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, 2005

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.

2765 LOKER AVENUE WEST
CARLSBAD, CA 92008
(Address of Principal Executive Offices)

(760) 438-6610
(Telephone No. Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

INDEX

PART I

FINANCIAL INFORMATION

ASHWORTH, INC. AND SUBSIDIARIES

See accompanying notes to condensed consolidated financial statements.

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ASHWORTH, INC. AND SUBSIDIARIES

     See accompanying notes to condensed consolidated financial statements.

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ASHWORTH, INC. AND SUBSIDIARIES

See accompanying notes to condensed consolidated financial statements.

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ASHWORTH, INC. AND SUBSIDIARIES

NOTE 1 – Basis of Presentation.

In the opinion of management, the accompanying condensed consolidated balance sheets and related interim condensed consolidated statements of operations and cash flows include all adjustments (consisting only of normal recurring items) necessary for their fair presentation. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Interim results are not necessarily indicative of results to be expected for the full year.

Certain information in footnote disclosures normally included in financial statements has been condensed or omitted in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). The information included in this Form 10-Q should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations, and consolidated financial statements and notes thereto included in the annual report on Form 10-K for the year ended October 31, 2004, filed with the SEC on January 28, 2005.

Shipping and Handling Revenue

The Company includes payments from its customers for shipping and handling in its net revenues line item in accordance with Emerging Issues Task Force (“EITF”) 00-10, Accounting of Shipping and Handling Fees and Costs.

Cost of Goods Sold

The Company includes F.O.B. purchase price, inbound freight charges, duty, buying commissions and overhead in its cost of goods sold line item. Overhead costs include purchasing and receiving costs, inspection costs, warehousing costs, internal transfers costs and other costs associated with the distribution of the Company’s products. The Company does not exclude any of these costs from cost of goods sold.

Shipping and Handling Expenses

Shipping expenses, which consist primarily of payments made to freight companies, are reported in selling, general and administrative expenses. Shipping expenses for the quarters ended April 30, 2005 and 2004 were $855,000 and $618,000, respectively. For the six-month periods ended April 30, 2005 and 2004, shipping expenses were $1,385,000 and $932,000 respectively.

Reclassifications

Certain reclassifications have been made to the prior period’s condensed consolidated financial statements to conform to classifications used in the current period. These reclassifications had no impact on previously reported results.

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NOTE 2 – Inventories.

Inventories consisted of the following at April 30, 2005 and October 31, 2004:

NOTE 3 – Goodwill and Other Intangible Assets.

The Company accounts for goodwill and intangible assets in accordance with SFAS No. 142, Goodwill and Other Intangible Assets. Under SFAS No. 142, goodwill and certain intangible assets are not amortized but are subject to an annual impairment test. At April 30, 2005 and October 31, 2004, goodwill totaled $12,660,000 and $12,640,000, respectively. During the six months ended April 30, 2005, the Company adjusted goodwill by approximately $20,000 for certain preacquisition contingencies relating to its acquisition of Gekko Brands, LLC on July 7, 2004. The following sets forth the intangible assets, excluding goodwill, by major category:

Intangible assets with definite lives are amortized using the straight-line method over periods ranging from 1 to 7 years. During the six months ended April 30, 2005 and 2004, aggregate amortization

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expense was approximately $329,000 and $50,000, respectively.

Amortization expense related to intangible assets at April 30, 2005 in each of the next five fiscal years and beyond is expected to be as follows:

NOTE 4 – Line of Credit Agreement.

On July 6, 2004, the Company entered into a new business loan agreement with Union Bank of California, N.A., as the administrative agent, and two other lenders. The new loan agreement is comprised of a $20,000,000 term loan and a $35,000,000 revolving credit facility, which expires on July 6, 2009 and is collateralized by substantially all of the assets of the Company other than the Company’s real estate.

Under this loan agreement, interest on the $20,000,000 term loan is fixed at 5.4% for the term of the loan. Interest on the revolving credit facility is charged at the bank’s reference rate. At April 30, 2005, the bank’s reference rate was 5.75%. The loan agreement also provides for optional interest rates based on London interbank offered rates (“LIBOR”) for periods of at least 30 days in increments of $500,000.

On September 3, 2004, the Company entered into the First Amendment to the loan agreement to amend Section 6.12(a). The loan agreement, as amended, contains certain financial covenants that include a requirement that the Company maintain (1) a minimum tangible net worth of $74,000,000 plus the net proceeds from any equity securities issued (including net proceeds from stock option exercises) after the date of the loan agreement for the period ended October 31, 2004, and a minimum tangible net worth of $74,000,000, plus 90% of net income after taxes (without subtracting losses) earned in each quarterly accounting period commencing after January 31, 2005, plus the net proceeds from any equity securities issued (including net proceeds from stock option exercises) after the date of the loan agreement, (2) a minimum earnings before interest, income taxes, depreciation and amortization (“EBITDA”) determined on a rolling four quarters basis ranging from $16,500,000 at July 6, 2004 and increasing over time to $27,000,000 at October 31, 2008 and thereafter, (3) a minimum ratio of cash and accounts receivable to current liabilities of 0.75:1.00 for fiscal quarters

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ending January 31 and April 30 and 1.00:1.00 for fiscal quarters ending July 31 and October 31, and (4) a minimum fixed charge coverage ratio of 1.10:1.00 at July 31, 2004 and 1.25:1.00 thereafter. The loan agreement limits annual lease and rental expense associated with the Company’s new distribution center in Oceanside, California as well as annual capital expenditures in any single fiscal year on a consolidated basis in excess of certain amounts allowed for the acquisition of real property and equipment in connection with the new distribution center. The loan agreement has an additional requirement where, for at least 30 consecutive days in each year, the total indebtedness under the revolving credit facility may not be more than $15,000,000. The loan agreement also limits the annual aggregate amount the Company may spend to acquire shares of its common stock. The Company is in compliance with or has obtained waivers for all of the loan agreement’s financial covenants as of April 30, 2005.

The line of credit under the loan agreement may also be used to finance commercial letters of credit and standby letters of credit. Commercial letters of credit outstanding under this loan agreement totaled $4,743,000 at April 30, 2005 as compared to $4,108,000 outstanding at October 31, 2004. The Company had $16,000,000 outstanding against the revolving credit facility under this loan agreement at April 30, 2005, compared to $2,500,000 outstanding at October 31, 2004. The Company had $17,000,000 outstanding on the term loan under this loan agreement at April 30, 2005 compared to $19,000,000 at October 31, 2004. At April 30, 2005, $14,257,000 was available for borrowings against the revolving credit facility under this loan agreement.

NOTE 5 – Net Income Per Share Information.

Basic net income per share has been computed based on the weighted average number of common shares outstanding during the period. Diluted net income per share has been computed based on the weighted average number of common shares outstanding plus the dilutive effects of common shares potentially issuable from the exercise of common stock options. Common stock options are excluded from the computation of net income per share if their effect is anti-dilutive. The following table sets forth the computation of basic and diluted net income per share based on the requirements SFAS No. 128, Earnings Per Share:

For the quarters ended April 30, 2005 and 2004, the diluted weighted average shares outstanding computation excludes 170,000 and 324,000 shares under option grants, respectively, whose impact would have an anti-dilutive effect. For the six-month periods ended April 30, 2005 and 2004, the

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diluted weighted average shares outstanding computation excludes 437,000 and 320,000 shares under option grants, respectively, whose impact would have an anti-dilutive effect.

NOTE 6 – Issuance of Common Stock.

Common stock and capital in excess of par value increased by $1,134,000 in the six months ended April 30, 2005, of which $830,000 is due to the issuance of 154,936 shares of common stock on exercise of options and $304,000 is the tax benefit related to the exercise of those options.

NOTE 7 – Stock-Based Compensation.

The Company has elected to follow Accounting Principles Board Opinion (“APB”) No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its employee stock options. Under APB No. 25, because the exercise price of the Company’s employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. The interim information regarding pro forma net income and earnings per share is required by SFAS No. 123, Accounting for Stock Based Compensation, and SFAS No. 148, Accounting for Stock Based Compensation – Transition and Disclosure. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the vesting period of the options.

Compensation expense for options issued to non-employees is based on the fair value of each option estimated at date of grant using the Black-Scholes option-pricing model. The Company made no such grants to non-employees during the first six months of either fiscal year 2005 or fiscal year 2004.

For purposes of the following pro forma disclosures required by SFAS No. 123, the fair value of each option granted after fiscal 1995 has been estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants made during the quarters ended April 30, 2005 and 2004, respectively: risk-free interest rate of 3.75% in 2005 and 1.91% in 2004; expected volatility of 42.7% in 2005 and 44.5% to in 2004; and expected life of 3.87 in 2005 and 3.16 years in 2004. The following weighted-average assumptions were used for grants made during the six months ended April 30, 2005 and 2004, respectively: risk-free interest rate of 2.89% to 3.75% in 2005 and 1.91% to 2.63% in 2004; expected volatility of 42.7% to 43.36% in 2005 and 44.5% in 2004; and expected life of 3.55 to 3.87 years in 2005 and 3.16 years in 2004.

The Company has not paid any cash or other dividends and does not anticipate paying dividends in the foreseeable future; therefore, the expected dividend yield is zero for all periods.

The Company’s pro forma information for stock-based employee compensation is as follows:

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The Company did not reflect any stock-based employee compensation expense in the consolidated financial statements for the periods presented in the above table.

NOTE 8 — Comprehensive Income.

The Company includes the cumulative foreign currency translation adjustment as well as the net unrealized gains and loss on cash flow hedges as components of the comprehensive income in addition to net income for the period. The following table sets forth the computation of comprehensive income for the periods presented:

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NOTE 9 — Legal Proceedings.

On January 22, 1999, Milberg Weiss Bershad Hynes & Lerach LLP filed a class action in the United States District Court for the Southern District of California (“U.S. District Court”) on behalf of purchasers of the Company’s common stock during the period between September 4, 1997 and July 15, 1998. The action was subsequently consolidated with two similar suits and plaintiffs filed their Amended and Consolidated Complaint on December 17, 1999. Upon the Company’s motion, the U.S. District Court dismissed the Complaint with leave to amend on July 18, 2000. On September 18, 2000, plaintiffs served their Second Consolidated Amended Complaint (“Second Amended Complaint”). On November 6, 2000, the Company filed its motion to dismiss the Second Amended Complaint, which the U.S. District Court granted, in part, and denied, in part. The remaining portions of the Second Amended Complaint alleged that, among other things, during the class period and in violation of the Securities Exchange Act of 1934, the Company’s financial statements, as reported, did not conform to generally accepted accounting principles with respect to revenues and inventory levels. It further alleged that certain Company executives made false or misleading statements or omissions concerning product demand and that two former executives engaged in insider trading. On November 8, 2004, the U.S. District Court entered a Final Approval of Settlement. Under the settlement, all claims will be dismissed and the litigation was concluded in exchange for a payment of $15.25 million, approximately 82% of which was paid by Ashworth’s insurance carriers. As part of the settlement, Ashworth also agreed to adopt modifications to certain corporate governance policies. Ashworth recorded a pre-tax charge in the third quarter of fiscal year 2004 of $3 million related to settlement of this suit.

The Company is party to other claims and litigation proceedings arising in the normal course of business. Although the legal responsibility and financial impact with respect to such other claims and litigation cannot currently be ascertained, the Company does not believe that these other matters will result in payment by the Company of monetary damages, net of any applicable insurance proceeds, that, in the aggregate, would be material in relation to the consolidated financial position or results of operations of the Company.

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NOTE 10 — Segment Information.

The Company defines its operating segments as components of an enterprise for which separate financial information is available and regularly reviewed by the Company’s senior management. The Company has the following three reportable segments: Domestic, Ashworth, U.K., Ltd. and Other International. The chief operating decision maker evaluates segment performance based primarily on revenues and income from operations. Interest income and expense, unusual and infrequent items and income tax expense are evaluated on a consolidated basis and are not allocated to the Company’s business segments. Segment information is summarized (for the periods or dates presented) below:

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

     The Company operates in an industry that is highly competitive and must accurately anticipate fashion trends and consumer demand for its products. There are many factors that could cause actual results to differ materially from the projected results contained in certain forward-looking statements in this report. For additional information, see “Cautionary Statements and Risk Factors,” below.

     Because the Company’s business is seasonal, the current balance sheet balances at April 30, 2005 may be more meaningfully compared to the amounts at April 30, 2004, rather than to the amounts at October 31, 2004.

Critical Accounting Policies

     In response to the SEC’s Release Numbers 33-8040, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies” and 33-8056, “Commission Statement About Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the Company has identified the following critical accounting policies that affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

     Revenue Recognition. Based on its terms of F.O.B. shipping point, where risk of loss and title transfer to the buyer at the time of shipment, the Company recognizes revenue at the time products are shipped or, for Company stores, at the point of sale. The Company records sales in accordance with SEC Staff Accounting Bulletin No. 104, Revenue Recognition. Under these guidelines, revenue is recognized when all of the following exist: persuasive evidence of a sale arrangement exists, delivery of the product has occurred, the price is fixed or determinable and payment is reasonably assured. Provisions are made in the period of the sale for estimated product returns and sales allowances. The Company also includes payments from its customers for shipping and handling in its net revenues line item in accordance with Emerging Issues Task Force (“EITF”) 00-10, Accounting of Shipping and Handling Fees and Costs.

     Sales Returns and Other Allowances. Management must make estimates of potential future product returns related to current period product revenues. The Company also makes payments and/or grants credits to its customers as markdown (buydown) allowances and must make estimates of such potential future allowances. Management analyzes historical returns and allowances, current economic trends, changes in customer demand, and sell-through of the Company’s products when evaluating the adequacy of the sales returns and other allowances. Significant management judgments and estimates must be made and used in connection with establishing the sales returns and other allowances in any accounting period. These markdown allowances are reported as a reduction of the Company’s net revenues. Material differences may result in the amount and timing of the Company’s revenues for any period if management makes different judgments or utilizes different estimates. The reserves for sales returns and other allowances amounted to $1.6 million at April 30, 2005 compared to $1.3 million at October 31, 2004 and $1.1 million at April 30, 2004.

     Allowance for Doubtful Accounts. Management must make estimates of the uncollectability of accounts receivable. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments, which results in bad debt expense. Management determines the adequacy of this allowance by analyzing current economic conditions, historical bad debts and continually evaluating individual customer receivables considering the customer’s financial condition. If the financial condition of any significant customers were to deteriorate, resulting in the impairment of their ability to make payments, material additional allowances for doubtful accounts may be required. The Company maintains credit insurance to cover many of its major accounts. The Company’s trade accounts receivable balance was $52.4 million, net of allowances for doubtful accounts of $1.3 million, at April 30, 2005, as compared to the balance of $39.3 million, net of allowances for doubtful accounts of $1.2 million, at October 31, 2004. At April 30, 2004, the trade accounts receivable balance was $48.1 million, net of allowances for doubtful accounts of $1.1 million.

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     Inventory. The Company writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated net realizable value based on assumptions about age of the inventory, future demand and market conditions. This process provides for a new basis for the inventory until it is sold. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. The Company’s inventory balance was $53.9 million, net of inventory write-downs of $1.1 million, at April 30, 2005, as compared to an inventory balance of $49.2 million, net of inventory write-downs of $0.8 million, at October 31, 2004. At April 30, 2004, the inventory balance was $43.5 million, net of inventory write-downs of $0.8 million.

     Asset Purchase Credits. In November 2000, the Company entered into an agreement with a third party whereby prior seasons’ slower selling inventory which was not damaged was exchanged for future asset purchase credits (“APCs”), which may be utilized by the Company to purchase future goods and services over a four-year period. The original value of the inventory exchanged (at cost) was $1.4 million resulting in $1.4 million in future APCs. In December 2003, the Company amended its agreement with the third party to exchange $0.9 million of additional prior seasons’ slower selling inventory (at cost) for an additional $0.9 million in future APCs and an extension of the original November 2000 agreement through December 1, 2007. The Company has entered into contracts with several third party suppliers who have agreed to accept these APCs, in part, as payment for goods and services. The Company purchases products such as sales fixtures, office and packaging supplies, as well as temporary help, freight and printing services from such third party suppliers. From time to time, the Company may enter into additional contracts with such third party suppliers to use the APCs. Management reviews and estimates the likelihood of fully utilizing the APCs on a periodic basis. If the Company is unable to find suppliers who agree to accept the APCs in quantities as projected by management, a write-down of the value of the APCs may be required. At April 30, 2005, the Company had $0.4 million of the APCs remaining and management expects to fully utilize them over the remaining life of the contract through December 1, 2007. At April 30, 2005, the Company recorded $0.4 million of the APC’s in its “Other Current Assets” line item.

Off-Balance Sheet Arrangements

At April 30, 2005 and 2004, the Company did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, the Company does not engage in trading activities involving non-exchange traded contracts which rely on estimation techniques to calculate fair value. As such, the Company is not exposed to any financing, liquidity, market or credit risk that could arise if the Company had engaged in such relationships.

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Overview

     The Company earns revenues and income and generates cash through the design, marketing and distribution of quality men’s and women’s sports apparel under the Ashworth^® and Callaway Golf apparel brands. The Company’s products are sold in the United States, Europe, Canada and various other international markets to selected golf pro shops, resorts, off-course specialty shops, upscale department stores, top specialty-advertising firms for the corporate market as well as in the Company’s own stores. Nearly all of the Company’s production is through “full package” purchases of ready-made goods with approximately 85% of its products manufactured in Asian countries. The Company embroiders a majority of these garments with custom golf course, tournament and corporate logos for its customers.

     The Company includes F.O.B. purchase price, inbound freight charges, duty, buying commissions and overhead in its cost of goods sold line item. Overhead costs include purchasing and receiving costs, inspection costs, warehousing costs, internal transfer costs and other costs associated with the Company’s distribution. The Company does not exclude any of these costs from cost of goods sold.

     During the second quarter of fiscal 2004, the Company completed two transactions relating to its distribution facilities. In February 2004, the Company completed the sale and lease-back of its old distribution center located in Carlsbad, California. The Company sold the Carlsbad distribution center for $5.7 million and realized a gain on sale of fixed assets of $1.6 million. In April 2004, the Company completed the purchase of the new distribution facility in Oceanside, California for approximately $14.0 million. The Company applied the tax deferred gain on sale of the old facility to reduce the cost basis of the new facility, for tax purposes, utilizing a tax-deferred exchange under Internal Revenue Code section 1031.

     During the third quarter of fiscal 2004, the Company completed the acquisition (the “Acquisition”) of all of the membership interests in Gekko Brands, LLC (“Gekko”), a leading designer, producer and distributor of headwear and apparel under The GameÒ and KudzuÒ brands, pursuant to that certain Membership Interests Purchase Agreement entered into on July 6, 2004, by and among Ashworth Acquisition Corp., a Delaware corporation and wholly owned subsidiary of Ashworth, Inc. and the selling members identified therein. Ashworth intends that the operations of Gekko will continue to focus on designing, producing and distributing headwear and apparel.

     The purchase price for the Acquisition was $24.0 million consisting of $23.0 million in cash and a $1.0 million promissory note. Under the purchase agreement, the selling members may be entitled to receive an additional $6.5 million if the subsidiary achieves specific EBIT and other operating targets through Ashworth’s fiscal year 2008. For the period from July 7, 2004 through October 31, 2004, the subsidiary achieved the specified EBIT and other operating targets and the selling members were paid an additional $540,000.

     In connection with the Acquisition, Ashworth entered into a new secured 5-year bank facility comprised of a $20.0 million term loan and a $35.0 million line of credit replacing its prior $55.0 million facility. To finance the cash purchase price of the Acquisition, Ashworth utilized the term loan together with part of the new line of credit.

     Also during the third quarter of fiscal 2004, the Company recorded a pre-tax charge of $3.0 million related to a tentative settlement to conclude the securities class action lawsuit brought in 1999 against the Company and certain current and former directors and officers in the United States District

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Court for the Southern District of California. The litigation was brought on behalf of a class of investors who purchased the Company’s stock in the open market between September 4, 1997 and July 15, 1998. Under the settlement, all claims will be dismissed and the litigation will be terminated in exchange for a payment of $15.3 million, approximately 82% of which will be paid by Ashworth’s insurance carriers. As part of the settlement, Ashworth also agreed to adopt modifications to certain corporate governance policies.

Results of Operations

Second quarter 2005 compared to second quarter 2004

     Consolidated net revenues for the second quarter of fiscal 2005 increased 18.3% to $64.7 million from $54.7 million for the same period of the prior fiscal year, primarily due the addition of Gekko’s net revenues as well as higher net revenues from the Company’s retail and corporate distribution channels and international segments. These increases were partially offset by declines in net revenues from the Company’s golf-related distribution channel.

     Net revenues for the domestic segment increased 16.6% to $51.9 million for the second quarter of fiscal 2005 from $44.5 million for the same period of the prior fiscal year, primarily due to the acquisition of Gekko. Net revenues from the Company’s retail distribution channel increased 14.8% or $0.7 million for the second quarter of fiscal 2005, primarily driven by an approximately 26% year over year increase in sales of men’s apparel into the channel. Net revenues from the green grass and off-course specialty distribution channel decreased 5.5% or $1.8 million for the second quarter of fiscal 2005 due to generally slow golf conditions due to poor weather and the resulting decline in the number of rounds played. Net revenues from the Company’s corporate distribution channel increased by 6.4% or $364,000 for the second quarter of fiscal 2005. The increase in net revenues in the corporate distribution channel was primarily due to the success of certain sales promotions. Net revenues from the Company-owned stores increased 10.6% or $148,000 primarily due to revenue contributions from the opening of three new stores, partially offset by a loss of revenues from the closing of one existing outlet store.

     Net revenues for the Ashworth U.K., Ltd segment increased 37.7% to $8.4 million for the second quarter of fiscal 2005 from $6.1 million for the same period of the prior fiscal year. The increase is primarily due to strong demand in the United Kingdom and Ireland as well as fluctuations in currency exchange rates.

     Net revenues for the other international segment increased 6.1% to $4.4 million for the second quarter of fiscal 2005 from $4.1 million for the same period of the prior fiscal year. The increase was due to an increase in international licensing fee revenues and favorable currency fluctuations at the Company’s Canadian divisions.

     Consolidated gross margin for the second quarter of fiscal 2005 increased 80 basis points to 43.4% as compared to 42.6% for the same period of the prior fiscal year. This improvement was primarily due to the addition of The Game and Kudzu brands, partially offset by increased costs related to the start up of the new embroidery distribution center.

     Consolidated selling, general and administrative (“SG&A”) expenses increased 41.9% to $19.3 million for the second quarter of fiscal 2005 from $13.6 million for the same period of the prior fiscal year. As a percent of net revenues, SG&A expenses were 29.8% for the second quarter of fiscal 2005 as

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compared to 24.9% for the same period of the prior year. A portion of the increase is attributable to a $1.6 million gain on the sale of land and building included as an offset against SG&A expenses for the fiscal quarter ended April 30, 2004. The remainder of the increase results from the addition of Gekko, increased selling costs at the Company’s Ashworth U.K., Ltd segment, incremental costs associated with the Company’s Sarbanes-Oxley Section 404 compliance efforts and increased rent expense resulting from the opening of new outlet stores.

     Total net other expense was $762,000 for the second quarter of fiscal 2005 compared to net other expense of $314,000 for the same period of the prior fiscal year due primarily to increased interest expense resulting from the increase in debt financing.

     The effective income tax rate for the second quarter of fiscal 2005 remained unchanged from the same period of the prior fiscal year at 40.0% of pre-tax income.

Six months ended April 30, 2005 compared to six months ended April 30, 2004

     Consolidated net revenues for the first half of fiscal 2005 increased 23.4% to $101.2 million from $82.0 million for the same period of the prior fiscal year primarily due to higher revenues from the retail distribution channel as well as the international segment, partially offset by a decrease in net revenues from the Company’s golf-related distribution channel.

     Net revenues for the domestic segment increased 23.6% to $83.5 million in the first half of fiscal 2005 from $67.5 million for the same period of the prior fiscal year. Net revenues from the Company’s retail distribution channel increased 9.1% or $785,000 in the first half of fiscal 2005 as compared to the same period the prior fiscal year, primarily due to an approximately 26% year over year increase in sales of men’s apparel into the channel. Net revenues from the green grass and off-course specialty distribution channel decreased 4.2% or $1,931,000 in the first half of fiscal 2005 as compared to the first half of the prior fiscal year. This decrease was primarily because of generally slow golf industry conditions due to poor weather and the resulting decline in the number of rounds played. Net revenues from the Company’s corporate distribution channel decreased 0.4% or $40,000 in the first half of fiscal 2005 as compared to the same period of the prior fiscal year. The decrease in the corporate distribution channel was primarily due to a delay in the launch of our 2005 Authenticsä product line in the first quarter of fiscal 2005. Net revenues from the Company-owned stores increased 22.4% or $589,000 in the first half of fiscal 2005 as compared to the same period of the prior fiscal year primarily due to revenue contributions from the opening of three new stores, partially offset by a loss of revenues from the closing of one existing outlet store.

     Net revenues for the Ashworth U.K., Ltd segment increased 32.6% to $11.8 million in the first half of fiscal 2005 from $8.9 million for the same period of the prior fiscal year. The increase is due to strong demand in the United Kingdom and Ireland as well as fluctuations in currency exchange rates.

     Net revenues for the other international segment increased 4.9% to $5.9 million for the first half of fiscal 2005 from $5.6 million for the same period of the prior fiscal year. The increase was due to an increase in international licensing fee revenues and favorable currency fluctuations at the Company’s Canadian divisions.

     Consolidated gross margin for the first half of fiscal 2005 increased 70 basis points to 42.2% as compared to 41.5% for the same period of the prior fiscal year. This improvement was primarily due to

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the addition of The Game and Kudzu brands partially offset by increased costs related to the new embroidery distribution center.

     Consolidated SG&A expenses increased 39.8% to $33.4 million for the first half of fiscal 2005 from $23.9 million for the same period of the prior fiscal year. As a percentage of revenues, SG&A expenses increased to 33.0% of net revenues for the first half of fiscal 2005, as compared to 29.2% for the same period of the prior fiscal year. A portion of the increase is attributable to a $1.6 million gain on the sale of land and building included as an offset against SG&A expenses for the quarter ended April 30, 2004. The remainder of the increase results from the addition of Gekko, increased selling costs at the Company’s Ashworth U.K., Ltd segment, incremental costs associated with the Company’s Sarbanes-Oxley Section 404 compliance efforts and increased rent expense resulting from the opening of new outlet stores.

     Total net other expense was $1.2 million in the first half of fiscal 2005 compared to net other expense of $0.4 million for the same period of the prior fiscal year, due primarily to higher interest expense resulting from the increase in debt financing.

     The effective income tax rate in the first half of fiscal 2005 remained unchanged from the same period of the prior fiscal year at 40.0% of pre-tax income.

Capital Resources and Liquidity

     The Company’s primary sources of liquidity for the next 12 months are expected to be its cash flows from operations, the working capital line of credit with its bank and other financial alternatives such as leasing. The Company requires cash for capital expenditures and other requirements associated with the expansion of its domestic and international production, distribution and sales, as well as for general working capital purposes. Ashworth’s need for working capital is seasonal with the greatest requirements existing from approximately December through the end of July each year. The Company typically builds up its inventory during this period to provide product for shipment for the spring/summer selling season.

     On July 6, 2004, the Company entered into a new business loan agreement with Union Bank of California, N.A., as the administrative agent, and two other lenders. The new loan agreement is comprised of a $20.0 million term loan and a $35.0 million revolving credit facility, which expires on July 6, 2009 and is collateralized by substantially all of the assets of the Company other than the Company’s real estate.

     Under this loan agreement, interest on the $20.0 million term loan is fixed at 5.4% for the term of the loan. Interest on the revolving credit facility is charged at the bank’s reference rate. At April 30, 2005, the bank’s reference rate was 5.75%. The loan agreement also provides for optional interest rates based on London interbank offered rates (“LIBOR”) for periods of at least 30 days in increments of $0.5 million.

     On September 3, 2004, the Company entered into the First Amendment to the loan agreement to amend Section 6.12(a), Tangible Net Worth. The loan agreement, as amended, contains certain financial covenants that include a requirement that the Company maintain (1) a minimum tangible net worth of $74.0 million plus the net proceeds from any equity securities issued (including net proceeds from stock option exercises) after the date of the loan agreement for the period ending October 31, 2004, and a minimum tangible net worth of $74.0 million, plus 90% of net income after taxes (without subtracting

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losses) earned in each quarterly accounting period commencing after January 31, 2005, plus the net proceeds from any equity securities issued (including net proceeds from stock option exercises) after the date of the loan agreement, (2) a minimum earnings before interest, income taxes, depreciation and amortization (“EBITDA”) determined on a rolling four quarters basis ranging from $16.5 million at July 6, 2004 and increasing over time to $27.0 million at October 31, 2008 and thereafter, (3) a minimum ratio of cash and accounts receivable to current liabilities of 0.75:1.00 for fiscal quarters ending January 31 and April 30 and 1.00:1.00 for fiscal quarters ending July 31 and October 31, and (4) a minimum fixed charge coverage ratio of 1.10:1.00 at July 31, 2004 and 1.25:1.00 thereafter. The loan agreement limits annual lease and rental expense associated with the Company’s new distribution center in Oceanside, California as well as annual capital expenditures in any single fiscal year on a consolidated basis in excess of certain amounts allowed for the acquisition of real property and equipment in connection with the new distribution center. The loan agreement has an additional requirement where, for at least 30 consecutive days in each year, the total indebtedness under the revolving credit facility may not be more than $15.0 million. The loan agreement also limits the annual aggregate amount the Company may spend to acquire shares of its common stock. The Company is in compliance with or has obtained waivers for all of the loan agreement’s financial covenants as of April 30, 2005.

     The line of credit under the loan agreement may also be used to finance commercial letters of credit and standby letters of credit. Commercial letters of credit outstanding under this loan agreement totaled $4.7 million at April 30, 2005 as compared to $3.9 million outstanding at April 30, 2004 under the prior loan agreement. The increase in outstanding letters of credit is primarily due to increased inventory purchases. The Company had $16.0 million outstanding against the revolving credit facility under this loan agreement at April 30, 2005, compared to $7.0 million outstanding at April 30, 2004 under the prior agreement and $2.5 million outstanding at October 31, 2004. The increase in borrowings against the revolving credit facility is primarily due to borrowings to finance the Gekko acquisition, repayments on the term loan and higher operating cash flow requirements to support continued revenue growth. The Company had $17.0 million outstanding on the term loan under this loan agreement at April 30, 2005 compared to $19.0 million at October 31, 2004. At April 30, 2005, $14.3 million was available for borrowings against the revolving credit facility under this loan agreement.

     During the first half of fiscal 2005, cash used in operations was $10.3 million as compared to $5.4 million used in operations during the same period of the prior fiscal year. The increase in cash used in operations was primarily due to higher working capital requirements as the result of inventory purchases and the acquisition of Gekko Brands, LLC.

     Net trade receivables were $52.4 million at April 30, 2005, an increase of $13.2 million from the balance at October 31, 2004. Because the Company’s business is seasonal, the net receivables balance may be more meaningfully compared to the balance of $48.1 million at April 30, 2004, rather than the year-end balance. The comparison of the second quarter fiscal 2005 balance to the second quarter fiscal 2004 balance shows an increase of approximately $4.3 million. This increase is primarily due to the addition of the Gekko Brands, LLC net trade receivables of $3.7 million.

     Net inventories increased 9.5% to $53.9 million at April 30, 2005 from $49.2 million at October 31, 2004, primarily due to the seasonal nature of the Company’s golf distribution channel and the Company’s inventory requirements to meet market demand in the spring/summer selling season. Compared to net inventories of $43.5 million at April 30, 2004, net inventories at April 30, 2005 have increased by 23.9%. The increase is partly due to the addition of Gekko, and partly due to the planned earlier receipt of basics inventory to mitigate the expected logistics bottleneck resulting from the lifting of some quotas on Chinese goods by the United States. The Company believes that its current inventory mix is appropriate to respond to market demand.

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     Current liabilities increased 58.4% to $46.1 million at April 30, 2005 from $29.1 million at October 31, 2004. Compared to current liabilities of $23.7 million at April 30, 2004, current liabilities increased 97.5%, primarily due to the $3.1 million in additional current liabilities from the acquisition of Gekko Brands, LLC, the $4.0 million in additional current portion of long-term debt related to the term loan used to finance part of the acquisition, increased accounts payable to fund additional inventory purchases of $5.4 million, an increase in borrowings against the line of credit of $9.0 million.

     On October 25, 2002, the Company entered into an agreement to purchase the land and building, to be built to the Company’s specifications, in the Ocean Ranch Corporate Center in Oceanside, California. The building was constructed with approximately 200,000 square feet of useable office and warehouse space and will be used by the Company to warehouse, embroider, finish, package and distribute clothing products and related accessories. On April 2, 2004, the Company completed the purchase of the new distribution center for approximately $14 million and entered into a secured loan agreement with a bank to finance $11.7 million of the purchase price. The loan is at a fixed interest rate of 5.0% and will be amortized over 30 years, but is due and payable on May 1, 2014. To fulfill certain requirements under the mortgage loan agreement, the Company created Ashworth EDC LLC, a special purpose entity, to be the purchaser and mortgagor. Ashworth EDC LLC is a wholly owned limited liability company organized under the laws of the State of Delaware and its results and assets are reported in the condensed consolidated statements included in this report.

     During the first half of fiscal 2005, the Company incurred capital expenditures of $5.1 million primarily for computer systems and equipment, leasehold improvements related to new outlet stores and distribution center equipment in connection with the placing in service of the new embroidery distribution center. The Company anticipates capital spending of between $1.0 million and $1.5 million during the remainder of fiscal 2005, primarily on outlet stores openings and information systems improvements. Management currently intends to finance the purchase of the additional capital equipment from its own cash resources, but may use leases or equipment financing agreements if deemed appropriate.

     The Company capitalized interest of $0 and $61,000 during the six months ended April 30, 2005 and 2004, respectively, related to self-constructed construction in progress for the new distribution center.

     On February 24, 2004, the Company sold certain property located in Carlsbad, California, used in its distribution operation for $5.7 million and recorded a gain on disposal of fixed assets of $1.6 million. The land, buildings and other assets were reported in the Company’s domestic segment and were sold as a unit on an “as is” basis. As a result of the sale, the Company paid the $2.6 million balance due on the mortgage relating to the subject property. The Company entered into a lease agreement to lease the facility from the new owner. The term of the lease commenced on February 24, 2004 and terminated on December 31, 2004, with an option to renew the term of the lease for a period of 60 days. The Company did not exercise its option to renew the lease past the expiration date of December 31, 2004. Under the terms of the lease agreement, the Company paid monthly rent of approximately $47,000 plus taxes, insurance and utilities.

     On August 30, 2004, the Company agreed to a schedule with Key Equipment Finance, a Division of Key Corporate Capital, Inc. (“KEF” or the “Lessor”) thereby completing the Master Equipment Lease Agreement, dated as of June 23, 2003, previously entered into by Ashworth and KEF. Under the terms of the schedule, we are leasing equipment for our distribution center in Oceanside, California. The aggregate cost of the equipment is approximately $10.4 million. The initial term of the lease is for ninety-one (91) months beginning on September 1, 2004 and the monthly rent payment is $128,800. At the end of the initial term, the Company has the option to (1) purchase all, but not less than all, equipment on the initial

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term expiration date at a price equal to the greater of (a) the then fair market sale value thereof, or (b) 12% of the total cost of the equipment (plus, in each case, applicable sales taxes), (2) renew the lease on a month to month basis at the same rent payable at the expiration of the initial lease term; (3) renew the lease for a minimum period of not less than 12 consecutive months at the then current fair market rental value; or (4) return such equipment to the Lessor pursuant to, and in the condition required by, the lease.

     The Company is party to an exclusive licensing agreement with Callaway Golf Company, which requires certain minimum royalty payments which began in January 2003. The revenues from the Callaway Golf apparel product line have been, and the Company believes will continue to be, sufficient to cover such minimum guarantees.

     Common stock and capital in excess of par value increased by $1,134,000 in the six months ended April 30, 2005, of which $830,000 is due to the issuance of 154,936 shares of common stock on exercise of options and $304,000 is the tax benefit related to the exercise of those options.

     Based on current levels of operations, the Company expects that sufficient cash flow will be generated from operations so that, combined with other available financing alternatives, including cash on hand, borrowings under its bank credit facility and leasing alternatives, the Company will be able to meet all of its debt service, capital expenditure and working capital requirements for at least the next 12 months.

Derivatives

     From time to time the Company enters into short-term foreign exchange contracts with its bank to hedge against the impact of currency fluctuations between the U.S. dollar and the British pound and the U.S. dollar and the Canadian dollar. The contracts provide that, on specified dates, the Company would sell the bank a specified number of British pounds or Canadian dollars in exchange for a specified number of U.S. dollars. Additionally, from time to time, the Company’s U.K. subsidiary enters into similar contracts with its bank to hedge against currency fluctuations between the British pound and the U.S. dollar and the British pound and other European currencies. Realized gains and losses on these contracts are recognized in the same period as the hedged transactions. These contracts have maturity dates that do not normally exceed 12 months. During the quarter ended April 30, 2005, neither the Company nor any of its subsidiaries had any outstanding foreign exchange contracts.

New Accounting Standards

     In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4. This statement amends the guidance in ARB No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Paragraph 5 of ARB No. 43, Chapter 4, previously stated that “...under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges...” SFAS No. 151 requires that those items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal.” In addition, this statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of SFAS 151 shall be applied prospectively and are effective for inventory costs incurred during fiscal years beginning after June 15, 2005, with earlier application permitted for inventory costs incurred during fiscal years beginning after the date this Statement is issued. The Company’s adoption of SFAS No. 151 is not expected to have a material impact on the Company’s financial position and results of operations.

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     In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29. The guidance in APB Opinion No. 29, Accounting for Nonmonetary Transactions, is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle. This Statement amends APB Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for nonmonetary exchanges occurring in fiscal periods beginning after June 15, 2005. The Company’s adoption of SFAS No. 153 is not expected to have a material impact on the Company’s financial position and results of operations.

     In December 2004, the FASB issued SFAS No. 123 (revised 2004) (“SFAS No. 123 (R)), Share-Based Payment. SFAS No. 123 (R) revises FASB Statement No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. The Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. The Statement requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award — the requisite service period (usually the vesting period). The cost of employee services received shall be measured at its then current fair value and then remeasured at fair value at each reporting date through the settlement date. Changes in fair value during the requisite service period will be recognized as compensation cost over that period. The Statement was originally effective as of the beginning of the first interim or annual reporting period beginning after June 15, 2005. However, in April 2005, the SEC issued Release No. 33-8568, Amendment to Rule 4-01(a) of Regulation S-X Regarding the Compliance Date for Statement of Financial Accounting Standards No. 123 (Revised 2004), “Share-Based Payment.” Release No. 33-8568 amends the date for compliance with SFAS No. 123 (revised 2004) so that each registrant that is not a small business issuer will be required to prepare financial statements in accordance with SFAS No. 123 (revised 2004) beginning with the first interim or annual reporting period of the registrant’s first fiscal year beginning on or after June 15, 2005. The Statement also requires that, as of the required effective date, all public entities that used the fair-value based method for either recognition or disclosure under Statement 123 shall apply the modified prospective application transition method. For periods before the required effective date, public entities may elect to apply the modified retrospective application transition method. The Company anticipates adopting SFAS No. 123 (R) beginning in the quarter ending January 31, 2006 using the modified prospective application transition method. Under that method, the provisions of the Statement apply to new awards and to awards modified, repurchased, or cancelled after the required effective date. Additionally, compensation cost for the portion of awards for which the requisite service has not been rendered that are outstanding as of the required effective date shall be recognized as the requisite service is rendered on or after the required effective date. Although the Company’s adoption of SFAS No. 123 (revised 2004) could have a material impact on the Company’s financial position and results of operations, management is still evaluating the potential impact from adopting this statement.

     In March 2005, the SEC issued Staff Accounting Bulletin Number 107 (“SAB 107”) that provided additional guidance to public companies relating to share-based payment transactions and the implementation of SFAS 123 (revised 2004), including guidance regarding valuation methods and related assumptions, classification of compensation expense and income tax effects of share-based payment arrangements. Management is still evaluating the impact from adopting SFAS No. 123 (revised 2004) together with the guidance provided by SAB 107.

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Cautionary Statements and Risk Factors

     This report contains certain forward-looking statements, including without limitation those regarding the Company’s plans and expectations for revenue growth, product lines, strategic alliances, designs and seasonal collections, capital spending, marketing programs, foreign sourcing, cost controls, inventory levels and availability of working capital. These forward-looking statements may contain the words “believe,” “anticipate,” “expect,” “estimate,” “project,” “will be,” “will continue,” “will likely result” or other similar words and phrases. Readers are cautioned not to place undue reliance on these forward-looking statements. The Company undertakes no obligation to update any such statements or publicly announce any updates or revisions to any of the forward-looking statements contained herein. Forward-looking statements and the Company’s plans and expectations are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated, and the Company’s business in general is subject to certain risks that could affect the value of the Company’s common stock. These risks include, but are not limited to, the following:

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

     The Company’s debt consists of a term loan, mortgage note, notes payable, capital lease and line of credit obligations which had a total balance of $45.5 million at April 30, 2005. The Company’s debt, excluding revolving line of credit obligations, bears interest at fixed rates ranging from 3.5% to 5.4%, which approximates fair value based on current rates offered for debt with similar risks and maturities. The Company had $16 million outstanding at April 30, 2005 on its revolving line of credit with interest charged at the bank’s reference rate (prime). The loan

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agreement also provides for optional interest rates based on LIBOR for periods of at least 30 days in increments of $0.5 million. A hypothetical 10% increase in interest rates during the six months ended April 30, 2005 would have resulted in a $23,000 decrease in net income.

     For details regarding the Company’s variable and fixed rate debt, see Item 2. Management Discussion and Analysis of Financial Condition and Results of Operations – Capital Resources and Liquidity.

Foreign Currency Exchange Rate Risk

     The Company’s ability to sell its products in foreign markets and the U.S. dollar value of the sales made in foreign currencies can be significantly influenced by foreign currency fluctuations. A decrease in the value of foreign currencies relative to the U.S. dollar could result in downward price pressure for the Company’s products or losses from currency exchange rates. From time to time, the Company enters into short-term foreign exchange contracts with its bank to hedge against the impact of currency fluctuations between the U.S. dollar and the British pound and the U.S. dollar and the Canadian dollar. The contracts provide that, on specified dates, the Company sells the bank a specified number of British pounds or Canadian dollars in exchange for a specified number of U.S. dollars. Additionally, from time to time, the Company’s U.K. subsidiary enters into similar contracts with its bank to hedge against currency fluctuations between the British pound and the U.S. dollar and the British pound and other European currencies. Realized gains and losses on these contracts are recognized in the same period as the hedged transaction. These contracts have maturity dates that do not normally exceed 12 months. The Company will continue to assess the benefits and risks of strategies to manage the risks presented by currency exchange rate fluctuations. There is no assurance that any strategy will be successful in avoiding losses due to exchange rate fluctuations, or that the failure to manage currency risks effectively would not have a material adverse effect on the Company’s results of operations. During the three and six month periods ended April 30, 2005, neither the Company nor any of its subsidiaries had any outstanding foreign exchange contracts.

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

     As of April 30, 2005, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective and provide reasonable assurance that information required to be disclosed by the Company in the reports it files under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within required time periods.

Changes in Internal Control over Financial Reporting

     There was no significant change in the Company’s internal controls over financial reporting during the Company’s second quarter of fiscal 2005 that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.

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PART II

OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

     On January 22, 1999, Milberg Weiss Bershad Hynes & Lerach LLP filed a class action in the United States District Court for the Southern District of California (“U.S. District Court”) on behalf of purchasers of the Company’s common stock during the period between September 4, 1997 and July 15, 1998. The action was subsequently consolidated with two similar suits and plaintiffs filed their Amended and Consolidated Complaint on December 17, 1999. Upon the Company’s motion, the U.S. District Court dismissed the Complaint with leave to amend on July 18, 2000. On September 18, 2000, plaintiffs served their Second Consolidated Amended Complaint (“Second Amended Complaint”). On November 6, 2000, the Company filed its motion to dismiss the Second Amended Complaint, which the U.S. District Court granted, in part, and denied, in part. The remaining portions of the Second Amended Complaint alleged that, among other things, during the class period and in violation of the Securities Exchange Act of 1934, the Company’s financial statements, as reported, did not conform to generally accepted accounting principles with respect to revenues and inventory levels. It further alleged that certain Company executives made false or misleading statements or omissions concerning product demand and that two former executives engaged in insider trading. On November 8, 2004, the U.S. District Court entered a Final Approval of Settlement. Under the settlement, all claims will be dismissed and the litigation will be concluded in exchange for a payment of $15.25 million, approximately 82% of which will be paid by Ashworth’s insurance carriers. As part of the settlement, Ashworth also agreed to adopt modifications to certain corporate governance policies. Ashworth recorded a pre-tax charge of $3 million in the third quarter of fiscal year 2004 related to settlement of this suit.

     The Company is party to other claims and litigation proceedings arising in the normal course of business. Although the legal responsibility and financial impact with respect to such other claims and litigation cannot currently be ascertained, the Company does not believe that these other matters will result in payment by the Company of monetary damages, net of any applicable insurance proceeds, that, in the aggregate, would be material in relation to the consolidated financial position or results of operations of the Company.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

     None

Item 3. DEFAULTS UPON SENIOR SECURITIES.

     None

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     At the Company’s Annual Meeting of Stockholders (“Annual Meeting”) on March 23, 2005 Mr. H. Michael Hecht and Mr. James G. O’Connor were elected as Class III directors to serve on the Company’s board of directors for a three year term until the Annual Meeting in 2008. The following directors continued in office after the meeting but were not subject to reelection at the meeting: Mr. Stephen G. Carpenter, Mr. John M. Hanson, Jr., Mr. James B. Hayes, Mr. Randall L. Herrel, Sr., Ms. Judith K. Hofer and Mr. Phillip D. Matthews.

     The stockholder votes on the elections were as follows:

H. Michael Hecht
Number of votes FOR	12,410,243
Number of votes WITHHELD	60,919
Number of broker non-votes	0
James B. Hayes
Number of votes FOR	12,405,589
Number of votes WITHHELD	65,573
Number of broker non-votes	0

Item 5. OTHER INFORMATION

     Effective January 1, 2005, the Compensation Committee of the Board of Directors approved an adjustment in base salary from $387,000 per year to $425,000 per year for Randall L. Herrel, Sr., Chairman, CEO and President.

     Seidensticker (Overseas) Limited, a supplier of inventoried products to us, owns approximately 5.5% of our outstanding common stock. We purchased approximately $1.2 million of products from Seidensticker during the quarter ended April 30, 2005, and $2.4 million during the six months ended April 30, 2005. During fiscal 2004, we purchased approximately $4.0 million of products from Seidensticker. We believe that the terms upon which we purchased the inventoried products from Seidensticker are consistent with the terms offered to other, unrelated parties.

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Item 6. EXHIBITS

Exhibits

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28

29

30

31

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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EXHIBIT INDEX

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