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SECURITIES AND EXCHANGE COMMISSION

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

For the fiscal year ended October 31, 2003

[   ] 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: 0-18553

Ashworth, Inc.

2765 LOKER AVENUE WEST, CARLSBAD, CA 92008
(Address of Principal Executive Office, including Zip Code)
(760) 438-6610
(Registrant’s Telephone Number, including Area Code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to section 12(g) of the Act: common stock, $.001 par value

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 [X] No [  ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

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

     The aggregate market value of the Registrant’s common stock held by nonaffiliates based upon the last reported sales price of its common stock on April 30, 2003 as reported on the NASDAQ National Market was $73,318,000.

     There were 13,310,069 shares of common stock, $.001 par value, outstanding at the close of business on December 31, 2003.

DOCUMENTS INCORPORATED BY REFERENCE

     PART III incorporates certain information by reference from the Registrant’s definitive Proxy Statement for its 2004 Annual Meeting of Stockholders to be filed with the Commission within 120 days of October 31, 2003 pursuant to Regulation 14A, which information is incorporated herein by reference.

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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, domestic and foreign distribution centers, 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:

ú		Demand for the Company’s products may decrease significantly if the economy weakens, if the popularity of golf decreases or if unusual weather conditions cause a reduction in rounds played.
ú		Like other apparel manufacturers, the Company must correctly anticipate and help direct fashion trends within its industry. The Company’s results of operations would suffer if the Company fails to develop fashions or styles that are well received in any season.
ú		The Company is party to a multi-year licensing agreement to design, source and sell Callaway Golf apparel primarily in the United States, Europe, Canada and Australia. The Company must correctly anticipate the fashion trends and demand for these product lines. The Company’s results of operations would suffer if it fails to develop fashions or styles for the Callaway Golf apparel product line that are well received in any season.
ú		The market for golf apparel and sportswear is extremely competitive. The Company has several strong competitors that are better capitalized. Outside the green grass market, the Company’s market share is not as significant. Price competition or industry consolidation could weaken the Company’s competitive position.
ú		The outbreak of Severe Acute Respiratory Syndrome affected travel to countries where the Company’s products are manufactured. Visiting manufacturers in the affected countries is an important part of the product development process for the Company. If travel to these countries is again restricted by a similar outbreak, the Company’s product development process and reputation as a designer and manufacturer of innovative products may be adversely affected, our international production and shipments may be limited, and the Company could lose sales.
ú		The Company relies on domestic and foreign contractors to manufacture various products. If these contractors deliver goods late or fail to meet the Company’s quality standards, the Company could lose sales and its reputation could suffer.
ú		The Company’s domestic and foreign suppliers rely on readily available supplies of raw materials at reasonable prices. If these raw materials are in short supply or are only available at inflated prices, the contractors may be unable to deliver the Company’s products in sufficient quantities or at expected prices and the Company could lose sales and have lower gross profit margins.
ú		An increase in terrorist activities, as well as the continued conflicts around the world, would likely

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		adversely affect the level of demand for the Company’s products as customers’ and consumers’ attention and interest are diverted from golf and fashion and become focused on these events and the economic, political, and public safety issues and concerns associated with them. Also, such events could adversely affect the Company’s ability to manage its supply and delivery of product from domestic and foreign contractors. If such events caused a significant disruption in domestic or international shipments, the Company’s ability to fulfill customer orders also would be materially adversely affected.
ú		The Company has entered into agreements to purchase land and a building in Oceanside, California and to lease new office and distribution facilities in Basildon, England to replace and expand existing owned and leased office and distribution facilities. The Company’s results of operations would be adversely affected if the Oceanside distribution center is not operational as anticipated or functionality problems are encountered. Any such delay or operation problems may cause the Company to incur additional expense, experience delays in customer shipments, require the Company to lease additional distribution space or extend the term of existing leases. In addition, whether or not the facilities are operational at the time anticipated, the Company’s results of operations could be negatively impacted if future sales volume growth does not reach expected levels and the facility’s additional distribution capacity is not fully utilized, or if the Company does not achieve projected cost savings from the new distribution facilities as soon as, or in the amounts, anticipated.
ú		If economic conditions deteriorate, the ability of the Company’s customers to pay current obligations may be adversely impacted and the Company may experience an increase in delinquent and uncollectable accounts.
ú		Fluctuations in foreign currency exchange rates could affect the Company’s ability to sell its products in foreign markets and the value in U.S. dollars of revenues received in foreign currencies. The Company’s revenues from its international segment may also be adversely affected by taxation and laws or policies of the foreign countries in which the Company has operations, as well as laws and policies of the United States affecting foreign trade, investment and taxation.
ú		The Company maintains high levels of inventory to support its Authentics™ program as well as the Callaway Golf apparel brand. Additional products, greater sales volume, and customer trends toward increased “at-once” ordering may require increased inventory. Disposal of excess prior season inventory is an ongoing part of the Company’s business, and write-downs of inventories may materially impair the Company’s financial performance in any period. Particular inventories may be subject to multiple write-downs if the Company’s initial reserve estimates for inventory obsolescence or lack of throughput prove to be too low. These risks increase as inventory increases.

2004 ANNUAL MEETING OF STOCKHOLDERS

     The Company’s annual meeting of stockholders will be held at 8:00 a.m. on Wednesday, March 24, 2004 at the Company’s corporate headquarters at 2765 Loker Avenue West, Carlsbad, California.

PART I

Item 1. BUSINESS.

GENERAL DESCRIPTION OF THE COMPANY

     Ashworth, Inc., based in Carlsbad, California, was incorporated in Delaware on March 19, 1987. As used in this report, the terms “we,” “us,” “our,” “Ashworth” and the “Company” refer to Ashworth, Inc., its predecessors, subsidiaries and affiliates, unless the context indicates otherwise. The Company designs,

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markets and distributes quality sports apparel, headwear and accessories under the Ashworth® label. In 2001, the Company entered into a multi-year licensing agreement to design, source, market and sell Callaway Golf apparel primarily in the United States, Europe, Canada and Australia.

     The Company has wholly-owned subsidiaries that currently own and operate seven Company outlet stores. A wholly-owned United Kingdom subsidiary distributes our products in Europe. In fiscal 2003, the Company completed the dissolution of its wholly-owned subsidiary in the Virgin Islands due to federal income tax code changes relating to foreign sales corporations. The Company established one division in 1998 to distribute its Ashworth products in Canada and a second division in 2002 to distribute its Callaway Golf apparel in Canada.

     Ashworth designs and markets men’s and women’s sportswear with an authentic style and function for golf and casual lifestyle environments. The Company distributes its products under the Ashworth and Callaway Golf apparel brands to golf pro shops, resorts, specialty golf retailers, and men’s and women’s specialty and department stores. The Company has focused on developing new looks and fabrications that represent innovation, style and function in the golf market.

Available Information

     Our website address is www.ashworthinc.com. You may obtain free electronic copies of our reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports on the “Investor Info” portion of our website, under the heading “SEC Filings.” These reports are available on our website as soon as reasonably practicable after we electronically file them with the Securities and Exchange Commission.

ASHWORTH PRODUCTS

     The Ashworth Men’s Division designs Authentics™, fashion, Ashworth 7™ and Weather Systems^® collections. Each fashion collection typically consists of knit and woven shirts, pullovers, jackets, sweaters, vests, pants, shorts, headwear and accessories. Product design focuses on classic, timeless designs with emphasis on quality and innovation.

     The Ashworth Women’s Division designs Authentics™, Weather Systems^® and fashion collections. The collections focus on timeless, elegant designs that are functional and sophisticated for the woman with a fashion sense and an active lifestyle.

     In May 2001, Ashworth agreed to a multi-year exclusive licensing agreement with Callaway Golf Company to create lines of men’s and women’s Callaway Golf apparel. The first product offering was designed for Fall 2002 and included three separate collections.

     The Callaway Golf apparel men’s Collection range includes classic and fashion lines featuring knit and woven shirts, pullovers, jackets, sweaters, vests, pants, shorts, headwear and accessories. The designs focus on sophisticated styling using luxury fabrics.

     The Callaway Golf apparel men’s Sport range includes classic and fashion lines featuring knit shirts, pullovers, vests, jackets, sweaters, pants, shorts, headwear and accessories. The designs aim to appeal to the active consumer.

     For the first few seasons, the focus of the Callaway Golf apparel women’s line will be on the classic collection. The designs are intended to be functional and timeless.

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     Callaway Golf is a trademark of Callaway Golf Company. Ashworth, Inc. is an Official Apparel Licensee of Callaway Golf Company. The multi-year agreement has various annual requirements for marketing expenditures and royalty payments based on the level of net revenues.

DISTRIBUTION CHANNELS

     Approximately 88% of our products are currently warehoused in and shipped from Ashworth’s distribution facilities in Carlsbad, California and approximately 12% are drop-shipped from off-shore factories directly to our international distributors, Ashworth, U.K. Ltd., Ashworth Canada and Ashworth Golf Apparel Canada. The Company has entered into an agreement to purchase land and a new 203,000 square foot distribution center to be built to the Company’s specifications on a 15.5 acre site in Oceanside, California, to replace the Company’s existing Carlsbad distribution facilities. The new distribution center is expected to be operational in late fiscal 2004.

     The Company currently distributes and sells its products primarily through the following distribution channels:

U.S. Golf Pro Shops, Resorts and Off-Course Golf Specialty Shops

     The Company’s core customers are golf pro shops located at golf courses and resorts as well as off-course golf-theme specialty retailers. The Company refers to this channel as the green grass distribution channel. According to the 2003 Darrell Survey, a leading golf industry consumer usage survey, Ashworth was the leading golf apparel company in the United States with a 12.6% share in shirt usage among golfers. The Company currently distributes its products in nearly all of the 50 states.

U.S. Department Stores and Specialty Stores

     The Company currently sells its products to selected upscale department and specialty stores, including Parisian, Belk, Bloomingdale’s, Marshall Fields, Lord & Taylor and Nordstrom.

U.S. Corporate Market

     The Company markets to top specialty-advertising firms that re-sell the Company’s products to Fortune 500 companies and other major corporations for use in their company stores, sales meetings, catalogs and corporate events.

International Market

     The Company has a wholly-owned subsidiary in Essex, England that distributes Ashworth products and Callaway Golf apparel to customers, either directly or through independent sales representatives, in the United Kingdom and other European countries such as Germany, France, Spain, Sweden, Ireland and Portugal. In 1998, the Company opened one division, operated by Almec Leisure Group pursuant to a management agreement, to sell and distribute its Ashworth products in Canada. In 2002, the Company opened a second division in Canada, operated by S&P Apparel, Inc. pursuant to a management agreement, to distribute its Callaway Golf apparel in Canada.

     The Company has entered into licensing and distribution agreements with various partners in countries such as Japan, Hong Kong, Singapore, Taiwan, South Africa and South Korea. Under these agreements, the licensees will import certain product lines from Ashworth and manufacture other approved licensed products

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designed specifically for their market.

     The Company also uses distributors to sell Ashworth products in other countries such as United Arab Emirates and Mexico.

Ashworth Retail Stores

     The Company operates, through wholly-owned subsidiaries, seven retail stores in California, Texas, Colorado, Arizona, Utah and Nevada. The main purpose of these stores is to help control and manage inventory by selling prior season and irregular merchandise. The Company also sells its excess and irregular inventory from time to time through better clearance retailers.

Ashworth Concept Store

     The Company opened an Ashworth Concept Store in Costa Mesa, California in October 1997 to sell lifestyle products. The Company closed the store in Costa Mesa on October 1, 2003 and is in the process of dissolving the subsidiary.

SALES AND MARKETING

     The Company’s products are sold in the United States, Europe and Canada largely by independent sales representatives who are not employees of the Company or its subsidiaries. The Company currently has approximately 170 independent sales representatives worldwide. The Company also uses several different distributors and licensees in various international locations.

     In an effort to add exposure and consumer credibility to its Ashworth brand, the Company has golf celebrities who wear and endorse the Company’s products. At October 31, 2003 they were: (1) Fred Couples, (2) Stuart Appleby, (3) Rich Beem, (4) Chris DiMarco, (5) Scott Verplank, (6) Rocco Mediate, (7) Johnny Miller, (8) Pat Bates, (9) Allen Doyle, (10) Bruce Leitzke, (11) Bruce Summerhayes, (12) Kelly Robbins and (13) Jim Nantz, a popular CBS sports announcer. The Company uses these players and celebrities in advertisements, in-store displays, and for trade shows, store and other special appearances.

     The Ashworth marketing platform is designed to heighten brand awareness, brand strength and brand growth globally through print, moving media, communications and promotional initiatives.

     Ashworth continued its in-store shop program in 2003 and now has a distinct in-store presence in many locations throughout the United States, Europe and Canada. This modular fixture program is designed to help create an in-store shop for Ashworth products coupled with pictures and displays of our spokespersons and golf professionals.

     In an effort to introduce new young customers to the Ashworth brand, the Company supports high school and collegiate golf by providing team uniforms to selected high school, college and university golf teams. The Company has a sponsorship agreement with the American Junior Golf Association whereby the Company makes an annual cash contribution and provides shirts for the participants in four specific events.

     The domestic market for Ashworth apparel has been seasonal, with the highest revenues traditionally in the period from February through August and the lowest revenues in the period from September through January. The Company expects that the addition of the department and specialty retail store markets, the corporate market, and additional product categories for fall and winter in the European market will help to reduce the seasonality of the Company’s business.

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     Net revenues in fiscal 2003 were $149,438,000, an increase of 15.6% from net revenues of $129,286,000 in fiscal 2002. During the last three fiscal years, the Company had the following domestic and international revenues:

     See “Note 1 of Notes to Consolidated Financial Statements, The Company and Summary of Significant Accounting Policies, Business,” for revenues, operating income and identifiable assets of Ashworth U.K., Ltd., and “Note 11, Segment Information” for market segment information.

     The Company’s revenues from its international segment may be adversely affected by currency fluctuations, taxation and laws or policies of the foreign countries in which the Company has operations, as well as laws and policies of the United States affecting foreign trade, investment and taxation.

     For more information regarding the risks of currency fluctuations that could affect the Company’s ability to sell its products in foreign markets, the value in U.S. dollars of revenues received in foreign currencies, the impact of such fluctuations on the Company’s international segment and strategies the Company may use to manage the risks presented by currency exchange rate fluctuations, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity And Capital Resources – Currency Fluctuations,” “Item 7A, Quantitative and Qualitative Disclosures about Market Risk,” and “Note 1 of Notes to Consolidated Financial Statements, Foreign Currency.”

     At December 31, 2003, we had a sales order backlog of approximately $56,050,000 from independent third parties, which is approximately $8,963,000 higher than the comparable backlog last year. Backlog reflects sales orders that are placed with the Company prior to the quarter in which the goods are to be shipped, as opposed to “at-once” sales orders that are received in the quarter in which the goods are expected to be shipped. The current backlog covers orders for goods expected to be shipped through approximately June 2004. The amount of the sales order backlog at a particular time is affected by a number of factors, including the timely flow of product from suppliers which can impact the Company’s ability to ship on time, and the timing of customers’ orders. Accordingly, a comparison of sales order backlog from period to period is not necessarily meaningful and may not be indicative of eventual actual shipments in any period. In addition, sales orders may be changed or canceled prior to shipment, preventing the Company from converting backlog into revenue.

INVENTORY

     The Company maintains high levels of inventory to support its Authentics program, increased sales volume, and to meet increased customer demand for “at-once” ordering. Disposal of excess prior season inventory is an ongoing part of the Company’s business, and inventory writedowns may impair the Company’s

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financial performance in any period. Particular inventory may be subject to multiple writedowns if the Company’s initial reserve estimates for inventory obsolescence or lack of throughput prove to be too low. These risks increase as inventory grows. The Company’s goals are to increase the inventory turns and lower the overall inventory levels relative to revenues.

COMPETITION

     According to the 2003 Darrell Survey, the Ashworth brand was the leader in the Company’s core green grass market in 2003, with a 12.6% share in shirt usage among golfers. The Company’s share of other markets, including upscale department stores and the corporate market, is less significant. The golf apparel market is not dominated by any single company, and is highly competitive both in the United States and abroad. The Company competes not only with golf apparel manufacturers, but also with other branded sports and sportswear apparel manufacturers that have entered the golf apparel market in recent years. Many of the Company’s competitors have greater financial resources. Ashworth competes with other golf apparel manufacturers on design, product quality, customer servicing and brand image.

PRODUCT SOURCING

     Ashworth sources its products in the following ways:

     Contract Manufacturing: At the beginning of fiscal 2000, starting with the Spring 2000 line, Ashworth ceased most contract manufacturing and stopped purchasing its own raw materials.

     Ready-Made Finished Goods: During fiscal 2003, nearly all of the Company’s production was through “full package” purchases of ready-made goods, manufactured to the Company’s quality and styling specifications domestically and by sources outside of the United States. In fiscal 2003, approximately 80% of the Company’s finished goods were made in Asian countries while approximately 20% were made in the Caribbean Basin, Central and South America, Europe and the United States. Asian countries where our goods were manufactured included China, Hong Kong, Indonesia, Korea, Macau, Malaysia, the Philippines, Sri Lanka, Taiwan, Thailand, India, Brunei and Bahrain.

     In-House Embroidery: Ashworth embroiders custom golf course, tournament and corporate logos in-house using approximately 65 multi-head, computer-controlled embroidery machines with a total of approximately 570 sewing heads. The embroidery design library contains over 48,000 Ashworth and customer designs. Embroidery is applied to both garments and finished headwear. On average, the Company embroiders 90,000 logos per week on approximately 70,000 garments.

TRADEMARKS AND LICENSE

     The Company owns and utilizes several trademarks, principal among which are the Ashworth typed and design marks, the Golfman design mark, and the Weather Systems stylized mark. The Ashworth typed and design marks, the Golfman design marks and the Weather Systems stylized mark have been registered for apparel, shoes, leather goods and/or golf bags on the Principal Register of the United States Patent and Trademark Office. Additionally, the Company has several other pending trademark applications in the United States.

     The Company has registered the Ashworth typed and design marks, the Golfman design marks and/or the Weather Systems stylized marks as well as has pending applications for apparel, shoes, leather goods and/or golf bags internationally. The application process varies from country to country and can take approximately one to three years to complete.

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     The Company has three EZ-TECH applications pending in the United States, Canada and the European Union. The Company also has ASHWORTH 7 as a registered mark in the United States and Japan and several pending applications in other countries.

     Ashworth regards its trademarks and other proprietary rights as valuable assets and believes that they have significant value in the marketing of its products. Although Ashworth believes that it has the exclusive right to use the trademarks and intends to vigorously protect its trademarks against infringement, there can be no assurance that Ashworth can successfully protect the trademarks from conflicting uses or claims of ownership in cases where the trademarks were used and/or registered previous to Ashworth’s lawful registrations.

     Callaway Golf is a trademark of Callaway Golf Company. The Company is an Official Apparel Licensee of Callaway Golf Company. The Company has licensed the use of the Callaway Golf trademark pursuant to a multi-year licensing agreement to design, source and sell Callaway Golf brand apparel primarily in the United States, Europe, Canada and Australia. The agreement is effective until December 31, 2010 and, at Ashworth’s sole discretion, may be extended for one five-year term provided that Ashworth meets or exceeds certain minimum requirements for calendar years 2008 and 2009, that Ashworth gives notice of its intention to renew by January 1, 2010 and that Ashworth is not in material breach of the agreement.

EMPLOYEES

     At December 31, 2003, Ashworth had approximately 400 regular employees and 135 seasonal temporary employees. Ashworth considers its labor relations to be generally good.

Item 2. PROPERTIES.

     The Company owns two buildings located on Loker Avenue West in Carlsbad, California that were purchased on December 9, 1993 for $3,500,000. The buildings include a total of approximately 78,000 square feet, consisting of space for embroidery, warehousing and distribution functions. The mortgage on these two buildings was refinanced on December 1, 2000 for $3,000,000 amortized over 25 years but is due and payable in five years on December 1, 2005. The Company has entered into an agreement to sell the two buildings for approximately $5,747,000 and is currently in escrow. The Company has negotiated a form of lease and on close of escrow the Company intends to enter into a lease agreement to lease the facility from the new owner. The term of the lease is anticipated to commence on the close of escrow and terminate on December 31, 2004, with an option to renew the term of the lease for a period of 60 days with written notice of intent to exercise the option due at least 90 days prior to the expiration of the initial term of the lease. Under the terms of the form of lease, the Company would pay monthly rent of approximately $47,000 plus taxes, insurance and utilities.

     The Company has entered into an agreement to purchase land and a new 203,000 square foot distribution center to be built to the Company’s specifications on a 15.5 acre site in Oceanside, California. The proposed building will replace the Company’s existing distribution facilities currently operating out of five separate owned or leased buildings in Carlsbad, California. The new distribution center is expected to be operational in late fiscal 2004.

     The Company and its subsidiaries currently have the following leases for administrative and distribution facilities, as well as store leases for retail space:

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     The Company also pays percentage rent based on revenues that exceed certain breakpoints for all of the retail store leases. All of the leases require the Company to pay its pro rata share of taxes, insurance and maintenance expenses. The Company guarantees at least some portion of several leases held by Ashworth subsidiaries.

Item 3. 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 allege 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 alleges that certain Company executives made false or misleading statements or omissions concerning product demand and that two former executives engaged in insider trading. The plaintiffs seek unspecified damages. The parties are currently in the discovery process. Based on the current status of the litigation the Company has not booked any provision for settlement charges.

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

     No matter was submitted to a vote of the Company’s security holders during the fourth quarter of the fiscal year covered by this report, either by proxy solicitation or otherwise.

PART II

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Market Information

     The Company’s common stock is traded on the Nasdaq National Market under the symbol “ASHW.” The following table sets forth the high and low sale prices on the Nasdaq National Market for the quarters indicated.

Holders

     The Company has only one class of common stock. As of December 31, 2003, there were 491 stockholders of record and approximately 4,200 beneficial owners of the Company’s common stock.

Dividends

     No dividends have ever been declared with respect to the Company’s common stock. In the past, the Board of Directors has chosen to reinvest profits in the Company rather than declare a dividend. The Company does not currently intend to pay cash dividends for the foreseeable future.

Item 6. SELECTED CONSOLIDATED FINANCIAL DATA.

     The following selected consolidated financial data should be read in conjunction with the Consolidated Financial Statements and the Notes thereto which are included elsewhere in this report. The statement of income data set forth below with respect to the fiscal years ended October 31, 2003, 2002 and 2001 and the balance sheet data as of October 31, 2003 and 2002 are derived from, and should be read in conjunction with, the audited Consolidated Financial Statements and the Notes thereto included elsewhere in this report. The statement of income data set forth below with respect to the fiscal years ended October 31, 2000 and 1999 and

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the balance sheet data as of October 31, 2001, 2000 and 1999 are derived from audited financial statements not included in this report. No dividends have been paid for any of the periods presented.

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,” above.

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 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

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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. 101, Revenue Recognition in Financial Statements. 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 currently for estimated product returns and sales allowances.

     Sales Returns and Other Allowances. Management must make estimates of potential future product returns related to current period product revenues. Management analyzes historical returns, current economic trends, changes in customer demand, and sell-through of our 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. Material differences may result in the amount and timing of our revenues for any period if management makes different judgments or utilizes different estimates. The reserves for sales returns and other allowances amounted to $728,000 at October 31, 2003 compared to $535,000 at October 31, 2002.

     Allowance for Doubtful Accounts. Management must also 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. During the second quarter of fiscal 2003, the Company wrote off the $2.5 million unpaid principal balance of an unsecured promissory note and approximately $2.0 million of receivables due from a national retail customer which had filed for protection under U.S. bankruptcy laws, against the $4.5 million reserved in fiscal 2002 by the Company for these specific receivables. If the financial condition of other significant customers of ours were to deteriorate, resulting in the impairment of their ability to make payments, material additional allowances for doubtful accounts may be required. In October 2002, the Company acquired credit insurance to cover many of its major accounts. Our trade accounts receivable balance was $31.0 million, net of allowances for doubtful accounts of $1.3 million, at October 31, 2003 as compared to the balance of $33.6 million, net of allowances for doubtful accounts of $3.2 million, at October 31, 2002 which includes a reserve of approximately $2.0 million for the receivables due from a national retail customer discussed above.

     Inventory. The Company writes down its inventory by amounts equal to the difference between the cost of inventory and the estimated net realizable value based on assumptions about the 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. Our inventory balance was $44.5 million, net of inventory write-downs of $1.0 million, at October 31, 2003, as compared to an inventory balance of $41.2 million, net of inventory write-downs of $1.0 million, at October 31, 2002. The inventory balance increased as compared to the prior fiscal year-end due to the addition of the Callaway Golf apparel product line. The Ashworth brand inventory declined approximately 5% as compared to the prior fiscal year.

     Asset Purchase Credits. In November 2000, the Company entered into an agreement with a third party whereby inventory 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. 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. From time to time the Company may enter into additional contracts with such third party suppliers to use the APCs. At October 31, 2003 the Company had $472,000 of the APCs remaining and management expects to fully utilize them over their remaining life.

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Off-Balance Sheet Arrangements

     At October 31, 2003 and 2002, 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.

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 and to top specialty-advertising firms for the corporate market. Nearly all of the Company’s production in fiscal 2003 was through “full package” purchases of ready-made goods with approximately 80% of it manufactured in Asian countries. The Company embroiders a majority of these garments with custom golf course, tournament and corporate logos for its customers.

     Fiscal 2003 was another challenging but successful year for the Company. The Company was tested by one of the toughest global economies in decades, continuing global terrorism and SARS, all of which impacted travel, resort business and general corporate spending. The Company believes that the new Ashworth multi-channel, multi-brand business strategy produced above average results in the industry despite these challenging external conditions. The Company achieved record sales and earnings in 2003.

     In fiscal 2003 Ashworth continued implementing its new business model as well as building the Ashworth brand while successfully completing the first full year of operation with the new Callaway Golf apparel line. The prestigious Darrell Survey®, a leading golf industry consumer survey, once again named the Ashworth brand the leading brand in shirt usage in America. The Ashworth brand has now been ranked as the #1 brand for eight years in a row. The Ashworth brand was also named “the best men’s fashion brand” in Europe by Today’s Golfer® magazine. The new brand at Ashworth, Inc., Callaway Golf apparel, was successfully launched in the middle of fiscal 2002. Fiscal 2003 sales for the first full year of operation equaled approximately $30 million.

     Innovation. The Company continues to emphasize innovation and new products. Staying ahead of the curve and giving its customers new and better products enables the Company to remain strong in very competitive industry conditions and during tough economic times. Launched in 2002, the EZ-TECH™ product, which is 100% cotton, resists fading, pilling and wicks moisture, has continued to sell well. This fabrication was purchased by over two-thirds of the Company’s global account base in fiscal 2003.

     Global Distribution. The Ashworth brand truly has global distribution. Within the last few years the Company’s subsidiaries, distributors and licensees are now selling Ashworth product in China, Russia, Poland, Slovakia, Mexico, South Korea and will soon be restarting its business in Japan with a new licensee. The Company’s Callaway Golf apparel license is primarily focused in the United States, Europe and Canada.

     Preparing For Additional Growth. The Company has taken on two significant operational projects in fiscal 2003. The first was moving into a much needed and larger European embroidery, distribution and sales

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center. The European team successfully accomplished this in September of 2003. The second and larger project was the design and development of a new embroidery and distribution center in Oceanside, California, near our global headquarters. Our goal is to move into this facility late in fiscal 2004.

     Results of Operations. The Company’s performance, as discussed below, is notable in light of a continuing weak golf and retail industry and challenging economic environment during the fiscal year. The Company believes these favorable results are due to its successful multi-brand, multi-channel global business strategy, which was fully implemented in fiscal 2003. Overall, performance from the Company’s multiple distribution channels was encouraging.

     The growth in the Company’s domestic retail channel was fueled by an increase in the number of department stores and an increase in the average sales per door resulting from having two strong brands with innovative designs. The Company believes that department store merchants are supporting this growth because of its performance in-store and its ability to generate good gross margins for them in difficult times. More lifestyle and non-golf product also helped fuel this growth. The growth in the domestic green grass channel was driven by substantial growth from the Callaway Golf apparel line as well as an increase in the number of accounts for the Ashworth brand. The average sale per account was slightly down for the Ashworth brand due to conservative buying trends in the golf industry and slightly up for Callaway Golf apparel. While historically the corporate channel has grown quite steadily, the Company believes that the slower growth in this channel was primarily due to external factors such as the economy and corporate belt tightening.

     The net revenues in the Company’s European distribution channel again showed strong growth this fiscal year. The growth was driven by a larger base of accounts as well as higher average sales per door. Both Ashworth and Callaway Golf apparel brands grew. The growth in the Company’s Canadian distribution channel was fueled by increased average sales in the Ashworth brand as well as growth from Callaway Golf apparel.

Fiscal 2003 Compared To Fiscal 2002

     Consolidated net revenues were $149,438,000 for fiscal 2003, an increase of 15.6% from net revenues of $129,286,000 in fiscal 2002. The increase resulted primarily from the addition of the Callaway Golf apparel product line, which had its first full year of operation in fiscal 2003, as well as an increase in the retail distribution channel due to an increase in number of doors. During the fourth quarter of fiscal 2003, net revenues increased $2,954,000 as compared to the same period of the prior year due to increased sales of Ashworth and Callaway Golf apparel branded products in various channels of distribution. Domestic net revenues for fiscal 2003 increased 13.1% to $126,380,000 from $111,706,000 in fiscal 2002 primarily due to increased net revenues in green grass and off-course specialty stores, which increased by $6,914,000 or 8.9%, in retail channels, including the Company owned stores, which increased by $6,029,000 or 42.9%, and corporate, which increased by $1,731,000 or 8.6% as compared to fiscal 2002. International net revenues increased by $5,478,000 or 31.2% to $23,058,000 in fiscal 2003 from $17,580,000 in fiscal 2002. The increase was primarily due to higher revenues in the Company’s U.K. subsidiary and Canadian divisions, of which $1,635,000 was due to the weakening of the U.S. dollar against the British pound and Canadian dollar during fiscal 2003. Net revenues from the Company’s U.K. subsidiary in fiscal 2003 increased by $3,194,000 or 28.9% and revenue from the Canadian divisions increased by $1,922,000 or 50.6% as compared to net revenues in fiscal 2002.

     The gross profit margin for fiscal 2003 increased slightly to 40.7% as compared to 40.4% in fiscal 2002 primarily due to improved sourcing and inventory management systems.

     Selling, general and administrative (“SG&A”) expenses increased 1.7% to $48,080,000 in fiscal 2003

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compared to $47,279,000 in fiscal 2002. As a percent of net revenue, SG&A expenses decreased to 32.2% of net revenues in fiscal 2003 as compared to 36.6% in fiscal 2002. Excluding the additional $4.25 million pre-tax bad debt reserve taken in the third quarter of fiscal 2002, the SG&A expenses in fiscal 2003 would have increased 11.7% in total expenditures as compared to the same period in fiscal 2002 but would still have decreased as a percent of net revenues from 33.3% in fiscal 2002. The Company believes that excluding the effect of the increase in reserve for bad debts booked in the third quarter of fiscal 2002 for the single customer filing for protection under the U.S. bankruptcy laws provides additional information to investors to better understand the impact the transaction had on the Company’s performance for fiscal 2003 as compared to fiscal 2002 and, therefore, the adjusted SG&A measure is useful to investors. Total SG&A expenditures increased primarily due to the increase in sales related variable expenses related to commissions and royalties. The decrease in SG&A as a percent of net revenues resulted from the fixed expenses being spread over higher net revenues.

     Net other expenses were $517,000 for fiscal 2003 compared to $728,000 in fiscal 2002 primarily due to increased foreign exchange gains in fiscal 2003. Foreign exchange gains increased to $343,000 in fiscal 2003 from $74,000 in fiscal 2002 primarily due to the strengthening British pound and the Canadian dollar. Interest expense increased slightly to $876,000 in fiscal 2003 from $842,000 in fiscal 2002 due primarily to costs associated with the new line of credit facility negotiated with the Company’s bank.

     The effective income tax rate applicable to the Company for fiscal 2003 remained at 40.0%.

     During fiscal 2003, the Company earned net income of $7,328,000 as compared to net income of $2,509,000 in the prior year. The increase in net income for fiscal 2003 was primarily attributable to the higher net revenues and lower SG&A expenses as outlined above.

Fiscal 2002 Compared To Fiscal 2001

     Consolidated net revenues were $129,286,000 for fiscal 2002, an increase of 2.2% from net revenues of $126,560,000 in fiscal 2001. During the fourth quarter of fiscal 2002, net revenues increased $8,693,000 as compared to the same period of the prior year due to the addition of the Callaway Golf apparel line and increased sales of Ashworth branded product in various channels of distribution. Domestic net revenues for fiscal 2002 increased 2.0% to $111,706,000 from $109,517,000 in fiscal 2001 primarily due to increased net revenues in green grass and off-course specialty stores, which increased by $5,369,000 or 7.4%, and corporate, which increased by $3,205,000 or 18.9%. The increase was partially offset by lower net revenues in retail channels, including the Company owned stores, which decreased by $6,384,000 or 31.3% as compared to fiscal 2001, due primarily to lower consumer traffic and spending resulting in continued cautious purchasing by department store buyers. International net revenues increased by 3.2% to $17,580,000 in fiscal 2002 from $17,043,000 in fiscal 2001. Net revenues from the Company’s U.K. subsidiary in fiscal 2002 increased by $1,918,000 or 21.0% as compared to net revenues in fiscal 2001 primarily due to the addition of the Callaway golf apparel line. Decreased net revenues from the Pacific Rim, Australia and other countries were partially offset by increased net revenues from Mexico and Canada.

     The gross profit margin for fiscal 2002 increased to 40.4% as compared to 39.6% in fiscal 2001. The increase was primarily due to improved sourcing and inventory management systems.

     SG&A expenses increased 7.6% to $47,279,000 in fiscal 2002 compared to $43,951,000 in fiscal 2001. As a percent of net revenue, SG&A expenses increased to 36.6% of net revenues in fiscal 2002 as compared to 34.7% in fiscal 2001. Excluding the additional $4.25 million pre-tax bad debt reserve taken in the third quarter of fiscal 2002, the SG&A expenses would have decreased in both total expenditures and as a percent of net revenues despite additional investment in infrastructure to support the launch of the Callaway

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Golf apparel product line.

     Net other expenses were $728,000 for fiscal 2002 compared to $1,448,000 in fiscal 2001 primarily due to reduced interest expense in fiscal 2002. Interest expense decreased to $842,000 in fiscal 2002 from $1,352,000 in fiscal 2001 due primarily to lower interest rates on slightly lower annual average borrowing on the Company’s line of credit with its bank. In fiscal 2002 the Company had foreign exchange gains of $74,000 as compared to foreign exchange losses of $90,000 in fiscal 2001 primarily due to the consolidation of various European currencies to the Euro as well as a more stable British pound.

     The effective income tax rate applicable to the Company for fiscal 2002 remained at 40.0%.

     During fiscal 2002, the Company earned net income of $2,509,000 as compared to net income of $2,828,000 in the prior year. The decrease in net income for fiscal 2002 was primarily attributable to higher SG&A expenses as outlined above.

LIQUIDITY AND CAPITAL RESOURCES

     The Company’s primary sources of liquidity are expected to be cash flows from operations, a 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 from approximately December through the end of July each year. The inventory build-up during this period is to provide product for shipment for the spring/summer selling season.

     Operations in fiscal 2003 produced a positive cash flow of $10,829,000, compared to a negative cash flow of $476,000 in fiscal 2002. The primary reasons for the positive cash flow from operations were an increase in net income and a decrease in accounts receivable offset by an increase in inventories and a decrease in accounts payable. Net income increased 192.0% to $7,328,000 for fiscal 2003 as compared to $2,509,000 for fiscal 2002. Accounts receivable decreased by 7.7% to $30,993,000 at October 31, 2003 compared to $33,572,000 at October 31, 2002 as a result of increased collection efforts and tightened credit granting policies. The accounts receivable decreased despite a 10.1% increase in net revenues in the fourth quarter of fiscal 2003 compared to the same quarter in fiscal 2002. Inventory increased by 8.0% to $44,476,000 as compared to $41,188,000. The inventory increase was smaller in fiscal 2003 than in fiscal 2002 primarily due to better inventory management controls. The inventory increased to support expected future growth in net revenues. Accounts payable decreased by 9.6% to $5,731,000 from $6,338,000 primarily due to timing differences in purchases.

     On April 24, 2003, the Company entered into a new business loan agreement with Bank of America, N.A., as the administrative agent, and two other lenders. The new credit facility expires on April 30, 2005 and is collateralized by substantially all of the assets of the Company. The loan agreement provides a revolving line of credit of $45,000,000 with a seasonal increase in the line of credit to $55,000,000 for each period commencing December 1 through June 15 during the term of the agreement.

     Interest under this loan agreement is currently charged at the bank’s reference (prime) rate. At October 31, 2003, the prime rate was 4.00%. 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. The loan agreement contains various restrictive covenants requiring, among other matters, the maintenance of certain financial ratios. Management believes the Compan