##### Table of Contents



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q

|  |  |                                                                                        
|- |  | ---------------------------------------------------------------------------------------
|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2003

OR

|  |  |                                                                                         
|- |  | ----------------------------------------------------------------------------------------
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ___________

Commission file number: 0-18553

Ashworth, Inc.

|                                                                        |  |                                                
|----------------------------------------------------------------------- |  | -----------------------------------------------
|Delaware
(State or other jurisdiction of
incorporation or organization) |  | 84-1052000
(I.R.S. Employee
Identification No.)

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

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

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

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

|                             |  |                                  |            | 
|---------------------------- |  | -------------------------------- | ---------- | 
|Title                        |  | Outstanding at September 8, 2003
|                             |  |                                 
|$.001 par value Common Stock |  |                                  | 13,069,547 | 





---

TABLE OF CONTENTS



|                             |                                                                                               |  |  |  |  |  |  | 
|---------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I FINANCIAL INFORMATION
|                             | CONDENSED CONSOLIDATED BALANCE SHEETS                                                        
|                             | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS                                              
|                             | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                                              
|                             | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                         
|                             | Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                             | Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|                             | Item 4. CONTROLS AND PROCEDURES.                                                             
|PART II OTHER INFORMATION   
|                             | Item 1. LEGAL PROCEEDINGS                                                                    
|                             | Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS                                            
|                             | Item 3. DEFAULTS UPON SENIOR SECURITIES                                                      
|                             | Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|                             | Item 5. OTHER INFORMATION                                                                    
|                             | Item 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                  
|EXHIBIT INDEX               
|EXHIBIT 10.(T)              
|EXHIBIT 10.(U)              
|EXHIBIT 31.1                
|EXHIBIT 31.2                
|EXHIBIT 32.1                
|EXHIBIT 32.2                



---



##### Table of Contents



INDEX

|        |  |                                                                                              |  |     
|------- |  | -------------------------------------------------------------------------------------------- |  | ----
|        |  |                                                                                              |  | PAGE
|        |  |                                                                                              |  |     
|Part I  |  | Financial Information                                                                        |  |     
|        |  | Item 1.Financial Statements                                                                  |  |     
|        |  | Condensed Consolidated Balance Sheets                                                        |  | 1   
|        |  | Condensed Consolidated Statements of Operations                                              |  | 2   
|        |  | Condensed Consolidated Statements of Cash Flows                                              |  | 3   
|        |  | Notes to Condensed Consolidated Financial Statements                                         |  | 4   
|        |  | Item 2.Managements Discussion and Analysis of Financial Condition
and Results of Operations |  | 8   
|        |  | Item 3.Quantitative and Qualitative Disclosures About Market Risk                            |  | 15  
|        |  | Item 4.Controls and Procedures                                                               |  | 16  
|Part II |  | Other Information                                                                            |  |     
|        |  | Item 1.Legal Proceedings                                                                     |  | 17  
|        |  | Item 2.Changes in Securities and Use of Proceeds                                             |  | 17  
|        |  | Item 3.Defaults Upon Senior Securities                                                       |  | 17  
|        |  | Item 4.Submission of Matters to a Vote of Security Holders                                   |  | 17  
|        |  | Item 5.Other Information                                                                     |  | 17  
|        |  | Item 6.Exhibits and Reports on Form 8-K                                                      |  | 17  
|        |  | Signatures                                                                                   |  | 21  
|        |  | Exhibit Index                                                                                |  | 22  

-i-



---



##### Table of Contents






PART I

FINANCIAL INFORMATION




ASHWORTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

|                                       |                                                |                            |                                          |                                            |            |             |             |             |            |            |             | 
|-------------------------------------- | ---------------------------------------------- | -------------------------- | ---------------------------------------- | ------------------------------------------ | ---------- | ----------- | ----------- | ----------- | ---------- | ---------- | ----------- | 
|                                       |                                                |                            |                                          |                                            |            | July 31,    |             | October 31,
|                                       |                                                |                            |                                          |                                            |            | 2003        |             | 2002       
|                                       |                                                |                            |                                          |                                            |            |             |             |            
|                                       |                                                |                            |                                          |                                            |            | (UNAUDITED) |             |             |            |           
|ASSETS                                 |                                                |                            |                                          |                                            |            |             |             |            
|Current assets:                        |                                                |                            |                                          |                                            |            |             |             |            
|                                       | Cash and cash equivalents                      |                            | $                                        | 4,029,000                                  |            |             | $           | 2,336,000   |           
|                                       | Accounts receivable  trade, net               |                            |                                          | 33,733,000                                 |            |             |             | 33,572,000  |           
|                                       | Accounts receivable  other                    |                            |                                          | 2,054,000                                  |            |             |             | 1,821,000   |           
|                                       | Inventories, net                               |                            |                                          | 42,321,000                                 |            |             |             | 41,188,000  |           
|                                       | Income tax refund receivable                   |                            |                                          | 33,000                                     |            |             |             | 246,000     |           
|                                       | Other current assets                           |                            |                                          | 4,448,000                                  |            |             |             | 3,284,000   |           
|                                       | Deferred income tax asset                      |                            |                                          | 1,991,000                                  |            |             |             | 1,748,000   |           
|                                       |                                                |                            |                                          |                                            |            |             |             |            
|                                       |                                                | Total current assets       |                                          |                                            | 88,609,000 |             |             |             | 84,195,000 |           
|                                       |                                                |                            |                                          |                                            |            |             |             |            
|Property, plant and equipment, at cost |                                                |                            | 40,625,000                               |                                            |            |             | 39,167,000  |            
|                                       | Less accumulated depreciation and amortization |                            |                                          | (23,046,000                                | )          |             |             | (21,278,000 | )         
|                                       |                                                |                            |                                          |                                            |            |             |             |            
|                                       |                                                |                            | Total property, plant and equipment, net |                                            |            | 17,579,000  |             |             |            | 17,889,000 |            
|                                       |                                                |                            |                                          |                                            |            |             |             |            
|Other assets                           |                                                |                            | 704,000                                  |                                            |            |             | 891,000     |            
|                                       |                                                |                            |                                          |                                            |            |             |             |            
|                                       |                                                |                            |                                          | Total assets                               |            | $           | 106,892,000 |             |            | $          | 102,975,000 | 
|                                       |                                                |                            |                                          |                                            |            |             |             |            
|LIABILITIES AND STOCKHOLDERS EQUITY   |                                                |                            |                                          |                                            |            |             |             |            
|Current liabilities:                   |                                                |                            |                                          |                                            |            |             |             |            
|                                       | Line of credit payable                         |                            | $                                        | 6,000,000                                  |            |             | $           | 11,125,000  |           
|                                       | Current portion of long-term debt              |                            |                                          | 284,000                                    |            |             |             | 553,000     |           
|                                       | Accounts payable  trade                       |                            |                                          | 7,079,000                                  |            |             |             | 6,338,000   |           
|                                       | Accrued liabilities                            |                            |                                          | 3,867,000                                  |            |             |             | 3,014,000   |           
|                                       |                                                |                            |                                          |                                            |            |             |             |            
|                                       |                                                | Total current liabilities  |                                          |                                            | 17,230,000 |             |             |             | 21,030,000 |           
|                                       |                                                |                            |                                          |                                            |            |             |             |            
|Long-term debt, net of current portion |                                                |                            | 2,706,000                                |                                            |            |             | 2,921,000   |            
|Deferred income tax liability          |                                                |                            | 1,134,000                                |                                            |            |             | 904,000     |            
|Other long-term liabilities            |                                                |                            | 436,000                                  |                                            |            |             | 535,000     |            
|Stockholders equity:                  |                                                |                            |                                          |                                            |            |             |             |            
|                                       | Common stock                                   |                            |                                          | 13,000                                     |            |             |             | 13,000      |           
|                                       | Capital in excess of par value                 |                            |                                          | 37,867,000                                 |            |             |             | 37,185,000  |           
|                                       | Retained earnings                              |                            |                                          | 47,029,000                                 |            |             |             | 40,578,000  |           
|                                       | Accumulated other comprehensive income (loss)  |                            |                                          | 477,000                                    |            |             |             | (191,000    | )         
|                                       |                                                |                            |                                          |                                            |            |             |             |            
|                                       |                                                | Total stockholders equity |                                          |                                            | 85,386,000 |             |             |             | 77,585,000 |           
|                                       |                                                |                            |                                          |                                            |            |             |             |            
|                                       |                                                |                            |                                          | Total liabilities and stockholders equity |            | $           | 106,892,000 |             |            | $          | 102,975,000 | 
|                                       |                                                |                            |                                          |                                            |            |             |             |            

See accompanying notes to condensed consolidated financial statements.

1



---



##### Table of Contents






ASHWORTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

|                                                                |                                     |   |                             |            |                            |   |            |            |      |   |             |            |   |   |            |            |  
|--------------------------------------------------------------- | ----------------------------------- | - | --------------------------- | ---------- | -------------------------- | - | ---------- | ---------- | ---- | - | ----------- | ---------- | - | - | ---------- | ---------- | -
|                                                                |                                     |   | Three months ended July 31, |            | Nine months ended July 31,
|                                                                |                                     |   |                             |            |                           
|                                                                |                                     |   | 2003                        |            | 2002                       |   | 2003       |            | 2002
|                                                                |                                     |   |                             |            |                            |   |            |            |     
|Net revenues                                                    |                                     | $ | 37,960,000                  |            |                            | $ | 36,236,000 |            |      | $ | 117,118,000 |            |   | $ | 99,920,000 |           
|Cost of goods sold                                              |                                     |   | 22,284,000                  |            |                            |   | 21,385,000 |            |      |   | 69,515,000  |            |   |   | 59,444,000 |           
|                                                                |                                     |   |                             |            |                            |   |            |            |      |   |             |            |   |   |            |           
|                                                                | Gross profit                        |   |                             | 15,676,000 |                            |   |            | 14,851,000 |      |   |             | 47,603,000 |   |   |            | 40,476,000 |  
|Selling, general and
administrative expenses                    |                                     |   | 12,051,000                  |            |                            |   | 15,609,000 |            |      |   | 36,445,000  |            |   |   | 36,654,000 |           
|                                                                |                                     |   |                             |            |                            |   |            |            |      |   |             |            |   |   |            |           
|                                                                | Income (loss) from operations       |   |                             | 3,625,000  |                            |   |            | (758,000   | )    |   |             | 11,158,000 |   |   |            | 3,822,000  |  
|Other income (expense):                                         |                                     |   |                             |            |                            |   |            |            |      |   |             |            |   |   |            |           
|                                                                | Interest income                     |   |                             | 9,000      |                            |   |            | 7,000      |      |   |             | 24,000     |   |   |            | 39,000     |  
|                                                                | Interest expense                    |   |                             | (232,000   | )                          |   |            | (258,000   | )    |   |             | (683,000   | ) |   |            | (655,000   | )
|                                                                | Other income                        |   |                             | 37,000     |                            |   |            | 54,000     |      |   |             | 253,000    |   |   |            | 59,000     |  
|                                                                |                                     |   |                             |            |                            |   |            |            |      |   |             |            |   |   |            |           
|                                                                | Total other expense                 |   |                             | (186,000   | )                          |   |            | (197,000   | )    |   |             | (406,000   | ) |   |            | (557,000   | )
|Income (loss) before
provision for income tax
expense (benefit) |                                     |   | 3,439,000                   |            |                            |   | (955,000   | )          |      |   | 10,752,000  |            |   |   | 3,265,000  |           
|Provision for income tax
expense (benefit)                      |                                     |   | 1,376,000                   |            |                            |   | (382,000   | )          |      |   | 4,301,000   |            |   |   | 1,306,000  |           
|                                                                |                                     |   |                             |            |                            |   |            |            |      |   |             |            |   |   |            |           
|Net income (loss)                                               |                                     | $ | 2,063,000                   |            |                            | $ | (573,000   | )          |      | $ | 6,451,000   |            |   | $ | 1,959,000  |           
|                                                                |                                     |   |                             |            |                            |   |            |            |      |   |             |            |   |   |            |           
|Net income (loss) per share                                     |                                     |   |                             |            |                            |   |            |            |      |   |             |            |   |   |            |           
|Basic:                                                          |                                     |   |                             |            |                            |   |            |            |      |   |             |            |   |   |            |           
|                                                                | Weighted average shares
outstanding |   |                             | 13,006,000 |                            |   |            | 13,289,000 |      |   |             | 12,972,000 |   |   |            | 13,224,000 |  
|                                                                | Net income (loss) per share         |   | $                           | 0.16       |                            |   | $          | (0.04      | )    |   | $           | 0.50       |   |   | $          | 0.15       |  
|Diluted:                                                        |                                     |   |                             |            |                            |   |            |            |      |   |             |            |   |   |            |           
|                                                                | Weighted average shares
outstanding |   |                             | 13,211,000 |                            |   |            | 13,289,000 |      |   |             | 13,124,000 |   |   |            | 13,597,000 |  
|                                                                | Net income (loss) per share         |   | $                           | 0.16       |                            |   | $          | (0.04      | )    |   | $           | 0.49       |   |   | $          | 0.14       |  

See accompanying notes to condensed consolidated financial statements.

2



---



##### Table of Contents






ASHWORTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

|                                                                           |                                                        |   |                            |             |      |   |            |             |  
|-------------------------------------------------------------------------- | ------------------------------------------------------ | - | -------------------------- | ----------- | ---- | - | ---------- | ----------- | -
|                                                                           |                                                        |   | Nine months ended July 31,
|                                                                           |                                                        |   |                           
|                                                                           |                                                        |   | 2003                       |             | 2002
|                                                                           |                                                        |   |                            |             |     
|Cash flows from operating activities:                                      |                                                        |   |                            |             |      |   |            |            
|Net cash provided by (used in) operating activities                        |                                                        | $ | 8,374,000                  |             |      | $ | (4,435,000 | )          
|Cash flows from investing activities:                                      |                                                        |   |                            |             |      |   |            |            
|Net cash used in investing activities
Purchases of property and equipment |                                                        |   | (2,422,000                 | )           |      |   | (1,854,000 | )          
|Cash flows from financing activities:                                      |                                                        |   |                            |             |      |   |            |            
|                                                                           | Principal payments on capital lease obligations        |   |                            | (129,000    | )    |   |            | (84,000     | )
|                                                                           | Borrowings on line of credit                           |   |                            | 37,102,000  |      |   |            | 32,445,000  |  
|                                                                           | Payments on line of credit                             |   |                            | (42,227,000 | )    |   |            | (28,045,000 | )
|                                                                           | Principal payments on notes payable and long-term debt |   |                            | (355,000    | )    |   |            | (464,000    | )
|                                                                           | Proceeds from issuance of common stock                 |   |                            | 682,000     |      |   |            | 980,000     |  
|                                                                           |                                                        |   |                            |             |      |   |            |            
|Net cash provided by (used in) financing activities                        |                                                        |   | (4,927,000                 | )           |      |   | 4,832,000  |            
|Effect of exchange rate changes on cash                                    |                                                        |   | 668,000                    |             |      |   | 801,000    |            
|                                                                           |                                                        |   |                            |             |      |   |            |            
|Net increase (decrease) in cash and cash equivalents                       |                                                        |   | 1,693,000                  |             |      |   | (656,000   | )          
|Cash and cash equivalents, beginning of period                             |                                                        |   | 2,336,000                  |             |      |   | 1,055,000  |            
|                                                                           |                                                        |   |                            |             |      |   |            |            
|Cash and cash equivalents, end of period                                   |                                                        | $ | 4,029,000                  |             |      | $ | 399,000    |            
|                                                                           |                                                        |   |                            |             |      |   |            |            

See accompanying notes to condensed consolidated financial statements.

3



---



##### Table of Contents






ASHWORTH, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2003

NOTE 1  Basis of Presentation.



| |  |  | In the opinion of management, the accompanying condensed consolidated
balance sheets and related interim condensed consolidated statements of
operations and cash flows include all adjustments (consisting only of
normal recurring items) necessary for their fair presentation. The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues, and expenses and the disclosure
of contingent assets and liabilities. Actual results could differ from
those estimates. Interim results are not necessarily indicative of
results to be expected for the full year.
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Certain information in footnote disclosures normally included in financial
statements has been condensed or omitted in accordance with the rules and
regulations of the Securities and Exchange Commission (SEC). The
information included in this Form 10-Q should be read in conjunction with
Managements Discussion and Analysis of Financial Condition and Results of
Operations, and consolidated financial statements and notes thereto
included in the annual report on Form 10-K for the year ended October 31,
2002, filed with the SEC on January 30, 2003.                                                                                                                                                                                           
|
| |  |  | Certain reclassifications have been made to the prior years condensed
consolidated financial statements to conform to classifications used in
the current year. These reclassifications had no impact on previously
reported results from operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  |  | Shipping and Handling Expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  |  | The shipping expenses, which consist primarily of payments made to freight
companies, are reported in selling, general and administrative expenses.
Shipping expenses for the quarters ended July 31, 2003 and 2002 were
$525,000 and $377,000 respectively. For the nine-month periods ended July
31, 2003 and 2002, shipping expenses were $1,357,000 and $1,378,000
respectively.                                                                                                                                                                                                                                                                                                                                                                               

NOTE 2  Inventories.



| |  | Inventories consisted of the following at July 31, 2003 and October 31,
2002:
| |  | -----------------------------------------------------------------------------

|                       |  |          |            |             |  |   |            | 
|---------------------- |  | -------- | ---------- | ----------- |  | - | ---------- | 
|                       |  | July 31, |            | October 31,
|                       |  | 2003     |            | 2002       
|                       |  |          |            |            
|Raw materials          |  | $        | 130,000    |             |  | $ | 121,000    | 
|Work in process        |  |          |           |             |  |   | 356,000    | 
|Finished goods         |  |          | 42,191,000 |             |  |   | 40,711,000 | 
|                       |  |          |            |             |  |   |            | 
|Total inventories, net |  | $        | 42,321,000 |             |  | $ | 41,188,000 | 
|                       |  |          |            |             |  |   |            | 

NOTE 3  Net Income Per Share Information.



| |  | 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
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

4



---



##### Table of Contents





| |  | 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 Statement of Financial Accounting Standards (SFAS) No.
128:
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                                           |               |   |                             |         |                            |   |            |   |      |   |            |         |  |   |            |         | 
|-------------------------------------------------------------------------------------------------------------------------- | ------------- | - | --------------------------- | ------- | -------------------------- | - | ---------- | - | ---- | - | ---------- | ------- |  | - | ---------- | ------- | 
|                                                                                                                           |               |   | Three months ended July 31, |         | Nine months ended July 31,
|                                                                                                                           |               |   |                             |         |                           
|                                                                                                                           |               |   | 2003                        |         | 2002                       |   | 2003       |   | 2002
|                                                                                                                           |               |   |                             |         |                            |   |            |   |     
|Numerator:                                                                                                                 |               |   |                             |         |                            |   |            |   |      |   |            |         |  |   |            |        
|Net income (loss)
numerator for basic and diluted
income (loss) per share  income
(loss) available to common stockholders |               | $ | 2,063,000                   |         |                            | $ | (573,000   | ) |      | $ | 6,451,000  |         |  | $ | 1,959,000  |        
|                                                                                                                           |               |   |                             |         |                            |   |            |   |      |   |            |         |  |   |            |        
|Denominator:                                                                                                               |               |   |                             |         |                            |   |            |   |      |   |            |         |  |   |            |        
|Denominator for basic income (loss)
per share  weighted average shares                                                    |               |   | 13,006,000                  |         |                            |   | 13,289,000 |   |      |   | 12,972,000 |         |  |   | 13,224,000 |        
|Effect of dilutive securities:                                                                                             |               |   |                             |         |                            |   |            |   |      |   |            |         |  |   |            |        
|                                                                                                                           | stock options |   |                             | 205,000 |                            |   |            |  |      |   |            | 152,000 |  |   |            | 373,000 | 
|                                                                                                                           |               |   |                             |         |                            |   |            |   |      |   |            |         |  |   |            |        
|Denominator for diluted income (loss)
per share  adjusted weighted average
shares and assumed conversions                 |               |   | 13,211,000                  |         |                            |   | 13,289,000 |   |      |   | 13,124,000 |         |  |   | 13,597,000 |        
|                                                                                                                           |               |   |                             |         |                            |   |            |   |      |   |            |         |  |   |            |        
|Basic net income (loss) per share                                                                                          |               | $ | 0.16                        |         |                            | $ | (0.04      | ) |      | $ | 0.50       |         |  | $ | 0.15       |        
|Diluted net income (loss) per share                                                                                        |               | $ | 0.16                        |         |                            | $ | (0.04      | ) |      | $ | 0.49       |         |  | $ | 0.14       |        



| |  | For the quarters ended July 31, 2003 and 2002, the diluted weighted
average shares outstanding computation excludes 916,000 and 656,000
options whose impact would have an anti-dilutive effect, respectively.
For the nine-month periods ended July 31, 2003 and 2002, the diluted
weighted average shares outstanding computation excludes 1,095,000 and
655,000 options whose impact would have an anti-dilutive effect,
respectively.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE 4  Stock Option Compensation.



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

5



---



##### Table of Contents



|                                                                                                                             |                       |   |                             |      |                            |   |          |       |      |   |           |      |  |   |           |      | 
|---------------------------------------------------------------------------------------------------------------------------- | --------------------- | - | --------------------------- | ---- | -------------------------- | - | -------- | ----- | ---- | - | --------- | ---- |  | - | --------- | ---- | 
|                                                                                                                             |                       |   | Three months ended July 31, |      | Nine months ended July 31,
|                                                                                                                             |                       |   |                             |      |                           
|                                                                                                                             |                       |   | 2003                        |      | 2002                       |   | 2003     |       | 2002
|                                                                                                                             |                       |   |                             |      |                            |   |          |       |     
|Net income (loss), as reported                                                                                               |                       | $ | 2,063,000                   |      |                            | $ | (573,000 | )     |      | $ | 6,451,000 |      |  | $ | 1,959,000 |     
|Deduct: Stock-based
employee compensation
expense determined under
fair value based method for
all awards, net of tax effect |                       |   | (100,000                    | )    |                            |   | (155,000 | )     |      |   | (437,000  | )    |  |   | (602,000  | )   
|                                                                                                                             |                       |   |                             |      |                            |   |          |       |      |   |           |      |  |   |           |     
|Pro forma net income (loss)                                                                                                  |                       | $ | 1,963,000                   |      |                            | $ | (728,000 | )     |      | $ | 6,014,000 |      |  | $ | 1,357,000 |     
|                                                                                                                             |                       |   |                             |      |                            |   |          |       |      |   |           |      |  |   |           |     
|Net income (loss) per share:                                                                                                 |                       |   |                             |      |                            |   |          |       |      |   |           |      |  |   |           |     
|                                                                                                                             | Basic  as reported   |   | $                           | 0.16 |                            |   | $        | (0.04 | )    |   | $         | 0.50 |  |   | $         | 0.15 | 
|                                                                                                                             | Basic  pro forma     |   | $                           | 0.15 |                            |   | $        | (0.05 | )    |   | $         | 0.46 |  |   | $         | 0.10 | 
|                                                                                                                             | Diluted  as reported |   | $                           | 0.16 |                            |   | $        | (0.04 | )    |   | $         | 0.49 |  |   | $         | 0.14 | 
|                                                                                                                             | Diluted  pro forma   |   | $                           | 0.15 |                            |   | $        | (0.05 | )    |   | $         | 0.46 |  |   | $         | 0.10 | 



| |  | These pro forma calculations only include the effects of grants made in
1996 through July 31, 2003. As such, the impacts may not be
representative of the effects on reported net income in future years.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE 5  Comprehensive Income.



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

|                                                      |  |                             |           |                            |  |      |          |      |  |   |           |   |  |   |           | 
|----------------------------------------------------- |  | --------------------------- | --------- | -------------------------- |  | ---- | -------- | ---- |  | - | --------- | - |  | - | --------- | 
|                                                      |  | Three months ended July 31, |           | Nine months ended July 31,
|                                                      |  |                             |           |                           
|                                                      |  | 2003                        |           | 2002                       |  | 2003 |          | 2002
|                                                      |  |                             |           |                            |  |      |          |     
|Net income (loss)                                     |  | $                           | 2,063,000 |                            |  | $    | (573,000 | )    |  | $ | 6,451,000 |   |  | $ | 1,959,000 | 
|Net unrealized losses on
cash flow hedges, net of tax |  |                             | (49,000   | )                          |  |      |         |      |  |   | (49,000   | ) |  |   |          | 
|Foreign currency translation income                   |  |                             | 151,000   |                            |  |      | 743,000  |      |  |   | 717,000   |   |  |   | 801,000   | 
|                                                      |  |                             |           |                            |  |      |          |      |  |   |           |   |  |   |           | 
|Total comprehensive income                            |  | $                           | 2,165,000 |                            |  | $    | 170,000  |      |  | $ | 7,119,000 |   |  | $ | 2,760,000 | 
|                                                      |  |                             |           |                            |  |      |          |      |  |   |           |   |  |   |           | 

NOTE 6  Legal Proceedings.



| |  | On January 22, 1999, Milberg Weiss Bershad Hynes & Lerach LLP filed a
class action in the United States District Court for the Southern
District of California (U.S. District Court) on behalf of purchasers
of the Companys common stock during the period between September 4,
1997 and July 15, 1998. The action was subsequently consolidated with
two similar suits and plaintiffs filed their Amended and Consolidated
Complaint on December 17, 1999. Upon the Companys motion, the U.S.
District Court dismissed the Complaint with leave to
amend on July 18, 2000. On September 18, 2000, plaintiffs served their
Second Consolidated
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6



---



##### Table of Contents





| |  | Amended Complaint (Second Amended Complaint). On
November 6, 2000, the Company filed its motion to dismiss the Second
Amended Complaint, which the U.S. District Court granted, in part, and
denied, in part. The remaining portions of the Second Amended Complaint
allege that, among other things, during the class period and in
violation of the Securities Exchange Act of 1934, the Companys
financial statements, as reported, did not conform to generally accepted
accounting principles with respect to revenues and inventory levels. It
further alleges that certain Company executives made false or misleading
statements or omissions concerning product demand and that two former
executives engaged in insider trading. The plaintiffs seek unspecified
damages. The parties are currently in the discovery process. Based on
the current status of the litigation the Company has not booked any
provision for settlement charges.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company is party to other claims and litigation proceedings arising
in the normal course of business. Although the legal responsibility and
financial impact with respect to such other claims and litigation cannot
currently be ascertained, the Company does not believe that these other
matters will result in payment by the Company of monetary damages, net
of any applicable insurance proceeds, that, in the aggregate, would be
material in relation to the consolidated financial position or results
of operations of the Company.                                                                                                                                                                                                                                                                                                                                                                                                      

NOTE 7  Segment Information.



| |  | The Company defines its operating segments as components of an
enterprise for which separate financial information is available and
regularly reviewed by the Companys senior management. The Company has
the following two reportable segments: domestic and international. The
chief operating decision maker 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s business segments. Segment information is summarized (for the
dates or periods presented) below:
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                               |               |       |   |                             |            |                            |   |            |            |      |   |            |             |  |   |            |            | 
|------------------------------ | ------------- | ----- | - | --------------------------- | ---------- | -------------------------- | - | ---------- | ---------- | ---- | - | ---------- | ----------- |  | - | ---------- | ---------- | 
|                               |               |       |   | Three months ended July 31, |            | Nine months ended July 31,
|                               |               |       |   |                             |            |                           
|                               |               |       |   | 2003                        |            | 2002                       |   | 2003       |            | 2002
|                               |               |       |   |                             |            |                            |   |            |            |     
|Net revenues:                  |               |       |   |                             |            |                            |   |            |            |      |   |            |             |  |   |           
|                               | Domestic      |       | $ | 31,674,000                  |            |                            | $ | 31,184,000 |            |      | $ | 98,651,000 |             |  | $ | 86,210,000 |           
|                               | International |       |   | 6,286,000                   |            |                            |   | 5,052,000  |            |      |   | 18,467,000 |             |  |   | 13,710,000 |           
|                               |               |       |   |                             |            |                            |   |            |            |      |   |            |             |  |   |           
|                               |               | Total |   | $                           | 37,960,000 |                            |   | $          | 36,236,000 |      |   | $          | 117,118,000 |  |   | $          | 99,920,000 | 
|                               |               |       |   |                             |            |                            |   |            |            |      |   |            |             |  |   |           
|Income (loss) from operations: |               |       |   |                             |            |                            |   |            |            |      |   |            |             |  |   |           
|                               | Domestic      |       | $ | 2,877,000                   |            |                            | $ | (848,000   | )          |      | $ | 8,344,000  |             |  | $ | 3,269,000  |           
|                               | International |       |   | 748,000                     |            |                            |   | 90,000     |            |      |   | 2,814,000  |             |  |   | 553,000    |           
|                               |               |       |   |                             |            |                            |   |            |            |      |   |            |             |  |   |           
|                               |               | Total |   | $                           | 3,625,000  |                            |   | $          | (758,000   | )    |   | $          | 11,158,000  |  |   | $          | 3,822,000  | 
|                               |               |       |   |                             |            |                            |   |            |            |      |   |            |             |  |   |           

|              |               |       |   |            |             |             |   |            |             | 
|------------- | ------------- | ----- | - | ---------- | ----------- | ----------- | - | ---------- | ----------- | 
|              |               |       |   | July 31,   |             | October 31,
|              |               |       |   | 2003       |             | 2002       
|              |               |       |   |            |             |            
|Total assets: |               |       |   |            |             |             |   |           
|              | Domestic      |       | $ | 87,746,000 |             |             | $ | 86,198,000 |            
|              | International |       |   | 19,146,000 |             |             |   | 16,777,000 |            
|              |               |       |   |            |             |             |   |           
|              |               | Total |   | $          | 106,892,000 |             |   | $          | 102,975,000 | 
|              |               |       |   |            |             |             |   |           

7



---



##### Table of Contents






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

General

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

Because the Companys business is seasonal, the current balance sheet
balances at July 31, 2003 may more meaningfully be compared to the balances at
July 31, 2002, rather than to the balances at October 31, 2002.

Critical Accounting Policies

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

Revenue Recognition.Based on its terms of F.O.B. shipping point, where
risk of loss and title transfer to the buyer at the time of shipment, the
Company recognizes revenue at the time products are shipped or, for Company
stores, at the point of sale. The Company records sales in accordance with SEC
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements.
Under these guidelines, revenue is recognized when all of the following exist:
persuasive evidence of a sale arrangement exists, delivery of the product has
occurred, the price is fixed or determinable and payment is reasonably assured.
Provisions are made currently for estimated product returns and sales
allowances.

Sales Returns and Other Allowances.Management must make estimates of
potential future product returns related to current period product revenues.
Management analyzes historical returns, current economic trends, changes in
customer demand, and sell-through of our products when evaluating the adequacy
of the sales returns and other allowances. Significant management judgments
and estimates must be made and used in connection with establishing the sales
returns and other allowances in any accounting period. Material differences
may result in the amount and timing of our revenues for any period if
management makes different judgments or utilizes different estimates. The
reserves for sales returns and other allowances amounted to $526,000 at July
31, 2003 compared to $535,000 at October 31, 2002 and $653,000 at July 31,
2002.

Allowance for Doubtful Accounts.Management must also make estimates of
the uncollectability of accounts receivable. The Company maintains an
allowance for doubtful accounts for estimated losses resulting from the
inability of its customers to make required payments, which results in bad debt
expense. Management determines the adequacy of this allowance by analyzing
current economic conditions, historical bad debts and continually evaluating
individual customer receivables considering the customers financial condition.
During the second quarter of fiscal 2003, the Company wrote off the $2.5
million unpaid principal balance of an unsecured promissory note and
approximately $2.0 million of receivables due from a national retail customer
which had filed for protection under U.S. bankruptcy laws, against the $4.5
million previously reserved by the Company for these specific
receivables. If the financial condition of other significant customers of ours
were to deteriorate, resulting in the impairment of their ability to make
payments, material additional allowances for doubtful accounts may be required.
In October 2002,

8



---



##### Table of Contents



the Company acquired credit insurance to cover many of its
major accounts. Our trade accounts receivable balance was $33.7 million, net
of allowances for doubtful accounts of $1.1 million, at July 31, 2003, as
compared to the balance of $33.6 million, net of allowances for doubtful
accounts of $3.2 million, at October 31, 2002. At July 31, 2002, the trade
accounts receivable balance was $38.8 million, net of allowances for doubtful
accounts of $3.3 million.

Inventory.The Company writes down its inventory for estimated
obsolescence or unmarketable inventory equal to the difference between the cost
of inventory and the estimated net realizable value based on assumptions about
age of the inventory, future demand and market conditions. This process
provides for a new basis for the inventory until it is sold. If actual market
conditions are less favorable than those projected by management, additional
inventory write-downs may be required. Our inventory balance was $42.3
million, net of inventory write-downs of $1.0 million, at July 31, 2003, as
compared to an inventory balance of $41.2 million, net of inventory write-downs
of $1.0 million at October 31, 2002. At July 31, 2002, the inventory balance
was $38.9 million, net of inventory write-downs of $1.5 million.

Asset Purchase Credits.In November 2000, the Company entered into an
agreement with a third party whereby inventory was exchanged for future asset
purchase credits (APCs), which may be utilized by the Company to purchase
future goods and services over a four-year period. The original value of the
inventory exchanged (at cost) was $1.4 million resulting in $1.4 million in
future APCs. The Company has entered into contracts with several third party
suppliers who have agreed to accept these APCs, in part, as payment for goods
and services. From time to time the Company may enter into additional
contracts with such third party suppliers to use the APCs. At July 31, 2003,
the Company had $0.6 million of the APCs remaining and management expects to
fully utilize them over the remaining life of the contract.

Results of Operations

Third quarter 2003 compared to third quarter 2002

Consolidated net revenues for the third quarter of fiscal 2003 increased
4.8% to $37,960,000 from $36,236,000 for the same period in 2002. Net revenues
for the domestic segment increased 1.6% to $31,674,000 for the current quarter
from $31,184,000 in the third quarter of 2002, primarily due to increased
revenues from the Companys retail distribution channel resulting from an
increase in the number of doors selling the Companys product line as well as
increased revenues from the corporate distribution channel. These increases
were partially offset by the decline in revenues in the green grass and
off-course specialty distribution channel primarily due to the generally weak
industry wide trends. Net revenues for the international segment increased
24.4% to $6,286,000 for the current quarter from $5,052,000 for the same period
of the prior fiscal year. The increase was primarily due to higher revenues in
the Companys U.K. subsidiary and Canadian divisions, of which $469,000 was due
to the weakening of the U.S. dollar against the British pound and Canadian
dollar during the third quarter of fiscal 2003, partially offset by slight
decreases in other international territories.

Consolidated gross margin for the third quarter of fiscal 2003 increased
30 basis points to 41.3% as compared to 41.0% for the same quarter a year
earlier. This improvement was primarily due to improved sourcing. The Company
continues to benefit from operational initiatives designed to improve its
execution and profitability.

Consolidated selling, general and administrative (SG&A) expenses
decreased 22.8% to $12,051,000 for the third quarter of fiscal 2003 from $15,609,000 for the
same period in fiscal 2002. As a percent of net revenues SG&A expenses were
31.8% for the third quarter of fiscal 2003 as compared to 43.1% for the same
period of the prior year. In the third quarter of fiscal 2002 the Company
booked $4,250,000 additional bad debt reserve for the national retail account
that defaulted on its debt to the

9



---



##### Table of Contents



Company. Excluding the $4,250,000 additional
bad debt reserve, the SG&A expenses would have totaled $11,359,000 or 31.4% of
net revenue, in the third quarter of fiscal 2002 and the Companys SG&A
expenses for the third quarter of fiscal 2003 would have increased 6.1%. The
6.1% increase is due to variable costs associated with higher revenues, higher
insurance costs and planned investments to build awareness and enhance our
infrastructure. The Company believes that excluding the effect of the increase
in reserve for bad debts booked in the third quarter of fiscal 2002 for the
single customer filing for protection under the U.S. bankruptcy laws provides
additional information to investors to better understand the impact the
transaction had on the Companys performance for the third quarter of 2003 as
compared to the same quarter of fiscal 2002 and, therefore, the adjusted
consolidated SG&A expenses measure is useful to investors.

Total other expense decreased to $186,000 for the third quarter of fiscal
2003 from $197,000 in the third quarter of fiscal 2002, primarily due to lower
interest expense resulting from lower interest rates on lower average
borrowings under the Companys line of credit.

The effective income tax rate for the third quarter of fiscal 2003
remained at 40.0% of pre-tax income.

Nine months ended July 31, 2003 compared to nine months ended July 31, 2002

Consolidated net revenues for the first nine months of fiscal 2003
increased 17.2% to $117,118,000 from $99,920,000 for the same period in fiscal
2002. Net revenues for the domestic segment increased 14.4% to $98,651,000
from $86,210,000 in the first nine months of fiscal 2002 primarily due to the
addition of the Callaway Golf apparel line which was introduced in April 2002.
The Company experienced growth in all three of its primary domestic
distribution channels. Net revenues from the Companys retail distribution
channel increased 60.0%, net revenues from the Companys green grass and
off-course specialty distribution channel increased 12.1% and net revenues from
the Companys corporate distribution channel increased 10.9%. Net revenues for
the international segment increased 34.7% to $18,467,000 from $13,710,000 for
the same period of the prior fiscal year. The increase was primarily due to
the higher revenues in the Companys U.K. subsidiary and Canadian divisions, of
which $1,397,000 was due to the weakening of the U.S. dollar against the
British pound and Canadian dollar during the first nine months of fiscal 2003
as well as a slight increase in other international territories.

Consolidated gross margin for the first nine months of fiscal 2003
improved slightly to 40.7% as compared to 40.5% in the first nine months of
fiscal 2002. The improvement was primarily due to improved sourcing partially
offset by price compression.

Consolidated SG&A expenses decreased 0.6% to $36,445,000 for the first
nine months of fiscal 2003 from $36,654,000 for the same period in fiscal 2002.
As a percent of net revenues SG&A expenses were 31.1% for the third quarter of
fiscal 2003 as compared to 36.7% for the same period of the prior year. In the
third quarter of fiscal 2002 the Company booked $4,250,000 additional bad debt
reserve for the national retail account that defaulted on its debt to the
Company. Excluding the $4,250,000 additional bad debt reserve, the SG&A
expenses would have totaled $ 32,404,000 or 32.4% of net revenues in the first
nine months of fiscal 2002, and the Companys SG&A expenses for the first nine
months of fiscal 2003 would have increased 12.5%. The 12.5% increase is
primarily due to variable costs associated with higher revenues. The Company
believes that excluding the effect of the increase in reserve for bad debts
booked in the third quarter of fiscal 2002 for the single customer filing for
protection under the U.S. bankruptcy laws provides additional information to
investors to better understand the impact the transaction had on the Companys
performance for the first nine months of 2003 as compared to the same period of
fiscal 2002 and, therefore, the adjusted consolidated SG&A expenses measure is
useful to investors.

10



---



##### Table of Contents



Total other expense decreased to $406,000 in the first nine months of
fiscal 2003 from $557,000 during the same period of fiscal 2002, due primarily
to higher currency transaction gains in the first nine months of the current
year as compared to the same period of the prior fiscal year by the Companys
U.K. subsidiary and Canadian divisions.

The effective income tax rate in the first nine months of fiscal 2003
remained at 40.0% of pre-tax income.

Liquidity and Capital Resources

The Companys primary sources of liquidity for the remainder of fiscal
2003 are expected to be its cash flows from operations, the working capital
line of credit with its bank and other financial alternatives such as leasing.
The Company requires cash for capital expenditures and other requirements
associated with the expansion of its domestic and international production,
distribution and sales, as well as for general working capital purposes. On
April 24, 2003, the Company entered into a new business loan agreement with
Bank of America, N.A., as the administrative agent, and two other lenders. The
new credit facility expires on April 30, 2005 and is collateralized by
substantially all of the assets of the Company. The loan agreement provides a
revolving line of credit of $45,000,000 with a seasonal increase in the line of
credit to $55,000,000 for each period commencing December 1 through June 15
during the term of the agreement.

Interest under this loan agreement is currently charged at the banks
reference (prime) rate. At July 31, 2003, the prime rate was 4.00%. The loan
agreement also provides for optional interest rates based on London interbank
offered rates (LIBOR) for periods of at least 30 days in increments of
$500,000. The loan agreement contains various restrictive covenants requiring,
among other matters, the maintenance of certain financial ratios. Management
believes the Company was in compliance with all such covenants as of July 31,
2003. 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 $5,998,000 at July 31, 2003 as compared to
$11,227,000 at October 31, 2002 under the prior loan agreement. The Company
had $6,000,000 outstanding against the line of credit at July 31, 2003,
compared to $11,125,000 outstanding at October 31, 2002 under the prior loan
agreement. The decrease in outstanding letters of credit and borrowings is
primarily due to the seasonality of the Companys business as well as better
working capital management. At July 31, 2003, $33,002,000 was available for
borrowings under this loan agreement.

Net trade receivables were $33,733,000 at July 31, 2003, an increase of
$161,000 from the balance at October 31, 2002. Because the Companys business
is seasonal, the net receivables balance may more meaningfully be compared to
the balance of $38,766,000 at July 31, 2002, rather than the year-end balance.
The comparison of the third quarter fiscal 2003 balance to the third quarter
fiscal 2002 balance shows a decrease of 13.0% in net trade receivables while
net revenues increased 4.8% for the comparable quarter. This decrease is
primarily due to tighter internal controls and more timely collections.

Net inventories increased 2.8% to $42,321,000 at July 31, 2003 from
$41,188,000 at October 31, 2002. Compared to net inventories of $38,857,000 at
July 31, 2002, net inventories at July 31, 2003 have increased by 8.9%,
primarily due to the addition of the Callaway Golf apparel line. The Company
believes that its current inventory mix is appropriate to respond to market
demand.

During the first nine months of fiscal 2003, the Company incurred capital
expenditures of $2,422,000 primarily for computer systems and equipment,
leasehold improvements and distribution center equipment. The Company
anticipates capital spending of approximately $1,000,000 during the remainder
of fiscal 2003, primarily on upgrades of computer systems and equipment and
outlet stores

11



---



##### Table of Contents



renovations. Except for the equipment lease related to the equipment
required for the operation of the Companys new distribution center, as
discussed hereafter, management currently intends to finance the purchase of
the Companys capital equipment from its own cash resources, but may use other
leases or equipment financing agreements if deemed appropriate. In addition,
the Company continues to evaluate projects that may require additional capital
expenditures in connection with the planned expansion of its domestic and
international production, distribution and sales.

The Company is party to an exclusive licensing agreement with Callaway
Golf Company which requires certain minimum royalty payments beginning in
January 2003. The Company believes that revenues from the Callaway Golf
apparel product line will be sufficient to cover such minimum royalty payments.

Common stock and capital in excess of par value increased by $682,000 in
the nine months ended July 31, 2003 due to the issuance of shares from the
exercise of options.

On October 25, 2002, the Company entered into an agreement to purchase
land and a building, to be built to the Companys specifications, in the Ocean
Ranch Corporate Center in Oceanside, California. The building, to be
constructed with approximately 238,000 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 year 2004 for approximately $15.0
million. The Company has also entered into a contingent lease agreement which
obligates the Company to pay a monthly base rent plus standard common area
maintenance (CAM) charges for a term of 10 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 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. The Company plans to, and
management believes it will be able to, obtain a long-term loan separate from
the line of credit agreement to finance the purchase of the land and the
building.

On
June 23, 2003 the Company entered into a Master Equipment Lease
Agreement to lease the equipment required for the operation of the Companys
new distribution center in Oceanside, California. From time to time,
commencing approximately June 26, 2003, the lessor will make progress payments
to the equipment manufacturer during the period when the equipment is being
purchased, assembled, installed and/or tested as required by the purchase
agreement between the supplier and the Company. The Company is obligated to
pay interim rent on any progress payments made by the lessor consisting of the
interest charged at the prime rate plus one-half of one percentage point per
annum based on a 360 day year, monthly from the date of the progress payment
until the end of the interim term. The interim term starts as of the date of
the first progress payment and ends on the rent commencement date which will be
either when the lessor receives an executed certificate of acceptance for the
equipment from the Company or the date when lessor disburses funds for the
purchase of the equipment.

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 months.

12



---



##### Table of Contents



Off-Balance Sheet Arrangements

At July 31, 2003 and October 31, 2002, the Company did not have any
relationships with unconsolidated entities or financial partnerships, such as
entities often referred to as structured finance or special purpose entities,
which would have been established for the purpose of facilitating off-balance
sheet arrangements or other contractually narrow or limited purposes. In
addition, the Company does not engage in trading activities involving
non-exchange traded contracts which rely on estimation techniques to calculate
fair value. As such, the Company is not exposed to any financing, liquidity,
market or credit risk that could arise if the Company had engaged in such
relationships.

Derivatives

From time to time the Company enters into short-term foreign exchange
contracts with its bank to hedge against the impact of currency fluctuations
between the U.S. dollar and the British pound and the U.S. dollar and the
Canadian dollar. The contracts provide that, on specified dates, the Company
would sell the bank a specified number of British pounds or Canadian dollars in
exchange for a specified number of U.S. dollars. Additionally, from time to
time the Companys U.K. subsidiary enters into similar contracts with its bank
to hedge against currency fluctuations between the British pound and the U.S.
dollar and the British pound and other European currencies. Realized gains and
losses on these contracts are recognized in the same period as the hedged
transactions. These contracts have maturity dates that do not normally exceed
12 months. On July 15, 2003, the Company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 July 31, 2003, the notional amount of these foreign exchange contracts
designated as cash flow hedges was $4,582,000 with an unrealized after tax loss
of $49,000.

New Accounting Standards

On January 17, 2003, the Financial Accounting Standards Board (FASB)
issued Interpretation No. 46, Consolidation of Variable Interest Entities(FIN
No. 46). FIN No. 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. 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 interests entities created, or
interests in variable interest entities obtained, subsequent to January 31,
2003, the Company is required to apply the consolidation provisions of FIN No.
46 immediately. For variable interest entities created, or interests in
variable interest entities obtained, on or before January 31, 2003, the
consolidation provisions of FIN No. 46 are first required to be applied in the
Companys financial statements as of July 31, 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. 46.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities, which amends and clarifies
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities under SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 149 is
generally effective for derivative instruments, including derivative
instruments embedded in certain contracts, entered into or modified after June
30, 2003 and for hedging relationships designated after June 30, 2003.

13



---



##### Table of Contents



The adoption of SFAS No. 149 did not have a material impact on the
Companys financial position and results of operations.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity.
SFAS No. 150 establishes standards for how to classify and measure certain
financial instruments with characteristics of both liabilities and equity.
SFAS No. 150 is effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. The adoption of SFAS No. 150 did
not have a material impact on the Companys financial position and results of
operations.

Cautionary Statements and Risk Factors

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



| |  |  | Demand for the Companys products may decrease significantly if the
economy weakens, the popularity of golf decreases or unusual weather
conditions cause a reduction in rounds played.                                                                                                                                                                                                                                                                                                                                                                     
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Like other apparel manufacturers, the Company must correctly anticipate
and help direct fashion trends within its industry. The Companys
results of operations could suffer if the Company fails to develop
fashions or styles that are well received in any season.                                                                                                                                                                                                                                                                                       
|
| |  |  | The Company is party to a multi-year licensing agreement to design,
source and sell Callaway Golf apparel primarily in the United States,
Europe, Canada and Australia. The Company must correctly anticipate the
fashion trends and demand for these product lines. The Companys results
of operations could suffer if it fails to develop fashions or styles for
the Callaway Golf apparel product line that are well received in any
season.                                                                                                            
|
| |  |  | The market for golf apparel and sportswear is extremely competitive.
The Company has several strong competitors that are better capitalized.
Outside the core green grass market, the Companys market share is not as
significant as that of its competition. Price competition or industry
consolidation could weaken the Companys competitive position.                                                                                                                                                                                                 
|
| |  |  | The outbreak of Severe Acute Respiratory Syndrome affected travel to
countries where the Companys products are manufactured. Visiting
manufacturers in the affected countries is part of the product
development process for the Company and if travel to these countries is
again restricted by a similar outbreak, the Companys product development
process and reputation as a designer and manufacturer of innovative
products may be adversely affected, our international production and
shipments may be limited, and the Company could lose sales.
|
| |  |  | The Company relies on domestic and foreign contractors to manufacture
various products. If                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

14



---



##### Table of Contents





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




Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

The Companys debt consists of notes payable which had a total balance of
$2,990,000 at July 31, 2003. The debt bears interest at variable and fixed
rates ranging from 5.9% to 8.3%, which

15



---



##### Table of Contents



approximates fair value based on current rates offered for debt with
similar risks and maturities. The Company also had $6,000,000 outstanding at
July 31, 2003 on its revolving line of credit with interest charged at the
banks reference (prime) rate. The loan agreement also provides for optional
interest rates based on LIBOR for periods of at least 30 days in increments of
$500,000. A hypothetical 10% increase in interest rates during the nine months
ended July 31, 2003 would have resulted in a $22,000 decrease in net income.

Foreign Currency Exchange Rate Risk

The Companys ability to sell its products in foreign markets and the U.S.
dollar value of the sales made in foreign currencies can be significantly
influenced by foreign currency fluctuations. A decrease in the value of
foreign currencies relative to the U.S. dollar could result in downward price
pressure for the Companys products or losses from currency exchange rates.
From time to time the Company enters into short-term foreign exchange contracts
with its bank to hedge against the impact of currency fluctuations between the
U.S. dollar and the British pound and the U.S. dollar and the Canadian dollar.
The contracts provide that, on specified dates, the Company would sell the bank
a specified number of British pounds or Canadian dollars in exchange for a
specified number of U.S. dollars. Additionally, from time to time the
Companys U.K. subsidiary enters into similar contracts with its bank to hedge
against currency fluctuations between the British pound and the U.S. dollar and
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 months. The Company will continue to assess the benefits and risks of
strategies to manage the risks presented by currency exchange rate
fluctuations. There is no assurance that any strategy will be successful in
avoiding losses due to exchange rate fluctuations, or that the failure to
manage currency risks effectively would not have a material adverse effect on
the Companys results of operations. On July 15, 2003, the Company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 July 31, 2003, the notional amount of these foreign
exchange contracts designated as cash flow hedges was $4,582,000 with an
unrealized after tax loss of $49,000.




Item 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this quarterly report on Form 10-Q,
we evaluated the effectiveness of the design and operation of our disclosure
controls and procedures. That evaluation was performed under the supervision
and with the participation of our management, including our Chief Executive
Officer and our Chief Financial Officer. Based on that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures are effective in timely alerting them to information
relating to the Company required to be included in our periodic SEC filings.

Changes in Internal Control over Financial Reporting

We have made no significant change in our internal control over financial
reporting during the period covered by this quarterly report on Form 10-Q that
has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.

16



---



##### Table of Contents






PART II

OTHER INFORMATION




Item 1. LEGAL PROCEEDINGS

On January 22, 1999, Milberg Weiss Bershad Hynes & Lerach LLP filed a
class action in the United States District Court for the Southern District of
California (U.S. District Court) on behalf of purchasers of the Companys
common stock during the period between September 4, 1997 and July 15, 1998.
The action was subsequently consolidated with two similar suits and plaintiffs
filed their Amended and Consolidated Complaint on December 17, 1999. Upon the
Companys motion, the U.S. District Court dismissed the Complaint with leave to
amend on July 18, 2000. On September 18, 2000, plaintiffs served their Second
Consolidated Amended Complaint (Second Amended Complaint). On November 6,
2000, the Company filed its motion to dismiss the Second Amended Complaint,
which the U.S. District Court granted, in part, and denied, in part. The
remaining portions of the Second Amended Complaint allege that, among other
things, during the class period and in violation of the Securities Exchange Act
of 1934, the Companys financial statements, as reported, did not conform to
generally accepted accounting principles with respect to revenues and inventory
levels. It further alleges that certain Company executives made false or
misleading statements or omissions concerning product demand and that two
former executives engaged in insider trading. The plaintiffs seek unspecified
damages. The parties are currently in the discovery process. Based on the
current status of the litigation the Company has not booked any provision for
settlement charges.

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




Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS  Not applicable.




Item 3. DEFAULTS UPON SENIOR SECURITIES  Not applicable.




Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS  Not applicable.




Item 5. OTHER INFORMATION  Not applicable.




Item 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3(a) |  | Certificate of Incorporation as filed March 19, 1987 with the Secretary
of State of Delaware, Amendment to Certificate of Incorporation as filed
August 3, 1987 and Amendment to Certificate of Incorporation as filed
April 26, 1991 (filed as Exhibit 3(a) to the Companys Registration
Statement dated February 21, 1992 (File No. 33-45078) and incorporated
herein by reference) and Amendment to Certificate of Incorporation as
filed April 6, 1995 (filed as Exhibit 3(a) to the Companys Form 10-K for
the fiscal year ended October 31, 1994 (File No. 0-18553) and incorporated
herein by reference).

17



---



##### Table of Contents



|        |  |                                                                                                                                                                                                                                                                                                                               
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |  |                                                                                                                                                                                                                                                                                                                               
|3(b)    |  | Amended and Restated Bylaws of the Company (filed as Exhibit 3.1 to the
Companys Current Report on Form 8-K on February 23, 2000 (File No.
0-18553) and incorporated herein by reference).                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                               
|4(a)    |  | Specimen certificate for Common Stock, par value $.001 per share, of the
Company (filed as Exhibit 4(a) to the Companys Registration Statement
dated November 4, 1987 (File No. 33-16714-D) and incorporated herein by
reference).                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                               
|4(b)(1) |  | Specimen certificate for Options granted under the Amended and Restated
Nonqualified Stock Option Plan dated March 12, 1992 (filed as Exhibit 4(b)
to the Companys Form 10-K for the fiscal year ended October 31, 1993
(File No. 0-18553) and incorporated herein by reference).                                            
|        |  |                                                                                                                                                                                                                                                                                                                               
|4(b)(2) |  | Specimen certificate for Options granted under the Founders Stock
Option Plan dated November 6, 1992 (filed as Exhibit 4(b)(2) to the
Companys Form 10-K for the fiscal year ended October 31, 1993 (File No.
0-18553) and incorporated herein by reference).                                                                
|        |  |                                                                                                                                                                                                                                                                                                                               
|4(c)    |  | Specimen certificate for Options granted under the Incentive Stock Option
Plan dated June 15, 1993 (filed as Exhibit 4(c) to the Companys Form 10-K
for the fiscal year ended October 31, 1993 (File No. 0-18553) and
incorporated herein by reference).                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                               
|4(d)    |  | Rights Agreement dated as of October 6, 1998 and amended on February 22,
2000 by and between Ashworth, Inc. and American Securities Transfer &
Trust, Inc. (filed as Exhibit 4.1 to the Companys Form 8-K filed on March
14, 2000 (File No. 0-18553) and incorporated herein by reference).                                  
|        |  |                                                                                                                                                                                                                                                                                                                               
|10(a)*  |  | Personal Services Agreement and Acknowledgement of Termination of
Executive Employment effective December 31, 1998 by and between Ashworth,
Inc. and Gerald W. Montiel (filed as Exhibit 10(b) to the Companys Form
10-K for the fiscal year ended October 31, 1998 (File No. 0-18553) and
incorporated herein by reference).
|        |  |                                                                                                                                                                                                                                                                                                                               
|10(b)*  |  | Amendment to Personal Services Agreement effective January 1, 1999 by
and between Ashworth, Inc. and Gerald W. Montiel (filed as Exhibit 10(c)
to the Companys Form 10-K for the fiscal year ended October 31, 1998
(File No. 0-18553) and incorporated herein by reference).                                                
|        |  |                                                                                                                                                                                                                                                                                                                               
|10(c)*  |  | First Amended and Restated Executive Employment Agreement effective
February 22, 1999 by and between Ashworth, Inc. and Randall L. Herrel, Sr.
(filed as Exhibit 10(a) to the Companys Form 10-Q for the quarter ended
April 30, 1999 (File No. 0-18553) and incorporated herein by reference).                              
|        |  |                                                                                                                                                                                                                                                                                                                               
|10(d)*  |  | Employment Agreement effective December 15, 2000 by and between
Ashworth, Inc. and Terence W. Tsang (filed as Exhibit 10(f) to the
Companys Form 10-Q for the quarter ended January 31, 2001 (File No.
0-18553) and incorporated herein by reference).                                                                       
|        |  |                                                                                                                                                                                                                                                                                                                               
|10(e)*  |  | Founders Stock Option Plan dated November 6, 1992 (filed as Exhibit
10(g) to the Companys Form 10-K for the fiscal year ended October 31,
1993 (File No. 0-18553) and incorporated herein by reference).                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                               
|10(f)*  |  | Amended and Restated Nonqualified Stock Option Plan dated November 1,
1996 (filed as Exhibit 10(i) to the Companys Form 10-K for the fiscal
year ended October 31, 2000 (File No. 0-18553) and incorporated herein by
reference).                                                                                            
|        |  |                                                                                                                                                                                                                                                                                                                               
|10(g)*  |  | Amended and Restated Incentive Stock Option Plan dated November 1, 1996
(filed as Exhibit 10(j) to the Companys Form 10-K for the fiscal year
ended October 31, 2000 (File No. 0-18553) and incorporated herein by
reference).                                                                                               

18



---



##### Table of Contents



|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10(h)*   |  | Amended and Restated 2000 Equity Incentive Plan dated December 14, 1999
adopted by the stockholders on March 24, 2000 (filed as Exhibit 4.1 to the
Companys Form S-8 filed on December 12, 2000 (File No. 333-51730) and
incorporated herein by reference).                                                                                                                                                                                                                                            
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10(i)(1) |  | Credit Agreement dated April 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
30, 2005 (filed as Exhibit 10(i)(1) to the Companys Form 10-Q for the
quarter ended April 30, 2003 (File No. 0-18553) and incorporated herein by
reference).                                                                                                                      
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10(i)(2) |  | Guaranty Agreement dated April 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 10(i)(2) to the Companys Form 10-Q
for the quarter ended April 30, 2003 (File No. 0-18553) and incorporated
herein by reference)                                                                                                           
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10(i)(3) |  | Security Agreement effective as of April 24, 2003 to the Credit
Agreement dated April 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 30, 2005
(filed as Exhibit 10(i)(3) to the Companys Form 10-Q for the quarter
ended April 30, 2003 (File No. 0-18553) and incorporated herein by
reference).                                                              
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10(i)(4) |  | Security Agreement effective as of April 24, 2003 to the Credit
Agreement dated April 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 30, 2005 (filed as Exhibit
10(i)(4) to the Companys Form 10-Q for the quarter ended April 30, 2003
(File No. 0-18553) and incorporated herein by reference).
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10(i)(5) |  | Deed of Hypothec of Universality of Moveable Property effective as of
April 24, 2003 to the Credit Agreement dated April 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 30, 2005 (filed as Exhibit 10(i)(5) to the
Companys Form 10-Q for the quarter ended April 30, 2003 (File No.
0-18553) and incorporated herein by reference).                           
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10(i)(6) |  | Equitable Mortgage Over Securities effective as of April 24, 2003 to
the Credit Agreement dated April 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 30, 2005 (filed as Exhibit 10(i)(6) to the Companys Form
10-Q for the quarter ended April 30, 2003 (File No. 0-18553) and
incorporated herein by reference).                                     
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10(j)*   |  | Change in Control Agreement dated November 1, 2000 by and between
Ashworth, Inc. and Randall L. Herrel, Sr. (filed as Exhibit 10(m) to the
Companys Form 10-K for the fiscal year ended October 31, 2000 (File No.
0-18553) and incorporated herein by reference).                                                                                                                                                                                                                                     
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10(k)*   |  | Change in Control Agreement dated November 1, 2000 by and between
Ashworth, Inc. and Terence W. Tsang (filed as Exhibit 10(n) to the
Companys Form 10-K for the fiscal year ended October 31, 2000 (File No.
0-18553) and incorporated herein by reference).                                                                                                                                                                                                                                           
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10(l)    |  | Promotion Agreement effective November 1, 1999 by and between Ashworth,
Inc. and Fred Couples (filed as Exhibit 10(o) to the Companys Form 10-K
for the fiscal year ended October 31, 2000 (File No. 0-18553) and
incorporated herein by reference).                                                                                                                                                                                                                                                   
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10(m)*   |  | Offer and Acceptance of Executive Employment effective November 29, 1999
by and between Ashworth, Inc. and Anthony Wilkinson (filed as Exhibit
10(q) to the Companys Form 10-Q for the quarter ended January 31, 2001
(File No. 0-18553) and incorporated herein by reference).                                                                                                                                                                                                                        

19



---



##### Table of Contents



|       |  |                                                                                                                                                                                                                                                                                                                                    
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |  |                                                                                                                                                                                                                                                                                                                                    
|10(n)* |  | Offer and Acceptance of Executive Employment effective May 29, 2001 by
and between Ashworth, Inc. and Eddie Fadel (filed as Exhibit 10(o) to the
Companys Form 10-K for the fiscal year ended October 31, 2002 (File No.
0-18553) and incorporated herein by reference).                                                          
|       |  |                                                                                                                                                                                                                                                                                                                                    
|10(o)* |  | Contract Termination Agreement effective October 31, 2002 by and among
Ashworth, Inc., James Nantz, III and Nantz Communications, Inc. (filed as
Exhibit 10(p) to the Companys Form 10-K for the fiscal year ended October
31, 2002 (File No. 0-18553) and incorporated herein by reference).                                     
|       |  |                                                                                                                                                                                                                                                                                                                                    
|10(p)  |  | Real Estate Purchase and Sale Agreement and Joint Escrow Instructions
effective October 25, 2002 by and between Innovative Development
Enterprises, Inc. and Ashworth, Inc. (filed as Exhibit 10(q) to the
Companys Form 10-K for the fiscal year ended October 31, 2002 (File No.
0-18553) and incorporated herein by reference).
|       |  |                                                                                                                                                                                                                                                                                                                                    
|10(q)* |  | Promotion Agreement effective October 31, 2002 by and among Ashworth,
Inc., James W. Nantz, III and Nantz Enterprises, Ltd. (filed as Exhibit
10(q) to the Companys Form 10-Q for the quarter ended January 31, 2003
(File No. 0-18553) and incorporated herein by reference).                                                    
|       |  |                                                                                                                                                                                                                                                                                                                                    
|10(r)  |  | Purchase and Installation Agreement dated April 10, 2003 between
Ashworth, Inc. and Gartner Storage & Sorter Systems of Pennsylvania (filed
as Exhibit 10(r) to the Companys Form 10-Q for the quarter ended April
30, 2003 (File No. 0-18553) and incorporated herein by reference).                                             
|       |  |                                                                                                                                                                                                                                                                                                                                    
|10(s)  |  | Agreement for Lease dated May 1, 2003 by and among Ashworth, Inc.,
Ashworth U.K. Limited and Juniper Developments Limited (filed as Exhibit
10(s) to the Companys Form 10-Q for the quarter ended April 30, 2003
(File No. 0-18553) and incorporated herein by reference).                                                        
|       |  |                                                                                                                                                                                                                                                                                                                                    
|10(t)  |  | Lease dated September 1, 2003 by and among Ashworth, Inc., Ashworth U.K.
Limited and Juniper Developments Limited.                                                                                                                                                                                                                 
|       |  |                                                                                                                                                                                                                                                                                                                                    
|10(u)  |  | Master Equipment Lease Agreement dated as of June 23, 2003 by and
between Key Equipment Finance and Ashworth, Inc. including Amendment 01,
the Assignment of Purchase Agreement and the Certificate of Authority.                                                                                                                  
|       |  |                                                                                                                                                                                                                                                                                                                                    
|31.1   |  | Certification Pursuant to Rules 13a-14 and 15d-14, as Adopted Pursuant to
Section 302 of The Sarbanes-Oxley Act of 2002 by Randall L. Herrel, Sr.                                                                                                                                                                                  
|       |  |                                                                                                                                                                                                                                                                                                                                    
|31.2   |  | Certification Pursuant to Rules 13a-14 and 15d-14, as Adopted Pursuant to
Section 302 of The Sarbanes-Oxley Act of 2002 by Terence W. Tsang.                                                                                                                                                                                       
|       |  |                                                                                                                                                                                                                                                                                                                                    
|32.1   |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of The Sarbanes-Oxley Act of 2002 by Randall L. Herrel, Sr.                                                                                                                                                                                   
|       |  |                                                                                                                                                                                                                                                                                                                                    
|32.2   |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of The Sarbanes-Oxley Act of 2002 by Terence W. Tsang.                                                                                                                                                                                        

*     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.

(b)  Reports on Form 8-K:



| |  | On June 5, 2003, the Company filed a report on Form 8-K dated June 5,
2003 furnishing the press release reporting the results of operations
for the second quarter fiscal 2003 and first six months ended April 30,
2003.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

20



---



##### Table of Contents






SIGNATURES

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

|                         |  |                                                                                                          
|------------------------ |  | ---------------------------------------------------------------------------------------------------------
|                         |  | ASHWORTH, INC                                                                                            
|                         |  |                                                                                                          
|Date: September 12, 2003 |  | By: /s/ Terence W. Tsang                                                                                 
|                         |  |                                                                                                          
|                         |  | Terence W. Tsang
Executive Vice President,
Chief Operating Officer,
Chief Financial Officer and
Treasurer

21



---



##### Table of Contents






EXHIBIT INDEX

|        |  |                                                                                                                                                                                                                  
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                  
|Number  |  | Description of Exhibit                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                  
|10(t)   |  | Lease dated September 1, 2003 by and among Ashworth, Inc.,
Ashworth U.K. Limited and Juniper Developments Limited.                                                                                               
|        |  |                                                                                                                                                                                                                  
|10(u)   |  | Master Equipment Lease Agreement dated as of June 23, 2003
by and between Key Equipment Finance and Ashworth, Inc.
including Amendment 01, the Assignment of Purchase
Agreement and the Certificate of Authority.
|        |  |                                                                                                                                                                                                                  
|31.1    |  | Certification Pursuant to Rules 13a-14 and 15d-14, as
Adopted Pursuant to Section 302 of The Sarbanes-Oxley Act
of 2002 by Randall L. Herrel, Sr.                                                                
|        |  |                                                                                                                                                                                                                  
|31.2    |  | Certification Pursuant to Rules 13a-14 and 15d-14, as
Adopted Pursuant to Section 302 of The Sarbanes-Oxley Act
of 2002 by Terence W. Tsang.                                                                     
|        |  |                                                                                                                                                                                                                  
|32.1    |  | Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act
of 2002 by Randall L. Herrel, Sr.                                                                 
|        |  |                                                                                                                                                                                                                  
|32.2    |  | Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act
of 2002 by Terence W. Tsang.                                                                      

22