<PAGE>

                     U.S. 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 June 30, 2001

         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 - 24608
                                               ---------

                               FOTOBALL USA, INC.
--------------------------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)

           Delaware                                     33 - 0614889
--------------------------------------------------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

                   6740 Cobra Way, San Diego, California 92121
                   -------------------------------------------
               (Address of principal executive offices) (Zip Code)

                                (858) 909 - 9900
                                ----------------
                           (Issuer's telephone number)

         Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
                                                                      ---    ---

         As of July 31, 2001, the Company had 3,579,699 shares of its common
stock issued and outstanding.



<PAGE>


                               FOTOBALL USA, INC.

                                      INDEX

<TABLE>
<CAPTION>
                                                                                  Page No.
                                                                                  --------
<S>            <C>                                                                <C>
PART I.        FINANCIAL INFORMATION

     Item 1.   Financial Statements

               Condensed Balance Sheets as of June 30, 2001 (Unaudited)
                        and December 31, 2000                                        3

               Condensed Statements of Operations for the three and six months
                        ended June 30, 2001 and 2000 (Unaudited)                     4

               Condensed Statements of Cash Flows for the six months
                        ended June 30, 2001 and 2000 (Unaudited)                     5

               Notes to Condensed Financial Statements (Unaudited)                   6 - 8

     Item 2.   Management's Discussion and Analysis or
                        Plan of Operations                                           9 - 14

PART II.       OTHER INFORMATION

     Item 6.   Exhibits and Reports on Form 8-K                                      15

SIGNATURES                                                                           16

</TABLE>


<PAGE>

                          PART I FINANCIAL INFORMATION
                          ITEM 1. FINANCIAL STATEMENTS

                               FOTOBALL USA, INC.
                                 BALANCE SHEETS
                       JUNE 30, 2001 AND DECEMBER 31, 2000

<TABLE>
<CAPTION>
                                                                                 June 30, 2001         December 31,
                                                                                  (Unaudited)              2000
                                                                                ----------------    -----------------
<S>                                                                             <C>                 <C>
                                                      ASSETS
Current assets
     Cash and equivalents                                                         $  2,497,736        $  2,921,358
     Accounts receivable less uncollectible allowances of $142,217 in 2001
         and $163,188 in 2000                                                        3,599,408           3,277,700
     Other receivables                                                                 372,565             298,559
     Inventories                                                                     4,262,418           4,033,094
     Prepaid expenses and other                                                        678,190             567,275
     Deferred income taxes                                                             729,000             729,000
                                                                                ----------------    ----------------
                  Total current assets                                              12,139,317          11,826,986
                                                                                ----------------    ----------------

Property and equipment, net                                                          2,185,339           2,229,133
                                                                                ----------------    ----------------

Other assets
     Deposits and other                                                                688,493             752,767
                                                                                ----------------    ----------------
                  Total other assets                                                   688,493             752,767
                                                                                ----------------    ----------------
                                                                                  $ 15,013,149        $ 14,808,886
                                                                                ================    ================
                                        LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
     Current portion of long term debt                                            $    732,402        $    178,309
     Current portion of capital leases                                                 105,351             103,494
     Accounts payable and accrued expenses                                           1,541,670           1,647,828
                                                                                ----------------    ----------------
                  Total current liabilities                                          2,379,423           1,929,631

Long term liabilities
     Long term debt, net of current portion                                          1,299,211             440,350
     Capital leases, net of current portion                                            182,352             222,498
     Deferred rent                                                                     230,553             234,884
     Deferred income taxes                                                             175,000             175,000
                                                                                ----------------    ----------------
                  Total long term liabilities                                        1,887,116           1,072,732
                                                                                ----------------    ----------------
                  Total liabilities                                                  4,266,539           3,002,363
                                                                                ----------------    ----------------

Stockholders' equity
     Preferred stock, $.01 par value;
         Authorized - 1,000,000 shares; issued and outstanding-none
     Common stock, $.01 par value; authorized - 15,000,000 shares;
         Issued and outstanding - 3,579,699 shares in 2001                              35,797              35,790
     Additional paid-in capital                                                     11,679,776          11,674,877
     Retained earnings/(Accumulated deficit)                                          (968,963)             95,856
                                                                                ----------------    -----------------
                  Total stockholders' equity                                        10,746,610          11,806,523
                                                                                ----------------    -----------------
                                                                                  $ 15,013,149        $ 14,808,886
                                                                                ================    =================
</TABLE>

            See accompanying Notes to Condensed Financial Statements


                                  Page 3 of 23
<PAGE>

                               FOTOBALL USA, INC.
                            STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED              SIX MONTHS ENDED
                                                                     JUNE 30,                       JUNE 30,
                                                      ----------------------------------------------------------------
                                                              2001            2000            2001            2000
                                                      ----------------------------------------------------------------
<S>                                                     <C>             <C>             <C>             <C>
Net sales                                                 $ 7,371,371     $ 7,076,128     $ 12,986,660    $ 13,010,276
Cost of sales                                               4,970,000       4,409,325        8,750,217       8,204,377
                                                      ----------------------------------------------------------------
     Gross profit                                           2,401,371       2,666,803        4,236,443       4,805,899
                                                      ----------------------------------------------------------------
Operating expenses
     Royalties                                                572,664         502,061        1,012,078         868,673
     Marketing                                                898,521         796,529        1,946,802       1,568,457
     General and administrative                             1,249,817         846,161        2,410,040       1,530,039
     Depreciation and amortization                            150,601         105,969          299,502         212,509
                                                      ----------------------------------------------------------------
                  Total operating expense                   2,871,603       2,250,720        5,668,422       4,179,678
                                                      ----------------------------------------------------------------
                  Income (Loss) from operations              (470,232)        416,083       (1,431,979)        626,221
                                                      ----------------------------------------------------------------
Other income (expense)
     Interest expense                                         (53,647)         (7,943)         (79,916)        (17,690)
     Interest income                                           28,319          26,744           67,570          75,479
                                                      ----------------------------------------------------------------
                  Total other income (expense)                (25,328)         18,801          (12,346)         57,789
                                                      ----------------------------------------------------------------
Income (Loss) before income tax                              (495,560)        434,884       (1,444,325)        684,010
     Income tax expense (benefit)                                  --         173,954         (379,506)        273,604
                                                      ----------------------------------------------------------------
Net income (loss)                                            (495,560)    $   260,930     $ (1,064,819)   $    410,406
                                                      ================================================================
Weighted average number of common shares outstanding:
                  Basic                                     3,579,303       3,576,415        3,579,168       3,573,913
                                                      ================================================================
                  Diluted                                   3,579,303       3,730,810        3,579,168       3,753,554
                                                      ================================================================
Net income (loss) per common share:
                  Basic                                       $  (.14)         $  .07          $  (.30)         $  .11
                                                      ================================================================
                  Diluted                                     $  (.14)         $  .07          $  (.30)         $  .11
                                                      ================================================================
</TABLE>


            See accompanying Notes to Condensed Financial Statements


                                  Page 4 of 23

<PAGE>

                               FOTOBALL USA, INC.
                            STATEMENTS OF CASH FLOWS
                     SIX MONTHS ENDED JUNE 30, 2001 AND 2000
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                     2001                 2000
                                                                                ---------------     ---------------
<S>                                                                             <C>                 <C>
Cash flows from operating activities
     Net income (loss)                                                           $ (1,064,819)       $    410,406
     Adjustments to reconcile net income to net cash provided by (used in)
         operating activities:
         Depreciation and amortization of property and equipment                      308,509             212,509
         Amortization of stock compensation expense                                     3,780               8,212
         Provision for doubtful accounts                                               29,500                  --
Changes in operating assets and liabilities:
         Accounts receivable                                                         (351,208)           (320,760)
         Other receivables                                                            (74,006)           (754,517)
         Inventories                                                                 (229,324)           (464,156)
         Prepaid expenses and other                                                  (110,915)           (270,208)
         Deferred income taxes                                                             --                  --
         Accounts payable and accrued expenses                                       (106,157)           (351,363)
         Income taxes payable                                                              --               6,604
         Deferred rent                                                                 (4,331)                 --
                                                                                ---------------     ---------------
Net cash used in operating activities                                              (1,598,971)         (1,523,273)
                                                                                ---------------     ---------------
Cash flows from investing activities
     Purchase of property and equipment                                              (214,715)           (196,258)
     Increase in long-term deposits                                                    14,274            (234,757)
                                                                                ---------------     ---------------
Net cash used in investing activities                                                (200,441)           (431,015)
                                                                                ---------------     ---------------
Cash flows from financing activities
     Proceeds from capitalized leases                                                  15,419                  --
     Proceeds from term loans                                                       1,500,000                  --
     Payments of capitalized leases                                                   (53,709)            (69,476)
     Payments of term loans                                                           (87,046)                 --
     Proceeds from exercise of stock options                                            1,126              22,055
                                                                                ---------------     ---------------
Net cash provided (used in) by financing activities                                 1,375,790             (47,421)
                                                                                ---------------     ---------------

Net increase (decrease) in cash and equivalents                                      (423,622)         (2,001,709)
Cash and equivalents, beginning of period                                           2,921,358           3,797,918
                                                                                ---------------     ---------------
Cash and equivalents, end of period                                              $  2,497,736        $  1,796,209
                                                                                ===============     ===============
</TABLE>

            See accompanying Notes to Condensed Financial Statements


                                  Page 5 of 23
<PAGE>


                               FOTOBALL USA, INC.
               NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
            THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000


1. CONDENSED FINANCIAL STATEMENTS
   ------------------------------

   The condensed balance sheet as of June 30, 2001, the condensed statements of
   operations for the three months and six months ended June 30, 2001 and 2000,
   and the condensed statements of cash flows for the six months ended June 30,
   2001 and 2000 have been prepared by the Company without audit. In the opinion
   of management, all adjustments (which include only normal reoccurring
   adjustments) necessary to present fairly the financial position, results of
   operations and cash flows for all periods presented have been made.

   Certain information and footnote disclosures normally included in financial
   statements prepared in accordance with generally accepted accounting
   principles have been omitted, pursuant to the rules and regulations of the
   Securities and Exchange Commission. It is suggested that these condensed
   financial statements are read in conjunction with the financial statements
   and notes thereto included in the Company's Annual Report on Form 10-KSB for
   the fiscal year ended December 31, 2000, as amended.

   The results of operations for the three and six months ended June 30, 2001
   are not necessarily indicative of the results of operations to be expected
   for any other interim period or for the year ending December 31, 2001.

2. DISCLOSURE OF CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES
   ---------------------------------------------------------

   SIGNIFICANT ESTIMATES - The preparation of financial statements in conformity
   with generally accepted accounting principles requires management to make
   estimates and assumptions that affect the reported amounts of assets and
   liabilities and the disclosure of contingent assets and liabilities as of the
   date of the financial statements, as well as the reported amounts of revenue
   and expenses during the period. Significant estimates have been made by
   management with respect to the realizability of the Company's deferred tax
   assets, allowance for doubtful accounts and the provision for discontinued
   inventories. Actual results could differ from these estimates making it
   reasonably possible that a change in these estimates could occur in the near
   term.

   DEPENDENCE UPON LICENSING ARRANGEMENTS - The Company's business is based
   primarily upon its use of the insignia, logos, names, colors, likeness and
   other identifying marks and images borne by many of its products pursuant to
   license arrangements with Major League Baseball ("MLB"), National Football
   League (the "NFL"), various colleges and universities and, to a lesser
   extent, other licensors including the National Hockey League, The Coca-Cola
   Company, Warner Bros. Looney Tunes(R) and Scooby-Doo, MTV Networks'
   (Nickelodeon) "Rugrats" and "Blue's Clues" characters and Rawlings Golf. In
   May 2001, the Company successfully negotiated a license from Mattel for
   "Barbie" products. The Company may acquire additional licenses for new
   product lines; however, there can be no assurance that the Company will be
   successful in obtaining new licenses. The non-renewal or termination of one
   or more of the Company's current material licenses, particularly with MLB,
   the NFL or collectively the various colleges and universities, could have a
   material adverse effect on the Company's business as a whole.

   VARIABILITY OF GROSS MARGINS - The Company realized gross margins of 33% for
   the three months ended June 30, 2001, a decrease from 38% during the prior
   year period. The Company's gross margins may fluctuate, based in part on the
   concentration of promotion, retail sales, sales directly to licensors and
   product mix during the reporting period. The types of products sold, the size
   of the promotion and the


                                  Page 6 of 23
<PAGE>


                               FOTOBALL USA, INC.
               NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
            THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000


   extent of competition also may create variability in realized gross margins.
   The Company currently relies on various retail sales channels for most of its
   revenue. The retail channel is very competitive and price sensitive for
   certain of the Company's products and there is no guarantee that the Company
   will not be required to reduce prices or change its product mix to replace
   higher margin products with lower margin products in the future to remain
   competitive in the marketplace. Such price reductions and product changes
   could lead to overall lower gross margins. Under the Company's Rawlings Golf
   license, the Company entered the golf product marketplace for the first time
   in January 2001. Without a history in the golf business, the Company cannot
   be certain of the gross margins it will realize on its golf product sales.
   Golf product margins will vary depending on customer acceptance of the
   Company's initial pricing and changes in manufacturing costs as the Company
   ramps up production. The overall Company gross margins may vary based on the
   volume of golf product sales.

   VARIABILITY OF OPERATING RESULTS; SEASONALITY - The Company has historically
   experienced significant quarter-to-quarter variability in its sales and net
   income resulting primarily from two factors. The first factor was the
   seasonality of the sporting industry and the effect this has had on the
   Company's licensed sports product business. The continued introduction of
   quality product lines involving a diverse group of sports and
   entertainment-related products has helped to mitigate this seasonality. The
   second factor, which significantly contributed to prior years' variability of
   the Company's operations, was its dependence on the promotion business.
   However, the Company has successfully grown other channels of distribution in
   the business to help mitigate this variability. For the three months ended
   June 30, 2001, the Company's entertainment sales accounted for 35%, retail
   sales accounted for 34%, team sales accounted for 21% and promotions sales
   accounted for 11% of total sales. Under the Company's new Rawlings Golf
   license, the Company entered the golf marketplace for the first time in
   January 2001. The golf club and golf ball markets are generally seasonal due
   to lower demand in the cold weather months which fall during the Company's
   first and fourth quarters. Once the Company has fully ramped up its
   production capabilities, it anticipates that its golf product sales will
   follow the seasonality of the market.

   KEY CUSTOMERS - One large customer, The Walt Disney Company, accounted for
   approximately 22% of total sales for the three months ended June 30, 2001,
   compared to approximately 17% of total sales in the three months ended June
   30, 2000.

   DEPENDENCE UPON KEY PERSONNEL - The success of the Company is largely
   dependent on the personal efforts of Michael Favish, its Chairman and Chief
   Executive Officer. Mr. Favish has entered into a three-year employment
   agreement with the Company, commencing on August 10, 1999, which, among other
   things, precludes Mr. Favish from competing with the Company for a period of
   two years following termination of his employment with the Company. The loss
   of the services of Mr. Favish could have a material adverse effect on the
   Company's business and prospects. The Company maintains "key man" life
   insurance on the life of Michael Favish.

   DEPENDENCE ON SUPPLIERS - In 2000, the Company purchased approximately 88% of
   its raw material and finished goods, consisting primarily of synthetic
   baseballs, footballs, basketballs, hockey pucks and playground balls, from
   six companies located in China, with two manufacturers accounting for 78% of
   total raw materials and finished goods purchased. China currently holds most
   favored nation ("MFN") trading status with the United States. Any conditions
   imposed by the President of the United States and any legislation in the
   United States revoking or placing further conditions on China's MFN trading
   status could have a material adverse effect on the cost of the Company's
   products primarily because products originating from China could be subjected
   to substantially higher rates of duty.


                                  Page 7 of 23
<PAGE>


                               FOTOBALL USA, INC.
               NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
            THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000


3. INVENTORIES
   -----------

   Inventories are valued at the lower of cost or market. Cost is determined on
   the first-in first-out (FIFO) method. Inventories consisted of the following
   at June 30, 2001 and December 31, 2000:

                                                      June 30,     December 31,
                                                        2001           2000
                                                    -----------    ------------
      Finished goods                                $ 2,766,517    $  2,673,041
      Raw material                                    1,998,502       1,845,118
      Less allowance for discontinued inventory        (502,601)       (485,065)
                                                    -----------    ------------

         Total                                      $ 4,262,418    $  4,033,094
                                                    ===========    ============

   The Company periodically reviews its inventory to evaluate it for
   discontinued products. The value of products marked as discontinued is
   included in the allowance. The valuation for each product is removed from the
   reserve when the product is either destroyed or liquidated. These products
   usually include products that are dated and produced for special promotional
   events, such as Super Bowls, Final Four college tournaments and World Series,
   products that are produced under licenses that have been terminated or
   outdated products.


4. DEBT
   ----

   In December 2000, the Company signed a term loan agreement with U.S. Bank
   National Association (formerly Scripps Bank) ("US Bank") with a loan advance
   period effective December 19, 2000 through March 30, 2001. During this period
   the Company submitted $1.5 million expenses related to the Rawlings Golf
   division to be financed under the agreement. The Company received, in
   accordance with the loan, $1.5 million on March 30, 2001. The loan provides
   for a variable interest rate equal to the Wall Street Journal prime rate. The
   loan is payable in 36 consecutive monthly payments necessary to fully
   amortize the loan balance outstanding as of March 30, 2001. The Company's
   receivables, inventory, equipment and furniture collaterialize the loan.



                                  Page 8 of 23
<PAGE>


                  ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
                              OR PLAN OF OPERATIONS


CAUTIONARY STATEMENTS PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995:

This report contains forward-looking statements within the meaning of the
federal securities laws. These forward-looking statements involve risks,
uncertainties and assumptions that, if they never materialize or prove
incorrect, could cause the results of the Company to differ materially from
those expressed or implied by such forward-looking statements. All statements
other than statements of historical fact are forward-looking statements,
including statements regarding expanding the promotions business, expanding
retail capabilities, adding product lines, adding new license properties,
overall sales trends, gross margin trends, operating cost trends, the Company's
expectations as to funding its capital expenditures and operations during 2001,
the Company's ability to renew expiring license agreements and other statements
of expectations, beliefs, future plans and strategies, anticipated events or
trends, and similar expressions concerning matters that are not historical
facts. The risks, uncertainties and assumptions referred to above include the
Company's inability to obtain new licenses or to expand its retail capabilities
and the risk factors listed in the "Disclosure of Certain Significant Risks and
Uncertainties" in this report and as listed from time to time in the Company's
filings with the Securities and Exchange Commission including but not limited
to, the Annual Report on Form 10-KSB for the year ended December 31, 2000, as
amended, and the Quarterly Report on Form 10-Q for the quarter ended March 31,
2001.


RESULTS OF OPERATIONS:

         The following table sets forth certain operating data (in dollars and
as a percentage of the Company's sales) for the periods presented:

<TABLE>
<CAPTION>
                                          THREE MONTHS ENDED                                  SIX MONTHS ENDED
                                               JUNE 30,                                           JUNE 30,
                                      2001                      2000                        2001                      2000
                               ---------------------------------------------------------------------------------------------------
<S>                            <C>            <C>        <C>             <C>        <C>             <C>       <C>             <C>
Sales                          $ 7,371,371    100%       $ 7,076,128     100%       $ 12,986,660    100%      $ 13,010,276    100%
Cost of Sales                    4,970,000     67          4,409,325      62           8,750,217     67          8,204,377     63
Operating Expenses               2,871,603     40          2,250,720      32           5,668,422     44          4,179,678     32
Operating Income (Loss)           (470,232)    (6)           416,083       6          (1,431,979)   (11)           626,221      5
Interest Expense                   (53,647)    --             (7,943)     --             (79,916)    --            (17,690)    --
Interest Income                     28,319     --             26,744      --              67,570     --             75,479     --
Inc. (Loss) Before Inc. Tax       (495,560)    (7)           434,884       6          (1,444,325)   (11)           684,010      5
Income Tax Exp. (Benefit)               --     --            173,954       2            (379,506)    (3)           273,604      2
Net Income                     $  (495,560)    (7%)      $   260,930       4%       $ (1,064,819)    (8%)     $    410,406      3%
</TABLE>

FOR THE THREE MONTHS ENDED JUNE 30, 2001 AND 2000:

SALES:

         The Company focuses its sales efforts in five main distribution
channels. The retail sales focus is on mass merchants, sporting goods,
department stores and other national retailers. The team sales focus is on
professional sports teams in every major sports league. The entertainment sales
focus is on

                                  Page 9 of 23
<PAGE>


entertainment companies such as Disney, Six Flags, Sea World, Universal Studios,
Home Shopping Network and Dave and Busters. The promotions sales focus is on
corporate premium and promotions business with major quick-serve restaurants and
other Fortune 500 companies. The new Rawlings Golf sales focus is on sporting
goods and golf specialty retailers.

         Sales increased $.3 million, or 4%, for the three months ended June 30,
2001 from sales for the three months ended June 30, 2000. The increase in sales
was due to an increase in entertainment sales (up 45%), team sales (up 15%) and
promotions sales (up 85%), which offset a decrease in retail sales (down 30%).
Rawlings Golf generated nominal sales for the three months ended June 30, 2001.
The retail sales decline was mainly due to a decrease in toy specialty and
department store sales, partially offset by increases in mass merchant sales.
The team sales increase was due to strong Major League Baseball sales as a
result of the popularity of Japanese players on the Seattle Mariners and the
retirement of Cal Ripken and Tony Gwynn. The entertainment sales increase was
due to increases in theme park customer sales. The promotions sales increase was
due to a promotion with a major quick-serve restaurant.

         During the first quarter of 2001, the Company realized product sales
increases in pins (up 137%), baseball (up 10%) and soccer balls (up 17%), with
offsetting declines in basketballs (down 9%), playground balls (down 9%) and
footballs (down 44%).

GROSS PROFIT:

         Gross profit decreased $.3 million, or 10%, for the three months ended
June 30, 2001 from gross profit for the three months ended June 30, 2000. Gross
profit as a percentage of sales decreased to 33% for the three months ended June
30, 2001 from 38% for the three months ended June 30, 2000. The decline in the
Company's gross margin as a percentage of sales can be attributed primarily to
price pressure on the Company's products in the mass merchant, sporting goods,
toy specialty and team retail sales channels. In addition, the Company gross
margin was affected by a $.1 million dollar write-down of inventory for
discontinued and terminated license inventory including XFL and ESPN The Store
merchandise. Excluding the inventory write-down, the Company's gross margin for
the three months ended June 30, 2001 was one percentage point higher than the
gross margin for the three months ended March 31, 2001. The Company believes the
downward trend in gross margins has stabilized for the remainder of 2001. As
previously noted, the Company's gross margins may fluctuate, particularly
between quarters, based on several factors including sales and product mix (See
Note 2, "Notes to Condensed Financial Statements").

OPERATING EXPENSES:

         Total operating expenses increased $.6 million, or 28%, for the three
months ended June 30, 2001 from total operating expenses for the three months
ended June 30, 2000. Total operating expenses as a percentage of sales increased
to 39% for the three months ended June 30, 2001 from 32% for the three months
ended June 30, 2000. These increases are primarily due to an increase in
personnel and salary related items, facilities cost, and the new Rawlings Golf
division, which was not in operation during the comparable period in 2000. Total
operating expenses for the Rawlings Golf division were $.2 million for the three
months ended June 30, 2001.

         Royalty expenses increased $.1 million, or 14%, for the three months
ended June 30, 2001 from royalty expenses for the three months ended June 30,
2000. Royalty expenses as a percentage of sales increased to 8% for the three
months ended June 30, 2001 from 7% for the three months ended June 30,


                                  Page 10 of 23
<PAGE>

2000 as a result of sales under certain licenses being lower than what was
required to meet minimum royalty guarantees. The Company has successfully
renegotiated lower minimum royalty terms in its Rawlings Golf license and two of
its entertainment property licenses. These reductions in royalty minimums will
reduce the Company's royalty expense reported under these licenses in 2001. As
previously noted, the Company is dependent upon its licensing arrangements and
their successful renewal (See Note 2, "Notes to Condensed Financial
Statements"). To broaden the Company's scope of product lines and expand market
share, the Company will continue to pursue additional license agreements with
various organizations and licensors in the future.

         Marketing expenses increased $.1 million, or 13%, for the three months
ended June 30, 2001 from marketing expenses for the three months ended June 30,
2000. Marketing expenses as a percentage of sales increased to 12% for the three
months ended June 30, 2001 from 11% for the three months ended June 30, 2000.
This increase is attributable to marketing expenses incurred in promoting the
Rawlings Golf division. Excluding Rawlings Golf, marketing expenses increased 2%
for the three months ended June 30, 2001 compared to the three months ended June
30, 2000. Other increases in personnel and salary-related items, sample expense,
public relations, promotional expense and marketing expense, were offset by
declines in retail related expense items such as representative commissions and
cooperative advertising. The Company expects to continue an increase in
marketing expense attributable to the Rawlings Golf division, as it continues to
launch this new division.

         General and administrative expenses increased $.4 million, or 48%, for
the three months ended June 30, 2001 from general and administrative expenses
for the three months ended June 30, 2000. General and administrative expenses as
a percentage of sales increased to 17% for the three months ended June 30, 2001
from 12% for the three months ended June 30, 2000. This increase is primarily
attributable to salary-related items and facility costs including utility costs.
Four percent of this increase was due to Rawlings Golf related expenses incurred
in the support of the launch of this new division.

OTHER INCOME (EXPENSE):

         Interest expense increased by 575% for the three months ended June 30,
2001 from interest expense for the three months ended June 30, 2000. This
increase reflects an increase in term loans used to fund the facilities and
equipment acquired in the second half of 2000 and the loan used to fund the
Rawlings Golf related expansion as further discussed under "Liquidity and
Capital Resources". There were no outstanding borrowings under the line of
credit for the periods ending June 30, 2001 and June 30, 2000.

         Interest income increased by 6% for the three months ended June 30,
2001, from interest income for the three months ended June 30, 2000. Excess cash
is deposited into an interest-bearing depository account. The increase was due
to higher average cash during the three months ended June 30, 2001 compared to
the three months ended June 30, 2000.

INCOME TAX EXPENSE:

         The Company did not record an income tax expense or benefit for the
three months ended June 30, 2001 compared to an income tax expense of $173,954
for the prior year period, calculated at an effective tax rate of 40%. The
Company's annualized estimated tax benefit for the six months ended June 30,
2001 is $.4 million which is equal to the tax benefit recorded for the three
months ended March 31, 2001. Therefore, the Company did not record a tax benefit
for the three months ended June 30, 2001.


                                  Page 11 of 23
<PAGE>


FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000:

SALES:

         Sales remained unchanged for the six months ended June 30, 2001 from
sales for the six months ended June 30, 2000. For the six months ended June 30,
2001, retail sales were down 19%, entertainment sales were up 11%, teams sales
were up 12%, and promotions sales were up 61%, compared to the six months ended
June 30, 2000.

During the six months ended June 30, 2001, the Company realized product sales
increases in lapel pins (up 134%), playground balls (up 17%) and hockey pucks
(up 38%), with offsetting declines in footballs (down 34%), baseballs (down 8%)
and basketballs (down 34%) attributed primarily to the decrease in the Company's
promotions business, as further discussed below.

GROSS PROFIT:

         Gross profit decreased $.6 million, or 12%, for the six months ended
June 30, 2001 from gross profit for the six months ended June 30, 2000. Gross
profit as a percentage of sales decreased to 33% for the six months ended June
30, 2001 from 37% for the six months ended June 30, 2000. The decline in the
Company's gross margin as a percentage of sales can be attributed primarily to
price pressure on the Company's products in the mass merchant, sporting goods,
toy specialty and team retail sales channels. In addition, the Company's gross
margin was affected by a $.1 million dollar write down of inventory for
discontinued and terminated license inventory including XFL and ESPN The Store
merchandise. As previously noted, the Company's gross margins may fluctuate,
particularly between quarters, based on several factors including sales and
product mix (See Footnote 2, "Notes to Condensed Financial Statements").

OPERATING EXPENSES:

         Total operating expenses increased $1.5 million, or 36%, for the six
months ended June 30, 2001 from total operating expenses for the six months
ended June 30, 2000. Total operating expenses increased to 44% as a percentage
of sales as of June 30, 2001 from 32% as of June 30, 2000. The increases are
primarily due to the increase in personnel and salary related items, facilities
cost, and the new Rawlings Golf division. Total operating expenses for Rawlings
Golf division were $.4 million for the six months ended June 30, 2001.

         Royalty expenses increased $.1 million, or 17%, for the six months
ended June 30, 2001 from royalty expenses for the six months ended June 30,
2000. Royalty expenses as a percentage of sales increased to 8% of sales for the
six months ended June 30, 2001, from 7% for the six months ended June 30, 2000.
The increase in royalties as a percentage of sales is due to sales under certain
licenses being lower than what was required to meet minimum royalty guaranties.
The Company has successfully renegotiated lower minimum royalty terms in its
Rawlings Golf license and two of its entertainment property licenses.

         Marketing expenses increased $.4 million, or 24%, for the six months
ended June 30, 2001 from marketing expenses for the six months ended June 30,
2000. Marketing expenses as a percentage of sales increased to 15% of sales for
the six months ended June 30, 2001 from 12% of sales for the six months ended
June 30, 2000. These increases are primarily due to the introduction of the
Rawlings Golf division


                                  Page 12 of 23
<PAGE>

and increases in personnel and salary-related items, trade show and product
sample expenses as the Company has expanded its core product lines to increase
sales and promote industry recognition. Marketing expenses for Rawlings Golf
accounted for half of the increase from the prior year period.

         General and administrative expenses increased $.9 million, or 58%, for
the six months ended June 30, 2001 from general and administrative expenses for
the six months ended June 30, 2000. General and administrative expenses as a
percentage of sales increased to 19% for the six months ended June 30, 2001 from
12% for the six months ended June 30, 2000. This increase is due to increased
facility costs including utilities, salary and personnel costs and the cost to
establish the Rawlings Golf division. General and administrative expenses for
Rawlings Golf accounted for $.1 million of the increase from the prior year
period.

OTHER INCOME (EXPENSE):

         Interest expense increased by 352% for the six months ended June 30,
2001 from interest expense for the six months ended June 30, 2000. This increase
reflects an increase in term loans used to fund the facilities and equipment
acquired in the second half of 2000 and the loan used to fund the Rawlings Golf
related expansion as further discussed under "Liquidity and Capital Resources".
There were no outstanding borrowings under the line of credit for the periods
ending June 30, 2001 or June 30, 2000.

         Interest income decreased by 10% for the six months ended June 30, 2001
from interest income for the six months ended June 30, 2000. Excess cash is
deposited into an interest-bearing depository account.

INCOME TAX EXPENSE:

         Income tax benefit was $379,506 for the six months ended June 30, 2001,
calculated at an effective tax rate of 26%, as compared to income tax expense of
$273,604, calculated at an effective tax rate of 40%, for the prior year period.
The total income tax benefit for the year is estimated to be $379,506. The
Company's annualized estimated tax benefit for the six months ended June 30,
2001 is $.4 million, which is equal to the tax benefit recorded for the three
months ended March 31, 2001.

LIQUIDITY AND CAPITAL RESOURCES:

         The Company's net working capital decreased by $.1 million from
December 31, 2001 to June 30, 2001, to a net working capital surplus of $9.8
million.

         Cash and equivalents aggregated $2.5 million at June 30, 2001, a
decrease of $.4 million from cash and equivalents of $2.9 million at December
31, 2000. This decrease in cash was the result of the proceeds from a $1.5
million term loan used for Rawlings Golf division startup costs (see discussion
below), offset by $.2 million used in purchasing property and equipment, $.1
million used in the payment of capital leases and term loans and $1.6 million
used in operations, primarily consisting of a $1.0 million net loss, a $.4
million increase in accounts receivables, a $.2 million increase in other
receivables and prepaid expenses, a $.2 million increase in inventory, and a $.1
million decrease in accounts payable and accrued expenses.

         At June 30, 2001, the Company has commitments for minimum guaranteed
royalties under licensing agreements totaling $2.6 million in the aggregate
through 2005, of which $.3 million is due at


                                  Page 13 of 23
<PAGE>

various times during 2001. Based upon anticipated increases in sales, management
expects these guaranteed royalties to be funded from operating cash flows.

         In December 2000, the Company signed a term loan agreement with US Bank
National Association (formerly Scripps Bank) ("US Bank") with a loan advance
period effective December 19, 2000 through March 30, 2001. During this period
the Company submitted $1.5 million expenses related to the Rawlings Golf
division to be financed under the agreement. The Company received, in accordance
with the loan, $1.5 million on March 30, 2001. The loan provides for a variable
interest rate equal to the Wall Street Journal prime rate. The loan is payable
in 36 consecutive monthly payments necessary to fully amortize the loan balance
outstanding as of March 30, 2001. The Company's receivables, inventory,
equipment and furniture collaterialize the loan.

         In January 2001, the Company expanded and extended its one-year credit
line with US Bank including an increase in the credit line from $4.0 million to
$6.0 million and an extension of the expiration date from April 15, 2001 to July
15, 2001. The assets of the Company collateralize this credit line and actual
borrowings are limited to available collateral, as defined in the agreement.
Borrowings under the credit line bear interest at the Wall Street Journal prime
rate. The credit line contains financial covenants requiring the Company to
maintain minimum net worth levels, minimum working capital and debt to equity
ratios. The Company is in compliance with the covenants as of June 30, 2001.
There were no outstanding borrowings under the credit line at June 30, 2001 or
December 31, 2000. The Company is currently negotiating an extension to its
credit line with US Bank and anticipates that the amount of the credit line will
be significantly reduced. The Company has entered into a letter of credit for
$158,911 with US Bank and the Company has a $150,000 Automatic Clearing House
("ACH") hold on its credit line relating to funding its payroll on a
semi-monthly basis. Both the letter of credit and the ACH hold reduce the
Company's ability to borrow against its credit line.

         The Company has a $3.0 million line of credit facility (the "facility")
with Merrill Lynch International Bank Limited at an interest rate of 1.75% above
the London Interbank Offering Rate (LIBOR). The Company may choose any rate
being charged on any one to twelve month term loan (as of the date money is
borrowed from the line) as the base LIBOR. Any borrowing under the line of
credit, which is used solely to collateralize the issuance of stand-by letters
of credit to manufacturers, are required to be secured by cash collateral
deposited with Merrill Lynch equal to the credit outstanding. The line of credit
extends until December 10, 2001. There was no borrowing under the line of credit
as of June 30, 2001 and December 31, 2000.

         Management believes the Company's existing cash position and credit
facilities, combined with internally generated cash flows, will be adequate to
support the Company's liquidity and capital needs at least through the end of
2001.


                                  Page 14 of 23
<PAGE>


                           PART II. OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
        ---------------------------------------------------

         The Annual Meeting of Stockholders of the Company was held on June 21,
2001 at the Wyndham Garden Hotel located at 5975 Lusk Boulevard, San Diego,
California. The matters considered at the meeting consisted of the following:

         To elect one (1) director of the Company to hold office until the 2004
Annual Meeting of Stockholders and until the election and qualification of his
successor. The results of the voting were as follows:

              NOMINEE                     FOR          AGAINST      TOTAL VOTES
              -------                     ---          -------      -----------
              Nicholas A Giordano      3,296,051        40,335       3,336,386

         To increase the number of the Company's shares of common stock reserved
for issuance under the Company's 1998 Stock Option Plan (the "Plan") from
700,000 to 800,000 and increase the maximum number of shares for which options
may be granted under the Plan in any fiscal year to any one employee from
125,000 to 175,000. The results of the voting were as follows:

                                          FOR          AGAINST      TOTAL VOTES
                                          ---          -------      -----------
              Proposal                 3,152,040       184,346       3,336,386


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
        --------------------------------

        (a)     Exhibits
                10.4(2)    Form of Employment Agreement with Scott P. Dickey
                           dated March 28, 2001.

        (b)     Reports on Form 8-K for the three months ended June 30, 2001
                           None.



                                  Page 15 of 23
<PAGE>


In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.






                                                   FOTOBALL USA, INC
                                      ------------------------------------------
                                                     (Registrant)


Dated: August 14, 2001                BY:   /s/ Michael Favish
                                            ------------------
                                            Michael Favish
                                            Chairman and Chief Executive Officer
                                            (Principal Executive Officer)


Dated: August 14, 2001                BY:   /s/ Thomas R. Hillebrandt
                                            -------------------------
                                            Thomas R. Hillebrandt
                                            Senior Vice President and Chief
                                                Financial Officer
                                            (Principal Financial and Accounting
                                                Officer)




                                  Page 16 of 23