Item 1.      FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                              AJAY SPORTS, INC. AND SUBSIDIARIES
                                                  CONSOLIDATED BALANCE SHEETS
                                                         (IN THOUSANDS)


                                                                                September 30, 1998                     December 31,
                                                                                       (Unaudited)                             1997
                                                                                -------------------               -----------------
<S>                                                                             <C>                               <C> 
ASSETS                                                                                                                    
Current assets:
     Cash and cash equivalents                                                            $      20                      $      234
     Marketable securities                                                                      500                               - 
     Trade accounts receivable, net                                                           2,823                           5,060
     Inventories                                                                              5,332                           6,398
     Prepaid expenses and other current assets                                                  546                             304
     Deferred tax benefit                                                                       363                             363
                                                                                          ---------                       ---------
                    Total current assets                                                      9,584                          12,359

Fixed assets, net                                                                             1,637                           1,723
Other assets                                                                                    187                             106
Deferred tax benefit                                                                            756                             756
Goodwill                                                                                      1,632                           1,670
                                                                                          ---------                       ---------
                   Total assets                                                           $  13,796                       $  16,614
                                                                                          =========                       =========

LIABILITIES AND STOCKHOLDERS' EQUITY  

Current liabilities:
      Notes payable to affiliates                                                         $     100                       $     160
      Notes payable to bank                                                                     195                             107
      Current portion of capital lease                                                            3                               4
      Accounts payable                                                                        1,219                           3,204
      Accrued expenses                                                                          513                             684
                                                                                          ---------                       --------- 
Total current liabilities                                                                     2,030                           4,159 

Notes payable to affiliates  -  long term                                                     1,587                           4,212
Notes payable to banks  -  long  term                                                         6,416                           9,017
Commitments and contingencies                                                                     -                               -

Stockholders' equity:
      Preferred stock, 10,000,000 shares authorized,
         Series B, $0.01 par value, 12,500 shares
           outstanding at liquidation value                                                   1,250                           1,250
         Series C, $0.01 par value, 296,170 shares
           outstanding at stated value                                                        2,962                           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  shares outstanding                                                         39                             233
Additional paid-in capital                                                                   14,446                           9,313
Accumulated deficit                                                                         (14,994)                        (14,532)
                                                                                         ----------                       --------- 
            Total stockholders' equity                                                        3,763                            (774)
                                                                                         ----------                       ---------
             Total liabilities and stockholders' equity                                  $   13,796                       $  16,614
                                                                                         ==========                       =========

</TABLE>

                                                              1

<PAGE>


<TABLE>
<CAPTION>

                                                AJAY SPORTS, INC. AND SUBSIDIARIES
                                               CONSOLIDATED STATEMENTS OF OPERATIONS
                                              (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                                            (UNAUDITED)


                                                          Three Months                      Nine  Months
                                                       Ended September 30,               Ended September 30,
                                                       1998            1997              1998           1997
                                                      -----           -----             -----          -----   
<S>                                                <C>             <C>               <C>            <C>    
   
Net sales                                          $  4,214        $  6,854          $ 20,803       $ 24,039

Cost of sales                                         3,619           6,248            17,284         20,356
                                                     ------          ------            ------         ------
      Gross profit                                      595             606             3,519          3,683

Selling, general and                                    857           1,248             3,063          3,710
   administrative expenses                           ------          ------            ------         ------

      Operating income  (loss)                         (262)           (642)              456            (27)

Non-operating expense:
      Interest expense, affiliates                       69              96               245            157
      Interest expense, non-affiliates                  194             234               668            889
      Other, net                                        100              24                 2             44
                                                     ------          ------            ------         ------ 
      Total non-operating expense                       363             354               915          1,090
                                                     ------          ------            ------         ------   
Loss before income taxes                               (625)           (996)             (459)        (1,117)

Net loss                                           $   (625)       $   (996)         $   (459)      $ (1,117)
                                                     ======          ======            ======         ======          

Basic and diluted earnings per share*              $  (0.18)       $  (0.28)         $  (0.19)      $  (0.36)
                                                     ======          ======            ======         ======
Weighted average common shares outstanding            3,920           3,879             3,892          3,879
                                                     ======          ======            ======         ====== 



*     Computed by dividing net income or loss,  after  reduction for undeclared,
      cumulative  preferred stock  dividends,  by the weighted average number of
      common shares outstanding.

            Net loss as reported above             $   (625)       $   (996)         $   (459)      $ (1,117)
            Undeclared cumulative preferred dividends   (90)            (99)             (288)          (297)
                                                     ------          ------            ------         ------     
            Loss applicable to common stock        $   (715)       $ (1,095)         $   (747)      $ (1,414)
                                                     ======          ======            ======         ======     




</TABLE>
                                                               2

<PAGE>
<TABLE>
<CAPTION>

                                                  AJAY SPORTS, INC. AND SUBSIDIARIES
                                                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                       (IN THOUSANDS), (UNAUDITED)



                                                                                        Nine Months
                                                                                    Ended  September 30,
                                                                                 1998                1997
                                                                                -------             -------
<S>                                                                             <C>                 <C>               
Cash flows from operating activities:
     Net income (loss)                                                          $  (459)            $  (1,117)
      Adjustments to reconcile net cash flows from
      operating activities:
                  Depreciation and amortization                                     273                   292
      Change in assets [(increase)/decrease] and
       liabilities [increase/(decrease)]:
                    Marketable securities                                          (500)                    -
                    Trade accounts receivable, net                                2,237                  (730)
                    Inventories                                                   1,066                   958
                    Prepaid expenses and other current assets                      (242)                 (418)
                    Other assets                                                    (81)                   86
                    Accounts payable                                             (1,985)                  401
                    Accrued expenses                                               (172)                  333
                                                                                 -------               -------
                    Net cash used in
                    operating activities                                            137                  (195)
                                                                                 -------               -------    
Cash flows from investing activities:
       Acquisitions of property, plant, equipment                                  (153)                 (220)
                                                                                 -------               -------    
                     Net cash used in
                     investing activities                                          (153)                 (220)
                                                                                 -------               -------    
Cash flows from financing activities:
        Net reduction in bank loans                                              (2,513)               (2,500)
        Increases in advances from affiliates                                     2,315                 3,051
        Dividends paid                                                               -                    (82)
                                                                                 -------               -------    
                      Net cash provided by
                      financing activities                                         (198)                  469
                                                                                 -------               -------    
Net increase (decrease) in cash                                                    (214)                   54
Cash at beginning of period                                                         234                    64
                                                                                 -------               -------    
Cash at end of period                                                           $    20               $   118
                                                                                 =======               =======    
Supplemental disclosures of cash flow information:
       Cash paid for interest                                                   $   899               $   880
                                                                                 =======               =======    
       Cash paid for income tax                                                       -                     -
                                                                                 =======               =======    




</TABLE>





                                                                  3

<PAGE>
                                      

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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.


Note 1.  BASIS OF PRESENTATION

The  condensed  consolidated  financial  statements  included  herein  have been
prepared by Ajay Sports,  Inc. (the "Company") without audit and pursuant to the
rules and regulations of the Securities and Exchange Commission.  In the opinion
of the Company, the financial statements reflect all adjustments,  which consist
only of normal recurring adjustments,  necessary to present fairly the financial
position of the Company at September 30, 1998 and the results of operations  for
the three and nine-month  periods ended September 30, 1998 and 1997 and the cash
flows for the same nine-month periods.

Certain  information  and footnote  disclosures  normally  included in financial
statements prepared in accordance with generally accepted accounting  principles
have been condensed or omitted pursuant to the SEC rules and regulations dealing
with  interim  financial  statements.  However,  the Company  believes  that the
disclosures  made in the  condensed  financial  statements  included  herein are
adequate to make the  information  presented  not  misleading.  These  condensed
financial statements should be read in conjunction with the financial statements
and notes thereto  included in the Company's  Annual Report on Form 10-K for the
fiscal year ended December 31, 1997.

The year-end  condensed  balance  sheet data was derived from audited  financial
statements,  but does not include all disclosures required by generally accepted
accounting principles.

The interim period results are not  necessarily  indicative of results which may
be expected for any other interim period or for the full year. Certain costs are
estimated for the full year and  allocated to interim  periods based on activity
associated with the interim period. Accordingly,  such costs are subject to year
end adjustment.


                                       4


<PAGE>



Note 2.  INVENTORIES


The major classes of inventories (rounded to thousands) are as follows:

                                 September 30,             December 31,
                                    1998                      1997
                                 -------------             ------------

Raw Materials                    $    1,261                $    1,499

Work in Process                       1,136                     1,026

Finished Goods                        2,935                     3,873
                                 -------------             ------------

                                 $    5,332                $    6,398
                                 =============             ============

Note 3.  DEBT

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 credit 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 on the  revolver is prime plus 1% and
prime plus 1.5% on the term loan.

In connection with the  restructuring  of the Wells Fargo Bank credit  facility,
the Company  entered into an agreement with Williams under which Williams agreed
to make  certain  additional  advances  to the  Company.  As a  result  of these
additional  investments  plus  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
1,851,667 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  will result in an improved  working  capital  position  enabling 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.

                                       5
<PAGE>



Note 4.  BUSINESS SEGMENT REPORTING


The  relative  contributions  to net sales,  operating  profit and  identifiable
assets of the Company's  industry segments for the quarter and nine months ended
September 30, 1998 and 1997 (unaudited) are as follows (in thousands):

------------------------------------------------------------------------------
                        Quarter Ended September 30, 1998
------------------------------------------------------------------------------
                                    GOLF
                                    ----------------------
                                    Mass     Specialty
                                    -------- ----------
                         Furniture  Merchant Golf Stores Corporate Consolidated
                         ---------  -------- ----------- --------- ------------ 
Net Sales                $    285  $   3,795  $    134   $      -   $    4,214
Operating Profit/(Loss)      (286)       211      (104)       (83)        (262) 
Total Assets                1,875      9,879     2,043          -       13,797  
Depreciation/Amortization      24         57        11          -           92
Capital Expenditures           40         38         -          -           78
------------------------------------------------------------------------------ 
------------------------------------------------------------------------------ 
                        Quarter Ended September 30, 1997
------------------------------------------------------------------------------
                                    GOLF
                                    --------------------
                                    Mass     Specialty
                                    -------- -----------                        
                         Furniture  Merchant Golf Stores Corporate Consolidated
                         ---------  -------- ----------- --------- ------------ 
Net Sales                $    403  $  5,424   $  1,027  $       -   $    6,854
Operating Profit/(Loss)      (340)      200       (374)      (128)        (642)
Total Assets                2,365    11,981      4,367          -       18,713
Depreciation/Amortization      31        54         14          -           99
Capital Expenditures           47        72          2          -          121
------------------------------------------------------------------------------  
------------------------------------------------------------------------------
                      Nine Months Ended September 30, 1998
------------------------------------------------------------------------------
                                    GOLF
                                    -------------------
                                    Mass     Specialty
                                    -------- ---------
                          Furniture Merchant Golf Stores Corporate Consolidated
                          --------- -------- ----------- --------- ------------ 
Net Sales                $  3,235  $ 16,442   $  1,126  $       -   $   20,803
Operating Profit/(Loss)       (27)    1,229       (344)      (402)         456
Total Assets                1,875     9,879      2,043          -       13,797
Depreciation/Amortization      73       167         33          -          273
Capital Expenditures          102        51          -          -          153
------------------------------------------------------------------------------  
------------------------------------------------------------------------------
                      Nine Months Ended September 30, 1997
------------------------------------------------------------------------------
                                    GOLF
                                    ------------------
                                    Mass     Specialty
                                    -------- ---------- 
                          Furniture Merchant Golf Stores Corporate Consolidated
                          --------- -------- ----------- --------- ------------ 
Net Sales                $  3,764  $  16,755  $  3,520 $        -   $   24,039
Operating Profit/(Loss)       103        833      (726)      (237)         (27)
Total Assets                2,365     11,981     4,367          -       18,713
Depreciation/Amortization      67        167        58          -          292
Capital Expenditures          102        105        13          -          220
------------------------------------------------------------------------------

The  year-on-year  $2.3 million  reduction in total assets in the specialty golf
store  segment  results  from the  Company  closing  its  California  golf  club
manufacturing  and office  facility and reducing its golf club  receivables  and
inventories.  Year-to-date  nine-months  sales  are off by $2.4  million  in the
specialty golf store channel due to de-emphasizing golf club sales.

                                       6
<PAGE>


Note 5.  DIVIDENDS

Dividends on Series B and C Convertible  Preferred  Stock have not been declared
for 1997 or 1998 due to  unavailability  of funds.  Dividends  are in arrears on
Series B in the amount of  $981,500  and on Series C in the amount of  $508,620.
Dividends  are permitted to be paid under the Wells bank credit  agreement  when
sufficient funds become available.
                                       7