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
      1934





For the
quarterly period ended June 30, 2009


or


 ̈
            Transition
      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934





For the
transition period from to





Commission
File Number:  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 is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See 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 x
       Smaller reporting company  ̈




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





 ̈
Yes   x No





The
number of outstanding shares of the Registrant's common stock, par value $.001
per share, was 6,683,367 on August 3, 2009.









ADAMS
GOLF, INC. AND SUBSIDIARIES





TABLE
OF CONTENTS





PagePART
      I
                            
                            FINANCIAL
      INFORMATIONItem
      1.
                            Financial
      StatementsCondensed
      Consolidated Balance Sheets -June
      30, 2009 (unaudited) and December 31, 2008
                            
                            3Unaudited
      Condensed Consolidated Statements of Operations -Three
      and six months ended June 30, 2009 and 2008
                            
                            4Unaudited
      Condensed Consolidated Statement of Stockholders' Equity -Six
      months ended June 30, 2009
                            
                            5Unaudited
      Condensed Consolidated Statements of Cash Flows -Six
      months ended June 30, 2009 and 2008
                            
                            6Notes
      to Unaudited Condensed Consolidated Financial Statements
                            
                            7-15Item
      2.
                            Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                            
                            16-25Item
      3.
                            Quantitative
      and Qualitative Disclosures About Market Risk
                            
                            N/AItem
      4(T).
                            Controls
      and Procedures
                            
                            25-26PART
      II
                            
                            OTHER
      INFORMATIONItem
      1.
                            Legal
      Proceedings
                            
                            27-28Item
      1A.
                            Risk
      Factors
                            
                            28Item
      2.
                            Unregistered
      Sales of Equity Securities and Use of Proceeds
                            
                            N/AItem
      3.
                            Defaults
      Upon Senior Securities
                            
                            N/AItem
      4.
                            Submissions
      of Matters to a Vote of Security Holders
                            
                            29Item
      5.
                            Other
      Information
                            
                            N/AItem
      6.
                            Exhibits
                            
                            29Signatures
                            
                            29




2




Item
1.


ADAMS
GOLF, INC. AND SUBSIDIARIES





CONDENSED
CONSOLIDATED BALANCE SHEETS


(in
thousands, except share amounts)





June
      30,
                                                      2009
                                                    
                                                    
                                                    December
      31,
                                                      2008(unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
                                                    
                                                    $
                                                    3,268
                                                    
                                                    
                                                    $
                                                    5,960Trade
      receivables, net of allowance for doubtful accounts of $1,579 (unaudited)
      and $1,321 in 2009 and 2008, respectively
                                                    
                                                    
                                                    22,853
                                                    
                                                    
                                                    
                                                    14,743Inventories,
      net
                                                    
                                                    
                                                    22,816
                                                    
                                                    
                                                    
                                                    33,611Prepaid
      expenses
                                                    
                                                    
                                                    638
                                                    
                                                    
                                                    
                                                    908Other
      current assets
                                                    
                                                    
                                                    40
                                                    
                                                    
                                                    
                                                    29Total
      current assets
                                                    
                                                    
                                                    49,615
                                                    
                                                    
                                                    
                                                    55,251Property
      and equipment, net
                                                    
                                                    
                                                    1,133
                                                    
                                                    
                                                    
                                                    1,210Deferred
      tax asset - non current
                                                    
                                                    
                                                    10,228
                                                    
                                                    
                                                    
                                                    10,228Other
      assets, net
                                                    
                                                    
                                                    315
                                                    
                                                    
                                                    
                                                    367$
                                                    61,291
                                                    
                                                    
                                                    $
                                                    67,056LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable
                                                    
                                                    $
                                                    2,396
                                                    
                                                    
                                                    $
                                                    9,471Accrued
      expenses
                                                    
                                                    
                                                    6,604
                                                    
                                                    
                                                    
                                                    7,253Credit
      facility
                                                    
                                                    
                                                    5,076
                                                    
                                                    
                                                    
                                                    —Other
      current liabilities
                                                    
                                                    
                                                    15
                                                    
                                                    
                                                    
                                                    —Total
      current liabilities
                                                    
                                                    
                                                    14,091
                                                    
                                                    
                                                    
                                                    16,724Other
      liabilities
                                                    
                                                    
                                                    9
                                                    
                                                    
                                                    
                                                    18Total
      liabilities
                                                    
                                                    
                                                    14,100
                                                    
                                                    
                                                    
                                                    16,742Stockholders'
      equity:Preferred
      stock, $0.01 par value; authorized 1,250,000 shares; none
      issued
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    
                                                    —Common
      stock, $.001 par value; authorized 12,500,000 shares; 7,094,304 and
      6,909,866 shares issued and 6,683,367 and 6,498,929 shares outstanding at
      June 30, 2009 (unaudited) and December 31, 2008,
    respectively
                                                    
                                                    
                                                    7
                                                    
                                                    
                                                    
                                                    7Additional
      paid-in capital
                                                    
                                                    
                                                    93,136
                                                    
                                                    
                                                    
                                                    92,701Accumulated
      other comprehensive income
                                                    
                                                    
                                                    1,847
                                                    
                                                    
                                                    
                                                    565Accumulated
      deficit
                                                    
                                                    
                                                    (43,045
                                                    )
                                                    
                                                    
                                                    (38,205
                                                    )Treasury
      stock, 410,937 common shares at June 30, 2009 and December 31, 2008, at
      cost
                                                    
                                                    
                                                    (4,754
                                                    )
                                                    
                                                    
                                                    (4,754
                                                    )Total
      stockholders' equity
                                                    
                                                    
                                                    47,191
                                                    
                                                    
                                                    
                                                    50,314$
                                                    61,291
                                                    
                                                    
                                                    $
                                                    67,056Contingencies





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
                                          
                                          
                                          Six
      Months EndedJune
      30,
                                          
                                          
                                          June
      30,2009
                                          
                                          
                                          2008
                                          
                                          
                                          2009
                                          
                                          
                                          2008Net
      sales
                                          
                                          $
                                          23,254
                                          
                                          
                                          $
                                          33,260
                                          
                                          
                                          $
                                          46,730
                                          
                                          
                                          $
                                          61,261Cost
      of goods sold
                                          
                                          
                                          20,476
                                          
                                          
                                          
                                          19,524
                                          
                                          
                                          
                                          34,943
                                          
                                          
                                          
                                          35,414Gross
      profit
                                          
                                          
                                          2,778
                                          
                                          
                                          
                                          13,736
                                          
                                          
                                          
                                          11,787
                                          
                                          
                                          
                                          25,847Operating
      expenses:Research
      and development expenses
                                          
                                          
                                          738
                                          
                                          
                                          
                                          793
                                          
                                          
                                          
                                          1,590
                                          
                                          
                                          
                                          1,879Selling
      and marketing expenses
                                          
                                          
                                          5,437
                                          
                                          
                                          
                                          9,125
                                          
                                          
                                          
                                          11,387
                                          
                                          
                                          
                                          16,780General
      and administrative expenses
                                          
                                          
                                          1,743
                                          
                                          
                                          
                                          2,200
                                          
                                          
                                          
                                          3,586
                                          
                                          
                                          
                                          4,750Total
      operating expenses
                                          
                                          
                                          7,918
                                          
                                          
                                          
                                          12,118
                                          
                                          
                                          
                                          16,563
                                          
                                          
                                          
                                          23,409Operating
      income (loss)
                                          
                                          
                                          (5,140
                                          )
                                          
                                          
                                          1,618
                                          
                                          
                                          
                                          (4,776
                                          )
                                          
                                          
                                          2,438Other
      income (expense):Interest
      income (expense), net
                                          
                                          
                                          (36
                                          )
                                          
                                          
                                          (54
                                          )
                                          
                                          
                                          (53
                                          )
                                          
                                          
                                          (20
                                          )Other
      income (expense), net
                                          
                                          
                                          2
                                          
                                          
                                          
                                          (1
                                          )
                                          
                                          
                                          50
                                          
                                          
                                          
                                          (51
                                          )Income
      (loss) before income taxes
                                          
                                          
                                          (5,174
                                          )
                                          
                                          
                                          1,563
                                          
                                          
                                          
                                          (4,779
                                          )
                                          
                                          
                                          2,367Income
      tax expense
                                          
                                          
                                          32
                                          
                                          
                                          
                                          9
                                          
                                          
                                          
                                          61
                                          
                                          
                                          
                                          16Net
      income (loss)
                                          
                                          $
                                          (5,206
                                          )
                                          
                                          $
                                          1,554
                                          
                                          
                                          $
                                          (4,840
                                          )
                                          
                                          $
                                          2,351Net
      income (loss)  per common share - basic
                                          
                                          $
                                          (0.78
                                          )
                                          
                                          $
                                          0.24
                                          
                                          
                                          $
                                          (0.73
                                          )
                                          
                                          $
                                          0.37- diluted
                                          
                                          $
                                          (0.78
                                          )
                                          
                                          $
                                          0.21
                                          
                                          
                                          $
                                          (0.73
                                          )
                                          
                                          $
                                          0.32





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)





Six
Months Ended June 30, 2009


(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, 2008
                                
                                
                                6,909,866
                                
                                
                                $
                                7
                                
                                
                                $
                                92,701
                                
                                
                                $
                                565
                                
                                
                                $
                                (38,205
                                )
                                
                                
                                
                                
                                $
                                (4,754
                                )
                                
                                $
                                50,314Comprehensive
      loss:Net
      loss
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                (4,840
                                )
                                
                                $
                                (4,840
                                )
                                
                                
                                —
                                
                                
                                
                                (4,840
                                )Foreign
      currency translation
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                1,282
                                
                                
                                
                                —
                                
                                
                                
                                1,282
                                
                                
                                
                                —
                                
                                
                                
                                1,282Comprehensive
      loss
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                $
                                (3,558
                                )
                                
                                
                                —
                                
                                
                                
                                —Issuance
      of restricted stock
                                
                                
                                100,000
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                
                                
                                
                                
                                —
                                
                                
                                
                                —Stock
      options exercised
                                
                                
                                84,438
                                
                                
                                
                                —
                                
                                
                                
                                3
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                
                                
                                
                                
                                —
                                
                                
                                
                                3Compensatory
      stock and stock options
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                432
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                
                                
                                
                                
                                —
                                
                                
                                
                                432Balance,
      June 30, 2009
                                
                                
                                7,094,304
                                
                                
                                $
                                7
                                
                                
                                $
                                93,136
                                
                                
                                $
                                1,847
                                
                                
                                $
                                (43,045
                                )
                                
                                
                                
                                
                                
                                $
                                (4,754
                                )
                                
                                $
                                47,191





See
accompanying notes to unaudited condensed consolidated financial
statements.




5




ADAMS
GOLF, INC. AND SUBSIDIARIES





CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(in
thousands)


(unaudited)


Six
      Months EndedJune
      30,2009
                        
                        
                        2008Cash
      flows from operating activities:Net
      income (loss)
                        
                        $
                        (4,840
                        )
                        
                        $
                        2,351Adjustments
      to reconcile net income (loss) to net cash used in operating
      activities:Depreciation
      and amortization of property and equipment and intangible
      assets
                        
                        
                        312
                        
                        
                        
                        285Amortization
      of deferred compensation
                        
                        
                        432
                        
                        
                        
                        526Provision
      for doubtful accounts
                        
                        
                        696
                        
                        
                        
                        682Provision
      for inventory reserve
                        
                        
                        2,560
                        
                        
                        
                        29Changes
      in operating assets and liabilities:Trade
      receivables
                        
                        
                        (8,806
                        )
                        
                        
                        (15,441
                        )Inventories
                        
                        
                        8,234
                        
                        
                        
                        1,024Prepaid
      expenses
                        
                        
                        269
                        
                        
                        
                        (1,032
                        )Other
      current assets
                        
                        
                        (10
                        )
                        
                        
                        44Other
      assets
                        
                        
                        (3
                        )
                        
                        
                        287Accounts
      payable
                        
                        
                        (7,075
                        )
                        
                        
                        1,759Accrued
      expenses and other current liabilities
                        
                        
                        (630
                        )
                        
                        
                        1,179Net
      cash used in operating activities
                        
                        
                        (8,859
                        )
                        
                        
                        (8,307
                        )Cash
      flows from investing activities:Purchases
      of equipment
                        
                        
                        (161
                        )
                        
                        
                        (348
                        )Net
      cash used in investing activities
                        
                        
                        (161
                        )
                        
                        
                        (348
                        )Cash
      flows from financing activities:Principal
      payments under capital lease obligation
                        
                        
                        (9
                        )
                        
                        
                        (6
                        )Proceeds
      from exercise of stock options
                        
                        
                        3
                        
                        
                        
                        5Net
      proceeds from credit facility
                        
                        
                        5,052
                        
                        
                        
                        (251
                        )Net
      cash provided by (used in) financing activities
                        
                        
                        5,046
                        
                        
                        
                        (252
                        )Effects
      of exchange rate changes
                        
                        
                        1,282
                        
                        
                        
                        (252
                        )Net
      decrease in cash and cash equivalents
                        
                        
                        (2,692
                        )
                        
                        
                        (9,159
                        )Cash
      and cash equivalents at beginning of period
                        
                        
                        5,960
                        
                        
                        
                        11,265Cash
      and cash equivalents at end of period
                        
                        $
                        3,268
                        
                        
                        $
                        2,106Supplemental
      disclosure of cash flow informationInterest
      paid
                        
                        $
                        58
                        
                        
                        $
                        82Income
      taxes paid
                        
                        $
                        60
                        
                        
                        $
                        9





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 six month periods ended June 30, 2009 and 2008 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 2008 Annual Report on Form 10-K filed with the SEC on March 11,
2009.





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, Speedline and Speedline 9032
drivers, Speedline hybrid fairway woods, Idea Tech a4 and a4 OS I-woods and
irons, Idea a3 and a3 OS I-woods and irons, Idea Pro Gold I-woods and irons and
Insight Tech a4 and a4 OS drivers and hybrid-fairway woods. We also continue to
develop new products for certain of our older product lines that include RPM
family drivers and fairway woods and irons, the Ovation family of drivers,
fairway woods and irons, Tom Watson signature wedges and 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 Insight XTD A3 & A3 OS
drivers and hybrid-fairway woods, Idea a2 and a2 OS irons, Idea Tech OS I-woods
and irons, Idea a2 and a2 OS, 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):





June
      30,
                            
                            
                            December
      31,2009
                            
                            
                            2008(unaudited)Finished
      goods
                            
                            $
                            12,656
                            
                            
                            $
                            20,226Component
      parts
                            
                            
                            10,160
                            
                            
                            
                            13,385Total
      inventory
                            
                            $
                            22,816
                            
                            
                            $
                            33,611





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 or 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 June 30, 2009, we recognized an inventory
write-down of $3.6 million as a result of a reduction to a lower of cost or
market value and increase to inventory obsolescence reserve. At June 30, 2009
and December 31, 2008, inventories included $775,000 and $821,000 of consigned
inventory, respectively, and $2,757,000 and $197,000 of inventory obsolescence
reserves, respectively.




7




ADAMS
GOLF, INC. AND SUBSIDIARIES





NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





3.   Accrued
Expenses





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





June
      30,
                              
                              
                              December
      31,2009
                              
                              
                              2008(unaudited)Payroll
      and commissions
                              
                              $
                              439
                              
                              
                              $
                              447Product
      warranty and sales returns allowances
                              
                              
                              2,337
                              
                              
                              
                              1,641Professional
      services
                              
                              
                              51
                              
                              
                              
                              7Accrued
      inventory
                              
                              
                              15
                              
                              
                              
                              1,021Accrued
      sales promotions
                              
                              
                              656
                              
                              
                              
                              274Deferred
      revenue
                              
                              
                              1,376
                              
                              
                              
                              1,429Other
                              
                              
                              1,730
                              
                              
                              
                              2,434Total
      accrued expenses
                              
                              $
                              6,604
                              
                              
                              $
                              7,253





4.   Income
(Loss) per Common Share





The
weighted average common shares used for determining basic and diluted loss per
common share were6,642,849 for the three months ended June 30, 2009, and 6,424,108 and
7,462,843, respectively, for the three months ended June 30, 2008.





The
effect of all warrants and options to purchase shares of our common stock for
the three months ended June 30, 2009 was excluded from the calculation of
dilutive shares as the effect of inclusion would have been antidilutive. The
effect of all warrants and options to purchase shares of our common stock for
the three months ended June 30, 2008 resulted in additional dilutive shares of
1,038,735.





The
weighted average common shares used for determining basic and diluted loss per
common share were6,603,181 for the six months ended June 30, 2009, and 6,339,079 and
7,362,332, respectively, for the six months ended June 30, 2008.





The
effect of all warrants and options to purchase shares of our common stock for
the six months ended June 30, 2009 was excluded from the calculation of dilutive
shares as the effect of inclusion would have been antidilutive. The effect of
all warrants and options to purchase shares of our common stock for the six
months ended June 30, 2008 resulted in additional dilutive shares of
1,023,253.




8




ADAMS
GOLF, INC. AND SUBSIDIARIES





NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




5.   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 by customer for these markets consisted of the following
during the periods indicated (in thousands):





Three
      Months Ended June 30,
                          
                          
                          Six
      Months Ended June 30,2009
                          
                          
                          2008
                          
                          
                          2009
                          
                          
                          2008(unaudited)
                          
                          
                          (unaudited)United
      States
                          
                          $
                          18,464
                          
                          
                          $
                          25,238
                          
                          
                          $
                          38,048
                          
                          
                          $
                          48,456Rest
      of World
                          
                          
                          4,790
                          
                          
                          
                          8,022
                          
                          
                          
                          8,682
                          
                          
                          
                          12,805Total
      net sales
                          
                          $
                          23,254
                          
                          
                          $
                          33,260
                          
                          
                          $
                          46,730
                          
                          
                          $
                          61,261





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.





6.   Income
Taxes





We
account for income taxes in accordance with FAS No. 109, "Accounting for Income
Taxes" ("FAS 109") as clarified by FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes" ("FIN 48"). 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",
according to the criteria of FAS 109, 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. FIN 48 requires
that we recognize the financial statement benefit of a tax position only after
determining that the relevant tax authority would more likely than not sustain
the position following an audit. For tax positions meeting the more likely than
not threshold, the amount recognized in the financial statements is the largest
benefit that has a greater than 50% likelihood of being realized upon ultimate
settlement with the relevant tax authority. 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 through
December 31, 2002 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.





7.   Comprehensive
Loss





Comprehensive
loss for the six months ended June 30, 2009 was approximately $3.6
million.




9




ADAMS
GOLF, INC. AND SUBSIDIARIES





NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





8.   Stock-Based
Compensation





We
adopted the 2002 Equity Incentive Plan (the "Plan") for employees, outside
directors and consultants. The Plan allowed for the granting of up to 625,000
shares of our common stock at the inception of the Plan, plus all shares
remaining available for issuance under all predecessor plans on the effective
date of this Plan, and additional shares as defined in the Plan. At June 30,
2009, 908,544 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 ten
years from the date of grant. At June 30, 2009, 691,160 shares remained
available for grant, including forfeitures.





During
the six months ended June 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 and 100,000 shares of restricted stock were issued. The per
share weighted-average fair value of stock options granted during the six months
ended June 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. The restricted shares issued during the six
months ended June 30, 2009 had a fair value of $330,000 based on the market
value at the date of grant and vest over one year in four equal
installments.





Operating
expenses included in the consolidated statements of operations for the three
months ended June 30, 2009 and 2008 include total compensation expense
associated with stock options and restricted stock grants of $215,000 and
$318,000, respectively and $432,000 and $526,000 for the six months ended June
30, 2009 and 2008, respectively.





Number
      of
                  
                  
                  Weighted
                  
                  
                  AggregateOutstanding
                  
                  
                  Average
                  
                  
                  IntrinsicShares
                  
                  
                  Exercise Price
                  
                  
                  Value of OptionsOptions
      outstanding at December 31, 2008
                  
                  
                  892,982
                  
                  
                  $
                  0.19
                  
                  
                  $
                  2,510,227Options
      granted
                  
                  
                  100,000
                  
                  
                  
                  3.02
                  
                  
                  
                  —Options
      forfeited / expired
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Options
      exercised
                  
                  
                  (84,438
                  )
                  
                  
                  0.04
                  
                  
                  
                  242,364Options
      outstanding at June 30, 2009
                  
                  
                  908,544
                  
                  
                  
                  0.51
                  
                  
                  
                  1,722,249Options
      exercisable at June 30, 2009
                  
                  
                  805,419
                  
                  
                  
                  0.19
                  
                  
                  
                  1,790,468








The
weighted average remaining contractual life of the options outstanding at June
30, 2009 was 4.35 years and for options exercisable at June 30, 2009 was 3.69
years.





As of
June 30, 2009, compensation costs related to non-vested awards totaled $1.0
million, which is expected to be recognized over a weighted average period of
1.2 years.





As of
June 30, 2009, there was $0.9 million of unrecognized compensation costs related
to non-vested share restricted stock grants awarded. The compensation costs of
these awards were determined based on the fair value of our common stock on the
date of grant of $8.50 for a block of 150,000 shares granted, $8.60 for a block
of 11,365 shares granted and $3.30 for a block of 100,000 shares granted.
Compensation expense recognized during the three and six months ended June 30,
2009 related to the restricted stock grants was $0.2 and $0.4 million,
respectively.




10




ADAMS
GOLF, INC. AND SUBSIDIARIES





NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





8.   Stock-Based
Compensation (continued)





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
Internal Revenue Service 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 Exercised2009
                  
                  
                  17,5002010
                  
                  
                  15,0002011
                  
                  
                  27,5002012
                  
                  
                  28,2092013
                  
                  
                  13,750Beyond
      2013
                  
                  
                  15,000Total
      Options
                  
                  
                  116,959





9.   New
Accounting Pronouncements





In May
2009, the FASB issued SFAS No. 165,Subsequent Events,which establishes
general standards of accounting for and disclosure of events that occur after
the balance sheet date but before the financial statements are issued or
available to be issued. We adopted the provisions of this standard in the
current quarter and record the date of events to be the filing date; the
adoption of this standard had no impact on the consolidated financial
statements.





In April
2009, the FASB issued FSP FAS 107-1 and APB 28-1,Interim Disclosures about Fair
Value of Financial Instruments,which requires
certain disclosures about the fair value of financial instruments for interim
reporting periods as well as in annual financial statements. This FSP also
amends APB Opinion No. 28 to require those disclosures in summarized financial
information at interim reporting periods. We adopted the provisions of this
standard in the current quarter; the adoption of this standard had no impact on
the consolidated financial statements.





10.   Liquidity





In
November 2007, we signed a revolving credit agreement with Wachovia Bank,
National Association to provide up to $15.0 million in short term debt, which
expires 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 so that the ratio is only calculated when we have less than $5.0
million in availability on the facility. Interest on outstanding balances
accrues at a rate of LIBOR plus 2.50% and is payable monthly. As of June 30,
2009, we had $5.1 million of outstanding borrowings on our credit facility and
we were in compliance with the terms of our agreement. In October 2008, Wells
Fargo announced plans to acquire Wachovia Bank, N.A. and closed the acquisition
at the end of 2008. The transaction resulted in the merger of Wachovia Bank into
Wells Fargo with Wells Fargo being the surviving institution. Wells Fargo, as
successor to Wachovia Bank, has become our lender under our existing line of
credit and is subject to all of the terms and conditions thereof.




11




ADAMS
GOLF, INC. AND SUBSIDIARIES





NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





10.   Liquidity
(continued)





Our
anticipated sources of liquidity over the next twelve 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 and
current cash reserves will also 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.





11.   Contingencies





Beginning
in June 1999, the first of seven class action lawsuits was filed against us,
certain of our current and former officers and directors, and the three
underwriters of our initial public offering ("IPO") in the United States
District Court of the District of Delaware. The complaints alleged violations of
Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, as amended, in
connection with our IPO and sought rescissory or compensatory damages in an
unspecified amount. In particular, the complaints alleged that our prospectus,
which became effective July 9, 1998, was materially false and misleading. The
operative complaint was filed on January 24, 2006, and it alleges that the
prospectus failed to disclose that unauthorized distribution of our products
(gray market sales) threatened our long-term profits and that we engaged in
questionable sales practices (including double shipping and unlimited rights of
return), which threatened post-IPO financial results. Discovery closed on August
11, 2006. On November 21, 2006, all summary-judgment briefing was completed. On
December 13, 2006, we learned that the Delaware District Court judge whom the
case was set before was elevated to the United States Court of Appeals for the
Third Circuit. On December 15, 2006, we were notified that our case was assigned
to the vacant judicial position and that all proceedings had been postponed
until a new judge was confirmed. On February 7, 2008, we were notified that our
case was reassigned to Chief Judge Gregory M. Sleet. The parties participated in
a mediation on April 8, 2008, but no resolution has been reached at this time.
The Court heard oral argument on Defendant's summary-judgment motions on
February 20, 2009 and the parties' Daubert motions on May 29,
2009. The Court set a trial date of October 13, 2009.




12




ADAMS
GOLF, INC. AND SUBSIDIARIES





NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





11.   Contingencies
(continued)





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 American Insurance Company, 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, Thilman & Filipini, LLC
("T&F"), asserting various causes of action arising out of T&F's alleged
failure to notify Zurich of the class action lawsuit. On March 18, 2008, the
suit against T&F was amended to also name as Defendants certain alleged
successor entities to T&F. All of the Defendants moved to dismiss our
lawsuit on the basis that our suit was premature in that we had not been damaged
by the alleged conduct of the Defendants because we had not paid any sums in
satisfaction of a judgment or settlement of the class action securities
litigation. Those motions were denied pursuant to a Memorandum Opinion and Order
dated September 26, 2008. T&F's successor entities also moved to dismiss the
claims brought against them on the grounds that, as purchasers of solely
T&F's assets, they could not be held liable for the T&F debts or
liabilities. The Court struck our complaint solely against the successor entity
Defendants on the grounds that we had not alleged sufficient facts triggering an
exception to the general rule that the purchaser of an entity's assets is not
liable for the entity's liabilities and ordered us to replead our claims against
the successor entity Defendants. We must replead our claims before August 24,
2009. We and T&F have engaged in preliminary written discovery efforts, but
substantial discovery remains to be completed. No trial date has been
set.





Depending
on the outcome of this proceeding, based on the previously disclosed agreement
with Chubb & Son ("Chubb"), a division of Federal Insurance Company
("Federal"),which is described below, we could be required to pay Zurich's $5
million limit of liability in cash before the layers of insurance coverage
excess to the Zurich layer attach. We previously disclosed that Chubb had
notified us that coverage under the Federal policy, which provided insurance
coverage totaling $10 million for the layer of exposure between $20 million and
$30 million, and the Executive Risk Indemnity Inc. ("ERII") policy, which
provided insurance coverage totaling $10 million for the layer of exposure
between $40 million and $50 million, would attach only if the underlying limits
are exhausted by payment from the underlying insurance carriers. On June 18,
2007, Chubb notified us that Federal and ERII will not require that Zurich pay
the full amount of its limit of liability before the Federal and ERII policies
attach, and it confirmed that Chubb will accept payment in cash by our Company
of Zurich's limit of liability to satisfy this requirement, so long as such
payment is for covered loss. All of the excess insurance carriers (other than
Zurich, which has denied coverage) have reserved their rights to deny coverage
on various grounds. At this point in the legal proceedings, we cannot predict
with any certainty the outcome of the matter, per the guidance in SFAS 5, and
thus cannot reasonably estimate future liability on the conclusion of the
events, if any.




13




ADAMS
GOLF, INC. AND SUBSIDIARIES





NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





11.   Contingencies
(continued)





As
mentioned above, the underwriters for the IPO are also defendants in the
securities class action. The underwriting agreement that we entered into with
the underwriters in connection with the IPO contains an indemnification clause,
providing for indemnification against any loss, including defense costs, arising
out of the IPO. After the first lawsuit was filed, the underwriters requested
indemnification under the agreement. Our D&O insurance policy included an
endorsement providing $1 million to cover indemnification of the underwriters.
Our D&O insurer has notified the underwriters of the exhaustion of the $1
million sublimit. We believe that we have no current obligation to pay the
underwriters' defense costs. We believe that the applicable case law provides
that the earliest possible time that an obligation to indemnify might exist is
after a court has decided conclusively that the underwriters are without fault
under the federal securities laws. The litigation is not at that stage yet. As
of August 3, 2009, the total amount of outstanding underwriter defense costs was
approximately $1.4 million. At this time, the underwriters are not able to
predict with certainty the amount of defense costs they expect to incur going
forward, but it is likely they will incur additional costs before this matter is
concluded. We currently cannot predict with any certainty the outcome of this
indemnification issue, per the guidance in SFAS 5, and thus cannot reasonably
estimate future liability on the conclusion of the events, if any.





Beginning
April 2008, we received communications from the Estate of Anthony Antonious that
our products infringed a patent of Anthony Antonious patent 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 for damage 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 has been raised. As a result, both the Ohio lawsuit and the New
Jersey lawsuit have been stayed pending the outcome of the USPTO's reexamination
proceeding. On March 23, 2009 the USPTO issued a non-final Official Action
rejecting all of the claims at issue. The trust responded to the Office Action
on April 22, 2009 attempting to convince the USPTO that the claims should not be
rejected. At this point in the legal proceedings, we cannot predict the outcome
of the matter with any certainty, per the guidance in SFAS 5, 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.





12.Reclassifications





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




14




ADAMS
GOLF, INC. AND SUBSIDIARIES





NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





13.Business and Credit
Concentrations





We were
dependent on two customers, which collectively comprised approximately 24% of
net sales for the three months ended June 30, 2009. One customer individually
represented greater than 10% but less than 20% of net sales, and no customer
represented greater than 20% of net sales. For the three months ended June 30,
2008, four customers collectively comprised approximately 26% of net sales. Two
customers individually represented greater than 5% but less than 10% of net
sales, and one customer represented greater than 10% but less than 15% of net
sales while no customers represented greater than 15% of net sales.





For the
six months ended June 30, 2009, we were dependent on two customers, which
collectively comprised approximately 28% 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. For the six
months ended June 30, 2008, three customers comprised approximately 24% of net
sales while two customers individually represented greater than 5% but less than
10% of net sales and one customer individually represented greater than 10% of
net sales, but no customers represented greater than 15% of net sales.
Additionally, we have one customer with an outstanding accounts receivable
balance that is greater than 10% but less than 15% of total accounts receivable
at June 30, 2009. Should these customers or our other customers fail to meet
their obligations to us, our results of operations and cash flows would be
adversely impacted.





A
significant portion of our inventory purchases are from one supplier in China.
We purchased approximately 39% and 48% of our total inventory purchased for the
three months ended June 30, 2009 and December 31, 2008, respectively, from this
one Chinese supplier. Many other industry suppliers also are located in China.
We do not anticipate any changes in the relationships with our suppliers.
However, if such change were to occur, we have alternative sources available.
Supply from these alternative sources, however, may not be immediately available
or available in the quantities necessary to meet customer demand.





14.   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, 2008
                  
                  $
                  466
                  
                  
                  
                  (152
                  )
                  
                  
                  208
                  
                  
                  $
                  522Quarter
      ended March 31, 2009
                  
                  $
                  522
                  
                  
                  
                  (63
                  )
                  
                  
                  60
                  
                  
                  $
                  519Quarter
      ended June 30, 2009
                  
                  $
                  519
                  
                  
                  
                  (168
                  )
                  
                  
                  128
                  
                  
                  $
                  479




15




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 six months ended June 30, 2009, and with our consolidated
financial statements and notes thereto for the year ended December 31, 2008
included in our Annual Report on Form 10-K filed with the SEC on March 11, 2009
and (ii) the discussion under the caption "Risk Factors" in our Annual Report on
Form 10-K filed with the SEC on March 11, 2009 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.





Forward
Looking Statements





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" 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 regarding the effect of unauthorized sales of our clubs and sales of
counterfeit clubs, pending litigation, statements regarding liquidity and our
ability to increase revenues or achieve satisfactory operational performance,
statements regarding our ability to satisfy our cash requirements and our
ability to satisfy our capital needs, including cash requirements during the
next twelve months, statements regarding our ability to produce products
commercially acceptable to consumers and statements using 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
uncertainty of the results of pending litigation;


—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 a limited number of customers;


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


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


—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


—The
impact of operational restructuring on operating results and liquidity and
one-time events and other factors detailed under Risk Factors, Item
1A.




16





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 vary 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.  No assurances can be given that demand for our current
products or the introduction of new products will 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 cycles generally
range 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.


17


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.


18


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 June 30,
                                  
                                  
                                  Six
      Months Ended June 30,2009
                                  
                                  
                                  2008
                                  
                                  
                                  2009
                                  
                                  
                                  2008(unaudited)
                                  
                                  
                                  (unaudited)Net
      sales
                                  
                                  
                                  100.0
                                  %
                                  
                                  
                                  100.0
                                  %
                                  
                                  
                                  100.0
                                  %
                                  
                                  
                                  100.0
                                  %Cost
      of goods sold
                                  
                                  
                                  88.1
                                  
                                  
                                  
                                  58.7
                                  
                                  
                                  
                                  74.8
                                  
                                  
                                  
                                  57.8Gross
      profit
                                  
                                  
                                  11.9
                                  
                                  
                                  
                                  41.3
                                  
                                  
                                  
                                  25.2
                                  
                                  
                                  
                                  42.2Operating
      expenses:Research
      and development expenses
                                  
                                  
                                  3.2
                                  
                                  
                                  
                                  2.4
                                  
                                  
                                  
                                  3.4
                                  
                                  
                                  
                                  3.1Sales
      and marketing expenses
                                  
                                  
                                  23.4
                                  
                                  
                                  
                                  27.4
                                  
                                  
                                  
                                  24.4
                                  
                                  
                                  
                                  27.4General
      and administrative expenses
                                  
                                  
                                  7.4
                                  
                                  
                                  
                                  6.6
                                  
                                  
                                  
                                  7.7
                                  
                                  
                                  
                                  7.7Total
      operating expenses
                                  
                                  
                                  34.0
                                  
                                  
                                  
                                  36.4
                                  
                                  
                                  
                                  35.5
                                  
                                  
                                  
                                  38.2Interest
      income (expense), net
                                  
                                  
                                  (0.2
                                  )
                                  
                                  
                                  (0.2
                                  )
                                  
                                  
                                  (0.1
                                  )
                                  
                                  
                                  0.0Other
      income, net
                                  
                                  
                                  0.0
                                  
                                  
                                  
                                  (0.0
                                  )
                                  
                                  
                                  0.1
                                  
                                  
                                  
                                  (0.1
                                  )Income
      (loss) before income taxes
                                  
                                  
                                  (22.3
                                  )
                                  
                                  
                                  4.7
                                  
                                  
                                  
                                  (10.3
                                  )
                                  
                                  
                                  3.9Income
      tax expense
                                  
                                  
                                  0.1
                                  
                                  
                                  
                                  0.0
                                  
                                  
                                  
                                  0.1
                                  
                                  
                                  
                                  0.1Net
      income (loss)
                                  
                                  
                                  (22.4
                                  )%
                                  
                                  
                                  4.7
                                  %
                                  
                                  
                                  (10.4
                                  )%
                                  
                                  
                                  3.8
                                  %





Three
Months Ended June 30, 2009 Compared to Three Months Ended June 30,
2008





Total net
sales decreased to $23.3 million for the three months ended June 30, 2009 from
$33.3 million for the comparable period of 2008.  Our sales were
primarily driven by the product sales of Speedline drivers and hybrid-fairway
woods and the Idea a3 and a3 OS irons and the recent launch of the Tech a4 and
a4 OS irons, hybrids, 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 cycles generally range from six 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.  The decline in net sales for the three months ended
June 30, 2009 was primarily due to reduced demand by customers caused by a
less than favorable economic environment in the United States and
abroad.





Net sales
of irons decreased to $16.5 million, or 71.1% of total net sales for the three
months ended June 30, 2009 from $22.2 million, or 66.7% of total net sales, for
the comparable period of 2008.  Current period iron net sales
primarily resulted from sales of the Idea a3 OS irons, Tech a4 and a4 OS Irons,
and a smaller portion of sales resulting from integrated iron sets while the
comparable period of 2008 net sales primarily resulted from sales of the Idea a3
and a3 OS irons coupled with a smaller portion of sales of Tech OS irons and
integrated iron sets.





Net sales
of fairway woods decreased to $3.4 million, or 14.4% of total net sales, for the
three months ended June 30, 2009, from $8.5 million, or 25.6% of total net
sales, for the comparable period of 2008.  Net sales for the three
months ended June 30, 2009 primarily were generated from sales of 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 for the three
months ended June 30, 2008 primarily were generated from sales of Insight XTD
fairway woods and Idea a3 and a3 OS, Idea Pro and Tech OS
I-woods.


19


Net sales
of drivers decreased to $3.3 million, or 14.2% of total net sales, for the three
months ended June 30, 2009 from $3.5 million, or 10.6% of total net sales, for
the comparable period of 2008.  A large portion of the driver net
sales for the three months ended June 30, 2009 was generated by the sales of
Speedline driver, which was launched in the first quarter of 2009, coupled with
the Tech a4 and a4 OS drivers, which were introduced in the third quarter of
2008, while in the comparable period of 2008, net sales were primarily driven by
the sales of Insight XTD driver, which was launched in the first quarter of
2008.





We were
dependent on two customers, which collectively comprised approximately 24% of
net sales for the three months ended June 30, 2009.  Of these, one
customer individually represented greater than 10% but less than 20% of net
sales and no customer represented greater than 20% of net sales for this
period.  Should 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 decreased to $4.8 million, or 20.6% of
total net sales, from $8.0 million, or 24.1% of total net sales, for the three
months ended June 30, 2009 and 2008, respectively.  Net sales
resulting from countries outside the United States and Canada decreased to 4.1%
of total net sales for the three months ended June 30, 2009 from 7.2% for the
comparable period of 2008.





Cost of
goods sold increased to $20.5 million, or 88.1% of total net sales, for the
three months ended June 30, 2009 from $19.5 million, or 58.7% of total net
sales, for the comparable period of 2008.  The increase as a
percentage of total net sales is primarily due to the inventory write-down to
lower of cost or market totaling $3.6 million coupled with increased promotional
programs during the quarter.





Selling
and marketing expenses decreased to $5.4 million for the three months ended June
30, 2009 from $9.1 million for the comparable period in 2008.  The
decrease is primarily the result of a decrease in marketing and tour expense of
$2.4 million and commission expense of $1.1 million.





General
and administrative expenses decreased to $1.7 million for the three months ended
June 30, 2009 from $2.2 million for the comparable period in
2008.  The decrease is primarily the result of a decrease in
compensation expense.





Research
and development expenses, primarily consisting of costs associated with
development of new products, decreased to $0.7 million for the three months
ended June 30, 2009 from $0.8 million for the comparable period in
2008.  The decrease is primarily the result of a decrease in
compensation expense.





Due to
the recession currently affecting the global economy and the golf industry
specifically, we continue to assess our cost structure, including but not
limited to work force reductions, gross margin initiatives and overall cost
savings in order to sustain our financial position as well as to position
ourselves for future growth.





Six
Months Ended June 30, 2009 Compared to Six Months Ended June 30,
2008





Total net
sales decreased to $46.7 million for the six months ended June 30, 2009 from
$61.3 million for the comparable period of 2008.  Our sales were
primarily driven by the product sales of Speedline drivers and hybrid-fairway
woods and the Idea a3 and a3 OS Irons and the recent launch of the Tech a4 and
a4 OS irons, hybrids, 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 cycles generally range from six 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.  The decline in net sales for the six months ended June
30, 2009 was primarily due to reduced demand by customers caused by a less
than favorable economic environment in the United States and
abroad.


20


Net sales
of irons decreased to $30.2 million, or 64.7% of total net sales for the six
months ended June 30, 2009 from $38.9 million, or 63.5% of total net sales, for
the comparable period of 2008.  Current period iron net sales
primarily resulted from sales of the Tech a4 and a4 OS Irons, Idea a3 and a3 OS
irons coupled with a smaller portion of sales of the integrated iron sets while
the comparable period of 2008 net sales primarily resulted from sales of the
Idea a3 and a3 OS irons coupled with a smaller portion of sales of the Tech OS
irons and integrated iron sets.





Net sales
of fairway woods decreased to $8.7million, or 18.7% of total net sales, for the
six months ended June 30, 2009, from $14.7 million, or 24.1% of total net sales,
for the comparable period of 2008.  Net sales for the six months ended
June 30, 2009 primarily were generated from sales of 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 for the six months ended June 30,
2008 primarily were generated from sales of Insight XTD fairway woods and Idea
a3 and a3 OS, Idea Pro and Tech OS I-woods.





Net sales
of drivers decreased to $7.7 million, or 16.6% of total net sales, for the six
months ended June 30, 2009 from $8.2 million, or 13.5% of total net sales, for
the comparable period of 2008.  A large portion of the driver net
sales for the six months ended June 30, 2009 was generated by sales of the
Speedline driver, which was launched in the first quarter of 2009, coupled with
the Tech a4 and a4 OS drivers, which were introduced in the third quarter of
2008, while in the comparable period of 2008, net sales were primarily driven by
sales of the Insight XTD driver, which was launched in the first quarter of
2008.





We were
dependent on two customers, which collectively comprised approximately 28% of
net sales for the six months ended June 30, 2009.  Of these, one
customer individually represented greater than 5% but less than 10% of net sales
and one customer represented greater than 10% but less than 25% of net sales for
this period.  Should 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 decreased to $8.7 million, or 18.6% of
total net sales, from $12.8 million, or 20.9% of total net sales, for the six
months ended June 30, 2009 and 2008, respectively.  Net sales
resulting from countries outside the United States and Canada decreased to 4.6%
of total net sales for the six months ended June 30, 2009 from 5.9% for the
comparable period of 2008.





Cost of
goods sold decreased to $34.9 million, or 74.8% of total net sales, for the six
months ended June 30, 2009 from $35.4 million, or 57.8% of total net sales, for
the comparable period of 2008.  The increase as a percentage of total
net sales is primarily due to the inventory write down to lower of cost or
market totaling $3.6 million coupled with increased promotional programs during
the quarter.





Selling
and marketing expenses decreased to $11.4 million for the six months ended June
30, 2009 from $16.8 million for the comparable period in 2008.  The
decrease is primarily the result of a decrease in marketing and tour expense of
$3.4 million and commission expense of $1.6 million.





General
and administrative expenses decreased to $3.6 million for the six months ended
June 30, 2009 from $4.8 million for the comparable period in
2008.  The decrease is primarily the result of a decrease in
compensation expense of $0.6 million.





Research
and development expenses, primarily consisting of costs associated with
development of new products, decreased to $1.6 million for the six months ended
June 30, 2009 from $1.9 million for the comparable period in
2008.  The decrease is primarily the result of a decrease in
compensation expense.





Our net
accounts receivable balances were approximately $22.9 million and $14.7 million
at June 30, 2009 and December 31, 2008, respectively.  The increase is
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.


21


Our
inventory balances were approximately $22.8 million and $33.6 million at June
30, 2009 and December 31, 2008, respectively.  The decrease in
inventory levels is primarily due to the seasonality of our business where
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 an inventory write down to lower of cost or market totaling $3.6
million during the second quarter of 2009.





Our
accounts payable balances were approximately $2.4 million and $9.5 million at
June 30, 2009 and December 31, 2008, respectively.  The decrease in
accounts payable is primarily associated with reductions in purchases and other
related expenditures due to the seasonality of our business and the less than
favorable current economic environment.





Our
current debt increased to $5.1 million at June 30, 2009 from $0 at December 31,
2008.  The increase was a result of our seasonal working capital
cycle, where inventory purchases are relatively high in the first half of the
year and accounts receivable collections increase at the end of the second
quarter and accelerate into the third quarter.





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 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 $3.3 million at June 30, 2009 compared to $6.0
million at December 31, 2008. During the period, inventory decreased $8.2
million which includes the  lower of cost and market adjustment and an
increase in the inventory reserve of $2.5 million and a short term debt increase
of $5.1 million.  These were offset by an accrued expense and accounts
payable decrease of $7.7 million and an increase in accounts receivable of $8.8
million.





In
November 2007, we signed a revolving credit agreement with Wachovia Bank,
National Association to provide up to $15.0 million in short term debt which
expires 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 so that the ratio is only calculated when we
have less than $5.0 million in availability on the facility.  Interest
on outstanding balances accrues at a rate of LIBOR plus 2.50% and is payable
monthly.  As of June 30, 2009 and August 3, 2009, we had $5.1 million
and a zero balance of outstanding borrowings, respectively, on our credit
facility and we were in compliance with the terms of our
agreement.  In October 2008, Wells Fargo announced plans to acquire
Wachovia Bank, N.A. and closed the acquisition at the end of
2008.  The transaction resulted in the merger of Wachovia Bank into
Wells Fargo with Wells Fargo being the surviving institution.  Wells Fargo,
as successor to Wachovia Bank, has become our lender under our existing
line of credit and is subject to all of the terms and
conditions thereof.


22


Working
capital decreased at June 30, 2009 to $35.5 million compared to $38.5 million at
December 31, 2008.   Approximately 46% of our current assets were
comprised of accounts receivable at June 30, 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 (e.g. 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.  Although a significant
amount of our sales are not affected by these terms, the extended terms do have
a negative impact on our financial position and liquidity.  Given the
current global economic recession and credit crisis, we believe that more
customers may request payment terms and we expect to continue to selectively
offer extended payment terms in the future, depending upon known industry trends
and our financial condition.  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 a
significant portion of the 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 effect our current growth plans and result in a material
adverse effect on our results of operations, financial condition and/or
liquidity.





Our
anticipated sources of liquidity over the next twelve 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.





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.


23


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 is paid for and all revenue
recognition criteria have been met, we record revenue.





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 Dun and 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 customers' financial strength.  While only one
customer represent greater than 5% but less than 10% of net sales and one
customer represents greater than 10% but less than 25% of net sales for the six
months ended June 30, 2009, if a combination of customers were to become
financially impaired, our financial results could be severely
affected.





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.


24


Income
Taxes





We
account for income taxes in accordance with FAS No. 109, "Accounting for Income
Taxes" ("FAS 109") as clarified by FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes" ("FIN 48").  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," according to the criteria of
FAS 109, 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.  FIN 48 requires
that we recognize the financial statement benefit of a tax position only after
determining that the relevant tax authority would more likely than not sustain
the position following an audit.  For tax positions meeting the more
likely than not threshold, the amount recognized in the financial statements is
the largest benefit that has a greater than 50% likelihood of being realized
upon ultimate settlement with the relevant tax authority.  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 through December 31, 2002 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 and certain identifiable intangibles for impairment whenever
events or changes in 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 to be generated by the asset.  If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of the
assets.  Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.  During the three
and six months ended June 30, 2009 and 2008, there were no impairments of
long-lived assets.





Item
4(T).  Controls and Procedures





Introduction





"Disclosure
Controls and Procedures" are defined in Exchange Act Rules 13a -15(e) and 15d
-15 (e) 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.


25


"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 disposition 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.





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 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 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 months ended June
30, 2009 that have materially affected or are reasonably likely to materially
affect our Internal Controls Over Financial Reporting.


26


PART
II.  OTHER INFORMATION





Item
1.  Legal Proceedings





Beginning
in June 1999, the first of seven class action lawsuits was filed against us,
certain of our current and former officers and directors, and the three
underwriters of our initial public offering ("IPO") in the United States
District Court of the District of Delaware.  The complaints alleged
violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, as
amended, in connection with our IPO and sought rescissory or compensatory
damages in an unspecified amount.  In particular, the complaints
alleged that our prospectus, which became effective July 9, 1998, was materially
false and misleading.  The operative complaint was filed on January
24, 2006, and it alleges that the prospectus failed to disclose that
unauthorized distribution of our products (gray market sales) threatened our
long-term profits and that we engaged in questionable sales practices (including
double shipping and unlimited rights of return), which threatened post-IPO
financial results.  Discovery closed on August 11, 2006.  On
November 21, 2006, all summary-judgment briefing was completed.  On
December 13, 2006, we learned that the Delaware District Court judge whom the
case was set before was elevated to the United States Court of Appeals for the
Third Circuit.  On December 15, 2006, we were notified that our case
was assigned to the vacant judicial position and that all proceedings had been
postponed until a new judge was confirmed.   On February 7, 2008, we
were notified that our case was reassigned to Chief Judge Gregory M.
Sleet.  The parties participated in a mediation on April 8, 2008, but
no resolution has been reached at this time.  The Court heard oral
argument on Defendant's summary-judgment motions on February 20, 2009 and the
parties' Daubert
motions on May 29, 2009.  The Court set a trial date of October 13,
2009.





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 American Insurance Company, 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, Thilman & Filipini, LLC ("T&F"), asserting various causes of
action arising out of the T&F's alleged failure to notify Zurich of the
class action lawsuit.  On March 18, 2008, the suit against T&F was
amended to also name as Defendants certain alleged successor entities to
T&F.  All of the Defendants moved to dismiss our lawsuit on the
basis that our suit was premature in that we had not been damaged by the alleged
conduct of the Defendants because we had not paid any sums in satisfaction of a
judgment or settlement of the class action securities
litigation.  Those motions were denied pursuant to a Memorandum
Opinion and Order dated September 26, 2008.  T&F's successor
entities also moved to dismiss the claims brought against them on the grounds
that, as purchasers of solely T&F's assets, they could not be held liable
for the T&F debts or liabilities.  The Court struck our complaint
solely against the successor entity Defendants on the grounds that we had not
alleged sufficient facts triggering an exception to the general rule that the
purchaser of an entity's assets is not liable for the entity's liabilities and
ordered us to replead our claims against the successor entity
Defendants.  We must replead our claims before August 24,
2009.  We and T&F have engaged in preliminary written discovery
efforts, but substantial discovery remains to be completed.  No trial
date has been set.


27


Depending
on the outcome of this proceeding, based on the previously disclosed agreement
with Chubb & Son ("Chubb"), a division of Federal Insurance Company
("Federal"),which is described below, we could be required to pay Zurich's $5
million limit of liability in cash before the layers of insurance coverage
excess to the Zurich layer attach.  We previously disclosed that Chubb
had notified us that coverage under the Federal policy, which provided insurance
coverage totaling $10 million for the layer of exposure between $20 million and
$30 million, and the Executive Risk Indemnity Inc. ("ERII") policy, which
provided insurance coverage totaling $10 million for the layer of exposure
between $40 million and $50 million, would attach only if the underlying limits
are exhausted by payment from the underlying insurance carriers.  On
June 18, 2007, Chubb notified us that Federal and ERII will not require that
Zurich pay the full amount of its limit of liability before the Federal and ERII
policies attach, and it confirmed that Chubb will accept payment in cash by our
Company of Zurich's limit of liability to satisfy this requirement, so long as
such payment is for covered loss.  All of the excess insurance
carriers (other than Zurich, which has denied coverage) have reserved their
rights to deny coverage on various grounds.  At this point in the
legal proceedings, we cannot predict with any certainty the outcome of the
matter, per the guidance in SFAS 5, and thus cannot reasonably estimate future
liability on the conclusion of the events, if any.





As
mentioned above, the underwriters for the IPO are also defendants in the
securities class action.  The underwriting agreement that we entered
into with the underwriters in connection with the IPO contains an
indemnification clause, providing for indemnification against any loss,
including defense costs, arising out of the IPO.  After the first
lawsuit was filed, the underwriters requested indemnification under the
agreement.  Our D&O insurance policy included an endorsement
providing $1 million to cover indemnification of the
underwriters.  Our D&O insurer has notified the underwriters of
the exhaustion of the $1 million sublimit.  We believe that we have no
current obligation to pay the underwriters' defense costs.  We believe
that the applicable case law provides that the earliest possible time that an
obligation to indemnify might exist is after a court has decided conclusively
that the underwriters are without fault under the federal securities
laws.  The litigation is not at that stage yet.  As of
August 3, 2009, the total amount of outstanding underwriter defense costs was
approximately $1.4 million.  At this time, the underwriters are not
able to predict with certainty the amount of defense costs they expect to incur
going forward, but it is likely they will incur additional costs before this
matter is concluded.  We currently cannot predict with any certainty
the outcome of this indemnification issue, per the guidance in SFAS 5, and thus
cannot reasonably estimate future liability on the conclusion of the events, if
any.





Beginning
April 2008, we received communications from the Estate of Anthony Antonious that
our products infringed a patent of Anthony Antonious patent 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 for damage 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 has been raised.   As a result,
both the Ohio lawsuit and the New Jersey lawsuit have been stayed pending the
outcome of the USPTO's reexamination proceeding.  On March 23, 2009
the USPTO issued a non-final Official Action rejecting all of the claims at
issue.  The trust responded to the Office Action on April 22, 2009
arguing that the claims should not be rejected.  At this point in the
legal proceedings, we cannot predict the outcome of the matter with any
certainty, per the guidance in SFAS 5, 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, 2008, 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, 2008.


28


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





At our
Annual Meeting of Stockholders held on May 28, 2009, the following proposals
were adopted by the margin indicated.





1.
                    To
      elect the following nominees as director to serve until the 2012 Annual
      Meeting of Stockholders and until his successor is elected and
      qualified.Number
      of SharesVote For
                    
                    WithheldOliver
      G. Brewer
                    5,060,377
                    
                    195,673Russell
      L. Fleischer
                    5,151,347
                    
                    104,663





The
following directors' terms of office continued after the Annual meeting of
Stockholders: B. H. (Barney) Adams , Robert D. Rogers, Mark R. Mulvoy, John M.
Gregory and Joseph Gregory.


2.
              To
      ratify the appointment of KBA Group LLP as the independent auditors of the
      Company for the year ending December 31, 2009, which was changed to BKD,
      LLP as a result of a KBA Group joining BKD on June 1,
  2009.
 Number
      of SharesVote For
              
              Vote Against
              
              Abstained5,245,801
              
              9,823
              
              386




Item
6.  Exhibits





See the
Exhibit Index on pages 30-31.





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:  August
      5, 2009
                  
                  By:
                  /S/ OLIVER G. BREWER
      IIIOliver
      G. Brewer, IIIChief
      Executive Officer and President(Principal
      Executive Officer)Date:  August
      5, 2009
                  
                  By:
                  /S/ PAMELA
  HIGHPamela
      J. HighInterim
      Chief Financial Officer(Principal
      Financial
Officer)


29


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)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)


30





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
              
              Included
      in this filingExhibit
      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.


31