##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended April 30, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 001-14547
 Ashworth, Inc.
  Delaware
    
    84-1052000(State or Other Jurisdiction of 
Incorporation or Organization)
    
    (I.R.S. Employer
Identification No.)
 2765 LOKER AVENUE WEST
CARLSBAD, CA 92010
 (760) 438-6610
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company þ
 o þ
  Title
    
    Outstanding at May 31, 2008$.001 par value Common Stock
    
    14,713,511




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##### 



PAGEPart I. Financial InformationItem 1. Financial StatementsCondensed Consolidated Balance Sheets
    
    
    1Condensed
Consolidated Statements of Income (Operations)
    
    
    2Condensed Consolidated Statements of Cash Flows
    
    
    3Notes to Condensed Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    14Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    26Item 4. Controls and Procedures
    
    
    26Part II. Other InformationItem 1. Legal Proceedings
    
    
    27Item 1A. Risk Factors
    
    
    28Item 4. Submission of Matters To A Vote of Security Holders
    
    
    29Item 6. Exhibits
    
    
    29Signatures
    
    
    31Exhibit Index
    
    
    32EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2




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##### Table of Contents



PART I
 FINANCIAL INFORMATION
  
  April 30, 2008
    
    
    October 31, 2007(UNAUDITED)AssetsCurrent assets:Cash and cash equivalents
    
    $
    3,481,000
    
    
    $
    6,104,000Accounts receivable  trade, net
    
    
    44,181,000
    
    
    
    34,545,000Accounts receivable  other, net
    
    
    
    
    
    
    147,000Inventories, net
    
    
    52,380,000
    
    
    
    50,529,000Income tax refund receivable
    
    
    1,483,000
    
    
    
    1,117,000Other current assets
    
    
    5,567,000
    
    
    
    4,981,000Deferred income tax asset, net
    
    
    86,000
    
    
    
    48,000Total current assets
    
    
    107,178,000
    
    
    
    97,471,000Property, plant and equipment, at cost
    
    
    63,962,000
    
    
    
    68,495,000Less accumulated depreciation and
amortization
    
    
    (29,053,000
    )
    
    
    (30,980,000
    )Total property, plant and equipment, net
    
    
    34,909,000
    
    
    
    37,515,000Goodwill
    
    
    15,250,000
    
    
    
    15,250,000Intangible assets, net
    
    
    9,719,000
    
    
    
    9,806,000Other assets
    
    
    375,000
    
    
    
    372,000Total assets
    
    $
    167,431,000
    
    
    $
    160,414,000Liabilities and Stockholders EquityCurrent liabilities:Line of credit payable
    
    $
    39,342,000
    
    
    $
    19,615,000Current portion of long-term debt
    
    
    883,000
    
    
    
    2,360,000Accounts payable
    
    
    12,664,000
    
    
    
    12,728,000Accrued liabilities:Salaries and commissions
    
    
    3,117,000
    
    
    
    5,442,000Other
    
    
    6,678,000
    
    
    
    5,235,000Total current liabilities
    
    
    62,684,000
    
    
    
    45,380,000Long-term debt, net of current portion
    
    
    10,939,000
    
    
    
    13,844,000Deferred income tax liability
    
    
    1,780,000
    
    
    
    1,469,000Other long-term liabilities
    
    
    
    
    
    
    84,000Stockholders equity:Common stock
    
    
    15,000
    
    
    
    15,000Capital in excess of par value
    
    
    50,586,000
    
    
    
    50,325,000Retained earnings
    
    
    35,721,000
    
    
    
    42,217,000Accumulated other comprehensive income
    
    
    5,706,000
    
    
    
    7,080,000Total stockholders equity
    
    
    92,028,000
    
    
    
    99,637,000Total liabilities and stockholders equity
    
    $
    167,431,000
    
    
    $
    160,414,000
  1




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Three months ended April 30,
    
    
    Six months ended April 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net revenues
    
    $
    57,826,000
    
    
    $
    59,864,000
    
    
    $
    92,345,000
    
    
    $
    98,136,000Cost of goods sold
    
    
    33,438,000
    
    
    
    36,623,000
    
    
    
    55,459,000
    
    
    
    59,278,000Gross profit
    
    
    24,388,000
    
    
    
    23,241,000
    
    
    
    36,886,000
    
    
    
    38,858,000Selling, general and
administrative expenses
    
    
    22,781,000
    
    
    
    21,841,000
    
    
    
    42,143,000
    
    
    
    40,958,000Income (loss) from operations
    
    
    1,607,000
    
    
    
    1,400,000
    
    
    
    (5,257,000
    )
    
    
    (2,100,000
    )Other income (expense):Interest income
    
    
    20,000
    
    
    
    21,000
    
    
    
    50,000
    
    
    
    58,000Interest expense
    
    
    (715,000
    )
    
    
    (771,000
    )
    
    
    (1,722,000
    )
    
    
    (1,372,000
    )Net foreign currency exchange
gain
    
    
    437,000
    
    
    
    68,000
    
    
    
    1,123,000
    
    
    
    118,000Other income (expense), net
    
    
    9,000
    
    
    
    (112,000
    )
    
    
    (67,000
    )
    
    
    (178,000
    )Total other expense, net
    
    
    (249,000
    )
    
    
    (794,000
    )
    
    
    (616,000
    )
    
    
    (1,374,000
    )Income (loss) before income tax
    
    
    1,358,000
    
    
    
    606,000
    
    
    
    (5,873,000
    )
    
    
    (3,474,000
    )Provision for income taxes
    
    
    431,000
    
    
    
    3,139,000
    
    
    
    623,000
    
    
    
    1,507,000Net income (loss)
    
    $
    927,000
    
    
    $
    (2,533,000
    )
    
    $
    (6,496,000
    )
    
    $
    (4,981,000
    )Net income (loss) per share:Basic
    
    $
    0.06
    
    
    $
    (0.17
    )
    
    $
    (0.44
    )
    
    $
    (0.34
    )Diluted
    
    $
    0.06
    
    
    $
    (0.17
    )
    
    $
    (0.44
    )
    
    $
    (0.34
    )Weighted-average shares
outstanding:Basic
    
    
    14,714,000
    
    
    
    14,520,000
    
    
    
    14,714,000
    
    
    
    14,520,000Diluted
    
    
    14,714,000
    
    
    
    14,520,000
    
    
    
    14,714,000
    
    
    
    14,520,000
  2




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Six months ended April 30,2008
    
    
    2007CASH FLOW FROM OPERATING ACTIVITIES:Net cash used in operating activities
    
    $
    (15,362,000
    )
    
    $
    (17,096,000
    )CASH FLOWS FROM INVESTING ACTIVITIESPurchase of property, plant and equipment
    
    
    (1,187,000
    )
    
    
    (2,321,000
    )Proceeds from trade-in of equipment
    
    
    27,000Purchase of intangibles
    
    
    (113,000
    )
    
    
    (59,000
    )Net cash used in investing activities
    
    
    (1,273,000
    )
    
    
    (2,380,000
    )CASH FLOWS FROM FINANCING ACTIVITIESPrincipal payments on capital lease obligations
    
    
    (205,000
    )
    
    
    (132,000
    )Borrowings on line of credit
    
    
    59,047,000
    
    
    
    27,500,000Payments on line of credit
    
    
    (39,320,000
    )
    
    
    (12,030,000
    )Borrowings on notes payable and long-term debt
    
    
    
    
    
    
    683,000Principal payments on notes payable and long-term debt
    
    
    (4,177,000
    )
    
    
    (844,000
    )Net cash provided by financing activities
    
    
    15,345,000
    
    
    
    15,177,000Effect of exchange rate changes
    
    
    (1,333,000
    )
    
    
    1,018,000Net decrease in cash and cash equivalents
    
    
    (2,623,000
    )
    
    
    (3,281,000
    )Cash, beginning of period
    
    
    6,104,000
    
    
    
    7,508,000Cash, end of period
    
    $
    3,481,000
    
    
    $
    4,227,000
  3




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NOTE 1  Basis of Presentation.
   Shipping and Handling Revenue
 Accounting of Shipping
and Handling Fees and Costs
 Cost of Goods Sold
  Shipping and Handling Expenses
  Earnings (Loss) Per Share
  4




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Earnings Per
Share
 Three months ended April 30,
    
    
    Six months ended April 30,2008
    
    
    2007
    
    

2008
    
    

2007Numerator:Net income (loss)
    
    $
    927,000
    
    
    $
    (2,533,000
    )
    
    $
    (6,496,000
    )
    
    $
    (4,981,000
    )Denominator:Weighted-average shares outstanding
    
    
    14,714,000
    
    
    
    14,520,000
    
    
    
    14,714,000
    
    
    
    14,520,000Effect of dilutive options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Denominator for dilutive earnings per share
    
    
    14,714,000
    
    
    
    14,520,000
    
    
    
    14,714,000
    
    
    
    14,520,000Basic income (loss) per share
    
    $
    0.06
    
    
    $
    (0.17
    )
    
    $
    (0.44
    )
    
    $
    (0.34
    )Diluted income (loss) per share
    
    $
    0.06
    
    
    $
    (0.17
    )
    
    $
    (0.44
    )
    
    $
    (0.34
    )
  NOTE 2  Inventories.
  April 30,
    
    
    October 31,2008
    
    
    2007Raw materials
    
    $
    312,000
    
    
    $
    135,000Finished goods
    
    
    52,068,000
    
    
    
    50,394,000Total inventories, net
    
    $
    52,380,000
    
    
    $
    50,529,000
 NOTE 3  Property, Plant and Equipment.
  5




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NOTE 4  Goodwill and Other Intangible Assets.
 Goodwill and Other Intangible Assets
 April 30, 2008
    
    
    October 31, 2007Gross Carrying
    
    
    Accumulated
    
    
    Net Book
    
    
    Gross Carrying
    
    
    Accumulated
    
    
    Net BookAmount
    
    
    Amortization
    
    
    Value
    
    
    Amount
    
    
    Amortization
    
    
    ValueIndefinite life:Tradenames
    
    $
    8,700,000
    
    
    $
    
    
    
    $
    8,700,000
    
    
    $
    8,700,000
    
    
    $
    
    
    
    $
    8,700,000Finite life:Customer lists
    
    
    1,530,000
    
    
    
    (871,000
    )
    
    
    659,000
    
    
    
    1,530,000
    
    
    
    (767,000
    )
    
    
    763,000Non-competes
    
    
    1,372,000
    
    
    
    (1,296,000
    )
    
    
    76,000
    
    
    
    1,372,000
    
    
    
    (1,238,000
    )
    
    
    134,000Customer sales backlog
    
    
    190,000
    
    
    
    (190,000
    )
    
    
    
    
    
    
    190,000
    
    
    
    (190,000
    )
    
    
    Trademarks
    
    
    1,696,000
    
    
    
    (1,412,000
    )
    
    
    284,000
    
    
    
    1,582,000
    
    
    
    (1,373,000
    )
    
    
    209,000Total intangible assets
    
    $
    13,488,000
    
    
    $
    (3,769,000
    )
    
    $
    9,719,000
    
    
    $
    13,374,000
    
    
    $
    (3,568,000
    )
    
    $
    9,806,000
   Remainder 2008
    
    $
    213,0002009
    
    
    310,0002010
    
    
    277,0002011
    
    
    190,0002012
    
    
    29,0002013
    
    
    Thereafter
    
    
    Total
    
    $
    1,019,000
 NOTE 5  Business Loan Agreement.
  6




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7




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NOTE 6  Common Stock and Capital in Excess of Par Value.
  NOTE 7  Stock-Based Compensation.
 Share-Based Payment
  Three months ended April 30,
    
    Six months ended April 30,2008
    
    2007
    
    2008
    
    2007Expected life (years)
    
    
    
    
    
    
    5.01
    
    
    
    3.51
    
    
    
    4.97Risk-free interest rate
    
    
    
    
    
    
    4.50
    %
    
    
    2.74
    %
    
    
    4.60
    %Volatility
    
    
    
    
    
    
    37.1
    %
    
    
    50.6
    %
    
    
    37.4
    %Dividend yields
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted-average fair value of options
granted during the period
    
    $
    
    
    
    $
    3.05
    
    
    $
    1.00
    
    
    $
    2.99
   8




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##### Table of Contents



NOTE 8  Comprehensive Loss.
  Three months ended April 30,
    
    
    Six months ended April 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income (loss)
    
    $
    927,000
    
    
    $
    (2,533,000
    )
    
    $
    (6,496,000
    )
    
    $
    (4,981,000
    )Effects of foreign
currency
translation
    
    
    (228,000
    )
    
    
    818,000
    
    
    
    (1,374,000
    )
    
    
    1,086,000Total comprehensive
income (loss)
    
    $
    699,000
    
    
    $
    (1,715,000
    )
    
    $
    (7,870,000
    )
    
    $
    (3,895,000
    )
 NOTE 9  Legal Proceedings.
    9




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NOTE 10  Income Taxes.
 Accounting for
Income Taxes
   Accounting for Uncertainty in Income Taxes  An Interpretation of FASB Statement No. 109 Accounting for Income Taxes
    10




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##### Table of Contents



(11)  Related-Party Transactions
  Three months ended April 30,
    
    
    Six months ended April 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Inventory purchased
    
    $
    261,000
    
    
    $
    
    
    
    $
    735,000
    
    
    $
    Management fees paid
    
    
    670,000
    
    
    
    716,000
    
    
    
    835,000
    
    
    
    862,000Expenses and supplies reimbursed
    
    
    73,000
    
    
    
    
    
    
    
    298,000
    
    
    
    Total transactions with FLG
    
    $
    1,004,000
    
    
    $
    716,000
    
    
    $
    1,868,000
    
    
    $
    862,000
    NOTE 12  Segment Information.
  11




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Three months ended April 30,
    
    
    Six months ended April 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net revenues:Domestic
    
    $
    32,992,000
    
    
    $
    37,367,000
    
    
    $
    52,223,000
    
    
    $
    58,946,000Gekko Brands, LLC
    
    
    11,770,000
    
    
    
    9,806,000
    
    
    
    22,678,000
    
    
    
    20,234,000Ashworth, U.K., Ltd.
    
    
    8,858,000
    
    
    
    8,518,000
    
    
    
    11,499,000
    
    
    
    13,330,000Other International
    
    
    4,206,000
    
    
    
    4,173,000
    
    
    
    5,945,000
    
    
    
    5,626,000Total
    
    $
    57,826,000
    
    
    $
    59,864,000
    
    
    $
    92,345,000
    
    
    $
    98,136,000Income (loss) from operations:Domestic
    
    $
    (1,403,000
    )
    
    $
    (852,000
    )
    
    $
    (8,127,000
    )
    
    $
    (5,320,000
    )Gekko Brands, LLC
    
    
    546,000
    
    
    
    645,000
    
    
    
    731,000
    
    
    
    1,298,000Ashworth, U.K., Ltd.
    
    
    1,158,000
    
    
    
    430,000
    
    
    
    587,000
    
    
    
    549,000Other International
    
    
    1,306,000
    
    
    
    1,177,000
    
    
    
    1,552,000
    
    
    
    1,373,000Total
    
    $
    1,607,000
    
    
    $
    1,400,000
    
    
    $
    (5,257,000
    )
    
    $
    (2,100,000
    )Capital expenditures:Domestic
    
    $
    398,000
    
    
    $
    690,000
    
    
    $
    916,000
    
    
    $
    1,956,000Gekko Brands, LLC
    
    
    153,000
    
    
    
    99,000
    
    
    
    249,000
    
    
    
    201,000Ashworth, U.K., Ltd.
    
    
    13,000
    
    
    
    140,000
    
    
    
    22,000
    
    
    
    164,000Total
    
    $
    564,000
    
    
    $
    929,000
    
    
    $
    1,187,000
    
    
    $
    2,321,000Depreciation expense:Domestic
    
    $
    1,321,000
    
    
    $
    1,272,000
    
    
    $
    2,635,000
    
    
    $
    2,539,000Gekko Brands, LLC
    
    
    138,000
    
    
    
    110,000
    
    
    
    272,000
    
    
    
    211,000Ashworth, U.K., Ltd.
    
    
    57,000
    
    
    
    55,000
    
    
    
    115,000
    
    
    
    105,000Total
    
    $
    1,516,000
    
    
    $
    1,437,000
    
    
    $
    3,022,000
    
    
    $
    2,855,000
 April 30,
    
    
    October 31,2008
    
    
    2007Total assets:Domestic
    
    $
    83,178,000
    
    
    $
    80,715,000Gekko Brands, LLC
    
    
    45,243,000
    
    
    
    45,217,000Ashworth, U.K., Ltd.
    
    
    29,147,000
    
    
    
    25,733,000Other International
    
    
    9,863,000
    
    
    
    8,749,000Total
    
    $
    167,431,000
    
    
    $
    160,414,000Long-lived assets, at cost:Domestic
    
    $
    56,509,000
    
    
    $
    65,532,000Gekko Brands, LLC
    
    
    31,617,000
    
    
    
    29,653,000Ashworth, U.K., Ltd.
    
    
    4,925,000
    
    
    
    2,306,000Total
    
    $
    93,051,000
    
    
    $
    97,491,000Goodwill:Gekko Brands, LLC
    
    $
    15,250,000
    
    
    $
    15,250,000
 12




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NOTE 13  Recent Accounting Pronouncements.
 Fair Value Measurements
 Fair Value Option for Financial Assets and
Financial Liabilities  Including an Amendment of FASB Statement No. 115 , Fair Value Measurements
 Business Combinations
  13




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Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 General
   Cautionary Statements and Risk Factors
  Critical Accounting Policies and Estimates
 Cautionary Advice Regarding Disclosure About
Critical Accounting Policies
 Revenue Recognition. Revenue Recognition Accounting of Shipping and
Handling Fees and Costs
 14




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Sales Returns and Other Allowances.
 Allowance for Doubtful Accounts.
 Inventory.
 Deferred Taxes and Uncertain Tax Positions. Accounting for Income Taxes
 15




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Accounting for Uncertainty in Income Taxes
 Stock-Based Compensation. Share-Based Payment
 Off-Balance Sheet Arrangements
  Overview
   16




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Results of Operations
 Second quarter 2008 compared to second quarter 2007
  Three months ended
    
    
    
    
    
    
    
    
    
    
    % of TotalApril 30,
    
    
    Change
    
    
    Revenue2008
    
    
    2007
    
    
    $
    
    
    %
    
    
    2008
    
    
    2007Net revenues:Retail distribution
    
    $
    3,066
    
    
    $
    6,390
    
    
    $
    (3,324
    )
    
    
    (52.0
    )%
    
    
    5.2
    %
    
    
    10.7
    %Domestic green grass
    
    
    22,322
    
    
    
    21,814
    
    
    
    508
    
    
    
    2.3
    %
    
    
    38.7
    %
    
    
    36.4
    %Domestic corporate
    
    
    5,367
    
    
    
    6,555
    
    
    
    (1,188
    )
    
    
    (18.1
    )%
    
    
    9.3
    %
    
    
    10.9
    %Domestic outlet store
    
    
    2,237
    
    
    
    2,608
    
    
    
    (371
    )
    
    
    (14.2
    )%
    
    
    3.9
    %
    
    
    4.4
    %Total domestic
    
    
    32,992
    
    
    
    37,367
    
    
    
    (4,375
    )
    
    
    (11.7
    )%
    
    
    57.1
    %
    
    
    62.4
    %Gekko
    
    
    11,770
    
    
    
    9,806
    
    
    
    1,964
    
    
    
    20.0
    %
    
    
    20.3
    %
    
    
    16.4
    %Ashworth U.K.
    
    
    8,858
    
    
    
    8,518
    
    
    
    340
    
    
    
    4.0
    %
    
    
    15.3
    %
    
    
    14.2
    %Other international
    
    
    4,206
    
    
    
    4,173
    
    
    
    33
    
    
    
    0.8
    %
    
    
    7.3
    %
    
    
    7.0
    %Total net revenues
    
    
    57,826
    
    
    
    59,864
    
    
    
    (2,038
    )
    
    
    (3.4
    )%
    
    
    100.0
    %
    
    
    100.0
    %Cost of goods sold
    
    
    33,438
    
    
    
    36,623
    
    
    
    (3,185
    )
    
    
    (8.7
    )%
    
    
    57.8
    %
    
    
    61.3
    %Selling, general and administrative expenses
    
    
    22,781
    
    
    
    21,841
    
    
    
    940
    
    
    
    4.3
    %
    
    
    39.4
    %
    
    
    36.5
    %Total operating expenses
    
    
    56,219
    
    
    
    58,464
    
    
    
    (2,245
    )
    
    
    (3.8
    )%
    
    
    97.2
    %
    
    
    97.8
    %Income from operations
    
    
    1,607
    
    
    
    1,400
    
    
    
    207
    
    
    
    14.8
    %
    
    
    2.8
    %
    
    
    2.2
    %Interest expense, net
    
    
    (695
    )
    
    
    (750
    )
    
    
    55
    
    
    
    (7.3
    )%
    
    
    (1.3
    )%
    
    
    (1.1
    )%Other income (expense), net
    
    
    446
    
    
    
    (44
    )
    
    
    490
    
    
    
    
    %
    
    
    0.8
    %
    
    
    (0.1
    )%Income before provision for income taxes
    
    
    1,358
    
    
    
    606
    
    
    
    752
    
    
    
    124.1
    %
    
    
    2.3
    %
    
    
    1.0
    %Provision for income taxes
    
    
    431
    
    
    
    3,139
    
    
    
    (2,708
    )
    
    
    (86.3
    )%
    
    
    0.7
    %
    
    
    5.2
    %Net income (loss)
    
    $
    927
    
    
    $
    (2,533
    )
    
    $
    3,460
    
    
    
    (136.6
    )%
    
    
    1.6
    %
    
    
    (4.2
    )%
   17




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th
    18




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Six months ended April 30, 2008 compared to six months ended April 30, 2007
  19




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##### Table of Contents



Six months ended
    
    
    
    
    
    
    
    
    
    
    % of TotalApril 30,
    
    
    Change
    
    
    Revenue2008
    
    
    2007
    
    
    $
    
    
    %
    
    
    2008
    
    
    2007Net revenues:Retail distribution
    
    $
    6,190
    
    
    $
    10,508
    
    
    $
    (4,318
    )
    
    
    (41.1
    )%
    
    
    6.7
    %
    
    
    10.7
    %Domestic green grass
    
    
    31,852
    
    
    
    30,842
    
    
    
    1,010
    
    
    
    3.3
    %
    
    
    34.6
    %
    
    
    31.5
    %Domestic corporate
    
    
    9,428
    
    
    
    12,256
    
    
    
    (2,828
    )
    
    
    (23.1
    )%
    
    
    10.2
    %
    
    
    12.5
    %Domestic outlet store
    
    
    4,753
    
    
    
    5,340
    
    
    
    (587
    )
    
    
    (11.0
    )%
    
    
    5.1
    %
    
    
    5.4
    %Total domestic
    
    
    52,223
    
    
    
    58,946
    
    
    
    (6,723
    )
    
    
    (11.4
    )%
    
    
    56.6
    %
    
    
    60.1
    %Gekko
    
    
    22,678
    
    
    
    20,234
    
    
    
    2,444
    
    
    
    12.1
    %
    
    
    24.5
    %
    
    
    20.6
    %Ashworth U.K.
    
    
    11,499
    
    
    
    13,330
    
    
    
    (1,831
    )
    
    
    (13.7
    )%
    
    
    12.5
    %
    
    
    13.6
    %Other international
    
    
    5,945
    
    
    
    5,626
    
    
    
    319
    
    
    
    5.7
    %
    
    
    6.4
    %
    
    
    5.7
    %Total net revenues
    
    
    92,345
    
    
    
    98,136
    
    
    
    (5,791
    )
    
    
    (5.9
    )%
    
    
    100.0
    %
    
    
    100.0
    %Cost of goods sold
    
    
    55,459
    
    
    
    59,278
    
    
    
    (3,819
    )
    
    
    (6.4
    )%
    
    
    60.1
    %
    
    
    60.5
    %Selling, general and administrative expenses
    
    
    42,143
    
    
    
    40,958
    
    
    
    1,185
    
    
    
    2.9
    %
    
    
    45.6
    %
    
    
    41.7
    %Total operating expenses
    
    
    97,602
    
    
    
    100,236
    
    
    
    (2,634
    )
    
    
    (2.6
    )%
    
    
    105.7
    %
    
    
    102.2
    %Loss from operations
    
    
    (5,257
    )
    
    
    (2,100
    )
    
    
    (3,157
    )
    
    
    150.3
    %
    
    
    (5.7
    )%
    
    
    (2.2
    )%Interest expense, net
    
    
    (1,672
    )
    
    
    (1,314
    )
    
    
    (358
    )
    
    
    27.2
    %
    
    
    (1.8
    )%
    
    
    (1.2
    )%Other income (expense), net
    
    
    1,056
    
    
    
    (60
    )
    
    
    1,116
    
    
    
    
    %
    
    
    1.1
    %
    
    
    (0.1
    )%Loss before provision for income taxes
    
    
    (5,873
    )
    
    
    (3,474
    )
    
    
    (2,399
    )
    
    
    69.1
    %
    
    
    (6.4
    )%
    
    
    (3.5
    )%Provision for income taxes
    
    
    623
    
    
    
    1,507
    
    
    
    (884
    )
    
    
    (58.7
    )%
    
    
    0.6
    %
    
    
    1.6
    %Net loss
    
    $
    (6,496
    )
    
    $
    (4,981
    )
    
    $
    (1,515
    )
    
    
    30.4
    %
    
    
    (7.0
    )%
    
    
    (5.1
    )%
      20




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th
      21




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Capital Resources and Liquidity
      22




---



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23




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24




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Contractual Obligations
  Recent Accounting Pronouncements
 Fair Value Measurements
 Fair Value Option for Financial Assets and
Financial Liabilities  Including an Amendment of FASB Statement No. 115 , Fair Value Measurements
 Business Combinations
  25




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##### Table of Contents



Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk
  Foreign Currency Exchange Rate Risk
  
 Item 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  26




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##### Table of Contents



Changes in Internal Control over Financial Reporting
  
 PART II
 OTHER INFORMATION
 
 Item 1. LEGAL PROCEEDINGS
   27




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##### Table of Contents



Item 1A. Risk Factors
  Callaway Golf Company has claimed a material breach of the Companys exclusive licensing
agreement.
 The Company will need to improve cash flow from operations or through a financing or sale of
assets to avoid a future liquidity shortfall.
 28




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##### Table of Contents



Item 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 
  Number of
    
    Number ofVotes FOR
    
    Votes WITHHELDDavid M. Meyer
    
    
    9,736,841
    
    
    
    1,905,237James G. OConnor
    
    
    9,743,914
    
    
    
    1,898,164John W. Richardson
    
    
    9,736,624
    
    
    
    1,905,454
  Number
    
    
    
    
    
    Number of
    
    Number ofof Votes
    
    Number of
    
    Votes
    
    BrokerFOR
    
    Votes AGAINST
    
    ABSTAIN
    
    NON VOTESAmend 2000 EIP
    
    
    5,763,681
    
    
    
    2,751,614
    
    
    
    72,747
    
    
    
    3,054,036Percent of votes
cast
    
    
    67.11
    %
    
    
    32.04
    %
    
    
    0.85
    %
    
    
    n/a
  Number of
    
    Number of
    
    Number ofVotes FOR
    
    Votes AGAINST
    
    Votes ABSTAINRatification of Moss
Adams, LLP
    
    
    11,604,430
    
    
    
    17,578
    
    
    
    20,070Percent of votes cast
    
    
    99.68
    %
    
    
    0.15
    %
    
    
    0.17
    %
 
 Item 6. EXHIBITS
 3(a)
    
    Certificate of Incorporation as filed March 19, 1987 with the Secretary of State of Delaware,
Amendment to Certificate of Incorporation as filed August 3, 1987 and Amendment to Certificate
of Incorporation as filed April 26, 1991 (filed as Exhibit 3(a) to the Companys Registration
Statement dated February 21, 1992 (File No. 33-45078) and incorporated herein by reference)
and Amendment to Certificate of Incorporation as filed April 6, 1995 (filed as Exhibit 3(a) to
the Companys Form 10-K for the fiscal year ended October 31, 1994 (File No. 001-14547) and
incorporated herein by reference).3(b)
    
    Amended and Restated Bylaws of the Company (filed as Exhibit 3.1 to the Companys Current
Report on Form 8-K on February 23, 2000 (File No. 001-14547) and incorporated herein by
reference).4(a)
    
    Specimen certificate for Common Stock, par value $.001 per share, of the Company (filed as
Exhibit 4(a) to the Companys Registration Statement dated November 4, 1987 (File No.
33-16714-D) and incorporated herein by reference).4(b)
    
    Specimen certificate for Options granted under the Amended and Restated Nonqualified Stock
Option Plan dated March 12, 1992 (filed as Exhibit 4(b) to the Companys Form 10-K for the
fiscal year ended October 31, 1993 (File No. 001-14547) and incorporated herein by reference).
 29




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##### Table of Contents



4(c)
    
    Specimen certificate for Options granted under the Incentive Stock Option Plan dated
June 15, 1993 (filed as Exhibit 4(c) to the Companys Form 10-K for the fiscal year ended
October 31, 1993 (File No. 001-14547) and incorporated herein by reference).4(d)
    
    Rights Agreement dated as of October 6, 1998 and amended on February 22, 2000 by and between
Ashworth, Inc. and American Securities Transfer & Trust, Inc. (filed as Exhibit 4.1 to the
Companys Form 8-K filed on March 14, 2000 (File No. 001-14547) and incorporated herein by
reference).4(e)
    
    Amendment No. 1 effective as of July 3, 2007 to the Rights Agreement dated as of February
22, 2000 by and between Ashworth, Inc. and Computershare Trust Company, N. A., as successor
Rights Agent (filed as Exhibit 4.1 to the Companys Form 8-K filed on July 3. 2007 (File No.
001-14547) and incorporated herein by reference).10(a)
    
    Amendment to License Agreement, effective March 29, 2007, by and between Ashworth, Inc. and
Callaway Golf Company (filed as Exhibit 99.1 to the Companys Form 8-K on December 7, 2007
(File No. 001-14547) and incorporated herein by reference).
 10(a)(2)
    
    Amendment to License Agreement, effective December 3, 2007, by and between Ashworth, Inc.
and Callaway Golf Company (filed as Exhibit 99.2 to the Companys Form 8-K on December 7, 2007
(File No. 001-14547) and incorporated herein by reference).10(b)
    
    Amendment to the Companys Code of Business Conduct and Ethics effective December 12,
2007 (filed as Exhibit 14.1 to the Companys Form 8-K on December 14, 2007 (File No.
001-14547) and incorporated herein by reference).10(c)
    
    Consulting agreement between Fletcher Leisure Group Ltd. and the Company, effective January
11, 2008 (filed as Exhibit 10(ap) to the Companys Form 10-K on January 14, 2008 (File No.
001-14547) and incorporated herein by reference).10(d)
    
    Loan agreement, effective January 11, 2008 by and between the Company and Bank of America,
N. A. (filed as Exhibit 10(aq) to the Companys Form 10-K on January 14, 2008 (File No.
001-14547) and incorporated herein by reference).10(e)
    
    Loan agreement, effective February 29, 2008 by and between Ashworth U.K. and Bank of
America, N.A. (filed as Exhibit 10(e) to the Companys Form 10-Q on March 11, 2008 (File No.
001-14547) and incorporated herein by reference).31.1
    
    Certification Pursuant to Rules 13a-14 and 15d-14, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 by Allan H. Fletcher.31.2
    
    Certification Pursuant to Rules 13a-14 and 15d-14, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 by Greg W. Slack.32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 by Allan H. Fletcher.32.2
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 by Greg W. Slack.
 30




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##### Table of Contents



SIGNATURES
  ASHWORTH, INCDate: June 9, 2008
    
    By: /s/ Allan H. Fletcher

Allan H. FletcherChief Executive OfficerDate: June 9, 2008
    
    By: /s/ Greg W. Slack

Greg W. SlackChief Financial Officer andPrincipal Accounting Officer
 31




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description of Exhibit31.1
    
    Certification Pursuant to Rules 13a-14 and 15d-14, as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 by 
Allan H. Fletcher.31.2
    
    Certification Pursuant to Rules 13a-14 and 15d-14, as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 by 
Greg W. Slack.32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 by 
Allan H. Fletcher.32.2
    
    Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 by 
Greg W. Slack.
 32