UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549





FORM
10-Q





(Mark
One)





x
                Quarterly
      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934For
      the quarterly period ended September 30, 2010or ̈
                Transition
      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934For
      the transition period from to





Commission
File Number:  001-33978





ADAMS
GOLF, INC.


(Exact
name of registrant as specified in its charter)





Delaware
              75-2320087(State
      or other jurisdiction of incorporation or organization)
              (I.R.S.
      Employer Identification No.)2801
      E. Plano Pkwy, Plano, Texas
              75074(Address
      of principal executive offices)
              (Zip
      Code)





(972)-673-9000


(Registrant's
telephone number, including area code)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


x
Yes    ̈ No





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).


 ̈
Yes    ̈ No





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of "large accelerated filer",
"accelerated filer" and "smaller reporting company" in Rule 12b-2 of the
Exchange Act.





Large
accelerated filer  ̈     Accelerated
filer ̈
      Non-accelerated filer  ̈
       Smaller reporting company x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


 ̈
Yes   x No





The
number of outstanding shares of the registrant's common stock, par value $0.001
per share, was 7,478,247 on November 5, 2010.





ADAMS
GOLF, INC. AND SUBSIDIARIES





TABLE
OF CONTENTS





PagePART
      I
                              
                              FINANCIAL
      INFORMATIONItem
      1.
                              Financial
      StatementsCondensed
      Consolidated Balance Sheets - September 30, 2010 (unaudited) and December
      31, 2009
                              3Unaudited
      Condensed Consolidated Statements of Operations - Three and nine months
      ended September 30, 2010 and 2009
                              4Unaudited
      Condensed Consolidated Statement of Stockholders' Equity - Nine months
      ended September 30, 2010
                              5Unaudited
      Condensed Consolidated Statements of Cash Flows - Nine months ended
      September 30, 2010 and 2009
                              6Notes
      to Unaudited Condensed Consolidated Financial Statements
                              7-14Item
      2.
                              Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                              15-23Item
      3.
                              Quantitative
      and Qualitative Disclosures About Market Risk
                              24Item
      4T.
                              Controls
      and Procedures
                              24PART
      II
                              
                              OTHER
      INFORMATIONItem
      1.
                              Legal
      Proceedings
                              25-26Item
      1A.
                              Risk
      Factors
                              26Item
      2.
                              Unregistered
      Sales of Equity Securities and Use of Proceeds
                              N/AItem
      3.
                              Defaults
      Upon Senior Securities
                              N/AItem
      4.
                              (Removed
      and Reserved)
                              N/AItem
      5.
                              Other
      Information
                              N/AItem
      6.
                              Exhibits
                              26Signatures
                              27


2


Item
1.


ADAMS
GOLF, INC. AND SUBSIDIARIES





CONDENSED
CONSOLIDATED BALANCE SHEETS


(in
thousands, except share amounts)





September 30,
                                                  2010
                                                
                                                
                                                December 31,
                                                  2009(unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
                                                
                                                $
                                                10,268
                                                
                                                
                                                $
                                                12,562Trade
      receivables, net of allowance for doubtful accounts of $1,848 (unaudited)
      and $1,625 in 2010 and 2009, respectively
                                                
                                                
                                                18,266
                                                
                                                
                                                
                                                13,136Inventories,
      net
                                                
                                                
                                                23,099
                                                
                                                
                                                
                                                19,721Prepaid
      expenses
                                                
                                                
                                                695
                                                
                                                
                                                
                                                378Other
      current assets
                                                
                                                
                                                114
                                                
                                                
                                                
                                                22Total
      current assets
                                                
                                                
                                                52,442
                                                
                                                
                                                
                                                45,819Property
      and equipment, net
                                                
                                                
                                                743
                                                
                                                
                                                
                                                934Deferred
      tax assets, net
                                                
                                                
                                                10,228
                                                
                                                
                                                
                                                10,228Other
      assets, net
                                                
                                                
                                                161
                                                
                                                
                                                
                                                238$
                                                63,574
                                                
                                                
                                                $
                                                57,219LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable
                                                
                                                $
                                                4,896
                                                
                                                
                                                $
                                                5,479Accrued
      expenses and other current liabilities
                                                
                                                
                                                10,124
                                                
                                                
                                                
                                                11,228Total
      current liabilities
                                                
                                                
                                                15,020
                                                
                                                
                                                
                                                16,707Other
      liabilities
                                                
                                                
                                                —
                                                
                                                
                                                
                                                2Total
      liabilities
                                                
                                                
                                                15,020
                                                
                                                
                                                
                                                16,709Stockholders'
      equity:Preferred
      stock, $0.01 par value; authorized 1,250,000 shares; none
      issued
                                                
                                                
                                                —
                                                
                                                
                                                
                                                —Common
      stock, $0.001 par value; authorized 12,500,000 shares; 7,759,184 and
      7,387,309 shares issued and 7,348,247 and 6,976,372 shares outstanding at
      September 30, 2010 (unaudited) and December 31, 2009,
      respectively
                                                
                                                
                                                8
                                                
                                                
                                                
                                                7Additional
      paid-in capital
                                                
                                                
                                                94,258
                                                
                                                
                                                
                                                93,576Accumulated
      other comprehensive income
                                                
                                                
                                                2,326
                                                
                                                
                                                
                                                2,074Accumulated
      deficit
                                                
                                                
                                                (43,284
                                                )
                                                
                                                
                                                (50,393
                                                )Treasury
      stock, 410,937 common shares at September 30, 2010 and December 31, 2009,
      at cost
                                                
                                                
                                                (4,754
                                                )
                                                
                                                
                                                (4,754
                                                )Total
      stockholders' equity
                                                
                                                
                                                48,554
                                                
                                                
                                                
                                                40,510$
                                                63,574
                                                
                                                
                                                $
                                                57,219Contingencies





See
accompanying notes to unaudited condensed consolidated financial
statements.


3


ADAMS
GOLF, INC. AND SUBSIDIARIES





CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(in
thousands, except per share amounts)


(unaudited)





Three Months Ended
                                      
                                      
                                      Nine Months EndedSeptember 30,
                                      
                                      
                                      September 30,2010
                                      
                                      
                                      2009
                                      
                                      
                                      2010
                                      
                                      
                                      2009Net
      sales
                                      
                                      $
                                      19,685
                                      
                                      
                                      $
                                      17,385
                                      
                                      
                                      $
                                      73,643
                                      
                                      
                                      $
                                      64,115Cost
      of goods sold
                                      
                                      
                                      11,432
                                      
                                      
                                      
                                      11,056
                                      
                                      
                                      
                                      40,653
                                      
                                      
                                      
                                      45,999Gross
      profit
                                      
                                      
                                      8,253
                                      
                                      
                                      
                                      6,329
                                      
                                      
                                      
                                      32,990
                                      
                                      
                                      
                                      18,116Operating
      expenses:Research
      and development expenses
                                      
                                      
                                      663
                                      
                                      
                                      
                                      610
                                      
                                      
                                      
                                      1,881
                                      
                                      
                                      
                                      2,201Selling
      and marketing expenses
                                      
                                      
                                      4,883
                                      
                                      
                                      
                                      4,548
                                      
                                      
                                      
                                      17,292
                                      
                                      
                                      
                                      15,936General
      and administrative expenses
                                      
                                      
                                      2,087
                                      
                                      
                                      
                                      1,614
                                      
                                      
                                      
                                      6,496
                                      
                                      
                                      
                                      5,199Settlement
      expense
                                      
                                      
                                      —
                                      
                                      
                                      
                                      5,000
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      5,000Total
      operating expenses
                                      
                                      
                                      7,633
                                      
                                      
                                      
                                      11,772
                                      
                                      
                                      
                                      25,669
                                      
                                      
                                      
                                      28,336Operating
      income (loss)
                                      
                                      
                                      620
                                      
                                      
                                      
                                      (5,443
                                      )
                                      
                                      
                                      7,321
                                      
                                      
                                      
                                      (10,220
                                      )Other
      income (expense):Interest
      expense, net
                                      
                                      
                                      (7
                                      )
                                      
                                      
                                      (19
                                      )
                                      
                                      
                                      (25
                                      )
                                      
                                      
                                      (71
                                      )Other,
      net
                                      
                                      
                                      (8
                                      )
                                      
                                      
                                      (5
                                      )
                                      
                                      
                                      (13
                                      )
                                      
                                      
                                      45Income
      (loss) before income taxes
                                      
                                      
                                      605
                                      
                                      
                                      
                                      (5,467
                                      )
                                      
                                      
                                      7,283
                                      
                                      
                                      
                                      (10,246
                                      )Income
      tax expense
                                      
                                      
                                      70
                                      
                                      
                                      
                                      4
                                      
                                      
                                      
                                      174
                                      
                                      
                                      
                                      64Net
      income (loss)
                                      
                                      $
                                      535
                                      
                                      
                                      $
                                      (5,471
                                      )
                                      
                                      $
                                      7,109
                                      
                                      
                                      $
                                      (10,310
                                      )Net
      income (loss) per common share - basic
                                      
                                      $
                                      0.07
                                      
                                      
                                      $
                                      (0.82
                                      )
                                      
                                      $
                                      1.00
                                      
                                      
                                      $
                                      (1.55
                                      )-
      diluted
                                      
                                      $
                                      0.07
                                      
                                      
                                      $
                                      (0.82
                                      )
                                      
                                      $
                                      0.92
                                      
                                      
                                      $
                                      (1.55
                                      )





See
accompanying notes to unaudited condensed consolidated financial
statements.


4


ADAMS
GOLF, INC. AND SUBSIDIARIES





CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY


(in
thousands, except share amounts)





Nine
Months Ended September 30, 2010


(unaudited)





Shares of
                        
                        
                        
                        
                        
                        Additional
                        
                        
                        Accumulated Other
                        
                        
                        
                        
                        
                        
                        
                        
                        Cost of
                        
                        
                        TotalCommon
                        
                        
                        Common
                        
                        
                        Paid-in
                        
                        
                        Comprehensive
                        
                        
                        Accumulated
                        
                        
                        Comprehensive
                        
                        
                        Treasury
                        
                        
                        Stockholders'Stock
                        
                        
                        Stock
                        
                        
                        Capital
                        
                        
                        Income
                        
                        
                        Deficit
                        
                        
                        Income (Loss)
                        
                        
                        Stock
                        
                        
                        EquityBalance,
      December 31, 2009
                        
                        
                        7,387,309
                        
                        
                        $
                        7
                        
                        
                        $
                        93,576
                        
                        
                        $
                        2,074
                        
                        
                        $
                        (50,393
                        )
                        
                        
                        
                        
                        $
                        (4,754
                        )
                        
                        $
                        40,510Comprehensive
      income:Net
      income
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        7,109
                        
                        
                        $
                        7,109
                        
                        
                        
                        —
                        
                        
                        
                        7,109Foreign
      currency translation
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        252
                        
                        
                        
                        —
                        
                        
                        
                        252
                        
                        
                        
                        —
                        
                        
                        
                        252Comprehensive
      income
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        $
                        7,361
                        
                        
                        
                        —
                        
                        
                        
                        —Stock
      options exercised
                        
                        
                        231,875
                        
                        
                        
                        1
                        
                        
                        
                        9
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        
                        
                        
                        
                        —
                        
                        
                        
                        10Issuance
      of restricted stock
                        
                        
                        140,000
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        
                        
                        
                        
                        —
                        
                        
                        
                        —Compensatory
      stock and stock options
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        673
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        
                        
                        
                        
                        —
                        
                        
                        
                        673Balance,
      September 30, 2010
                        
                        
                        7,759,184
                        
                        
                        $
                        8
                        
                        
                        $
                        94,258
                        
                        
                        $
                        2,326
                        
                        
                        $
                        (43,284
                        )
                        
                        
                        
                        
                        
                        $
                        (4,754
                        )
                        
                        $
                        48,554





See
accompanying notes to unaudited condensed consolidated financial
statements.


5


ADAMS
GOLF, INC. AND SUBSIDIARIES





CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(in
thousands)


(unaudited)


Nine Months EndedSeptember 30,2010
                      
                      
                      2009Cash
      flows from operating activities:Net
      income (loss)
                      
                      $
                      7,109
                      
                      
                      $
                      (10,310
                      )Adjustments
      to reconcile net income (loss) to net cash used in operating
      activities:Depreciation
      and amortization
                      
                      
                      381
                      
                      
                      
                      463Amortization
      of deferred compensation
                      
                      
                      673
                      
                      
                      
                      647Provision
      for doubtful accounts
                      
                      
                      959
                      
                      
                      
                      968Provision
      for inventory reserve
                      
                      
                      99
                      
                      
                      
                      1,783Changes
      in operating assets and liabilities:Trade
      receivables
                      
                      
                      (6,089
                      )
                      
                      
                      (2,475
                      )Inventories
                      
                      
                      (3,476
                      )
                      
                      
                      11,218Prepaid
      expenses
                      
                      
                      (317
                      )
                      
                      
                      452Other
      current assets
                      
                      
                      (92
                      )
                      
                      
                      (160
                      )Other
      assets
                      
                      
                      —
                      
                      
                      
                      (3
                      )Accounts
      payable
                      
                      
                      (584
                      )
                      
                      
                      (2,370
                      )Accrued
      expenses and other current liabilities
                      
                      
                      (1,095
                      )
                      
                      
                      4,189Net
      cash provided by (used in) operating activities
                      
                      
                      (2,432
                      )
                      
                      
                      4,402Cash
      flows from investing activities:Purchases
      of equipment
                      
                      
                      (100
                      )
                      
                      
                      (169
                      )Net
      cash used in investing activities
                      
                      
                      (100
                      )
                      
                      
                      (169
                      )Cash
      flows from financing activities:Principal
      payments under capital lease obligation
                      
                      
                      (11
                      )
                      
                      
                      (11
                      )Proceeds
      from exercise of stock options
                      
                      
                      10
                      
                      
                      
                      3Debt
      financing costs
                      
                      
                      (14
                      )
                      
                      
                      —Proceeds
      from debt
                      
                      
                      —
                      
                      
                      
                      (21
                      )Net
      cash used in financing activities
                      
                      
                      (15
                      )
                      
                      
                      (29
                      )Effects
      of exchange rate changes
                      
                      
                      253
                      
                      
                      
                      1,243Net
      increase (decrease) in cash and cash equivalents
                      
                      
                      (2,294
                      )
                      
                      
                      5,447Cash
      and cash equivalents at beginning of period
                      
                      
                      12,562
                      
                      
                      
                      5,960Cash
      and cash equivalents at end of period
                      
                      $
                      10,268
                      
                      
                      $
                      11,407Supplemental
      disclosure of cash flow informationInterest
      paid
                      
                      $
                      29
                      
                      
                      $
                      78Income
      taxes paid
                      
                      $
                      174
                      
                      
                      $
                      64





See
accompanying notes to unaudited condensed consolidated financial
statements.


6


ADAMS
GOLF, INC. AND SUBSIDIARIES





NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





1.   Basis
of Presentation





The
unaudited condensed consolidated financial statements of Adams Golf, Inc. and
its subsidiaries (the "Company", "Adams Golf", "we", "us", or "our") for the
three and nine months ended September 30, 2010 and 2009 have been prepared by us
pursuant to the rules and regulations of the Securities and Exchange Commission
("SEC"). The information included reflects all adjustments (consisting only of
normal recurring accruals and adjustments) which are, in the opinion of
management, necessary to fairly state the operating results for the respective
periods.   However, these operating results are not necessarily
indicative of the results expected for the full fiscal year.   Certain
information and footnote disclosures normally included in annual consolidated
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to SEC rules and
regulations.  The notes to the unaudited condensed consolidated
financial statements should be read in conjunction with the notes to the
consolidated financial statements contained in our 2009 Annual Report on Form
10-K filed with the SEC on March 9, 2010.  The condensed consolidated
balance sheet of Adams Golf, Inc. as of December 31, 2009 has been derived from
the audited consolidated balance sheet as of that date.





We
design, assemble, market and distribute premium quality, technologically
innovative golf clubs for all skill levels.  Our recently launched
products include Idea a7 and a7 OS irons and hybrids, Idea Tech V3 irons and
hybrids, Idea Pro Black CB1 and Idea Black CB2 irons and hybrids, Idea Black
Super hybrid, Speedline Fast 10 and Speedline 9064 drivers, Speedline Fast 10
hybrid fairway woods.  We also continue to develop new products under
the name of Women's Golf Unlimited, the Lady Fairway and Square 2
brands.  We continue to sell certain older product lines, including
the Idea Tech a4 and a4 OS irons and I-woods,  Idea a3 and a3 OS
I-woods and irons, the Tight Lies family of fairway woods, the Puglielli series
of wedges, and certain accessories.





The
consolidated financial statements include the accounts of the Company and its
subsidiaries, all of which are wholly-owned.  All significant
intercompany accounts and transactions have been eliminated in
consolidation.





2.   Inventories





Inventories
consisted of the following on the dates indicated (in thousands):





September 30,
                          
                          
                          December 31,2010
                          
                          
                          2009(unaudited)Finished
      goods
                          
                          $
                          15,296
                          
                          
                          $
                          13,057Component
      parts
                          
                          
                          9,946
                          
                          
                          
                          8,708Allowance
      for inventory obsolescence
                          
                          
                          (2,143
                          )
                          
                          
                          (2,044
                          )Total
      inventory
                          
                          $
                          23,099
                          
                          
                          $
                          19,721





Inventory
is determined using the first-in, first-out method and is recorded at the lower
of cost or market value.  The inventory balance is comprised of
purchased raw materials and finished goods at their respective purchase costs;
labor, assembly and other capitalizable overhead costs, which are then applied
to each unit completed; retained costs representing the excess of manufacturing
and other overhead costs that are not yet applied to finished goods; and an
estimated allowance for obsolete inventory. At September 30, 2010 and
December 31, 2009, inventories included $699,000 and $708,000 of consigned
inventory, respectively.


7


ADAMS
GOLF, INC. AND SUBSIDIARIES





NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





3.   Accrued
Expenses and Other Current Liabilities





Accrued
expenses consisted of the following on the dates indicated (in
thousands):





September 30,
                            
                            
                            December 31,2010
                            
                            
                            2009(unaudited)Payroll
      and commissions
                            
                            $
                            1,185
                            
                            
                            $
                            284Product
      warranty and sales returns and promotional allowances
                            
                            
                            3,454
                            
                            
                            
                            2,209Professional
      services
                            
                            
                            88
                            
                            
                            
                            25Accrued
      settlement expense
                            
                            
                            —
                            
                            
                            
                            5,000Accrued
      sales promotions
                            
                            
                            2,138
                            
                            
                            
                            1,060Deferred
      revenue
                            
                            
                            1,478
                            
                            
                            
                            1,273Other
                            
                            
                            1,781
                            
                            
                            
                            1,377Total
      accrued expenses and other current liabilities
                            
                            $
                            10,124
                            
                            
                            $
                            11,228





4.   Financial
Instruments





The
carrying amounts of cash and cash equivalents, accounts receivable, accounts
payable, and accrued expenses approximate fair value due to the short maturity
of these instruments.





5.   Net
Income (Loss) per Common Share





The
weighted average common shares used for determining basic and diluted income per
common share were7,167,316 and
7,779,316, respectively, for the three months ended September 30, 2010,
respectively, and the shares used for determining basic and diluted loss per
common share were6,650,193 for
the three months ended September 30, 2009.





The
effect of all warrants and options to purchase shares of our common stock for
the three months ended September 30, 2010 resulted in additional dilutive shares
of 612,000.  The effect of all warrants and options to purchase shares
of our common stock for the three months ended September 30, 2009 were excluded
from the calculation of dilutive shares as the effect of inclusion would have
been antidilutive.





The
weighted average common shares used for determining basic and diluted income per
common share were7,113,568 and
7,728,316, respectively, for the nine months ended September 30, 2010 and the
common shares used for determining basic and diluted loss per common share were
6,632,734 for the nine months ended September 30, 2009.





The
effect of all warrants and options to purchase shares of our common stock for
the nine months ended September 30, 2010 resulted in additional dilutive shares
of 614,748. The effect of all warrants and options to purchase shares of our
common stock for the nine months ended September 30, 2009 were excluded from the
calculation of dilutive shares as the effect of inclusion would have been
antidilutive.


8


ADAMS
GOLF, INC. AND SUBSIDIARIES





NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





6.   Geographic
Segment and Data





We
generate substantially all revenues from the design, assembly, marketing and
distribution of premium quality, technologically innovative golf clubs and
accessories.  Our products are distributed in both domestic and
international markets.  Net sales for these markets consisted of the
following during the periods indicated (in thousands):





Three Months Ended September 30,
                                
                                
                                Nine Months Ended September 30,2010
                                
                                
                                2009
                                
                                
                                2010
                                
                                
                                2009(unaudited)
                                
                                
                                (unaudited)United States
                                
                                $
                                15,329
                                
                                
                                $
                                14,455
                                
                                
                                $
                                58,982
                                
                                
                                $
                                52,503Rest
      of World
                                
                                
                                4,356
                                
                                
                                
                                2,930
                                
                                
                                
                                14,661
                                
                                
                                
                                11,612Total
      net sales
                                
                                $
                                19,685
                                
                                
                                $
                                17,385
                                
                                
                                $
                                73,643
                                
                                
                                $
                                64,115





Foreign
net sales are generated in various regions including, but not limited to, Canada
(a majority of our foreign sales), Europe, Japan, Australia, South Africa, and
South America.  A change in our relationship with one or more of our
customers or distributors could negatively impact the volume of foreign
sales.





7.   Income
Taxes





We
account for income taxes in accordance with FASB ASC 740, Income Taxes.  
FASB ASC 740 prescribes the use of the liability method whereby deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to the differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards.  Deferred tax assets and
liabilities are measured using enacted rates expected to apply to taxable income
in the years in which those temporary differences are expected to be recovered
or settled.  The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.  In assessing the realizability of deferred income tax
assets, we consider whether it is more likely than not that some portion or all
of the deferred income tax assets will be realized.  The ultimate
realization of deferred income tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences
become deductible.  Due to our historical operating results,
management is unable to conclude on a more likely than not basis that all
deferred income tax assets generated from net operating losses and other
deferred tax assets will be realized.   However, due to our earnings
history over the past years and projected future earnings, we have concluded
that it is more likely than not that a portion of the deferred tax asset will be
realized.  We have recognized a valuation allowance equal to a portion
of the deferred income tax asset for which realization is
uncertain.  Our estimate of the realizability of the net deferred tax
asset is a significant estimate that is subject to change in the near
term.  We file tax returns with U.S. federal and state jurisdictions
and are no longer subject to income tax examinations for years before
2006.





8.   Comprehensive
Income





Comprehensive
income for the nine months ended September 30, 2010 was approximately $7.4
million.





9.   Stock-Based
Compensation





We
maintain the 2002 Equity Incentive Plan (the "Plan") for employees, outside
directors and consultants.  At September 30, 2010, 659,169 options
were outstanding under the Plan with exercise prices ranging from $0.04 to $4.80
per share.  The requisite service periods for the options to vest vary
from six months to four years and the options expire 10 years from the date of
grant.  At September 30, 2010, 275,655 shares remained available for
grant under the Plan, including forfeitures.


9


ADAMS
GOLF, INC. AND SUBSIDIARIES





NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





9.   Stock-Based
Compensation (continued)





During
the nine months ended September 30, 2010, no options were
granted.  During the nine months ended September 30, 2009, 100,000
options were granted with an exercise price equal to the fair market value of
the underlying common stock at the date of grant.  The per share
weighted-average fair value of stock options granted during the nine months
ended September 30, 2009 was $2.70 on the date of grant using the Black Scholes
option pricing model with the following weighted-average
assumptions:  risk free interest rate, 3.5%; expected life, 10 years;
expected dividend yield, 0%; and expected volatility, based on historical daily
annualized volatility of 96.34%.  We use historical data to estimate
option exercise and employee termination factors within the valuation
model.





Compensation
expense associated with stock options and restricted stock grants for the three
and nine months ended September 30, 2010 was $217,000 and $673,000,
respectively, and for the three and nine months ended September 30, 2009 was
$215,000 and $647,000, respectively.





Weighted
                  
                  
                  AggregateNumber of
                  
                  
                  Average
                  
                  
                  IntrinsicOptions
                  
                  
                  Exercise Price
                  
                  
                  Value of OptionsOptions
      outstanding at December 31, 2009
                  
                  
                  891,044
                  
                  
                  $
                  0.52
                  
                  
                  
                  —Options
      granted
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Options
      forfeited / expired
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Options
      exercised
                  
                  
                  (231,875
                  )
                  
                  
                  0.04
                  
                  
                  
                  863,712Options
      outstanding at September 30, 2010
                  
                  
                  659,169
                  
                  
                  
                  0.69
                  
                  
                  
                  2,442,977Options
      exercisable at September 30, 2010
                  
                  
                  584,169
                  
                  
                  
                  0.40
                  
                  
                  
                  2,339,477





The
weighted average remaining contractual life of the options outstanding at
September 30, 2010 was 3.41 years and for those outstanding options that were
exercisable at September 30, 2010 was 2.78 years.





As of
September 30, 2010, there were $1.3 million of unrecognized compensation costs
related to non-vested restricted stock grants.  The compensation costs
of restricted stock awards were determined based on the fair value of our common
stock on the date of grant and expensed over each award’s respective vesting
period.  Restricted stock vesting periods vary from six months to four
years from the date of grant.  140,000 shares of restricted stock were
granted during the nine months ended September 30, 2010 with a fair market value
of $3.71 per share based on the stock prices at the date of
issuance.  During the nine months ended Septmeber 30, 2009, 100,000
shares of restricted stock were granted with a fair market value of $3.30 per
share based on the stock prices at the date of
issuance.





As of
September 30, 2010, compensation costs related to non-vested awards (options and
non-vested shares) totaled $1.3 million, which are expected to be recognized
over a weighted average period of 1.5 years.


10


ADAMS
GOLF, INC. AND SUBSIDIARIES





NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





9.   Stock-Based
Compensation (continued)





A
      summary of restricted stock grant activity
  follows:





WeightedNumber of
                  
                  
                  AverageShares
                  
                  
                  Grant Date Fair ValueStock
      unvested at December 31, 2009
                  
                  
                  336,870
                  
                  
                  $
                  4.12Stock
      granted
                  
                  
                  140,000
                  
                  
                  
                  3.71Stock
      vested
                  
                  
                  (75,378
                  )
                  
                  
                  5.03Stock
      unvested at September 30, 2010
                  
                  
                  401,492
                  
                  
                  $
                  3.83





Due to
the passage of The American Jobs Creation Act and the subsequent IRS Section
409A rules, stock options that were issued at a strike price less than market
value at the date of grant will now be considered deferred compensation by the
IRS and the individual who was granted the options will incur adverse tax
consequences, including, but not limited to, excise taxes, unless the individual
designated a specific future exercise date of the unvested stock options at
December 31, 2004 and made this election before December 31, 2005.  As
a result of the compliance with the American Job Creation Act, a summary of
these designated future exercise dates is as follows:





Period of Exercise
                          
                          Total Options to be
    Exercised2010
                          
                          
                          3,1252011
                          
                          
                          15,0002012
                          
                          
                          15,7092013
                          
                          
                          1,250Beyond
      2013
                          
                          
                          2,500Total
      Options
                          
                          
                          37,584





10.   New
Accounting Pronouncements





There
have been no new material accounting pronouncements that are applicable to our
business for this period.





11.   Liquidity





We have a
$15.0 million revolving credit agreement with Wells Fargo, NA, which was entered
into in November 2007 and expires in November 2012.  The agreement is
collateralized by all of our assets and requires us, among other things, to
maintain certain financial performance levels relative to the fixed charge
coverage ratio.  This agreement was amended in June 2009 to provide
that the requirement to maintain such performance levels is only applicable when
we have less than $5.0 million in availability on the facility, and it was
further amended in December 2009 to provide that our fixed charge coverage ratio
is only applicable if we have less than $2.0 million in availability on the
facility between March and June of each year.  Interest on outstanding
balances accrues at a rate of LIBOR plus 2.50% and is payable
monthly.  As of September 30, 2010 and November 5, 2010, we had no
outstanding borrowings on this credit facility and we were in compliance with
the terms of this agreement.


11


ADAMS
GOLF, INC. AND SUBSIDIARIES





NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





11.   Liquidity
(continued)





Our
anticipated sources of liquidity over the next 12 months are expected to be cash
reserves, projected cash flows from operations, and available borrowings under
our credit facility.  We anticipate that operating cash flows, current
cash reserves, and available borrowings also will fund capital expenditure
programs.  These capital expenditure programs can be suspended or
delayed at any time with minimal disruption to our operations if cash is needed
in other areas of our operations.  In addition, cash flows from
operations and cash reserves will be used to support ongoing purchases of
component parts for our current and future product lines.  The
expected operating cash flows, current cash reserves and borrowings available
under our credit facility are expected to allow us to meet working capital
requirements during periods of low cash flows resulting from the seasonality of
the industry.





If
adequate funds are not available or not available on acceptable terms, we may be
unable to continue operations; develop, enhance and market products; retain
qualified personnel; take advantage of future opportunities; or respond to
competitive pressures, any of which could have a material adverse effect on our
business, operating results, financial condition and/or liquidity.





12.   Contingencies





On June
17, 2010, the Court approved the final class action
settlement regarding the consolidated securities class action filed in June
1999 in the United States District Court of the District of
Delaware.  The Court entered an order dismissing with prejudice
all claims against all defendants in the
litigation.  The settlement provided for a total payment to
the class of $16.5 million in cash and a payment of the first $1.25 million,
after attorneys fees and costs, actually received (if any) by us in connection
with our litigation against our former insurance broker Thilman & Filipini,
LLC (“T&F”) and our former insurance carrier, Zurich American Insurance
Company ("Zurich").  Of the $16.5 million cash settlement amount, $5
million was paid by us, which we accrued as a liability during the quarter ended
September 30, 2009 and was paid to the settlement fund in March
2010.  As part of the settlement, the underwriters for the IPO
released us from any indemnification obligation.  On July 19, 2010,
the appeals period for the final order of dismissal expired and the litigation
was fully and finally resolved.





We
maintain directors' and officers' ("D&O") and corporate liability insurance
to cover certain risks associated with these securities claims filed against us
or our directors and officers.  During the period covering the class action
lawsuit, we maintained insurance from multiple carriers, each insuring a
different layer of exposure, up to a total of $50 million.  In addition, we
have met the financial deductible of our directors' and officers' insurance
policy for the period covering the time the class action lawsuit was
filed.  On March 30, 2006, Zurich, which provided insurance coverage
totaling $5 million for the layer of exposure between $15 million and $20
million, notified us that it was denying coverage due to the fact that it was
allegedly not timely notified of the class action lawsuit.  On October 11,
2007, we filed a suit against our former insurance broker, T&F, asserting
various causes of action arising out of T&F's alleged failure to notify
Zurich of the class action lawsuit.  T&F moved to dismiss our lawsuit
on the basis that our suit was premature in that we had not been damaged because
we had not paid any sums in satisfaction of a judgment or settlement of the
class action securities litigation.  That motion was denied pursuant to a
Memorandum Opinion and Order dated September 26, 2008.  On November 16,
2009, we filed a Second Amended Complaint reasserting our causes of action
against T&F and adding Zurich as a defendant to the lawsuit, asserting
various causes of action against it arising out of its denial of
coverage for the class action lawsuit.  Zurich has answered and filed
a counterclaim against us seeking a declaration that we are not entitled to
coverage for the class action lawsuit.  The case is currently set for trial
on January 18, 2011. At this point in the legal proceedings, we cannot
predict the outcome of the matter with any certainty.


12


ADAMS
GOLF, INC. AND SUBSIDIARIES





NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





12.   Contingencies
(continued)





Beginning
April 2008, we received communications from the Estate of Anthony Antonious
alleging that our products infringed a patent of Anthony Antonious concerning an
aerodynamic metal wood golf club head.  On May 28, 2008, we filed a
declaratory judgment lawsuit against the Anthony Antonious Trust in the United
States District Court for the Southern District of the State of Ohio, alleging
non-infringement of the Antonious patent.  On June 30, 2008, the Estate of
Anthony Antonious filed a lawsuit against us in the United States District Court
in the State of New Jersey seeking damages and injunctive relief alleging
infringement of the patent.  On September 2, 2008, we filed a Request
for Ex Parte Reexamination with the United States Patent and Trademark Office
("USPTO") requesting that the USPTO reexamine the Antonious patent at
issue.  The USPTO issued an order granting our Request for Ex Parte
Reexamination on November 7, 2008 after finding that a substantial new question
of patentability affecting the claims had been raised.   As a result,
both the Ohio lawsuit and the New Jersey lawsuit were stayed pending the outcome
of the USPTO's reexamination proceeding.  On October 9, 2009, the
USPTO issued a Notice of Intent to Issue Ex Parte Reexamination Certificate
concerning claims amended during the reexamination procedure.  A
Reexamination Certificate was issued on January 5, 2010. On June 11, 2010, the
Court dismissed the declaratory judgment action in the Southern District of
Ohio. Litigation has now resumed in the New Jersey action, and is in the
discovery and claim construction phase.  Expert witness reports have
been exchanged, and a trial is expected to occur in 2011.  At this point in
the legal proceedings, we cannot predict the outcome of the matter with any
certainty, and thus cannot reasonably estimate future liability on the
conclusion of the events, if any.





From time
to time, we are engaged in various other legal proceedings in the normal course
of business.  The ultimate liability, if any, for the aggregate
amounts claimed cannot be determined at this time.





13.   Reclassifications





Certain
prior period amounts have been reclassified to conform to current period
presentation.





14.   Business and Credit
Concentrations





We are
currently dependent on three customers, which collectively comprised
approximately 26% of net sales for the three months ended September 30,
2010.  Two customers individually represented greater than 5% but less
than 10% and one customer individually represented greater than 10% but less
than 20% of net sales and no customers represented greater than 20% of net sales
for the three months ended September 30, 2010.  For the three months
ended September 30, 2009, we were dependent on two customers, which collectively
comprised approximately 24% of net sales.  One customer individually
represented greater than 10% but less than 20% of net sales, and no customer
represented greater than 20% of net sales.  Additionally, we have one
customer with an outstanding accounts receivable balance that was greater than
10% but less than 20% of total accounts receivable at September 30,
2010.  The loss of this individual customer or a combination of
customers or a significant impairment or reduction in such customers' business
including, but not limited to, as a result of the current global economic
recession, would have a material adverse effect on consolidated revenues,
results of operations, financial condition and competitive market position of
the Company.





For the
nine months ended September 30, 2010, we were dependent on two customers, which
collectively comprised approximately 25% of net sales.  Of these, one
customer individually represented greater than 5% but less than 10% of net sales
for the period, and one customer represented greater than 10% but less than 20%
of net sales and no customers represented greater than 20% of net
sales.  For the nine months ended September 30, 2009, two customers
comprised approximately 25% of net sales.  Of these, one customer
individually represented greater than 5% but less than 10% of net sales for the
period, and one customer represented greater than 10% but less than 25% of net
sales and no customers represented greater than 25% of net
sales.


13


ADAMS
GOLF, INC. AND SUBSIDIARIES





NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





14.   Business and Credit Concentrations
(continued)





A
significant portion of our inventory purchases are from one supplier in China;
approximately 29% and 45% of our total inventory purchased for the nine months
ended September 30, 2010 and at December 31, 2009, respectively, was from this
one Chinese supplier.  Many of our industry suppliers are located in
China.  We do not anticipate any changes in the relationships with our
suppliers.  If such change were to occur, we have alternative sources
available; however, a loss of our primary supplier or significant impairment to
its business including, but not limited to, due to the global economic
recession, could adversely affect our business during the period in which we
would have to find an alternative source for such supplies.





15.   Product
Warranty Reserve





Our golf
equipment is sold under warranty against defects in material and workmanship for
a period of one year.  An allowance for estimated future warranty
costs is recorded in the period products are sold.  In estimating our
future warranty obligations, we consider various relevant factors, including our
stated warranty policies, the historical frequency of claims, and the cost to
replace or repair the product.  Accounting for product warranty
reserve could be adversely affected if one or more of our products were to fail
(i.e. suffer a broken shaft, head, etc.) to a significant degree above and
beyond our historical product failure rates, which determine the product
warranty accruals.





Beginning
                  Balance
                
                
                Charges for
                  Warranty Claims
                
                
                Estimated
                  Accruals
                
                
                Ending
                  BalanceQuarter ended December
      31, 2009
                
                $
                407
                
                
                
                (97
                )
                
                
                55
                
                
                $
                365Quarter
      ended March 31, 2010
                
                $
                365
                
                
                
                (72
                )
                
                
                198
                
                
                $
                491Quarter
      ended June 30, 2010
                
                $
                491
                
                
                
                (97
                )
                
                
                43
                
                
                $
                437Quarter
      ended September 30, 2010
                
                $
                437
                
                
                
                (134
                )
                
                
                124
                
                
                $
                427


14


Item
2.


MANAGEMENT'S
DISCUSSION AND ANALYSIS OF


FINANCIAL
CONDITION AND RESULTS OF OPERATIONS





The
following discussion and analysis should be read in conjunction with (i) the
attached unaudited condensed consolidated financial statements and notes thereto
for the three and nine months ended September 30, 2010, and with our
consolidated financial statements and notes thereto for the year ended December
31, 2009 included in our Annual Report on Form 10-K filed with the SEC on March
9, 2010 and (ii) the discussion under the caption "Risk Factors" in our Annual
Report on Form 10-K filed with the SEC on March 9, 2010 and any material changes
from the risk factors as previously disclosed in the Annual Report on Form 10-K
set forth in Item 1A of Part II below or in our other Quarterly Reports on Form
10-Q relating to the periods ended March 31, 2010 and June 30,
2010.





Forward
Looking Statements





This
Quarterly Report on Form 10-Q (this "Quarterly Report") contains "forward
looking statements" made under the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, including, without limitation, in the
notes to the consolidated financial statements included in this Quarterly Report
and under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations", "Quantitative and Qualitative Disclosures
about Market Risk" and elsewhere in this Quarterly Report.  Any and
all statements contained in this Quarterly Report that are not statements of
historical fact may be deemed forward-looking statements.  The
statements include, but are not limited to statements concerning: (i) pending
litigation, (ii) liquidity and our ability to increase revenues or achieve
satisfactory operational performance, (iii) our ability to satisfy our cash
requirements and our ability to satisfy our capital needs, including cash
requirements during the next 12 months, (iv) our ability to produce products
commercially acceptable to consumers, and (v) estimates and assumptions used in
determining and realizing open orders.  Forward looking statements
also include terminology such as "may," "might," "will," "would," "should,"
"could," "project," "pro forma," "predict," "potential," "strategy," "attempt,"
"develop," "continue," "future,"  "expect," "intend," "estimate,"
"anticipate," "plan," "seek" or "believe."  Such statements reflect
our current view with respect to future events and are subject to certain risks,
uncertainties and assumptions related to certain factors including, without
limitation, the following:





—The
ability to maintain historical growth in revenue and profitability;


—The
impact of changing economic conditions;


—The
global economic uncertainty;


—Business
conditions in the golf industry;


—Product
development difficulties;


—The
adequacy of the allowance for doubtful accounts, obsolete inventory and warranty
reserves;


—Product
approval and conformity to governing body regulations;


—Assembly
difficulties;


—Product
introductions;


—Patent
infringement risks;


—Uncertainty
of the ability to protect intellectual property rights;


—Market
demand and acceptance of products;


—The
future market for our capital stock;


—The
uncertainty in the debt and equity markets;


—The
success of our marketing strategy;


—The
success of our tour strategy;


—Our
dependence on one supplier for a majority of our inventory
products;


—Our
dependence on suppliers who are concentrated in one geographic
region;


—Our
dependence on one or a limited number of customers;


—Solvency
of, and reliance on, third parties, including suppliers, customers, and freight
transporters;


—The
actions of competitors, including pricing, advertising and product development
risks in technology;


—The
uncertainty of the results of pending litigation;


—Investor
audience, interest or valuation;


—The
management of sales channels and re-distribution;


—The risk
associated with events that may prove unrecoverable under existing insurance
policies; and


15


—The
impact of operational restructuring on operating results and liquidity and
one-time events and other factors detailed under "Risk Factors", Item 1A of our
Annual Report on Form 10-K filed with the SEC on March 9,
2010.





Although
we believe that the expectations reflected in such forward-looking statements
are reasonable, we can give no assurance that such expectations will prove to be
correct.  Based upon changing conditions, should any one or more of
these risks or uncertainties materialize, or should any underlying assumptions
prove incorrect, actual results may differ materially from those described
herein.  Except as required by federal securities laws, we undertake
no obligation to publicly update or revise any written or oral forward-looking
statements, whether as a result of new information, future events, changed
circumstances or any other reason after the date of this Quarterly
Report.  All subsequent written and oral forward-looking statements
attributable to us or persons acting on our behalf are expressly qualified in
their entirety by the applicable cautionary statements.





Overview





We
design, assemble, market and distribute premium quality, technologically
innovative golf clubs for all skill levels.  Our net sales are
primarily derived from sales to on- and off-course golf shops and sporting goods
retailers and, to a lesser extent, international distributors and mass
merchandisers.  Demand for our current products, or the introduction
of new products, may not allow us to achieve historical levels of sales in the
future.  Our net sales are typically driven by product
lifecycles.  Several factors affect a product's life including, but
not limited to, customer acceptance, competition and technology.  As a
result, each product family's life cycle generally ranges from six months to
three years.





Our
business, financial condition, cash flows and results of operations are subject
to seasonality resulting from factors such as weather and spending
patterns.  Due to the seasonality of our business, one quarter's
financial results are not indicative of the full fiscal year's expected
financial results.  A majority of our revenue is earned in the first
and second quarters of the year and revenues generally decline in the third and
fourth quarters.





Costs of
our clubs consist primarily of component parts, including the head, shaft and
grip.  To a lesser extent, our cost of goods sold includes labor,
occupancy and shipping costs in connection with the inspection, testing,
assembly and distribution of our products and certain promotional and
advertising costs given in the form of additional merchandise as consideration
to customers.


16


Key
Performance Indicators





Our
management team has defined and tracks performance against several key sales,
operational and balance sheet performance indicators.  Key sales
performance indicators include, but are not limited to, the
following:





—Daily
sales by product group


—Daily
sales by geography


—Sales by
customer channel


—Gross
margin performance


—Market
share by product at retail


—Inventory
share by product at retail





Tracking
these sales performance indicators on a regular basis allows us to understand
whether we are on target to achieve our internal sales plans.





Key
operational performance indicators include, but are not limited to, the
following:





—Product
returns (dollars and percentage of sales)


—Product
credits (dollars and percentage of sales)


—Units
shipped per man-hour worked


—Orders
shipped on time


—Expenses
by department


—Inbound
and outbound freight cost by mode (dollars and dollars per unit)


—Inbound
freight utilization by mode (ocean vs. air)


—Vendor
purchase order cycle time





Tracking
these operational performance indicators on a regular basis allows us to
understand whether we are on target to achieve our expense targets and
efficiently satisfy customer demand.





Key
balance sheet performance indicators include, but are not limited to, the
following:





—Days of
sales outstanding


—Days of
inventory (at cost)


—Days of
payables outstanding





Tracking
these balance sheet performance indicators on a regular basis allows us to
understand our working capital performance and forecast cash flow and
liquidity.


17


Results
of Operations





The
following table sets forth operating results expressed as a percentage of net
sales for the periods indicated.  All information is derived from the
accompanying unaudited condensed consolidated financial
statements.  Results for any one or more periods are not necessarily
indicative of annual results or continuing trends.





Three Months Ended September 30,
                                          
                                          
                                          Nine Months Ended September 30,2010
                                          
                                          
                                          2009
                                          
                                          
                                          2010
                                          
                                          
                                          2009(unaudited)
                                          
                                          
                                          (unaudited)Net sales
                                          
                                          
                                          100.0
                                          %
                                          
                                          
                                          100.0
                                          %
                                          
                                          
                                          100.0
                                          %
                                          
                                          
                                          100.0
                                          %Cost
      of goods sold
                                          
                                          
                                          58.1
                                          
                                          
                                          
                                          63.6
                                          
                                          
                                          
                                          55.2
                                          
                                          
                                          
                                          71.7Gross
      profit
                                          
                                          
                                          41.9
                                          
                                          
                                          
                                          36.4
                                          
                                          
                                          
                                          44.8
                                          
                                          
                                          
                                          28.3Operating
      expenses:Research
      and development expenses
                                          
                                          
                                          3.4
                                          
                                          
                                          
                                          3.5
                                          
                                          
                                          
                                          2.6
                                          
                                          
                                          
                                          3.4Sales
      and marketing expenses
                                          
                                          
                                          24.8
                                          
                                          
                                          
                                          26.2
                                          
                                          
                                          
                                          23.5
                                          
                                          
                                          
                                          24.9General
      and administrative expenses
                                          
                                          
                                          10.6
                                          
                                          
                                          
                                          9.3
                                          
                                          
                                          
                                          8.8
                                          
                                          
                                          
                                          8.1Settlement
      expense
                                          
                                          
                                          —
                                          
                                          
                                          
                                          28.7
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          7.8Total
      operating expenses
                                          
                                          
                                          38.8
                                          
                                          
                                          
                                          67.7
                                          
                                          
                                          
                                          34.9
                                          
                                          
                                          
                                          44.2Interest
      income (expense), net
                                          
                                          
                                          —
                                          
                                          
                                          
                                          (0.1
                                          )
                                          
                                          
                                          —
                                          
                                          
                                          
                                          (0.1
                                          )Other
      income, net
                                          
                                          
                                          —
                                          
                                          
                                          
                                          0.0
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          0.0Income
      (loss) before income taxes
                                          
                                          
                                          3.1
                                          
                                          
                                          
                                          (31.4
                                          )
                                          
                                          
                                          9.9
                                          
                                          
                                          
                                          (16.0
                                          )Income
      tax expense
                                          
                                          
                                          0.4
                                          
                                          
                                          
                                          0.1
                                          
                                          
                                          
                                          0.2
                                          
                                          
                                          
                                          0.1Net
      income (loss)
                                          
                                          
                                          2.7
                                          %
                                          
                                          
                                          (31.5
                                          )%
                                          
                                          
                                          9.7
                                          %
                                          
                                          
                                          (16.1
                                          )%





Three
Months Ended September 30, 2010 Compared to Three Months Ended September 30,
2009





Total net
sales increased 13.2% to $19.7 million for the three months ended September 30,
2010 from $17.4 million for the comparable period of 2009.  Our sales
were primarily driven by product sales of the recently launched Idea Tech V3
irons along with the Idea Black family of products and the Idea a7 and a7 OS
irons and hybrids and Speedline 9064 drivers and the Speedline Fast 10 drivers
and hybrid-fairway woods.  Several factors affect a product's life,
including but not limited to, customer acceptance, competition and
technology.  As a result, each product family's life cycle generally
ranges from nine months to three years.  Due to the seasonality of our
business, one quarter's financial results are not indicative of the full fiscal
year's expected financial results.





Net sales
of irons increased to $12.9 million, or 65.7% of total net sales, for the three
months ended September 30, 2010 from $12.7 million, or 73.1% of total net sales,
for the comparable period of 2009.  Iron net sales during the three
months ended September 30, 2010 primarily consisted of sales of the recently
introduced Idea Tech V3 irons along with the Idea Black family of irons and the
Idea a7 and a7 OS irons and a smaller portion of sales resulted from the close
out of the Idea a3 OS irons and integrated iron sets, while the comparable
period of 2009 net sales primarily consisted of sales of the Idea a7 and a7 OS
irons coupled with the close out of the Idea a3 OS irons, and a smaller portion
of sales resulting from Tech a4 and a4 OS Irons and integrated iron
sets.





Net sales
of fairway woods decreased to $2.7 million, or 13.5% of total net sales, for the
three months ended September 30, 2010, from $3.3 million, or 19.2% of total net
sales, for the comparable period of 2009.  Net sales of fairway woods
for the three months ended September 30, 2010 primarily were generated from
sales of Idea Black family of hybrids, the Idea a7 and a7 OS hybrids and
Speedline Fast 10 fairway woods.  Net sales of fairway woods for the
three months ended September 30, 2009 primarily were generated from sales of
Idea a7 and a7 OS hybrids, Speedline hybrid-fairway woods, Tech a4 and a4 OS
hybrids and hybrid-fairway woods, Idea a3 and a3 OS and Idea Pro Gold
I-woods.


18


Net sales
of drivers increased to $3.1 million, or 15.8% of total net sales, for the three
months ended September 30, 2010 from $1.2 million, or 7.0% of total net sales,
for the comparable period of 2009.  A large portion of the driver net
sales for the three months ended September 30, 2010 was generated by sales of
the Speedline 9064 family of drivers coupled with the Speedline Fast 10 driver,
while in the comparable period of 2009, net sales were primarily driven by sales
of the Speedline 9032 driver and the original Speedline driver.





We were
dependent on three customers, which collectively comprised approximately 26% of
net sales for the three months ended September 30, 2010.  Should one
of these customers or our other customers fail to meet their obligations to us,
our results of operations and cash flows would be adversely
impacted.





Net sales
of our products outside the United States increased to $4.4 million, or 22% of
total net sales, from $2.9 million, or 17% of total net sales, for the three
months ended September 30, 2010 and 2009, respectively.  Net sales
resulting from countries outside the United States and Canada increased to 10%
of total net sales for the three months ended September 30, 2010 from 4% for the
comparable period of 2009.





Cost of
goods sold decreased to $11.4 million, or 58.1% of total net sales, for the
three months ended September 30, 2010 from $11.1 million, or 63.6% of total net
sales, for the comparable period of 2009.  The decrease as a
percentage of total net sales was primarily due to the result of a change in the
product mix sold during the period along with less promotional activity, such as
free or discounted products, in the market during the period.





Selling
and marketing expenses increased to $4.9 million for the three months ended
September 30, 2010 from $4.5 million for the comparable period in
2009.  The increase was primarily the result of an increase in
compensation expense of $0.3 million during the period.





General
and administrative expenses increased to $2.1 million for the three months ended
September 30, 2010 from $1.6 million for the comparable period in
2009.  The increase was primarily the result of an increase in
compensation expense of $0.4 million during the period.





Research
and development expenses, primarily consisting of costs associated with
development of new products, increased to $0.7 million for the three months
ended September 30, 2010 from $0.6 million for the comparable period in
2009.





Nine
Months Ended September 30, 2010 Compared to Nine Months Ended September 30,
2009





Total net
sales increased to $73.6 million for the nine months ended September 30, 2010
from $64.1 million for the comparable period of 2009.  Our sales were
primarily driven by product sales of the recently launched Idea Tech V3 irons
and Idea Black family of products along with the Idea a7 and a7 OS irons and
hybrids and Speedline 9064 drivers, Speedline Fast 10 drivers and hybrid-fairway
woods.  Several factors affect a product's life, including but not
limited to, customer acceptance, competition and technology.  As a
result, each product family's life cycle generally ranges from nine months to
three years.  Due to the seasonality of our business, one quarter's
financial results are not indicative of the full fiscal year's expected
financial results.





Net sales
of irons increased to $50.7 million, or 68.8% of total net sales, for the nine
months ended September 30, 2010 from $42.9 million, or 66.9% of total net sales,
for the comparable period of 2009.  Iron net sales during the nine
months ended September 30, 2010 primarily consisted of sales of the recently
introduced Idea Tech V3 irons, and the Idea Black family of irons, the Idea a7
and a7 OS irons and a smaller portion of sales consisted of the close out of the
Idea a3 OS irons and integrated iron sets, while the comparable period of 2009
net sales primarily resulted from sales of the Idea a7 and a7 OS irons, Tech a4
and a4 OS Irons, Idea a3 and a3 OS irons coupled with a smaller portion of sales
of the integrated iron sets.


19


Net sales
of fairway woods increased to $12.3 million, or 16.7% of total net sales, for
the nine months ended September 30, 2010, from $12.1 million, or 18.8% of total
net sales, for the comparable period of 2009.  Net sales of fairway
woods for the nine months ended September 30, 2010 primarily were generated from
sales of Idea Black family of hybrids, the Idea a7 and a7 OS hybrids and
Speedline Fast 10 fairway woods.  Net sales of fairway woods for the
nine months ended September 30, 2009 primarily were generated from sales of Idea
a7 and a7 OS hybrids, Speedline hybrid-fairway woods, Tech a4 and a4 OS hybrids
and hybrid-fairway woods, Idea a3 and a3 OS and Idea Pro Gold
I-woods.





Net sales
of drivers increased to $10.2 million, or 13.8% of total net sales, for the nine
months ended September 30, 2010 from $8.9 million, or 14.0% of total net sales,
for the comparable period of 2009.  A large portion of the driver net
sales for the nine months ended September 30, 2010 was generated from sales of
the Speedline 9064 family of drivers and the Speedline Fast 10 driver, while in
the comparable period of 2009, net sales were primarily driven by sales of the
original Speedline driver, the Speedline 9032 driver and Tech a4 and a4 OS
drivers.





We were
dependent on two customers, which collectively comprised approximately 25% of
net sales for the nine months ended September 30, 2010.  Should either
of these customers or our other customers fail to meet their obligations to us,
our results of operations and cash flows would be adversely
impacted.





Net sales
of our products outside the United States increased to $14.7 million, or 20% of
total net sales, from $11.6 million, or 18% of total net sales, for the nine
months ended September 30, 2010 and 2009, respectively.  Net sales
resulting from countries outside the United States and Canada increased to 7% of
total net sales for the nine months ended September 30, 2010 from 4% for the
comparable period of 2009.





Cost of
goods sold decreased to $40.7 million, or 55.2% of total net sales, for the nine
months ended September 30, 2010 from $46.0 million, or 71.7% of total net sales,
for the comparable period of 2009.  The decrease as a percentage of
total net sales was primarily due to the results of an inventory write-down to
lower of cost or market during the second quarter of 2009 totaling $3.6 million
coupled with a change in the product mix and decreased promotional programs,
such as free or discounted products, during the 2010 period.





Selling
and marketing expenses increased to $17.3 million for the nine months ended
September 30, 2010 from $15.9 million for the comparable period in
2009.  The increase was primarily the result of an increase in
commission expense of $0.7 million resulting from increased net sales and an
increase in marketing and tour expense of $0.2 million and an increase of $0.5
million in compensation expense during the period.





General
and administrative expenses increased to $6.5 million for the nine months ended
September 30, 2010 from $5.2 million for the comparable period in
2009.  The increase was primarily the result of an increase in
compensation expense of $1.0 million and legal expense of $0.3.





Research
and development expenses, primarily consisting of costs associated with
development of new products, decreased to $1.9 million for the nine months ended
September 30, 2010 from $2.2 million for the comparable period in
2009.  The decrease was primarily the result of a decrease in
compensation expense.





Our net
accounts receivable balances were approximately $18.3 million and $13.1 million
at September 30, 2010 and December 31, 2009, respectively.  The
increase was consistent with the seasonality of our business; historically,
sales in the golf industry are stronger in the first half of the year as
compared to the second half of the year while collections tend to be larger in
the second half of the year than the first half.





Our
inventory balances were approximately $23.1 million and $19.7 million at
September 30, 2010 and December 31, 2009, respectively.  The increase
in inventory levels was primarily due to the seasonality of our business in
which purchases are stronger in the fourth and first quarters of the year, while
sales begin to deplete inventory levels in the first and second quarters of the
year coupled with the increased purchases of various products in order to meet
revenue remands more timely.


20


Our
accounts payable balances were approximately $4.9 million and $5.5 million at
September 30, 2010 and December 31, 2009, respectively.  The decrease
in accounts payable is primarily associated with payments of inventory purchases
associated with the seasonality of our product launch cycles and the timing of
product availability experienced during the first half of 2010.





Liquidity
and Capital Resources





Our
principal sources of liquidity are cash reserves, cash flows provided by
operations and our credit facilities in effect from time to
time.  Cash inflows from operations are generally driven by
collections of accounts receivables from customers, which generally increase in
our second quarter and continue into the third quarter and then begin to
decrease during the fourth quarter.  As necessary, we could use our
credit facility to supplement our cash inflows from operations as well as to
effect other investing activities such as potential future
acquisitions.  Cash outflows are primarily tied to procurement of
inventory which typically begins to build during the fourth quarter and
continues heavily into the first and second quarters in order to meet demands
during the height of the golf season.





Cash and
cash equivalents decreased to $10.3 million at September 30, 2010 compared to
$12.6 million at December 31, 2009.  During the period, the primary
change in cash flow used in operations was an increase in accounts receivable of
$6.1 million and inventory of $3.5 million and the payment of the $5.0 million
in settlement expense for the shareholder suit.  This increase was
partially offset by an increase in accrued expenses and accounts payable of $3.3
million.





We have a
$15.0 million revolving credit agreement with Wells Fargo, NA, which was entered
into in November 2007 and expires in November 2012.  The agreement is
collateralized by all of our assets and requires us, among other things, to
maintain certain financial performance levels relative to the fixed charge
coverage ratio.  This agreement was amended in June 2009 to provide
that the requirement to maintain such performance levels is only applicable when
we have less than $5.0 million in availability on the facility, and it was
further amended in December 2009 to provide that our fixed charge coverage ratio
is only applicable if we have less than $2.0 million in availability on the
facility between March and June of each year.  Interest on outstanding
balances accrues at a rate of LIBOR plus 2.50% and is payable
monthly.  As of September 30, 2010 and November 5, 2010, we had no
outstanding borrowings on our credit facility and we were in compliance with the
terms of our agreement.





Working
capital increased at September 30, 2010 to $37.4 million compared to $29.1
million at December 31, 2009.   Approximately 35% of our current
assets were comprised of accounts receivable at September 30, 2010 as compared
to 29% at December 31, 2009.  Due to industry sensitivity to consumer
buying trends and available disposable income, we have in the past extended
payment terms for specific purchase transactions.  Issuance of these
terms (i.e. greater than 30 days or specific dating) is dependent on our
relationship with the customer and the customer's payment
history.  Payment terms are extended to selected customers typically
during off-peak times in the year in order to promote our brand name and to
assure adequate product availability and to coincide with planned promotions or
advertising campaigns.  We generate cash flow from operations
primarily by collecting outstanding trade receivables.  Because we
have limited cash reserves, if collections of a significant portion of trade
receivables are unexpectedly delayed, we would have a limited amount of funds
available to further expand production until such time as we could collect such
trade receivables.  If our cash needs in the near term exceed the
available cash and cash equivalents on hand and the available borrowing under
our credit facility, we would be required to obtain additional financing, which
may not be available at all or in the full amounts necessary, or limit
expenditures to the extent of available cash on hand, all of which could
adversely affect our current growth plans.





Our
anticipated sources of liquidity over the next 12 months are expected to be cash
reserves, projected cash flows from operations and available borrowings under
our credit facility.  The expected operating cash flows, current cash
reserves and borrowings available under our credit facility are expected to
allow us to meet working capital requirements during periods of low cash flows
resulting from the seasonality of the industry.  We anticipate that
operating cash flows, current cash reserves and available borrowings also will
fund our capital expenditure programs.  These capital expenditure
programs can be suspended or delayed at any time with minimal disruption to our
operations if cash is needed in other areas of our operations.  In
addition, cash flows from operations and cash reserves will be used to support
ongoing purchases of component parts for our current and future product
lines.


21


If
adequate funds are not available or are not available on acceptable terms, we
may be unable to continue operations; develop, enhance and market products;
retain qualified personnel; take advantage of future opportunities, or respond
to competitive pressures, any of which could have a material adverse effect on
our business, operating results, financial condition and/or
liquidity.





Critical
Accounting Policies and Estimates





Our
discussion and analysis of our results of operations, financial condition and
liquidity are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States.  The preparation of these financial statements requires
us to make estimates and judgments 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 period.  We base our estimates on historical experience and
on various other assumptions that we believe to be reasonable under the
circumstances.  Actual results may materially differ from these
estimates under different assumptions or conditions.  On an on-going
basis, we review our estimates to ensure that the estimates appropriately
reflect changes in our business.





Inventories





Inventories
are valued at the lower of cost or market and primarily consist of finished golf
clubs and component parts.  Cost is determined using the first-in,
first-out method.  The inventory balance, which includes material,
labor and assembly overhead costs, is recorded net of an estimated allowance for
obsolete inventory.  The estimated allowance for obsolete inventory is
based upon management's understanding of market conditions and forecasts of
future product demand.  Accounting for inventories could result in
material adjustments if market conditions and future demand estimates are
significantly different than original assumptions, causing the reserve for
obsolescence to be materially adversely affected.





Revenue
Recognition





We
recognize revenue when the product is shipped.  At that time, the
title and risk of loss transfer to the customer and the ability to collect is
reasonably assured.  The ability to collect is evaluated on an
individual customer basis taking into consideration historical payment trends,
current financial position, results of independent credit evaluations and
payment terms.  If the ability to collect decreases significantly
including, but not limited to, due to the current global economic recession, our
revenue would be adversely affected.  Additionally, an estimate of
product returns and warranty costs are recorded when revenue is
recognized.  Estimates are based on historical trends taking into
consideration current market conditions, customer demands and product
sell-through.  We also record estimated reductions in revenue for
sales programs such as co-op advertising and spiff
incentives.  Estimates in the sales program accruals are based on
program participation and forecast of future product demand.  If actual
sales returns and sales programs significantly exceed the recorded estimated
allowances, our sales would be adversely affected.  We recognize
deferred revenue as a result of sales that have extended terms and a right of
return of the product under a specified program.  Once the product
under the deferred revenue program is paid for and all revenue recognition
criteria have been met, we record revenue.


22


Allowance for
Doubtful Accounts





We
maintain an allowance for doubtful accounts for estimated losses resulting from
the inability of our customers to make required payments.  An estimate
of uncollectable amounts is made by management using an evaluation methodology
involving both overall and specific identification.  We evaluate each
individual customer and measure various key aspects of the customer such as, but
not limited to, their overall credit risk (via Experian and Dun & Bradstreet
reports), payment history, track record for meeting payment plans, industry
communications, the portion of the customer's balance that is past due and other
various items.  From an overall perspective, we also look at the aging
of the receivables in total and aging relative to prior periods to determine the
appropriate reserve requirements.   Fluctuations in the reserve
requirements will occur from period to period as the change in customer mix or
strength of the customers could affect the reserve disproportionately compared
to the total change in the accounts receivable balance.  Based on
management's assessment, we provide for estimated uncollectable amounts through
a charge to earnings and a credit to the valuation
allowance.  Balances which remain outstanding after we have used
reasonable collection efforts are written off through a charge to the valuation
allowance and a credit to accounts receivable.  We generally do not
require collateral.  Accounting for an allowance for doubtful accounts
could be significantly affected as a result of a deviation in our assessment of
any one or more of our customers' financial strength.





Product
Warranty





Our golf
equipment is sold under warranty against defects in material and workmanship for
a period of one year.  An allowance for estimated future warranty
costs is recorded in the period products are sold.  In estimating our
future warranty obligations, we consider various relevant factors, including our
stated warranty policies, the historical frequency of claims, and the cost to
replace or repair the product.  Accounting for product warranty
reserve could be adversely affected if one or more of our products were to fail
(i.e. broken shaft, broken head, etc.) to a significant degree above and beyond
our historical product failure rates, which determine the product warranty
accruals.





Income
Taxes





We
account for income taxes in accordance with FASB ASC 740, Income Taxes.  
FASB ASC 740 prescribes the use of the liability method where by deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to the differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards.  Deferred tax assets and
liabilities are measured using enacted rates expected to apply to taxable income
in the years in which those temporary differences are expected to be recovered
or settled.  The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.  In assessing the realizability of deferred income tax
assets, we consider whether it is more likely than not that some portion or all
of the deferred income tax assets will be realized.  The ultimate
realization of deferred income tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences
become deductible.  Due to our historical operating results,
management is unable to conclude on a more likely than not basis that all
deferred income tax assets generated from net operating losses and other
deferred tax assets will be realized.   However, due to our recent
earnings history, we have concluded that it is more likely than not that a
portion of the deferred tax asset will be realized.  We have
recognized a valuation allowance equal to a portion of the deferred income tax
asset for which realization is uncertain.





Impairment
of Long-Lived Assets





We review
long-lived assets for impairment whenever events or circumstances indicate that
the carrying amount of an asset may not be
recoverable.  Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset.  If the carrying amount is
greater than the future cash flows, such assets are considered to be
impaired.  The impairment to be recognized is measured by the amount
by which the carrying amount of the asset exceeds the fair value of the
asset.  Assets to be disposed of are reported at the lower of their
carrying amount or fair value less costs to sell.  During the three
and nine months ended September 30, 2010 and 2009, there was no impairment of
long-lived assets.


23


Item
3. Quantitative and Qualitative Disclosures About Market Risk





Interest
Rates





In the
normal course of doing business, we are exposed to market risk through changes
in interest rates with respect to our cash equivalents.  Cash and cash
equivalents at September 30, 2010, were $10,268,000 as compared to $12,562,000
at December 31, 2009.  The average annualized interest rate earned for
the period ended September 30, 2010, was 0.09%.





Additionally,
we are exposed to interest rate risk with respect to our Line of Credit with
Wells Fargo, NA. Outstanding borrowings accrue interest, at the Libor rate plus
2.50%; therefore we are exposed to risk related to changes in the Libor
rate.  As of September 30, 2010 and November 5, 2010, we had no
outstanding borrowings on our credit facility.





Foreign Currency
Fluctuations





In the
normal course of business, we are exposed to foreign currency exchange rate
risks that could impact our results of operations.  We are exposed to
foreign currency exchange rate risk inherent primarily in our sales commitments,
anticipated sales and assets and liabilities denominated in currencies other
than the U.S. dollar.  We transact business in several countries
worldwide, however all foreign transactions are transacted in U.S. dollar except
for Canadian activities.  The functional currency of our Canadian
operations is Canadian dollars.  The accompanying consolidated
financial statements have been expressed in United States dollars, our reporting
currency.  Reporting assets and liabilities of our foreign operations
are translated at the rate of exchange at the end of each
period.  Revenues and expenses are translated at the monthly average
rate of exchange in effect during the respective period.  Gains and
losses resulting from translation are accumulated in other comprehensive income
(loss) in stockholders' equity.  Inventory purchases are invoiced by
suppliers in U.S. dollars.





Item
4T.  Controls and Procedures





Introduction





"Disclosure
Controls and Procedures" are defined in Rules 13a -15(e) and 15d -15(e)
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as the controls and procedures of an issuer that are designed to ensure
that information required to be disclosed by the issuer in the reports that it
files or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified by the SEC's rules and
forms.  Disclosure Controls and Procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by us in the reports that we file or submit under the Exchange
Act are accumulated and communicated to our management, including our principal
executive and principal financial officers, as appropriate, to allow timely
decisions regarding disclosure.





"Internal
Control Over Financial Reporting" is defined in Exchange Act Rules 13a -15(f)
and 15d -15(f) as a process designed by, or under the supervision of, our
principal executive and principal financial officers, or persons performing
similar functions, and effected by our board of directors, management, and other
personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles.  It includes those policies and procedures that (1)
pertain to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of an issuer; (2) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the issuer are
being made only in accordance with authorizations of management and directors of
the issuer; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the issuer's
assets that could have a material adverse effect on the financial
statements.


24


We have
endeavored to design our Disclosure Controls and Procedures and Internal
Controls Over Financial Reporting to provide reasonable assurances that our
objectives will be met.  All control systems are subject to inherent
limitations, such as resource constraints, the possibility of human error, lack
of knowledge or awareness, and the possibility of intentional circumvention of
these controls.  Furthermore, the design of any control system is
based, in part, upon assumptions about the likelihood of future events, which
assumptions may ultimately prove to be incorrect.  As a result, no
assurances can be made that our control system will detect every error or
instance of fraudulent conduct, including an error or instance of fraudulent
conduct, which could have a material adverse impact on our operations or
results.





Evaluation
of Disclosure Controls and Procedures





Our
management, with the participation of our Chief Executive Officer and Interim
Chief Financial Officer, has evaluated the effectiveness of our Disclosure
Controls and Procedures as of the end of the period covered by this report and
has concluded that our Disclosure Controls and Procedures as of the end of the
period covered by this report were designed to ensure that material information
relating to us is made known to the Chief Executive Officer and Interim Chief
Financial Officer by others within our Company, and, based on their evaluations,
our controls and procedures were effective as of the end of the period covered
by this report.





Changes
in Internal Controls over Financial Reporting





There
were no changes in our Internal Controls Over Financial Reporting identified in
connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule
15d-15 under the Exchange Act that occurred during the three and nine months
ended September 30, 2010 that have materially affected or are reasonably likely
to materially affect our Internal Controls Over Financial
Reporting.





PART
II.  OTHER INFORMATION





Item
1.  Legal Proceedings





On June
17, 2010, the Court approved the final class action
settlement regarding the consolidated securities class action filed in June
1999 in the United States District Court of the District of
Delaware.  The Court entered an order dismissing with prejudice
all claims against all defendants in the
litigation.  The settlement provided for a total payment to
the class of $16.5 million in cash and a payment of the first $1.25 million,
after attorneys fees and costs, actually received (if any) by us in connection
with our litigation against our former insurance broker Thilman & Filipini,
LLC (“T&F”) and our former insurance carrier, Zurich American Insurance
Company ("Zurich").  Of the $16.5 million cash settlement amount, $5
million was paid by us, which we accrued as a liability during the quarter ended
September 30, 2009 and was paid to the settlement fund in March
2010.  As part of the settlement, the underwriters for the IPO
released us from any indemnification obligation.  On July 19, 2010,
the appeals period for the final order of dismissal expired and the litigation
was fully and finally resolved.


25


We
maintain directors' and officers' ("D&O") and corporate liability insurance
to cover certain risks associated with these securities claims filed against us
or our directors and officers.  During the period covering the class action
lawsuit, we maintained insurance from multiple carriers, each insuring a
different layer of exposure, up to a total of $50 million.  In addition, we
have met the financial deductible of our directors' and officers' insurance
policy for the period covering the time the class action lawsuit was
filed.  On March 30, 2006, Zurich, which provided insurance coverage
totaling $5 million for the layer of exposure between $15 million and $20
million, notified us that it was denying coverage due to the fact that it was
allegedly not timely notified of the class action lawsuit.  On October 11,
2007, we filed a suit against our former insurance broker, T&F, asserting
various causes of action arising out of T&F's alleged failure to notify
Zurich of the class action lawsuit.  T&F moved to dismiss our lawsuit
on the basis that our suit was premature in that we had not been damaged because
we had not paid any sums in satisfaction of a judgment or settlement of the
class action securities litigation.  That motion was denied pursuant to a
Memorandum Opinion and Order dated September 26, 2008.  On November 16,
2009, we filed a Second Amended Complaint reasserting our causes of action
against T&F and adding Zurich as a defendant to the lawsuit, asserting
various causes of action against it arising out of its denial of
coverage for the class action lawsuit.  Zurich has answered and filed
a counterclaim against us seeking a declaration that we are not entitled to
coverage for the class action lawsuit.  The case is currently set for trial
on January 18, 2011. At this point in the legal proceedings, we cannot
predict the outcome of the matter with any certainty.





Beginning
April 2008, we received communications from the Estate of Anthony Antonious
alleging that our products infringed a patent of Anthony Antonious concerning an
aerodynamic metal wood golf club head.  On May 28, 2008, we filed a
declaratory judgment lawsuit against the Anthony Antonious Trust in the United
States District Court for the Southern District of the State of Ohio, alleging
non-infringement of the Antonious patent.  On June 30, 2008, the Estate of
Anthony Antonious filed a lawsuit against us in the United States District Court
in the State of New Jersey seeking damages and injunctive relief alleging
infringement of the patent.  On September 2, 2008, we filed a Request
for Ex Parte Reexamination with the United States Patent and Trademark Office
("USPTO") requesting that the USPTO reexamine the Antonious patent at
issue.  The USPTO issued an order granting our Request for Ex Parte
Reexamination on November 7, 2008 after finding that a substantial new question
of patentability affecting the claims had been raised.   As a result,
both the Ohio lawsuit and the New Jersey lawsuit were stayed pending the outcome
of the USPTO's reexamination proceeding.  On October 9, 2009, the
USPTO issued a Notice of Intent to Issue Ex Parte Reexamination Certificate
concerning claims amended during the reexamination procedure.  A
Reexamination Certificate was issued on January 5, 2010. On June 11, 2010, the
Court dismissed the declaratory judgment action in the Southern District of
Ohio. Litigation has now resumed in the New Jersey action, and is in the
discovery and claim construction phase.  Expert witness reports have
been exchanged, and a trial is expected to occur in 2011.  At this point in
the legal proceedings, we cannot predict the outcome of the matter with any
certainty, and thus cannot reasonably estimate future liability on the
conclusion of the events, if any.





From time
to time, we are engaged in various other legal proceedings in the normal course
of business.  The ultimate liability, if any, for the aggregate
amounts claimed cannot be determined at this time.





Item
1A. Risk Factors





We have
included in our filings with the SEC, including Item 1A of our Annual Report on
Form 10-K for the year ended December 31, 2009, a description of certain risks
and uncertainties that could have an affect on our business, future performance,
or financial condition.  There are no material changes from the risk
factors previously disclosed in our Annual Report on Form 10-K for the year
ended December 31, 2009.





Item
6.  Exhibits





See the
Exhibit Index on pages 28-29.


26


Signatures





Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.





ADAMS
      GOLF, INC.Date:  November
      8, 2010
                    
                    By:
                    /S/ OLIVER G. BREWER IIIOliver
      G. Brewer, IIIChief
      Executive Officer and President(Principal
      Executive Officer)Date:  November
      8, 2010
                    
                    By:
                    /S/ PAMELA HIGHPamela
      J. HighChief
      Financial Officer(Principal
      Financial Officer and Principal Accounting
  Officer)




27


EXHIBIT
INDEX





Exhibit
      3.1
              
              Amended
      and Restated Certificate of Incorporation
              
              Incorporated
      by reference to Form S-1 File No. 333-51715 (Exhibit
  3.1)Exhibit
      3.2
              
              Certificate
      of Amendment to the Restated Certificate of Incorporation filed on
      February 14, 2008
              
              Incorporated
      by reference to the Annual Report on Form 10-K for the year ended December
      31, 2007 File No. 001-33978 (Exhibit 3.2)Exhibit
      3.3
              
              Amended
      and Restated By-laws
              
              Incorporated
      by reference to Form S-1 File No. 333-51715 (Exhibit
  3.2)Exhibit
      4.1
              
              1998
      Stock Incentive Plan of the Company dated February 26, 1998, as
      amended
              
              Incorporated
      by reference to Form S-8 File No. 333-68129 (Exhibit
  4.1)Exhibit
      4.2
              
              1996
      Stock Option Plan dated April 10, 1998
              
              Incorporated
      by reference to Form S-1 File No.333-51715 (Exhibit
4.2)Exhibit
      4.3
              
              Adams
      Golf, Ltd. 401(k) Retirement Plan
              
              Incorporated
      by reference to Form S-1 File No.333-51715 (Exhibit
4.3)Exhibit
      4.4
              
              1999
      Non-Employee Director Plan of Adams Golf, Inc.
              
              Incorporated
      by reference to 1999 Form 10-K File No. 000-24583 (Exhibit
      4.4)Exhibit
      4.5
              
              1999
      Stock Option Plan for Outside Consultants of Adams Golf,
    Inc.
              
              Incorporated
      by reference to Form S-8 File No. 333-37320 (Exhibit
  4.5)Exhibit
      4.6
              
              2002
      Stock Incentive Plan for Adams Golf, Inc.
              
              Incorporated
      by reference to Annex A of the 2002 Proxy Statement File No. 000-24583
      (Annex A)Exhibit
      4.7
              
              Form
      of Option Agreement under the 2002 Stock Option Plan of Adams Golf,
      Inc.
              
              Incorporated
      by reference to Form S-8 File No. 333-112622 (Exhibit
  4.7)Exhibit
      10.1
              
              Amendment
      dated September 1, 2003 to the Commercial Lease Agreement dated April 6,
      1998, between Jackson-Shaw Technology Center II and the
      Company
              
              Incorporated
      by reference to 2003 Form 10-K File No. 000-24583 (Exhibit
      10.12)Exhibit
      10.2*
              
              Golf
      Consultant Agreement - Thomas S. Watson
              
              Incorporated
      by reference to 2004 Form 10-K File No. 000-24583 (Exhibit
      10.17)Exhibit
      10.3*
              
              Asset
      Purchase Agreement of Women's Golf Unlimited
              
              Incorporated
      by reference to 2006 Form 10-K File No. 000-24583 (Exhibit
      10.11)Exhibit
      10.4
              
              Revolving
      line of Credit between Adams Golf, Inc and Wachovia Bank, National
      Association
              
              Incorporated
      by reference to the Report on From 8-K dated November 13, 2007 (Exhibit
      10.1)Exhibit
      10.5
              
              Commercial
      Lease Agreement dated December 15, 2007, between MDN/JSC -II Limited and
      the Company
              
              Incorporated
      by reference to 2007 Form 10-K File No 001-33978 (Exhibit
      10.9)


28





Exhibit
      10.6
              
              Commercial
      Lease Agreement dated April 10, 2008, between CLP Properties Texas, L.P.
      and the Company
              
              Incorporated
      by reference to the Report on From 8-K dated April 15, 2008 File No.
      001-33978 (Exhibit 10.1)Exhibit
      10.7
              
              Employment
      Agreement - Byron (Barney) H. Adams
              
              Incorporated
      by reference to the Report on From 8-K dated January 12, 2009 File No.
      001-33978 (Exhibit 10.1)Exhibit
      10.8
              
              Employment
      Agreement - Oliver G. (Chip) Brewer
              
              Incorporated
      by reference to the Quarterly Report on From 10-Q for the quarter ended
      March 31, 2009 File No. 001-33978 (Exhibit 10.9)Exhibit
      10.9
              
              Amendment
      to Revolving line of Credit between Adams Golf, Inc and Wachovia Bank,
      National Association
              
              Incorporated
      by reference to Third quarter 2009 Form 10-Q File No 001-33978 (Exhibit
      10.9)Exhibit
      10.10
              
              Stipulation
      of Settlement of In Re Adams Golf, Inc. Securities Litigation, dated
      December 9, 2009
              
              Incorporated
      by reference to 2009 Form 10-K File No 001-33978 (Exhibit
      10.10)Exhibit
      31.1
              
              Certification
      Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
              
              Included
      in this filingExhibit
      31.2
              
              Certification
      Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
              
              Included
      in this filingExhibit
      32.1
              
              Certification
      Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
              
              Included
      in this filing


* The
SEC has granted our request for confidential treatment of certain portions of
these agreements.


29