##### 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 July 31, 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
    
    84-1052000(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)
 2765 LOKER AVENUE WEST
CARLSBAD, CA 92008
 (760) 438-6610
 þ o
  o þ o
 o þ
  Title
    
    Outstanding at August 31, 2006$.001 par value Common Stock
    
    14,520,175




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##### 



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
    
    
    13Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    23Item 4. Controls and Procedures
    
    
    23Part II. Other InformationItem 1. Legal Proceedings
    
    
    25Item 1A. Risk Factors
    
    
    25Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    25Item 3. Defaults Upon Senior Securities
    
    
    25Item 4. Submission of Matters to a Vote of Security Holders
    
    
    25Item 5. Other Information
    
    
    26Item 6. Exhibits
    
    
    27Signatures
    
    
    32Exhibit Index
    
    
    33EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  -i-




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PART I
 
 FINANCIAL INFORMATION
  
  July 31, 2006
    
    
    October 31, 2005(UNAUDITED)AssetsCurrent assets:Cash and cash equivalents
    
    $
    3,892,000
    
    
    $
    3,839,000Accounts receivable  trade, net
    
    
    39,325,000
    
    
    
    37,306,000Accounts receivable  other, net
    
    
    566,000
    
    
    
    1,053,000Inventories, net
    
    
    52,978,000
    
    
    
    46,126,000Income tax refund receivable
    
    
    776,000
    
    
    
    4,036,000Other current assets
    
    
    4,895,000
    
    
    
    6,157,000Deferred income tax asset
    
    
    3,437,000
    
    
    
    3,441,000Total current assets
    
    
    105,869,000
    
    
    
    101,958,000Property, plant and equipment, at cost
    
    
    64,371,000
    
    
    
    60,203,000Less
accumulated depreciation and amortization
    
    
    (25,378,000
    )
    
    
    (22,121,000
    )Total property, plant and equipment, net
    
    
    38,993,000
    
    
    
    38,082,000Goodwill
    
    
    13,865,000
    
    
    
    13,865,000Intangible assets, net
    
    
    10,328,000
    
    
    
    10,571,000Other assets
    
    
    326,000
    
    
    
    238,000Total assets
    
    $
    169,381,000
    
    
    $
    164,714,000Liabilities and Stockholders EquityCurrent liabilities:Line of credit payable
    
    $
    17,850,000
    
    
    $
    19,500,000Current portion of long-term debt
    
    
    2,103,000
    
    
    
    2,366,000Accounts payable
    
    
    10,434,000
    
    
    
    11,149,000Accrued liabilities:Salaries and commissions
    
    
    3,285,000
    
    
    
    3,529,000Other
    
    
    4,945,000
    
    
    
    6,142,000Total current liabilities
    
    
    38,617,000
    
    
    
    42,686,000Long-term debt, net of current portion
    
    
    16,146,000
    
    
    
    17,320,000Deferred income tax liability
    
    
    1,971,000
    
    
    
    1,972,000Other long-term liabilities
    
    
    166,000
    
    
    
    174,000Stockholders equity:Common stock
    
    
    15,000
    
    
    
    14,000Capital in excess of par value
    
    
    48,133,000
    
    
    
    44,755,000Retained earnings
    
    
    60,688,000
    
    
    
    55,382,000Accumulated other comprehensive income
    
    
    3,645,000
    
    
    
    2,411,000Total stockholders equity
    
    
    112,481,000
    
    
    
    102,562,000Total liabilities and stockholders equity
    
    $
    169,381,000
    
    
    $
    164,714,000
  1




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Three months ended July 31,
    
    
    Nine months ended July 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Net revenues
    
    $
    52,816,000
    
    
    $
    48,304,000
    
    
    $
    159,448,000
    
    
    $
    149,484,000Cost of goods sold
    
    
    31,190,000
    
    
    
    33,299,000
    
    
    
    89,963,000
    
    
    
    91,761,000Gross profit
    
    
    21,626,000
    
    
    
    15,005,000
    
    
    
    69,485,000
    
    
    
    57,723,000Selling, general and
administrative expenses
    
    
    19,836,000
    
    
    
    19,865,000
    
    
    
    59,044,000
    
    
    
    53,259,000Income from operations
    
    
    1,790,000
    
    
    
    (4,860,000
    )
    
    
    10,441,000
    
    
    
    4,464,000Other income (expense):Interest income
    
    
    21,000
    
    
    
    15,000
    
    
    
    40,000
    
    
    
    49,000Interest expense
    
    
    (828,000
    )
    
    
    (624,000
    )
    
    
    (2,229,000
    )
    
    
    (1,733,000
    )Net foreign currency
exchange gain (loss)
    
    
    125,000
    
    
    
    (129,000
    )
    
    
    462,000
    
    
    
    (155,000
    )Other income (expense), net
    
    
    26,000
    
    
    
    (40,000
    )
    
    
    128,000
    
    
    
    (107,000
    )Total other expense, net
    
    
    (656,000
    )
    
    
    (778,000
    )
    
    
    (1,599,000
    )
    
    
    (1,946,000
    )Income (Loss) before
provision for income taxes
    
    
    1,134,000
    
    
    
    (5,638,000
    )
    
    
    8,842,000
    
    
    
    2,518,000Provision for income taxes
    
    
    453,000
    
    
    
    (2,255,000
    )
    
    
    3,536,000
    
    
    
    1,007,000Net income (loss)
    
    $
    681,000
    
    
    $
    (3,383,000
    )
    
    $
    5,306,000
    
    
    $
    1,511,000Net income per share:Basic
    
    $
    0.05
    
    
    $
    (0.24
    )
    
    $
    0.37
    
    
    $
    0.11Diluted
    
    $
    0.05
    
    
    $
    (0.24
    )
    
    $
    0.37
    
    
    $
    0.11Weighted-average shares
outstanding:Basic
    
    
    14,495,000
    
    
    
    13,929,000
    
    
    
    14,359,000
    
    
    
    13,823,000Diluted
    
    
    14,624,000
    
    
    
    13,929,000
    
    
    
    14,513,000
    
    
    
    14,198,000
  2




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Nine months ended July 31,2006
    
    
    2005CASH FLOW FROM OPERATING ACTIVITIES:Net cash provided (used) in operating activities
    
    
    3,882,000
    
    
    
    (5,341,000
    )CASH FLOWS FROM INVESTING ACTIVITIESProceeds from sale of fixed assets
    
    
    
    
    
    
    5,000Purchase of property, plant and equipment
    
    
    (4,804,000
    )
    
    
    (6,677,000
    )Purchase of intangibles
    
    
    (88,000
    )
    
    
    (96,000
    )Net cash used in investing activities
    
    
    (4,892,000
    )
    
    
    (6,768,000
    )CASH FLOWS FROM FINANCING ACTIVITIESPrincipal payments on capital lease obligations
    
    
    (63,000
    )
    
    
    (70,000
    )Borrowings on line of credit
    
    
    31,700,000
    
    
    
    31,250,000Payments on line of credit
    
    
    (33,350,000
    )
    
    
    (20,450,000
    )Principal payments on notes payable and long-term debt
    
    
    (1,373,000
    )
    
    
    (3,380,000
    )Proceeds from issuance of common stock
    
    
    2,489,000
    
    
    
    2,069,000Excess tax benefit from share-based payment
arrangements
    
    
    533,000
    
    
    
    Net cash provided (used) in financing activities
    
    
    (64,000
    )
    
    
    9,419,000Effect of exchange rate changes on cash
    
    
    1,127,000
    
    
    
    (757,000
    )Net increase (decrease) in cash and cash equivalents
    
    
    53,000
    
    
    
    (3,447,000
    )Cash, beginning of period
    
    
    3,839,000
    
    
    
    5,541,000Cash, end of period
    
    $
    3,892,000
    
    
    $
    2,094,000
  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
  Reclassifications
  Stock-Based Compensation
 Share-Based Payment , Accounting for
Stock Issued to Employees,
 4




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Accounting for
Stock-Based Compensation
  Accounting for Stock-Based Compensation-Transition and
Disclosure,
  5




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Three Months
    
    
    Nine MonthsEnded
    
    
    EndedJuly 31, 2005
    
    
    July 31, 2005Net income (loss)  as reported
    
    $
    (3,383,000
    )
    
    $
    1,511,000Deduct: Stock-based employee and non-employee director compensation expense
determined under the fair-value-based method for all awards, net of tax
    
    
    (244,000
    )
    
    
    (774,000
    )Net income (loss)  pro forma
    
    $
    (3,627,000
    )
    
    $
    737,000Net income (loss) per common share  as reportedBasic
    
    $
    (0.24
    )
    
    $
    0.11Diluted
    
    $
    (0.24
    )
    
    $
    0.11Net income (loss) per common share  pro formaBasic
    
    $
    (0.26
    )
    
    $
    0.05Diluted
    
    $
    (0.26
    )
    
    $
    0.05
  Earnings Per Share
  6




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Earnings Per Share
 Three months ended July 31,
    
    
    Nine months ended July 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Numerator:Net income (loss)
    
    $
    681,000
    
    
    $
    (3,383,000
    )
    
    $
    5,306,000
    
    
    $
    1,511,000Denominator:Weighted-average shares outstanding
    
    
    14,495,000
    
    
    
    13,929,000
    
    
    
    14,359,000
    
    
    
    13,823,000Effect of dilutive options
    
    
    129,000
    
    
    
    
    
    
    
    154,000
    
    
    
    375,000Denominator for dilutive earnings per share
    
    
    14,624,000
    
    
    
    13,929,000
    
    
    
    14,513,000
    
    
    
    14,198,000Basic earnings (loss) per share
    
    $
    0.05
    
    
    $
    (0.24
    )
    
    $
    0.37
    
    
    $
    0.11Diluted earnings (loss) per share
    
    $
    0.05
    
    
    $
    (0.24
    )
    
    $
    0.37
    
    
    $
    0.11
  NOTE 2  Inventories.
  July 31,
    
    
    October 31,2006
    
    
    2005Raw materials
    
    $
    74,000
    
    
    $
    146,000Finished goods
    
    
    52,904,000
    
    
    
    45,980,000Total inventories, net
    
    $
    52,978,000
    
    
    $
    46,126,000
 NOTE 3  Goodwill and Other Intangible Assets.
 Goodwill and Other Intangible Assets.
 7




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July 31, 2006
    
    
    October 31, 2005Gross Carrying
    
    
    Accumulated
    
    
    
    
    
    
    Gross Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Net Book Value
    
    
    Amount
    
    
    Amortization
    
    
    Net Book ValueIndefinite life:Tradenames
    
    $
    8,700,000
    
    
    $
    
    
    
    $
    8,700,000
    
    
    $
    8,700,000
    
    
    $
    
    
    
    $
    8,700,000Finite life:Customer lists
    
    
    1,530,000
    
    
    
    (482,000
    )
    
    
    1,048,000
    
    
    
    1,530,000
    
    
    
    (307,000
    )
    
    
    1,223,000Non-competes
    
    
    1,372,000
    
    
    
    (970,000
    )
    
    
    402,000
    
    
    
    1,372,000
    
    
    
    (846,000
    )
    
    
    526,000Customer sales backlog
    
    
    190,000
    
    
    
    (190,000
    )
    
    
    
    
    
    
    190,000
    
    
    
    (190,000
    )
    
    
    Trademarks
    
    
    1,473,000
    
    
    
    (1,295,000
    )
    
    
    178,000
    
    
    
    1,386,000
    
    
    
    (1,264,000
    )
    
    
    122,000Total intangible assets
    
    $
    13,265,000
    
    
    $
    (2,937,000
    )
    
    $
    10,328,000
    
    
    $
    13,178,000
    
    
    $
    (2,607,000
    )
    
    $
    10,571,000
   Remainder 2006
    
    $
    111,0002007
    
    
    439,0002008
    
    
    421,0002009
    
    
    278,0002010
    
    
    234,0002011
    
    
    145,000Total
    
    $
    1,628,000
 NOTE 4  Business Loan Agreement.
   8




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9




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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 $4.4 million 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 $4.0 million 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.
   NOTE 5  Issuance of Common Stock.
  NOTE 6  Stock-Based Compensation.
  10




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Three months ended July 31,
    
    Nine months ended July 31,2006
    
    2005
    
    2006
    
    2005Expected life (years)
    
    
    3.71
    
    
    
    3.8
    
    
    
    3.71 - 3.81
    
    
    
    3.5 - 4.0Risk-free interest rate
    
    
    5.02
    %
    
    
    3.62% - 3.82%
    
    
    
    4.45% - 5.02%
    
    
    
    2.89%  - 3.82%Volatility
    
    
    37.7
    %
    
    
    42.8%
    
    
    
    37.7% - 38.8%
    
    
    
    42.7%  - 43.4%Dividend yields
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted-average fair
value of options
during the period
    
    
    $3.25
    
    
    
    $3.45
    
    
    
    $2.96
    
    
    
    $3.85
  NOTE 7  Comprehensive Income.
  Three months ended July 31,
    
    
    Nine months ended July 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Net income (loss)
    
    $
    681,000
    
    
    $
    (3,383,000
    )
    
    $
    5,306,000
    
    
    $
    1,511,000Effects of foreign currency
translation
    
    
    741,000
    
    
    
    (1,359,000
    )
    
    
    1,234,000
    
    
    
    (839,000
    )Total comprehensive income (loss)
    
    $
    1,422,000
    
    
    $
    (4,742,000
    )
    
    $
    6,540,000
    
    
    $
    672,000
 NOTE 8  Legal Proceedings.
  NOTE 9  Segment Information.
  11




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Three months ended July 31,
    
    
    Nine months ended July 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Net revenues:Domestic
    
    $
    30,836,000
    
    
    $
    31,114,000
    
    
    $
    100,198,000
    
    
    $
    98,037,000Gekko Brands, LLC
    
    
    11,960,000
    
    
    
    8,897,000
    
    
    
    30,201,000
    
    
    
    25,454,000Ashworth, U.K., Ltd.
    
    
    7,377,000
    
    
    
    5,422,000
    
    
    
    20,567,000
    
    
    
    17,268,000Other International
    
    
    2,643,000
    
    
    
    2,871,000
    
    
    
    8,482,000
    
    
    
    8,725,000Total
    
    $
    52,816,000
    
    
    $
    48,304,000
    
    
    $
    159,448,000
    
    
    $
    149,484,000Income (loss) from operations:Domestic
    
    $
    204,000
    
    
    $
    (7,279,000
    )
    
    $
    3,084,000
    
    
    $
    (3,033,000
    )Gekko Brands, LLC
    
    
    1,720,000
    
    
    
    1,194,000
    
    
    
    3,883,000
    
    
    
    3,092,000Ashworth, U.K., Ltd.
    
    
    (821,000
    )
    
    
    314,000
    
    
    
    1,268,000
    
    
    
    1,815,000Other International
    
    
    687,000
    
    
    
    911,000
    
    
    
    2,206,000
    
    
    
    2,590,000Total
    
    $
    1,790,000
    
    
    $
    (4,860,000
    )
    
    $
    10,441,000
    
    
    $
    4,464,000Capital expenditures:Domestic
    
    $
    1,163,000
    
    
    $
    1,554,000
    
    
    $
    4,447,000
    
    
    $
    5,594,000Gekko Brands, LLC
    
    
    30,000
    
    
    
    93,000
    
    
    
    262,000
    
    
    
    930,000Ashworth, U.K., Ltd.
    
    
    56,000
    
    
    
    5,000
    
    
    
    95,000
    
    
    
    153,000Total
    
    $
    1,249,000
    
    
    $
    1,652,000
    
    
    $
    4,804,000
    
    
    $
    6,677,000Depreciation expense:Domestic
    
    $
    1,130,000
    
    
    $
    1,024,000
    
    
    $
    3,440,000
    
    
    $
    2,842,000Gekko Brands, LLC
    
    
    96,000
    
    
    
    88,000
    
    
    
    304,000
    
    
    
    275,000Ashworth, U.K., Ltd.
    
    
    76,000
    
    
    
    80,000
    
    
    
    229,000
    
    
    
    237,000Total
    
    $
    1,302,000
    
    
    $
    1,192,000
    
    
    $
    3,973,000
    
    
    $
    3,354,000
 July 31,
    
    
    October 31,2006
    
    
    2005(Audited)Total assets:Domestic
    
    $
    99,721,000
    
    
    $
    102,745,000Gekko Brands, LLC
    
    
    40,317,000
    
    
    
    38,217,000Ashworth, U.K., Ltd.
    
    
    22,768,000
    
    
    
    18,999,000Other International
    
    
    6,575,000
    
    
    
    4,753,000Total
    
    $
    169,381,000
    
    
    $
    164,714,000Long-lived assets, at cost:Domestic
    
    $
    61,975,000
    
    
    $
    58,206,000Gekko Brands, LLC
    
    
    27,563,000
    
    
    
    27,301,000Ashworth, U.K., Ltd.
    
    
    2,289,000
    
    
    
    1,977,000Total
    
    $
    91,827,000
    
    
    $
    87,484,000Goodwill:Gekko Brands, LLC
    
    $
    13,865,000
    
    
    $
    13,865,000
 12




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NOTE 10  Contingencies.
  
 Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 General
   Cautionary Statements and Risk Factors
  Critical Accounting Policies
  13




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Revenue Recognition. Revenue
Recognition Accounting of Shipping and Handling Fees and Costs
 Sales Returns and Other Allowances.
 Allowance for Doubtful Accounts.
 Inventory.
 Asset Purchase Credits.
 14




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Cost of Goods Sold
 Off-Balance Sheet Arrangements
  Overview
 â â â
   Innovation
 15




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TM
 TM
   Preparing For Additional Growth.
 Results of Operations
 Third quarter 2006 compared to third quarter 2005
   16




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Nine months ended July 31, 2006 compared to nine months ended July 31, 2005
   17




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Capital Resources and Liquidity
       19




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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 $4.4 million 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 $4.0 million 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.
   20




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21




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Derivatives
  Recent Accounting Pronouncements
  Accounting for Uncertainty in Income Taxes
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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
   23




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Evaluation of Internal Control Over Financial Reporting
  3)
    
    pertain to the maintenance of records that in reasonable detail accurately
and fairly reflect the transactions and dispositions of our assets;4)
    
    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; and5)
    
    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
  Changes in Internal Control over Financial Reporting
  24




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##### Table of Contents



PART II
 OTHER INFORMATION
 
 Item 1. LEGAL PROCEEDINGS
  
 Item 1A. Risk Factors
  
    
    On May 5, 2006, the Company entered into a settlement agreement (the
Settlement Agreement) with a stockholder group led by Knightspoint Partners II,
L.P. (collectively, the Knightspoint Group). Under the terms of the Settlement
Agreement, the Company established a special committee of five directors to
oversee the exploration of a range of strategic alternatives to enhance
stockholder value and appointed two of Knightspoint Groups proposed candidates,
David M. Meyer and Peter M. Weil, to the Board of Directors, effective May 8,
2006. Messrs Meyer and Weil were both elected to the Board at the July 17, 2006
annual meeting of stockholders (the Annual Meeting). In addition, a third
independent director, to be mutually agreed upon by Knightspoint Group and the
Company, is to be added to the Board as soon as practicable. As part of the
Settlement Agreement, the Knightspoint Group withdrew its proposed bylaw
amendments and its nomination of candidates for election to the Board of Directors
and agreed to vote its shares in favor of all of the Boards nominees at the 2006
Annual Meeting. Although the Company believes the Settlement Agreement, and the
appointment of two of the Knightspoint Groups candidates to the Board is in the
best interest of the Company and its stockholders, the Board could experience
difficulty in agreeing upon the third independent director which may adversely
impact the effectiveness of the Board. Additionally, there is no assurance that
the special committee created to explore a range of strategic alternatives to
enhance stockholder value will result in a transaction or other corporate action.
 
 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 
    25




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Number of
    
    Number ofVotes FOR
    
    Votes WITHHELDJohn M. Hanson
    
    
    12,426,259
    
    
    
    201,155James B. Hayes
    
    
    12,547,317
    
    
    
    80,097Randall L. Herrel, Sr.
    
    
    11,650,098
    
    
    
    977,316Detlef H. Adler
    
    
    8,931,414
    
    
    
    3,696,000Peter M. Weil
    
    
    12,439,317
    
    
    
    188,097David M. Meyer
    
    
    12,438,777
    
    
    
    188,637John W. Richardson
    
    
    12,546,777
    
    
    
    80,637
  Number of
    
    Number of
    
    Number ofVotes FOR
    
    Votes
AGAINST
    

Votes
ABSTAINMoss Adams LLP
    
    
    12,617,741
    
    
    
    8,373
    
    
    
    1,300
    
 Item 5.
OTHER INFORMATION  None
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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).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
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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).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).
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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).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).
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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).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 10-Q 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 10-K/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 10-K 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 10-K/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).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).
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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 10-K/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 10-K 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. 31




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SIGNATURES
  ASHWORTH, INCDate:
September 11, 2006
    
    By:
    
    /s/ Winston E. HickmanWinston E. HickmanExecutive Vice President,and Chief Financial Officer
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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.
 33