10-K

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, 2002

OR

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

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

Title of Class

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

x Yes   ¨ No

Indicate by check mark 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 an accelerated Filer (as defined by Rule 12b-2 of the act)

¨ Yes  x No

At June 28, 2002, the aggregate market value of the Registrant's Common Stock held by nonaffiliates of the Registrant was $4,394,744 based on the closing sales price of $0.34 per share of the Registrant's Common Stock on the NASDAQ Stock Market.

The number of outstanding shares of the Registrant's Common Stock, par value $.001 per share, was 22,480,071 on March 28, 2003.

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, 2003, for the annual meeting of stockholders to be held on May 14, 2003.

Item 1.  Business

General

Founded in 1987, Adams Golf, Inc (the “Company” or “Adams Golf”) operated initially as a component supplier and contract manufacturer.   Thereafter, the Company established its custom fitting operation and today it designs, assembles, markets and distributes premium quality, technologically innovative golf clubs, including the Redline fairway woods and drivers, the Tight Lies family of fairway woods and drivers, the Adams Golf Idea irons and i-woods, the Tight Lies GT irons and i-Woods, the Tom Watson signature series of wedges, the GT Spec Putters and accessories.  The Company was incorporated in 1987 and re-domesticated in Delaware in 1990.  The Company completed an internal reorganization in 1997 and now conducts its operations through several direct and indirect wholly owned subsidiaries.

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.  The Company currently offers the following classes of products:

Drivers

The Company currently offers a variety of different models based on the shape, size and material used in the club head.  The Company's current driver heads are made of titanium and stainless steel depending on the model.  The Company recently introduced, as of January 2003, the Redline model which offers a 460cc titanium head that is designed to maximize the distance, forgiveness and accuracy of the drive.  The Redline is available in a variety of lofts and with a 60-gram graphite shaft.  In addition to the new Redline, Adams Golf continues to offer the GT 363 and ST 363 models, with a 363cc traditional shaped titanium head and high performance face, which are designed to deliver maximum distance and increased control for off-center shots.  The GT 363 is available in both a traditional graphite shaft and in Adams Golf's proprietary graphite tipped (GT) shaft.  The ST 363 driver is offered with True Temper Sports' BiMatrx  steel tipped shaft or the traditional graphite shaft.

Fairway Woods

The Company currently offers a variety of fairway wood designs, all of which incorporate the "upside down" head shape of the Company's most successful product line to date, the Tight Lies fairway woods.  The Company recently introduced its new Redline fairway wood product line.  The Redline wood is a titanium head with a high performance face designed to offer explosive distance and ease in hitting from all lies.  Redline woods are offered in a variety of lofts with a 75-gram graphite shaft.  The Company also offers the Tight Lies GT stainless steel fairway woods line, which incorporate a "thin-faced" design to deliver maximum distance and playability.  The Tight Lies GT fairway woods are currently offered with either a traditional graphite shaft or a proprietary graphite tipped (GT) shaft.  The Tight Lies ST fairway woods feature a 17-4 stainless steel head that is offered with the True Temper steel-tipped BiMatrx shaft or a traditi onal graphite shaft.  The Company also offers the Tight Lies Idea i-Wood and the GT i-Wood, which are hybrid utility clubs designed to combine the distance of a long iron with the playability of a fairway wood.  The Company also continues to offer its original Tight Lies fairway woods.

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Irons, Wedges and Other

Adams Golf recently introduced the new iron concept coined “Idea Irons”, which is designed as an optimal long, mid and short irons, and has been integrated to work together to maximize ideal distance and forgiveness.  The long irons are the Idea i-wood, which is a hybrid club of part iron and part wood, and was designed to combine the fairway wood distance with the control and accuracy of an iron.  The mid irons are oversized hollow back irons with the center of gravity placed low and to the back to deliver distance and accuracy.  The short irons are oversized cavity back irons, which are designed for maximum control and feel.  This hybrid set of Idea irons was designed to be truly easy to hit.  The Company also offers the Performance and Ultimate models of the GT irons, which features a graduated offset and center of gravity through the set to provide increased distance and maximum forgiveness for off-center shots.   As a complement to the Tight Lies GT irons, Adams Golf offers the Tom Watson signature wedges with a classic profile available with the Company's proprietary graphite tipped (GT) shaft designed to provide increased feel and playability.  In addition, the Company offers  the GT Spec line of putters featuring a milled face and body cast from soft stainless steel.  These putters are designed to provide a better feeling, more consistent path to the hole through the use of heavier head weights and the addition of the Company's graphite tipped (GT) shafts.  The Company also offers a line of golf bags and other accessories.

Percentage of Net Sales by Product Class

		2002			2001			2000
Drivers			26.2	%		25.4	%		23.3	%
Fairway Woods			47.5			46.4			71.8
Irons, Wedges and Other			26.3			28.2			4.9
	Total		100.0	%		100.0	%		100.0	%

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

Design and Development

The Company's 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 the 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.  Barney Adams, the Company's founder, Chairman and inventor of the Tight Lies fairway woods, actively participates and consults with Adams Golf's in-house design development team.

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, the Company's 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 the Company will pursue for concept development.  As a part of the market evaluation, the Company analyzes its current product offerings against current and anticipated competitor products with respect to consumer preferences.  To determine consumer preferences, the Company utilizes its 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 its 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 - The Company considers patent protection for its technologies and product designs to be an important part of its development strategy; however, the Company may not seek patent protection for some of its technologies or product designs.  The Company and its 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 3 and 18 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 the 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 intangible consumer perception.  Using consumer feedback, subsequent modifications are made to the products to achieve the performance requirements desired by the identified target market.  The Company then solicits official USGA app roval.  Once approved, the product is considered for commercial release.

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

The Company's research and development expenses were approximately $1,367,000, $1,008,000 and $2,083,000 for the years ended December 31, 2002, 2001 and 2000, respectively.

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Patents

The Company's ability to compete effectively in the golf club market will depend, in large part, on its ability to maintain the proprietary nature of its technologies and products.  The Company currently holds 21 U.S. patents relating to certain of its products and proprietary technologies and has four patent applications pending.  Assuming timely payment of maintenance fees, if any, the Company expects that the 21 currently issued patents will expire on various dates between 2009 and 2016.  The Company holds patents with respect to the design of the Tight Lies fairway wood, the SC Series driver, the Tight Lies GT irons, including the Company's 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 held by the Company or as to the likelihood that patents will be issued from the pending patent applications.  Moreo ver, the Company's patents may have limited commercial value or may lack sufficient breadth to adequately protect the aspects of the Company's products to which the patents relate.  The Company currently holds six foreign patents and has eleven foreign patent applications pending.  The U.S. patents held by the Company do not preclude competitors from developing or marketing products similar to the Company's products in international markets.

There can be no assurance that competitors, many of whom have substantially greater resources than the Company and have made substantial investments in competing products, will not apply for and obtain patents that will prevent, limit or interfere with the Company's ability to make and sell its products.  The Company is aware of numerous patents held by third parties that relate to products competitive to the Company's.  There is no assurance that these patents would not be used as a basis to challenge the validity of the Company's patent rights, to limit the scope of the Company's patent rights, or to limit the Company's ability to obtain additional or broader patent rights.  A successful challenge to the validity of the Company's patents may adversely affect the Company's competitive position.  Moreover, there can be no assurance that such patent holders or other third parties will not claim infringement by the Company with respect to current and futu re 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 the Company's 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 the Company to significant liabilities to third parties, require the Company 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 the Company's efforts to protect its patent and other intellectual property rights, unauthorized parties have attempted and are expected to continue to attempt to copy all, or certain aspects of, the Company's products.  Policing unauthorized use of the Company's intellectual property rights can be difficult and expensive, and while the Company generally takes appropriate action whenever it discovers any of its 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 the Company's means of protecting its patent and other intellectual property rights will be adequate.

Raw Materials, Manufacturing and Assembly

The Company manages all stages of manufacturing, from sourcing to assembly, in order to maintain a high level of product quality and consistency.  The Company establishes product specifications, selects the material used to produce the components, and tests the specifications of components received by the Company.

As a part of its operational restructuring executed in 2001, the Company elected to outsource substantially all of its assembly processes to a third-party service provider.  The service provider is compensated on a per piece basis for each golf club assembled and is allowed to utilize certain equipment and production space previously utilized by the Company for its internal assembly processes.  All products assembled by the service provider continue to be subject to the same quality control and product specification requirements previously instituted by the Company.  Management believes that, in addition to certain other benefits, outsourcing its assembly process to a third party reduces costs associated with seasonal production requirements, in addition to providing certain other benefits.

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As part of the Company's quality control program, the Company has reviewed the quality assurance programs at the manufacturing facilities of its component part suppliers to monitor adherence to design specifications.  Upon arrival at the Company's facilities in Plano, Texas, the components used in the Company's clubs are again checked to ensure consistency with strict design specifications.  Golf clubs are then assembled using the appropriate component parts.

The Company has redundant sources of supply for each of the component parts used in the assembly of the original Tight Lies.  Components used to manufacture all other product lines are sourced from multiple vendors, many of which are the sole source on specific component parts.  Therefore, for all products other than the original Tight Lies, the Company effectively has a single source of supply.  Substantially all of the Company's fairway wood, driver, iron, i-wood, wedge and putter component parts are manufactured in Taiwan, China and Mexico.  Both multi-material shafts used in some of the Company's product lines (specifically, the Graphite Tip (GT) shaft and the BiMatrx Steel Tip (ST) shaft) are available from a sole supplier, True Temper Sports.  To date, the Company has not experienced any material interruptions in supply from any sole supplier.

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

Marketing

The goals of the Company's marketing efforts are to build its brand identity and drive sales through its retail distribution channels.  To accomplish these goals, Adams Golf currently uses endemic, golf-specific advertising, engages in promotional activities, and capitalizes on its relationships with well known professional golfers.

Endemic Advertising - The Company's primary advertising efforts focus on endemic advertising, primarily through golf-specific media.  This advertising includes television commercials that run during major golf tournaments and golf related programs; newspaper, magazine and radio ad campaigns; the sponsorship of a developmental professional tour; and the sponsorship of selected golf tournaments.

Promotional Activities - The Company engages in a variety of promotional activities to sell and market its products.  Such activities have included consumer sweepstakes; promotional giveaways with certain purchases, including items such as instructional videos, gift packaging and golf bags; and other promotional campaigns.

Relationships with Professional Golfers - The Company has entered into endorsement contracts with professional golfers on the PGA and Champions PGA Tours and believes that having a presence on these tours promotes the image of its product lines and builds brand awareness.  In August 1999, the Company entered into a five year endorsement agreement with Tom Watson, which was renegotiated in September of 2002 and will expire on August 31, 2004.  Under the terms of the agreement, Mr. Watson is entitled to an annual retainer, options to purchase shares of the Company's stock and bonuses contingent on the levels of his performance in televised 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 the Company's products, participation in a minimum number of events and feedback on performance of the Company's products.  In add ition to the agreement with Mr. Watson, the Company has entered into endorsement agreements with other well-known professionals such as Bruce Lietzke, Larry Nelson, Sammy Rachels, Walter Hall, Allen Doyle and Jose Maria Canizares, which expire at various dates through 2004 and require the use of certain of the Company's products.  The Company also had an endorsement from Hank Haney, which expired February 28, 2003, and the Company is currently in discussions with Mr. Haney for future endorsement opportunities.  This endorsement required Mr. Haney to exclusively use the Company's products, make a minimum number of appearances and provide feedback on performance of the Company's products.

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Markets and Methods of Distribution

The Company's 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.  No assurances can be given that demand for the Company's current products or the introduction of new products will allow the Company to achieve historical levels of sales in the future.

Sales to Retailers - The Company sells a majority of its products to selected retailers.  The Company believes its selective retail distribution strategy helps its retailers maintain profitable margins and maximize sales of the Company's products.  For the year ended December 31, 2002, sales to retailers accounted for approximately 82% of the Company's total net sales, as compared to approximately 81% for the year ended December 31, 2001.  As products mature and are closed out, they are then sold to alternative channels of distribution, which are not in direct competition with selected retailers for premier product lines.

Adams Golf maintains a field sales staff that at March 14, 2003 consisted of 44 independent sales representatives, three regional vice presidents and a regional sales manager who are in regular personal contact with the Company's retail accounts (approximately 4,000 retailers).  These sales representatives, sales managers and regional vice presidents are supported by six inside sales representatives who maintain contact with the Company's retailers nationwide.  The inside sales representatives also serve in a customer service capacity as the Company believes that superior customer service can significantly enhance its marketing efforts.

International Sales - International sales are made primarily in Europe, Canada and Japan.  International sales in Canada are made through an agency relationship established in the latter part of 2000.  Commencing January 1, 2002, sales to Japan were made through an independent distributor.  Prior to that date, sales were made through a wholly-owned subsidiary of the Company.  Prior to October 31, 2002, sales to the United Kingdom were made through a wholly-owned subsidiary; however, based on a realignment of the Company's business model, this subsidiary has been closed.  International sales to other countries throughout the world are made through a network of approximately 40 independent distributors.  For the year ended December 31, 2002, 2001 and 2000, international sales accounted for approximately 18.3%, 19.3% and 16.1%, respectively, of the Company's net sales.

Web Site - The Company maintains a Web site at www.adamsgolf.com, which allows the visitor to access certain information about the Company's products and to locate retailers.  The Company does not currently sell its products via its Web site.

Unauthorized Distribution of Counterfeit Clubs

Despite the Company's efforts to limit its distribution to selected retailers, some quantities of the Company's products have been found in unapproved outlets or distribution channels.  The existence of a "gray market" in the Company's products can undermine the sales of authorized retailers and foreign wholesale distributors who promote and support the Company's products and can injure the Company's image in the minds of its customers and consumers.  Adams Golf makes efforts to limit or deter unauthorized distribution of its products, but does not believe the unauthorized distribution of its products can be totally eliminated.  The Company does not believe that the unauthorized distribution of its clubs has had, or will have, a material adverse effect on the Company's results of operations, financial condition or competitive position, although there can be no assurance as to future results.

In addition, the Company is occasionally made aware of the existence of counterfeit copies of its golf clubs particularly in foreign markets.  The Company takes action in these situations through local authorities and legal counsel where practical.  The Company does not believe that the availability of counterfeit clubs, has had or will have, a material adverse effect on the Company's results of operations, financial condition or competitive position, although there can be no assurance as to future results.

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Industry Specific Requirements

The Company performs ongoing credit evaluations of its wholesale customers' financial condition and generally provides credit without the requirement of collateral from these customers.  The Company believes it has adequate reserves for potential credit losses.  Due to industry sensitivity to consumer buying trends and available disposable income, the Company has 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 the Company's 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 the Company's brand name and to assure adequate product availability, often to coincide with planned promotions or advertising campaigns.  Although a significant amount of the Company's sales are not affected by these terms, the extended term s do have a negative impact on the Company's financial position and liquidity.  The Company expects to continue to selectively offer extended payment terms in the future, depending upon known industry trends and the Company's financial condition.

In addition to extended payment terms, the nature of the industry also requires that the Company carry a substantial level of inventory due to the lead times associated with purchasing components overseas coupled with the seasonality of customer demand.  The Company's inventory balances were approximately $9,127,000 and $17,418,000 at December 31, 2002, and 2001, respectively.  The decrease in the year end inventory levels is a result of improved processes over the purchasing, production and distribution timing of new product lines in addition to the closeout of maturing product lines at reduced selling prices.

Major Customers

The Company is currently dependent on thirteen customers, which collectively comprised approximately 35.9% of net revenues for the year ended December 31, 2002.  Of these customers one customer individually represents greater than 5% of net revenues for the year ended December 31, 2002, and no customers represent greater than 10% of net revenues for the year ended December 31, 2002.  For the year ended December 31, 2001, nine customers comprised approximately 28.5% of net revenue, of which only three customers represented greater than 5% but less than 10%.  For the year ended December 31, 2000, a small number of customers comprised approximately 24.0% of net revenue, of which only two customers represented greater than 5% but less than 10%.  The loss of an individual or a combination of these customers would have a material adverse effect on consolidated revenues.

Seasonality and Quarterly Fluctuations

Golf generally is regarded as a warm weather sport and net sales of golf equipment have been historically strongest for the Company during the first and second quarters, which ensures adequate levels of inventory at retail locations for the golf season.  In addition, net sales of golf clubs is 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 the Company's business, operating results and financial condition.  In addition, the Company's future results of operations could be affected by a number of other factors, such as unseasonable weather patterns; market acceptance and demand for the Company's existing and future products, new product introductions by the Company's 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 the Company's business, operating results and financial condition, or result in the Company failing to achieve its expectations as to future sales or operating results.

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Because most operating expenses are relatively fixed in the short term, the Company may be unable to adjust spending sufficiently in a timely manner to compensate for any unexpected sales shortfall, which could have a material adverse affect on quarterly results of operations and liquidity.  If technological advances by competitors or other competitive factors require the Company to invest significantly greater resources than anticipated in research and development or sales and marketing efforts, the Company's business, operating results or financial condition could be materially adversely affected.  Accordingly, the Company believes that period-to-period comparisons of its 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 above and bel ow, in certain future quarters the Company's results of operations may be below the expectations of public market analysts or investors.  In such event, the market price of the Company's common stock could be materially adversely affected.

Backlog

The amount of the Company's 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 March 14, 2003, the Company had $1,736,000, or 4.6% of total net sales for 2002, of orders on backlog as compared to $297,000 at March 14, 2002.  The current increase in backlog is primarily a result of initial demand for the Company's new Idea Irons and Redline fairway woods and drivers, which were recently launched in the fourth quarter of 2002 and first quarter 2003, respectively.  Management does not anticipate that a significant level of orders will remain unfilled within the current fiscal year.  Management has concluded that, for this purpose, a backlog of greater than 5% of total annual net sales would be significant.   In addition, the Company believes that the amount of its backlog is not an appropriate indicator of levels of future sales.< /P>

Competition

The golf club market is highly competitive.  The Company competes with a number of established golf club manufacturers, some of which have greater financial and other resources.  The Company's competitors include Callaway Golf Company, adidas-Saloman AG (Taylor Made - adidas Golf), Nike, Inc. (Nike Golf), Fortune Brands, Inc. (Titleist and Cobra) and Karsten Assembly Company (PING), among others.  The Company competes primarily on the basis of performance, brand name recognition, quality and price.  The Company believes that its ability to market its products through multiple distribution channels, including on- and off- course golf shops and other retailers, is important to the manner in which the Company competes.  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.  The Company 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 the Company's business, operating results and/or financial condition.  There can be no assurance that Adams Golf will be able to compete successfully against current and future sources of competition or that its business, operating results or financial condition will not be adversely affected by increased competition in the market in which it operates.

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, the Company experienced several competitors introducing products similar to the Tight Lies fairway woods.  The Company 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 the Company's image, and could have a material adverse effect on the Company's business, results of operations, financial position and/or liquidity.

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The introduction of new products by the Company or its 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 new GT Line of fairway woods and drivers were introduced this year, older product lines such as the original Tight Lies and  Tight Lies ST fairway woods and drivers experienced reductions in price and were closed out to both wholesale and retail levels.  This closeout of various product lines was also a contributing factor to the overall reduction in inventory levels as compared to prior periods.

Domestic and Foreign Operations

Domestic and foreign net sales for the year ended December 31, 2002, 2001 and 2000 are comprised as follows:

		2002				2001				2000
Domestic		$	30,995,000	81.7	%	$	38,455,000	80.7	%	$	34,968,000	83.9	%
Foreign			6,922,000	18.3			9,200,000	19.3			6,709,000	16.1
	Total	$	37,917,000	100.0	%	$	47,655,000	100.0	%	$	41,677,000	100.0	%

In April 2001, the Emerging Issues Task Force ("EITF") finalized its consensus on Issues No.00-25 and No. 01-09 which states that certain promotional and advertising costs given in the form of cash or credit as consideration to customers should be classified as a reduction in net sales.  In addition, certain promotional and advertising costs given in the form of additional merchandise as consideration to customers should be classified as cost of goods sold.  Prior to 2002, the Company previously included these costs in "selling and marketing" expenses.  The Company's Statements of Operations for the year ended December 30, 2001 and 2000 have been reclassified to reflect the classification required by EITF Issues No. 00-25 and No. 01-09.  Consistent with the EITF consensus, domestic  net sales have been reduced by $1,514,000 and $772,000 for the years ended December 31, 2001 and 2000, respectively, in connection with certain credits provided by the Company to its customers for promotional and advertising costs.

Employees

At March 14, 2003, the Company had 69 full-time employees including 23 engaged in order fulfillment, 9 in research and development and quality control, 7 in sales support and 30 in management and administration.  The Company's employees are not unionized.  Management believes that its relations with its employees are good.

Item 2.   Properties

The Company's administrative offices and assembly facilities currently occupy approximately 86,000 square feet of space in Plano, Texas.  This facility is leased by the Company pursuant to a lease agreement expiring in 2004 and may be extended for an additional five years.  The Company maintains the right to terminate the lease if it moves to a larger facility owned by the current lessor.  The Company believes that these facilities will be sufficient for the foreseeable future.

9 

Item 3.   Legal Proceedings

Beginning in June 1999, the first of seven class action lawsuits was filed against the Company, certain of its current and former officers and directors, and the three underwriters of the Company's 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 the Company's IPO.  In particular, the complaints alleged that the Company's prospectus, which became effective July 9, 1998, was materially false and misleading in at least two areas.  Plaintiffs alleged that the prospectus failed to disclose that unauthorized distribution of the Company's products (gray market sales) allegedly threatened the Company's long-term profits.  Plaintiffs also alleged that the prospectus failed to disclose that the golf equipment industry suffered from an oversupply of inventory at the retail level, which had an a dverse impact on the Company's sales.  On May 17, 2000, these cases were consolidated into one amended complaint, and a lead plaintiff was appointed.  The plaintiffs were seeking unspecified amounts of compensatory damages, interests and costs, including legal fees.  On December 10, 2001, the United States District Court for the District of Delaware dismissed the consolidated, amended complaint citing the plaintiffs failed to plead any facts supporting their claim that the Company, its officers, directors or underwriters violated the federal securities laws.  On January 14, 2002, the plaintiffs filed a motion for leave to file an amended complaint.  In the motion, plaintiffs allege that, if given another opportunity, they would be able to amend the original causes of action to state actionable claims.  On January 24, 2002, the Company filed an opposition to the plaintiff's motion and is awaiting a response from the court.

The Company maintains directors' and officers' and corporate liability insurance to cover certain risks associated with these securities claims filed against the Company and/or its directors and officers.

At this time it is not possible to predict whether the Company will incur any liability or to estimate the damages, or the range of damages, that the Company might incur in connection with the action.  The Company is also not able to estimate the amount, if any, of reimbursements that it would receive from insurance policies should damages with respect to the above actions be incurred.

In January 2001, the Company was notified that it was part of an investigation by the Federal Trade Commission ("FTC") concerning practices surrounding manufacturers' minimum advertised price policies and Internet retailers.  The Company has yet to receive any additional correspondence beyond the initial request for information submitted in January 2001.  Management does not anticipate future inquiries regarding the matter and in that context does not anticipate any potential liability.  No assurance can be given that the FTC will not continue to assess the competitive landscape of the industry and direct future inquires to the Company.  Given those circumstances, no assurance can be given that the future inquiries by the FTC will not have a material adverse effect on the Company's results of operations, financial condition, or competitive position.

From time to time, the Company is 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.  However, the Company, based on consultation with legal counsel, is of the opinion that there are no matters pending or threatened which could have a material adverse effect on the Company's financial condition, results of operations and/or liquidity.

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

Not Applicable

 10

PART II

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

The Company's common stock is currently listed and traded on the Nasdaq SmallCap Market under the symbol "ADGO".  The prices in the table below represent, for the periods indicated, the quarterly high and low sales price for Adams Golf, Inc. common stock as reported by the Nasdaq SmallCap Market.  All price quotations represent prices between dealers, without retail mark-ups, mark-downs or commissions and may not represent actual transactions.

	High		Low
2002
First Quarter	$	0.750	$	0.340
Second Quarter		0.660		0.340
Third Quarter		0.390		0.180
Fourth Quarter		0.390		0.200
2001
First Quarter	$	1.906	$	0.375
Second Quarter		1.711		0.586
Third Quarter		0.953		0.250
Fourth Quarter		0.555		0.281

On March 14, 2003, the last reported sale price of the common stock on the Nasdaq SmallCap Market was $0.38 per share.  At March 14, 2003, Adams Golf, Inc. had approximately 5,000 stockholders based on the number of holders of record and an estimate of the number of individual participants represented by security position listings.

No dividends have been declared or paid relating to the Company's common stock, nor does the Company anticipate declaring dividends in the foreseeable future.

On July 30, 2001, the Company was notified by Nasdaq that it had failed to maintain the minimum $1.00 bid price requirement for 30 consecutive trading days and that the 90 day "cure-period" for which the Company's stock would need to satisfy the minimum bid requirement of $1.00 for ten consecutive trading days had begun.  Given the events of September 11, 2001 in New York City and Washington D.C., Nasdaq provided temporary relief with respect to the minimum bid price requirement until January 2, 2002 and suspended the Company's 90-day cure period initiated on July 30, 2001.  Effective January 2, 2002, Nasdaq reinstated the minimum bid price requirement and on February 14, 2002, again notified the Company that it had failed to meet the minimum $1.00 bid price for 30 consecutive trading days and that the 90 day "cure period" had been initiated.  

On February 6, 2002 and for a one year period thereafter, the SEC approved a pilot program modifying the minimum bid price grace period for the Nasdaq SmallCap Market.  Under the program, the Company could elect to phase down from the Nasdaq National Market to the SmallCap Market at the expiration of the 90 day National Market "cure period" at which time the Company would receive an additional 90 days to achieve the minimum bid requirement of $1.00 for ten consecutive trading days.  Should the Company be unable to achieve the minimum bid requirement while continuing to demonstrate compliance with the core initial listing standards of the Nasdaq SmallCap Market of either (i) net income of $750,000, (ii) stockholders' equity of $5 million or (iii) market capitalization of $50 million, the Company would be afforded an additional 180 day grace period to regain compliance.  Should the Company be unable to regain compliance, the Company's common stock would be delisted from the Nasdaq SmallCap Market at which time it could be eligible to trade on the electronic bulletin board, rather than either the Nasdaq National Market or SmallCap Market systems.  Effective June 10, 2002 the Company elected to phase down and is currently listed on the Nasdaq SmallCap Market.

11 

On August 14, 2002, the Company was notified that it had failed to regain compliance with the minimum $1.00 bid price requirement.  However, since the Company did meet the initial listing requirement for the Small Cap Market as of June 30, 2002, specifically stockholders' equity of $5 million, Nasdaq provided the Company with an additional grace period of 180 calendar days in which to maintain a minimum bid price of $1.00 or greater for ten consecutive trading days.  If the Company could not meet the Nasdaq requirements by February 10, 2003, the Company would receive written notification that the securities would be delisted.

As of February 10, 2003, the Company was unable to maintain a minimum bid price of $1.00 for ten consecutive days.  On March 18, 2003, Nasdaq notified the Company that it will be provided with an additional 90 days, or until May 12, 2003, to regain compliance.

If , by  May 12, 2003, the bid price of the Company's common stock does not close at $1.00 per share or more for a minimum of ten consecutive trading days, Nasdaq will then provide written notification that the Company's stock will be delisted.  No assurance can be made that the Company will be able to attain a minimum bid price of $1.00 for a minimum of ten consecutive trading days.

The inability to maintain a listing on the Nasdaq Stock Market 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 the Company's securities.  Given the current market price for the Company's common stock, recent notifications by Nasdaq 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.  

Equity Plan Compensation Information:

The following table sets forth information as of December 31, 2002 regarding compensation plans under which the Company's equity securities are authorized for issuance.

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)		(b)		(c)
Equity compensation plans approved by security holders		3,229,180	$	0.63		2,410,341
Equity compensation plans not approved by security holders		------		-----		------
Total		3,229,180	$	0.63		2,410,341

 12

Item 6.   Selected Financial Data

The selected financial data presented below is derived from the Company's consolidated financial statements for the years ended December 31, 2002, 2001, 2000, 1999 and 1998, 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,
		2002			2001			2000			1999			1998
		(in thousands, except per share data)
Consolidated Statements of Operations Data:
	Net Sales(1)	$	37,917		$	47,655		$	41,677		$	54,652		$	85,989
	Operating income (loss)		(8,903	)		(13,185	)		(38,509	)		(18,735	)		18,500
	Net income (loss)	$	(8,925	)	$	(13,409	)	$	(37,241	)	$	(10,589	)	$	12,510
Income (loss) per common share (2) - basic and diluted		$	(0.40	)	$	(0.60	)	$	(1.66	)	$	(0.47	)	$	0.61
Weighted average common shares (2):
	Basic		22,480			22,480			22,480			22,480			20,435
	Diluted		22,480			22,480			22,480			22,480			20,677

		December 31,
		2002		2001		2000		1999		1998
		(in thousands)
Consolidated Balance Sheet Data:
	Total assets	$	26,438	$	34,810	$	47,786	$	83,210	$	96,906
	Total debt (including current maturities)		--		--		--		--		175
	Stockholders' equity	$	19,476	$	27,622	$	41,252	$	78,371	$	88,190

______________________

(1)	See Note 1 (t) of Notes to Consolidated Financial Statements for information concerning reclassification of certain promotional and advertising costs
(2)	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.

13 

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

Overview

Founded in 1987, Adams Golf initially operated as a components supplier and contract manufacturer.   Thereafter, the Company established its custom fitting operation, and today it designs, assembles, markets and distributes premium quality, technologically innovative golf clubs including the Redline fairway woods and drivers, the Tight Lies family of fairway woods and drivers, the Adams Golf Idea irons and i-Woods, the Tight Lies GT irons and i-Woods, the Tom Watson signature series of wedges, the GT Spec Putters and accessories.

The Company's 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.  No assurances can be given that demand for the Company's current products or the introduction of new products will allow the Company to achieve historical levels of sales in the future.

The Company manages all stages of manufacturing, from sourcing to assembly, in order to maintain a high level of product quality and consistency.  The Company establishes product specifications, selects the material used to produce the components, and tests the specifications of all components received by the Company.  

As a part of the Company's quality control program, the Company has reviewed the quality assurance programs at the manufacturing facilities of its component parts suppliers to monitor adherence to design specifications.  Upon arrival at the Company's facilities in Plano, Texas, the components used in the Company's clubs are again checked to ensure consistency with strict design specifications.  Golf clubs are then assembled in Adams Golf's facility by a third party service provider using the appropriate component parts.  The Company has redundant sources of supply for each of the component parts used in the assembly of the original Tight Lies fairway woods.  Components used to manufacture all other product lines are sourced from multiple vendors, many of which are the sole source on specific component parts.  Therefore, for all products other than the original Tight Lies, the Company effectively has a single source of supply.  Substa ntially all of the Company's fairway wood, driver, iron, i-wood, wedge and putter component parts are manufactured in Taiwan, China and Mexico.  Both multi-material shafts used in some of the Company's product lines (specifically, the Graphite Tip (GT) shaft and the BiMatrx Steel Tip (ST) shaft) are available from a sole supplier, True Temper Sports.  To date, the Company has not experienced any material interruptions in supply from any sole supplier.

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

In April 2001, the Emerging Issues Task Force ("EITF") finalized its consensus on Issues No.00-25 and No. 01-09 which states that certain promotional and advertising costs given in the form of cash or credit as consideration to customers should be classified as a reduction in net sales.  In addition, certain promotional and advertising costs given in the form of additional merchandise as consideration to customers should be classified as cost of goods sold.  Prior to 2002, the Company previously included these costs in "selling and marketing" expenses.  The Company's Statements of Operations for the year ended December 30, 2001 and 2000 have been reclassified to reflect the classification required by EITF Issues No. 00-25 and No. 01-09.  Consistent with the EITF consensus, domestic net sales have been reduced by $1,514,000 and $772,000 for the years ended December 31, 2001 and 2000, respectively, in connection with certain credits provided by the Compan y to its customers for promotional and advertising costs.  In addition, for the years ended December 31, 2001 and 2000, cost of goods sold includes $1,203,00 and $773,000, respectively, in connection with certain merchandise incentives provided by the Company to its customers of promotional and advertising costs given in the form of additional merchandise.

14 

Critical Accounting Policies and Estimates

   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.  If the actual amount of obsolete inventory significantly exceeds the estimated allowance, the Company's costs of goods sold and gross profit would be significantly adversely affected.

   Revenue Recognition

The Company recognizes 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.  The Company also records estimated reductions in revenue for sales programs such as co-op advertising and spiff incentives.   If actual sales returns and sales programs significantly exceed the recorded estimated allowances, the Company’s sales would be adversely affected.

   Allowance for Doubtful Accounts

The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments.  An estimate of uncollectable amounts is made by management based upon historical bad debts, current customer receivable balances, the customer’s financial condition and current economic conditions.  If a significant number of customers with significant receivable balances in excess of the allowance fail to make required payments, the Company’s operating results would be significantly adversely affected.

   Product Warranty

The Company's golf equipment is sold under warranty against defects in material and workmanship for a period of one year with the exception of the graphite tipped (GT) and BiMatrx steel tipped (ST) shafts which carry a five year warranty.  An allowance for estimated future warranty costs is recorded in the period products are sold.  In estimating its future warranty obligations, the Company considers various relevant factors, including the Company's stated warranty policies, the historical frequency of claims, and the cost to replace or repair the product.

   Income Taxes

The Company accounts 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 recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income in the period that includes the enactment date.  In assessing the realizability of deferred income tax assets, the Company considers 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 differ ences become deductible.  Due to the historical operating results of the Company, management is unable to conclude on a more likely than not basis that all deferred income tax assets generated through operating losses through December 31, 2002 will be realized.  Accordingly, the Company has recognized a valuation allowance equal to the entire deferred income tax asset.

15 

   Impairment of Long-Lived Assets

The Company reviews 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.  As of December 31, 2002, there was no impairment of long-lived assets.

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,
			2002			2001			2000
Net sales				100.0	%		100.0	%		100.0	%
Cost of goods sold				69.4			53.8			49.1
	Gross profit			30.6			46.2			50.9
Operating expenses:
	Research and development expenses			3.6			2.1			5.0
	Selling and marketing expenses			29.0			45.8			85.4
	General and administrative expenses:
		Provision for bad debts		1.7			1.3			10.7
		Other		17.5			17.9			23.8
	Settlement expense			--			3.3			--
	Restructuring expense			2.2			3.5			--
	Write-off of prepaid Professional Services Agreement			--			--			18.5
		Total operating expenses		54.0			73.9			143.3
	Operating loss			(23.4	)		(27.7	)		(92.4	)
Interest income, net				0.1			0.8			3.2
Other income (expense), net				(0.6	)		(0.1	)		0.4
	Loss before income taxes			(23.9	)		(26.9	)		(88.8	)
Income tax expense (benefit)				(0.4	)		1.2			0.6
Net loss				(23.5	)%		(28.1	)%		(89.4	)%

16 

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

Total net sales decreased to $37.9 million for the year ended December 31, 2002 from $47.7 million for the comparable period of 2001.  Although the Company experienced an increase in units sold during 2002, the overall decrease in net sales is attributable to an overall reduction in the average unit selling price.  Net sales of drivers decreased to $9.9 million, or 26.2% of total net sales, for the year ended December 31, 2002 from $12.1 million, or 25.4% of total net sales, for the comparable period of 2001.  A large portion of the driver net sales for the year ended December 31, 2002 was generated by the recently introduced Tight Lies GT product line which was offset by lower sales of maturing product lines.  Net sales of irons decreased to $7.5 million, or 19.8% of total net sales, from $12.1 million, or 25.4% of total net sales, for the years ended December 31, 2002 and 2001, respectively.  Net sales of fairway woods decreased to $18.0 mil lion, or 47.5% of total net sales, from $22.1 million, or 46.4% of total net sales, for the years ended December 31, 2002 and 2001, respectively.  The reduction is due primarily to lower net sales of maturing product lines partially offset by $8.4 million of net sales generated from the recently introduced Tight Lies GT fairway woods.  For the year ended December 31, 2002, one customer individually represented greater than 5% but less than 10% of total net sales.  Should this customer or the Company's other customers fail to meet their obligations to the Company, the Company's results of operations and cash flows would be adversely impacted.

Net sales of the Company's products outside the U.S. decreased to $6.9 million, or 18.3% of total net sales, from $9.2 million, or 19.3% of total net sales, for the years ended December 31, 2002 and 2001, respectively.

Cost of goods sold increased to $26.3 million, or 69.4% of total net sales, for the year ended December 31, 2002 from $25.6 million, or 53.8% of total net sales, for the comparable period of 2001.  The increase as a percentage of total net sales is primarily due to an inventory writedown of $0.6 million, changes in the product mix to products generating reduced margins, and closeout sales of maturing product lines resulting in reduced margins.  With the adoption of EITF No.00-25 and No. 01-09, both net sales and cost of goods sold include specific promotional expenses related to specific sales initiatives.  For each of the years ended December 31, 2002 and 2001, cost of goods sold includes promotional expenses of $0.8 million and $1.2 million, respectively.  In addition, net sales has been reduced by promotional expenses of $1.9 million and $1.5 million for the years ended December 31, 2002 and 2001, respectively.

Operating expenses are primarily comprised of selling and marketing expenses, general and administrative expenses and research and development expenses.  In addition, for the year ended December 31, 2002, operating expenses included non-recurring expenses associated with the closure of the Adams Golf UK subsidiary.  For the year ended December 31, 2001, operating expenses included non-recurring expenses associated with a corporate restructuring plan and costs associated with the settlement of the Company's dispute with Nicholas A. Faldo regarding the provisions of his prior professional services agreement with the Company.

Selling and marketing expenses decreased to $11.0 million for the year ended December 31, 2002 from $21.8 million for the comparable period in 2001.  The decrease is primarily the result of lower compensation and advertising related costs.  Compensation expenses were lower by $3.5 million due to the operational restructuring completed during the third and fourth quarters of 2001.  In addition, management has modified its advertising and marketing strategy targeting more cost effective golf related publications and air time rather than the typically more expensive brand-based approach historically used.  The result has been a $5.6 million decrease in costs associated with advertising and marketing for the year ended December 31, 2002 compared to same period of 2001.  As the Company has scaled back its infrastructure, additional cost savings have been achieved in the areas of travel and other personnel related expense categories totaling $0.9 mi llion.

 17

General and administrative expenses, including provisions for bad debts, decreased to $7.3 million for the year ended December 31, 2002 from $9.1 million for the comparable period in 2001.  The decrease in administrative related costs is attributable to the Company's operational restructuring executed during the third and fourth quarters of 2001.  As a result of the restructuring, the Company eliminated specific administrative positions which resulted in a reduction of $0.2 million in compensation related costs for the year ended December 31, 2002 compared to the same period of 2001.  As the Company has scaled back its infrastructure, additional cost savings have been achieved in the areas of recruiting and other personnel related expense categories totaling $0.4 million.  In addition, a decrease of $0.4 million was a result of local taxes owed in prior years resulting from the conclusion of an audit during the year ended December 31, 2001.  D epreciation expenses also decreased by $0.6 million due to the fact that many of the Company's fixed assets were purchased in 1998 and were fully depreciated in 2001.  With the adoption of  SFAS No. 142, amortization expense was reduced by $0.1 million for the year ended December 31, 2002 compared to the same period of 2001.

Research and development expenses, primarily consisting of costs associated with development of new products, were $1.4 million and $1.0 million for the year ended December 31, 2002 and December 31, 2001, respectively.

Settlement expense of $1.6 million recorded in 2001 resulted from a settlement dispute between the Company and Mr. Faldo in connection with his prior professional services agreement.  The Company recognized the present value of a $3.0 million contract settlement to be paid over a ten year period, which totaled a present value of $2.7 million and was partially offset by $1.1 million of previously accrued royalties.

During the fourth quarter of 2002, the Company decided to close the Adams Golf UK, Ltd. wholly owned subsidiary.  This closure resulted in restructuring costs of approximately $0.8 million.  Restructuring expense of $1.6 million recorded in 2001 is due to the fact that the Company executed an operational restructuring plan which reduced its employee staff by 55 exempt positions primarily associated with the conversion of its sales staff to independent (non-employee) sales representatives and 76 non-exempt positions associated with the outsourcing of the Company's golf club assembly process.  In addition, the restructuring also included costs associated with the closure of the Adams Golf Japan wholly owned subsidiary.  The Company continues to sell its products in the UK and Japan through distributors.

Income tax expense of $0.5 million in 2001 resulted from a tax contingency recognized as an expense and associated accrued liability.  The accrued liability was later reversed during the second quarter of 2002 due to a favorable outcome from the IRS on an audit of tax periods 1997 through 1999.  However, an additional expense of $0.3 million was recorded in the fourth quarter of 2002 related to the associated interest and penalties for the period in which the Company did owe the IRS.

The Company's inventory balances were approximately $9.1 million and $17.4 million at December 31, 2002, and 2001, respectively.  The decrease in inventory levels is a result of more improved processes over the purchasing, production and distribution timing of new product lines in addition to sales of maturing product lines at reduced selling prices.

The Company’s accounts receivable balances were approximately $8.5 million and $3.1 million at December 31, 2002 and 2001, respectively.  The increase is primarily due to higher fourth quarter sales in 2002, in part as a result of the introduction of the Idea Irons launched in November of 2002.

As a result of the above, the Company reported an operating loss of $8.9 million for the year ended December 31, 2002 compared to an operating loss of $13.4 million for the year ended December 31, 2001.

18 

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

In April 2001, the Emerging Issues Task Force ("EITF") finalized its consensus on Issues No.00-25 and No. 01-09 which states that certain promotional and advertising costs given in the form of cash or credit as consideration to customers should be classified as a reduction in net sales.  In addition, certain promotional and advertising costs given in the form of additional merchandise as consideration to customers should be classified as cost of goods sold.  Prior to 2002, the Company previously included these costs in "selling and marketing" expenses.  The Company's Statements of Operations for the year ended December 30, 2001 and 2000 have been reclassified to reflect the classification required by EITF Issues No. 00-25 and No. 01-09.  Consistent with the EITF consensus, domestic net sales have been reduced by $1,514,000 and $772,000 for the years ended December 31, 2001 and 2000, respectively, in connection with certain credits provided by the Compan y to its customers for promotional and advertising costs.  In addition, cost of goods sold includes $1,203,00 and $773,000 for the years ended December 31, 2001 and 2000, respectively, in connection with certain merchandise incentives provided by the Company to its customers of promotional and advertising costs given in the form of additional merchandise.

Net sales increased 14.3% to $47.6 million for the year ended December 31, 2001 from $41.7 million for 2000, primarily due to significant increases in sales of mass produced irons and drivers.  Net sales of irons increased 268.2% to $12.5 million or 26.2% of net sales from $3.4 million or 8.1% of net sales for the years ended December 31, 2001 and 2000, respectively.  The increase is primarily the result of the introduction of the Tight Lies GT irons in the fall of 2000 which translated into increased volume in 2001.  The Tight Lies GT irons represent the Company's first mass produced set of irons.  Prior to their introduction, the Company's participation in the iron category was limited to custom irons sold through the Company's custom fitting accounts.  Also contributing to the increase in net sales for the year ended December 31, 2001 as compared to 2000, was an increase in driver sales of $2.8 million primarily the result of the introducti on of the Tight Lies ST Driver in January 2001.  Increased revenues were partially offset by reduced sales for the Tight Lies 2 and SC Driver product lines.  Net sales of drivers were $12.5 million or 26.3% of net sales as compared to $9.7 million or 23.3% of net sales for the periods ended December 31, 2001 and 2000, respectively.  Approximately $2.9 million of net sales for the year ended December 31, 2001 was derived from the closeout of the SC Series driver.  The increases in the iron and driver categories were partially offset by reduced levels of fairway wood sales.  The reduced levels of fairway wood revenues was primarily the result of the diversification of the Company's revenues to a variety of new product classes.  Net sales of fairway woods decreased to $22.9 million or 48.0% from $29.9 million or 71.8% for the years ended December 31, 2001 and 2000, respectively.  Tight Lies ST fairway woods and Tight Lies GT i-Woods, each int roduced in January 2001 generated $14.1 million of the $22.9 million in net sales of fairway woods for the year ended December 31, 2001 with the remainder generated by the original Tight Lies and Tight Lies 2 product lines.

Net sales of the Company's products outside the U.S. increased to $9.0 million or 18.8% of net sales, from $6.7 million or 16.1% of net sales for the years ended December 31, 2001 and 2000, respectively, with growth focused primarily in Canada and Europe.

Cost of goods sold increased to $25.6 million or 53.8% of net sales, for the year ended December 31, 2001 from $20.4 million or 49.1% of net sales, for the comparable period of 2000.  The overall dollar increase is primarily the result of a 10.9% increase in units sold during the year ended December 31, 2001 as compared to 2000 coupled with changes in the product mix to the higher cost ST and GT product lines.  In addition, cost of goods sold for the year ended December 31, 2000 included $2.5 million of costs associated with the write-down of certain inventories of the SC Series driver, original Tight Lies and Tight Lies 2 product lines to net realizable value coupled with $0.7 million of costs associated with a sales program whereby one additional SC Series driver was given for every four held by retailers as compensation for reductions in the suggested retail selling price.  Excluding the impact of this inventory write-down and sales program above, cost of good s sold as a percentage of net sales was 41.4% for the year ended December 31, 2000 as compared to 53.8% for the comparative period of 2001.  The increase in cost of goods sold as a percentage of net sales of 10.8% is primarily the result of 40.7% of net sales being generated by the ST Driver and GT irons which generally produce a lower gross margin on a per unit basis compared to historical levels.  In addition, the Company reduced the wholesale selling price of the original Tight Lies, Tight Lies 2 and SC driver product lines during 2001.  These products generated approximately 6.2 fewer basis points of margin in the aggregate as compared to the similar period in 2000.

19 

Operating expenses are primarily comprised of selling and marketing expenses, general and administrative expenses and research and development expenses.  In addition, for the year ended December 31, 2001, operating expenses included non-recurring expenses associated with a corporate restructuring plan and costs associated with the settlement of the Company's dispute with Nicholas A. Faldo regarding the provisions of his prior professional services agreement with the Company.

Selling and marketing expenses decreased to $21.8 million from $35.6 million for the years ended December 31, 2001 and 2000, respectively.  The decrease is primarily attributable to reduced advertising costs of $9.1 million for television and print media associated with the launch of the Tight Lies 2 fairway woods and Tight Lies GT irons in 2000 and an overall decrease in marketing expenses generally.  To a lesser extent, the decrease is associated with reduced creative costs associated with commercials of $1.2 million and reduced royalties of $1.4 million resulting from the cessation of Adams Golf Ltd.'s relationship with Mr. Faldo.  In addition, payroll expense decreased $0.9 million as a result of the Company's corporate restructuring executed in August 2001 which resulted in infrastructure reductions and the conversion of the domestic sales organization to an independent (non-employee) sales force.  Also, depreciation was reduced by $0.5 million res ulting from infrastructure reductions associated with the Company's direct to consumer sales organization.  These decreases are partially offset by costs associated with the Company's sales agency relationship in Canada, established in August 2000, which resulted in costs of $0.9 million for the year ended December 31, 2001.

General and administrative expenses, including provisions for bad debts, decreased to $9.1 million from $14.5 million for the years ended December 31, 2001 and 2000, respectively.  The decrease is primarily the result of a decrease in the provision for bad debts from $4.4 million to $0.6 million for the years ended December 31, 2000 and 2001, respectively.  The decrease in the provision for bad debts on a year over year basis is primarily due to a general downturn in the sales of golf equipment retailers and the attendant bankruptcies and financial difficulties experienced by those customers during 2000.  This situation eased somewhat in the year ended December 31, 2001.  The decrease in general and administrative expenses is also attributed to a reduction in payroll related expenses of $1.3 million resulting from an overall reduction in infrastructure attributable to attrition and the corporate restructuring executed in 2001.

Research and development expenses, primarily consisting of costs associated with development of new products, were $1.0 million for the year ended December 31, 2001, as compared to $2.1 million for the year ended December 31, 2000.  The decrease in the research and development expenses was primarily due to $0.8 million being included in the amounts for the year ended December 31, 2000 resulting from amortization of compensation resulting from stock granted to Nicholas A. Faldo in accordance with his prior professional services agreement during the year ended December 31, 2000.  Adams Golf, Ltd. declared Mr. Faldo in material breach of his contract in 2000 and in 2000, the Company wrote off the value of the remaining unamortized compensation as a separate charge to operations because it would not provide future benefit to the Company.

During the year ended December 31, 2001, an agreement was reached with Mr. Faldo in settlement of the dispute regarding provisions of his prior professional services agreement with the Company.  Mr. Faldo received $0.5 million in connection with the settlement.  In addition, Mr. Faldo will receive $0.5 million on July 15, 2002 and a series of annual installments for the years 2003 through 2011 aggregating to $2.0 million.  In addition, Mr. Faldo is entitled to receive up to an additional $2.0 million contingent on the Company reaching certain financial performance thresholds.  For the year ended December 31, 2001, the Company recorded a net charge of $1.6 million related to the settlement.  The charge is comprised of $2.7 million in expense representing the present value of the stream of non-contingent future payments through 2011 under the provisions of the settlement utilizing the Company's incremental borrowing rate of 6.04%.  In accor dance with the terms of the settlement, Mr. Faldo waived all future rights to unpaid royalties of $1.1 million associated with his prior professional services agreement with the Company.

 20

During the year ended December 31, 2001, the Company executed an operational restructuring plan, which reduced its employee staff by 55 positions primarily associated with the conversion of its sales staff to independent (non-employee) sales representatives.  In addition, the Company eliminated 76 non-exempt positions resulting from the outsourcing of the Company's golf club assembly process.  In total, the operational restructuring plan resulted in severance related costs of approximately $1.0 million.  In addition, the Company wrote-off the remaining unamortized portion of goodwill of $0.6 million associated with its wholly-owned subsidiary in Japan.  This write-off resulted from a further revision of the Company's business model, in which management determined that it was beneficial to service the Japanese market through a distributor relationship rather than through a wholly-owned subsidiary.  Therefore, through comparison of the expected future cash flows associated with Adams Golf Japan, Inc. to the carrying value of the remaining goodwill and long-lived assets, it was determined that the remaining unamortized portion was impaired.

As a result of the above, the Company's operating loss was $13.2 million for the year ended December 31, 2001 compared to $38.5 million for the year ended December 31, 2000.

For the year ended December 31, 2001, the Company recorded income tax expense of $0.6 million primarily representing taxes owed in settlement of Internal Revenue Service audits for the tax years ended December 31, 1997, 1998 and 1999.  In addition, for the year ended December 31, 2001, the Company did not recognize any income tax benefit due to the inability to conclude based on a weighting of objective evidence, on a more likely than not basis that deferred income tax benefits will ultimately be realized

Contractual Obligations

	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Long-term Debt Obligations		--		--		--		--		--
Capital Lease Obligations	$	8,926	$	7,063	$	1,863		--		--
Operating Lease Obligations		761,994		676,636		85,358		--		--
Purchase Obligations		--		--		--		--		--
Other Long-term Liabilities Reflected on the Registrant's Balance sheet under GAAP		701,508		89,000		163,171	$	145,222	$	304,115
Total	$	1,472,428	$	772,699	$	250,392	$	145,222	$	304,115

Liquidity and Capital Resources

Cash and cash equivalents decreased to $5.6 million at December 31, 2002 from $9.2 million at December 31, 2001.  The decrease is primarily due to cash used in operating activities.  During the year, accounts receivable increased $5.4 million offset by a decrease in inventory of $8.3 million.  This was coupled with a decrease in accrued expenses and accounts payable of $0.2 million associated in part with component purchases and compensation related costs.

Working capital decreased at December 31, 2002 to $18.1 million compared to $24.2 million at December 31, 2001.

On January 3, 2003, the Company terminated its credit agreement with General Electric Capital Corp. without any penalties or other fees.  The line of credit was no longer viable for the business and the Company wanted to pursue other sources of working capital financing.

21 

In March 2003, the Company entered into a revolving credit agreement with First Community Financial Corporation to provide up to $1.0 million in short-term debt which is limited to 50% of the eligible accounts receivable that are less than 60 days old.  The agreement is collateralized by all assets of the Company and requires, among other things, the Company to maintain certain financial performance levels relative to net worth and accounts receivable collections.  The credit facility bears interest at the rate of prime plus 4% per year with a minimum annual rate of 8.25%.  The prime rate as of March 13, 2003 was 4.25%.  The agreement is for an initial term of one year and requires minimum monthly interest expense of $3,750 per month for the first six months and $2,000 per month for the last six months.  In addition, the agreement contains restrictions on the Company's acquisition of its capital stock and the payment of dividends, among other things, without the prior written consent of the lender.  The agreement is guaranteed by the Company and certain of its wholly-owned subsidiaries.

The Company however, still extends rights to Tom Watson in which he has secondary rights to the Company's assets up to $1.0 million, only to the extent that any credit facility borrowings have been satisfied.

The Company's anticipated sources of liquidity over the next twelve months are expected to be cash reserves, projected cash flows from operations, and available borrowings under its new credit facility.  It is anticipated 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 the Company's operations if cash is needed in other areas of the Company's operations.  In addition, cash flows from operations and cash reserves will be used to support ongoing purchases of component parts for the Company's current and future product lines.  The Company anticipates that cash requirements to support current purchasing activities will continue at current levels, taking into consideration the seasonality of the industry and consumer acceptance of the Company's products.  In addition, the Company expects to require less cash flow to support compensation and related expenditures as a result of the operational restructuring executed during 2002 and 2001.  The expected operating cash flow, current cash reserves and borrowings available under its new credit facility are expected to allow the Company to meet working capital requirements during periods of low cash flows resulting from the seasonality of the industry.

During the fourth quarter of 2002, the Company further modified its current business model with respect to its operating activities in the United Kingdom and closed its wholly owned subsidiary as of October 31, 2002.  As a result, the Company recorded certain costs associated with the wind-down of its United Kingdom subsidiary operations of $0.8 million.  The effects of these costs are not expected to have a significant impact on the Company's liquidity.

Management believes that sufficient resources may be available to meet the Company's cash requirements through the next twelve months.  Cash requirements beyond twelve months are dependent on the Company's ability to introduce products that gain market acceptance and to manage working capital requirements.  The Company has introduced new products and has taken steps to increase the market acceptance of these and its other products.  Accordingly, to remain viable, it is possible that the Company may have to raise additional capital and/or further reduce its operating expenses including further operational restructurings, possibly during the next twelve months.  The Company may need to raise additional funds through the issuance of equity securities, in which case the percentage ownership of the stockholders of the Company will be reduced, stockholders may experience additional dilution, or such equity securities may have rights, preferences or privileges senior to the Company's common stock.  Nevertheless, given the current market price for the Company's common stock and the state of the capital markets generally, the Company does not expect that it will be able to raise funds through the issuance of its capital stock in the foreseeable future.  The Company 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 the Company, 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 $1.0 million of borrowings available under the new revolving credit facility.

If adequate funds are not available or not available on acceptable terms, the Company 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 the Company's business, operating results, financial condition or liquidity.

22 

New Accounting Pronouncements

In June 2001, FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations, which addresses the accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs.  The Company is currently assessing the impact on the Company's consolidated financial statements and will adopt the provisions of this standard in the first quarter of 2003.

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which addresses the financial accounting and reporting for costs associated with exit or disposal activities to be recorded at fair values when a liability has been incurred.  This standard applies to all activities occurring on or after January 1, 2003.  The Company is currently assessing the impact on the Company's consolidated financial statements and will adopt the provisions of this standard in the first quarter of 2003.

In October 2002, the FASB issued SFAS No. 147, Acquisitions of Certain Financial Institutions, which addresses the financial accounting and reporting requirements for Financial Institutions' goodwill.  This standard will have no impact on the Company's consolidated financial statements.

In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, which requires additional disclosures to be made by a guarantor and requires a guarantor to recognize liability for the fair value of the guarantee.  This standard will have no impact on the Company's consolidated financial statements.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of ARB No. 51, which addresses the consolidation by business enterprises of variable interest entities.  This standard will have no impact on the Company's consolidated financial statements.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure, which provides three alternative transition methods for companies that choose to adopt the fair value measurement provisions of SFAS No. 123.  Other than additional disclosure requirements that the Company has currently adopted in this filing, SFAS No. 148 will have no impact on the Company's consolidated financial statements.

Business Risks

As indicated below, this Form 10-K contains forward-looking statements that involve risks and uncertainties.  The Company's actual results may differ materially from the results discussed in the forward-looking statements.  Factors that may cause such a difference include, but are not limited to, those discussed in this section and elsewhere throughout this Form 10-K.

Dependence on New Product Introductions; Uncertain Consumer Acceptance

Although some of the Company's new product introductions have experienced modest success, the Company's ultimate success depends, in large part, on its 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 previously introduced by the Company have not met the level of consumer acceptance anticipated by management.  No assurance can be given that the Company's current or future products will be met with consumer acceptance.  Failure by the Company to timely identify and develop innovative new products that achieve widespread market acceptance would adversely affect the Company's continued viability.  Additionally, successful technologies, designs and product concepts are likely to be copied by competitors.  Accordingly, the Company's operating results could f luctuate as a result of the amount, timing, and market acceptance of new product introductions by the Company or its competitors.  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, the Company believes that it is critical for its future success that new clubs introduced by the Company comply with USGA standards.

 23

Uncertainty Regarding Resumption of Profitability

Although the Company generated net income during the years ended December 31, 1996 and 1998, it has historically experienced net losses from operations.  In addition, even though the Company experienced an increase in revenues for the year ended December 31, 2001 and decreasing operating losses for the year ended December 31, 2002, the Company experienced declining sales and increasing operating losses for the years ended December 31, 1999 and 2000.  There can be no assurance that the Company will be able to increase revenues or resume profitability on a quarterly or annual basis in the future.  An inability to improve the Company's financial performance could jeopardize the Company's ability to develop, enhance, and market products, retain qualified personnel, and take advantage of future opportunities or respond to competitive pressures.

Need for Additional Capital

Although management believes that sufficient resources will be available to meet the Company's cash requirements through the next twelve months, no assurances can be given that the Company will have sufficient cash resources beyond twelve months.  To the extent our cash requirements change or the assumptions on which management's expectations are based prove to be in error, we may need additional working capital resources within the year.  The Company, in March 2003, entered into a revolving credit agreement with First Community Financial Corporation to provide up to $1.0 million in short-term debt which is limited to 50% of the eligible accounts receivable less than 60 days old..  To the extent that the Company may require additional financing, there are no assurances that such additional financing will be available on favorable terms, if at all.  Given the current market price for the Company's common stock and the state of the capital markets general ly, we do not expect that we would be able to raise funds through the issuance of our capital stock.  The Company may also find it difficult to secure additional debt financing.  It is possible that the Company's only source of future funding is cash on hand and future cash from operations.  If adequate funds are not available or not available on acceptable terms, the Company 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 the Company.

Competition

The golf club market is highly competitive.  The Company competes with a number of established golf club manufacturers, some of which have greater financial and other resources.  The Company's competitors include Callaway Golf Company, adidas-Saloman AG (Taylor Made - adidas Golf), Nike, Inc. (Nike Golf), Fortune Brands, Inc. (Titleist and Cobra) and Karsten Assembly Company (PING), among others.  The Company competes primarily on the basis of performance, brand name recognition, quality and price.  The Company believes that its ability to market its products through multiple distribution channels, including on- and off- course golf shops and other retailers is important to the manner in which the Company competes.  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.  T hese preferences may also be subject to rapid and unanticipated changes.  The Company 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 the Company's business, operating results and/or financial condition.  There can be no assurance that Adams Golf will be able to compete successfully against current and future sources of competition or that its business, operating results or financial condition will not be adversely affected by increased competition in the market in which it operates.

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.  The Company 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 the Company's image, and could have a material adverse effect on the Company's business, results of operations, financial position and/or liquidity.

24 

The introduction of new products by the Company or its 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 new Redline product line of fairway woods and drivers were introduced this year, older product lines such as the original Tight Lies and Tight Lies ST fairway woods and drivers experienced reductions in price and are being closed out to both wholesale and retail levels.  This closeout of various product lines was also a contributing factor to overall reduction in inventory levels as compared to prior periods.

Dependence on Key Personnel and Endorsements

The Company's success depends to an extent upon the performance of its management team, which includes the Company's founder and Chairman, B.H. (Barney) Adams who participates in the Company's product development efforts.  The loss or unavailability of Mr. Adams could adversely affect the Company's business and prospects.  With the exception of the Company's President and Chief Executive Officer, Oliver G. (Chip) Brewer, none of the Company's officers and employees, including Mr. Adams, are bound by employment agreements and the relations of such officers and employees are, therefore, at will.  The Company has a $4.0 million key-man life insurance policy on the life of Mr. Adams; however, there can be no assurance that the proceeds of this policy could adequately compensate the Company for the loss of his services.  In addition, there is strong competition for qualified personnel in the golf club industry, and the inability to continue to attract, retai n and motivate other key personnel could adversely affect the Company's business, operating results or financial condition.

The Company believes that acceptance of its products by touring professionals is an important aspect of its marketing strategy and ultimately validates the products in the mind of the consumer.  The Company has entered into endorsement arrangements with certain members of the PGA Tour and the Champions PGA Tour, including Tom Watson, Bruce Lietzke, Larry Nelson and other notable players.  As is typical in the golf industry generally, the agreements with these professional golfers do not necessarily require that they use the Company's golf clubs at all times during the terms thereof, including, in certain circumstances, at times when the Company is required to make payments to them.  The failure of certain individuals to use the Company's products on one or more occasions has resulted in negative publicity involving the Company.  While the Company does not believe this publicity has resulted in any significant erosion in the net sales of the Company's pr oducts to date, no assurance can be given that the Company's business would not be adversely affected in a material way by further such publicity or by the failure of its known professional endorsers to carry and use its products.

Change in Marketing Strategy

Historically, the Company has relied on infomercials or broad, brand-based advertising as the cornerstone of its marketing strategy.  During 2001, the Company modified its marketing strategy to focus principally on golf related events and publications.  For the years ended December 31, 2002, 2001 and 2000, the Company spent approximately $2.6 million, $8.2 million and $16.2 million, respectively, on brand based advertising.  The Company has significantly reduced its expenditures in this category as compared to historical periods.  This reduction could have a material adverse effect on the Company's operating results and/or financial condition.  Additionally, there can be no assurances that a decrease in the levels of advertising will not result in a material decline in sales of the Company's products.

Source of Supply

The Company has redundant sources of supply for each of the component parts used in the manufacture of the original Tight Lies.  However, components used to manufacture various product lines are sourced from multiple vendors, some of which are the sole source on specific component parts.  Substantially all of the Company's fairway wood, driver, iron, i-wood, wedge and putter component parts are manufactured in Taiwan, China and Mexico.   Both multi-material shafts used in some of the Company's product lines, (specifically, Graphite Tip (GT) and BiMatrx steel tip (ST) shafts), are available from a sole supplier, True Temper Sports.  The Company has not entered into a long-term supply agreement with any of its component part suppliers, including True Temper Sports.

 25

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

Product Warranties

The Company provides a limited one year product warranty on all of its golf clubs with the exception of the graphite tip (GT) and BiMatrx steel tip (ST) shafts used in variety of the Company's product lines.  These shafts carry a five year warranty for defects in quality and workmanship.  The Company closely monitors the level and nature of warranty claims, and, where appropriate, seeks to incorporate design and production changes to assure its customers of the highest quality available in the market.  Significant increases in the incidence of such claims may adversely affect the Company's sales and its reputation with golfers.  The Company establishes a reserve for warranty claims, which it believes is sufficient to meet future claims.  However, there can be no assurance that these reserves will be sufficient if the Company were to experience an unusually high incidence of problems with its products.

Risks Associated with Intellectual Property

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 the Company's products without infringing on the Company's copyrights, patents, trademarks or trade dress.  Many of the Company's competitors have obtained patent, trademark, copyright or other protection of intellectual property rights pertaining to golf clubs.  No assurance can be given that the Company will not be adversely affected by the assertion by competitors that the Company's designs infringe on such competitor's intellectual property rights.  This effect could include alteration or withdrawal of the Company's existing products and delayed introduction of new products.

The Company attempts to maintain the secrecy of its confidential business information, including 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 the Company's confidential business information will be adequately protected in all instances.  The unauthorized use of the Company's confidential business information could adversely affect the Company.

Unauthorized Distribution and Counterfeit Clubs

Despite the Company's efforts to limit its distribution to selected retailers, some quantities of the Company's products have been found in unapproved outlets or distribution channels.  The existence of a "gray market" in the Company's products can undermine the sales of authorized retailers and foreign wholesale distributors who promote and support the Company's products, and can injure the Company's image in the minds of its customers and consumers.  Adams Golf makes efforts to limit or deter unauthorized distribution of its products, but does not believe the unauthorized distribution of its products can be totally eliminated.  The Company does not believe that the unauthorized distribution of its clubs has had or will have a material adverse effect on the Company's results of operations, financial condition or competitive position, although there can be no assurance as to future results.

In addition, the Company is occasionally made aware of the existence of counterfeit copies of its golf clubs particularly in foreign markets.  The Company takes action in these situations through local authorities and legal counsel where practical.  The Company does not believe that the availability of counterfeit clubs has had or will have a material adverse effect on the Company's results of operations, financial condition or competitive position, although there can be no assurance as to future results.

26 

Industry Specific Requirements

The Company performs ongoing credit evaluation of its wholesale customers' financial condition and generally provides credit without the requirement of collateral from these customers.  The Company believes it has adequate reserves for potential credit losses.  Due to industry sensitivity to consumer buying trends and available disposable income, the Company has 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 the Company's 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 the Company's brand name and to assure adequate product availability often to coincide with planned promotions or advertising campaigns.  Although a significant amount of the Company's sales are not affected by these terms, the extended terms do have a negative impact on the Company's financial position and liquidity.  The Company expects to continue to selectively offer extended payment terms in the future, depending upon known industry trends and the Company's financial condition.

In addition to extended payment terms, the nature of the industry also requires that the Company carry a substantial level of inventory due to the lead times associated with purchasing components overseas coupled with the seasonality of customer demand.  The Company's inventory balances were approximately $9,127,000 and $17,418,000 at December 31, 2002 and December 31, 2001, respectively.  The decrease in inventory levels is a result of more improved processes over the purchasing, production and distribution timing of new product lines in addition to the closeout of maturing product lines at reduced selling prices.

Certain Risks of Conducting Business Abroad

The Company imports a significant portion of its component parts, including heads, shafts, headcovers, and grips from companies in Taiwan, China and Mexico.  In addition, the Company sells its products to certain distributors located outside the United States.  The Company's international business is currently centered in Canada and Europe and management intends to focus its international efforts through agency and distributor relationships.  The Company's 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 the Company purchases components or sells its products.

Seasonality and Quarterly Fluctuations

Golf generally is regarded as a warm weather sport, and net sales of golf equipment have been historically strongest for the Company during the first and second quarters, which ensures adequate levels of inventory at retail locations for the golf season.  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 the Company's business, operating results and financial condition.  In addition, the Company's future results of operations could be affected by a number of other factors, such as unseasonable weather patterns; demand for and market acceptance of the Company's existing and future products; new product introductions by the Company's 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 the Company or result in the Company failing to achieve its expectations as to future sales or operating results.

27 

Because most operating expenses are relatively fixed in the short term, the Company 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 the Company to invest significantly greater resources than anticipated in research and development or sales and marketing efforts, the Company's business, operating results and/or financial condition could be materially adversely affected.  Accordingly, the Company believes that period-to-period comparisons of its 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 above and below, in certain future quarters the Company's results of operations may be below the expectations of public market analysts or investors.  In such event, the market price of the Company's common stock could be materially adversely affected.

Anti-Takeover Provisions

The Company's Certificate of Incorporation and Amended and Restated Bylaws (the "Bylaws") contain, among other things, provisions establishing a classified Board of Directors, authorizing shares of preferred stock with respect to which the Board of Directors of the Company has 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, the Company is subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law (the "DGCL").  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 pe rson 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 the Company that some or a majority of the Company's stockholders might consider to be in its 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 of the Company, may discourage bids for the common stock at a premium over the market price of the common stock and adversely affect the market price of and voting and other rights of the holders of the common stock.  The Company has not issued and currently has no plans to issue shares of preferred stock.

 28

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 concerning the potential benefits to be achieved from our internal restructurings; statements regarding our ability to increase revenues or achieve satisfactory operating performance; statements regarding our future capital requirements and our ability to satisfy our capital needs; including statements regarding our ability to satisfy our cash requirements during the next twelve months, statements regarding our ability to manufacture products commercially acceptable to consumers; statements regarding our ability to source component parts from other suppliers if necessary; and statements using terminology such as "may," "will," "expect," "intend," "estimate," "anticipate," "plan," "seek" or "believe."  Such statements reflect the current view of the Com pany with respect to future events and are subject to certain risks, uncertainties and assumptions related to certain factors including, without limitation, product development difficulties, assembly difficulties; product introductions; market demand and acceptance of products; the impact of changing economic conditions; the future market of our capital stock, the modification of our marketing strategy, 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 products; the actions of competitors, including pricing, advertising and product development risks concerning future technology; and the impact of operational restructuring on operating results and liquidity and one-time events and other factors detailed in this report under "Business Risks."  Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assuranc e that such expectations will prove to have been 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, Adams Golf undertakes 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 report.  All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the applicable cautionary statements.

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk

The Company, in the normal course of doing business, is exposed to market risk through changes in interest rates with respect to its cash equivalents.  

					Fair
		2002			Value
		(Dollars in thousands)
Cash equivalents
	Fixed rate	$	5,611		$	5,611
	Average interest rate		0.73	%

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.

Item 9.   Changes in and Disagreements with Accountants and Accounting and Financial Disclosure

Not Applicable.

29 

PART III

Item 10.   Directors and Executive Officers of the Registrant

The information required by this Item is incorporated by reference from pages 3 through 11, inclusive, of the Company's Proxy Statement dated April 9, 2003 for the Annual Meeting of the Stockholders on May 14, 2003 to be distributed to the stockholders on or before April 30, 2003 ("the 2003 Proxy Statement") under the respective captions, "Elections of Directors", "Stock Ownership - Section 16(a) Beneficial Ownership Reporting Compliance" and "Management-Executive Officers".

Item 11.   Executive Compensation

The information required by this Item is incorporated by reference from pages 7 through 13, inclusive, of the Company's 2003 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 from pages 6 through 7 of the Company's 2003 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 from pages 9 through 11, inclusive, of the Company's 2003 Proxy Statement under the captions "Management-Employment Contracts and Change in Control Agreements," "-Compensation Committee Interlocks and Insider Participation" and "-Certain Transactions".

Item 14.  Controls and Procedures

Within 90 days prior to the date of this report, the Company evaluated, under supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Securities and Exchange act Rule 13a-14.  Based upon our evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in our periodic SEC filings.  There have been no significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation.

 30

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:

(1)  Consolidated Financial Statements
Item		Page
	Index to Consolidated Financial Statements and Related Financial Statement Schedule	F-1
	Independent Auditors' Report	F-2
	Consolidated Balance Sheets as of December 31, 2002 and 2001	F-3
	Consolidated Statements of Operations for the years ended December 31, 2002, 2001and 2000	F-4
	Consolidated Statements of Stockholders' Equity for the years ended December 31, 2002, 2001 and 2000	F-5 - F-6
	Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000	F-7
	Notes to Consolidated Financial Statements	F-8 - F-25
	(2)  Financial Statement Schedule

The following financial statement schedule of the Company for the years ended December 31, 2002, 2001 and 2000 is filed as part of this Annual Report and should be read in conjunction with the Consolidated Financial Statements of the Company.  All other schedules have been omitted because said schedules are not required under the related instructions or are not applicable, or because the information required is included in the Company's consolidated financial statements or notes thereto.

Schedule II - Valuation and Qualifying Accounts S-1

 31

(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 documents 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 (Exhibit 3.1)
Exhibit 3.2	Amended and Restated By-laws	Incorporated by reference to Form S-1 (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 (Exhibit 4.1)
Exhibit 4.2	1996 Stock Option Plan dated April 10, 1998	Incorporated by reference to Form S-1 (Exhibit 4.2)
Exhibit 4.3	Adams Golf, Ltd. 401(k) Retirement Plan	Incorporated by reference to Form S-1 (Exhibit 4.3)
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 1999 Form 10-K (Exhibit 4.5)
Exhibit 4.6	2002 Stock Incentive Plan for Adams Golf, Inc.	Included in this filing
Exhibit 10.1	Agreement between the Registrant and Nick Faldo, dated April 22, 1998	Incorporated by reference to Form S-1 (Exhibit 10.1)
Exhibit 10.2	Commercial Lease Agreement dated December 5, 1997, between Jackson-Shaw Technology Center II and the Company	Incorporated by reference to Form S-1 (Exhibit 10.3)
Exhibit 10.3	Commercial Lease Agreement dated April 6, 1998, between Jackson-Shaw Technology Center II and the Company	Incorporated by reference to Form S-1 (Exhibit 10.4)
Exhibit 10.4	Revolving Credit Agreement between Adams Golf, Ltd. and General Electric Capital Corporation	Incorporated by reference to 2000 Form 10-K (Exhibit 10.9)
Exhibit 10.5	Amended Commercial Lease Agreement dated April 6, 1998 between Jackson-Shaw Technology Center II and the Company	Incorporated by reference to 2000 Form 10-K (Exhibit 10.18)

32 

Exhibit 10.6	Settlement Agreement between Adams Golf, Ltd. and Nicholas A. Faldo	Incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2001 (Exhibit 10.19)
Exhibit 10.7	Employment Agreement - Oliver G. (Chip) Brewer	Incorporated by reference to 2001 Form 10-K (Exhibit 10.21)
Exhibit 10.8	Amendment to Revolving Credit Agreement between Adams Golf, Ltd. and General Electric Capital Corporation	Incorporated by reference to 2001 Form 10-K (Exhibit 10.22)
Exhibit 10.9*	Golf Consultant Agreement - Thomas S. Watson	Incorporated by reference to 2001 Form 10-K (Exhibit 10.23)
Exhibit 10.10	Termination Letter - Revolving Credit Agreement between Adams Golf, Ltd. and General Electric Capital Corporation	Included in this filing
Exhibit 10.11*	First Amendment to Golf Consultant Agreement - Thomas S. Watson	Included in this filing
Exhibit 10.12	Accounts Receivable Security Agreement between Adams Golf, Ltd. and First Community Financial Corporation	Included in this filing
Exhibit 21.1	Subsidiaries of the Registrant	Included in this filing
Exhibit 23.1	Consent of KPMG LLP	Included in this filing
Exhibit 99.1	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)  Reports on Form 8-K

On December 30, 2002, the Company filed a Current Report on Form 8-K disclosing the addition of Dale Keith Ford to Adams Golf in the capacity of Chief Financial Officer.

 33

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 28, 2003	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 28, 2003	By: /s/ B.H. (BARNEY) ADAMS
	B.H. (Barney) Adams, Chairman of the Board

Date:  March 28, 2003	By: /s/ OLIVER G. BREWER III
	Oliver G. (Chip) Brewer III
	Chief Executive Officer, President and Director

Date:  March 28, 2003	By: /s/ DALE KEITH FORD
	Dale Keith Ford
	Chief Financial Officer
	(Principal Financial Officer)

Date:  March 28, 2003	By: /s/ PAMELA J. HIGH
	Pamela J. High
	Controller
	(Principal Accounting Officer)

Date:  March 28, 2003	By: /s/ MARK R. MULVOY
	Mark R. Mulvoy
	Director

Date:  March 28, 2003	By: /s/ PAUL F. BROWN, JR.
	Paul F. Brown, Jr.
	Director

Date:  March 28, 2003	By: /s/ STEPHEN R. PATCHIN
	Stephen R. Patchin
	Director

Date:  March 28, 2003	By: /s/ ROBERT F. MACNALLY
	Robert F. MacNally
	Director

34 

FORM OF CERTIFICATION

For Form 10-K

Provided in SEC Release 33-1824

CERTIFICATIONS

I, Oliver G. Brewer, certify that:

1. I have reviewed this annual report on Form 10-K of Adams Golf, Inc;

2. Based on my knowledge, this annual report does not contain any untrue statement of 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-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures 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 as of a date within 90   days prior to the filing date of this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and   procedures based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the  registrant's auditors and the audit committee of registrant's board of directors (or persons performing the  equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the   registrant's ability to record, process, summarize and report financial data and have identified for the   registrant's auditors any material weakness in internal controls; 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; and

6. The registrant's other certifying officer and I have indicated in this annual report whether or not there were  significant changes in internal controls or in other factors that could significantly affect internal controls  subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant  deficiencies and material weaknesses.

Date:  March 28, 2003	By: /s/ OLIVER G. BREWER III
	Oliver G. (Chip) Brewer III
	Chief Executive Officer, President and Director

 35

FORM OF CERTIFICATION

For Form 10-K

Provided in SEC Release 33-1824

CERTIFICATIONS

I, Dale Keith Ford, certify that:

1. I have reviewed this annual report on Form 10-K of Adams Golf, Inc;

2. Based on my knowledge, this annual report does not contain any untrue statement of 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-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures 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 as of a date within 90   days prior to the filing date of this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and   procedures based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the  registrant's auditors and the audit committee of registrant's board of directors (or persons performing the  equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the   registrant's ability to record, process, summarize and report financial data and have identified for the   registrant's auditors any material weakness in internal controls; 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; and

6. The registrant's other certifying officer and I have indicated in this annual report whether or not there were  significant changes in internal controls or in other factors that could significantly affect internal controls  subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant  deficiencies and material weaknesses.

Date:  March 28, 2003	By: /s/ DALE KEITH FORD
	Dale Keith Ford
	Chief Financial Officer
	(Principal Financial Officer)

 36

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

AND RELATED FINANCIAL STATEMENT SCHEDULE

	Page
Consolidated Financial Statements
Independent Auditors' Report	F-2
Consolidated Balance Sheets as of December 31, 2002 and 2001	F-3
Consolidated Statements of Operations for the years ended December 31, 2002, 2001 and   2000	F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2002,   2001 and 2000	F-5 - F-6
Consolidated Statements of Cash Flows the years ended December 31, 2002, 2001 and   2000	F-7
Notes to Consolidated Financial Statements	F-8 - F-25

Financial Statement Schedule

The following financial statement schedule of the Company for the years ended December 31, 2002, 2001 and 2000 is filed as part of this Report and should be read in conjunction with the Consolidated Financial Statements of the Company.

Schedule II - Valuation and Qualifying Accounts S-1

All other schedules are omitted since the required 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 

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders

Adams Golf, Inc.:

We have audited the consolidated financial statements of Adams Golf, Inc. and subsidiaries as listed in the accompanying index.  In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedule as listed in the accompanying index.  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 auditing standards generally accepted in the United States of America.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes 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, 2002 and 2001 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America.  Also, in our opinion, the related financial statement schedule, 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.

	KPMG LLP
Dallas, Texas
February 20, 2003, except as to      Notes 11 and 17, which is as of March 28, 2003

F-2 

ADAMS GOLF, INC. AND SUBSIDIARIES

 CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

ASSETS
			December 31,
			2002			2001
Current assets:
	Cash and cash equivalents		$	5,611		$	9,245
	Trade receivables, net			8,533			3,104
	Inventories, net			9,127			17,418
	Prepaid expenses			934			822
	Income tax receivable			18			18
	Other current assets			136			102
		Total current assets		24,359			30,709
Property and equipment, net				1,937			3,744
Other assets, net				142			357
			$	26,438		$	34,810
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable		$	933		$	458
	Accrued expenses			5,326			6,020
		Total current liabilities		6,259			6,478
Non-current liabilities				703			710
		Total liabilities		6,962			7,188
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; 23,137,571 shares issued and 22,480,071 shares outstanding			23			23
	Additional paid-in capital			87,381			86,140
	Common stock subscription			--			(22	)
	Deferred compensation			(671	)		(140	)
	Accumulated other comprehensive loss			(653	)		(700	)
	Accumulated deficit			(63,468	)		(54,543	)
	Treasury stock, 657,500 common shares, at cost			(3,136	)		(3,136	)
		Total stockholders' equity		19,476			27,622
Commitments and contingencies (notes 8 and 9)
			$	26,438		$	34,810

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,
			2000			2001			2000
Net sales			$	37,917		$	47,655		$	41,677
Cost of goods sold				26,324			25,644			20,454
	Gross profit			11,593			22,011			21,223
Operating expenses:
	Research and development expenses			1,368			1,008			2,083
	Selling and marketing expenses			11,016			21,831			35,594
	General and administrative expenses:
		Provision for bad debts		626			613			4,441
		Other		6,636			8,516			10,020
	Write-off of prepaid professional services agreement			--			--			7,594
	Settlement expense			--			1,579			--
	Restructuring expense			850			1,649			--
		Total operating expenses		20,496			35,196			59,732
		Operating loss		(8,903	)		(13,185	)		(38,509	)
Other income (expense):
	Interest income			43			443			1,372
	Interest expense			(41	)		(51	)		(26	)
	Other			(182	)		(34	)		159
		Loss before income taxes		(9,083	)		(12,827	)		(37,004	)
	Income tax expense (benefit)			(158	)		582			237
		Net loss	$	(8,925	)	$	(13,409	)	$	(37,241	)
Loss per common share - basic and diluted			$	(0.40	)	$	(0.60	)	$	(1.66	)

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, 2002, 2001 and 2000

								Accumulated	Retained
			Shares of		Additional	Common		Other	Earnings/		Cost of	Total
			Common	Common	Paid-in	Stock	Deferred	Comprehensive	(Accumulated	Comprehensive	Treasury	Stockholders'
			Stock	Stock	Capital	Subscription	Compensation	Loss	Deficit)	Loss	Stock	Equity
Balance, December 31, 1999			23,137,571	$ 23	$ 85,919	$ (22)	$ (476)	$ (44)	$ (3,893)	$ (3,136)	$ 78,371
Comprehensive loss:
	Net loss		--	--	--	--	--	--	(37,241)	$ (37,241)	--	(37,241)
	Other comprehensive loss, net of tax:
		Unrealized gain on marketable securities	--	--	--	--	--	47	--	47	--	47
		Unrealized loss on foreign currency translation	--	--	--	--	--	(298)	--	(298)	--	(298)
Comprehensive loss			--	--	--	--	--	--	--	$ (37,492)	--	--
Stock option forfeiture			--	--	(53)	--	53	--	--	--	--
Issuance of stock options			--	--	171	--	(171)	--	--	--	--
Amortization of deferred compensation			--	--	--	--	373	--	--	--		373
Balance, December 31, 2000			23,137,571	$ 23	$ 86,037	$ (22)	$ (221)	$ (295)	$ (41,134)		$ (3,136)	$ 41,252
Comprehensive loss:
	Net loss		--	--	--	--	--	--	(13,409)	$ (13,409)	--	(13,409)
	Other comprehensive loss, net of tax:
		Reclassification of losses on marketable securities
		to general and administrative expense	--	--	--	--	--	(4)	--	(4)	--	(4)
	Unrealized loss on foreign currency translation		--	--	--	--	--	(401)	--	(401)	--	(401)
Comprehensive loss			--	--	--	--	--	--		$ (13,814)	--	--
Stock option forfeiture			--	--	(10)	--	10	--	--		--	--
Issuance of stock options			--	--	113	--	(113)	--	--		--	--
Amortization of deferred compensation			--	--	--	--	184	--	--		--	184
Balance, December 31, 2001			23,137,571	$ 23	$ 86,140	$ (22)	$ (140)	$ (700)	$ (54,543)		$ (3,136)	$ 27,622
See accompanying notes to consolidated financial statements
(continued)

F-5 

ADAMS GOLF, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands, except share amounts)

Years ended December 31, 2002, 2001 and 2000

			Shares of		Additional	Common		Accumulated Other			Cost of	Total
			Common	Common	Paid-in	Stock	Deferred	Comprehensive	Accumulated	Comprehensive	Treasury	Stockholders'
			Stock	Stock	Capital	Subscription	Compensation	Loss	Deficit	Loss	Stock	Equity
Balance, December 31, 2001			23,137,571	$ 23	$ 86,140	$ (22)	$ (140)	$ (700)	$ (54,543)	$ (3,136)	$ 27,622
Comprehensive loss:
	Net loss		--	--	--	--	--	--	(8,925)	$ (8,925)	--	(8,925)
	Other comprehensive loss, net of tax:
		Unrealized gain (loss) on foreign currency translation	--	--	--	--	--	47	--	47	--	47
Comprehensive loss			--	--	--	--	--	--		$ (8,878)	--	--
Capital loan forgiveness			--	--	(22)	22	--	--	--		--	--
Issuance of stock options			--	--	1,263	--	(1,263)	--	--		--	--
Amortization of deferred compensation			--	--	--	--	732	--	--		--	732
Balance, December 31, 2002			23,137,571	$ 23	$ 87,381	$ --	$ (671)	$ (653)	$ (63,468)		$ (3,136)	$ 19,476

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,
			2002			2001			2000
Cash flows from operating activities:
Net loss			$	(8,925	)	$	(13,409	)	$	(37,241	)
Adjustments to reconcile net loss to net cash used in operating activities:
	Depreciation and amortization of property and equipment and intangible assets			2,300			3,162			3,708
	Loss on write-off of professional services agreement			--			--			7,594
	Adjustment of inventory to lower of cost or market			620			--			2,513
	Amortization of deferred compensation			732			184			373
	Gain on sale of marketable securities			--			(50	)		(12	)
	Deferred income taxes			--			--			292
	Allowance for doubtful accounts			626			613			4,441
	Changes in assets and liabilities:
		Trade receivables		(6,055	)		984			1,870
		Inventories		7,671			(3,639	)		2,809
		Prepaid expenses		(112	)		(109	)		171
		Income tax receivable		--			57			4,760
		Other current assets		(33	)		628			(103	)
		Other assets		49			(440	)		(1,249	)
		Accounts payable		475			(797	)		(726	)
		Accrued expenses		(621	)		797			2,635
		Other non-current liabilities		(7	)		702			--
		Net cash used in operating activities		(3,280	)		(11,317	)		(8,165	)
Cash flows from investing activities:
	Purchase of equipment			(146	)		(268	)		(693	)
	Purchases of marketable securities			--			(2,944	)		(22,481	)
	Maturities of marketable securities			--			10,440			29,100
	Sales of marketable securities			--			7,050			5,999
		Net cash provided by investing activities		(146	)		14,278			11,925
Cash used in financing activities:
	Principal payments under capital lease obligation			(73	)		(66	)		(58	)
	Debt financing costs			(135	)		(138	)		--
		Net cash used in financing activities		(208	)		(204	)		(58	)
Net increase (decrease) in cash and cash equivalents				(3,634	)		2,757			3,702
Cash and cash equivalents at beginning of period				9,245			6,488			2,786
Cash and cash equivalents at end of period			$	5,611		$	9,245		$	6,488
Supplemental disclosure of cash flow information:
	Interest paid		$	47		$	51		$	12
	Income taxes paid (refunded)		$	38		$	82		$	(4,849	)
Supplemental disclosure of non-cash investing and financing activities - equipment financed with capital lease			$	--		$	20		$	186

See accompanying notes to consolidated financial statements.

F-7 

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2002 and 2001

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

(1) Summary of Significant Accounting Policies

(a)   General

Founded in 1987, Adams Golf Inc. (the "Company" or "Adams Golf") initially operated as a component supplier and contract manufacturer.   Thereafter, the Company established its custom fitting operation and today it designs, assembles, markets and distributes premium quality, technologically innovative golf clubs including the recently introduced Redline drivers and fairway woods, the Tight Lies family of fairway woods and drivers, the Adams Golf Idea Irons and i-Woods, the Tight Lies GT irons and i-Woods, the Tom Watson signature series of wedges, the GT Spec Putters and accessories.  The Company was incorporated in 1987 and re-domesticated in Delaware in 1990.  The Company completed an internal reorganization in 1997 and now conducts its operations through several direct and indirect wholly-owned subsidiaries, agencies, and distributorships.

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

(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 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.  If the actual amount of obsolete inventory significantly exceeds the estimated allowance, the Company's costs of goods sold and gross profit would be significantly adversely affected.

(c)   Allowance for Doubtful Accounts

The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments.  An estimate of uncollectable amounts is made by management based upon historical bad debts, current customer receivable balances, the customer’s financial condition and current economic conditions.  If a significant number of customers with significant receivable balances in excess of the allowance fail to make required payments, the Company’s operating results would be significantly adversely affected.

(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.

 F-8

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2002 and 2001

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

(1) Summary of Significant Accounting Policies (continued)

(e)   Revenue Recognition

The Company recognizes 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.  The Company also records estimated reductions in revenue for sales programs such as co-op advertising and spiff incentives.   If actual sales returns and sales programs significantly exceed the recorded estimated allowances, the Company’s sales would be adversely affected.

(f)   New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets, which addresses the financial accounting and reporting for acquired goodwill and other intangible assets.  The Company adopted the provisions of this standard in the first quarter of 2002 and did not record any goodwill impairment.  Goodwill as of December 31, 2002 and 2001 was approximately zero and $0.1 million, respectively.  Goodwill amortization expense recognized for the years ended December 31, 2002 and 2001 was zero and $0.2 million, respectively.

In June 2001, the Financial Accounting Standards Board issued SFAS No. 143, Accounting for Asset Retirement Obligations, which addresses the accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs.  The Company is currently assessing the impact on the consolidated financial statements and will adopt the provisions of this standard in the first quarter of 2003.

In October 2001, the Financial Accounting Standards Board issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which establishes a universal accounting model based on the framework established in SFAS No. 121for long-lived assets to be disposed of by sale.  The Company adopted the provisions in the first quarter of 2002, which had no impact on the consolidated financial statements.

In July 2002, the Financial Accounting Standards Board issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which addresses the financial accounting and reporting for costs associated with exit or disposal activities to be recorded at fair values when a liability has been incurred.  This standard applies to all activities occurring on or after January 1, 2003.  The Company is currently assessing the impact on the consolidated financial statements and will adopt the provisions of this standard in the first quarter of 2003.

(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, and are expensed as incurred.  The Company's research and development expenses were approximately $1,367,000, $1,008,000 and $2,083,000 for the years ended December 31, 2002, 2001 and 2000, respectively.

 F-9

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2002 and 2001

(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 administrative expenses on the accompanying consolidated statements of operations, other than direct commercial costs, are expensed as incurred and aggregated approximately $2,626,000, $8,209,000 and $16,219,000 in 2002, 2001 and 2000, respectively.

(i)   Product Warranty

The Company's golf equipment is sold under warranty against defects in material and workmanship for a period of one year with the exception of the graphite tipped (GT) and BiMatrx steel tipped (ST) shafts which carry a five year warranty.  An allowance for estimated future warranty costs is recorded in the period products are sold.  In estimating its future warranty obligations, the Company considers various relevant factors, including the Company's stated warranty policies, the historical frequency of claims, and the cost to replace or repair the product.

	Beginning Balance		Changes for payments made and estimated accruals		Ending Balance
Year ended December 31, 2002	$	277		53	$	330
Year ended December 31, 2001	$	203		74	$	277

(j)   Income Taxes

The Company accounts 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 recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income in the period that includes the enactment date.  In assessing the realizability of deferred income tax assets, the Company considers 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 differ ences become deductible.  Due to the historical operating results of the Company, management is unable to conclude on a more likely than not basis that all deferred income tax assets generated through operating losses through December 31, 2002 will be realized.  Accordingly, the Company has recognized a valuation allowance equal to the entire deferred income tax asset.

 (k)   Income (Loss) Per Share

The weighted average common shares used for basic net income (loss) per common share were 22,480,071 for 2002, 2001 and 2000.  All warrants and options to purchase shares of the Company's common stock of 3,329,180, 1,697,670 and 1,602,297, which were outstanding during 2002, 2001 and 2000, respectively, were not included in the computation of diluted earnings per share as their effect would have been antidilutive.

F-10 

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2002 and 2001

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

(1) Summary of Significant Accounting Policies (continued)

(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

The Company reviews 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.  As of December 31, 2002, there was no impairment of long-lived assets.

(n)   Comprehensive Income (Loss)

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

(o)   Statements of Cash Flows

The Company considers 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)   Classification of Shipping and Handling Fees and Costs

Pursuant to the Emerging Issues Task Force ("EITF") consensus on Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs", all amounts billed to customers for shipping and handling are included in "net sales" and costs incurred related to shipping and handling are included in "cost of goods sold".

(r)  Segment Reporting

The Company is organized by functional responsibility and operates as a single segment and within that segment offers more than one class of product.

F-11 

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2002 and 2001

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

(1) Summary of Significant Accounting Policies (continued)

(s)  Stock Compensation

At December 31, 2002, the Company has one stock-based compensation plan that replaced four predecessor plans, which are described in more detail in Note 13.  The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations.  Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price.  The Company has elected to continue to apply the intrinsic value-based method of accounting for employee stock option grants and has adopted the SFAS No.148 disclosure requirements.  Non-Employee option grants are accounted for using the fair-value based method.   The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 Accounting for Stock Ba sed Compensation, to stock based employee compensation for the years ended December 31, 2002, 2001 and 2000:

		2002			2001			2000
Net income (loss):
	As reported	$	(8,925	)	$	(13,409	)	$	(37,241	)
Deduct: Total stock based employee compensation expense			(35	)		(70	)		(88	)
	Pro forma	$	(8,960	)	$	(13,479	)	$	(37,329	)
Diluted income (loss) per common share:
	As reported	$	(0.40	)	$	(0.60	)	$	(1.66	)
	Pro forma		(0.40	)		(0.60	)		(1.66	)

(t)  Classification of Promotional and Advertising Costs

Pursuant to the EITF consensus on Issues No.00-25 and No. 01-09, certain promotional and advertising costs given in the form of cash or credit as consideration to customers should be classified as a reduction in net sales.  In addition, certain promotional and advertising costs given in the form of additional merchandise as consideration to customers is classified as cost of goods sold.  The Company has previously included these costs in "selling and marketing" expenses.  The Company's Consolidated Statements of Operations for the year ended December 30, 2001 and 2000 have been reclassified to reflect the classification required by EITF Issues No. 00-25 and No. 01-09.  Consistent with the EITF consensus, net sales have been reduced by $1,514,000 and $772,000 for the years ended December 31, 2001 and 2000, respectively, in connection with certain credits provided by the Company to its customers for promotional and advertising costs.  In additio n, cost of goods sold includes $1,203,000 and $773,000 for the years ended December 31, 2001 and 2000, respectively, in connection with certain merchandise incentives provided by the Company to its customers of promotional and advertising costs given in the form of additional merchandise.

F-12 

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2002 and 2001

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

(2) Trade Receivables

Trade receivables consist of the following at December 31, 2002 and 2001:

	2002			2001
Trade receivables	$	9,195		$	3,879
Allowance for doubtful accounts		(662	)		(775	)
	$	8,533		$	3,104

(3)  Inventories

Inventories consist of the following at December 31, 2002 and 2001:

	2002		2001
Finished goods	$	3,545	$	6,970
Component Parts		5,582		10,448
	$	9,127	$	17,418

At December 31, 2002 and 2001, inventories included $373,000 and $245,000 of consigned inventory, respectively.

During the fourth quarter of 2002, the Company adjusted the carrying value of the finished goods and component part inventories to net realizable value.  The impact of the adjustment reduced inventory and increased cost of goods sold for the three months and year ended December 31, 2002 by $620,000.

(4)  Property and Equipment, net

Property and equipment consist of the following at December 31, 2002 and 2001:

	2002			2001
Equipment	$	952		$	1,129
Computers and software		9,145			9,196
Furniture and fixtures		687			704
Leaseholds		192			249
Accumulated depreciation and amortization		(9,039	)		(7,534	)
	$	1,937		$	3,744

F-13 

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2002 and 2001

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

(5) Other Assets, net

Other assets, net, consist of the following at December 31, 2002 and 2001:

	2002		2001
Goodwill, net of amortization	$	--	$	97
Deposits		137		137
Credit facility origination fees, net of amortization		--		103
Other		5		20
	$	142	$	357

During 2001, the Company recorded a charge of $613,000 to write-down the remaining goodwill associated with its Japanese subsidiary (Adams Golf Japan, Inc.) to the estimated fair value.  The write-down resulted from the Company modifying its business model with regard to the Japanese market, whereby management elected to form a distributor relationship in lieu of continuing the operation of its current wholly-owned subsidiary.  The impairment loss is included in restructuring expense in the accompanying 2001 consolidated statement of operations.

The credit facility origination fees have been fully amortized in the year ending December 31, 2002 as the credit facility with GE Capital Corporation was terminated on January 3, 2003 resulting in a write off of the asset totaling $238,000.

Goodwill and credit facility origination fees had amortization periods of five and three years, respectively.  The balance of goodwill was zero and $97,000 at December 31,2002 and 2001, respectively.  The write off of the remaining balance in 2002 was a result of the closure of  Adams Golf, UK Limited.

(6) Accrued Expenses

Accrued expenses consist of the following at December 31, 2002 and 2001:

	2002		2001
Payroll and commissions	$	965	$	184
Royalties		26		55
Advertising		322		763
Product warranty expense and sales returns		566		801
Professional services		149		142
Settlement costs		1,004		1,472
Restructuring costs		465		393
Deferred revenue		682		434
Other		1,147		1,776
	$	5,326	$	6,020

F-14 

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2002 and 2001

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

(7)  Restructuring

During 2002, the Company 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.  Approximately $465,000 remains in accrued expenses associated with the operational restructuring.  The Company continues to sell its products in the UK through a distributor.

During 2001, the Company executed an operational restructuring plan, which reduced its employee staff by 55 exempt positions primarily associated with the conversion of its sales staff to independent (non-employee) sales representatives and 76 non-exempt positions associated with the outsourcing of the Company's golf club assembly process.  The operational restructuring plan resulted in severance related costs of approximately $1,036,000 of which approximately $643,000 had been paid as of December 31, 2001.  The plan also included $613,000 of costs associated with the write-off of goodwill associated with the Company's wholly-owned subsidiary in Japan.  At December 31, 2001, approximately $393,000 remained in accrued expenses associated with the operational restructuring, which represents remaining severance costs paid in 2002.

(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, Adams Golf announced that Mr. Faldo was in material breach of his contract for failure to use certain of the Company's products.  From March 31, 2000 through November 6, 2000 (date declared in material breach), the Company ceased making royalty payments under the professional services agreement during which time the Company corresponded with Mr. Faldo in an attempt to cure performance deficiencies.  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.  The terms of settlement are such that Mr. Faldo received $0.5 million upon execution.  In addition, Mr. Fa ldo was to receive $0.5 million on July 15, 2002 and a series of annual installments for the years 2003 through 2011 aggregating to $2.0 million.  As a result, the Company established a liability representing the present value of the future obligation, which approximated $2,673,000, utilizing the Company's incremental borrowing rate of 6.04%.  In addition, Mr. Faldo is entitled to receive up to an additional $2.0 million contingent on the Company reaching certain future financial performance thresholds.  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 the Company.  Therefore $1,579,000 of settlement expense was incurred during the year ended December 31, 2001.  As of December 31, 2002, approximately $1,004,000 and $703,000 still remains in accrued expenses and non-current liabilities, respectively, in the accompanyi ng consolidated balance sheet for the present value of the future payments on the settlement contract.

 F-15

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2002 and 2001

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

(9) Commitments and Contingencies

The Company is 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,
	2003		677
	2004		85
		$	762

Rent expense was approximately $682,000, $846,000 and $710,000 for the years ended December 31, 2002, 2001 and 2000, respectively.

Beginning in June 1999, the first of seven class action lawsuits was filed against the Company, certain of its current and former officers and directors, and the three underwriters of the Company's 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 the Company's IPO.  In particular, the complaints alleged that the Company's prospectus, which became effective July 9, 1998, was materially false and misleading in at least two areas.  Plaintiffs alleged that the prospectus failed to disclose that unauthorized distribution of the Company's products (gray market sales) threatened the Company's long-term profits.  Plaintiffs also alleged that the prospectus failed to disclose that the golf equipment industry suffered from an oversupply of inventory at the retail level, which had an adverse imp act on the Company's sales.  On May 17, 2000, these cases were consolidated into one amended complaint, and a lead plaintiff was appointed.  The plaintiffs were seeking unspecified amounts of compensatory damages, interests and costs, including legal fees.  On December 10, 2001, the United States District Court for the District of Delaware dismissed the consolidated, amended complaint citing the plaintiffs failed to plead any facts supporting their claim that the Company or its officers and directors violated the federal securities laws.  On January 14, 2002, the plaintiffs filed a motion for leave to file an amended complaint.  In the motion, plaintiffs allege that, if given another opportunity, they would be able to amend the original causes of action to state actionable claims.  On January 24, 2002, the Company filed an opposition to the plaintiffs' motion and is awaiting a response from the court.

The Company maintains directors' and officers' and corporate liability insurance to cover certain risks associated with these securities claims filed against the Company or its directors and officers.

At this time it is not possible to predict whether the Company will incur any liability or to estimate the damages, or the range of damages, that the Company might incur in connection with the action.  The Company is also not able to estimate the amount, if any, of reimbursements that it would receive from insurance policies should damages with respect to the above actions be incurred.

From time to time, the Company is 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.  However, the Company, based on consultation with legal counsel, is of the opinion that there are no matters pending or threatened which could have a material adverse effect on the Company's financial condition, results of operations and/or liquidity.

F-16 

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2002 and 2001

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

(10)  Retirement Plan

In February 1998, the Company adopted the Adams Golf, Ltd. 401(k) Retirement Plan (the "Plan"), which covers substantially all employees.  The Company matches 50% of employee contributions up to a maximum of 6% of the employee's compensation.  For the years ended December 31, 2002, 2001 and 2000, the Company contributed approximately $133,000, $182,000 and $198,000, respectively, to the Plan.

(11)  Liquidity

The Company's anticipated sources of liquidity over the next twelve months are expected cash reserves, projected cash flow from operations, and available borrowings under the new revolving credit facility.  The adequacy of these available sources are dependent upon, among other things, the consumer acceptance of the Company's products, the Company's ability to manage working capital requirements, changes in the current economic environment, and changes in the competitive landscape of the golf industry.  These and other factors within and outside the Company's control could impact the Company's anticipated sources of liquidity, including, specifically, the projected amount of cash to be generated from operations in future periods.  Management believes, however, that these sources of liquidity will provide cash resources sufficient to meet the Company's requirements through the next twelve months.  Should the Company at some point in the future require ad ditional financing, no assurance can be given that any additional financing will be available on acceptable terms, or at all.  Should the Company be unable to obtain additional financing, it may be required to further reduce costs associated with its current infrastructure, decrease spending on marketing and advertising campaigns, curtail component part purchasing and research and development programs and/or halt all other discretionary spending programs, any of which could further reduce sales and adversely affect the Company's liquidity.

On January 3, 2003, the Company terminated its credit agreement with General Electric Capital Corp. without any penalties or other fees.  The line of credit was no longer viable for the business and the Company wanted to pursue other sources of working captial financing.

In March 2003, the Company entered into a revolving credit agreement with First Community Financial Corporation to provide up to $1.0 million in short-term debt which is limited to 50% of the eligible accounts receivable that are less than 60 days old.  The agreement is collateralized by all assets of the Company and requires, among other things, the Company to maintain certain financial performance levels relative to net worth and accounts receivable collections.  The credit facility bears interest at the rate of prime plus 4% per year with a minimum annual rate of 8.25%.  The prime rate as of March 13, 2003 was 4.25%.  The agreement is for an initial term of one year and requires minimum monthly interest expense of $3,750 per month for the first six months and $2,000 per month for the last six months.  In addition, the agreement contains restrictions on the Company's acquisition of its capital stock and the payment of dividends, among other things, without the prior written consent of the lender.  The agreement is guaranteed by the Company and certain of its wholly-owned subsidiaries.

The Company however, still extends rights to Tom Watson in which he has secondary rights to the Company's assets up to $1.0 million, only to the extent that any credit facility borrowings have been satisfied.

F-17 

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2002 and 2001

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

(11)  Liquidity (continued)

It is anticipated 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 the Company's operations if cash is needed in other areas of the Company's operations.  In addition, cash flows from operations and cash reserves will be utilized to support ongoing purchases of component parts for the Company's current and future product lines.  The Company anticipates that cash requirements to support current purchasing activities will continue at current levels, taking into consideration the seasonality of the industry and consumer acceptance of the Company's products.  In addition, the Company expects to require less cash flow to support compensation and related expenditures as a result of the operational restructuring executed during 2002 and 2001.  The expected operating cash flow and current cash reserves are expected to allow the Company to meet working capital requirements during periods of low cash flows resulting from the seasonality of the industry.

Management believes that sufficient resources may be available to meet the Company's cash requirements through the next twelve months.  Cash requirements beyond twelve months are dependent on the Company's ability to introduce products that gain market acceptance and to manage working capital requirements.  The Company has introduced new products and has taken steps to increase the market acceptance of these and its other products.  Accordingly, to remain viable, it is possible that the Company may have to raise additional capital and/or further reduce its operating expenses including further operational restructurings, possibly during the next twelve months.  The Company may need to raise additional funds through the issuance of equity securities, in which case the percentage ownership of the stockholders of the Company will be reduced, stockholders may experience additional dilution, or such equity securities may have rights, preferences or privileges senior to the Company's common stock.  Nevertheless, given the current market price for the Company's common stock and the state of the capital markets generally, the Company does not expect that it will be able to raise funds through the issuance of its capital stock in the foreseeable future.  The Company 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 the Company, 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 $1.0 million of borrowings available under the new revolving credit facility.

If adequate funds are not available or not available on acceptable terms, the Company 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 the Company's business, operating results, financial condition or liquidity.

(12)  Income Taxes

Income tax expense (benefit) for the years ended December 31, 2002, 2001and 2000 consists of the following:

	2002			2001		2000
Federal-current	$	(196	)	$	508	$	--
Federal-deferred		--			--		318
State-current		38			74		(81	)
	$	(158	)	$	582	$	237

F-18 

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2002 and 2001

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

(12) Income Taxes (continued)

At December 31, 2002, the Company reported a federal income tax benefit as a result of a release of a tax accrual, which was partially offset by associated interest and penalty expense, related to the outcome of the IRS audit of tax periods 1997 through 1999.

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 (loss) before income taxes) for the years ended December 31, 2002, 2001 and 2000 as follows:

	2002			2001			2000
Computed "expected" tax benefit	$	(3,192	)	$	(4,489	)	$	(12,951	)
State income taxes, net of federal tax benefit		(91	)		(128	)		(364	)
Change in valuation allowance for deferred tax assets		3,259			4,325			13,634
Other		(134	)		874			(82	)
	$	(158	)	$	582		$	237

The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities at December 31, 2002 and 2001 are presented below:

			2002			2001
Deferred tax assets:
	Allowance for doubtful accounts receivable		$	238		$	279
	Restructuring reserve			--			141
	Product warranty and sales returns			204			288
	Other reserves			483			6
	Settlement reserve			614			782
	263A adjustment			223			--
	Research and development tax credit carryforwards			306			306
	Net operating loss carryforwards			19,517			16,425
		Total deferred tax assets		21,585			18,227
		Valuation allowance		(21,219	)		(17,959	)
		Net deferred tax assets		366			268
Deferred tax liabilities:
	Property and equipment			107			237
	Other			259			31
		Total gross deferred tax liabilities		366			268
		Net deferred taxes assets	$	--		$	--

F-19 

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2002 and 2001

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

(12) Income Taxes (continued)

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, 2002, the Company 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, 2002, the Company has established a valuation allowance for the deferred tax assets in excess of existing taxable temporary differences.  The net change in the valuation allowance for the years ended December 31, 2002 and 2001 was $3,259,000 and $4,325,000, respectively.

At December 31, 2002, the Company has net operating loss carryforwards for federal, foreign and state income tax purposes of approximately $54,215,000 and tax credit carryforwards of $306,000 which are available to offset future taxable income through 2021.  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, the Company 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 the Company's common stock may be granted.  Options awarded under the 1996 Stock Option Plan (i) are generally granted at prices that equate to or are above fair market value on the date of grant; (ii) generally become exercisable over a period of one to four years; and (iii) generally expire 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.

In February 1998, the Company 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 the Company's common stock may be granted.  In May 2000, the Company's 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 become exercisable over a period of two to four years and (ii) generally expire 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 the Company's stock at the date of grant.  The 1998 grants were granted with exercise prices that were less than the fair market values of the Company's stock at $2.50 per share at the date of grant.  Accordingly, the Company has recorded deferred compensation of approximately $13,000 and 90,000, net of amounts amortized and forfeited, at December 31, 2002 and 2001, respectively associated with these grants.  The deferred compensation is being amortized to expense over the vesting periods of the options.  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.

F-20 

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2002 and 2001

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

(13)  Stockholders' Equity (continued)

In May 1999, the shareholders of the Company adopted the 1999 Non-Employee Director Plan of Adams Golf, Inc. (the "Director Plan") which allows for 200,000 shares of the Company's 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 the Company's 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 1999 stock option 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, the Company adopted the 1999 Stock Option Plan for Outside Consultants (the "Consultant Plan").  The Consultant Plan allows for the granting of up to 1,000,000 shares of the Company's 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 1999 stock option 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, the Company 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 the Company's 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.  At December 31, 2002, 2,243,140 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 expire ten years from the date of grant.  At December 31, 2002, 2,410,341 shares remain available for grant, including forfeitures.

The following is a summary of stock options outstanding as of December 31, 2002:

			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 - $0.75		2,464,140		3.99 years	$	0.07		1,030,250	$	0.03
$1.06 - $2.50		623,040		1.73 years		1.85		459,040		0.57
$3.81 - $5.50		142,000		0.83 years		4.93		126,500		0.39
		3,229,180		3.10 years	$	0.63		1,615,790	$	0.99

F-21 

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2002 and 2001

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

(13) Stockholders' Equity (continued)

The per share weighted-average fair value of stock options granted during 2002, 2001 and 2000 was $0.14, $0.50 and $0.63, respectively, on the date of grant using the Black Scholes option pricing model with the following weighted-average assumptions:  Risk free interest rate, 6%; expected life, 5 years; expected dividend yield, 0%; volatility, 7.3%, 6.5% and 5.6% in 2002, 2001 and 2000, respectively.

Operating expenses included in the consolidated statements of operations for the years ended December 31, 2002, 2001 and 2000 include total compensation expense associated with stock options and warrants of $732,000, $184,000 and $373,000, respectively, inclusive of compensation expense recorded under the provisions of SFAS No.123 of $13,000, $90,000 and $57,000 for each of the years indicated.

A summary of stock option activity follows:

				Weighted
	Number of			Average
	shares			Exercise price
Options outstanding at December 31, 1999		979,107		$	3.22
Options granted		758,000			1.41
Options forfeited		(234,810	)		2.54
Options outstanding at December 31, 2000		1,502,297			2.41
Options granted		688,000			0.72
Options forfeited		(592,627	)		1.63
Options outstanding at December 31, 2001		1,597,670			1.95
Options granted		2,243,140			0.01
Options forfeited		(611,630	)		1.65
Options outstanding at December 31, 2002		3,229,180		$	0.63

(b)  Warrants

In March 2000, the Company issued warrants to purchase 100,000 shares of common stock at an exercise price of $1.69 per share for certain advertising services provided by non-employees.  These warrants are immediately exercisable and will expire on the fifth anniversary of the date of grant.  The Company accounts for the warrants under SFAS No. 123.  Expense for these warrants for the years ended December 31, 2002 and 2001 was not material.

F-22 

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2002 and 2001

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

(13) Stockholders' Equity (continued)

(c)  Common Stock Repurchase Program

In October 1998, the Board of Directors approved a plan whereby the Company is 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, the Company 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.  The repurchased shares are held in treasury.  No shares were repurchased during the years ended December 31, 2002, 2001 or 2000.

(14) Segment Information

The Company generates substantially all revenues from the design, marketing and distribution of premium quality, technologically innovative golf clubs.  The Company's 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, 2002, 2001 and 2000:

	2002		2001		2000
United States (1)	$	30,995	$	38,455	$	34,968
Rest of world (1)		6,922		9,200		6,709
	$	37,917	$	47,655	$	41,677

(1) Reflects reclassification of promotional and advertising costs (see Note 1(t))

The following table sets forth net sales by product class for the years ended December 31, 2002, 2001 and 2000.

		2002		2001		2000
Fairway Woods (1)		$	17,998	$	22,120	$	29,915
Drivers (1)			9,941		12,113		9,690
Irons, Wedges and Other (1)			9,978		13,422		2,072
	Total	$	37,917	$	47,655	$	41,677

(1) Reflects reclassification of promotional and advertising costs (see Note 1(t))

At December 31, 2002 and 2001, the Company had approximately $0 and $196,000, respectively, in long lived assets, exclusive of goodwill, outside the United States.

F-23 

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2002 and 2001

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

(15)  Quarterly Financial Results (unaudited)

Quarterly financial results for the years ended December 31, 2002 and 2001 are as follows:

	2002
	1st Quarter		2nd Quarter			3rd Quarter			4th Quarter
Net sales	$	12,417	$	11,262		$	7,003		$	7,235
Gross profit (3)	$	6,066	$	3,500		$	8		$	2,019
Net income (loss)	$	611	$	(1,962	)	$	(4,323	)	$	(3,251	)
Income (loss) per share - basic and diluted (4)	$	0.03	$	(0.09	)	$	(0.19	)	$	(0.15	)
		2001
	1st Quarter		2nd Quarter			3rd Quarter			4th Quarter
Net sales (1)(2)	$	20,097	$	18,421		$	6,262		$	2,875
Gross profit (loss) (1)(2)	$	10,591	$	9,062		$	2,366		$	(8	)
Net income (loss)	$	366	$	(1,556	)	$	(7,013	)	$	(5,206	)
Income (loss) per share - basic and diluted (5) (6)	$	0.02	$	(0.07	)	$	(0.31	)	$	(0.24	)

_________________________

(1)	Reflects reclassification of promotional and advertising costs (see Note 1(t))
(2)	Reflects reclassification of shipping revenue and  costs (see Note 1(q))
(3)	The fourth quarter includes an adjustment of inventories to net realizable value which reduced gross profit by $620,000 or $0.03 per share (see Note 3)
(4)	The fourth quarter includes approximately $850,000 or $0.04 per share associated with the closure of the Adams Golf UK subsidiary.
(5)	The third quarter includes approximately $1,036,000 or $0.05 per share associated with an operational restructuring whereby the domestic employee sales force was converted to independent sales representatives and substantially all the assembly of the Company was outsourced to a third party.
(6)	The fourth quarter includes approximately $613,000 or $0.03 per share representing the write-off of the remaining unamortized goodwill associated with the Company's Japanese subsidiary.  During the fourth quarter, the Company further modified its business strategy resulting in the closure of the Company's Japanese subsidiary effective December 31, 2001 in favor of a distributor relationship.

F-24 

ADAMS GOLF, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2002 and 2001

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

(16) Business and Credit Concentrations

The Company is currently dependent on thirteen customers, which collectively comprised approximately 35.9% of net revenues for the year ended December 31, 2002.  Of these customers one customer individually represents greater than 5% of net revenues for the year ended December 31, 2002, and no customers represent greater than 10% of net revenues for the year ended December 31, 2002.  For the year ended December 31, 2001, nine customers comprised approximately 28.5% of net revenue, of which only three customers represented greater than 5% but less than 10%.  For the year ended December 31, 2000, a small number of customers comprised approximately 24.0% of net revenue, of which only two customers represented greater than 5% but less than 10%.  The loss of an individual or a combination of these customers would have a material adverse effect on consolidated revenues.

(17) Subsequent Events

On January 3, 2003, the Company terminated its credit agreement with General Electric Capital Corp without any penalties or other fees.  The line of credit was no longer viable for the business and the Company wanted to pursue other sources of debt financing.

In March 2003, the Company entered into a revolving credit agreement with First Community Financial Corporation to provide up to $1.0 million in short-term debt which is limited to 50% of the eligible accounts receivable that are less than 60 days old.  The agreement is collateralized by all assets of the Company and requires, among other things, the Company to maintain certain financial performance levels relative to net worth and accounts receivable collections.  The credit facility bears interest at the rate of prime plus 4% per year with a minimum annual rate of 8.25%.  The prime rate as of March 13, 2003 was 4.25%.  The agreement is for an initial term of one year and requires minimum monthly interest expense of $3,750 per month for the first six months and $2,000 per month for the last six months.  In addition, the agreement contains restrictions on the Company's acquisition of its capital stock and the payment of dividends, among other things, without the prior written consent of the lender.  The agreement is guaranteed by the Company and certain of its wholly-owned subsidiaries.

The Company however, still extends rights to Tom Watson in which he has secondary rights to the Company's assets up to $1.0 million, only to the extent that any credit facility borrowings have been satisfied.

F-25 

Schedule II

ADAMS GOLF, INC. AND SUBSIDIARIES

Valuation and Qualifying Accounts

For the years ended December 31, 2002, 2001 and 2000

(Table in thousands)

Description		Balance at begining of period		Charged to cost and Expenses		Charged to other accounts		Deductions (1)		Balance at end of period
Allowance for doubtful accounts:
	Year ended December 31, 2002	$	775		626		--		739	$	662
	Year ended December 31, 2001	$	1,531		613		--		1,369	$	775
	Year ended December 31, 2000	$	966		4,441		--		3,876	$	1,531
Product warranty and sales returns:
	Year ended December 31, 2002	$	801		106		--		341	$	566
	Year ended December 31, 2001	$	535		1,461		--		1,195	$	801
	Year ended December 31, 2000	$	530		1,226		--		1,221	$	535
Inventory obsolescence (2):
	Year ended December 31, 2002	$	252		620		--		146	$	726
	Year ended December 31, 2001	$	2,530		--		--		2,278	$	252
	Year ended December 31, 2000	$	25		2,513		--		8	$	2,530

(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.
(2)	For the year ended December 31, 2002, costs charged to expenses includes $620,000 of expense associated with the write-down of certain inventories to net realizable value.

S-1 

EX-10.10

January 3, 2003

Mr. Chip Brewer

Adams Golf, Ltd.

2801 East Plano Parkway

Plano, Texas 75074

RE: Loan and Security Agreement dated as of March 27, 2001 (the “Loan Agreement”) between General Electric Capital Corporation, as lender (“Lender”), and Adams Golf, Ltd. as borrower (the “Borrower”)

Dear Mr. Brewer:

This is to confirm our recent telephone conversations during which Lender and Borrower agreed that it would be mutually beneficial to terminate their respective obligations under the Loan Agreement.

Lender hereby confirms that as of the date of this letter, all Obligations (as defined in the Loan Agreement) of Borrower under the Loan Agreement have been paid in full.  Upon receipt by Lender of a copy of this letter signed by the Borrower acknowledging that any and all commitments of Lender under the Loan Agreement have been terminated, (a) all of the Lender’s security interests in, security titles to and other liens on the collateral pledged to Lender by Borrower to secure the Obligations (the “Collateral”) will be automatically terminated and released, and (b) the Lender will execute, or authorize the filing of (as applicable law may require) any and all Uniform Commercial Code financing statement terminations, mortgage releases and other such lien release documents as the Borrower or the Buyer may request in order to evidence or otherwise give public notice of such collateral terminations and releases related to the Collateral (provided, however, that any and all such termination statements, mortgage releases and other such documents shall be prepared and recorded at the Borrower’s expense).  Lender hereby further confirms that notwithstanding any contrary provision of the Loan Agreement, Borrower shall not be obligated to pay any Prepayment Fee (as defined in the Loan Agreement) or similar early termination fee as a result of the agreement by the parties to terminate the Loan Agreement.

For and in consideration of the Lender’s agreements and waivers contained herein, Borrower hereby forever releases and discharges the Lender, its officers, directors, employees, agents, representatives, successors and assigns (collectively, the “Released Parties”) from any and all claims, causes of action and damages of any nature whatsoever, known or unknown, which such person or entity ever had, now has or might hereafter have against the Lender which relates, directly or indirectly, to the Loan Agreement or the transactions related thereto.

Lender hereby requests that Borrower acknowledge its receipt and acceptance of and agreement to the terms and conditions set forth in this letter by signing a copy of it in the appropriate space indicated below and returning it to Lender.  This letter shall not become effective unless and until it is so accepted and agreed to by Borrower and returned to Lender.  Delivery of a photocopy or telecopy of an executed counterpart of this letter shall be effective as delivery of a manually executed original counterpart of this letter.

                                                Very truly yours,

                                                GENERAL ELECTRIC CAPITAL CORPORATION

                                                By: /S/ VINCENT DONAHUE                     

                                                Name: Vincent Donahue                              

                                                Title: Duly Authorized Signatory

The undersigned hereby acknowledges its receipt and acceptance of and agreement to the terms and conditions of this letter:

ADAMS GOLF LTD.

By:  /S/ OLIVER G. BREWER                

Name: Oliver G. Brewer                           

Title: CEO                                                   

EX-10.11

CONFIDENTIAL TREATMENT REQUESTED.

CONFIDENTIAL PORTIONA OF THIS

DOCUMENT HAVE BEEN REDACTED

AND HAVE BEEN SEPARATELY

FILED WITH THE COMMISSION

1 

FIRST AMENDMENT TO GOLF CONSULTANT AGREEMENT

RECITALS

A. WHEREAS, Adams Golf, Inc. (ADAMS) and Thomas S. Watson (CONSULTANT) entered into a written golf consultant agreement dated August 30, 1999.

B. WHEREAS, the parties entered into an addendum to the golf consultant agreement dated August 13, 2002.

C. WHEREAS, the parties desire to settle their differences concerning their material rights and obligations arising out of the golf consultant agreement and addendum by entering into this First Amendment to Golf Consultant Agreement.

AGREEMENT

COMPENSATION

1.          For the final two years of the agreement, CONSULTANT shall receive a retainer of [XXXXX]    ([XXXXX]) per year payable as follows:

A. For the contract year commencing September 1, 2002 through August 31, 2003, CONSULTANT shall receive the entire [XXXXX] ([XXXXX]) upon entering into this amended agreement.

B. For the final contract year commencing September 1, 2003 through August 31, 2004, CONSULTANT shall receive [XXXXX] ([XXXXX]) on September 1, 2003 and [XXXXX] ([XXXXX]) on March 1, 2004.

2. In addition, if CONSULTANT wins any of the major tournaments of the PGA or SPGA tours, he shall receive a win bonus of [XXXXX] ([XXXXX]) dollars per win. For the purposes of this agreement, Major tournaments of the PGA tour shall be the Masters, U.S. Open, British Open and PGA Championship and major tournaments of the SPGA tour shall be the USGA Senior Open, Senior PGA, Tradition and Ford Seniors.

3. In addition ADAMS grants CONSULTANT options to purchase [XXXXX] ([XXXXX])  shares of Adams Golf Inc.'s stock at [XXXXX] ([XXXXX]) per share. The options shall vest in six months. All stock options must be executed within five years of the termination of this agreement. The options will be provided pursuant to the Adams Golf Inc.'s 2002 Equity Incentive Plan and subject to the terms of a written stock option agreement that shall be provided to CONSULTANT concurrently with this amendment.

___________________________ 

 [XXXXX] - Confidential Material redacted and filed separately with the Commmission

2 

4. Notwithstanding any other paragraph in the original agreement or the addendum to the contrary, the compensation amounts above shall be the total compensation to which CONSULTANT is entitled. The royalty payment rights concerning ADAMS' irons as provided in the original agreement are expressly eliminated.

5. ADAMS grants CONSULTANT a security interest in its inventory and accounts receivable, second in position to GE Capital, to secure payment under this agreement. It is expressly understood that ADAMS has entered into a financing arrangement with GE Capital which does and shall continue to have first priority over ADAMS inventory and accounts receivables. ADAMS also shall have the right to replace the GE Capital financing arrangement with a similar financing arrangement, which under all circumstances shall have priority over CONSULTANT'S security interest. The security interest granted CONSULTANT shall attach upon execution of this amendment. As long as permitted by GE Capital, ADAMS and CONSULTANT shall use best efforts to execute a Financing Statement in the state of Texas to perfect the security interest created by this amendment.

ENDORSEMENT RIGHTS

6. Notwithstanding any contrary paragraphs in the original agreement including, but not limited to, paragraphs 3.2 and 3.3, CONSULTANT shall be entitled to endorse the [XXXXX]    golf ball and have the name "[XXXXX]" on his Adams headwear and golf bag in a location and size consistent with CONSULTANT'S historical practice prior to this first amendment.

7. CONSULTANT shall be entitled to add an additional third-party endorsement to his Adams Golf bag, so long as the endorsement is not of a company that manufactures golf clubs or a brand under which golf clubs are sold. The location and size of the endorsement is subject to the approval of ADAMS, which shall not be unreasonably withheld.

PERSONAL APPEARANCES

8. CONSULTANT's [XXXXX] personal appearance days per contract year, required by paragraph 3.11 of the original agreement, are eliminated.

OTHER PROVISIONS

9. ADAMS has alleged that CONSULTANT breeched the original agreement. By entering into this First Amendment, ADAMS hereby declares the alleged breech cured and further releases CONSULTANT from any claims ADAMS had or may have relative to the alleged breech of the original agreement.

 3

10. All other provisions of the original Agreement of August 30, 1999 not modified hereby shall remain in full force and effect.

 4

           IN WITNESS WHEREOF, parties hereto have caused this Agreement to be executed as of the date(s) set forth below.

CONSULTANT

Date:            9/30/02	By:	/s/ David Enenbach, as agent for Tom Watson
		Tom Watson

	COMPANY NAME CORPORATION
Date:            9/30/02	By:	/s/ Chip Brewer
		Chip Brewer
		Chief Executive Officer of Adams Golf, Inc.

 5

EX-10.12

ACCOUNTS RECEIVABLE SECURITY AGREEMENT

DATE:	March 26, 2003
BORROWER:	Adams Golf, Ltd.,
	a Texas limited partnership
ADDRESS:	2801 East Plano Parkway
	Plano, Texas 75074
FCFC:	FIRST COMMUNITY FINANCIAL CORPORATION,
	an Arizona corporation
ADDRESS:	4000 North Central Avenue, Suite 100
	Phoenix, Arizona 85012

             Borrower desires to obtain a Credit Facility and other financial accommodations from FCFC, and FCFC is willing to make such Credit Facility available to Borrower on the following terms and conditions to be secured by the Collateral hereinafter described.  Therefore, the parties agree as follows:

1. Definitions.

1.1.      “Accounts” means whatever is encompassed by the Code’s definition of that term, and includes all presently existing and hereafter arising accounts, instruments, contract rights, documents, chattel paper (including security agreements and leases), and all other forms of obligations owing to Borrower, all guaranties of such Accounts and other security therefor, the proceeds of such Accounts, all Inventory returned to or reclaimed by Borrower, and Borrower’s Books relating to each of the foregoing.

1.2.      “Agreement” means and includes this Accounts Receivable Security Agreement, any concurrent or subsequent Rider hereto and any extensions, supplements, amendments or modifications thereto.

1.3.      “Borrower’s Books” means and includes all of Borrower’s books and records including but not limited to, all customer lists and lists of account debtors, all ledgers; records reflecting, summarizing or evidencing Borrower’s assets, accounts, business operations or financial condition, computer programs, computer discs, computer printouts, and other computer prepared information and computer equipment of any kind. 

1.4.      “Code” means the Uniform Commercial Code prepared under the joint sponsorship of the American Law Institute and the National Conference of Commissioners on Uniform State Laws, as amended from time to time.  Any and all terms used in this Agreement shall be construed and defined in accordance with the meaning and definitions set forth herein or, to the extent not inconsistent herewith, as such terms are defined in the Arizona Uniform Commercial Code, as amended from time to time; provided, however, with respect to any term used herein that is defined in (i) Article 9 of the Uniform Commercial Code as in force in the jurisdiction in which this Agreement was signed by the Borrower at the time that it was signed, or (ii) Article 9 as in force at any relevant time in the jurisdiction in which a financing statement given pursuant to this Agreement is filed, or (iii) Article 9 as in force at any relevant time in the jurisdiction in which the terms of this Agreement are enforced, the meaning to be ascribed thereto with respect to any particular item of property shall be that under the more encompassing of the three definitions.

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1.5.      “Collateral” means and includes all assets of the Borrower, including without limitation, all of the following properties, assets and rights of the Borrower and, including whatever is encompassed by the Code’s definition of the following terms, wherever located, whether now owned or hereafter acquired or arising, and all proceeds, products, replacements, substitutes, accessions, additions and improvements to any thereof:

All personal and fixture property of every kind and nature including, without limitation, all furniture, fixtures, equipment, raw materials, inventory, other goods, accounts, contract rights, rights to the payment of money, insurance refund claims and all other insurance claims and proceeds, chattel paper (including security agreements and leases), electronic chattel paper, documents, records, instruments, securities and other investment property, deposit accounts, rights to proceeds of letters of credit, letter-of-credit rights, supporting obligations of every nature, and general intangibles including, without limitation, all tax refund claims, license fees, patents, patent applications, trademarks, trademark applications, trade names, copyrights, copyright applications, rights to sue and recover for past infringement of patents, trademarks and copyrights, computer programs, computer software, engineering drawings, service marks, customer lists, goodwill, and all licenses, perm its, agreements of any kind or nature pursuant to which (i) Borrower operates or has authority to operate, (ii) Borrower possesses, uses or has authority to possess or use property (whether tangible or intangible) of others, or (iii) others possess, use, or have authority to possess or use Borrower’s property (whether tangible or intangible), and all recorded data of any kind or nature, regardless of the medium of recording, including, without limitation, all software, writings, plans, specifications and schematics, and Borrower’s Books.

1.6.      “Credit Facility” shall mean a revolving line of credit granted by FCFC to Borrower in the amount of $1,000,000.00, in accordance with the terms and conditions set forth in this Agreement.

1.7.      “Eligible Accounts” means accounts on selling terms of net sixty (60) days or less, which have been validly assigned to FCFC and strictly comply with all of Borrower’s warranties and representations set forth in this Agreement, but excluding those Accounts:  (a) not paid within 60 days of their invoice date; (b) owed by a single account debtor, if twenty five percent (25%) owing by said account debtor remains unpaid for more than 60 days after its invoice date; (c) the total whose account debtor’s total indebtedness to Borrower exceeds ten percent (10%) of all Eligible Accounts; (d) representing the sale of goods delivered on consignment, guaranteed sale or on other conditional terms; (e) subject to any defense, setoff or counterclaim claimed or asserted by the account debtor; (f) evidenced by an instrument; (g) owed by an account debtor who is not a resident of the United States; (h) whose account debtor is the United States or any department, agency or instrumentality of the United States, or any state, city, town, municipality or division thereof; (i) whose account debtor is a subsidiary of, related to, affiliated or has common shareholders, officers or directors with Borrower; (j) whose account debtor is an officer, employee or agent of Borrower; (k) representing goods sold and/or transferred where possession and/or control is held, maintained or retained by Borrower (or its agent) for the account of or subject to further and/or future direction from the account debtor thereof; and (l) not creditworthy, in the sole opinion of FCFC. 

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1.8.      “FCFC’s Costs” means and includes:  (a) filing, recording, publication and search fees incurred by FCFC relating to Borrower; all costs and expenses incurred by FCFC in the enforcement of its rights and remedies under this Agreement, or defending this Agreement or its security interest in the Collateral; (b) long distance telephone and facsimile charges, the expenses of field examiners; (c) all expenses for travel, lodging and food incurred by FCFC’s personnel in collecting the Accounts or realizing upon the Collateral; (d) all costs and expenses incurred in gaining possession of, maintaining, handling, preserving, storing, repairing, shipping, selling, preparing for sale and advertising to sell the Collateral, whether or not a sale is consummated; (e) all expenses involved in fulfilling in whole or in part any purchase order from an account debtor; and (f) reasonable attorney’s fees and expenses incurred by FCFC as provided for in this Agreement, including a reasonable fee for the services of attorneys employed by FCFC for any purpose related to this Agreement or the Obligations, including consultation, drafting documents, sending notices or instituting, prosecuting or defending litigation or arbitration. 

1.9.      “Inventory” means and includes all of Borrower’s raw materials, components, work in process, finished merchandise, and packing and shipping materials, now owned or hereafter acquired, wherever located; all patents, blueprints and drawings related thereto; all other items hereafter acquired by Borrower by way of substitution, replacement, return, repossession or otherwise, and all additions and accessions thereto; and the resulting product or mass, and any documents of title representing any of the above.

1.10.    “Obligations” mean all indebtedness of Borrower and each Person who hereafter becomes Borrower, that is now or hereafter owing to FCFC, regardless whether such indebtedness is now existing or hereafter arising, whether it is voluntary or involuntary, whether due or not, secured or unsecured, absolute or contingent, liquidated or unliquidated, and whether it is for principal, interest, fees, expenses or otherwise, and regardless whether the Person who is or hereafter becomes Borrower may be liable individually or jointly with others, or whether recovery upon any such obligations may be or hereafter become barred or otherwise unenforceable.  The term, “Obligations,” also includes:  (a) all amounts which arise after the filing of a petition by or against Borrower under Title 11 of the United States Code (the “Bankruptcy Code”), even if the obligations do not accrue because of the automatic stay under Bankruptcy Code § 362 or otherwise, and all amounts which would become due but for the operation of the automatic stay under § 362(a) of the Bankruptcy Code, and the operation of §§ 502(b) and 506(b) of the Bankruptcy Code; (b) indebtedness arising under modifications, renewals, replacements and extensions of the Obligations, and successive transactions which renew, continue, refinance or refund the Obligations; and (c) all covenants and duties of Borrower to FCFC of every kind, nature and description, (whether arising out of the Agreement or any other agreement, instrument, document, record or contract now existing or hereafter made by Borrower in favor of FCFC, and whether created by oral agreement or operation of law, and whether or not for the payment of money), including without limitation any debt, liability or obligation owing by Borrower to others which FCFC may have acquired by assignment or otherwise.

1.11.    “Person” means an individual, partnership, corporation, including a “business trust”, limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof.

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1.12.    “Prime Rate” means the Prime Rate publicly announced by Bank One, Phoenix, Arizona, from time to time (which may not necessarily be the lowest rate charged by that bank to its customers).

1.13.    “State” when referring to:  (i) the location of Borrower’s chief executive office, will be referred to herein as the “Chief Executive Office State;” (ii) the location of Borrower’s state of formation, will be referred to herein as the “Borrower State;” and (iii) the location of Collateral consisting of goods, will be referred to herein as the “Collateral State.” 

1.14.    “Material Impairment” for purposes of Sections 3.14. and 10.1.(d) include, without limitation:  (i) the collection of the Accounts during any thirty (30) day period is less than $1,000,000.00; (ii) Total Accounts are less than $3,000,000.00 at any time; (iii) Borrower’s consolidated financial statement reflects a net worth less than $17,500,000.00; (iv) Borrower uses in excess of $50,000.00 from the business for a non-business purpose. 

2. Advances and Charges. 

2.1.      Upon request of Borrower from time to time during the term hereof, FCFC shall loan and advance to Borrower the amount requested, provided that said amount together with the then outstanding balance of advances previously made does not exceed fifty percent (50%) of the amount of Borrower’s Eligible Accounts (less discounts, credits, allowances, service charges, commissions, and freight charges which may be granted to or taken by the account debtors).  FCFC reserves the right at any time and from time to time to change the percentage to be advanced to Borrower. 

2.2.      The conditions precedent to each advance hereunder are that no Event of Default hereunder has occurred nor is the effect thereof continuing, and Borrower is in full, faithful and timely compliance with each and all of the covenants, conditions, warranties, and representations, contained in this Agreement and in every other agreement between FCFC and Borrower.  As a condition precedent to the first advance hereunder, FCFC must also receive an official report from the Secretary of State of each Collateral State, the Chief Executive Office State, and the Borrower State (the “SOS Reports”), indicating that FCFC’s security interest in the Collateral is prior to all other security interests and other interests reflected in the report.

2.3.      FCFC is hereby authorized to make advances based upon telephonic or other instructions received from anyone purporting to be an officer, employee, or representative of Borrower. 

2.4.      Unless provided otherwise in a promissory note executed and delivered by Borrower to FCFC in connection with this Agreement, all Obligations shall be due and payable no later than the earlier of (a) the last day of the term (or renewal term, if any) of this Agreement, (b) the day an Event of Default occurs, and (c) the day the Agreement is terminated by either party. 

2.5.      All Obligations shall bear interest, computed on the basis of a 360-day year for the actual days outstanding, at a fluctuating rate of interest equal to the sum of the Prime Rate plus four percent (4.00%) per annum; provided, however, in no event shall the interest rate chargeable on such Obligations be less than eight and one-quarter percent (8.25%) per annum. In no event shall the minimum amount of interest payable monthly be less than $3,750.00 during the initial six months of the Agreement nor shall the minimum amount of interest payable monthly be less than $2,000.00 during the remaining six months of the Agreement or each renewal term thereafter;

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2.6.      In the event of a change in the Prime Rate from time to time, the rate of interest to be charged to Borrower shall be correspondingly adjusted as of the date of the Prime Rate change.  Interest shall be paid on the first day of each month.  Any interest not paid when due shall become a part of the Obligations, and shall thereafter bear interest as provided herein.  If an Event of Default or termination of this Agreement because of such default occurs, Borrower shall pay upon FCFC’s demand an amount equal to the minimum monthly interest payment amount multiplied by the number of months of the term (or renewal term, as applicable), of this Agreement that would otherwise remain but for the occurrence of such Event of Default or termination.

2.7.      FCFC shall render statements to Borrower of the Obligations, including all principal, interest and FCFC’s Costs owing, and such statements shall be conclusively presumed to be correct and accurate and constitute an account stated between Borrower and FCFC unless, within thirty (30) days after receipt thereof by Borrower, Borrower notifies FCFC in writing specifying the error or errors, if any, contained in any such statements.

2.8.      In consideration for establishing the Credit Facility on the terms and conditions provided for herein, Borrower agrees to pay to FCFC upon the execution hereof a commitment and funding fee of one and one-half (1.50%) of the amount of the Credit Facility.  Upon each renewal of the term of this Agreement as provided in Article 5 below, Borrower shall pay to FCFC a renewal fee of one percent (1.00%) of the amount of the Credit Facility no later than the first day of each renewal period, and upon each increase in the amount of the Credit Facility, Borrower shall pay to FCFC an increased credit line fee of one percent (1.00%) of the amount of the increase.  All fees provided for in this section shall be deemed earned and non-refundable upon payment thereof.

2.9.      Upon an Event of Default, and for as long as such Event of Default or the consequences thereof continue, interest shall accrue on the Obligations from and after such Event of Default at a rate of interest which is four (4) percentage points greater than the rate then being charged.

2.10.    No provision of this Agreement or any other aspect of the transaction of which this Agreement is a part is intended to or shall require or permit the holder, directly or indirectly, to take, receive, contract for or reserve, in money, goods or things in action, or in any other way, any interest (including amounts deemed by law to be interest, such amounts to then be deemed to be an addition to the rate of interest agreed upon) in excess of the maximum rate of interest permitted by law in the State of Arizona as of the date hereof.  If any such excess shall nevertheless be provided for, or be adjudicated by a court of competent jurisdiction to be provided for, the undersigned shall not be obligated to pay such excess but, if paid, then such excess shall be applied against the unpaid principal balance of this Agreement or, to the extent that the principal balance has been paid in full by reason of such application or otherwise, such excess shall be rem itted to the undersigned. In the event any amount determined to be excessive interest is applied against the unpaid principal balance of this Agreement, and thereafter the rate of interest accruing under this Agreement is less than the rate permitted by law, this Agreement shall thereafter accrue interest at such highest lawful rate until such time as the amount accrued at the interest rate differential equals the amount of excessive interest previously applied against principal.  Notwithstanding anything herein or in any of the other Loan Documents to the contrary, if any charge or fee for which Borrower or any Guarantor is or becomes obligated in connection with the Loan Documents constitutes interest and is not otherwise stated as a rate, such charge or fee shall be deemed an additional rate of interest to which Borrower and each Guarantor agree, computed by dividing the amount of such charge or fee by the principal amount of the Credit Facility.  This provision shall control every agreement bet ween Borrower and each Guarantor and FCFC.

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3. Creation of Security Interest.

3.1.      Borrower grants to FCFC a security interest in the Collateral to secure the prompt payment and timely performance by Borrower of the Obligations.

3.2.      INTENTIONALLY BLANK.

3.3.      Borrower shall execute and deliver to FCFC concurrently with Borrower’s execution of this Agreement, and at any time or times hereafter at the request of FCFC, promissory notes, financing statements, initial financing statements, continuation statements, security agreements, mortgages, assignments, certificates of title, affidavits, reports, notices, schedules of accounts, letters of authority, and all other documents and records that FCFC may request, in such form as is satisfactory to FCFC, to further evidence the Obligations and/or to perfect and maintain FCFC’s security interest in the Collateral and fully comply with this Agreement (collectively, the “Loan Documents”).

3.4.      Borrower authorizes FCFC to file one or more financing statements and initial financing statements describing the Collateral.  Borrower hereby makes, constitutes and appoints FCFC (and any of FCFC’s officers, employees or agents designated by FCFC) as Borrower’s true and lawful attorney with power, but without notice to Borrower, to sign the name of Borrower on any Financing Statement, initial financing statement, continuation statement, security agreement, assignment, affidavit, letter of authority, or notice or other similar document necessary to perfect or continue the perfection of FCFC’s security interest in the Collateral.  Borrower shall make appropriate entries in Borrower’s Books disclosing FCFC’s security interest in the Collateral.  The power of attorney created in this section is coupled with an interest, and shall be irrevocable until all Obligations are fully paid and satisfied.

3.5.      FCFC (by any of its officers, employees or agents) shall have the right at any time or times hereafter during Borrower’s usual business hours to inspect the Collateral.

3.6.      To further evidence the security interest of FCFC in Accounts, Borrower shall, from time to time, provide FCFC with schedules and written assignments of its Accounts, in form satisfactory to FCFC (this will consist of FCFC’s reconciliation of loan and collateral account request for advance and accounts receivable aging reports).  Borrower’s failure to execute and deliver such schedules and/or assignments shall not affect or limit FCFC’s security interest or any other rights in and to the Accounts.  Upon an Event of Default, together with each schedule, Borrower shall furnish FCFC with true and correct copies of Borrower’s customers’ invoices or the equivalent and correct copies of shipping or delivery receipts for all Inventory sold.

3.7.      Subject to the provisions of Section 3.14., Borrower authorizes FCFC and FCFC shall have the right at any time or times to verify the Accounts by mail, telephone, or otherwise in the name of Borrower or FCFC.  In addition, Borrower authorizes FCFC to obtain information from Borrower’s suppliers and customers and, in this regard, Borrower waives any right or claim against any such supplier or customer for furnishing information to FCFC.

3.8.      Borrower shall promptly provide FCFC with all information relating to the financial condition of any account debtor, and shall notify FCFC of the rejection of goods by any account debtor, delay in the delivery of goods, or any returns or recoveries of goods, nonperformance of contracts, or the assertion by an account debtor of any claim, offset or counterclaim, and the settlement or adjustment of any dispute or claim with an account debtor on terms approved by FCFC.

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3.9.      Subject to the provisions of Section 3.14., FCFC, or its agents, may at any time and with notice thereof to Borrower:  (a) notify account debtors that their Accounts have been assigned to FCFC, and that FCFC has a security interest therein; (b) direct all account debtors to make payment of all Accounts to FCFC; (c) demand, collect (by legal means or otherwise), receive, receipt for, sue for, compromise, adjust, settle or extend the time for payment of any Account upon such terms as FCFC may reasonably determine under the circumstances, in its own name or in the name of Borrower (crediting Borrower’s Accounts with only the net amount received by FCFC in payment of the Accounts, after deducting all FCFC’s Costs in connection therewith); (d) take control of all proceeds from said Accounts; and (e) judicially enforce Borrower’s rights against the account debtors and obligors. 

3.10.    To facilitate the process of collection and remittance of proceeds of Accounts, Borrower and FCFC shall enter into a four party lockbox agreement and a restricted account agreement with Wells Fargo Bank, or such other bank as is mutually acceptable to the parties.  Subject to the provisions of Section 3.14. and 11.1., Borrower agrees that it will cooperate with FCFC (and execute such forms or notices as FCFC may request) in notifying account debtors that their Accounts have been assigned to FCFC and that FCFC has a security interest therein.  Until such time as FCFC exercises its right to collect Accounts, Borrower shall collect the Accounts, receiving in trust all proceeds therefrom as FCFC’s trustee and each day deliver said proceeds to FCFC in their original form as received from the account debtors, together with a remittance report, in form satisfactory to FCFC.   

3.11.    The receipt of any check or other item of payment by FCFC shall not be considered payment to FCFC until such check or other item of payment is actually paid.  For the purpose of computing the interest to be charged to Borrower under Section 2.5 hereof all checks, and other items of payment delivered to FCFC from time to time shall be treated as being paid three business days after the date FCFC actually receives such check or other item of payment, subject to reversal of entry in the event such remittance is not paid upon presentment to the drawee bank.  It is further understood that for the purpose of computing interest to be charged to Borrower, the amount of any credit balance that Borrower may have with FCFC shall be treated as an advance by FCFC to Borrower under this Agreement.

3.12.    Borrower shall keep all goods returned by any account debtor and all goods repossessed or stopped in transit by Borrower, segregated from other property of Borrower, holding the same as trustee for FCFC, until otherwise directed in writing by FCFC. 

3.13.    Subject to the provisions of Section 3.14., Borrower does hereby irrevocably designate, make, constitute and appoint FCFC, and any agent designated by FCFC, as Borrower’s true and lawful attorney, with power to do the following in Borrower’s or FCFC’s name and at Borrower’s expense but with notice to Borrower, and at such time or times (except as otherwise provided herein) as FCFC may, in its sole election, determine:

(a)        Endorse Borrower’s name on any checks, notes, acceptances, money orders, drafts or other forms of payment or security that may come into FCFC’s possession;

(b)        Exercise all of Borrower’s rights and remedies with respect to the collection of Accounts;

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(c)        Sign Borrower’s name on any invoice, freight bill or bill of lading relating to any Account, on any draft against an account debtor, on any schedule assignment of Accounts, verification of Accounts or on any notice to account debtors;

(d)        Prepare, file and sign Borrower’s name on any proof of claim in bankruptcy or similar document against an account debtor;

(e)        Prepare, file and sign Borrower’s name on any notice of lien, claim of mechanic’s or materialman’s lien or similar document or waiver or satisfaction thereof in connection with an Account; and

(f)         Execute any other documents that may facilitate the collection, liquidation or disposition of the Collateral.

3.14.    FCFC shall not be obligated to do any of the acts or exercise any of the powers hereinabove authorized, but, if FCFC elects to collect Accounts, or do any such plural acts or exercise any of the foregoing powers, it may do so in any manner or means as it may determine, and shall not be liable to Borrower for any error in judgment or mistake of fact or law, excepting willful misconduct or bad faith.  Notwithstanding the provisions of Sections 3.7., 3.9., 3.10. and 3.13., FCFC shall only exercise the rights or powers set forth in said sections if:  (a) FCFC reasonably believes, in the exercise of its best judgment and in good faith, that there has been a Material Impairment in the value of its Collateral or in the prospect of repayment of the Obligations, that the priority of its security interest in the Collateral is being contested, or that Borrower has defaulted under any provision of this Agreement; and (b) after FCFC:  ( i) gives Borrower written notice that it intends to exercise such rights and/or powers; (ii) agrees to meet with Borrower within twenty-four (24) hours after such notice is given to discuss the action which FCFC contemplates taking, and (iii) subsequently gives Borrower written notice that it nevertheless intends to exercise the rights or powers set forth in this Agreement.  All acts by or on behalf of FCFC pursuant hereto are hereby ratified and approved by Borrower.  The above-described power, being coupled with an interest, is irrevocable until all Obligations are fully paid and satisfied.

4. Possession and Control of Collateral.

4.1.      Borrower shall have possession of the Collateral, except where expressly otherwise provided in this Agreement.  Regardless who has possession, Borrower shall in all events bear the risk of loss of the Collateral.

4.2.      FCFC shall have no duty to collect any income accruing on the Collateral or to preserve any rights relating to the Collateral.

4.3.      Where Collateral is in the possession of a third party, Borrower will join with FCFC in notifying the third party of FCFC’s security interest and obtaining an acknowledgment from the third party that it is holding the Collateral for the benefit of FCFC.

4.4.      Borrower will cooperate with FCFC in obtaining control with respect Collateral consisting of:  (a) deposit accounts; (b) investment property; (c) letter-of-credit rights; and (d) electronic chattel paper.

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4.5.      Borrower will not create any chattel paper without placing a legend on the chattel paper acceptable to FCFC indicating that FCFC has a security interest in the chattel paper.

5. Term. 

5.1.      Absent an Event of Default, the Agreement shall have a term of one year from the date hereof, and shall be automatically renewed from year to year, unless terminated by either party on the anniversary date of this Agreement by written notice to this effect given not less than thirty (30) days prior to said anniversary date.  Borrower may terminate the Agreement at any time prior to the anniversary date of the Agreement, by giving written notice to FCFC to that effect not less than thirty (30) days prior to the effective date of such termination, and by paying to FCFC on or before the date of termination all Obligations, including the minimum amount of interest required to be paid by Borrower to FCFC during what would otherwise be the remainder of the original or renewal term of the Agreement as provided in Section 2.5 above.  Subject to the provisions of Section 11.1., upon an Event of Default, FCFC may, at its el ection, terminate this Agreement at any time.  On the date of termination, all Obligations, including but not limited to, obligations arising by reason of the termination of this Agreement, shall become immediately due and payable without notice or demand.  Notwithstanding such termination, until all Obligations have been fully satisfied, FCFC shall retain its security interest in all existing Collateral and Collateral arising thereafter, and Borrower shall continue to turn over all collections from the Accounts to FCFC.  It is understood and agreed that if Borrower has given notice of termination, pursuant to the provisions of this section, and fails to pay all Obligations to FCFC on the specified date, or within ten (10) days thereafter, then this Agreement shall be automatically renewed for an additional one-year term.

6. Representations and Warranties. 

6.1.      Until all Obligations have been fully paid and satisfied, Borrower does hereby warrant and represent that:

(a)        If Borrower is a corporation or limited liability company, it is duly organized and is and all times hereinafter will be in good standing under the laws of the state of its incorporation or registration and is duly qualified and in good standing in every other state in which the nature of its business requires such qualification;

(b)        Borrower is the true and lawful owner of the Collateral and has the rights, power and authority to transfer and grant a security interest therein to FCFC;

(c)        The Chief Executive Office State, Borrower State, Collateral States and the chief place of business and the office where Borrower’s Books are kept are each accurately identified in Exhibit A;

(d)        Borrower is not doing business and has not done business during the last six (6) years under any trade name or style, except its name as set forth in this Agreement or under the following name(s);

• Adams Golf

(e)        The execution, delivery and performance hereof does not constitute a default under any indenture, agreement or undertaking to which Borrower is now or hereafter a party or by which it is or will be bound and, if Borrower is a corporation or a limited liability company, the same are within Borrower’s corporate powers, have been duly authorized and are not in contravention of its articles, bylaws, or operating agreement;

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(f)         There are no actions or proceedings pending by or against Borrower or any guarantor of the Obligations in any court or administrative agency and Borrower has no knowledge of any pending, threatened or imminent litigation, governmental investigation or claim, complaint, action or prosecution involving Borrower or any guarantor of Borrower, except as may have been specifically disclosed in writing to FCFC and if any of the foregoing arise during the term of this Agreement, Borrower shall immediately notify FCFC in writing with respect thereto;

(g)        Borrower has duly filed all federal, state and other governmental tax returns which it is required by law to file and that all taxes and other sums which may be due to the United States, any state or other governmental authority have been fully paid and that Borrower now has and shall hereafter maintain reserves adequate in amount to fully pay all such tax liabilities which may hereafter accrue;

(h)        All assessments and taxes whether real, personal or otherwise due and payable by or imposed, levied or assessed against Borrower or any of its assets have been paid and shall hereafter be paid in full before delinquency.  Borrower shall make due and timely payment or deposit of all federal, state and local taxes, assessments or contributions required of it by law (including timely payment or deposit of all F.I.C.A. payments and withholding taxes) and will execute and deliver to FCFC on demand appropriate certificates attesting to the payment or deposit thereof;

(i)         Borrower is now and shall be at all times hereafter solvent and able to pay its debts as they mature;

(j)         With respect to all Collateral, FCFC’s security interest therein is now and shall hereafter at all times constitute a perfected, choate, and first security interest in the Collateral and is not now and will not hereafter become subordinate or junior to the security interest, lien, encumbrance or claim of any Person; and

(k)        All financial statements and information relating to Borrower or any guarantor of the Obligations or with respect to the Eligible Accounts which have been or may hereafter be delivered by Borrower to FCFC are true, complete and correct in all material respects and have been prepared in accordance with generally accepted accounting principles consistently applied, and there has not been any material adverse change in the financial condition of Borrower or any guarantor since the last submission of such financial information to FCFC.

6.2. With respect to each Eligible Account now and from time to time hereafter created:

(a)        It is genuine, in all respects what it purports to be and represents a bona fide, existing, valid and legally enforceable indebtedness of the account debtor named therein, payable in the amount, time and manner stated in the invoice therefor, and is absolutely owing to Borrower and not contingent for any reason;

(b)        The delivery receipt and invoice therefor represents bona fide sale in the ordinary course of Borrower’s business, represents the kind, quality and quantity of the goods or services described therein, and that the goods or services described herein have been completely delivered, installed or performed and at the time of delivery or installation have been accepted by the account debtor without condition;

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(c)        No payments have been or shall be made thereon, except payments that are turned over to FCFC by Borrower;

(d)        There is no setoff, counterclaim or dispute existing or asserted with respect to the Account and Borrower has not made any agreement with the account debtor thereof for any deduction or discount of the sum payable thereunder, except regular discounts allowed by Borrower in the ordinary course of its business for prompt payment;

(e)        The goods sold or transferred or the services rendered as evidenced by the Account are not subject to any lien, claim, encumbrance or security interest, except that of FCFC;

(f)         Borrower has no knowledge of the insolvency of the account debtor or of any action or proceeding involving the account debtor under any federal or state debtor’s relief statute;

(g)        Borrower has no knowledge of any fact or circumstance that would impair the validity or collectibility of the Account;

(h)        Borrower has not made any assignment of the Account or granted a security interest in the Account to any other party other than FCFC; and

(i)         All of Borrower’s Books, and all records and documents relating to the Account are and will be genuine and in all respects what they purport to be, and accurately reflect the amounts owing or to be owing at maturity by the account debtor. 

6.3.      Each warranty, representation and agreement contained in this Agreement shall be automatically deemed repeated with each advance and shall be conclusively presumed to have been relied upon by FCFC regardless of any investigation made or information possessed by FCFC.  The warranties, representations and agreements set forth herein shall be cumulative and in addition to any other warranties, representations and agreements which Borrower shall now or hereafter give, or cause to be given to FCFC.

7. Affirmative Covenants. 

7.1.      Until all Obligations are fully paid and satisfied, Borrower will:

(a)        At all times fully comply with all federal, state and local laws, rules, orders or regulations pertaining to the conduct of its business, including, but not limited to all applicable federal, state and local environmental laws and regulations relating to the storage, usage and disposal of hazardous substances or toxic chemicals by Borrower in its business.  In this regard, Borrower agrees to defend, indemnify and hold FCFC harmless for and against any and all costs, claims, demands, damages including attorneys’ fees, court costs, and investigatory and laboratory fees which FCFC may suffer or incur in connection with any such violation which indemnification shall survive the termination of this Agreement.

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(b)        Preserve its corporate existence and not, in one transaction or a series of related transactions, merge into or consolidate with any other entity, or sell all or substantially all of its assets.

(c)        Maintain itself in good standing in all jurisdictions in which Borrower is doing business, and at the request of FCFC, furnish to FCFC evidence of its good standing in all such jurisdictions.

(d)        Maintain Borrower’s Books at the address(es) set forth in Exhibit A.

(e)        Allow FCFC to possess and remove copies of Borrower’s Books to FCFC’s premises or the premises of any agent of FCFC, for so long as FCFC may desire in connection with the enforcement of FCFC’s rights under this Agreement.

(f)         Maintain a standard and modern system of accounting in accordance with generally accepted accounting principles which contain such information as may be requested by FCFC, and permit FCFC or any of its agents, during Borrower’s usual business hours or during the usual business hours of any third party having control over the records of Borrower, to have access to and have the right to examine all of Borrower’s Books and in connection therewith and permit FCFC or any of its agents to copy and make extracts therefrom. 

(g)        Furnish to FCFC daily or less frequently as FCFC shall permit from time to time, written schedules and reports of the status of Borrower’s Accounts in such form as shall be required by FCFC. 

(h)        Promptly furnish to FCFC such records, data and other information with respect to the financial condition of Borrower, the Collateral and any guarantor, as FCFC may request from time to time, and shall deliver to FCFC detailed reports, each in form satisfactory to FCFC and containing a statement of the financial condition and operation of Borrower:  (i) for each calendar month, within thirty (30) days after the end of the each month; and (ii) for each fiscal year, within ninety (90) days after the end of each such fiscal year.  Within twenty (20) days after demand by FCFC, Borrower shall deliver to FCFC copies of any financial report or statement prepared by or for Borrower.  Each such statement and report shall be reviewed or compiled by an independent CPA or, with the consent of FCFC, prepared by an authorized officer of Borrower that such report, statement or document delivered or caused to be delivered to FCFC is c omplete, correct and thoroughly presents the financial condition of Borrower, and that on the date of said certification no event or condition exists which constitutes a breach or event of default under this Agreement.

(i)         Notify FCFC, in writing, of any material adverse change in Borrower’s financial condition, and of any loss or damage to the Collateral.

(j)         Make timely payment or deposit of all taxes (including F.I.C.A. payments and deposits of withholding taxes) and assessments required to be paid by Borrower and deliver to FCFC, as requested, evidence of such payment or deposit.

(k)        Pay all rent when due and otherwise abide by the terms under which Borrower leases or occupies the premises at which the Collateral is located; provided further if Borrower fails to do so, FCFC may, without any obligation, pay such rent and any sum so paid shall be part of FCFC’s Costs, secured by the Collateral and payable on demand.

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(l)         Cause to be paid all amounts necessary to fund, in accordance with their terms, all pension plans presently in existence or hereafter created and Borrower will not withdraw from participation in, permit the termination or partial termination of, or permit the occurrence of any other event with respect to any deferred compensation plan maintained for the benefit of its employees under circumstances that could result in liability to the Pension Benefit Guarantee Corporation, or any of its successors or assigns, or to the entity which provides funds for such deferred compensation plan.

(m)       Maintain a minimum consolidated net worth of $17,500,000.00 (defined as Adams Golf, Inc. consolidated total assets minus consolidated total liabilities).

(n)        Maintain all Collateral in the Collateral State(s) at the address(es) identified in Exhibit A and will not, without the prior written consent of FCFC, move the Collateral to any other address(es). 

(o)        Keep the Collateral free from any lien, security interest or encumbrance adverse to FCFC and defend, at its own expense, the Collateral and the proceeds thereof against all claims and demands of all Persons at any time claiming the same or any interest therein.

(p)        Promptly deliver to FCFC all documents and instruments relating to the Collateral, including invoices, original orders, shipping documents, delivery receipts, as FCFC may request from time to time.

(q)        On request of FCFC, execute and deliver to FCFC any and all additional documents which FCFC may request from time to time to evidence the advances made hereunder or the security interest granted hereby.

8. Negative Covenants. 

8.1.      Until all Obligations are fully paid and satisfied, Borrower will not, without the prior written consent of FCFC:

(a)        Grant a security interest in the Collateral, or permit a lien, claim or encumbrance to be imposed on any of the Collateral, or allow the Collateral to be possessed by or under the control of any another Person except for Tom S. Watson lien which will be secondary to FCFC’s security interest in the Collateral;

(b)        Sell, license, lease, rent or otherwise dispose of, move, transfer or relocate outside the Collateral State, whether by sale or otherwise, any of Borrower’s assets, including the Collateral, but excluding Inventory which may be sold, licensed, leased, or otherwise disposed of in the ordinary course of Borrower’s business, provided that FCFC continues to have a security interest in the proceeds thereof;

(c)        Affix any of the Collateral to any real property in any manner which would change its nature from that of personal property to real property or to a fixture or an accession, and Borrower agrees that the Collateral shall remain personal property at all times notwithstanding any affixation thereof to any real property;

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(d)        Permit any Collateral to be used in violation of any applicable law, regulation or policy of insurance;

(e)        Permit any levy, or attachment to be made on any of Borrower’s assets;

(f)         Permit any receiver, trustee, custodian, assignee for the benefit of creditors or any other Person or entity having similar powers or duties to be appointed or to take possession of any or all of Borrower’s assets;

(g)        Change its business structure, corporate identity or structure, do business under any additional trade name, or liquidate, merge or consolidate with or into any other business organization;

(h)        Change its Borrower State;

(i)         Change its corporate or trade name without providing FCFC with thirty (30) days’ prior written notice;

(j)         Change any of its Collateral States without providing FCFC with 30 days’ prior written notice;

(k)        Relocate its place of business, its Chief Executive Office State or move Borrower’s Books from the locations set forth on Exhibit A;

(l)         Acquire any entity or purchase the stock or securities of any entity (other than securities of any state or federal government);

(m)       Permit any sale or disposition of a controlling interest in Borrower or permit a change in the management of Borrower;

(n)        Enter into any transaction or incur any debts not in the usual course of Borrower’s business;

(o)        Guarantee or otherwise become in any way liable with respect to the obligations of any Person except by endorsement of instruments or items of payment for deposit to the account of Borrower or which are transmitted or turned over to FCFC on account of the Obligations;

(p)        Pay or declare any dividends upon Borrower’s capital stock;

(q)        Redeem, retire, purchase or otherwise acquire directly or indirectly any of Borrower’s capital stock;

(r)        Make any distribution of Borrower’s property or assets;

(s)        NOT USED; and

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(t)         Make any advance, loan, contribution or payment of money (other than compensation for personal services), goods or credit to, or guarantee any obligation of any subsidiary, affiliate or parent corporation, or any officer, shareholder or employee, or cause or permit any such advance, loan, contribution or guarantee to be made by any subsidiary corporation other than the guaranty executed in connection herewith with this Agreement. Provided no Event of Default per paragraph 10. of this Agreement shall have occurred or be existing, Borrower may provide direct or indirect funding to or for the benefit of any affiliate provided that the aggregate amount received thereunder by or for the benefit of the affiliate does not exceed $150,000 during the calendar year.

9. Insurance. 

9.1.      Borrower, at its expense, shall keep the Collateral insured against loss or damage by fire, theft, and all other hazards and risks ordinarily insured against by owners in similar businesses for the full insurable value thereof, business interruption insurance and public liability and property damage insurance relating to Borrower’s ownership and use of its assets.  All such policies of insurance shall be in such form, with such companies and in such amounts as may be satisfactory to FCFC.  Borrower shall deliver to FCFC certified copies of such policies of insurance and evidence of the payment of all premiums therefor.  All such policies of insurance (except those of public liability and property damage) shall contain an endorsement in a form satisfactory to FCFC showing FCFC as the loss payee.  All proceeds payable thereunder shall be payable to FCFC and upon receipt by FCFC shall, at FCFC’s option, be applied on the account of the Obligations, whether or not then due, or to the repair or replacement of the Collateral.  To secure the payment of the Obligations, Borrower grants FCFC a security interest in and to all such policies of insurance (except those of public liability and property damage) and the proceeds thereof, and Borrower shall direct all insurers under such policies of insurance to pay all proceeds thereof directly to FCFC.  Borrower hereby irrevocably appoints FCFC (and any of FCFC’s officers, employees or agents designated by FCFC) as Borrower’s attorney for the purpose of making, settling and adjusting claims under such policies of insurance, endorsing the name of Borrower on any check, draft, instrument or other item of payment for the proceeds of such policies of insurance and for making all determinations and decisions with respect to such policies of insurance.  Each such insurer shall agree, by endorsement upon the policy or policies of insurance issued by it to Borrower as required above, or by independent instruments furnished to FCFC, that it will give FCFC at least ten (10) days written notice before any such policy or policies of insurance shall be altered or cancelled, and that no act of Borrower or any other Person or the default hereunder by Borrower, shall affect the right of FCFC to recover under such policy or policies of insurance.  FCFC, without waiving or releasing any Obligations or default by Borrower hereunder, may, but shall have no obligation to do so, obtain and maintain such policies of insurance and pay such premiums and take any other action with respect to such policies which FCFC deems advisable.  All sums so disbursed by FCFC, as well as reasonable attorney’s fees, court costs, expenses and other charges relating thereto, shall be a part of FCFC’s Costs, secured by the Collateral and payable on demand.

10. Events of Default. 

10.1.    The occurrence of any one or more of the following shall, at the option of FCFC, constitute an event of default under this Agreement (each an “Event of Default”):

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(a)        Borrower fails to pay when due and payable or declared to be due and payable, any of the Obligations (whether of principal, interest, taxes, reimbursement of FCFC’s Costs, or otherwise).

(b)        Borrower fails or neglects to comply with, perform, keep or observe any term, provision, condition, or covenant contained in this Agreement, or any other present or future agreement between Borrower and FCFC.

(c)        Any representation, statement, report or certificate made or delivered by Borrower, or any of its officers or agents, (either individually or as an officer or agent of Borrower) to FCFC proves to be untrue, inaccurate, incomplete or incorrect in any material respect.

(d)        There is a Material Impairment in the prospect of repayment of the Obligations, or a Material Impairment in the value of the Collateral or the priority of FCFC’s security interest in the Collateral is contested.

(e)        Any Collateral cannot be located within five (5) days after FCFC makes demand upon Borrower to inspect the same, or any Collateral has been moved outside the Collateral State, without the consent of FCFC.

(f)         Any of Borrower’s assets are attached, seized, or are levied upon, and the same are not released, discharged or bonded against within ten (10) days thereafter.

(g)        A notice of lien, levy or assessment is filed of record with respect to any or all of Borrower’s assets by the United States Government, or any department, agency or instrumentality thereof, or by any state, county, municipal or other governmental agency, or if any taxes or debts owing at any time hereafter to any one or more of such entities becomes a lien, whether choate or otherwise, upon any or all of the Borrower’s assets and the same is not paid on the payment date thereof.

(h)        Borrower is enjoined, restrained or in any way prevented by court order from continuing to conduct all or any material part of its business affairs.

(i)         Any proceeding under the Bankruptcy Code or any similar remedy under state statutory or common law is filed by or against Borrower.

(j)         Borrower ceases normal business operations.

(k)        A material portion of the Collateral is stolen, damaged or destroyed.

(l)         A judgment or other claim becomes a lien or encumbrance upon any or all of Borrower’s assets and the same is not satisfied, dismissed or bonded against within ten (10) days thereafter.

(m)       If any of Borrower’s records are prepared and kept by an outside computer service at any time during the term of this Agreement, and said computer service fails to timely provide FCFC with any requested information or financial data pertaining to the Collateral, Borrower’s financial condition or the results of Borrower’s operations.

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(n)        If there is a default in any agreement to which Borrower is a party with third parties resulting in a right by such third parties to accelerate the maturity of any indebtedness of Borrower to such third party.

(o)        Borrower makes any payment on account of indebtedness that has been subordinated to the Obligations to FCFC, without FCFC’s consent, or if any Person subordinating such indebtedness terminates or in any way limits his subordination.

(p)        The chief executive officer of Borrower dies, or is no longer associated with the Borrower in that capacity.

(q)        Any guarantor of the Obligations dies, or if any such guarantor terminates or in any way limits his obligations under his guaranty.

(r)        Borrower fails to comply with, or become subject to any administrative or judicial proceeding under any federal, state or local (i) hazardous waste or environmental law, (ii) asset forfeiture or similar law which can result in the forfeiture of property, or (iii) other law, where noncompliance may have any significant effect on the Collateral.

(s)        FCFC receives a SOS Report indicating that FCFC’s security interest is not prior to all other security interests or other interests reflected in the report.

11. FCFC’s Rights and Remedies.

11.1.    At any time when an Event of Default shall exist and after the expiration of any applicable “Grace Period” (as hereafter defined), in addition to all rights and remedies provided for under the other Loan Documents, FCFC shall have all rights and remedies provided to it by law, hereunder, and each other document under which Borrower shall be obligated to FCFC and, without limiting the generality of the foregoing, FCFC may do any one or more acts described in this Section, or under the other Loan Documents and in any order it deems appropriate.  “Grace Period” means the number of business days after FCFC gives notice in accordance with Sections 3.14. and 14.  If an Event of Default involves Borrower’s obligation to pay money or discharge an indebtedness, the applicable Grace Period shall be two (2) days.  If an Event of Default involves the performance or non-performance of an act, or the occurrence or non-occurren ce of an event or circumstance, other than the payment of money, the Grace Period shall be fifteen (15) days.  Notwithstanding the foregoing, there shall be no Grace Period applicable to an Event of Default based upon a breach of a representation or warranty, or a false statement in or a material omission from any document forming part of the transaction in respect of which this Agreement was made, and in the breach of the covenant to maintain adequate insurance:

(a)        Declare any or all of the Obligations, whether evidenced by note(s), or otherwise, immediately due and payable;

(b)        Terminate this Agreement, but without affecting FCFC’s rights and security interests in the Collateral, and the Obligations;

(c)        Cease making advances to or for benefit of Borrower under the Credit Facility or reduce the Credit Facility;

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(d)        Continue making advances to Borrower in such amounts as FCFC may determine, in its sole discretion, without waiving any default by Borrower under this Agreement;

(e)        Proceed to collect the Accounts, and, in this regard, notify the post office authorities to change the address for delivery of Borrower’s mail to an address designated by FCFC, and receive, open and distribute all mail addressed to Borrower, retaining all mail relating to Collateral and forwarding all other mail to Borrower;

(f)         Exercise any and all of the rights accruing to a secured party under the Code and any other applicable law;

(g)        Require Borrower to assemble the Collateral, hold the same in trust for FCFC’s account and, at Borrower’s expense, deliver the same to FCFC or to a third party as FCFC’s bailee at a place or places to be designated by FCFC which is reasonably convenient to the parties, or store the same in a warehouse in FCFC’s name and deliver to FCFC documents of title representing said Collateral; 

(h)        Enter, with or without process of law, and without further permission of Borrower, upon any premises where the Collateral is or believed by FCFC to be located, using all necessary force to accomplish the same without committing a breach of the peace (Borrower hereby waiving all claims for damages or otherwise due to, arising from or connected with such entry and/or seizure), and:  (i) take possession of said premises and of the Collateral located therein; (ii) place a custodian in exclusive control of said premises and of any of the Collateral located therein; (iii) remove from the premises the Collateral (and any of Borrower’s Books, materials and supplies) in any way relating to the Collateral or useful by FCFC in enforcing its rights hereunder; (iv) remain upon said premises and use the same (together with said Borrower’s Books, materials and supplies) for the purpose of collecting the Collateral and/or pr eparing the Collateral for disposition and/or disposing of the Collateral;

(i)         Make (without any obligation to do so) any payment and take such action as FCFC considers necessary or reasonable to protect or preserve the Collateral or its security interest therein, including paying, purchasing, contesting or compromising any encumbrance, charge or lien which, in the opinion of FCFC, interferes with the enforcement of its security interests or the liquidation or disposition of the Collateral;

(j)         Ship, reclaim, recover, store, finish, maintain, repair and prepare for sale all or any portion of the Collateral;

(k)        Sell at one or more public or private sales, lease or otherwise dispose of the Collateral (regardless whether FCFC has taken possession thereof or whether the Collateral is present at any such sale or disposition) in its then condition, or after further manufacturing, processing or preparation thereof (utilizing, in connection therewith, without charge or liability to FCFC therefor, any of Borrower’s assets), by means of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Borrower’s premises) as is commercially reasonable, in the opinion of FCFC;

(l)         Seek temporary or permanent injunctive relief without the necessity of proving actual damages, as no remedy at law will provide adequate relief to FCFC and, in this regard, the bond which FCFC may be required to post shall be no more than $500.00; and

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(m)       Require Borrower to pay all FCFC’s Costs incurred in connection with FCFC’s enforcement and exercise of any of its rights and remedies as herein provided, whether or not suit is commenced by FCFC.

11.2.    Any deficiency that exists after disposition of the Collateral as provided herein, shall be due and payable by Borrower upon demand, with any excess to be paid by FCFC to Borrower.

11.3.    FCFC shall give Borrower such notice of any private or public sale, lease or other disposition as may be required by the Code, unless notice has been waived after an Event of Default pursuant to the Code.

11.4.    FCFC shall have no obligation to clean up or otherwise prepare the Collateral for sale.  FCFC shall have no obligation to attempt to satisfy the Obligations by collecting them from any other Person liable for them, and FCFC may release, modify or waive any of the Collateral provided by any other Person to secure any of the Obligations, all without affecting FCFC’s rights against Borrower.  Borrower waives any right it may have to require FCFC to pursue any third Person for any of the Obligations.  FCFC has no obligation to marshal any assets in favor of Borrower, or against or in payment of the Obligations or any other obligation owed to FCFC by Borrower or any other Person.  FCFC may comply with any applicable state or federal law requirements in connection with a disposition of the Collateral and compliance will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral.

11.5.    FCFC may dispose of the Collateral without giving any warranties as to the Collateral.  FCFC may specifically disclaim any warranties of title or the like.  This procedure will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral.

11.6.    If FCFC sells any of the Collateral upon credit, Borrower will be credited only with payments actually made by the purchaser, received by FCFC and applied to the indebtedness of the purchaser.  In the event the purchaser fails to pay for the Collateral, FCFC may resell the Collateral and Borrower shall be credited with the proceeds of the sale.

11.7.    In the event FCFC purchases any of the Collateral being sold, FCFC may pay for the Collateral by crediting against the purchase price some or all of the Obligations.

11.8.    FCFC’s rights and remedies under this Agreement and all other agreements shall be cumulative and may be exercised simultaneously or successively, in such order as FCFC shall determine.  In addition, FCFC shall have all other rights and remedies not inconsistent herewith as provided by law or in equity.  No exercise by FCFC of one right or remedy shall be deemed an election, and no waiver by FCFC of any default on Borrower’s part shall be deemed a continuing waiver.  No delay by FCFC shall constitute a waiver, election or acquiescence by it.

12. Taxes and Expenses Regarding Borrower’s Property.

12.1.    If Borrower fails to pay any assessments, taxes, contributions, or make any deposits, or furnish any required proof thereof as set forth in Section 7(j) hereof or in any other provision of this Agreement, FCFC may, in its sole and absolute discretion and without notice to Borrower (a) make payment of the same or any part thereof, or (b) set up such reserves in Borrower’s account as FCFC deems necessary to satisfy the liability therefor, or both.  If Borrower fails to promptly pay when due to any other Person, any sum which Borrower is required to pay by reason of any provision in this Agreement, FCFC may, but is not obligated to, advance any sums which it deems appropriate for the protection or preservation of the Collateral or its security interest therein, and the amount so advanced by FCFC shall bear interest at the rate provided for in Section 2.9 above, and shall constitute FCFC’s Costs, payable on demand, and shall be se cured by the Collateral.  Any payment made by FCFC shall not constitute (a) an agreement by it to make similar payments in the future, or (b) a waiver by FCFC of any default under this Agreement.  FCFC need not contest nor inquire as to the validity of any such expense, tax, security interest, encumbrance or lien, and the receipt of the usual official notice for the payment thereof shall be conclusive evidence that the same was validly due and owing.

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13.  Waivers By Borrower.

13.1.    FCFC shall not be deemed to have waived any provision of this Agreement, or any right or remedy which it may have hereunder, or at law or equity, unless such waiver is in writing and signed by FCFC.

13.2.    Borrower waives the right to direct the application of any payments at any time or times received by FCFC on account of the Obligations and Borrower agrees that FCFC shall have the continuing exclusive right to apply and reapply such payments in any manner as FCFC may deem advisable.

13.3.    Subject to the provisions of Sections 3.14. and 11.1., Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension or renewal of any or all commercial paper, accounts, documents, instruments, chattel paper and guaranties at any time held by FCFC on which Borrower may in any way be liable.

13.4.    Failure or delay by FCFC in exercising or enforcing any right, power, privilege, lien, option or remedy hereunder shall not operate as a waiver thereof and a waiver by FCFC of any default by Borrower under this Agreement shall not be construed to create any right or expectation of future waiver of any subsequent breach or default by Borrower under this Agreement whether of the same or of a different nature.

13.5.    FCFC shall not in any way or manner be liable or responsible for (a) the safekeeping of the Collateral; (b) any loss or damage thereto occurring or arising in any manner or fashion from any cause; (c) any diminution in the value thereof; or (d) any act or default of any carrier, warehouseman, bailee, forwarding agency or other Person whomsoever.  All such risk or loss, damage or destruction of the Collateral shall be borne by Borrower.

13.6.    Borrower waives (to the extent the same may be lawfully waived):  any and all causes of action and claims which it may now or ever have against FCFC for failing to protect any Collateral in its possession, or failing to collect or sell any of the Collateral, notwithstanding the effect of such possession, collection or sale upon the business of Borrower.  In addition, Borrower hereby releases FCFC of and from (a) any and all liabilities or penalties for failure of FCFC to perfect or maintain the priority of its security interest or to comply with any statutory or other requirement imposed on FCFC; and (b) any error of judgment or mistake of fact or law.

13.7.    In the event FCFC seeks to obtain possession of any of the Collateral by replevin or other judicial process, Borrower hereby waives (a) any bond or security required to be posted by any statute, court rule or otherwise as an incident to such possession; and (b) any demand for possession of the Collateral prior to the commencement of any suit or action to recover possession thereof.

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13.8.    BORROWER WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY TRANSACTIONS HEREUNDER.

14. Notices.

14.1.    Unless otherwise provided in this Agreement, all notices, demands or other communications to either party shall be in writing and shall be mailed, telecopied or communicated by means of facsimile transmission (followed by a mailed or delivered hard copy), or delivered by hand or courier service, at their respective addresses set forth in this Agreement, or at such other addresses as shall be designated by such party in a written notice to the other party.  All notices and other communications shall be deemed delivered and effective when a record has been sent by telecopy or other facsimile transmission, or upon receipt through the Internet, or upon hand delivery or upon the third (3rd) business day after deposit in a United States postal box if postage is prepaid, and the notice properly addressed to the intended recipient.

15. Destruction of Borrower’s Documents.

15.1.    Any documents, schedules, invoices or other papers delivered to FCFC, may be destroyed or otherwise disposed of by FCFC five (5) months after they are delivered to or received by FCFC, unless Borrower requests, in writing, the return of the said documents, schedules, invoices or other papers and makes arrangements, at Borrower’s expense, for their return.

16. Release.

16.1.    At such time as all Obligations shall have been fully paid and satisfied and Borrower and all guarantors of the Obligations execute a release acknowledging that Borrower does not have any claims against FCFC and provides FCFC with an appropriate indemnity indemnifying FCFC for any remittances for which Borrower has received credit and which are not paid, FCFC shall release its security interest in the Collateral and deliver to Borrower an appropriate termination statement.

17. General Provisions.

17.1.    The parties intend and agree that their respective rights, duties, powers, liabilities, obligations and discretions shall be performed, carried out, discharged and exercised reasonably and in good faith.

17.2.    If at any time or times hereafter FCFC employs counsel for advice or other representation (a) with respect to any of the Collateral or this Agreement; (b) to represent FCFC in any litigation, contest, dispute, suit or proceeding or to commence, defend, or intervene or to take any other action in or with respect to any litigation, contest, dispute, suit or proceeding (whether instituted by FCFC, Borrower or any other party) in any way relating to any of the Collateral, this Agreement or Borrower’s affairs; (c) to protect, collect, lease, sell, take possession of or liquidate any of the Collateral; (d) to attempt to enforce any security interest of FCFC in any of the Collateral; or (e) to enforce any rights of FCFC against Borrower or against any other Person which may be obligated to FCFC by virtue of this Agreement including Borrower’s account debtors, then, in any of the foregoing events, all of the reasonable attorneys’ fees arising from such services and all expenses, costs and charges in any way arising in connection therewith or relating thereto shall constitute a part of FCFC’s Costs secured by the Collateral and be payable on demand.

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17.3.    Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against FCFC or Borrower, whether under any rule of construction or otherwise; on the contrary, this Agreement has been reviewed by all parties and shall be construed and interpreted according to the ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of all parties hereto.  When permitted by the context, the singular includes the plural and vice versa.

17.4.    The validity of this Agreement, its construction, interpretation and enforcement, and the rights of the parties hereunder and concerning the Collateral, shall be determined under and according to the laws of Arizona, without regard to principles of conflicts of laws, and except to the extent that the Code provides for the application of the law of the Borrower State.

17.5.    In any litigation involving FCFC and Borrower, Borrower does hereby irrevocably submit itself to the process, jurisdiction and venue of the courts of the State of Arizona, Maricopa County or to the process, jurisdiction and venue of the United States District Court for the District of Arizona for the purposes of suit, action or other proceedings arising out of or relating to this Agreement or the subject matter hereof, and without limiting the generality of the foregoing, hereby waives and agrees not to assert by way of motion, defense or otherwise in any such suit, action or proceeding any claim that Borrower is not personally subject to the jurisdiction of such courts, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper.

17.6.    The provisions of this Agreement are independent of and separate from each other.  If any provision hereof shall for any reason be held invalid or unenforceable, it is the intent of the parties that such invalidity or unenforceability shall not affect the validity or unenforceability of any other provision hereof and that this Agreement shall be construed as if such invalid or unenforceable provision had never been contained herein.

17.7.    Article and section headings and numbers have been set forth herein for convenience only; unless the contrary is compelled by the context, everything contained in each section applies equally to this entire Agreement.

17.8.    This Agreement cannot be changed or terminated orally.  All prior agreements, understandings, representations, warranties, and negotiations, if any, are merged into this Agreement.

17.9.    FCFC shall have the right, without the consent of or notice to Borrower to grant participation interests in the Credit Facility and in this regard may provide the participant with any and all information with respect to Borrower and the Credit Facility.  In addition, FCFC may assign this Agreement and its rights and duties hereunder at any time, without the consent of or notice to Borrower.  This Agreement shall inure to the benefit of FCFC, its successors and assigns.  Borrower may not assign this Agreement or any rights hereunder, without FCFC’s prior written consent and any such assignment shall be void and of no effect whatsoever.  No consent to any assignment by FCFC shall, without the written consent of FCFC, release Borrower or any guarantor of its Obligations to FCFC.

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17.10.  This Agreement shall inure to the benefit of FCFC and any successors or assigns of FCFC, including any participant in the Credit Facility.  This Agreement shall bind and inure to the benefit of the successors and assigns of FCFC and shall bind all Persons who become bound as a debtor to this Agreement. Borrower may not assign this Agreement or any rights hereunder without FCFC’s prior written consent and any prohibited assignment shall be absolutely void.  No consent to any assignment by FCFC shall release Borrower or any guarantor of its Obligations to FCFC.  FCFC may assign this Agreement and its rights and duties hereunder, and if an assignment is made, Borrower shall render performance under this Agreement to the assignee.  Borrower waives and will not assert against any assignee of FCFC any claims, defenses (except defenses which cannot be waived) or set-offs which Borrower could assert against FCFC.

18. Rules of Construction.

18.1.    No reference to “proceeds” in this Security Agreement authorizes any sale, transfer, or other disposition of the Collateral by the Borrower.

18.2.    “Includes” and “including” are not limiting.

18.3.    “Or” is not exclusive.

18.4.    “All” includes “any” and “any” includes “all.”

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed at Phoenix, Arizona, as of the date written above.

FCFC:                                                                                   

FIRST COMMUNITY FINANCIAL CORPORATION,                   

an Arizona corporation                                                            

By:  /s/ JAMES C. ADAMANY

James C. Adamany

Title: President

BORROWER:

Adams Golf, Ltd.,

a Texas limited partnership

GENERAL PARTNER:

Adams Golf GP Corp.,

a Delaware corporation

By:  /s/ DALE KEITH FORD

Dale Keith Ford

Title: President

LIMITED PARTNER:

Adams Golf Holding Corp.,

a Delaware corporation

By:  /s/ DALE KEITH FORD

Dale Keith Ford

Title: Assistant Secretary

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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 28, 2003 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

INDEPENDENT AUDITORS' CONSENT

The Board of Directors

Adams Golf, Inc.:

We consent to incorporation by reference in Registration Statement Nos. 333-68129, 333-79495, 333-90391 and 333-37320 on Form S-8 of Adams Golf Inc. of our report dated February 20, 2003, except as to Notes 11 and 17 which is as of March 28, 2003 relating to the consolidated balance sheets of Adams Golf, Inc. and subsidiaries as of December 31, 2002 and 2001 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, 2002, and the related financial statement schedule, which report is included in the December 31, 2002 Annual Report on Form 10-K of Adams Golf, Inc.

KPMG LLP

Dallas, Texas

March 28, 2003

EX-99.1

Exhibit 99.1

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 Sates Code)

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

The Annual Report on Form 10K for the year ended December 31, 2002 (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 780(d)) and 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 28, 2003	By:	/s/ OLIVER G. BREWER III
		Oliver G. Brewer, III
		Chief Executive Officer and President

Date: March 28, 2003	By:	/s/ DALE KEITH FORD
		Dale Keith Ford
		Chief Financial Officer
		(Principal Financial Officer)

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