Adams Golf Reports Strong Second Quarter Results Over the Same Period Last Year

Editors Note: The following information was extracted from Adams Golf?s 10-Q report, which was published for the second quarter ended June 30, 2004 and six months ended June 30, 2004. Note that the information presented below comes from two sections of the full report. The entire filing should be consulted for a complete discussion.

To consult the 10-Q filing for a complete discussion, please visit http://www.sec.gov/Archives/edgar/data/1059763/000105976304000010/q2200410q.htm.

Three Months Ended June 30, 2004 Compared to Three Months Ended June 30, 2003

Total net sales increased 12.0% to $19.7 million for the three months ended June 30, 2004 from $17.6 million for the comparable period of 2003. The increase is primarily attributable to the successful product introduction and customer acceptance of the Ovation fairway woods, which were introduced in the current quarter, and continued strong sales of the Adams Idea Irons that were introduced in the fall of 2002.

Net sales of drivers decreased to $3.1 million, or 16.0% of total net sales, for the three months ended June 30, 2004 from $3.4 million, or 19.6% of total net sales, for the comparable period of 2003. A large portion of the driver net sales for the three month period ended June 30, 2004 was generated by the Redline driver product line (which was launched in the first quarter of 2003) and the Tight Lies GT driver product line. Net sales of irons increased to $9.1 million, or 46.2% of total net sales, from $7.8 million, or 44.5% of total net sales, for the three month periods ended June 30, 2004 and 2003, respectively, primarily generated from sales of the Company’s Idea irons. Net sales of fairway woods increased to $7.0 million, or 35.6% of total net sales, from $5.6 million, or 31.8% of total net sales, for the three month periods ended June 30, 2004 and 2003, respectively. The increase is primarily attributable to the recently introduced Ovation fairway woods partially offset by lower net sales of maturing product lines.

For the three months ended June 30, 2004, four customers comprised approximately 25% of net sales while one customer individually represented greater than 5% but less than 10% of total net sales. In addition, one customer represented greater than 10% but less than 15% of total net sales. Should these customers 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. increased to $2.9 million, or 14.8% of total net sales, from $2.8 million, or 16.1% of total net sales, for the three months ended June 30, 2004 and 2003, respectively.

Cost of goods sold, as a percentage of total net sales, decreased to 50.3% for the three months ended June 30, 2004 from 53.9% for the comparable period of 2003. The decrease as a percentage of total net sales is primarily due to changes in the product mix to products yielding higher gross margins.

Selling and marketing expenses, as a percentage of total net sales, increased to 27.3% from 25.7% for the three months ended June 30, 2004 and 2003, respectively. Selling and marketing expenses were $5.4 million for the three months ended June 30, 2004, and $4.5 million for the comparable period in 2003. The dollar increase is primarily the result of additional advertising costs largely related to the promotion of the new Ovation product line and continued support for the Adams Idea and Redline product lines coupled with increased commission expenses related to the increased sales volume.

General and administrative expenses, including provisions for bad debts, increased to $1.9 million for the three months ended June 30, 2004, from $1.7 million for the comparable period in 2003. The increase in administrative related costs is primarily attributable to the Company’s continued efforts to maintain adequate bad debt reserves.

Research and development expenses, primarily consisting of costs associated with development of new products, were $0.4 million for the three months ended June 30, 2004, compared to $0.4 million for the same period of 2003.

As a result, the Company reported a net income of $2.1 million for the three months ended June 30, 2004, compared to a net income of $1.5 million for the three months ended June 30, 2003.

Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003

Total net sales increased 12.5% to $37.5 million for the six months ended June 30, 2004 from $33.3 million for the comparable period of 2003. The increase is primarily attributable to the successful product introduction and customer acceptance of the Ovation fairway woods, which were introduced in the current quarter, and continued strong sales of the Adams Idea Irons that were introduced in the fall of 2002.

Net sales of drivers decreased to $6.4 million, or 17.2% of total net sales, for the six months ended June 30, 2004 from $7.1 million, or 21.5% of total net sales, for the comparable period of 2003. A large portion of the driver net sales for the six month period ended June 30, 2004 was generated by the Redline driver product line, which was launched in the first quarter of 2003, and the Tight Lies GT driver product line. Net sales of irons increased to $14.7 million, or 39.3% of total net sales, from $12.7 million, or 38.2% of total net sales, for the six month period ended June 30, 2004 and 2003, respectively, primarily generated from sales of the Company’s Idea irons. Net sales of fairway woods increased to $14.6 million, or 38.8% of total net sales, from $11.7 million, or 35.1% of total net sales, for the six month period ended June 30, 2004 and 2003, respectively. The increase is primarily attributable to the recently introduced Ovation fairway woods partially offset by lower net sales of maturing product lines.

For the six months ended June 30, 2004, five customers comprised approximately 26% of net sales while two customers individually represented greater than 5% but less than 10% of total net sales. No customers represented greater than 10% of net sales. Should these customers 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. increased to $5.0 million, or 13.3% of total net sales, from $4.7 million, or 14.1% of total net sales, for the six months ended June 30, 2004 and 2003, respectively.

Cost of goods sold, as a percentage of total net sales, decreased to 47.9% for the six months ended June 30, 2004 from 52.4% for the comparable period of 2003. The decrease as a percentage of total net sales is primarily due to changes in the product mix to products yielding higher gross margins.

Selling and marketing expenses, as a percentage of total net sales, increased to 26.8% from 25.4% for the six months ended June 30, 2004 and 2003, respectively. Selling and marketing expenses were $10.1 million for the six months ended June 30, 2004, and $8.5 million for the comparable period in 2003. The dollar increase is primarily the result of additional advertising costs largely related to the promotion of the new Ovation product line and continued support for the Adams Idea and Redline product lines coupled with increased commission expenses related to the increased sales volume.

General and administrative expenses, including provisions for bad debts, increased to $4.0 million for the six months ended June 30, 2004, from $3.2 million for the comparable period in 2003. The increase in administrative related costs is primarily attributable to the Company’s continued efforts to maintain adequate bad debt reserves.

Research and development expenses, primarily consisting of costs associated with development of new products, were $0.9 million for the six months ended June 30, 2004, compared to $0.8 million for the same period of 2003.

The Company’s inventory balances were approximately $11.4 million and $8.1 million at June 30, 2004, and December 31, 2003, respectively. The increase in inventory levels is primarily a result of the seasonality of the business, as we bring in inventory adequate to meet customer demands for the first and second quarters. Inventory of our recently released products, including the Ovation Fairway wood and the integrated wood and iron sets, also drive the overall increase in inventory.

The Company’s accounts receivable balances were approximately $18.5 million and $10.4 million at June 30, 2004, and December 31, 2003, respectively. The increase is primarily due to the overall increase in revenues of 12% coupled with the seasonality of the business, as a large portion of sales are generated in the first and second quarters of the year.

The Company’s accounts payable balances were approximately $4.4 million and $1.2 million at June 30, 2004, and December 31, 2003, respectively. The increase in accounts payable is primarily associated with the extension of payment terms with key vendors.

As a result, the Company reported a net income of $4.6 million for the six months ended June 30, 2004, compared to a net income of $3.3 million for the six months ended June 30, 2003.