UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549





FORM
10-Q





(Mark
One)





x
              Quarterly
      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934For
      the quarterly period ended September 30, 2009or ̈
              Transition
      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934For
      the transition period from t o





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 6,697,742 on November 10, 2009.





ADAMS
GOLF, INC. AND SUBSIDIARIES





TABLE
OF CONTENTS





PagePART
      I
                            
                            FINANCIAL
      INFORMATIONItem
      1.
                            Financial
      StatementsCondensed
      Consolidated Balance Sheets -September
      30, 2009 (unaudited) and December 31, 2008
                            3Unaudited
      Condensed Consolidated Statements of Operations -Three
      and nine months ended September 30, 2009 and 2008
                            4Unaudited
      Condensed Consolidated Statement of Stockholders' Equity -Nine
      months ended September 30, 2009
                            5Unaudited
      Condensed Consolidated Statements of Cash Flows -Nine
      months ended September 30, 2009 and 2008
                            6Notes
      to Unaudited Condensed Consolidated Financial Statements
                            7-14Item
      2.
                            Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                            15-24Item
      3.
                            Quantitative
      and Qualitative Disclosures About Market Risk
                            N/AItem
      4(T).
                            Controls
      and Procedures
                            24-25PART
      II
                            
                            OTHER
      INFORMATIONItem
      1.
                            Legal
      Proceedings
                            26-27Item
      1A.
                            Risk
      Factors
                            27Item
      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
                            N/AItem
      5.
                            Other
      Information
                            N/AItem
      6.
                            Exhibits
                            28Signatures
                            28


2


Item
1.


ADAMS
GOLF, INC. AND SUBSIDIARIES





CONDENSED
CONSOLIDATED BALANCE SHEETS


(in
thousands, except share amounts)





September
      30,
                            2009
                          
                          
                          December
      31,
                            2008(unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
                          
                          $
                          11,407
                          
                          
                          $
                          5,960Trade
      receivables, net of allowance for doubtful accounts of $1,537 (unaudited)
      and $1,321 in 2009 and 2008, respectively
                          
                          
                          16,250
                          
                          
                          
                          14,743Inventories,
      net
                          
                          
                          20,610
                          
                          
                          
                          33,611Prepaid
      expenses
                          
                          
                          455
                          
                          
                          
                          908Other
      current assets
                          
                          
                          190
                          
                          
                          
                          29Total
      current assets
                          
                          
                          48,912
                          
                          
                          
                          55,251Property
      and equipment, net
                          
                          
                          1,027
                          
                          
                          
                          1,210Deferred
      tax asset - non current
                          
                          
                          10,228
                          
                          
                          
                          10,228Other
      assets, net
                          
                          
                          277
                          
                          
                          
                          367$
                          60,444
                          
                          
                          $
                          67,056LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable
                          
                          $
                          7,101
                          
                          
                          $
                          9,471Accrued
      expenses
                          
                          
                          11,423
                          
                          
                          
                          7,253Other
      current liabilities
                          
                          
                          17
                          
                          
                          
                          —Total
      current liabilities
                          
                          
                          18,541
                          
                          
                          
                          16,724Other
      liabilities
                          
                          
                          6
                          
                          
                          
                          18Total
      liabilities
                          
                          
                          18,547
                          
                          
                          
                          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; 7,108,679 and
      6,909,866 shares issued and 6,697,742 and 6,498,929 shares outstanding at
      September 30, 2009 (unaudited) and December 31, 2008,
      respectively
                          
                          
                          7
                          
                          
                          
                          7Additional
      paid-in capital
                          
                          
                          93,351
                          
                          
                          
                          92,701Accumulated
      other comprehensive income
                          
                          
                          1,808
                          
                          
                          
                          565Accumulated
      deficit
                          
                          
                          (48,515
                          )
                          
                          
                          (38,205
                          )Treasury
      stock, 410,937 common shares at September 30, 2009 and December 31, 2008,
      at cost
                          
                          
                          (4,754
                          )
                          
                          
                          (4,754
                          )Total
      stockholders' equity
                          
                          
                          41,897
                          
                          
                          
                          50,314$
                          60,444
                          
                          
                          $
                          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
                          
                          
                          Nine
      Months EndedSeptember
      30,
                          
                          
                          September
      30,2009
                          
                          
                          2008
                          
                          
                          2009
                          
                          
                          2008Net
      sales
                          
                          $
                          17,385
                          
                          
                          $
                          17,700
                          
                          
                          $
                          64,115
                          
                          
                          $
                          78,961Cost
      of goods sold
                          
                          
                          11,056
                          
                          
                          
                          10,937
                          
                          
                          
                          45,999
                          
                          
                          
                          46,351Gross
      profit
                          
                          
                          6,329
                          
                          
                          
                          6,763
                          
                          
                          
                          18,116
                          
                          
                          
                          32,610Operating
      expenses:Research
      and development expenses
                          
                          
                          610
                          
                          
                          
                          889
                          
                          
                          
                          2,201
                          
                          
                          
                          2,768Selling
      and marketing expenses
                          
                          
                          4,548
                          
                          
                          
                          4,938
                          
                          
                          
                          15,936
                          
                          
                          
                          21,718General
      and administrative expenses
                          
                          
                          1,614
                          
                          
                          
                          2,096
                          
                          
                          
                          5,199
                          
                          
                          
                          6,846Settlement
      expense
                          
                          
                          5,000
                          
                          
                          
                          —
                          
                          
                          
                          5,000
                          
                          
                          
                          —Total
      operating expenses
                          
                          
                          11,772
                          
                          
                          
                          7,923
                          
                          
                          
                          28,336
                          
                          
                          
                          31,332Operating
      income (loss)
                          
                          
                          (5,443
                          )
                          
                          
                          (1,160
                          )
                          
                          
                          (10,220
                          )
                          
                          
                          1,278Other
      income (expense):Interest
      income (expense), net
                          
                          
                          (19
                          )
                          
                          
                          6
                          
                          
                          
                          (71
                          )
                          
                          
                          (14
                          )Other
      income (expense), net
                          
                          
                          (5
                          )
                          
                          
                          (9
                          )
                          
                          
                          45
                          
                          
                          
                          (60
                          )Income
      (loss) before income taxes
                          
                          
                          (5,467
                          )
                          
                          
                          (1,163
                          )
                          
                          
                          (10,246
                          )
                          
                          
                          1,204Income
      tax expense
                          
                          
                          4
                          
                          
                          
                          —
                          
                          
                          
                          64
                          
                          
                          
                          16Net
      income (loss)
                          
                          $
                          (5,471
                          )
                          
                          $
                          (1,163
                          )
                          
                          $
                          (10,310
                          )
                          
                          $
                          1,188Net
      income (loss)  per common share - basic
                          
                          $
                          (0.82
                          )
                          
                          $
                          (0.18
                          )
                          
                          $
                          (1.55
                          )
                          
                          $
                          0.19-
      diluted
                          
                          $
                          (0.82
                          )
                          
                          $
                          (0.18
                          )
                          
                          $
                          (1.55
                          )
                          
                          $
                          0.16





See
accompanying notes to unaudited condensed consolidated financial
statements.





4




ADAMS
GOLF, INC. AND SUBSIDIARIES





CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY


(in
thousands, except share amounts)





Nine
Months Ended September 30, 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
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                (10,310
                                )
                                
                                $
                                (10,310
                                )
                                
                                
                                —
                                
                                
                                
                                (10,310
                                )Foreign
      currency translation
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                1,243
                                
                                
                                
                                —
                                
                                
                                
                                1,243
                                
                                
                                
                                —
                                
                                
                                
                                1,243Comprehensive
      loss
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                $
                                (9,067
                                )
                                
                                
                                —
                                
                                
                                
                                —Issuance
      of restricted stock
                                
                                
                                100,000
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                
                                
                                
                                
                                —
                                
                                
                                
                                —Stock
      options exercised
                                
                                
                                98,813
                                
                                
                                
                                —
                                
                                
                                
                                3
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                
                                
                                
                                
                                —
                                
                                
                                
                                3Compensatory
      stock and stock options
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                647
                                
                                
                                
                                —
                                
                                
                                
                                —
                                
                                
                                
                                
                                
                                
                                
                                —
                                
                                
                                
                                647Balance,
      September 30, 2009
                                
                                
                                7,108,679
                                
                                
                                $
                                7
                                
                                
                                $
                                93,351
                                
                                
                                $
                                1,808
                                
                                
                                $
                                (48,515
                                )
                                
                                
                                
                                
                                
                                $
                                (4,754
                                )
                                
                                $
                                41,897





See
accompanying notes to unaudited condensed consolidated financial
statements.


5


ADAMS
GOLF, INC. AND SUBSIDIARIES





CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(in
thousands)


(unaudited)


Nine
      Months EndedSeptember
      30,2009
                        
                        
                        2008Cash
      flows from operating activities:Net
      income (loss)
                        
                        $
                        (10,310
                        )
                        
                        $
                        1,188Adjustments
      to reconcile net income (loss) to net cash provided by (used in) operating
      activities:Depreciation
      and amortization of property and equipment and intangible
      assets
                        
                        
                        463
                        
                        
                        
                        429Amortization
      of deferred compensation
                        
                        
                        647
                        
                        
                        
                        786Provision
      for doubtful accounts
                        
                        
                        968
                        
                        
                        
                        826Provision
      for inventory reserve
                        
                        
                        1,783
                        
                        
                        
                        —Changes
      in operating assets and liabilities:Trade
      receivables
                        
                        
                        (2,475
                        )
                        
                        
                        (25
                        )Inventories
                        
                        
                        11,218
                        
                        
                        
                        2,316Prepaid
      expenses
                        
                        
                        452
                        
                        
                        
                        49Other
      current assets
                        
                        
                        (160
                        )
                        
                        
                        57Other
      assets
                        
                        
                        (3
                        )
                        
                        
                        422Accounts
      payable
                        
                        
                        (2,370
                        )
                        
                        
                        (3,515
                        )Accrued
      expenses and other current liabilities
                        
                        
                        4,189
                        
                        
                        
                        (3,196
                        )Net
      cash provided by (used in) operating activities
                        
                        
                        4,402
                        
                        
                        
                        (663
                        )Cash
      flows from investing activities:Purchases
      of equipment
                        
                        
                        (169
                        )
                        
                        
                        (396
                        )Net
      cash used in investing activities
                        
                        
                        (169
                        )
                        
                        
                        (396
                        )Cash
      flows from financing activities:Principal
      payments under capital lease obligation
                        
                        
                        (11
                        )
                        
                        
                        (9
                        )Proceeds
      from exercise of stock options
                        
                        
                        3
                        
                        
                        
                        8Treasury
      stock purchase
                        
                        
                        —
                        
                        
                        
                        (448
                        )Debt
      financing costs
                        
                        
                        (21
                        )
                        
                        
                        9Net
      cash used in financing activities
                        
                        
                        (29
                        )
                        
                        
                        (440
                        )Effects
      of exchange rate changes
                        
                        
                        1,243
                        
                        
                        
                        (947
                        )Net
      increase (decrease) in cash and cash equivalents
                        
                        
                        5,447
                        
                        
                        
                        (2,446
                        )Cash
      and cash equivalents at beginning of period
                        
                        
                        5,960
                        
                        
                        
                        11,265Cash
      and cash equivalents at end of period
                        
                        $
                        11,407
                        
                        
                        $
                        8,819Supplemental
      disclosure of cash flow informationInterest
      paid
                        
                        $
                        78
                        
                        
                        $
                        91Income
      taxes paid
                        
                        $
                        64
                        
                        
                        $
                        10





See
accompanying notes to unaudited condensed consolidated financial
statements.


6


ADAMS
GOLF, INC. AND SUBSIDIARIES





NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





1.   Basis
of Presentation





The
unaudited condensed consolidated financial statements of Adams Golf, Inc. and
its subsidiaries (the "Company", "Adams Golf", "we", "us", or "our") for the
three and nine month periods ended September 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.  The condensed consolidated
balance sheet of Adams Golf, Inc. as of December 31, 2008 has been derived from
the audited consolidated balance sheet as of that date.  We have
evaluated subsequent events through the filling of these financial
statements.





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 Pro Black I-woods
and irons, Idea Tech a4 and a4 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 under the name of
Women's Golf Unlimited, the Lady Fairway and Square 2 brands.  We
continue to sell certain older product lines, including the Idea a3 and a3 OS
I-woods and irons, the Tight Lies family of fairway woods, the Puglielli series
of wedges, and certain accessories.





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





2.   Inventories





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





September
      30,
                    
                    
                    December
      31,2009
                    
                    
                    2008(unaudited)Finished
      goods
                    
                    $
                    12,045
                    
                    
                    $
                    20,226Component
      parts
                    
                    
                    8,565
                    
                    
                    
                    13,385Total
      inventory
                    
                    $
                    20,610
                    
                    
                    $
                    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 the second quarter of 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 September 30, 2009 and December 31, 2008,
inventories included $786,000 and $821,000 of consigned inventory, respectively,
and $1,979,000 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):





September
      30,
                    
                    
                    December
      31,2009
                    
                    
                    2008(unaudited)Payroll
      and commissions
                    
                    $
                    540
                    
                    
                    $
                    447Product
      warranty and sales returns allowances
                    
                    
                    2,022
                    
                    
                    
                    1,641Professional
      services
                    
                    
                    64
                    
                    
                    
                    7Accrued
      settlement expense
                    
                    
                    5,000
                    
                    
                    
                    —Accrued
      inventory
                    
                    
                    43
                    
                    
                    
                    1,021Accrued
      sales promotions
                    
                    
                    844
                    
                    
                    
                    274Deferred
      revenue
                    
                    
                    1,471
                    
                    
                    
                    1,429Other
                    
                    
                    1,439
                    
                    
                    
                    2,434Total
      accrued expenses
                    
                    $
                    11,423
                    
                    
                    $
                    7,253





4.   Net
Income (Loss) per Common Share





The
weighted average common shares used for determining basic and diluted loss per
common share were6,650,193 for
the three months ended September 30, 2009, and 6,472,513 for the three
months ended September 30, 2008.





The
effect of all warrants and options to purchase shares of our common stock for
the three months ended September 30, 2009 and September 30, 2008 were excluded
from the calculation of dilutive shares because the effect of inclusion would
have been anti-dilutive.





The
weighted average common shares used for determining basic and diluted loss per
common share were6,632,734 for
the nine months ended September 30, 2009, and 6,384,088 and 7,363,828,
respectively, for the nine months ended September 30,
2008.





The
effect of all warrants and options to purchase shares of our common stock for
the nine months ended September 30, 2009 was excluded from the calculation of
dilutive shares because the effect of inclusion would have been
anti-dilutive.   The effect of all warrants and options to purchase
shares of our common stock for the nine months ended September 30, 2008 resulted
in additional dilutive shares of  979,740.


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 for these markets consisted of the
following during the periods indicated (in thousands):





Three
      Months Ended September 30,
                      
                      
                      Nine
      Months Ended September 30,2009
                      
                      
                      2008
                      
                      
                      2009
                      
                      
                      2008(unaudited)
                      
                      
                      (unaudited)United
      States
                      
                      $
                      14,455
                      
                      
                      $
                      14,154
                      
                      
                      $
                      52,503
                      
                      
                      $
                      62,609Rest
      of World
                      
                      
                      2,930
                      
                      
                      
                      3,546
                      
                      
                      
                      11,612
                      
                      
                      
                      16,352Total
      net sales
                      
                      $
                      17,385
                      
                      
                      $
                      17,700
                      
                      
                      $
                      64,115
                      
                      
                      $
                      78,961





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 FASB ASC 740, Income Taxes.  
FASB ASC 740 prescribes the use of the liability method where by deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to the differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards.  Deferred tax assets and
liabilities are measured using enacted rates expected to apply to taxable income
in the years in which those temporary differences are expected to be recovered
or settled.  The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.  In assessing the realizability of deferred income tax
assets, we consider whether it is more likely than not that some portion or all
of the deferred income tax assets will be realized.  The ultimate
realization of deferred income tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences
become deductible.  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 we believe 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 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 nine months ended September 30, 2009 was approximately $9.1
million, which includes the $5 million accrual of the shareholder
settlement.


9


ADAMS
GOLF, INC. AND SUBSIDIARIES





NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





8.   Stock-Based
Compensation





We
maintain the 2002 Equity Incentive Plan (the "Plan") for employees, outside
directors and consultants.  At September 30, 2009, 894,169 options
were outstanding under the Plan with exercise prices ranging from $0.04 to $4.80
per share.  The requisite service periods for the options to vest vary
from six months to four years and the options expire ten years from the date of
grant.  At September 30, 2009, 691,160 shares remained available for
grant, including forfeitures.





During
the nine months ended September 30, 2009, 100,000 options were granted with an
exercise price equal to the fair market value of the underlying common stock at
the date of grant and 100,000 shares of restricted stock were
issued.  The per share weighted-average fair value of stock options
granted during the nine months ended September 30, 2009 was $2.70 on the date of
grant using the Black Scholes option pricing model with the following
weighted-average assumptions:  risk free interest rate, 3.5%; expected
life, 10 years; expected dividend yield, 0%; and expected volatility, based on
historical daily annualized volatility of 96.34%.  We use historical
data to estimate option exercise and employee termination factors within the
valuation model.  The restricted shares issued during the nine months
ended September 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 September 30, 2009 and 2008 include total compensation expense
associated with stock options and restricted stock grants of $215,000 and
$261,000, respectively, and $647,000 and $786,000 for the nine months ended
September 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
                  
                  
                  (98,813
                  )
                  
                  
                  0.04
                  
                  
                  
                  281,113Options
      outstanding at September 30, 2009
                  
                  
                  894,169
                  
                  
                  
                  0.52
                  
                  
                  
                  2,439,282Options
      exercisable at September 30, 2009
                  
                  
                  805,419
                  
                  
                  
                  0.19
                  
                  
                  
                  2,467,020





The
weighted average remaining contractual life of the options outstanding at
September 30, 2009 was 4.08 years and for options exercisable at September 30,
2009 was 3.44 years.





As of
September 30, 2009, compensation costs related to non-vested awards totaled $0.8
million, which is expected to be recognized over a weighted average period of
1.2 years.





As of
September 30, 2009, there were $0.7 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 nine months ended September 30, 2009 related to these restricted stock
grants was $0.2 and $0.6 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
IRS and the individual who was granted the options will incur adverse tax
consequences, including, but not limited to excise taxes, unless the individual
designated a specific future exercise date of the unvested stock options at
December 31, 2004 and made this election before December 31, 2005.  As
a result of the compliance with the American Job Creation Act, a summary of
these designated future exercise dates is as follows:





Period of Exercise
                    
                    Total Options to be
    Exercised2009
                    
                    
                    3,1252010
                    
                    
                    15,0002011
                    
                    
                    27,5002012
                    
                    
                    28,2092013
                    
                    
                    13,750Beyond
      2013
                    
                    
                    15,000Total
      Options
                    
                    
                    102,584





9.   New
Accounting Pronouncement





In June
2009, the FASB issued FASB ASC 105, Generally Accepted Accounting
Principles,which establishes the FASB Accounting Standards Codification
as the sole source of authoritative generally accepted accounting principles
(“GAAP”).  The codification did not change GAAP but reorganizes the
literature.  Pursuant to the provisions of FASB ASC 105, we have
updated references to GAAP in our financial statements issued for the period
ended September 30, 2009.  The adoption of FASB ASC 105 did not impact
our financial position or results of operations.





10.   Liquidity





In
November 2007, we signed a revolving credit agreement, which expires November
2012 with Wachovia Bank, NA to provide up to $15.0 million in short term
debt.  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 September 30, 2009, we had no outstanding borrowings
on our credit facility and we were in compliance with the terms of our
agreement.  In 2008, Wells Fargo Bank, NA acquired Wachovia Bank,
NA.  Wells Fargo Bank, NA, as successor to Wachovia Bank, NA, 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
to support 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





On
October 29, 2009, the Company reached a settlement in principle regarding the
consolidated securities class action filed in June 1999 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 settlement remains subject to
final documentation as well as approval by the Court, approval by the
shareholder class, and is subject to appeal.  The proposed settlement
provides for a total payment to the class of $16.5 million in cash and a payment
of the first $1.25 million, after attorneys fees and costs, actually received
(if any) by the Company in connection with the Company’s litigation against its
former insurance broker (Thilman & Filipini, LLC (“T&F”)) and it’s
former insurance carrier, Zurich American Insurance Company
("Zurich").  Of the $16.5 million cash settlement amount, $5 million
will be paid by the Company, which the Company will record as a charge during
the quarter ended September 30, 2009.  If approved, the settlement
will lead to a dismissal with prejudice of all claims against all defendants in
the litigation.  As part of the settlement, the underwriters for the
IPO have agreed to release the Company from any indemnification
obligation.  Although defendants continue to deny plaintiffs'
allegations, the Company believes it is in the best interests of its
stockholders to proceed with this settlement.


12





ADAMS
GOLF, INC. AND SUBSIDIARIES





NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





11.   Contingencies
(continued)





The
Company maintains directors' and officers' ("D&O") and corporate liability
insurance to cover certain risks associated with these securities claims filed
against us or our directors and officers.  During the period covering
the class action lawsuit, we maintained insurance from multiple carriers, each
insuring a different layer of exposure, up to a total of $50
million.  In addition, we have met the financial deductible of our
directors' and officers' insurance policy for the period covering the time the
class action lawsuit was filed.  On March 30, 2006, Zurich, which
provided insurance coverage totaling $5 million for the layer of exposure
between $15 million and $20 million, notified us that it was denying coverage
due to the fact that it was allegedly not timely notified of the class action
lawsuit.  On October 11, 2007, we filed a suit against our former
insurance broker, T&F, asserting various causes of action arising out of
T&F's alleged failure to notify Zurich of the class action
lawsuit.  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 and T&F have engaged in preliminary written
discovery efforts, but substantial discovery remains to be
completed.  On September 11, 2009, we filed a lawsuit against Zurich,
asserting various causes of action arising out of Zurich's denial of coverage of
the class action lawsuit.





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 October 9, 2009,
the USPTO issued a Notice of Intent to Issue Ex Parte Reexamination Certificate
concerning claims amended during the reexamination procedure.  It
appears likely that a Reexamination Certificate will issue and litigation will
resume shortly thereafter.   At this point in the legal proceedings,
we cannot predict the outcome of the matter with any certainty, per the guidance
FASB ASC 450, 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.


13





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 September 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 September 30, 2008, five customers collectively comprised approximately
27% of net sales.  Two customers individually represented greater than
5% but less than 10% of net sales, and no customer represented greater than 10%
of net sales.





For the
nine months ended September 30, 2009, we were dependent on two customers, which
collectively comprised approximately 25% of net sales.  Of these, one
customer individually represented greater than 5% but less than 10% of net sales
for the period, and one customer represented greater than 10% but less than 25%
of net sales and no customers represented greater than 25% of net
sales.  For the nine months ended September 30, 2008, five customers
comprised approximately 27% of net sales while two customers individually
represented greater than 5% but less than 10% of net sales, but no customers
represented greater than 10% of net sales.  Additionally, we have one
customer with an outstanding accounts receivable balance that is greater than
10% but less than 25% of total accounts receivable at September 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 44% and 48% of our total inventory
purchased for the nine months ended September 30, 2009 and the year ended
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 believe we will
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
                  
                  
                  $
                  479Quarter
      ended September 30, 2009
                  
                  $
                  479
                  
                  
                  
                  (146
                  )
                  
                  
                  74
                  
                  
                  $
                  407





15.   Subsequent
Event





On
October 30, 2009, we entered into a Memorandum of Understanding to settle and
resolve a stockholder class action lawsuit.  The settlement provides
for a payment to the class of $16.5 million, of which we have agreed to
contribute $5.0 million and the balance of which will come from our insurers and
other settling defendants.  We have recorded a $5.0 million charge in
the quarter ended September 30, 2009 resulting from the
settlement.  See note 11 for further details.


14


Item
2.


MANAGEMENT'S
DISCUSSION AND ANALYSIS OF


FINANCIAL
CONDITION AND RESULTS OF OPERATIONS





The
following discussion and analysis should be read in conjunction with (i) the
attached unaudited condensed consolidated financial statements and notes thereto
for the three and nine months ended September 30, 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.




15




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.


16


Key
Performance Indicators





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





—Daily
sales by product group


—Daily
sales by geography


—Sales
by customer channel


—Gross
margin performance


—Market
share by product at retail


—Inventory
share by product at retail





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





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





—Product
returns (dollars and percentage of sales)


—Product
credits (dollars and percentage of sales)


—Units
shipped per man-hour worked


—Orders
shipped on time


—Expenses
by department


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


—Inbound
freight utilization by mode (ocean vs air)


—Vendor
purchase order cycle time





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





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





—Days
of sales outstanding


—Days
of inventory (at cost)


—Days
of payables outstanding





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


17


Results
of Operations





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





Three
      Months Ended September 30,
                                  
                                  
                                  Nine
      Months Ended September 30,2009
                                  
                                  
                                  2008
                                  
                                  
                                  2009
                                  
                                  
                                  2008(unaudited)
                                  
                                  
                                  (unaudited)Net
      sales
                                  
                                  
                                  100.0
                                  %
                                  
                                  
                                  100.0
                                  %
                                  
                                  
                                  100.0
                                  %
                                  
                                  
                                  100.0
                                  %Cost
      of goods sold
                                  
                                  
                                  63.6
                                  
                                  
                                  
                                  61.8
                                  
                                  
                                  
                                  71.7
                                  
                                  
                                  
                                  58.7Gross
      profit
                                  
                                  
                                  36.4
                                  
                                  
                                  
                                  38.2
                                  
                                  
                                  
                                  28.3
                                  
                                  
                                  
                                  41.3Operating
      expenses:Research
      and development expenses
                                  
                                  
                                  3.5
                                  
                                  
                                  
                                  5.0
                                  
                                  
                                  
                                  3.4
                                  
                                  
                                  
                                  3.5Sales
      and marketing expenses
                                  
                                  
                                  26.2
                                  
                                  
                                  
                                  27.9
                                  
                                  
                                  
                                  24.9
                                  
                                  
                                  
                                  27.5General
      and administrative expenses
                                  
                                  
                                  9.3
                                  
                                  
                                  
                                  11.8
                                  
                                  
                                  
                                  8.1
                                  
                                  
                                  
                                  8.7Settlement
      expense
                                  
                                  
                                  28.7
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  7.8
                                  
                                  
                                  
                                  —Total
      operating expenses
                                  
                                  
                                  67.7
                                  
                                  
                                  
                                  44.7
                                  
                                  
                                  
                                  44.2
                                  
                                  
                                  
                                  39.7Interest
      income (expense), net
                                  
                                  
                                  (0.1
                                  )
                                  
                                  
                                  (0.1
                                  )
                                  
                                  
                                  (0.1
                                  )
                                  
                                  
                                  0.0Other
      income, net
                                  
                                  
                                  0.0
                                  
                                  
                                  
                                  (0.0
                                  )
                                  
                                  
                                  0.0
                                  
                                  
                                  
                                  (0.1
                                  )Income
      (loss) before income taxes
                                  
                                  
                                  (31.4
                                  )
                                  
                                  
                                  (6.6
                                  )
                                  
                                  
                                  (16.0
                                  )
                                  
                                  
                                  1.5Income
      tax expense
                                  
                                  
                                  0.1
                                  
                                  
                                  
                                  0.0
                                  
                                  
                                  
                                  0.1
                                  
                                  
                                  
                                  0.0Net
      income (loss)
                                  
                                  
                                  (31.5
                                  )%
                                  
                                  
                                  (6.6
                                  )%
                                  
                                  
                                  (16.1
                                  )%
                                  
                                  
                                  1.5
                                  %





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





Total net
sales decreased to $17.4 million for the three months ended September 30, 2009
from $17.7 million for the comparable period of 2008.  Our sales were
primarily driven by the product sales of newly launched Idea a7 and a7 OS irons
and hybrids along with Speedline drivers and hybrid-fairway woods and the Idea
a3 and a3 OS irons.  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 September 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 increased to $12.7 million, or 73.1% of total net sales, for the three
months ended September 30, 2009 from $11.0 million, or 61.9% of total net sales,
for the comparable period of 2008.  Current period iron net sales
primarily resulted from sales of the recently introduced Idea a7 and a7 OS irons
coupled with the close out of the Idea a3 OS irons, and a smaller portion of
sales resulting from Tech a4 and a4 OS Irons and integrated iron sets 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 $3.3 million, or 19.2% of total net sales, for the
three months ended September 30, 2009, from $4.0 million, or 22.7% of total net
sales, for the comparable period of 2008.  Net sales for the three
months ended September 30, 2009 primarily were generated from sales of Idea a7
and a7 OS hybrids, Speedline hybrid-fairway woods, Tech a4 and a4 OS hybrids and
hybrid-fairway woods, Idea a3 and a3 OS and Idea Pro Gold
I-woods.  Net sales for the three months ended September 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.


18


Net sales
of drivers increased to $1.2 million, or 7.0% of total net sales, for the three
months ended September 30, 2009 from $1.1 million, or 6.5% of total net sales,
for the comparable period of 2008.  A large portion of the driver net
sales for the three months ended September 30, 2009 was generated by the sales
of the Speedline driver, which was launched in the first quarter of 2009 along
with the Speedline 9032 driver launched in the second quarter of 2009, while in
the comparable period of 2008, net sales were primarily driven by the 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 24% of
net sales for the three months ended September 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 $2.9 million, or 16.9% of
total net sales, from $3.5 million, or 20.0% of total net sales, for the three
months ended September 30, 2009 and 2008, respectively.  Net sales
resulting from countries outside the United States and Canada decreased to 3.7%
of total net sales for the three months ended September 30, 2009 from 6.5% for
the comparable period of 2008.





Cost of
goods sold increased to $11.1 million, or 63.6% of total net sales, for the
three months ended September 30, 2009 from $10.9 million, or 61.8% of total net
sales, for the comparable period of 2008.  The increase as a
percentage of total net sales is primarily due to changes in the product mix and
promotional programs during the quarter.





Selling
and marketing expenses decreased to $4.5 million for the three months ended
September 30, 2009 from $4.9 million for the comparable period in
2008.  The decrease is primarily the result of a decrease in
compensation expense and cost saving initiatives in various areas.





General
and administrative expenses decreased to $1.6 million for the three months ended
September 30, 2009 from $2.1 million for the comparable period in
2008.  The decrease is primarily the result of a decrease in
compensation expense and cost saving initiatives in various areas.





Research
and development expenses, primarily consisting of costs associated with
development of new products, decreased to $0.6 million for the three months
ended September 30, 2009 from $0.9 million for the comparable period in
2008.  The decrease is primarily the result of a decrease in
compensation expense and cost saving initiatives in various areas.





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 savings and overall cost savings
in order to sustain our financial position as well as to position ourselves for
future growth.





Nine
Months Ended September 30, 2009 Compared to Nine Months Ended September 30,
2008





Total net
sales decreased to $64.1 million for the nine months ended September 30, 2009
from $79.0 million for the comparable period of 2008.  Our sales were
primarily driven by the product sales of Idea a7 and a7 OS irons and hybrids,
Speedline drivers and hybrid-fairway woods, the Idea a3 and a3 OS Irons, the
Tech a4 and a4 OS irons, hybrids, drivers and hybrid-fairway woods and
integrated iron sets.  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 nine
months ended September 30, 2009 was primarily due to reduced demand by
customers caused by a less than favorable economic environment in the United
States and abroad.


19


Net sales
of irons decreased to $42.9 million, or 66.9% of total net sales for the nine
months ended September 30, 2009 from $49.9 million, or 63.2% of total net sales,
for the comparable period of 2008.  Current period iron net sales
primarily resulted from sales of the Idea a7 and a7 OS irons, Tech a4 and a4 OS
Irons, Idea a3 and a3 OS irons coupled with a smaller portion of sales of the
integrated iron sets 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 $12.1 million, or 18.8% of total net sales, for
the nine months ended September 30, 2009, from $18.8 million, or 23.7% of total
net sales, for the comparable period of 2008.  Net sales for the nine
months ended September 30, 2009 primarily were generated from sales of Idea a7
and a7 OS hybrids, Speedline hybrid-fairway woods, Tech a4 and a4 OS hybrids and
hybrid-fairway woods, Idea a3 and a3 OS and Idea Pro Gold
I-woods.  Net sales for the nine months ended September 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 $8.9 million, or 14.0% of total net sales, for the nine
months ended September 30, 2009 from $9.4 million, or 11.9% of total net sales,
for the comparable period of 2008.  A large portion of the driver net
sales for the nine months ended September 30, 2009 was generated by sales of the
Speedline driver, which was launched in the first quarter of 2009 along with the
Speedline 9032 driver launched in the second 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 nine months ended September 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 $11.6 million, or 18.1%
of total net sales, from $16.4 million, or 20.7% of total net sales, for the
nine months ended September 30, 2009 and 2008, respectively.  Net
sales resulting from countries outside the United States and Canada decreased to
4.4% of total net sales for the nine months ended September 30, 2009 from 6.1%
for the comparable period of 2008.





Cost of
goods sold decreased to $46.0 million, or 71.1% of total net sales, for the nine
months ended September 30, 2009 from $46.4 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 taken during the second quarter coupled with
changes in the product mix and promotional programs during the
period.





Selling
and marketing expenses decreased to $15.9 million for the nine months ended
September 30, 2009 from $21.7 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 and
other cost saving initiatives in various areas.





General
and administrative expenses decreased to $5.2 million for the nine months ended
September 30, 2009 from $6.8 million for the comparable period in
2008.  The decrease is primarily the result of a decrease in
compensation expense of $1.0 million along with other cost saving initiatives in
various areas.





Research
and development expenses, primarily consisting of costs associated with
development of new products, decreased to $2.2 million for the nine months ended
September 30, 2009 from $2.8 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 $16.3 million and $14.7 million
at September 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.


20


Our
inventory balances were approximately $20.6 million and $33.6 million at
September 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
accrued liabilities balances were approximately $11.4 million and $7.3 million
at September 30, 2009 and December 31, 2008, respectively.  The
increase in accrued liabilities is primarily due to the accrual for the
settlement of the stockholder class action lawsuit pursuant to which we
currently estimate that we will contribute $5 million in conjunction with the
settlement to cover the layer of exposure on our directors' and officers'
corporate liability insurance that our former insurance carrier will not cover
at this time.  See the Legal Proceedings section of this Form 10-Q for
further details.





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 increased to $11.4 million at September 30, 2009 compared to
$6.0 million at December 31, 2008. During the period, inventory decreased
$11.2 million and an increase in the inventory reserve of $1.8 million and a net
increase in accrued expense and accounts payable of $1.8
million.  These were offset by an increase in accounts receivable of
$2.5 million.





In
November 2007, we signed a revolving credit agreement, which expires November
2012 with Wachovia Bank, NA to provide up to $15.0 million in short term
debt.  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 September 30, 2009 and November 10, 2009, we had no
outstanding borrowings on our credit facility and we were in compliance with the
terms of our agreement.  In 2008, Wells Fargo Bank, NA acquired
Wachovia Bank, NA.  Wells Fargo Bank, NA, as successor to Wachovia
Bank, NA, has become our lender under our existing line of credit and
is subject to all of the terms and
conditions thereof.


21


Working
capital decreased at September 30, 2009 to $30.4 million compared to $38.5
million at December 31, 2008.   Approximately 33% of our current
assets were comprised of accounts receivable at September 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.


22


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 nine
months ended September 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.


23


Income
Taxes





We
account for income taxes in accordance with FASB ASC 740, Income Taxes.  
FASB ASC 740 prescribes the use of the liability method where by deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to the differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards.  Deferred tax assets and
liabilities are measured using enacted rates expected to apply to taxable income
in the years in which those temporary differences are expected to be recovered
or settled.  The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.  In assessing the realizability of deferred income tax
assets, we consider whether it is more likely than not that some portion or all
of the deferred income tax assets will be realized.  The ultimate
realization of deferred income tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences
become deductible.  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 we believe 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 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 nine months ended September 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.


24


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


25


PART
II.  OTHER INFORMATION





Item
1.  Legal Proceedings





On
October 29, 2009, the Company reached a settlement in principle regarding the
consolidated securities class action filed in June 1999 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 settlement remains subject to
final documentation as well as approval by the Court, approval by the
shareholder class, and is subject to appeal.  The proposed settlement
provides for a total payment to the class of $16.5 million in cash and a payment
of the first $1.25 million, after attorneys fees and costs, actually received
(if any) by the Company in connection with the Company’s litigation against its
former insurance broker (Thilman & Filipini, LLC (“T&F”)) and it’s
former insurance carrier, Zurich American Insurance Company
("Zurich").  Of the $16.5 million cash settlement amount, $5 million
will be paid by the Company, which the Company will record as a charge during
the quarter ended September 30, 2009.  If approved, the settlement
will lead to a dismissal with prejudice of all claims against all defendants in
the litigation.  As part of the settlement, the underwriters for the
IPO have agreed to release the Company from any indemnification
obligation.  Although defendants continue to deny plaintiffs'
allegations, the Company believes it is in the best interests of its
stockholders to proceed with this settlement.





The
Company maintains directors' and officers' ("D&O") and corporate liability
insurance to cover certain risks associated with these securities claims filed
against us or our directors and officers.  During the period covering
the class action lawsuit, we maintained insurance from multiple carriers, each
insuring a different layer of exposure, up to a total of $50
million.  In addition, we have met the financial deductible of our
directors' and officers' insurance policy for the period covering the time the
class action lawsuit was filed.  On March 30, 2006, Zurich, which
provided insurance coverage totaling $5 million for the layer of exposure
between $15 million and $20 million, notified us that it was denying coverage
due to the fact that it was allegedly not timely notified of the class action
lawsuit.  On October 11, 2007, we filed a suit against our former
insurance broker, T&F, asserting various causes of action arising out of
T&F's alleged failure to notify Zurich of the class action
lawsuit.  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 and T&F have engaged in preliminary written
discovery efforts, but substantial discovery remains to be
completed.  On September 11, 2009, we filed a lawsuit against Zurich,
asserting various causes of action arising out of Zurich's denial of coverage of
the class action lawsuit.


26


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 October 9, 2009,
the USPTO issued a Notice of Intent to Issue Ex Parte Reexamination Certificate
concerning claims amended during the reexamination procedure.  It
appears likely that a Reexamination Certificate will issue and litigation will
resume shortly thereafter.   At this point in the legal proceedings,
we cannot predict the outcome of the matter with any certainty, per the guidance
in FASB ASC 450, 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.


27


Item
6.  Exhibits





See the
Exhibit Index on pages 29-30.





Signatures





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





ADAMS
      GOLF, INC.Date:  November
      10, 2009
                          By:
                          /S/ OLIVER G. BREWER
      IIIOliver
      G. Brewer, IIIChief
      Executive Officer and President(Principal
      Executive Officer)Date:  November
      10, 2009
                          By:
                          /S/ PAMELA
      HIGHPamela
      J. HighInterim
      Chief Financial Officer(Principal
      Financial
Officer)


28


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)


29





Exhibit
      10.7
                Employment
      Agreement - Byron (Barney) H. Adams
                
                Incorporated
      by reference to the Report on From 8-K dated January 12, 2009 File No.
      001-33978 (Exhibit 10.1)Exhibit
      10.8
                Employment
      Agreement - Oliver G. (Chip) Brewer
                
                Incorporated
      by reference to the Quarterly Report on From 10-Q for the quarter ended
      March 31, 2009 File No. 001-33978 (Exhibit 10.9)Exhibit
      10.9
                Amendment
      to Revolving line of Credit between Adams Golf, Inc and Wachovia Bank,
      National Association
                
                Incorporated
      by reference to Third quarter 2009 Form 10-Q File No 001-33978 (Exhibit
      10.9)Exhibit
      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.


30