UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-K

Mark One



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

                   For the Fiscal Year Ended December 31, 1998

                                       OR

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

        For the Transition period from _______________ to _______________

                         Commission File Number 0-18204

                                AJAY SPORTS, INC.
             (Exact Name of Registrant as Specified in its Charter)


           Delaware                                            39-1644025
-------------------------------                          ---------------------
(State or other jurisdiction of                               (IRS Employer
 Incorporation or Organization)                            Identification No.)


    1501 E. Wisconsin Street
    Delavan, Wisconsin 53115                                (414) 728-5521
--------------------------------------                   ---------------------
(Address of Principal Executive Offices                       (Registrant's
 including Zip Code)                                        Telephone Number,
                                                           including Area Code)

           Securities Registered Pursuant to Section 12(b) of the Act:
                                      NONE

           Securities Registered Pursuant to Section 12(g) of the Act:
                          Common Stock, $.01 par value
            Units (each consisting of 5 shares of Common Stock and 2
                    Warrants) Common Stock Purchase Warrants
               Series C 10% Cumulative Convertible Preferred Stock

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



<PAGE>

   Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best  of  the  Registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. __X__


   The aggregate  market value of the voting stock held by  nonaffiliates  as of
March  12,  1999  was  $1,311,579.  The  number  of  shares  outstanding  of the
Registrant's $.01 par value common stock at March 12, 1999 was 3,956,815.

                       Documents Incorporated by Reference


                                      None

                                       2
<PAGE>





Ajay Sports, Inc.
Index
December 31, 1998


PART I.                                                                    Page

   Item 1.  Description of Business                                          4-9

   Item 2.  Description of Property                                            9

   Item 3.  Legal Proceedings                                                  9

   Item 4   Submission of Matters to a Vote of Security Holders                9

PART II.

   Item 5.  Market for Registrant's Common Equity and Related
                 Stockholder Matters                                       10-11

   Item 6.  Selected Financial Data                                           12

   Item 7.  Management's Discussion and Analysis                           13-16

   Item 8.  Financial Statements                                      F-1 - F-18

   Item 9.  Changes in and Disagreements with Accountants on
                 Accounting and Financial Disclosure                          16

PART III.

   Item 10  Directors and Executive Officers of the Registrant             17-18

   Item 11. Executive Compensation                                         19-20

   Item 12. Security Ownership of Certain Beneficial Owners and
                 Management                                                20-23

   Item 13. Certain Relationships and Related Transactions                 23-24

PART IV.

   Item 14. Exhibits, Financial Statement Schedules, and Reports on
                 Form 10-K                                                 25-28

SIGNATURE PAGE                                                                29



                                       3
<PAGE>



                                     PART I
                                     ------

Cautionary Statement: This report contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements include, without limitation, those statements relating to development
of new products, the financial condition of the Company, the ability to increase
distribution  of the Company's  products,  integration of businesses the Company
has  acquired,  disposition  of any  current  business of the  Company,  and the
Company's  relationship with Williams Controls,  Inc., a related company.  These
forward-looking  statements are subject to the business and economic risks faced
by the Company.  The Company's actual results could differ materially from those
anticipated  in these  forward-looking  statements  as a result  of the  factors
described above and other factors described elsewhere in this report.


Item 1.     Description of Business
            -----------------------

General
-------

   Ajay Sports,  Inc. (the "Company")  markets and distributes golf clubs,  golf
bags, golf gloves,  golf  accessories,  hand-pulled golf carts and casual living
furniture. The Company is presently one of the larger United States distributors
of golf  products as well as one of the nation's  larger  manufacturers  of golf
bags.

   The Company  operates the mass market golf  segment of its  business  through
Ajay Leisure Products,  Inc.  ("Ajay") a wholly owned subsidiary.  Leisure Life,
Inc. ("Leisure Life"),  another wholly owned operating subsidiary,  manufactures
and markets casual living  furniture.  Palm Springs Golf, Inc. ("Palm Springs"),
another wholly owned operating  subsidiary,  markets golf clubs, golf bags, golf
gloves,  accessories  and  carts for  distribution  to the  off-course  pro shop
markets.  All  references  to the Company  include  Ajay,  Leisure Life and Palm
Springs unless otherwise specified.

   Ajay's  products  primarily are sold  nationwide to large  retailers  such as
discount stores, department stores, catalog showrooms and other mass merchandise
and sports specialty outlets. The products  manufactured by the Company are sold
under the Spalding(R),  Palm Springs(R),  Pro Classic(R),  Leisure Life(R),  Pro
USA(R) and private  label brand  names.  As of March 1999 the Company  added the
licensed name "Gary Player" for use in marketing its golf product lines. Leisure
Life's furniture products are sold through independent retailers, hardware store
cooperatives and larger chains of home and garden stores. Palm Springs' products
are sold through  off-course  golf  specialty  shops.  The Company  enhances its
traditional sales and distribution  methods by its recently  introduced Internet
sites.

   The  Company  was  organized  under  Delaware  law on August  18,  1988.  Its
administrative  office is  located at 7001  Orchard  Lake  Road,  Suite 424,  W.
Bloomfield,  MI 48322,  where its telephone  number is (248)  851-5651,  and its
executive and principal manufacturing and distribution facilities are located at
1501 E. Wisconsin Street, Delavan,  Wisconsin 53115, (414) 728-5521. The Company
also  operates a sewing  facility in Mexicali,  Mexico and a  manufacturing  and
distribution  facility at 215 4th Avenue North,  Baxter, TN 38544,  headquarters
for its Leisure Life subsidiary.  Headquarters for Ajay Leisure  Products,  Inc.
and Palm Springs Golf,  Inc. are located at 1501 E. Wisconsin St.,  Delavan,  WI
53115.

Business Strategy
-----------------

   The  Company's  strategy is to maintain and improve its position as a leading
supplier of golf clubs,  golf bags,  golf carts,  golf  accessories  and leisure
indoor  and  outdoor   furniture.   The  Company  believes  that  the  following
competitive strengths contribute to its position as a market leader:


                                       4
<PAGE>



   Strong Brand Recognition.  Spalding(R),  Palm Springs(R),  and Pro Classic(R)
are  highly  recognized  names  in the golf  product  industry  and the  Company
believes  that many of its products hold strong  market  positions.  The Company
believes that its brand  recognition and market position  enhance the ability to
sell products through various channels,  including mass merchandisers,  regional
retailers,  golf  specialty and sporting  good  specialty  retailers.  From 1983
through 1998 a significant  portion of the Company's  revenues resulted from the
sale of products  manufactured  and sold  pursuant to a license  agreement  with
Spalding Sports  Worldwide  ("Spalding").  In March 1999 the Company began an 18
month phase out of  products  bearing the  Spalding  name.  The phase out of the
Spalding brand is being  replaced with the Company's  newly licensed Gary Player
brand.


   Reputation  for Quality.  The Company  believes that the  performance  of its
products equals or exceeds the performance of its competitors'  products at each
price  point.  To assure the quality of its  products,  the Company  continually
invests in technical design and support,  and tests and monitors the performance
of its products.  At its own  facilities,  the Company relies on its skilled and
experienced  work force for quality  control.  To assure the quality of products
sourced from third-party manufacturers, the Company has established and works to
maintain  close,  long-term  relationships  that  emphasize  service,   quality,
reliability,  loyalty and  commitment.  In  addition,  the  Company  maintains a
sourcing  presence  in its largest  foreign  source  markets to assure  quality,
reliability, new product ideas and a constant commercial interface.

   Tradition of Innovation. Throughout its history, the Company has maintained a
tradition  of new product  development.  New bag styles,  new  accessories,  new
gloves,  new  furniture  and other new product  designs for 1999 are  continuing
examples of the Company's commitment in this area.

   Breadth of Product  Lines.  The Company offers a wide selection of golf bags,
golf gloves, golf carts and golf accessories,  and a growing list of outdoor and
indoor casual living  furniture.  Through its several product lines, the Company
offers mass  merchants  and regional  retailers  the ability to fulfill  product
demands and needs from a single source. The Company's product lines establish it
as one of the  nation's  leading  manufacturers  of golf bags along with being a
leader in the golf related accessories  category.  Its line of golf bags consist
of  approximately  25 models  which vary by size,  color,  type of material  and
related  features.  The line of golf  related  accessories  consists  mainly  of
consumable items such as tees, gloves, head covers, practice balls, spikes, golf
ball retrievers,  umbrellas and golf training  devices.  The accessory  category
includes approximately 100 individual items.

   Golf carts, golf bags, golf gloves and related  accessories have historically
accounted for approximately  96% of Ajay's gross sales. Golf clubs  historically
through 1997 accounted for 65% of Palm Springs' sales. Beginning with 1998, Palm
Springs  emphasized  bags,  accessories,  gloves and carts over  clubs.  Leisure
Life's sales consist 100% of indoor and outdoor leisure furniture.

Growth Opportunities
--------------------

   The  Company  believes  that its strong  brand  recognition,  reputation  for
quality,  tradition of innovation  and breadth of product  lines  position it to
take advantage of opportunities for future growth including:

   Increased  Distribution.  Through 1995,  the Company's  products were sold to
customers  primarily  through mass  merchants and regional  retailers.  With its
acquisition of the business of Palm Springs in October, 1995, the Company gained
a new channel of  distribution  through  off-course  golf specialty  shops.  The
Company has been unsuccessful in exploiting this new channel during 1996 through
1998  particularly  in golf club sales.  The  Company is  focusing on  improving
results in this channel and expects to regain its former  sales  position in the
year 2000.

   New  Product  Development.  The  Company  believes  that it is  important  to
increase its sales of products through design  improvements and modifications to
existing  products as well as the development and  introduction of new products.
The  Company has  continued  to  introduce  new and  redesigned  products to the
market.  The Company has also  increased  its  emphasis in this area by devoting
additional resources in equipment and personnel.

   The Company is seeking contract sewing of products that utilize the Company's
existing  manufacturing  capabilities,  specifically its cut and sew operations,
with the goal of increasing  sales and plant  utilization  during the summer and
fall to offset the excess capacity created by the historical  seasonality of the
golf lines.

   Leisure Life introduced a new line of swing, rocker and stationary  furniture
for the 1999 sales year.  This line is less  expensive than its previous line of
furniture  and  incorporates  improved  product  performance  features,   design
features, improved illustration based instructions, improved packaging, improved
quality and several cost reduction  features and thus offers better value to the
end customer. Other new products with future potential include storage shelving,
book cases and stained furniture.

                                       5
<PAGE>



   In spite of its increased  distribution and new product development  efforts,
the Company  experienced a contraction  of its sales base during 1998. The major
contributing  factors to the contraction were brought on by economic problems in
Asian economies. This reduced sharply furniture shipment opportunities and added
to competition in the U. S. marketplace by major customers  importing Asian golf
products directly.


Sports Business
---------------

   Golf,  which is the  primary  market for Ajay's and Palm  Springs'  business,
continues to be a popular  form of  recreation.  According to the National  Golf
Foundation  ("NGF"), a trade  association,  there were 14.6% more rounds of golf
played in 1997 than 1996 which was down 2.7% from 1995.  The pace of golf course
development  also  continues  steadily.  NGF reports  that 448 golf courses were
opened for play in 1998  compared to 429 in 1997 marking the fourth  consecutive
year where openings exceeded 400.  According to NGF market research,  the number
of U. S. golfers is approximately 26.5 million.  This group consists of 78% male
and 22% female and 77% are between  the ages of 17 and 60. The Company  believes
there is a great opportunity for increased  participation by females and golfers
under 18 and over 60.  This belief is based on  expected  increased  interest by
younger players,  increased emphasis on women's golf and improvements in health,
leisure time and increasing numbers of people moving into the over 60 group.

   Licensing.  A significant  portion of Ajay's revenues result from the sale of
products manufactured and sold pursuant to various license agreements,  the loss
of which could have a material adverse effect on the Company's business.

   Since 1983,  Ajay has sold golf bags,  hand-pulled  golf carts and a range of
general  sports  accessories  through  a license  agreement  with  Spalding.  As
consideration  for this  license,  Ajay paid  royalties  to Spalding  based on a
percentage of sales,  subject to annual minimums of $550,000 for the years ended
June 30,  1997 and  1998,  and  expended  2% of sales  under  the  agreement  on
advertising, with 1% remitted direct to Spalding. Approximately 75%, 75% and 69%
of Ajay's  total  sales  related to  products  sold under the  Spalding  license
agreement   during  the  years  ended   December  31,  1998,   1997,  and  1996,
respectively.  Beginning in March of 1999,  the Company began to implement a new
licensing strategy.  The Company recognized that changes in the golf marketplace
called for a brand name focused  specifically on the golf niche. As a first step
in implementing its new brand strategy,  a phase out agreement was executed with
Spalding  Sports  Worldwide which provides for a Spalding name phaseout over the
next 18 months.  The second step was the entering of a 5 year license  agreement
with the Gary Player Group, Inc. to use the Gary Player name that will cover the
sale of Ajay's golf products throughout the USA.

   Gary Player is one of the best known golfers of all time. He is one of only 4
golfers to achieve golf's "Grand Slam" (The Masters, U. S. Open, PGA and British
Open  championships).  In addition to his  playing  career,  Gary Player and the
organization  bearing his name are involved in golf course design and other golf
and   charitable   activities.   Gary  Player  Design  has  developed  over  100
championship  courses  throughout  the world.  Gary  Player is  regarded  as the
International  Ambassador  of Golf.  His courteous  demeanor and integrity  have
earned high  respect as one of golf's  greatest  sportsmen  and  gentlemen.  The
combination of Gary Player's success in golf tournaments worldwide, his personal
integrity and the universal feeling that he represents everything good about the
game of golf has caused  the Gary  Player  name to become  one of the  strongest
brands in golf.  The Company plans to capitalize on this brand  awareness in its
future product  development and marketing efforts.  Effective March 1999 through
agreements  with Spalding and Gary Player,  Ajay began an immediate  phase in of
the Gary Player branded line and initiated an 18-month phase out of the Spalding
branded line.

   Manufacturing and Design.  The preliminary  production of Ajay's golf bags is
undertaken  at  its  Delavan,   Wisconsin  facility,  where  raw  materials  are
fabricated  in  preparation  for sewing and  assembly  at its  Mexicali,  Mexico
facility. In addition,  Ajay supplements in-house production through utilization
of subcontractors  to produce products  according to its  specifications.  Final
manufacturing,  assembly and  distribution  for Ajay and Palm  Springs  products
occurs at facilities located in Delavan, Wisconsin.

   Design features, such as color, decals, specialized components and decorative
accessories often determine whether a golf product model is successful. In order
to attract and retain  consumers  the Company  updates and refines  these design
features on a continuous basis.


                                       6
<PAGE>



   The Company's  lines of various  accessory  products are purchased  primarily
from foreign  sources,  principally from the Pacific Rim, and are prepackaged or
repackaged for domestic  distribution.  The packaging  designed by Ajay and Palm
Springs  highlights  the  various  features  of  the  products.   The  Company's
hand-pulled  golf carts are manufactured  in-house and overseas.  The Company is
not dependent upon any single source for any of its significant products.


   Marketing and  Distribution.  Ajay's  product lines  traditionally  have been
distributed primarily through discount stores, department stores, catalog stores
and other mass  merchandise  outlets.  The Company also sells through most major
chain  retailers and off-course  golf  specialty  shops.  The Company's  largest
customer is Wal-Mart,  which  accounted for  approximately  28% of the Company's
sales in 1998.  The second largest  customer  accounted for 26% of the Company's
sales.  The loss of these accounts  would have a material  adverse effect on the
Company's results. The Company believes its relationship with these customers is
good.

   Except for certain major  accounts,  most of Ajay's  accounts are serviced by
manufacturers'  representatives working on a commission basis. Ajay services its
major accounts through a combination of manufacturers'  representatives  and its
own in-house  sales  force.  Palm Springs  services  its  customers  through its
in-house and regional sales representatives.  The Company's management regularly
consults  with major  customers  to discuss  merchandising  plans and  programs,
anticipated needs and product development.

   The  Company  believes  it has good  name  recognition  in the  industry  and
attempts  to expand  that  recognition  through  participation  in trade  shows,
advertising in trade  publications and supplying  literature and catalogs to the
retail trade and consumers.


Leisure Furniture Business
--------------------------

   Demographic  changes  have  driven a shift  for the last ten  years  toward a
casual  living  lifestyle.  This is  evidenced  by the  proliferation  of decks,
patios,  and sun rooms.  Americans  are spending more of their leisure time in a
relaxed casual manner. This has led to a need for more leisure time furniture.

   Leisure furniture, used on porches, decks, patios, in sun rooms and yards has
traditionally  consisted  of  aluminum,  resin,  wrought  iron and low to medium
priced wood  products.  The designs of wood  products  have not been  stylish or
particularly  comfortable  for  seating.  Leisure  Life's "In Motion"  furniture
products,  which feature contoured slings,  adjustability and comfort, have been
received favorably in the leisure furniture market.

   Leisure  Life's  furniture  is  constructed  of a high  grade  pine  which is
pressure-treated and kiln-dried to prevent  deterioration,  warping, and bending
and to withstand  varying climate  conditions.  The seating  products  utilize a
patented   suspension   seating  system  which  permits  simple   adjustment  to
accommodate   users  of  different   heights  and  weights.   This  system  also
incorporates an ergonomically designed sling and deep cushion seating to provide
lower back support.  Management  believes that its seating products are superior
in comfort to any other leisure furniture seating. A patented  suspension system
is used on swings, rocking chairs, stationary chairs, love seats, and couches.

   In addition to the seating products,  Leisure Life also manufactures cocktail
and end tables,  a bench,  canopies,  A-frames,  potting  tables,  shelving  and
bookcases as a coordinated line of leisure furniture. Management believes that a
coordinated  casual wood  furniture  line can be marketed  for indoor as well as
outdoor use.

   Manufacturing. The pressure treated pine purchased by Leisure Life is planed,
cut,  drilled,  and sanded in the Baxter,  Tennessee  facility  to form  product
components.  A small portion of the wood pieces are purchased  pre-manufactured.
Fabric for pillows,  cushions, slings and canopies are cut and sewn in-house and
by third  party  subcontractors  for final  assembly  in the  Baxter,  Tennessee
facility. Furniture items are packaged in kits containing the wood frame pieces,
slings, pillows, and necessary hardware,  requiring the customer to assemble the
final product.


                                       7
<PAGE>



   Marketing and  Distribution.  Currently,  Leisure life supplies  nearly 4,500
storefronts  worldwide  and  supplies to 30  distributors  in various  countries
around the world. Large chains such as Wal-Mart, Lowes, Heckingers,  Meijers and
Price  Costco  represent  29%  of  Leisure  Life's  customer   storefront  base.
Independent  nurseries,  hardware  stores,  pool and patio shops,  home centers,
department stores,  mail order catalogs and casual furniture stores,  along with
their respective  co-op's and specialty  distributors carry Leisure Life swings,
swing sets,  seating and rockers.  Export  distribution  also continues to grow.
Wood furniture, as an outdoor category, represents a greater portion of sales in
Great Britain,  Europe, Japan, Korea, and the Far East than in the U. S. market.
Pressure treated  Southern Yellow Pine is very competitive with Teak,  Mahogany,
or any other solid wood outdoor furniture.


Inventories and Backlog
-----------------------

   Due to the  relatively  short lapse of time  between  placement of orders for
products and  shipments,  the Company  normally does not consider its backlog of
orders to be significant to its business. Because of rapid delivery requirements
of its customers, the Company maintains significant quantities of finished goods
inventories to provide  acceptable  service  levels to its customers.  Inventory
turnover  in mass  market  products  is lower than for  furniture  and  reflects
maintenance of high service  standards for its mass market customer base and the
shorter manufacturing time cycle for furniture products.

   The Company's products tend to have varying degrees of seasonality. Shipments
from February to May historically have been  significantly  higher than the rest
of the year, due to the nature of the golf and furniture businesses.  Management
expects  that  the  indoor  leisure  furniture  line  including  shelving  being
developed will have higher  shipments in the fall. To reflect the seasonality of
the business, inventories will tend to be higher from November to May.

Competition
-----------
   Ajay competes in the golf bag, cart and accessory business with several other
domestic companies  including Wilson,  Gold Eagle,  Dunlop,  Palmer, Pro Select,
Highlander,  Knight  and  others.  Increased  imports  of low  cost  competitive
products, primarily from Asia, continue to subject domestic producers to intense
price  competition  and have  created  extreme  price  sensitivity,  while  also
providing a source of competitive products for the Company to offer.

   Palm  Springs  competes  for  specialty  golf store retail space with over 50
competitors.  Retail golf specialty  stores carry many lines. The premium brands
are  represented  by names such as Cobra,  Callaway,  Carsten and Taylor.  Other
competitors  are  Datrek,  Burton,  Sun  Mountain,  Ogio,  Izzo,  Gold Eagle and
Mitsushiba.  Palm  Springs  offers a line of high  quality  and  feature  filled
products which sell at moderate  price levels and offer  consumers high value to
price ratios.

   Leisure Life has had limited but growing  operations.  At this time,  Leisure
Life,  as compared to the large  number of  manufacturers  of indoor and outdoor
furniture, is not a significant competitor. In Leisure Life's niche market there
are  no  dominant  furniture  manufacturers  supplying,  on  a  national  basis,
comparable  cushioned,   suspended  sling  back  comfort  products  specifically
targeted for porches,  decks,  patios,  and sun rooms.  There are several  small
firms supplying on a regional  basis.  Competition  includes Richie  Industries,
Palmetto Mfg., Lakeland Mills, Rivenwood and Atwood. Management does not believe
that there are any other similar wood  furniture  products that are  adjustable.
However,   there  is  competition  for  display  space  in  stores,  along  with
competition from other wood,  resin,  aluminum,  cushion,  and plastic furniture
products.

Raw Materials and Components
----------------------------
   Basic materials such as vinyl, nylon, steel and aluminum tubing, plastics and
paint used in the golf product  manufacturing and assembly process are purchased
primarily from domestic  sources.  Many of the component parts such as golf club
head covers,  graphite shafts, club heads, golf gloves,  light weight carry golf
bags and various other golf  accessories are obtainable  economically  only from
foreign suppliers and, therefore, are subject to changes in price as a result of
fluctuations in foreign currencies against the U.S. dollar.  Alternative sources
for  raw  materials  and  component  supplies  are  available  and  the  Company
anticipates no significant  difficulty in obtaining raw materials or components,
although some such purchases may be at increased prices.

   Leisure Life purchases pressure treated pine, fabric,  cushion stuffing,  and
miscellaneous  hardware  used in the  manufacturing  and  assembly  process from
domestic  sources.  Alternative  sources for raw  materials  are  available  and
Leisure Life has not experienced difficulty in obtaining raw materials.

                                       8
<PAGE>



Patents and Trademarks
----------------------


   Ajay,  Leisure Life and Palm Springs own several  patents and  trademarks and
have proprietary knowledge relating to their product lines.  Management does not
believe that the loss of any of its patents would have a material adverse effect
on its business.

Employees
---------

   As of March 5, 1999, the Company had a total of 307  employees:  77 employees
at the  Delavan,  Wisconsin  facility,  129  employees at the  Mexicali,  Mexico
facility  and 101  employees  at the  Baxter,  Tennessee  facility.  The Company
considers its current relations with its employees to be good.

Item 2.     Description of Property
            -----------------------

   The  Company's  executive,  and Ajay's  primary  manufacturing,  assembly and
warehouse facility,  is located in Delavan,  Wisconsin,  and consists of 186,300
square feet of office, manufacturing and warehousing space. This space is leased
from an unaffiliated  third party under a long-term lease  arrangement  expiring
June  2001,  with an option  to renew for an  additional  ten-year  period.  The
Company has an option to purchase  the  property at its fair market value at the
end of either the initial or renewal lease term.

   Through its wholly-owned  subsidiary,  Ajay Leisure de Mexico,  S.A. de C.V.,
Ajay leases an additional  manufacturing  facility  consisting of  approximately
30,000 square feet in Mexicali, Mexico. The lease expires on January 14, 2005.

   Leisure Life owns its  manufacturing,  assembly,  and  warehouse  facility in
Baxter,  Tennessee,  which  consists  of  approximately  40,000  square  feet of
manufacturing and warehousing space,  located on 2.8 acres. The property carries
a mortgage in the amount of $197,000.

   These   facilities   adequately  meet  the  Company's   production   capacity
requirements.  The  Company,  on  average,  utilizes  approximately  80%  of its
facility square footage.  In order to avoid periodic total plant shutdowns,  the
Company  adjusts  its  product  production   schedules  to  maintain  sufficient
inventory levels and to maintain a full work force.


Item 3.     Legal Proceedings
            -----------------
   The  Company,  through its  operating  subsidiaries,  Ajay,  Palm Springs and
Leisure Life, are involved in various legal  proceedings which are normal to its
business,  including product  liability and workers'  compensation  claims.  The
Company  believes  that none of this  litigation  is  likely to have a  material
adverse effect on its financial  condition or operations.  The Company faces the
risk of exposure to product  liability  claims if consumers  using the Company's
products  are  injured in  connection  with their use.  While the  Company  will
continue to attempt to take appropriate  precautions,  there can be no assurance
that it will avoid significant product liability  exposure.  Based on historical
experience, Ajay, Leisure Life and Palm Springs have product liability insurance
coverage which the Company believes is adequate.

Item 4.     Submission of Matters to a Vote of Security Holders
            ---------------------------------------------------

   There were no matters  submitted  to a vote of  security  holders  during the
   fourth quarter.



                                       9
<PAGE>



                                     PART II
                                     -------


Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters
           ---------------------------------------------------------------------

Market Information
------------------

   The Company's Common Stock and Units were traded on the NASDAQ Stock Market's
Small Cap Market  until  September  4, 1998 at which time they began to trade on
the OTC  Bulletin  Board.  The  Company's  Series C 10%  cumulative  convertible
preferred stock trades on the NASDAQ Small Cap market.  The following table sets
forth  the range of high and low trade  prices  for the last two years  Historic
prices have been  converted  to give effect to a reverse 1:6 common  stock split
effective August 14, 1998.


COMMON STOCK                       TRADE PRICES
------------                       ------------
1997
-----                           HIGH            LOW
First Quarter                 $ 1.86          $  .96
Second Quarter                $ 2.04          $  .78
Third Quarter                 $ 1.68          $ 1.14
Fourth Quarter                $ 2.04          $  .78

1998
-----
First Quarter                 $ 1.50          $  .78
Second Quarter                $ 2.28          $  .78
Third Quarter                 $ 3.78          $  .75
Fourth Quarter                $ 1.03          $  .34


UNITS
-----
1997
-----                           HIGH            LOW
First Quarter                 $ 6.00          $  6.00
Second Quarter                   N/A              N/A
Third Quarter                    N/A              N/A
Fourth Quarter                $ 4.50          $  4.50

1998
----
First Quarter                    N/A              N/A
Second Quarter                $ 3.78          $  3.78
Third Quarter                 $18.78          $  8.28
Fourth Quarter                   N/A              N/A


WARRANTS (Delisted 11/13/1997)
--------
1997
-----                            HIGH           LOW
First Quarter                 $  .18          $ .18
Second Quarter                $  .30          $ .12
Third Quarter                 $  .18          $ .12
Fourth Quarter                $  .12          $ .12







                                       10
<PAGE>





SERIES C PREFERRED STOCK            TRADE PRICES
1997                           HIGH              LOW
First Quarter                 $ 6.75           $ 5.25
Second Quarter                $ 6.00           $ 4.38
Third Quarter                 $ 5.00           $ 4.38
Fourth Quarter                $ 6.13           $ 3.00

1998
First Quarter                 $ 4.00           $ 2.38
Second Quarter                $ 4.75           $ 3.25
Third Quarter                 $ 6.13           $ 2.75
Fourth Quarter                $ 3.00           $ 2.25


   The NASDAQ Stock Market,  Inc. issued new standards for continued  listing of
Small Cap Market  participants which became effective on February 23, 1998. Ajay
was a Small Cap Market  participant  and as such fell under these new rules.  In
spite of efforts to meet the minimum  $1.00 bid price,  Ajay stock  traded below
this newly  established  requirement  and  therefore  the stock was  delisted on
September 4, 1998. The common stock now trades on the OTC Bulletin Board.

Holders

   The number of record holders of the Company's common stock,  units,  warrants
and Series C preferred  stock  according to the Company's  transfer agent, as of
December 31, 1998 are as follows:

                                    Common Stock        369
                                    Preferred C           9
                                    Warrant A            66


   Based on a street name  shareholder  listing,  the Company  believes that its
round lot common shareholders total approximately 900.

Dividends

   Holders of shares of Common  Stock are entitled to  dividends  when,  and if,
declared by the Board of Directors out of funds legally  available.  The Company
has not paid any  dividends  on its Common  Stock and  intends to retain  future
earnings to finance the development and expansion of its business. The Company's
future  dividend  policy is subject to the  discretion of the Board of Directors
and will depend upon a number of factors,  including  future  earnings,  capital
requirements,  bank credit agreement restrictions and the financial condition of
the Company.

   Holders of the Company's Series C Cumulative  Convertible Preferred Stock are
entitled to cumulative  dividends at an annual rate of $1.00 per share. Due to a
shortage of operating  funds to run the business,  dividends  have not been paid
since January 1997. Until the Company has cash available for dividends,  it does
not anticipate declaring or paying dividends on its Series C preferred stock.










                                       11
<PAGE>



Item 6.          Selected Financial Data
                 -----------------------

Overview
--------

                The following  table presents  summary  historical  consolidated
financial  data  derived from audited  financial  statements  of the Company (in
thousands, except per share amounts).
                                     Year    Ended     December    31,
                                  -----------------------------------------
Statement of Operations:          1998      1997      1996      1995     1994
                                  -----     -----     -----     -----    -----
Net sales                       $22,925   $30,330   $24,341   $18,728  $12,899
Cost of sales                    19,477    26,585    20,759    15,291   12,291
                                -------   -------   -------   -------  -------

   Gross profit                   3,448     3,745     3,582     3,437      608

Selling, general and
   administrative expenses        3,868     5,837     5,067     3,247    2,747
                                -------   -------   -------   -------  -------

Operating income (loss)            (420)   (2,092)   (1,485)      190   (2,139)

Nonoperating income (expense):
   Interest expense - net        (1,139)   (1,280)   (1,103)     (801)    (614)

Gain (loss) on disposition of
   investment in affiliate, net       -         -         -         -      (38)

Other, net                           84      (144)      (38)      (41)    (289)
                                -------   --------  --------  --------  ------
Income (loss) from operations before
   income taxes                  (1,475)   (3,516)   (2,626)     (652)  (3,080)
                                --------  --------  --------  --------  ------

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

Net income (loss)               $(1,475)  $(3,516)  $(1,733)   $ (444) $(3,080)
                                ========  ========  ========   ======= ========
Net income (loss) per common share @
                                $ (0.47)  $ (1.01)  $ (0.55)   $(0.18) $ (1.61)
                                ========  ========  ========   ======= ========
Weighted average common and common
   stock equivalent shares outstanding @
                                  3,909     3,879     3,874     3,787    2,036
                                ========  ========  ========   =======  =======

Cash dividends per common share       -         -         -         -        -

                                                  December 31,
                                  ------------------------------------------
Balance sheet data:               1998     1997     1996      1995      1994
                                  -----    -----    -----     -----     -----
Working capital                 $ 5,652  $ 8,200  $ 3,348   $ 6,323   $   593
Total assets                    $13,083  $16,614  $18,495   $18,486   $ 9,365
Long term debt                  $ 7,538  $13,229  $ 5,196   $ 5,111   $   121


@ Current and prior years  restated to reflect  result of reverse 1 for 6 common
stock split effective August 14, 1998.


                                       12
<PAGE>



Item 7.     Management's Discussion and Analysis of Financial Condition and
            ---------------------------------------------------------------
            Results of Operations
            ---------------------

Results of Operations
---------------------

Net Sales

   Net sales in 1998 were $22.9 million, a decrease of $7.4 million, or 24% when
compared to 1997 sales.  The sales  decrease in the golf  product  line was $6.8
million or a 26%  decrease.  Mass market golf sales  declined  $3.7  million and
sales  decreased  to  specialty  golf stores by $3.1  million.  Furniture  sales
decreased  $0.6  million  or 13%.  Lower  sales  in the  mass  merchant  channel
represent fewer sales to existing  customers as a result of a weak market during
the second half of 1998.  This delayed the start up of new  commitments for 1999
and reduced volume of sale of new lines. Sales to specialty golf stores were off
due to the  Company  de-emphasizing  its golf  club  lines,  a  reduced  product
offering and contraction of the sales force. Furniture sales decreases represent
lower export sales due to weak  economic  factors in Asia and  competition  from
foreign  imports due to the same  reason.  Historically,  mass market sales have
been Ajay's core business. .
   Sales in 1997 were $30.3 million, an increase of $6.0 million or 25% compared
to 1996.  The overall  sales  increase  occurred in both the golf and  furniture
product  lines.  Sales of golf  products  increased  by $4.3 million in the mass
market. Furniture sales increased $1.7 million or 63% reflecting a customer base
increase in both foreign and domestic markets.


Gross Margin

   The  Company's  1998 gross  margin  decreased  8% to  $3,448,000  compared to
$3,745,000  for the 1997 year.  Gross margin as a percent of sales  increased to
15.0% as compared to 12.3% of sales for 1997.  The gross profit amount  decrease
of 8%  was a  result  of a  sales  volume  decrease  of  24%  partly  offset  by
de-emphasizing sales of golf clubs formerly sold at gross profit level losses in
1997.  An  improvement  in  manufacturing  efficiency  brought  on  by  improved
liquidity also contributed to increased percentage and absolute margins.

   The Company's  1997 gross margin  increased  4.6% to  $3,745,000  compared to
$3,582,000  for the 1996 year.  Gross  margin as a percent of sales  declined to
12.3% as compared to 14.7% of sales for 1996.  Contributing to this decline were
three factors.  The first was the lack of sufficient  operating liquidity during
1997 which resulted in increased costs in  manufacturing,  logistics and product
substitutions.  The second factor was the poor performance of Palm Springs' golf
club  product line in the  marketplace.  The final factor was the closing of the
Palm  Springs  facility  in  California  and   consolidating  it  into  Delavan,
Wisconsin. These factors reduced gross profit margin by approximately 2.0%, 1.6%
and 0.7% respectively.

Selling, General and Administrative Expenses

   SG&A for 1998 was $3.9  million and 16.9% of sales  compared to $5.8  million
and 19.2% of sales for  1997.  $1.2  million  was  saved by  consolidating  Palm
Springs  into the Delavan  operation.  A further  reduction  of $570,000 in mass
market golf  resulted  from sales volume  decreases,  head count  reduction  and
efficiency improvements.

   As a percent of sales, SG&A was 19.2% for 1997 compared to 20.8% of sales for
1996. SG&A expenses during 1997 increased by $770,000 or 15.2% compared to 1996.
The largest  contributor  to increased  expenses was the legal,  accounting  and
other costs associated with refinancing the Company which contributed nearly one
percent to SG&A.


Interest Expense

   Interest  expense for 1998 was  $1,139,000  a decrease  of $141,000  from the
prior  year.  The  decrease  resulted  from lower  sales and  operating  levels.
Interest expense was $1,280,000 for 1997, an increase of $177,000 over the prior
year.  The  increase in  interest  expense in 1997 was  primarily  the result of
increased debt to finance Palm Springs losses.



                                       13
<PAGE>



Income Taxes


The Company had no income tax  liability  during the years  ended  December  31,
1998, 1997 and 1996.

Financial Condition
-------------------

   At December 31, 1998, the Company had working capital of $5,652,000, compared
with  $8,200,000 at December 31, 1997. This  $2,548,000  decrease  resulted from
lower receivables, inventories and payables as a result of lower sales levels in
the 4th quarter of 1998 and a reduction in delinquent receivables.  The ratio of
current assets to current liabilities at December 31, 1998 and 1997 was 3.0.

   Inventories  at December 31, 1998 were $5.7 million  compared to $6.4 million
at December 31, 1997.  Trade accounts  receivable  were $1.9 million at December
31, 1998 compared to $5.1 million at December 31, 1997.

   At  December  31,  1998 and  1997,  net  fixed  assets  were  $1,708,000  and
$1,723,000,  respectively.  The  decrease  reflects  depreciation  in  excess of
capital expenditures.

Capital Resources
-----------------

   The Company expended $319,000 in 1998 for capital expenditures,  over half of
which was used for improvements in its furniture  business  manufacturing,  with
most of the balance allocated to golf bag manufacturing.

Liquidity
---------

   Cash flow from operations for 1998 was positive by $861,000 in spite of a net
loss.  The  positive  operating  cash flow was  primarily  generated  by reduced
working  capital  from lower  sales  levels in the fourth  quarter of 1998.  The
positive operating cash flow was used to pay down loans and buy equipment.

   The Company's liquidity varies with the seasonality of its business which, in
turn,  influences  its  financing  requirements.  The  seasonal  nature  of  the
Company's sales creates  fluctuating cash flow, due to the temporary build-up of
inventories in anticipation of, and receivables during, the peak seasonal period
which  historically has been from February through May of each year. The Company
has relied on Williams  and bank  revolving  credit  facilities  in the past and
continues to rely heavily on revolving credit facilities for its working capital
requirements.

   On June 30, 1998,  the Company  restructured  its credit  facility with Wells
Fargo Bank, National Association  ("Wells") to separate its credit facility from
that of Williams Controls,  Inc. and its subsidiaries  ("Williams").  The credit
facility as restructured provides for maximum borrowing capacity of $10,025,000,
consisting of a revolving credit facility of up to $9,500,000 and a term loan of
$525,000.  As a result of this transaction,  the Company no longer has joint and
several liability,  cross collateral agreements or guarantees with Williams with
respect to Williams' Wells Fargo facility.  The Company's new asset-based credit
facility  from  Wells  provides  the  Company  with  approximately  $700,000  of
increased loan  availabilities  and borrowing  capability  against inventory and
accounts  receivable.  The  interest  rate is prime plus 1% on the  revolver and
prime plus 1.5% on the term loan.  The Company has a temporary over advance line
and anticipates the need for additional capital later in the year.


                                       14
<PAGE>



   In connection with the restructuring of the Wells Fargo Bank credit facility,
the Company  entered into an agreement  in June 1998 with  Williams  under which
Williams  advanced  $2,000,000  in cash and  securities.  As a  result  of these
additional  investments  plus Williams'  assumption of certain  liabilities  and
potential additional payments to the bank, the debt and equity investments could
reach $8,650,000 with an initial 3-year effective annual cost of 8.75% inclusive
of interest, dividends and fees. On June 30, 1998, Williams converted $5,000,000
of this debt into 6,000,000  shares of a newly created series of preferred stock
of the Company, the series D cumulative  convertible non-voting preferred stock.
Series D is convertible  into the Company's  common stock at the rate of 0.55556
common shares for each preferred share. The Company  delivered a promissory note
to Williams for the  unconverted  portion of the debt. This note is secured by a
lien on the Company's  assets which is junior to the liens held by the Company's
bank lenders.  Williams continues to own approximately  17.3% of the outstanding
common  stock of the  Company  and  holds  options  to  purchase  an  additional
1,851,813 shares of common stock.  Williams also continues to have rights, which
were  negotiated in 1994,  to utilize for a fair market fee,  excess floor space
and related resources in the Company's manufacturing facilities in Wisconsin and
Mexico.


   The  Company  believes  that  the  combination  of  the  Wells  and  Williams
refinancing  agreements  has resulted in an improved  working  capital  position
which  enabled the Company to pay down past due  accounts  payable.  It also has
increased  liquidity,  providing the Company with additional  availability under
its bank credit facility and  strengthened  the Company's  capital  structure by
increasing equity.

Year 2000 Compliance
--------------------

   State of Readiness.  During the past two years, the Company has been actively
involved  in  finding  and  correcting  Y2K  problems   within  its  information
technology structure.

   The Company's main computing system, an IBM AS/400, is certified by IBM to be
Y2K compliant.  The Company's  proprietary software that runs on the AS/400 will
be Y2K compliant by May 31, 1999.

   Personal computers are being evaluated using a software tool provided by IBM.
This evaluation phase will be completed by April 30, 1999. The remediation phase
will start on May 1, 1999, with an anticipated completion date of June 30, 1999.

   Internal systems and equipment that depend upon embedded microchips have been
certified to by Y2K compliant.  The Company's  utility providers have assured us
that there will be no century-related problems.

   The Company has contacted all of its suppliers to determine their Y2K status.
A majority have responded positively.  The remaining suppliers will be contacted
again and alternate sources will be found where needed.

   Costs.The Company hired a full-time  programmer/analyst  in February 1998, to
help with the Y2K conversion.  The Company upgraded its EDI translation software
to accommodate the EDI Y2K solution,  Version 4010. The Company anticipates that
its Y2K costs  related to  information  technology  that are beyond the scope of
normal operations will not be significant.

   Contingency Plans.The Company is developing plans to obtain secondary sources
for key raw material. Manual backup for certain functions will be implemented on
a short-term  basis, if necessary.  Unanticipated  problems will be addressed as
they occur.


                                       15
<PAGE>

Item 7A. Quantitative and Qualitative Disclosures About Market Risk
         ----------------------------------------------------------

   The  Company  holds only one market  risk  instrument.  This is common  stock
classified as marketable securities and carried as a current asset in the amount
of $396,000 as of December 31, 1998. This stock is subject to equity price risk.
The full  carrying  value  represents  the  market  value of  166,719  shares of
Williams  Controls,  Inc. common stock valued at $2.375 per share,  which is the
last trade for 1998.  This stock is traded on the NASDAQ  national  market.  The
shares were received as part of the restructuring  agreement with Williams dated
June 30, 1998.  The intention is to liquidate the remaining  shares as necessary
during 1999. High and low closing prices per share for 1998 were $3.34 and $2.00
respectively. Since year end and through March 17, 1999 the lowest closing price
has been $2.375.


Item 8.     Financial Statements
            --------------------

   Financial statements are attached hereto following Item 14.


Item 9.     Changes in and  Disagreements  with Accountants on  Accounting  and
            -------------------------------------------------------------------
            Financial Disclosure
            --------------------

   Not applicable.


                                       16
<PAGE>



                                    PART III
                                    --------




Item 10.  Directors and Executive Officers of the registrant
          --------------------------------------------------


   The Registrant's directors and executive officers as of March 26, 1999 are as
follows:



                             Positions and                       1st Yr. As
Name                   Age   Offices with                        Director
                             Company
------------------    ----   --------------                      -----------

Anthony B. Cashen      63    Director                               1993

Robert R. Hebard       46    Director & Corporate Secretary         1989

Thomas W. Itin         64    Chairman, CEO & President              1993

Robert D. Newman       57    Director                               1994

Clarence H. Yahn       62    Director & Chief Operating             1994
                             Officer

Duane R. Stiverson     57    Chief Financial Officer



Anthony B.  Cashen.  Mr.  Cashen has served as a director of the  Company  since
1993.  For more than the past five  years,  Mr.  Cashen has served as a managing
partner  or senior  partner  of LAI Ward  Howell,  a  publicly  held  management
consulting and executive recruiting firm located in New York City. He has served
as Secretary, Treasurer and Director of LBO Capital Corporation, a publicly held
Company,  since its  inception.  He  currently  serves as a Director of Immucell
Corp., and Williams  Controls,  Inc., both publicly held companies.  Previously,
Mr.  Cashen had been an officer  and  principal  of the  investment  firms A. G.
Becker,  Inc. and Donaldson,  Lufkin and Jenrette,  Inc. He received an MBA from
the Johnson Graduate School of Management at Cornell University,  and a Bachelor
of Science degree from Cornell University.

Robert R. Hebard.  Mr. Hebard has served as a Director of the Company since 1989
and  Secretary  of the  Company  since  September  1990.  From  June 1993 to the
present,  he has been Chairman of the Board and  President of Enercorp,  Inc., a
publicly traded business development company under the Investment Company Act of
1940,  as amended.  From June 1986 to January  1992,  Mr.  Hebard was First Vice
President  and  Director  of Product  Management  for  Comerica  Bank,  and from
February 1992 to October 1992 he was Director of Retail Marketing for the merged
Comerica/Manufacturers  Bank. Mr. Hebard also currently serves as Vice President
of  Woodward  Partners,   Inc.,  a  real  estate  development  company  in  West
Bloomfield,  Michigan.  From 1993 to the present, Mr. Hebard has served as Chief
Executive  Officer of  CompuSonics  Video Corp.,  a publicly  held  company.  He
received an MBA from  Canisius  College  and a Bachelor  of Science  degree from
Cornell University.

Thomas W. Itin. Mr. Itin was elected  Chairman of the Board and President of the
Company in June of 1993, and is the Company's  largest single  stockholder.  Mr.
Itin has been a director of Williams  Controls,  Inc.,  a publicly  held company
since its  inception  in  November  1988.  He has also served as Chairman of the
Board and Chief  Executive  Officer  of  Williams  since  March 1989 and also as
President and Treasurer since June 1993. He has served as Chairman of the Board,
Chief Executive  Officer and Chief Operating  Officer of LBO Capital Corp. since
its  inception.  Mr.  Itin  has  been  Chairman,  President  and  Owner  of  TWI
International,  Inc.  since he founded  the firm in 1967.  Mr Itin also has been
Owner and Principal  Officer of Acrodyne  Corporation  since 1962. He received a
Bachelor of Science  degree  from  Cornell  University  and an MBA from New York
University.

                                       17
<PAGE>



Robert D. Newman. Mr. Newman became a Director of the Company in August 1994. He
has served as Vice President and General Manager of Leisure Life, Inc., a wholly
owned  subsidiary  of the Company  since August 1994.  Recently his position was
redefined  to enable him to focus on new  product  development,  with his former
General  Manager  responsibilities  assigned to another  individual.  Mr. Newman
founded  Leisure Life,  Inc. in October,  1990 and served as President  from its
inception  until its  purchase by the  Company in August  1994.  Mr.  Newman was
President and Chief Executive  Officer of Stone Mountain  Millworks from 1985 to
1989.  He served as Director of Product  Development  for Gold Medal,  Inc. from
1989 to October 1990. Mr. Newman attended Northern Illinois University.

Clarence H. Yahn.  Mr. Yahn became a Director of the Company in September  1994,
and has served as Director of Ajay since September 1993 and as Ajay's  President
since January 1994.  Mr. Yahn has served as the Chief  Operating  Officer of the
Company since January 1996.  From December 1996 to December  1998, Mr. Yahn also
served as Executive Vice President of Williams  Controls,  Inc.  responsible for
the Company's Consumer Durables Group. In 1988, Mr. Yahn joined Gold Medal, Inc.
as its  President.  Prior to joining Ajay Leisure  Products,  Mr. Yahn served as
Chief Executive Officer of Melnor, Inc. a consumer durables company from 1992 to
1993. He received a Bachelor of Science degree in  mathematics  and physics from
the  University  of  Wisconsin  and received a Masters  degree in  International
Business from the American Graduate School of International Management.

Duane R. Stiverson has been Chief Financial  Officer of Ajay Sports,  Inc. since
July 1994. Prior to joining the Company, Mr. Stiverson was the Vice President of
Operations  for  VariQuest  Technologies,  Inc. and held that position from 1991
until he joined the Company in July 1994.  From 1987 to 1990, Mr.  Stiverson was
Vice  President of Materials for the Ambrosia  Chocolate  Company.  From 1978 to
1987, he was the Vice  President of Finance for Ambrosia,  and from 1976 to 1978
was its  Controller.  Prior to 1978, Mr.  Stiverson held various  controller and
corporate finance positions with Bendix Corporation. Mr. Stiverson is a CPA, has
a Bachelor of Science  degree from the  University of Nebraska and an MBA degree
from Michigan State University.

Robert R. Hebard is the  son-in-law of Thomas W. Itin,  the Company's  chairman.
Other than this relationship,  there are no other family  relationships  between
any director or executive officers.


                                       18
<PAGE>

Item 11          Executive Compensation
-------          ----------------------

Summary of Cash and Certain Other Compensation
----------------------------------------------

The  following  table shows,  for the years ending  December 31, 1998,  1997 and
1996, the cash compensation paid by the Company and its subsidiaries, as well as
certain  other  compensation  paid or accrued  for those  years,  to each of the
executive officers of the Company who received  compensation from all capacities
in which they serve:

                               Summary Compensation Table

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

                                               Annual            Long-Term
                                            Compensation        Compensation
                                   Securities
Name and Principal Position       Year         Salary            Underlying
                               Options (# Shares)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

Thomas W. Itin                    1998         $ 1 (1)                -
Director and Principal            1997         $ 1 (1)                -
Executive Officer of the          1996         $ 1 (1)                -
Company, and Director and
Principal Executive Officer of
Ajay Leisure Products, Inc.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

Clarence H. Yahn                  1998        $120,000               -
Director of the Company and       1997        $117,502               -
President of Ajay Leisure         1996        $100,000           33,334 (2)
Products
--------------------------------------------------------------------------------

(1) See "Employment contracts" below.

(2) Represents number of shares of common stock underlying stock options granted
in December 1996.


                                       19
<PAGE>


Options/SAR Grants
------------------

During 1998, no options or SARs were granted to the executive  officers named in
the Summary Compensation Table.

Aggregated Option Exercises and Fiscal Year End Option Value
------------------------------------------------------------

The  table  below  summarizes  options,  the  number  of  securities  underlying
unexercised  stock  options at December 31, 1998 which are held by the executive
officers  listed in the Summary  Compensation  Table.  No options were exercised
during the year and at year end none were in-the-money.


       Aggregated Option Exercises in 1998 and December 31, 1998 Option Values

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

                     Number of Securities Underlying Unexercised
                               Options / FY - End (#)


                     Name           Exercisable        Unexercisable
                     ------------------------------------------------
                     ------------------------------------------------

                     Thomas  W.  Itin         0              0
                     CEO
                     ------------------------------------------------
                     ------------------------------------------------

                     Clarence  H.        25,000          8,334
                     Yahn
                     President,  Ajay
                     ------------------------------------------------


The Company does not have any restricted  stock,  long-term  incentive,  defined
benefit or pension plans.



Compensation of Directors
-------------------------

Directors are not paid a fee for attending regular Board of Directors  meetings.
However,  they are  reimbursed  for expenses  incurred in  attending  such board
meetings.

Under the 1994 Stock Option Plan, the non-employee  directors who are members of
the  Compensation  Committee are to receive  grants of 834  non-statutory  stock
options under the plan at each Annual Meeting.  Grants during 1998 to members of
the  Compensation  Committee  totaled 1,668 options to purchase  1,668 shares of
common stock exercisable at $1.50 per share for five years.

Employment Contracts
--------------------

The Company has an employment arrangement with Mr. Itin under which he served as
the President and Chief  Executive  Officer of the Company at a salary of $1 per
year during the years ended  December 31, 1994 through  1997.  This  arrangement
expired on December 31, 1997 and Mr. Itin's  continued  arrangement  during 1998
was compensated at an annual salary of $1.00.








                                       20
<PAGE>


                               Further Information
                               -------------------


Item 12          Security Ownership of Certain Beneficial Owners and Management
-------          --------------------------------------------------------------

The table below sets forth, as of March 24, 1999, the number of shares of Common
Stock  beneficially  owned by each director and executive  officer (named in the
Summary  Compensation  Table) of the Company  individually,  all such  executive
officers and directors as a group,  and each beneficial  owner of more than five
percent of the Common  Stock.  The following  stockholders  have sole voting and
investment power with respect to their holdings unless otherwise footnoted.



Name and Address            Number of Shares Beneficially    Percentage of Class
                            Owned                            (1)
----------------            -----------------------------    -------------------

Thomas W. Itin                    2,758,197 (2)(3)(5)(6)(9)            50.9%
7001 Orchard Lake Road, Suite
424
West Bloomfield, MI 48322

Williams Controls Industries,           5,871,422 (4)                  64.2%
Inc.
14100 SW 72nd Avenue
Portland, OR 97224

TICO                                    1,990,747 (5)                  38.9%
7001 Orchard Lake Road, Suite
424
West Bloomfield, MI 48322

Acrodyne Profit Sharing Trust            462,246 (6)                   10.9%
7001 Orchard Lake Road, Suite
424
West Bloomfield, MI 48322

Robert R. Hebard                          6,112 (7)                     0.2%
7001 Orchard Lake Road, Suite
424
West Bloomfield, MI 48322

Enercorp, Inc.                           315,634 (8)                    8.0%
7001 Orchard Lake Road, Suite
424
West Bloomfield, MI 48322

LBO Capital Corp.                        280,001 (9)                    7.0%
7001 Orchard Lake Road, Suite
424
West Bloomfield, MI 48322

Robert D. Newman                           112,667                      2.8%
215 4th Avenue North, P.O.
Box 60
Baxter, TN  38544

Clarence H. Yahn                         55,667 (10)                    1.4%
1501 E. Wisconsin Street
Delavan, WI  53115

Duane R. Stiverson                       11,476 (11)                    0.3%
1501 E. Wisconsin Street
Delavan, WI  53115

Anthony B. Cashen                         4,778 (12)                    0.1%
LAI WARD HOWELL
99 Park Avenue, 20th Floor
New York, NY 10016

All executive officers and         2,948,897 (2)(3)(7)(10)             54.2%
directors                                           (11)(12)
as a group
(6 persons)

                                       21
<PAGE>

1)    Where  persons  listed on this table  have the right to obtain  additional
      shares of Common  Stock  through the  exercise of  outstanding  options or
      warrants or the conversion of convertible  securities  within 60 days from
      March 31, 1999, these  additional  shares are deemed to be outstanding for
      the purpose of  computing  the  percentage  of Common  Stock owned by such
      persons, but are not deemed to be outstanding for the purpose of computing
      the  percentage  owned  by any  other  person.  Percentages  are  based on
      3,956,815 shares outstanding.

(2)   Mr. Itin may be deemed to be a "control  person" of the Company.  Includes
      Common  Stock and shares of Common  Stock  issuable  upon the  exercise of
      presently exercisable warrants and the conversion of presently convertible
      Preferred Stock  beneficially owned by Mr. Itin's spouse and affiliates of
      Mr. Itin as follows:



Entity                                   Shares        Description
------                                   ------        -----------
TICO                                    833,340        Common Stock
First Equity Corporation                 25,203        Common Stock
Acrodyne Profit Sharing Trust           462,246        Common Stock and warrants
LBO Capital Corporation                 280,001        Common Stock and warrants
                                      ---------
                                      1,600,790

TICO (12,500 shares of Series
B preferred stock convertible                          Series "B" Preferred
at one share for 92.5926              1,157,407        Stock conversion
shares of Common Stock)               ---------

                                      2,758,197
                                      =========

      Mr. Itin disclaims  beneficial  ownership  in the securities  owned by LBO
      Capital Corp.  and First Equity  Corporation  in excess of  his  pecuniary
      interest.  Mr. Itin's  spouse owns an 80% equity  interest in First Equity
      Corp., and Mr.Itin owns 56% of the outstanding common stock of LBO Capital
      Corp.,  a company with its common stock registered  under Section 12(g) of
      the Securities  Exchange Act of 1934  (the  "Exchange  Act").  Mr. Itin is
      also  Chairman  of the  Board  and President of LBO Capital.

(3)   Does not include  686,275 Common Shares,  1,851,813  options and 3,333,334
      shares  available from series D preferred on conversion  owned by Williams
      Controls,  Inc.  Mr.  Itin is  Chairman  of the  Board,  President,  Chief
      Executive Officer, Chief Operating Officer, Treasurer and 30.5% beneficial
      owner of  Williams  Controls,  Inc.  Even though Mr. itin is a Director of
      Williams  Controls,  he abstains from voting on matters  pertaining to the
      Company in meetings of the Directors of Williams Controls.

(4)   Includes  1,851,813  shares of Common Stock  issuable upon the exercise of
      outstanding  stock options and 3,333,334  shares  available  from Series D
      preferred  on   conversion.   See  "Certain   Relationships   and  Related
      Transactions."

(5)   Includes  1,157,407  shares of Common Stock  issuable  upon  conversion of
      12,500 shares of presently convertible Series B Preferred Stock, at a rate
      of 92.5926 shares of Common Stock for every one share of preferred  stock.
      TICO is a Michigan partnership of which Mr. Itin is the Managing Partner.

(6)   Includes 266,167 shares of Common Stock issuable upon exercise of options.
      Mr. Itin is trustee and beneficiary of Acrodyne Profit Sharing Trust.

(7)   Does not include ownership of  Enercorp, Inc.  Mr.  Hebard is the Chairman
      and President of Enercorp. Includes 278 vested  shares  issuable  upon the
      exercise of stock  option granted under the 1994 stock option plan.

                                       22
<PAGE>


(8)   Includes the  following  Common Stock and shares of Common Stock  issuable
      upon the  conversion  of presently  convertible  Preferred  Stock owned by
      Enercorp,  Inc., a Colorado corporation,  with its Common Stock registered
      under Section 12(g) of the Exchange Act:



      Common Stock                                                  310,785

      2,000 shares of Series C preferred stock,
      convertible at one preferred share for 2.4242
      shares of Common Stock                                          4,849
                                                                    -------

                                                                    315,634


(9)   Includes 33,334 shares of Common Stock issuable upon exercise of warrants.
      LBO Capital  Corporation is a Colorado  corporation of which Mr. Itin is a
      56% shareholder, Chairman of the Board of Directors, and President.

(10)  Includes  25,000  shares of Common  Stock  issuable  upon the  exercise of
      outstanding stock options.

(11)  Includes  3,125  shares of Common  Stock  issuable  upon the  exercise  of
      outstanding stock options.

(12)  Includes 2,778 vested shares of Common Stock issuable upon the exercise of
      outstanding stock options granted under the 1994 Stock Option Plan.


                      Compliance with Section 16(a) of the
                         Securities Exchange Act of 1934


Section  16(a) of the  Securities  and  Exchange  Act of 1934,  as amended  (the
"Exchange  Act")  requires  executive  officers,   directors,  and  persons  who
beneficially  own more than 10% of the Company's  Common Stock to file, with the
SEC,  initial  reports of beneficial  ownership on Form 3, reports of changes in
beneficial  ownership on Form 4, and annual  statements of changes in beneficial
ownership  on Form 5.  Persons  filing  such  reports  are  required  under  the
regulations promulgated by the SEC pursuant to Section 16 to furnish the Company
with  copies of such  reports.  Based  solely upon a review of the copies of the
reports  received by the Company during the fiscal year ended December 31, 1998,
the Company believes that all reports were timely filed.

Item 13           Certain Relationships and Related Transactions
-------           ----------------------------------------------

Since 1994,  Williams Controls,  Inc. has made loans and provided capital to the
Company to assist the Company in meeting its  financing  requirements.  Williams
owns 686,275 shares of the Company's  common stock and holds options to purchase
an additional  1,851,813  shares of common stock  exercisable at $1.08 per share
through August 1, 1999. Thomas W. Itin, the Company's Chairman, President, Chief
Executive Officer,  Treasurer and beneficial owner of approximately 50.9% of the
Company's  common  stock,  is also  the  Chairman,  President,  Chief  Executive
Officer,  Treasurer and beneficial  owner of  approximately  30.5% of the common
stock of  Williams.  Another  director of the Company,  Anthony B.  Cashen,  was
elected to serve a three-year  term on the Board of Directors of Williams at the
annual meeting of the stockholders of Williams held in February 1999.

From July 1997 to July 1998,  the Company  and its  subsidiaries  (the  "Company
parties")  were  parties  with  Williams  and its  subsidiaries  (the  "Williams
parties") to a joint credit facility from Wells Fargo Bank, National Association
(the "Joint  Wells  Loan").  The proceeds of this joint  financing  were used to
repay the loans of the Williams parties and partially repay loans of the Company
parties from a previous bank lender, United States National Bank ("U. S. Bank").
In connection with the Joint Wells Loan, Williams provided the Company a loan in
the amount of $2,268,000  (the  "Williams  Bridge Loan") and U. S. Bank provided
the Company a bridge loan in the amount of $2,340,000  (the "USB Bridge  Loan").
The Company is the primary obligor on the USB Bridge Loan promissory note and it
is guaranteed in full by the Williams  parties,  and by the Company's  Chairman,
personally, up to $1,000,000.


                                       23
<PAGE>


As of June 30, 1998, the Joint Wells Loan was restructured to separate the loans
to the Company parties and the Williams parties.  This restructuring  eliminated
joint and several  liability to Wells, as well as cross collateral and guarantee
agreements, between the Company parties and the Williams parties as they related
to the Joint Wells Loan. The Company's new credit facility with Wells allows the
Company  parties to borrow up to the lesser of $9,500,000 or the Borrowing  Base
(as defined in the credit agreement) and matures on June 30, 2001. The Borrowing
Base is calculated  periodically  based on a formula including eligible accounts
receivable,  eligible  inventory and certain  letters of credit as determined by
Wells.

In  connection  with the  transaction  with Wells to  separate  the loans of the
Company parties and the Williams  parties  effected June 30, 1998,  Williams (a)
advanced an additional $2,000,000 in the form of cash and marketable securities,
(b) purchased  notes payable of  approximately  $948,000 by the Company to other
affiliated parties, Enercorp, Inc. and First Equity Corporation, which evidenced
loans provided by those parties during 1997 when the Company required additional
capital,  (c) and agreed to convert $5,000,000 of the amount owed by the Company
to Williams into 6,000,000 shares of a newly created class of preferred stock of
the Company, its Series D cumulative  convertible preferred stock. In connection
with these  transactions with Williams,  the Company delivered a promissory note
to Williams for the full amount owed to Williams after  conversion of $5,000,000
into the Series D preferred  stock (the "Williams  Note").  The Williams Note is
secured by a lien on  substantially  all of the assets of the  Company  parties,
which lien is subordinate to the liens of U. S. Bank and Wells.

At December 31, 1998,  the Company owed  $1,587,000  under the Williams Note. In
addition,  it owed  $1,985,00  to U. S. Bank under the USB Bridge  Loan.  If the
Company is unable to meet its  repayment  obligations  under the USB Bridge Loan
and  Williams  agrees  to and  makes  payments  on the  USB  Bridge  Loan on the
Company's  behalf,  any payments made by Williams would result in an increase in
the amount the Company owes to Williams.

The Series D  preferred  stock is  convertible  at the option of  Williams  into
3,333,333  shares of the  Company's  common  stock.  No dividends  accrue on the
Series D preferred  stock until after July 31, 2001.  The  dividend  rate on the
Series D  preferred  stock will be 17% per annum  commencing  August 1, 2001 and
will increase to 24% in 2002. The Series D preferred  stock is redeemable by the
Company and the Company will attempt to raise  capital from new sources in order
to redeem the Series D preferred stock in lieu of paying these premium  dividend
rates.

The Company has also entered into  agreements with Williams which require annual
payments of $90,000 for administrative  fees and $80,000 for management fees for
sourcing  products overseas on the Company's  behalf.  These annual  obligations
continue for three years.

During 1997 and 1998, an executive  officer of the company  provided  management
services to Williams for which the Company was paid $75,000 in 1998 for his time
and  services.  Effective  December  1998,  the  Company  officer  is  providing
significantly reduced services to Williams.

                                       24
<PAGE>


                                     PART IV
                                     -------

Item 14.    Exhibits, Financial Statement Schedules, and Reports on Form 10-K
            -----------------------------------------------------------------

(a)   1.   Financial Statements:

      Ajay Sports, Inc. and Subsidiaries
      Consolidated Financial Statements of Ajay
      Sports, Inc. and Subsidiaries:

      Reports of Independent Accountants

      Consolidated Balance Sheets - December 31, 1998
      and 1997

      Consolidated Statements of Operations - Years
      ended December 31, 1998, 1997 and 1996

      Consolidated  Statements of Stockholders'  Equity Years ended December 31,
      1998, 1997 and 1996

      Consolidated  Statements  of Cash Flows - Years ended  December  31, 1998,
      1997 and 1996

      Notes to Financial Statements

   2. Financial Statement Schedules:

      Ajay Sports, Inc. and Subsidiaries:

      Schedule II - Valuation and Qualifying Accounts - Years ended December 31,
      1998, 1997 and 1996

   3. Exhibits required by Item 601 of Regulation S-K

      The  following  exhibits  designated  with  a  "+"  symbol  represent  the
      Company's Management Contracts or Compensatory Plans or arrangements
      for executive officers:

      Exhibit 3.1 (a)     Articles of Incorporation and Bylaws and amendments
        thereto. (1)

      Exhibit 3.1 (b)     Certificate of Designations of Rights
        and Preferences of the Series B 8% Cumulative
        Convertible Preferred Stock of Ajay Sports, Inc.  (7)

      Exhibit 3.1 (c)     Certificate of Designations of Rights and
        Preferences of the Series C 10% Cumulative Preferred
        Stock of Ajay Sports, Inc.  (8)

      Exhibit 3.1 (d)     Certificate of Designations of Rights and
        Preferences of the Registrant's Series D Cumulative
        Convertible Non-Voting Preferred Stock  (12)

                                       25
<PAGE>


                                     PART IV
                                     -------
                                    CONTINUED


      Exhibit 3.1 (e)      Certificate of Amendment to Restated Certificate
        of Incorporation Dated August 11, 1998 for common stock split
        effective August 14, 1998.   (13)  Filed Herewith

      Exhibit 3.2         Bylaws   (1)

      Exhibit 10.1 (a)     License Agreement dated April 14,
        1992 between Spalding Sports Worldwide and Ajay
        Leisure Products, Inc.   (2)

      Exhibit 10.1 (b) First  Amendment to the April 14, 1992  Spalding  License
        Agreement dated April 2, 1993 (4)

      Exhibit 10.1 (c) Second  Amendment to the April 14, 1992 Spalding  License
        Agreement dated July 1, 1994 (7)

      Exhibit 10.1 (d) Third  Amendment to the April 14, 1992  Spalding  License
        Agreement dated June 5, 1995 (8)

      Exhibit 10.1 (e) License Agreement dated March 8, 1999 between Spalding
        Sports Worldwide, Inc. and Ajay Leisure Products, Inc.(13)
        Filed Herewith

      Exhibit 10.2 Williams/Ajay Loan and Joint Venture Implementation Agreement
        dated May 6, 1994 as amended by Letter Agreement dated April 3, 1995 (7)

      + Exhibit 10.3   Employment Agreement dated July 31,
        1994 between Robert D. Newman, Leisure Life, Inc.
        and Ajay Sports, Inc.   (7)

      Exhibit 10.4      1994 Stock Option Plan   (6)

      Exhibit 10.5      1995 Stock Bonus Plan   (6)

      Exhibit 10.6 (a)  Revolving Loan Agreement dated July 25, 1995
        Between Ajay Sports, Inc. and United States National Bank of
        Oregon, including Guaranties, Security Agreements, and Other
        Loan Documents   (8)

      Exhibit  10.6 (b) First  Amendment  to the July 25,  1995  Revolving  Loan
        Agreement dated October 2, 1995, including amendment to Bulge Loan Note,
        Supplement to Guaranty and Amendment to Revolving Loan Note (9)

      Exhibit 10.7      Credit Agreement dated July 11, 1997,
        among Registrant and its subsidiaries and Williams Controls,
        Inc. and its subsidiaries, as borrowers, and Wells Fargo Bank,
        National Association, including Guaranties, Security Agreements,
        Intercreditor Agreement and other Loan Documents   (10)



                                       26
<PAGE>


                                     PART IV
                                     -------
                                    CONTINUED


      Exhibit 10.8      Consent Reaffirmation and Release Agreement
        with U. S. Bank and Promissory Note of the Registrant   (10)

      Exhibit 10.9 Security  Agreement dated July 14, 1997, among Registrant and
        its subsidiaries, as debtors, and Williams Controls and its subsidiaries
        as secured parties (11)

      Exhibit 10.10  Credit  Agreement,  dated June 30,  1998,  by and among the
        Registrant  and its  subsidiaries  and Wells  Fargo Bank,  NA  including
        Promissory Notes, Security Agreements and other Loan Documents (12)

      Exhibit 10.11     Restructuring agreement, dated June 30, 1998, by
        and among Registrant and its subsidiaries and Williams Controls,
        Inc. including promissory note   (12)

      Exhibit 10.12     License Agreement dated March 8, 1999 between
        Gary Player Group, Inc. and Ajay Leisure Products, Inc.  (13)
        Filed Herewith

      Exhibit 21.0      List of Subsidiaries  Filed Herewith

      Exhibit 27.0      Financial Data Schedule


      (1)  Previously filed with and incorporated by reference from the
           Registrant's Registration Statement on Form S-18 No. 33-30760.

      (2)  Previously   filed  with  and  incorporated  by  reference  from  the
           Registrant's Form 10-K filed for the year ended December 31, 1991.
           (SEC File No. 0-18204)

      (3)  Previously  filed and incorporated by reference from the Registrant's
           Form 10-Q for the quarterly period ended September 30, 1992.
           (SEC File No. 0-18204)

      (4)  Previously   filed  with  and  incorporated  by  reference  from  the
           Registrant's Form 10-K filed for December 31, 1992.
          (SEC File No. 0-18204)

      (5)  Previously   filed  with  and  incorporated  by  reference  from  the
           Registrant's Form 10-K filed for December 31, 1993.
           (SEC File No. 0-18204)

      (6)  Previously  filed with and  incorporated by reference from the
           Registrant's Registration Statement on Form S-8, No. 33-89,650.

      (7)  Previously   filed  with  and  incorporated  by  reference  from  the
           Registrant's form 10-K filed for December 31, 1994.
          (SEC File No. 0-18204)

      (8)  Previously  filed with and  incorporated by reference from the
           Registrant's Registration Statement on Form S-2, File No. 33-58753.

      (9)  Previously  filed with and  incorporated by reference from the
           Registrant's Form 10-Q for the Quarterly period ended
           September 30, 1995.  (SEC file No. 0-18204)

                                       27
<PAGE>


                                     PART IV
                                     -------
                                    CONTINUED


      (10) Previously   filed  with  and  incorporated  by  reference  from  the
           Registrant's Form 10-Q for the Quarterly period ended June 30, 1997.
           (SEC file No. 0-18204)

      (11) Previously filed with and incorporated  by  reference  from  the
           Registrant's 10-K filed for December 31, 1997. (SEC file No. 0-18204)

      (12) Previously   filed  with  and  incorporated  by  reference  from  the
           Registrant's Form 10-Q for the Quarterly period ended June 30, 1998.
           (SEC file No. 0-18204)

      (13) Currently filed herein.


(b)   Reports on Form 8-K

      During the last  quarter of the 1998 fiscal  year,  the Company  filed one
      report on Form 8-K.

      Date of
      Report     Subject
      -------    -------
      12/4/98    Item 5, Other Events - Extension  of the common stock  purchase
                 warrants to June 30, 1999.

                                       28
<PAGE>


                                   SIGNATURES

      Pursuant to the  requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, Ajay Sports, Inc. has duly caused this Report on Form 10-K
to be signed on its behalf by the  undersigned,  thereunto duly  authorized,  in
West Bloomfield, Michigan on the 29th day of March, 1999.

                                AJAY SPORTS, INC.



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

      Pursuant to the requirements of the Securities  Exchange Act of 1934, this
Report  on Form  10-K has been  signed  below by the  following  persons  in the
capacities indicated and on the dates indicated.

SIGNATURES                    TITLE                           DATE
----------                    ------                          -----


\s\Thomas W. Itin
-----------------             Director                        March 29, 1999
Thomas W. Itin                and Principal                   --------------
                              Executive Officer



\s\Duane R. Stiverson
---------------------        Chief Financial                  March 29, 1999
Duane R. Stiverson           Officer and                      --------------
                             Principal Accounting
                             Officer


\s\Robert R. Hebard
-------------------          Director                         March 29, 1999
Robert R. Hebard                                              --------------



\s\Anthony B. Cashen
--------------------         Director                         March 29, 1999
Anthony B. Cashen                                             --------------



\s\ Clarence H. Yahn
--------------------         Director                         March 29, 1999
Clarence H. Yahn                                              --------------



\s\ Robert D. Newman
--------------------         Director                         March 29, 1999
Robert D. Newman                                              --------------

                                       29
<PAGE>











                          INDEPENDENT AUDITOR'S REPORT







To the Board of Directors and Stockholders
of Ajay Sports, Inc. and  Subsidiaries


      We have  audited  the  accompanying  consolidated  balance  sheets of Ajay
Sports,  Inc. and Subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations,  stockholders' equity, and cash flows for
each of the three years in the period  ended  December  31,  1998.  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, 1998. These consolidated  financial  statements and financial
statement  schedules are the  responsibility  of the Company's  management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements and financial statement schedules 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  consolidated  financial  statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and disclosures in the  consolidated  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  consolidated  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,
1998 and 1997, and the results of their operations and their cash flows for each
of the three years in the period  ended  December  31, 1998 in  conformity  with
generally accepted accounting principles.






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

Farmington Hills, Michigan
March 12, 1999


                                      F-1
<PAGE>

<TABLE>
<CAPTION>

                                                   AJAY SPORTS, INC. AND SUBSIDIARIES
                                                       Consolidated Balance Sheets
                                                     as of December 31, 1998 and 1997
                                                   (in thousands, except share amounts)

ASSETS                                                                          December 31,                  December 31,
                                                                                    1998                          1997
                                                                               ----------------              ---------------
<S>                                                                          <C>                           <C>
Current assets:
     Cash                                                                    $               6             $            234
     Marketable  securities                                                                396                            -
     Accounts receivable, net of allowance of $95 and $243,
         respectively                                                                    1,889                        5,060
     Inventories                                                                         5,680                        6,398
     Prepaid expenses and other                                                            485                          304
     Deferred tax benefit                                                                    -                          363
                                                                               ----------------
                                                                               ----------------              ---------------

            Total current assets                                                         8,456                       12,359

Fixed assets, net                                                                        1,708                        1,723
Other assets                                                                               179                          106
Deferred tax benefit                                                                     1,119                          756
Goodwill                                                                                 1,621                        1,670
                                                                               ----------------              ---------------

            Total assets                                                     $          13,083             $         16,614
                                                                               ================              ===============

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
     Notes payable to affiliates                                             $               -             $            160    $
     Notes payable to banks                                                                195                          107
     Current portion of capital lease                                                        4                            4
     Accounts payable                                                                    2,225                        3,204
     Accrued expenses                                                                      380                          684
                                                                               ----------------              ---------------

            Total current liabilities                                                    2,804                        4,159

Notes payable to affiliates  -  long term                                                1,587                        4,212
Notes payable to banks - long term                                                       5,951                        9,017
Commitments and contingencies                                                                -                            -
                                                                               ----------------              ---------------
                                                                                        10,342                       17,388
                                                                               ----------------              ---------------
Stockholders' equity (deficit):
     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, 264,177 and 296,170 shares
            outstanding, respectively at stated value                                    2,642                        2,962
           Series D, $0.01 par value, 6,000,000 shares                                      60                            -
     Common stock, $0.01 par value, 100,000,000 shares authorized,
         3,956,815 and 3,879,007 shares outstanding, respectively                           40                          233
     Additional paid-in capital                                                         14,762                        9,313
     Accumulated deficit                                                               (16,006)                     (14,532)
     Accumulated unrealized losses on securities                                            (7)                           -
                                                                               ----------------              ---------------

            Total stockholders' equity (deficit)                                         2,741                         (774)
                                                                               ----------------              ---------------

Total liabilities and stockholders' equity                                   $          13,083             $         16,614
                                                                               ================              ===============

                           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, 1998, 1997 and 1996
                                                        (in thousands, except per share amounts)

<S>                                                          <C>                      <C>                     <C>
                                                                                          Year Ended
                                                               -----------------------------------------------------------------
                                                                December 31,             December 31,            December 31,
                                                                    1998                     1997                    1996
                                                               ----------------         ---------------         ----------------
Operating data:
     Net sales                                               $          22,925        $         30,330        $          24,341
     Cost of sales                                                      19,477                  26,585                   20,759
                                                               ----------------         ---------------         ----------------
         Gross profit                                                    3,448                   3,745                    3,582
     Selling, general and administrative expenses                        3,868                   5,837                    5,067
                                                               ----------------         ---------------         ----------------

     Operating income (loss)                                              (420)                 (2,092)                  (1,485)
                                                               ----------------         ---------------         ----------------

Nonoperating income (expense):
     Interest expense  -  affiliates                                      (337)                   (194)                     (60)
     Interest expense   -   non-affiliates                                (802)                 (1,086)                  (1,043)
     Other, net                                                             84                    (144)                     (38)
                                                               ----------------         ---------------         ----------------

     Total non operating expense                                        (1,055)                 (1,424)                  (1,141)
                                                               ----------------         ---------------         ----------------

Income (loss) before income taxes                                       (1,475)                 (3,516)                  (2,626)

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

Net loss                                                     $          (1,475)       $         (3,516)       $          (1,733)
                                                               ================         ===============         ================

Basic and diluted earnings per share  (a)                    $           (0.47)       $          (1.01)       $           (0.55)
                                                               ================         ===============         ================

Weighted average common shares
     outstanding  (b)                                                    3,909                   3,879                    3,874
                                                               ================         ================        ================




     Net loss as reported above                                         (1,475)                 (3,516)                  (1,733)
     Undeclared cumulative preferred dividends                            (380)                   (396)                    (396)
                                                               ----------------         ---------------         ----------------

     Loss applicable to common stock                         $          (1,855)       $         (3,912)       $          (2,129)
                                                               ================         ===============         ================



     (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, 1998,  1997 and 1996 (in  thousands,  except shares)

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

                                      Total
                                   Preferred Stock           Common Stock        Add'l Paid-in  Accum     Unrealized   Stockholders'
                                 ---------------------  -----------------------
                                   Shares     Amount      Shares       Amount      Capital     (Deficit) Loss on Secs  Equity
                                 ----------- ---------  ------------  ---------  ------------  --------  ------------- -------------
Balances at January 1, 1996         326,290     4,388     3,889,625 $      234 $       9,123 $  (8,981)$            -  $     4,764

Common shares received as an
   acquisition incentive adjustment        -      -         (58,334)        (3)            4         -              -            -

Preferred stock converted into
  common stock                      (17,620)     (176)       42,716          2           174         -              -            -

Stock  option  exercise                    -      -           5,000           -           12         -              -           12

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

Net  loss                                  -      -          -                -            -    (1,733)             -       (1,733)
                                 ----------- ---------  ------------  ---------  ------------  --------  --------------  -----------

Balances at December 31, 1996       308,670     4,212     3,879,007        233         9,313   (11,015)             -        2,743

Net loss                                  -       -          -                -            -    (3,516)             -       (3,516)
                                 ----------- ---------  ------------  ---------  ------------  --------  --------------  -----------

Balances at December 31, 1997       308,670     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)

Unrealized loss on securities             -       -               -           -            -         -             (7)          (7)
                                 ----------- ---------  ------------  ---------  ------------  --------  --------------  -----------

Balances at December 31, 1998     6,276,677  $  3,952     3,956,815  $      40   $    14,762  $ 16,006)  $         (7)  $    2,741
                                 =========== =========  ============  =========  ============  ========  ==============  ===========













                      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, 1998, 1997 and 1996
                                                                (in thousands)

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

                                                                                  1998            1997            1996
                                                                               ------------    ------------   -------------
Cash flows from operating activities:

     Net loss                                                                $      (1,475)  $      (3,516) $       (1,733)
     Adjustments to reconcile to net cash flows from operating
         activities:
     Loss on sale of assets                                                              -              42               6
     Depreciation and amortization                                                     381             358             366
     (Increase) in investments                                                        (396)              -               -
     (Increase) decrease in accounts receivable, net                                 3,171             214             (78)
     Decrease in inventories                                                           718           1,559             952
     (Increase) in deferred tax benefits                                                 -               -            (911)
     (Increase) decrease in prepaid expenses                                          (181)             58               3
     (Increase) decrease in other assets                                               (75)            202             (84)
     Increase in accounts payable                                                     (979)             97             945
     Increase (decrease) in accrued expenses                                          (303)            186             (64)
                                                                               ------------    ------------   -------------

         Net cash provided by (used in) operating activities                           861            (800)           (598)
                                                                               ------------    ------------   -------------

Cash flows from investing activities:

     Acquisitions of property plant and equipment                                     (319)           (250)           (276)
     Goodwill associated with acquisitions                                               -               -            (387)
     Disposal of equipment                                                               -               -             (29)
                                                                               ------------    ------------   -------------

         Net cash (used in) investing activities                                      (319)           (250)           (692)
                                                                               ------------    ------------   -------------

Cash flows from financing activities:

     Net increase in advances from affiliates                                        2,215           3,487             885
     Net increase (decrease) in bank notes payable                                  (2,978)         (2,193)            396
     Dividends paid                                                                      -             (74)           (301)
     Unrealized losses from securities                                                  (7)              -               -
     Stock options exercised                                                             -               -              12
                                                                               ------------    ------------   -------------

         Net cash provided by (used in) financing activities                          (770)          1,220             992
                                                                               ------------    ------------   -------------

Net increase (decrease) in cash                                                       (228)            170            (298)

Cash at beginning of period                                                            234              64             362
                                                                               ------------    ------------   -------------

Cash at end of period                                                        $           6   $         234  $           64
                                                                               ============    ============   =============


Supplemental schedule of non-cash financing activities:

   The Company issued 6,000,000 shares of preferred stock
   series D upon the conversion of $5,000,000 of long-term
   debt owed to affiliates during 1998.   (See Note 12)


                        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"),  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  hav  e  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 $1,329,000  and $1,026,000 as of December 31, 1998 and
         1997  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
         $44,000  for the  year  ended  December  31,  1998.  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  cashflow is  expected to exceed the  carrying
         value of goodwill, the asset is considered to be unimpaired.

         OTHER  ASSETS - Other  assets at December  31, 1998 and 1997 consist of
         patents  and   trademarks   held  and  applied  for  by  Leisure,   and
         additionally, at December 31, 1998 a lawsuit judgment.

         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.

         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.


                                      F-6
<PAGE>


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


         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 which 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.  These notes were  assumed by Williams in the  financial
         restructuring in 1998.

         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.  These notes were assumed by Williams in
         the financial restructuring in 1998.

         Williams Controls,  Inc.  ("Williams") - Williams has the same chairman
         as the  Company,  which  individual  is a  major  shareholder  of  each
         company.  Williams owns 686,275  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, 1998.

         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.

         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.

                                      F-7
<PAGE>

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


      The Company's  interest expense paid to Williams was $346,000 and $194,450
      for the years ended December 31, 1998 and 1997 respectively. (See Note 4).


      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,
                                        ------------------
                                        1998          1997
                                       ------        ------
         Raw materials                 $1,493        $1,499
         Work-in-progress               1,052         1,026
         Finished goods                 3,135         3,873
                                       ------        ------

         Total                         $5,680        $6,398
                                       ======        ======

4.    DEBT
      ----
      On December 31, 1998 the Company's total debt was $7,724,000 owed to banks
      and Williams. This compares to $13,479,000 for December 31, 1997 which was
      owed banks,  Williams and other affiliates.  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, 1998 is  $1,985,000.  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.


                                      F-8
<PAGE>

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


      The Company's Bank borrowings consisted of the following:


      ($000)
                                                     December 31,
                                             -------------------------
      Revolving credit facility:             1998                1997
                                             ------              ------
        Balance                            $  3,467           $  6,017
        Interest rate                          8.75%               9.0%
        Unused amount of facility          $    350           $     96
        Average amount outstanding
        during the period                  $  4,997           $  6,091

        Weighted average interest rate          9.1%               9.0%
        Maximum amount outstanding
        during the period                  $  6,771           $  7,218

      Outstanding commercial letters of credit totaled approximately $60,000 and
      $526,000 at December 31, 1998 and 1997 respectively.

      Other  December  31, 1998 debt  consisted of  $1,587,000  from related and
      affiliated  parties,  a $488,000  machinery and  equipment  term loan with
      Wells  Fargo,  the  $1,985,000  (bridge)  term  loan with U. S. Bank and a
      $197,000 real estate loan.

      Debt payments are as scheduled ($000):

                       1999              $   216
                       2000                1,954
                       2001                 5,554  (Term Loans & Revolver)
                       2002                    0
                       2003                    0
                       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 for its working capital requirements.


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.



                                      F-9
<PAGE>

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


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


                                          Year Ended December 31,
                                        -------------------------
                                        1998       1997       1996
                                        -----      -----      -----
      Statutory tax expense
        (benefit) at 34%               $(502)    $(1,195)    $ (893)
      Utilization of net
        operating loss
        carry forward                      -           -          -
      Loss producing no current
        tax benefit                      502       1,195        893
                                       ------    -------     -------
                                       $   -     $     -      $   -
                                       ======    =======     =======

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

                                                   December 31,
                                                 ---------------
                                                 1998       1997
                                                 -----      -----
      Deferred tax assets:
        Accrued expenses                        $   45     $   42
        Reserves                                   151        329
        NOL carryforwards                        4,766      4,072

        Sub total                               $4,962     $4,443

      Deferred tax liability,
        principally depreciation and amortization  (99)       (97)
        Valuation allowance                     (3,744)    (3,227)
                                                -------    -------

         Net                                    $1,119      $1,119
                                                =======    ========

      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 $1,119,000 of deferred tax
      assets will be realized.  The remaining  valuation allowance of $3,744,000
      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.


                                      F-10
<PAGE>


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



The Company had net  operating  loss carry  forwards for Federal tax purposes of
approximately  $14,018,000 at December 31, 1998, which expire in varying amounts
in  the  years  2006  through  2018.  Operating  loss  carry  forwards  totaling
$1,144,000,  $4,270,000,  $2,139,000 and $727,000 are available to offset future
state  taxable  income of  Sports,  Ajay,  Leisure  Life and Palm  Springs  Golf
respectively,  which expire in varying  amounts in the years 2006 through  2018.
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.

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, 1998, 1997 and 1996,  dividends in arrears on the 8%
            cumulative  convertible  preferred  Series B stock  were  $1,006,575
            ($80.53 per share), $906,575 ($72.53 per share) and $806,575 ($64.53
            per  share)  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 1998 or 1997. At
            December  31,  1998  and  1997,  dividends  in  arrears  on the  10%
            cumulative convertible preferred Series C stock were $576,174 ($2.00
            per share) and $296,000 ($1.00 per share). 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
            1996, 1997 or 1998.

                                      F-11
<PAGE>


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



      (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, January 1, 1996           2,561,683     $ 2.04 - 6.00

            Exercised by Employees                (5,000)      2.40
            Issued to Directors                    1,668       3.75        (ii)
            Issued to Employees                  116,667       2.40       (iii)
            Issued for Acquisition               133,334       4.50 - 5.40 (iv)
            Expired                              (40,417)      4.80 - 6.00
                                               ----------
            Balance, December 31, 1996         2,767,935     $ 2.04 - 6.00

            Issued to Employees                    8,334       2.40         (v)
            Expired                              (27,500)      2.40 - 3.75
            Repriced options                  (2,151,313)      2.04 - 3.00 (vi)
            Repriced options                   2,151,313       1.08        (vi)

            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       (vii)
                                              -----------

            Balance, December 31, 1998         2,628,150     $ 1.08 - 6.00




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

      (ii)  Director stock options.


                                      F-12
<PAGE>


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


      (iii) Employee  stock  options of which 42,917 were vested and 30,834 were
            canceled since issuance.


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

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

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

      (vii) Director options  - 33% vested.



7.    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.


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

                                Year  ended   December 31,
                             ------------------------------
      Customer                  1998       1997      1996
      --------               -------      ------     ------
         A                       28%         30%        29%
         B                       26%         15%        14%
         C                         *         11%          *


                                      * Amounts are less than 10% of net sales.












                                      F-13
<PAGE>


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



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, 1998 and 1997 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                     GOLF
                                               --------------------
                                                Mass      Specialty
       1998                         Furniture   Merchant  Golf Stores  Corporate  Consolidated
      ----------                    ---------   --------  -----------  ---------  -------------
<S>                                 <C>         <C>       <C>          <C>        <C>

      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


                                                     GOLF
                                                -------------------
                                                Mass      Specialty
       1997                         Furniture   Merchant  Golf Stores  Corporate  Consolidated
      ----------                    ---------   --------  -----------  ---------  -------------
      Sales                           $ 4,358    $21,623      $ 4,349          -        $30,330
      Operating profit/(loss)            (186)       915       (2,090)      (731)        (2,092)
      Assets                            2,456     10,914        3,244          -         16,614
      Depreciation/Amortization            80        215           63          -            358
      Capital Expenditures                136        103           11          -            250

</TABLE>


9 .   SPALDING AND GARY PLAYER LICENSE AGREEMENTS
      -------------------------------------------

      Ajay  has  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 will pay Spalding  $240,000  during the phase out period.  The
      most recent  Spalding  agreement  previously  contained  a minimum  annual
      royalty of $550,000 plus 2%  advertising  of which 1% was paid direct.  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 new 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.  The newly  executed  Gary Player
      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. (See Note 14).

      Earned  royalty  expense due Spalding was $448,000,  $553,000 and $480,000
      for the years ended December 31, 1998, 1997 and 1996, respectively.

                                      F-14

<PAGE>


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




10.   LEASES
      ------

      Future  aggregate  minimum lease  payments under  noncancelable  operating
      leases  with  initial  or  remaining  terms in  excess  of one year are as
      follows ($000):


                  1999                       $     613
                  2000                             581
                  2001                             372
                  2002                             176
                  2003                             170
                  2004 and thereafter                0
                                             ---------
                                             $   1,912
                                             =========

      Total rental expense ($000) under operating leases (net of sublease rental
      income from an affiliate of $0, $0 and $8,  respectively)  was $605,  $701
      and  $618  for  the  years  ended  December  31,  1998,   1997  and  1996,
      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 1998  ($380,000),
      1997  ($396,000),  and 1996  ($401,000) by the weighted  average number of
      common shares outstanding. No exercise of outstanding warrants was assumed
      in  1998,  1997  or  1996,   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. Diluted EPS is computed similar to fully diluted EPS. SFAS No.
      128 requires  restatement of all EPS data that was presented in previously
      filed reports.  Earnings per share for 1996 has not changed under SFAS No.
      128 since the warrants outstanding are anti-dilutive.






                                      F-15
<PAGE>

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




12.   SUPPLEMENTAL CASH FLOW INFORMATION
      ----------------------------------

      Cash paid for interest was  $1,209,693,  $776,077 and  $1,098,819  for the
      years ended December 31, 1998, 1997 and 1996, 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.

            During 1996  ,17,620  preferred  stock  shares were  converted  into
            42,716 shares of common stock.

            In 1996 an  employee  exercised  options  to  acquire  5,000  common
            shares.

            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 which  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.


13.   COMMITMENTS  AND  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.  (See
      also notes 4 and 9).










                                      F-16
<PAGE>


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




14.   SUBSEQUENT  EVENTS
      ------------------

      a.    Spalding and Gary Player License Agreements
            -------------------------------------------

            Ajay has 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 will pay Spalding
            $240,000  during  the phase out  period.  The most  recent  Spalding
            agreement  previously contained a minimum annual royalty of $550,000
            plus 2% advertising of which 1% was paid direct.

            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 new 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.
            The newly executed Gary Player 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.


                                      F-17
<PAGE>



                                                                  Schedule II


                       AJAY SPORTS, INC. AND SUBSIDIARIES
                        Valuation and Qualifying Accounts
                  Years ended December 31, 1998, 1997, and 1996
                             (Amounts in Thousands)




                                                                      Balance
                            Beginning   Charged to   Deducted from    at end
                            Balance     expense      Reserve          of period
                            ---------   ----------   -------------    ---------

Reserve for Product Warranty:

   Year ended:

     December 31, 1998          $152        $  70            $119  (1)    $103
     December 31, 1997            85          309             242          152
     December 31, 1996           136          203             254           85


Reserve for Doubtful Receivables:

   Year ended:

     December 31, 1998          $243        $  50            $198  (2)    $ 95
     December 31, 1997           140          355             252          243
     December 31, 1996           287           91             238          140


Reserve for Inventory Obsolescence:

   Year ended:

     December 31, 1998          $425        $292             $417         $300
     December 31, 1997           491         398              464          425
     December 31, 1996           384         498              391          491



Notes:
------

(1)  Represents amounts paid for product warranty claims.

(2)  Represents amounts charged off as uncollectible.



                                      F-18
<PAGE>