##### 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, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 001-14547
 Ashworth, Inc.
  Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
    
    84-1052000
(I.R.S. Employer
Identification No.)
 2765 LOKER AVENUE WEST
CARLSBAD, CA 92008
 (760) 438-6610
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
 o þ
  Title
    
    Outstanding at May 31, 2006$.001 par value Common Stock
    
    14,498,243




---



##### 



PAGEPart I. Financial InformationItem 1.
    
    Financial StatementsCondensed Consolidated Balance Sheets
    
    
    1Condensed
Consolidated Statements of Income
    
    
    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
    
    
    25Item 4.
    
    Controls and Procedures
    
    
    26Part II.
    
    Other InformationItem 1.
    
    Legal Proceedings
    
    
    28Item1A.
    
    Risk Factors
    
    
    28Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    29Item 3.
    
    Defaults Upon Senior Securities
    
    
    29Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    29Item 5.
    
    Other Information
    
    
    29Item 6.
    
    Exhibits
    
    
    29Signatures
    
    
    
    
    35Exhibit Index
    
    
    
    
    36EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2




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##### Table of Contents



PART I
 FINANCIAL INFORMATION
  
  April 30, 2006
    
    
    October 31, 2005(UNAUDITED)AssetsCurrent assets:Cash and cash equivalents
    
    $
    5,950,000
    
    
    $
    3,839,000Accounts receivable  trade, net
    
    
    50,740,000
    
    
    
    37,306,000Accounts receivable  other, net
    
    
    615,000
    
    
    
    1,053,000Inventories, net
    
    
    53,099,000
    
    
    
    46,126,000Income tax refund receivable
    
    
    1,780,000
    
    
    
    4,036,000Other current assets
    
    
    5,208,000
    
    
    
    6,157,000Deferred income tax asset
    
    
    3,443,000
    
    
    
    3,441,000Total current assets
    
    
    120,835,000
    
    
    
    101,958,000Property, plant and equipment, at cost
    
    
    62,999,000
    
    
    
    60,203,000Less accumulated depreciation and
amortization
    
    
    (24,032,000
    )
    
    
    (22,121,000
    )Total property, plant and equipment, net
    
    
    38,967,000
    
    
    
    38,082,000Goodwill
    
    
    13,865,000
    
    
    
    13,865,000Intangible assets, net
    
    
    10,422,000
    
    
    
    10,571,000Other assets
    
    
    320,000
    
    
    
    238,000Total assets
    
    $
    184,409,000
    
    
    $
    164,714,000Liabilities and Stockholders EquityCurrent liabilities:Line of credit payable
    
    $
    29,050,000
    
    
    $
    19,500,000Current portion of long-term debt
    
    
    2,098,000
    
    
    
    2,366,000Accounts payable
    
    
    15,137,000
    
    
    
    11,149,000Accrued liabilities:Salaries and commissions
    
    
    3,114,000
    
    
    
    3,529,000Other
    
    
    5,479,000
    
    
    
    6,142,000Total current liabilities
    
    
    54,878,000
    
    
    
    42,686,000Long-term debt, net of current portion
    
    
    16,879,000
    
    
    
    17,320,000Deferred income tax liability
    
    
    1,972,000
    
    
    
    1,972,000Other long-term liabilities
    
    
    157,000
    
    
    
    174,000Stockholders equity:Common stock
    
    
    14,000
    
    
    
    14,000Capital in excess of par value
    
    
    47,598,000
    
    
    
    44,755,000Retained earnings
    
    
    60,007,000
    
    
    
    55,382,000Accumulated other comprehensive income
    
    
    2,904,000
    
    
    
    2,411,000Total stockholders equity
    
    
    110,523,000
    
    
    
    102,562,000Total liabilities and stockholders equity
    
    $
    184,409,000
    
    
    $
    164,714,000
  1




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##### Table of Contents



Three months ended April 30,
    
    
    Six months ended April 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net revenues
    
    $
    66,020,000
    
    
    $
    64,668,000
    
    
    $
    106,632,000
    
    
    $
    101,180,000Cost of goods sold
    
    
    36,137,000
    
    
    
    36,585,000
    
    
    
    58,773,000
    
    
    
    58,463,000Gross profit
    
    
    29,883,000
    
    
    
    28,083,000
    
    
    
    47,859,000
    
    
    
    42,717,000Selling, general and
administrative expenses
    
    
    21,510,000
    
    
    
    19,303,000
    
    
    
    39,208,000
    
    
    
    33,393,000Income from operations
    
    
    8,373,000
    
    
    
    8,780,000
    
    
    
    8,651,000
    
    
    
    9,324,000Other income (expense):Interest income
    
    
    9,000
    
    
    
    14,000
    
    
    
    19,000
    
    
    
    34,000Interest expense
    
    
    (722,000
    )
    
    
    (576,000
    )
    
    
    (1,401,000
    )
    
    
    (1,109,000
    )Net foreign currency
exchange gain (loss)
    
    
    166,000
    
    
    
    (69,000
    )
    
    
    337,000
    
    
    
    (26,000
    )Other expense, net
    
    
    (35,000
    )
    
    
    (131,000
    )
    
    
    102,000
    
    
    
    (67,000
    )Total other expense
    
    
    (582,000
    )
    
    
    (762,000
    )
    
    
    (943,000
    )
    
    
    (1,168,000
    )Income before provision
for income taxes
    
    
    7,791,000
    
    
    
    8,018,000
    
    
    
    7,708,000
    
    
    
    8,156,000Provision for income taxes
    
    
    3,116,000
    
    
    
    3,207,000
    
    
    
    3,083,000
    
    
    
    3,262,000Net income
    
    $
    4,675,000
    
    
    $
    4,811,000
    
    
    $
    4,625,000
    
    
    $
    4,894,000Net income per share:Basic
    
    $
    0.32
    
    
    $
    0.35
    
    
    $
    0.32
    
    
    $
    0.36Diluted
    
    $
    0.32
    
    
    $
    0.34
    
    
    $
    0.32
    
    
    $
    0.35Weighted-average shares
outstanding:Basic
    
    
    14,404,000
    
    
    
    13,813,000
    
    
    
    14,290,000
    
    
    
    13,769,000Diluted
    
    
    14,560,000
    
    
    
    14,271,000
    
    
    
    14,458,000
    
    
    
    14,184,000
  2




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Six months ended April 30,2006
    
    
    2005CASH FLOW FROM OPERATING ACTIVITIES:Net cash used in operating activities
    
    
    (6,158,000
    )
    
    
    (10,348,000
    )CASH FLOWS FROM INVESTING ACTIVITIESCapital expenditures
    
    
    (3,555,000
    )
    
    
    (5,091,000
    )Proceeds from sale of equipment
    
    
    
    
    
    
    5,000Purchase of intangibles
    
    
    (69,000
    )
    
    
    (71,000
    )Net cash used in investing activities
    
    
    (3,624,000
    )
    
    
    (5,157,000
    )CASH FLOWS FROM FINANCING ACTIVITIESIncrease in restricted cash
    
    
    
    
    
    
    (9,000
    )Principal payments on capital lease obligations
    
    
    (33,000
    )
    
    
    (101,000
    )Borrowings on line of credit
    
    
    23,300,000
    
    
    
    25,750,000Payments on line of credit
    
    
    (13,750,000
    )
    
    
    (12,250,000
    )Principal payments on notes payable and long-term debt
    
    
    (675,000
    )
    
    
    (2,048,000
    )Proceeds from issuance of common stock
    
    
    2,156,000
    
    
    
    1,134,000Excess tax benefit from share-based payment
arrangements
    
    
    432,000
    
    
    
    Net cash provided by financing activities
    
    
    11,430,000
    
    
    
    12,476,000Effect of exchange rate changes on cash
    
    
    463,000
    
    
    
    520,000Net increase (decrease) in cash and cash equivalents
    
    
    2,111,000
    
    
    
    (2,509,000
    )Cash, beginning of period
    
    
    3,839,000
    
    
    
    5,541,000Cash, end of period
    
    $
    5,950,000
    
    
    $
    3,032,000
  3




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##### Table of Contents



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
  Reclassifications
  4




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##### Table of Contents



Stock-Based Compensation
 Share-Based Payment , Accounting for
Stock Issued to Employees, Accounting for
Stock-Based Compensation
  Accounting for Stock-Based Compensation-Transition and
Disclosure,
 5




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Three Months
    
    
    Six MonthsEnded
    
    
    EndedApril 30, 2005
    
    
    April 30, 2005Net income  as reported
    
    $
    4,811,000
    
    
    $
    4,894,000Deduct: Stock-based employee and non-employee director compensation expense
determined under the fair-value-based method for all awards, net of tax
    
    
    (252,000
    )
    
    
    (530,000
    )Net income  pro forma
    
    $
    4,559,000
    
    
    $
    4,364,000Net income per common share  as reportedBasic
    
    $
    0.35
    
    
    $
    0.36Diluted
    
    $
    0.34
    
    
    $
    0.35Net income per common share  pro formaBasic
    
    $
    0.33
    
    
    $
    0.32Diluted
    
    $
    0.32
    
    
    $
    0.31
  Earnings Per Share
  6




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##### Table of Contents



Earnings Per Share
 Three months ended April 30,
    
    
    Six months ended April 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Numerator:Net income
    
    $
    4,675,000
    
    
    $
    4,811,000
    
    
    $
    4,625,000
    
    
    $
    4,894,000Denominator:Weighted-average shares outstanding
    
    
    14,404,000
    
    
    
    13,813,000
    
    
    
    14,290,000
    
    
    
    13,769,000Effect of dilutive options
    
    
    156,000
    
    
    
    458,000
    
    
    
    168,000
    
    
    
    415,000Denominator for dilutive earnings per share
    
    
    14,560,000
    
    
    
    14,271,000
    
    
    
    14,458,000
    
    
    
    14,184,000Basic earning per share
    
    $
    0.32
    
    
    $
    0.35
    
    
    $
    0.32
    
    
    $
    0.36Diluted earnings per share
    
    $
    0.32
    
    
    $
    0.34
    
    
    $
    0.32
    
    
    $
    0.35
  NOTE 2  Inventories.
  April 30,
    
    
    October 31,2006
    
    
    2005Raw materials
    
    $
    124,000
    
    
    $
    146,000Finished goods
    
    
    52,975,000
    
    
    
    45,980,000Total inventories, net
    
    $
    53,099,000
    
    
    $
    46,126,000
 7




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NOTE 3  Goodwill and Other Intangible Assets.
 Goodwill and Other Intangible Assets.
 April 30, 2006
    
    
    October 31, 2005Gross Carrying
    
    
    Accumulated
    
    
    
    
    
    
    Gross Carrying
    
    
    Accumulated
    
    
    Net BookAmount
    
    
    Amortization
    
    
    Net Book Value
    
    
    Amount
    
    
    Amortization
    
    
    ValueIndefinite life:Tradenames
    
    $
    8,700,000
    
    
    $
    
    
    
    $
    8,700,000
    
    
    $
    8,700,000
    
    
    $
    
    
    
    $
    8,700,000Finite life:Customer lists
    
    
    1,530,000
    
    
    
    (424,000
    )
    
    
    1,106,000
    
    
    
    1,530,000
    
    
    
    (307,000
    )
    
    
    1,223,000Non-competes
    
    
    1,372,000
    
    
    
    (928,000
    )
    
    
    444,000
    
    
    
    1,372,000
    
    
    
    (846,000
    )
    
    
    526,000Customer sales backlog
    
    
    190,000
    
    
    
    (190,000
    )
    
    
    
    
    
    
    190,000
    
    
    
    (190,000
    )
    
    
    Trademarks
    
    
    1,455,000
    
    
    
    (1,283,000
    )
    
    
    172,000
    
    
    
    1,386,000
    
    
    
    (1,264,000
    )
    
    
    122,000Total intangible assets
    
    $
    13,247,000
    
    
    $
    (2,825,000
    )
    
    $
    10,422,000
    
    
    $
    13,178,000
    
    
    $
    (2,607,000
    )
    
    $
    10,571,000
   Remainder 2006
    
    $
    222,0002007
    
    
    435,0002008
    
    
    417,0002009
    
    
    275,0002010
    
    
    230,0002011
    
    
    143,000Thereafter
    
    
    Total
    
    $
    1,722,000
 NOTE 4  Business Loan Agreement.
  8




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##### Table of Contents



9




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##### Table of Contents



1)
    
    Minimum tangible net worth equal to the sum of $75 million; plus the sum of
90% of net income after income taxes (without subtracting losses) earned in each
quarterly accounting period commencing after January 31, 2006; plus, the net
proceeds from any equity securities issued after the date of the Fourth Amendment
(including net proceeds from stock option exercises);2)
    
    A ratio of quick assets to current liabilities (including the outstanding
amount of loans and letter of credit obligations) of at least 0.90:1:00, except for
the fiscal quarters ending January 31 and April 30, as to which the ratio of quick
assets to current liabilities shall be at least 0.75:1:00;3)
    
    Capital expenditures are not to exceed more than $7 million in any fiscal
year;4)
    
    Fixed charge coverage ratio as of the last day of any fiscal quarter is
required to be not less than 1.25 to 1:00; provided that, for the fiscal quarter
ended January 31, 2006, the fixed charge coverage ratio shall be not less than 0.80
to 1:00; and for purposes of determining the fixed charge coverage ratio only, the
Companys inventory write-down of $4,400,000 shall be added back to EBITDA for the
Companys fiscal quarter ending April 30, 2006 and the Companys maintenance capital
expenditures shall be $4,000,000 through the fiscal year ending October 31, 2006;
and5)
    
    The requirement where, for any period of 30 consecutive days, the total
indebtedness under the revolving credit facility may not be more than $15 million
was eliminated.
   10




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##### Table of Contents



NOTE 5  Issuance of Common Stock.
  NOTE 6  Stock-Based Compensation.
   Three months ended April 30,
    
    Six months ended April 30,2006
    
    2005
    
    2006
    
    2005Expected life
    
    
    3.71
    
    
    
    3.87
    
    
    
    3.76
    
    
    
    3.55 - 3.87Risk-free interest rate
    
    
    4.68
    %
    
    
    3.75
    %
    
    
    4.56
    %
    
    
    2.89 % - 3.75
    %Volatility
    
    
    38.1
    %
    
    
    42.7
    %
    
    
    38.5
    %
    
    
    42.7 % - 43.36
    %Dividend yields
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted-average fair value of options
during the period
    
    $
    3.00
    
    
    $
    4.26
    
    
    $
    2.94
    
    
    $
    3.87
  11




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NOTE 7  Comprehensive Income.
  Three months ended April 30,
    
    
    Six months ended April 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net income
    
    $
    4,675,000
    
    
    $
    4,811,000
    
    
    $
    4,625,000
    
    
    $
    4,894,000Effects of foreign currency translation
    
    
    630,000
    
    
    
    154,000
    
    
    
    493,000
    
    
    
    520,000Total comprehensive income
    
    $
    5,305,000
    
    
    $
    4,965,000
    
    
    $
    5,118,000
    
    
    $
    5,414,000
 NOTE 8  Legal Proceedings.
  NOTE 9  Segment Information.
  12




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##### Table of Contents



Three months ended April 30,
    
    
    Six months ended April 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net revenues:Domestic
    
    $
    44,677,000
    
    
    $
    43,939,000
    
    
    $
    69,362,000
    
    
    $
    66,923,000Gekko Brands, LLC
    
    
    8,145,000
    
    
    
    7,929,000
    
    
    
    18,241,000
    
    
    
    16,557,000Ashworth, U.K., Ltd.
    
    
    8,712,000
    
    
    
    8,431,000
    
    
    
    13,190,000
    
    
    
    11,846,000Other International
    
    
    4,486,000
    
    
    
    4,369,000
    
    
    
    5,839,000
    
    
    
    5,854,000Total
    
    $
    66,020,000
    
    
    $
    64,668,000
    
    
    $
    106,632,000
    
    
    $
    101,180,000Income from operations:Domestic
    
    $
    4,338,000
    
    
    $
    5,660,000
    
    
    $
    2,880,000
    
    
    $
    4,246,000Gekko Brands, LLC
    
    
    1,092,000
    
    
    
    682,000
    
    
    
    2,163,000
    
    
    
    1,898,000Ashworth, U.K., Ltd.
    
    
    1,643,000
    
    
    
    1,144,000
    
    
    
    2,097,000
    
    
    
    1,504,000Other International
    
    
    1,300,000
    
    
    
    1,294,000
    
    
    
    1,511,000
    
    
    
    1,676,000Total
    
    $
    8,373,000
    
    
    $
    8,780,000
    
    
    $
    8,651,000
    
    
    $
    9,324,000Capital expenditures:Domestic
    
    $
    2,718,000
    
    
    $
    2,258,000
    
    
    $
    3,284,000
    
    
    $
    4,031,000Gekko Brands, LLC
    
    
    181,000
    
    
    
    222,000
    
    
    
    232,000
    
    
    
    836,000Ashworth, U.K., Ltd.
    
    
    25,000
    
    
    
    52,000
    
    
    
    39,000
    
    
    
    190,000Total
    
    $
    2,924,000
    
    
    $
    2,532,000
    
    
    $
    3,555,000
    
    
    $
    5,057,000Depreciation expense:Domestic
    
    $
    1,161,000
    
    
    $
    936,000
    
    
    $
    2,310,000
    
    
    $
    1,916,000Gekko Brands, LLC
    
    
    107,000
    
    
    
    98,000
    
    
    
    208,000
    
    
    
    187,000Ashworth, U.K., Ltd.
    
    
    77,000
    
    
    
    80,000
    
    
    
    153,000
    
    
    
    59,000Total
    
    $
    1,345,000
    
    
    $
    1,114,000
    
    
    $
    2,671,000
    
    
    $
    2,162,000
 April 30,
    
    
    October 31,2006
    
    
    2005(Audited)Total assets:Domestic
    $
    118,383,000
    
    
    $
    102,745,000Gekko Brands, LLC
    
    38,664,000
    
    
    
    38,217,000Ashworth, U.K., Ltd.
    
    20,829,000
    
    
    
    18,999,000Other International
    
    6,533,000
    
    
    
    4,753,000Total
    $
    184,409,000
    
    
    $
    164,714,000Long-lived assets, at cost:Domestic
    $
    60,790,000
    
    
    $
    58,206,000Gekko Brands, LLC
    
    27,533,000
    
    
    
    27,301,000Ashworth, U.K., Ltd.
    
    2,108,000
    
    
    
    1,977,000Total
    $
    90,431,000
    
    
    $
    87,484,000Goodwill:Gekko Brands, LLC
    $
    13,865,000
    
    
    $
    13,865,000
 13




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##### Table of Contents



NOTE 10  Contingencies.
  
 Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 General
   Cautionary Statements and Risk Factors
 14
    Table of Contents  Critical Accounting Policies
  Revenue Recognition. Revenue Recognition Accounting of Shipping and Handling Fees and Costs
 Sales Returns and Other Allowances.
 Allowance for Doubtful Accounts.
 Inventory.
 15
    Table of Contents  Asset Purchase Credits.
 Cost of Goods Sold
 Off-Balance Sheet Arrangements
  Overview
 ® â â
 16
    Table of Contents  Innovation
 TM
 TM
  17
    Table of Contents  Preparing For Additional Growth.
 Results of Operations
 Second quarter 2006 compared to second quarter 2005
    18
    Table of Contents  Six months ended April 30, 2006 compared to six months ended April 30, 2005
   19
    Table of Contents  Capital Resources and Liquidity
  20
    Table of Contents  21
    Table of Contents  1)
    
    Minimum tangible net worth equal to the sum of $75 million; plus the sum of
90% of net income after income taxes (without subtracting losses) earned in each
quarterly accounting period commencing after January 31, 2006; plus, the net
proceeds from any equity securities issued after the date of the Fourth Amendment
including net proceeds from stock option exercises;2)
    
    A ratio of quick assets to current liabilities (including the outstanding
amount of loans and letter of credit obligations) of at least 0.90:1:00, except for
the fiscal quarters ending January 31 and April 30, as to which the ratio of quick
assets to current liabilities shall be at least 0.75:1:00;3)
    
    Capital expenditures are not to exceed more than $7 million in any fiscal
year;4)
    
    Fixed charge coverage ratio as of the last day of any fiscal quarter is
required to be not less than 1.25 to 1:00; provided that, for the fiscal quarter
ended January 31, 2006, the fixed charge coverage ratio shall be not less than 0.80
to 1:00; and for purposes of determining the fixed charge coverage ratio only, the
Companys inventory write-down of $4,400,000 shall be added back to EBITDA for the
Companys fiscal quarter ending April 30, 2006 and the Companys maintenance capital
expenditures shall be $4,000,000 through the fiscal year ending October 31, 2006;
and5)
    
    The requirement where, for any period of 30 consecutive days, the total
indebtedness under the revolving credit facility may not be more than $15 million was
eliminated.
  22
    Table of Contents  23
    Table of Contents  Derivatives
  24
    Table of Contents  Recent Accounting Pronouncements
 Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision
within the American Jobs Creation Act of 2004 (AJCA) Accounting
for Income Taxes.
  
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk
   Foreign Currency Exchange Rate Risk
  25
    Table of Contents  Item 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
   Evaluation of Internal Control Over Financial Reporting
  26
    Table of Contents  (1)
    
    pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of our
assets;(2)
    
    provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that our receipts
and expenditures are being made only in accordance with the
authorization of our management and directors; and(3)
    
    provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of our assets that
could have a material effect on the financial statements.
 Internal ControlIntegrated
Framework
 1.
    
    Inadequate number of qualified financial and accounting staff2.
    
    Inadequate controls over the preparation, analysis, documentation,
and review of the Income Tax Provision Calculation3.
    
    Accounting system information technology super-user access
  Remediation of Inadequate Number of Qualified Financial and Accounting Staff
  Remediation of Inadequate Controls over the Preparation, Analysis, Documentation, and Review of the
Income Tax Provision Calculation
  27
    Table of Contents  Remediation of Accounting System Information Technology Super-User Access
    Changes in Internal Control over Financial Reporting
  
 PART II
 OTHER INFORMATION
 
 Item 1. LEGAL PROCEEDINGS
  
 Item 1A. Risk Factors
  28
    Table of Contents  Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS  None
 
 Item 3. DEFAULTS UPON SENIOR SECURITIES  Not applicable.
 
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 
Not applicable.
 
 Item 5. OTHER INFORMATION -None
 
 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
    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).10(a)*
    
    Personal Services Agreement and Acknowledgement of Termination of Executive Employment
effective December 31, 1998 by and between Ashworth, Inc. and Gerald W. Montiel (filed as
Exhibit 10(b) to the Companys Form 10-K for the fiscal year ended October 31, 1998 (File No.
001-14547) and incorporated herein by reference).10(b)*
    
    Amendment to Personal Services Agreement effective January 1, 1999 by and between Ashworth,
Inc. and Gerald W. Montiel (filed as Exhibit 10(c) to the Companys Form 10-K for the fiscal
year ended October 31, 1998 (File No. 001-14547) and incorporated herein by reference).10(c)*
    
    Amended and Restated Nonqualified Stock Option Plan dated November 1, 1996 (filed as
Exhibit 10(i) to the Companys Form 10-K for the fiscal year ended October 31, 2000 (File
No. 001-14547) and incorporated herein by reference).10(d)*
    
    Amended and Restated Incentive Stock Option Plan dated November 1, 1996 (filed as Exhibit
10(j) to the Companys Form 10-K for the fiscal year ended October 31, 2000 (File No.
001-14547) and incorporated herein by reference).10(e)*
    
    Amended and Restated 2000 Equity Incentive Plan dated December 14, 1999 adopted by the
stockholders on March 24, 2000 (filed as Exhibit 4.1 to the Companys Form S-8 filed on
December 12, 2000 (File No. 333-51730) and incorporated herein by reference).10(e)(1)
    
    Credit Agreement dated July 6, 2004, between Ashworth, Inc. as Borrower, Union Bank of
California, N.A., as Administrative Agent and Lender, Bank of the West and Columbus Bank and
Trust as Lenders, expiring July 6, 2009 (filed as Exhibit 10(z)(1) to the Companys Form 10-Q
for the quarter ended July 31, 2004 (File No. 001-14547) and incorporated herein by
reference).10(e)(2)
    
    Guaranty Agreement dated July 6, 2004 between Ashworth Store I, Inc., Ashworth Store II,
Inc., Ashworth Acquisition Corp, Gekko Brands, LLC, Kudzu, LLC and The Game, LLC as Guarantors
and Union Bank of California, N.A., as Administrative Agent on behalf of Ashworth, Inc. as the
Borrower (filed as Exhibit 10(z)(2) to the Companys Form 10-Q for the quarter ended July 31,
2004 (File No. 001-14547) and incorporated herein by reference).10(e)(3)
    
    Security Agreement effective as of July 6, 2004 to the Credit Agreement dated July 6,
2004, between Ashworth, Inc. as Pledgor, Union Bank of California, N.A., as Administrative
Agent and Lender, Bank of the West and Columbus Bank and Trust as Lenders, expiring July 6,
2009 (filed as Exhibit 10(z)(3) to the Companys Form 10-Q for the quarter ended July 31, 2004
(File No. 001-14547) and incorporated herein by reference).10(e)(4)
    
    Security Agreement effective as of July 6, 2004 to the Credit Agreement dated July 6,
2004, between Ashworth Store I, Inc., Ashworth Store II, Inc., Ashworth Acquisition Corp,
Gekko Brands, LLC, Kudzu, LLC and The Game, LLC as Pledgor, Union Bank of California, N.A., as
Administrative Agent and Lender, Bank of the West and Columbus Bank and Trust as Lenders,
expiring July 6, 2009 (filed as Exhibit 10(z)(4) to the Companys Form 10-Q for the quarter
ended July 31, 2004 (File No. 001-14547) and incorporated herein by reference).
 30
    Table of Contents  10(e)(5)
    
    Deed of Hypothec of Universality of Moveable Property effective as of July 6, 2004 to the
Credit Agreement dated July 6, 2004, between Ashworth, Inc. as Grantor, Union Bank of
California, N.A., as Administrative Agent and Lender, Bank of the West and Columbus Bank and
Trust as Lenders, expiring July 6, 2009 (filed as Exhibit 10(z)(5) to the Companys Form 10-Q
for the quarter ended July 31, 2004 (File No. 001-14547) and incorporated herein by
reference).10(e)(6)
    
    Equitable Mortgage Over Securities effective as of July 6, 2004 to the Credit Agreement
dated July 6, 2004, between Ashworth, Inc. as Mortgagor, Union Bank of California, N.A., as
Security Trustee and Beneficiary, Bank of the West and Columbus Bank and Trust as
Beneficiaries, expiring July 6, 2009 (filed as Exhibit 10(z)(6) to the Companys Form 10-Q for
the quarter ended July 31, 2004 (File No. 001-14547) and incorporated herein by reference).10(e)(7)
    
    First Amendment effective as of September 3, 2004 to the Credit Agreement dated
July 6, 2004, between Ashworth, Inc. as Borrower, Union Bank of California, N.A., as
Administrative Agent and Lender, Bank of the West and Columbus Bank and Trust as Lenders,
expiring July 6, 2009 (filed as Exhibit 10(z)(7) to the Companys Form 10-Q for the quarter
ended July 31, 2004 (File No. 001-14547) and incorporated herein by reference).10(f)
    
    Promotion Agreement effective November 1, 1999 by and between Ashworth, Inc. and Fred
Couples (filed as Exhibit 10(o) to the Companys Form 10-K for the fiscal year ended October
31, 2000 (File No. 001-14547) and incorporated herein by reference).10(g)*
    
    Contract Termination Agreement effective October 31, 2002 by and among Ashworth, Inc., James
Nantz, III and Nantz Communications, Inc. (filed as Exhibit 10(p) to the Companys Form 10-K
for the fiscal year ended October 31, 2002 (File No. 001-14547) and incorporated herein by
reference).10(h)*
    
    Promotion Agreement effective October 31, 2002 by and among Ashworth, Inc., James W. Nantz,
III and Nantz Enterprises, Ltd. (filed as Exhibit 10(q) to the Companys Form 10-Q for the
quarter ended January 31, 2003 (File No. 001-14547) and incorporated herein by reference).10(i)
    
    Purchase and Installation Agreement dated April 10, 2003 between Ashworth, Inc. and Gartner
Storage & Sorter Systems of Pennsylvania (filed as Exhibit 10 (r) to the Companys Form 10-Q
for the quarter ended April 30, 2003 (File No. 001-14547) and incorporated herein by
reference).10(j)
    
    Agreement for Lease dated May 1, 2003 by and among Ashworth, Inc., Ashworth U.K. Limited and
Juniper Developments Limited (filed as Exhibit 10(s) to the Companys Form 10-Q for the
quarter ended April 30, 2003 (File No. 001-14547) and incorporated herein by reference).10(k)
    
    Lease dated September 1, 2003 by and among Ashworth, Inc., Ashworth U.K. Limited and Juniper
Developments Limited (filed as Exhibit 10(t) to the Companys Form 10-Q for the quarter ended
July 31, 2003 (File No. 001-14547) and incorporated herein by reference).10(l)(1)
    
    Master Equipment Lease Agreement dated as of June 23, 2003 by and between Key Equipment
Finance and Ashworth, Inc. including Amendment 01, the Assignment of Purchase Agreement and
the Certificate of Authority (filed as Exhibit 10(u) to the Companys Form 10-Q for the
quarter ended July 31, 2003 (File No. 001-14547) and incorporated herein by reference).10(l)(2)
    
    Equipment Schedule No. 01 dated as of August 30, 2004 by and between Ashworth, Inc. and
Key Equipment Finance, a Division of Key Corporate Capital, Inc.(filed as Exhibit 99.1 to the
Companys Form 8-K on September 3, 2004 (File No. 001-14547) and incorporated herein by
reference).
 31
    Table of Contents  10(m)
    
    License Agreement, effective May 14, 2001, by and between Ashworth, Inc. and Callaway Golf
Company (filed as Exhibit 10(v) to the Companys Form 10-K for the fiscal year ended October
31, 2003 (File No. 001-14547) and incorporated herein by reference).10(n)
    
    Amendment to License Agreement, effective December 16, 2003, by and between Ashworth, Inc.
and Callaway Golf Company (filed as Exhibit 10(w) to the Companys Form 10-K for the fiscal
year ended October 31, 2003 (File No. 001-14547) and incorporated herein by reference).10(o)(1)
    
    Loan Agreement, effective April 2, 2004, by and between Ashworth EDC, LLC and Bank of
America, N.A. (filed as Exhibit 10(x)(3) to the Companys Form 10-Q for the quarter ended
April 30, 2004 (File No. 001-14547) and incorporated herein by reference).10(o)(2)
    
    Promissory Note, effective April 2, 2004, by and between Ashworth EDC, LLC and Bank of
America, N.A. (filed as Exhibit 10(x)(4) to the Companys Form 10-Q for the quarter ended
April 30, 2004 (File No. 001-14547) and incorporated herein by reference).10(o)(3)
    
    Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing,
effective April 2, 2004, by and between Ashworth EDC, LLC, PRLAP, Inc. and Bank of America,
N.A. (filed as Exhibit 10(x)(5) to the Companys Form 10-Q for the quarter ended April 30,
2004
(File No. 001-14547) and incorporated herein by reference).10(o)(4)
    
    Environmental Indemnity Agreement, effective April 2, 2004, by and between Ashworth EDC,
LLC, Ashworth, Inc. and Bank of America, N.A. (filed as Exhibit 10(x)(6) to the Companys Form
10-Q for the quarter ended April 30, 2004 (File No. 001-14547) and incorporated herein by
reference).10(p)(1)
    
    Membership Interests Purchase Agreement, dated July 6, 2004, by and among Ashworth
Acquisition Corp. and the selling members, identified therein (filed as Exhibit 99.1 to the
Companys Form 8-K on July 21, 2004 (File No. 001-14547) and incorporated herein by
reference).10(p)(2)
    
    Ashworth Acquisition Corp. Promissory Note in favor of W. C. Bradley Co. (filed as Exhibit
99.2 to the Companys Form 8-K on July 21, 2004 (File No. 001-14547) and incorporated herein
by reference).10(p)(3)
    
    Ashworth, Inc. Guaranty of Ashworth Acquisition Corp. Promissory Note in favor of W. C.
Bradley Co. (filed as Exhibit 99.3 to the Companys Form 8-K on July 21, 2004 (File No.
001-14547) and incorporated herein by reference).10(p)(4)
    
    Amended and Restated Lease Agreement, dated July 6, 2004, by and between 16 Downing, LLC
as Lessor and Gekko Brands, LLC as Lessee (filed as Exhibit 99.4 to the Companys Form 8-K
July 21, 2004 (File No. 001-14547) and incorporated herein by reference).10(p)(5)
    
    Ashworth, Inc. Guaranty of Payments under the Amended and Restated Lease Agreement, dated
July 6, 2004, by and between 16 Downing, LLC as Lessor and Gekko Brands, LLC as Lessee (filed
as Exhibit 99.5 to the Companys Form 8-K on July 21, 2004 (File No. 001-14547) and
incorporated herein by reference).10(p)(6)
    
    Form of Executive Employment Agreement by and between Gekko Brands, LLC and certain
selling members (filed as Exhibit 99.6 to the Companys Form 8-K on July 21, 2004 (File No.
001-14547) and incorporated herein by reference).
 32
    Table of Contents  10(q)*
    
    Form of Stock Option Agreement for issuance of stock option grants to each of the Companys
executive officers and non-employee directors on December 21, 2004 (filed as Exhibit 10.1 to
the Companys Form 8-K on December 22, 2004 (File No. 001-14547) and incorporated herein by
reference.10(r)
    
    Stipulation and Agreement of Settlement regarding shareholder class-action lawsuit in which
the U.S. District Court entered a Final Approval of Settlement on November 8, 2004 (filed as
Exhibit 10.1 to the Companys Form 10Q on March 11, 2005 (File No. 001-14547) and incorporated
herein by reference).10(s)*
    
    Annual Base Salary for the Companys Chief Executive Officer Effective as of January 1, 2005
(filed as Exhibit 10.1 to the Companys Form 10-Q on June 9, 2005 (File No. 001-14547) and
incorporated herein by reference).10(s)(1)*
    
    Second Amended And Restated Executive Employment Agreement with the Companys President
and Chief Executive Officer, Randall L. Herrel, Sr. effective as of February 28, 2006 (filed
as Exhibit 10.1 to the Companys Form 10-K/A on February 28, 2006 (File No. 001-14547) and
incorporated herein by reference).10(s)(2)*
    
    Amended And Restated Change In Control Agreement with the Companys President and Chief
Executive Officer, Randall L. Herrel, Sr. effective as of February 28, 2006 (filed as Exhibit
10.2 to the Companys Form 10-K/A on February 28, 2006 (File No. 001-14547) and incorporated
herein by reference).10(t)(1)
    
    Amended And Restated Employment Agreement with the Companys Executive Vice President of
Sales and Marketing, Mr. Gary I. Sims Schneiderman, effective as of February 28, 2006 (filed
as exhibit 10.5 to the Companys Form 10K/A on February 28, 2006 (File No. 001-14547) and
incorporated herein by reference).10(t)(2)*
    
    Amended And Restated Change in Control Agreement with the Companys Executive Vice
President of Sales and Marketing, Mr. Gary I. Sims Schneiderman effective as of February 28,
2006 (filed as exhibit 10.6 to the Companys Form 10K/A on February 28, 2006 (File No.
001-14547) and incorporated herein by reference).10(u)(1)
    
    Employment Agreement with the Companys Executive Vice President , Chief Financial Officer
and Treasurer, Peter S. Case effective as of September 16, 2005 (filed as exhibit 10.1 to the
Companys Form 10K on February 1, 2006 (File No. 001-14547) and incorporated herein by
reference).10(u)(2)*
    
    Change in Control Agreement with the Companys Executive Vice President , Chief Financial
Officer and Treasurer, Peter S. Case effective as of September 16, 2005 (filed as exhibit 10.2
to the Companys Form 10K on February 1, 2006 (File No. 001-14547) and incorporated herein by
reference).10(v)(1)
    
    Amended And Restated Employment Agreement with the Companys Executive Vice President of
Merchandising, Design and Production, Peter E. Holmberg effective as of February 28, 2006
(filed as exhibit 10.3 to the Companys Form 10K/A on February 28, 2006 (File No. 001-14547)
and incorporated herein by reference).10(v)(2)*
    
    Amended And Restated Change in Control Agreement with the Companys Executive Vice
President of Merchandising, Design and Production, Peter E. Holmberg effective as of February
28, 2006 (filed as exhibit 10.4 to the Companys Form 10K on February 28, 2006 (File No.
001-14547) and incorporated herein by reference).
 33
    Table of Contents  10(w)
    
    Fourth Amendment effective as of January 26, 2006 to the Credit Agreement dated July 6,
2004, between Ashworth, Inc. as Borrower, Union Bank of California, N.A., as Administrative
Agent and Lender, Bank of the West and Columbus Bank and Trust as Lenders, expiring July 6,
2009 (filed as exhibit 10.5 to the Companys Form 10K on February 1, 2006 (File No. 001-14547)
and incorporated herein by reference).10(x)(1)
    
    Employment Letter with the Companys Executive Vice President and Chief Financial Officer,
Winston E. Hickman, effective as of February 23, 2006 (filed as exhibit 10.7 to the Companys
Form 10K/A on February 28, 2006 (File No. 001-14547) and incorporated herein by reference).10(x)(2)*
    
    Change in Control Agreement with the Companys Executive Vice President and Chief
Financial Officer, Winston E. Hickman, effective as of February 23, 2006 (filed as exhibit
10.8 to the Companys Form 10K on February 28, 2006 (File No. 001-14547) and incorporated
herein by reference).10(y)
    
    Settlement Agreement, dated May 5, 2006, by and among the Company and Knightspoint
Partners II, L.P., Knightspoint Capital Management II LLC, Knightspoint Partners LLC, Michael
S. Koeneke, David M. Meyer, Starboard Value and Opportunity Master Fund Ltd., Parche, LLC,
Admiral Advisors, LLC, Ramius Capital Group, LLC, C4S & Co., LLC, Peter A. Cohen, Jeffrey M.
Solomon, Morgan B. Stark, Thomas W. Strauss, Black Sheep Partners, LLC, Brian Black, and Peter
M. Weil (filed as exhibit 10.1 to the Companys Form 8-K on May 5, 2006 (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 Randall L. Herrel, Sr.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 Winston E. Hickman.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 Randall L. Herrel, Sr.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 Winston E. Hickman.
 
 *
    
    Management contract or compensatory plan or arrangement required to be filed as an Exhibit
pursuant to Item 15(b) of Form 10-K and applicable rules of the Securities and Exchange Commission.
    
    Certain portions of this exhibit have been omitted pursuant to a request for confidential
treatment filed separately with the Securities and Exchange Commission.
Financial statements required by Regulation S-X excluded from the annual report to shareholders by
Rule 14a-3(b). Not applicable
 34
    Table of Contents  SIGNATURES
  ASHWORTH, INCDate:
June 9, 2006
    
    By: /s/ Winston E. Hickman

Winston E. HickmanExecutive Vice President,and Chief Financial Officer
 35
    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 Randall L. Herrel, Sr.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 Winston E. Hickman.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 Randall L. Herrel, Sr.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 Winston E. Hickman.
 36