $    (2,805)     $    (1,855)     $    (3,912)
                                            ==========       ==========       ==========

     (a)     Computed  by  dividing   net  loss  after   deducting   undeclared,
             cumulative  preferred  stock  dividends,  by the  weighted  average
             number of common shares outstanding.

     (b)     Current and prior years  restated to reflect  result of reverse 1:6
             common stock split effective August 14, 1998.

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

                                                 F-3
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                         AJAY SPORTS, INC. AND SUBSIDIARIES
                                 Consolidated Statements of Stockholders' Equity
                              for the years ended December 31, 1999, 1998 and 1997
                                            (in thousands, except shares)
<S>                                 <C>       <C>     <C>         <C>      <C>          <C>        <C>             <C>
                                    Preferred Stock   Common Stock          Add'l                   Accum          Total
                                    ---------------   ------------          Paid-in     Accum       Comprehensive  Stockholders'
                                    Shares     Amount  Shares     Amount    Capital     (Deficit)   Income (Loss)  Equity
                                    --------   ------  --------   -------   --------   ----------   ------------   -----------
Balances at December 31,1996       3,086,706   $4,212  3,879,007  $ 233     $9,313     $ (11,015)   $     -        $  2,743

Net loss                                   -        -          -      -          -        (3,516)         -          (3,516)
                                    --------   ------  ---------  -------   --------   ----------   ------------   ------------
Balances at December 31, 1997      3,086,707    4,212  3,879,007    233      9,313       (14,531)         -            (773)

Common stock reverse 1:6 split             -        -        250   (194)       194             -          -               -

Other adjustments                          -        -          -     (4)         -             -          -              (4)

Preferred stock converted  into
common stock                         (31,993)    (320)    77,558      1        319             -          -               -

Debt  converted  into

preferred  stock                   6,000,000       60          -      -      4,940             -          -           5,000

COMPREHENSIVE INCOME
Net loss                                   -        -          -      -          -        (1,475)         -          (1,475)

Other Comprehesive Income (Loss)           -        -          -      -          -             -         (7)             (7)
                                   ---------   ------   --------  -------   --------    ---------  ------------    ------------
Balances at December 31, 1998      6,276,677    3,952  3,956,815     40     14,762       (16,006)        (7)          2,741

Preferred stock converted into
common stock                         (46,238)    (463)   134,276      1        738             -          -             276

COMPREHENSIVE INCOME
Net Loss                                                                                   (2,464)                   (2,464)

Other Comprehesive Income (Loss)                                                                        (24)            (24)
                                   --------    ------   --------  -------  ---------    ---------   -----------     -------------

Balances at December 31, 1999     6,230,439   $3,489    4,091,09  $  41    $15,500      $ (18,470)      (31)        $   529
                                   ========   ========  ========  =======  =========    ==========  ===========     =============



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

                                                          F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                            AJAY SPORTS, INC. AND SUBSIDIARIES
                          Consolidated Statements of Cash Flows
                      for the years ended December 31, 1999, 1998 and 1997
                                      (in thousands)
<S>                                                <C>         <C>         <C>
                                                               December 31,
                                                       ------------------------------
                                                       1999        1998       1997
                                                      --------   ---------   --------
Cash flows from operating activities:

    Net (loss)                                      $  (2,464) $   (1,475) $  (3,516)
    Adjustments to reconcile to net cash flows
       from operating activities:
    (Gain) loss on sale of assets                          (7)          -         42
    Depreciation and amortization                         335         381        358
    Income tax provision                               (1,833)          -          -
    (Increase) decrease in marketable securities           48        (396)         -
    (Increase) decrease in accounts receivable, net    (1,358)      3,171        214
    Decrease in inventories                             1,711         718      1,559
    (Increase) decrease in prepaid expenses              (694)       (181)        58
    (Increase) decrease in other assets                     -         (75)       202
    Increase(decrease) in accounts payable              2,818        (979)        97
    Increase (decrease) in accrued expenses               719        (303)       186
                                                      --------   ---------   --------

       Net cash provided by (used in) operating
       activities                                        (725)        861       (800)
                                                      --------   ---------   --------

Cash flows from investing activities:

    Acquisitions of property plant and equipment         (281)       (319)      (250)
    Disposal of equipment                                  19           -          -
                                                      --------   ---------   --------

       Net cash (used in) investing activities           (262)       (319)      (250)
                                                      --------   ---------   --------

Cash flows from financing activities:

    Net increase in advances from affiliates              500       2,215      3,487
    Net increase (decrease) in bank notes payable         306      (2,978)    (2,193)
    Dividends paid                                          -           -        (74)
    Minority interest in subsidiary                       300
    Unrealized losses from securities                     (24)         (7)         -
                                                      --------   ---------   --------

       Net cash provided by (used in) financing
       activities                                       1,082        (770)     1,220
                                                      --------   ---------   --------

Net increase (decrease) in cash                            95        (228)       170

Cash at beginning of period                                 6         234         64
                                                      --------   ---------   --------

Cash at end of period                               $     101  $        6  $     234
                                                      ========   =========   ========



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

                                            F-5


</TABLE>
<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"),  Palm Springs Golf, Inc. ("Palm Springs"),  Prestige Golf
     Corp.   ("Prestige"), and   majority-owned   subsidiaries,   Pro   Golf
     International,  Inc.  ("PGI"),  Pro Golf of  America,  Inc.  ("PGOA"),  and
     ProGolf.com,  Inc.  ("PG.com")  collectively  referred  to  herein  as  the
     "Company". 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 $1,834,000 and $1,329,000 as of December 31, 1999 and 1998
     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 three to thirty-nine years.

     GOODWILL  - The  Company  has  recorded  goodwill  as a result  of the 1995
     acquisitions  of Palm Springs and Korex.  The  goodwill is being  amortized
     over forty years.  Amortization expense related to the goodwill was $43,900
     for the year ended  December 31,  1999.  As of each annual  year-end  date,
     management  assesses  whether  there has been an impairment in the carrying
     value of goodwill.  This  assessment  involves  comparing  the  unamortized
     goodwill carrying value with undiscounted  cumulative estimated future cash
     flows expected to be derived from utilization of the intangibles underlying
     the related goodwill. To the extent that undiscounted  cumulative cash flow
     is  expected  to  exceed  the  carrying  value of  goodwill,  the  asset is
     considered to be unimpaired.

     OTHER  ASSETS - Other  assets at  December  31,  1999 and 1998  consist  of
     trademarks  and  brand  names  held by PGI  (1999  only)  and  patents  and
     trademarks held and applied for by Leisure,  and additionally,  at December
     31, 1998 a lawsuit judgment. Amortization expense related to trademarks and
     patents is being deducted  straight-line over the estimated useful lives of
     these assets. Amortization expense related to the other assets was $193,000
     for the year ended December 31, 1999.

     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 from sales of product
     when title to the  product  has  passed,  which is  generally  the date the
     product is shipped.  PGOA recognizes Initial Franchise Fee revenue when all
     material   services   or   conditions   relating  to  the  sale  have  been
     substantially performed or satisfied by the franchiser.

<PAGE>

     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.

     USE OF ESTIMATES - The  preparation  of financial  statements in conformity
     with generally accepted  accounting  principles requires management to make
     estimates and  assumptions  that affect the reported  amounts of assets and
     liabilities and disclosure of contingent assets and liabilities at the date
     of the  financial  statements  and the  reported  amounts of  revenues  and
     expenses  during the  reporting  period.  Actual  results could differ from
     those estimates.

     COMMON  STOCK - The  Company  reverse  split its common  stock in a 1-for-6
     ratio  effective  with  commencement  of trading on August 14,  1998.  As a
     result of this transaction,  all historic data in the financial  statements
     that  reference  common  shares,  options,  earnings per share or preferred
     conversion  ratios  have  been  restated  to  reflect  this  split as if it
     preceded all prior reporting.  Historic actual common shares outstanding at
     December 31, 1997 were  23,274,039  and were  restated to 3,879,007 in this
     report.

   2.    RELATED PARTY TRANSACTIONS
         --------------------------
         The Company's related parties include the following:

     First  Equity  Corporation  ("First  Equity") - First  Equity is owned by a
     family member of the president,  chief executive  officer,  and chairman of
     the Company.  First Equity held, at December 31, 1997,  demand notes in the
     amount of  $748,000  as a result of loans  made to the  company in 1996 and
     1997. Williams assumed these notes in the financial  restructuring in 1998.
     First Equity made  short-term  working  capital  loans to Ajay during 1999,
     with interest at various  market  rates.  The balance due on these loans at
     December 31, 1999 was $445,647, including accrued interest of $5,647.

     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  significant   shareholder  in
     Enercorp.  Enercorp holds 310,787  common shares  acquired in 1994 and 1995
     and 2,000 shares of series C preferred stock. Enercorp held at December 31,
     1997,  demand  notes in the amount of $200,000 as a result of loans made to
     the Company. Williams assumed these notes in the financial restructuring in
     1998.  During  1999,  Enercorp  loaned PGI $420,000  under a 13 month,  10%
     subordinated  note.  In  February,  2000  Enercorp  converted  the note and
     accrued interest of $27,000 into 7,450 shares of PGI at $60 each.

     Williams  Controls,  Inc.  ("Williams") - Williams has the same chairman as
     the Company,  which  individual  is a major  shareholder  of each  company.
     Williams  owns 686,274  shares of the  Company's  common  stock,  1,851,813
     common  stock  options  and   6,000,000   shares  of  Series  D  cumulative
     convertible  preferred  stock as of December  31,  1999,  convertible  into
     3,333,333 shares of the Company's common stock.

     During  1996 and 1997 the  Company  paid  Williams  0.50%  per annum of the
     outstanding  revolving  loan  balances in  consideration  for providing its
     guarantee of a revolving  loan from U. S. Bank.  Fees  totaled  $39,750 and
     $60,411 for the years ended December 31, 1997 and 1996  respectively.  From
     July 11, 1997 through June 30, 1998 the Company and Williams shared a joint
     and several loan obligation. On June 30, 1998, the Company restructured its
     credit  facility  with Wells Fargo Bank,  N.A.  ("Wells")  to separate  its
     credit facility from that of Williams. As a result of this transaction, the
     Company will no longer have joint and several  liability,  cross collateral
     agreements or guarantees with Williams.

<PAGE>

     In connection  with the  restructuring  of the Wells credit  facility,  the
     Company was advanced $2,000,000 additional funds by Williams in the form of
     a  long  term  note  and  marketable   securities  and  Williams  converted
     $5,000,000  of  Company  debt  into a newly  created  series  D  cumulative
     convertible preferred stock.

     The  Company's  interest  expense paid to Williams was $62,900 and $346,000
     for the years ended December 31, 1999 and 1998 respectively. (See Note 4).

     The  Company   received   166,719   shares  of  Williams  as  part  of  the
     restructuring  agreement  with Williams  dated June 30, 1998.  These shares
     have been pledged to Wells Fargo as collateral for the Company's loans. The
     common stock is classified as marketable  securities available for sale and
     are valued at $2.08 per share, which is the last trade for 1999.

     During  1999,  the Company  had  borrowings  from  affiliated  parties,  in
     addition to those  mentioned  above, to finance its acquisition of PGOA and
     PG.com. These borrowings totalled $450,000, with interest at an annual rate
     of 10%. In February, 2000, these borrowings (and accrued interest totalling
     $30,000)  were  converted  into 8,000 shares of PGI common stock at $60 per
     share.  During  1997  and  1996  the  Company  borrowed  from  related  and
     affiliated  parties  until it obtained  bank  financing in mid 1997.  As of
     December 31, 1997,  the Company owed  $4,372,000 to related and  affiliated
     parties at  interest  rates  ranging  from 9.0% to 9.5%.  These  notes were
     converted to preferred stock in 1998. (See Note 4).

3.    INVENTORIES
      -----------
      Inventories consist of the following (in thousands):

                                                   December 31
                                                  1999       1998
                                               --------    --------
         Raw materials                         $   827     $  1,493
         Work-in-progress                          903        1,052
         Finished goods                          2,239        3,135
                                               --------    --------

         Total                                 $ 3,969      $ 5,680
                                               ========    ========


4.    DEBT
      ----
     On  December  31, 1999 the  Company's  total debt was  $19,038,000  owed to
     banks,  Williams,  and other  affiliates.  This compares to $7,724,000  for
     December  31,  1998.  The  increase  from 1998 is  principally  due to debt
     incurred to purchase the Pro Golf companies.  From July 11, 1997 until June
     30, 1998 the Company  shared in a combined  credit  agreement with Williams
     (the "Joint Loan"). As of June 30, 1998 the Company restructured its credit
     facility with Wells to separate from the joint and several credit  facility
     with Williams.  This new credit facility  eliminates  cross  collateral and
     guarantee agreements involving the Company and Williams. The revolving loan
     facility allows the Company to borrow up to the lesser of $9,500,000 or the
     Borrowing Base. The Borrowing Base consists of a formula  including certain
     eligible   receivables,   inventories   and  letters  of  credit  at  rates
     established by Wells. The present credit agreement matures June 30, 2001.

     The  proceeds  from the Joint  Loan were  used to repay the  Company's  and
     Williams  then  outstanding  loans from the  previous  lender,  U. S. Bank,
     except for a bridge loan in the total amount of  $2,140,000  to the Company
     by U. S. Bank.  This  bridge  loan is to be repaid  from the sale of assets
     and/or excess cash flows of Williams and/or the Company,  and is guaranteed
     up to  $1,000,000  by the  Company's  president.  The balance  owed on this
     bridge loan at December 31, 1999 is $1,365,000. In connection with the 1998
     credit  facility  restructuring,  the Company was  advanced  $2,000,000  of
     additional funds by Williams and Williams  converted  $5,000,000 of company
     debt into preferred stock.

<PAGE>

     The  Company's  Bank  borrowings  consisted  of the  following  (dollars in
     thousands):

                                                   December 31,
      Revolving credit facility:              1999             1998
                                            --------         --------
        Balance                             $  3,862         $  3,467
        Interest rate                            8.5%            8.75%
        Unused amount of facility           $     -0-        $    350
        Average amount outstanding

        during the period                   $  4,258         $  4,997
      Weighted average interest rate             8.2%             9.1%
        Maximum amount outstanding

        during the period                   $  5,295         $  6,771

      Master revolving note:
       Balance                              $  8,425         $      -
       Weighted average interest rate            9.0%               -
       Average amount outstanding

       during the period                    $  8,479         $      -

     Outstanding commercial letters of credit totaled approximately $309,000 and
     $60,000 at December 31, 1999 and 1998 respectively.

     Other  December  31, 1999 debt  consisted  of  $2,087,900  from related and
     affiliated parties, a $412,500 machinery and equipment term loan with Wells
     Fargo,  the $1,364,538  (bridge) term loan with U. S. Bank, a $173,000 real
     estate loan, a $8,425,000  bridge loan with Comerica  Bank,  and $1,200,000
     with private individuals.

     At December 31, 1999 the Company was liable to Comerica  Bank in the amount
     of  $8,425,000  on a master  revolving  note  entered  into to  effect  the
     acquisition of Pro Golf of America, Inc. and ProGolf.com, Inc. The note has
     been extended through April 30, 2000. The Company  anticipates  refinancing
     this loan into an amortizing long-term loan during the second quarter 2000.
     (See Note 16).

      Debt payments are as scheduled (dollars in thousands):

                 2000                                   995
                 2001                                 6,354
                 2002                                 1,000
                 2003                                10,689
                 2004  and thereafter                    -0-

      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 and loans from related  parties and affiliated  companies for its
      working capital requirements. (See Note 16).

<PAGE>

5.    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.

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

                                   Year Ended December 31,
                                   -----------------------
                                  1999      1998       1997
                                ------    ------      -----
      Statutory tax expense

        (benefit)               $(1,833)  $( 502)   $(1,195)
      Utilization of net
        operating loss
        carry forward                 -        -          -
      Loss producing no current
        tax benefit                   -      502      1,195
                                --------  -------   ---------
                                $(1,833)  $    -    $     -
                                ========  =======   =========

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

                                               December 31,
                                               ------------
                                            1999        1998
                                            ----        ----
      Deferred tax assets:
        Accrued expenses                 $    45     $    45
        Reserves                              78         151
        NOL carry forwards                 6,473       4,766
                                           ------      ------

        Sub total                        $ 6,596     $ 4,962

      Deferred tax liability,
        principally depreciation and
        amortization                         (13)        (99)
        Valuation allowance                    -      (3,744)

         Net                             $ 6,583     $ 1,119
                                         =======     =======


     At December 31, 1999,  the Company  assessed its past earnings  history and
     trends,  sales  backlog,  budgeted  sales,  and  expiration  dates of carry
     forwards  and has  determined  that it is more likely than not that 100% of
     deferred  tax  assets  will  be  realized.   This  change  versus  1998  is
     principally  due to the profits to be realized from  operations of PGOA and
     PG.com.  The  valuation  allowance of  $3,744,000  at December 31, 1998 was
     maintained  on deferred tax assets which the Company had  determined  to be
     more likely than not unrealizable at that time.

<PAGE>

     The Company had net operating  loss carry forwards for Federal tax purposes
     of approximately  $18,567,000 at December 31, 1999, which expire in varying
     amounts in the years 2006 through 2019.  Substantial  operating  loss carry
     forwards  are  available  to  offset  future  state  taxable  income of the
     Company,  which expire in varying  amounts in the years 2006 through  2019.
     Future  changes in  ownership,  as defined by section  382 of the  Internal
     Revenue Code,  could limit the amount of net operating  loss carry forwards
     used in any one year.

6.    STOCKHOLDERS' EQUITY
      --------------------
      (a)   Preferred Stock

     In October 1994 the Company created its 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.  The holder exchanged 29,500
     shares of Series A preferred  stock for 29,500  shares of the newly  issued
     Series B preferred  stock and  immediately  converted  17,000 shares of its
     Series B preferred  stock for 5,040,000  (840,000 post split) shares of the
     common stock of the Company,  as the Series B preferred stock allowed for a
     conversion rate of 1 share of Series B preferred stock for 294.12 shares of
     the Company's  common stock.  In November 1997, the conversion  rate on the
     remaining  12,500  Series B shares was  revised to 555.56 and after the 1:6
     reverse  common  stock split of August 14, 1998 the  conversion  rate as of
     December 31, 1998 is 92.5926.

     In July 1995 the Company  sold  325,000  shares of Series C 10%  cumulative
     convertible  preferred  stock and 325,000  warrants in a registered  public
     offering.  The Series C preferred  stock is convertible  into shares of the
     Company's  common stock at a conversion  rate of 2.42424  common shares for
     each share of  preferred  stock.  Cumulative  dividends  are payable on the
     Series C preferred stock at an annual rate of $1.00 per share. The warrants
     are   redeemable  by  the  Company  at  $0.05  per  warrant  under  certain
     conditions.  The terms of these  warrants are  identical  to the  Company's
     publicly held warrants to purchase  common stock.  In 1995 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.

     At  December  31,  1999,  1998 and 1997,  dividends  in  arrears  on the 8%
     cumulative convertible preferred Series B stock were $1,106,575, $1,006,575
     and $906,575 respectively. Dividends on the Series C cumulative convertible
     preferred  stock were  declared  and paid through  December  31,  1996.  No
     dividends  were  declared or paid for 1999,  1998 or 1997.  At December 31,
     1999, 1998 and 1997, dividends in arrears on the 10% cumulative convertible
     preferred Series C stock were $817,232,  $576,174 and $296,000. The Company
     has dedicated all available funds to support  continuing  operations of the
     Company until sufficient cash availability  allows  declaration and payment
     of dividends.

     (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.
     No stock was issued to officers under this plan in 1999, 1998 or 1997.

<PAGE>

     (c) Stock Issued for Acquisitions

     In 1994 the Company acquired the outstanding  common stock of Leisure Life,
     Inc. for 1,500,000  (post split 250,000)  shares of its common stock to the
     owner of Leisure Life.  During the periods 1995,  1996 and 1997 one half of
     the  originally  issued  shares  were  returned to the Company due to unmet
     performance requirements.

     (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                      (i)              Per  Share(i)
               -------                      ------------     -------------

            Balance, December 31, 1996         2,767,935     $ 2.04 - 6.00

            Issued to Employees                    8,334       2.40         (ii)
            Expired                              (27,500)      2.40 - 3.75
            Repriced options                  (2,151,313)      2.04 - 3.00 (iii)
            Repriced options                   2,151,313       1.08        (iii)
                                               ---------
            Balance, December 31, 1997         2,748,769     $ 1.08 - 6.00

            Expired                             (122,287)      2.40 - 4.125
            Issued to Directors                    1,668       1.50         (iv)
                                            ------------

            Balance, December 31, 1998         2,628,150     $ 1.08 - 6.00
            Issued to Employees                   50,000       1.00
            Expired                               83,334       2.40 - 4.125
                                                  ------

            Balance, December 31, 1999         2,594,816     $ 1.00 - 6.00
<PAGE>

    (i)   All options were adjusted for the effect of a 1:6 reverse common stock
          split effective August 14, 1998.

   (ii)  Employee stock options of which none were vested.

   (iii)   All non-public,  non-employee, non-board member options were repriced
           to $.18 market in November 1997.

   (iv)  Director options - 67% vested.


7.    MAJOR CUSTOMERS
      ---------------

     The Company  operates  in three  lines of  business,  the  manufacture  and
     distribution  of  sports   equipment,   outdoor  leisure   furniture,   and
     franchising.  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.

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

                      Year  ended   December 31,
                      --------------------------
      Customer         1999       1998      1997
         A               25%        28%        30%
         B                *         26%        15%
         C                *          *         11%

                    * Amounts are less than 10% of net sales.

<PAGE>

8.    BUSINESS SEGMENT REPORTING
      --------------------------
     The relative  contributions to net sales, operating profit and identifiable
     assets of the Company's two industry  segments for the years ended December
     31, 1999 and 1998 are as follows (in thousands):

<TABLE>
<CAPTION>

<S>                     <C>          <C>       <C>            <C>          <C>          <C>
                                                                            GOLF

                                     -------------------------------------------
                                     Mass       Specialty

    1999                Furniture    Merchant   Golf Stores    Franchise    Corporate    Consolidated
  --------------        ---------   ---------   -----------    ---------    ---------    ------------
   Sales                $  4,766    $  6,751    $  1,080       $  1,743     $      -     $  14,340
  Oper profit/(loss)        (398)     (2,370)       (191)           469         (704)       (3,194)
  Assets                   2,487       2,345       6,338         14,563            -        25,733
  Depn/Amort                 151         223          51            318            -           425
  Capital Exp.                 -          57           -            224            -           281


                                                                            GOLF

                                     -------------------------------------------
                                     Mass       Specialty

    1998                Furniture    Merchant   Golf Stores    Franchise     Corporate    Consolidated
  --------------        ---------   ---------   -----------    ---------     ---------    -------------
  Sales                  $  3,785    $ 17,916    $  1,224              -    $     -      $  22,925
 Operating profit/(loss)     (241)        863        (494)             -       (548)          (420)
 Assets                     2,673       8,564       1,846              -          -         13,083
 Depreciation/Amortization     92         229          60              -          -            381
 Capital Expenditures         175         144           -              -          -            319

</TABLE>

9 .   GARY PLAYER AND SPALDING LICENSE AGREEMENTS
      -------------------------------------------
     On March 8, 1999 the Company entered into a new license agreement with Gary
     Player Group,  Inc. The Company will work toward developing the Gary Player
     brand for marketing its  products.  The Gary Player  agreement has a 5-year
     term and covers golf bags, gloves, carts and certain other golf accessories
     sold into the U. S.  market.  This  agreement  requires  an annual  $25,000
     rights fee and a minimum  annual  royalty of $5,000 for the sixteen  months
     commencing on March 8, 1999 through June 30, 2000 and increases annually by
     $5,000 for each of the remaining 4 years of the contract.

     Ajay had operated since 1983 under 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.  On March 8, 1999, the Company
     announced  a limited  extension  of its  existing  agreement  to  provide a
     phaseout period of up to 18 months for its Spalding labeled  products.  The
     Company agreed to pay Spalding  $240,000  during the phase out period.  The
     prior  agreement  contained a minimum  annual  royalty of $550,000  plus 2%
     advertising of which 1% was paid direct.

     Earned royalty expense due Spalding was $160,000, $448,000 and $553,000 for
     the years ended December 31, 1999, 1998 and 1997, respectively.

<PAGE>

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

                  2000                             719
                  2001                             507
                  2002                             213
                  2003                             175
                  2004 and thereafter              149
                                               -------
                                                $1,763

                                               =======

     Total rental expense ($000) under operating  leases was $652, $605 and $701
     for the years ended December 31, 1999, 1999 and 1997, respectively.

11.   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 1999  ($341,000),
     1998  ($380,000),  and 1997  ($396,000) by the weighted  average  number of
     common shares outstanding.  No exercise of outstanding warrants was assumed
     in  1999,   1998  or  1997,   since  any  exercise  of  warrants  would  be
     antidilutive.

     SFAS No. 128,  "Earnings  Per Share",  became  effective  for fiscal  years
     ending after December 15, 1997. This statement replaces the presentation of
     primary  earnings per share  ("EPS") with a  presentation  of basic EPS. It
     also requires dual presentation of basic and diluted EPS on the face of the
     income  statement  for all entities  with complex  capital  structures  and
     requires  reconciliation  of the numerator and denominator of the basic EPS
     computations   to  the  numerator  and   denominator  of  the  diluted  EPS
     computation.   Basic  EPS  excludes  dilution.  Diluted  EPS  reflects  the
     potential  dilution that could occur if  securities  or other  contracts to
     issue  common  stock were  exercised  or  converted  into  common  stock or
     resulted in the  issuance of common  stock that then shared the earnings of
     the entity.

12.   SUPPLEMENTAL CASH FLOW INFORMATION
      ----------------------------------
     Cash paid for  interest  was  $1,124,526,  $1,209,693  and $776,077 for the
     years ended December 31, 1999, 1998 and 1997, respectively.

      Non cash financing and investing transactions were as follows:

          In exchange  for  acquiring in 1994 all of the common stock of Leisure
          Life, Inc. the Company issued 1,500,000 (post split 250,000) shares of
          its common  stock to the owner of  Leisure  Life.  During the  periods
          1995,  1996 and 1997 one half of the  originally  issued  shares  were
          returned to the Company due to unmet performance requirements.

<PAGE>

          In 1997 there were no stock transactions.

          During 1998  preferred  stock in the  quantity  of 31,993  shares were
          converted into 77,558 shares of common stock.

          During 1998  long-term debt of $5,000,000 was converted into 6,000,000
          shares of Series D preferred stock.

          The Company added new leases during 1998 and 1997 that represent asset
          values  respectively,  if  purchased,  of  approximately  $103,000 and
          $57,000  and result in annual  lease  payments  of $27,000 and $18,732
          with terms expiring up to the year 2003.

          During 1999 Series C preferred  stock in the quantity of 46,238 shares
          were converted into 112,085 shares of common stock.

          The  Company  borrowed  $10,750,000  from a bank and others to acquire
          PGOA and acquired PGD Online, LLC during 1999.

13.   COMMITMENTS AND CONTINGENCIES
      -----------------------------

     The accompanying  financial statements have been prepared assuming that the
     Company  will  continue  as a going  concern.  As  shown  in the  financial
     statements,  the  Company  has  net  losses  before  taxes  of  $4,297,000,
     $1,475,000 and  $3,516,000 for the years ended December 31, 1999,  1998 and
     1997. A bank loan to one of the Companies subsidiaries has been extended to
     April 30,  2000.  The Company has is seeking a long-term  extension of this
     loan, and to raise equity capital.  The Company's  ability to continue as a
     going   concern  is  partially   dependent  on  ability  of  management  to
     successfully implement these plans. The financial statements do not include
     any adjustments that might result from the outcome of this uncertainty.

     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.  (See Notes 4 and
     9).

14.  ACQUISITIONS
     ------------

     In June 1999, Ajay,  through a newly formed majority owned subsidiary (PGI)
     acquired 100% of the  outstanding  ownership  interests of PGOA and PG.com.
     This acquisition was accounted for using the purchase method of accounting.
     The results of operations of the acquired  companies  have been included in
     Ajay's  consolidated  financial  statements  from the date of  acquisition.
     Intercompany  accounts and transactions  between the acquired companies and
     Ajay, as applicable, have been eliminated.

     The acquisition  price of $10,500,000 was paid in cash and financed through
     borrowings with a bank  ($8,500,000)  affiliated  companies  ($870,000) and
     private  individuals  ($1,200,000).  The portion of the  purchase  price in
     excess of net book value was  allocated  to  "Trademarks"  and,  net of the
     related income tax benefit and related trademark amortization,  is shown in
     the consolidated balance sheet with "Other assets".

15.   NEW ACCOUNTING PRONOUNCEMENTS
      -----------------------------
     In March 1998, the Accounting Standards Committee of the American Institute
     of Certified Public  Accountants issued Statement of Position ("SOP") 98-1,
     "Accounting  for Costs of  Computer  Software  Developed  or  Obtained  for
     Internal  Use." SOP 98-1 provides  guidance for an enterprise on accounting
     for the costs of computer software  developed or obtained for internal use.
     The Company adopted this statement  during the year ended December 31, 1999
     and has  capitalized  software  costs  according to the  provisions  of the
     standard.  These  costs are  amortized  on a  straight-line  basis over the
     useful life of the software once it is placed into service.

<PAGE>

     In June 1998,  the FASB  issued  SFAS No. 133  "Accounting  for  Derivative
     Instruments and Hedging Activities".  This statement establishes accounting
     and reporting standards for derivative  instruments and hedging activities.
     The  statement  was  amended  by SFAS  No.  137 and will be  effective  for
     financial  statements for fiscal years  beginning  after June 15, 2000. The
     Company  believes  SFAS No.  133 will not  have a  material  impact  on its
     financial  statements  or accounting  policies.  The Company will adopt the
     provisions of SFAS No. 133 in the first quarter of 2001.

16.   SUBSEQUENT EVENTS
      -----------------
     During late 1999 and into 2000,  the Company began selling equity in PGI in
     a private  placement  offering  and entered  into an  agreement  to acquire
     developed and undeveloped real estate for existing and planned golf-related
     activities, including golf domes with retail stores inside. As of April 14,
     2000, the Company had committed to issue 138,750 shares of PGI stock at $60
     per  share,  which  represents  12.18%  of the  total  shares  of PGI stock
     outstanding at that date. Of the new shares committed to, $375,000 cash had
     been received with signed subscription documents, $870,000 was a conversion
     of  subordinated  debt into common stock,  and the  remaining  $7,080,000 a
     combination of equity securities and golf-related real property.

     The Company  anticipates  substantial  additional cash flows resulting from
     the debt  conversions  and the rents and fees to be received  from the golf
     properties during the initial  twelve-month  period beginning July 1, 2000.
     These  revenues  are  expected to increase in the future after the start-up
     period is over.  Additionally,  the dome and retail  store  combination  is
     planned as the new PGOA  franchise  of the  future and could  substantially
     increase revenues and cash flow of the Company's PGOA operations.

     The Company  began an offering of PG.com common stock in late April 2000 to
     raise up to $12,500,000 in gross offering proceeds. If the maximum offering
     is sold, the shares sold in this offering will represent  approximately 33%
     of the total PG.com common shares outstanding after the offering.  Proceeds
     from  these  private   placements   will  be  used  for  working   capital,
     acquisitions, and growth.

     Effective  March 15, 2000 PGI obtained an extension  through April 30, 2000
     on  its  master   revolving  note  with  Comerica  Bank.  PGI   anticipates
     refinancing  this loan into a long-term  amortizing  loan during the second
     quarter of 200.

<PAGE>

Schedule II

<TABLE>
<CAPTION>

                        AJAY SPORTS, INC. AND SUBSIDIARIES
                         Valuation and Qualifying Accounts
                   Years ended December 31, 1999, 1998, and 1997
                             (Amounts in Thousands)

<S>                               <C>         <C>         <C>               <C>
                                                                             Balance

                                  Beginning   Charged to   Deducted from      at end
                                   Balance     expense     Reserve           of period
                                  ---------   ----------   -------------     ----------
Reserve for Product Warranty:

   Year ended:

     December 31, 1999               $103        $271         $295 (1)      $  79
     December 31, 1998                152          70          119            103
     December 31, 1997                 85         309          242            152


Reserve for Doubtful Receivables:

   Year ended:

     December 31, 1999               $318 (3)    $263          $23  (2)      $558
     December 31, 1998                243          50          198             95
     December 31, 1997                140         355          252            243


Reserve for Inventory Obsolescence:

   Year ended:

     December 31, 1999               $300        $350         $257           $393
     December 31, 1998                425         292          417            300
     December 31, 1997                491         398          464            425




Notes:

(1) Represents amounts paid for product warranty claims.

(2) Represents amounts charged off as uncollectible.

(3) Includes $223 balance on books of company which was acquired in June, 1999

</TABLE>