<SUBMISSION>
<ACCESSION-NUMBER>0000936392-04-000215
<TYPE>10-Q
<PUBLIC-DOCUMENT-COUNT>10
<PERIOD>20040131
<FILING-DATE>20040315
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>ASHWORTH INC
<CIK>0000820774
<ASSIGNED-SIC>2320
<IRS-NUMBER>841052000
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>1031
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>10-Q
<ACT>34
<FILE-NUMBER>001-14547
<FILM-NUMBER>04670555
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>2765 LOKER AVE WEST
<CITY>CARLSBAD
<STATE>CA
<ZIP>92008
<PHONE>7604386610
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>2765 LOKER AVENUE WEST
<CITY>CARLSBAD
<STATE>CA
<ZIP>92008
</MAIL-ADDRESS>
<FORMER-COMPANY>
<FORMER-CONFORMED-NAME>CHARTER GOLF INC
<DATE-CHANGED>19920703
</FORMER-COMPANY>
</FILER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>a97072e10vq.htm
<DESCRIPTION>FORM 10-Q
<TEXT>
<HTML>
<HEAD>
<TITLE>Ashworth, Inc.</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="center" style="font-size: 14pt"><B>SECURITIES AND EXCHANGE
COMMISSION</B>
<P>

<DIV align="center" style="font-size: 12pt"><B>Washington, D.C. 20549</B>
</DIV>

<P align="center" style="font-size: 18pt"><B>FORM 10-Q</B>


<P align="center" style="font-size: 10pt"><FONT style="font-size:12pt"><BR>
<B>&#091;X&#093; QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)<BR>
OF THE SECURITIES EXCHANGE ACT OF 1934</B></FONT>



<P align="center" style="font-size: 10pt"><B>For the quarterly period ended January&nbsp;31, 2004</B>



<P align="center" style="font-size: 10pt">OR



<P align="center" style="font-size: 10pt"><FONT style="font-size:12pt"><BR>
&#091;&nbsp;&nbsp;&#093; TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)<BR>
OF THE SECURITIES EXCHANGE ACT OF 1934</FONT>



<P align="center" style="font-size: 10pt">For the transition period from ________ to ___________



<P align="center" style="font-size: 10pt"><B>Commission file number: 0-18553</B>



<P align="center" style="font-size: 10pt"><FONT style="font-size:24pt"><BR>
<B>Ashworth, Inc.</B></FONT>


<DIV align="center" style="font-size: 10pt">(Exact Name of Registrant as Specified in Its Charter)</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><B>Delaware</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>84-1052000</B></TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top">(State or other jurisdiction of<BR>
incorporation or organization)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(I.R.S. Employer<BR>
Identification No.)</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt"><B>2765 LOKER AVENUE WEST<BR>
CARLSBAD, CA 92008</B><BR>
(Address of Principal Executive Offices)



<P align="center" style="font-size: 10pt"><B>(760)&nbsp;438-6610</B><BR>
(Telephone No.&nbsp;Including Area Code)



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Indicate by check mark whether the registrant (1)&nbsp;has filed all reports
required to be filed by Section&nbsp;13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12&nbsp;months (or for such shorter period that the
registrant was required to file such reports), and (2)&nbsp;has been subject to such
filing requirements for the past 90&nbsp;days. Yes &#091;X&#093; No &#091;&nbsp;&nbsp;&#093;


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule&nbsp;12b-2 of the Exchange Act). Yes &#091;&nbsp;&nbsp;&#093; No &#091;X&#093;


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Indicate the number of shares outstanding of each of the issuer&#146;s classes of
common stock, as of the latest practicable date.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="55%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="11%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD nowrap align="center">Title</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Outstanding at March 10, 2004</TD>
</TR>

<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:10px; text-indent:-10px">$.001 par value Common Stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

    <TD align="center">13,355,669</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<P><HR noshade><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<!-- TOC -->
<A name="toc"><DIV align="CENTER" style="page-break-before:always"><U><B>TABLE OF CONTENTS</B></U></DIV></A>

<P><CENTER>
<TABLE border="0" width="90%" cellpadding="0" cellspacing="0">
<TR>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="76%"></TD>
</TR>
<TR><TD colspan="9"><A HREF="#000">PART I FINANCIAL INFORMATION</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#001">Item&nbsp;1. Financial Statements</A></TD></TR>
<TR><TD></TD><TD></TD><TD colspan="7"><A HREF="#002">CONDENSED CONSOLIDATED BALANCE SHEETS</A></TD></TR>
<TR><TD></TD><TD></TD><TD colspan="7"><A HREF="#003">CONDENSED CONSOLIDATED STATEMENTS OF INCOME</A></TD></TR>
<TR><TD></TD><TD></TD><TD colspan="7"><A HREF="#004">CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS</A></TD></TR>
<TR><TD></TD><TD></TD><TD colspan="7"><A HREF="#005">NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#006">Item&nbsp;2. MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#007">Item&nbsp;3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#008">Item&nbsp;4. CONTROLS AND PROCEDURES</A></TD></TR>
<TR><TD colspan="9"><A HREF="#009">PART II OTHER INFORMATION</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#010">Item&nbsp;1. LEGAL PROCEEDINGS</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#011">Item&nbsp;2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES &#151; NONE</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#012">Item&nbsp;3. DEFAULTS UPON SENIOR SECURITIES &#151; NONE</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#013">Item&nbsp;4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS &#151; NONE</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#014">Item&nbsp;5. OTHER INFORMATION &#151; NONE</A></TD></TR>
<TR><TD></TD><TD colspan="8"><A HREF="#015">Item&nbsp;6. EXHIBITS AND REPORTS ON FORM 8-K</A></TD></TR>
<TR><TD colspan="9"><A HREF="#016">SIGNATURES</A></TD></TR>
<TR><TD colspan="9"><A HREF="#017">EXHIBIT INDEX</A></TD></TR>
<TR><TD colspan="9"><A HREF="a97072exv10www1.txt">EXHIBIT 10(W)(1)</A></TD></TR>
<TR><TD colspan="9"><A HREF="a97072exv10www2.txt">EXHIBIT 10(W)(2)</A></TD></TR>
<TR><TD colspan="9"><A HREF="a97072exv10www3.txt">EXHIBIT 10(W)(3)</A></TD></TR>
<TR><TD colspan="9"><A HREF="a97072exv10www4.txt">EXHIBIT 10(W)(4)</A></TD></TR>
<TR><TD colspan="9"><A HREF="a97072exv10www5.txt">EXHIBIT 10(W)(5)</A></TD></TR>
<TR><TD colspan="9"><A HREF="a97072exv31w1.txt">EXHIBIT 31.1</A></TD></TR>
<TR><TD colspan="9"><A HREF="a97072exv31w2.txt">EXHIBIT 31.2</A></TD></TR>
<TR><TD colspan="9"><A HREF="a97072exv32w1.txt">EXHIBIT 32.1</A></TD></TR>
<TR><TD colspan="9"><A HREF="a97072exv32w2.txt">EXHIBIT 32.2</A></TD></TR>
</TABLE>
</CENTER>
<!-- /TOC -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>





<P align="center" style="font-size: 10pt"><B>INDEX</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="81%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>PAGE</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD colspan="3" valign="top" align="left"><B>Part I.</B></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Financial Information</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><B>Item 1.</B></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Financial Statements</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:20px; text-indent:-10px"><B>Condensed Consolidated Balance Sheets</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:20px; text-indent:-10px"><B>Condensed Consolidated Statements of Income</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:20px; text-indent:-10px"><B>Condensed Consolidated Statements of Cash Flows</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:20px; text-indent:-10px"><B>Notes to Condensed Consolidated Financial Statements</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD colspan="3" valign="top" align="left"><B>Item 2.</B></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Management&#146;s Discussion and Analysis of Financial Condition
and Results of Operations</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><B>Item 3.</B></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Quantitative and Qualitative Disclosures About Market Risk</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD colspan="3" valign="top" align="left"><B>Item 4.</B></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Controls and Procedures</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD colspan="3" valign="top" nowrap align="left"><B>Part II.</B></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Other Information</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD colspan="3" valign="top" align="left"><B>Item 1.</B></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Legal Proceedings</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><B>Item 2.</B></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Changes in Securities, Use of Proceeds and Issuer Purchases of
Equity Securities</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD colspan="3" valign="top" align="left"><B>Item 3.</B></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Defaults Upon Senior Securities</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><B>Item 4.</B></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Submission of Matters to a Vote of Security Holders</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD colspan="3" valign="top" align="left"><B>Item 5.</B></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Other Information</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><B>Item 6.</B></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Exhibits and Reports on Form&nbsp;8-K</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:20px; text-indent:-10px"><B>Signatures</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top" align="right">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:20px; text-indent:-10px"><B>Exhibit&nbsp;Index</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">-i-
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<!-- link1 "PART I FINANCIAL INFORMATION" -->
<DIV align="left"><A NAME="000"></A></DIV>

<P align="center" style="font-size: 10pt"><B>PART I</B>



<P align="center" style="font-size: 10pt"><B>FINANCIAL INFORMATION</B>


<!-- link2 "Item&nbsp;1. Financial Statements" -->
<DIV align="left"><A NAME="001"></A></DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;1. Financial Statements</B>


<!-- link3 "CONDENSED CONSOLIDATED BALANCE SHEETS" -->
<DIV align="left"><A NAME="002"></A></DIV>

<P align="left" style="font-size: 10pt">ASHWORTH, INC. AND SUBSIDIARIES<BR>
CONDENSED CONSOLIDATED BALANCE SHEETS

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="62%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>January 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>October 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan="3"><B>(UNAUDITED)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">ASSETS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Current assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,831,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,024,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Accounts
receivable &#150; trade, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,442,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,993,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Accounts
receivable &#150; other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,114,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,575,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Inventories, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53,070,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,476,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,741,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,676,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Deferred income tax asset</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,906,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,953,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">93,104,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">87,697,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Property, plant and equipment, at cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,098,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,985,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Less accumulated depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(23,416,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(22,523,000</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total property, plant and equipment, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,682,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,462,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other assets, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,634,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">877,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">112,420,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">106,036,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">LIABILITIES AND STOCKHOLDERS&#146; EQUITY</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Current liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Line of credit payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,800,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,400,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Current portion of long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">289,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">289,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Accounts payable &#151; trade</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,103,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,731,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Income taxes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">72,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">118,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Accrued liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,051,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,917,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,315,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,455,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Long-term debt, net of current portion</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,560,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,631,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Deferred income tax liability</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">950,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">950,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other long-term liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">329,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">445,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Stockholders&#146; equity:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Common stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Capital in excess of par value</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,703,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,230,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Retained earnings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48,040,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47,906,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Accumulated other comprehensive income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,510,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,406,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total stockholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">90,266,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">88,555,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Total liabilities and stockholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">112,420,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">106,036,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">See accompanying notes to condensed consolidated financial statements.




<P align="center" style="font-size: 10pt">1
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<!-- link3 "CONDENSED CONSOLIDATED STATEMENTS OF INCOME" -->
<DIV align="left"><A NAME="003"></A></DIV>

<P align="left" style="font-size: 10pt">ASHWORTH, INC. AND SUBSIDIARIES<BR>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME<BR>
(UNAUDITED)

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Three months ended January 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">27,338,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">26,563,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cost of goods sold</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,647,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,596,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,691,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,967,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Selling, general and administrative expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,405,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,682,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Income from operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">286,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">285,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other income (expense):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(169,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(192,000</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Other income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">85,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Total other expense, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(63,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(109,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Income before provision for income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">223,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">176,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Provision for income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">89,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">134,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">106,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net income per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Basic:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Weighted average shares outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,302,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,952,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Net income per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Diluted:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Weighted average shares outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,644,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,080,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Net income per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">See accompanying notes to condensed consolidated financial statements.



<P align="center" style="font-size: 10pt">2
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<!-- link3 "CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS" -->
<DIV align="left"><A NAME="004"></A></DIV>

<P align="left" style="font-size: 10pt">ASHWORTH, INC. AND SUBSIDIARIES<BR>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS<BR>
(UNAUDITED)

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Three months ended January 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash flows from operating activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net cash used in operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">($</TD>
    <TD align="right">2,035,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">($</TD>
    <TD align="right">7,432,000</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash flows from investing activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Purchases of property and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(989,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(764,000</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net cash used in investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(989,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(764,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash flows from financing activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Principal payments on capital lease obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(41,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(43,000</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Borrowings on line of credit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,800,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,595,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Payments on line of credit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(7,400,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(9,400,000</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Principal payments on notes payable and long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(30,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(163,000</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Proceeds from issuance of common stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">398,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net cash provided by financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">727,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,035,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Effect of exchange rate changes on cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,104,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">706,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net decrease in cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,193,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,455,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash and cash equivalents, beginning of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,024,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,336,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash and cash equivalents, end of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,831,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">881,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">See accompanying notes to condensed consolidated financial statements.




<P align="center" style="font-size: 10pt">3
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<!-- link3 "NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS" -->
<DIV align="left"><A NAME="005"></A></DIV>

<P align="left" style="font-size: 10pt">ASHWORTH, INC. AND SUBSIDIARIES<BR>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS<BR>
JANUARY 31, 2004


<P align="left" style="font-size: 10pt"><B>NOTE 1 - Basis of Presentation.</B>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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
(&#147;SEC&#148;). The information included in this Form 10-Q should be read in
conjunction with Management&#146;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&nbsp;31, 2003, filed with the SEC on
January&nbsp;29, 2004.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Shipping and Handling Expenses</B></TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Shipping expenses consist primarily of payments made to freight
companies and are reported in selling, general and administrative
(&#147;SG&#038;A&#148;) expenses. Shipping expenses for the quarters ended January
31, 2004 and 2003 were $314,000 and $312,000, respectively.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Reclassifications</B></TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Certain reclassifications have been made to prior year balances in
order to conform with current year presentation.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt"><B>NOTE 2 - Inventories.</B>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Inventories consist of the following at January&nbsp;31, 2004 and October
31, 2003:</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="48%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>January 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>October 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Raw materials</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">57,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">127,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Finished goods</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53,013,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,349,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total inventories, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">53,070,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">44,476,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">4
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="left" style="font-size: 10pt"><B>NOTE 3 &#150; Net Income Per Share Information.</B>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Basic net income per share has been computed based upon the weighted
average number of common shares outstanding during the period.
Diluted net income per share has been computed based upon 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 upon the requirements of the Statement of
Financial Accounting Standards (&#147;SFAS&#148;) No.&nbsp;128, <I>Earnings Per Share</I>:</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="66%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Three months ended January 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Numerator</B>:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net income</DIV></TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">numerator for basic and diluted income per share &#150;</DIV></TD>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">income available to common stockholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">134,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">106,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Denominator</B>:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Denominator
for basic income per share &#150; weighted average shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,302,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,952,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Effect of dilutive securities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">342,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">128,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Denominator
for diluted income per share &#150; adjusted weighted average shares and assumed
conversions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,644,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,080,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Basic net income per share</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Diluted net income per share</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>For the quarters ended January&nbsp;31, 2004 and 2003, the diluted weighted
average shares outstanding computation excludes 411,000 and 1,827,000
options, respectively, the impact of which would have had an
anti-dilutive effect.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt"><B>NOTE 4 &#150; Stock Option Compensation.</B>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company follows Accounting Principles Board Opinion (&#147;APB&#148;) No.
25, <I>Accounting for Stock Issued to Employees, </I>and related
interpretations in accounting for its employee stock options. Under
APB No.&nbsp;25, because the exercise price of the Company&#146;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.&nbsp;123, <I>Accounting for Stock Based Compensation</I>, and SFAS No.
148, <I>Accounting for Stock Based Compensation &#151; Transition and
Disclosure</I>. For purposes of pro forma disclosures, the estimated fair
value of the options is amortized to expense over the vesting period
of the options.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>For purposes of the following pro forma disclosures required by SFAS
No.&nbsp;123, the fair value of each option granted after fiscal 1995 has
been estimated on the date of grant using the Black-</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">5
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Scholes option-pricing model with the following
weighted-average assumptions used for grants during the first quarter
fiscal 2004 and first quarter fiscal 2003, respectively: risk-free
interest rates of 4.18% to 4.49% in 2004 and 3.98% to 4.01% in 2003;
expected volatility of 58.0% to 58.3% in 2004 and 58.3% in 2003; and
expected life of 10&nbsp;years in 2004 and 2003. 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. The Company&#146;s pro forma information is as follows:</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="66%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Three months ended January 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net income, as reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">134,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">106,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Deduct: Stock-based employee
compensation expense determined under
fair value based method for all
awards, net of tax effect</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(60,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(197,000</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Pro forma net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">73,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(91,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net income (loss)&nbsp;per share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Basic &#150; as reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Basic &#150; pro forma</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.01</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Diluted &#150; as reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Diluted &#150; pro forma</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.01</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.01</TD>
    <TD nowrap>)</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><B>NOTE 5 - Issuance of Common Stock</B>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Common stock and capital in excess of par value increased by $473,000
in the three months ended January&nbsp;31, 2004, of which $398,000 is due
to the issuance of 72,500 shares of common stock on exercise of
options and $75,000 is the tax benefit related to the exercise of
those options.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt"><B>NOTE
6 - Comprehensive Income.</B>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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 comprehensive income in addition to net income
for the period. The following table sets forth the computation of
comprehensive income for the periods presented:</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="61%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Three months ended January 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">134,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">106,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net unrealized gains on cash flow
hedges, net of tax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">80,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Foreign currency translation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,024,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">706,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Total comprehensive income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,238,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">812,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">6
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="left" style="font-size: 10pt"><B>NOTE 7 &#150; Legal Proceedings.</B>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On January&nbsp;22, 1999, Milberg Weiss Bershad Hynes &#038; Lerach LLP
filed a class action in the United States District Court for the
Southern District of California (&#147;U.S. District Court&#148;) on behalf
of purchasers of the Company&#146;s common stock during the period
between September&nbsp;4, 1997 and July&nbsp;15, 1998. The action was
subsequently consolidated with two similar suits and plaintiffs
filed their Amended and Consolidated Complaint on December&nbsp;17,
1999. Upon the Company&#146;s motion, the U.S. District Court
dismissed the Complaint with leave to amend on July&nbsp;18, 2000. On
September&nbsp;18, 2000, plaintiffs served their Second Consolidated
Amended Complaint (&#147;Second Amended Complaint&#148;). On November&nbsp;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&#146;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.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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, liquidity or results of operations of the Company.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt"><B>NOTE 8 &#150; Segment Information.</B>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company defines its operating segments as components of an
enterprise for which separate financial information is available and
regularly reviewed by the Company&#146;s senior management. The Company
has the following two reportable segments: domestic and international.
Management evaluates segment performance based primarily on revenues
and income from operations. Interest income and expense is evaluated
on a consolidated basis and is not allocated to the Company&#146;s business
segments. Segment information is summarized (for the dates or periods
presented) below:</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Three months ended January 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net Revenues:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Domestic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">23,061,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">23,537,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">International</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,277,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,026,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">27,338,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">26,563,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Income From Operations:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Domestic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">252,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">International</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">277,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">286,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">285,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">7
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="36%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="13%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="13%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="13%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="13%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>January 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>October 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total Assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Domestic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">91,060,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">85,947,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">International</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,360,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,089,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">112,420,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">106,036,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

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</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><B>Note 9 &#150; Subsequent Events</B>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company owned two buildings located in Carlsbad, California that
were purchased on December&nbsp;9, 1993 for $3,500,000. On February&nbsp;24,
2004 the Company completed the sale of the two buildings for
approximately $5,747,000 and paid off the $2,610,000 balance due on
the existing mortgage. The gain on the sale of the buildings will be
recorded in the second quarter of fiscal 2004 utilizing a 1031
tax-free exchange. The Company has also entered into a lease
agreement to lease the facility from the new owner commencing on
February&nbsp;24, 2004 and terminating on December&nbsp;31, 2004, with an option
to renew the term of the lease for a period of 60&nbsp;days. Under the
terms of the lease agreement, the Company will pay monthly rent of
approximately $47,000 plus taxes, insurance and utilities.</TD>
</TR>

</TABLE>

<!-- link2 "Item&nbsp;2. MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" -->
<DIV align="left"><A NAME="006"></A></DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;2. MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS</B>



<P align="left" style="font-size: 10pt"><B>General</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 &#147;Cautionary Statements and Risk
Factors,&#148; below.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Because the Company&#146;s business is seasonal, the current balance sheet
amounts at January&nbsp;31, 2004 may more meaningfully be compared to the balances
at January&nbsp;31, 2003, rather than to the balances at October&nbsp;31, 2003.


<P align="left" style="font-size: 10pt"><B>Critical Accounting Policies</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In response to the SEC&#146;s Release Numbers 33-8040, &#147;Cautionary Advice
Regarding Disclosure About Critical Accounting Policies&#148; and 33-8056,
&#147;Commission Statement About Management&#146;s Discussion and Analysis of Financial
Condition and Results of Operations,&#148; 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.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Revenue Recognition. </I>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.&nbsp;104, <I>Revenue Recognition</I>. 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


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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">period of the sale for estimated product
returns and sales allowances.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Sales Returns and Other Allowances. </I>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 $881,000 at January
31, 2004 compared to $728,000 at October&nbsp;31, 2003 and $466,000 at January&nbsp;31,
2003.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Allowance for Doubtful Accounts. </I>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
historical bad debts and evaluating individual customer receivables considering
the customer&#146;s financial condition and current economic conditions. As of
January&nbsp;31, 2003, the Company had reserved approximately $2.0&nbsp;million of
receivables due from a national retail customer which later filed for
protection under U.S. bankruptcy laws, as well as $1.4&nbsp;million for other
estimated uncollectible receivables based on management&#146;s analysis. If the
financial condition of significant customers of ours were to deteriorate,
resulting in the impairment of their ability to make payments, additional
allowances for doubtful accounts may be required. In October&nbsp;2002, the Company
acquired credit insurance to cover many of its major accounts. Our trade
accounts receivable balance was $27.4&nbsp;million, net of allowances for doubtful
accounts of $1.1&nbsp;million, at January&nbsp;31, 2004, as compared to the balance of
$31.0&nbsp;million, net of allowances for doubtful accounts of $1.3&nbsp;million, at
October&nbsp;31, 2003. At January&nbsp;31, 2003, the trade accounts receivable balance
was $28.3&nbsp;million, net of allowances for doubtful accounts of $3.4&nbsp;million.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Inventory. </I>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. Our inventory balance was $53.1
million, net of inventory write-downs of $0.8&nbsp;million, at January&nbsp;31, 2004, as
compared to an inventory balance of $44.5&nbsp;million, net of inventory write-downs
of $1.0&nbsp;million, at October&nbsp;31, 2003. At January&nbsp;31, 2003, the inventory
balance was $52.7&nbsp;million, net of inventory write-downs of $1.0&nbsp;million.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Asset Purchase Credits. </I>In November&nbsp;2000, the Company entered into an
agreement with a third party whereby inventory was exchanged for future asset
purchase credits (&#147;APCs&#148;), 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&nbsp;million resulting
in $1.4&nbsp;million in future APCs. In December&nbsp;2003, the Company entered into a
second agreement with the third party and exchanged $0.9&nbsp;million of additional
inventory (at cost) resulting in an additional $0.9&nbsp;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. 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 January
31, 2004, the


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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Company had $1.2&nbsp;million of the APCs remaining and management
expects to fully utilize them over their remaining life.


<P align="left" style="font-size: 10pt"><B>Off-Balance Sheet Arrangements</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At January&nbsp;31, 2004 and 2003, 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.


<P align="left" style="font-size: 10pt"><B>Overview</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company earns revenues and income and generates cash through the
design, marketing and distribution of quality men&#146;s and women&#146;s sports apparel
under the Ashworth and Callaway Golf apparel brands. The Company&#146;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, to top specialty-advertising firms for the corporate
market as well as in the Company&#146;s own stores. Nearly all of the Company&#146;s
production is through &#147;full package&#148; 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.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;First quarter fiscal 2004 net revenue increased slightly to $27,338,000 as
compared to $26,563,000 for the same period of the prior year. The increase
was primarily driven by net revenue increases in its retail, international and
corporate channels, offset by a decline in our domestic core golf and
off-course specialty distribution channel. The net revenues growth, combined
with improved gross margins and controlled expenses, resulted in first quarter
net income of $134,000 or $0.01 per diluted share, compared to net income of
$106,000 or $0.01 per diluted share in the same quarter of last year.


<P align="left" style="font-size: 10pt"><B>Results of Operations</B>



<P align="left" style="font-size: 10pt"><B>First quarter 2004 compared to first quarter 2003</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Consolidated net revenues for the first quarter of fiscal 2004 increased
2.9% to $27,338,000 from $26,563,000 for the same period in fiscal 2003
primarily due to higher revenues from its retail and corporate distribution
channels as well as the international segment.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net revenues for the domestic segment decreased 2.0% to $23,061,000 for
the current quarter from $23,537,000 in the first quarter of 2003. Net
revenues from the Company&#146;s core golf and off-course specialty distribution
channel decreased $2,009,000 or 13.0% as compared to the first quarter of
fiscal 2003. This decrease was primarily due to continuing industry weakness
and a trend among buyers in the golf related distribution channel to lower
their inventory risk by delaying shipments until closer to the spring/summer
selling season. Net revenues from Company owned stores decreased by $456,000
or 26.8% primarily due to the closing of two Company owned stores. These
decreases were partially offset by increased net revenues in the Company&#146;s
retail and corporate distribution channels. Net revenues from
the retail distribution channel increased $1,726,000 or 88.6% as compared
to the first quarter of fiscal 2003. The increase in the retail distribution
channel is primarily due to an increased number of doors as well as slightly
higher comparable


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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">store sales in the first quarter of fiscal 2004 as compared
to the same period of the prior fiscal year. Net revenues from the corporate
distribution channel increased $263,000 or 5.9% as compared to the same quarter
in the prior fiscal year. Since the end of 2001, corporate promotional budgets
had been cut due to the overall economic and business conditions resulting in
price compression pressures in the corporate distribution channel. When
corporations increase their promotional budgets, the Company expects net
revenues to increase.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net revenues for the international segment increased 41.4% to $4,277,000
for the current quarter from $3,026,000 for the same period of the prior fiscal
year. The increase was primarily due to higher revenues in the Company&#146;s U.K.
subsidiary and Canadian divisions, of which $414,000 was due to the weakening
of the U.S. dollar against the British pound and Canadian dollar during the
first quarter of fiscal 2004. Net revenues from the Company&#146;s U.K. subsidiary
in the first quarter of fiscal 2004 increased by $1,014,000 or 56.2% compared
to the same quarter of the prior fiscal year, of which $289,000 was due to
fluctuations in currency exchange rates. The balance of the increase was due
to an increased number of accounts as well as an increased average order size.
Net revenue from the Canadian divisions increased by $313,000 or 66.0% as
compared to net revenues in the same quarter of the prior fiscal year, of which
$125,000 was due to changes in currency exchange rates.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Consolidated gross margin for the quarter increased 160 basis points to
39.1% as compared to 37.5% for the same quarter a year earlier. This
improvement was primarily due to improved product sourcing as well as a more
favorable product sales mix.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Consolidated SG&#038;A expenses increased 7.5% to $10,405,000 for the first
quarter of fiscal 2004 from $9,682,000 for the same period in fiscal 2003. As
a percent of net revenues, SG&#038;A increased to 38.1% in the current quarter as
compared to 36.5% for the same quarter of the prior fiscal year. The increase
in SG&#038;A is primarily due to increased insurance expense as well as the timing
of sales and marketing expenses.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total other expense decreased to $63,000 for the first quarter of fiscal
2004 from $109,000 in the first quarter of fiscal 2003, primarily due to higher
currency transaction gains in the current quarter as compared to the same
quarter of the prior fiscal year at the Company&#146;s U.K. subsidiary and Canadian
divisions and slightly lower interest expense resulting from lower average
borrowings under the Company&#146;s line of credit of $4,461,000 during the first
quarter of fiscal 2004 as compared to $16,045,000 during the same quarter of
fiscal 2003.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The effective income tax rate for the first quarter of fiscal 2004
remained at 40.0% of pre-tax income.


<P align="left" style="font-size: 10pt"><B>Liquidity and Capital Resources</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;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&#146;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.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On April&nbsp;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&nbsp;30, 2005


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<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">and is collateralized by
substantially all of the assets of the Company, other than real estate. 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&nbsp;15 during the term of the agreement.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest under this loan agreement is currently charged at the bank&#146;s
reference (prime)&nbsp;rate. At January&nbsp;31, 2004, the prime rate was 4.00%. The
loan agreement also provides for optional interest rates based on London
interbank offered rates (&#147;LIBOR&#148;) for periods of at least 30&nbsp;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 Company was in compliance with all such covenants as of
January&nbsp;31, 2004. The line of credit 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 $5,081,000 at January&nbsp;31, 2004 as
compared to $9,635,000 at January&nbsp;31, 2003 under the prior loan agreement. The
Company had $3,800,000 outstanding at January&nbsp;31, 2004, compared to $17,320,000
outstanding at January&nbsp;31, 2003 under the prior loan agreement. The decrease
in outstanding letters of credit and borrowings is primarily due to converting
several vendors from letters of credit to open credit terms as well as better
working capital management. At January&nbsp;31, 2004, $46,119,000 was available for
borrowing under this loan agreement.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the quarter ended January&nbsp;31, 2004, cash used in operations was
$2,035,000 as compared to $7,432,000 used during the same quarter of the prior
fiscal year. The improvement in cash management was primarily due to the
Company&#146;s ability to negotiate more favorable payment terms with many of its
vendors as well as controlling inventory growth and improving collections of
accounts receivable.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net trade receivables were $27,442,000 at January&nbsp;31, 2004, a decrease of
$3,551,000 from the balance at October&nbsp;31, 2003. Because the Company&#146;s
business is seasonal, the net receivables balance may more meaningfully be
compared to the balance of $28,268,000 at January&nbsp;31, 2003, rather than the
year-end balance. The comparison to the first quarter of fiscal 2003 shows a
decrease of 2.9% in net trade receivables despite a 2.9% increase in net
revenues.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net inventories increased 19.3% to $53,070,000 at January&nbsp;31, 2004 from
$44,476,000 at October&nbsp;31, 2003. Because the Company&#146;s business is seasonal,
the inventory balance may more meaningfully be compared to the balance of
$52,730,000 at January&nbsp;31, 2003, rather than the year-end balance. Net
inventories at January&nbsp;31, 2004 were essentially flat when compared to net
inventories at January&nbsp;31, 2003. The Company believes that its current
inventory mix and amounts are appropriate to respond to market demand.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the first three months of fiscal 2004, the Company incurred capital
expenditures of $989,000 primarily for upgrades of computer systems and
equipment as well as warehouse automation. During the remainder of fiscal
2004, Ashworth management anticipates capital spending of approximately
$18,711,000, primarily for the purchase of the new distribution center in
Oceanside, California and on sales fixtures, embroidery equipment, outlet
stores openings and renovations and upgrades of computer systems and equipment.
Except for the purchase of the real property, for which the Company plans to
obtain mortgage financing, management currently intends to finance the purchase
of the Company&#146;s capital equipment from its own cash resources, but may use
leases or equipment financing
agreements if deemed appropriate.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company capitalized interest of $27,000 and $0 during the three months
ended January&nbsp;31, 2004 and 2003, respectively, related to construction in
progress.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company owned two buildings located in Carlsbad, California that were
purchased on


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<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">December&nbsp;9, 1993 for $3,500,000. The Company entered into an
agreement to sell the two buildings for approximately $5,747,000 and escrow
closed on February&nbsp;24, 2004. The Company has entered into a lease agreement to
lease the facility from the new owner. The term of the lease commenced on the
close of escrow and terminates on December&nbsp;31, 2004, with an option to renew
the term of the lease for a period of 60&nbsp;days with written notice of intent to
exercise the option due at least 90&nbsp;days prior to the expiration of the initial
term of the lease. Under the terms of the lease agreement, the Company will
pay monthly rent of approximately $47,000 plus taxes, insurance and utilities.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company is party to an exclusive licensing agreement with Callaway
Golf Company with royalty payments being calculated as a percent of sales with
certain minimum guarantees. These royalty payments began in January&nbsp;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.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Common stock and capital in excess of par value increased by $473,000 in
the three months ended January&nbsp;31, 2004, of which $398,000 is due to the
issuance of 72,500 shares of common stock on exercise of options and $75,000 is
the tax benefit related to the exercise of those options.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October&nbsp;25, 2002, the Company entered into an agreement to purchase
land and a building, to be built to the Company&#146;s specifications, in the Ocean
Ranch Corporate Center in Oceanside, California. The building, to be
constructed with approximately 203,000 square feet of useable space, will be
used by the Company to warehouse, embroider, finish, package and distribute
clothing products and related accessories. Subject to timely completion of
construction, the purchase agreement obligates the Company to purchase the land
and building in the first half of fiscal 2004 for approximately $15,000,000.
The Company has also entered into a contingent lease agreement that obligates
the Company to pay a monthly base rent plus standard common area maintenance
(&#147;CAM&#148;) charges for a term of 10&nbsp;years. The lease would take effect only if
the land and building purchase is not completed due to certain defaults by the
Company, as specified in the purchase agreement. The base rent and CAM
payments under the conditional lease would start on the date 30&nbsp;days after
substantial completion of the improvements. The base rent would be calculated
according to a specified formula based on the purchase price under the purchase
agreement, expected interest rates and other criteria. If the Company were to
default on the purchase agreement, monthly rental under the lease agreement is
currently estimated to commence at approximately $132,000 and the monthly CAM
charges are currently estimated to commence at approximately $27,000. The
Company is not obligated to make any deposits or progress payments under the
purchase agreement unless the Company makes change requests which require a
deposit that exceeds a certain dollar limit. As of the end of February&nbsp;2004,
the building has essentially been completed and the Company is in negotiations
with various financial institutions to obtain a long-term loan separate from
the line of credit agreement to finance the purchase of the land and the
building.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has entered into agreements with equipment manufacturers to
purchase the equipment required for the operation of the Company&#146;s new
distribution center in Oceanside, California. On June&nbsp;23, 2003, the Company
entered into a Master Equipment Lease Agreement with a financial institution
which has accepted an assignment of these purchase agreements and assumed all
rights and
payment obligations under these agreements. From time to time, commencing
approximately June&nbsp;26, 2003, the financial institution will make progress
payments to the equipment manufacturers during the period while the equipment
is being purchased, assembled, installed and/or tested as required by the
purchase agreements. The total cost of the equipment is expected to be
approximately $12,000,000. The Company is obligated to pay the financial
institution for interest costs related to the progress payments calculated
using the prime rate plus one half of one percentage point per annum based on a
360-day year. As of January&nbsp;31, 2004, the financial institution has made
progress payments of $5,059,000 leaving an available balance of $6,941,000 and
the Company has paid $51,000 in interest charges during the first quarter of
fiscal 2004. Under the


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<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">original agreement, if the Company failed to deliver a
certificate of acceptance and execute an equipment schedule by the outside
closing date, the Company would be obligated to purchase the equipment from the
financial institution at a price equal to the aggregate amount of all costs,
disbursements and expenses incurred or committed to be incurred by the
financial institution. The Company has entered into an agreement with the
financial institution to extend the outside closing date to August&nbsp;31, 2004.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based on current levels of operations, the Company expects that sufficient
cash flow will be generated from operations so that, combined with other
financing alternatives available, 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&nbsp;months.


<P align="left" style="font-size: 10pt"><B>Derivatives</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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&#146;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&nbsp;months. On July&nbsp;15, 2003, the Company&#146;s U.K. subsidiary entered into four
forward exchange contracts to sell British pounds and buy U.S. dollars, as well
as five forward exchange contracts to sell Euros and buy British pounds. At
January&nbsp;31, 2004, the notional amount of the remaining foreign exchange
contracts designated as cash flow hedges was $1,358,000 with an unrealized
after tax loss of $28,000.


<P align="left" style="font-size: 10pt"><B>New Accounting Standards</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January&nbsp;2003, the Financial Accounting Standards Board (&#147;FASB&#148;) issued
Interpretation No.&nbsp;46, <I>Consolidation of Variable Interest Entities </I>(&#147;FIN No.
46&#148;). FIN No.&nbsp;46 addresses consolidation of entities that are not controllable
through voting interests or in which the equity investors do not bear the
residual economic risks and rewards. These entities have been commonly
referred to as special purpose entities. FIN No.&nbsp;46 provides guidance related
to identifying variable interest entities and determining whether such entities
should be consolidated. It also provides guidance related to the initial and
subsequent measurement of assets, liabilities and non-controlling interests in
newly consolidated variable interest entities and requires disclosures for both
the primary beneficiary of a variable interest entity and other beneficiaries
of the entity. For variable interest entities created, or interests in
variable interest entities obtained, subsequent to January&nbsp;31, 2003, the
Company is required to apply the consolidation
provisions of FIN No.&nbsp;46 immediately. For variable interest entities
created, or interests in variable interest entities obtained, on or before
January&nbsp;31, 2003, the consolidation provisions of FIN No.&nbsp;46 were first
required to be applied in the Company&#146;s financial statements as of July&nbsp;31,
2003. In January&nbsp;2004, the FASB issued a revision to FIN No.&nbsp;46, to clarify
some requirements and add new scope exceptions. The revised guidance is
effective for the first reporting period beginning after December&nbsp;15, 2003. To
date, the Company has not created any variable interest entities nor obtained
an interest in any variable interest entities for which the Company would be
required to apply the consolidation provisions of FIN No.&nbsp;46.


<P align="left" style="font-size: 10pt"><B>Cautionary Statements and Risk Factors</B>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">This report contains certain forward-looking statements, including without
limitation those regarding the


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<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Company&#146;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
&#147;believe,&#148; &#147;anticipate,&#148; &#147;expect,&#148; &#147;estimate,&#148; &#147;project,&#148; &#147;will be,&#148; &#147;will
continue,&#148; &#147;will likely result&#148; 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&#146;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&#146;s business in general is subject to certain risks that could affect the
value of the Company&#146;s common stock. These risks include, but are not limited
to, the following:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><FONT face="wingdings">&#111;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Demand for the Company&#146;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.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><FONT face="wingdings">&#111;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Like other apparel manufacturers, the Company must correctly
anticipate and help direct fashion trends within its industry. The
Company&#146;s results of operations would suffer if the Company fails to
develop fashions or styles that are well received in any season.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><FONT face="wingdings">&#111;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company is party to a multi-year licensing agreement to design,
source and sell Callaway Golf apparel primarily in the United States,
Europe and Canada. The Company must correctly anticipate the fashion
trends and demand for these product lines. The Company&#146;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.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><FONT face="wingdings">&#111;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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&#146;s market
share is not as significant. Price competition or industry
consolidation could weaken the Company&#146;s competitive position.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><FONT face="wingdings">&#111;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company has entered into agreements to purchase land and a
building in Oceanside, California to replace and expand existing owned
and leased office and distribution facilities. The Company&#146;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&#146;s results of operations could be negatively impacted if future sales
volume growth does not reach expected levels and the facility&#146;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.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><FONT face="wingdings">&#111;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The outbreak of Severe Acute Respiratory Syndrome
affected travel to countries where the Company&#146;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&#146;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.</TD>
</TR>

</TABLE>

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<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><FONT face="wingdings">&#111;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company relies on domestic and foreign
contractors to manufacture various products. If
these contractors deliver goods late or fail to meet
the Company&#146;s quality standards, the Company could
lose sales and its reputation could suffer. The
Company&#146;s foreign suppliers&#146; ability to deliver
products may be adversely affected by future changes
in tariffs, quotas and other trade barriers imposed
by the foreign countries, as well as the United
States.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><FONT face="wingdings">&#111;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company&#146;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&#146;s products in sufficient quantities or at
expected prices and the Company could lose sales or
have lower gross profit margins.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><FONT face="wingdings">&#111;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>An increase in terrorist activities, as well as the
continued conflicts around the world, would likely
adversely affect the level of demand for the
Company&#146;s products as customers&#146; and consumers&#146;
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&#146;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&#146;s ability to
fulfill customer orders also would be materially
adversely affected.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><FONT face="wingdings">&#111;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>If economic conditions deteriorate, the ability of
the Company&#146;s customers to pay current obligations
may be adversely impacted and the Company may
experience an increase in delinquent and
uncollectible accounts.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><FONT face="wingdings">&#111;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company is from time to time party to claims and
litigation proceedings. Such matters include the
specific litigation described in this report and
other litigation arising in the ordinary course of
business, see &#147;Legal Proceedings,&#148; below. Such
matters are subject to many uncertainties and the
Company cannot predict with assurances the outcomes
and ultimate financial impacts of them. There can be
no guarantees that actions that have been or may be
brought against the Company in the future will be
resolved in the Company&#146;s favor or that insurance
carried by the Company will be available or paid to
cover any litigation exposure. Any losses resulting
from settlements or adverse judgments arising out of
these claims could materially and adversely affect
the Company&#146;s consolidated financial position and
results of operations.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><FONT face="wingdings">&#111;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Fluctuations in foreign currency exchange rates could
affect the Company&#146;s ability to sell its products in
foreign markets and the value in U.S. dollars of
revenues received in foreign currencies. The
Company&#146;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.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><FONT face="wingdings">&#111;</FONT></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company maintains high levels of inventory to
support its Authentics&#153; program as well as the
Callaway Golf apparel Classics program. Additional
products, greater sales volume, and customer trends
toward increased &#147;at-once&#148; ordering may require
increased inventory. Disposal of excess prior season
inventory is an ongoing part of the Company&#146;s
business, and write-downs of inventories may
materially impair the Company&#146;s financial performance
in any period. Particular inventories may be subject
to multiple write-downs if the Company&#146;s initial
reserve estimates for inventory obsolescence or lack
of throughput prove to be too low. These risks
increase as inventory increases.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">16
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</TABLE>

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<DIV align="left"><A NAME="007"></A></DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</B>



<P align="left" style="font-size: 10pt"><B>Interest Rate Risk</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s long-term debt currently consists of notes payable which had
a total balance of $2,849,000 at January&nbsp;31, 2004. The debt bears interest at
fixed rates ranging from 5.9% to 8.3%, which approximates fair value based on
current rates offered for debt with similar risks and maturities. The Company
also had $3,800,000 outstanding at January&nbsp;31, 2004 on its revolving line of
credit with interest charged at the bank&#146;s reference (prime)&nbsp;rate. The loan
agreement also provides for optional interest rates based on LIBOR for periods
of at least 30&nbsp;days in increments of $500,000. A hypothetical 10% increase in
interest rates during the three months ended January&nbsp;31, 2004 would have
resulted in a $5,000 decrease in net income.


<P align="left" style="font-size: 10pt"><B>Foreign Currency Exchange Rate Risk</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;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&#146;s products or losses from currency exchange rates.
From time to time the Company and its U.K. subsidiary enter 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. The
contracts provide that, on specified dates, the Company would sell the bank a
specified number of British pounds in exchange for a specified number of U.S.
dollars. Additionally, the Company&#146;s subsidiary in England from time to time
enters into similar contracts with its bank to hedge against currency
fluctuations between 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&nbsp;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&#146;s results of operations. On July&nbsp;15, 2003, the Company&#146;s U.K.
subsidiary entered into four forward exchange contracts to sell British pounds
and buy U. S. dollars, as well as five forward exchange contracts to sell Euros
and buy British pounds. At January&nbsp;31, 2004, the notional amount of the
remaining foreign exchange contracts designated as cash flow hedges was
$1,358,000 with an unrealized after tax loss of $28,000.

<!-- link2 "Item&nbsp;4. CONTROLS AND PROCEDURES" -->
<DIV align="left"><A NAME="008"></A></DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;4. CONTROLS AND PROCEDURES.</B>



<P align="left" style="font-size: 10pt"><B>Evaluation of Disclosure Controls and Procedures</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of January&nbsp;31, 2004, the Company carried out an evaluation, under the
supervision and with the participation of the Company&#146;s management, including
the Company&#146;s Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Company&#146;s disclosure controls
and procedures pursuant to Exchange Act Rule&nbsp;13a-15. Based upon that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that the Company&#146;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.


<P align="center" style="font-size: 10pt">17
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt"><B>Changes in Internal Control over Financial Reporting</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There were no significant changes in the Company&#146;s internal controls over
financial reporting that occurred during the Company&#146;s first quarter of fiscal
2004 that has materially affected or are reasonably likely to materially affect
the Company&#146;s internal control over financial reporting.

<!-- link1 "PART II OTHER INFORMATION" -->
<DIV align="left"><A NAME="009"></A></DIV>

<P align="center" style="font-size: 10pt"><B>PART II</B>



<P align="center" style="font-size: 10pt"><B>OTHER INFORMATION</B>


<!-- link2 "Item&nbsp;1. LEGAL PROCEEDINGS" -->
<DIV align="left"><A NAME="010"></A></DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;1. LEGAL PROCEEDINGS</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On January&nbsp;22, 1999, Milberg Weiss Bershad Hynes &#038; Lerach LLP filed a
class action in the United States District Court for the Southern District of
California (&#147;U.S. District Court&#148;) on behalf of purchasers of the Company&#146;s
common stock during the period between September&nbsp;4, 1997 and July&nbsp;15, 1998.
The action was subsequently consolidated with two similar suits and plaintiffs
filed their Amended and Consolidated Complaint on December&nbsp;17, 1999. Upon the
Company&#146;s motion, the U.S. District Court dismissed the Complaint with leave to
amend on July&nbsp;18, 2000. On September&nbsp;18, 2000, plaintiffs served their Second
Consolidated Amended Complaint (&#147;Second Amended Complaint&#148;). On November&nbsp;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&#146;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.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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, liquidity or results of operations of the
Company.

<!-- link2 "Item&nbsp;2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES &#151; NONE" -->
<DIV align="left"><A NAME="011"></A></DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;2. CHANGES IN
SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES &#150; NONE</B>


<!-- link2 "Item&nbsp;3. DEFAULTS UPON SENIOR SECURITIES &#151; NONE" -->
<DIV align="left"><A NAME="012"></A></DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;3. DEFAULTS UPON
SENIOR SECURITIES &#150; NONE</B>


<!-- link2 "Item&nbsp;4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS &#151; NONE" -->
<DIV align="left"><A NAME="013"></A></DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;4. SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS &#150; NONE</B>


<!-- link2 "Item&nbsp;5. OTHER INFORMATION &#151; NONE" -->
<DIV align="left"><A NAME="014"></A></DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;5. OTHER
INFORMATION &#150; NONE</B>


<!-- link2 "Item&nbsp;6. EXHIBITS AND REPORTS ON FORM 8-K" -->
<DIV align="left"><A NAME="015"></A></DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;6. EXHIBITS AND REPORTS ON FORM 8-K</B>



<P align="left" style="font-size: 10pt">(a)&nbsp;Exhibits


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="83%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">3(a)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certificate of Incorporation as filed March&nbsp;19, 1987 with the
Secretary of State of Delaware,</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">18
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="83%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment to Certificate of
Incorporation as filed August&nbsp;3, 1987 and Amendment to Certificate
of Incorporation as filed April&nbsp;26, 1991 (filed as Exhibit&nbsp;3(a) to
the Company&#146;s Registration Statement dated February&nbsp;21, 1992 (File
No.&nbsp;33-45078) and incorporated herein by reference) and Amendment
to Certificate of Incorporation as filed April&nbsp;6, 1995 (filed as
Exhibit&nbsp;3(a) to the Company&#146;s Form&nbsp;10-K for the fiscal year ended
October&nbsp;31, 1994 (File No.&nbsp;0-18553) and incorporated herein by
reference).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">3(b)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated Bylaws of the Company (filed as Exhibit&nbsp;3.1 to
the Company&#146;s Current Report on Form&nbsp;8-K on February&nbsp;23, 2000 (File
No.&nbsp;0-18553) and incorporated herein by reference).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">4(a)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Specimen certificate for Common Stock, par value $.001 per share,
of the Company (filed as Exhibit&nbsp;4(a) to the Company&#146;s Registration
Statement dated November&nbsp;4, 1987 (File No.&nbsp;33-16714-D) and
incorporated herein by reference).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">4(b)(1)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Specimen certificate for Options granted under the Amended and
Restated Nonqualified Stock Option Plan dated March&nbsp;12, 1992 (filed
as Exhibit&nbsp;4(b) to the Company&#146;s Form&nbsp;10-K for the fiscal year
ended October&nbsp;31, 1993 (File No.&nbsp;0-18553) and incorporated herein
by reference).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">4(b)(2)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Specimen certificate for Options granted under the Founders Stock
Option Plan dated November&nbsp;6, 1992 (filed as Exhibit&nbsp;4(b)(2) to the
Company&#146;s Form&nbsp;10-K for the fiscal year ended October&nbsp;31, 1993
(File No.&nbsp;0-18553) and incorporated herein by reference).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">4(c)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Specimen certificate for Options granted under the Incentive Stock
Option Plan dated June&nbsp;15, 1993 (filed as Exhibit&nbsp;4(c) to the
Company&#146;s Form&nbsp;10-K for the fiscal year ended October&nbsp;31, 1993
(File No.&nbsp;0-18553) and incorporated herein by reference).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">4(d)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Rights Agreement dated as of October&nbsp;6, 1998 and amended on
February&nbsp;22, 2000 by and between Ashworth, Inc. and American
Securities Transfer &#038; Trust, Inc. (filed as Exhibit&nbsp;4.1 to the
Company&#146;s Form&nbsp;8-K filed on March&nbsp;14, 2000 (File No.&nbsp;0-18553) and
incorporated herein by reference).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(a)*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Personal Services Agreement and Acknowledgement of Termination of
Executive Employment effective December&nbsp;31, 1998 by and between
Ashworth, Inc. and Gerald W. Montiel (filed as Exhibit&nbsp;10(b) to the
Company&#146;s Form&nbsp;10-K for the fiscal year ended October&nbsp;31, 1998
(File No.&nbsp;0-18553) and incorporated herein by reference).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(b)*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment to Personal Services Agreement effective January&nbsp;1, 1999
by and between Ashworth, Inc. and Gerald W. Montiel (filed as
Exhibit&nbsp;10(c) to the Company&#146;s Form&nbsp;10-K for the fiscal year ended
October&nbsp;31, 1998 (File No.&nbsp;0-18553) and incorporated herein by
reference).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(c)*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">First Amended and Restated Executive Employment Agreement effective
February&nbsp;22, 1999 by and between Ashworth, Inc. and Randall L.
Herrel, Sr. (filed as Exhibit&nbsp;10(a) to the Company&#146;s Form&nbsp;10-Q for
the quarter ended April&nbsp;30, 1999 (File No.&nbsp;0-18553) and
incorporated herein by reference).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(d)*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Employment Agreement effective December&nbsp;15, 2000 by and between
Ashworth, Inc. and Terence W. Tsang (filed as Exhibit&nbsp;10(f) to the
Company&#146;s Form&nbsp;10-Q for the quarter ended January&nbsp;31, 2001 (File
No.&nbsp;0-18553) and incorporated herein by reference).</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">19
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="83%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(e)*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated Nonqualified Stock Option Plan dated November
1, 1996 (filed as Exhibit&nbsp;10(i) to the Company&#146;s Form&nbsp;10-K for the
fiscal year ended October&nbsp;31, 2000 (File No.&nbsp;0-18553) and
incorporated herein by reference).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(f)*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated Incentive Stock Option Plan dated November&nbsp;1,
1996 (filed as Exhibit&nbsp;10(j) to the Company&#146;s Form&nbsp;10-K for the
fiscal year ended October&nbsp;31, 2000 (File No.&nbsp;0-18553) and
incorporated herein by reference).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(g)*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated 2000 Equity Incentive Plan dated December&nbsp;14,
1999 adopted by the stockholders on March&nbsp;24, 2000 (filed as
Exhibit&nbsp;4.1 to the Company&#146;s Form&nbsp;S-8 filed on December&nbsp;12, 2000
(File No.&nbsp;333-51730) and incorporated herein by reference).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(h)(1)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Credit Agreement dated April&nbsp;24, 2003, between Ashworth, Inc. as
Borrower, Bank of America, N.A., as Administrative Agent and
Lender, Union Bank of California, N.A. and Bank of the West as
Lenders, expiring April&nbsp;30, 2005 (filed as Exhibit&nbsp;10(i)(1) to the
Company&#146;s Form&nbsp;10-Q for the quarter ended April&nbsp;30, 2003 (File No.
0-18553) and incorporated herein by reference).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(h)(2)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Guaranty Agreement dated April&nbsp;24, 2003 between Ashworth Store I,
Inc., Ashworth Store II, Inc. and Ashworth Store III, Inc. as
Guarantors and Bank of America, N.A., as Administrative Agent on
behalf of Ashworth, Inc. as the Borrower (filed as Exhibit&nbsp;10(i)(2)
to the Company&#146;s Form&nbsp;10-Q for the quarter ended April&nbsp;30, 2003
(File No.&nbsp;0-18553) and incorporated herein by reference).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(h)(3)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Security Agreement effective as of April&nbsp;24, 2003 to the Credit
Agreement dated April&nbsp;24, 2000, between Ashworth, Inc. as Pledgor,
Bank of America, N.A., as Administrative Agent and Lender, Union
Bank of California, N.A. and Bank of the West as Lenders, expiring
April&nbsp;30, 2005 (filed as Exhibit&nbsp;10(i)(3) to the Company&#146;s Form
10-Q for the quarter ended April&nbsp;30, 2003 (File No.&nbsp;0-18553) and
incorporated herein by reference).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(h)(4)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Security Agreement effective as of April&nbsp;24, 2003 to the Credit
Agreement dated April&nbsp;24, 2000, between Ashworth Store I, Inc.,
Ashworth Store II, Inc. and Ashworth Store III, Inc. as Pledgor,
Bank of America, N.A., as Administrative Agent and Lender, Union
Bank of California, N.A. and Bank of the West as Lenders, expiring
April&nbsp;30, 2005 (filed as Exhibit&nbsp;10(i)(4) to the Company&#146;s Form
10-Q for the quarter ended April&nbsp;30, 2003 (File No.&nbsp;0-18553) and
incorporated herein by reference).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(h)(5)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Deed of Hypothec of Universality of Moveable Property effective as
of April&nbsp;24, 2003 to the Credit Agreement dated April&nbsp;24, 2000,
between Ashworth, Inc. as Grantor, Bank of America, N.A., as
Administrative Agent and Lender, Union Bank of California, N.A. and
Bank of the West as Lenders, expiring April&nbsp;30, 2005 (filed as
Exhibit&nbsp;10(i)(5) to the Company&#146;s Form&nbsp;10-Q for the quarter ended
April&nbsp;30, 2003 (File No.&nbsp;0-18553) and incorporated herein by
reference).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(h)(6)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Equitable Mortgage Over Securities effective as of April&nbsp;24, 2003
to the Credit Agreement dated April&nbsp;24, 2000, between Ashworth,
Inc. as Mortgagor, Bank of America, N.A., as Security Trustee and
Beneficiary, Union Bank of California, N.A. and Bank of the West as
Beneficiaries, expiring April&nbsp;30, 2005 (filed as Exhibit&nbsp;10(i)(6)
to the Company&#146;s Form&nbsp;10-Q for the quarter ended April&nbsp;30, 2003
(File No.&nbsp;0-18553) and incorporated herein by reference).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(i)*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Change in Control Agreement dated November&nbsp;1, 2000 by and between
Ashworth, Inc. and Randall L. Herrel, Sr. (filed as Exhibit&nbsp;10(m)
to the Company&#146;s Form&nbsp;10-K for the fiscal year ended October&nbsp;31,
2000 (File No.&nbsp;0-18553) and incorporated herein by reference).</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">20
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="83%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(j)*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Change in Control Agreement dated November&nbsp;1, 2000 by and between
Ashworth, Inc. and Terence W. Tsang (filed as Exhibit&nbsp;10(n) to the
Company&#146;s Form&nbsp;10-K for the fiscal year ended October&nbsp;31, 2000
(File No.&nbsp;0-18553) and incorporated herein by reference).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(k)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Promotion Agreement effective November&nbsp;1, 1999 by and between
Ashworth, Inc. and Fred Couples (filed as Exhibit&nbsp;10(o) to the
Company&#146;s Form&nbsp;10-K for the fiscal year ended October&nbsp;31, 2000
(File No.&nbsp;0-18553) and incorporated herein by reference).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(l)*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Offer and Acceptance of Executive Employment effective May&nbsp;29, 2001
by and between Ashworth, Inc. and Eddie Fadel (filed as Exhibit
10(o) to the Company&#146;s Form&nbsp;10-K for the fiscal year ended October
31, 2002 (File No.&nbsp;0-18553) and incorporated herein by reference).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(m)*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Contract Termination Agreement effective October&nbsp;31, 2002 by and
among Ashworth, Inc., James Nantz, III and Nantz Communications,
Inc. (filed as Exhibit&nbsp;10(p) to the Company&#146;s Form&nbsp;10-K for the
fiscal year ended October&nbsp;31, 2002 (File No.&nbsp;0-18553) and
incorporated herein by reference).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(n)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Real Estate Purchase and Sale Agreement and Joint Escrow
Instructions effective October&nbsp;25, 2002 by and between Innovative
Development Enterprises, Inc. and Ashworth, Inc. (filed as Exhibit
10(q) to the Company&#146;s Form&nbsp;10-K for the fiscal year ended October
31, 2002 (File No.&nbsp;0-18553) and incorporated herein by reference).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(o)*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Promotion Agreement effective October&nbsp;31, 2002 by and among
Ashworth, Inc., James W. Nantz, III and Nantz Enterprises, Ltd.
(filed as Exhibit&nbsp;10(q) to the Company&#146;s Form&nbsp;10-Q for the quarter
ended January&nbsp;31, 2003 (File No.&nbsp;0-18553) and incorporated herein
by reference).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(p)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Purchase and Installation Agreement dated April&nbsp;10, 2003 between
Ashworth, Inc. and Gartner Storage &#038; Sorter Systems of Pennsylvania
(filed as Exhibit&nbsp;10&#174; to the Company&#146;s Form&nbsp;10-Q for the quarter
ended April&nbsp;30, 2003 (File No.&nbsp;0-18553) and incorporated herein by
reference).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(q)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Agreement for Lease dated May&nbsp;1, 2003 by and among Ashworth, Inc.,
Ashworth U.K. Limited and Juniper Developments Limited (filed as
Exhibit&nbsp;10(s) to the Company&#146;s Form&nbsp;10-Q for the quarter ended
April&nbsp;30, 2003 (File No.&nbsp;0-18553) and incorporated herein by
reference).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(r)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Lease dated September&nbsp;1, 2003 by and among Ashworth, Inc., Ashworth
U.K. Limited and Juniper Developments Limited (filed as Exhibit
10(t) to the Company&#146;s Form&nbsp;10-Q for the quarter ended July&nbsp;31,
2003 (File No.&nbsp;0-18553) and incorporated herein by reference).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(s)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Master Equipment Lease Agreement dated as of June&nbsp;23, 2003 by and
between Key Equipment Finance and Ashworth, Inc. including
Amendment 01, the Assignment of Purchase Agreement and the
Certificate of Authority (filed as Exhibit&nbsp;10(u) to the Company&#146;s
Form&nbsp;10-Q for the quarter ended July&nbsp;31, 2003 (File No.&nbsp;0-18553)
and incorporated herein by reference).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(t)*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Offer and Acceptance of Executive Employment effective August&nbsp;30,
2001 by and between Ashworth, Inc. and Gary I. Schneiderman (filed
as Exhibit&nbsp;10(u) to the Company&#146;s Form&nbsp;10-K for the fiscal year
ended October&nbsp;31, 2003 (File No.&nbsp;0-18553) and incorporated herein
by reference).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(u)&#134;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">License Agreement, effective May&nbsp;14, 2001, by and between Ashworth,
Inc. and Callaway Golf Company (filed as Exhibit&nbsp;10(v) to the
Company&#146;s Form&nbsp;10-K for the fiscal year ended October&nbsp;31, 2003
(File No.&nbsp;0-18553) and incorporated herein by reference).</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">21
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="83%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(v)&#134;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amendment to License Agreement, effective December&nbsp;16, 2003, by and
between Ashworth, Inc. and Callaway Golf Company (filed as Exhibit
10(w) to the Company&#146;s Form&nbsp;10-K for the fiscal year ended October
31, 2003 (File No.&nbsp;0-18553) and incorporated herein by reference).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(w)(1)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Purchase and Sale Agreement, dated as of December&nbsp;2, 2003, by and
between Ashworth, Inc. and LBA Inc.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(w)(2)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">First Amendment to Purchase and Sale Agreement, dated as of January
29, 2004, by and between Ashworth, Inc. and LBA Inc.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(w)(3)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Assignment and Assumption of Purchase and Sale Agreement, effective
February&nbsp;24, 2004, by and between LBA Inc. and LBA Industrial
Fund-Canyon, Inc.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(w)(4)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Lease dated February&nbsp;24, 2004 by and between Ashworth, Inc. and LBA
Industrial Fund-Canyon, Inc.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(w)(5)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exchange Agreement and Supplemental Closing Instructions, dated as
of December&nbsp;3, 2003, by and between Ashworth, Inc. and Asset
Preservation, Inc.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">14
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Ashworth, Inc. Code of Business Conduct and Ethics adopted October
17, 2003 (filed as Exhibit&nbsp;14 to the Company&#146;s Form&nbsp;10-K for the
fiscal year ended October&nbsp;31, 2003 (File No.&nbsp;0-18553) and
incorporated herein by reference).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">31.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification Pursuant to Rules&nbsp;13a-14 and 15d-14, as Adopted
Pursuant to Section&nbsp;302 of the Sarbanes-Oxley Act of 2002 by
Randall L. Herrel, Sr.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">31.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification Pursuant to Rules&nbsp;13a-14 and 15d-14, as Adopted
Pursuant to Section&nbsp;302 of the Sarbanes-Oxley Act of 2002 by
Terence W. Tsang.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">32.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification Pursuant to 18 U.S.C. Section&nbsp;1350, as Adopted
Pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002 by
Randall L. Herrel, Sr.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">32.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification Pursuant to 18 U.S.C. Section&nbsp;1350, as Adopted
Pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002 by
Terence W. Tsang.</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">* Management contract or compensatory plan or arrangement required to be filed
as an Exhibit pursuant to Item 15(c) of Form 10-K and applicable rules of the
Securities and Exchange Commission.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">&#134; Certain portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed separately with the Securities and Exchange
Commission.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">(b)&nbsp;Reports on Form 8-K.


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On December&nbsp;18, 2003, the Company filed a report on Form 8-K dated
December&nbsp;18, 2003 furnishing the press release reporting the results of
operations for the fourth quarter and fiscal year ended October&nbsp;31,
2003.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">22
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>

<!-- link1 "SIGNATURES" -->
<DIV align="left"><A NAME="016"></A></DIV>

<P align="center" style="font-size: 10pt"><B>SIGNATURES</B>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">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.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="27%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="38%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">ASHWORTH, INC</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Date: March&nbsp;15, 2004
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By: /s/ Terence W. Tsang</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><HR size="1" noshade width="65%" align="left"></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Terence W. Tsang</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Executive Vice President, Chief Operating Officer,</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Financial Officer and Treasurer</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">23
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<!-- link1 "EXHIBIT INDEX" -->
<DIV align="left"><A NAME="017"></A></DIV>

<P align="center" style="font-size: 10pt"><B>EXHIBIT INDEX</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="82%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Exhibit</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Number</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Description of Exhibit</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(w)(1)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Purchase and Sale Agreement, dated as of December&nbsp;2, 2003,
by and between Ashworth, Inc. and LBA Inc.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(w)(2)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">First Amendment to Purchase and Sale Agreement, dated as of
January&nbsp;29, 2004, by and between Ashworth, Inc. and LBA
Inc.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(w)(3)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Assignment and Assumption of Purchase and Sale Agreement,
effective February&nbsp;24, 2004, by and between LBA Inc. and
LBA Industrial Fund-Canyon, Inc.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(w)(4)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Lease dated February&nbsp;24, 2004 by and between Ashworth, Inc.
and LBA Industrial Fund-Canyon, Inc.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10(w)(5)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exchange Agreement and Supplemental Closing Instructions,
dated as of December&nbsp;3, 2003, by and between Ashworth, Inc.
and Asset Preservation, Inc.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">31.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification Pursuant to Rules&nbsp;13a-14 and 15d-14, as
Adopted Pursuant to Section&nbsp;302 of the Sarbanes-Oxley Act
of 2002 by Randall L. Herrel, Sr.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">31.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification Pursuant to Rules&nbsp;13a-14 and 15d-14, as
Adopted Pursuant to Section&nbsp;302 of the Sarbanes-Oxley Act
of 2002 by Terence W. Tsang.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">32.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification Pursuant to 18 U.S.C. Section&nbsp;1350, as
Adopted Pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act
of 2002 by Randall L. Herrel, Sr.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">32.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification Pursuant to 18 U.S.C. Section&nbsp;1350, as
Adopted Pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act
of 2002 by Terence W. Tsang.</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>




<P align="center" style="font-size: 10pt">24
</DIV>

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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.W.1
<SEQUENCE>3
<FILENAME>a97072exv10www1.txt
<DESCRIPTION>EXHIBIT 10(W)(1)
<TEXT>
<PAGE>

                                                                Exhibit 10(w)(1)

                           PURCHASE AND SALE AGREEMENT

                                 by and between

                                 ASHWORTH, INC.,
                             a Delaware corporation

                                    "SELLER"

                                       and

                                    LBA INC.,
                            a California corporation

                                     "BUYER"

<PAGE>

<TABLE>
<S>                                                                   <C>
1.    Sale of the Property........................................     1

2.    Deposits....................................................     1
      2.1      Initial Deposit....................................     1
      2.2      Additional Deposit.................................     2

3.    Purchase Price..............................................     2

4.    Conditions to Parties' Obligations..........................     2
      4.1      Buyer's Pre-Closing Conditions.....................     2
               4.1.1    Title.....................................     3
               4.1.2    Physical Inspections......................     3
               4.1.3    Contracts.................................     5
               4.1.4    New Lease.................................     5
      4.2      Closing Conditions.................................     5
               4.2.1    Buyer's Closing Conditions................     5
               4.2.2    Seller's Closing Conditions...............     6
      4.3      Failure of Conditions..............................     6
      4.4      Investigations Indemnity...........................     7

5.    Remedies/Liquidated Damages.................................     8
      5.1      Buyer's Default....................................     8
      5.2      Seller's Default...................................     8

6.    Closing and Escrow..........................................     9
      6.1      Escrow Instructions................................     9
      6.2      Date of Closing....................................     9
      6.3      Conveyance.........................................    10
      6.4      Closing Documents..................................    10
               6.4.1    Seller's Closing Documents................    10
               6.4.2    Buyer's Closing Payments and Documents....    10

7.    Interim Agreements..........................................    11

8.    Seller's Maintenance of the Property........................    11

9.    Casualty and Condemnation...................................    11

10.   Limited Liability...........................................    12

11.   Release.....................................................    12

12.   AS-IS Condition of Property.................................    14

13.   Prorations..................................................    15

14.   Closing Costs...............................................    16
</TABLE>

                                        i
<PAGE>

<TABLE>
<S>                                                                   <C>
15.   Brokers......................................................   16

16.   Notices......................................................   16

17.   Entire Agreement.............................................   17

18.   Assignment...................................................   17

19.   Severability.................................................   18

20.   California Law...............................................   18

21.   Modifications/Survival.......................................   18

22.   Confidentiality..............................................   18

23.   Counterparts.................................................   19

24.   Dispute Costs................................................   19

25.   Seller's Representations.....................................   19

26.   Buyer's Representations......................................   20

27.   Time of the Essence; and Business Days.......................   21

28.   Agreement Date...............................................   21

29.   No Third Party Beneficiaries.................................   22

30.   Drafts not an Offer to Enter into a Legally Binding Contract.   22

31.   Natural Hazard Disclosure Requirement Compliance.  ..........   22

32.   1031 Exchange................................................   22
</TABLE>

EXHIBITS

EXHIBIT A LEGAL DESCRIPTION OF THE REAL PROPERTY

EXHIBIT B FORM OF LEASE

EXHIBIT C ASSIGNMENT AND ASSUMPTION OF INTANGIBLES

EXHIBIT D GRANT DEED

                                      -ii-
<PAGE>

                           PURCHASE AND SALE AGREEMENT

         THIS PURCHASE AND SALE AGREEMENT (the "Agreement") is made and entered
into as of December 2, 2003 (the "Agreement Date"), by and between ASHWORTH,
INC., a Delaware corporation ("Seller"), and LBA INC., a California corporation
("Buyer"), with reference to the following facts.

                                R E C I T A L S :

         A.       Seller is the owner of that certain improved real property
located at 2791-2793 Loker Avenue, Carlsbad, California, as legally described in
Exhibit A attached hereto and made a part hereof (the "Real Property") together
with all (i) improvements, structures and fixtures (other than trade fixtures)
(collectively, the "Improvements"), (ii) easements, appurtenances, rights and
privileges actually belonging thereto (collectively, the "Appurtenances"), and
(iii) any intangible personal property now or hereafter owned by Seller and used
in the ownership, use or operation of the Real Property and/or Improvements,
including, without limitation, any and all guaranties, warranties, indemnities,
licenses, permits, entitlements, plans, specifications and similar documents and
rights, but specifically excluding any tradenames of Seller or any affiliated or
related entitled of Seller and any licenses and other similar documents and
rights related to the specific clothing and accessory design and manufacturing
operations of Seller (collectively, the "Intangibles"). The Real Property, the
Improvements, the Appurtenances and the Intangibles are collectively referred to
herein as the "Property."

         B.       Seller desires to sell to Buyer and Buyer desires to purchase
from Seller the Property, in accordance with the terms and provisions
hereinafter contained in this Agreement.

         NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:

         1.       Sale of the Property. Seller shall sell to Buyer and Buyer
shall purchase from Seller the Property at the Closing (defined in Section 6
below), subject to and on the terms and conditions contained herein.

         2.       Deposits.

                  2.1      Initial Deposit. Within two (2) calendar days after
the Agreement Date, Buyer shall place on deposit into the escrow account (the
"Escrow Account") to be opened with Stewart Title of California, Inc. located at
3111 Camino Del Rio North, Suite 900, San Diego, California 92108 (Attention:
John Demas) ("Escrow Holder") the amount of Two Hundred Thousand Dollars
($200,000.00) as an initial deposit (the "Initial Deposit"). The Escrow Holder
shall cause the Initial Deposit to be placed into an interest bearing bank
account acceptable to Buyer. Any interest earned on the Initial Deposit shall be
included as part of the Initial Deposit. The Initial Deposit and interest earned
thereon shall be refundable to Buyer until 5:00 p.m.

<PAGE>

(Pacific Time) on December 12, 2003 (with the period from October 31, 2003 (the
date upon which Buyer and Seller executed that certain letter of intent dated
October 24, 2003, between Buyer and Seller) until December 12, 2003 to be known
as the "Conditions Period"). For purposes hereof, the last day of the Conditions
Period (i.e., December 12, 2003) shall mean and be referred to herein as the
"Approval Date". If Buyer fails to deliver the Initial Deposit into the Escrow
Account strictly as and when contemplated herein, Seller shall have the right to
terminate this Agreement by delivering written notice thereof to Buyer at any
time and thereafter neither party shall have any further rights or obligations
hereunder except for the indemnities contained in Sections 4.4 and 15 below,
Buyer's covenants made herein which are expressly intended to survive any such
termination and Buyer's obligations under Section 4.3 below to deliver to Seller
the Due Diligence Materials (defined below) (collectively, "Buyer's Surviving
Obligations").

                  2.2      Additional Deposit. Unless Buyer notifies Seller
prior to 5:00 p.m. (Pacific Time) on the Approval Date that there are
Pre-Closing Conditions (defined below) remaining unsatisfied and that Buyer will
not waive such conditions (any such notice shall serve as a termination of this
Agreement), (i) at the end of the Conditions Period the Initial Deposit shall
become non-refundable to Buyer and shall be released by Escrow Holder to Seller
on the business day following the Approval Date, and (ii) within one (1)
business day after the Approval Date Buyer shall place on deposit into the
Escrow Account, the amount of One Hundred Fifty Thousand Dollars ($150,000.00)
as the additional deposit (the "Additional Deposit"), which shall be immediately
released by Escrow Holder to Seller. The Additional Deposit shall be
non-refundable to Buyer; provided, however, the Initial Deposit and the
Additional Deposit shall be refundable to Buyer if all of the Buyer's Closing
Conditions (defined below) are not satisfied or otherwise waived by Buyer in
accordance with the provisions of Section 4.3 of this Agreement. If Buyer fails
to deliver the Additional Deposit into the Escrow Account strictly as and when
contemplated herein, Seller shall have the rights provided under Section 5.1
below. The Initial Deposit and the Additional Deposit shall be applied to the
Purchase Price at the Closing. The Initial Deposit and the Additional Deposit
are collectively referred to herein as the "Deposits." No interest shall be
payable on the Deposits from and after the release thereof to Seller.

         3.       Purchase Price. The purchase price for the Property is Five
Million Seven Hundred Forty-Seven Thousand Thirty-Six and No/100 Dollars
($5,747,036.00) (the "Purchase Price"), as such amount may be adjusted for
prorations in accordance with the provisions of Section 13 below. At the
Closing, the balance of the Purchase Price remaining after deduction for the
Deposits and adjustment for prorations, shall be paid by Buyer to Seller in
cash, in immediately available funds via wire transfer in accordance with
Section 4.2.2.1 below.

         4.       Conditions to Parties' Obligations.

                  4.1      Buyer's Pre-Closing Conditions. Buyer's obligations
under this Agreement shall be subject to the satisfaction of or waiver by Buyer
of the following described matters (collectively, the "Pre-Closing Conditions")
on or before the earlier of (i) the time periods specified in each subsection
below, or (ii) 5:00 p.m. (Pacific Time) on the Approval Date:

                                      -2-
<PAGE>

                           4.1.1    Title. Buyer has previously received a
preliminary title report for the Property, together with all documents
evidencing exceptions to title referred to therein issued by Stewart Title of
California, Inc. (the "Title Company") (the preliminary title report and the
underlying documents thereto shall be collectively referred to herein as the
"Title Report"). Seller, at Seller's sole cost, shall cause to be prepared and
delivered to Buyer, not later than five (5) business days after the Agreement
Date, a current ALTA survey (the "Survey") of the Real Property in form
reasonably required by Title Company in order to issue the ALTA Policy (as
defined in Section 14 hereof). Buyer shall have until five (5) business days
after receipt of the Survey to either approve of the exceptions contained in the
Title Report and the Survey and the other matters disclosed thereby, or to
notify Seller in writing, specifying any exceptions or other matters to which
Buyer objects ("Title Objection Notice"). Buyer's failure to timely deliver a
Title Objection Notice shall be deemed to be Buyer's approval of the matters
shown in or disclosed by the Title Report and the Survey. Seller shall have a
period of three (3) business days after Seller's receipt of the Title Objection
Notice (a) to remove or cure, or agree to remove or cure prior to the Closing,
some or all of those exceptions or other matters to which Buyer has objected in
the Title Objection Notice, and to inform Buyer of the same, or (b) to advise
Buyer, in writing, that Seller will not agree to remove or cure some or all of
those exceptions or other matters to which Buyer has objected in the Title
Objection Notice; the foregoing election by Seller being at Seller's sole option
and discretion ("Title Response Notice"). If Seller fails to timely deliver to
Buyer the Title Response Notice, it shall be conclusively deemed that Seller has
elected not to remove or cure any of those exceptions or other matters to which
Buyer has objected as specified in the Title Objection Notice. If Seller advises
Buyer in its Title Response Notice that it will not remove or cure or agree to
remove or cure some or all of those exceptions or other matters to which Buyer
has objected in the Title Objection Notice (or Seller is deemed to have so
advised Buyer), then Buyer shall have until 5:00 p.m. (Pacific Time) on the date
that is three (3) business days after the date upon which Buyer receives the
Title Response Notice (or three (3) business days after the outside date for
Seller to deliver the Title Response Notice if Seller does not timely deliver
the same) to advise Seller, in writing, whether Buyer elects to waive such
objections and proceed with the acquisition of the Property or to terminate this
Agreement. Failure by Seller to remove or cure those specified exceptions or
other matters which Seller has expressly agreed to remove or cure in the Title
Response Notice within the specified period shall be deemed to be a failure of
this condition, in which event the Agreement shall terminate, and the Deposits
shall be returned to Buyer, and the parties shall have no further obligations
hereunder except for Buyer's Surviving Obligations, unless Buyer withdraws its
objections in writing. Notwithstanding the foregoing, on or prior to Closing
Seller shall remove or cause to be removed those certain monetary liens or
encumbrances affecting the Property which Seller has created, caused (e.g.,
judgment liens against Seller) or expressly permitted to exist other than
current taxes and assessments.

                           4.1.2    Physical Inspections. Without any warranty
or representation as to the accuracy or thoroughness thereof or to the ability
of Buyer to rely thereon, Seller previously has delivered to Buyer, to the
extent in Seller's possession (i) a copy of an environmental [Phase 1] site
assessment report with respect to an evaluation of Hazardous Materials (defined
below) in, on or under the Property, (ii) an asbestos report with respect to any
asbestos in the Real Property, and (iii) and ADA/Title 24 compliance report with
respect to the Real Property. After Buyer has provided to Seller a certificate
of insurance(s) evidencing Buyer's and Buyer's agents', consultants' and/or
contractors' (as the case may be) procurement of a commercial

                                      -3-
<PAGE>

general liability insurance policy as required herein, Seller shall permit Buyer
and its authorized agents, consultants and contractors to enter upon the
Property during reasonable business hours (provided, Buyer shall not interfere
with or disturb Seller's operation or use of the Property) to make and perform
such environmental evaluations, and other inspections and investigations of the
physical condition of the Property. Buyer shall maintain, and shall ensure that
its agents, consultants and contractors maintain, public liability and property
damage insurance insuring against any liability arising out of any entry, tests
or investigations of the Property pursuant to the provisions hereof. Such
insurance maintained by Buyer and its consultants, agents and contractors (as
applicable) shall be in the amount of One Million Dollars ($1,000,000.00)
combined single limit for injury to or death of one or more persons in an
occurrence, and for damage to tangible property (including loss of use) in an
occurrence. The policy maintained by Buyer shall insure the contractual
liability of Buyer covering the indemnities herein and shall (i) name the Seller
and its manager (and their successors, assigns and affiliates) as additional
insureds, (ii) contain a cross-liability provision, and (iii) contain a
provision that "the insurance provided by Buyer hereunder shall be primary and
non-contributing with any other insurance available to Seller." Buyer shall
provide Seller with evidence of such insurance coverage prior to any entry,
tests or investigations of the Property. The aforementioned insurance coverage
may be obtained under a blanket policy carried by Buyer or its agents,
consultants or contractors, as the case may be. Notwithstanding the foregoing,
Buyer shall not be permitted to undertake any intrusive or destructive testing
of the Property, including without limitation a "Phase II" environmental
assessment, without in each instance first obtaining Seller's written consent
thereto, which consent shall not unreasonably withheld. Prior to entering the
Property (and on each and every occasion), Buyer shall deliver to Seller prior
notice thereof (any verbal notice shall be where Buyer actually speaks with
Peter Case of Seller and not a voicemail message) and shall afford Seller a
reasonable opportunity to have a representative of Seller present to accompany
Buyer while Buyer performs its evaluations, inspections, tests and other
investigations of the physical condition of the Property. Prior to any entry to
perform any necessary on-site inspections, tests or investigations, Buyer shall
give Seller notice thereof (any verbal notice shall be where Buyer actually
speaks with Peter Case of Seller and not a voicemail message), including the
identity of the company or party(s) who will perform such inspections, tests or
investigations and the proposed scope of the inspections, tests or
investigations. Seller shall approve or disapprove any proposed inspections,
tests or investigations and the party(s) performing the same within two (2)
business days after receipt of such notice. Seller's failure to advise Buyer of
its disapproval of any proposed inspections, tests or investigations and the
party(s) performing the same within such two (2) business day period shall be
deemed Seller's approval thereof, except to the extent said proposed
inspections, tests or investigations relate to "Phase II" environmental matters,
in which event Seller's failure to advise Buyer of its approval or disapproval
of any proposed environmental inspections, tests or investigations and the
party(s) performing the same within such two (2) business day period shall be
deemed Seller's disapproval thereof. To the extent the same are not subject to
any confidentiality requirements or restrictions precluding the same, Buyer
shall promptly deliver to Seller copies of any reports relating to any
inspections, tests or investigations of the Property performed by or on behalf
of Buyer; provided, however, that Buyer shall not be deemed to have made any
warranty or representation whatsoever as to the accuracy or thoroughness thereof
or the ability of Seller to rely thereon. Buyer shall have until 5:00 p.m.
(Pacific Time) on the Approval Date to notify

                                      -4-
<PAGE>

Seller in writing of its approval or disapproval of any such evaluations,
inspections and investigations.

                           4.1.3    Contracts. Seller previously delivered to
Buyer for inspection by Buyer a copy of all service agreements, commission
agreements, maintenance agreements, easement agreements, improvement agreements,
license agreements, and other agreements related to or affecting the Property in
Seller's possession and not included as part of the title documents delivered
pursuant to Section 4.1.1 hereof (collectively, the "Contracts"). Except to the
extent Seller desires to maintain any Contracts in effect during the term of the
New Lease (as defined in Section 4.1.4 hereof), Seller shall cause all Contracts
that are of the nature of service agreements and maintenance agreements to be
terminated prior to Closing. Notwithstanding anything to the contrary contained
above, Seller shall cause any leasing agreement or property management agreement
with respect to the Property to be terminated prior to the Closing. In addition,
Seller shall deliver to Buyer such other documents and materials with respect to
the Property (as opposed to Seller itself or Seller's business) as are
reasonably requested by Buyer provided the same are not proprietary or subject
to any confidentiality requirement or restriction precluding such delivery.

                           4.1.4    New Lease. By the Approval Date, Buyer and
Seller shall have agreed upon the form of Seller's lease of the Property (the
"New Lease"), which New Lease (and on the Closing Date, Buyer and Seller shall
enter into the New Lease) shall contain, among other customary terms and
conditions and business terms to which the parties agree, the following business
terms: (a) the term of the New Lease shall commence upon the Close of Escrow and
terminate on September 31, 2004; (b) Seller shall have one (1) option to renew
the term of the New Lease for a period of sixty (60) days, which must be
exercised by Seller by providing Buyer with written notice of such exercise (at
the address set forth in the New Lease) at least ninety (90) days prior to the
expiration of the initial term of the New Lease; (c) the New Lease shall have a
rental rate of $.62 per square foot per month (based upon a square footage of
76,482) and Seller shall pay all expenses for the operation of the Project,
including, without limitation, taxes, insurance, utilities, but expressly
excluding mechanical and capital repairs except as otherwise set forth in the
Lease; and (d) Seller shall not have the right to assign its interests in the
New Lease or to sublease the Property or a portion thereof to any third party.
The foregoing shall be a condition for Seller's and Buyer's benefit.

                  4.2      Closing Conditions.

                           4.2.1    Buyer's Closing Conditions. Buyer's
obligation to consummate the purchase of the Property shall be subject to the
satisfaction or waiver by Buyer of the following conditions (collectively, the
"Buyer's Closing Conditions"):

                                    4.2.1.1  Seller's Delivery of Closing
Documents. Seller shall have delivered to Escrow Holder or Buyer, as
appropriate, all of the documents referred to in Section 6.4.1 below.

                                      -5-
<PAGE>
\
                                    4.2.1.2  No Default. Seller shall not be in
default of its obligations hereunder.

                                    4.2.1.3  Delivery of Title Policy. At the
Closing, the Title Company shall be irrevocably committed to issue to Buyer the
ALTA Policy (defined below). The ALTA Policy shall not include any title
exceptions which Seller has notified Buyer, in writing, it has agreed to remove
or cure prior to the Closing in accordance with the provisions of Section 4.1.1
hereof.

                                    4.2.1.4  Representations. Seller's
representations contained in Section 25 of this Agreement shall have been true
and correct in all material respects when made and shall be true and correct in
all material respects as of the Closing Date.

                           4.2.2    Seller's Closing Conditions. Seller's
obligation to consummate the sale of the Property is conditioned upon the
satisfaction or Seller's written waiver on or prior to the Closing Date of the
following conditions (collectively, the "Seller's Closing Conditions"):

                                    4.2.2.1  Balance of Purchase Price. Not
later than the Closing Date, Buyer shall deliver into the Escrow Account (for
payment to Seller), in immediately available funds, cash in an amount of the
balance of the Purchase Price remaining after deduction for the Deposits plus or
minus the costs, expenses and prorations required to be paid by Buyer and Seller
hereunder.

                                    4.2.2.2  No Default. Buyer shall not be in
default of its obligations hereunder.

                                    4.2.2.3  Buyer's Delivery of Closing
Documents. Each of the documents required to be delivered by Buyer pursuant to
Section 6.4.2 shall have been timely delivered as provided therein.

                                    4.2.2.4 Representations. All of Buyer's
representations and warranties contained herein shall be true and correct in all
material respects when made and shall be true and correct in all material
respects as of the Closing Date.

                  4.3      Failure of Conditions. In the event that any or all
of the Pre-Closing Conditions are not satisfied or waived within the applicable
time periods specified in Section 4.1 above, then Buyer may terminate this
Agreement by delivering written notice thereof to Seller on or before the
expiration of said time periods. If Buyer timely elects to terminate this
Agreement as provided in the preceding sentence, the Initial Deposit shall be
returned to Buyer and neither Buyer nor Seller shall have any further liability
or obligation to each other, except for the indemnities contained in Sections
4.4, 15 and 24. Notwithstanding anything to the contrary contained herein if
Buyer terminates this Agreement for failure of a Pre-Closing Condition or for
any other reason, Buyer shall deliver to Seller a copy of all materials, tests,
audits, surveys, reports, studies and the results of any and all investigations
and inspections conducted by Buyer (excluding any proprietary materials)
(collectively, the "Buyer's Documents") and Buyer shall also return to Seller
any and all documents, agreements, reports and other materials given to Buyer by
or on behalf of Seller (collectively, the "Seller's Documents") (the Buyer's
Documents and the Seller's Documents are collectively referred to herein as the
"Due Diligence Materials")

                                      -6-
<PAGE>

within ten (10) days after such termination of this Agreement. The foregoing
covenants of Buyer shall survive any such termination of this Agreement. If
Buyer fails to timely terminate this Agreement in accordance with Section 4.1
above, (i) the Initial Deposit shall become non-refundable to Buyer subject to
the satisfaction or waiver of the Buyer's Closing Conditions (and shall be
released to Seller as provided in Section 2.2 above), and (ii) within one (1)
business day after the Approval Date, Buyer shall deposit into the Escrow
Account, the Additional Deposit which shall also become non-refundable to Buyer
subject to the satisfaction or waiver of the Buyer's Closing Conditions (and
shall be released to Seller as provided in Section 2.2 above). The funding by
Buyer of the Additional Deposit shall conclusively constitute Buyer's approval
of each and every aspect of the Property as well as of the Pre-Closing
Conditions. If the Pre-Closing Conditions are satisfied or waived by Buyer but
any or all of the Buyer's Closing Conditions are not satisfied or waived by
Buyer on or before the date established for the Closing, then Buyer shall notify
Seller in writing of those Buyer's Closing Conditions which have not been
satisfied or otherwise waived by Buyer. If the Buyer's Closing Condition in
question is either of those conditions specified in Sections 4.2.1.3 or 4.2.1.4
and Seller is not in any material manner responsible for the deviation or
failure of such Buyer's Closing Condition, then Buyer may elect to terminate
this Agreement by delivering written notice thereof to Seller, in which event
Seller shall promptly cause the return to Buyer of the Deposits, and the parties
shall have no further obligations hereunder except for the obligations hereunder
which expressly survive the termination hereof. If the Buyer's Closing Condition
in question is any other condition other than either of the conditions specified
in Sections 4.2.1.3 or 4.2.1.4 (or if the Closing Condition in question is
either of the conditions specified in Sections 4.2.1.3 or 4.2.1.4 and Seller is
in any material manner responsible for the deviation or failure of such
condition), then (1) Buyer may pursue the remedies available to it pursuant to
Section 5.2 below, or (2) Buyer may elect to waive the Buyer's Closing
Condition(s) in question and proceed with the purchase of the Property. If any
of the Seller's Closing Conditions are not satisfied or otherwise waived by
Seller prior to the Closing Date, then (1) Seller may pursue the remedies
available to it pursuant to Section 5.1 below, or (2) Seller may elect to waive
the Seller's Closing Condition(s) in question and proceed with the sale of the
Property.

                  4.4      Investigations Indemnity. Buyer shall keep the
Property free from all liens and shall indemnify, defend (with counsel
reasonably satisfactory to Seller), protect, and hold Seller and each of the
parties comprising Seller and each of their members, officers, trustees,
employees, representatives, agents, lenders, related and affiliated entities,
successors and assigns harmless from and against any and all claims, demands,
liabilities, judgments, penalties, losses, costs, damages, and expenses
(including, without limitation, attorneys' and experts' fees and costs) relating
to or arising in any manner whatsoever from any studies, evaluations,
inspections, investigations or tests made by Buyer or Buyer's agents or
representatives relating to or in connection with the Property, or entries by
Buyer or its agents or representatives in, on or about the Property.
Notwithstanding any provision to the contrary in this Agreement, the indemnity
obligations of Buyer under this Section 4.4 shall not include any loss incurred
by Seller solely as the result of Buyer's discovery (as opposed to exacerbation,
for which Buyer shall be responsible) of an existing condition with respect to
the Property, and (ii) shall survive any termination of this Agreement. In
addition to the foregoing indemnity, if there is any damage to the Property
caused by Buyer's and/or its agents' or representatives' entry in or on the
Property, Buyer shall immediately restore the Property substantially to the same
condition existing prior to Buyer's and its agents' or representatives' entry
in, on or about the Property. The term

                                      -7-
<PAGE>

"Hazardous Materials" as used in this Agreement shall mean and refer to (a) any
hazardous or toxic wastes, materials or substances, or chemicals, and other
pollutants or contaminants, which are or become regulated by applicable local,
state, regional and/or federal orders, ordinances, statutes, rules, regulations
(as interpreted by judicial and administrative decisions) and laws; (b)
asbestos, asbestos-containing materials or urea formaldehyde; (c)
polychlorinated biphenyls; (d) flammables, explosive, corrosive or radioactive
materials; (e) medical waste and biochemicals; and (f) gasoline, diesel,
petroleum or petroleum by-products.

         5.       Remedies/Liquidated Damages.

                  5.1      Buyer's Default. IF THE PURCHASE OF THE PROPERTY AS
PROVIDED IN THIS AGREEMENT IS NOT CONSUMMATED BY REASON OF ANY DEFAULT OF BUYER,
SELLER SHALL BE RELEASED FROM ITS OBLIGATION TO SELL THE PROPERTY TO BUYER.
BUYER AND SELLER HEREBY ACKNOWLEDGE AND AGREE THAT IT WOULD BE IMPRACTICAL
AND/OR EXTREMELY DIFFICULT TO FIX OR ESTABLISH THE ACTUAL DAMAGE SUSTAINED BY
SELLER AS A RESULT OF SUCH DEFAULT BY BUYER, AND AGREE THAT THE DEPOSITS
(INCLUDING ALL INTEREST) AND THE DELIVERY TO SELLER BY BUYER OF THE DUE
DILIGENCE MATERIALS IS A REASONABLE APPROXIMATION THEREOF. ACCORDINGLY, IN THE
EVENT THAT BUYER BREACHES THIS AGREEMENT, THE DEPOSITS (INCLUDING ALL INTEREST),
THE PAYMENT BY BUYER OF ALL ESCROW CANCELLATION CHARGES AND FEES, AND THE
DELIVERY TO SELLER BY BUYER OF THE DUE DILIGENCE MATERIALS SHALL CONSTITUTE AND
BE DEEMED TO BE THE AGREED AND LIQUIDATED DAMAGES OF SELLER, AND SHALL BE PAID
BY BUYER TO SELLER AND THE TITLE COMPANY AS SELLER'S SOLE AND EXCLUSIVE REMEDY.
SELLER AGREES TO WAIVE ALL OTHER REMEDIES AGAINST BUYER WHICH SELLER MIGHT
OTHERWISE HAVE AT LAW OR IN EQUITY BY REASON OF SUCH DEFAULT BY BUYER; PROVIDED,
HOWEVER, THE FOREGOING SHALL NOT LIMIT (I) BUYER'S OBLIGATIONS TO PAY TO SELLER
ALL ATTORNEYS' FEES AND COSTS OF SELLER TO ENFORCE THE PROVISIONS OF THIS
SECTION 5.1 AND/OR BUYER'S INDEMNITY OBLIGATIONS UNDER SECTIONS 4.4 AND 15
HEREOF, (II) BUYER'S INDEMNITY OBLIGATIONS UNDER SECTIONS 4.4 AND 15 HEREOF, OR
(III) THE ABILITY AND RIGHT OF SELLER TO ENFORCE SUCH INDEMNITIES. THE PAYMENT
OF THE DEPOSITS (INCLUDING ALL INTEREST) AND THE DELIVERY TO SELLER BY BUYER OF
THE DUE DILIGENCE MATERIALS AS LIQUIDATED DAMAGES IS NOT INTENDED TO BE A
FORFEITURE OR PENALTY, BUT IS INTENDED TO CONSTITUTE LIQUIDATED DAMAGES TO
SELLER PURSUANT TO CALIFORNIA CIVIL CODE SECTIONS 1671, 1676 AND 1677.

                  SELLER'S INITIALS:_______ BUYER'S INITIALS:________

                  5.2      Seller's Default. IF THE SALE OF THE PROPERTY AS
PROVIDED IN THIS AGREEMENT IS NOT CONSUMMATED BY REASON OF ANY DEFAULT OF
SELLER, BUYER MAY EITHER (I) PROCEED AGAINST SELLER BY BRINGING AN ACTION FOR
SPECIFIC PERFORMANCE UNDER THIS AGREEMENT WITHOUT ANY RIGHT TO SEEK DAMAGES OF
ANY KIND OR NATURE (WHICH ACTION FOR SPECIFIC PERFORMANCE SHALL BE BROUGHT (IF
AT ALL) NO LATER THAN SIXTY

                                      -8-
<PAGE>

(60) DAYS AFTER SUCH DEFAULT BY SELLER AND SHALL BE DILIGENTLY PROSECUTED BY
BUYER TO COMPLETION), OR (II) TERMINATE THIS AGREEMENT, IN WHICH EVENT THE
DEPOSITS SHALL BE RETURNED TO BUYER, SELLER SHALL REIMBURSE BUYER FOR ITS
THIRD-PARTY, OUT-OF-POCKET EXPENSES AND COSTS ACTUALLY AND REASONABLY INCURRED
IN CONNECTION WITH THE NEGOTIATION AND CONSUMMATION OF THIS AGREEMENT
(INCLUDING, WITHOUT LIMITATION, REASONABLE ATTORNEYS' FEES AND EXPENSES) IN AN
AMOUNT NOT TO EXCEED $50,000, AND BUYER SHALL PROMPTLY DELIVER TO SELLER THE DUE
DILIGENCE MATERIALS. BUYER AND SELLER HEREBY ACKNOWLEDGE AND AGREE THAT IT WOULD
BE IMPRACTICAL AND/OR EXTREMELY DIFFICULT TO FIX OR ESTABLISH THE ACTUAL DAMAGE
SUSTAINED BY BUYER AS A RESULT OF SUCH MATERIAL DEFAULT BY SELLER, AND AGREE
THAT THE REMEDY SET FORTH IN CLAUSE (II) ABOVE IS A REASONABLE APPROXIMATION
THEREOF. ACCORDINGLY, IN THE EVENT THAT SELLER BREACHES THIS AGREEMENT, AND
BUYER ELECTS NOT TO EXERCISE THE REMEDY SET FORTH IN CLAUSE (I) ABOVE BUT
INSTEAD ELECTS THE REMEDY SET FORTH IN CLAUSE (II) ABOVE, SUCH SUMS SHALL
CONSTITUTE AND BE DEEMED TO BE THE AGREED AND LIQUIDATED DAMAGES OF BUYER WHICH
IS NOT INTENDED TO BE A FORFEITURE OR PENALTY, BUT IS INTENDED TO CONSTITUTE
LIQUIDATED DAMAGES TO BUYER PURSUANT TO CALIFORNIA CIVIL CODE SECTIONS 1671,
1676 AND 1677. BUYER AGREES TO, AND DOES HEREBY, WAIVE ALL OTHER REMEDIES
AGAINST SELLER WHICH BUYER MIGHT OTHERWISE HAVE AT LAW OR IN EQUITY BY REASON OF
SUCH DEFAULT BY SELLER; PROVIDED, HOWEVER, THE FOREGOING SHALL NOT LIMIT (I)
SELLER'S OBLIGATIONS TO PAY TO BUYER ALL ATTORNEYS' FEES AND COSTS OF BUYER TO
ENFORCE THE PROVISIONS OF THIS SECTION 5.2 AND/OR SELLER'S INDEMNITY OBLIGATIONS
UNDER SECTION 15 HEREOF, (II) SELLER'S INDEMNITY OBLIGATIONS UNDER SECTION 15
HEREOF, OR (III) THE ABILITY AND RIGHT OF BUYER TO ENFORCE SUCH INDEMNITY.

                  SELLER'S INITIALS:________ BUYER'S INITIALS:________

         6.       Closing and Escrow.

                  6.1      Escrow Instructions. Upon execution of this
Agreement, the parties hereto shall deposit a copy of an executed counterpart of
this Agreement with Escrow Holder and this instrument shall serve as the
instructions to Escrow Holder for consummation of the purchase and sale
contemplated hereby. Seller and Buyer agree to execute such additional and
supplementary escrow instructions as may be appropriate to enable the Escrow
Holder to comply with the terms of this Agreement; provided, however, that in
the event of any conflict between the provisions of this Agreement and any
supplementary escrow instructions, the terms of this Agreement shall control.

                  6.2      Date of Closing. Unless otherwise agreed to in
writing by the parties or extended as expressly provided in this Agreement, the
closing of escrow ("Closing") shall occur on or before February 17, 2004 (the
"Closing Date"), with time being of the essence. Such Closing Date may not be
accelerated or extended without the prior written approval of both

                                      -9-
<PAGE>

Seller and Buyer, except as otherwise expressly provided in this Agreement. In
the event the Closing does not occur on or before the Closing Date, then,
subject to the provisions of Section 5.1 above with respect to the Deposits, the
Escrow Holder shall, unless it is notified by both parties to the contrary
within three (3) days prior to the actual date on which the Closing occurs,
return to the depositor thereof items which may have been deposited hereunder.
Any such return shall not, however, relieve either party hereto of any liability
it may have for its wrongful failure to close.

                  6.3      Conveyance. At Closing, Seller shall convey to Buyer
fee simple title to the Property, by means of a grant deed in substantially the
form of Exhibit D attached hereto and made a part hereof ("Grant Deed"), subject
to the New Lease, all applicable laws, rules, regulations, codes, ordinances and
orders, those title exceptions and survey matters approved (or deemed approved)
by Buyer in accordance with the provisions of Section 4.1.1 and any title
exceptions caused by Buyer, its agents, representatives or employees, all real
estate taxes and assessments for the then applicable tax fiscal year in which
the Closing occurs, and general real estate taxes and assessments for subsequent
years not yet due and payable. The Closing shall mean the date that the Grant
Deed is recorded in the official records of San Diego County, possession of the
Property is delivered to Buyer, and Buyer fulfills all of its obligations
hereunder.

                  6.4      Closing Documents.

                           6.4.1    Seller's Closing Documents. Not later than
one (1) business day prior to the Closing Date, in addition to the Grant Deed,
Seller shall deliver to Buyer, or Escrow Holder for delivery to Buyer, all of
the following documents: (i) three (3) counterparts of the New Lease, duly
executed by Seller; (ii) three (3) counterparts of the Assignment and Assumption
of Intangibles in substantially the form attached hereto as Exhibit C, duly
executed by Seller; and (iii) a certificate of non-foreign status in accordance
with the requirements of Internal Revenue Code Section 1445, as amended (the
"FIRPTA Certificate") and a California Form 593-W with respect to the Property,
each duly executed by Seller; and (iv) such other documents and instruments as
may be reasonably required by Title Company to consummate the transaction
contemplated herein. Seller's timely making and delivery of the aforesaid
documents and information shall be a condition precedent to Buyer's obligations
under this Agreement. Time is of the essence with respect hereto.

                           6.4.2    Buyer's Closing Payments and Documents. Not
later than one (1) business day prior to Closing Date, and in addition to
Buyer's payment to Seller of the Purchase Price, Buyer shall deliver to Seller
or Escrow Holder for delivery to Seller, as applicable, the following: (i) three
(3) counterparts of the New Lease, duly executed by Buyer; (ii) three (3)
counterparts of the Bill of Sale and Assignment and Assumption of Intangibles in
substantially the form attached hereto as Exhibit C, duly executed by Buyer; and
(iii) such other documents and instruments as may be reasonably required by
Title Company to consummate the transaction contemplated herein. Buyer's timely
making and delivery of the aforesaid funds, documents and information shall be a
condition precedent to Seller's obligations under this Agreement. Time is of the
essence with respect hereto.

                                      -10-
<PAGE>

         7.       Interim Agreements.

                  Not later than two (2) business days prior to becoming legally
bound with respect to any new agreement, lease, Contract or modification of any
agreement that will result in a lien or encumbrance on, or otherwise affect, the
Property and that will survive Closing, Seller shall consult with and seek the
consent of Buyer, and shall provide reasonable detail to Buyer with respect
thereto, including, at Buyer's request, copies of the relevant documentation.
Any consent to be given by Buyer pursuant to this Section 7.1 shall not, prior
to the Approval Date, be unreasonably withheld, conditioned or delayed and shall
be deemed granted if Buyer does not respond in writing to Seller's request for
said consent within two (2) business days thereafter. After the Approval Date,
Buyer may withhold its consent to any such new agreement or modification in its
sole and absolute discretion.

         8.       Seller's Maintenance of the Property. Between the Agreement
Date and the Closing Date, Seller shall (i) maintain the Property in
substantially the same manner as prior hereto in accordance with Seller's normal
course of business, subject to reasonable wear and tear and further subject to
the occurrence of any damage or destruction to the Property by casualty or other
causes or events beyond the control of Seller; provided, however, that such
Seller's maintenance obligations under this Section 8 shall not include any
obligation to make capital expenditures or any other expenditures not incurred
in Seller's normal course of business; and (ii) continue to maintain its
existing insurance coverage. Notwithstanding the foregoing, prior to Closing
Seller shall cause the existing mezzanine racking system in the 2793 Loker
Avenue building of the Improvements to be removed and shall repair all damage
resulting from such removal.

         9.       Casualty and Condemnation. In the event there is any damage to
the Real Property or destruction of any improvement thereon or condemnation of
any portion of the Property after the Agreement Date, Buyer shall be required to
purchase the Property with a credit against the Purchase Price otherwise due
hereunder equal to the amount of any insurance proceeds or condemnation awards
actually collected by Seller prior to the Closing as a result of any such damage
or destruction or condemnation, plus the amount of any insurance deductible or
any uninsured amount or retention, less any sums expended by Seller prior to the
Closing for the restoration or repair of the Property. Seller agrees that it
will maintain its present casualty insurance policy with respect to the Property
in full force and effect until the Closing. If the insurance proceeds or
condemnation awards have not been collected as of the Closing, then such
proceeds or awards shall be assigned to Buyer, except to the extent needed to
reimburse Seller for sums it expended prior to the Closing for the restoration
or repair of the Property.

         Notwithstanding the foregoing, if the Property shall be damaged or
destroyed by a casualty or shall be condemned, to the extent that the cost of
repair or restoration to substantially the same condition existing prior to such
casualty (or, in the case of a condemnation, the value of the Property or
portion thereof so condemned) would exceed an amount equal to Five Hundred
Thousand Dollars ($500,000.00), then Seller shall give Buyer prompt notice
thereof and the Buyer may, at its option to be exercised by delivery of written
notice to Seller within five (5) business days of Seller's notice to the Buyer
of the occurrence of such casualty or condemnation, elect not to purchase the
Property under this Agreement. If Buyer so duly elects not to purchase the
Property, this Agreement shall terminate and neither party shall have any
further rights or

                                      -11-
<PAGE>

obligations under this Agreement other than those expressly stated to survive
the termination of this Agreement. Any dispute as to the costs of such repair or
restoration or value of a condemned portion of the Property shall be referred to
a licensed architect jointly selected by Buyer and Seller for resolution, and
the determination of such architect, which shall be made within a period of
twenty (20) days after such submittal by the parties, shall be final, conclusive
and binding on the parties. If the parties shall fail to agree upon the identity
of such architect within five (5) business days after either party has notified
the other of its choice of architect, then either party may at any time
thereafter apply to a court of competent jurisdiction to appoint immediately
such architect. The fees and expenses of such architect shall be paid equally by
Buyer and Seller, and the parties shall cooperate with such architect by
providing such information as such architect may reasonably require to resolve
the dispute. If Buyer does not elect, in writing, not to purchase the Property,
Buyer shall be obligated to consummate the purchase of the Property as required
by the terms hereof.

         10.      Limited Liability. Buyer on its own behalf and on behalf of
its agents, members, partners, employees, representatives, related and
affiliated entities, successors and assigns (collectively, the "Buyer Parties")
hereby agrees that in no event or circumstance shall any of the members,
partners, employees, representatives, officers, directors, agents, property
management company, affiliated or related entities of Seller, have any personal
liability under this Agreement, or to any of Buyer's creditors, or to any other
party in connection with the Property.

         11.      Release. Buyer on its own behalf and on behalf of each of the
Buyer Parties hereby agrees that, except for any liability of Seller for a
breach of the express representations of Seller in Section 25 below, each of
Seller, Seller's partners or members, as the case may be, and each of their
partners, members, trustees, directors, officers, employees, representatives,
property managers, asset managers, agents, attorneys, affiliated and related
entities, heirs, successors and assigns (collectively, the "Releasees") shall
be, and are hereby, fully and forever released and discharged from any and all
liabilities, losses, claims (including third party claims), demands, damages (of
any nature whatsoever), causes of action, costs, penalties, fines, judgments,
attorneys' fees, consultants' fees and costs and experts' fees (collectively,
the "Claims") with respect to any and all Claims, whether direct or indirect,
known or unknown, foreseen or unforeseen, that may arise on account of or in any
way be connected with the Property including, without limitation, the physical,
environmental and structural condition of the Property or any law or regulation
applicable thereto, including, without limitation, any Claim or matter
(regardless of when it first appeared) relating to or arising from (i) the
presence of any environmental problems, or the use, presence, storage, release,
discharge, or migration of Hazardous Materials on, in, under or around the
Property regardless of when such Hazardous Materials were first introduced in,
on or about the Property, (ii) any patent or latent defects or deficiencies with
respect to the Property, (iii) any and all matters related to the Property or
any portion thereof, including without limitation, the condition and/or
operation of the Property and each part thereof, and (iv) the presence, release
and/or remediation of asbestos and asbestos containing materials in, on or about
the Property regardless of when such asbestos and asbestos containing materials
were first introduced in, on or about the Property. Except for any liability of
Seller for a breach of the express representations of Seller in Section 25
below, Buyer hereby waives and agrees not to commence any action, legal
proceeding, cause of action or suits in law or equity, of whatever kind or
nature, including, but not limited to, a private right of action under the
federal superfund laws, 42 U.S.C. Sections 9601 et seq. and California Health
and Safety

                                      -12-
<PAGE>

Code Sections 25300 et seq. (as such laws and statutes may be amended,
supplemented or replaced from time to time), directly or indirectly, against the
Releasees or their agents in connection with Claims described above and
expressly waives the provisions of Section 1542 of the California Civil Code
which provides:

         "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
         NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
         RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
         SETTLEMENT WITH THE DEBTOR"

and all similar provisions or rules of law. Except for any liability of Seller
for a breach of the express representations of Seller in Section 25 below, Buyer
elects to and does assume all risk for such Claims heretofore and hereafter
arising, whether now known or unknown by Buyer. In this connection and to the
greatest extent permitted by law, Buyer hereby agrees, represents and warrants
that Buyer realizes and acknowledges that factual matters now unknown to it may
have given or may hereafter give rise to causes of action, claims, demands,
debts, controversies, damages, costs, losses and expenses which are presently
unknown, unanticipated and unsuspected, and Buyer further agrees, represents and
warrants that the waivers and releases herein have been negotiated and agreed
upon in light of that realization and that, subject to any liability of Seller
for a breach of the express representations of Seller in Section 25 below, Buyer
nevertheless hereby intends to release, discharge and acquit Seller from any
such unknown Claims, debts, and controversies which might in any way be included
as a material portion of the consideration given to Seller by Buyer in exchange
for Seller's performance hereunder. Without limiting the foregoing, if Buyer is
notified in writing of (a) a default in any of the covenants, agreements or
obligations to be performed by Seller under this Agreement and/or (b) any breach
or inaccuracy in any representation of Seller made in this Agreement, and Buyer
nonetheless elects to proceed to Closing, then, upon the consummation of the
Closing, Buyer shall be conclusively deemed to have waived any such default
and/or breach or inaccuracy and shall have no Claim against Seller or hereunder
with respect thereto. Notwithstanding anything to the contrary herein (i) Seller
shall not have any liability whatsoever to Buyer with respect to any matter
disclosed to Buyer in writing prior to the Closing Date; and (ii) none of the
Releasees other than Seller shall have any liability whatsoever under this
Agreement or with respect to the Property.

         Seller has given Buyer material concessions regarding this transaction
in exchange for Buyer agreeing to the provisions of this Section 11. Seller and
Buyer have each initialed this Section 11 to further indicate their awareness
and acceptance of each and every provision hereof. The provisions of this
Section 11 shall survive the Closing and shall not be deemed merged into any
instrument or conveyance delivered at the Closing.

         INITIALS:         SELLER:  ___________      BUYER:  ___________

         Notwithstanding anything in this Section 11 to the contrary, the
releases contained herein are not intended to and do not include (i) any claims
arising from a breach of Seller's representations or warranties set forth in
Section 25 below, (ii) any obligation or other covenant of Seller under this
Agreement which by its terms survives the Closing, or (iii) any claim based

                                      -13-
<PAGE>

upon a breach of contract by Seller, a personal injury or any actual release of
any Hazardous Materials by Seller (as opposed to the mere existence of any
Hazardous Materials in, on or under the Property that are not released by
Seller) brought by a third-party (private or governmental) against Buyer
alleging loss or seeking equitable or any other relief as to matters, acts or
omissions occurring, arising or accruing prior to the Closing Date.

         12.      AS-IS Condition of Property.

                  12.1     Buyer specifically acknowledges, represents and
warrants that prior to Closing, it and its agents and representatives will have
thoroughly inspected the Property and observed the physical characteristics and
condition of the Property. Notwithstanding anything to the contrary contained in
this Agreement, Buyer further acknowledges and agrees that Buyer is purchasing
the Property subject to all applicable laws, rules, regulations, codes,
ordinances and orders. Subject to any liability of Seller for a breach of the
express representations of Seller in Section 25 below, by Buyer purchasing the
Property and upon the occurrence of the Closing, Buyer waives any and all right
or ability to make a claim of any kind or nature against any of the Releasees
for any and all deficiencies or defects in the physical characteristics and
condition of the Property which would be disclosed by such inspection and
expressly agrees to acquire the Property with any and all of such deficiencies
and defects and subject to all matters disclosed by Seller herein or in any
separate writing with respect to the Property. Buyer further acknowledges and
agrees that except for any representations expressly made by Seller in Section
25 of this Agreement neither Seller or any of Seller's employees, agents or
representatives have made any representations, warranties or agreements by or on
behalf of Seller of any kind whatsoever, whether oral or written, express or
implied, statutory or otherwise, as to any matters concerning the Property, the
condition of the Property, the size (including square footage) of the Real
Property, the size (including square footage) of the Improvements , the present
use of the Property or the suitability of Buyer's intended use of the Property.
Buyer hereby acknowledges, agrees and represents that, subject to any liability
of Seller for a breach of the express representations of Seller in Section 25
below, the Property is to be purchased, conveyed and accepted by Buyer in its
present condition, "AS IS", "WHERE IS" AND WITH ALL FAULTS, and that no patent
or latent defect or deficiency in the condition of the Property whether or not
known or discovered, shall affect the rights of either Seller or Buyer hereunder
nor shall the Purchase Price be reduced as a consequence thereof. Any and all
information and documents furnished to Buyer by or on behalf of Seller relating
to the Property shall be deemed furnished as a courtesy to Buyer but without any
warranty of any kind from or on behalf of Seller. Buyer hereby represents and
warrants to Seller that Buyer has performed an independent inspection and
investigation of the Property and has also investigated and has knowledge of
operative or proposed governmental laws and regulations including without
limitation, land use laws and regulations to which the Property may be subject.
Buyer further represents that, except for any representations expressly made by
Seller in Section 25 of this Agreement, it shall acquire the Property solely
upon the basis of its independent inspection and investigation of the Property,
including without limitation, (i) the quality, nature, habitability,
merchantability, use, operation, value, marketability, adequacy or physical
condition of the Property or any aspect or portion thereof, including, without
limitation, structural elements, foundation, roof, appurtenances, access,
landscaping, parking facilities, electrical, mechanical, HVAC, plumbing, sewage,
and utility systems, facilities and appliances, soils, geology and groundwater,
or whether the Real Property lies within a special flood hazard area, an area of
potential flooding, a very high fire

                                      -14-
<PAGE>

hazard severity zone, a wildland fire area, an earthquake fault zone or a
seismic hazard zone, (ii) the dimensions or lot size of the Real Property or the
square footage of the Improvements thereon, (iii) the development or income
potential, or rights of or relating to, the Real Property or its use,
habitability, merchantability, or fitness, or the suitability, value or adequacy
of such Real Property for any particular purpose, (iv) the zoning or other legal
status of the Real Property or any other public or private restrictions on the
use of the Real Property, (v) the compliance of the Real Property or its
operation with any applicable codes, laws, regulations, statutes, ordinances,
covenants, conditions and restrictions of any governmental or regulatory agency
or authority or of any other person or entity (including, without limitation,
the Americans With Disabilities Act), (vi) the ability of Buyer to obtain any
necessary governmental approvals, licenses or permits for Buyer's intended use
or development of the Real Property, (vii) the presence or absence of Hazardous
Materials on, in, under, above or about the Real Property or any adjoining or
neighboring property, (viii) the quality of any labor and materials used in any
Improvements, (ix) the condition of title to the Real Property, (x) any
agreements affecting the Real Property or the intentions of any party with
respect to the negotiation and/or execution of any agreement with respect to the
Real Property, (xi) Seller's ownership of the Property or any portion thereof,
or (xii) the economics of, or the income and expenses, revenue or expense
projections or other financial matters, relating to the operation of the Real
Property. Without limiting the generality of the foregoing, Buyer expressly
acknowledges and agrees that Buyer is not relying on any representation or
warranty of Seller, nor any member partner, officer, employee, attorney,
property manager, agent or broker of Seller, whether implied, presumed or
expressly provided at law or otherwise, arising by virtue of any statute, common
law or other legally binding right or remedy in favor of Buyer except as
expressly provided in Section 25 below. Buyer further acknowledges and agrees
that Seller is not under any duty to make any inquiry regarding any matter that
may or may not be known to the Seller or any member, partner, officer, employee,
attorney, property manager, agent or broker of Seller.

                           Seller's Initials:___________Buyer's Initials:_____

                  12.2     Any reports, repairs or work required by Buyer are
the sole responsibility of Buyer, and Buyer agrees that, subject to the
provisions of Section 8 above, there is no obligation on the part of Seller to
make any changes, alterations or repairs to the Property or to cure any
violations of law or to comply with the requirements of any insurer. Buyer is
solely responsible for obtaining any certificate of occupancy or any other
approval or permit necessary for transfer or occupancy of the Property and for
any repairs or alterations necessary to obtain the same, all at Buyer's sole
cost and expense. The provisions of this Section 12 shall survive the Closing
and shall not be deemed merged into any instrument or conveyance delivered at
the Closing.

         13.      Prorations. Without affecting Seller's obligations under the
New Lease, real property taxes and assessments, water, sewer and utility
charges, and other expenses normal to the operation and maintenance of the
Property shall be prorated as of and through the Closing Date on the basis of a
365-day year. In the event that as of the Closing the actual tax bills for the
year or years in question are not available and the amount of taxes to be
prorated as aforesaid cannot be ascertained, then rates and assessed valuation
of the previous year, with known changes, shall be used, and when the actual
amount of taxes and assessments for the year or years in question shall be
determinable, then such taxes and assessments will be reprorated

                                      -15-
<PAGE>

between the parties outside of Escrow to reflect the actual amount of such taxes
and assessments. The provisions of this Section 14 shall survive the Closing.

         14.      Closing Costs. Except as expressly set forth herein, all costs
associated with the transfer of title and the associated escrow shall be in
accordance with the customary practices in San Diego County. Seller shall pay
(i) one-half (-1/2) of the escrow fee charged by Escrow Holder, (ii) the cost of
any and all documentary county transfer taxes, and (iii) the premium charged by
the Title Company for the CLTA portion of the ALTA Policy (excluding any
endorsements thereto). At Closing, Buyer shall obtain from the Title Company an
ALTA Owner's Policy of Title Insurance (Form 1970, Amended 10-17-70)) (the "ALTA
Policy"). At Closing, Buyer shall pay (i) one-half (-1/2) of the escrow fee
charged by Escrow Holder, and (ii) the cost of any and all costs and incremental
premiums or other charges related to the ALTA Policy (including all endorsements
thereto) in excess of the cost of the CLTA portion thereof. Each party shall be
solely responsible for its own legal fees and costs.

         15.      Brokers. Seller and Buyer respectively represent that there
are no brokers or other intermediaries entitled to receive brokerage commissions
or fees or other compensation out of or with respect to the sale of the
Property, except for Cushman and Wakefield of California, Inc. ("Broker"). At
Closing, and only if the Closing actually occurs, Seller shall pay to the Broker
a brokerage commission, the amount of which shall be as specified in separate
agreements between Seller and the Broker. Seller and Buyer shall indemnify and
save and hold each other harmless from and against all claims, suits, damages
and costs incurred or resulting from the claim of any person, except the Broker
(payment of the Broker being Seller's responsibility), that a commission, fee or
remuneration is due in connection with this transaction pursuant to an agreement
made with said claimant. The provisions of this Section 15 shall survive the
Closing or any termination of this Agreement.

         16.      Notices. Any notice required or permitted to be given under
this Agreement shall be in writing and shall be deemed to have been given when
delivered by U.S. mail, registered or certified, return receipt requested,
postage prepaid, or by overnight delivery service showing receipt of delivery,
or by personal delivery, or by facsimile transmission (provided a copy is
concurrently sent by another method identified above). Such notices shall be
sent to the parties at the following addresses, or such other address as may
otherwise be indicated by any such party in writing.

                  If to Seller:             Ashworth, Inc.
                                            2765 Loker Avenue West
                                            Carlsbad, CA 92008
                                            Attention:  Mr. Peter Case
                                            Phone number: (760) 929-4640
                                            Facsimile number: (760) 476-8440

                                      -16-
<PAGE>

                  with a copy to:       Allen Matkins Leck Gamble & Mallory LLP
                                        12348 High Bluff Drive, Suite 100
                                        San Diego, California  92130-3546
                                        Attention: Thomas B. Crosbie, Esq.
                                        Phone number: 858-481-5055
                                        Facsimile number: 858-481-5028

                  If to Buyer:          c/o Layton-Belling & Associates, LLC
                                        4440 Von Karman Avenue, Suite 150

                                        Newport Beach, California 92660
                                        Attention: Steven R. Layton
                                        Phone number: (949) 833-0400
                                        Facsimile number: (949) 955-9325

                  with a copy to:       Orrick, Herrington & Sutcliffe LLP
                                        777 South Figueroa Street. Suite 3200
                                        Los Angeles, California 90017
                                        Attention: Richard C. Mendelson, Esq.
                                        Phone number: (213) 629-2020
                                        Facsimile number: (213) 612-2499

Notices as aforesaid shall be effective upon the earlier of actual receipt, or
twenty-four (24) hours after deposit with the messenger or delivery service, or
the next business day after delivery to an overnight delivery service, or within
three (3) days after the deposit in the U.S. mail, or upon confirmation of
transmission by facsimile, or when receipt is refused.

         17.      Entire Agreement. This Agreement constitutes the entire
understanding of the parties and all prior agreements, representations, and
understandings between the parties, whether oral or written, are deemed null and
void, all of the foregoing having been merged into this Agreement. The parties
acknowledge that each party and/or its counsel have reviewed and revised this
Agreement and that no rule of construction to the effect that any ambiguities
are to be resolved against the drafting party shall be employed in the
interpretation or enforcement of this Agreement or any amendments or exhibits to
this Agreement or any document executed and delivered by either party in
connection with this Agreement.

         18.      Assignment. Buyer may not assign its rights, obligations and
interest in this Agreement to any other person or entity other than a "Permitted
Assignee" (defined below), without first obtaining Seller's prior written
consent thereto, which consent may be given or withheld in Seller's sole and
absolute discretion. Seller's prior consent shall not be required in connection
with any assignment to a Permitted Assignee. Except as provided below with
respect to a Permitted Assignment, any assignment by Buyer shall not relieve
Buyer from any liability or its obligations under or in connection with this
Agreement. Any attempted assignment not in compliance with the provisions of
this Section 18 shall be null and void. This Agreement shall inure to the
benefit of and be binding upon the parties to this Agreement and their
respective successors and permitted assigns. As used herein, a "Permitted
Assignee" shall mean any corporation, partnership, limited liability company or
other entity controlled by, under common

                                      -17-
<PAGE>

control with, or which controls, Buyer or another entity in which Buyer is a
member, partner, shareholder or manager. Provided that the Permitted Assignee of
Buyer shall assume, in writing, all of Buyer's obligations and liabilities
hereunder (and a copy of such written assignment and assumption agreement shall
be delivered to Seller prior to the Closing), then Buyer shall, upon such
assignment and assumption and the consummation of the Closing, be released from
any and all obligations and liabilities hereunder.

         19.      Severability. If for any reason, any provision of this
Agreement shall be held to be unenforceable, it shall not affect the validity or
enforceability of any other provision of this Agreement and to the extent any
provision of this Agreement is not determined to be unenforceable, such
provision, or portion thereof, shall be, and remain, in full force and effect.

         20.      California Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California.

         21.      Modifications/Survival. Any and all exhibits attached hereto
shall be deemed a part hereof. This Agreement, including exhibits, if any,
expresses the entire agreement of the parties and supersedes any and all
previous agreements between the parties with regard to the Property, including
without limitation, that certain letter of intent dated October 24, 2003. There
are no other understandings, oral or written, which in any way alter or enlarge
its terms, and there are no warranties or representations of any nature
whatsoever, either expressed or implied, except as may expressly be set forth
herein. Any and all future modifications of this Agreement will be effective
only if it is in writing and signed by the parties hereto. The terms and
conditions of such future modifications of this Agreement shall supersede and
replace any inconsistent provisions in this Agreement.

         22.      Confidentiality. Buyer agrees that, (a) except as otherwise
provided or required by valid law, (b) except to the extent Buyer considers such
documents or information reasonably necessary to prosecute and/or defend any
claim made with respect to the Property or this Agreement, and (c) except to the
extent deemed necessary by Buyer, in its sole and absolute discretion, to
deliver such documents or information to Buyer's employees, paralegals,
attorneys and/or consultants in connection with Buyer's evaluation of this
transaction, (i) Buyer and Buyer's agents, consultants, representatives,
attorneys, employees, successors and assigns (collectively, the "Buyer's
Representatives"), shall use reasonable efforts to keep the contents of any
materials, reports, documents, data, test results, and other information related
to the transaction contemplated hereby, including without limitation, the Due
Diligence Materials and all information regarding Buyer's acquisition or
ownership of the Property strictly confidential, (ii) Buyer and Buyer's
Representatives shall keep and maintain the contents of this Agreement,
including without limitation, the amount of consideration being paid by Buyer
for the Property strictly confidential, and (iii) Buyer and Buyer's
Representatives shall refrain from generating or participating in any publicity
or press release regarding this transaction without the prior written consent of
Seller. Buyer acknowledges that significant portions of the Due Diligence
Materials are proprietary in nature and that Seller would suffer significant and
irreparable harm in the event of the misuse or disclosure of the Due Diligence
Materials. Without affecting any other rights or remedies that either party may
have, Buyer acknowledges and agrees that Seller shall be entitled to seek the
remedies of injunction, specific performance and other equitable relief for any
breach, threatened breach or anticipatory breach of the provisions of this
Section 22 by

                                      -18-
<PAGE>

Buyer or any of Buyer's Representatives. The provisions of this Section 22 shall
survive any termination of this Agreement but shall not survive the Closing.

         23.      Counterparts. This Agreement may be executed in counterparts.
All executed counterparts shall constitute one agreement, and each counterpart
shall be deemed an original. Buyer and Seller agree that the delivery of an
executed copy of this Agreement by facsimile shall be legal and binding and
shall have the same full force and effect as if an original executed copy of
this Agreement had been delivered.

         24.      Dispute Costs. In the event any dispute between the parties
with respect to this Agreement result in litigation or other proceeding, the
prevailing party shall be reimbursed by the party not prevailing in such
proceeding for all reasonable costs and expenses, including, without limitation,
reasonable attorneys' and experts' fees and costs incurred by the prevailing
party in connection with such litigation or other proceeding and any appeal
thereof. Such costs, expenses and fees shall be included in and made a part of
the judgment recovered by the prevailing party, if any. The provisions of this
Section 24 shall survive any termination of this Agreement or the Closing.

         25.      Seller's Representations. Seller hereby represents to Buyer
that the following matters are true and correct as of the date of execution of
this Agreement and shall, except as otherwise disclosed in writing by Seller to
Buyer, be true and correct as of the Closing:

                  25.1     Seller is a Delaware corporation, duly formed,
validly existing and in good standing under the laws of the State of Delaware.

                  25.2     This Agreement and all documents executed by Seller
that are to be delivered to Buyer at Closing (i) are, or at the time of Closing
will be, duly authorized, executed and delivered by Seller, (ii) do not, and at
the time of Closing will not, violate any provision of any judicial order to
which Seller is a party or to which Seller or the Property is subject and (iii)
constitute (or in the case of closing documents will constitute) a valid and
legally binding obligation of Seller. Seller has full and complete power and
authority to enter into this Agreement and, to perform its obligations
hereunder. Seller hereby further represents and warrants to Buyer that Seller is
not presently the subject of a bankruptcy, insolvency or probate proceeding and
Seller does not anticipate nor intend to file or cause to be filed any
bankruptcy or insolvency proceeding involving Seller or Seller's assets during
the pendency of this Agreement.

                  25.3     Seller is not a "foreign person" within the meaning
of Section 1445(f)(3) of the Internal Revenue Code, as amended.

                  25.4     Seller has not been served with respect to any
pending actions, suits, arbitrations, claims or proceedings, at law, in equity
or otherwise, affecting, all or any portion of the Property or in which Seller
is a party by reason of Seller's ownership of the Property, including but not
limited to, judicial, municipal or administrative proceedings in eminent domain,
noticed alleged building code violations, health and safety violations, federal,
state or local agency action regarding environmental matters, federal
environmental protection agency or zoning violations, personal injuries or
property damages alleged to have occurred at the Property or by reason of the
condition or use of or construction on the Property.

                                      -19-
<PAGE>

                  25.5     To Seller's knowledge, and except as otherwise
disclosed in writing to Buyer, Seller has received no written notice alleging
that any aspect of the use, operation or development of the Property is in
violation of (i) any applicable laws, ordinances or restrictions, (ii) any
judicial or administrative action, or (iii) any recorded restrictions.

                  25.6     Seller has delivered to Buyer copies of all Contracts
that will survive Closing and to which Seller is a party or which are in
Seller's possession and, to Seller's knowledge, there are no other Contracts
that will survive Closing other than those disclosed in the Title Report. To
Seller's knowledge, the copies of the Contracts delivered to Buyer are true,
correct and complete.

                  25.7     Except for the New Lease, there are no leases,
licenses or other occupancy agreements affecting the Property.

                  25.8     Except as expressly set forth in the New Lease, there
are no leasing commissions due or payable pursuant to or in connection with the
execution of the New Lease with respect to any broker claiming under Seller.

                  25.9     Peter Case and Keith Almryde are the representatives
or employees of Seller who are most knowledgeable with respect to the Property.

         Where a representation or warranty is limited to the knowledge of
Seller or the knowledge of Seller is referred to herein, such representation or
warranty or reference is deemed to be limited to the current, actual knowledge,
without independent investigation or inquiry, of Peter Case and Keith Almryde.
The representations, warranties and indemnities of Seller set forth in this
Section 25 and in any Exhibits to this Agreement shall survive the Closing and
continue until one (1) year after the Closing and shall automatically lapse and
become null and void after said one (1) year period, and Buyer shall thereafter
be barred from bringing or asserting any claim against Seller by reason of a
breach of any of such representations or warranties by Seller unless prior to
the expiration of such time period, such claim is asserted in writing delivered
to Seller specifying the alleged breach.

         26.      Buyer's Representations. Buyer hereby represents and warrants
to Seller that Buyer is a corporation, duly formed, validly existing and in good
standing under the laws of the State of California. Buyer further represents and
warrants that this Agreement and all documents executed by Buyer that are to be
delivered to Seller at Closing (a) are, or at the time of Closing will be, duly
authorized, executed and delivered by Buyer, (b) do not, and at the time of
Closing will not, violate any provision of any judicial order to which Buyer is
a party or to which Buyer is subject and (c) constitute (or in the case of
closing documents will constitute) a valid and legally binding obligation of
Buyer. Buyer further represents and warrants to Seller that Buyer has full and
complete power and authority to enter into this Agreement and to perform its
obligations hereunder. Buyer hereby further represents and warrants to Seller
that (i) Buyer is not presently the subject of a bankruptcy, insolvency or
probate proceedings and Buyer does not anticipate nor intend to file or cause to
be filed any bankruptcy or insolvency proceeding involving Buyer or Buyer's
assets during the pendency of this Agreement, (ii) Buyer is a sophisticated
investor with substantial experience in investing in assets of the same type as
the Property and has such knowledge and experience in financial and business
matters that Buyer is

                                      -20-
<PAGE>

capable of evaluating the merits and risks of an investment in the Property,
(iii) Buyer is represented by competent counsel, (iv) Buyer shall furnish all of
the funds for the purchase of the Property (other than funds supplied by
institutional lenders which will hold valid mortgage liens against the Property)
and such funds will not be from sources of funds or properties derived from any
unlawful activity, (v) prior to Closing, Buyer and its agents will have
thoroughly inspected the Property, fully observed the physical characteristics
and condition of the Property, and performed a thorough investigation of the
suitability of Buyer's intended use of the Property, including without
limitation, the suitability of the topography; the availability of water rights
or utilities; any natural hazard of any kind or nature, including without
limitation, flood hazard, earthquake fault or seismic hazard, or forest fire
risk or hazard; the present and future zoning, subdivision and any and all other
land use matters; the condition of the soil, subsoil or groundwater of the
Property and any and all other environmental matters; the purpose(s) to which
the Property is suited; drainage; flooding; access to public roads; and proposed
routes or roads or extensions relative to the Property, and (vi) Buyer
understands it will have no recourse whatsoever against Seller or any of the
other Releasees except as otherwise expressly set forth in this Agreement. The
foregoing representations and warranties of Buyer shall survive the Closing and
continue until one (1) year after the Closing and shall automatically lapse and
become null and void after said one (1) year period, and Seller shall thereafter
be barred from bringing or asserting any claim against Buyer by reason of a
breach of any of such representations or warranties by Buyer unless prior to the
expiration of such time period, such claim is asserted in writing delivered to
Buyer specifying the alleged breach.

         27.      Time of the Essence; and Business Days. Time is of the essence
in the performance of each of the parties' respective obligations contained
herein. Unless the context otherwise requires, all periods terminating on a
given day, period of days, or date shall terminate at 5:00 p.m. (Pacific Time)
on such date or dates and references to "days" shall refer to calendar days
except if such references are to "business days" which shall refer to days which
are not a Saturday, Sunday or legal holiday. Notwithstanding the foregoing, if
any period terminates on a Saturday, Sunday or legal holiday, under the laws of
the State of California, the termination of such period shall be on the next
succeeding business day. The time in which any act provided under this Agreement
is to be done, shall be computed by excluding the first day and including the
last day, unless the last day is a Saturday, Sunday or legal holiday under the
laws of the State of California, and then it is also so excluded.

         28.      Agreement Date. The parties hereby covenant and agree that the
"Agreement Date" shall be the date on which the Escrow Holder confirms in
writing to both Seller and Buyer that the Escrow Holder has actually received
from both parties two (2) signed and initialed original counterparts of this
Agreement and the Escrow Holder is in a position to release to each of the
parties a fully executed original of this Agreement signed and initialed in
counterparts. The Escrow Holder shall insert such date in each original
counterpart of this Agreement on Page 1 hereof. If either party fails to submit
two (2) signed and initialed original counterparts of this Agreement to Escrow
Holder within five (5) business days after the delivery to Escrow Holder by the
other party of two (2) signed and initialed original counterparts of this
Agreement, then the party which delivered to Escrow Holder said signed and
initialed counterparts of this Agreement may, at its option, withdraw such
signed and initialed counterparts therefrom without any obligation to resubmit
same to Escrow Holder thereafter.

                                      -21-
<PAGE>

         29.      No Third Party Beneficiaries. Except as otherwise expressly
set forth herein, Seller and Buyer do not intend, and this Agreement shall not
be construed, to create a third-party beneficiary status or interest in, nor
give any third-party beneficiary rights or remedies to, any other person or
entity not a party to this Agreement.

         30.      Drafts not an Offer to Enter into a Legally Binding Contract.
The parties hereto agree that the submission of a draft of this Agreement by one
party to another is not intended by either party to be an offer to enter into a
legally binding contract with respect to the purchase and sale of the Property.
The parties shall be legally bound with respect to the purchase and sale of the
Property pursuant to the terms of this Agreement only if and when the parties
have been able to negotiate all of the terms and provisions of this Agreement in
a manner acceptable to each of the parties in their respective sole discretion,
including without limitation, all of the exhibits hereto, and each of Seller and
Buyer have fully executed and delivered (or caused the delivery) to each other a
counterpart of this Agreement, including without limitation, all exhibits
hereto.

         31.      Natural Hazard Disclosure Requirement Compliance. Buyer and
Seller acknowledge that Seller may be required to disclose if the Property lies
within the following natural hazard areas or zones: (i) a special flood hazard
area designated by the Federal Emergency Management Agency (California Civil
Code Section 1103(c)(1)); (ii) an area of potential flooding (California
Government Code Section 8589.4); (iii) a very high fire hazard severity zone
(California Government Code Section 51178 et seq.); (iv) a wild land area that
may contain substantial forest fire risks and hazards (Public Resources Code
Section 4135); (v) earthquake fault zone (Public Resources Code Section 2622);
or (vi) a seismic hazard zone (Public Resources Code Section 2694) (sometimes
all of the preceding are herein collectively called the "Natural Hazard
Matters"). Seller has engaged or will cause the Title Company or such other
company selected by Seller to engage the services of a natural hazard disclosure
expert (the "Natural Hazard Expert"), to examine the maps and other information
specifically made available to the public by government agencies for the
purposes of enabling Seller to fulfill its disclosure obligations, if and to the
extent such obligations exist, with respect to the natural hazards referred to
in California Civil Code Section 1102.6a and to report the result of its
examination to Buyer and Seller in writing. If delivered to Buyer not later than
one (1) business day prior to the Approval Date, the written report prepared by
the Natural Hazard Expert regarding the results of its full examination will
fully and completely discharge Seller from its disclosure obligations referred
to herein, if and to the extent any such obligations exist, and, for the purpose
of this Agreement, the provisions of Civil Code Section 1102.4 regarding
non-liability of Seller for errors or omissions not within its personal
knowledge shall be deemed to apply and the Natural Hazard Expert shall be deemed
to be an expert, dealing with matters within the scope of its expertise with
respect to the examination and written report regarding the natural hazards
referred to above.

         32.      1031 Exchange. Each of the parties hereto has requested that
the other party hereto cooperate with such party in effecting a like-kind
exchange under Section 1031 of the Internal Revenue Code (as amended, the
"Code"). Each party hereto agrees to cooperate with the other to effectuate said
exchange transaction, and such parties shall reimburse the other for any actual,
documented and reasonable costs incurred by such other party (and expressly
preapproved in writing by the other party) in providing any such accommodation;
provided, however, that (i) neither party shall be obligated or required to take
title to any other property in

                                      -22-
<PAGE>

connection with such exchange, (ii) the transactions contemplated by this
Agreement are in no way conditioned on the success or feasibility of such
exchange and (iii) the Closing may not be extended to accommodate the exchange.
To effect such exchange, the parties acknowledge and agree that each party may
assign its rights in, and delegate its duties under, this Agreement to any
exchange accommodator that such party may determine.

         IN WITNESS WHEREOF the parties have caused this Agreement to be
executed as of the day and year first above written.

                                    SELLER:

                                    ASHWORTH, INC.,
                                    a Delaware corporation

                                    By: ________________________________
                                        ________________________________

                                        By: /s/Peter Case
                                            ----------------------------
                                            Name: Peter Case
                                            Title: VP Finance

                                    BUYER:

                                    LBA INC.,
                                    a California corporation

                                    By: /s/Steven R. Layton
                                        --------------------------------
                                        Name:  Steve R. Layton
                                        Title:  Authorized Signatory

                                    By: ________________________________
                                        Name: __________________________
                                        Title: _________________________

                                      -23-
<PAGE>

                                    EXHIBIT A

                     LEGAL DESCRIPTION OF THE REAL PROPERTY

                                                                      01-0228374

                  THE LAND REFERRED TO HEREIN IS SITUATED IN THE STATE OF
                  CALIFORNIA, COUNTY OF SAN DIEGO AND IS DESCRIVED AS FOLLOWS:

                  LOT 15 OF CARLSBAD TRACT NO. 74-21, IN THE CITY OF CARLSBAD,
                  COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO MAP
                  THEREOF NO. 10372, FILED IN THE OFFICE OF THE COUNTY RECORDER
                  OF SAN DIEGO COUNTY, APRIL 13, 1982.

                  EXCEPTING THEREFORM ALL MINERALS, OIL AND GAS RIGHTS BELOW THE
                  DEPTH OF 500 FEET BELOW THE SURFACE OF SAID LAND WITHOUT THE
                  RIGHT OF SURFACE ENTRY AS RESERVED BY KAISER DEVELOPMENT
                  COMPANY, A CALIFORNIA CORPORATION IN DEED RECORDED JANUARY 15,
                  1988 AS FILE NO. 88-021669 OF OFFICIAL RECORDS.

                                    EXHIBIT A
                                      -1-
<PAGE>

                                    EXHIBIT B

                              INTENTIONALLY OMITTED

                                    EXHIBIT B
                                       -1-
<PAGE>

                                    EXHIBIT C

                    ASSIGNMENT AND ASSUMPTION OF INTANGIBLES

         This Assignment and Assumption of Intangibles (the "Assignment") is
made and entered into as of this 24th day of February, 2004 ("Assignment Date"),
by and between ASHWORTH, INC., a Delaware corporation ("Assignor"), and LBA
INDUSTRIAL FUND - CANYON, INC. a Delaware corporation ("Assignee"), with
reference to the following facts.

                                R E C I T A L S :

         A.       Assignor and LBA INC., a California corporation ("LBA"), are
parties to that certain Purchase and Sale Agreement, made and entered into as of
December 2, 2003 (as assigned by LBA to Assignee, the "Purchase Agreement"),
pursuant to which Assignor agreed to sell to Assignee, and Assignee agreed to
purchase from Assignor that certain improved real property located at 2791-2793
Loker Avenue, Carlsbad, California, as legally described in Exhibit A attached
hereto and made a part hereof (the "Real Property") together with all (i)
improvements, structures and fixtures (other than trade fixtures) (collectively,
the "Improvements"), and (ii) easements, appurtenances, rights and privileges
pertaining thereto (collectively, the "Appurtenances"). The Real Property, the
Improvements, and the Appurtenances are collectively referred to herein as the
"Property."

         B.       Assignee has acquired fee title to the Property from Assignor
on the Assignment Date. Assignor now desires to assign and transfer to Assignee
all of Assignor's rights and interests in, to and under the Intangibles (as
hereinafter defined).

         NOW, THEREFORE, for valuable consideration, the receipt and adequacy of
which is hereby acknowledged, the parties hereto agree as follows:

         1.       Assignment and Assumption of Intangibles. Effective as of the
Assignment Date, Assignor hereby grants, transfers, conveys, assigns and
delegates to Assignee all of its rights and interests of Assignor in, to and
under all intangible property now owned by Assignor in connection with any
portion of the Property, including without limitation, all governmental permits,
approvals, guaranties, warranties, indemnities, licenses, permits, entitlements,
plans, specifications and similar documents and rights and licenses (to the
extent assignable and specifically excluding any tradenames of Seller or any
affiliated or related entities of Seller and any licenses and other similar
documents and rights related to the specific clothing and accessory design and
manufacturing operations of Seller) (collectively, the "Intangibles"). Assignee
hereby accepts such assignment and delegation by Assignor and agrees to fully
perform and assume all the obligations of Assignor under the Intangibles arising
from and after the Assignment Date.

         2.       No Warranties. Assignee does hereby covenant with Assignor,
and represents and warrants to Assignor, that Assignor is transferring the
Intangibles to Assignee without any warranty of any kind or nature. This
Assignment shall not be construed as a representation or warranty by Assignor as
to the transferability or enforceability of the Intangibles, and Assignor

                                    EXHIBIT C
                                       -1-
<PAGE>

shall have no liability to Assignee in the event that any or all of the
Intangibles (a) are not transferable to Assignee or (b) are cancelled or
terminated by reason of this Assignment or any acts of Assignee.

         3.       Dispute Costs. In the event of any dispute between Assignor
and Assignee arising out of the obligations of the parties under this Assignment
or concerning the meaning or interpretation of any provision contained herein,
the losing party shall pay the prevailing party's costs and expenses of such
dispute, including without limitation, reasonable attorneys' fees and costs. Any
such attorneys' fees and other expenses incurred by either party in enforcing a
judgment in its favor under this Assignment shall be recoverable separately from
and in addition to any other amount included in such judgment, and such
attorneys' fees obligation is intended to be severable from the other provisions
of this Assignment and to survive and not be merged into any such judgment.

         4.       Counterparts. This Assignment may be executed in counterparts,
each of which shall be deemed an original, and all of which shall taken together
be deemed one document. Assignor and Assignee agree that the delivery of an
executed copy of this Assignment by facsimile shall be legal and binding and
shall have the same full force and effect as if an original executed copy of
this Assignment had been delivered.

         5.       Survival. This Assignment and the provisions hereof shall
inure to the benefit of and be binding upon the parties to this Assignment and
their respective successors, heirs and permitted assigns.

         6.       Limited Liability. This Assignment is made without recourse
and without any express or implied representation or warranty of any kind or
nature, except as expressly set forth in the Purchase Agreement. Assignee on its
own behalf and on behalf of its agents, members, partners, employees,
representatives, successors and assigns hereby agrees that in no event or
circumstance shall any of the members, partners, employees, representatives,
officers, directors, agents, property management company, affiliated or related
entities of Assignor have any personal liability under this Assignment, or to
any of Assignee's creditors, or to any other party in connection with the
Property.

         7.       No Third Party Beneficiaries. Except as otherwise expressly
set forth herein, Assignor and Assignee do not intend, and this Assignment shall
not be construed, to create a third-party beneficiary status or interest in, nor
give any third-party beneficiary rights or remedies to, any other person or
entity not a party to this Assignment.

                                    EXHIBIT C
                                       -2-
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have executed this Assignment as
of the Assignment Date.

                                    ASSIGNOR:

                                    ASHWORTH, INC.,
                                    a Delaware corporation

                                    By: /s/Peter Case
                                        --------------------------------
                                        Name:  Peter Case
                                        Title: VP Finance

                                    ASSIGNEE:

                                    LBA INDUSTRIAL FUND - CANYON, INC.,
                                    a Delaware corporation

                                    By: /s/Steven R. Layton
                                        --------------------------------
                                        Name:  Steven R. Layton
                                        Title: Authorized Signatory

                                    EXHIBIT C
                                       -2-
<PAGE>

                                    EXHIBIT D

                                   GRANT DEED

RECORDING REQUESTED BY:

Stewart Title of California, Inc.

WHEN RECORDED MAIL TO:

Orrick Herrington & Sutcliffe LLP
777 South Figueroa Street, Suite 3200
Los Angeles, California 90017
Attn: Richard C. Mendelson, Esq.

MAIL TAX STATEMENTS TO:

c/o Layton-Belling & Associates
4440 Von Karman Avenue, Suite 150
Newport Beach, California 92660
Attn: Mr. Thomas C. Rutherford

                    Space Above This Line for Recorder's Use

                                   GRANT DEED

         In accordance with Section 11932 of the California Revenue and Taxation
Code, Grantor has declared the amount of transfer tax which is due by separate
statement which is not being recorded with this Grant Deed.

         For valuable consideration, receipt of which is acknowledged, ASHWORTH,
INC., a Delaware corporation, formerly known as Charter Golf Inc., a Delaware
corporation ("Grantor"), hereby grants to LBA INDUSTRIAL FUND - CANYON, INC., a
Delaware corporation ("Grantee"), that certain real property located in the City
of Carlsbad, County of San Diego, State of California, as legally described in
Exhibit A attached hereto and made a part hereof (the "Property") together with
all of Grantor's right, title and interest in and to all improvements and
structures located thereon and all easements, appurtenances, rights and
privileges of Grantor appertaining to the Property.

         The Property is conveyed subject to:

         (a)      A non-delinquent lien of supplemental taxes, if any, assessed
pursuant to the provisions of Chapter 3.5 (commencing with Section 75) of the
Revenue and Taxation Code of the State of California;

                                    EXHIBIT D
                                      -1-
<PAGE>

         (b)      The liens for real property taxes for the fiscal year
2003-2004 not yet due and payable;

         (c)      All liens, encumbrances, easements, leases, covenants,
conditions and restrictions of record;

         (d)      All matters which would be disclosed by a survey of the
Property; and

         (e)      Zoning ordinances and regulations and any other laws,
ordinances, regulations or orders of any governmental agency having or claiming
jurisdiction over the use, occupancy or enjoyment of the Property.

         IN WITNESS WHEREOF, Grantor has caused its duly authorized
representative to execute this instrument as of the date hereinafter written.

DATED: February 24, 2004

                                    GRANTOR:

                                    ASHWORTH INC.,
                                    a Delaware corporation

                                        By:_____________________________
                                            Name:_______________________
                                            Title:______________________

                                    EXHIBIT D
                                       -2-

<PAGE>

Document No.:__________________

Date Recorded: __________________, 2003

              STATEMENT OF TAX DUE AND REQUEST THAT TAX DECLARATION
                  NOT BE MADE A PART OF PERMANENT RECORD IN THE
                          OFFICE OF THE COUNTY RECORDER

                      (PURSUANT TO SECTION 11932 R&T CODE)

To:      Registrar Recorder

         County of _________________, California

Request is hereby made in accordance with the provisions of the Documentary
Transfer Tax Act that the amount of tax due not be shown on the original
document which names:

                            ------------------------
                                  (as grantor)

                            ------------------------
                                  (as grantee)

                  Property described in the accompanying document is located in
                  (_) unincorporated area of the County of __________________
                  (_) City of __________________________________________

The amount of tax due on the accompanying document is $____________

                  (X) Computed on full value of property convened, or
                  (_) computed on full value less liens and encumbrances
                             remaining at time of sale

                                    GRANTOR:

                                    ASHWORTH INC.,
                                    a Delaware corporation

                                    By:
                                        a ______________________________

                                        By:
                                            Name:_______________________
                                            Title:

                                    EXHIBIT D
                                       -3-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.W.2
<SEQUENCE>4
<FILENAME>a97072exv10www2.txt
<DESCRIPTION>EXHIBIT 10(W)(2)
<TEXT>
<PAGE>

                                                                Exhibit 10(w)(2)

                                 FIRST AMENDMENT
                         TO PURCHASE AND SALE AGREEMENT

         THIS FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT (this "FIRST
AMENDMENT") is made as of January 29, 2004, by and between ASHWORTH, INC., a
Delaware corporation ("SELLER"), and LBA INC., a California corporation
("BUYER"), with reference to the following facts:

                                R E C I T A L S :

         A        Seller and Buyer have previously entered into that certain
Purchase and Sale Agreement dated as of December 2, 2003 (the "PURCHASE
AGREEMENT"), for the sale of certain property located in Carlsbad, California,
and more particularly described in the Purchase Agreement.

         B        Seller and Buyer desire to amend the Purchase Agreement by the
terms of this First Amendment.

         C        All capitalized terms not otherwise defined in this First
Amendment shall have the same meaning as set forth in the Purchase Agreement.

                                    AGREEMENT

         For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Seller and Buyer hereby amend the Purchase
Agreement in the following respects:

         1        New Lease. Notwithstanding the provisions of Section 4.1.4 of
the Purchase Agreement to the contrary, the parties hereby acknowledge and agree
that the term of the New Lease shall terminate on December 31, 2004, subject to
Seller's right to further extend the term thereof for an additional period of
sixty (60) days as provided in Section 4.1.4 of the Purchase Agreement. Buyer
and Seller hereby acknowledge and agree that the form of the New Lease to be
executed by the parties at Closing is attached hereto as Exhibit "A".

         2        Closing Date. Notwithstanding anything to the contrary
contained in the Purchase Agreement, Buyer shall have the right, by written
notice (the "EXTENSION NOTICE") to Seller on or before February 12, 2004, to
extend the Closing Date to the date identified in the Closing Notice, but in any
event not later than March 18, 2003, time being of the essence.

         3        Racking Systems. Notwithstanding anything to the contrary
contained in the Purchase Agreement, Seller shall not be obligated to remove the
existing mezzanine racking system in the 2793 Loker Avenue building of the
Improvements, and to repair all damage related to such removal, until
immediately preceding the expiration of the term of the New Lease.

<PAGE>

         4.       Conflict. In the event of a conflict between terms and
conditions of this First Amendment and the terms and conditions of the Purchase
Agreement, the terms and conditions of the First Amendment shall control.

         5.       No Further Modifications. Except as set forth in this First
Amendment, all other terms and provisions of the Purchase Agreement shall be and
remain unmodified and in full force and effect.

         6.       Facsimile Counterparts. This First Amendment may be executed
in facsimile counterparts, each facsimile signature shall be deemed an original,
and all such facsimile counterparts, when taken together, shall constitute one
agreement.

         7.       IN WITNESS WHEREOF, Seller and Buyer have executed this First
Amendment as of the date set forth above.

BUYER:                                  SELLER:

LBA INC.,                               ASHWORTH, INC.,
a California corporation                a Delaware corporation

By: /s/Steven R. Layton                 By: /s/Peter Case
   --------------------                    --------------
Name:  Steven R. Layton                 Name:  Peter Case
Title:  Authorized Signatory            Title:  VP Finance

By: ___________________________
Name:_________________________
Title:__________________________

                                      -2-

<PAGE>

                                   EXHIBIT "A"

                            [FINAL FORM OF NEW LEASE]

                                  EXHIBIT "A"
                                      -1-



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.W.3
<SEQUENCE>5
<FILENAME>a97072exv10www3.txt
<DESCRIPTION>EXHIBIT 10(W)(3)
<TEXT>
<PAGE>

                                                                Exhibit 10(w)(3)

                            ASSIGNMENT AND ASSUMPTION
                         OF PURCHASE AND SALE AGREEMENT

         THIS ASSIGNMENT AND ASSUMPTION OF PURCHASE AND SALE AGREEMENT (this "
Assignment"), dated for reference purposes only as of February 24, 2004, is
entered into by and between LBA INC., a California corporation ("Assignor"), and
LBA INDUSTRIAL FUND-CANYON, INC., a Delaware corporation ("Assignee"), with
reference to the following:

                                R E C I T A L S:

         A.       Assignor, as "Buyer," and ASHWORTH, INC., a Delaware
corporation ("Seller"), as "Seller" entered into that certain Purchase and Sales
Agreement dated as of December 2, 2003, as amended by that certain First
Amendment to Purchase and Sale Agreement dated as of January 29, 2004 (as so
amended as may be further amended from time to time, the "Purchase Agreement"),
for the purchase by Assignor from Seller of the real property commonly known as
2791-2793 Loker Avenue, Carlsbad, California, and more particularly described in
the Purchase Agreement (the "Property"). Unless otherwise defined herein, all
capitalized terms used herein shall have the same meanings as set forth in the
Purchase Agreement.

         B.       Assignor desires to transfer all of its rights, title and
interest in and to the Purchase Agreement to Assignee and Assignee desires to
accept such assignment from Assignor and to assume and be bound by all of the
terms and conditions of the Purchase Agreement.

                  NOW, THEREFORE, in consideration of the foregoing recitals and
for other valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follow:

                  1.       Assignment. As of the Closing Date, Assignor hereby
assigns, conveys, transfers and sets over unto Assignee, any and all right,
title and interest of Assignor in and to: (a) the Purchase Agreement; and (b)
without representations or warranties of any kind, all reports, inspections,
certifications and other instruments and documents relating to the Property and
received or generated by Assignor in connection with the investigation and
acquisition of the Property pursuant to the Purchase Agreement and all
representations and warranties made to Assignor in connection therewith
(collectively, together with the Purchase Agreement, the "Transferred Assets").

         2.       Representations and Warranties of Assignor. Assignor hereby
                  represents and warrants to Assignee as follows:

                           (a)      Attached hereto as Exhibit A is a true,
correct and complete copy of the Purchase Agreement, which Purchase Agreement
has not, other than as set forth on Exhibit A, been amended or modified by
Assignor in any respect, and which Purchase Agreement constitutes the entire
understanding of the parties thereto with respect to its subject matter; and

<PAGE>

                           (b)      Assignor has not heretofore transferred,
assigned, pledged or encumbered the Transferred Assets, except as disclosed to
Assignee.

                  3.       Assumption of Purchase Agreement. By its execution of
this Assignment, Assignee agrees to, as of the Closing Date, assume and perform
all obligations of Assignor under the Purchase Agreement.

                  4.       Assignor's Indemnification. Assignor, on demand,
shall indemnify and hold Assignee harmless for, from, and against any and all
loss, cost, damage, claim, liability or expense, including court costs and
attorneys fees in a reasonable amount, arising out of any breach of the Purchase
Agreement by Assignor or its agents occurring prior to the Closing Date or
arising from any breach of this Assignment by Assignor. The foregoing
indemnification shall include loss, cost, damage, claim, liability or expense
from any injury or damage of any kind whatsoever (including death) to persons or
property.

         5.       Assignee's Indemnification. Assignee, on demand, shall
indemnify and hold Assignor harmless for, from, and against any and all loss,
cost, damage, claim, liability or expense, including court costs, and attorneys
fees in a reasonable amount, arising out of any breach of the Purchase Agreement
by Assignee or its agents occurring on or after the Closing Date, arising from
any breach of this Assignment by Assignee or otherwise arising out of the
Purchase Agreement (except to the extent such matters relate to Assignor's prior
breach of the Purchase Agreement). The foregoing indemnification shall include
loss, cost, damage, claim, liability or expense from any injury or damage of any
kind whatsoever (including death) to person or property.

         6.       Governing Law. This Assignment shall be construed under and
forced in accordance with the laws of the State of California.

         7.       Further Assurances. Assignor and Assignee each agree to
execute and deliver to the other party, upon demand, such further documents,
instruments and conveyances, and shall take such further actions, as are
necessary or desirable to effectuate this Assignment.

         8.       Successors and Assigns. This Assignment shall inure to the
benefit of, and be binding upon, the successors, executors, administrators,
legal representatives and assigns of the parties hereto.

         9.       Facsimile Signature: Counterparts. This Assignment shall be
effective and enforceable against the parties hereto if executed by facsimile
signature and/or in multiple counterparts, each of which shall be deemed an
original and all of which, when taken together, shall constitute one and the
same document.

                          [Next page is signature page]

<PAGE>

                  IN WITNESS WHEREOF, Assignor and Assignee have executed this
Assignment on the date first set forth above to be effective as of the Closing
Date.

                  ASSIGNOR:           LBA INC., California corporation

                                      By: /s/Steven R. Layton
                                         --------------------
                                      Name: Steven R. Layton
                                      Title: Authorized Signatory

                  ASSIGNEE:           LBA INDUSTRIAL FUND-CANYON, INC.,
                                      a Delaware corporation

                                      By: /s/Steven R. Layton
                                         --------------------
                                      Name: Steven R. Layton
                                      Title: Authorized Signatory

<PAGE>

                                    EXHIBIT A

                               PURCHASE AGREEMENT

                                 (SEE ATTACHED)

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.W.4
<SEQUENCE>6
<FILENAME>a97072exv10www4.txt
<DESCRIPTION>EXHIBIT 10(W)(4)
<TEXT>
<PAGE>

                                                                EXHIBIT 10(w)(4)

                   AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
            STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE -- NET
               (DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)


1.       BASIC PROVISIONS ("BASIC PROVISIONS").

         1.1      PARTIES: This Lease ("LEASE"), dated for reference purposes
only, February 24__, 2004, is made by and between LBA Industrial Fund - Canyon,
Inc. , a Delaware corporation
______________________________________________________________________("LESSOR")
and Ashworth, Inc. , a Delaware corporation ____________________________________
_____________________________________________________________________("LESSEE"),
(collectively the "PARTIES," or individually a "PARTY").

         1.2      PREMISES: That certain real property, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
and Commonly Known AS 2791-2793 Loker Avenue in the City of Carlsbad County of
San Diego__, State of California__, and generally described as approximately
acres of land and two (2) freestanding concrete industrial buildings having, in
the aggregate, approximately 76,482 square feet of floor space
____________________________________________("PREMISES"). (See also Paragraph 2)

         1.3      TERM: APPROXIMATELY ten months ("ORIGINAL TERM") commencing
See Addendum Section 1 ("COMMENCEMENT DATE") and ending December 31, 2004
("EXPIRATION DATE"), subject to extensions as provided in Section 8 of the
Addendum. (See also Paragraph 3)

         1.4      EARLY POSSESSION: N/A ("EARLY POSSESSION DATE"). (See also
Paragraphs 3.2 and 3.3)

         1.5      BASE RENT: $47,418.84 per month ("BASE RENT"), payable on the
first (1st)_____ day of each month commencing on the Commencement Date, with the
Base Rent for the first partial month of the term due on the Commencement Date
and prorated based upon the number of days in such month. (See also Paragraph 4)

[ ] If this box is checked, there are provisions in this Lease for the Base Rent
    to be adjusted.

         1.6      BASE RENT AND OTHER MONIES PAID UPON EXECUTION:

                  (a)      BASE RENT: $None__ for the period___________________
_______________________________________________________________________________.

                  (b)      SECURITY DEPOSIT: $None__ ("SECURITY DEPOSIT").
(See also Paragraph 5)

                  (c)      ASSOCIATION FEES: $None__ for the period_____________

                  (d)      OTHER: $None__ for___________________________________
_______________________________________________________________________________.

                  (e)      TOTAL DUE UPON EXECUTION OF THIS LEASE: $___________.

         1.7      AGREED USE: Industrial and related general office, sales and
administration__________________________________________________________________
(See also Paragraphs 6)

         1.8      INSURING PARTY: Lessor is the "INSURING PARTY" unless
otherwise stated herein. (See also Paragraph 8)

         1.9      REAL ESTATE BROKERS: (See also Paragraph 15)

                  (a) REPRESENTATION: The following real estate brokers (the
"BROKERS") and brokerage relationships exist in this transaction (check
applicable boxes):

[ ] N/A represents Lessor exclusively ("LESSOR'S BROKER");

[ ] N/A represents Lessee exclusively ("LESSEE'S BROKER"); or

[ ] N/A represents both Lessor and Lessee ("DUAL AGENCY").

                  (b) PAYMENT TO BROKERS: Upon execution and delivery of this
Lease by both Parties, Lessor shall pay to the Broker the fee agreed to in their
separate written agreement (or if there is no such agreement the sum of
N/A or_______________% of the total Base Rent) for the brokerage services
rendered by the Brokers.

         1.10     GUARANTOR. The obligations of the Lessee under this Lease are
to be guaranteed by None _________________________________________("GUARANTOR").
(See also Paragraph 37)

         1.11     ATTACHMENTS. Attached hereto are the following, all of which
constitute a part of this Lease:

 [X] an Addendum consisting of Sections  1__ through 13__;

 [ ] a plot plan depicting the Premises:

 [ ] a current set of the Rules and Regulations;

 [ ] a Work Letter;

 [ ] other (specify):___________________________________________________________
________________________________________________________________________________
_______________________________________________________________________________.

2.       PREMISES.

         2.1      LETTING. Lessor hereby leases to Lessee, and Lessee hereby
leases from Lessor, the Premises, for the term, at the rental, and upon all of
the terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of size set forth in this Lease, or that may have
been used in calculating Rent is an approximation which the Parties agree is
reasonable and any payments based thereon are not subject to revision whether or
not the actual size is more or less. NOTE: LESSEE IS ADVISED TO VERIFY THE
ACTUAL SIZE PRIOR TO EXECUTING THIS LEASE.

         2.2      CONDITION. Lessor shall deliver the Premises to Lessee on the
Commencement Date ("START DATE") without warrantys with respect to the existing
electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air
conditioning systems ("HVAC"), loading doors, sump pumps, if any, and all other
such elements in the Premises, or the structural elements of the roof, bearing
walls and foundation of the buildings on the Premises (collectively, the
"BUILDING") However, If one of such systems or elements should malfunction or
fail Lessor shall, as Lessor's sole

------------                                                         -----------
------------                                                         -----------
INITIALS                          PAGE 1 OF 12                       INITIALS

(C)2001 - AMERICAN INDUSTRIAL
REAL ESTATE ASSOCIATION             REVISED                     FORM STN-7-4/01E

<PAGE>

obligation with respect to such matter, except as otherwise provided in this
Lease, promptly after receipt of written notice from Lessee setting forth with
specificity the nature and extent of such non-compliance, malfunction or
failure, rectify same at Lessor's expense.

         2.3      COMPLIANCE. Lessee is RESPONSIBLE FOR DETERMINING WHETHER OR
NOT THE building codes, applicable laws, covenants or restrictions of record,
regulations and ordinances (the "APPLICABLE REQUIREMENTS'), AND ESPECIALLY THE
ZONING, ARE APPROPRIATE FOR LESSEE'S INTENDED USE, AND ACKNOWLEDGES THAT PAST
USES OF THE PREMISES MAY NO LONGER BE ALLOWED. If the Applicable Requirements
are hereafter changed so as to require during the term of this Lease the
construction of an addition to or an alteration of the Premises and/or Building,
the remediation of any Hazardous Substance, or the reinforcement or other
physical modification of the Unit, Premises and/or Building ("CAPITAL
EXPENDITURE"), Lessor and Lessee shall allocate the cost of such work as
follows:

                  (a) Subject to Paragraph 2.3(c) below, if such Capital
Expenditures are required as a result of the specific and unique use of the
Premises by Lessee as compared with uses by tenants or occupants in general,
Lessee shall be fully responsible for the cost thereof, provided, however that
if the cost thereof exceeds 16 months' Base Rent, Lessee may instead terminate
this Lease unless Lessor notifies Lessee, in writing, within 10 days after
receipt of Lessee's termination notice that Lessor has elected to pay the
difference between the actual cost thereof and an amount equal to 19 months!
Base Rent. If Lessee elects termination, Lessee shall immediately cease the use
of the Premises which requires such Capital Expenditure and deliver to Lessor
written notice specifying a termination date at least 3088 days thereafter
(unless the same occurs during the final 30 days of the Lease term, in which
event such termination date shall be the scheduled Expiration Date). Such
termination date shall, however, in no event be earlier than the First to occur
of (i) the scheduled Expiration Date or (ii) the last day that Lessee could
legally utilize the Premises without commencing such Capital Expenditure.

                  (b) If such Capital Expenditure is not the result of the
specific and unique use of the Premises by Lessee (such as, governmentally
mandated seismic modifications), then Lessor shall pay for such costs provided,
however, that if Lessor reasonably determines that it is not economically
feasible to pay such Lessor shall have the option to terminate this Lease upon
90 days prior written notice to Lessee unless Lessee notifies Lessor, in
writing, within 10 days after receipt of Lessor's termination notice that Lessee
will pay for such Capital Expenditure. If Lessor does not elect to terminate,
and fails to pay the cost of any such Capital Expenditure, Lessee may advance
such funds and deduct same, with Interest, from Rent until such costs have been
fully paid. If Lessee is unable to finance such cost, or if the balance of the
Rent due and payable for the remainder of this Lease is not sufficient to fully
reimburse Lessee on an offset basis, Lessee shall have the right to terminate
this Lease upon 30 days written notice to Lessor.

                  (c) Notwithstanding the above, the provisions concerning
Capital Expenditures are intended to apply only to non-voluntary, unexpected,
and new Applicable Requirements. If the Capital Expenditures are instead
triggered by Lessee as a result of an actual or proposed change in use, change
in intensity of use, or modification to the Premises then, and in that event,
Lessee shall either: (i) immediately cease such changed use or intensity of use
and/or take such other steps as may be necessary to eliminate the requirement
for such Capital Expenditure, or (ii) complete such Capital Expenditure at its
own expense. Lessee shall not, however, have any right to terminate this Lease.

         2.4      ACKNOWLEDGEMENTS. Lessee acknowledges that: (a) it has been
advised by Lessor to satisfy itself with respect to the condition of the
Premises (including but not limited to the electrical, HVAC and fire sprinkler
systems, security, environmental aspects, and compliance with Applicable
Requirements and the Americans with Disabilities Act), and their suitability for
Lessee's intended use and (be) neither Lessor, Lessor's agents, nor Brokers have
made any oral or written representations or warranties with respect to said
matters other than as set forth in this Lease. In addition, Lessor acknowledges
that: (i) Brokers have made no representations, promises or warranties
concerning Lessee's ability to honor the Lease or suitability to occupy the
Premises, and (ii) it is Lessor's sole responsibility to investigate the
financial capability and/or suitability of all proposed tenants.

3.       TERM. See Addendum Section 1

         3.1      TERM. The Commencement Date, Expiration Date and Original Term
of this Lease are as specified in Paragraph 1.3.

         3.2      Intentionally Deleted

         3.3      DELAY IN POSSESSION. Lessor agrees to use its best
commercially reasonable efforts to deliver possession of the Premises to Lessee
by the Commencement Date. If, despite said efforts, Lessor is unable to deliver
possession by such date, Lessor shall not be subject to any liability therefor,
nor shall such failure affect the validity of this Lease. Lessee shall not,
however, be obligated to pay Rent or perform its other obligations until Lessor
delivers possession of the Premises and any period of rent abatement that Lessee
would otherwise have enjoyed shall run from the date of delivery of possession
and continue for a period equal to what Lessee would otherwise have enjoyed
under the terms hereof, but minus any days of delay caused by the acts or
omissions of Lessee. If possession is not delivered within 30 days after the
Commencement Date, Lessee may at its option, by notice in writing within 10 days
after the end of such 30 day period, cancel this Lease, in which event the
Parties shall be discharged from all obligations here under. If such written
notice is not received by Lessor within said 10 day period, Lessee's right to
cancel shall terminate. If possession of the Premises is not delivered within 90
days after the Commencement Date, this Lease shall terminate unless other
agreements are reached between Lessor and Lessee, in writing.

         3.4      LESSEE COMPLIANCE. Lessor shall not be required to deliver
possession of the Premises to Lessee until Lessee complies with its obligation
to provide evidence of insurance (Paragraph 8.5). Pending delivery of such
evidence, Lessee shall be required to perform all of its obligations under this
Lease from and after the Start Date, including the payment of Rent,
notwithstanding Lessor's election to withhold possession pending receipt of such
evidence of insurance. Further, if Lessee is required to perform any other
conditions prior to or concurrent with the Start Date, the Start Date shall
occur but Lessor may elect to withhold possession until such conditions are
satisfied.

4.       RENT. See Addendum Section 2

         4.1.     RENT DEFINED. All monetary obligations of Lessee to Lessor
under the terms of this Lease deemed to be rent ("RENT").

         4.2      PAYMENT. Lessee shall cause payment of Rent to be received by
Lessor in lawful money of the United States on or before the day on which it is
due, without offset or deduction (except as specifically permitted in this
Lease). Rent for any period during the term hereof which is for less than one
full calendar month shall be prorated based upon the actual number of days of
said month. Payment of Rent shall be made to Lessor at its address stated herein
or to such other persons or place as Lessor may from time to time designate in
writing. Acceptance of a payment which is less than the amount then due shall
not be a waiver of Lessor's rights to the balance of such Rent, regardless of
Lessor's endorsement of any check so stating. In the event that any check,
draft, or other instrument of payment given by Lessee to Lessor is dishonored
for any reason, Lessee agrees to pay to Lessor the sum of $25 in addition to any
Late Charge and Lessor, at its option, may require all future payments to be
made by Lessee to be by cashier's check. Payments will be applied first to
accrued late charges and attorneys fees, second to accrued interest, then to
Base Rent and Operating Expense Increase, and any remaining amount to any other
outstanding charges or costs.

5.       Intentionally Deleted.

------------                                                         -----------
------------                                                         -----------
INITIALS                          PAGE 2 OF 12                       INITIALS

(C)2001 - AMERICAN INDUSTRIAL
REAL ESTATE ASSOCIATION             REVISED                     FORM STN-7-4/01E

<PAGE>


6.       USE.

         6.1      USE. Lessee shall use and occupy the Premises only for the
Agreed Use, or any other legal use which is reasonably comparable thereto, and
for no other purpose. Lessee shall not use or permit the use of the Premises in
a manner that is unlawful, creates damage, waste or a nuisance, or that disturbs
occupants of or causes damage to neighboring premises or properties. Lessor
shall not unreasonably withhold or delay its consent to any written request for
a modification of the Agreed Use, so long as the same will not impair the
structural integrity of the improvements on the Premises or the mechanical or
electrical systems therein, and/or is not significantly more burdensome to the
Premises. If Lessor elects to withhold consent, Lessor shall within 7 days after
such request give written notification of same, which notice shall include an
explanation of Lessor's objections to the change in the Agreed Use.

         6.2      HAZARDOUS SUBSTANCES.

                  (a) REPORTABLE USES REQUIRE CONSENT The term "HAZARDOUS
SUBSTANCE" as used in this Lease shall mean any product, substance, or waste
whose presence, use, manufacture, disposal, transportation, or release, either
by itself or in combination with other materials expected to be on the Premises,
is either: (i) potentially injurious to the public health, safety or welfare,
the environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for potential liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substances shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, and/or crude oil or any products, by-products or fractions
thereof. Lessee shall not engage in any activity in or on the Premises which
constitutes a Reportable Use of Hazardous Substances without the express prior
written consent of Lessor and timely compliance (at Lessee's expense) with all
Applicable Requirements. "REPORTABLE USE" shall mean (i) the installation or use
of any above or below ground storage tank, (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority, and/or
(iii) the presence at the Premises of a Hazardous Substance with respect to
which any Applicable Requirements requires that a notice be given to persons
entering or occupying the Premises or neighboring properties. Notwithstanding
the foregoing, Lessee may use any ordinary and customary materials reasonably
required to be used in the normal course of the Agreed Use, ordinary office
supplies (copier toner, liquid paper, glue, etc.) and common household cleaning
materials, so long as such use is in compliance with all Applicable
Requirements, is not a Reportable Use, and does not expose the Premises or
neighboring property to any meaningful risk of contamination or damage or expose
Lessor to any liability therefor. In addition, Lessor may condition its consent
to any Reportable Use upon receiving such additional assurances as Lessor
reasonably deems necessary to protect itself, the public, the Premises and/or
the environment against damage, contamination, injury and/or liability,
including, but not limited to, the installation (and removal on or before Lease
expiration or termination) of protective modifications (such as concrete
encasements) and/or increasing the Security Deposit.

                  (b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance has come to be located in, on,
under or about the Premises, other than as previously consented to by Lessor,
Lessee shall immediately give written notice of such fact to Lessor, and provide
Lessor with a copy of any report, notice, claim or other documentation which it
has concerning the presence of such Hazardous Substance.

                  (c) LESSEE REMEDIATION. During the Lease term, Lessee shall
not cause or expressly allow any Hazardous Substance to be spilled or released
in, on, under, or about the Premises (including through the plumbing or sanitary
sewer system) and shall promptly, at Lessee's expense, comply with all
Applicable Requirements and take all investigatory and/or remedial action
reasonably recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security and/or
monitoring of the Premises or neighboring properties, that was caused or
materially contributed to by Lessee during the Lease term, or pertaining to or
involving any Hazardous Substance brought onto the Premises during the term of
this Lease, by or at Lessee's written direction.

                  (d) LESSEE INDEMNIFICATION. Lessee shall indemnify, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, harmless
from and against any and all loss of rents and/or damages, liabilities,
judgments, claims, expenses, penalties, and attorneys' and consultants' fees
arising out of or involving any Hazardous Substance brought onto the Premises by
or at Lessee's written direction during the Lease term (provided, however, that
Lessee shall have no liability under this Lease with respect to underground
migration of any Hazardous Substance under the Premises from adjacent properties
not caused or contributed to by Lessee). Lessee's obligations shall include, but
not be limited to, the effects of any contamination or injury to person,
property or the environment created or expressly allowed by Lessee, and the cost
of investigation, removal, remediation, restoration and/or abatement, and shall
survive the expiration or termination of this Lease. NO TERMINATION,
CANCELLATION OR RELEASE AGREEMENT ENTERED INTO BY LESSOR AND LESSEE SHALL
RELEASE LESSEE FROM ITS OBLIGATIONS UNDER THIS LEASE WITH RESPECT TO HAZARDOUS
SUBSTANCES, UNLESS SPECIFICALLY SO AGREED BY LESSOR IN WRITING AT THE TIME OF
SUCH AGREEMENT.

                  (e) LESSOR INDEMNIFICATION. Lessor and its successors and
assigns shall indemnify, defend, reimburse and hold Lessee, its employees and
lenders, harmless from and against any and all environmental damages, including
the cost of remediation, which are caused by the negligence or willful
misconduct of Lessor, its agents or employees. Lessor's obligations, as and when
required by the Applicable Requirements, shall include, but not be limited to,
the cost of investigation, removal, remediation, restoration and/or abatement,
and shall survive the expiration or termination of this Lease.

                  (f) INVESTIGATIONS AND REMEDIATIONS. Lessor shall retain the
responsibility and pay for any investigations or remediation measures required
by governmental entities having jurisdiction with respect to the existence of
Hazardous Substances on the Premises prior to the Commencement Date unless such
remediation measure is required as a result of Lessee's use (including
"Alterations", as defined in paragraph 7.3(a) below) of the Premises during the
Lease term, in which event Lessee shall be responsible for such payment. Lessee
shall cooperate fully in any such activities at the request of Lessor, including
allowing Lessor and Lessor's agents to have reasonable access to the Premises at
reasonable times in order to carry out Lessor's investigative and remedial
responsibilities.

                  (g) LESSOR TERMINATION OPTION. If a Hazardous Substance
Condition (see Paragraph 9.1(e)) occurs during the term of this Lease, unless
Lessee is legally responsible therefor as a result of any release by Lessee
occurring during the Lease term (in which case Lessee shall make the
investigation and remediation thereof required by the Applicable Requirements
and this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 6.2(d) and Paragraph 13), Lessor may, at Lessor's option,
either (i) investigate and remediate such Hazardous Substance Condition, if
required, as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) if the estimated
cost to remediate such condition exceeds 12 times the then monthly Base Rent or
$100,000, whichever is greater, give written notice to Lessee, within 30 days
after receipt by Lessor of knowledge of the occurrence of such Hazardous
Substance Condition, of Lessor's desire to terminate this Lease as of the date
60 days following the date of such notice. In the event Lessor elects to give a
termination notice, Lessee may, within 10 days thereafter, give written notice
to Lessor of Lessee's commitment to pay the amount by which the cost of the
remediation of such Hazardous Substance Condition exceeds an amount equal to 12
times the then monthly Base Rent or $100,000, whichever is greater. Lessee shall
provide Lessor with said funds or satisfactory assurance thereof within 30 days
following such commitment. In such event, this Lease shall continue in full
force and effect, and Lessor shall proceed to make such remediation as soon as
reasonably possible after the required funds are available. If Lessee does not
give such notice and provide the required funds or assurance thereof within the
time provided, this Lease shall terminate as of the date specified in Lessor's
notice of termination.

         6.3      LESSEE'S COMPLIANCE WITH APPLICABLE REQUIREMENTS. Except as
otherwise provided in this Lease, Lessee shall, at Lessee's sole expense, fully,
diligently and in a timely manner, materially comply with all Applicable
Requirements, the requirements of any applicable fire insurance underwriter or
rating bureau, and the recommendations of Lessor's engineers and/or consultants
which relate in any manner to the such Requirements, without regard to whether
such Requirements are now in effect or become effective after the Start Date.
Lessee shall, within 10 days after receipt of Lessor's written request, provide
Lessor with copies of all permits and other documents, and other information
evidencing Lessee's compliance with any Applicable Requirements specified by
Lessor, and shall immediately upon receipt, notify Lessor in writing (with
copies of any documents involved) of any threatened or actual claim, notice,
citation, warning, complaint or report pertaining to or involving the failure of
Lessee or the Premises to comply with any Applicable Requirements.

         6.4      INSPECTION; COMPLIANCE. Subject to Lessee's security
requirements, Lessor and Lessor's "LENDER" (as defined in Paragraph 30) and
consultants shall have the right to enter into Premises at any time, in the case
of an emergency, and otherwise at reasonable times after reasonable notice, for
the purpose of inspecting the condition of the Premises and for verifying
compliance by Lessee with this Lease. The cost of any such inspections shall be
paid by Lessor, unless a violation of Applicable Requirements, or a Hazardous
Substance Condition (see paragraph 9.1). in either case caused by Lessee during
the Lease term, is found to exist or be imminent, or the inspection is requested
or ordered by a governmental authority. In such case, Lessee shall upon request
reimburse Lessor for the cost of such inspection, so long as such inspection is
reasonably related to the violation or contamination. In addition, Lessee shall
provide copies of all relevant material safety data sheets (MSDS) to Lessor
within 10 days of the receipt of a written request therefor.

7.       MAINTENANCE; REPAIRS, UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.

         7.1      LESSEE'S OBLIGATIONS.

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                  (a)IN GENERAL. Subject to the provisions of Paragraph 2.2
(Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with Applicable
Requirements), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14
(Condemnation), Lessee shall, at Lessee's sole expense, keep the Premises,
Utility Installations (intended for Lessee's exclusive use, no matter where
located), and Alterations in good order, condition and repair (whether or not
the portion of the Premises requiring repairs, or the means of repairing the
same, are reasonably or readily accessible to Lessee, and whether or not the
need for such repairs occurs as a result of Lessee's use, any prior use, the
elements or the age of such portion of the Premises), including, but not limited
to, all equipment or facilities, such as plumbing, HVAC equipment, electrical,
lighting facilities, boilers, pressure vessels, fire protection system,
fixtures, walls (interior and exterior), foundations, ceilings, roofs, roof
drainage systems, floors, windows, doors, plate glass, skylights, landscaping,
driveways, parking lots, fences, retaining walls, signs, sidewalks and parkways
located in, on, or adjacent to the Premises. Lessee, in keeping the Premises in
good order, condition and repair, shall exercise and perform good maintenance
practices, specifically including the procurement and maintenance of the service
contracts required by Paragraph 7.1 (b) below. Notwithstanding the foregoing,
Lessee's obligations shall not include restorations, replacements or renewals
even if necessary to keep the Premises and all improvements thereon or a part
thereof in good order, condition and state of repair. Lessee shall, during the
term of this Lease, keep the exterior appearance of the Building in a
first-class condition (including, e.g. graffiti removal) consistent with the
exterior appearance of other similar facilities of comparable age and size in
the vicinity, excluding, however, the exterior repainting of the Building and,
notwithstanding anything to the contrary contained in this Lease, other similar
modifications, replacements or improvements to any portion of the Premises to
the extent the same would consitute an improvement in the condition of the
Premises from the condition of the Premises on the Commencement Date.

                  (b) SERVICE CONTRACTS. Lessee shall, at Lessee's sole expense,
procure and maintain contracts, with copies to Lessor, in customary form and
substance for, and with contractors specializing and experienced in the
maintenance of the following equipment and improvements, if any, if and when
installed on the Premises: (i) HVAC equipment, (ii) boiler, and pressure
vessels, (iii) fire extinguishing systems, including fire alarm and/or smoke
detection, (iv) landscaping and irrigation systems, (v) roof covering and
drains, (vi) clarifiers and (vii) basic utility feed to the perimeter of the
Building. However, Lessor reserves the right, upon notice to Lessee, to procure
and maintain any or all of such service contracts, and if Lessor so elects,
Lessee shall reimburse Lessor, upon demand, for the reasonable, actual cost
thereof.

                  (c) FAILURE TO PERFORM. If Lessee fails to perform Lessee's
obligations under this Paragraph 7.1, Lessor may enter upon the Premises after
10 days' prior written notice to Lessee (except in the case of an emergency, in
which case no notice shall be required), perform such obligations on Lessee's
behalf, and put the Premises in good order, condition and repair, and Lessee
shall promptly pay to Lessor a sum equal to 105% of the cost thereof.

                  (d) REPLACEMENT. Subject to Lessee's indemnification of Lessor
as set forth in Paragraph 8.7 below, and without relieving Lessee of liability
resulting from Lessee's failure to exercise and perform good maintenance
practices, if an item described in Paragraph 7.1(b) cannot be repaired other
than at a cost which is in excess of 25% of the cost of replacing such item,
then such item shall be replaced by Lessor at lessor's sole cost.

         7.2      LESSOR'S OBLIGATIONS. Subject to the provisions of this
Paragraph 7 and Paragraphs 2.2 (Condition), 2.3 (Compliance), 9 (Damage or
Destruction), 14 (Condemnation) and the Addendum, it is intended by the Parties
hereto that Lessor have no obligation, in any manner whatsoever, to maintain the
Premises, or the equipment therein, all of which obligations are intended to be
that of the Lessee. It is the intention of the Parties that the terms of this
Lease govern the respective obligations of the Parties as to maintenance and
repair of the Premises, and they expressly waive the benefit of any statute now
or hereafter in effect to the extent it is inconsistent with the terms of this
Lease.

         7.3      UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.

                  (a) DEFINITIONS. The term "UTILITY INSTALLATIONS" refers to
all floor and window coverings, air and/or vacuum lines, power panels,
electrical distribution, security and fire protection systems, communication
cabling, lighting fixtures, HVAC equipment, plumbing, and fencing in or on the
Premises. The term "TRADE FIXTURES" shall mean Lessee's machinery and equipment
that can be removed without doing material damage to the Premises. The term
"ALTERATIONS" shall mean any modification of the improvements during the Lease
term, other than Utility Installations or Trade Fixtures, whether by addition or
deletion. "LESSEE OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a). See Addendum Sections 4 and 5.

                  (b) CONSENT. Lessee shall not make any Alterations or Utility
Installations to the Premises without Lessor's prior written consent, which may
be withheld in lessor's sole discretion. Lessee may, however, make
non-structural Utility Installations to the interior of the Premises (excluding
the roof) without such consent but upon notice to Lessor, as long as they are
not visible from the outside, do not involve puncturing, relocating or removing
the roof or any existing load-bearing walls, will not affect the electrical,
plumbing, HVAC, and/or life safety systems, and the cumulative cost thereof
during this Lease as extended does not exceed a sum equal to 3 month's Base Rent
in the aggregate or a sum equal to one month's Base Rent in any one year.
Notwithstanding the foregoing, Lessee shall not make or permit any roof
penetrations and/or install anything on the roof without the prior written
approval of Lessor. Lessor may, as a precondition to granting such approval,
require Lessee to utilize a contractor chosen and/or approved by Lessor. Any
Alterations or Utility Installations that Lessee shall desire to make and which
require the consent of the Lessor shall be presented to Lessor in written form
with detailed plans. Consent shall be deemed conditioned upon Lessee's: (i)
acquiring all applicable governmental permits, (ii) furnishing Lessor with
copies of both the permits and the plans and specifications prior to
commencement of the work, and (iii) compliance with all conditions of said
permits and other Applicable Requirements in a prompt and expeditious manner.
Any Alterations or Utility Installations shall be performed in a workmanlike
manner with good and sufficient materials. Lessee shall promptly upon completion
furnish Lessor with as-built plans and specifications. For work which costs an
amount in excess of one month's Base Rent, Lessor may condition its consent upon
Lessee providing a lien and completion bond in an amount equal to 150% of the
estimated cost of such Alteration or Utility Installation and/or upon Lessee's
posting an additional Security Deposit with Lessor.

                  (c) LIENS; BONDS. Lessee shall pay, when due, all claims for
labor or materials furnished or alleged to have been furnished to or at the
written direction of Lessee at or for use on the Premises, which claims are or
may be secured by any mechanic's or materialmen's lien against the Premises or
any interest therein. Lessee shall give Lessor not less than 10 days notice
prior to the commencement of any work in, on or about the Premises, and Lessor
shall have the right to post notices of non-responsibility. If Lessee shall
contest the validity of any such lien, claim or demand, then Lessee shall, at
its sole expense defend and protect itself, Lessor and the Premises against the
same and shall pay and satisfy any such adverse judgment that may be rendered
thereon before the enforcement thereof.

         7.4      OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.

                  (a) OWNERSHIP. Subject to Lessor's right to require removal or
elect ownership as hereinafter provided, all Alterations and Utility
Installations made by Lessee shall be the property of Lessee, but considered a
part of the Premises. Lessor may, at the time of lessor's consent thereto, elect
in writing to be the owner of all or any specified part of the Lessee Owned
Alterations and Utility Installations. Unless otherwise instructed per paragraph
7.4(b) hereof, all Lessee Owned Alterations and Utility Installations shall, at
the expiration or termination of this Lease, become the property of Lessor and
be surrendered by Lessee with the Premises.

                  (b) REMOVAL. By delivery to Lessee of written notice from
Lessor at the time of lessor's consent to such item Lessor may require that any
or all Lessee Owned Alterations or Utility Installations be removed by the
expiration or termination of this Lease. Lessor may require the removal at any
time of all or any part of any Lessee Owned Alterations or Utility Installations
made without the required consent. See Addendum Section 3.

                  (c) SURRENDER; RESTORATION. Lessee shall surrender the
Premises in the same condition as delivered to Lessee on the Start Date with NO
allowance for ordinary wear and tear. Lessee shall repair any damage occasioned
by the installation, maintenance or removal of Trade Fixtures, Lessee owned
Alterations and/or Utility Installations made or installed during the lease
term, furnishings, and equipment as well as the removal of any storage tank
installed by or for Lessee. Lessee shall remove from the Premises any and all
Hazardous Substances brought onto the Premises during the lease term by or at
the written direction of Lessee to the extent required by law. Trade Fixtures
shall remain the property of Lessee and shall be removed by Lessee. Any personal
property of Lessee not removed on or before the Expiration Date or any earlier
termination date shall be deemed to have been abandoned by Lessee and may be
disposed of or retained by Lessor as Lessor may desire. The failure by Lessee to
timely vacate the Premises pursuant to this Paragraph 7.4(c) without the express
written consent of Lessor shall constitute a holdover under the provisions of
Paragraph 26 below.

8.       INSURANCE; INDEMNITY.

         8.1      PAYMENT FOR INSURANCE. Lessee shall pay for all insurance
required under Paragraph 8 except to the extent of the cost attributable to
liability insurance carried by Lessor under Paragraph 8.2(b). Premiums for
policy periods commencing prior to or extending beyond the Lease term shall be
prorated to correspond to the Lease term, if applicable. Payment shall be made
by Lessee to Lessor within 10 days following receipt of an invoice, if
applicable.

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         8.2      LIABILITY INSURANCE.

                  (a) CARRIED BY LESSEE. Lessee shall obtain and keep in force a
Commercial General Liability policy of insurance protecting Lessee and Lessor as
an additional insured against claims for bodily injury, personal injury and
property damage based upon or arising out of the ownership, use, occupancy or
maintenance of the Premises and all areas appurtenant thereto. Such insurance
shall be on an occurrence basis providing single limit coverage in an amount not
less than $1,000,000 per occurrence with an annual aggregate of not less than
$2,000,000, an "Additional Insured-Managers or Lessors of Premises Endorsement"
and contain the "Amendment of the Pollution Exclusion Endorsement" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not contain
any intra-insured exclusions as between insured persons or organizations, but
shall include coverage for liability assumed under this Lease as an "insured
contract" for the performance of Lessee's indemnity obligations under this
Lease. The limits of said insurance shall not, however, limit the liability of
Lessee nor relieve Lessee of any obligation hereunder. All insurance carried by
Lessee shall be primary to and not contributory with any similar insurance
carried by Lessor, whose insurance shall be considered excess insurance only.

                  (b)      CARRIED BY LESSOR. Lessor shall maintain liability
insurance as described in Paragraph 8.2(a), in addition to, and not in lieu of,
the insurance required to be maintained by Lessee. Lessee shall not be named as
an additional insured therein.

         8.3      PROPERTY INSURANCE - BUILDING, IMPROVEMENTS AND RENTAL VALUE.

                  (a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain
and keep in force a policy or policies in the name of Lessor, with loss payable
to Lessor, any ground-lessor, and to any Lender insuring loss or damage to the
Premises (except as provided in Section 8.4(a)). The amount of such insurance
shall be equal to the full replacement cost of the Premises, as the same shall
exist from time to time, or the amount required by any Lender, but in no event
more than the commercially reasonable and available insurable value thereof. If
Lessor is the Insuring Party, however, Lessee Owned Alterations and Utility
Installations, Trade Fixtures, and Lessee's personal property shall be insured
by Lessee under Paragraph 8.4 rather than by Lessor. If the coverage is
available and commercially appropriate, such policy or policies shall insure
against all risks of direct physical loss or damage (except the perils of flood
and/or earthquake unless required by a Lender), including coverage for debris
removal and the enforcement of any Applicable Requirements requiring the
upgrading, demolition, reconstruction or replacement of any portion of the
Premises as the result of a covered loss. Said policy or policies shall also
contain an agreed valuation provision in lieu of any coinsurance clause, waiver
of subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located. If such insurance coverage has a
deductible clause, the deductible amount shall not exceed $1,000 per occurrence,
and Lessee shall be liable for such deductible amount in the event of an Insured
Loss.

                  (b) RENTAL VALUE. The Insuring Party shall obtain and keep in
force a policy or policies in the name of Lessor with loss payable to Lessor and
any Lender, insuring the loss of the full Rent for six (6) months with an
extended period of indemnity for an additional 180 days ("Rental Value
insurance"). Said insurance shall contain an agreed valuation provision in lieu
of any coinsurance clause. Lessor shall be liable for any deductible amount in
the event of such loss.

         8.4      LESSEE'S PROPERTY; INSURANCE.

                  (a) PROPERTY DAMAGE. Lessee shall obtain and maintain
insurance coverage on all of Lessee's personal property, Trade Fixtures, and
Lessee Owned Alterations and Utility Installations. Such insurance shall be full
replacement cost coverage with a commercially reasonable deductible. The
proceeds from any such insurance shall be used by Lessee for the replacement of
personal property, Trade Fixtures and Lessee Owned Alterations and Utility
Installations. Lessee shall provide Lessor with written evidence that such
insurance is in force.

                  (c) NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no
representation that the limits or forms of coverage of insurance specified
herein are adequate to cover Lessee's property, business operations or
obligations under this Lease.

         8.5      INSURANCE POLICIES. Insurance required herein shall be by
companies duly licensed or admitted to transact business in the state where the
Premises are located, and maintaining during the policy term a "General
Policyholders Rating" of at least B+, V, as set forth in the most current issue
of "Best's Insurance Guide", or such other rating as may be required by a
Lender. Lessee shall not do or permit to be done anything which invalidates the
required insurance policies. Lessee shall, prior to the Commencement Date,
deliver to Lessor certificates evidencing the existence and amounts of the
required insurance. No such policy shall be cancelable or subject to reduction
of coverage below the lease requirements except after 30 days prior written
notice to Lessor. Lessee shall, at least 10 days prior to the expiration of such
policies, furnish Lessor with evidence of renewals or "insurance binders"
evidencing renewal thereof, or upon written notice and expiration of a
reasonable cure period Lessor may order such insurance and charge the cost
thereof to Lessee, which amount shall be payable by Lessee to Lessor upon
demand. Such policies shall be for a term of at least one year, or the length of
the remaining term of this Lease, whichever is less. If either Party shall fail
to procure and maintain the insurance required to be carried by it, the other
Party may, but shall not be required to, procure and maintain the same upon
written notice and expiration of a reasonable cure period.

         8.6      WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and waive
their entire right to recover damages against the other, for loss of or damage
to its property and lost Rent arising out of or incident to the perils required
to be insured against herein. The effect of such releases and waivers is not
limited by the amount of insurance carried or required, or by any deductibles
applicable hereto. The Parties agree to have their respective property damage
insurance carriers waive any right to subrogation that such companies may have
against Lessor or Lessee, as the case may be, so long as the insurance is not
invalidated thereby.

         8.7      INDEMNITY. Except for Lessor's negligence or willful
misconduct (in which case lessor shall be responsible), Lessee shall indemnify,
protect, defend and hold harmless the Premises, Lessor and its agents, Lessor's
master or ground lessor, partners and Lenders, from and against any and all
claims, loss of rents and/or damages, liens, judgments, penalties, attorneys'
and consultants' fees, expenses and/or liabilities arising out of, involving, or
in connection with, the use and/or occupancy of the Premises by Lessee during
the lease term. If any action or proceeding is brought against Lessor by reason
of any of the foregoing matters, Lessee shall upon notice defend the same at
Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall
cooperate with Lessee in such defense. Lessor need not have first paid any such
claim in order to be defended or indemnified. See Addendum Section 6.

         8.8      EXEMPTION OF LESSOR FROM LIABILITY. Except to the extent
caused by the negligence or willful misconduct of lessor, Lessor shall not be
liable for injury or damage to the person or goods, wares, merchandise or other
property of Lessee, Lessee's employees, contractors, invitees, customers, or any
other person in the Premises, whether such damage or injury is caused
by or results from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause,
whether the said injury or damage results from conditions arising upon the
Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places. Lessor shall not be liable for any
damages arising from any act or neglect of any other tenant of Lessor.

9.       DAMAGE OR DESTRUCTION.

         9.1      DEFINITIONS.

                  (a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction
to the improvements on the Premises, other than Lessee Owned Alterations and
Utility Installations, which can reasonably be repaired in 26 months or less
from the date of the damage or destruction based upon an estimate from a
qualified contractor. Lessor shall notify Lessee in writing within 30 days from
the date of the damage or destruction as to whether or not the damage is Partial
or Total.

                  (b) "PREMISES TOTAL DESTRUCTION" shall mean damage or
destruction to the Premises, other than Lessee Owned Alterations and Utility
Installations and Trade Fixtures, which cannot reasonably be repaired in 26
months or less from the date of the damage or destruction based upon an estimate
from a qualified contractor. Lessor shall notify Lessee in writing within 30
days from the date of the damage or destruction as to whether or not the damage
is Partial or Total.

                  (c) "INSURED LOSS" shall mean damage or destruction to
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations and Trade Fixtures, which was caused by an event required to be
covered by the insurance described in Paragraph 8.3(a), irrespective of

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any deductible amounts or coverage limits involved.

                  (d) "REPLACEMENT COST" shall mean the cost to repair or
rebuild the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of Applicable Requirements, and
without deduction for depreciation.

                  (e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence
or discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises which requires repair, remediation, or restoration.

         9.2      PARTIAL DAMAGE - INSURED LOSS. If a Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect; provided, however, that Lessee shall, at
Lessor's election, make the repair of any damage or destruction the total cost
to repair of which is $10,000 or less, and, in such event, Lessor shall make any
applicable insurance proceeds available to Lessee on a reasonable basis for that
purpose. Notwithstanding the foregoing, if the required insurance was not in
force or the insurance proceeds are not sufficient to effect such repair, the
Insuring Party shall promptly contribute the shortage in proceeds (except as to
the deductible which is Lessee's responsibility) as and when required to
complete said repairs. In the event, however, such shortage was due to the fact
that, by reason of the unique nature of the improvements, full replacement cost
insurance coverage was not commercially reasonable and available, Lessor shall
have no obligation to pay for the shortage in insurance proceeds or to fully
restore the unique aspects of the Premises unless Lessee provides Lessor with
the funds to cover same, or adequate assurance thereof, within 10 days following
receipt of written notice of such shortage and request therefor. If Lessor
receives said funds or adequate assurance thereof within said 10 day period, the
party responsible for making the repairs shall complete them as soon as
reasonably possible and this Lease shall remain in full force and effect. If
such funds or assurance are not received, Lessor may nevertheless elect by
written notice to Lessee within 10 days thereafter to: (i) make such restoration
and repair as is commercially reasonable with Lessor paying any shortage in
proceeds, in which case this Lease shall remain in full force and effect, or
(ii) have this Lease terminate 30 days thereafter. Lessee shall not be entitled
to reimbursement of any funds contributed by Lessee to repair any such damage or
destruction. Premises Partial Damage due to flood or earthquake shall be subject
to Paragraph 9.3, notwithstanding that there may be some insurance coverage, but
the net proceeds of any such insurance shall be made available for the repairs
if made by either Party.

         9.3      PARTIAL DAMAGE - UNINSURED LOSS. If a Premises Partial Damage
that is not an Insured Loss occurs, unless caused by a negligent or willful act
of Lessee (in which event Lessee shall make the repairs at Lessee's expense),
Lessor may either: (i) repair such damage as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full force and
effect, or (ii) terminate this Lease by giving written notice to Lessee within
30 days after receipt by Lessor of knowledge of the occurrence of such damage.
Such termination shall be effective 30 days following the date of such notice.
In the event Lessor elects to terminate this Lease, Lessee shall have the right
within 10 days after receipt of the termination notice to give written notice to
Lessor of Lessee's commitment to pay for the repair of such damage without
reimbursement from Lessor. Lessee shall provide Lessor with said funds or
satisfactory assurance thereof within 30 days after making such commitment. In
such event this Lease shall continue in full force and effect, and Lessor shall
proceed to make such repairs as soon as reasonably possible after the required
funds are available. If Lessee does not make the required commitment, this Lease
shall terminate as of the date specified in the termination notice.

         9.4      TOTAL DESTRUCTION. Notwithstanding any other provision hereof,
if a Premises Total Destruction occurs, this Lease shall terminate 30 days
following such Destruction. If the damage or destruction was caused by the gross
negligence or willful misconduct of Lessee, Lessor shall have the right to
recover Lessor's damages from Lessee, except as provided in Paragraph 8.6.

         9.5      DAMAGE NEAR END OF TERM. If at any time during the last 36
months of this Lease there is damage for which the cost to repair exceeds one
month's Base Rent, whether or not an Insured Loss, Lessor or Lessee may
terminate this Lease effective 60 days following the date of occurrence of such
damage by giving a written termination notice within 30 days after the date of
occurrence of such damage. Notwithstanding the foregoing, if Lessee at that time
has an exercisable option to extend this Lease or to purchase the Premises, then
Lessee may preserve this Lease by, (a) exercising such option and (b) providing
Lessor with any shortage in insurance proceeds below the amount required
hereunder to be maintained by lessor (or adequate assurance thereof) needed to
make the repairs on or before the earlier of (i) the date which is 10 days after
Lessee's receipt of Lessor's written notice purporting to terminate this Lease,
or (ii) the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor's commercially reasonable expense, repair such damage as soon
as reasonably possible and this Lease shall continue in full force and effect.
If Lessee fails to exercise such option and provide such funds or assurance
during such period, then this Lease shall terminate on the date specified in the
termination notice and Lessee's option shall be extinguished.

         9.6      ABATEMENT OF RENT; LESSEE'S REMEDIES.

                  (a) ABATEMENT. In the event of Premises Partial Damage or
Premises Total Destruction or a Hazardous Substance Condition for which Lessee
is not responsible under this Lease, the Rent payable by Lessee for the period
required for the repair, remediation or restoration of such damage shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired. All other obligations of Lessee hereunder shall be performed by
Lessee, and Lessor shall have no liability for any such damage, destruction,
remediation, repair or restoration except as provided herein.

                  (b) REMEDIES. If Lessor shall be obligated to repair or
restore the Premises and does not commence, in a substantial and meaningful way,
such repair or restoration within 30 days after such obligation shall accrue,
Lessee may, at any time prior to the commencement of such repair or restoration,
give written notice to Lessor and to any Lenders of which Lessee has actual
notice, of Lessee's election to terminate this Lease on a date not less than
15 days following the giving of such notice. If Lessee gives such notice and
such repair or restoration is not commenced within 15 days thereafter, this
Lease shall terminate as of the date specified in said notice. If the repair or
restoration is commenced within such 15 days, this Lease shall continue in
full force and effect provided that Lessor diligently prosecutes the same to
completion. "Commence" shall mean either the unconditional authorization of the
preparation of the required plans, or the beginning of the actual work on the
Premises, whichever first occurs.

         9.7      TERMINATION; ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be
made concerning advance Base Rent and any other advance payments made by Lessee
to Lessor.

         9.8      WAIVE STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
with respect to the termination of this Lease and hereby waive the provisions of
any present or future statute to the extent inconsistent herewith.

10.      REAL PROPERTY TAXES. See Addendum Section 2.2.

         10.1     DEFINITION. As used herein, the term "REAL PROPERTY TAXES"
shall include any form of assessment; real estate, general, special, ordinary or
extraordinary, or rental levy or tax (other than inheritance, personal income or
estate taxes); improvement bond; and/or license fee imposed upon or levied
against any legal or equitable interest of Lessor in the Premises or the
Project, Lessor's right to other income therefrom, and/or Lessor's business of
leasing, by any authority having the direct or indirect power to tax and where
the funds are generated with reference to the Building address and where the
proceeds so generated are to be applied by the city, county or other local
taxing authority of a jurisdiction within which the Premises are located. Real
Property Taxes shall also include any tax, fee, levy, assessment or charge, or
any increase therein: (i) imposed by reason of events occurring during the term
of this Lease, including but not limited to, a change in the ownership of the
Premises, and (ii) levied or assessed on machinery or equipment provided by
Lessor to Lessee pursuant to this Lease.

         10.2     PAYMENT OF TAXES. In addition to Base Rent, Lessee shall pay
to Lessor an amount equal to the Real Property Tax installment concurrently with
Operating Expenses payable hereunder. If any such installment shall cover any
period of time prior to or after the expiration or termination of this Lease,
Lessee's share of such installment shall be prorated.

         10.3     JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be reasonably determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available.

         10.4     PERSONAL PROPERTY TAXES. Lessee shall pay, prior to
delinquency, all taxes assessed against and levied upon Lessee Owned
Alterations, Utility Installations, Trade Fixtures, furnishings, equipment and
all personal property of Lessee. When possible, Lessee shall cause its Lessee
Owned Alterations and Utility Installations, Trade Fixtures, furnishings,
equipment and all other personal property to be assessed and billed separately
from the real property of Lessor. If any of Lessee's said property shall be
assessed with Lessor's real property, Lessee shall pay Lessor the taxes
attributable to Lessee's property within 30 days after receipt of a written
statement setting forth the taxes applicable to Lessee's property.

11.      UTILITIES AND SERVICES. Lessee shall pay for all water, gas, heat,
light, power, telephone, trash disposal and other utilities and services
supplied to the Premises, together with any taxes thereon. If any such services
are not separately metered or billed to Lessee, Lessee shall pay a reasonable
proportion, to be determined by Lessor, of all charges jointly metered or
billed. There shall be no abatement of rent and Lessor shall not be liable in
any respect whatsoever for the inadequacy, stoppage, interruption or
discontinuance of any utility or service due to riot, strike, labor dispute,
breakdown, accident, repair

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or other cause beyond Lessor's reasonable control or in cooperation with
governmental request or directions. See Addendum Section 7.

12.      ASSIGNMENT AND SUBLETTING.

         12.1     LESSOR'S CONSENT REQUIRED.

                  (a) Lessee shall not voluntarily or by operation of law
assign, transfer, mortgage or encumber (collectively, "ASSIGN OR ASSIGNMENT") or
sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent, which may be withheld in lessor's sole
discretion.

                  (b) Intentionally Deleted

                  (c) Intentionally Deleted

                  (d) An assignment or subletting without consent shall, at
Lessor's option, be a Default curable after notice per Paragraph 13.1(c).

                  (e) Lessee's remedy for any breach of Paragraph 12.1 by Lessor
shall be limited to compensatory damages and/or injunctive relief.

         12.2     Intentionally Omitted

         12.3     ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:

                  (a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all Rent payable on any sublease, and Lessor may collect
such Rent and apply same toward Lessee's obligations under this Lease; provided,
however, that until a Breach shall occur in the performance of Lessee's
obligations, Lessee may collect said Rent. In the event that the amount
collected by Lessor exceeds Lessee's obligations any such excess shall be
refunded to Lessee. Lessor shall not, by reason of the foregoing or any
assignment of such sublease, nor by reason of the collection of Rent, be deemed
liable to the sublessee for any failure of Lessee to perform and comply with any
of Lessee's obligations to such sublessee. Lessee hereby irrevocably authorizes
and directs any such sublessee, upon receipt of a written notice from Lessor
stating that a Breach exists in the performance of Lessee's obligations under
this Lease, to pay to Lessor all Rent due and to become due under the sublease.
Sublessee shall rely upon any such notice from Lessor and shall pay all Rents to
Lessor without any obligation or right to inquire as to whether such Breach
exists, notwithstanding any claim from Lessee to the contrary.

                  (b) In the event of a Breach by Lessee, Lessor may, at its
option, require sublessee to attorn to Lessor, in which event Lessor shall
undertake the obligations of the sublessor under such sublease from the time of
the exercise of said option to the expiration of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to such sublessor or for any prior Defaults or Breaches
of such sublessor.

                  (c) Any matter requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor.

                  (d) No sublessee shall further assign or sublet all or any
part of the Premises without Lessor's prior written consent.

                  (e) Lessor shall deliver a copy of any notice of Default or
Breach by Lessee to the sublessee, who shall have the right to cure the Default
of Lessee within the grace period, if any, specified in such notice.

13.      DEFAULT; BREACH; REMEDIES. See Addendum Section 6.

         13.1     DEFAULT; BREACH. A "DEFAULT" is defined as a failure by the
Lessee to comply with or perform any of the terms, covenants, conditions or
Rules and Regulations under this Lease. A "BREACH" is defined as the occurrence
of one or more of the following Defaults, and the failure of Lessee to cure such
Default within any applicable grace period:

                  (a) The abandonment of the Premises; or the vacating of the
Premises, in either case, without providing a commercially reasonable level of
security, or where the coverage of the property insurance described in Paragraph
8.3 is jeopardized as a result thereof, or without providing reasonable
assurances to minimize potential vandalism.

                  (b) The failure of Lessee to make any payment of Rent required
to be made by Lessee hereunder, within five (5) days after notice the same is
due, to provide reasonable evidence of insurance or surety bond, or to fulfill
any obligation under this Lease which endangers or threatens life or property,
where such failure continues for a period of 103 business days following written
notice to Lessee.

                  (c) The failure by Lessee to provide (i) reasonable written
evidence of compliance with Applicable Requirements, (ii) the service contracts,
(iii) the rescission of an unauthorized assignment or subletting, (iv) an
Estoppel Certificate, (v) a requested subordination per the terms hereof, (vi)
evidence concerning any guaranty and/or Guarantor, (vii) any document requested
under Paragraph 42, (viii) material safety data sheets (MSDS), or (ix) any other
documentation or information which Lessor may reasonably require of Lessee under
the terms of this Lease, where any such failure continues for a period of 10
business days following written notice to Lessee.

                  (d) A Default by Lessee as to the terms, Covenants, conditions
or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
other than those described in subparagraphs 13.1 (a). (b) or (c), above, where
such Default continues for a period of 30 days after written notice; provided,
however, that if the nature of Lessee's Default is such that more than 30 days
are reasonably required for its cure, then it shall not be deemed to be a Breach
if Lessee commences such cure within said 30 day period and thereafter
diligently prosecutes such cure to completion.

                  (e) The occurrence of any of the following events: (i) the
making of any general arrangement or assignment for the benefit of creditors;
(ii) becoming a "DEBTOR" as defined in 11 U.S.C. Section 101 or any Successor
statute thereto(unless, in the case of a petition filed against Lessee, the same
is  dismissed within 60 days); (iii) the appointment of a trustee or receiver
to take possession of substantially all of Lessee's assets located at the
Premises or of Lessee's interest in this Lease, where possession is not restored
to Lessee within 30 days; or (iv) the attachment, execution or other judicial
seizure of substantially all of Lessee's assets located at the Premises or of
Lessee's interest in this Lease, where such seizure is not discharged within 30
days; provided, however, in the event that any provision of this subparagraph
(e) is contrary to any applicable law, such provision shall be of no force or
effect, and not affect the validity of the
remaining provisions.

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         13.2     REMEDIES. If Lessee fails to perform any of its affirmative
duties or obligations, within 10 days after written notice (or in case of an
emergency, without notice), Lessor may, at its option, perform such duty or
obligation on Lessee's behalf, including but not limited to the obtaining of
reasonably required bonds, insurance policies, or governmental licenses, permits
or approvals. Lessee shall pay to Lessor an amount equal to 115% of the costs
and expenses incurred by Lessor in such performance within ten (10) business
days of an invoice therefor. In the event of a Breach, Lessor may, with or
without further notice or demand, and without limiting Lessor in the exercise of
any right or remedy which Lessor may have by reason of such Breach:

                  (a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession to Lessor. In such event Lessor shall be
entitled to recover from Lessee: (i) the unpaid Rent which had been earned at
the time of termination; (ii) the worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss that the Lessee proves
could have been reasonably avoided; (iii) the worth at the time of award of the
amount by which the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom. The worth at the time of award of the amount
referred to in provision (iii) of the immediately preceding sentence shall be
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of the District within which the Premises are located at the time of award
plus one percent. Efforts by Lessor to mitigate damages caused by Lessee's
Breach of this Lease shall not waive Lessor's right to recover damages under
Paragraph 12. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such
proceeding any unpaid Rent and damages as are recoverable therein, or Lessor may
reserve the right to recover all or any part thereof in a separate suit. If a
notice and grace period required under Paragraph 13.1 was not previously given,
a notice to pay rent or quit, or to perform or quit given to Lessee under the
unlawful detainer statute shall also constitute the notice required by Paragraph
13.1. In such case, the applicable grace period required by Paragraph 13.1 and
the unlawful detainer statute shall run concurrently, and the failure of Lessee
to cure the Default within the greater of the two such grace periods shall
constitute both an unlawful detainer and a Breach of this Lease entitling Lessor
to the remedies provided for in this Lease and/or by said statute.

                  (b) Continue the Lease and Lessee's right to possession and
recover the Rent as it becomes due, in which event Lessee may sublet or assign,
subject only to reasonable limitations. Acts of maintenance, efforts to relet,
and/or the appointment of a receiver to protect the Lessor's interests, shall
not constitute a termination of the Lessee's right to possession.

                  (c) Pursue any other remedy now or hereafter available under
the laws or judicial decisions of the state wherein the Premises are located.
The expiration or termination of this Lease and/or the termination of Lessee's
right to possession shall not relieve Lessee from liability under any indemnity
provisions of this Lease as to matters occurring or accruing during the term
hereof or by reason of Lessee's occupancy of the Premises.

         13.3     Intentionally Deleted.

         13.4     LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease,
the exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to, processing and accounting charges, and late
charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent
shall not be received by Lessor within 105 days after receipt of written notice
that such amount is due, then, Lessee shall immediately pay to Lessor a
one-time late charge equal to 3% of each such overdue amount or $100, whichever
is greater. The Parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of such late
payment. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent the exercise of any of the other rights and remedies granted hereunder.

         13.5     INTEREST. Any monetary payment due Lessor hereunder, other
than late charges, not received by Lessor, when due as to scheduled payments
(such as Base Rent) or within 30 days following the date on which it was due for
non-scheduled payment, shall bear interest from the date when due, as to
scheduled payments, or the 31st day after it was due as to non-scheduled
payments. The interest ("INTEREST") charged shall be computed at the rate of 10%
per annum but shall not exceed the maximum rate allowed by law. Interest is
payable in addition to the potential late charge provided for in Paragraph 13.4.

         13.6     BREACH BY LESSOR.

                  (a) NOTICE OF BREACH. Lessor shall not be deemed in breach of
this Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph, a reasonable
time shall in no event exceed 30 days after receipt by Lessor, and any Lender
whose name and address shall have been furnished Lessee in writing for such
purpose, of written notice specifying wherein such obligation of Lessor has not
been performed; provided, however, that if the nature of Lessor's obligation is
such that more than 30 days are reasonably required for its performance, then
Lessor shall not be in breach if performance is commenced within such 30 day
period and thereafter diligently pursued to completion.

                  (b) PERFORMANCE BY LESSEE ON BEHALF OF LESSOR. In the event
that neither Lessor nor Lender cures said breach within 30 days after receipt of
said notice, or if having commenced said cure they do not diligently pursue it
to completion, then Lessee may elect to cure said breach at Lessee's expense and
offset from Rent the actual and reasonable cost to perform such cure, provided
however, that such offset shall not exceed an amount equal to three (3) month's
Base Rent, reserving Lessee's right to seek reimbursement from Lessor. Lessee
shall document the cost of said cure and supply said documentation to Lessor.

14.      CONDEMNATION. If the Premises or any portion thereof are taken under
the power of eminent domain or sold under the threat of the exercise of said
power (collectively "CONDEMNATION"), this Lease shall terminate as to the part
taken as of the date the condemning authority takes title or possession,
whichever first occurs. If more than 10% of the Building, or more than 25% of
that portion of the Premises not occupied by any building (including the parking
area) or so much of the parking area as to reduce parking level below legal
requirements is taken by Condemnation, Lessee may, at Lessee's option, to be
exercised in writing within 10 days after Lessor shall have given Lessee written
notice of such taking (or in the absence of such notice, within 10 days after
the condemning authority shall have taken possession) terminate this Lease as of
the date the condemning authority takes such possession. If Lessee does not
terminate this Lease in accordance with the foregoing, this Lease shall remain
in full force and effect as to the portion of the Premises remaining, except
that the Base Rent shall be reduced in proportion to the reduction in utility of
the Premises caused by such Condemnation. Condemnation awards and/or payments
shall be the property of Lessor, whether such award shall be made as
compensation for diminution in value of the leasehold, the value of the part
taken, or for severance damages; provided, however, that Lessee shall be
entitled to any compensation for Lessee's relocation expenses, loss of business
goodwill and/or Trade Fixtures, without regard to whether or not this Lease is
terminated pursuant to the provisions of this Paragraph. All Alterations and
Utility Installations made to the Premises by Lessee, for purposes of
Condemnation only, shall be considered the property of the Lessee and Lessee
shall be entitled to any and all compensation which is payable therefor. In the
event that this Lease is not terminated by reason of the Condemnation, Lessor
shall repair any damage to the Premises caused by such Condemnation.

15.      BROKERAGE FEES.

Lessee and Lessor each represent and warrant to the other that it has

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had no dealings with any person, firm, broker or finder (other than the Brokers,
if any) in connection with Lease, and that no one other than said named Brokers
is entitled to any commission or finder's fee in connection herewith. Lessee and
Lessor do each hereby agree to indemnify, protect, defend and hold the other
harmless from and against liability for compensation or charges which may be
claimed by any such unnamed broker, finder or other similar party by reason of
any dealings or actions of the indemnifying Party, including any costs,
expenses, attorneys' fees reasonably incurred with respect thereto.

16.      ESTOPPEL CERTIFICATES.

                  (a) Each Party (as "RESPONDING PARTY") shall within 10 days
after written notice from the other Party (the "REQUESTING PARTY") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "ESTOPPEL CERTIFICATE" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.

                  (b) If the Responding Party shall fail to execute or deliver
the Estoppel Certificate within such 10 day period, the Requesting Party may
execute an Estoppel Certificate stating that: (i) the Lease is in full force and
effect without modification except as may be represented by the Requesting
Party, (ii) there are no uncured defaults in the Requesting Party's performance,
and (iii) if Lessor is the Requesting Party, not more than one month's rent has
been paid in advance. Prospective purchasers and encumbrancers may rely upon the
Requesting Party's Estoppel Certificate, and the Responding Party shall be
estopped from denying the truth of the facts contained in said Certificate.

17.      DEFINITION OF LESSOR. The term "LESSOR" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises, or, if
this is a sublease, of the Lessee's interest in the prior lease. In the event of
a transfer of Lessor's title or interest in the Premises or this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor. Except as provided in Paragraph 15, upon such
transfer or assignment and delivery of the Security Deposit, as aforesaid, the
prior Lessor shall be relieved of all liability with respect to the obligations
and/or covenants under this Lease thereafter to be performed by the Lessor.
Subject to the foregoing, the obligations and/or covenants in this Lease to be
performed by the Lessor shall be binding only upon the Lessor as hereinabove
defined.

18.      SEVERABILITY. The invalidity of any provision of this LEASE, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.

19.      DAYS. Unless otherwise specifically indicated to the contrary, the word
"days" as used in this Lease shall mean and refer to calendar days.

20.      LIMITATION ON LIABILITY. The obligations of Lessor under this Lease
shall not constitute personal obligations of Lessor or its partners, members,
directors, officers or shareholders. The Obligations of Lessee under this LEASE
shall not constitute personal obligations of Lessee's partners, members,
directors, officers or shareholders. Lessee shall look to the Premises, and to
no other assets of Lessor, for the satisfaction of any liability of Lessor with
respect to this Lease, and shall not seek recourse against Lessor's partners,
members, directors, officers or shareholders, or any of their personal assets
for such satisfaction. See Addendum Section 9.

21.      TIME OF ESSENCE. Time is of the essence with respect
to the performance of all obligations to be performed or observed by the Parties
under this Lease.

22.      NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains
all agreements between the Parties with respect to any matter mentioned herein,
and no other prior or contemporaneous agreement or understanding shall be
effective. Lessor and Lessee each represents and warrants to the Brokers that it
has made, and is relying solely upon, its own investigation as to the nature,
quality, character and financial responsibility of the other Party to this Lease
and as to the use, nature, quality and character of the Premises. Brokers have
no responsibility with respect thereto or with respect to any default or breach
hereof by either Party. The liability (including court costs and attorneys'
fees), of any Broker with respect to negotiation, execution, delivery or
performance by either Lessor or Lessee under this Lease or any amendment or
modification hereto shall be limited to an amount up to the fee received by such
Broker pursuant to this Lease; provided, however, that the foregoing limitation
on each Broker's liability shall not be applicable to any negligence or willful
misconduct of such Broker.

23.      NOTICES.

         23.1     NOTICE REQUIREMENTS. All notices required or permitted by this
Lease or applicable law shall be in writing and may be delivered in person (by
hand or by courier) or may be sent by, certified or registered mail or U.S.
Postal Service Express Mail, with postage prepaid, or by facsimile transmission,
and shall be deemed sufficiently given if served in a manner specified in this
Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease
shall be that Party's address for delivery or mailing of notices. Either Party
may by written notice to the other specify a different address for notice. A
copy of all notices to Lessor shall be concurrently transmitted to such party or
parties at such addresses as Lessor may from time to time hereafter designate in
writing.

         23.2     DATE OF NOTICE. Any notice sent by registered or certified
mail, return receipt requested, shall be deemed given on the date of delivery
shown on the receipt card, or if no delivery date is shown, the postmark
thereon. Notices delivered by United States Express Mail or overnight courier
that guarantee next day delivery shall be deemed given 1 business day after
delivery of the same to the Postal Service or courier. Notices transmitted by
facsimile transmission or similar means shall be deemed delivered upon telephone
confirmation of receipt (confirmation report from fax machine is sufficient),
provided a copy is also delivered via delivery or mail. If notice is received on
a Saturday, Sunday or legal holiday, it shall be deemed received on the next
business day.

24.      WAIVERS. No waiver by Lessor or Lessee of the default or breach of any
term, covenant or condition hereof by the other party, shall be deemed a waiver
of any other term, covenant or condition hereof, or of any subsequent Default or
Breach by the other party of the same or of any other term, covenant or
condition hereof. Lessor's consent to, or approval of, any act shall not be
deemed to render unnecessary the obtaining of Lessor's consent to, or approval
of, any subsequent or similar act by Lessee, or be construed as the basis of an
estoppel to enforce the provision or provisions of this Lease requiring such
consent. The acceptance of Rent by Lessor shall not be a waiver of any Default
or Breach by Lessee. Any payment by Lessee may be accepted by Lessor on account
of moneys or damages due Lessor, notwithstanding any qualifying statements or
conditions made by Lessee in connection therewith, which such statements and/or
conditions shall be of no force or effect whatsoever unless specifically agreed
to in writing by Lessor at or before the time of deposit of such payment.

25.      DISCLOSURES REGARDING THE NATURE OF A REAL ESTATE AGENCY RELATIONSHIP.

                  (a)      When entering into a discussion with a real estate
agent regarding a real estate transaction, a Lessor or Lessee should from the
outset understand what type of agency relationship or representation it has with
the agent or agents in the transaction. Lessor and Lessee acknowledge being
advised by the Brokers in this transaction, as follows:

                           (i)      Lessor's Agent. A Lessor's agent under a
listing agreement with the Lessor acts as the agent for the Lessor only. A
Lessor's agent or subagent has the following affirmative obligations: To the
Lessor: A fiduciary duty of utmost care, integrity, honesty, and loyalty in
dealings with the Lessor. To the Lessee and the Lessor: a. Diligent exercise of
reasonable skills and care in performance of the agent's duties. b. A duty of
honest and fair dealing and good faith. c. A duty to disclose all facts known to
the agent materially affecting the value or desirability of the property that
are not known to, or within the diligent attention and observation of, the
Parties. An agent is not obligated to reveal to either Party any confidential
information obtained from the other Party which does not involve the affirmative
duties set forth above.

                           (ii)     Lessee's Agent. An agent can agree to act as
agent for the Lessee only. In these situations, the agent is not the Lessor's
agent, even if by agreement the agent may receive compensation for services
rendered, either in full or in part from the Lessor. An agent acting only for a
Lessee has the following affirmative obligations. To the Lessee: A fiduciary
duty of utmost care, integrity, honesty, and loyalty in dealings with the
Lessee. To the Lessee and the Lessor: a. Diligent exercise of reasonable skills
and care in performance of the agent's duties. b. A duty of honest and fair
dealing and good faith. c. A duty to disclose all facts known to the agent
materially affecting the value or desirability of the property that are not
known to, or within the diligent attention and observation of, the Parties. An
agent is not obligated to reveal to either Party any confidential information
obtained from the other Party which does not involve the affirmative duties set
forth above.

                           (iii)    Agent Representing Both Lessor and Lessee. A
real estate agent, either acting directly or through one or more associate
licenses, can legally be the agent of both the Lessor and the Lessee in a
transaction, but only with the knowledge and consent of both the Lessor and the
Lessee. In a dual agency situation, the agent has the following affirmative
obligations to both the Lessor and the Lessee: a. A fiduciary duty of utmost
care, integrity, honesty and loyalty in the dealings with either Lessor or the
Lessee, b. Other duties to the Lessor and the Lessee as stated above in
subparagraphs (i) or (ii). In representing both Lessor and Lessee, the agent may
not without the express permission of the respective Party, disclose to the

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other Party that the Lessor will accept rent in an amount less than that
indicated in the listing or that the Lessee is willing to pay a higher rent than
that offered. The above duties of the agent in a real estate transaction do not
relieve a Lessor or Lessee from the responsibility to protect their own
interests. Lessor and Lessee should carefully read all agreements to assure that
they adequately express their understanding of the transaction. A real estate
agent is a person qualified to advise about real estate. If legal or tax advice
is desired, consult a competent professional.

                  (b)      Brokers have no responsibility with respect to any
default or breach hereof by either Party. The liability (including court costs
and attorneys' fees), of any Broker with respect to any breach of duty, error or
omission relating to this Lease shall not exceed the fee received by such Broker
pursuant to this Lease; provided, however, that the foregoing limitation on each
Broker's liability shall not be applicable to any negligence or willful
misconduct of such Broker.

26.      NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or termination of this Lease.
In the event that Lessee holds over, then the Base Rent shall be increased to
150% of the Base Rent applicable immediately preceding the expiration or
termination. Nothing contained herein shall be construed as consent by Lessor to
any holding over by Lessee.

27.      CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.

28.      COVENANTS AND CONDITIONS; CONSTRUCTION OF AGREEMENT. All provisions of
this Lease to be observed or performed by Lessee are both covenants and
conditions. In construing this Lease, all headings and titles are for the
convenience of the Parties only and shall not be considered a part of this
Lease. Whenever required by the context, the singular shall include the plural
and vice versa. This Lease shall not be construed as if prepared by one of the
Parties, but rather according to its fair meaning as a whole, as if both Parties
had prepared it.

29.      BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
Parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.

30.      SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.

         30.1     SUBORDINATION. Subject to the provisions of Paragraph 30.3
below, This Lease and any Option granted hereby shall be subject and subordinate
to any ground lease, mortgage, deed of trust, or other hypothecation or security
device (collectively, "SECURITY DEVICE"), now or hereafter placed upon the
Premises, to any and all advances made on the security thereof, and to all
renewals, modifications, and extensions thereof. Lessee agrees that the holders
of any such Security Devices (in this Lease together referred to as "LENDER")
shall have no liability or obligation to perform any of the obligations of
Lessor under this Lease until such time as such holders succeed to Lessor's
interest hereunder. Any Lender may elect to have this Lease and/or any Option
granted hereby superior to the lien of its Security Device by giving written
notice thereof to Lessee, whereupon this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.

         30.2     ATTORNMENT. In the event that Lessor transfers title to the
Premises, or the Premises are acquired by another upon the foreclosure or
termination of a Security Device to which this Lease is subordinated (i) Lessee
shall, subject to the non-disturbance provisions of Paragraph 30.3, attorn to
such new owner, and upon request, enter into a new lease, containing all of the
terms and provisions of this Lease, with such new owner for the remainder of the
term hereof, or, at the election of such new owner, this Lease shall
automatically become a new Lease between Lessee and such new owner, upon all of
the terms and conditions hereof, for the remainder of the term hereof, and (ii)
Lessor shall thereafter be relieved of any further obligations hereunder
provided that such new owner shall assume all of Lessor's obligations hereunder.

         30.3     NON-DISTURBANCE. With respect to Security Devices entered into
by Lessor after the execution of this Lease, Lessee's subordination of this
Lease shall be subject to receiving a commercially reasonable non-disturbance
agreement (a "NON-DISTURBANCE AGREEMENT") from the Lender which Non-Disturbance
Agreement provides that Lessee's possession of the Premises, and this Lease,
including any options to extend the term hereof, will not be disturbed so long
as Lessee is not in Breach hereof and attorns to the record owner of the
Premises. Further, within 10 days after the execution of this Lease, Lessor
shall obtain a Non-Disturbance Agreement from the holder of any pre-existing
Security Device which is secured by the Premises.

         30.4     SELF-EXECUTING. The agreements contained in this Paragraph 30
shall be effective without the execution of any further documents; provided,
however, that, upon written request from Lessor or a Lender in connection with a
sale, financing or refinancing of the Premises, Lessee and Lessor shall execute
such further writings as may be reasonably required to separately document any
subordination, attornment and/or Non-Disturbance Agreement provided for herein.

31.      ATTORNEYS' FEES. If any Party brings an action or proceeding involving
the Premises whether founded in tort, contract or equity, or to declare rights
hereunder, the Prevailing Party (as hereafter defined) in any such proceeding,
action, or appeal thereon, shall be entitled to reasonable attorneys' fees. Such
fees may be awarded in the same suit Or recovered in a separate suit, whether or
not such action or proceeding is pursued to decision or judgment. The term,
"PREVAILING PARTY" shall include, without limitation, a Party who substantially
obtains or defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other Party of its claim or
defense. The attorneys' fees award shall not be computed in accordance with any
court fee schedule, but shall be such as to fully reimburse all attorneys' fees
reasonably incurred. In addition, Lessor shall be entitled to attorneys' fees,
costs and expenses incurred in the preparation and service of proper notices of
Default and consultations in connection therewith, whether or not a legal action
is subsequently commenced in connection with such Default or resulting Breach
($200 is a reasonable minimum per occurrence for such services and
consultation).

32.      LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times after reasonable prior notice for
the purpose of showing the same to prospective purchasers, lenders, or tenants,
and making such alterations, repairs, improvements or additions to the Premises
as Lessor may deem necessary or desirable and the erecting, using and
maintaining of utilities, services, pipes and conduits through the Premises
and/or other premises as long as there is no (and landlord shall use
commercially reasonable efforts to avoid any) adverse effect to Lessee's use of
the Premises. All such activities shall be without abatement of rent or
liability to Lessee.

33.      AUCTIONS. Lessee shall not conduct, nor permit to be conducted, any
auction upon the Premises without Lessor's prior written consent. Lessor shall
not be obligated to exercise any standard of reasonableness in determining
whether to permit an auction.

34.      SIGNS. Lessor may place on the Premises ordinary "For Sale" signs at
any time and ordinary "For Lease" signs during the last 6 months of the term
hereof. Except for ordinary "for sublease" signs, Lessee shall not place any
sign upon the Premises without Lessor's prior written consent. All signs must
comply with all Applicable Requirements. See Addendum Section 5.

35.      TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, that Lessor may elect to continue any one or all
existing subtenancies. Lessor's failure within 10 days following any such event
to elect to the contrary by written notice to the holder of any such lesser
interest, shall constitute Lessor's election to have such event constitute the
termination of such interest.

36.      CONSENTS. Except as otherwise provided herein, wherever in this Lease
the consent of a Party is required to an act by or for the other Party, such
consent shall not be unreasonably withheld or delayed. Lessor's actual
reasonable costs and expenses (including but not limited to architects',
attorneys', engineers' and other consultants' fees) incurred in the
consideration of, or response to, a request by Lessee for any Lessor consent,
including but not limited to consents to an assignment, a subletting or the
presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt
of an invoice and supporting documentation therefor. Lessor's consent to any
act, assignment or subletting shall not constitute an acknowledgment that no
Default or Breach by Lessee of this Lease exists, nor shall such consent be
deemed a waiver of any then existing Default or Breach, except as may be
otherwise specifically stated in writing by Lessor at the time of such consent.
The failure to specify herein any particular condition to Lessor's consent shall
not preclude the imposition by Lessor at the time of consent of such further or
other conditions as are then reasonable with reference to the particular matter
for which consent is being given. In the event that either Party disagrees with
any determination made by the other hereunder and reasonably requests the
reasons for such determination, the determining party shall furnish its reasons
in writing and in reasonable detail within 10 business days following such
request.

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REAL ESTATE ASSOCIATION             REVISED                     FORM STN-7-4/01E

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37.      GUARANTOR.

         37.1     EXECUTION. The Guarantors, if any, shall each execute a
guaranty in the form most recently published by the American Industrial Real
Estate Association, and each such Guarantor shall have the same obligations as
Lessee under this Lease.

         37.2     DEFAULT. It shall constitute a Default of the Lessee if any
Guarantor fails or refuses, upon request to provide: (a) evidence of the
execution of the guaranty, including the authority of the party signing on
Guarantor's behalf to obligate Guarantor, and in the case of a corporate
Guarantor, a certified copy of a resolution of its board of directors
authorizing the making of such guaranty, (b) current financial statements, (c)
an Estoppel Certificate, or (d) written confirmation that the guaranty is still
in effect.

38.      QUIET POSSESSION. Subject to payment by Lessee of the Rent and
performance of all of the covenants, conditions and provisions on Lessee's part
to be observed and performed under this Lease, Lessee shall have quiet
possession and quiet enjoyment of the Premises during the term hereof.

39.      OPTIONS. If Lessee is granted an Option, as defined below, then the
following provisions shall apply: See Addendum Section 8.

         39.1     DEFINITION. "OPTION" shall mean: (a) the right to extend the
term of or renew this Lease or to extend or renew any lease that Lessee has on
other property of Lessor; (b) the right of first refusal or first offer to lease
either the Premises or other property of Lessor; (c) the right to purchase or
the right of first refusal to purchase the Premises or other property of Lessor.

         39.2     Intentionally Deleted

         39.3     MULTIPLE OPTIONS. In the event that Lessee has any multiple
Options to extend or renew this Lease, a later Option cannot be exercised unless
the prior Options have been validly exercised.

         39.4     EFFECT OF DEFAULT ON OPTIONS.

                  (a) Lessee shall have no right to exercise an Option: (i)
during the period commencing with the giving of any notice of Default and
continuing until said Default is cured, (ii) during the period of time any Rent
is unpaid (without regard to whether notice thereof is given Lessee), or (iii)
during the time Lessee is in Breach of this Lease.

                  (b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39 4(a).

40.      Intentionally Deleted

41.      SECURITY MEASURES. Lessee hereby acknowledges that the Rent payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.

42.      RESERVATIONS. Lessor reserves to itself the right, from time to time,
to grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.

43.      PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment and there shall survive the right
on the part of said Party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said Party
to pay such sum or any part thereof, said Party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay.

44.      AUTHORITY; MULTIPLE PARTIES; EXECUTION.

                  (a)      If either Party hereto is a corporation, trust,
limited liability company, partnership, or similar entity, such entity
represents and warrants that the parties executing this lease are duly
authorized to execute and deliver this Lease on its behalf. Each party shall,
within 30 days after request, deliver to the other party satisfactory evidence
of such authority.

                  (b)      If this Lease is executed by more than one person or
entity as "Lessee", each such person or entity shall be jointly and severally
liable hereunder. It is agreed that any one of the named Lessees shall be
empowered to execute any amendment to this Lease, or other document ancillary
thereto and bind all of the named Lessees, and Lessor may rely on the same as if
all of the named Lessees had executed such document.

                  (c)      This Lease may be executed by the Parties in
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.

45.      CONFLICT. Any conflict between the printed provisions of this Lease and
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.

46.      OFFER. Preparation of this Lease by either Party or their agent and
submission of same to the other Party shall not be deemed an offer to lease to
the other Party. This Lease is not intended to be binding until executed and
delivered by all Parties hereto.

47.      AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. As long as Lessee
determines they do not change Lessee's obligations hereunder, Lessee agrees to
make such reasonable non-monetary modifications to this Lease as may be
reasonably required by a Lender in connection with the obtaining of normal
financing or refinancing of the Premises.

48.      WAIVER OF JURY TRIAL. THE PARTIES HEREBY WAIVE THEIR RESPECTIVE RIGHTS
TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING INVOLVING THE PROPERTY OR ARISING
OUT OF THIS AGREEMENT.

49.      MEDIATION AND ARBITRATION OF DISPUTES. An Addendum requiring the
Mediation and/or the Arbitration of all disputes between the Parties and/or
Brokers arising out of this Lease [ ] IS [X] IS NOT attached to this Lease.

50.      AMERICANS WITH DISABILITIES ACT. Since compliance with the Americans
with Disabilities Act (ADA) is dependent upon Lessee's specific use of the
Premises, Lessor makes no warranty or representation as to whether or not the
Premises comply with ADA or any similar legislation. In the event that any
governmental agency determines that Lessee's specific use of the Premises
requires modifications or additions to the Premises in order to be in ADA
compliance, Lessee agrees to make any such necessary modifications and/or
additions at Lessee's expense.

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REAL ESTATE ASSOCIATION             REVISED                     FORM STN-7-4/01E

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LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.

ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT
RELATES. THE PARTIES ARE URGED TO:

1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.

2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE
PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE
PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE STRUCTURAL
INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE SUITABILITY
OF THE PREMISES FOR LESSEE'S INTENDED USE.

WARNING: IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN
PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE
STATE IN WHICH THE PREMISES IS LOCATED.

The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.

Executed at: _________________________   Executed at: __________________________
on: February 24, 2004                    on: February 24, 2004

By LESSOR:                               By LESSEE:
LBA Industrial Fund - Canyon, Inc.,      Ashworth, Inc .,
a Delaware  corporation                  a Delaware  corporation

By: /s/ STEVEN R. LAYTON                 By: /s/ PETER CASE
    ----------------------------------       -----------------------------------
Name Printed: STEVEN R. LAYTON           Name Printed: PETER CASE
Title: AUTHORIZED SIGNATORY              Title: V P FINANCE

By: __________________________________   By: ___________________________________
Name Printed: ________________________   Name Printed: _________________________
Title: _______________________________   Title: ________________________________
Address: _____________________________   Address: ______________________________
______________________________________   _______________________________________
Telephone/Facsimile: _________________   Telephone/Facsimile: __________________
Federal ID No. _______________________   Federal ID No. ________________________

BROKER:                                  BROKER:

______________________________________   _______________________________________
______________________________________   _______________________________________
Attn: ________________________________   Attn: _________________________________
Title:________________________________   Title: ________________________________
Address: _____________________________   Address: ______________________________
______________________________________   _______________________________________
Telephone/Facsimile: _________________   Telephone/Facsimile: __________________
Federal ID No. d_____________________    Federal ID No. ________________________

NOTE: These forms are often modified to meet the changing requirements of law
      and industry needs. Always write or call to make sure you are utilizing
      the most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700
      So. Flower Street, Suite 600, Los Angeles, California 90017. (213)
      687-8777. Fax No. (213) 687-8616

(C) COPYRIGHT 1997 - BY AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION. ALL RIGHTS
     RESERVED. NO PART OF THESE WORKS MAY BE REPORDUCED IN ANY FORM WITHOUT
                             PERMISSION IN WRITING.

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                                ADDENDUM TO LEASE

         This ADDENDUM TO LEASE ("ADDENDUM") is made by and between LBA
INDUSTRIAL FUND - CANYON, INC., a Delaware corporation ("LESSOR"), and ASHWORTH,
INC., a Delaware corporation ("LESSEE"), and is intended to supplement that
certain printed form Standard Industrial/Commercial Single-Tenant Lease-Net
between Lessor and Lessee dated, for reference purposes only, February 24, 2004
to which this Addendum is annexed. All references to the "Lease" shall be deemed
to include this Addendum unless reference is made to a specific Paragraph of the
printed form or the context indicates otherwise. Any word or phrases defined in
the printed form shall have the same meaning when used in this Addendum. If
there is any inconsistency between this Addendum and the printed form, the terms
of this Addendum shall supersede and control. Lessor and Lessee agree as
follows:

         1.       LEASE TERM/COMMENCEMENT DATE. The term "COMMENCEMENT DATE"
means the date upon which the "Closing" occurs under (and as defined in) that
certain Purchase and Sale Agreement dated as of December 2, 2003 between Lessee,
as "Seller", and Lessor, as "Buyer" (as amended, the "PURCHASE AGREEMENT"). The
Commencement Date is anticipated to be in March, 2004.

         2.       LESSOR EXPENSES. Notwithstanding anything to the contrary
contained in this Lease, Lessee shall not be responsible for or obligated to pay
any of the following:

                           2.1.1    costs incurred by Lessor for the repair of
damage to the Building which is covered by the insurance carried by Lessor or
Lessee pursuant to this Lease or otherwise;

                           2.1.2    the cost of any item reimbursable by
insurance or condemnation proceeds or which would be reimbursable from insurance
required to be maintained by Lessor under this Lease;

                           2.1.3    costs and the overhead and profit increment
paid to Lessor, to affiliates or partners of Lessor, partners or affiliates of
such partners, or affiliates of Lessor for goods and/or services in the Premises
to the extent the same exceeds the costs or the overhead and profit increment,
as the case may be, of such goods and/or services rendered by unaffiliated third
parties on a competitive basis;

                           2.1.4    costs, penalties, fines, or awards and
interest incurred as a result of Lessor's negligence in Lessor's operation of
the Building, violations of law, negligence or inability or unwillingness to
make payments and/or to file any income tax, other tax or informational returns
when due;

                           2.1.5    costs arising from the presence or removal
of hazardous or toxic materials or substances located on the Premises, which
substances are not the responsibility of Lessee pursuant to this Lease;

                           2.1.6    all assessments and premiums to the extent
they are not paid by Lessor in the maximum number of installments permitted by
law and included in costs for the Premises in the year in which the assessment
or premium installment is actually paid;

                           2.1.7    costs arising from earthquake insurance if
such insurance is required by any Lender having a first-lien on the Premises;

                           2.1.8    any costs recovered by Lessor to the extent
such cost recovery allows Lessor to recover more than 100% of operation,
maintenance, tax, insurance and other such costs for the Premises (collectively,
"OPERATING EXPENSES") for any calendar year;

                           2.1.9    costs arising from the negligence, or
intentional acts of Lessor or its agents, or any vendors, contractors, or
providers of materials or services selected, hired or engaged by Lessor or its
agents; and

<PAGE>

                           2.1.10   reserves of any kind, including but not
limited to replacement reserves, and reserves for bad debts or lost rent or any
similar charge not involving the payment of money to third parties.

                  2.2.     Real Estate Taxes. Notwithstanding anything to the
contrary set forth in this Lease, Real Property Taxes shall not include (i) any
excess profits taxes, franchise taxes, gift taxes, capital stock taxes,
inheritance and succession taxes, estate taxes, federal and state income taxes,
and other taxes to the extent applicable to Lessor's general or net income (as
opposed to rents or receipts), (ii) taxes on tenant improvements in any space in
the Building based upon an assessed level in excess of the assessed level for
which Lessee is individually and directly responsible under this Lease, (iii)
penalties incurred as a result of Lessor's negligence, inability or
unwillingness to make payments of, and/or to file any tax or informational
returns with respect to, any Real Property Taxes, when due, (iv) any cost or
expenses incurred by Lessor for real and personal property taxes, leasehold
taxes in lieu thereof and any assessments upon the parking area or the land upon
which it is located, or taxes or assessments levied in lieu thereof, or in
addition thereto, (v) any other taxes or assessments charged or levied against
Lessor which are not directly incurred as a result of the operation of the
Building, (vi) any real estate taxes directly payable by Lessee or any third
party, and (vii) any Real Property Taxes attributable to a reassessment of the
Premises or any part thereof as a result of Proposition 13 or otherwise
resulting from a transfer of ownership or refinancing of the Premises after the
Commencement Date.

         3.       ADDITIONAL PROVISIONS REGARDING REMOVAL OF PERSONAL PROPERTY.
Notwithstanding any contrary provision in Paragraph 7.4(b) of this Lease if
Lessor expressly consents to any Alteration or Utility Installations constructed
or installed by Lessee, Lessor shall notify Lessee at the time of giving such
consent whether or not Lessor will require the removal of the Alteration or
Utility Installation upon expiration of this Lease, and Lessor's failure to so
notify Lessee shall constitute a waiver of Lessor's right to require Lessee to
remove such Alteration or Utility Installation upon expiration of this Lease. In
addition, and notwithstanding anything to the contrary contained in Paragraph
7.4 of this Lease, prior to the expiration of the Lease term, Lessee shall cause
the existing mezzanine racking system in the 2793 Loker Avenue building of the
Premises to be removed and shall repair all damage resulting from such removal.

         4.       ROOFTOP COMMUNICATION EQUIPMENT. Subject to compliance with
the provisions of Paragraph 7.3 of this Lease, Lessee shall have the exclusive
right and access to repair, replace, remove, operate and maintain the
communication equipment existing on the roof of the Premises on the Commencement
Date, together with all cable, wiring, conduits and related equipment
(collectively, "COMMUNICATION EQUIPMENT"), for the purpose of receiving and
sending radio, television, computer, telephone or other communication signals to
and from the Premises, in the existing location thereof on the roof of the
Building. Such use of the roof for Communication Equipment shall be at no
additional charge to Lessee.

         5.       SIGNAGE. Subject to compliance with the provisions of
Paragraph 7.3 of this Lease, Lessee shall be entitled to any building and
monument signage permitted by applicable laws and codes, and subject to approval
by any governmental authorities whose approval of such signage is required, in
locations reasonably acceptable to Lessor and Lessee. Lessee shall pay for all
costs relating to the design, fabrication, installation, permitting, maintaining
and removal of the signage. All signage shall comply with the Applicable
Requirements. Lessee shall remove all signage and repair any damage to the
Premises caused by such removal upon the expiration or earlier termination of
this Lease.

         6.       LESSOR INDEMNITY. Notwithstanding anything to the contrary
contained in this Lease, and except for Lessee's negligence or willful
misconduct, Lessor shall indemnify, protect, defend and hold harmless Lessee and
its agents, partners and employees from and against any and all claims, loss of
income and/or damages, liens, judgments, penalties, attorneys' and consultants'
fees, expenses and/or liabilities arising out of, involving, or in connection
with, the gross negligence or willful misconduct of Lessor. If any action or
proceeding is brought against Lessee by reason of any of the foregoing matters,
Lessor shall upon notice defend the same at Lessor's expense by counsel
reasonably satisfactory to Lessee and Lessee shall cooperate with Lessor in such
defense. Lessee need not have first paid such claim in order to be defended or
indemnified.

                                      -2-

<PAGE>

         7.       ADDITIONAL PROVISIONS REGARDING UTILITIES. Notwithstanding
anything to the contrary contained in Paragraph 11 of this Lease, in the event
of an interruption in Lease's utilities or any other interruption of this
Lease's ability to use the Premises to the full extent permitted under this
Lease that continues for a period of ten (10) or more consecutive days, Lessee
shall be entitled to an abatement of Rent to the extent such Rent is covered by
the Rental Interruption Insurance carried pursuant to Paragraph 8.3(b) of this
Lease.

         8.       OPTION TO EXTEND. Subject to the provisions of Paragraph 39 of
this Lease, Lessee shall have the option to extend the Original Term for one
additional term of sixty (60) days by written notice delivered to Lessor no
later than ninety (90) days before the expiration of the Original Term. If
Lessee fails to give such written notice during the prescribed time period, such
option right shall terminate and be of no further force or effect and Lessee
shall not have any other right to extend the Original Term. Except as provided
in this Section, if Lessee elects to extend the Original Term, all terms and
conditions of the Lease (including the amount of Base Rent payable under this
Lease during the Original Term) shall remain in effect during such extended term
except that upon expiration of such extension, Lessee shall have no further
right to extend the term of this Lease.

         9.       LIMITATIONS OF LIABILITY. Notwithstanding anything to the
contrary contained in this Lease, in no event shall Lessee have any liability
under this Lease with respect to any matter, event, action or claim occurring,
arising or relating to any period of time prior to the Commencement Date, all of
which Shall be subject to the terms of and addressed in the Purchase Agreement.

         10.      INTERPRETATION. Each party acknowledges that the terms of this
Lease have been negotiated and that any rule of construction or interpretation
of a written document against the drafts person shall not apply to the
interpretation or application of this Lease. If any provision of this Lease is
determined, by a court of competent jurisdiction to be illegal or unenforceable,
such provision shall be deemed to be severed and deleted, and neither such
provision, its severance nor deletion shall affect the validity of the remaining
provisions of this Lease so long as the primary consideration and rights
intended to be afforded each party are preserved.

         11.      PROTECTION OF AFFILIATES. Whenever in this Lease a party is
obligated to indemnify, defend and/or hold harmless another party, such
obligation to provide indemnification shall be deemed to include indemnification
of the officers, directors, shareholders, partners, members and agents of the
party entitled to indemnification, who are expressly declared to be third party
beneficiaries of this Lease for purposes of the enforcement of such
indemnification rights.

         12.      ENTIRE AGREEMENT. This Lease (including this Addendum) and all
other agreements expressly referred to herein, constitutes the entire agreement
between the parties with respect to this Lease. All prior or contemporaneous
agreements, understandings, representations, warranties and statements, oral or
written, are superseded, and neither party shall have any right to rely on such
agreements, understandings, representations, warranties and statements in
entering into this Lease.

         13.      INDEMNIFICATION. Whenever in this Lease, a party is obligated
to indemnify, defend and hold harmless another party, such obligation to provide
indemnification specifically includes, but is not limited to, the obligation to
pay reasonable attorneys' fees and other legal expenses on a continuing basis
and upon submission of invoices from legal counsel reasonably retained by the
party entitled to indemnification as and when such attorneys' fees and legal
expenses are incurred, and any dispute concerning the reasonableness of such
attorneys' fees and legal expenses shall be deferred and resolved upon the
conclusion of the applicable action or proceeding.

                                      -3-
<PAGE>

         IN WITNESS WHEREOF, Lessor and Lessee have executed this Agreement to
be effective as of the Effective Date.

Dated: February 24, 2004                  "LESSEE"

                                          ASHWORTH, INC.,
                                          a Delaware corporation

                                          By: /s/ PETER CASE
                                             -----------------------------------
                                              [Signature]

                                                PETER CASE           VP FINANCE
                                             -----------------------------------
                                              [Print Name and Title]

Dated: February 24, 2004                  LESSOR"

                                          LBA INDUSTRIAL FUND - CANYON, INC.,
                                          a Delaware corporation

                                          By: /s/ STEVEN R. LAYTON
                                             -----------------------------------
                                              [Signature]

                                                  STEVEN R. LAYTON
                                             -----------------------------------
                                              [Print Name and Title]

                                                            AUTHORIZED SIGNATORY

                                      -4-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.W.5
<SEQUENCE>7
<FILENAME>a97072exv10www5.txt
<DESCRIPTION>EXHIBIT 10(W)(5)
<TEXT>
<PAGE>

                                                                Exhibit 10(w)(5)

                               EXCHANGE AGREEMENT
                      AND SUPPLEMENTAL CLOSING INSTRUCTIONS

         This Exchange Agreement and Supplemental Closing Instructions dated
DECEMBER 3, 2003, is entered into by and between ASHWORTH, INC., A DELAWARE
CORPORATION (hereinafter "EXCHANGER") and ASSET PRESERVATION, INC., a California
corporation, (hereinafter "API"). Exchanger and API are collectively known as
the parties to this Exchange Agreement.

                                    RECITALS

         A. Exchanger is the present owner of that certain real property located
in the County of SAN DIEGO, State of CALIFORNIA, commonly known as 2791 & 2793
LOKER AVENUE, CARLSBAD, CALIFORNIA 92008, hereinafter "RELINQUISHED PROPERTY".

         B. Exchanger and LBA INC., A CALIFORNIA CORPORATION, Purchaser, have
entered into a Real Property Sale Agreement wherein Purchaser has agreed to
acquire the Relinquished Property.

         C. Exchanger desires to exchange the Relinquished Property for other
real property of like kind to effectuate a Tax Deferred Exchange pursuant to the
provisions of Section 1031 of the Internal Revenue Code of 1986, as amended.

         D. Exchanger desires to transfer all of its right, title and/or
ownership interest in the Relinquished Property to API in consideration of, and
in exchange for, the transfer by API to Exchanger of title and/or ownership
interest in one or more properties of like kind to be located and identified by
Exchanger and acquired by API pursuant to Section III below (hereinafter
"REPLACEMENT PROPERTY"). In consideration for the fee to be paid by Exchanger,
as set forth in Section V.M. of this Agreement, API desires to accept the
Relinquished Property transferred and to acquire and transfer to Exchanger
Replacement Property under the terms and conditions stated below.

         E. API is a corporation in good standing, doing business under the laws
of the State of California and acts as a "Qualified Intermediary" pursuant to
Internal Revenue Code Section 1031 and is solely in the business of facilitating
tax deferred exchanges.

                                    AGREEMENT

I.       RELINQUISHED PROPERTY

         A. Assignment. Exchanger and API have by an assignment agreement,
attached hereto as ADDENDUM "A", assigned the Real Property Sale Agreement,
including any deposits provided for therein, to API, thereby substituting API in
place of Exchanger as Seller. API assumes the rights of the Seller except as
limited by the terms and conditions of this Exchange Agreement and Supplemental
Closing Instructions. Exchanger and API will execute the assignment agreement,
and API agrees that it will give notice of the assignment to all parties to the
Real Property Sale Agreement prior to the transactions described herein.

                                      -1-

<PAGE>

         B. Sale of Relinquished Property. API agrees to acquire ownership
interest in and/or title to the Relinquished Property immediately prior to API's
transfer of such property to the Purchaser, unless the parties elect to direct
deed, pursuant to Section I.D. below. API, pursuant to Section I.C., is formally
substituted as the Seller in the closing.

         API will transfer ownership interest and/or title of the Relinquished
Property to the Purchaser under the exact terms and conditions of the Real
Property Sale Agreement.

         C. Substitution of Seller - Assignment of Closing Instructions.
Exchanger and API shall execute ADDENDUM "B" to this Agreement (Amendment to
Closing Instructions-Assignment and Substitution of Seller-Direct Deed), which
formally substitutes API as Seller with the Closing Agent. API shall instruct
Closing Agent to (1.) Retain a copy of said Addendum "B" as its authorization to
accept API as the Seller in said closing transaction, and (2.) Obtain
Exchanger's approval and API's signature as the Qualified Intermediary for
Exchanger on all seller statements and/or closing documents prior to the
closing.

         D. Deeding. Exchanger and API shall instruct Closing Agent to prepare
an instrument transferring legal title directly from Exchanger to Purchaser
pursuant to and consistent with and pursuant to Treasury Regulations Section
1.1031 (k)-1(g)(4)(iv), to avoid the duplication of transfer taxes and recording
fees. Closing Agent shall also be instructed not to record such an instrument in
the name of API unless directed to do so in writing by Exchanger and API.

         E. Survival of Terms. All representations, covenants and warranties,
expressed or implied, with respect to the Relinquished Property and the
transactions contemplated by the Real Property Sale Agreement and this Exchange
Agreement and Supplemental Closing Instructions shall survive the transfers of
the Relinquished Property by Exchanger to API and by API to the Purchaser.
Except for the right to receive, pledge, borrow or otherwise obtain the benefits
of the money or other property received by API in connection with its sale of
the Relinquished Property prior to the time specified in II.B. hereof, all
rights, remedies, liabilities and obligations arising therefrom are hereby
assigned and delegated by API to Exchanger and hereby assumed by Exchanger
effective immediately after the closing of the sale of the Relinquished Property
to the Purchaser.

         F. Failure to Close. In the event that the closing for the transfer of
the Relinquished Property from API to Purchaser does not close on or before the
agreed upon date, and the parties do not mutually agree to extend the closing
date, this Exchange Agreement shall be rescinded.

         G. Concurrent Transfer of Replacement Property. In the event Exchanger
locates suitable Replacement Property prior to close of closing and transfer of
the Relinquished Property, wherein the close of closing for the purchase of the
Replacement Property will occur concurrent with the close of closing for the
sale of the Relinquished Property, API shall acquire the designated Replacement
Property with funds received from the Purchaser for the sale of the Relinquished
Property, and thereafter convey the Replacement Property to Exchanger, or a
limited liability company of which Exchanger is the sole member and which is
disregarded as an entity separate from Exchanger as provided in Treasury
Regulation Section 301.7701-3(b), for a concurrent transfer and conveyance by
Exchanger of the Relinquished Property to API. The parties agree to execute such
closing instructions as required to effect this concurrent exchange of
properties. In the event of a concurrent closing of both the Relinquished
Property and the Replacement Property, Sections II and III. below will not
apply.

                                      -2-

<PAGE>

II. APPLICATION OF EXCHANGE PROCEEDS

    A. Application of Exchange Proceeds. Upon the Relinquished Property closing,
API shall hold the exchange proceeds for the benefit of Exchanger, to be applied
to one or more items of the Replacement Property. Except as otherwise provided
in this Agreement, including but not limited to the provisions of Section II.C..
below, Exchanger shall be entitled to receive only the Replacement Property and
not cash or other property.

    B. Cash. All net cash exchange proceeds resulting from the closing of the
Relinquished Property shall immediately upon closing be wire transferred
directly to the Qualified Exchange Account, as follows:

       1.       Cash. All net cash exchange proceeds resulting from
                the closing of the Relinquished Property shall immediately upon
                closing be wire transferred directly to the Qualified Exchange
                Account, as follows:

                  A.       Qualified Exchange Account. Exchanger and API hereby
                           agree that a "QUALIFIED EXCHANGE ACCOUNT" ("Account")
                           shall be established in the name of API for the
                           benefit of Exchanger. The Account shall be
                           established with Comerica Bank-California
                           ("COMERICA"), in an interest bearing account. The
                           Account will be established for the purpose of
                           holding cash proceeds from the sale of the
                           Relinquished Property, and as such, the Account shall
                           conform to the Restrictions on Use of Sales Proceeds
                           During Exchange, set forth in this Section II. In
                           order to open the Account, Exchanger shall execute
                           the document entitled "NEW ACCOUNT FORM" ("NEW
                           ACCOUNT FORM"), attached as Exhibit 1.1 hereto and
                           incorporated herein by reference as though set forth
                           herein verbatim.

                  B.       Withdrawal of Funds. Exchanger and API agree that
                           funds deposited in the Account may be disbursed only
                           when API has received API's form entitled "REQUEST
                           FOR FUNDS" ("WITHDRAWAL FORM") which has been signed
                           by Exchanger. This requirement is in addition to all
                           other provisions of this Agreement concerning
                           disbursement of exchange proceeds, except that
                           Exchanger understands and agrees that if funds remain
                           in the Account after the end of the Exchange Period
                           (defined in Section III.A. hereof), the Account will
                           be closed and a check will automatically be issued to
                           Exchanger in the full amount of any remaining funds,
                           including accrued interest. (The Withdrawal Form is
                           Exhibit 2.1 hereto and is incorporated herein by
                           reference as though set forth herein verbatim.)

                  C.       SIGNATURES REQUIRED FOR WITHDRAWAL. EXCHANGER MAY
                           SPECIFY THE NUMBER OF SIGNATURES THAT SHALL BE
                           REQUIRED ON THE WITHDRAWAL FORM IN ORDER TO AUTHORIZE
                           DISBURSEMENT OF FUNDS FROM THE ACCOUNT. IF EXCHANGER
                           WISHES TO SO SPECIFY, EXCHANGER MUST NOTIFY API OF
                           THE NUMBER SIGNATURES THAT SHALL BE REQUIRED, IN A
                           WRITING SIGNED BY ALL SIGNATORIES FOR EXCHANGER. IF
                           EXCHANGER DOES NOT SPECIFY THE NUMBER OF SIGNATURES
                           REQUIRED, API WILL REQUIRE THE SIGNATURES OF ALL
                           PERSONS WHO HAVE SIGNED THIS AGREEMENT BEFORE API
                           WILL AUTHORIZE DISBURSEMENT OF FUNDS FROM THE
                           ACCOUNT.

                                      -3-

<PAGE>


                  D.       NOTARIZED SIGNATURES UPON WITHDRAWAL. API RESERVES
                           THE RIGHT TO REQUIRE THAT THE SIGNATURE(S) OF
                           EXCHANGER ON THE WITHDRAWAL FORM BE ACKNOWLEDGED
                           BEFORE A NOTARY PUBLIC BEFORE API CAUSES ANY FUNDS TO
                           BE RELEASED FROM THE ACCOUNT. EXCHANGER ALSO HAS THE
                           RIGHT, UPON PRIOR WRITTEN NOTICE TO API, TO REQUIRE
                           THAT API NOT RELEASE ANY FUNDS HELD BY API UNLESS API
                           HAS RECEIVED THE WITHDRAWAL FORM SIGNED AND
                           ACKNOWLEDGED BEFORE A NOTARY PUBLIC. IF EXCHANGER
                           DOES NOT SPECIFY WHETHER API SHALL REQUIRE
                           NOTARIZATION OF EXCHANGER'S SIGNATURE(S) ON THE
                           WITHDRAWAL FORM, NOTARIZATION SHALL NOT BE REQUIRED.

                  E.       Transfer of Funds. Exchanger agrees that API shall
                           have the right, upon prior written notice to
                           Exchanger, to transfer any or all funds held by API
                           from Comerica into a Qualified Exchange Account with
                           another financial institution which, in the
                           discretion of API, is of similar credit quality to
                           Comerica. API anticipates that such a transfer will
                           be made only if, in the judgment of API, Comerica is
                           unable to provide adequate service, or an adequate
                           money market rate of return, with regard to the
                           Account.

                  F.       Miscellaneous. Exchanger agrees that, at API's
                           option, API's fees for this transaction, as set forth
                           in Section V.M. hereof, may be deducted from the
                           funds held in the Account. Upon the completion of the
                           number of days set forth in Section V.M.(5) of this
                           Agreement, the Account will be registered with
                           Exchanger's federal Taxpayer I.D. Number(s).
                           Thereupon, all interest and tax reporting will be
                           directed to Exchanger. The Account and the
                           arrangements made in this paragraph are subject to
                           Federal and California Banking laws and regulations.
                           Any changes made in these laws or regulations may
                           affect this Account and Comerica's ability to provide
                           these services.

       2.       Promissory Notes and Other Property. Closing Agent for the
                Relinquished Property shall be instructed to notify API
                immediately if there is consideration other than cash, including
                but not limited to a promissory note, unless instructions
                regarding such consideration have been previously issued. Unless
                otherwise instructed in writing by Exchanger and API, promissory
                notes and other property which are proceeds from the
                Relinquished Property shall be distributed to API at the closing
                of the transfer of the Relinquished Property, and shall be
                exchange proceeds, intended to be reinvested in Replacement
                Property as part of the exchange under this Exchange Agreement.

    C Restrictions on Use of Sale Proceeds During Exchange. API shall hold
the net sale proceeds (including cash, promissory notes and other property) from
the sale of the Relinquished Property solely for the purpose of acquiring the
Replacement Property and such proceeds shall not be deemed a part of API's
general assets nor subject to claims by API's creditors. API shall hold the net
proceeds until such time as Exchanger has located suitable property with which
to exchange, at which time Exchanger shall instruct API to acquire the ownership
interest in the Replacement Property. Notwithstanding anything to the contrary
contained in this Agreement, Exchanger shall not have any right to receive,
pledge, borrow, or otherwise obtain the benefits of any money or other property
constituting the net sale proceeds from the sale of the Relinquished Property or
any portion of said net sale proceeds, before the end of the applicable

                                      -4-

<PAGE>

time period set forth in U.S. Treasury Regulations, Section 1.1031(k)-1(g)(6).
Exchanger and API further agree that Exchanger has only the rights to receive,
pledge borrow or otherwise obtain the benefits of the net sales proceeds from
the sale of the Relinquished Property which are specifically allowed in
subparagraphs (ii) and (iii) of U.S. Treasury Regulations, Section
1.1031(k)-1(g)(6), which subparagraphs are herein quoted as follows:

                      "(ii) The agreement may provide that if the taxpayer
                  has not identified Replacement Property by the end of the
                  identification period, the taxpayer may have rights to
                  receive, pledge, borrow, or otherwise obtain the benefits of
                  money or other property at any time after the end of the
                  identification period.

                      (iii) The agreement may provide that if the taxpayer
                  has identified replacement property, the taxpayer may have
                  rights to receive, pledge, borrow, or otherwise obtain the
                  benefits of money or other property upon or after--

                           (a) The receipt by the taxpayer of all of the
                           Replacement Property to which the Taxpayer is
                           entitled under the exchange agreement, or

                           (b) The occurrence after the end of the
                           identification period of a material and substantial
                           contingency that--

                               (1) Relates to the deferred exchange,

                               (2) Is provided for in writing, and

                               (3) Is beyond the control of the Taxpayer and of
                                   any disqualified person (as defined in
                                   paragraph (K) of this Section), other than
                                   the person obligated transfer the
                                   replacement property to the taxpayer."

NOTE: IF THE EXCEPTIONS IN PARAGRAPHS (ii) AND (iii) DO NOT APPLY, THE SALE
PROCEEDS MUST REMAIN IN THE QUALIFIED EXCHANGE ACCOUNT UNTIL THE 181ST DAY AFTER
THE TRANSFER OF THE RELINQUISHED PROPERTY. IT IS INTENDED THAT THE FOREGOING
CONDITIONS BE INTERPRETED AND IMPOSED IN A MANNER CONSISTENT WITH THE
LIMITATIONS CONTAINED IN U.S. TREASURY REGULATION 1.1031(k)-1(g)(6).

         D Interest. The Exchanger may be entitled to receive interest earned on
the net proceeds, subject to API's fees described in Section V.M. below.
Exchanger's rights to receive such interest are limited to the same
circumstances described in Section II.C above. Exchanger understands that, for
income tax purposes, any interest paid to Exchanger will be treated as interest
income regardless of whether it is paid to Exchanger in cash or in property and
must be reported as Exchanger's income.

III.     DELAYED PROVISIONS

         A. Replacement Property Identification Period and Exchange Period
Defined. Exchanger must identify like-kind Replacement Property on or before
midnight of the date that is forty-five (45) calendar days after the date of
closing of the transfer of the Relinquished Property to Purchaser (the
"Identification Period"), pursuant to the provisions set forth in Section
III.B., below. Exchanger must receive the

                                      -5-

<PAGE>

Replacement Property on or before midnight of the day which is one hundred and
eighty (180) calendar days after the date of transfer of closing of the
Relinquished Property to API, or the due date, including extensions, of
Exchanger's tax return for the year in which the transfer of the Relinquished
Property takes place, whichever comes first (the "Exchange Period"). Exchanger
acknowledges that compliance with these dates is necessary to qualify for tax
deferral under I.R.C. Section 1031. API hereby expressly disclaims any
responsibility for any failure to comply with the time limitations for
identification of replacement property, or for any failure to comply with the
time limitations for receipt of replacement property, which provisions are
contained in I.R.C. Section 1031(a)(3) and in Treasury Regulations section
1.1031(k)-1(b), (c), (d) and (e). Rather, it is the sole responsibility of the
Exchanger to make such identification in a timely manner, and to fully inform
API of Exchanger's desire to acquire such Replacement Property.

         B. Identification of Replacement Property. On or before the date which
is forty-five calendar days following the transfer of the Relinquished Property,
Exchanger shall, in accordance with the requirements set forth in I.R.C. Section
1031(a)(3) and in Treasury Regulations section 1.1031(k)-1(b), (c), (d) and (e)
and summarized below, identify one or more Replacement Properties to be acquired
by API and conveyed to Exchanger in exchange for the Relinquished Property.
IDENTIFICATION SHALL BE IN WRITING and shall be delivered to API, or to any
other person involved in this exchange other than Exchanger or a disqualified
person as defined in Treasury Regulations Section 1.1031(k)-1(k), either by U.S.
mail, facsimile or personal delivery prior to midnight on the 45th day following
the close of the transfer of the Relinquished Property.

            1. Description of Properties - Identified Replacement Property
         must be "unambiguously" identified by Exchanger by street address,
         legal description or "distinguishable name". (Note: In the event that
         the Replacement Property consists of improved real property where the
         improvements are to be produced during the Exchange Period, then, in
         addition to the street address, legal description, or "distinguishable
         name", the identification must include as much detail regarding the
         construction of the improvements as is practicable at the time the
         identification is made. Further, in the event Exchanger intends to
         acquire Replacement Property which includes improvements which are to
         be produced during the Exchange Period, Exchanger shall promptly
         contact API to make arrangements concerning acquisition of this
         property.)

            2. Limitations on Identified Properties - Exchanger shall
identify only that number of Replacement Properties which meet one of the
"identification rules" set forth in Treasury Regulations Section 1.1031
(k)-1(c)(4) as follows:

            A. THREE PROPERTY RULE: The Exchanger may identify a maximum
         of three (3) Replacement Properties without regard to the fair market
         value of the properties.

            B. TWO HUNDRED PERCENT RULE: The Exchanger may identify any
         number of properties, so long as the aggregate fair market value of the
         identified properties does not exceed two hundred percent (200%) of the
         aggregate fair market value of the Relinquished Properties.

            C. NINETY-FIVE PERCENT RULE: The Exchanger may identify any
         number of properties without regard to the aggregate fair market value,
         so long as Exchanger receives ninety-

                                      -6-

<PAGE>

         five percent (95%) of the aggregate fair market value of all identified
         Replacement Properties prior to the end of the one hundred and eighty
         day period.

         3. Revocation of Identified Properties - Exchanger may, in writing sent
to API within the Identification Period, revoke any identified property at any
time prior to the end of the forty-five day Identification Period. Exchanger may
then, after revocation of previously identified properties and within said
forty-five day identification period, identify other Replacement Properties,
pursuant to the limitations as stated in Sections III.B.1 and III.B.2, above.

         4. Exchanger acknowledges that compliance with the requirements for the
manner of identification of replacement property is necessary to qualify for tax
deferral under I.R.C. Section 1031. API hereby expressly disclaims any
responsibility for any failure to comply with the U.S. Treasury Regulations
which govern the manner of identification of replacement property, which are
contained in Treasury Regulations section 1.1031(k)-1(b), (c), (d) and (e).
Rather, it is the sole responsibility of the Exchanger to make such
identification in the proper manner.

IV. REPLACEMENT PROPERTY

         A. Assignment. Exchanger and API will, by an assignment agreement,
attached (or which will be attached) hereto as ADDENDUM "C", assign the Real
Property Purchase Agreement for the Replacement Property to API, thereby
substituting API in place of Exchanger as Purchaser. API will then assume the
rights of the Purchaser except to the extent limited by the terms and conditions
of this Exchange Agreement and Supplemental Closing Instructions. Exchanger and
API will execute the assignment agreement and API agrees that it will give
notice of the assignment to all parties to the Real Property Purchase Agreement
prior to the transfer of the Replacement Property.

         B. Purchase of Replacement Property. API agrees to acquire ownership
interest and/or title to the Replacement Property immediately prior to API's
transfer of such property to Exchanger or a limited liability company of which
Exchanger is the sole member and which is disregarded as an entity separate from
Exchanger as provided in Treasury Regulation Section 301.7701-3(b), unless
parties elect to direct deed, pursuant to Section IV.E. below. API, pursuant to
Section IV.C. below, is formally substituted as the Purchaser in the closing.

         C. Substitution of Purchaser - Assignment of Closing Instructions.
Exchanger and API shall execute ADDENDUM "D" to this Agreement (Amendment to
Closing Instructions - Assignment and Substitution of Purchaser - Direct Deed)
attached (or which will be attached) hereto, which formally substitutes API as
Purchaser with the Closing Agent. API shall instruct Closing Agent to (1.)
Retain a copy of said Addendum "D" as its authorization to accept API as the
Purchaser in said closing transaction, and (2.) Obtain Exchanger's approval and
API's signature as the Qualified Intermediary for Exchanger on all purchaser
statements and/or closing documents prior to the closing.

         D. Costs of Purchase. API is not to incur any costs for its role as
Qualified Intermediary in this exchange transaction. All costs of acquiring the
Replacement Property, including cash payments toward the purchase price,
acquisition costs, prorations and all other acquisition fees incident thereto
shall be borne by Exchanger.

                                      -7-

<PAGE>

         E. Deeding. API and Exchanger shall instruct Closing Agent to prepare
an instrument transferring legal title directly from the Seller of the
Replacement Property to Exchanger or a limited liability company of which
Exchanger is the sole member and which is disregarded as an entity separate from
Exchanger as provided in Treasury Regulation Section 301.7701-3(b), pursuant to
Treasury Regulations Section 1.1031 (k)-1(g)(4)(iv), to avoid the duplication of
transfer taxes and recording fees. Closing Agent shall be instructed not to
record such an instrument in the name of API unless directed to do so, in
writing, by API and Exchanger.

V. MISCELLANEOUS PROVISIONS

         A. Exchanger's Assumption of Risk. API assumes no responsibility for
Exchanger's compliance with the 45 day Identification Period and the Exchange
Period requirements of I.R.C. Section 1031 (a)(3). API shall in no event be held
liable for Exchanger's failure to receive the tax benefits of Section 1031 or
for any costs incurred as a result of defending the exchange if audited or
litigated, except to the extent that such failure or costs arise or result from
API's negligence, gross negligence, willful misconduct or default or breach of
API's obligation under this Agreement. Exchanger represents and agrees that it
assumes for itself any and all tax risks and costs associated with the exchange
transaction.

Exchanger hereby acknowledges that API is not acting as Exchanger's tax advisor
and that API does not warrant or represent that the Exchange Arrangement under
this Agreement will qualify for tax deferral under Section 1031 of the Internal
Revenue Code or otherwise. Exchanger acknowledges that Exchanger has been
advised to obtain separate, independent advice concerning the requirements for a
qualified like-kind exchange under Section 1031.

         B. Risk of Loss. Exchanger hereby assumes all risk of loss or damage
adversely affecting the value of the Relinquished Property, the Replacement
Property and any other property conveyed to or by API in connection with this
Exchange Agreement, whether resulting from fire or other casualty, natural
disaster, condemnation or any other physical, legal or economic circumstances,
provided however, Exchanger shall not assume any or all such loss or damage
which arises or results from API's negligence, gross negligence, willful
misconduct or default or breach of the terms and/or conditions of this
Agreement. In this event, API shall be responsible for all losses and damages
which result therefrom.

         C. Time of Essence. Time is of the essence hereof.

         D. Assignment. Neither this Agreement nor any interest herein shall be
assignable by either party without the prior written consent of the others, as
applicable.

         E. Reporting Requirements. Exchanger agrees that to the extent
required, Exchanger shall satisfy any and all reporting requirements of any
federal, state, municipal or other governing authority for recipients of funds
paid to or by API on behalf of and at the direction of Exchanger. API in no way
performs tax-reporting services.

         F. Governing Law. All questions with respect to the construction of
this Agreement and the rights and liabilities of the parties hereto shall be
governed by the laws of the State of California.

                                       -8-

<PAGE>

         G. Attorney's Fees. In the event of any controversy, claim or dispute
between the parties hereto, arising out of or relating to this Agreement or to
the breach thereof, the prevailing party shall be entitled to recover from the
other party, or parties, reasonable attorney's fees and costs.

         H. Entire Agreement. This Agreement contains the entire agreement of
the parties hereto, and supersedes any prior written or oral agreement between
them concerning the subject matter contained herein. There are no
representations, agreements, arrangements or understandings, oral or written,
between the parties hereto, relating to the subject matter contained in this
Agreement, which are not fully expressed herein.

         I. Counterparts. This Agreement may be executed in several counterparts
and all counterparts so executed shall constitute one agreement which shall be
binding on all of the parties hereto, notwithstanding that all of the parties
are not signatory to the original or the same counterpart.

         J. Notices. Any notice to be given hereunder shall be given by personal
delivery, by facsimile or by depositing such notice in the United States mail,
duly registered or certified, with postage prepaid, addressed as follows:

EXCHANGER:                                   ASSET PRESERVATION, INC.
ASHWORTH, INC., A DELAWARE CORPORATION       4208 DOUGLAS BLVD.
2765 LOKER AVE., WEST                        SUITE 300
CARLSBAD, CA 92008                           GRANITE BAY, CA  95746
FAX #                                        FAX # 916-791-6003

         K. Inurement. Subject to the restrictions against assignment as herein
contained, this Agreement shall inure to the benefit of, and shall be binding
upon, the assigns, successors in interest, personal representatives, estates,
heirs, and legatees of each of the parties hereto, as applicable.

         L. Authorization. The persons signing below warrant and represent that
they have authority to enter into this Exchange Agreement and Supplemental
Closing Instructions for themselves and for any other person for whom they
purport to sign.

         M. API Fees. Exchanger agrees to compensate API for the performance of
         the services of API as described herein for the disposition of the
         Relinquished Property and the acquisition of the Replacement Property.
         This fee shall be as follows:

            (1) The sum of $700.00 for the first Relinquished Property closing,
                and $200.00 for each additional Relinquished Property closing.
                In the event Exchanger request that API hold a seller-carry-back
                promissory note, a note- processing fee of $200.00 will be
                collected. In the event of a delayed exchange, API will deduct
                API's fee from the net cash exchange proceeds received by API.
                In the event of a simultaneous exchange, API's fees will be
                collected at closing; AND

            (2) There will be no fee for the first Replacement Property closing.
                The sum of $200.00 will be charged for each additional
                Replacement Property closing. In the event of a delayed
                exchange, API will deduct API's fee from the net cash exchange
                proceeds received by

                                      -9-

<PAGE>

                API. In the event of a simultaneous exchange, API's fees will be
                collected at closing; AND

            (3) API will retain all interest earned on all exchange proceeds,
                including cash, and other property held by API as described in
                Section II.B... above, for the first 30 days commencing upon the
                date of receipt of the proceeds by API; AND

            (4) In the event that API holds exchange proceeds for less than 30
                days, API will only retain the interest earned up to the date
                the funds are released; AND

            (5) In the event API holds exchange proceeds for more than 30 days,
                then thereafter Exchanger will earn interest at the prevailing
                Comerica Bank Money Market Rate ("Exchanger's Rate").
                Exchanger's Rate may fluctuate. Interest earned on the exchange
                proceeds in excess of the Exchanger's Rate will be retained by
                API as part of API's fee.

            (6) The interest earned and due Exchanger, pursuant to Section II.D.
                above, will automatically be added to the exchange proceeds and
                applied to the Replacement Property closing, unless a written
                notice from Exchanger requesting interest disbursement separate
                from exchange proceeds is received by API prior to the release
                of exchange proceeds for the Replacement Property closing.
                Interest is subject to the aforementioned restrictions as
                described in Section II.C., above.

         N. Exchanger's Indemnification of Intermediary. Exchanger shall
indemnify, defend and hold API and each of its shareholders, directors,
officers, employees, agents, subsidiaries, affiliates and representatives
harmless from and against all claims, demands, suits, liability, costs or causes
of action of third parties, or which arise out of any challenge by any duly
constituted legal authority as to the tax ramifications of the exchange
transaction, ("Claim"), as well as from and against all losses and expenses
(including reasonable attorney fees and costs), arising out of or in any way
connected with the Relinquished Property or the Replacement Property, or which
results from API's participation in the exchange of real property as described
herein, including those which arise out of API's holding of ownership interest
to said property or any other property involved in the exchange, and including
but not limited to any Claim related to hazardous materials on or about the
property ("the Indemnity"). The Indemnity shall be immediately enforceable
without regard to whether a Claim is well founded. However, the Indemnity shall
not apply if a Claim results in a finding by a court or other governmental
authority of fraud, willful misconduct or gross negligence of API or any of its
officers, directors or employees. This indemnity shall survive the closing of
all transactions described in this Agreement and any termination of this
Agreement. Exchanger acknowledges that API has made no representations nor given
advice as to the tax consequences of the exchange transaction, that Exchanger
has participated in this transaction solely for independent business reasons,
and that it would be unreasonable to ever guarantee the actions or inactions of
any government agency.

         O. Disclaimer of Liability for Wrongful Conduct of Others. Exchanger
hereby agrees that API and each of its shareholders, directors, officers,
employees, agents, subsidiaries, affiliates and representatives shall not be
held responsible or liable by Exchanger, under the law of contract, of tort, or
otherwise, for any damages or loss suffered by Exchanger in the event that API
is wholly or partially unable to perform any of API's obligations under this
Agreement as a result of any wrongful conduct (negligence, gross negligence or
willful misconduct) by any person or entity other than API, which

                                      -10-

<PAGE>

prevents API from performing API's obligations under this Agreement. The
situations covered by this disclaimer of liability include, but are not limited
to, the theft, embezzlement, loss or misapplication of Exchanger's funds by any
title company, attorney or law firm, escrow company, real estate broker, or any
other person or entity other than API, its officers, employees or directors.

         P. Related Party Exchanges. Exchanger acknowledges awareness of the
following information: Exchanges made between Exchanger and a "Related Person"
as defined by I.R.C. Sections 267(b) and 707(b)(1) (for example only: spouse,
ancestors, descendants, brothers and sisters of Exchanger, and corporations and
partnerships which are owned more than 50% by the Exchanger) are subject to
special legal restrictions, as follows:

         (1) The I.R.S. has ruled (in Rev. Ruling 2002-83) that a taxpayer who
transfers relinquished property to a qualified intermediary in exchange for
replacement property owned by a Related Person is not entitled to
non-recognition treatment under section 1031(a) of the Internal Revenue Code if,
as part of the transaction, the related party receives cash or other
non-like-kind property for the replacement property; and

         (2) Internal Revenue Code Section 1031(f)(1)(c) states that if a
taxpayer exchanges property with a Related Person, and before the expiration of
two years after the completion of the exchange the Related Person disposes of
the property the Related Person received in the exchange OR Exchanger disposes
of the property received in the exchange from the Related Person, the exchange
will be disallowed and the Exchanger will be required to recognize the gain or
loss from the transaction.

Exchanger is strongly cautioned to consult with Exchanger's own tax advisor
concerning these issues before entering into any exchange involving a Related
Person. Exchanger acknowledges that API has made no representations nor given
advice as to Exchanger's tax consequences in the event Exchanger transacts an
exchange with a Related Person.

         Q. Related Company Disclosure. Exchanger understands that API is a
subsidiary of Stewart Title Company. Exchanger is not required to use Stewart
Title Company and/or any of its issuing offices as a condition for settlement of
the purchase or sale of the Subject Property.

         R. Document Storage. Upon completion of Exchanger's transaction under
this Exchange Agreement, API's file containing documentation of this exchange
transaction will be retained on-site for six months. During this six-month
period, Exchanger may obtain copies of all documents in said file at no cost to
Exchanger. When six months have elapsed from the completion of Exchanger's
exchange, said file will be sent to a long-term storage facility. After these
six months have elapsed, Exchanger may notify API that Exchanger wishes copies
of documents from API's file. API will retrieve said file from the long-term
storage facility and provide Exchanger with the requested copies of documents
within a reasonable time. Exchanger shall pay the sum of $25.00 to API before
Exchanger receives the requested documents; this fee is charged in order to
offset API's actual cost of retrieving Exchanger's file from long-term storage.

         S. California Withholding Requirements. California law (Revenue &
Taxation Code Secs. 18661-18677) requires, in many cases, that a portion of the
proceeds from the sale of real property located in California be withheld and
forwarded to the California Franchise Tax Board. This law may require that

                                      -11-

<PAGE>

API withhold three and one-third percent (3 1/3%) of any cash or cash equivalent
Exchanger receives from the proceeds of California real property relinquished in
this exchange transaction. Further, this law may require API to withhold three
and one-third percent (3 1/3%) of the total sale price of such California real
property if the exchange does not occur or does not meet the requirements of
Internal Revenue Code Section 1031 (such as the identification and receipt
requirements set forth in Section III. of this Agreement). By signing this
Agreement, Exchanger acknowledges Exchanger's awareness that California law may
require API to use part or all of Exchanger's exchange proceeds to meet
applicable withholding requirements. A copy of this California law is available
online at: http://www.leginfo.ca.gov/cgi-bin/displaycode?section=rtc&group=
18001-19000&file-18661-18677.

         T. State Law Requirements. Various state and local government entities
impose requirements applicable to I.R.C. Section 1031 exchange transactions in
addition to those imposed by the Internal Revenue Code or I.R.S. rules. These
state or local laws may impose requirements in addition to, or different from,
the provisions of this Agreement. Exchanger is hereby notified that API is
required to comply with applicable laws imposed by states and local government
entities, and that in so complying, Exchanger's rights under this Agreement may
be affected.

         U. Disqualified Person. To the best of its knowledge, API is not a
"disqualified person" with respect to Exchanger as defined in Treasury
Regulation Section 1.1031(k)-1(k).

         IN WITNESS WHEREOF, the parties have executed this Exchange Agreement.

ASSET PRESERVATION, INC., A CALIFORNIA CORPORATION

By: /s/Joan Poimiroo               Dated:12/3/03
   --------------------------------      ---------------
    Joan Poimiroo, Sr. Vice President

EXCHANGER:

Ashworth, Inc., a Delaware corporation

By: /s/Peter Case                   Dated: 12/11/03
Its: _VP  Finance
   --------------------------------

Tax ID/SS#:


                                      -12-

<PAGE>

                                  ADDENDUM "A"

                   ASSIGNMENT OF REAL PROPERTY SALE AGREEMENT

         THIS ASSIGNMENT is entered into between ASHWORTH, INC., A DELAWARE
CORPORATION, herein called "ASSIGNOR" and ASSET PRESERVATION, INC., a California
corporation, herein called "ASSIGNEE", for the disposition of the property
located in the County of SAN DIEGO, State of CALIFORNIA, more commonly known as
2791 & 2793 LOKER AVENUE, CARLSBAD, CALIFORNIA, herein called the "SUBJECT
PROPERTY".

         WHEREAS, Assignor heretofore entered into an agreement to sell real
property ("REAL PROPERTY SALE AGREEMENT") concerning the Subject Property,
between Assignor as Seller and LBA INC., A CALIFORNIA CORPORATION as Purchaser,
and

         WHEREAS, Assignor wishes to assign Assignor's rights under the Real
Property Sale Agreement; and

         WHEREAS, Assignor represents and warrants to Assignee that Assignor has
the legal right to assign Assignor's rights under the Real Property Sale
Agreement to Assignee; and

         WHEREAS, Assignee wishes to accept said Assignment and acquire the
ownership interest in the Real Property Sale Agreement from Assignor and to
assume the rights of Assignor to convey the ownership interest in the Subject
Property to Purchaser;

         NOW, THEREFORE, Assignor hereby assigns to Assignee all of the
ownership rights and interest in the Real Property Sale Agreement, including any
deposits provided for therein. Assignee hereby accepts this assignment and
assumes all of such rights and interest in the Real Property Sale Agreement. The
Real Property Sale Agreement is hereby assigned in accordance with the terms
hereof.

Assignor and Assignee further agree as follows:

         1. As additional consideration to Assignee, Assignor hereby agrees to
hold Assignee harmless, release, defend and indemnify Assignee from any and all
liability, loss, damage or injury in any manner arising out of or incident to
Assignee's acquiring ownership interest in, holding, transferring or conveying
the property, including, without limitation, any and all consequential damages
arising therefrom.

         2. Assignor and Assignee agree that this assignment is made for the
purposes of facilitating the I.R.C. Section 1031 exchange pursuant to the
Exchange Agreement to which this Addendum "A" relates. Therefore, pursuant to
U.S. Treasury Regulation 1.1031 (k)-1(g)(4)(iv), only the rights of Assignor
under the Real Property Sale Agreement have been assigned to Assignee. For
purposes of any dispute regarding any aspect of the Subject Property other than
Assignee's holding or transferring the Subject Property pursuant to the Exchange
Agreement and this Addendum "A" thereto, this transaction shall be deemed to
have occurred only between Assignor and Purchaser, and Assignee shall not be
made a party to any dispute, suit, claim, arbitration or other proceeding
concerning the Subject Property without Assignee's prior written consent.

         3. This Agreement shall be binding upon and shall inure to the benefit
of their respective heirs, successors and assigns of the parties hereto.

<PAGE>

         IN WITNESS WHEREOF, the parties hereto have executed this assignment of
the Real Property Sale Agreement.

ASSIGNOR:

Ashworth, Inc., a Delaware corporation

By:/s/Peter Case                  Dated:     12/11/03
   -------------------------------
Its: VP Finance

ASSIGNEE:

Asset Preservation, Inc., a California corporation

By: /s/Joan Poimiroo                 Dated:  12/3/03
   ----------------------------------
    Joan Poimiroo, Sr. Vice President

<PAGE>

                                  ADDENDUM "B"

                       AMENDMENT TO CLOSING INSTRUCTIONS:

           NOTICE OF ASSIGNMENT AND SUBSTITUTION OF SELLER-DIRECT DEED

To:                   STEWART TITLE OF SAN DIEGO

Re: File number       1050925

Subject Property:     2791 & 2793 LOKER AVENUE, CARLSBAD, CALIFORNIA

         ASHWORTH, INC., A DELAWARE CORPORATION, "ASSIGNOR", by a separate
document entitled "ASSIGNMENT OF REAL PROPERTY SALE AGREEMENT", which is being
provided to you herewith, has assigned all of Assignor's rights as Seller under
the Real Property Sale Agreement for the Subject Property to ASSET PRESERVATION,
INC., a California corporation, as "ASSIGNEE".

         Assignee has accepted said assignment of rights. By virtue of said
Assignment, Assignee has been substituted as Seller under the Real Property Sale
Agreement, and has agreed to convey the ownership interest in the Subject
Property to the Purchaser under the Real Property Sale Agreement ("PURCHASER").

         By your receipt of a copy of this executed Addendum "B", you are hereby
instructed as follows:

         1. To prepare an instrument transferring legal title directly from
Assignor to Purchaser pursuant to and consistent with U.S. Treasury Regulations
Section 1.1031 (k)-1(g)(4)(iv). Said transfer shall avoid the duplication of any
transfer taxes and/or recording fees.

         2. Not to record any instrument in the name of Assignee unless
specifically directed to do so in writing signed by Assignor and Assignee.

         3. To remit directly to Assignee, by wire transfer only, all net cash
proceeds immediately upon the close of closing.

         4. In the event you learn that Assignor intends to accept seller
financing as part of the consideration for sale of the Subject Property, you
shall inform Assignee of this fact immediately, unless instructions regarding
such seller financing have previously been issued to you by Assignee.

         5. To accept Assignee as the substituted Seller of the Subject Property
in the above mentioned closing.

<PAGE>

This Notice of Assignment and Substitution of Seller shall be effective
immediately, and in all events prior to the closing of the purchase and sale of
the Subject Property.

ASSIGNOR:

Ashworth, Inc., a Delaware corporation

By: /s/Peter Case            Dated: 12/11/03
   --------------------------
Its: VP Finance

ASSIGNEE:

Asset Preservation, Inc., a California corporation

By: /s/Joan Poimiroo          Dated: 12/3/03
   ---------------------------
       Joan Poimiroo, Sr. Vice President

<PAGE>

                              NOTICE OF ASSIGNMENT
                   OF RIGHTS UNDER PURCHASE AND SALE AGREEMENT

To:                   LBA INC., A CALIFORNIA CORPORATION
Assignor:             ASHWORTH, INC., A DELAWARE CORPORATION
Assignee:             ASSET PRESERVATION, INC.
Property address:     2791 & 2793 LOKER AVENUE, CARLSBAD, CALIFORNIA, 92008

         YOU ARE HEREBY NOTIFIED that ASHWORTH, INC., A DELAWARE CORPORATION,
"ASSIGNOR" assigned his/her/their/its rights under an agreement to sell ("Real
Property Sale Agreement") entered into concerning the above referenced property
between Assignor as Seller and LBA INC., A CALIFORNIA CORPORATION as Purchaser
to ASSET PRESERVATION, INC., "ASSIGNEE", as his/her/their/its Qualified
Intermediary, for the purpose of an I.R.C. Section 1031 Tax Deferred Exchange.

ASSIGNOR:

Ashworth, Inc., a Delaware corporation

By: /s/Peter Case              Dated: 12/11/03
   ----------------------------
Its: VP Finance

ASSIGNEE:

ASSET PRESERVATION, INC., a California Corporation

By: /s/Joan Poimiroo           Dated: 12/3/03
    ---------------------------
     Joan Poimiroo, Sr. Vice President

PURCHASER ACKNOWLEDGEMENT:

LBA Inc., a California corporation

By: _______________________________________Dated:_______________________

Its: ______________________________________


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>8
<FILENAME>a97072exv31w1.txt
<DESCRIPTION>EXHIBIT 31.1
<TEXT>
<PAGE>
                                                                    EXHIBIT 31.1

I, Randall L. Herrel, Sr., Chairman, President and Chief Executive Officer of
Ashworth, Inc., certify that:

      1.    I have reviewed this report on Form 10-Q of Ashworth, Inc.;

      2.    Based on my knowledge, this report does not contain any untrue
            statement of a material fact or omit to state a material fact
            necessary to make the statements made, in light of the circumstances
            under which such statements were made, not misleading with respect
            to the period covered by this report;

      3.    Based on my knowledge, the financial statements, and other financial
            information included in this report, fairly present in all material
            respects the financial condition, results of operations and cash
            flows of the registrant as of, and for, the periods presented in
            this report;

      4.    The registrant's other certifying officer and I are responsible for
            establishing and maintaining disclosure controls and procedures (as
            defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
            registrant and have:

                  (a) Designed such disclosure controls and procedures, or
                  caused such disclosure controls and procedures to be designed
                  under our supervision, to ensure that material information
                  relating to the registrant, including its consolidated
                  subsidiaries, is made known to us by others within those
                  entities, particularly during the period in which this report
                  is being prepared;

                  (b) Evaluated the effectiveness of the registrant's disclosure
                  controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure controls
                  and procedures, as of the end of the period covered by this
                  report based on such evaluation; and

                  (c) Disclosed in this report any change in the registrant's
                  internal control over financial reporting that occurred during
                  the registrant's most recent fiscal quarter (the registrant's
                  fourth fiscal quarter in the case of an annual report) that
                  has materially affected, or is reasonably likely to materially
                  affect, the registrant's internal control over financial
                  reporting; and

      5.    The registrant's other certifying officer and I have disclosed,
            based on our most recent evaluation of internal control over
            financial reporting, to the registrant's auditors and the audit
            committee of the registrant's board of directors (or persons
            performing the equivalent functions):

                  (a) All significant deficiencies and material weaknesses in
                  the design or operation of internal control over financial
                  reporting which are reasonably likely to adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial information; and

                  (b) Any fraud, whether or not material, that involves
                  management or other employees who have a significant role in
                  the registrant's internal control over financial reporting.

Date:  March 15, 2004

                                 /s/ Randall L. Herrel, Sr.
                                 --------------------------
                                 Randall L. Herrel, Sr.
                                 Chairman, President and Chief Executive Officer

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>9
<FILENAME>a97072exv31w2.txt
<DESCRIPTION>EXHIBIT 31.2
<TEXT>
<PAGE>
                                                                    EXHIBIT 31.2

I, Terence W. Tsang, Executive Vice President, Chief Operating Officer and Chief
Financial Officer of Ashworth, Inc., certify that:

      1.    I have reviewed this report on Form 10-Q of Ashworth, Inc.;

      2.    Based on my knowledge, this report does not contain any untrue
            statement of a material fact or omit to state a material fact
            necessary to make the statements made, in light of the circumstances
            under which such statements were made, not misleading with respect
            to the period covered by this report;

      3.    Based on my knowledge, the financial statements, and other financial
            information included in this report, fairly present in all material
            respects the financial condition, results of operations and cash
            flows of the registrant as of, and for, the periods presented in
            this report;

      4.    The registrant's other certifying officer and I are responsible for
            establishing and maintaining disclosure controls and procedures (as
            defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
            registrant and have:

                  (a) Designed such disclosure controls and procedures, or
                  caused such disclosure controls and procedures to be designed
                  under our supervision, to ensure that material information
                  relating to the registrant, including its consolidated
                  subsidiaries, is made known to us by others within those
                  entities, particularly during the period in which this report
                  is being prepared;

                  (b) Evaluated the effectiveness of the registrant's disclosure
                  controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure controls
                  and procedures, as of the end of the period covered by this
                  report based on such evaluation; and

                  (c) Disclosed in this report any change in the registrant's
                  internal control over financial reporting that occurred during
                  the registrant's most recent fiscal quarter (the registrant's
                  fourth fiscal quarter in the case of an annual report) that
                  has materially affected, or is reasonably likely to materially
                  affect, the registrant's internal control over financial
                  reporting; and

      5.    The registrant's other certifying officer and I have disclosed,
            based on our most recent evaluation of internal control over
            financial reporting, to the registrant's auditors and the audit
            committee of the registrant's board of directors (or persons
            performing the equivalent functions):

                  (a) All significant deficiencies and material weaknesses in
                  the design or operation of internal control over financial
                  reporting which are reasonably likely to adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial information; and

                  (b) Any fraud, whether or not material, that involves
                  management or other employees who have a significant role in
                  the registrant's internal control over financial reporting.

Date:  March 15, 2004

                              /s/Terence W. Tsang
                              Terence W. Tsang
                              Executive Vice President, Chief Operating Officer,
                              Chief Financial Officer and Treasurer

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>10
<FILENAME>a97072exv32w1.txt
<DESCRIPTION>EXHIBIT 32.1
<TEXT>
<PAGE>
                                                                    EXHIBIT 32.1

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Randall L. Herrel, Sr., in my capacity as Chairman, President and Chief
Executive Officer of Ashworth, Inc. (the "Registrant"), do hereby certify in
accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

      1. the Quarterly Report of the Registrant, on Form 10-Q for the quarter
ended January 31, 2004 (the "Report"), to which this certification is attached
as an exhibit fully complies with the requirements of Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934; and

      2. the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Registrant.


Dated:  March 15, 2004           /s/Randall L. Herrel, Sr.
      ----------------           -------------------------
                                 Randall L. Herrel, Sr.,
                                 Chairman, President and Chief Executive Officer

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.2
<SEQUENCE>11
<FILENAME>a97072exv32w2.txt
<DESCRIPTION>EXHIBIT 32.2
<TEXT>
<PAGE>
                                                                    EXHIBIT 32.2

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Terence W. Tsang, in my capacity as Executive Vice-President, Chief Operating
Officer, Chief Financial Officer and Treasurer of Ashworth, Inc. (the
"Registrant"), do hereby certify in accordance with 18 U.S.C. 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of
my knowledge:

      1. the Quarterly Report of the Registrant, on Form 10-Q for the quarter
ended January 31, 2004 (the "Report"), to which this certification is attached
as an exhibit fully complies with the requirements of Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934; and

      2. the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Registrant.



Dated:  March 15, 2004        /s/Terence W. Tsang
      ---------------------   -------------------
                              Terence W. Tsang
                              Executive Vice-President, Chief Operating Officer,
                              Chief Financial Officer and Treasurer

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