Adams Golf Q1 Sales Jump 32.7% on Irons Strength

Adams Golf reported total net sales increased 32.7% to $22.3 million for the first quarter of 2006 from $16.8 million for the same period last year. Management attributed the sales gain to the successful product introductions of the Idea A2 and A2 OS Irons. Overall, product family life cycles generally range from one to three years, and each product family varies in its life cycle as there are multiple factors influencing the life, such as, but not limited to, customer acceptance, competition and technology.

Net sales of drivers decreased to $2.4 million, or 11.0% of total net sales, for the three months ended March 31, 2006 from $5.0 million, or 29.8% of total net sales, for the comparable period of 2005. A large portion of the driver net sales for the three months ended March 31, 2006 was generated by the Redline RPM and RPM Dual product lines, which were introduced in the fourth quarter of 2004 and second quarter of 2005, respectively, and Ovation drivers, which were introduced in the first quarter of 2005. The overall decrease in driver net revenue results from lower sales of the above mentioned driver product families as they progress farther in their life cycle.

Net sales of irons increased to $13.8 million, or 62.2% of total net sales, from $5.7 million, or 33.8% of total net sales, for the three months ended March 31, 2006 and 2005, respectively. The increase was primarily generated from the net sales of Idea A2 and A2 OS irons and integrated iron sets while the prior period net sales primarily resulted from the Original Idea irons and integrated iron sets.

Net sales of fairway woods increased to $5.9 million, or 26.6% of total net sales, from $5.2 million, or 31.2% of total net sales, for the three months ended March 31, 2006 and 2005, respectively. The prior period’s net sales were generated from RPM Ti and stainless steel fairway woods, Ovation fairway woods, Idea I-woods and Original Tight Lies fairway woods. This period’s net sales were generated from Redline RPM Low Profile fairway woods, Idea A2 and Original Idea I-woods and Original Tight Lies.

The company is currently dependent on four customers, which collectively comprised approximately 25.0% of net sales for the three months ended March 31, 2006. Of these, each of the four customers individually represented greater than 5% but less than 10% of net sales, and no customer individually represented greater than 10%.

Net sales of products outside the U.S. increased to $3.7 million, or 16.8% of total net sales, from $2.2 million, or 13.2% of total net sales, for the three months ended March 31, 2006 and 2005, respectively. Net sales resulting from countries outside the U.S. excluding Canada increased to 6.9% of total net sales for the three months ended March 31, 2006 compared to 3.0% of total net sales for the three months ended March 31, 2005.

Cost of goods sold increased to $11.8 million, or 53.1% of total net sales, for the three months ended March 31, 2006 from $7.9 million, or 47.3% of total net sales, for the comparable period of 2005. The increase as a percentage of total net sales is primarily due to changes in the product mix, coupled with decreases in fairway wood net pricing and increases in some component pricing and other inventory related costs.

Selling and marketing expenses increased to $4.9 million for the three months ended March 31, 2006 from $4.3 million for the comparable period in 2005. The increase is primarily the result of additional commission expense of $0.3 million as a result of the increased net sales during the period. In addition, advertising expense increased $0.2 million as a result of our support of the newly launched Idea A2 and A2 OS irons and RPM Low Profile fairway woods.

General and administrative expenses, including provisions for bad debts, increased to $1.7 million for the three months ended March 31, 2006 from $1.5 million for the comparable period in 2005.

Research and development expenses, primarily consisting of costs associated with development of new products, remained unchanged at $0.6 million for the three months ended March 31, 2006 and 2005.

Other income decreased to zero for the three months ended March 31, 2006 from $1.0 million for the comparable period in 2005 which is attributable to the company’s one time receipt of a $965 thousand insurance claim paid by the company’s insurance carrier in connection with the embezzlement which occured during the period from 2001 through 2004.

Inventory balances were approximately $17.2 million and $16.2 million at March 31, 2006 and December 31, 2005, respectively. The increase in inventory levels is primarily a result of the increased purchasing related to the newly released A2 and A2 OS iron sets launched in the fourth quarter of 2005 and the RPM Low Profile fairway wood launched in the first quarter of 2006.

The net accounts receivable balances were approximately $25.2 million and $14.1 million at March 31, 2006 and December 31, 2005, respectively. The increase is primarily due to a significant increase in net sales resulting from the recent successful product launch of Idea A2 and A2 OS Irons and RPM LP fairway woods.

Accounts payable balances were approximately $5.8 million and $4.7 million at March 31, 2006 and December 31, 2005, respectively. The increase in accounts payable is primarily associated with increases in inventory purchases associated with the recent product launch of the Idea A2 and A2 OS irons and RPM Low Profile fairway woods.

Accrued liabilities balances were approximately $10.7 million and $7.3 million at March 31, 2006 and December 31, 2005, respectively. The increase in accrued liabilities is primarily associated with an increase of $2.5 million in inventory purchases in transit, not included in accounts payable, associated with the recent product launch of the Idea A2 and A2 OS irons and RPM Low Profile fairway woods.