10-K

eceived

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-K

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

For the fiscal year ended December 31, 2006

OR

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

For the transition period from _____ to _____

Commission File Number:  0-24583

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.)
300 Delaware Avenue, Suite 572, Wilmington, Delaware	19801
(Address of principal executive offices)	(Zip Code)

(302) 427-5892

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock $.001 Par Value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes   x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes   x No

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   o No

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

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (check one)

Large accelerated filer o             Accelerated filer o                  Non-accelerated filer x

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

o Yes   x No

The aggregate market value of the Registrant's common stock held by nonaffiliates of the Registrant at June 30, 2006 was $14,140,281 based on the closing sales price of $1.57 per share of the Registrant's common stock on the OTC Bulletin Board.

The number of outstanding shares of the Registrant's common stock, par value $.001 per share, was 24,002,356 on March 9, 2007.

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates certain information by reference from the Registrant's definitive proxy statement, which will be filed on or before April 30, 2007, for the Annual Meeting of Stockholders to be held on or about May 15, 2007.

ADAMS GOLF, INC.

FORM 10-K

TABLE OF CONTENTS

PART I
	Item 1.	Business	Page 3
	Item 1A.	Risk Factors	Page 11
	Item 2.	Properties	Page 17
	Item 3.	Legal Proceedings	Page 17
	Item 4.	Submission of Matters to a Vote of Security Holders	Page 18
PART II
	Item 5.	Market for Registrant's Common Equity and Related Stockholders Matters and Issuer Purchases of Equity Securities	Page 19
	Item 6.	Selected Financial Data	Page 21
	Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	Page 21
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	Page 31
	Item 8.	Financial Statements and Supplementary Data	Page 32
	Item 9A.	Controls and Procedures	Page 32
PART III
	Item 10	Directors and Executive Officers of the Registrant	Page 33
	Item 11	Executive Compensation	Page 33
	Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	Page 33
	Item 13	Certain Relationships and Related Transactions	Page 33
	Item 14	Principal Accounting Fees and Services	Page 33
PART IV
	Item 15	Exhibits and Financial Statement Schedules	Page 34

1

Forward Looking Statements

This Annual Report contains "forward-looking statements" made under the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995.  The statements include, but are not limited to: statements regarding 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," "will," "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:

-- Product development difficulties;

--  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 impact of changing economic conditions; 

--  The future market for our capital stock; 

--  The success of our marketing 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; 

--  Business conditions in the golf industry; 

--  Reliance on third parties, including suppliers; 

--  The impact of market peers and their respective products; 

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

--  The management of sales channels and re-distribution; 

--  The uncertainty of the results of pending litigation; 

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

--  The risk associated with the 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 in this Annual Report under "Risk Factors" in Part II, Item 1A, below. 

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 Annual 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.

2

Item 1.  Business

General

Founded in 1987, Adams Golf, Inc. initially operated as a component supplier and contract manufacturer.   Thereafter, we established our custom fitting operation.  Today we design, assemble, market and distribute premium quality, technologically innovative golf clubs, including Idea A2 and A2 OS irons, Tech OS irons, Idea Pro Irons and Idea A2, Tech OS and Idea Pro I-woods, Idea, A1 and A1 Pro Irons and Idea i-woods, the Insight drivers and fairway woods, RPM drivers and fairway woods, Ovation drivers and fairway woods, the Tight Lies family of fairway woods, the Redline family of fairway woods and drivers, the Tight Lies GT3 and GT2 irons and i-woods, the Tom Watson signature and Puglielli series of wedges, and certain accessories. Our Company was incorporated in 1987 and re-domesticated in Delaware in 1990.  We completed an internal reorganization in 1997, and we now conduct our operations through several direct and indirect wholly-owned subsidiaries, agencies and distributorships.

Segments and Products

Adams Golf operates in a single segment within the golf industry (golf clubs and accessories) and offers more than one class of product within that segment.  We currently offer the following classes of products:

Drivers

We currently offer a variety of different driver models based on the shape, size and material used in the club head. Our current driver heads are made of titanium, stainless steel and/or carbon fiber, depending on the model.  The shafts of our drivers are generally graphite.  In June, 2005 we introduced the Redline RPM Dual series of drivers, which offers a 460cc titanium driver head, a carbon fiber crown and 2 movable weights.  In February, 2006 we introduced the RPM Ti driver, which features a 460cc titanium driver head and a fixed 16 gram sole weight place to maximize forgiveness and help shot shaping.  In February, 2007 we introduced our new Insight BUL, Belle and BTY series of drivers.  By dramatically shaping and expanding the perimeter of the clubhead, we created a club that reached 5,000 MOI (Moment of Inertia).  Increased MOI generally reduces side spin, increases ball speed and provides greater stability at impact.

Fairway Woods

In February, 2006 we introduced the RPM Low Profile series of fairway woods.  Engineered to provide increased MOI and a lower center of gravity, the RPM Low Profile fairway woods are designed to provide confidence at address from a variety of fairway lies.  In February, 2007 we introduced the Insight BUL, Belle and BTY series of fairway woods.  The Insight series of fairway woods provide a material advantage to golfers—the clubs include a one piece titanium face and crown brazed to a stainless steel body.  They are the first and only fairway wood manufactured this way.  The Insight fairway woods won the Gold designation in the 2007 Golf Digest Hot List voting, and were the category leader in “Outstanding Technology” in the fairway wood category.  We offer a variety of individual hybrid irons in the recently introduced Idea a2, a2 OS, Tech OS and Idea Pro lines.  These individual hybrids are designed to combine the distance of long iron with the playability of a fairway wood.  The Idea Pro hybrid line won the Editor’s Choice in the hybrid category in the 2007 Golf Digest Hot List voting, and is gaining increasing popularity on the PGA, Champion’s, Nationwide and LPGA professional golf tours.

Irons

In September, 2005 we launched our Idea a2 and a2 OS line of integrated hybrid iron sets.  The a2 irons are offered in an 8 piece men’s set, with two graphite-shafted hybrid irons integrated into the set.  The Idea a2 OS irons are offered in 3 different 8 piece configurations—one for men, one for women, and one for seniors.  We also offer 5 different colors versions of the Idea a2 OS Women’s 12 piece set. The set includes a 460cc titanium driver, 2 fairway woods, an 8 piece Women’s Idea a2 OS iron set with 4 hybrid irons integrated into the set, a putter and a bag.  Idea a2 and a2 OS iron sets utilize a2 and a2 OS i-Woods—a hybrid club that is part iron and part wood—for long irons.  These i-Woods are designed to combine the distance of a long iron with the playability of a fairway wood.

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In September, 2006 we launched the Idea Tech OS and Idea Pro series’ of integrated hybrid iron sets.  The Idea Tech OS irons are offered in an 8 piece men’s set, women’s set and senior’s set.  Each set comes with 4 graphite shafted hybrid irons, with a heel biased adjustable weight port for swing weight, shaft, or length adjustment.  These high-tech sets also include titanium faces for increased ball speed and more distance and composite crowns for low center of gravity and high launch.  The Idea Pro series is offered in an 8 piece men’s set, which includes 2 Idea Pro hybrids and 6 forged irons.  The Idea Pro hybrids won the Editor’s Choice in the hybrid category in the 2007 Golf Digest Hot List voting, and the 6 forged irons are crafted with forged carbon 8620 steel for ultimate feel and sound desired by the better players.  The Idea Pro line of irons is an integrated set of tour-proven hybrids and forged irons that are marketed to serious golfers.

Wedges and Other

As a complement to the Idea irons, we offer the Tom Watson signature wedges with a classic profile and our newest line of wedges, Puglielli wedges, launched in September 2005.  We also offer a line of putters, golf bags, hats and other accessories.

Percentage of Net Sales by Product Class

	2006			2005			2004
Drivers		9.6	%		27.8	%		19.6	%
Fairway Woods		19.5			25.8			38.1
Irons		67.9			42.4			39.7
Wedges and Other		3.0			4.0			2.6
Total		100.0	%		100.0	%		100.0	%

Our growth and ultimate success depends, in large part, on our ability to develop and introduce new products that are accepted by consumers in the marketplace.  Historically, a large portion of new golf club technologies and product designs have been met with consumer rejection.  Certain products we previously introduced have not met the level of consumer acceptance anticipated by management.  No assurance can be given that we will be able to continue to design, manufacture and introduce new products that will meet with market acceptance.  Failure by us to identify and develop innovative new products that achieve widespread market acceptance would adversely affect our future growth and viability.  Additionally, successful technologies, designs and product concepts are likely to be copied by competitors.  We are certain that our products and technologies have been copied by competitors in the past, resulting in, among other things, the diversion of management's attention, confusion in the marketplace and price/margin erosion.  Our operating results have fluctuated and could continue to fluctuate as a result of the number, timing and market acceptance of new product introductions by us and our competitors.

Design and Development

Our design and development team is responsible for developing, testing and introducing new technologies and product designs.  This team is currently led by Tim Reed, Vice President-Research and Development.  Prior to joining our company, Mr. Reed spent over 18 years in the golf industry and, most notably, was responsible for all new product introductions at TearDrop Golf Company, which included TearDrop Putters and Tommy Armour and Ram brand golf clubs.

Together with management, the design and development team engages in a four-step process to create new products.

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Market Evaluation - Prior to development of any potential concepts, our management team, in conjunction with the design and development team, performs an extensive evaluation of the current golf market to determine which particular product classes we will pursue for concept development.  As a part of the market evaluation, we analyze our current product offerings against current and anticipated competitor products with respect to consumer preferences.  To determine consumer preferences, we utilize our independent sales force, consumer surveys and market intelligence tools that solicit product and design characteristics desired by consumers.  Once the consumer product and design characteristics are determined and evaluated, management and the design and development team determine the product classes and types of products that will be pursued for the upcoming season.

Performance Characteristics - For the product classes and the types of products to be offered within those classes, management evaluates the target market for our new concepts and the performance characteristics that are commensurate with the target market.  Performance characteristics are always predicated on producing high quality, high performance products.  Certain performance characteristics that are evaluated include easy playability, ball flight and spin objectives, desired weight and feel of the product and conformity to U.S. Golf Association ("USGA") golf equipment standards.

Patent Review - We consider patent protection for our technologies and product designs to be an important part of our development strategy; however, we may elect not to seek patent protection for some of our technologies or product designs.  We, in conjunction with our patent attorneys, conduct a search of prior art and existing products to determine whether a new product idea may be covered by an existing patent.  Patent review, depending upon the complexity of the design involved, generally requires between one and six months to complete; however, this stage of product development typically occurs in conjunction with one or more of the other three R&D steps.

Development - Concurrent with the patent review process, the design and development team begins to develop computer generated working designs incorporating the desired performance characteristics, which are then modeled using in-house rapid prototyping systems.  During the development phase, substantial consideration is also given to optimal shaft performance, cosmetics and sound characteristics.  Once prototypes are developed, they are subjected to stringent iterative testing requirements to determine if the product will deliver the desired performance.  In certain circumstances, prototypes are distributed to consumers to solicit feedback with respect to specific product performance characteristics and consumer perception.  Using consumer feedback, subsequent modifications are made to the products to achieve the performance requirements desired by the identified target market.

Historically, the entire process from Market Evaluation through Development has taken from six to twelve months to complete.

Our research and development expenses were approximately $2,607,000, $2,285,000 and $1,847,000 for the years ended December 31, 2006, 2005 and 2004, respectively.

Patents

Our ability to compete effectively in the golf club market may depend on our ability to maintain the proprietary nature of our technologies and products.  As of the date hereof, we hold 20 U.S. patents relating to certain products and proprietary technologies and we have 14 patent applications pending.  Assuming timely payment of maintenance fees, if any, we expect that the 20 currently issued patents will expire on various dates between 2009 and 2021.  We hold patents with respect to the design of the Insight, RPM, Redline, Ovation,Tight Lies fairway wood, the SC Series driver, the Tight Lies Idea and GT irons, including our graphite tipped (GT) shaft, and the Tight Lies ST fairway wood and driver heads.  There can be no assurance, however, as to the degree of protection afforded by these or any other patents we hold or as to the likelihood that patents will be issued from the pending patent applications.  Moreover, our patents may have limited commercial value or may lack sufficient breadth to adequately protect the aspects of our products to which the patents relate.  As of the date hereof, we hold 18 foreign patents and we have 15 foreign patent applications pending.  The U.S. patents we hold do not preclude competitors from developing or marketing products similar to our products in international markets.

5

There can be no assurance that competitors, many of whom have substantially greater resources than we do and have made substantial investments in competing products, will not apply for and obtain patents that will prevent, limit or interfere with our ability to make and sell our products.  We are aware of numerous patents held by third parties that relate to products competitive to us.  There is no assurance that these patents would not be used as a basis to challenge the validity of our patent rights, to limit the scope of our patent rights, or to limit our ability to obtain additional or broader patent rights.  A successful challenge to the validity of our patents may adversely affect our competitive position.  Moreover, there can be no assurance that such patent holders or other third parties will not claim infringement by us with respect to current and future products.  Because U.S. patent applications are held and examined in secrecy, it is also possible that presently pending U.S. applications will eventually issue with claims that may be infringed by our products or technologies.  The defense and prosecution of patent suits is costly and time-consuming, even if the outcome is favorable.  This is particularly true in foreign countries where the expenses associated with such proceedings can be prohibitive.  An adverse outcome in the defense of a patent suit could subject us to significant liabilities to third parties, require us and others to cease selling products, or require disputed rights to be licensed from third parties.  Such licenses may not be available on satisfactory terms, if at all.

Despite our efforts to protect our patent and other intellectual property rights, unauthorized parties have attempted and are expected to continue to attempt to copy all, or certain aspects of, our products.  Policing unauthorized use of our intellectual property rights can be difficult and expensive, and while we generally take appropriate action whenever we discover any of our products or designs have been copied, knock-offs and counterfeit products are a persistent problem in the performance-oriented golf club industry.  There can be no assurance that our means of protecting our patent and other intellectual property rights will be adequate.

Raw Materials, Manufacturing and Assembly

We manage all stages of manufacturing, from sourcing to assembly, in order to maintain a high level of product quality and consistency.  We establish product specifications, select the material used to produce the components and test the specifications of components we receive.

As part of our quality control program, we review the quality assurance programs at the manufacturing facilities of our component part suppliers to monitor adherence to design specifications.  In addition to the quality assurance conducted by the suppliers at their facilities, we also conduct random sampling and perform testing of products received from the suppliers or produced at our facility to ensure consistency with our design specifications. Golf clubs are then built by our assembly personnel using the appropriate component parts.

We have put into place a purchasing procedure that strives to negotiate effective terms with various vendors while continuing to ensure quality of components.  We are continually re-evaluating existing vendors while testing potential new vendors for the various product lines we offer.  At any time, we may purchase a substantial majority of our volume of a specific component part from a single vendor, but we continually strive to maintain a primary and several secondary suppliers for each component part.  Substantially all of our fairway wood, driver, iron, i-wood, wedge and putter component parts are manufactured in China and Taiwan.  Because many of our available component suppliers are located in close proximity in Asia, this concentration could adversely affect our ability to obtain components resulting from negative events such as, but not limited to, foreign government relations, import and export control, political unrest, disruptions or delays in shipments and changes in economic conditions and fluctuation in exchange rates could adversely affect our ability to obtain components.

We could, in the future, experience shortages of components or periods of increased price pressures, which could have a material adverse effect on our business, results of operations, financial position and/or liquidity.  To date, we have not experienced any material interruptions in supply from any sole supplier.

6

Marketing

The goals of our marketing efforts are to build our brand identity and drive sales through our retail distribution channels.  To accomplish these goals, we currently use golf-specific advertising, engage in promotional activities, and capitalize on our relationships with well known professional golfers.

Endemic Advertising - Our primary advertising efforts focus on golf-specific advertising, which include advertising with television commercials that run during golf tournaments and advertising in golf-related magazines and certain newspapers.  We also sponsor developmental professional tours and selected golf tournaments.

Promotional Activities - We engage in a variety of promotional activities to sell and market our products.  Such activities have included consumer sweepstakes and promotional giveaways with certain purchases.

Relationships with Professional Golfers - We have entered into endorsement contracts with professional golfers on the PGA, Champions PGA, Nationwide and LPGA Tours and believe that having a presence on these tours promotes the image of our product lines and builds brand awareness.  In January 2005, we entered into a five year endorsement agreement with Tom Watson, which will expire on December 31, 2009.  Under the terms of the agreement, Mr. Watson is entitled to an annual retainer and bonuses contingent on the levels of his performance in golf events.  In exchange for the compensation noted above, Mr. Watson must meet and maintain certain performance requirements, which include, but are not limited to, exclusive use of our products, participation in a minimum number of events and feedback on performance of our products.  In addition to the agreement with Mr. Watson, we have entered into endorsement agreements with other well-known professionals such as Bernard Langer, Scott Hoch, Brittney Lincicome, Brittany Lang, Steve Wheatcroft, Michael Boyd, Bubba Dickerson, D.A. Weibring, Allen Doyle, Tom Jenkins, Des Smyth, and Jerry Pate, which expire at various dates through 2009 and require the use of certain of our products.

Markets and Methods of Distribution

Our net sales are primarily derived from sales to on- and off- course golf shops, sporting goods retailers, mass merchants and, to a lesser extent, international distributors.  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.

Sales to Retailers - We sell a majority of our products to selected retailers.  We believe our selective retail distribution strategy helps our retailers maintain profitable margins and maximize sales of our products.  For the year ended December 31, 2006, sales to U.S. specialty retailers, mass merchants, sporting goods retailers, and on course accounts accounted for approximately 83% of our total net sales, as compared to approximately 86% for the year ended December 31, 2005.  As products mature, they may be sold to alternative channels of distribution, which are not in direct competition with selected retailers for premier product lines.

We maintain a field sales staff that at February 21, 2007 consisted of 53 independent sales representatives, one senior vice president, two regional vice presidents, a key accounts director and thee regional sales managers, who are in regular personal contact with our retail accounts (approximately 4,000 retailers).  These sales representatives, sales managers and regional vice presidents are supported by nine inside sales representatives who maintain contact with our retailers nationwide.  The inside sales representatives also serve in a customer service capacity as we believe that superior customer service can significantly enhance its marketing efforts.

International Sales - International sales are made primarily in Europe, Canada, Japan and other Asian regions.  International sales in Canada are made through an agency relationship.  Sales in Japan are made through an independent distributor.  Prior to that date, sales were made through our wholly-owned subsidiary.  Sales in the United Kingdom are made through an independent distributor.  International sales to other countries throughout the world are made through a network of approximately 30 independent distributors.  For the years ended December 31, 2006, 2005 and 2004, international sales accounted for approximately 17.1%, 14.1% and 11.4%, respectively, of our net sales.

7

Web Site - We maintain a Web site at www.adamsgolf.com, which allows the visitor to access certain information about our products and heritage, locate retailers, inquire into careers, access corporate information related to corporate governance and news releases, and inquire about contacting us directly.  We do not currently sell our products via our Web site.

Unauthorized Distribution of Counterfeit Clubs

Despite our efforts to limit our distribution to selected retailers, some quantities of our products have been found in unapproved outlets or distribution channels, including unapproved retailers conducting business on common internet auction sites.  The existence of a "gray market" in our products can undermine the sales of authorized retailers and foreign wholesale distributors who promote and support our products and can injure our image in the minds of our customers and consumers.  We make efforts to limit or deter unauthorized distribution of our products, but do not believe the unauthorized distribution of our products can be totally eliminated.  We do not believe that the unauthorized distribution of our clubs has had, or will have, a material adverse effect on our results of operations, financial condition or competitive position, although there can be no assurance as to future effects resulting from the unauthorized distribution of our products.

In addition, we are occasionally made aware of the existence of counterfeit copies of our golf clubs, particularly in foreign markets.  We take action in these situations through local authorities and legal counsel where practical.  We do not believe that the availability of counterfeit clubs has had or will have a material adverse effect on our results of operations, financial condition and/or competitive position, although there can be no assurance as to future effects resulting from the unauthorized distribution of our products.

Industry Specific Requirements

We perform ongoing credit evaluation of our wholesale customers' financial condition and generally provide credit without the requirement of collateral from these customers.  We measure each customer's financial strength using various key aspects such as, but not limited to, the customer's 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.  We also look at the overall aging of the receivables in total and relative to prior periods to determine the appropriate reserve requirements.   Periods will fluctuate depending on the strength of the customers and the change in mix of customer and their respective strength could affect the reserve disproportionately compared to the total change in the accounts receivable balance.  We believe we have adequate reserves for potential credit losses.  Due to industry sensitivity to consumer buying trends and available disposable income, we have in the past extended payment terms for specific retail customers.  Issuance of these terms (i.e. greater than 30 days or specific dating) is dependent on our relationship with the customer and the customer's payment history.  Payment terms are extended to selected customers typically during off-peak times in the year in order to promote our brand name and to assure adequate product availability often 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.  We expect to continue to selectively offer extended payment terms in the future, depending upon known industry trends and our financial condition.

In addition to extended payment terms, the nature of the industry also requires that we carry a substantial level of inventory due to the lead times associated with purchasing components overseas coupled with the seasonality of customer demand.  Our inventory balances were approximately $24,651,000 and $16,151,000 at December 31, 2006 and 2005 respectively.  The increase in inventory levels over these dates is primarily a result of incremental purchasing of inventory for recently introduced product lines.  A significant portion of our inventory purchases are from one supplier representing approximately 62% and 53% for the years ended December 31, 2006 and 2005, respectively.  This supplier and many other industry suppliers are located predominately in China.  We do not anticipate any changes in the relationships with our suppliers; however, if such change were to occur, we believe we would have alternative sources available, although replacing product could take six to nine months.

8

Major Customers

We are currently dependent on four customers, which collectively comprised approximately 25.2% of net revenues for the year ended December 31, 2006.  Of these customers, three individual customers represented greater than 5% but less than 10% of net revenues for the year ended December 31, 2006, while no customer represented greater than 10% of net revenues for the year ended December 31, 2006. For the year ended December 31, 2005, five customers comprised approximately 26.0% of net revenues.  Of these customers, no customer individually represented greater than 5% but less then 10% of net revenues, and one customer represented greater than 10% but less then 15% of net revenues for the year ended December 31, 2005.  For the year ended December 31, 2004, six customers comprised approximately 26.4% of net revenue, of which only one customer represented greater than 5% but less than 10%.  The loss of an individual customer or a combination of these customers would have a material adverse effect on our consolidated revenues, results of operations, financial condition and competitive market position.

Seasonality and Quarterly Fluctuations

Golf generally is regarded as a warm weather sport, and net sales of golf equipment have been historically strongest for us during the first and second quarters.  In addition, net sales of golf clubs are dependent on discretionary consumer spending, which may be affected by general economic conditions.  A decrease in consumer spending generally could result in decreased spending on golf equipment, which could have a material adverse effect on our business, operating results and/or financial condition.  In addition, our future results of operations could be affected by a number of other factors, such as unseasonable weather patterns and natural disasters such as hurricanes, which could interrupt our sales patterns and could generate hardships for customers in the effected area, demand for and market acceptance of our existing and future products; new product introductions by our competitors; competitive pressures resulting in lower than expected selling prices; and the volume of orders that are received and which can be fulfilled in a quarter.  Any one or more of these factors could adversely affect us or result in us failing to achieve our expectations as to future sales or operating results.

Because most operating expenses are relatively fixed in the short term, we may be unable to adjust spending sufficiently in a timely manner to compensate for any unexpected sales shortfall that could materially adversely affect quarterly results of operations and liquidity.  If technological advances by competitors or other competitive factors require us to invest significantly greater resources than anticipated in research and development or sales and marketing efforts, our business, operating results and/or financial condition could be materially adversely affected.  Accordingly, we believe that period-to-period comparisons of our results of operations should not be relied upon as an indication of future performance.  In addition, the results of any quarter are not indicative of results to be expected for a full fiscal year.  As a result of fluctuating operating results or other factors discussed in this report, in certain future quarters our results of operations may be below the expectations of public market analysts or investors.  In such event, the market price of our common stock could be materially adversely affected.

Backlog

The amount of our backlog orders at any particular time is affected by a number of factors, including seasonality and scheduling of the manufacturing and shipment of products.  At February 21, 2007, we had current backorders of $4,774,000, or 6.3% of total net sales for the year ended December 31, 2006, and orders to be fulfilled at a future date, not to exceed the current year, of $3,610,000, or 4.7% of total net sales for the year ended December 31, 2006.  At February 24, 2006, we had current backorders of $1,901,000, or 3.4% of total net sales for the year ended December 31, 2005, and orders to be fulfilled at a future date, not to exceed the current year, of $6,823,000, or 12.1% of total net sales for the year ended December 31, 2005.  The current increase in backorders is a result of our most recent product introduction, the Insight drivers and fairway woods, which was launched in the February of 2007 and Tech OS and Idea Pro Irons launched in the third quarter of 2006.  We have concluded that, for this purpose, a backorder of greater than 10% of total annual net sales would be significant.  We do not anticipate that a significant level of orders will remain unfilled within the current fiscal year.   In addition, we believe that the amount of its backlog is not an appropriate indicator of levels of future sales.

9

Competition

The golf club market is highly competitive.  We compete with a number of established golf club manufacturers, some of which have greater financial and other resources than us.  Our competitors include Callaway Golf Company, adidas-Salomon AG (Taylor Made - adidas Golf), Nike, Inc. (Nike Golf), Fortune Brands, Inc. (Titleist and Cobra) and Karsten Assembly Company (PING), among others.  We compete primarily on the basis of performance, brand name recognition, quality and price.  We believe that our ability to market our products through multiple distribution channels, including on- and off- course golf shops and other retailers, is important to the manner in which we compete.  The purchasing decisions of many golfers are often the result of highly subjective preferences, which can be influenced by many factors, including, among others, advertising, media, promotions and product endorsements.  These preferences may also be subject to rapid and unanticipated changes.  We could face substantial competition from existing or new competitors who introduce and successfully promote golf clubs that achieve market acceptance.  Such competition could result in significant price erosion or increased promotional expenditures, either of which could have a material adverse effect on our business, operating results and/or financial condition.  There can be no assurance that we will be able to compete successfully against current and future sources of competition or that our business, operating results and/or financial condition will not be adversely affected by increased competition in the markets in which we operate.

The golf club industry is generally characterized by rapid and widespread imitation of popular technologies, designs and product concepts.  Due to the success of the Tight Lies fairway woods, several competitors introduced products similar to the Tight Lies fairway woods.  Should our recently introduced product lines achieve widespread market success, it is reasonable to expect that our current and future competitors would move quickly to introduce similar products that would directly compete with the new product lines.  We may face competition from manufacturers introducing other new or innovative products or successfully promoting golf clubs that achieve market acceptance.  The failure to successfully compete in the future could result in a material deterioration of customer loyalty and our image, and could have a material adverse effect on our business, results of operations, financial position and/or liquidity.

The introduction of new products by us or our competitors can be expected to result in closeouts of existing inventories at both the wholesale and retail levels.  Such closeouts are likely to result in reduced margins on the sale of older products, as well as reduced sales of new products given the availability of older products at lower prices.  As the Idea A2 OS product line of irons were introduced, older product lines such as the Original Idea Irons, original Tight Lies fairway woods, RPM and Redline fairway woods and drivers and Tight Lies GT fairway woods and drivers experienced reductions in price at both wholesale and retail levels.

Domestic and Foreign Operations

Domestic and foreign net sales for the years ended December 31, 2006, 2005 and 2004 were comprised as follows:

		2006				2005				2004
Domestic	$	63,016,000	82.9	%	$	48,496,000	85.9	%	$	50,301,000	88.6	%
Foreign		13,014,000	17.1			7,928,000	14.1			6,461,000	11.4
Total	$	76,030,000	100.0	%	$	56,424,000	100.0	%	$	56,762,000	100.0	%

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

Our business is subject to the risks generally associated with doing business abroad, such as foreign government relations, foreign consumer preferences, import and export control, political unrest disruptions or delays in shipments and changes in economic conditions and fluctuation in exchange rates in which we purchase components or sell our products.  Recent foreign events, including, without limitation, continuing U.S. military operations and the resulting instability in Iraq, could potentially cause a delay in imports or exports due to heightened security with customs.

10

Employees

At February 21, 2007, we had 147 full-time employees including 52 engaged in production, 19 in order fulfillment, 23 in research and development and quality control, 9 in sales support and 44 in management and administration.  Our employees are not unionized.  We believe that our relations with our employees are good.

Item 1A. Risk Factors

The financial statements contained in this report and the related discussion describe and analyze our financial performance and condition for the periods indicated. For the most part, this information is historical.  Our prior results are not necessarily indicative of our future performance or financial condition.  We, therefore, have included in this report a discussion of certain factors which could affect our future performance or financial condition. These factors could cause our future performance or financial condition to differ materially from its prior performance or financial condition or from our expectations or estimates of our future performance or financial condition.

Dependence on New Product Introductions; Uncertain Consumer Acceptance

Our ultimate success depends, in large part, on our ability to successfully develop and introduce new products widely accepted in the marketplace.  Historically, a large portion of new golf club technologies and product designs have been met with consumer rejection.  Certain products we previously introduced have not met the level of consumer acceptance anticipated by management.  No assurance can be given that our current or future products will be met with consumer acceptance.  Failure by us to timely identify and develop innovative new products that achieve widespread market acceptance would adversely affect our continued success and viability.  Additionally, successful technologies, designs and product concepts are likely to be copied by competitors.  Accordingly, our operating results could fluctuate as a result of the amount, timing, and market acceptance of new product introductions by us or our competitors.    If we are unable to develop new products that will ultimately be widely accepted by a wide range of customers, it will have a material adverse effect on our business and results of operations.  

The design of new golf clubs is also greatly influenced by the rules and interpretations of the USGA.  Although the golf equipment standards established by the USGA generally apply only to competitive events sanctioned by the organization, we believe that it is critical for our future success that new clubs we introduce comply with USGA standards.  We invest significant resources in the development of new products and efforts to comply with USGA standards may hinder or delay development of the product and adversely effect revenues and customer demand.  Additionally, increased costs associated with complying with USGA standards could reduce margins and adversely affect the results of operations.

Uncertainty Regarding Continuation of Profitability

While we generated net income in each of the past four fiscal years, we have not done so consistently prior to that period and experienced significant losses prior to the year ended December 31, 2003.  There can be no assurance that we will be able to increase or maintain revenues or continue such profitability on a quarterly or annual basis in the future.  An inability to continue such improvements in our financial performance could jeopardize our ability to develop, enhance, and market products, retain qualified personnel, and take advantage of future opportunities or respond to competitive pressures.

11

Need for Additional Capital

No assurances can be given that we will have sufficient cash resources beyond twelve months or to fund our operations over a length of time. It is possible that the only sources of funding are current cash reserves, projected cash flows from operations and up to $10.0 million of borrowings available under our revolving credit facility.   Historically, we have funded capital expenditures for operations through cash flow from operations.  To the extent our cash requirements or assumptions change,we may have to raise additional capital and/or further curtail our operating expenses, including further operational restructurings.  If we need to raise additional funds through the issuance of equity securities, the percentage ownership of the stockholders of our Company would be reduced, stockholders could experience additional dilution, and/or such equity securities could have rights, preferences or privileges senior to our Company's common stock.  Nevertheless, given the current market price for our Company's common stock and the state of the capital markets generally, we do not expect that we would be able to raise funds through the issuance of our capital stock in the foreseeable future.  We may also find it difficult to secure additional debt financing beyond our current credit facility.   There can be no assurance that financing will be available if needed or if available on terms favorable to us, or at all.  Accordingly, it is possible that the only sources of funding are current cash reserves, projected cash flows from operations and up to $10.0 million of borrowings available under our revolving credit facility.

IncreasingCompetition

The golf club market is highly competitive.  We compete with a number of established golf club manufacturers, some of which have greater financial and other resources than we have.  Our competitors include Callaway Golf Company, adidas-Salomon AG (Taylor Made - adidas Golf), Nike, Inc. (Nike Golf), Fortune Brands, Inc. (Titleist and Cobra) and Karsten Assembly Company (PING), among others.  We compete primarily on the basis of performance, brand name recognition, quality and price.  We believe that our ability to market our products through multiple distribution channels, including on- and off- course golf shops and other retailers, is important to the manner in which we compete.  The purchasing decisions of many golfers are often the result of highly subjective preferences, which can be influenced by many factors, including, among others, advertising, media, promotions and product endorsements.  These preferences may also be subject to rapid and unanticipated changes.  We could face substantial competition from existing or new competitors who introduce and successfully promote golf clubs that achieve market acceptance.  Such competition could result in significant price erosion or increased promotional expenditures, either of which could have a material adverse effect on our business, operating results and/or financial condition.  There can be no assurance that we will be able to compete successfully against current and future sources of competition or that our business, operating results and/or financial condition will not be adversely affected by increased competition in the markets in which we operate.

The golf club industry is generally characterized by rapid and widespread imitation of popular technologies, designs and product concepts.  Due to the success of the Tight Lies fairway woods, several competitors introduced products similar to the Tight Lies fairway woods.  Should our recently introduced product lines achieve widespread market success, it is reasonable to expect that our current and future competitors would move quickly to introduce similar products that would directly compete with the new product lines.  We may face competition from manufacturers introducing other new or innovative products or successfully promoting golf clubs that achieve market acceptance.  Accordingly, our operating results could fluctuate as a result of the amount, timing and market acceptance of new products introduced by us or our competitors.  The failure to successfully compete in the future could result in a material deterioration of customer loyalty and our image, and could have a material adverse effect on our business, results of operations, financial position and/or liquidity.

Our introduction of new products or our competitor's introductions can be expected to result in closeouts of existing inventories at both the wholesale and retail levels.  Such closeouts are likely to result in reduced margins on the sale of older products, as well as reduced sales of new products given the availability of older products at lower prices.   As the Idea A2 OS product line of irons were introduced, older product lines such as the Original Idea Irons, original Tight Lies fairway woods, RPM and Redline fairway woods and drivers and Tight Lies GT fairway woods and drivers experienced reductions in price at both wholesale and retail levels.

12

Dependence on Key Personnel and Endorsements

Our success depends to an extent upon the performance of our management team, which includes our Chief Executive Officer and President, Oliver G. (Chip) Brewer, III, who participates in all aspects of our operations, including product development and sales efforts.  The loss or unavailability of Mr. Brewer could adversely affect our business and prospects.  In addition, Mr. Tim Reed joined the management team in 2000 in the capacity of Vice President of Research and Development.  If Mr. Reed is unable to continue to lead his team to develop innovative products, it could also adversely affect our business.  With the exception of our Company's Chairman of the Board of Directors, B.H. (Barney) Adams, and Mr. Brewer, none of our Company's officers and employees are bound by employment agreements, and the relations of such officers and employees are, therefore, at will.  We established key-men life insurance policies on the lives of Mr. Brewer and Mr. Reed; however, there can be no assurance that the proceeds of these policies could adequately compensate us for the loss of their services.  In addition, there is strong competition for qualified personnel in the golf club industry, and the inability to continue to attract, retain and motivate other key personnel could adversely affect our business, operating results and/or financial condition.

We have entered into endorsement arrangements with certain members of the PGA Tour, the Champions PGA Tour, Nationwide Tour and LPGA tour, including Tom Watson, Bernard Langer, Scott Hoch, Brittney Lincicome, Brittany Lang, Steve Wheatcroft, Michael Boyd, Bubba Dickerson, D.A. Weibring, Allen Doyle, Tom Jenkins, Des Smyth, and Jerry Pate, and other notable players.  The loss of one or more of these endorsement arrangements could adversely affect our marketing and sales efforts and, accordingly, our business, operating results and/or financial condition.  From time to time, we negotiate with and sign endorsement contracts with either existing or new tour players.  As is typical in the golf industry, generally the agreements with these professional golfers do not necessarily require that they use our golf clubs at all times during the terms of the respective agreements, including, in certain circumstances, at times when we are required to make payments to them.  The failure of certain individuals to use our products on one or more occasions has resulted in negative publicity involving us.  No assurance can be given that our business would not be adversely affected in a material way by negative publicity or by the failure of our known professional endorsers to carry and use our products.

Effectiveness of our Marketing Strategy

We have designed our marketing strategy to include advertising efforts in multiple media avenues such as television airtime on golf related events, product education for the consumer through an internet website, publications including periodicals and brochures, and in store media such as point of purchase displays and product introduction fact sheets.  For the years ended December 31, 2006, 2005 and 2004, we spent approximately $5.6 million, $5.0 million and $5.1 million, respectively, on the above listed marketing efforts.  There can be no assurances that a fluctuation in the levels of investments in advertising spending will not result in material fluctuations in the sales of our products.

Source of Supply

A significant portion of our inventory purchases are from one supplier representing approximately 62% and 53% for the years ended December 31, 2006 and 2005, respectively.  This supplier and many other industry suppliers are located predominately in China.  Substantially all of our fairway wood, driver, iron, i-wood, wedge and putter component parts are manufactured in China and Taiwan.  We could, in the future, experience shortages of components for reasons including but not limited to the supplier’s production capacity or materials shortages, or periods of increased price pressures, which could have a material adverse effect on our business, results of operations, financial position and/or liquidity.

13

AdequateProduct Warranty Reserves

We provide a limited one year product warranty on all of our golf clubs.  Significant increases in the incidence of such claims may adversely affect our sales and our reputation with consumers.  We establish reserves for warranty claims.  There can be no assurance that this reserve will be sufficient if we were to experience an unexpectedly high incidence of problems with our products.

Risks Associated with Intellectual Property Protection

Imitation of popular club design is widespread in the golf industry.  No assurance can be given that other golf club manufacturers will not be able to successfully sell golf clubs that imitate our products without infringing on our copyrights, patents, trademarks or trade dress.  Many of our competitors have obtained patent, trademark, copyright or other protection of intellectual property rights pertaining to golf clubs.  No assurance can be given that we will not be adversely affected by the assertion by competitors that our designs infringe on such competitor's intellectual property rights.  Litigation in respect to patents or other intellectual property matters, whether with or without merit, could be time-consuming to defend, result in substantial costs and diversion of management and other resources, cause delays or other problems in the marketing and sales of our products, or require us to enter into royalty or licensing agreements, any or all of which could have a material adverse effect on our business, operating results and financial condition.  We have had to defend against infringement claims in the past and will likely be subject to such claims in the future.  Such claims could result in alteration or withdrawal of our existing products and delayed introduction of new products.

Our attempts to maintain the secrecy of our confidential business information, include but are not limited to, engaging in the practice of having prospective vendors and suppliers sign confidentiality agreements when producing components of new technology.  No assurance can be given that our confidential business information will be adequately protected in all instances.  The unauthorized use of our confidential business information could adversely affect us.

Unauthorized Distribution and Counterfeit Clubs

Some quantities of our products have been found in unapproved outlets or distribution channels, including unapproved retailers conducting business on common internet auction sites.  The existence of a "gray market" in our products can undermine the sales of authorized retailers and foreign wholesale distributors who promote and support our products and can injure our image in the minds of our customers and consumers.  We do not believe the unauthorized distribution of our products can be totally eliminated.  There can be no assurances that unauthorized distribution of our clubs will not have a material adverse effect on our results of operations, financial condition and/or competitive position.

In addition, we are occasionally made aware of the existence of counterfeit copies of our golf clubs, particularly in foreign markets.  We take action in these situations through local authorities and legal counsel where practical.  However, the inability to effectively deter counterfeit efforts could have a material adverse effect on our results of operations, financial condition and/or competitive position.

Accounts Receivable Customer Terms

Due to industry sensitivity to consumer buying trends and available disposable income, we have in the past extended payment terms for specific retail customers.  Issuance of these terms (i.e. greater than 30 days or specific dating) is dependent on our relationship with the customer and the customer's payment history typically during off-peak times in the year.  These extended terms do have a negative impact on our financial position and liquidity.  In addition, the reserves we establish may not be adequate in the event that the customer's financial strength weakens significantly.

14

Sufficient Inventory Levels

In addition to extended payment terms to our customers, the nature of the industry also requires that we carry a substantial level of inventory due to the lead times associated with purchasing components overseas coupled with the seasonality of customer demand.  Our inventory balances were approximately $24,651,000 and $16,151,000 at December 31, 2006 and December 31, 2005, respectively.  If we were unable to maintain sufficient inventory to meet customer demand on a timely basis, the effect could result in cancellation of customer orders, loss of customers, and damage to our reputation.  In addition, carrying a substantial level of inventory has an adverse effect on our financial position and liquidity.

Risks associated with the purchase of assets of Women’s Golf Unlimited

In connection with the purchase of the assets (the “WGU Assets”) from Women’s Golf Unlimited, Inc. (“WGU”), we granted WGU a limited license to use certain intellectual property included in the WGU Assets (the “WGU Marks”).  The limited license allows WGU to sell certain inventory that it owned at the time the license was granted and to collect WGU’s outstanding accounts receivable.  We have little or no control over WGU with respect to the terms of the sale of WGU’s existing inventory, including, without limitation, price, quantity, potential customers, and geographic area of sale.  If WGU sells the existing inventory at low prices or takes any other action that would impair the WGU Assets or brand, the WGU Assets and brand that we purchased may lose value in the market.  In addition, the loss of value of the WGU assets and brand may hurt our relationship with resellers and distributors that have distributed in the past or would distribute in the future products under the Women’s Golf Unlimited brand.  We can provide no assurances that we will be able to maintain the WGU Assets or the Women’s Golf Unlimited brand.  Although we did not assume any liabilities when we purchased the assets of WGU, we will continue to sell products under the WGU brand and therefore may be subject to claims for damages, liabilities or other obligations from the past operations of WGU.  Even if we are successful in our defense against such claims, we may incur defense costs and spend management time and resources in defending against such claims.

Certain Risks of Conducting Business Abroad

Our Company imports a significant portion of our component parts, including heads, shafts, headcovers, and grips from companies in China, Taiwan and Mexico.  In addition, we sell our products to certain distributors located outside the United States.  Our international business is currently centered in Canada, Europe and Asia, and our management intends to focus our international efforts through agency and distributor relationships.  International sales accounted for 17% of our net sales for the year ended December 31, 2006.  Our business is subject to the risks generally associated with doing business abroad, such as foreign government relations, foreign consumer preferences, import and export control, political unrest, disruptions or delays in shipments and changes in economic conditions and exchange rates in countries in which we purchase components or sell our products.  Recent foreign events, including, without limitation, continuing U.S. military operations and the resulting instability in Iraq, could potentially cause a delay in imports or exports due to heightened security with customs.

Risks of  Adequate Insurance Coverage

We invest in various insurance policies to cover different aspects of our business, including but not limited to, Property, Commercial Liability, Workers Compensation, Business Interruption, Foreign Liabilities, Auto, Crime, Employment Practices and Directors and Officers Insurance.  Although we obtain various insurance policies, unforeseen situations or events may arise that could limit the amount or types of insurance coverage.  

15

Currently, we have potential exposure in our Directors and Officers insurance policy covering the time period of the class action lawsuit, where our third layer of coverage for the $5 million layer between $15 million and $20 million is currently being denied by Zurich, as they claim that we did not notify them timely in the class action lawsuit.  In addition, there is potential that Zurich's denial of coverage could adversely affect the coverage layers exceeding the $20 million level.  Additionally, our Directors and Officers insurance policy covering the time period of the class action lawsuit has an endorsement that limits the defense costs covered under the policy for the underwriters of the IPO to $1 million, and at this time the underwriters' attorneys have exhausted this $1 million sublimit. As of February 2, 2007, the total amount of outstanding underwriter defense costs was just less than $1.3 million.  To the extent that our Company is liable for any material amounts denied under or in excess of our Directors and Officer's insurance, or any other insurance policy for that matter, it could have a material effect on our business and our results of operations.

Seasonality and Quarterly Fluctuations

Golf generally is regarded as a warm weather sport, and net sales of golf equipment have been historically strongest for us during the first and second quarters.  In addition, net sales of golf clubs are dependent on discretionary consumer spending, which may be affected by general economic conditions.  A decrease in consumer spending generally could result in decreased spending on golf equipment, which could have a material adverse effect on our business, operating results and/or financial condition.  In addition, our future results of operations could be affected by a number of other factors, such as unseasonable weather patterns and natural disasters such as hurricanes, which could interrupt the sales patterns and could generate hardships for customers in the effected area, demand for and market acceptance of our existing and future products; new product introductions by our competitors; competitive pressures resulting in lower than expected selling prices; and the volume of orders that are received and that can be fulfilled in a quarter.  Any one or more of these factors could adversely affect us or result in us failing to achieve our expectations as to future sales or operating results.

Because most operating expenses are relatively fixed in the short term, we may be unable to adjust spending sufficiently in a timely manner to compensate for any unexpected sales shortfall that could materially adversely affect quarterly results of operations and liquidity.  If technological advances by competitors or other competitive factors require us to invest significantly greater resources than anticipated in research and development or sales and marketing efforts, our business, operating results and/or financial condition could be materially adversely affected.  Accordingly, we believe that period-to-period comparisons of our results of operations should not be relied upon as an indication of future performance.  In addition, the results of any quarter are not indicative of results to be expected for a full fiscal year.  As a result of fluctuating operating results or other factors discussed in this report, in certain future quarters our results of operations may be below the expectations of public market analysts or investors.  In such event, the market price of our common stock could be materially adversely affected.

Rapid Growth, Increased Demand for Product

If we are successful in obtaining rapid market growth for various golf clubs, we may be required to deliver large volumes of quality products to customers on a timely basis which could potentially require us to increase the production facility, increase purchasing of raw materials or finished goods, increase the size of the workforce, expand our quality control capabilities, or incur additional expenses associated with sudden increases in demand.   Any combination of one or more of the listed factors could have a materially adverse effect on our operations and financial position.

16

Anti-Takeover Provisions

Our Certificate of Incorporation and Amended and Restated Bylaws contain, among other things, provisions establishing a classified Board of Directors, authorizing shares of preferred stock with respect to which our Board of Directors have the power to fix the rights, preferences, privileges and restrictions without any further vote or action by the stockholders, requiring that all stockholder action be taken at a stockholders' meeting and establishing certain advance notice requirements in order for stockholder proposals or director nominations to be considered at such meetings.  In addition, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law.  In general this statute prohibits a publicly-held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner.  Such provision could delay, deter or prevent a merger, consolidation, tender offer, or other business combination or change of control involving our Company that some or a majority of our stockholders might consider to be in their best interest, including offers or attempted takeovers that might otherwise result in such stockholders receiving a premium over the market price for the common stock.  The potential issuance of preferred stock may have the effect of delaying, deferring or preventing a change of control, may discourage bids for the common stock at a premium over the market price of the common stock and may adversely affect the market price of and voting and other rights of the holders of the common stock.  We have not issued and currently have no plans to issue shares of preferred stock.

Item 2.   Properties

Our administrative offices and assembly facilities currently occupy approximately 65,000 square feet of space in Plano, Texas.  This facility is leased by us pursuant to a lease agreement expiring in 2008 and may be extended for an additional five years.  We maintain the right to terminate the lease if we move to a larger facility owned by the current lessor.  On August 16, 2006 we added a second location for our warehouse facilities occupying another 29,136 square feet of warehouse space in Plano, Texas, conveniently located to our existing administration and assembly facility.  This facility is leased by us pursuant to a lease agreement expiring in 2008.  We believe that our current facilities encompassing both locations will be sufficient for the foreseeable future.

Item 3.   Legal Proceedings

Beginning in June 1999, the first of seven class action lawsuits was filed against us, certain of our current and former officers and directors, and the three underwriters of our initial public offering ("IPO") in the United States District Court of the District of Delaware.  The complaints alleged violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, as amended, in connection with our IPO.  In particular, the complaints alleged that our prospectus, which became effective July 9, 1998, was materially false and misleading.  The operative complaint was filed on January 24, 2006, and it alleges that the prospectus failed to disclose that unauthorized distribution of our products (gray market sales) threatened our long-term profits and that we engaged in questionable sales practices (including double shipping and unlimited rights of return), which threatened post-IPO financial results.  Discovery closed on August 11, 2006.  On November 21, 2006, all summary-judgment briefing was completed.  On December 13, 2006, we learned that the Delaware District Court judge whom the case was set before was elevated to the United States Court of Appeals for the Third Circuit.  On December 15, 2006, we were notified that our case was assigned to the vacant judicial position. All proceedings have been postponed until a new judge is confirmed, and there is no trial date set at this time.

17

We maintain directors’ and officers’ and corporate liability insurance to cover certain risks associated with these securities claims filed against us or our directors and officers.  During the period covering the class action lawsuit, we maintained insurance from multiple carriers, each insuring a different layer of exposure, up to a total of $50 million.  In addition, we have met the financial deductible of our directors’ and officers’ insurance policy for the period covering the time the class action lawsuit was filed.  On March 30, 2006, Zurich American Insurance Company, which provided insurance coverage totaling $5 million for the layer of exposure between $15 million and $20 million, notified us that it was denying coverage due to the fact that it was allegedly not timely notified of the class action lawsuit.  We are currently assessing whether Zurich’s denial of coverage is appropriate.  There is potential that Zurich’s denial of coverage could adversely affect the coverage provided by the layers exceeding the $20 million level.  On February 21, 2007, Chubb & Son, a division of Federal Insurance Company, notified us that coverage under Federal’s policy, which provided insurance coverage totaling $10 million for the layer of exposure between $20 million and $30 million, and the Executive Risk Indemnity Inc. policy, which provided insurance coverage totaling $10 million for the layer of exposure between $40 million and $50 million, would only attach if the underlying limits are exhausted by payment from the underlying insurance carrier.  We are currently assessing whether Chubb's interpretation of the policies' language is appropriate.  At this point in the legal proceedings, we cannot predict with any certainty the outcome of the matter, per the guidance in SFAS 5, and thus can not reasonably estimate future liability on the conclusion of the events, if any.

The underwriters for the IPO are also defendants in the securities class action.  The underwriting agreement that we entered into with the underwriters in connection with the IPO contains an indemnification clause, providing for indemnification against any loss, including defense costs, arising out of the IPO.  After the first lawsuit was filed, the underwriters requested indemnification under the agreement.  Our D&O insurance policy included an endorsement providing $1 million to cover indemnification of the underwriters.  Our D&O insurer has notified the underwriters of the exhaustion of the $1 million sublimit.  We believe that we have no current obligation to pay the underwriters’ defense costs.  We believe that the applicable case law provides that the earliest possible time that an obligation to indemnify might exist is after a court has decided conclusively that the underwriters are without fault under the federal securities laws. The litigation is not at that stage yet.  As of February 2, 2007, the total amount of outstanding underwriter defense costs was just less than $1.3 million.  At this time, the underwriters are not able to predict with certainty the amount of defense costs they expect to incur going forward, but it is likely they will incur additional costs before this matter is concluded.  At this time, we cannot predict with any certainty the outcome of this indemnification issue, per the guidance in SFAS 5, and thus cannot reasonably estimate future liability on the conclusion of the events, if any.

On March 16, 2006, we became aware of a lawsuit filed against us in U.S. District Court in the Southern District of California by TaylorMade, a division of Adidas-Salomon AG.  The lawsuit alleges generally that we violated three patents held by TaylorMade (one design patent and two utility patents) in the manufacture of drivers.  We have concluded our settlement negotiations with TaylorMade during December 2006 and an order of dismissal was filed with the courts on January 10, 2007, in our view this issue is now concluded.

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 4.   Submission of Matters to a Vote of Security Holders

None

18

PART II

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

Our common stock is currently listed and traded on the OTC Bulletin Board ("OTCBB") under the symbol "ADGO.OB."  The prices in the table below represent the quarterly high and low sales price for our common stock as reported by the OTCBB.  All price quotations represent prices between dealers, without retail mark-ups, mark-downs or commissions and may not represent actual transactions.

	High		Low
2006
First Quarter	$	1.56	$	1.14
Second Quarter		1.66		1.40
Third Quarter		1.57		1.27
Fourth Quarter		1.97		1.31
2005
First Quarter	$	1.70	$	1.27
Second Quarter		1.49		1.12
Third Quarter		1.56		1.25
Fourth Quarter		1.39		1.14

On March 1, 2007, the last reported sale price of the common stock on the OTCBB was $1.90 per share.  At March 9, 2007, we had approximately 4,000 stockholders based on the number of holders of record and an estimate of the number of individual participants represented by security position listings.

Our listing on the OTCBB could adversely affect the ability or willingness of investors to purchase the common stock, which, in turn, would likely severely affect the market liquidity of our securities.  Given the current market price for our common stock and the state of the capital markets generally, we do not expect that we would be able to raise funds through the issuance of our capital stock.  

No dividends have been declared or paid relating to our common stock, nor do we anticipate declaring dividends in the foreseeable future.  The current credit facility does not limit the declaring or payment of dividends unless we were in default of the facility.

Equity Plan Compensation Information:

The following table sets forth information at December 31, 2006 regarding compensation plans under which our equity securities are authorized for issuance.

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)		Weighted-average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders		5,697,233	$	0.04		2,184,632
Equity compensation plans not approved by security holders		---		n/a		---
Total		5,697,233	$	0.04		2,184,632

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Performance Graph

The following performance graph compares the performance of our common stock to the Standard and Poor’s Small Cap 600 index and an industry peer group, selected in good faith, for the period from December 31, 2000, through December 31, 2006.  The graph assumes that the value of the investment in our common stock and each index was $100 at December 31, 2000 and that all dividends were reinvested. We have paid no dividends.  Performance data is provided for the last trading day closest to year end for each 2001, 2002, 2003, 2004, 2005, and 2006.

COMPARISON OF CUMULATIVE TOTAL RETURNS

Assumes Initial Investment of $100

December 2006

Company	December 2001	December 2002	December 2003	December 2004	December 2005	December 2006
Adams Golf, Inc.	$  100.00	$  65.79	$  186.85	$  368.38	$  315.77	$  518.37
S&P Small Cap 600	100.00	85.37	118.49	145.33	156.49	180.14
Peer Group A (1)	100.00	70.96	95.83	87.74	94.08	94.78

(1) Peer Group consists of Callaway Golf Company, Aldila, Inc. and Cutter & Buck Inc.

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Item 6.   Selected Financial Data

The selected financial data presented below is derived from our consolidated financial statements for the years ended December 31, 2006, 2005, 2004, 2003 and 2002, respectively.  The data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," the consolidated financial statements and related notes, and other financial information included elsewhere in this document.

	Year Ended December 31,
	2006		2005		2004		2003		2002
	(in thousands, except per share data)
Consolidated Statements of Operations Data:
Net sales	$	76,030	$	56,424	$	56,762	$	50,879	$	37,917
Operating income (loss)		3,440		2,045		3,100		2,137		(8,903	)
Net income (loss)	$	9,000	$	3,240	$	3,078	$	2,003	$	(8,925	)
Income (loss) per common share (1) :          Basic	$	0.39	$	0.14	$	0.14	$	0.09	$	(0.40	)
Diluted	$	0.31	$	0.12	$	0.12	$	0.08	$	(0.40	)
Weighted average common shares (1):
Basic		23,321		22,734		22,554		22,480		22,480
Diluted		28,930		27,804		26,144		24,533		22,480
Consolidated Balance Sheet Data:
Total assets	$	55,603	$	44,102	$	38,378	$	30,054	$	26,438
Total debt (including current maturities)		--		--		--		--		--
Stockholders' equity	$	41,869	$	32,127	$	26,438	$	22,228	$	19,476

______________________

(1) See Note 1 (k) of Notes to Consolidated Financial Statements for information concerning the calculation of income (loss) per common share and weighted average common shares outstanding.

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

Overview

Founded in 1987, Adams Golf, Inc. initially operated as a component supplier and contract manufacturer.   Thereafter, we established our custom fitting operation.  Today we design, assemble, market and distribute premium quality, technologically innovative golf clubs, including Idea A2 and A2 OS irons, Tech OS irons, Idea Pro Irons and Idea A2, Tech OS and Idea Pro I-woods, Idea, A1 and A1 Pro Irons and Idea i-woods, the Insight drivers and fairway woods, RPM drivers and fairway woods, Ovation drivers and fairway woods, the Tight Lies family of fairway woods, the Redline family of fairway woods and drivers, the Tight Lies GT 500, GT3 and GT2 irons and i-woods, the Tom Watson signature and Puglielli series of wedges, and certain accessories. Our Company was incorporated in 1987 and re-domesticated in Delaware in 1990.  We completed an internal reorganization in 1997, and we now conduct our operations through several direct and indirect wholly-owned subsidiaries, agencies and distributorships.

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.

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We manage all stages of manufacturing, from sourcing to assembly, in order to maintain a high level of product quality and consistency.  We establish product specifications, select the material used to produce the components, and test the specifications of components we receive.

As part of our quality control program, we periodically review the quality assurance programs at the manufacturing facilities of our component part suppliers to monitor adherence to design specifications.  Upon arrival at our facilities in Plano, Texas, the components used in our clubs are again checked to ensure consistency with our design specifications.  Golf clubs are then assembled using the appropriate component parts.

We have put into place a purchasing procedure that strives to negotiate effective terms with various vendors while continuing to ensure quality of components.  We are continually re-evaluating existing vendors while testing potential new vendors for all the various product lines we offer.  At any time, we may purchase a substantial majority of our volume of a specific component part from a single vendor, but we continually strive to maintain a primary and several secondary suppliers for each component part.  Substantially all of our fairway wood, driver, iron, i-wood, wedge and putter component parts are manufactured in China.  Since many of our available component suppliers are located in close proximity in Asia, this concentration could adversely effect our ability to obtain components resulting from negative events such as, but not limited to, foreign government relations, import and export control, political unrest, disruptions or delays in shipments and changes in economic conditions and fluctuation in exchange rates.  A significant portion of our inventory purchases are from one supplier representing approximately 62% and 53% for the years ended December 31, 2006 and 2005, respectively.  This supplier and many other industry suppliers are located predominately in China.  We do not anticipate any changes in the relationships with our suppliers; however, if such change were to occur, we could, in the future, experience shortages of components or periods of increased price pressures or changes in terms, which could have a material adverse effect on our business, results of operations, financial position and/or liquidity.  To date, we have not experienced any material interruptions in supply from any supplier.

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.

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.

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   Revenue Recognition

We recognize revenue when the product is shipped.  At that time, the title and risk of loss transfer to the customer and collectability is reasonably assured.  Collectability is evaluated on an individual customer basis taking into consideration historical payment trends, current financial position, results of independent credit evaluations and payment terms.  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 that 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 three customers represent greater than 5% but less than 10% of net sales and no customer represents greater than 10% of the net sales for the year ended December 31, 2006, 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.

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   Income Taxes

We account for income taxes using the asset and liability method.  Deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.  Deferred tax assets and liabilities are measured using enacted rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.  In assessing the realizability of deferred income tax assets, we consider whether it is more likely than not that some portion or all of the deferred income tax assets will be realized.  The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.  Due to our historical operating results, management is unable to conclude on a more likely than not basis that all deferred income tax assets generated from net operating losses through December 31, 2002 and other deferred tax assets will be realized.   However, due to the 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 deferred income tax asset whose realization is uncertain.

   Impairment of Long-Lived Assets

We follow the guidance in SFAS ("Statement of Financial Accounting Standards") 144 in reviewing 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 years ended December 31, 2006, 2005 and 2004, there was no impairment of long-lived assets.

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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

--  Freight cost by mode (dollars and dollars per unit)

Tracking these operational performance indicators on a regular basis allows us to understand whether we will 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.

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Results of Operations

The following table sets forth operating results expressed as a percentage of net sales for the periods indicated:

	Years Ended December 31,
	2006			2005			2004
Net sales		100.0	%		100.0	%		100.0	%
Cost of goods sold		55.6			53.7			50.4
Gross profit		44.4			46.3			49.6
Operating expenses:
Research and development expenses		3.4			4.0			3.3
Selling and marketing expenses		26.0			29.4			28.3
General and administrative expenses		10.4			12.5			12.6
Settlement expenses		---			(3.1	)		---
Restructuring expense		---			(0.1	)		---
Total operating expenses		39.8			42.7			44.2
Operating income		4.6			3.6			5.4
Interest income, net		0.2			0.4			0.1
Other income, net		---			1.9			0.2
Income before income taxes		4.8			5.9			5.7
Income tax expense		(7.0	)		0.2			0.3
Net income		11.8	%		5.7	%		5.4	%

Year Ended December 31, 2006 Compared to Year Ended December 31, 2005

Total net sales increased to $76.0 million for the year ended December 31, 2006 from $56.4 million for the same comparable period of 2005 primarily resulting from the successful product introductions of the Idea A2 and A2 OS Irons.  Overall, product family life cycles generally range from one to three years, and each product family varies in its life cycle as there are multiple factors influencing the life, such as, but not limited to, customer acceptance, competition and technology.

Net sales of irons increased to $51.6 million, or 67.9% of total net sales, from $23.9 million, or 42.4% of total net sales, for the years ended December 31, 2006 and 2005, respectively.  The increase was primarily generated from the net sales of Idea A2 and A2 OS irons while the prior period net sales primarily resulted from the Original Idea irons and integrated iron sets.

Net sales of drivers decreased to $7.3 million, or 9.6% of total net sales, for the year ended December 31, 2006 from $15.7 million, or 27.8% of total net sales, for the comparable period of 2005.  A large portion of the driver net sales for the year ended December 31, 2006 was generated by the RPM Ti and RPM Dual product lines, which were introduced in the first quarter of 2006 and second quarter of 2005, respectively.  The overall decrease in driver net revenue results from lower sales of RPM and Ovation driver product families as they progress further in their life cycle.

Net sales of fairway woods increased to $14.8 million, or 19.5% of total net sales, from $14.5 million, or 25.8% of total net sales, for the years ended December 31, 2006 and 2005, respectively.  This period's net sales were generated from RPM Low Profile fairway woods and Idea A2 and A2 OS and Original Idea I-woods.  The prior period's net sales were generated from RPM Ti and stainless steel fairway woods, Ovation fairway woods, Idea I-woods and Original Tight Lies fairway woods.

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We are currently dependent on four customers, which collectively comprised approximately 25.2% of net sales for the year ended December 31, 2006.  Of these, three customers individually represented greater than 5% but less than 10% of net sales and no customers represented greater than 10% of net sales.  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 U.S. increased to $13.0 million, or 17.1% of total net sales, from $7.9 million, or 14.1% of total net sales, for the years ended December 31, 2006 and 2005, respectively.  Net sales resulting from countries outside the U.S. excluding Canada increased to 6.7% of total net sales for the year ended December 31, 2006 compared to 3.6% of total net sales for the year ended December 31, 2005.

Cost of goods sold increased to $42.3 million, or 55.6% of total net sales, for the year ended December 31, 2006 from $30.3 million, or 53.7% of total net sales, for the comparable period of 2005.  The increase as a percentage of total net sales is primarily due to changes in the product mix, coupled with decreases in fairway wood and driver net pricing and increases in some component pricing, increasing inbound freight costs related to fuel price increases and other inventory related costs.

Selling and marketing expenses increased to $19.8 million for the year ended December 31, 2006 from $16.6 million for the comparable period in 2005.  The increase is primarily the result of additional commission expense of $1.4 million as a result of the increased net sales during the period.  In addition, advertising and promotional expense increased $0.6 million as a result of our support of the newly launched Idea A2 and A2 OS irons and RPM Low Profile fairway woods, an increase in tour player expenses of $0.4 million and an increase of $0.3 million in compensation expenses.

General and administrative expenses increased to $7.9 million for the year ended December 31, 2006 from $7.1 million for the comparable period in 2005. The increase is a result of $0.3 million related to bad debt expense resulting from our continued efforts to maintain adequate reserves for Accounts Receivable and an increase in legal expenses of $0.3 million.

Research and development expenses, primarily consisting of costs associated with development of new products, increased to $2.6 million for the year ended December 31, 2006 from $2.3 million for the comparable period in 2005.

Settlement expense was zero for the year ended December 31, 2006 compared to a reversal of expense of $1.8 million for the year ended December 31, 2005. During 2005, we reversed settlement expense of $1.8 million, which is attributable to the reversal of the accrued expenses for the settlement agreement that was reached with Mr. Nick Faldo in regards to the dispute regarding provisions of his prior professional services agreement with Adams Golf.   Because Mr. Faldo did not meet the conditions precedent to pay in his contract, we are no longer due to make any future payments.

Other income decreased to zero for the year ended December 31, 2006 from $1.0 million for the comparable period in 2005 which is attributable to our one time receipt of a $965 thousand insurance claim paid by our insurance carrier in connection with an embezzlement which occured during the period from 2001 through 2004.  This event was disclosed in the Annual Report on Form 10-K for the year ended December 31, 2004.

Income tax benefit increased to $5.3 million for the year ended December 31, 2006 from an income tax expense of $0.1 million for the comparable period in 2005.  This is attributable to our management assessment of our existing deferred tax asset and recorded a deferred tax benefit of $5.4 million.  This amount represents what we believe to be an estimate of future usage of our carry back.  The remaining asset has an existing valuation allowance applied to it.

Our inventory balances were approximately $24.7 million and $16.2 million at December 31, 2006 and December 31, 2005, respectively.  The increase in inventory levels is primarily a result of increased purchasing related to the recently launched A2 and A2 OS iron sets launched in the third quarter of 2005 and Idea Pro Irons and Tech OS Irons launched in the third quarter of 2006.

Our net accounts receivable balances were approximately $13.6 million and $14.2 million at December 31, 2006 and December 31, 2005, respectively.  The decrease is primarily due to the strengthening of our current product lines and strengthening of the overall economy.

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Our accounts payable balances were approximately $6.3 million and $4.7 million at December 31, 2006 and December 31, 2005, respectively.  The increase in accounts payable is primarily associated with increases in inventory purchases associated with the recent product launch of the Idea A2 and A2 OS irons, Idea Pro and Tech OS irons.

Our accrued liabilities balances were approximately $7.5 million and $7.3 million at December 31, 2006 and December 31, 2005, respectively.  The increase in accrued liabilities is primarily associated with increases in accruals related to compensation, sales returns and warranty, offset by decreases in accrued intransit inventory and our deferred revenue program.

Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

Total net sales decreased to $56.4 million for the year ended December 31, 2005 from $56.8 million for the same comparable period of 2004 primarily resulting from maturing product lines which have decreased in overall sales coupled with a decrease in fairway wood revenue, partially offset by successful product introductions of the Idea A2 and A2 OS Irons and the RPM Dual series of drivers.  Overall, product family life cycles generally range from one to three years and each product family varies in its life cycle as there are multiple factors influencing the life, such as, but not limited to, customer acceptance, competition and technology.

Net sales of irons increased to $23.9 million, or 42.4% of total net sales, from $21.1 million, or 37.2% of total net sales, for the years ended December 31, 2005 and 2004, respectively.  The increase was primarily generated from sales of our Idea A2 and A2 OS irons, Original Idea irons and integrated iron sets while the prior period was primarily resulting from sales of the Original Idea irons and integrated iron sets.

Net sales of drivers increased to $15.7 million, or 27.8% of total net sales, for the year ended December 31, 2005 from $11.1 million, or 19.6% of total net sales, for the comparable period of 2004.  A large portion of the driver net sales for the year ended December 31, 2005 was generated by the Redline RPM and RPM Dual product lines, which were introduced in fourth quarter of 2004 and second quarter of 2005, respectively, and Ovation drivers, which were introduced in the first quarter of 2005.  This was offset by a decrease in maturing product line sales, specifically the Redline product family and Tight Lies GT driver product family.

Net sales of fairway woods decreased to $14.5 million, or 25.8% of total net sales, from $21.6 million, or 38.1% of total net sales, for the years ended December 31, 2005 and 2004, respectively.  The prior period's net sales were generated from Ovation fairway woods, Idea I-woods and Original Tight Lies fairway woods.  In 2005, the net sales were generated from Redline RPM fairway woods, Idea A2 and original I-woods and Original Tight Lies.

For the year ended December 31, 2005, no customers individually represented greater than 5% but less than 10% of total net sales, while one customer individually represented greater than 10% but less than 15% of total net sales.   Should this customer 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 U.S. increased to $7.9 million, or 14.1% of total net sales, from $6.5 million, or 11.4% of total net sales, for the years ended December 31, 2005 and 2004, respectively.

Cost of goods sold increased to $30.3 million, or 53.7% of total net sales, for the year ended December 31, 2005 from $28.6 million, or 50.4% of total net sales, for the comparable period of 2004.  The increase as a percentage of total net sales is primarily due to changes in the product mix, coupled with decreases in fairway wood net pricing and increases in some component pricing.

Selling and marketing expenses increased to $16.6 million for the year ended December 31, 2005 from $16.1 million for the comparable period in 2004.  The increase is primarily the result of additional personnel which resulted in incremental compensation related costs of $0.7 million partially offset by a reduction in overall marketing expenses, including advertising, research and direct commercial costs, of $0.3 million.

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General and administrative expenses, including provisions for bad debts, decreased to $7.1 million for the year ended December 31, 2005 from $7.2 million for the comparable period in 2004.  The decrease in administrative related costs is attributable to an increase in compensation expenses of $1.0 million offset by a decrease in bad debt expense of $1.0 million.  We measure each customer's financial strength using various key aspects such as, but not limited to, the customer's 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.  We also look at the overall aging of the receivables in total and relative to prior periods to determine the appropriate reserve requirements.  Periods will fluctuate depending on the strength of the customers and the change in mix of customers and their respective strength could affect the reserve disproportionately compared to the total change in the accounts receivable balance.

Research and development expenses, primarily consisting of costs associated with development of new products, increased to $2.3 million from $1.8 million for the years ended December 31, 2005 and 2004, respectively, primarily resulting from continued strengthening of the R&D function, which led to an increase in compensation expense of $0.4 million.

During 2005, we reversed settlement expense of $1.8 million, which is attributable to the reversal of the accrued expenses for the settlement agreement that was reached with Mr. Nick Faldo in regards to the dispute regarding provisions of his prior professional services agreement with Adams Golf.  Because Mr. Faldo did not meet the conditions precedent to pay in his contract, we are no longer due to make any future payments.

Other income increased to $1.1 million for the year ended December 31, 2005 from $0.1 million for the comparable period in 2004 which is attributable to the one time receipt by us of a $965 thousand insurance claim paid by our insurance carrier in connection with the embezzlement which occured during the period from 2001 through 2004.  This event was disclosed in the Annual Report on Form 10-K for the year ended December 31, 2004.

Our inventory balances were approximately $16.2 million and $11.6 million at December 31, 2005 and 2004, respectively.  The increase in inventory levels is primarily a result of the increased purchasing related to the newly released A2 and A2 OS iron sets launched in the fourth quarter of 2005.

Our net accounts receivable balances were approximately $14.2 million and $9.3 million at December 31, 2005 and 2004, respectively.  The increase is primarily due to the recent successful product launch of Idea A2 and A2 OS Irons and extended terms offered to some customers in 2005.

Our prepaid balances were approximately $0.8 million and $0.2 million at December 31, 2005 and 2004, respectively while the other assets balance was approximately $1.6 million and $0.0 million at December 31, 2005 and 2004, respectively.  The increase in the prepaid and other assets is primarily associated with our decision to prepay certain strategic marketing expenses.  The short term portion of these marketing expenses is in prepaids and the long term portion is in other assets.

Our accounts payable balances were approximately $4.7 million and $3.9 million at December 31, 2005 and 2004, respectively.  The increase in accounts payable is primarily associated with the extension of payment terms with key vendors.

As a result of the above, we reported net income of $3.2 million for the year ended December 31, 2005 compared to $3.1 million for the year ended December 31, 2004.

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Disclosure of Contractual Obligations

We are obligated to make future payments under various contracts, including equipment capital leases and operating leases.  We do not have any long-term debt or purchase commitment obligations.  The following table summarized our contractual obligations at December 31, 2006, reported by maturity of obligation.

Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Long-term Debt Obligations	$	--	$	--	$	--	$	--	$	--
Capital Lease Obligations		22,691		22,691		--		--		--
Operating Lease Obligations		1,061,475		609,290		452,185		--		--
Purchase Obligations		--		--		--		--		--
Other Long-term Liabilities      Reflected on the Registrant's     Balance sheet under GAAP		--		--		--		--		--
Total	$	1,084,166	$	631,981	$	452,185		--		--

Liquidity and Capital Resources

Cash and cash equivalents decreased to $9.5 million at December 31, 2006 compared to $10.7 million at December 31, 2005.  During the year, inventory increased $8.5 million, and other current and non-current assets increased $4.9 million related to the value of our deferred tax asset.   These increases were partially offset with an increase in accrued expenses and accounts payable of $1.8 million.

In February 2006, we signed a revolving credit agreement with Bank of Texas to provide up to $10.0 million in short term debt.  The agreement is collateralized by all of our assets and requires, among other things, us to maintain certain financial performance levels relative to the cash flow leverage ratio and fixed charge coverage ratio, but only when we have an outstanding balance on the facility.  Interest on outstanding balances varies depending on the portion of the line that is used and accrues at a rate from prime less one percent to prime and is due quarterly.  As of March 9, 2007, we have no outstanding borrowings on our credit facility.  

Working capital increased at December 31, 2006 to $36.0 million compared to $29.9 million at December 31, 2005.   Approximately 27% of our current assets are comprised of accounts receivable at December 31, 2006.  Due to industry sensitivity to consumer buying trends and available disposable income, we have in the past extended payment terms for specific purchase transactions.  Issuance of these terms (i.e. greater than 30 days or specific dating) is dependent on our relationship with the customer and the customer's payment history.  Payment terms are extended to selected customers typically during off-peak times in the year in order to promote our brand name and to assure adequate product availability, often 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.  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 the credit facility, we would be required to obtain additional financing or limit expenditures to the extent of available cash on hand, all of which could significantly adversely effect our current growth plans and result in a material adverse effect on our results of operations, financial condition and/or liquidity.

30

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

Management believes that sufficient resources will be available to meet our cash requirements through the next twelve months.  Cash requirements beyond twelve months are dependent on our ability to introduce products that gain market acceptance and to manage working capital requirements.  We have introduced new products and taken steps to increase the market acceptance of these and our other products.  If our products fail to achieve appropriate levels of market acceptance, it is possible that we may have to raise additional capital and/or further reduce our operating expenses including further operational restructurings.  If we need to raise additional funds through the issuance of equity securities, the percentage ownership of the stockholders of our Company would be reduced, stockholders could experience additional dilution, or such equity securities could have rights, preferences or privileges senior to our common stock.  Nevertheless, given the current market price of our common stock and the state of the capital markets generally, we do not expect that we will be able to raise funds through the issuance of our capital stock in the foreseeable future.  We may also find it difficult to secure additional debt financing. There can be no assurance that financing will be available when needed on terms favorable to us, or at all.  Accordingly, it is possible that our only sources of funding will be current cash reserves, projected cash flows from operations and up to $10.0 million of borrowings available under our revolving credit facility.

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.

New Accounting Pronouncements

Any new accounting pronouncements have been listed in Note 1 (f) of the Consolidated Financial Statements which is incorporated herein by this reference.

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk

Interest Rates

In the normal course of doing business, we are exposed to market risk through changes in interest rates with respect to our cash equivalents.  Cash and cash equivalents at December 31, 2006 were $9,472,000.  The average interest rate earned for the year end December 31, 2006 was 4.72%.  

Additionally, we are exposed to interest rate risk from our Line of Credit (see Item 7 - Management Discussion and Analysis, Liquidity and Capital Resources). Outstanding borrowings accrue interest, based upon our consolidated cash flow leverage ratio, ranging from the prime rate less one percent to prime rate.

31

Foreign Currency Fluctuations

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

Item 8.   Financial Statements and Supplementary Data

The financial statements are set forth herein under Item 15 commencing on page F-1.  Schedule II to the consolidated financial statements is set forth herein under Item 15 on page S-1.  In addition, supplementary financial information is required pursuant to the provisions of Regulation S-K, Item 302, and is set forth herein under Item 15, note 15 of the notes to Consolidated Financial Statements.

Item 9A.  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 period specified by the SEC's rules and forms.  Disclosure Controls and Procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding disclosure.

"Internal Control Over Financial Reporting" is defined in Exchange Act Rules 13a -15(f) and 15d -15(f) as a process designed by, or under the supervision of, an issuer's principal executive and principal financial officers, or persons performing similar functions, and effected by an issuer's 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.

32

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of our Disclosure Controls and Procedures as of the end of the period covered by this report.   Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have 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, particularly during the period in which this report was being prepared, and that our Disclosure Controls and Procedures were effective.  There were no changes to our Internal Controls Over Financial Reporting during year ended December 31, 2006 that have materially affected or are reasonably likely to materially affect our Internal Controls Over Financial Reporting.

In addition, it is our policy to not participate in off-balance sheet transactions, including but not limited to special purpose entities.

PART III

Item 10.   Directors and Executive Officers of the Registrant

The information required by this Item is incorporated by reference our Proxy Statement for the Annual Meeting of the Stockholders to be held on or about May 15, 2007 to be distributed to the stockholders on or before April 30, 2007 ("the 2007 Proxy Statement") under the respective captions, "Elections of Directors," "Stock Ownership - Section 16(a) Beneficial Ownership Reporting Compliance" and "Management-Executive Officers."

We have adopted a code of ethics that applies to our chief executive officer, chief financial officer, and to all of our other officers, directors, employees and agents. This policy containing how to receive a copy of our code of ethics is posted on our website, which is located at www.adamsgolf.com. We intend to satisfy the disclosure requirement under Item 10 of Form 8-K regarding an amendment to, or waiver from, a provision of this code of ethics by posting such information on our website, at the address specified above. Information contained in our website, whether currently posted or posted in the future, is not part of this document or the documents incorporated by reference in this document.

Item 11.   Executive Compensation

The information required by this Item is incorporated by reference to our 2007 Proxy Statement under the caption "Management-Compensation of Executive Officers."

Item 12.   Security Ownership of Certain Beneficial Owners and Management

The information required by this Item is incorporated by reference to our 2007 Proxy Statement under the caption "Stock Ownership-Beneficial Ownership of Certain Stockholders, Directors and Executive Officers."

Item 13.   Certain Relationships and Related Transactions

The information required by this Item is incorporated by reference to our 2007 Proxy Statement under the captions "Management-Employment Contracts and Change in Control Agreements," "Compensation Committee Interlocks and Insider Participation" and "Certain Transactions."

Item 14.   Principal Accounting Fees and Services

The information required by this Item is incorporated by reference to our 2007 Proxy Statement under "Committees of Board of Directors; Meetings."

33

PART IV

Item 15.   Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a)  The following documents are filed as a part of this report following the signature page:

(1)  Consolidated Financial Statements
Item	Page
Index to Consolidated Financial Statements and Related Financial Statement Schedule	F-1
Reports of Independent Registered Public Accounting Firms	F-2 - F-3
Consolidated Balance Sheets as of December 31, 2006 and 2005	F-4
Consolidated Statements of Operations for the Years ended December 31, 2006, 2005    and 2004	F-5
Consolidated Statements of Stockholders' Equity for the Years ended December 31,    2006, 2005 and 2004	F-6 - F-7
Consolidated Statements of Cash Flows for the Years ended December 31, 2006, 2005    and 2004	F-8
Notes to Consolidated Financial Statements	F-9 - F-27
(2)  Financial Statement Schedules
Our financial statement schedule for the years ended December 31, 2006, 2005 and 2004 is filed as part of this Annual Report and should be read in conjunction with our Consolidated Financial Statements.
Schedule II - Valuation and Qualifying Accounts	S-1
All other schedules are have been omitted because such schedules are not required under the related instructions, or are not applicable, or because the information is not present, or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto.

(3)  Exhibits

The exhibits listed below are filed as a part of or incorporated by reference in this Annual Report.  Where such filing is made by incorporation by reference to a previously filed document, such document is identified in parenthesis.  See the Index of Exhibits included with the exhibits filed as a part of this Annual Report.

 

Exhibit	Description	Location
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	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)

34

Exhibit Description Location

Exhibit 4.4	1999 Non-Employee Director Plan of Adams Golf, Inc.	Incorporated by reference to 1999 Form 10-K (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 (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	Employment Agreement - Byron H. (Barney) Adams	Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 (Exhibit 10.13)
Exhibit 10.2	Change of Control Agreement - Eric Logan	Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 (Exhibit 10.14)
Exhibit 10.3	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 (Exhibit 10.12)
Exhibit 10.4	Extension of Revolving Line of Credit between Adams Golf, Inc and Bank of Texas	Incorporated by reference to 2004 Form 10-K (Exhibit 10.15)
Exhibit 10.5*	Employment Agreement - Oliver G. (Chip) Brewer	Incorporated by reference to 2004 Form 10-K (Exhibit 10.16)
Exhibit 10.6*	Golf Consultant Agreement - Thomas S. Watson	Incorporated by reference to 2004 Form 10-K (Exhibit 10.17)
Exhibit 10.7	Revolving Line of Credit between Adams Golf, Inc and Bank of Texas	Incorporated by reference to 2005 Form 10-K (Exhibit 10.8)
Exhibit 10.8	Employment Agreement - Byron H. (Barney) Adams	Incorporated by reference to 2005 Form 10-K (Exhibit 10.9)
Exhibit 10.9	Change of Control - Eric Logan	Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 (Exhibit 10.7)
Exhibit 10.10	Commercial Lease Agreement dated August 16, 2006, between MDN/JSC -II Limited and the Company	Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 (Exhibit 10.8)
Exhibit 10.11*	Asset Purchase Agreement of Women’s Golf Unlimited	Included in this filing
Exhibit 21.1	Subsidiaries of the Registrant	Included in this filing
Exhibit 23.1	Consent of KBA Group LLP	Included in this filing

35

Exhibit Description Location

 

Exhibit 31.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Included in this filing
Exhibit 31.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Included in this filing
Exhibit 32.1	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Included in this filing

___________________

*  Confidential treatment has been requested with respect to certain provisions of this agreement.

(b)  Exhibits

See Item 15(a)(3)

(c)  Financial Statement Schedules

See Item 15(a)(2)

36

Signatures

Pursuant to the requirements of Section 13 or 15(d) 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., a Delaware corporation
Date:  March 13, 2007	By:  /S/ B.H. (BARNEY) ADAMS
	B.H. (Barney) Adams, Chairman of the Board

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Date:  March 13, 2007	By:  /S/ B.H. (BARNEY) ADAMS
	B.H. (Barney) Adams, Chairman of the Board
Date:  March 13, 2007	By:  /S/ OLIVER G. BREWER III
	Oliver G. (Chip) Brewer III Chief Executive Officer, President and Director
Date:  March 13, 2007	By:  /S/ ERIC LOGAN
	Eric Logan Chief Financial Officer (Principal Financial Officer)
Date:  March 13, 2007	By:  /S/ PAMELA J. HIGH
	Pamela J. High Controller (Principal Accounting Officer)
Date:  March 13, 2007	By:  /S/ MARK R. MULVOY
	Mark R. Mulvoy Director
Date:  March 13, 2007	By:  /S/ PAUL F. BROWN, JR.
	Paul F. Brown, Jr. Director
Date:  March 13, 2007	By:  /S/ STEPHEN R. PATCHIN
	Stephen R. Patchin Director
Date:  March 13, 2007	By:  /S/ ROBERT D. ROGERS
	Robert D. Rogers Director
Date:  March 13, 2007	By:  /S/ RUSSELL L. FLEISCHER
	Russell L. Fleischer Director

37

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

AND RELATED FINANCIAL STATEMENT SCHEDULE

	Page
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2006 and 2005	F-3
Consolidated Statements of Operations for the Years ended December 31, 2006, 2005 and    2004	F-4
Consolidated Statements of Stockholders' Equity for the Years ended December 31, 2006,    2005 and 2004	F-5 - F-6
Consolidated Statements of Cash Flows for the Years ended December 31, 2006, 2005 and    2004	F-7
Notes to Consolidated Financial Statements	F-8 - F-27

Financial Statement Schedule

Our financial statement schedule for the years ended December 31, 2006, 2005 and 2004 is filed as part of this Report and should be read in conjunction with our Consolidated Financial Statements.

Schedule II - Valuation and Qualifying Accounts S-1

All other schedules have been omitted because such schedules are not required under the related instructions, or are not applicable, or because the information is not present, or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto.

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Adams Golf, Inc.:

We have audited the accompanying consolidated balance sheets of Adams Golf, Inc. and subsidiaries (the “Company”) as of December 31, 2006 and 2005 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ending December 31, 2006.  In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule appearing under Item 15 for each of the years in the three-year period ending December 31, 2006.  The consolidated financial statements and financial statement schedule are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Adams Golf, Inc. and subsidiaries as of December 31, 2006 and 2005 and the consolidated results of their operations and their cash flows for each of the years in the three-year period ending December 31, 2006 in conformity with accounting principles generally accepted in the United States of America.  Also, in our opinion, the related financial statement schedule for each of the years in the three-year period ending December 31, 2006, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, effective January 1, 2006 the Company adopted Statement of Financial Accounting Standards No. 123(R), Share-Based Payment.

/S/ KBA GROUP LLP

Dallas, Texas

March 1, 2007

F-2

ADAMS GOLF, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

ASSETS
	December 31,
	2006		2005
Current assets:
Cash and cash equivalents	$	9,472	$	10,747
Trade receivables, net		13,553		14,171
Inventories, net		24,651		16,151
Prepaid expenses		686		754
Other current assets		1,371		27
Total current assets		49,733		41,850
Property and equipment, net		719		630
Deferred tax asset - non current		4,052		--
Other assets		1,099		1,622
	$	55,603	$	44,102
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable	$	6,271		$	4,691
Accrued expenses		7,463			7,284
Total liabilities		13,734			11,975
Stockholders' equity:
Preferred stock, $0.01 par value; authorized 5,000,000 shares; none issued		--			--
Common stock, $.001 par value; authorized 50,000,000 shares; 24,895,226 and 23,471,653 shares issued and 23,958,606 and 22,814,153 shares outstanding in 2006 and 2005, respectively		25			23
Additional paid-in capital		90,630			89,499
Accumulated other comprehensive income		887			888
Accumulated deficit		(46,147	)		(55,147	)
Treasury stock, 936,620 common shares at December 31, 2006 and 657,500 common shares at December 31, 2005, at cost		(3,526	)		(3,136	)
Total stockholders' equity		41,869			32,127
Commitments and contingencies
	$	55,603		$	44,102

See accompanying notes to consolidated financial statements

F-3

ADAMS GOLF, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

	Years Ended December 31,
	2006			2005			2004
Net sales	$	76,030		$	56,424		$	56,762
Cost of goods sold		42,304			30,309			28,580
Gross profit		33,726			26,115			28,182
Operating expenses:
Research and development expenses		2,607			2,285			1,847
Selling and marketing expenses		19,800			16,571			16,061
General and administrative expenses		7,879			7,063			7,174
Reversal of settlement expenses (benefit)		--			(1,771	)		--
Reversal of restructuring expense (benefit)		--			(78	)		--
Total operating expenses		30,286			24,070			25,082
Operating income		3,440			2,045			3,100
Other income (expense):
Interest income		201			236			81
Interest expense		(3	)		(6	)		(13	)
Other		35			1,052			76
Income before income taxes		3,673			3,327			3,244
Income tax expense (benefit)		(5,327	)		87			166
Net income	$	9,000		$	3,240		$	3,078
Income per common share :       Basic	$	0.39		$	0.14		$	0.14
Diluted	$	0.31		$	0.12		$	0.12

See accompanying notes to consolidated financial statements

F-4

ADAMS GOLF, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands, except share amounts)

Years ended December 31, 2006, 2005 and 2004

	Shares of				Additional		Comprehensive								Cost of			Total
	Common		Common		Paid-in		Income			Accumulated			Comprehensive		Treasury			Stockholders'
	Stock		Stock		Capital		(Loss)			Deficit			Income		Stock			Equity
Balance, December 31, 2003	23,137,571	$	23	$	87,162	$	(356	)	$	(61,465	)			$	(3,136	)	$	22,228
Comprehensive income:
Net income	--		--		--		--			3,078		$	3,078		--			3,078
Other comprehensive income, net of tax:
Unrealized gain on foreign currency translation	--		--		--		331			--			331		--			331
Comprehensive income	--		--		--		--			--		$	3,409		--			--
Stock option forfeitures	--		--		--		--			--					--			--
Stock options exercised	120,082		--		8		--			--					--			8
Issuance of stock options	--		--		--		--			--					--			--
Amortization of deferred compensation	--		--		793		--			--					--			793
Balance, December 31, 2004	23,257,653		23		87,963		(25	)		(58,387	)				(3,136	)		26,438
Comprehensive income:
Net income	--		--		--		--			3,240		$	3,240		--			3,240
Other comprehensive income, net of tax:
Unrealized gain on foreign currency translation	--		--		--		913			--			913		--			913
Comprehensive income	--		--		--		--			--		$	4,153		--			--
Stock option forfeitures	--		--		--		--			--					--			--
Stock options exercised	214,000		--		40		--			--					--			40
Issuance of stock options	--		--		--		--			--					--			--
Amortization of deferred compensation	--		--		1,496		--			--					--			1,496
Balance, December 31, 2005	23,471,653	$	23	$	89,499	$	888		$	(55,147	)			$	(3,136	)	$	32,127
(continued)

F-5

ADAMS GOLF, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands, except share amounts)

Years ended December 31, 2006, 2005 and 2004

	Shares of				Additional		Accumulated Other									Cost of			Total
	Common		Common		Paid-in		Comprehensive			Accumulated			Comprehensive			Treasury			Stockholders'
	Stock		Stock		Capital		Income (Loss)			Deficit			Income			Stock			Equity
Balance, December 31, 2005		23,471,653	$	23	$	89,499	$	888		$	(55,147	)				$	(3,136	)	$	32,127
Comprehensive income:
Net income		--		--		--		--			9,000		$	9,000			--			9,000
Other comprehensive income, net of tax:
Unrealized loss on foreign currency translation		--		--		--		(1	)		--			(1	)		--			(1	)
Comprehensive income		--		--		--		--			--		$	8,999			--			--
Stock options exercised		1,423,573		2		13		--			--						--			15
Treasury stock purchased		--		--		--		--			--						(390	)		(390	)
Amortization of deferred compensation		--		--		1,118		--			--						--			1,118
Balance, December 31, 2006		24,895,226	$	25	$	90,630	$	887		$	(46,147	)				$	(3,526	)	$	41,869

See accompanying notes to consolidated financial statements

F-6

ADAMS GOLF, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Years Ended December 31,
	2006			2005			2004
Cash flows from operating activities:
Net income	$	9,000		$	3,240		$	3,078
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization of property and equipment and intangible assets		335			447			562
Amortization of deferred compensation		1,118			1,496			793
Provision for doubtful accounts		853			557			1,224
Provision for deferred income tax		(5,402	)		--			--
Changes in assets and liabilities:
Trade receivables		(236	)		(5,411	)		(108	)
Inventories		(8,500	)		(4,593	)		(3,500	)
Prepaid expenses		68			(519	)		223
Other current assets		7			110			(131	)
Other assets		525			(1,579	)		--
Accounts payable		1,580			815			2,683
Accrued expenses		195			(303	)		1,569
Other non-current liabilities		--			(449	)		(79	)
Net cash provided by (used in) operating activities		(457	)		(6,189	)		6,314
Cash flows from investing activities:
Purchase of equipment		(403	)		(338	)		(347	)
Net cash used in investing activities		(403	)		(338	)		(347	)
Cash flows from financing activities:
Principal payments under capital lease obligation		(35	)		(43	)		(59	)
Exercise of stock options		15			39			8
Treasury stock purchase		(390	)		--			--
Debt financing costs		(4	)		(2	)		(15	)
Net cash used in financing activities		(414	)		(6	)		(66	)
Effects of exchange rate changes on cash and cash equivalents		(1	)		913			331
Net increase (decrease) in cash and cash equivalents		(1,275	)		(5,620	)		6,232
Cash and cash equivalents at beginning of the year		10,747			16,367			10,135
Cash and cash equivalents at end of the year	$	9,472		$	10,747		$	16,367
Supplemental disclosure of cash flow information:
Interest paid	$	3		$	6		$	13
Income taxes paid	$	75		$	88		$	129
Supplemental disclosure of non-cash investing and financing activities - equipment financed with capital lease	$	23		$	15		$	--

See accompanying notes to consolidated financial statements.

F-7

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2006 and 2005

(Tables in thousands, except share and per share amounts)

(1)   Summary of Significant Accounting Policies

(a)   General

Founded in 1987, Adams Golf, Inc. initially operated as a component supplier and contract manufacturer.   Thereafter, we established our custom fitting operation.  Today we design, assemble, market and distribute premium quality, technologically innovative golf clubs, including Idea A2 and A2 OS irons, Tech OS irons, Idea Pro Irons and Idea A2, Tech OS and Idea Pro I-woods, Idea, A1 and A1 Pro Irons and Idea i-woods, the Insight drivers and fairway woods, RPM drivers and fairway woods, Ovation drivers and fairway woods, the Tight Lies family of fairway woods, the Redline family of fairway woods and drivers, the Tight Lies GT 500, GT3 and GT2 irons and i-woods, the Tom Watson signature and Puglielli series of wedges, and certain accessories. Our Company was incorporated in 1987 and re-domesticated in Delaware in 1990.  We completed an internal reorganization in 1997, and we now conduct our operations through several direct and indirect wholly-owned subsidiaries, agencies and distributorships.

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

(b)   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 and other 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.

(c)   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 that 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 three customers represent greater than 5% but less than 10% of net sales and no customer represents greater than 10% of the net sales for the year ended December 31, 2006, if a combination of customers were to become financially impaired, our operations and financial contitions could be severely affected.

F-8

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2006 and 2005

(Tables in thousands, except share and per share amounts)

(1)   Summary of Significant Accounting Policies (continued)

(d)   Property and Equipment

Property and equipment are stated at cost.  Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the respective assets, which range from three to seven years.  Maintenance and repairs are expensed as incurred.  Significant replacements and betterments are capitalized.

(e)   Revenue Recognition

We recognize revenue when the product is shipped.  At that time, the title and risk of loss transfer to the customer and collectability is reasonably assured.  Collectability is evaluated on an individual customer basis taking into consideration historical payment trends, current financial position, results of independent credit evaluations and payment terms.  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 are met, we record revenue.

(f)   New Accounting Pronouncement

In September 2006, the FASB issued SFAS No. 158, Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106 and 123(R), which establishes standards for reporting over the over/under funded status of a defined benefit plan.  We adopted the provisions of this standard in the fourth quarter of 2006, however, which had no impact on the consolidated financial statements.

In June 2006, the FASB issued a Summary of Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109, which clarifies the accounting for taxes in accordance with FASB NO. 109 prescribing a recognition threshold and measurement attribute of a tax position expected to be taken. We adopted the provisions of this standard in the fourth quarter of 2006, which had no impact on the consolidated financial statements.

(g)   Research and Development

Research and development costs consist of all costs incurred in planning, designing and testing of golf equipment, including salary costs related to research and development.  These costs are expensed as incurred.  Our research and development expenses were approximately $2,607,000, $2,285,000 and $1,847,000 for the years ended December 31, 2006, 2005 and 2004, respectively.

F-9

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2006 and 2005

(Tables in thousands, except share and per share amounts)

(1)  Summary of Significant Accounting Policies (continued)

(h)   Advertising Costs

Advertising costs, included in selling and marketing expenses on the accompanying consolidated statements of operations, other than direct commercial costs, are expensed as incurred and totaled approximately $5,631,000, $4,980,000 and $5,067,000 for the years ended December 31, 2006, 2005 and 2004, respectively.

(i)   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.

	Beginning Balance		Charges for Warranty claims			Estimated accruals		Ending Balance
Year ended December 31, 2006	$	307		(506	)		588	$	389
Year ended December 31, 2005	$	297		(398	)		408	$	307

(j)   Income Taxes

We account for income taxes using the asset and liability method.  Deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.  Deferred tax assets and liabilities are measured using enacted rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.  In assessing the realizability of deferred income tax assets, we consider whether it is more likely than not that some portion or all of the deferred income tax assets will be realized.  The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.  Due to our historical operating results, management is unable to conclude on a more likely than not basis that all deferred income tax assets generated from net operating losses through December 31, 2002 and other deferred tax assets will be realized.   However, due to the 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 deferred income tax asset whose realization is uncertain.

F-10

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2006 and 2005

(Tables in thousands, except share and per share amounts)

(1)   Summary of Significant Accounting Policies (continued)

(k)   Income Per Share

The weighted average common shares used for determining basic and diluted income per common share were 23,320,916 and 28,929,778, respectively, for the year ended December 31, 2006.  The effect of all warrants and options to purchase shares of our common stock for the year ended December 31, 2006 resulted in additional dilutive shares of 5,608,862.  

The weighted average common shares used for determining basic and diluted income per common share were 22,734,060 and 27,803,729, respectively, for the year ended December 31, 2005.  The effect of all warrants and options to purchase shares of our common stock for the year ended December 31, 2005 resulted in additional dilutive shares of 5,069,669.  

The weighted average common shares used for determining basic and diluted income per common share were 22,553,722 and 26,144,444, respectively, for the year ended December 31, 2004.  The effect of all warrants and options to purchase shares of our common stock for the year ended December 31, 2004 resulted in additional dilutive shares of 3,590,722.  For the year ended December 31, 2004, options exercisable for approximately 180,000 shares of common stock and warrants exercisable for 100,000 shares of common stock were excluded from the calculation of dilutive shares, as the effect of inclusion would have been antidilutive.  

(l)   Financial Instruments

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

(m)   Impairment of Long-Lived Assets

We follow the guidance in SFAS ("Statement of Financial Accounting Standards") 144 in reviewing 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 years ended December 31, 2006, 2005 and 2004, there was no impairment of long-lived assets.

(n)   Comprehensive Income

Comprehensive income consists of net income and unrealized gains and losses, net of related tax effect, on foreign currency translation adjustments and marketable securities.

F-11

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2006 and 2005

(Tables in thousands, except share and per share amounts)

(1)   Summary of Significant Accounting Policies (continued)

(o)   Cash and Cash Equivalents

We consider all short-term highly liquid instruments, with an original maturity of three months or less, to be cash equivalents.

(p)   Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods.  Actual results could differ from those estimates.

(q)  Segment Reporting

We are organized by functional responsibility and operate as a single segment and within that segment offer more than one class of product, in accordance with SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information.

(r)  Stock-Based Compensation

In May 2002, we adopted the 2002 Equity Incentive Plan (the “Plan”) for employees, outside directors and consultants.  The Plan allows for the granting of up to 2,500,000 shares of our common stock at the inception of the Plan, plus all shares remaining available for issuance under all predecessor plans on the effective date of this Plan, and additional shares as defined in the Plan.  In addition, the Plan automatically increases 1,000,000 shares available for granting on January 1 of each subsequent year for years 2003 through 2008.  At December 31, 2006, 5,447,233 outstanding options had been granted with exercise prices at $0.01 per share at the date of grant.  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 December 31, 2006, 2,184,632 shares remain available for grant, including forfeitures.

In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment (“SFAS 123R”), which established accounting standards for transactions where the entity exchanges equity instruments for goods and services.  The revision of this statement focuses on the accounting for transactions where the entity obtains employee services in share-based payment transactions.  This statement revision eliminates the alternative use of APB 25 intrinsic value method and requires that entities adopt the fair-value method for all share-based transactions.  We adopted the provisions of this standard on a modified prospective basis on January 1, 2006.  The following table illustrates the effect on net income (loss) and income (loss) per share as if we had applied the fair value recognition provisions of SFAS 123 and SFAS 148 to stock-based employee compensation for the years ended December 31, 2005 and 2004 (in thousands, except for per share amounts):

F-12

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2006 and 2005

(Tables in thousands, except share and per share amounts)

(1)   Summary of Significant Accounting Policies (continued)

(r)  Stock Compensation (continued)

	2005			2004
Net income
As reported	$	3,240		$	3,078
Add: Stock-based compensation expense included in reported net income		1,496			793
Deduct: Total stock-based compensation expense determined under the fair value method		(1,505	)		(612	)
Pro forma net income	$	3,231		$	3,259
Basic income per common share:
As reported	$	0.14		$	0.14
Pro forma	$	0.14		$	0.14
Diluted income per common share:
As reported	$	0.12		$	0.12
Pro forma	$	0.12		$	0.12

Compensation expense associated with adopting SFAS 123R for the year ended December 31, 2006, had an expense effect on income from operations, income before taxes and net income associated with stock options and warrants of $1,118,000.  The reported basic and diluted earnings per share were $0.39 and $0.31, respectively, for the year ended December 31, 2006.  Had we not adopted SFAS 123R, the effect to net income under APB 25 would have been $ 1,080,000 for the year ended December 31, 2006.  The basic and diluted earnings per share would have been $0.39 and $0.31, respectively, for the year ended December 31, 2006.  The adoption of SFAS 123R had no effect on cash flows.

Upon the adoption of SFAS 123R in January 2006, the deferred stock-based compensation balance of approximately $1,505,000 and $2,570,000 were netted into additional paid in capital at December 31, 2006 and December 31, 2005, respectively.

Under the provisions of the 2002 Equity Incentive Plan, we have the authority to repurchase the taxable portion of the employee's shares that become outstanding after the employee exercises their options.  On August 15, 2006, we repurchased 137,384 shares of common stock at an average price per share of $1.35 for a total cost of approximately $186,000.  On November 15, 2006, we repurchased 141,736 shares of common stock at an average price per share of $1.44 for a total cost of approximately $204,000.  The repurchased shares are held in treasury.  

F-13

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2006 and 2005

(Tables in thousands, except share and per share amounts)

(1)   Summary of Significant Accounting Policies (continued)

(s)  Foreign Currency Translation and Transactions

The functional currency of our Canadian operations is Canadian dollars.  The accompanying consolidated financial statements have been expressed in United States dollars, our reporting currency.  Reporting assets and liabilities of our foreign operations have been translated at the rate of exchange at the end of each period.  Revenues and expenses have been translated at the monthly average rate of exchange in effect during the respective period.  Gains and losses resulting from translation are accumulated in other comprehensive income (loss) in stockholders' equity.  Gains or losses resulting from transactions that are made in a currency different from the functional currency are recognized in earnings as they occur.  Inventory purchases are invoiced by suppliers in U.S. dollars.

(t)   Reclassifications

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

(2)  Trade Receivables, net

Trade receivables consist of the following at December 31, 2006 and 2005:

	2006			2005
Trade receivables	$	14,255		$	15,123
Allowance for doubtful accounts		(702	)		(952	)
	$	13,553		$	14,171

(3)   Inventories

Inventories consist of the following at December 31, 2006 and 2005:

	2006		2005
Finished goods	$	13,506	$	7,453
Component parts		11,145		8,698
	$	24,651	$	16,151

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 the following: 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 after work in process is 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 December 31, 2006 and 2005, inventories included $543,000 and $837,000 of consigned inventory, respectively, and $153,000 and $215,000 of inventory obsolescence reserves, respectively.  

F-14

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2006 and 2005

(Tables in thousands, except share and per share amounts)

(4)   Property and Equipment, net

Property and equipment consist of the following at December 31, 2006 and 2005:

	2006			2005
Equipment	$	1,992		$	1,937
Computers and software		9,197			9,008
Furniture and fixtures		840			712
Leaseholds improvements		188			188
Accumulated depreciation and amortization		(11,498	)		(11,215	)
	$	719		$	630

(5)   Other current and non-current Assets

Other current assets, net, consist of the following at December 31, 2006 and 2005:

	2006		2005
Maintenance agreements		17		16
Other receivable		4		11
Deferred tax asset		1,350		--
	$	1,371	$	27

During 2006, we recorded a deferred tax asset of $5.4 million.  This amount represents what we believe to be an estimate of future usage of our carry back; the remaining asset has an existing valuation allowance applied to it.  At December 31, 2006, we had a net operating loss carryforwards for federal, foreign and state income tax purposes of approximately $39 million and tax credit carryforwards of $0.3 million, which are available to offset future taxable income through 2022.  The short term portion of the deferred tax asset of $1,350 is reported in Other current assets; the long term portion of $4,052 is reported as a deferred tax asset non-current in the non-current asset section of the balance sheet.

Other assets, net, consist of the following at December 31, 2006 and 2005:

	2006		2005
Deposits		14		--
Long term endorsements		1,080		1,620
Other		5		2
	$	1,099	$	1,622

F-15

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2006 and 2005

(Tables in thousands, except share and per share amounts)

(6)   Accrued Expenses

Accrued expenses consist of the following at December 31, 2006 and 2005:

	2006		2005
Payroll and commissions	$	2,046	$	1,362
Advertising		326		130
Product warranty expense and sales returns		2,040		1,546
Professional services		7		43
Accrued inventory		296		1,242
Accrued sales promotions		859		683
Deferred revenue		805		1,895
Other		1,084		383
	$	7,463	$	7,284

(7)   Restructuring

During 2002, we executed an operational restructuring plan, which resulted in the closure of the Adams Golf UK, Limited wholly owned subsidiary.  The operational restructuring plan resulted in a restructuring charge of $850,000 for severance, a write off of goodwill and other related exit costs.   Restructuring expense for 2003 and 2005 resulted in a benefit due to the release of liability from our previously recorded building lease and accounting and legal fees for the Adams Golf, UK subsidiary.  We continue to sell our products in the UK through a third party distributor.

(8)  Professional Services Agreement and Settlement Expense

In May 1998, Adams Golf, Ltd. entered into an agreement with Nicholas A. Faldo.  The agreement provided that Mr. Faldo provide a variety of services to Adams Golf including endorsement and use of certain of Adams Golf Ltd.'s products.   On November 6, 2000, we announced that Mr. Faldo was in material breach of his contract for failure to use certain of our products.  On August 25, 2001, an agreement was reached with Mr. Faldo in settlement of the dispute regarding provisions of his prior professional services agreement with Adams Golf.  As a result, we established a liability representing the present value of the future obligation, which approximated $2,673,000, utilizing our incremental borrowing rate of 6.04%.  In accordance with the terms of the settlement, Mr. Faldo waived all future rights to accrued and unpaid royalties of $1.1 million associated with his prior professional services agreement with us.   Therefore, $1,579,000 of settlement expense was incurred during the year ended December 31, 2001.  We owed two $100,000 payments, one due at December 31, 2003 and one due at December 31, 2004.  However, according to the terms of Mr. Faldo's contract, he was required to play a specified number of PGA sanctioned events and keep his PGA credentials.  Because Mr. Faldo has failed to meet the contract requirements, the payment was not made at December 31, 2003 or December 31, 2004.  During September 2005, we determined that it was appropriate to reverse the settlement liability previously accrued.   Accordingly, we reversed approximately $1,339,000 and $449,000 in accrued expenses and other non-current liabilities.  

F-16

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2006 and 2005

(Tables in thousands, except share and per share amounts)

(9)  Commitments and Contingencies

We are obligated under certain noncancellable operating leases for assembly, warehouse and office space.  A summary of the minimum rental commitments under noncancellable leases is as follows:

Years ending
December 31,
2007	$	609
2008		439
2009		13
2010		--
2011		--
	$	1,061

Rent expense was approximately $602,000, $609,000 and $473,000 for the years ended December 31, 2006, 2005 and 2004, respectively.   

Beginning in June 1999, the first of seven class action lawsuits was filed against us, certain of our current and former officers and directors, and the three underwriters of our initial public offering ("IPO") in the United States District Court of the District of Delaware.  The complaints alleged violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, as amended, in connection with our IPO.  In particular, the complaints alleged that our prospectus, which became effective July 9, 1998, was materially false and misleading.  The operative complaint was filed on January 24, 2006, and it alleges that the prospectus failed to disclose that unauthorized distribution of our products (gray market sales) threatened our long-term profits and that we engaged in questionable sales practices (including double shipping and unlimited rights of return), which threatened post-IPO financial results.  Discovery closed on August 11, 2006.  On November 21, 2006, all summary-judgment briefing was completed.  On December 13, 2006, we learned that the Delaware District Court judge whom the case was set before was elevated to the United States Court of Appeals for the Third Circuit.  On December 15, 2006, we were notified that our case was assigned to the vacant judicial position. All proceedings have been postponed until a new judge is confirmed, and there is no trial date set at this time.

F-17

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2006 and 2005

(Tables in thousands, except share and per share amounts)

(9)  Commitments and Contingencies (continued)

We maintain directors’ and officers’ and corporate liability insurance to cover certain risks associated with these securities claims filed against us or our directors and officers.  During the period covering the class action lawsuit, we maintained insurance from multiple carriers, each insuring a different layer of exposure, up to a total of $50 million.  In addition, we have met the financial deductible of our directors’ and officers’ insurance policy for the period covering the time the class action lawsuit was filed.  On March 30, 2006, Zurich American Insurance Company, which provided insurance coverage totaling $5 million for the layer of exposure between $15 million and $20 million, notified us that it was denying coverage due to the fact that it was allegedly not timely notified of the class action lawsuit.  We are currently assessing whether Zurich’s denial of coverage is appropriate.  There is potential that Zurich’s denial of coverage could adversely affect the coverage provided by the layers exceeding the $20 million level.  On February 21, 2007, Chubb & Son, a division of Federal Insurance Company, notified us that coverage under Federal’s policy, which provided insurance coverage totaling $10 million for the layer of exposure between $20 million and $30 million, and the Executive Risk Indemnity Inc. policy, which provided insurance coverage totaling $10 million for the layer of exposure between $40 million and $50 million, would only attach if the underlying limits are exhausted by payment from the underlying insurance carrier.  We are currently assessing whether Chubb's interpretation of the policies' language is appropriate.  At this point in the legal proceedings, we cannot predict with any certainty the outcome of the matter, per the guidance in SFAS 5, and thus can not reasonably estimate future liability on the conclusion of the events, if any.

The underwriters for the IPO are also defendants in the securities class action.  The underwriting agreement that we entered into with the underwriters in connection with the IPO contains an indemnification clause, providing for indemnification against any loss, including defense costs, arising out of the IPO.  After the first lawsuit was filed, the underwriters requested indemnification under the agreement.  Our D&O insurance policy included an endorsement providing $1 million to cover indemnification of the underwriters.  Our D&O insurer has notified the underwriters of the exhaustion of the $1 million sublimit.  We believe that we have no current obligation to pay the underwriters’ defense costs.  We believe that the applicable case law provides that the earliest possible time that an obligation to indemnify might exist is after a court has decided conclusively that the underwriters are without fault under the federal securities laws. The litigation is not at that stage yet.  As of February 2, 2007, the total amount of outstanding underwriter defense costs was just less than $1.3 million.  At this time, the underwriters are not able to predict with certainty the amount of defense costs they expect to incur going forward, but it is likely they will incur additional costs before this matter is concluded.  At this time, we cannot predict with any certainty the outcome of this indemnification issue, per the guidance in SFAS 5, and thus cannot reasonably estimate future liability on the conclusion of the events, if any.

On March 16, 2006, we became aware of a lawsuit filed against us in U.S. District Court in the Southern District of California by TaylorMade, a division of Adidas-Salomon AG.  The lawsuit alleges generally that we violated three patents held by TaylorMade (one design patent and two utility patents) in the manufacture of drivers.  We have concluded our settlement negotiations with TaylorMade during December 2006 and an order of dismissal was filed with the courts on January 10, 2007, in our view this issue is now concluded.

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.

F-18

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2006 and 2005

(Tables in thousands, except share and per share amounts)

(10)  Retirement Plan

In February 1998, we adopted the Adams Golf, Ltd. 401(k) Retirement Plan (the "Plan"), which covers substantially all employees.  We match 50% of employee contributions up to a maximum of 6% of the employee's compensation.  For the years ended December 31, 2006, 2005 and 2004, we contributed approximately $149,000, $135,000 and $112,000, respectively, to the Plan.

(11)  Liquidity

In February 2006, we signed a revolving credit agreement with Bank of Texas to provide up to $10.0 million in short term debt.  The agreement is collateralized by all of our assets and requires, among other things, us to maintain certain financial performance levels relative to the cash flow leverage ratio and fixed charge coverage ratio, but only when we have an outstanding balance on the facility.  Interest on outstanding balances varies depending on the portion of the line that is used and accrues at a rate from prime less one percent to prime and is due quarterly.  

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

Management believes that sufficient resources will be available to meet our cash requirements through the next twelve months.  Cash requirements beyond twelve months are dependent on our ability to introduce products that gain market acceptance and to manage working capital requirements.  We have introduced new products and taken steps to increase the market acceptance of these and our other products.  If our products fail to achieve appropriate levels of market acceptance, it is possible that we may have to raise additional capital and/or further reduce our operating expenses including further operational restructurings.  If we need to raise additional funds through the issuance of equity securities, the percentage ownership of our stockholders would be reduced, stockholders could experience additional dilution, or such equity securities could have rights, preferences or privileges senior to our common stock.  Nevertheless, given the current market price of our common stock and the state of the capital markets generally, we do not expect that we will be able to raise funds through the issuance of our capital stock in the foreseeable future.  We may also find it difficult to secure additional debt financing. There can be no assurance that financing will be available when needed on terms favorable to us, or at all.  Accordingly, it is possible that our only sources of funding will be current cash reserves, projected cash flows from operations and up to $10.0 million of borrowings available under our revolving credit facility.

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.

F-19

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2006 and 2005

(Tables in thousands, except share and per share amounts)

(12)  Income Taxes

Income tax expense (benefit) for the years ended December 31, 2006, 2005 and 2004 consists of the following:

	2006			2005		2004
Federal-current	$	68		$	83	$	162
State-current		7			4		4
Deferred		(5,402	)
	$	(5,327	)	$	87	$	166

Actual income tax expense differs from the "expected" income tax expense (benefit) (computed by applying the U.S. federal corporate tax rate of 35% to income before income taxes) for the years ended December 31, 2006, 2005 and 2004 as follows:

	2006			2005			2004
Computed "expected" tax benefit	$	1,286		$	1,165		$	1,134
State income taxes, net of federal tax expense		37			33			32
Change in valuation allowance for deferred tax assets		(6,770	)		(1,242	)		(1,204	)
Other		120			131			204
	$	(5,327	)	$	87		$	166

The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities at December 31, 2006 and 2005 are presented below:

	2006			2005
Deferred tax assets:
Allowance for doubtful accounts receivable	$	253		$	343
Product warranty and sales returns		735			557
Property and equipment		35			63
Other reserves		294			514
Deferred Compensation		850			925
263A adjustment		106			128
Research and development tax credit carryforwards		306			306
Net operating loss carryforwards		14,080			15,458
Total deferred tax assets		16,659			18,294
Valuation allowance		(11,257	)		(18,027	)
Net deferred tax assets		5,402			267
Deferred tax liabilities:
Other		--			267
Total deferred tax liabilities		--			267
Net deferred taxes assets	$	5,402		$	--

F-20

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2006 and 2005

(Tables in thousands, except share and per share amounts)

(12)  Income Taxes (continued)

Amounts recorded in consolidated balance sheets at December 31, 2006 and 2005:

	2006		2005
Current	$	1,350	$	--
Non-current		4,052		--
	$	5,402	$	--

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion of all of the deferred tax asset will not be realized.  The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

At December 31, 2006, we cannot determine based on a weighing of objective evidence that it is more likely than not that the remaining net deferred tax assets will be realized.  As a result, as of December 31, 2006, we have established a valuation allowance for the deferred tax assets in excess of existing taxable temporary differences.  We recorded a deferred tax asset of $5.4 million.  This amount represents what we believe to be an estimate of future usage of our carry back.  The remaining asset has an existing valuation allowance applied to it.  The net change in the valuation allowance for the years ended December 31, 2006 and 2005 was a reduction in deferred tax assets of $6,770,000 and $1,242,000, respectively.

At December 31, 2006, we have net operating loss carryforwards for federal, foreign and state income tax purposes of approximately $39,112,000 and tax credit carryforwards of $306,000 which are available to offset future taxable income through 2022.  The availability of approximately $785,000 of the net operating loss carryforwards to reduce future taxable income is limited to approximately $71,000 per year for the remaining life of the net operating losses, as a result of a change in ownership.

(13)  Stockholders' Equity

(a)   Employee Stock Option Plans

In April 1996, we adopted the 1996 Stock Option Incentive Plan (the "1996 Stock Option Plan"), pursuant to which stock options covering an aggregate of 800,000 shares of our common stock may be granted.  Options awarded under the 1996 Stock Option Plan (i) were generally granted at prices that equated to or were above fair market value on the date of grant; (ii) generally became exercisable over a period of one to four years; and (iii) generally expired ten years subsequent to award.  Effective May 1, 2002, the 1996 stock option plan was terminated and the remaining 140,310 shares available for grant under this plan, including forfeitures, were transferred to the 2002 Equity Incentive plan.

F-21

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2006 and 2005

(Tables in thousands, except share and per share amounts)

(13)  Stockholders' Equity (continued)

In February 1998, we adopted the 1998 Stock Incentive Plan (the "1998 Stock Option Plan"), pursuant to which stock options covering an aggregate of 1,800,000 shares (of which 900,000 shares were utilized as a direct stock grant to Mr. Faldo) of our common stock were subject to grant.  In May 2000, our shareholders approved a request to increase the aggregate number of shares in the 1998 Stock Option Plan to 2,700,000.  Options awarded under the Plan (i) generally became exercisable over a period of two to four years and (ii) generally expired five years subsequent to award.  At December 31, 2002, 540,240 options had been granted at prices ranging from $0.75 to $5.50 of which 473,000 were made with exercise prices equal to the fair market value of our stock at the date of grant.  Effective May 1, 2002, the 1998 stock option plan was terminated and the remaining 1,258,971 shares available for grant under this plan, including forfeitures, were transferred to the 2002 Equity Incentive plan.

In May 1999, our shareholders adopted the 1999 Non-Employee Director Plan of Adams Golf, Inc. (the "Director Plan"), which allowed for 200,000 shares of our stock to be issued to non-employee directors.  At December 31, 2001, 90,000 options had been granted to various board members at exercise prices ranging from $0.63 to $4.75, which equaled the fair market value of our common stock on the date of grant.  These options vest equally on each of the first four anniversary dates from the date of grant and expire five years from the date of grant.  Effective May 1, 2002, the Director Plan was terminated and the remaining 110,000 shares available for grant under this plan, including forfeitures, were transferred to the 2002 Equity Incentive plan.

In November 1999, we adopted the 1999 Stock Option Plan for Outside Consultants (the "Consultant Plan").  The Consultant Plan allowed for the granting of up to 1,000,000 shares of our common stock.  At December 31, 2001, 355,800 options had been granted with exercise prices ranging from $0.38 to $2.27 per share at the date of grant.  The vesting period varies from two to four years with options vesting equally on each of the anniversary dates from the date of grant and expire five years from the date of grant.  Effective May 1, 2002, the Outside Consultants plan was terminated and the remaining 644,200 shares available for grant under this plan, including forfeitures, were transferred to the 2002 Equity Incentive plan.

In May 2002, we adopted the 2002 Equity Incentive Plan for employees, outside directors and consultants.  The plan allows for the granting of up to 2,500,000 shares of our common stock at the inception of the plan, plus all shares remaining available for issuance under all predecessor plans on the effective date of this plan, and additional shares as defined in the plan.  On May 1, 2002, the four predecessor plans described above were terminated and a total of 2,153,481 shares available for issuance under these predecessor plans were transferred to the Equity Incentive Plan.  As shares forfeit or expire under the four predecessor plans, those shares become available under the 2002 Equity Incentive Plan.  Since the initial transfer on May 1, 2002, an additional 806,040 shares were transferred to the Equity Incentive Plan.  In addition, the plan automatically increases 1,000,000 shares available for granting on January 1 of each subsequent year for years 2003 through 2008.  At December 31, 2006, 5,447,233 outstanding options had been granted with exercise prices at $0.01 per share at the date of grant.  The vesting periods vary from six months to four years and the options expire ten years from the date of grant.  At December 31, 2006, 2,184,632 shares remain available for grant, including forfeitures.

F-22

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2006 and 2005

(Tables in thousands, except share and per share amounts)

(13)  Stockholders' Equity (continued)

The following is a summary of stock options outstanding as of December 31, 2006:

		Weighted	Weighted		Weighted
Range of		Average	average		Average Vested
Exercise	Options	Remaining	Exercise price	Options	Exercise price
Prices	Outstanding	Contractual life	per share	Exercisable	per share
$0.01 - $0.30	5,447,223	6.93 years	$    0.01	3,722,007	$    0.01
$0.31 - $0.99	150,000	6.12 years	0.31	112,500	0.31
$1.00 - $1.97	100,000	8.26 years	1.19	25,000	1.20
	5,697,223	6.93 years	$    0.04	3,859,507	$   0.03

The per share weighted-average fair value of stock options granted during 2006, 2005 and 2004 was $1.18, $1.38 and $1.06, respectively, 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 daily annualized volatility, 107.4%, 111.4% and 118.1% in 2006, 2005 and 2004, respectively. We use historical data to estimate option exercise and employee termination factors within the valuation model.

Operating expenses included in the consolidated statements of operations for the years ended December 31, 2006, 2005 and 2004 include total compensation expense associated with stock options and warrants of $1,118,000, $1,496,000 and $793,000, respectively.

A summary of stock option activity follows:

				Weighted	Aggregate
	Number of			Average	Intrinsic
	Shares			Exercise price	Value of options
Options outstanding at December 31, 2003	4,408,187		$	0.46
Options granted	2,745,413			0.03
Options forfeited (expired)	(638,540	)		2.26
Options exercised	(118,082	)		0.07
Options outstanding at December 31, 2004	6,396,978			0.09
Options granted	1,294,161			0.01
Options forfeited (expired)	(306,333	)		1.32
Options exercised	(214,000	)		0.18
Options outstanding at December 31, 2005	7,170,806			0.03
Options granted	50,000			1.18
Options forfeited (expired)	(100,000	)		0.74
Options exercised	(1,423,573	)		0.01	1,973,664
Options outstanding at December 31, 2006	5,697,223		$	0.04	11,003,577
Options exercisable at December 31, 2006	3,859,507		$	0.03	7,501,134

F-23

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2006 and 2005

(Tables in thousands, except share and per share amounts)

(13)  Stockholders' Equity (continued)

The weighted average contractual life of the options exercisable at December 31, 2006 was 6.37 years.

Had we not adopted SFAS 123R during 2006, the effect to net income under APB 25 would have been $1,080,000 for the year ended December 31, 2006.  The basic and diluted earnings per share would have been $0.31 and $0.39, respectively, for the year ended December 31, 2006.

Upon the adoption of SFAS 123R in January 2006, the deferred stock-based compensation balance of approximately $1,505,000 and $2,570,000 were netted into additional paid in capital at December 31, 2006 and December 31, 2005, respectively.  As of December 31, 2006, the total compensation costs related to non-vested awards not yet recognized has a weighted average period of 1.3 years over which it is expected to be recognized.

(a)  Common Stock Repurchase Program

In October 1998, the Board of Directors approved a plan whereby we are authorized to repurchase from time to time on the open market up to 2,000,000 shares of its common stock.  At December 31, 1998, we had repurchased 657,500 shares of common stock at an average price per share of $4.77 for a total cost of approximately $3,136,000.  At August 15, 2006, we repurchased 137,384 shares of common stock at an average price per share of $1.35 for a total cost of approximately $186,000.  At November 15, 2006, we repurchased 141,736 shares of common stock at an average price per share of $1.44 for a total cost of approximately $204,000.  The repurchased shares are held in treasury.  No shares were repurchased during the years ended December 31, 2005 or 2004.

(b)  Deferred Compensation

Due to the passage of The American Jobs Creation Act and the subsequent IRS Section 409A rules, stock options that were issued at a strike price less than market value at the date of grant will now be considered deferred compensation by the Internal Revenue Service and the individual who was granted the options will incur adverse tax consequences, including but not limited to excise taxes, unless the individual deemed 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 the elected future exercise dates is as follows:

Period of Exercise	Total Options to be exercised
2007		1,194,667
2008		777,695
2009		360,000
2010		60,000
Beyond 2010		353,199
Total Options		2,745,561

F-24

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2006 and 2005

(Tables in thousands, except share and per share amounts)

(14)  Segment Information

We generate substantially all revenues from the design, marketing and distribution of premium quality, technologically innovative golf clubs.  Our products are distributed in both domestic and international markets.  Net sales by customer domicile for these markets consisted of the following for the years ended December 31, 2006, 2005 and 2004:

	2006		2005		2004
United States	$	63,016	$	48,496	$	50,301
Rest of world		13,014		7,928		6,461
	$	76,030	$	56,424	$	56,762

The following table sets forth net sales by product class for the years ended December 31, 2006, 2005 and 2004:

	2006		2005		2004
Fairway woods	$	14,841	$	14,539	$	21,630
Drivers		7,323		15,673		11,142
Irons		51,649		23,919		21,107
Wedges and other		2,217		2,293		2,883
Total	$	76,030	$	56,424	$	56,762

F-25

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2006 and 2005

(Tables in thousands, except share and per share amounts)

(15)  Quarterly Financial Results (unaudited)

Quarterly financial results for the years ended December 31, 2006 and 2005 are as follows:

		2006
		1st Quarter		2nd Quarter		3rd Quarter			4th Quarter
Net sales	$	22,265	$	25,733	$	14,960		$	13,072
Gross profit	$	10,452	$	11,170	$	6,385		$	5,719
Net income (loss)	$	3,349	$	1,770	$	(500	)	$	4,381
Income (loss) per share - basic	$	0.15	$	0.08	$	(0.02	)	$	0.19
- diluted		0.12		0.06		(0.02	)		0.15
		2005
		1st Quarter		2nd Quarter		3rd Quarter			4th Quarter
Net sales	$	16,798	$	19,792	$	10,180		$	9,654
Gross profit	$	8,853	$	9,029	$	4,153		$	4,080
Net income (loss)	$	3,490	$	1,182	$	(404	)	$	(1,028	)
Income (loss) per share - basic	$	0.15	$	0.05	$	(0.02	)	$	(0.04	)
- diluted		0.13		0.04		(0.02	)		(0.04	)

F-26

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2006 and 2005

(Tables in thousands, except share and per share amounts)

(16)  Business and Credit Concentrations

We are currently dependent on four customers, which collectively comprised approximately 25.2% of net sales for the year ended December 31, 2006.  Of these, three customers individually represented greater than 5% but less than 10% of net sales, while no customer individually represented greater than 10% of net sales for the year ended December 31, 2006.  For the year ended December 31, 2005, five customers collectively comprised approximately 26.0% of net sales, of which no customer individually represented greater than 5% of net sales while one customer represented greater than 10% but less than 15% of net sales for the year ended December 31, 2005.  For the year ended December 31, 2004, six customers collectively comprised approximately 26.4% of net sales, of which one customer individually represented greater than 5% of net sales and no customers represented greater than 10% of net sales for the year ended December 31, 2004.  The loss of an individual or a combination of these customers would have a material adverse effect on consolidated revenues, results of operations, financial condition and competitive market position.

A significant portion of our inventory purchases are from one supplier.  That supplier represents approximately 62% and 53% of total inventory purchases for the years ended December 31, 2006 and 2005.  This supplier and many other industry suppliers are located in China.  We do not anticipate any changes in the relationships with its suppliers; however, if such change were to occur, we have alternative sources available.

(17 )  Subsequent Events

Purchase of selected assets of Women’s Golf Unlimited

On February 1, 2007, we concluded the transaction of purchasing the trademarks, customer lists and website domains for Women’s Golf Unlimited which includes the brands of Square Two Golf and Lady Fairway.  We paid $0.6 million for those assets and did not assume any liabilities.  There is a contingent earnout payment of up to a maximum of $0.4 million due on a quarterly basis for a 13 month period following the sale.  This information was provided in a 8-K filing on February 2, 2007 and the full agreement is included in this filing as an exhibit.

F-27

Schedule II

ADAMS GOLF, INC. AND SUBSIDIARIES

Valuation and Qualifying Accounts

For the years ended December 31, 2006, 2005 and 2004

(Table in thousands)

	Balance at		Charged to						Balance at
	Beginning		cost and other						end of
Description	of period		expenses			Deductions(1)			period
Allowance for doubtful accounts:
Year ended December 31, 2006	$	952		853			1,103		$	702
Year ended December 31, 2005	$	746		557			351		$	952
Year ended December 31, 2004	$	332		1,510			1,096		$	746
Product warranty and sales returns:
Year ended December 31, 2006	$	1,546		771			277		$	2,040
Year ended December 31, 2005	$	1,120		742			316		$	1,546
Year ended December 31, 2004	$	1,015		437			332		$	1,120
Inventory obsolescence
Year ended December 31, 2006	$	215		--			62		$	153
Year ended December 31, 2005	$	474		--			259		$	215
Year ended December 31, 2004	$	465		--			(9	)	$	474
Deferred tax asset valuation allowance:
Year ended December 31, 2006	$	18,027		(6,770	)		--		$	11,257
Year ended December 31, 2005	$	19,269		(1,165	)		77		$	18,027
Year ended December 31, 2004	$	20,472		(1,134	)		69		$	19,269

(1) Represents uncollectible accounts charged against the allowance for doubtful accounts, actual costs incurred for warranty repairs and sales returns, and inventory items deemed obsolete charged against the inventory obsolescence reserve.

S-1

EX-10.1

Exhibit 10.11

ASSET PURCHASE AGREEMENT

by and among

WGU, LLC

(“Purchaser”)

and

WOMEN’S GOLF UNLIMITED, INC.

(“Seller”)

Dated as of December 15, 2006

Confidential Treatment Requested.

Confidential Material in this document has been redacted

and filed separately with the Commission.

TABLE OF CONTENTS

			Page
1.	DEFINITIONS		1
	1.1	Definitions.	1
	1.2	Accounting Terms and Definitions.	5
2.	SALE OF ASSETS; ASSUMPTION OF CERTAIN LIABILITIES		5
	2.1	Agreement to Purchase and Sell.	5
	2.2	Purchase Price.	6
	2.3	Earn Out Obligation.	6
	2.4	No Assumption of Liabilities.	7
	2.5	Allocation of Purchase Price.	7
	2.6	Seller Deliveries.	7
	2.7	Purchaser Deliveries.	8
3.	REPRESENTATIONS AND WARRANTIES OF SELLER		8
	3.1	Organization; Good Standing.	8
	3.2	Authority Relative to this Agreement; Enforceability.	8
	3.3	Consents and Approvals.	9
	3.4	No Violations.	9
	3.5	Financial Statements; No Undisclosed Liabilities.	9
	3.6	Absence of Undisclosed Liabilities.	9
	3.7	Litigation and Related Matters.	9
	3.8	Absence of Certain Changes.	9
	3.9	Taxes.	9
	3.10	Compliance with Law.	10
	3.11	Title to Assets.	10
	3.12	Customers.	11
	3.13	Proprietary Rights.	11
	3.14	Permits.	11
	3.15	Product Warranties.	11
	3.16	Product Liability.	11
	3.17	Absence of Certain Business Practices.	11
	3.18	Third-Party Payments.	11
	3.19	Disclosure.	11
4.	REPRESENTATIONS AND WARRANTIES OF PURCHASER		12
	4.1	Organization.	12
	4.2	Authority Relative to this Agreement.	12
	4.3	Consents and Approvals.	12
	4.4	Absence of Litigation.	12
	4.5	Third Party Payments.	12
	4.6	Availability of Funds.	12
5.	ADDITIONAL AGREEMENTS		12
	5.1	Purchaser Investigation.	12
	5.2	Further Assurances.	12
	5.3	Consents	13
	5.4	Agreement Regarding Brokers.	13
	5.5	Public Announcements.	13
	5.6	Information; Inspection of Records.	13
	5.7	Payment of Liabilities.	13
	5.8	Mail.	13

i

TABLE OF CONTENTS

Page

	5.9	Change of Name.	13
	5.10	Taxes.	14
	5.11	Inventory.	14
	5.12	Warranty Claims.	14
	5.13	Confidentiality.	15
	5.14	Limited License Agreement.	15
6.	CONDITIONS TO CLOSING		15
	6.1	Shareholder Approval.	15
	6.2	Due Performance.	15
	6.3	Accuracy of Representations and Warranties.	15
	6.4	No Legal Prohibition	15
7.	TERMINATION		15
	7.1	Termination by Mutual Consent.	15
	7.2	Termination by Either Party.	16
	7.3	Effect of Termination	16
8.	CLOSING		16
9.	INDEMNIFICATION		16
	9.1	Survival.	16
	9.2	Indemnification by Seller.	16
	9.3	Indemnity by Purchaser.	17
	9.4	Defense of Third-Party Claims.	17
	9.5	Offset.	18
	9.6	No Third-Party Beneficiaries.	18
10.	GENERAL PROVISIONS AND OTHER AGREEMENTS		19
	10.1	Notices.	19
	10.2	Fees and Expenses.	19
	10.3	Interpretation; Construction.	20
	10.4	Parties in Interest.	20
	10.5	Governing Law.	20
	10.6	Incorporation by Reference.	20
	10.7	Entire Agreement; Amendment; Waiver.	20
	10.8	Assignment; Binding Effect.	20
	10.9	Severability.	20
	10.10	Counterparts.	20
	10.11	Headings.	20
	10.12	Arbitration.	21
	10.13	Jurisdiction; Venue	21
	10.14	Execution by Facsimile; Delivery of Original Signed Agreement; Counterparts.	22
	10.15	Disclosure Schedules.	22
	10.16	Purchaser Parent Guarantee	22

LIST OF SCHEDULES

Schedule 2.1(a)	-	Intangible Assets
Schedule 2.5	-	Allocation of Purchase Price
Schedule 3.3	-	Consents and Approvals
Schedule 3.5(a)	-	Financial Statements
Schedule 3.5(b)	-	Financial Statement Exceptions
Schedule 3.6	-	Liabilities
Schedule 3.10(b)	-	Permits
Schedule 3.12	-	Customers and Suppliers
Schedule 3.13	-	Proprietary Rights
Schedule 3.14	-	Exception to Transferability of Permits
Schedule 3.18	-	Third-Party Payments

ii

TABLE OF CONTENTS

LIST OF EXHIBITS

Exhibit A	-	Agreement to Preserve Corporate Opportunity
Exhibit B	-	Assignment of Proprietary Rights
Exhibit C	-	Bill of Sale
Exhibit D	-	Limited License Agreement

Asset Purchase Agreement--

iii

ASSET PURCHASE AGREEMENT

This ASSET PURCHASE AGREEMENT (this “Agreement”) is made as of December 15, 2006, by and among WGU, LLC, a Texas limited liability company (“Purchaser”), and WOMEN’S GOLF UNLIMITED, INC., a New Jersey corporation (“Seller”), and, solely for the purposes of Section 10.16 of this Agreement, ADAMS GOLF LTD. a Texas Limited Partnership (“Purchaser Parent”).

RECITALS OF THE PARTIES:

A.Seller has been engaged in the business, among other things, of designing, manufacturing, assembling, distributing and selling women’s golf clubs and related products(the “Business”).

B.Seller desires to sell to Purchaser, and Purchaser desires to purchase from Seller, certain of Seller’s assets used in the Business free and clear of any and all Liens upon the terms and conditions set forth in this Agreement.

C.The parties desire to make certain representations, warranties and covenants in connection with the transactions contemplated by this Agreement.

D.In light of Seller’s ownership of the Assets, and the contributions of Seller in the past to the growth and development of the Business, one of the conditions to the consummation by Purchaser of the transactions contemplated in this Agreement is that Seller agree to certain covenants contained in this Agreement and in the Operative Documents (as hereinafter defined) for the purpose of transferring to the Purchaser all of the goodwill, proprietary rights and going concern value of the Assets (as hereinafter defined).

NOW, THEREFORE, in consideration of the mutual benefits to be derived and the representations and warranties, agreements and promises herein contained, and other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto hereby agree as follows:

AGREEMENTS:

1. DEFINITIONS

1.1Definitions. Unless otherwise stated in this Agreement, the following terms shall have the following meanings:

“Accounting Firm”: Means a neutral, national or regional accounting firm selected by the parties.

“Affiliate”: Any Person that, directly or indirectly, controls, or is controlled by, or under common control with, another Person. For the purposes of this definition, “control” (including the terms “controlled by” and “under common control with”), as used with respect to any Person, means the power to direct or cause the direction of the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities or by contract or otherwise.

“Agreement”: As defined in the first paragraph of this Agreement.

“Agreement to Preserve Corporate Opportunity”: The Agreement to Preserve Corporate Opportunity, in substantially the form attached hereto as Exhibit A.

“Annual Financial Statements”: As defined in Section 3.5(a) hereof.

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“Applicable Law”: All applicable provisions (domestic or foreign) of all (i) constitutions, treaties, statutes, laws (including the common law), rules, regulations, ordinances, codes and Orders of or with any Governmental Authority and (ii) Governmental Consents.

“Assets”: As defined in Section 2.1 hereof.

“Assignment of Proprietary Rights”: The Assignment of Proprietary Rights, in substantially the form attached hereto as Exhibit B.

“Bill of Sale”: The Bill of Sale, in substantially the form set forth in Exhibit C.

“Business”: As defined in the Recitals of the Parties.

“Closing”: As defined in Section 8 hereof.

“Closing Date”: As defined in Section 8 hereof.

“Code”: The Internal Revenue Code of 1986, as amended.

“Confidentiality Agreement”: As defined in Section 5.13 hereof.

“Consent”: Any consent, approval, authorization, action, waiver, permit, grant, franchise, concession, agreement, license, exemption or Order of any Person (including foreign Persons), including any Governmental Authority.

“Customer Data”: Seller’s current customer list and corresponding contact information, sales records (including pricing information and customer contractual status), other records, telephone numbers and fax numbers, email addresses, current accounts receivable aging, and other customer data (including credit data) relating to the Assets.

“Damages”: Any and all damages, claims, obligations, expenses, demands, assessments, penalties, Liabilities (joint or several), costs, losses, diminution in value, defenses, judgments, disbursements and expenses (including disbursements, expenses and reasonable fees of attorneys, accountants and other professional advisors and of expert witnesses, costs of investigation and preparation, and costs of settlement) of any kind whatsoever, whether fixed or contingent, suffered or incurred by a Person, without regard to the timing of any payment or performance.

“Disclosure Schedules”: The disclosure schedules to this Agreement delivered by Seller to Purchaser on the date hereof.

“Earn Out Obligation”: As defined in Section 2.2(b) hereof.

“Earn Out Period”: Means the twelve month period from (1) if the Closing occurs prior to January 1, 2007, January 1, 2007 through December 31, 2007; or (2) if the Closing occurs after January 1, 2007, thirteen (13) months after the Closing.

“Excluded Liabilities”: As defined in Section 2.4 hereof.

“Final Accounting”: As defined in Section 2.3(e) hereof.

“Financial Statements”: As defined in Section 3.5(a) hereof.

“GAAP”: As defined in Section 1.2 hereof.

“Governmental Consent”: Any Consent of, from or with any Governmental Authority.

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“Governmental Authority”: Any federal, state, municipal, court or other governmental department, commission, board, bureau, agency, authority or instrumentality, domestic or foreign.

“including” or “includes”: Means including or includes without limitation.

“Indemnified Person”: As defined in Section 9.4 hereof.

“Indemnifying Person”: As defined in Section 9.4 hereof.

“Initial Cash Amount”: As defined in Section 2.2(a) hereof.

“Intangible Assets”: As defined in Section 2.1(a) hereof.

“Interim Financial Statements”: As defined in Section 3.5(a) hereof.

“IRS”: The Internal Revenue Service.

“JAMS”: As defined in Section 10.12(a) hereof.

“Liability”: Means any commitments, liabilities, obligations (including contract and capitalized lease obligations), indebtedness, accounts payable, accrued expenses of any nature whatsoever, losses, Damages, costs, expenses and personal injuries (whether any of the foregoing are known or unknown, secured or unsecured, asserted or unasserted, absolute or contingent, direct or indirect, accrued or unaccrued, liquidated or unliquidated and/or due or to become due), including any liability or obligation for Taxes.

“Liens”: All mortgages, deeds of trust, claims, liens, security interests, pledges, leases, conditional sale contracts, rights of first refusal, options, charges, Liabilities, obligations, agreements, powers of attorney, limitations, reservations, restrictions and other encumbrances of any kind or character.

“Limited License Agreement”: The Limited License Agreement, in substantially the form set forth in Exhibit D.

“Material Adverse Effect”: (i) Any change, development or effect (individually or in the aggregate) that is materially adverse to the Assets or the goodwill, or condition thereof (whether or not the result thereof would be covered by insurance) or (ii) any fact or development that could (individually or in the aggregate) impair the ability of Seller or Purchaser to consummate the Transactions; provided, however, that “Material Adverse Effect” shall exclude any effect arising out of or resulting from (a) general economic, regulatory or political conditions or events; (b) changes affecting the industry in which the Business operates; (c) the execution of this Agreement or any of the Operative Documents; or (d) any action taken by Seller or Purchaser or any of their respective representatives or other action required by the terms of this Agreement or necessary to consummate the Transactions.

“Operative Documents”: This Agreement, the Agreement to Preserve Corporate Opportunity, the Assignment of Proprietary Rights, the Bill of Sale, the License Agreement and all other agreements, instruments, documents, exhibits, schedules and certificates executed and delivered by or on behalf of Seller or Purchaser at the Closing pursuant to this Agreement.

“Order”: Any order, writ, injunction, decree, judgment, award or determination of, or agreement with, any Governmental Authority.

“Permits”: All permits, authorizations, certificates, approvals, registrations, variances, exemptions, franchises, privileges, immunities, grants, ordinances, licenses and other rights of every kind and character, issued, applied for or pending (i) under any (A) Applicable Law; (B) Order or (C) contract with any Governmental Authority or (ii) granted by any Governmental Authority.

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“Person”: An individual, partnership, joint venture, corporation, company, limited liability company, bank, trust, unincorporated organization, Governmental Authority or other entity or group.

“Proceeding”: Any action, claim, suit, proceeding, litigation, arbitration, mediation, investigation, inquiry, or audit commenced, brought, conducted or heard by or before any Governmental Authority or arbitrator..

“Purchase Price”: As defined in Section 2.2 hereof.

“Purchaser”: As defined in the first paragraph of this Agreement.

“Purchaser Parent”: As defined in the first paragraph of this Agreement.

“Purchaser Indemnitees”: As defined in Section 9.2 hereof.

“Seller”: As defined in the first paragraph of this Agreement.

“Seller Indemnitees”: As defined in Section 9.3 hereof.

“Supplier Data”:All of Seller’s supplier and vendor lists, records, telephone and fax numbers, email addresses and publications and marketing material relating to the purchase of raw materials, goods, utilities and other supplies and services used in connection with the Assets.

“Revenue”: As defined in Section 2.3(a) hereof.

“Taxes” (including, with correlative meaning, “Taxes” and “Taxable”): Means (i)(A) any net income, gross income, business and occupation, admissions, gross receipts, sales, use, value added, ad valorem, transfer, transfer gains, franchise, profits, license, withholding, payroll, employment, excise, severance, stamp, rent, recording, occupation, premium, real or personal property, intangibles, environmental or windfall profits tax, alternative or add-on minimum tax, customs duty or other tax, fee, duty, levy, impost, assessment or charge of any kind whatsoever, together with (B) any interest and any penalty, addition to tax or additional amount imposed by any Governmental Authority (domestic or foreign) (a “Tax Authority”) responsible for the imposition of any such tax; (ii) any Liability for the payment of any amount of the type described in the immediately preceding clause (i) as a result of being a member of a consolidated, affiliated, unitary or combined group with any other corporation or entity at any time prior to and through the effective time of Closing and (iii) any Liability for the payment of any amount of the type described in the preceding clauses (i) or (ii) as a result of a contractual obligation to any other Person or of transferee, successor or secondary Liability.

“Tax Returns”: Means any report, return or other information (including any attached schedules or any amendments to such report, return, document, declaration or any other information) required to be supplied to or filed with any Tax Authority or jurisdiction (foreign or domestic) with respect to any Tax, including an information return or any document with respect to or accompanying payments.

“Termination Date”: As defined in Section 7.2(a) hereof.

“Threatened”: Any matter or thing will be deemed to have been Threatened when used herein with respect to any party if that party has received notice from the Person to whom the threat is attributable or such Person’s agents, which notice makes reference to or identifies the matter or thing being threatened or that party observes an action by the Person to whom the threat is attributable or such Person’s agents that in the exercise of reasonable business judgment would reasonably be expected to cause such party to believe that the matter or thing is being threatened.

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“Transaction” or “Transactions”: The sale and purchase of the Assets, the performance of covenants and the other transactions contemplated hereby and by the Operative Documents, in each case as described by this Agreement and the Operative Documents.

“Transaction Expenses”: The expenses incurred in connection with the preparation, negotiation, execution and performance of this Agreement and the consummation of the Transactions, including all fees and expenses of counsel and representatives and any and all employee compensation, retention bonuses or incentive compensation related to or resulting from the Transactions, whenever occurring.

“Transfer Taxes”: As defined in Section 5.10 hereof.

“WGU Trademarks”: Means the trademarks set forth on Schedule 2.1(a).

“Wire Transfer”: Means a payment of money by same day wire transfer in immediately available funds to an account or account designated in writing by the recipient to the payor at least two (2) days prior to the date of payment; provided, however, that if the recipient fails to make such designation prior to the payment due date, the term shall instead mean payment of money by overnight delivery of a certified or cashier’s check of a federally insured financial institution.

1.2Accounting Terms and Definitions. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared, in accordance with generally accepted accounting principles published by the Financial Accounting Standards Board as in effect from time to time, applied on a consistent basis (“GAAP”).

2. SALE OF ASSETS; ASSUMPTION OF CERTAIN LIABILITIES

2.1Agreement to Purchase and Sell. Subject to the applicable terms and conditions of this Agreement, at the Closing, Seller shall sell, transfer, assign, convey and deliver to Purchaser, and Purchaser shall purchase, all of the following assets that are currently owned by Seller (such assets, being collectively referred to as the “Assets”), free and clear of all Liens:

(a)Intellectual Property and Intangible Assets. All intellectual property rights owned by, licensed to, or used by, Seller in the Business, including all proprietary information, know-how, designs, plans, other trade secrets, business and marketing plans, copyrights, all registered or unregistered trademarks, service marks, trade dress and trade names (whether or not registered or registrable), common law copyrights and registered copyrights, all names, logos, labels and slogans, in each case used by Seller in connection with the Assets, all registrations or applications for registration for any of the above and any right to recovery for infringement thereof (including past infringement) and any and all goodwill associated therewith or connected with the use thereof (collectively, the “Intangible Assets”). The Intangible Assets shall include all right, title and interest in and to the names set forth on Schedule 2.1(a) and any derivations of such names and in the same manner historically used, and all of Seller’s rights to email addresses, Internet domain names (including the domain names set forth on Schedule 2.1(a)), and URLs.

(b)Customer Data and Supplier Data. All of the Customer Dataand Supplier Data.

(c)Books and Records. All of Seller’s books, records, papers, files and instruments of whatever nature and wherever located that relate solely to the Assets or that are required or necessary in order for Purchaser to utilize the Assets from and after the Closing in the manner in which it has been historically utilized, including graphic materials, diagrams, designs, specifications, warranties, guaranties, media, sales and marketing literature, brochures or other sales aids, catalogs, price lists, mailing lists, sales (of which complete copies shall be provided to Purchaser).

(d)Warranty Rights. To the extent transferable, the benefit of and the right to enforce the covenants and warranties, if any, that Seller is entitled to enforce with respect to the Assets.

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2.2Purchase Price. Subject to the terms and conditions of this Agreement, the total purchase price for the Assets (the “Purchase Price”) to Seller shall be as follows:

(a)$600,000 shall be paid by Wire Transfer at Closing (the “Initial Cash Amount”); and

(b)the earn out obligation in an aggregate maximum amount up to $400,000 (the “Earn Out Obligation”) will be paid by Wire Transfer in accordance with Section 2.3 below.

2.3Earn Out Obligation.

Subject to the terms and conditions of this Agreement, the Earn Out Obligation, if earned, shall be paid by Purchaser to Seller as follows:

(a)The amount payable by Purchaser to Seller under the Earn Out Obligation shall equal [****]¹ of net revenue (defined as gross revenue less discounts and allowances, but excluding early payment discounts) as calculated in accordance with GAAP (the ”Revenue”) attributable to sales of Purchaser products using the WGU Trademarks through customary wholesale or retail distribution channels, based on the books and records of the Purchaser (as identified by a specific accounting code assigned to such Revenue), up to a maximum aggregate Earn Out Obligation of $400,000 for the Earn Out Period.

(b)The Earn Out Obligation, if any, payable by Purchaser under Section 2.3(a) to Seller shall be payable at the end of each three (3)-month period (as earned) within forty-five (45) days after the end of such three (3)-month period of the Earn Out Period. At the time of each payment, Purchaser shall provide to Seller a written report detailing Purchaser’s Revenue from the sale of Purchaser products using the WGU Trademarks during the three (3)-month period to which the payment relates and shall include in such report an accounting of the Revenue on a per customer basis.

(c)After the end of each quarter during the Earn Out Period, Revenue shall be recalculated by Purchaser on a period-to-date basis. All calculations and determinations under Sections 2.3(a) and 2.3(b) hereof shall be made by Purchaser and reported to Seller by the applicable payment dates set forth in Section 2.3(b). If such calculations and determination indicate that Seller received payments in any applicable period that were greater than the amount to which Seller was entitled during such period, such excess shall be deducted from the next payment or, if greater than the next payment, remitted from Seller to Purchaser by Wire Transfer within ten (10) days of Purchaser’s becoming aware of such excess. If, after such determination, Revenue for the applicable period is greater than originally calculated, Purchaser shall remit the shortfall to Seller by Wire Transfer within ten (10) days of Seller’s becoming aware of such shortfall.

(d)The determinations of Purchaser under Section 2.3(c) shall be conclusive and binding upon the parties on the thirtieth (30^th) day after receipt by Seller of each such determination, unless Seller, within such 30-day period, requests that a determination be reviewed by the Accounting Firm. Upon any such request, the Accounting Firm shall either confirm such original determination or make such changes therein as it deems appropriate, and, after such review and any change deemed appropriate by the Accounting Firm, such determination shall be conclusive and binding upon the parties. If any such change results in an increase to the Earn Out Obligation of more than 3%, the cost of such determination by the Accounting Firm shall be borne by Purchaser; otherwise the cost shall be borne by Seller.

(e)Within 60 days of the end of the Earn Out Period, Purchaser shall provide Seller with an accounting of the total Revenue attributable to sales of Purchaser products using the WGU Trademarks during the Earn Out Period (the “Final Accounting”). If the Final Accounting determines that Seller received payments during the Earn Out Period that were greater than the amount to which Seller was entitled during the Earn Out Period, such excess shall be promptly remitted from Seller to Purchaser by Wire Transfer within ten (10) days of Purchaser’s becoming aware of such excess. If the Final Accounting determines that Revenue for the Earn Out Period is greater than originally calculated, and subject to the aggregate maximum amount set forth in Section 2.2(b), Purchaser shall promptly remit the shortfall to Seller by Wire Transfer within ten (10) days of Seller’s becoming aware of such shortfall.

¹ Confidential material redacted and filed separately with the Commission.

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(f)As an express condition of Purchaser making any Earn Out Obligation payments to Seller, Seller shall preserve and maintain its corporate existence and good standing under Applicable Law of the State of New Jersey for the duration of the Earn Out Period and for 60 days thereafter.

2.4No Assumption of Liabilities. Purchaser does not assume or agree to pay, perform or discharge, and shall not be responsible for, any Liabilities of Seller of any kind whatsoever, whether accrued, absolute, known or unknown, contingent or otherwise (“Excluded Liabilities”). Without limiting the generality of the foregoing, and notwithstanding any other provision hereof or of any Operative Document and regardless of any disclosure to or investigation by Purchaser, neither Purchaser nor any of its Affiliates shall assume or have any liability for any Liabilities of Seller or any of its Affiliates, that in any manner relates to or arises out of the operation of the Business or the ownership or use of the Assets during anyperiod on or prior to the Closing Date.

2.5Allocation of Purchase Price.

(a)As set forth on Schedule 2.5, the Purchase Price (as adjusted and as to be adjusted pursuant to the terms of this Agreement) for the Assets has been allocated in accordance with Section 1060 of the Code.

(b)The parties shall each report the federal, state and local and other Tax consequences of the purchase and sale contemplated hereby (including the filing of IRS Forms 8594) in a manner consistent with such allocation schedule and shall not make any inconsistent written statement or take any inconsistent position on any Tax Returns during the course of any IRS or other Tax audit, for any financial or regulatory purpose, in any litigation or investigation or otherwise.

(c)Each party shall promptly notify the other party if it receives notice that the IRS proposes any allocation different from the allocation agreed upon in accordance with this Section 2.5.

2.6Seller Deliveries. At the Closing, Seller shall deliver, as appropriate, or cause to be delivered to Purchaser the following:

(a)an Agreement to Preserve Corporate Opportunity, in substantially the form of Exhibit A, hereto,

(b)an Assignment of Proprietary Rights, in substantially the form of Exhibit B hereto;

(c)a Bill of Sale, in substantially the form of Exhibit C hereto; and

(d)the Limited License Agreement, in substantially the form of Exhibit D, hereto.

(e)an Officer’s Certificate duly executed by an officer of Seller certifying to (i) Seller’s Certificate of Incorporation, as amended, attached thereto (as certified as of a recent date by the Secretary of State of the State of New Jersey; (ii) to the due adoption by Seller’s Board of Directors and by the shareholders of Seller of corporate resolutions attached to such Officer’s Certificate authorizing the Transactions and the execution and delivery of this Agreement, the Operative Documents and the other agreements and documents contemplated hereby and thereby and the taking of all actions contemplated hereby and thereby; and (iii) to the incumbency and true signatures of those officers of Seller duly authorized to act on its behalf in connection with the Transactions and this Agreement and to execute and deliver this Agreement and the Operative Documents;

(f)Certificates of Existence and Good Standing for Seller issued by the Secretary of State of the State of New Jersey, and a clearance certificate or similar document(s) that may be required by any state or foreign Tax Authority in order to relieve Purchaser of any obligation to withhold any portion of the Purchase Price, at a date not more than ten (10) days prior to the Closing Date;

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(g)all Consents, if any, necessary to consummate the Transactions;

(h)the Disclosure Schedules;

(i)possession or constructive possession of the Assets, free and clear of any and all Liens; and

(j)such certificates, including evidence of any lien holders’ release of lien on any of the Assets, and other evidence as may be required in order to consummate the Transactions.

2.7Purchaser Deliveries. At the Closing, Purchaser shall execute and deliver, as appropriate, or cause to be delivered to Seller the following:

(a)the Initial Cash Amount of the Purchase Price to Seller, as provided herein;

(b)an Agreement to Preserve Corporate Opportunity, in substantially the form of Exhibit A, hereto,

(c)an Assignment of Proprietary Rights, in substantially the form of Exhibit B hereto;

(d)a Bill of Sale, in substantially the form of Exhibit C hereto; and

(e)the Limited License Agreement, in substantially the form of Exhibit D hereto;

(f)an Officer’s Certificate dated the Closing Date signed by an officer of Purchaser certifying to (i) the Certificateof Formation of Purchaser; (ii) the due adoption by the Purchaser’s Board of Managers of resolutions, a copy of which shall be attached thereto, approving the execution and delivery of this Agreement, the Operative Documents and the other agreements and documents contemplated hereby and thereby and the taking of all actions contemplated hereby and thereby; and (iii) the incumbency and true signatures of those officers of the Purchaser duly authorized to act on its behalf in connection with the Transactions and this Agreement and to execute and deliver this Agreement and the Operative Documents; and

(g)a Certificate of Existence and Account Status issued by the Texas Secretary of State and the Office of the Comptroller of Public Accounts of the State of Texas at a date not more than ten (10) days prior to the Closing Date.

3. REPRESENTATIONS AND WARRANTIES OF SELLER

Seller hereby represents and warrants to Purchaser that the following are true, correct and complete as of the date of this Agreement and Closing, regardless of what investigations, if any, Purchaser shall have made prior hereto or prior to the Closing:

3.1Organization; Good Standing. Seller is a corporation duly organized, validly existing and in good standing under Applicable Laws of the State of New Jersey. Seller has full corporate power and authority to own and lease the Assets and to carry on the Business as previously conducted. Seller is duly qualified in each jurisdiction in which it transacts business.

3.2Authority Relative to this Agreement; Enforceability. Seller has full power and authority (corporate and otherwise) to execute, deliver and perform this Agreement (including execution, delivery and performance of the Operative Documents to which it is a party) and to consummate the Transactions. The execution and delivery by Seller of this Agreement and each of the Operative Documents, and the consummation of the Transactions, have been duly and validly authorized by the Board of Directors of Seller and the shareholders of Seller in accordance with Applicable Law and no other corporate proceedings on the part of Seller are necessary with respect thereto. This Agreement has been duly and validly executed and delivered by Seller, and constitutes a legal, valid and binding obligation of Seller, enforceable against it in accordance with its terms (subject, as to enforcement, to applicable bankruptcy, insolvency, moratorium, reorganization or similar Applicable Laws affecting creditors’ rights generally and to general equitable principles).

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3.3Consents and Approvals. Except as set forth in Schedule 3.3, or otherwise required by this Agreement or the Operative Documents, the execution, delivery and performance by Seller of this Agreement and each of the Operative Documents and the consummation of the Transactions by it do not require any Consent of, or Order by, any Governmental Authority or any Consent of, or giving of notice to, any other Person.

3.4No Violations. The execution, delivery and performance of this Agreement and each of the Operative Documents by Seller, the consummation by Seller of the Transactions and compliance by Seller with any of the provisions hereof and the Operative Documents, does not and will not (a) conflict with or result in any breach or violation of any provision of the Certificate of Incorporation, as amended, or Bylaws, as amended, of Seller, (b) result in the creation or imposition of any Lien on any of the property of Seller (including the Assets) or (c) violate any Order or Applicable Law with respect to any Seller, the Business or the Assets.

3.5Financial Statements; No Undisclosed Liabilities.

(a)Schedule 3.5(a) sets forth correct and complete copies of the (i) unaudited financial statements of Seller at and for the year ended December 31, 2005 (collectively, the “Annual Financial Statements”) and (ii) the unaudited financial statements of Seller at and for the year-to-date periods ended November 30, 2006 (the “Interim Financial Statements”), including in each case, a balance sheet and income statement (the Annual Financial Statements and Interim Financial Statements collectively referred to as the “Financial Statements”).

(b)Except as set forth in Schedule 3.5(b), the Financial Statements have been prepared from the books and records of Seller in accordance with GAAP, consistently applied and consistent with Seller’s and the Business’ past practices, and on that basis fairly present, the properties, assets, liabilities, financial position and results of operations of the Business (subject to normal, recurring year-end adjustments disclosed on Schedule 3.5(b), which do not, and will not, have any Material Adverse Effect on Seller, the Business or the Assets) as of the respective dates thereof and for the respective periods indicated.

3.6Absence of Undisclosed Liabilities. Except as set forth on Schedule 3.6 and except as and to the extent reflected and reserved against in the Interim Financial Statements or accrued in the ordinary course of business since the date of the Interim Financial Statements, the Business has no material Liability of any nature whatsoever, including any Liabilities relating to or arising out of any act, omission, transaction, circumstance, sale of products, statement of facts or other condition that occurred or existed on or before the Closing, whether or not due or payable.

3.7Litigation and Related Matters. There is no Proceeding pending or, to the knowledge of Seller, Threatened against, relating to or affecting the Assets or the Transactions. Seller is not subject to any currently existing Proceeding by any Governmental Authority or any other Person.

3.8Absence of Certain Changes.

Since the date of the Interim Financial Statements, Seller has owned and operated the Assets.

3.9Taxes.

(a)All Taxes that are due and payable by Seller through the Closing, have been timely paid, and Seller has timely filed all Tax Returns required by any Applicable Law to be filed through the Closing. All such Tax Returns are true, complete and correct.

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(b)Seller has paid or has maintained adequate accruals on Seller’s books and the Interim Financial Statements for all Taxes (whether or not shown on a Tax Return and whether or not presently due and payable), including contingent Tax Liabilities, with respect to (i) all Taxable periods ending on or before the Closing Date and (ii) all Taxable periods starting before and ending after the Closing Date to the extent attributable to the portion of such periods up to and including the Closing Date.

(c)Seller is not delinquent in the payment of any Tax relating to the Business or the Assets.

(d)There is no Tax deficiency asserted against Seller, and there is no unpaid assessment, proposal for additional Taxes, deficiency or delinquency in the payment of any of the Taxes of Seller or Sellers relating to the Business or the Assets, or, to the knowledge of Seller, any violation of any Applicable Law that could be asserted by any Governmental Authority.

(e)There are no Liens for Taxes against Seller upon any properties or assets of Seller (including the Assets), nor has notice been given of any event that could lead to any such Lien.

(f)No IRS, state or local Proceeding involving Seller is in progress, pending, or, to the knowledge of Seller, Threatened or contemplated and the results of any completed audits or other Proceedings are properly reflected in the Interim Financial Statements.

(g)Seller has not committed any violation of any Applicable Law regarding Taxes.

(h)All amounts required to be withheld by Seller from employees, independent contractors, shareholders, creditors or others or collected from customers for income Taxes, social security and unemployment insurance Taxes and sales, excise and use Taxes, and such Taxes to be paid by Seller or set aside in accounts for any such purpose, have either been paid to the applicable Governmental Authority or been accrued, reserved against and entered upon Seller’s books and Interim Financial Statements.

(i)Seller acknowledges that Seller is responsible for any Taxes accrued through the Closing Date.

(j)Seller is a United States person within the meaning of Section 7701(a)(30) of the Code.

Each reference to a provision in this Section 3.9 shall be treated for state, local and foreign Tax purposes as reference to analogous or similar provisions for state, local and foreign law.

3.10Compliance with Law.

(a)Neither Seller, the Business nor the Assets is in violation of any Applicable Law, where such violation would be expected to have a Material Adverse Effect on the Seller, the Business or the Assets. Seller is not aware of, nor prior to the date hereof, has it received notice of, any past, present or future conditions, events, practices or incidents that could be expected to interfere with, or prevent the Assets’ compliance or continued compliance with, Applicable Law after the Closing.

(b)Schedule 3.10(b) sets forth all Permits and Governmental Consents necessary for, or otherwise material to, or used in, the ownership, use or operation of the Assets. Except as set forth in Schedule 3.10(b), all such Permits and Governmental Consents have been duly obtained and are in full force and effect.

3.11Title to Assets.Seller has good and indefeasible title to all of the Assets, including any Assets whose ownership remains listed under the prior name of Seller, S2 Golf, Inc., and the Assets are free and clear of all Liens. Except in this Agreement, Seller has not sold, transferred, leased, assigned or otherwise disposed of any of the Assets, or agreed to do so. Upon consummation of the Transactions, Purchaser will own the Assets free and clear of all Liens.

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3.12Customers.

Seller is not aware of any fact or reason that could prohibit the continuance or otherwise impair in any material respect the relationship of Purchaser with Seller’s customers after Closing. Schedule 3.12 sets forth a true and correct list of the twenty-five (25) largest customers in terms of sales during the fiscal years ended December 31, 2005, and during the year-to-date period ended June, 2006, showing the approximate total sales to each such customer during each of such periods. Except as set forth on Schedule 3.12, to Seller’s knowledge, there has not been any material adverse change in the business relationship of Seller with any customer set forth on Schedule 3.12. Except as set forth on Schedule 3.12, Seller does not currently have any material outstanding and/or unresolved claims or issues asserted by any customers. Seller does not have any prepayments or deposits of any kind from any customers.

3.13Proprietary Rights. Seller owns or validly licenses the right to use all Intangible Assets. Seller has exercised reasonable efforts to protect its Intangible Assets. Except as reflected on Schedule 3.13, no Consent of any Person will be required for the use of the Intangible Assets by Purchaser after the consummation of the Transactions contemplated hereby, and the Transactions will not result in any breach of any agreement relating to any Intangible Assets. No claim or opposition has been asserted by any Person to the ownership of or Seller’s right to use any of the Intangible Assets or challenging or questioning the validity or effect of any license or agreement relating thereto. Each of the Intangible Assets is valid and subsisting, has not been canceled, abandoned or otherwise terminated and, if applicable, has been duly asserted, registered and filed. The Intangible Assets owned by Seller are owned free and clear of all Liens. To Seller’s knowledge, Purchaser’s use of the Intangible Assets as such assets have historically been utilized, will not infringe on or violate the rights of any other Person. No Proceedings have been instituted, are pending or, to Seller’s knowledge, Threatened or are contemplated that challenge or oppose the rights of Seller with respect to any of the Intangible Assets. Seller has not received any notice or inquiry from any Person, and is not aware of, any alleged infringement by Seller of any intellectual property right. Except as set forth on Schedule 3.13, Seller has not given nor is it bound by any agreement of indemnification in connection with any Intangible Assets.

3.14Permits. Seller has all Permits necessary or required for the ownership of the Assets. Except as set forth on Schedule 3.14, each of the Permits is transferable, and the Permits will be transferred to Purchaser on the Closing Date, or as soon thereafter as permitted or possible, in accordance with Applicable Law or the requirements of the issuing Governmental Authority.

3.15Product Warranties. There is no claim against or Liability of Seller on account of product warranties or with respect to the sale or distribution of products, including any amount due to any customer by reason of any understanding or agreement between Seller and any customer. There is no claim against any vendor by, or any liability of any vendor of Seller to, any customer of Seller.

3.16Product Liability. To Seller’s knowledge, Seller does not have any Liability arising out of any injury to individuals or property as a result of the ownership, possession or use of any Asset.

3.17Absence of Certain Business Practices. Neither Seller, nor any director, officer, shareholder, or employee or agent of Seller, nor any other Person acting on Seller’s behalf, has, directly or indirectly, within the past five (5) years given or agreed to give any gift or similar benefit to any customer, supplier, governmental employee or other Person who is or may be in a position to help or hinder the Business (or assist in connection with any actual or proposed transactions) which (a) could subject Seller or any such Person to any damage or penalty in any civil, criminal or governmental Proceeding, (b) if not given in the past, could have had a Material Adverse Effect on the Business as reflected in the Financial Statements or (c) if not continued in the future, could have a Material Adverse Effect on the Business or which could subject Seller or any such Person to suit or penalty in any private or governmental Proceeding.

3.18Third-Party Payments. Except as set forth in Schedule 3.18, no finder, broker or other Person is entitled to any commission, fee or other compensation in connection with any of the Transactions contemplated by this Agreement.

3.19Disclosure.

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To the best of Seller’s knowledge, Seller has delivered or made available to Purchaser true, correct and complete copies of all documents listed on the Disclosure Schedule. To the best of Seller’s knowledge, there is no fact known to Seller that has specific application to the Assets that could reasonably be expected to have a Material Adverse Effect.

4. REPRESENTATIONS AND WARRANTIES OF PURCHASER

Purchaser hereby represents and warrants to Seller that the following are true, correct and complete as of the date of this Agreement, regardless of what investigations, if any, Seller shall have made prior hereto or prior to the Closing:

4.1Organization. Purchaser is a limited liability company organized and validly existing under Applicable Laws of the State of Texas.

4.2Authority Relative to this Agreement. Purchaser has full power and authority to execute, deliver and perform this Agreement (including execution, delivery and performance of the Operative Documents) and to consummate the Transactions. The execution and delivery by Purchaser of this Agreement and the Operative Documents, and the consummation of the Transactions, have been duly and validly authorized by the Board of Managers of the Purchaser and no other corporate proceedings on the part of Purchaser are necessary with respect thereto. This Agreement has been duly and validly executed and delivered by Purchaser, and constitutes a legal, valid and binding obligation of Purchaser enforceable in accordance with its terms (subject, as to enforcement, to applicable bankruptcy, insolvency, moratorium, reorganization or similar Applicable Laws affecting creditors’ rights generally and to general equitable principles).

4.3Consents and Approvals. No Consent from or of any Governmental Authority or any other Person is necessary in connection with the execution, delivery or performance of this Agreement by Purchaser other than Consents which have already been obtained.

4.4Absence of Litigation. There is no Proceeding pending, or to the knowledge of Purchaser, Threatened that would impair or infringe upon Purchaser’s ability to perform as agreed pursuant to this Agreement.

4.5Third Party Payments. No finder, broker or other Person is entitled to any commission, fee or other compensation in connection with any of the Transactions contemplated by this Agreement as a result of any action by Purchaser.

4.6Availability of Funds. Purchaser has sufficient cash available to enable it to consummate the Transactions, including the delivery of the Initial Cash Amount.

5. ADDITIONAL AGREEMENTS

5.1Purchaser Investigation.No investigations by Purchaser or its employees, representatives or agents shall reduce or otherwise affect the Liability of Seller with respect to any representations, warranties, covenants or agreements made herein or in an exhibit, schedule or other certificate, instrument, agreement or other Operative Document (including the Disclosure Schedules), executed or delivered in connection with this Agreement.

5.2Further Assurances. At any time after the Closing Date, if any further action is necessary, proper or advisable to carry out the terms, purposes and intent of this Agreement, then, as soon as is reasonably practicable, each party to this Agreement shall take, or cause its proper officers to take, such action. Without limiting the generality of the foregoing, Seller shall execute and deliver to Purchaser such instruments of transfer as shall be reasonably necessary or appropriate to vest in Purchaser good and indefeasible title to the Assets. Each party hereto further agrees to cooperate fully with the other party after the consummation of the Transactions for the purpose of providing Purchaser with the information and access to information necessary to ensure Purchaser with a reasonably smooth transition into the ownership and use of the Assets.

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5.3ConsentsNotwithstanding any other provision of this Agreement, to the extent that the assignment by Seller of any Asset to be sold or assigned hereunder shall require the Consent of another Person thereto, the consummation of the Transactions shall not constitute an assignment or attempt at an assignment thereof if such assignment or attempted assignment would constitute a breach thereof. If any Consent of a third Person with respect to any one or more of the Assets is not obtained at or prior to Closing, each party hereto agrees to take whatever action that may be necessary to provide Purchaser with the uninhibited benefits of such Assets, subject to the assumption by Purchaser of Seller’s obligations thereunder, until such Consent is obtained.

5.4Agreement Regarding Brokers. Each party agrees that it will pay or dispute, and hold the other parties harmless from, any claims of brokers or others for finder’s or brokerage fees or commissions asserted as a result of representations by such party to such brokers or others, regardless of whether the existence of such brokers or others are disclosed herein.

5.5Public AnnouncementsThe parties agree to consult with each other prior to making any public announcement or other public disclosure concerning the Transactions contemplated by this Agreement. Except as otherwise required by Applicable Law, neither party shall and shall not permit any of its respective Affiliates, agents or representatives to, make, directly or indirectly, a public announcement regarding the Transactions without the prior written consent of the other party, which consent shall not be unreasonably withheld, conditioned or delayed. If a party is required by Applicable Law to make any such disclosure, it must provide notice of such requirement, as soon as practicable, to the other party and shall provide the other party reasonable opportunity to review and comment on any proposed announcement prior to its disclosure.

5.6Information; Inspection of Records. Seller shall cooperate with Purchaser after the Closing by providing Purchaser, in each case without any additional consideration, but at the expense of Purchaser, promptly upon request, access to such books and records and other information regarding or relating to the Assets (but which were not included among the Assets) as may reasonably be requested from time to time by Purchaser, including any information requested in connection with the preparation or audit of Purchaser’s federal, state and local income and other Tax Returns, including disputes, refund claims or litigation relating thereto, and any other third Person litigation or investigation, if any. In such connection, Seller will afford the Purchaser’s representatives, including independent advisers and others, reasonable access to inspect books and records regarding or relating to the Assets during regular business hours and upon at least two (2) weeks’ prior written notice. As used in this Section 5.6, this right of inspection shall include the right to make extracts or copies at Purchaser’s expense..

5.7Payment of Liabilities. Following the Closing, Seller shall pay or otherwise satisfy and discharge, in the ordinary course of business, all Liabilities, including any delinquent Tax Liabilities, relating to the Assets incurred through the Closing Date, to the extent the failure to do so would adversely impact the Purchaser or the Assets. In the event any of Seller’s payables to creditors and/or Tax Authorities are not so paid and Purchaser subsequently satisfies such payables, Purchaser may offset its payments in accordance with Section 9.6.

5.8Mail. Purchaser, on the one hand, and Seller, on the other hand, each agree to promptly deliver to the other the original of any mail or other communication received by such party after the Closing Date that should properly be the property of the other. Purchaser, on the one hand, and Seller, on the other hand, each further agree from and after the Closing Date to promptly deliver to the other any monies, checks or other instruments of payment to which the other party is entitled hereunder, together with a reasonable accounting therefor.

5.9Change of Name. On the Closing Date, Seller shall execute and, promptly thereafter, file with the Secretary of State of New Jersey such documents and resolutions as are necessary to change Seller’s name to another name that is not deceptively similar to any name used by Seller prior to the Closing Date and, upon receipt of a certified copy of an Amendment to Seller’s Certificate of Incorporation reflecting the name change, Seller shall promptly deliver to Purchaser a copy of the certified Amendment to Seller’s Certificate of Incorporation. Further, Seller shall, within five (5) days following the Closing, execute and file with the Secretary of State of New Jersey and such other appropriate authorities in any other jurisdiction, such documents and/or instruments necessary to abandon Seller’s use of the names “Women’s Golf Unlimited,” “WGU”, “Square Two” or “Lady Fairway.” Subject to the License Agreement, Seller further agrees not to operate any future or present business activity under any name or assumed/fictitious names similar to any name previously used by Seller and regarding or relating to the Assets.

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5.10Taxes. All transfer, documentary, sales, use, stamp, registration and other such Taxes and fees (including any penalties and interest) incurred in connection with this Agreement (“Transfer Taxes”), if any, shall be borne solely by Seller and Seller shall file all necessary Tax Returns and other documentation with respect to any such Transfer Taxes and, if required by Applicable Law, Purchaser will join in the execution of any such Tax Returns and other documentation. Seller and Purchaser shall each use commercially reasonable efforts to secure the availability of any applicable Transfer Tax exemption if such Transfer Tax would result from the consummation of the Transactions contemplated by this Agreement.

5.11Inventory.

(a)Between the Closing Date and when Seller’s inventory is sold in its entirety, and upon reasonable advance notice to Seller from Purchaser, Purchaser may, in its sole discretion, purchase and acquire, from time to time from Seller, at a purchase price equal to Seller’s landed cost (i.e., the sum of the unit purchasing cost and the shipping cost), all or any portion of Seller’s then existing inventory, wherever located, including all finished goods, works in process, raw materials, spare parts and all other materials and supplies historically used by Seller in the production of finished goods relating to the WGU Trademarks (collectively, the “Inventory”).

(b)From and after the Closing Date, Seller shall not purchase or acquire, or agree to purchase or acquire, without the prior written consent of Purchaser which may be withheld in Purchaser’s sole discretion, any new Inventory (including raw materials, supplies or other materials which would be included in Inventory).

5.12Warranty Claims. On and after the Closing Date, any Liability of Seller under its standard warranty agreement(s) given by Seller to its former customers in the ordinary course of business prior to the Closing Date (each a “Warranty Claim”) (other than any Liability arising out of or related to a breach of such warranty agreement(s) that occurred and was known to Seller prior to the Closing Date) shall be treated as follows:

(a)During the Earn Out Period, and provided that Seller continues its operations, Purchaser may in its discretion honor on a reasonable businesslike basis any Warranty Claims. Purchaser shall be entitled to reimbursement from Seller for any Warranty Claims honored pursuant to this Section 5.12(a) promptly upon notice to Seller specifying in reasonable detail the amount of such Warranty Claims undertaken by Purchaser; provided, however, that the failure to give such notice and/or notice of a claim will not constitute an election of remedies or limit Purchaser in any manner in the enforcement of any other remedies that may be available to Purchaser by reason of its discharge of Seller’s Liabilities under this Section 5.12(a).

(b)If Seller ceases operations prior to the end of the Earn Out Period, Purchaser shall be responsible for honoring all Warranty Claims and may offset amounts paid in satisfaction of such Warranty Claims against the Earn Out Obligation, pursuant to Section 9.5 of the Agreement.

(c)Upon termination of the Earn Out Period, Purchaser may, at its sole discretion, honor all Warranty Claims; provided, however, that, upon exercise of such discretion, Purchaser may not, thereafter, seek reimbursement from Seller therefor.

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5.13Confidentiality.

Purchaser agrees that any information contained in any Schedule or Exhibit to this Agreement or otherwise provided to Purchaser pursuant to this Agreement shall be held by Purchaser as confidential information in accordance with, and shall be subject to the terms of, that certain letter confidentiality agreement, dated June 26, 2006, by and between Seller and Purchaser Parent (the “Confidentiality Agreement”). The terms of the Confidentiality Agreement are hereby incorporated by reference herein and shall continue in full force and effect, and if this Agreement is terminated or if the Closing shall not have occurred for any reason whatsoever, the Confidentiality Agreement shall thereafter remain in full force and effect in accordance with its terms.

5.14Limited License Agreement.

In order to facilitate the sale of the Inventory and collection of Seller’s receivables, Purchaser and Seller shall enter into a Limited License Agreement at Closing, in the form set forth in Exhibit D hereto, pursuant to which Purchaser shall grant Seller a royalty-free Limited license to use the WGU Trademarks for the sole purpose of selling the Inventory until such time as the Inventory is sold, or otherwise disposed of, in its entirety not to exceed the duration of the Earn Out Period plus 60 days thereafter under any circumstances.

6. CONDITIONS TO CLOSING

The obligation of the parties to consummate the Transactions is subject to the fulfillment, on or before the Closing Date, of all of the following conditions, all of which, with the exception of Section 6.1, may be waived by either party, at its sole discretion, with respect to the other party:

6.1Shareholder Approval.

The Agreement and the Transactions shall have been approved by Seller’s shareholders in accordance with Seller’s bylaws and Applicable Law.

6.2Due Performance.

The parties shall each have fully performed and complied with all agreements, covenants and conditions required by this Agreement to be performed or complied with.

6.3Accuracy of Representations and Warranties.

All representations and warranties of the parties set forth in this Agreement shall be true and correct at the Closing in all material respects, as though made on and as of the Closing Date.

6.4No Legal Prohibition

On the Closing Date, no Proceeding shall be pending that seeks to enjoin, restrain or prohibit the parties, or to obtain substantial damages from either Purchaser or Seller, in respect of the consummation of the Transactions.

6.5Fairness Opinion.

At or prior to the Closing, Seller shall provide Purchaser with a Fairness Opinion from a mutually agreed upon third-party provider.

7. TERMINATION

7.1Termination by Mutual Consent.

This Agreement may be terminated and the Transactions may be abandoned at any time prior to the Closing Date by mutual written consent of Purchaser and Seller.

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7.2Termination by Either Party.

The Agreement may be terminated and the Transactions may be abandoned by either Purchaser or Seller:

(a)if the Closing shall not have occurred by February 15, 2007 (the “Termination Date”); provided, however, that the right to terminate this Agreement pursuant to this clause shall not be available to any party that has breached in any material respect its obligations under this Agreement in any manner that shall have proximately contributed to the occurrence of the failure of the Transactions to be consummated;

(b)if any Order permanently restraining, enjoining or otherwise prohibiting consummation of the Transactions shall become final and non-appealable; or

(c)if there has been a material breach by the other party of any representation, warranty, covenant or agreement contained in this Agreement that, alone or together with any or all other such breaches, would prevent any of the conditions set forth in Section 6 from being satisfied (other than by waiver) prior to the Termination Date and that is not curable or, if curable, is not cured within twenty (20) days after written notice of such breach is given by the non-breaching party of the other party.

7.3Effect of Termination

In the event of termination of this Agreement, this Agreement shall become void and of no effect with no liability on the party of any party hereto, except that the provisions of Sections 5.5, 5.13, 7 and 10 shall remain in full force and effect; provided, however, that nothing in this Section 7.3 shall be deemed to relieve any party hereto of any liability or Damages resulting from any breach of this Agreement.

8. CLOSING

The closing for the consummation of the Transactions contemplated by this Agreement (the “Closing”) shall take place at the offices of Chicago Title Company Dallas, Texas 75201, no later than three (3) business days after approval by Seller’s shareholders of the Agreement and the Transactions (the “Closing Date”); provided that it is anticipated that the parties will effect the Closing remotely in accordance with Section 8.15.

9. INDEMNIFICATION

9.1Survival. The representations and warranties set forth herein shall survive the execution and delivery of this Agreement, the respective Operative Documents and the Closing and shall fully expire and terminate twelve (12) months after the Closing Date.

9.2Indemnification by Seller. Seller covenants and agrees to defend, indemnify and hold Purchaser, Purchaser Parent, and their respective Affiliates, including but not limited to directors, members, officers, managers, employees, agents, representatives, successors and assignees (collectively, “Purchaser Indemnitees”) harmless from and against any and all Damages, Liabilities (joint or several), and Proceedings, of any kind or nature whatsoever , directly or indirectly resulting from relating to or arising out of:

(a)any breach of, or any inaccuracy in, any representation or warranty of Seller (or any alleged breach or inaccuracy in a representation or warranty, if any third party alleges facts that, if true, would constitute a breach of inaccuracy in such representation or warranty) contained herein or in any document or instrument executed and delivered pursuant hereto or thereto, including any Operative Document;

(b)the non-performance (partial or total) of any covenant or obligation to be performed by Seller contained herein or in any document or instrument executed and delivered pursuant hereto or thereto, including any Operative Document;

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(c)any Liability of Seller of any nature arising out of the conduct of the Business or any use or ownership of any of the Assets on or prior to the Closing Date;

(d)any Excluded Liability;

(e)Transaction Expenses of Seller; and

(f)the failure or alleged failure of Seller or any Affiliate of Seller to pay when due any Tax, satisfy any Tax Liability or to withhold for any Tax or for failing or allegedly failing to accurately complete any Tax Return due with regard thereto, in each case relating to the ownership, use and/or operation of the Assets and/or the Business on or prior to the Closing Date, but only to the extent such failure would adversely impact Purchaser’s use of the Assets, and/or, subject to Section 5.10, based on any Tax triggered by, based on, arising out of, or attributable to the Transactions contemplated or effected hereunder.

9.3Indemnity by Purchaser. Purchaser covenants and agrees to defend, indemnify and hold Seller and Seller’s Affiliates, including but not limited to directors, officers, managers, employees, agents, representatives, successors and assignees (collectively, “Seller Indemnitees”) harmless from and against any and all Damages, Liabilities (joint or several), and Proceedings, of any kind or nature whatsoever , directly or indirectly resulting from relating to or arising out of:

(a)any breach of, or any inaccuracy in, any representation or warranty of Purchaser (or any alleged breach or inaccuracy in a representation or warranty, if any third party alleges facts that, if true, would constitute a breach of inaccuracy in such representation or warranty) contained herein or in any document or instrument executed and delivered pursuant hereto or thereto, including any Operative Document;

(b)the non-performance (partial or total) of any covenant or obligation to be performed by Purchaser contained herein or in any document or instrument executed and delivered pursuant hereto or thereto, including any Operative Document;

(c)any Liability of Purchaser of any nature arising out of the use or ownership of any of the Assets after the Closing Date by Purchaser;

(d)Transaction Expenses of Purchaser; and

(e)the failure or alleged failure of Purchaser or any Affiliate of Purchaser to pay when due any Tax, satisfy any Tax Liability or to withhold for any Tax or for failing or allegedly failing to accurately complete any Tax Return due with regard thereto, in each case relating to the ownership, use and/or operation of the Assets after the Closing Date, and/or, subject to Section 5.10, based on any Tax triggered by, based on, arising out of, or attributable to the Transactions contemplated or effected hereunder.

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9.4Defense of Third-Party Claims. If a claim for indemnity is to be made by a Purchaser Indemnitee or Seller Indemnitee (an “Indemnified Person”) against Seller or Purchaser, as the case may be (the “Indemnifying Person”), the Indemnified Person shall give written notice to the Indemnifying Person as soon as practical after the Indemnified Person becomes aware of any fact, condition or event that may give rise to a claim for which indemnification may be sought under this Article 9. If any lawsuit or enforcement action is filed against an Indemnified Person, written notice thereof shall be given to the Indemnifying Person as promptly as practicable (and in any event within fifteen (15) days after the service of the citation or summons); provided, however, that failure to give such notice shall not preclude such Indemnified Person’s right to indemnification hereunder. Nothing contained herein shall preclude an Indemnified Person from taking any action deemed reasonably necessary or appropriate in response to any third-party claims during such interim period. An indemnification claim may, at the option of the Indemnified Person, be asserted as soon as any situation, event or occurrence has been noticed by the Indemnified Person regardless whether actual harm has been suffered or out-of-pocket expenses incurred. After such notice, if the Indemnifying Person acknowledges in writing to the Indemnified Person within ten (10) days of receiving notice that the Indemnifying Person shall be obligated under the terms of its indemnity hereunder in connection with such lawsuit or action, then the Indemnifying Person shall be entitled, if it so elects, to take control of the defense and investigation of such lawsuit or action and to employ and engage attorneys reasonably acceptable to the Indemnified Person to handle and defend the same, at the Indemnifying Person’s cost, risk and expense, provided that the Indemnifying Person and its counsel shall proceed with diligence and in good faith with respect thereto. If the Indemnifying Person decides not to participate or does not respond within ten (10) days of receiving notice from the Indemnified Person, then the Indemnified Person shall be entitled, at the Indemnifying Person’s expense, to defend, conduct, settle or compromise such matter with counsel selected by the Indemnified Person. The Indemnified Person may, at the Indemnifying Person’s cost, participate in the investigation, trial and defense of such lawsuit or action or any appeal arising therefrom. The Indemnifying Person shall have the right to settle or compromise monetary claims. As to any other type of claim, however, the Indemnifying Person shall first obtain the prior written consent from the Indemnified Person, which consent shall be exercised in the Indemnified Person’s sole discretion. If the Indemnifying Person has acknowledged to the Indemnified Person its obligation to indemnify hereunder, the Indemnified Person shall not settle such lawsuit or enforcement action without the prior written consent of the Indemnifying Person, and the Indemnifying Person may not settle or compromise any claim over the objection of the Indemnified Person; provided, however, if the settlement or compromise does not result in any Liability to the Indemnified Person or otherwise require the Indemnified Person to take any action or to refrain from taking any action, consent to such settlement or compromise shall not be unreasonably withheld, conditioned or delayed. The Indemnifying Person shall keep the Indemnified Person fully apprised of the status of the suit, action or proceeding and shall make the Indemnifying Person’s counsel available to the Indemnified Person, at the Indemnifying Person’s expense, upon the reasonable request of the Indemnified Person. The Indemnified Person shall cooperate in all reasonable respects with the Indemnifying Person in connection with any such claim and shall make personnel, books and records and other information relevant to the claim available to the Indemnifying Person to the extent that such personnel, books and records and other information are in the possession and/or control of the Indemnified Person. Notwithstanding anything to the contrary contained in this Section 9.4, if the Indemnifying Person fails to respond to any service of citation or notice contemplated herein, or to prosecute the defense of such action or lawsuit in a diligent manner, the Indemnified Person shall be entitled to notify the Indemnifying Person in writing and take over the defense in such matter and to settle the action or lawsuit following twenty (20) days prior notice to the Indemnifying Person, both at the expense of the Indemnifying Person.

9.5Limitations.

Notwithstanding anything contained in this Agreement to the contrary, neither party shall be liable to indemnify the other party:

(a)for Damages pursuant to Sections 9.2 or 9.3, as the case may be, until the aggregate amount of all such Damages exceeds $50,000 and then the Indemnifying Person shall be liable only to the extent that such Damages exceed $50,000;

(b)for any Damages claimed pursuant to Sections 9.2 or 9.3, as the case may be, in excess of $600,000 in the aggregate plus the Earn Out Obligation;

(c)for any claim as to which either party, or any Affiliate, agent or representative of such party, had knowledge of the material facts or circumstances underlying such claim prior to the Closing Date.

9.5Offset. Purchaser shall be entitled to offset during the Earn Out Period against any sums due and owing to Seller, including amounts due under the Earn Out Obligation, Liabilities of Seller to Purchaser arising out of an obligation for indemnification pursuant to this Article 9.

9.6No Third-Party Beneficiaries. The foregoing indemnification is given solely for the purpose of protecting the Purchaser Indemnitees and Seller Indemnitees and lenders of the Purchaser to whom Purchaser assigns its rights hereunder, and shall not be deemed extended to, or interpreted in a manner to confer any benefit, right or cause of action upon, any other Person.

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10. GENERAL PROVISIONS AND OTHER AGREEMENTS

10.1Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if and when delivered personally or transmitted by telex or telecopy (receipt confirmed), mailed by registered or certified mail (return receipt requested) or sent by a recognized next business day courier to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):

(a) If to Purchaser or Purchaser Parent:

WGU, LLC

2801 East Plano Parkway

Plano, Texas 75074

Attention: Chief Financial Officer

Facsimile: (972) 673-9897

with a copy (which shall not constitute notice) to the following:

Andrews Kurth LLP

1717 Main Street, Suite 3700

Dallas, Texas 75201

Attention: Joseph A. Hoffman, Esq.

Facsimile: (214) 659-4861

(b) If to Seller:

Women’s Golf Unlimited, Inc.

c/o Robert Ross, Chairman

160 Buckthorn Rd.

Bayden, PA 15005

Attention: Robert Ross

Facsimile: (724) 935-6422

with a copy (which shall not constitute notice) to:

Squire, Sanders & Dempsey L.L.P.

4900 Key Tower, 127 Public Square

Cleveland, Ohio 44114

Attention: Mary Ann Jorgenson, Esq.

Facsimile No.: (216) 479-8780

10.2Fees and Expenses. Seller and Purchaser shall each pay all of their respective fees, costs and expenses (including those of accountants, appraisers and attorneys) incurred in connection with or related to the preparation, negotiation, execution, delivery, satisfaction, compliance and consummation of this Agreement and the Transactions contemplated hereby.

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10.3Interpretation; Construction. The headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. Terms such as “herein,” “hereof,” “hereinafter” refer to this Agreement as a whole and not to the particular sentence or paragraph where they appear and unless the context otherwise requires. Terms used in the plural include the singular, and vice versa, unless the context otherwise requires. The parties hereto acknowledge that each party was represented by legal counsel or had the opportunity to obtain legal counsel in connection with this Agreement and that each party and each party’s counsel, as applicable, have reviewed this Agreement or have had an opportunity to do so, and that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement.

10.4Parties in Interest.Nothing in this Agreement, whether express or implied, is intended to confer any rights or remedies under or by reason of this Agreement on any Persons other than Purchaser and Seller and their respective successors and permitted assigns, and nothing in this Agreement is intended to relieve or discharge the obligation or Liability of any third Person to any party to this Agreement, nor shall any provisions give any third Person any right or subrogation against any party to this Agreement.

10.5Governing Law.This Agreement shall be construed and enforced in accordance with the substantive laws of the State of Texas without reference to the conflict of law provisions thereof.

10.6Incorporation by Reference.The Disclosure Schedules and any other Schedules and exhibits hereto shall be deemed incorporated by reference in this Agreement.

10.7Entire Agreement; Amendment; Waiver. This Agreement, the Disclosure Schedules and the Operative Documents constitute the entire Agreement between Seller and Purchaser pertaining to the subject matter contained herein and therein and supersedes all prior agreements, representations, and all understandings of the parties. No supplement, modification or amendment of this Agreement or any such other instruments shall be binding unless expressed as such and executed in writing by Purchaser and Seller. No waiver of any of the provisions of this Agreement or any such other instruments shall be deemed tobe or shall constitute a waiver of any other provisions hereof or thereof, whether or not similar, nor shall any such waiver constitute a continuing waiver. No waiver shall be binding unless expressed as such in a document executed by the party making the waiver.

10.8Assignment; Binding Effect. This Agreement may not be assigned by operation of law or otherwise, except that the rights of the Purchaser hereunder may be assigned to lenders of Purchaser, if any. Notwithstanding any provision hereof, Purchaser may assign all or part of its rights under this Agreement to any of Purchaser’s subsidiaries or to a successor by merger, consolidation or other business combination, and such assignee of Purchaser, shall thereafter receive and enjoy the benefits of all of Seller’s obligations hereunder with respect to the rights so assigned. This Agreement shall be binding on and shall inure to the benefit of the respective successors and permitted assigns of the parties hereto, but nothing contained in this paragraph shall be construed as a consent to any assignment of this Agreement by either Purchaser or Seller unless otherwise set out herein.

10.9Severability. If any term or other provision of this Agreement or any portion thereof, is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other terms and provisions of this Agreement, or remaining portion thereof, shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any such term or other provision, or any portion thereof, is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are consummated to the fullest extent possible.

10.10Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

10.11Headings. The headings of this Agreement are for convenience only and do not constitute a part of this Agreement.

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10.12Arbitration.

(a)If the parties are unable to resolve any controversy, dispute or claim arising out of, or relating to, this Agreement (any such controversy, claim or dispute, a “Dispute”) on or before the 30th day following the receipt by the parties of written notice of such Dispute from the other party, which notice describes in reasonable detail the nature of the dispute and the facts and circumstances relating thereto, the parties shall, by delivery by one party of written notice to the other party, require that representatives of the parties meet at a mutually agreeable time and place in an attempt to resolve such Dispute. Such meeting shall take place on or before the 15th day following the date of the notice requiring such meeting, and if the Dispute has not been resolved within fifteen (15) days following such meeting, unless the parties agree to an extension, any one or more of the parties shall cause such Dispute to be settled by final and binding arbitration in Dallas, Texas. Each party hereto hereby consents to the jurisdiction of the arbitrators and waives any objection to the jurisdiction of such arbitrator. The obligation shall be initiated by filing a written demand for arbitration with the Judicial Arbitration and Mediation Services (“JAMS”), with a copy to the other party or parties, within thirty (30) days following the expiration of such 15-day period. The arbitration will be conducted in accordance with the provisions of the Comprehensive Arbitration Rules of JAMS in effect at the time of filing of the demand for arbitration; provided that the parties agree that each party to the Dispute shall have discovery to the extent provided by the arbitrators.

(b)Purchaser, on the one hand, and Seller, on the other hand, will appoint one person to hear and determine the Dispute within fifteen (15) days after receipt of notice of arbitration from the noticing party. The two (2) persons so chosen will select a third impartial, neutral arbitrator, and their majority decision will be final and conclusive upon both parties hereto. If either Purchaser, on the one hand, or Seller, on the other hand, fails to designate its arbitrator within twenty (20) days after the notice provided for herein, then the arbitrator designated by the one will act as the sole arbitrator and will be deemed to be the single, mutually approved arbitrator to resolve the controversy. In the event the parties are unable to agree upon a rate of compensation for the arbitrators, they will be compensated for their services at a rate to be determined by the JAMS.

(c)The party who is the prevailing party in any arbitration proceeding commenced hereunder shall be entitled, as a part of the arbitration award, to petition the arbitrators to award the costs and expenses (including reasonable attorneys’ fees and interest from the date due until paid at the maximum rate allowable by law on any award) of investigating, preparing and pursuing an arbitration claim as such costs and expenses are determined by the arbitrators.

(d)Purchaser, on the one hand, and Seller, on the other hand, shall each deposit one half of all estimated fees and expenses of the arbitration proceeding with the JAMS within fourteen (14) days after a Dispute has been submitted to arbitration.

(e)THE ARBITRATOR OR ARBITRATORS SHALL NOT BE EMPOWERED TO AWARD DAMAGES IN EXCESS OF COMPENSATORY DAMAGES (WHICH COMPENSATORY DAMAGES INCLUDE REASONABLE ATTORNEYS FEES AND EXPERT WITNESS FEES) AND EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT TO RECOVER SUCH DAMAGES (INCLUDING PUNITIVE DAMAGES) IN ANY FORUM.

(f)The arbitrators will, upon the request of any party, issue a written opinion of their findings of fact and conclusions of law.

10.13Jurisdiction; Venue

The parties hereto agree that any suit, action or proceeding involving, arising out of, or relating to the enforcement of the arbitration provisions of Section 10.12 shall be instituted only in the state or federal courts in Collin County, Texas. Application shall also be made to such court to confirm, modify or vacate any decision or award of the arbitrators, for an order of enforcement and for any other remedies, including equitable remedies, which may be necessary to effectuate such decision or award. Each party waives any objection it may have now or hereafter to the laying of the venue of any such suit, action or proceeding in [Collin County, Texas and any defense of inconvenient forum and irrevocably submits to the jurisdiction of any of the federal or state courts in Collin County, Texas in any such suit, action or proceeding. The provisions of this Section 10.13 shall be specifically enforceable against the parties. Process in any action or proceeding relating to this Agreement and the arbitration provisions of Section 8.13 may be served on any party anywhere in the world.

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10.14Execution by Facsimile; Delivery of Original Signed Agreement; Counterparts.

This Agreement may be executed by facsimile, and shall be deemed effectively executed upon the receipt by Purchaser and Seller of the last page of this Agreement duly executed by the other parties hereto. Each party to this Agreement agrees to deliver two (2) original, inked and signed copies of this Agreement within four (4) days of faxing the executed last page hereof.

10.15Disclosure Schedules.

Each of the statements made in the Disclosure Schedules shall be deemed a representation and warranty of Seller as if such statements were set forth herein. In the event of any inconsistency between the statements in the body of this Agreement and those in the Disclosure Schedules (other than an exception expressly set forth as such in the Disclosure Schedules in relation to a specifically identified representation or warranty), those in this Agreement shall control. No specific representation or warranty shall limit the generality or applicability of a more general representation or warranty. Any matter disclosed in any Disclosure Schedule shall be deemed to be disclosed with respect to any other representation or warranty of Seller to the extent that it is disclosed in such a way as to make its relevance to such other section reasonably apparent on its face.

10.16Purchaser Parent Guarantee

(a)Purchaser Parent hereby unconditionally guarantees to Seller the prompt performance of all of Purchaser’s payment and other obligations (including the payment of any indemnification obligations) hereunder and payment of all amounts or performance of all obligations that Purchaser may be obligated to pay or perform in connection with any of the terms of this Agreement or the Operative Documents.

(b)Purchaser Parent is a Limited Liability Partnership incorporated and validly existing under Applicable Laws of the State of Texas. .

(c)Purchaser Parent has full power and authority to execute, deliver and perform this Agreement and to consummate the Transactions. The execution and delivery by Purchaser Parent of this Agreement and the consummation of the Transactions have been duly and validly authorized by all necessary corporate action and no other corporate proceedings on the part of Purchaser Parent are necessary with respect thereto. This Agreement has been duly and validly executed and delivered by Purchaser Parent, and constitutes a legal, valid and binding obligation of Purchaser Parent enforceable in accordance with its terms (subject, as to enforcement, to applicable bankruptcy, insolvency, moratorium, reorganization or similar Applicable Laws affecting creditors’ rights generally and to general equitable principles).

(Signature page follows)

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement or have caused this Agreement to be executed by their duly authorized officers.

PURCHASER:

WGU, LLC

By:/s/ O.G. Brewer, III

Name:O.G. Brewer, III

Title:President & CEO

PURCHASER PARENT:

ADAMS GOLF, LTD.

By:/s/ O.G. Brewer, III

Name:O.G. Brewer, III

Title:President & CEO

SELLER:

WOMEN’S GOLF UNLIMITED, INC.

By:/s/ Douglas A. Buffington

Name:Douglas A. Buffington

Title:President

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EXHIBIT A

Agreement to Preserve Corporate Opportunity

AGREEMENT TO PRESERVE CORPORATE OPPORTUNITY

THIS AGREEMENT TO PRESERVE CORPORATE OPPORTUNITY (this “Agreement”) is dated __________, 200__, by and among WGU, LLC, a Texas limited liability company (“Buyer”), and Women’s Golf Unlimited, Inc., a New Jersey corporation (the “Company”).

RECITALS:

Concurrently with the execution of this Agreement, for good and valuable consideration, the Company is selling certain assets (the “Assets”) to Buyer pursuant to the terms and conditions of that certain Asset Purchase Agreement, dated as of December 15, 2006 (the “Purchase Agreement”), by and among Buyer and the Company. Pursuant to Section 2.6(a) of the Purchase Agreement, the Company is executing and delivering to Buyer this Agreement.

AGREEMENT

The parties, intending to be legally bound, agree as follows:

1. Definitions. Capitalized terms not expressly defined in this Agreement shall have the meanings ascribed to them in the Asset Purchase Agreement.

The term “Confidential Information” means all of the confidential and proprietary information relating to the Assets existing as of the date hereof and/or hereafter in possession of the Company relating to the Assets, including all information and compilations of information of any kind, type or nature (tangible and intangible, written or oral, and including information contained, stored or transmitted through any electronic medium) relating to the financial conditions, results of operations, business, properties or future prospects of Assets as utilized by the Buyer, special arrangements regarding the pricing and purchase of products or services including proprietary methods, cost information, customer and potential customer lists and contact information, pricing and volume by customer, customer preferences, supplier information, agency and contractor relationships and contact information, sales and profit information, goodwill, any other trade secrets, including information concerning services and products, developments, techniques, processes, formulae, know-how, new service, product and marketing plans, inventions, discoveries, patent applications, ideas, designs, drawings, test data, computer programs, software (including object code and source code), databases, technologies, systems, structures and architectures, methods, research, procurement and sales activities and procedures, promotion and pricing techniques and credit and financial data concerning customers and potential customers for products and services related to or resulting from utilization of the Assets, and technical proprietary information and any other intangible assets whether communicated orally, electronically, in writing or in any other tangible media. Confidential Information shall not include information that (a) is generally available to the public or that is customarily and generally available for other businesses in the same industry; (b) hereafter becomes, through no act or failure to act on the part of the Company, generally known or available in the public domain; or (c) is hereafter furnished to the Company by a third party, as a matter or right and without restriction on disclosure.

2. Acknowledgments by the Company. The Company acknowledges that (a) Buyer has required that the Company make the covenants set forth in Sections 3 and 4 of this Agreement as a condition to the consummation of the transactions contemplated by the Purchase Agreement; (b) the covenants in Sections 3 and 4 are essential elements of the proposed transaction and protect the vital interests of Buyer; (c) the provisions of Sections 3 and 4 of this Agreement are reasonable and necessary to protect and preserve the business of the Company, and (d) Buyer would be irreparably damaged if the Company were to breach the covenants set forth in Sections 3 and 4 of this Agreement.

3. Nondisclosure and Nonuse of Confidential Information. In connection with and as a result of the transactions contemplated by the Purchase Agreement, the Company shall possess and receive from Buyer Confidential Information, including under Section 2.3 of the Purchase Agreement. Therefore, from and after the date of this Agreement, the Company agrees that it will not, at any time, disclose to any unauthorized Persons or use for its own account (except as it relates to the enforcement of the Company’s rights and obligations under the Purchase Agreement) or for the benefit of any third Person any Confidential Information, whether the Company has such Confidential Information in the memory of its officers, directors and/or employees or Affiliates or embodied in writing or other physical or tangible form or media, without the Buyer’s express written consent, which may be withheld in the Buyer’s sole discretion, unless the communication of such Confidential Information is in response to a valid order by a court or other Governmental Authority or is otherwise required by Applicable Law (but only to the extent of such order or requirements and after prompt written notice to the Buyer of such order or requirement). The Company agrees to use commercially reasonable efforts, upon request from time to time, to locate and provide to Buyer such specific items of Confidential Information that may be reasonably requested by Buyer from time to time, whether embodied in electronic, hard copy or any other form, that the Company may then possess or have under its control.

4. Prohibited Activities. As an inducement for Buyer to consummate the transactions contemplated in the Purchase Agreement, the Company to the extent provided in this Agreement, agrees that:

4.1For a period of twenty-four (24) months following the date hereof:

(a)Neither the Company nor any of its affiliated entities will, directly or indirectly, in New Jersey, engage or invest in, own, manage, operate, finance, control or participate in the ownership, management, operation, financing or control of, or lend money or credit to any business whose products or activities compete, directly or indirectly, with the design, manufacture, assembly, marketing and/or or sale of products or services utilizing the Assets; provided, however, that the Company or its affiliated entities may purchase or otherwise acquire up to (but not more than) five percent (5%) of any class of securities of any enterprise (but without otherwise participating in the activities of such enterprise) if such securities are listed on any national or regional securities exchange or have been registered under Section 12(g) of the Securities Exchange Act of 1934, as amended, and further provided that the Company and/or its affiliated entities will, in no way, participate, either directly or indirectly, in the management, operation or other activities of such enterprise. For the purposes of this Section 4(a)(i), an “affiliated entity” shall explicitly exclude the Company’s officers, directors and employees and the parties agree that the prohibitions set forth in this Section 4(a)(i) shall not apply to such officers, directors and employees.

(b)Neither the Company nor its Affiliates will, directly or indirectly, either for themselves or any other Person, (a) induce or attempt to induce any current independent contractor or other Persons providing services to the Buyer in connection with its utilization of the Assets to cease providing services to the Buyer or its Affiliates, (b) in any way interfere with the relationship between the Buyer or its Affiliates and any current employee or independent contractor of the Buyer or its Affiliates or any other Person providing services to the Buyer or its Affiliates in connection with their utilization of the Assets, (c) knowingly employ or otherwise engage or hire (including participating in the interviewing, selecting, recruiting, screening, hiring, training or on-boarding) as an employee, independent contractor or otherwise, any independent contractor of the Buyer or its Affiliates or any Person who has been such an independent contractor of the Buyer or its Affiliates within the twelve (12) months preceding the date hereof, in each case in connection with Buyer’s utilization of the Assets, or (d) induce or attempt to induce any customer, supplier, licensee or business relation of the Buyer or its Affiliates to cease doing business with the Buyer or its Affiliates, or in any way interfere with the relationship between any current customer, supplier, licensee or business relation and the Buyer or its Affiliates.

(c)Neither the Company nor its Affiliates will, directly or indirectly, either for themselves or any other Person, solicit the business of, or contact or engage in business with, any Person known to any of them to be a current customer of the of the Buyer or its Affiliates with respect to products or services that utilize the Assets.

(d)Each of the Sellers and the Company agrees that the restrictions set forth above are ancillary to or part of otherwise enforceable agreements, are supported by independent valuable consideration, and that the limitations as to time, geographical area, and scope of activity to be restrained by this Section 4 are reasonable and acceptable in all respects, do not impose any greater restraint than is reasonably necessary to protect the goodwill and other business interests of Buyer and its ownership of the Assets, and are more than adequately paid for in the significant consideration derived by the Company, directly or indirectly, under the Purchase Agreement. The Company ratifies the restrictions set forth in this Section 4, agrees not to challenge, and covenants not to sue Buyer or its Affiliates regarding, the enforceability of the covenants stated herein.

4.2The parties agree that, if for any reason the court disagrees with the agreements and the acknowledgements of the parties in this Agreement, the court will have jurisdiction to modify any of the covenants of this Section 4 in accordance with the respective court’s ruling as to reasonableness or scope of application and that, consistent with Section 10 of this Agreement, this Agreement shall remain enforceable and in force as modified or amended. In the event of a breach by the Company of any covenant set forth in Section 4(a) of this Agreement, the term of such covenant will be extended by the period of the duration of such breach. The Company’s obligations under this Section shall survive the Closing.

4.3The covenants of the Company contained in this Section 4 will be construed as independent of any other provision in this Agreement, the Purchase Agreement, any of the Operative Documents or any related agreements, and the existence of any claim or cause of action by the Company against Buyer or its Affiliates will not constitute a defense to the enforcement by Buyer of such covenants. The Company further agrees that notwithstanding any other alleged breach of this Agreement, the provisions of this Section 4 will be valid and binding upon the Company.

5. Remedies. If the Company breaches the covenants set forth in Sections 3 or 4 of this Agreement, Buyer will be entitled to all of the following remedies:

5.1The recovery from the Company of all losses relating to or arising from such breaches;

5.2Injunctive or other equitable relief without posting bond to restrain any breach or threatened breach or otherwise to specifically enforce the provisions of Sections 3 and 4 of this Agreement, it being agreed that money damages alone would be inadequate to compensate Buyer and would be an inadequate remedy for such breach; and/or

5.3Any other rights Buyer may have at law, in equity or under contract.

The rights and remedies of the parties to this Agreement are cumulative and not alternative.

6. Successors and Assigns. This Agreement will be binding upon Buyer, the Company and their respective Affiliates will inure to the benefit of Buyer, and its successors and assigns. This Agreement may be assigned by Buyer to its successors by merger, consolidation, business combination, conversion or sale of all or substantially all of Buyer’s assets, but may not be assigned by the Company.

7. Waiver. Neither the failure nor any delay by any party in exercising any right, power or privilege under this Agreement will operate as a waiver of such right, power or privilege, and no single or partial exercise of any such right, power or privilege will preclude any other or further exercise of such right, power or privilege or the exercise of any other right, power or privilege. To the maximum extent permitted by Applicable Law, (a) no claim or right arising out of this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (b) no waiver that may be given by a party will be applicable, except in the specific instance for which it is given; and (c) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement.

8. Governing Law; Jurisdiction. This Agreement shall be construed and enforced in accordance with the internal laws of the State of Texas without regard to any conflicts or choice of law principles that would require the application of the laws other than the internal laws of the State of Texas. The parties (a) hereby irrevocably submit to the jurisdiction of the state courts of Collin County, Texas, and to the jurisdiction of the United States District Court for the Northern District of Texas, for the purpose of any suit, action or other proceeding arising out of or based upon this Agreement or any document collateral hereto or the subject matter hereof or thereof brought by any party or their respective successors or assigns and (b) hereby waive, and agree not to assert, by way of motion, as a defense or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above-named courts, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper, or that this Agreement or any document collateral thereto or the subject matter hereof or thereof may not be enforced in or by such court, and (c) hereby waive and agree not to seek any review of the decision of a Collin County, Texas state or federal court by any court of any other jurisdiction that may be called upon to grant enforcement of the judgment of any such Collin County, Texas state or federal court.

9. Entire Agreement. This Agreement, the Purchase Agreement and any of the Operative Documents or related agreements constitute the entire agreement between the parties with respect to the subject matter of this Agreement and supersede all prior written and oral agreements and understandings between the parties with respect to the subject matter of this Agreement. This Agreement may not be amended, except by a written agreement executed by the parties.

10. Severability. Whenever possible each provision and term of this Agreement will be interpreted in a manner to be effective and valid, but if any provision or term of this Agreement is held to be prohibited or invalid, then such provision or term will be ineffective only to the extent of such prohibition or invalidity, without invalidating or affecting in any manner whatsoever the remainder of such provision or term or the remaining provisions or terms of this Agreement. If any of the covenants set forth in Section 4 of this Agreement are held to be unreasonable, arbitrary, against public policy or otherwise unenforceable as written, such covenants will be considered divisible with respect to time, geographic area, and scope of activity to be restrained and in such lesser time, geographic area, and scope of activity to be restrained will be effective, binding, enforceable and in force against the Company.

11. Counterparts. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement.

12. Section Headings; Construction. The headings of Sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. All references to “Section” or “Sections” refer to the corresponding Section or Sections of this Agreement unless otherwise specified. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the words “including” and “includes” do not limit the preceding words or terms.

13. Notices. All notices, consents, waivers and other communications under this Agreement must be in writing and will be deemed to have been duly given when (a) delivered by hand (with written confirmation of receipt), (b) sent by facsimile (with written confirmation of receipt), provided that a copy is mailed by registered mail, return receipt requested, or (c) when received by the addressee, if sent by a nationally recognized overnight delivery service (receipt requested), in each case to the appropriate addresses and facsimile numbers set forth below (or to such other addresses and facsimile numbers as a party may designate by notice to the other parties):

If to Buyer:

WGU, LLC

2801 East Plano Parkway

Plano, Texas 75054

Attention: Chief Financial Officer

Facsimile: (972) 673-9897

with copies (which shall not constitute notice) to the following:

Andrews Kurth LLP

1717 Main Street, Suite 3700

Dallas, Texas 75201

Attention: Joseph A. Hoffman, Esq.

Facsimile: (214) 659-4861

If to the Company:

Women’s Golf Unlimited, Inc.

c/o Robert Ross, Chairman

160 Buckthorn Rd.

Bayden, PA 15005

Attention: Robert Ross

Facsimile: (724) 935-6422

with a copy to:

Squire, Sanders & Dempsey L.L.P.

4900 Key Tower, 127 Public Square

Cleveland, Ohio 44114

Attention: Mary Ann Jorgenson, Esq.

Facsimile No.: (216) 479-8780

14. No Third Party Beneficiaries. No person, firm or corporation other than Buyer and the Company shall have any rights under this Agreement or the provisions contained herein.

(Signature page follows)

IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first above written.

BUYER:

WGU, LLC

By: ______________________________

Name: ____________________________

Title: _____________________________

THE COMPANY:

WOMEN’S GOLF UNLIMITED, INC.

By: ______________________________

Name: ____________________________

Title:  _____________________________

EXHIBIT B

Assignment of Proprietary Rights

PROPRIETARY RIGHTS ASSIGNMENT

THIS PROPRIETARY RIGHTS ASSIGNMENT (“Agreement”) is dated [_________, 200__], by and between WOMEN’S GOLF UNLIMITED, INC., a New Jersey corporation (the “Assignor”) and WGU, LLC, Texas limited liability company (“Assignee”).

W I T N E S S E T H:

WHEREAS, Assignor and Assignee have entered into that certain Asset Purchase Agreement, dated as of December 15, 2006 (the “Purchase Agreement”);

WHEREAS, pursuant to the Purchase Agreement, Assignor desires to convey to Assignee all of Assignor’s collective rights, titles and interests to the Assets as defined and described in the Asset Purchase Agreement; and

WHEREAS, Assignor and Assignee desire to execute a document suitable for recordation of the assignment of the Assets to Assignee pursuant to the Purchase Agreement;

NOW, THEREFORE, for and in consideration of these premises, the mutual covenants and undertakings herein contained and for other good and valuable consideration, the full receipt and sufficiency of which are hereby expressly acknowledged and confessed and intending to be legally bound hereby, the parties hereto agree as follows:

1. Conveyance of Proprietary Rights to Assignee. Assignor does hereby sell, convey, transfer, assign and deliver unto Assignee and its successors and assigns, all of the rights, titles, privileges and interests of Assignor, as of the date hereof, in, to and under all the Assets (as defined in the Purchase Agreement) including, without limitation, those described in Schedule 2.1(a) attached to the Purchase Agreement (which is incorporated by reference herein and made a part hereof for all purposes), all good will associated with the Assets, and the right to sue for any past, present and future infringements or other unauthorized uses of the foregoing and to collect any damages therefor. Without limiting the generality of the foregoing, Assignor shall execute and deliver to Assignee any instruments, documents or agreements required by any registrar, hosting service or other Person with respect to the transfer of any of the Assets.

2. Covenants, Representations and Warranties. This Proprietary Rights Assignment is executed pursuant to the Purchase Agreement, and all of the terms and conditions of the Purchase Agreement are part of this Proprietary Rights Assignment as if fully incorporated herein. Without limiting the generality of the foregoing, the Assets are transferred and sold subject to and with the benefit of the representations, warranties and covenants contained in the Purchase Agreement, including any exceptions thereto. Assignor hereby covenants, represents and warrants that (a) Assignor is rightfully and absolutely possessed of and entitled to transfer the interest in each of the Assets as such interest is described in Section 1 above and hereby sold, conveyed, transferred or assigned and that Assignor has all the rights, titles, interests and authority to sell, convey, transfer and assign the interest transferred in the Assets as such interest is described in Section 1 above to Assignee, its successors and assigns according to this Agreement, (b) Assignee shall immediately upon its execution and delivery of this Agreement have possession of and may from time to time and at all times hereafter peaceably and quietly have, hold, possess and enjoy the interest transferred in the Assets as such interest is described in Paragraph 1 above and hereby sold, conveyed, transferred and assigned to and for Assignee’s own use and benefit without any manner of hindrance, interruption, claim or demand whatsoever of, from or by Assignor or any Person (as defined in the Purchase Agreement) whomsoever and with good and indefeasible title thereto, free and clear and absolutely released and discharged from and against all Liens of whatever kind or character and (c) neither the validity of any of the Assets nor Assignor’s ownership rights thereto have ever been questioned.

3. Further Assurances. Assignor hereby covenants and agrees with Assignee, its successors and assigns that Assignor will, from time to time and at all times hereafter, upon every reasonable request of Assignee, its successors or assigns, make, do and execute or cause and procure to be made, done and executed all such further acts, deeds or assurances as may be reasonably required by Assignee, its successors or assigns, whether for more effectually and completely vesting in Assignee, its successors or assigns the Assets hereby sold, conveyed, transferred or assigned in accordance with the terms hereof or for the purpose of registration or otherwise.

4. Power of Attorney. The Assignor hereby constitutes and appoints Assignee its true and lawful attorney-in-fact, with full power of substitution and resubstitution, in the name of Assignor or Assignee but on behalf and for the benefit of Assignee, to demand, collect and receive for the account of Assignee all of the Assets hereby sold, conveyed, transferred or assigned to Assignee or intended so to be; to institute or prosecute, in the name of Assignor or otherwise, all Proceedings (as defined in the Purchase Agreement) that Assignee may deem necessary or convenient in order to realize upon, affirm or obtain title to, or possession of, or to collect, assert or enforce any property, claim, right or title of any kind in or to the Assets hereby sold, conveyed, transferred or assigned to Assignee or intended so to be; and to do all such acts and things in relation thereto as Assignee shall deem reasonably desirable. Assignor agrees that the foregoing powers are coupled with an interest and are and shall be irrevocable by Assignor, assuming such power of attorney is reasonably exercised.

5. Assignor as Trustee. Assignor hereby declares that, as to any of the Assets of the Assignor intended to be sold, conveyed, transferred or assigned to Assignee, its successors and assigns hereby the title to which, for any reason, has not passed to Assignee, its successors and assigns by virtue of this Agreement or any transfers or conveyances that may from time to time be executed and delivered in pursuance of the foregoing covenants, Assignor holds the same in trust for Assignee, its successors and assigns to sell, convey, transfer and assign the same as Assignee may from time to time direct.

6. Controlling Agreement. It is contemplated that Assignor may, at any time or from time to time, execute, acknowledge and deliver one or more separate instruments of assignment and conveyance relating to certain of the Assets. No such separate instrument of assignment or conveyance shall limit the scope and effect of this Agreement. In the event that any conflict or ambiguity exists as between this Agreement and any such separate instrument of assignment, the terms and provisions of this Agreement shall govern and be controlling.

7. Governing Law. The validity, interpretation and performance of this Agreement and any dispute connected herewith shall be governed by and construed in accordance with the substantive laws of the State of Texas, excluding any conflicts of law rule or principle which might refer same to another jurisdiction.

8. Arbitration. If any Dispute or other matter in dispute hereunder is brought against either party hereto, such Dispute or other matter shall be resolved in accordance with Section 10.12 of the Purchase Agreement.

9. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns.

10. Amendment. This Agreement may be amended, modified or supplemented only by an instrument in writing executed by the parties.

11. Descriptive Headings. The descriptive headings of the several paragraphs, subparagraphs and clauses of this Agreement were inserted for convenience only and shall not be deemed to affect the meaning or construction of any of the provisions hereof.

12. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

(Signature page follows)

IN WITNESS WHEREOF, each of the parties has executed this Agreement as of the date first above written.

ASSIGNOR:

WOMEN’S GOLF UNLIMITED, INC.

By: ______________________________

Name: ____________________________

Title: _____________________________

STATE OF ___________	§
	§
COUNTY OF ________	§

BEFORE ME, the undersigned authority, on this day personally appeared _________________________, ______________ of Women’s Golf Unlimited, Inc., known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he/she executed the same for the purposes and consideration therein expressed, in the capacity therein stated, and as the act and deed and with full authority of said corporation.

GIVEN UNDER MY HAND AND SEAL OF OFFICE on this the ____ day of _________, 2006.

                                                                        ______________________________________

Notary in and for the State of ______________

My Commission Expires:

_____________________

ASSIGNEE:

WGU, LLC

By: ______________________________

Name: ____________________________

Title: _____________________________

STATE OF TEXAS	§
	§
COUNTY OF ________	§

BEFORE ME, the undersigned authority, on this day personally appeared __________, ___________ of WGU, LLC, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he/she executed the same for the purposes and consideration therein expressed, in the capacity therein stated, and as the act and deed and with full authority of said corporation.

GIVEN UNDER MY HAND AND SEAL OF OFFICE on this the ____ day of _________, 2006.

                                                                        ______________________________________

Notary in and for the State of Texas

My Commission Expires:

_____________________

EXHIBIT C

Bill of Sale

BILL OF SALE

THIS BILL OF SALE (“Bill of Sale”) effective as of this [___day of ________, 200__], is between WOMEN’S GOLF UNLIMITED, INC., a New Jersey corporation (“Assignor”), WGU, LLC, a Texas limited liability company (“Assignee”). All capitalized terms used herein and not defined shall have the meanings assigned to them in the Purchase Agreement (as defined below).

WHEREAS, Assignor and Assignee have entered into that certain Asset Purchase Agreement, dated as of December 15, 2006 (the “Purchase Agreement”), pursuant to which, among other things, Assignee will purchase from Assignor the Assets; and

WHEREAS, in order to effectuate the simultaneous sale and purchase of the Assets, Assignor is executing and delivering this Bill of Sale to Assignee.

NOW, THEREFORE, in consideration of the premises, the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, Assignor hereby agrees as follows:

A G R E E M E N T S:

1. Conveyance of Assets. On and subject to the terms and conditions of this Bill of Sale and the Asset Purchase Agreement, Assignor hereby SELLS, CONVEYS, TRANSFERS, ASSIGNS and DELIVERS unto Assignee and its successors and assigns, forever, all the Assets.

2. Assumption of Liabilities. This Bill of Sale is made without assumption of any Liabilities of Assignor.

3. Further Assurances; Power of Attorney. From time to time, as and when requested by Assignee, Assignor shall execute and deliver, or cause to be executed and delivered, such documents and instruments and shall take, or cause to be taken, such further or other actions as may be reasonably necessary to carry out the purposes of this Bill of Sale. Assignor hereby constitutes and appoints Assignee its true and lawful attorney-in-fact, with full power of substitution and resubstitution, in the name of Assignor or Assignee but on behalf and for the benefit of Assignee, to demand, collect and receive for the account of Assignee all of the Assets hereby sold, conveyed, transferred or assigned to Assignee or intended so to be; to institute or prosecute, in the name of Assignor or otherwise, all proceedings that Assignee may deem necessary or convenient in order to realize upon, affirm or obtain title to or possession of or to collect, assert or enforce any property, claim, right or title of any kind in or to the Assets hereby sold, conveyed, transferred or assigned to Assignee or intended so to be; and to do all such acts and things in relation thereto as Assignee shall deem reasonably desirable. Assignor agrees that the foregoing powers are coupled with an interest and are and shall be irrevocable by Assignor, assuming such power of attorney is reasonably exercised.

4. Controlling Agreement. It is contemplated that Assignor may, at any time or from time to time, execute, acknowledge and deliver one or more separate instruments of assignment and conveyance relating to certain of the Assets. No such separate instrument of assignment or conveyance shall limit the scope and effect of this Bill of Sale. In the event that any conflict or ambiguity exists as between this Bill of Sale and any such separate instrument of assignment, the terms and provisions of this Bill of Sale shall govern and be controlling.

5. Governing Law. The validity, interpretation and performance of this Bill of Sale and any dispute concerned herewith shall be governed by and construed in accordance with the substantive laws of the State of Texas, excluding any conflicts of law rule or principle which might refer same to another jurisdiction.

6. Arbitration. If any Dispute or other matter in dispute hereunder is brought against either party hereto, such Dispute or other matter shall be resolved in accordance with Section 10.12 of the Purchase Agreement.

7. Purchase Agreement. This Bill of Sale is executed pursuant to the Purchase Agreement and the terms and conditions of the Purchase Agreement, including the representations and warranties concerning the Assets conveyed hereby, are part of this Bill of Sale as if fully incorporated herein. The Assets are transferred and sold subject to and with the benefit of the representations, warranties and covenants contained in the Purchase Agreement, including any exceptions thereto.

8. Successors and Assigns. This Bill of Sale shall bind Assignor and its successors and assigns and inure to the benefit of Assignee and its successors and assigns.

9. Amendment. This Bill of Sale may be amended, modified or supplemented only by an instrument in writing executed by the parties.

10. Descriptive Headings. The descriptive headings of the several paragraphs, subparagraphs and clauses of this Bill of Sale were inserted for convenience only and shall not be deemed to affect the meaning or construction of any of the provisions hereof.

11. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

[Signature page follows]

EXECUTED EFFECTIVE as of the date first written above.

ASSIGNOR:

WOMEN’S GOLF UNLIMITED, INC.

By: __________________________

Name: ________________________

Title: _________________________

ASSIGNEE:

WGU, LLC

By: __________________________

Name: ________________________

Title: _________________________

EXHIBIT D

License Agreement

LIMITED LICENSE AGREEMENT

THIS LICENSE AGREEMENT (this “Agreement”), dated as of ________, 2006 (the “Effective Date”) is by and between WGU, LLC, a Texas limited liability company with a principal place of business located at 2801 East Plano Parkway. Plano, Texas 75074 (“Licensor”), and WOMEN’S GOLF UNLIMITED, INC., a New Jersey corporation with a principal place of business located at 18 Gloria Lane, Fairfield, New Jersey, 07004-3306 (“Licensee”). All terms not otherwise defined herein shall have the meanings attributed to them in that certain Asset Purchase Agreement, dated as of December 15, 2006, by and among Licensor, Licensee and Adams Golf, Inc. (the “Asset Purchase Agreement”).

RECITALS:

WHEREAS, pursuant to the terms of the Asset Purchase Agreement, Licensee has assigned and transferred to Licensor the trademarks, designs, logos, labels and slogans set forth on Annex A (collectively, the “Marks”), and, as a result, Licensor owns such Marks, which have been and will be utilized in connection with the marketing and sale of certain golf products and services; and

WHEREAS, Licensee desires to obtain from Licensor a limited license to use the Marks during the Term (as herein defined) to enable it to market, liquidate and sell Licensee’s remaining inventory set forth on Annex B (the “Remaining Inventory”) and to collect Licensee’s outstanding accounts receivable (together with the marketing, liquidation and sale of the Remaining Inventory, the “Permitted Uses”);

NOW, THEREFORE, Licensor and Licensee hereby agree as follows:

1. Grant of License. Subject to the terms and conditions of this Agreement, Licensor hereby grants to Licensee a fully paid, nontransferable, royalty-free limited license to use the Marks during the Term of this Agreement in the Continental United States solely for the purpose of marketing, liquidating and selling the remaining Inventory set forth on Annex B and collecting Licensee’s outstanding accounts receivable.

2. Impairment of Mark /Goodwill. Licensee will not at any time do or cause to be done any act or thing in any way impairing or tending to impair any part of the Licensor’s right, title and interest in and to the Marks. Licensee will not in any manner represent that it has any ownership or other interest in the Marks or contest or challenge Licensor’s rights in the Marks, and Licensee acknowledges that use of the Marks shall not create in Licensee's favor any right, title or interest in the Marks, but instead, all uses of the Marks by Licensee (except for Permitted Uses) and all goodwill arising therefrom shall belong to, and inure solely to the benefit of, Licensor.

3. Unauthorized Use of the Mark. During the Term of this Agreement, Licensee agrees not to sublicense, assign, or in any way transfer its rights hereunder to any third party.

4. Infringement/Unauthorized Use of the Mark. The parties agree to notify each other promptly in the ordinary course of business in the event any party believes that any of the Marks is being infringed or adversely affected by any unauthorized and unlawful use by third parties. The parties agree to cooperate with each other in the protection and enforcement of the rights of the Marks against any unauthorized use by third parties, provided that Licensor shall be solely responsible for all monetary obligations and liabilities with respect thereto, except to the extent such unauthorized use results from or arises out of Licensee’s breach of this Agreement in which case Licensee shall be solely responsible for all such obligations and liabilities.

5. No Representations or Warranties. Licensor does not make any representation or warranty of any kind to Licensee, including any representation or warranty regarding the quality, use or noninfringing nature of any of the Marks.

6. Indemnification. Subject to the warranty claims provision set forth in Section 5.12 of the Purchase Agreement, Licensee agrees, in addition to any other rights or remedies of Licensor, to defend, indemnify and hold Licensor harmless from any and all losses, damages liabilities or expenses arising out of, resulting from, or incurred in connection with, the Licensee’s use of the Marks, or from any consumer complaint, claim or legal action whatsoever, alleging damages, death, illness or injury, or otherwise resulting from the purchase or use of any of the Remaining Inventory whether foreseen or unforeseen.

7. Term and Termination.

7.1The term of this Agreement (the “Term”) shall commence on the Effective Date and shall terminate on the date that is 60 days after the end of the Earn Out Period, unless and until otherwise terminated in accordance with the terms of this Agreement.

7.2Licensor may terminate this Agreement at any time for Licensee’s material breach of this Agreement, provided that Licensor has provided Licensee with written notice of such material breach and Licensee has failed to cure such breach within twenty (20) days of receipt of such notice. Upon termination of the Agreement, all rights in and to the Marks shall remain with Licensor, Licensee’s rights to use the Marks shall automatically cease and Licensee shall have no right to continue using the Marks and shall immediately discontinue all use of the Marks and any trade symbol or designation confusingly similar thereto.

8. Compliance with Laws. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED ACCORDING TO THE STATE OF TEXAS AND IN CONFORMANCE WITH ALL APPLICABLE STATE, FEDERAL AND LOCAL LAWS, ORDINANCES, ORDERS, DIRECTIVES, RULES, AND REGULATIONS OF ANY GOVERNMENTAL BODY OR AGENCY HAVING JURISDICTION. ANY LITIGATION, SPECIAL PROCEEDING OR OTHER PROCEEDING AS BETWEEN THE PARTIES THAT MAY BE BROUGHT, OR ARISE OUT OF, IN CONNECTION WITH, OR BY REASON OF, THIS AGREEMENT SHALL BE BROUGHT IN THE APPLICABLE STATE OR FEDERAL COURTS IN COLLIN COUNTY, TEXAS, WHICH COURTS SHALL BE THE EXCLUSIVE COURTS OF JURISDICTION AND VENUE FOR ANY ACTION OR CLAIM ARISING UNDER THIS AGREEMENT, AND EACH OF THE PARTIES HERETO AGREES TO WAIVE ANY OBJECTION IT MAY HAVE TO PERSONAL JURISDICTION THEREIN.

9. Injunctive Relief. Licensee understands and agrees that (a) violation in any material respect of any of the provisions of this Agreement by Licensee will cause immediate and irreversible harm to Licensor; (b) Licensor in such event will have no adequate remedy at law; and (c) Licensor in such even will be entitled to immediate restraint and preliminary and other injunctive relief, without any requirement to post bond, against any violation of this Agreement by Licensee. Any injunctive relief sought by Licensor will be in addition to, and in no way in limitation of, any remedies or rights to recover damages that Licensor may have at law or in equity for the enforcement of this Agreement.

10. Notices. All notices or other communications required by or relating to this Agreement or the subject matter hereof shall be in writing and shall be personally delivered, sent by facsimile or telex (confirmation received), or mailed, by certified mail, postage prepaid, or sent by a recognized next business day courier to the parties at the following addresses:

Licensor:

WGU, LLC

2801 East Plano Parkway

Plano, Texas 75074

Attention: Mr. Eric Logan

Facsimile: 972-673-9200

With a copy (which shall not constitute notice) to the following:

Andrews Kurth LLP

1717 Main Street, Suite 3700

Dallas, Texas 75201

Attention: Joseph A. Hoffman, Esq.

Facsimile: 214-659-4861

Licensee:

Women’s Golf Unlimited, Inc.

c/o Robert Ross, Chairman

160 Buckthorn Rd.

Bayden, PA 15005

Attention: Robert Ross

Facsimile: (724) 935-6422

with a copy (which shall not constitute notice) to:

Squire, Sanders & Dempsey, L.L.P.

4900 Key Tower

127 Public Square

Cleveland, Ohio 44114-1304

Attention: Mary Ann Jorgenson, Esq.

Facsimile: 216-479-8780

or to such other address as may be designated in written notice to the other parties. All notices, requests, consents and demands hereunder will be effective when personally delivered or sent by facsimile or telex, three days after being mailed, or one business day after being sent by a recognized next business day courier.

11. Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument. In making proof of this Agreement, it shall not be necessary to produce or account for more than one such counterpart.

12. Severability. If any provision of this Agreement is declared or found illegal, unenforceable or void, then all parties will be relieved of all obligations arising under such provision, but unenforceable or void, then all parties will be relieved of all obligations arising under such provision, but only to the extent that such provision is illegal, unenforceable or void, it being the intent and agreement of the parties that this Agreement will be deemed amended by modifying the provision to the minimum extent necessary to make it legal and enforceable while preserving the intent of such provision or, if that is not possible, by substituting therefor another provision that is legal and enforceable and achieves the same objective. If the remainder of this Agreement will not be affected by the declaration or finding and can be substantially performed, then each provision not so affected will be enforced to the extent permitted by law.

13. General.

13.1This Agreement may not be modified, altered, amended, or terminated except by the written agreement of each of the parties.

13.2Any waiver, variation or amendment of any term or condition of this Agreement will be effective only if signed by authorized representatives of both parties hereto.

13.3The parties agree to perform all acts and execute all instruments necessary or appropriate to carry out the terms of this Agreement.

13.4This Agreement together with the Asset Purchase Agreement and all exhibits hereto and thereto set forth the entire understanding of the parties with respect to the subject matter hereof and supersede all prior or contemporaneous representations, understandings and agreements, oral or written, made between the parties affecting the subject matter hereof, and all such prior or contemporaneous representations, understandings and agreements are hereby terminated.

13.5Headings used in this Agreement are for convenience only and will not be deemed to be operative text.

13.6Terms of gender will be deemed interchangeable, as will singular and plural terms, in each case unless the context otherwise requires. The term “includes” and “including” means includes or including without limitation.

(Signature page follows)

IN WITNESS WHEREOF, this Agreement has been duly executed by the authorized officers of the parties hereto as of the day and year first above written.

Licensor:	Licensee:
WGU, LLC	WOMEN’S GOLF UNLIMITED, INC.
By: _________________________	By: _______________________
Name: _________________________	Name: ______________________
Title:  _____________________	Title:______________________

ANNEX A

MARKS

ANNEX B

REMAINING INVENTORY

EX-21.1

EXHIBIT 21.1

ADAMS GOLF, INC., A DELAWARE CORPORATION

SUBSIDIARIES

The Company conducts its operations through several direct and indirect wholly-owned subsidiaries, agencies and distributorships, including (i) Adams Golf Holding Corp., which holds limited partnership interest of certain indirect subsidiaries of the Company; (ii) Adams Golf GP Corp., which holds capital stock or general partnership interests, as applicable, of certain indirect subsidiaries to the Company; (iii) Adams Golf, Ltd., which operates the golf club design, assembly and retail sales business; (v) Adams Golf IP, L.P., which holds the intellectual property rights of the Company, and (vi) Adams Golf Management Corp., which provides management and consulting services to certain of the Company's indirect subsidiaries.  A complete list of the Company's subsidiaries at March 13, 2007 is as follows:

Adams Golf, Ltd., a Texas limited partnership

Adams Golf Holding Corp., a Delaware corporation

Adams Golf GP Corp., a Delaware corporation

Adams Golf Management Corp., a Delaware corporation

Adams Golf IP, L.P., a Delaware limited partnership

Adams Golf U.K. Limited, a United Kingdom private limited company (dormant entity)

Adams Golf Japan, Inc. a Japan kabushiki kaisha (dormant entity)

EX-23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors

Adams Golf, Inc.:

We consent to incorporation by reference in Registration Statement No. 333-112622 on Form S-8 of Adams Golf, Inc. of our report dated March 1, 2007 relating to the consolidated balance sheets of Adams Golf, Inc. and subsidiaries as of December 31, 2006 and 2005 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 2006, and the related financial statement schedule for each the years in the three-year period ended December 31, 2006, which report is included in the December 31, 2006 Annual Report on Form 10-K of Adams Golf, Inc.

/s/ KBA GROUP LLP

Dallas, Texas

March 13, 2007

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Oliver G. Brewer, certify that:
1.	I have reviewed this annual report on Form 10K of Adams Golf, Inc.;
2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)  and 15(e)-15d)) for the registrant and have:
	a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including  its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
	b)	evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of  the end of the period covered by this annual report based on such evaluation; and
	c)	disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
	a)	all significant deficiencies and material weaknesses in the design or operation of internal control over  financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.

Date:  March 13, 2007	By:  /S/ OLIVER G. BREWER III
	Oliver G. Brewer, III Chief Executive Officer and President

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Eric Logan, certify that
1.	I have reviewed this annual report on Form 10K of Adams Golf, Inc.;
2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)  and 15(e)-15d)) for the registrant and have:
	a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including  its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
	b)	evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures, as of  the end of the period covered by this annual report based on such evaluation; and
	c)	disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
	a)	all significant deficiencies and material weaknesses in the design or operation of internal control over  financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.

Date:  March 13, 2007	By:  /S/ ERIC LOGAN
	Eric Logan Chief Financial Officer (Principal Financial Officer)

EX-32.1

Exhibit 32.1

Certification

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of Adams Golf, Inc., a Delaware corporation (the "Company"), does hereby certify that:

The Annual Report on Form 10-K for the year ended December 31, 2006 (the "Periodic Report") of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and the information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	ADAMS GOLF, INC.
Date:  March 13, 2007	By:  /S/ OLIVER G. BREWER III
	Oliver G. Brewer, III Chief Executive Officer and President
Date:  March 13, 2007	By:  /S/ ERIC LOGAN
	Eric Logan Chief Financial Officer (Principal Financial Officer)

The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and is not being filed as part of the Periodic Report or as a separate disclosure document

A signed original of this written statement required by Section 906 has been provided to Adams Golf, Inc. and will be retained by Adams Golf, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.